CHILDREN WELFARE TRUST (REGD),FARIDABAD vs. CIT EXEMPTION, CHANDIGARH

5. That on the facts and in the circumstances of the case, the Ld. CIT(E) has erred in law in wrongly invoking provisions of Sec. 11(6) of the Act in order to wrongly disallow the depreciation claimed of Rs. 55,75,733/- by the appellant.

6. That on the facts and in the circumstances of the case, the Ld. CIT(E) has erred in law in assuming jurisdiction u/s 263 of the Act beyond the reasonable period of time and framing an adverse order u/s 263 of the Act without providing a reasonable opportunity of being heard to the appellant which is a mandatory pre-requisite before passing order u/s 263 of the Act.

7. That the order so framed by the Ld. CIT(E) is bad in law and on facts (to the extent as elaborated above) and needs to be quashed in the interest of principles of natural justice.”

The Ld. Counsel has also relied on the Judgment of Hon'ble Supreme Court in the case of CIT Vs. Industrial Development Bank India Ltd. (2023) 152 Taxman. Com 591 (S.C) and the Judgment of Hon’ble Madras High Court in the case of Indira Industries Vs. PCIT, Chennai- 8 (2018) 95 Taxman.com 103 Madras. Thus, submitted that the order impugned dated 19/03/2023 is barred by limitation.

6. The Ld. Counsel also submitted that the Ld. CIT(E) erred in law and on facts in treating the capital receipts ofRs. 1,13,08,822/- as revenue receipts when the said fact was duly substantiated by the Assessee during the course of the assessment proceedings that such receipts are only capital in nature and not revenue receipt. Further submitted that the said explanation given by the Assessee during the re-assessment proceedings has been duly accepted by the A.O. in its order u/s 147 of the Act. Further submitted that the Ld. CIT(E) has wrongly invoked the provision of Section 11 (6) of the Act, in order to wrongly disallow the depreciation claimed of Rs. 55,75,733/- claimed by the Assessee. Therefore, submitted that the A.O. has taken the ‘plausible view’ and the order of the Ld. CIT(E) is nothing but ‘change of opinion’, therefore, sought for allowing the appeal.

7. Per contra, the Department's Representative vehemently contended that the duty of the Ld. CIT(E) u/s 263 of the Act as to see whether the order passed u/s 147 of the Act is erroneous in so far as it is prejudicial to the interest of the Revenue or not. Further submitted that the FAO allowed the depreciation without making the enquiry as to whether the Assessee claimed the application of capital expenditure in the earlier years on the assets on which the depreciation claimed, therefore, the assessment framed is not only erroneous, but also prejudicial to the interest of the revenue. The Ld. Department's Representative has also relied on the Judgment of the Hon'ble High Court of Karnataka in the case of Herbalife International India Pvt. Ltd. vs. the Commissioner of Income Tax in and submitted that the Appeal of the Assessee is liable to be dismissed.

“7. It is seen that surplus of Rs. 88,81,042/- is transferred to capital fund whereas amounts in amalgamated fund and Building Fund are considered under the head Reserve Fund. Therefore, the amount Rs. 1,13,08,822/-(1,06,72,322+6,36,500) was directly taken to Balance Sheet and not routed through Income & Expenditure account. The amount of Rs. 1,13,08,822/- is not disclosed as income, neither in income & Expenditure/ Receipt & payment account nor in ITR under the schedule 'Voluntary Contributions'. Substantiate your claim in this regard with supporting documents.”

“It is respectfully submittedthat the fee received from students is credited under various heads, building and amalgamation funds being one of them. It is further submitted that building fund is the amount collected from new admissions and it is spent for the purpose of construction of building. Amalgamation fund is the amount collected from new students for spending on non-routine development items such as library, Cultural activities etc. These amounts are not credited to profit and loss account but are credited to Building and Amalgamation fund as the funds are designated to be used for building construction and other expansion activities. As and when these funds are used for the capital expenses as mentioned above, same would be treated as capital expenditure of the society. These are corpus fund and hence, in the nature of capital receipts and therefore, these may not be added as income of the assessee society.”

“1) Receipts credited under Amalgamation and Building Fund - Rs. 1,13,08,822/-

2) Depreciation claimed by the assessee trust keeping in view provisions of Sec. 11(6) - Rs. 55,75,733/-.”

“Findings of the AO:-

It is seen that surplus of Rs. 88,81,042/- is transferred to capital fund whereas amounts in amalgamated fund and Building Fund are considered under the head Reserve Fund. Therefore, the amount Rs. 1,13,08,822/-(1,06,72,322+6,36,500) was directly taken to Balance Sheet and not routed through Income & Expenditure account. The amount of Rs. 1,13,08,822/- is not disclosed as income, neither in income & Expenditure/Receipt & payment account nor in ITR under the schedule 'Voluntary Contributions'.

6. basis of forming reason to believe and details of escapement of income:-

In view of the above facts, amount of Rs. 1,13,08,822/- is to be added back to the taxable income of the assessee trust. I have, therefore, reason to believe, that amount of Rs. 1,13,08,822/- chargeable to tax has escaped assessment. Further, the case will be assessed on any other issue which may come to notice during the assessment proceedings.

It is pertinent to mention here that in this case an assessment was made as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. However, as discussed in reason to believe in this case income chargeable to tax has been under assessed by an amount of Rs. 1,13,08,822/-.

In view of the above, provisions of clause (c) of explanation 2 to section 147 are applicable to the facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.

This case is within four years from the end of the assessment year under consideration. Hence necessary sanction to issue notice u/s 148 is required in this case from Addl. Commissioner of Income Tax (Exemptions), Range-2, Chandigarh as per the provisions of Section 151 of the Act.

The case is submitted for your kind approval to issue notice u/s 148.

In this connection your case for the said year is reopened for assessment/reassessment u/s 147 of the I.T.Act, 1961. Notice u/s 148 of the Act was issued and served on 28.03.2021, asking for a Return of Income of the said year. Notice u/s 143(2) of the Act issued and served on 22.06.2021. Now you are requested to furnish the following details. These informations are sought u/s 142(1)(ii) of the Act.

1. Please provide a brief note on the business carried out by you during the F.Y 2015-16 relevant to the A.Y 2016-17.

2. Copy of financials in the form of Balance sheet, Profit & Loss account, Tax Audit report and computation of Income for the year under consideration.

3. Please furnish the copy of the assessment order u/s 143(3) of the Act for the year under consideration.

4. Furnish copy of the certificate of Registration of trust Deed/ Memorandum of Association.

5. Copy of approval obtained/ granted u/s 12AA, u/s 80G/ 10(23C)(vi), if any.

6. Details of All bank accounts held in the name of the Trust with bank statements for the year under consideration.”

“Sir Sub: Reply to notice u/s 142(1) of Income Tax Act, 1961 of M/s Children Welfare Trust for A.Y. 2016-17,

Kindly refer to notice no ITBA/AST/F/142(1)/2021- 22/1038641384(1), dated 11.01.2022. In continuation of earlier submission dated 22.07.2021, it is respectfully submitted as under:-

3. Copy of computation of income and acknowledgment of income tax return for the year under consideration filed u/s 148 is enclosed as Ann-2.

4. Copy of assessment order passed u/s 143(3) is enclosed as Ann-3.

5. Copy of trust deed/ by laws of the Children Welfare Trust is enclosed as Ann-4.

7. Copies of bank statements as on 31.03.2016 along with reconciliations are enclosed as Ann-6,

8. It is respectfully submitted that the fee received from students is credited under various heads, building and amalgamation funds being one of them. It is further submitted that building fund is the amount collected from new admissions and it is spent for the purpose of construction of building. Amalgamation fund is the amount collected from new students for spending on non-routine development items such as library, Cultural activities etc. These amounts are not credited to profit and loss account but are credited to Building and Amalgamation fund as the funds are designated to be used for building construction and other expansion activities. As and when these funds are used for the capital expenses as mentioned above, same would be treated as capital expenditure of the society. These are corpus fund and hence, in the nature of capital receipts and therefore, these may not be added as income of the assessee society.

9. It is respectfully submitted that assessee trust has maintained complete books of accounts, which are duly audited andall items of income and expenditure accounts are duly vouched. Books of accounts, bills and vouchers are duly produced and enclosed herewith as Annexure 7 for your verification. We hope you would find the same in order.” 15. After considering the reply of the Assessee dated 09/03/2022, the A.O. passed order dated 30/03/2022 u/s 147 of the Act by accepting the returned income. The Ld. CIT(A) once again taken up the very same issue i.e. amalgamation and building fund of Rs. 1,13,08,822/- in the proceeding’s initiated u/s 263 of the Act which amounts to review of the opinion already taken by the Ld. FAO while framing assessment u/s 147 of the Act. The Ld. A.O. while framing the assessment u/s 147 of the Act has taken plausible view and the action of the Ld. CIT(A) tantamount to change of opinion which is not permissible under law.

"The short issue involved in the instant case is whether the assumption of jurisdiction by the Principal Commissioner of Income Tax, Kolkata-2 (PCIT) under Section 263 of the Act was justified.

The learned Tribunal has passed an elaborate order, firstly taking note of the legal position under what circumstances the power under section 263 of the Act could be invoked. The Tribunal referred to the decision of the Hon'ble Supreme Court in Malabar Industrial Co. Pvt. Ltd. vs. CIT, (2000) 243 ITR 83 and the decision in the case of CIT vs. Max India Limited, 295 ITR 0282 and the other decisions of the various High Courts and then proceeded to examine the factual aspect. The learned Tribunal noted that the issue based on which the PCIT assumed jurisdiction under Section 263 of the Act was the very same issue which was the subject matter of the reopening proceedings, which was done by the Assessing Officer under Section 148 of the Act. The learned Tribunal also noted that the assessee had filed a detailed submission to the reopening proceedings by reply dated 2nd August, 2018 and records were placed before the Assessing Officer in the form of a paper book and after examining all the documents the Assessing Officer was satisfied that the assessee had not entered 3 into any bogus/accommodation entry/transaction with the party in question and there is no element of undisclosed income.

Thus, in our considered view, the learned Tribunal rightly applied the legal position and also took note of the facts and held that the power under Section 263 of the Act could not have been invoked."

"34. Considering the facts of the case as well as the settled legal position as enumerated herein above, the following issues arising in these petitions vis-a-vis the jurisdiction of the respondent no. 1 can be summarized as under:

(1) The respondent no.1 could not have assumed the jurisdiction only when the Assessing Officer has not made any inquiry with regard to any issue, which is the subject matter of the revision proceedings. In the facts of the case, it is not in dispute that the Assessing Officer has made inquiries with regard to disallowance under Section 14 A of the Act read with Rule 8D of the Rules during the course of the regular assessment. Therefore, the Assessing Officer while carrying out the re-assessment proceedings could not have again made any inquiry for the said issue.

(ii) Moreover, assuming the contention of the petitioner that irrespective of the issue of limitation, the respondent no.1 Assessing Officer could not have assumed the jurisdiction by invoking explanation (ii) of Section 263 is also tenable as the issue of disallowance under Section 14A of the Act was already subject matter of inquiry and therefore, the issue as to whether the inquiry was insufficient or not, could not have been the subject matter of revisional proceedings as it would amount to mere change of opinion."

"19. The Id. AO satisfied about the correctness of the above and after calling for the details from the assessee and came to a conclusion that there was no necessity of any addition on the above issues and duly framed the assessment u/s 143(3) r.w.S. 147 of the Act. 20.when Id. AO adopted one of the courses presumably in the law and it has resulted in loss of revenue, or where two views are possible and the Id. AO has taken one view with that Id. PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Id. AO is unsustainable in law. In the present case, the assessment framed by Id. AO u/s 143(3) r.w.s. 147 of the Act and the A.O. had recorded various reasons for reopening assessment and went on framing the assessment on the said basis and collected the information with reference to the reasons so recorded for reopening of the assessment and the A.O. was satisfied with the explanation given by the assessee regarding various issues raised by him. Now the Id. PCIT cannot find fault with the action of the Id. AO and direct A.O. to carry out further enquiry on the materials or judgments of the Hon'ble High Court which are not part of the assessment records. Accordingly, we do not find any merit in the issues raised by the Id. PCIT in the order passed u/s 263 of the Act. Accordingly, we quash the order passed u/s 263 of the Act by the Id. PCIT."

[2012] 21 taxmann.com 64 (Guj.) vide order dated 01.02.2012 held as under:-

"When, during the course of framing of the assessment, the Assessing Officer had access to all the records of the assessee, after pursuing such record the Assessing Officer framed the assessment, such assessment could not have been re-opened in exercise of revision power under Section 263 of the Act for making further inquiries."

Order pronounced in the open court on 08th August, 2025