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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, HONBLE & SHRI SANDEEP SINGH KARHAIL, HONBLEShri Soumen Adak & Shri Nitin Agarwal
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, HON'BLE JUDICIAL MEMBER ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation v. CIT (Exemptions) 2nd Floor, Axis House Room No. 617, 6th Floor Pandurang Budhkar Marg Piramal Chamber, Lal Baug Worli, Mumbai - 400018 Parel, Mumbai - 400012 PAN: AAATU2526R (Appellant) (Respondent) Assessee by : Shri Soumen Adak & Shri Nitin Agarwal Department by : Ms. Shailaja Rai
Date of Hearing : 07.06.2022 Date of Pronouncement : 28.07.2022
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Exemptions), Mumbai [hereinafter in short “Ld.CIT(E)”] dated 26.03.2021 for the A.Y.2016-17.
Brief facts of the case are, assessee is a Public Charitable Trust registered u/s. 12A of Income-tax Act, 1961 (in short “Act”). On
2 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation verification of the assessment records for the A.Y. 2016-17, Ld.CIT(E) observed that the assessment was completed u/s. 143(3) of the Act on 31.10.2018 and according to him the Assessment Order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue and he observed the following errors in the Assessment Order: - “(a) On verification of the assessment records of AY 2016-17, it is found that the assessee had shown total income of Rs. 55,89,33,399/- Further, out of the total income assessee had received foreign donation of Rs.51,42,88,203/-. The assessee trust had claimed Rs.55,00,80,659/- as application of income in the current year. The assessee has donated grants of Rs.51,02,07,706/- to other trust out of total application of income in A.Y.2016-17. As per the section 7 of Foreign Contribution Act 2010 read with Rule 24 of Foreign Contribution Rules 2011, any foreign funds received by an association (registered under FCRA) are passed on to any other person, transferor has to ensure that the recipient also is registered under FCRA Act, 2010. On verification of assessment record of AY.2016-17, it is noticed that the assessee has donated funds to other trust, out of the donation received from foreign donors. However, the FCRA registered of done trust was not verified during the assessment. Further, on an attempt to verify the status of registration of donee trust under FCRA Act 2010. It was noticed that validity of one trust is expired and other three are not registered under FCRA Act 2010. Hence, the transfer of funds received in FCRA Account to trust not registered under FCRA Act is violation of provisions of FCRA Act and the same should have not been allowed as application for trust. (b) In view of the above, entire foreign contribution of Rs. 51,02,07,706/- should have been held to be income of the trust but it was left to be assessed during the year under consideration i.e. AY 2016-17. The basic verification of the donation of foreign funds to other trusts was not carried out during the course of assessment proceedings. Therefore, the order passed u/s 143(3) dt. 31/10/2018 is prejudicial to the interest of revenue. (c) In this case, the assessee trust has failed to apply the above income as per the provision of section 11 of the Act. As per section 11 of the Act, any voluntary contribution other than corpus donation
3 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation received by the trust in previous year shall be treated as income of the trust. The assessee has violated the provision u/s 11 of the Act in AY 2016-17. The AO has passed order without the basic verification of the above facts stated above and therefore the order is prejudicial to the interest of revenue.”
In view of the above observations, Ld.CIT(E) issued notice u/s. 263 of the Act to the assessee on 11.03.2021 and accordingly, assessee was
asked to make submissions in this regard. Assessee filed written submissions on 25.03.2021. Assessee filed following written submissions before Ld.CIT(E), for the sake of clarity it is reproduced below: - "2.1 Factual Submission: 2.1.1 We give below the details of income received such as interest income, voluntary contributions and its application for charitable purpose for FY. 2015-16 Amount Amount Particulars (in INR) (in INR) Sources of income Income from other sources 2,12,78,022 Voluntary Contribution Donations received from Axis Bank Ltd and 51,42,88,203 its subsidiaries (Foreign contribution) Other donations and donations received from 2,33,67,174 53,76,55,377 employees of Axis Bank Foundation (Local contribution) Total Receipts (A) 55,89,33,399 Application of income for charitable or religious purposes Amount applied to charitable purposes u/s.11 of the Act Donation to NGO partners from FCRA 46,45,09,864 Account Donation to NGO partners from other 4,56,97,212 51,02,07,076 Account Administrative Expenses 3,98,73,583 Amount allowed to be accumulated 88,52,740 u/s.11(1)(a) for charitable purposes @15% Total Application of income (B) 55,89,33,399 Total income (A-B) NIL
4 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation 2.1.2 As at march 31, 2015 more than one-half of the nominal value of Axis Bank Ltd's share capital was held by foreign shareholders which meant that Axis Bank Ltd was covered by the meaning of foreign source' as defined u/s 2(1)(1) of the FCRA Act, 2010. The trust therefore considered the contributions received from Axis bank Ltd as foreign contribution' in line with definition as mentioned u/s 2(1)(h) of the FCRA Act, 2010. 2.1.3 As per Section 2(1)(h) of the Foreign Contribution (Regulation) Act, 2010 (FCRA Act, 2010"), "foreign contribution" means the donation, delivery or transfer made by any foreign source, (ii) of any currency, whether Indian or foreign; ………….. Further, as per Section 2(1)(1) the word foreign source is defined as "foreign source includes, (vi) a company within the meaning of the Companies Act, 2013, and more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by one or more of the following, namely: (A) the Government of a foreign country or territory: (B) the citizens of a foreign country or territory; (C) corporations incorporated in a foreign country or territory. (D) trusts, societies or other associations of individuals (whether incorporated or not), formed or registered in a foreign country or territory: (E) foreign company …………………..” 2.1.4 As per Section 11(1) of FCRA Act, 2010, no person having a definite cultural, economic, educational, religious or social program shall accept foreign contribution, unless such person obtains a certificate of registration from the Central Government. If no registration is obtained as per Section 11(2) of FCRA Act, 2010, the person is required to obtain prior permission from the Central Government. However, if any person fails to comply with sub sections (1) and (2) of Section 11 of the FCRA Act, 2010, then the unutilized amount of foreign contribution shall not be utilized or received, as the case may be, without the prior approval of Central Government.
5 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation The Trust had made an application requesting for registration 2.1.5 under FCRA Act, 2010 to the Central Government on 19 February 2015. On such application, the assessee has received registration certificate dated 11 September 2015. 2.1.6 Hence, the amount received from Axis Bank Limited & its subsidiaries of INR 51,42,88,203 have been considered as foreign contribution during the FY 2015-16. 2.1.7 Out of foreign contribution received of INR 51,42,88,203, an amount of INR 46,45,09,864 has been utilized for contribution. 2.1.8 In this context, the Trust hereby submits the movement of funds from its FCRA savings bank account which also reflects the FCRA contribution donated during FY 2015-16 to A/GO partners amounting to INR 46,45,09,864: Amount (in Particulars Amount (in INR) INR) Opening Balance as on 01 April 2015 (A) NIL Receipts 63,18,46,554 Amount transferred from Escrow Account to FCRA pertaining to FY 2014-15 51,42,88,203 1,14,61,34,757 Contribution received during FY 2015-16 1,64,26,03,665 Interest earned during the year incl. FD interest net of TDS 1,16,26,03,665 Total (B) Payments: 18,64,66,294 Invested in Fixed Deposits Administrative Expenses 3,40,38,392 Contribution donated to other NGO partners 46,45,09,864 from FCRA account Total (C) 68,50,14,550 Closing Balance as on 31 March 2016 (A+B+C) 47,75,89,115 Copy of audited financials of Foreign Contribution Account by statutory auditor, M.M. Nissim & Co. is attached as Annexure A for your reference. 2.1.9 Hence, the amount contributed to other NGO partners from foreign contribution is INR 46,45,09,864 and not INR 51,02,07,076." 3.1 On the second issue raised in the show cause notice, the assessee foundation has submitted as under: "2.2.3 It may be noted that Section 11(1)(a) of the Act requires for the amount received as donation/income to be spent for charitable and religious purpose i.e. as per the objects of the trusts. Once the
6 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation income received in the form of donation is rightfully applied, such income need not be considered as the income of the trust. 2.2.4 It is essential to understand that the compliance requirements of the FCRA Act, 2010 have no bearing on the benefit provided under Section 11(1)(a) of the Income Tax Act, 1961 since both are different Acts altogether and there is no provision under Income Tax Act which bars the application of income in accordance to FCRA Act, 2010. By appropriately applying the voluntary contributions including the foreign contribution received during FY. 2015-16 towards the objects of the trust, the Trust has adhered to all the requirements and compliances as required by Section 11 of the Act and no income derived by the Trust should be included in the total income. 2.2.5 Since the trust has not violated any of the provisions as mentioned under Section 11 of the Act, it is evident that the treatment of the voluntary contribution received by the trust during the year as the income of the trust is fallacious and bad in law."
After considering the detailed submissions, Ld.CIT(E) observed that contribution to other NGO’s from foreign contribution is limited to ₹.46,45,09,064/- and the same is reflected in the FCRA account. The assessee also submitted along with its written submissions details of donations made by the foundation to other NGOs out of the foreign contribution received along with other respective FCRA registration and its validity. He observed that it is clear from the prima facie perusal of the documents submitted by the assessee that this issue was not examined at all by the Assessing Officer during course of assessment proceedings. It was incumbent on the Assessing Officer to call for the details, examine the same and undertake necessary cross verification
7 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation atleast on a test check / random basis from Ministry of Home Affairs with regard to FCRA registration and their validity.
He observed that on examination of assessment records, he found that even primary details on the issue were not examined. Accordingly, by invoking Explanation 2 to Section 263 he is of the view that the Assessment Order dated 31.10.2018 is erroneous in so far as it is prejudicial to the interest of the Revenue within the meaning of section 263 of the Act. Therefore, he set-aside the Assessment Order and directed the Assessing Officer to redo the assessment denovo, after considering the submissions and evidences filed by the assessee, after giving proper opportunity to the assessee.
Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “1.1 That on the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Exemption), (here- in- after referred to as Ld. CIT) was not justified in initiating proceedings u/s 263 of the Income Tax Act, 1961 since the order passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the revenue. 2.0 That on the facts and in the circumstances of the case, the impugned order passed u/s 263 is grossly arbitrary and bad in law in relation to the issues raised and adjudicated therein and needs to be summarily quashed. 3.0 That on the facts and in circumstances of the case and without prejudice to the Ground No. 1 &2 above, the Ld. CIT was not
8 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation justified in treating the certificate issued under The Foreign Contribution Regulation Act to other trusts as expired at the time of proceeding u/s 263 without appreciating the validity of the said certificates at the time of foreign contribution donated to other trusts Le. in FY 2015-16. 4.0 That on the facts and in circumstances of the case and without prejudice to the Grounds taken above, the Ld. CIT was not justified in disregarding the retrospective amendment made to The Foreign Contribution Regulation Act from time to time. 5.0 That on the facts and in circumstances of the case and without prejudice to the Grounds taken above, the Ld. CIT erred in applying non-compliance under different Act i.e. Foreign Contribution (Regulation) Act, 2010 in the provisions of the Income Tax Act, 1961. 6.0 That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the Grounds stated here- in-above, either before or at the time of hearing of this appeal.”
At the time of hearing, Ld. AR brought to our notice Page No. 57 of the Paper Book i.e. 263 notice issued by Ld.CIT(E) and he brought to our notice a specific issue raised by the Ld.CIT(E) that the order passed by the Assessing Officer is erroneous and it is prejudicial to the interest of the Revenue. Further, he brought to our notice the observation of the Ld.CIT(E) that the assessee has donated funds to other Trust out of foreign donations. However, the FCRA registration of donee Trust was not verified during the assessment.
Further, he observed that on an attempt to verify the status of the registration of donee Trust under FCRA Act, 2010, validity of one trust is
9 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation expired and other three trusts are not registered under FCRA Act, 2010. Ld.CIT(E) observed that transfer of funds received in FCRA account to Trust not registered under FCRA Act is violation of provisions of FCRA Act and the same should not have been allowed as application of income/funds.
Simultaneously, he brought to our notice Page No. 6 of the 263 order, wherein, Ld.CIT(E) observed the same point that Assessing Officer has not verified the donation made to the NGOs out of the foreign contribution received and he alleged that Assessing Officer has not verified the same. He submitted that in the 263 order, Ld.CIT(E) after considering the submissions of the assessee he proceeded to apply the Explanation 2 to 263 of the Act rather than giving any specific findings on the submissions made by the assessee.
Further, he brought to our notice Page No. 35 of the Paper Book which is notice issued u/s 143(2) by the Assessing Officer on 21.09.2017. Further, Assessing Officer has issued notice u/s 142(1) on 02.08.2018. In response to above notices assessee has filed various information which includes expenses incurred on the object of the Trust and details of the institutions to whom donations were made during the year.
10 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation 11. Further, he brought to our notice Page No. 44 of the Paper Book which is the detailed submissions made by the assessee which includes details on non corpus donations, details of expenses incurred and further, assessee submitted details of utilization made u/s. 11(2) of the Act. Further, he brought to our notice Page No. 49 of the Paper Book and Page No. 51 which are the details of expenses incurred for the object of the Trust and also details on foreign donations received by the assessee.
Further, he brought to our notice Page No. 11 of the Paper Book which is notes to the financial statements and brought our attention to the declaration made by the assessee with regard to Finance Act, 2016 amendment made in section 2(1)(j)(vi) of the Foreign Contribution Regulation Act, 2010 w.e.f. 26th September, 2010 as a result of which the Axis Bank limited cannot be considered as foreign source. Since the Finance Act, 2016 was notified on 14.05.2016 the Trust has sought clarification, whether donation received from such foreign sources can now be considered as from domestic sources since 26th September, 2010 for all reporting purposes. Pending such clarification, the trust has not transferred any fund from FCRA Account to domestic account.
11 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation 13. Accordingly, he also brought to our notice FCRA Act, 2010 and brought to our notice the definition of “foreign sources”. He also brought to our notice Page No. 33 of the paper book to highlight that the foreign shareholding in the assessee is stood at 52.55%.
Ld. AR further brought to our notice Finance Act, 2016 dated 14th May, 2016 and brought to our notice the amendment made in the Finance Act as per the definition, the share capital of the company being more than one half of such value at the time of making the contribution, such company shall not be a foreign source; with this amendment the foreign donation received by the assessee shall not be treated as foreign source. Therefore, the donation made by the assessee becomes local donation not FCNR because of the amendment in the Finance Act.
He brought to our notice Page No. 74 of the Paper Book which is the clarification submitted by the assessee before Ld.CIT(E). He also brought to our notice the detailed submissions made before Ld.CIT(E) as a part of explanation submitted before him.
Ld. AR submitted that after considering the detailed submissions made by the assessee and brought to the notice of the above
12 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation amendments made by the Finance Account, Ld.CIT(E) instead of giving any finding of the issue raised by him, he simply referred the issue back to the file of the Assessing Officer for denovo assessment. In this regard he submitted that the Ld.CIT(E) instead of giving proper finding he cannot remit the issue to the file of the Assessing Officer. In this regard he relied on following case law: -
(i). Pr.CIT v. Delhi Airport Metro Express (P.) Ltd., [2018] 99 taxmann.com 382 (Delhi). (ii). T.I. Steel Pvt. Ltd., v. Income Tax Officer in ITA.No. 2176/Del/2017 dated 08.07.2019.
On the other hand, Ld.DR brought to our notice Para No. 8 of the 263 order and submitted that Assessing Officer has not considered the submissions, evidences filed by the assessee and it clearly indicates that Assessing Officer has not applied his mind for verification of the contentions made by the assessee. Further, he brought to our notice Page No. 2 of the 263 order and submitted that Assessing Officer has not made basic verification of the donation of foreign funds to other Trusts was not carried out during course of assessment proceedings.
Further, Ld DR brought to our notice Page No. 42 of the Paper Book wherein assessee has filed expenses incurred on object of the Trust and
13 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation also details of persons/institutions to whom donations were made. These informations were filed by the assessee in Paper Book at Page No. 45 to 55 and these details were not verified by the Assessing Officer, so she supported the findings of the Ld.CIT(E) in 263 order. In this regard she relied on the decision of Hon'ble Bombay High Court in the case of Jeevan Investment & finance (P.) Ltd., v. CIT [2017] 88 taxmann.com 552 (Bombay).
Further, Ld.DR submitted that the case laws relied by the assessee are distinguishable and finally she submitted that Assessing Officer has not made basic enquiries and simply accepted the documents submitted by the assessee and relevant to note that all details were submitted by the assessee only before Ld.CIT(E).
In the rejoinder, Ld. AR submitted that all the details were submitted before Ld.CIT(E) as well as Assessing Officer, however, after considering the detailed submissions before Ld.CIT(E), Ld.CIT(E) has not given any findings before remitting the issue to the Assessing Officer.
Considered the rival submissions and material placed on record, we observe that assessee has received foreign contribution and as per their
14 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation submissions it has applied expenditure as per the objectives of the Trust. We notice from the record that Ld.CIT observed from the record that Assessing Officer has not verified particularly the foreign donations where provisions of FCRA are applicable and observed further that one of the donee’s registration was expired and further two were not registered. With the above observation, he proceeded to review the assessment order, accordingly initiated proceedings u/s 263. In response, assessee filed the relevant information. We observe that the assessee has submitted all the relevant information with the certificate of auditor, confirming the compliance relating to the foreign donations and FCRA formalities. Assessee also explained the actual payment/amount of donation to FCRA donees and other details. Ld CIT has not found any discrepancies in the submissions of the assessee, however, he remitted this issue to the file of AO without giving in any findings.
We observe that as per section 263, CIT can proceed to revise the assessment order when he finds that the order passed by Assessing Officer is erroneous in so far as it is prejudicial to the interest of revenue only upon giving opportunity to the assessee and making such enquiries necessary by passing a revision order, which he may enhance or modify or cancel the assessment order and direct fresh assessment. By this
15 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation process, Ld CIT has to first identify or address the issue of error as well as how it is prejudicial to the revenue. It is the duty of the Ld.CIT to first determine the purpose for which the revision provision was invoked and then has to identify the error as well as the extent to which it is prejudicial to the interest of revenue. In the given case, we observe that no doubt Ld.CIT initiated the proceedings u/s 263 however, he almost accepted the submissions of the assessee and failed to determine how it is erroneous as well as prejudicial to the interest of revenue. It is not only requirement to determine how it is erroneous as well as prejudicial to the interest of the revenue for initiation of proceedings but also requirement before proceeding to order revision, which may be to modify or enhance or cancel and order for denovo reassessment. In the given case, Ld.CIT has not actually given any finding, the officers cannot merely take the power under the provisions without demonstrating the accountability under the same provision. In our view, before giving any direction to the Assessing Officer to redo the assessment after verifying the information submitted by the assessee, he should have given the findings on the proceedings u/s 263. The officers (Ld.CIT) should have heart to express their views on the outcome of the proceedings, even it may end up giving concessions to the assessee in certain aspects, which ultimately be the guide to the
16 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation subordinate officers. The remittance without proper direction may lead to unclear and high handed assessment which may end up detrimental to the cause of assessee.
Further, it was submitted that due to the amendment made in the Finance Act, 2016 in section 2(1)(j)(vi) FCRA Act 2010 as per which, earlier the assessee was treated as foreign source but now after amendment, it is considered as not a foreign source. Accordingly, the contributions received from Axis Bank Ltd will not be treated as foreign contribution. Hence, the restriction on transfer or contribution to unregistered donees are excluded. However, this aspect was not verified by any authority and we do not intend to go into this aspect, as we already decided that Ld.CIT has not given any finding under revision proceedings. Accordingly, we set aside the order passed u/s 263 of the Act.
Accordingly, the grounds raised by the assessee are allowed.
Order pronounced in the open court on 28th July, 2022
Sd/- Sd/- (SANDEEP SINGH KARHAIL) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 28.07.2022 Giridhar, Sr.PS
17 ITA NO. 1285/MUM/2021 (A.Y: 2016-17) M/s. Axis Bank Foundation Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
//True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum