GIRDHARI LAL SWARNKAR,GORAKHPUR vs. INCOME TAX OFFICER, WARD - 1(3), GORAKHPUR

PER SUDHANSHU SRIVASTAVA, J.M.: This appeal has been preferred by the Assessee against the order dated 05.09.2023, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2016-17.

2.0 The brief facts of the case are that the assessee was deriving income from trading of ornaments, job work (karigiri work) and from other sources (interest income). The assessee had filed his Return of Income for the year under consideration on 12.12.2016 declaring a total income of Rs.4,10,330/- after claiming deduction of Rs.1,10,147/- under Chapter VI-A of the Income Tax Act, 1961 (hereinafter called 'the Act’). The case of

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the assessee was selected for limited scrutiny for the reason “whether the cash deposits has been made from disclosed sources”. The Assessing Officer (AO) issued statutory notices, requiring the assessee to explain the source of cash deposits. The Ld. Counsel of the assessee appeared before the AO. However, as per the AO, the Ld. Counsel for the assessee failed to explain the number of credit entries in the bank account statement and the source of cash deposits. He, therefore, summoned the assessee and his statement was recorded on oath under section 132(4) of the Act on 06.03.2018. During the course of statement recorded under section 132(4) of the Act, vide question No.6, the assessee was asked to explain the use of his PAN AVSPS6765R to deposit Rs.2,33,36,470/- and Rs.1,08,03,300/- (as per information available with the Department) and his nexus with the L.P.M. Public School in the light of documentary evidences, in response to which, the assessee stated that the said L.P.M. Public School, Gola Bazar was operated by the Shri Seth Luxmi Prasad Sewa Trust and during the year under consideration, the assessee was the Trustee of the said trust as well as the Chairman of the L.P.M School. It was further stated that as the power to operate the account was delegated to the Chairman/Principal, hence, at the

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time of depositing the cash pertaining to the School, assessee’s PAN was used in the cash deposit slips. The AO, after considering the statement of the assessee recorded on oath on 06.03.2018 and all the parameters of the sources of cash deposits in the bank account, noted that there was a difference of Rs.38,42,784/- between the information available with the Department and the assessee’s account and since the assessee failed to disclose the same in his Return of Income, the amount of Rs.38,42,784/- was added to the income of the assessee under section 69A of the Act.

2.1 Further, the AO held that since the assessee was the representative of the Trust within the meaning of Sections 160(1), 160(1A) and 160(2) of the Act, the total income derived by the Trust was to be assessed to tax in the hands of the assessee, i.e., Shri Girdhari Lal Swarnkar. Accordingly, the income derived by the Trust, during the year under consideration, to the tune of Rs.51,61,763/- was added to the total income of the assessee.

2.2 The AO also added the depreciation of Rs.29,06,390/- claimed by the Trust to the total income of the assessee.

2.3 The AO completed the assessment under section 143(3) of the Act, assessing the total income of the assessee at Rs.1,23,21,267/-.

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2.4 Aggrieved, the Assessee preferred an appeal before the NFAC, which dismissed the appeal of the assessee and confirmed the order of the AO.

2.5 Now the assessee has approached this Tribunal challenging the order of the NFAC, by raising the following grounds of appeal:

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The Ld. Assessing Officer has erred and acted illegally in ignoring all these aspects of facts and has erred and acted illegally in treating the deposits in bank account of trust as undisclosed income of the assessee. The Ld. National Faceless Appeal Centre (NFAC), Delhi has also erred and acted illegally in confirming the same. 3. Because it was fully explained that the assessee has to submit his PAN for operating the account in bank relating to trust. The Ld. Assessing Officer has treated the bank account opened and operated in the name of Trust and has erred and acted illegally pertaining to the assessee and has also erred and acted illegally in treating the all the deposit in cash therein as concealed income of the assessee. The Ld. National Faceless Appeal Centre (NFAC), Delhi has also erred and acted illegally in confirming the same. 4. Because the assessment is bad both on facts and in law and not maintainable.

3.0 During the course of hearing before us, the Ld. Authorized Representative for the assessee (Ld. A.R.), Shri Ashish Bansal, Advocate, submitted that Shri Seth Laxmi Prasad Sewa Trust is a separate taxable entity having PAN AANTS8189D and is duly registered under section 12AA. The Trust [which is running the school Laxmi Prasad Memorial Public School (LMP Public School)] is separately assessed to tax under section 143(3)

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and for the year under consideration i.e. Assessment Year 2016- 17, wherein the Income Tax Officer (Exemption), Varanasi had completed the assessment in its case after examining the books of account, bills and vouchers and had accepted the same by passing assessment order dated 28.11.2018. Reference was made to 12A Registration Certificate (Paper Book Page 73), acknowledgment of filing of the income tax return and computation of income of Sri Seth Laxmi Prasad Sewa Trust for the A.Y. 2016-17 (Paper Book Pages 75 -77), Audit Report of the School and Trust (Paper Book Pages 78 -79), Trust Deed (Paper Book Pages 91 – 109), assessment order passed in the case of Shri Seth Laxmi Prasad Sewa Trust for A.Y. 2016-17 (Paper Book Pages 138 – 139). Further, our attention was drawn to copies of various bank accounts (Paper Book Pages 122 – 137) which were in the name of the Trust or School and were appearing in the audited Balance Sheet of the Trust. The Ld. A.R. also placed reliance on the correspondence between the assessee and the bank wherein the banks have confirmed that the bank accounts belong to the School or the Trust with the PAN of the Trust. Reference was made to pages 141, 144, 145, 147 of the Paper Book being the certificates issued by the banks confirming the holder of the bank account.

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3.1 The Ld. A.R. argued that merely because the assessee was the Trustee/Chairman of the institution and his PAN was occasionally mentioned in the deposit slips by the staff under a wrong impression, the deposits belonging to the Trust could not be assessed in his personal hands. He argued that the Assessing Officer could not sit assume jurisdiction to disturb the assessment of the Trust and deny exemption under section 11 of the Act in proceedings relating to an individual assessee. It was submitted that no material was brought on record to establish that the cash deposits represented assessee's own money.

3.2 The Ld. A.R. further stated that the existence, identity and assessability of the Trust are undisputed. Once a separate taxable entity has been subjected to assessment under the Act, the same income cannot simultaneously be assessed in the hands of another person unless a specific statutory provision expressly authorizes such assessment. It was argued that once the audited books of the Trust (which included the bank accounts of the Trust/School) were accepted and the returned income was accepted vide assessment order dated 26.11.2018, the Department could not have brought to tax the same bank accounts in the assessment of the individual and nor could the Department have proceeded to deny the Trust’s claim of

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exemption u/s 11 while proceeding to assess the income of an individual who was incidentally the Trustee of the Trust also.

3.3 The Ld. AR reiterated that the entire deposits belonged to the Trust and School run by the Trust and that the assessee had nothing to do with the same. He emphasized that once the deposits in the bank accounts stood assessed to tax in the hands of the Sri Seth Laxmi Prasad Sewa Trust, it was completely baseless, taxing the same in the hands of the assessee treating him to be a representative assessee.

3.4 With respect to the disallowance of depreciation of Rs.29,06,390/-, the Ld. AR stated that the Trust had charged depreciation of Rs.11,61,250/- on the assets of Laxmi Prasad Memorial Public School account and depreciation of Rs.17,45,140/- on the assets of Laxmi Prasad Memorial Public School Bus and no depreciation had been charged on the assets of the Trust. While filing the return by the Trust, Trust has not claimed the depreciation charged by it on the assets of the Laxmi Prasad Memorial Public School and Laxmi Prasad Memorial Public School Bus. Therefore, the said addition was baseless.

3.5 The Ld. AR summed up his arguments by submitting that the AO has wrongly treated the bank account opened and operated in the name of the Trust as belonging to the assessee

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and in treating all the deposits in cash therein as concealed income of the assessee and further the Ld. First Appellate Authority has also erred and acted illegally in confirming the same. He prayed that the appeal of the assessee be allowed.

4.0 Per contra, the Ld. DR, Shri Sudipta Paul opposed the arguments of the Ld. A.R. and reiterated the findings recorded by the Assessing Officer and affirmed by the Ld. First Appellate Authority and relied upon the findings of both the authorities. He read out the relevant portions from the order of Assessment as well as the First Appellate Order and submitted that in view of the concurrent findings of both the authorities below, the additions be upheld.

5.0 We have heard the rival submissions and have perused the material on record. To recapitulate the factual matrix, the assessee is an individual engaged in the business of ornaments and job work and filed his return of income declaring income of Rs.4,10,330/-. The case was selected for limited scrutiny for verification of cash deposits. During assessment proceedings, the Assessing Officer noticed AIR/CIB information regarding cash deposits as under: a) AIR 1 Rs.2,33,36,470/- b) CIB 17 Rs.1,08,03,300/- c) 26AS 4 Rs.10,746/- d) OLTAS 1 Rs.15,170/-

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5.1 The Assessing Officer issued notice requiring certain information from the assessee and the required submission was made by the assessee. Thereafter, the Assessing Officer called for information relating to the Annual Information Report (AIR). Subsequently, the assessee was summoned to appear on 06.03.2018. On this date, the assessee appeared before the Assessing Officer and his statement on oath was recorded. In this statement the assessee stated that the bank accounts which had been enquired about with respect to the AIR Information related to Laxmi Prasad Memorial Public School (LMP Public School) which is run and managed by an altogether separate assessee namely, Sri Seth Laxmi Prasad Sewa Trust. It was further stated before the AO that the assessee had been the Trustee of the said Trust for the year under consideration as also the Chairman of the said School (i.e. Laxmi Prasad Memorial Public School). Since the bank accounts of the said Trust as also of the School were to be operated by the Chairman/ Manager of the school, cash collected by the school from the students, was deposited in the bank accounts of the School. It was further stated before the AO that in the pay-in-slips, the Permanent Account Number of the depositor was required to be filled in and the person who used to go to the bank, under a mistaken belief, mentioned the

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Permanent Account Number of the assessee on the belief that the

same is being deposited by the Chairman of the School. It was

also stated that the source of cash deposited in the School

account were duly verifiable from the books of account

maintained by the School, run by the separate assessee, namely

Sri Seth Laxmi Prasad Sewa Trust. However, the assessment was

completed treating the assessee as representative assessee of

Shri Seth Laxmi Prasad Sewa Trust, running L.P.M. Public

School, Gorakhpur. Consequently, the Assessing Officer made

following additions: -

(i) Addition u/s 69A 38,42,784

(ii) Surplus of Trust assessed in hands of assessee 51,61,763

(iii) Disallowance of depreciation 29,06,390

Total Addition 1,19,10,937

The assessment was completed at total income of

Rs.1,23,21,267/-. In the aforesaid assessment, the addition of

Rs.38,42,784/- u/s 69A was worked out by the Assessing Officer

as under:

Particulars of Amount Sl. Particulars Amount Sl. financial No. No. transactions of trust 1. By Bus Account Rs.55,46,175/- 1. AIR Rs.2,33,36,470/- 2. By School Rs.2,23,64,600/- 2. CIB Rs.1,08,03,300/- Account 3. By Sewa Trust Rs.16,20,000/- 3. 26AS Rs.10,746/- 4. By Indirect Rs.7,77,017/- 4. 0 0 incomes 5. Aggregate Rs.3,03,07,792/- 5. Aggregate Rs.3,41,50,576/- 6. Difference Rs.38,42,784/- 6. 0 0

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assessment to be erroneous or void. Consequently, the assessment of the very same income again in the hands of a Trustee would directly violate the scheme of the Act. Section 161 itself contemplates assessment in representative capacity only in respect of income received on behalf of another person. It does not authorize taxation of the entire income of a registered and independently assessed Charitable Trust in the personal assessment of a Trustee merely because such Trustee is operating the affairs of the institution. Accordingly, the addition of Rs.51,61,763/- lacks statutory foundation.

5.4 It is seen that a substantial part of the impugned assessment order has been devoted to examining as to whether Shri Seth Laxmi Prasad Sewa Trust was genuinely engaged in charitable activities and whether the exemption under section 11 was available to it. In our considered opinion, such exercise was wholly beyond the jurisdiction of the Assessing Officer while framing assessment of the captioned assessee. The Assessing Officer could not have ignored the Registration granted under section 12AA to the Trust, disregarded the independent assessment of the Trust to hold that the exemption granted to the Trust was wrongly allowed. Such an approach cannot be legally sustained.

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5.5 The Assessing Officer has assessed the income of a separately existing and separately assessed Charitable Trust in the hands of the assessee merely because he was a Trustee/Chairman. Such action is contrary to the settled principle that once a Trust is assessed as a distinct taxable person, its income cannot simultaneously be assessed in the hands of the Trustee unless specifically authorized by statute. The Hon’ble Supreme Court in the case of CIT v. Kamalini Khatau, 209 ITR 101 (SC), explained the scheme of sections 160 and 161 and held that the liability of a representative assessee is derivative and co-extensive with that of the person represented. A representative assessment cannot create a separate charge of tax independent of the person represented. Similarly, the Hon'ble Supreme Court in ITO v. Ch. Atchaiah (218 ITR 239) has categorically held that income must be assessed in the hands of the right person and not in the hands of another person merely because the Department considers it convenient to do so. The principle that the same income cannot ordinarily be subjected to tax twice unless expressly authorised by law was recognized by the Hon’ble Supreme Court in Laxmipat Singhania v. CIT (72 ITR 291). Further, in the case of CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust 108 ITR 555 (SC), the Hon’ble

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Supreme Court held that the Trustee and beneficiary cannot simultaneously be assessed in respect of the same income/wealth. The Hon’ble Gujarat High Court in the case of CIT v. Barkate Saifiyah Society, 213 ITR 492 (Guj.), has held that once Registration under section 12A/12AA subsists, the Assessing Officer cannot ignore such Registration and deny the very character of the Trust while making an assessment. The Trust, in the present case, was admittedly registered under section 12AA and was separately assessed under section 143(3). Applying this principle, once the Revenue itself has accepted the Trust as a separate taxable entity and has assessed its income in independent assessment proceedings, the same income could not again be brought to tax in the hands of the present assessee. And it flows from this that the Assessing Officer had no jurisdiction in the assessee's individual assessment to sit in judgment over the validity of exemption available to the Trust.

5.6 Further, the entire assessment proceeds on the assumption that the Trust was not carrying on charitable activities and consequently exemption under section 11 was wrongly allowed. The Hon’ble Supreme Court in the case of ACIT v. Surat City Gymkhana, 300 ITR 214 (SC), held that once Registration has been granted, the Assessing Officer cannot

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revisit the objects and validity of registration during assessment proceedings. Similarly, in CIT v. Rajasthan and Gujarati Charitable Foundation, 402 ITR 441 (SC), the Hon’ble Supreme Court reiterated that benefits available to a registered charitable institution cannot be denied on assumptions contrary to Registration already in force. The Assessing Officer, while framing the assessment of an individual, could not assume the role of the Assessing Officer having jurisdiction over the Trust and embark upon a determination whether the Trust was entitled to exemption under section 11 or not. Thus, we have no hesitation in holding that the Assessing Officer has exceeded his jurisdiction in holding that the Trust was not charitable and that its income should, therefore, be taxed in the hands of the assessee. The findings recorded in this regard are, therefore, wholly beyond jurisdiction and cannot be sustained. Accordingly, the very foundation, on which the addition of Rs.51,61,763/- has been made, is legally unsustainable. The addition is, therefore, deleted.

5.7 The next addition relates to Rs.38,42,784/- which was brought to tax under section 69A on the basis of AIR/CIB information. The Assessing Officer compared AIR/CIB data with receipts reflected in the accounts of the School, Bus Account and

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Trust and worked out a difference of Rs.38,42,784/-, which was treated as unexplained money belonging to the assessee. For invoking section 69A, the sine qua non is a finding that the assessee is the owner of the money in question. On a careful reading of the assessment order, we find that no evidence, whatsoever, has been brought on record to establish ownership of such money by the assessee. On the contrary, the assessment order itself records that the transactions pertained to accounts connected with the School and Trust and that the assessee's association arose from his position as Trustee/Chairman. No evidence has been brought on record to show that the bank accounts belonged to the assessee personally, the deposits represented his personal income, the funds were applied for his personal benefit or the explanation furnished by the assessee was factually false. The addition, thus, rests entirely on assumptions and inferences. The Assessing Officer himself records that the deposits were linked with bank accounts of the School and Trust and that the assessee’s connection arose because he functioned as Chairman/Trustee. The assessee consistently explained that the transactions related to bank accounts of the School and Trust. The assessee specifically pleaded that AIR and CIB information represented overlapping

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reporting mechanisms and, therefore, duplication existed in the figures adopted by the Assessing Officer. However, neither the assessment order nor the first appellate order have dealt with this objection. The Hon'ble Supreme Court in Umacharan Shaw & Bros. v. CIT (37 ITR 271) held that suspicion, however strong, cannot substitute legal evidence. Likewise, in CIT v. P.K. Noorjahan (237 ITR 570), the Hon'ble Supreme Court held that the deeming provisions relating to unexplained investments and money cannot be invoked mechanically and must be supported by surrounding facts and material evidence. In our considered opinion, the Revenue has failed to establish the foundational requirement of ownership prescribed by section 69A of the Act and accordingly, the addition of Rs.38,42,784/- is, therefore, directed to be deleted.

5.8 The Assessing Officer further added Rs.29,06,390/- on the ground that depreciation claimed in the books relating to the Trust and School was not properly supported by details and appeared fabricated. The addition is incapable of being sustained for more than one reason. The said depreciation pertains to assets reflected in the books of the Trust and School. No depreciation was claimed by the assessee in his individual return of income and, therefore, even if any infirmity existed in the

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depreciation claim, such issue could only arise in assessment proceedings of the person claiming such depreciation, namely the Trust. An expenditure claimed by one assessee cannot be transformed into taxable income in the hands of another assessee. The Hon'ble Supreme Court in CIT v. Rajasthan & Gujarati Charitable Foundation (402 ITR 441) has emphasized that depreciation is an allowance relatable to assets owned and used by the concerned assessee. The present assessee neither owned the assets nor claimed the depreciation. Hence, the addition of Rs.29,06,390/- is devoid of legal foundation and is hereby deleted.

5.9 It is seen that the NFAC had dismissed the appeal of the assessee primarily on the ground that the source of deposits was not explained and supporting evidence had not been produced. However, the first appellate order does not address the crucial facts that the Trust was separately assessed under section 143(3), the Trust possessed an independent PAN and Registration under section 12AA, the School and Trust maintained separate books of account, the impugned income brought to tax in the hands of the assessee had already been considered in the proceedings of the Trust. It is settled law that a quasi-judicial authority is required to adjudicate the specific

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grounds raised before it and the failure to consider vital evidence renders the first appellate order unsustainable.

5.10 Therefore, in view of the foregoing observation made by us, the total addition of Rs.1,19,10,937/- made by the Assessing Officer and as sustained by the NFAC is deleted in entirety. 6.0 In the final result, the appeal of the assessee stands allowed.

Order pronounced in the open Court on 04/11/2026.

Sd/- Sd/- [NIKHIL CHOUDHARY] [SUDHANSHU SRIVASTAVA] ACCOUNTANT MEMBER JUDICIAL MEMBER

DATED:04/11/2026 JJ: