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Income Tax Appellate Tribunal, ‘C’ BENCH, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Dr. Manish Borad
Per Rajpal Yadav, Vice-President (KZ):- The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Exemption), Kolkata dated 30.03.2023 passed under section 263 of the Income Tax Act in A.Y. 2018-19.
Assessment Year: 2018-2019 YPO (CALCUTTA) 2. The assessee has taken six grounds of appeal. In brief, its grievance is that ld. CIT has erred in taking cognizance under section 263 and thereby setting aside the assessment order passed under section 143(3) read with section 143(3A) and 143(3B) of the Income Tax Act.
3. With the assistance of ld. Representatives, we have gone through the record carefully. The impugned order is running into 16 pages. Without going into much details, the finding of the ld. Commissioner would exhibit the factual background and the reasons for taking the action under section 263. Therefore, for the sake of brevity, we deem it appropriate to take note of this finding, which reads as under:- “4. The submissions filed by the assessee, facts on record and the order of the AO are perused carefully. The issue involved is that in the ITR filed for the AY 2018-19 on 06/10/2018 an amount of Rs.1,31,00,000/- has been disclosed as "Amount accumulated or set apart [ in excess of 15% of income derived from the property held by the trust] u/s 11(2). The assessee was required to fill Schedule-I in respect of such claim of accumulation in the ITR, but it failed to do so. However, assessee trust has duly filed Form-10 electronically on 06/10/2018 for such claim of accumulation citing purpose as - Attaining the objective of the company.” 5. The condition for claiming Accumulation of income u/s 11 (2) of the Income Tax Act is, that the assessee is unable to apply 85% of its income, it can still accumulate by applying to the Assessing Officer in Form 10 to be electronically, u/s 11(2) of the Income Tax Act, as per the time limit in terms of Section 139(1) of the Act. The accumulation is required to be as application for specific charitable purpose and the same must be specified in the form 10. From the combined reading of section 11(2) with section 11 (3A) of the Act it may be inferred that purpose for which any income is accumulated or set apart must be specific and not general in nature, as has been mentioned by the assessee trust in the 2 Assessment Year: 2018-2019 YPO (CALCUTTA) Form-10 filed on 06/10/2018. The purpose for the amount of Rs.1,31,00,000/-accumulated or set-apart of the assessment year 2018-19 has been mentioned in the Form-10 as "Attaining the objective of the company.”
On perusal of the assessment order of the Assessing Officer, passed u/s 143(3) of the Act, dated 10.2.2021 it is seen that the AO has allowed the benefit of accumulation u/s 11 (2) of the Act without duly verifying and inquiring about the said claim of the assessee, especially in view of the provision of Sec (3A) which stipulates that Notwithstanding anything contained in sub- section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub-section (2) cannot be applied for the purpose for which it was accumulated or set apart, the Assessing Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub-section ( shall apply as if the purpose specified by such person in the application under this sub section were a purpose specified in the notice given to the Assessing Officer under clause (a) of sub- section (2). In this connection, it may be pertinent to mention that any amount of income of the trust has to be applied for object of the trust only for availing exemption u/s. 11 & 12 of the Act. Therefore, intent of the section 11(2) r.w.s. 11(3A) of the Act is clear that purpose of such accumulation or set-apart of income has to be specific and not general. If specific purpose were not required to be mentioned for accumulation or set-apart of income which could not be applied for the object of the trust during the relevant previous year, provision of section 11(3A) of the Act would have no significance.
The AO has passed the order u/s 143(3) of the Act, dt 10.2.2021, allowing relief to the asessee, without examining the form 10 filed by the asessee, ignoring the provision of section 11 (3A) of the Act. This has rendered the assessment order passed u/s 143(3) of the Income Tax Act as erroneous in so far as it is prejudicial to the interest of the revenue. It is pertinent to refer to Explanation-2 of section 263 of the Act which is as under: “Explanation:2 For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in opinion of the Principal chief Assessment Year: 2018-2019 YPO (CALCUTTA) commissioner or chief commissioner or principal commissioner or commissioner- The order is passed without making any inquiries or (1) verification which should have been made. The order is passed allowing any relief without (2) inquiring into the claim.
In view of the above facts and discussion, the order u/s 143(3) dated 10.02.2021, passed by the assessing officer is held to be erroneous in so far as it is prejudicial to the interest of the revenue. Therefore, the said order u/s 143(3) of the Act is set aside and the A.O is directed to pass fresh order as per the provision of the Act, after making necessary verification regarding the utilization of the accumulated funds in subsequent years and necessary verification/enquiry on the issues as discussed above”.
A perusal of the above finding would reveal that the assessee has surplus funds over and above 15% of the income derived from the property held by the Trust under section 11(2). The total income could not be applied for its objectives and the funds after application for charitable objectives and debiting 15%, the balance has been opted by the assessee for accumulation, which will be applied in future for its objectives. In order to carry out this exercise, the assessee has filed a declaration in Form No. 10 filed before the ld. Assessing Officer and duly complied. The grievance of the ld. Commissioner is that in this declaration form, the assessee has not specified that for which activity, it would apply this fund in the future year. On the other hand, the assessee has written that it will apply for achieving the objectives of the Trust. To our mind, ld. Commissioner has failed to interpret true import of the working of the assessee-Trust. Once it has accumulated a fund for future application on its objectives, then, that will be 4 Assessment Year: 2018-2019 YPO (CALCUTTA) debated in the future year, whether it has been applied for its objectives or not. It is not required to specifically mention only one item for which it is accumulating. Therefore, this action at the end of the ld. Commissioner is not sustainable. We vacate this action and quash the order passed under section 263.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 12/12/2023.