Sanganeria Foundations For Health & Education, New Delhi V. CIT, Exemption , New Delhi

ITA 703/DEL/2022

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3398 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-03-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 17-04-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DHARAMVIR SINGH
• Keywords: Opportunity of being heard; Set aside
• Section: 263; 10; 143(3); 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER, AND SHRI YOGESH KUMAR US, JUDICIAL MEMBER ITA NO. 703/Del/2022 A.YR. : 2017-18 SANGANERIA FOUNDATIONS FOR HEALTH & EDUCATION, 304, AVG BHAWAN, M-3, CONNAUGHT CIRCUS, NEW DELHI – 110 001 (PAN: AADTS8978E) VS. CIT, EXEMPTION NEW DELHI WARD EXEMPTION 2(1), CIVIC CENTRE, NEW DELHI – 110 002 (APPELLANT) (RESPONDENT) Appellant by : Shri Sumit Bansal, CA Respondent by : Shri Dharamvir Singh, CIT-DR Date of hearing : 11.03.2024 Date of pronouncement : 14.03.2024 ORDER PER SHAMIM YAHYA, AM : The Assessee has filed the Appeal against the Order of the Ld. CIT (Exemption), Delhi dated 24.3.2022 passed u/s. 263 of the Income Tax Act, 1961 (hereinafter referred as Act), relating to assessment year 2017-18 on the following grounds:- 1. That the Ld. CIT(Exemption) has erred in law as well as on the facts of the case by declaring the assessment order dated 26.12.2019 passed under section 143(3) of the Act, for the AY 2017-18 as erroneous whereas the order was passed after making inquiry on the issue and 2 after having examined the replies of the assessee with due application of mind by the AO. 2. That the Ld. CIT(Exemption) has erred in law as well as on the facts of the case by holding that the “The AO failed to examine the issue, which should have been done during the assessment u/s. 143(3)” when the issue was properly examined during assessment proceedings and reasons and justifications recorded in the assessment order as per accepted judicial principles. 3. That the action of the Ld. CIT(Exemption) in completely ignoring the justification and substance of the transaction as accepted by the AO after due application of the mind and well settled judicial principles of interpretation, is unlawful and unwarranted and in the result, remitting the assessment back to the file of the AO is illegal. 4. That the appellant craves leave to add, modify and delete any grounds of appeal. 2. Briefly stated facts are that assessment in this case was completed u/s. 143(3) of the Act on 26.12.2019 assessing the total income of the assessee at NIL income. A proposal for revision u/s. 263 of the Act was received from the AO vide letter dated 11.3.2022. Subsequently, on careful examination of records, Ldf. CIT(E) noticed that the said order was erroneous and prejudicial to the interests of records revenue as the AO failed to make requisite verification and enquiries which should have done in the facts and circumstances of the case. Accordingly, Ld. CIT(E) issued a show cause notice to the assessee vide letter dated 16.3.2021 by observing that AO failed to notice that out of income accumulated u/s. 11(2) during F.Ys 2011-12, 2012-13 & 2014-15, the assessee utilized Rs. 65,00,001/- as donation to two other trusts, which shall not be treated as application of income as per explanation to section 11(2), r.w.s. 11(3) of the Act. During the year under consideration, as per the details of amount 3 accumulated/set apart within meaning of section 11(2) declared in Schedule I of ITR 7 for AY 2017-18, amounts of Rs. 6,84,319/-, Rs. 48,70,094/- & Rs. 9,45,588/- totaling to Rs. 65,00,001/- accumulated / set apart within the meaning of section 11(2) during F.Y(s). 2011-12, 2012-13, 2013-14 respectively has been utilized / applied as donation to two other trusts. Amount of Rs. 10,00,000/- was given to Shree Raghunath Balika Vidyalaya & Rs. 55,00,000/- was given to Hindu College, Delhi. Both are NGOs registered u/s. 80G. On perusal of Schedule-I (Details of amount accumulated / set apart within the meaning of section 11(2) of ITR filed for AY 2017-18, it was revealed that all the above amounts have been accumulated for the purpose of “For Setting up an old age home/educational institution.” The assessee was given an opportunity of hearing on 22.3.2022 vide show cause letter dated 16.3.2022 and reply was submitted by the assessee in response to the show cause on 22.3.2022. Utilization of Rs. 65,00,000/- was explained in detail by the assessee, in its submission by submitting that Rs. 65 lacs spent may look like donation / payment, but the real nature of the same is construction of educational facilities. Rs. 65 lacs has been spent in two parts. Rs. 55 lacs was spent on construction of science block at Hindu College, Delhi University and with regard to donation of Rs. 10 lacs to Shri Ragunath Balika Vidyala is concerned, it was submitted before the Ld. CIT(E) that the said amount was spent on construction of facility of science classes at Shree Ragunath Balika Vidyalaya, Sikar, who sought financial assistance in building facility for science classes, which was provided by the assessee after verifying the technical details of the project. After considering the aforesaid submissions, the CIT(Exemption) held that as per Explanation to section 11(2) of the Income Tax Act, 1961 read with section 11(3)(d) of the Act, donations given out of accumulated funds u/s. 11(2) of the Act of earlier previous years are not allowable as application of income for charitable or religious purposes and the same shall be deemed to be income of the assessee of the previous year 2016-17, hence, as per CIT(E) the 4 AO failed to examine this issue, which should have been done during the assessment u./s. 143(3), as a result, the assessment order was erroneous and prejudicial to the interests of the revenue. Accordingly, the Ld. CIT(Exemption) vide his order dated 24.3.2022 set aside the assessment order u/s. 263 of the Act to the file of the AO for making a de novo assessment after proper examination of the issue involved and due verification wherever required by providing reasonable opportunity of being heard to the assessee and pass a speaking and well reasoned order. 3. Aggrieved with the aforesaid Ld. CIT(Exemption)’s order, Assessee is in appeal before us. 4. We have heard both the parties and perused the relevant records. 4.1 At the time of hearing, Ld. CIT-DR relied upon the order passed by the Ld. CIT(Exemption) u/s. 263 of the Act and in support of his contention he filed a written submissions wherein, he submitted that the order passed u/s. 263 of the Act is fully justified as the assessment order is both erroneous and prejudicial to the interest of Revenue. He submitted that the amount accumulated / set apart with the assessee trust within the meaning of section 11(2) of the I.T. Act has been paid / donated to Shri Raghunath Balika Vidyalaya and Hindu College during the relevant previous year, such application of funds by the assessee is clear violation of explanation to section 11(2) of the Act read with section 11(3) of the Act. He further submitted that the amount of Rs. 55 lacs and Rs. 10 lacs were paid by the assessee to the accounts of Hindu College and Shree Raghunath Balika Vidyalaya and it is not a case, where assessee was getting concerned buildings constructed on its own. Because the contracts for the said worked were also awarded by respective college/Vidyalaya only and payment to contractors were also made by Hindu College and Shree Raghunath Balika Vidyalaya only. It was the further 5 contention that the aforesaid amount paid by the assessee cannot be considered in the nature of reimbursement for some charitable work either contrary to claim of the assessee in this regard as any reimbursement happens on actual basis. In case of reimbursement, a party carries out close monitoring, have greater control and has the right to inquire into expenditure incurred. However, in the instant case, the assessee paid lump sum amounts to Hindu College and Shree Raghunath Balika Vidyalaya and none of the documents produced by the assessee indicate that the payments were towards reimbursing ‘actual expenses of constructing the blocks. To support this version, he draw the attention to page no. 31 (serial no. 7 of the assessee’s paper book) filed on 20.9.2022, which is a letter from Chairman, Governing Body of Hindu College to the assessee requesting to send lump sum amont of Rs. 30 lacs to Hindu College so that Hindu College can make payment to the contractors. Thus, the funds transferred by the assessee to the Hindu College and assessee did not make any direct payment to contractors and similarly the lump sum amount was payment was paid to the Shree Raghunath Vidyalaya. He further submitted that explanation to Section 11(2) of the Act and Section 11(3)(d) of the Act do not carve out any exception for cases, where donation has been made by a Trust to another Trust for some specific work and the donation made to a trust out of its accumulated funds to other trusts will get hit by aforesaid provisions, whatever be the purpose of such donation. He further submitted that the assessment order exhibits lack of proper inquiry / verification by the AO, which was required to be carried out in the instant case in light of peculiar of the case and aforesaid provisions of the Act. Hence, the order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue within the meaning of section 263 of the Act. Therefore, the CIT(Exemption) was fully justified in holding the order dated 26.12.2019 passed u/s. 143(3) of the Act as erroneous and prejudicial to the interest of Revenue while exercising the jurisdiction under section 263 of the Act and rightly directed the AO to 6 adjudicate the issue afresh, which does not need any interference and needs to be upheld. 4.2 Per contra, Ld. Counsel for the assessee submitted that the assessee had provided detailed explanation and evidences to prove the satisfaction of the AO that in substance the money was spent for the advancement of the objects for which the same was accumulated and was not in the nature of donation in any manner and the money was never given to the payee trust at their exclusive disposal. He further submitted that Ld. CIT(Exemption) has erred in law as well as on the facts of the case by declaring the assessment order dated 26.12.2019 passed under section 143(3) of the Act, for the AY 2017-18 as erroneous whereas the order was passed after making inquiry on the issue and after having examined the replies of the assessee with due application of mind by the AO. He further submitted that the donation money was given to the donee and the money was paid to the respective trust only after ascertainment that the same is spent by these trusts for constructions/erections of buildings at their premises through their respective contractors. Thus the money was not given to the trust as donation but was paid for constructions of desired building blocks towards attainment of main object of the trust for which it has been created. Hence, after verifying the details provided by the assessee, the returned income declared as NIL was rightly accepted by the AO, which does not need any interference. 4.3 It transpired from records, that as per Explanation to Section 11(2) of the Act, any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust of any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or 7 sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. It was also noted that section 11(3) of the Act states that any income referred to in sub-section (2) which is credited or paid to any trust or any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid, as the case may be, or of the previous year immediately following the expiry of the period aforesaid. It is evident that amount of Rs. 65 lacs has been paid as donation to other Trust / Charitable Organisations and such payment will be hit by Explanation to 11(2) r.w.s. 11(3)(d) of the Act and in view thereof the amount of Rs. 65 lacs, donated by the assessee to other institutions i.e. Hindu College and Shree Raghunath Balika Vidyalaya out of accumulated fund should have been brought to tax by the AO. Hence, Ld. CIT(E) correctly observed that that as per Explanation to section 11(2) of the Act read with section 11(3)(d) of the Act, donations given out of accumulated funds u/s. 11(2) of the Act of earlier previous years are not allowable as application of income for charitable or religious purposes and the same shall be deemed to be income of the assessee of the previous year 2016- 17, therefore, AO failed to examine this issue, which should have been done during the assessment u/s. 143(3) of the Act and accordingly assessment order exhibits lack of proper inquiry / verification by the AO, which was required to be carried out in the instant case. As a result thereof, Ld. CIT(E) has rightly held that the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue as per provisions of section 263 of the Act and accordingly, the same was set aside u/s. 263 of the Act to the file of the AO for 8 making a donovo assessment after proper examination of the issue involved and due verification wherever required by way of affording reasonable opportunity of being heard to the Asssessee Trust and pass a speaking and well reasoned order. Hence, the order of Ld. CIT (Exemption) in our considered opinion, does not require any interference on our part, hence, we uphold the same and accordingly, the Ground Nos. 1 to 3 raised by the assessee stand dismissed. 5. In the result, the Assessee’s appeal is dismissed. Order pronounced on 14/03/2024. Sd/- (YOGESH KUMAR US) Sd/- (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER SRB Copy forwarded to:- 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT Assistant Registrar