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Facts
The assessee, a 500-year-old temple, was granted registration u/s.12AA of the Income Tax Act in February 2019. The Assessing Officer (AO) reopened the assessment for AY 2012-13, citing cash deposits and lack of ITR filing for that year. The AO treated the assessee as an AOP and taxed the income.
Held
The Tribunal held that the AO was barred from reopening the assessment for AY 2012-13 under the third proviso to Section 12A(2) of the Act, as registration was granted later. The AO's action was also in defiance of CBDT circulars and High Court decisions.
Key Issues
Whether the AO can reopen assessment for a preceding year if the assessee obtained registration u/s.12AA in a subsequent year. Whether treating the assessee as an AOP and taxing its net income is permissible when no addition was made for unexplained cash deposits.
Sections Cited
147, 148, 12AA, 12A(2), 11, 12, 68, 69
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee-Trust/Temple against the order of the Learned Commissioner of Income Tax (Appeal)/Addl./JCIT(A)-19, (hereinafter referred to as “the Ld.CIT(A)”), Mumbai, dated 06.01.2025 for the Assessment Year (hereinafter referred to as "AY”) 2012-13.
At the outset, the Ld.AR of the assessee brought to our notice that the appeal has been filed belatedly by ‘46’ days; and for condoning the delay, the assessee has filed an affidavit explaining the cause for the delay. Having gone through the contents of the same, we find that cause for delay was reasonable, so we excuse the same and proceed to hear the assessee’s appeal.
The main grievance of the assessee-trust is against the action of the Ld.CIT(A) confirming the action of the AO computing the total income at ₹84,59,780/- in place of ‘nil’ as claimed by the assessee.
The brief facts of the case are that the assessee is a 500 years old temple; and pursuant to the special drive of the Income Tax Department and the State of Tamil Nadu, the assessee was asked to apply for registration u/s.12AA of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) and accordingly granted registration in February, 2019 as a religious Trust. The AO thereafter states to have noticed that in AY 2012- 13, the assessee had deposited in its bank account ₹55,27,489/- and despite there was a bar placed by the third proviso to Section 12A(2) of the Act, the AO on 25.03.2019 issued notice u/s.148 of the Act, thereby conveyed his desire to reopen the assessment for AY 2012-13. For reopening the ibid assessment, the AO is noted to have prepared an omnibus “reasons recorded” wherein he is noted to have named ‘96’ different assessee’s and classified them differently under seven (7) heads viz., (i) cases where no return filed (ii) but cash deposits in commensurate to income returned (iii) cash deposits made but no return filed (iv) sale of immovable property - cases where no return of income filed (v) sale of immovable property – cases were return of income is filed but income declared is not commensurate to sale consideration received (vi) purchase of immovable property – cases where no return of income filed (vii) purchase of immovable property – cases where return of income is filed but income declared is not commensurate to the investments made.
In the “reasons recorded”, assessee’s name figure under the third criteria i.e. cash deposits made, but no return of income filed, as Item No.53 wherein, it is shown that the assessee temple has deposited cash of ₹55,27,489/-. Thereafter, the AO noted in the omnibus “reasons recorded” that even though the assessee deposited substantial cash in its bank account, in the absence of the income tax return, income chargeable to tax has escaped assessment. In the assessment order, the AO is noted to have acknowledged that assessee is a temple and it got registered u/s.12AA of the Act on 04.02.2019 (AY 2019-20). He is noted to have acknowledged that assessee pursuant to the notice u/s.148 of the Act had filed its return of income on 17.12.2019 along with audited financial statements, and further noted that the assessee had shown total receipts of ₹1,37,97,350/- and the excess of income over expenditure was shown at ₹84,59,783/-. The AO noted that the assessee maintained several bank accounts with Karur Vysya Bank, Alagapuram Branch, Salem [Account Nos.1246155000104121 & 1246155000104114] and noted that the first account was meant for fund transfer from the second account and the second account for remittances from the temple. According to the AO, the cash deposits in the bank accounts amounts to ₹1,09,22,321/- [₹55,27,489/- & ₹53,94,832/-]. The assessee explained that deposits were made out of Hundial collections/donation-boxes, ticket sales and donations, which was a joint account, the Executive Officers and the Asst. Commissioner, Hindu Religious & Charitable Endowment [HR & CE] Department of that time operated the bank account. The AO acknowledged the source of the deposits after due verification with the relevant books of accounts and noted that the financials drawn by the assessee were subject to audit by the HR & CE Department of the Government of Tamil Nadu. Having cross-checked the major expenses claimed by the assessee, the AO treated the assessee as an AOP [since the assessee failed to file the ITR for AY 2012-13 along with Audit Report and since, the assessee didn’t enjoy the registration u/s.12A of the Act during that period]. Hence, he was of the view that the assessee is not entitled to exempt income u/s.11 & 12 of the Act and then, passed the assessment order on 31.12.2019 by bringing the excess income over expenditure to tax to the tune of ₹84,59,780/-.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A)
wherein, the assessee brought to his notice as to how the assessee got registration u/s.12AA of the Act on 04.02.2019. The assessee submitted that the Income Tax Department [the Ld.CIT(E) vide order dated 30.07.2018] addressed letter to the State Government of Tamil Nadu/Commissioner, HR & CE Department requesting their good office to conduct outreach programme (awareness programme) so that temple trust under aegis of HR & CE Department can avail registration u/s.12AA of the Act. Pursuant to such initiative, the assessee-Temple filed an application in Form 10A seeking registration u/s.12AA of the Act on 24.08.2018 and the Ld.CIT(E) granted registration u/s.12AA of the Act finding it to be involved in religious activities vide order dated 04.02.2019 from AY 2019-20. After the registration u/s.12AA was granted to assessee, the AO issued notice u/s.148 of the Act to reopen the assessment for AY 2012-13. Against re-opening of assessment, the assessee asserted before the First Appellate Authority that as per the third proviso to Sec.12A(2) of the Act, the AO was prohibited to issue such a notice u/s.148 of the Act to a Trust for any year preceding the assessment year in which registration u/s.12AA of the Act has been granted and for such a proposition relied on the decision of the Hon’ble Karnataka High Court in the case of CIT(E) v. Karnataka State Students Welfare Fund reported in [2022] 444 ITR 436 (Karnataka) and also the decision of the Hon’ble Punjab & Haryana High Court in the case of Prem Chand Markanda SD College for Women v. ACIT (Exemption) reported in [2023] 154 taxmann.com 442 (P&H) and pointed out that the SLP preferred by the Department against the order of the High Court was dismissed by the Hon’ble Apex Court reported in [2024] 460 ITR 495 (SC). However, the Ld.CIT(E) is noted to have called for Remand Report from the AO, but acknowledges that the AO didn’t furnish any Remand- Report. But he brushed aside the objections/grounds of appeal preferred by the assessee and dismissed the appeal without passing any speaking order by merely stating that assessee in AY 2012-13 neither enjoyed registration u/s.12AA of the Act nor filed ITR, therefore, he dismissed the appeal of the assessee.
Aggrieved, the assessee is in appeal before us.
Having heard both the parties and after perusal of the records, it is noted that the assessee claims to be 500 years old religious Trust and has been granted registration u/s.12AA of the Act vide order dated 04.02.2019 (AY 2019-20). After assessee Trust have been granted registration, the AO is noted to have issued notice u/s.148 of the Act on 25.03.2019 on the strength of “reasons recorded” along with ‘96’ different persons/assessees. The omnibus “reasons recorded” as noted supra has been classified under eight (8) heads and the assessee is noted to have been placed under 3rd head i.e. ‘cash deposits made, but no return of income filed’ wherein the assessee’s name figures in at Serial No.53 where a figure of ₹55,27,489/- is seen to be recorded as ‘cash deposits’, which fact is assumed to be the basis for believing that income has escaped assessment. From a reading of the “reasons recorded”, it is obvious that there is no separate objective satisfaction qua assessee is noted to have made in the impugned “reasons recorded”. It is seen that the main reason for re-opening of assessment was deposit of cash of ₹55,27,489/- which according to the AO represented the income escaping tax. It is noted that the assessee is a 500 years old religious temple which filed RoI pursuant to the notice u/s.148 of the Act along with complete set of audited accounts before the AO. The AO is noted to have verified and cross-verified the sources of the deposit with the books of accounts of the assessee and found that the financials of the temple were subject to audit by the Government of Tamil Nadu. It is noted that the AO in the assessment order has not made any addition on account of unexplained cash deposits of ₹55,27,489/- [no addition u/s.68/69 of the Act]. Rather, it is noted that the AO while framing the assessment order, he has changed tact and assessed the net income of the temple on the ground that there was no registration u/s.12 of the Act during the AY 2012-13. Therefore, according to the AO, the benefit of exemption u/s.11/12 of the Act can’t be given. Such an action of the AO can’t be countenanced in the light of the bar placed by the third proviso to Sub- section (2) of Section 12A of the Act which prohibits the AO in the first place not to reopen the assessment of a Trust or Institution for any assessment year preceding the first assessment year for which the registration has been granted. The relevant provisions is noted as under:
Section 12A(2) of IT Act -
(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made:] [ ]ייי
[Provided that the provisions of sections 11 and 12 shall apply to a trust or institution, where the application is made under-
(a) sub-clause (1) of clause (ac) of sub-section (1), from the assessment year from which such trust or institution was earlier granted registration;
(b) sub-clause (iii) of clause (ac) of sub-section (1), from the first of the assessment year for which it was provisionally registered:
Provided further that where registration has been granted to the trust or institution under section 12AA or section 12AB], then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year:
Provided also] that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year.
Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under [section 12AA ог section 12AB].][emphasis given by us]
The CBDT Circular No.1/2015 has explained the reasons for the insertion of the third proviso to Section 12A(2) of the Act which reads as under:
8. Circular No. 1/2015 reads as under:-
"8.1 The provisions of section 12A of the Income-tax Act, before amendment by the Act, provided that a trust or an institution can claim exemption under sections 11 and 12 only after registration under section 12AA of the said Act has been granted. In case of trusts or institutions which apply for registration after June 1, 2007, the registration shall be effective only prospectively.
8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available.
8.3 In order to provide relief to such trusts and remove hardship in genuine cases, section 12A of the Income-tax Act has been amended to provide that in a case where a trust or institution has been granted registration under section 12AA of the Income-tax Act, the benefit of sections 11 and 12 of the said Act shall be available in respect of any income derived from property held under trust in any assessment proceeding for an earlier assessment year which is pending before the Assessing Officer as on the date of such registration, if the objects and activities of such trust or institution in the relevant earlier assessment year are the same as those on the basis of which such registration has been granted.
8.4 Further, it has been provided that no action for reopening of an assessment under section 147 of the Income-tax Act shall be taken by the Assessing Officer in the case of such trust or institution for any assessment year preceding the first assessment year for which the registration applies, merely for the reason that such trust or institution has not been obtained the registration under section 12AA for the said assessment year.
8.5 However, the above benefits would not be available in case of any trust or institution which at any time had applied for registration and the same was refused under section 12AA of the Income-tax Act or a registration once granted was cancelled." A combined reading of the 3rd proviso to Section 12A(2) of the Act 10. and the CBDT Circular (supra), it is clear that the AO is barred from reopening the preceding assessment years in the case of assessee who was granted registration u/s.12AA of the Act only on the reason that assessee didn’t enjoy registration in the preceding assessment year.
Admittedly, in this case assessee-Temple was granted registration u/s.12AA of the Act on 04.02.2019 [AY 2019-20] and then the AO reopened the assessment for preceding AY 2012-13 and then brought to tax excess income over expenditure as an AOP, because assessee didn’t enjoy registration during that relevant AY, which impugned action of AO, according to us falls in the teeth of 3rd proviso to section 12A(2) of the Act and the CBDT Circular (supra), which prohibits AO to reopen preceding assessment years for non-registration u/s 12. Hence, we agree with the Ld.AR that the reason given by the AO to assess net income of the assessee-Trust was in defiance to the CBDT directions which can’t be sustained in the light of the decision of the Hon’ble Karnataka High Court in the case of CIT(E) v. Karnataka State Students Welfare Fund (supra) and the Hon’ble Punjab & Haryana High Court in the case of Prem Chand Markanda SD College for Women (supra) [the SLP dismissed]. Viewed from another angle, we note that even though the AO reopened the assessment taking note of deposit of unexplained cash deposits of ₹55,27,489/-, the AO in the assessment order is noted to have not made any addition u/s.68/69 of the Act of the said cash deposit, and instead has only assessed net-income of the assessee-Temple by treating it as an AOP [because it didn’t had registration u/s.12A of the Act for AY 2012-13] which impugned action can’t be sustained, since the jurisdictional fact (AY 2012-13) Arulmigi Vennankudi Muniappan Thirukoil [unexplained cash deposits of ₹55,27,489/-], on the basis of which the AO reopened the assessment no longer exist in the present case, so the AO lost his power to assess any other income as held by Hon’ble Bombay High Court in the case of Jet Airways 331 ITR 236 (BOM). In the light of the foregoing discussion, we are of the view that the AO erred in passing the assessment order by making an addition of the net income of ₹84,59,780/-. Hence, we direct deletion of the addition.
In the result, appeal filed by the assessee is allowed.