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Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI
Before: SHRI PAVAN KUMAR GADALE & SHRI AMARJIT SINGH
ORDER PER AMARJIT SINGH, A.M. Both the appeal filed by the assessee are directed against the order of the Commissioner of Income Tax (Exemption) [in short ‘CIT(E)’] passed u/s 263 of the Act holding that assessment order passed by the Assessing Officer u/s 143(3) of the Act is erroneous in so far as it is prejudicial to the interest of Revenue.
HT Parekh Foundation 2 & 806/M/2021 2. Appeal vide ITA No. 806/M/2021 was filed against the order of the Commissioner of Income Tax (Exemption) passed u/s 263 of the Act dated 23rd March 2021 stating that order u/s 263 of the Act was passed without disposing the assessee’s adjournment application. The appeal vide ITA No. 805/M/2021 is filed against the order of the CIT(E) passed u/s 154 r.w.s. 263 of the Act that after taking into consideration the rectification application of the assessee that earlier order u/s 263 of the Act was passed without considering the adjournment application of the assessee. Since in both appeal identical issues based on similar facts are involved, therefore, for the sake of convenience these appeal of the assessee are adjudicated together as follows.
The fact in brief is that the assessee has filed return of income for the year under consideration on 17th October 2016 declaring total income at ₹Nil. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act issued on 31st July 2017. The assessment u/s 143(3) of the Act was finalized on 01st December 2018 assessing the total income of the assessee at ₹Nil. 3.1 Subsequently, the Ld. CIT(E), Mumbai on verification of the assessment record observed that order passed by the Assessing Officer u/s 143(3) is erroneous as far as it is prejudicial to the interest of the Revenue. The Ld. CIT(E) stated that out of donation of ₹74.04 crores donation of ₹26 crores as on 31st March 2016 was shown as receivable. He was of the view that donation was not a liability of donor and the donation can be either received or not received. The Ld. CIT(E) has also observed that the entire amount of donation of ₹46.27 crores given to various other trust has been claimed as capital expenditure by the assessee and the assessee has disbursed the donation received without doing any noteworthy activities. The Ld. CIT(E) has also pointed out that in the HT Parekh Foundation 3 & 806/M/2021 income and expenditure account, income of only ₹1.17 crores was shown against which expenditure of ₹109.53 lacs was claimed. The Ld. CIT(E) has also observed that the assessee has paid salaries to the amount of ₹90 lacs to four persons which appeared to be excessive. Highlighting the aforesaid observation, the Ld. CIT(E) stated that the order passed by the Assessing Officer was prejudicial to the interest of Revenue. Therefore, a show cause notice dated 12.03.2021 was issued to the assessee to show cause why by the assessment order dated 01.12.2018 should not be set aside u/s 263 of the Act. The Ld. CIT(E) stated that the assessee has not made compliance to the show cause notice till the date of hearing fixed in the case on 17.03.2021. Thereafter, on taking into account the aforesaid observation and after referring judicial pronouncement given at page No. 4 and 5 of the order, the CIT(E) has held that order passed by the Assessing Officer u/s 143(3) is erroneous in so far as it is prejudicial to the interest of Revenue. 3.2 Thereafter, the assessee has filed a petition u/s 154 of the Act on 26.03.2021 stating that it has filed an application for adjournment of the hearing fixed on 17.03.2021 which was not acknowledged and taken into consideration before passing order u/s 263 of the Act. The assessee has also pointed out that it has also made submission with response to show cause notice on 23.03.2021. In its submissions, the assessee submitted that it had included a sum of ₹26 crores in its total income and then claimed deduction of 15% as amount accumulated as per provisions of section 11 sub-section (1) of the Act. The assessee also made an application in Form No. 9A as per provisions of clause (b) of Explanation (1) to sub-section (1) of section 11 of the Act for the amount of income of ₹26 crores receivable during the year. The assessee has HT Parekh Foundation 4 & 806/M/2021 also submitted that in the assessment order the amount accumulated to the extent of 15% is allowed only to the extent of ₹111,97,935/- by the Assessing Officer which was also much below the revised amount computation made in its submission. 3.3 The assessee has also submitted that during the previous year’s relevant to the assessment year under consideration it had received donation of sum of ₹73,53,000,00/- which was directly recorded in the balance sheet as earmarked funds and out of which the assessee had applied a sum of ₹46,27,95,500/- towards the various objects as specified by the donor and the same has also been accounted directly as a balance sheet item and net amount was reflected as amount of donation not received during the year and shown as receivable in the balance sheet as per the accounting treatment followed by the assessee. The assessee hasalso given the complete detail and information about the process followed for application of income as donation to various other chargeable trusts and institutions. The assessee also submitted that the expenditure referred in the show cause notice was not capital expenditure but expenditure on the objects of the assessee out of earmarked donations. It was submitted that expenditure of ₹6,81,671/- was only incurred of the nature of capital expenditure towards acquisition of fixed assets. The assessee further explained that the amount of ₹46,34,77,171/- was an expenditure on objects and not a capital expenditure. The assessee also submitted that it has made application of the funds on objects by providing support to other non-profit organization and complete details with regard to these organizations have been provided and examined by the Assessing Officer at the time of completion of assessment. The assessee has also submitted that as per income and HT Parekh Foundation 5 & 806/M/2021 expenditure account, the income was only ₹1,01,87,453/-since earmarked donations had been shown directly in the relevant schedule to the balance sheet. 3.4 The assessee has also submitted before the Ld. CIT(E) that during the course of assessment proceedings, all the details were called by the Assessing Officer and the same has been furnished along with supporting documents. It is also submitted that assessment order u/as 143(3) of the Act was passed by the Assessing Officer after making enquiry and verification by issuing of notices u/s 142(1) of the Act.
The Ld. CIT(E) has not satisfied with the submission of the assessee and he was of the view that assessment records clearly revealed that the issue pertaining to claim of deduction of 15% u/s 11 on amount of ₹26 crores has not been verified by the Assessing Officer. He was also of the view that giving amount of ₹46.27 crores to various other trusts were also not examined by the Assessing Officer. The Ld. CIT(E) also stated that reasonableness of the remuneration paid to the employees were also not examined by the Assessing Officer. 4.1 Therefore, the Ld. CIT(E) while disposing the petition of the assessee u/s 154 of the Act (referring his order dated 23.03.2021) held that assessment order passed by the Assessing Officer is erroneous so far as it is prejudicial to the interests of the Revenue.
5. During the course of appellate proceedings before us, the Ld. counsel has submitted Paper Book comprising page No. 1 to 283 pertaining to the details and copies of document furnished before the Assessing Officer and the Ld.
HT Parekh Foundation 6 & 806/M/2021 CIT(E) during the course of assessment and 263 proceedings. The Ld. counsel contended that the assessee has shown donation of ₹20 crores as receivable which was actually received in the next year and assessee has opted to accumulate the same as per clause (2) of Explanation (1) below section 11 sub- section (1) of the Act and during the course of assessment, the Assessing Officer has examined the same before passing assessment order. The Ld. counsel also submitted that donation received was reflected in the balance sheet and its receipt as well as application had been verified and examined by the Assessing Officer during the course of assessment proceedings. Further, the detail of expenditure was also submitted to the Assessing Officer during the course of assessment proceedings and after verification of the same, the assessment order was finalized. The Ld. counsel referred page No. 8 of the Paper Book and pointed out that AO has issued notice u/s 142(1) of the Act dated 05.04.2018 during the course of assessment vide question No. 7 he has asked the assessee to furnish the details of corpus and non-corpus donation received during the year. In response the assessee has submitted the required detail vide letter dated 15.06.2018. The copy of the same as per Annexure A and B was enclosed by the assessee in the Paper Book. Further, vide another notice u/s 142(1) dated 25.10.2018, the Assessing Officer asked the assessee to provide details of application of income during the year with supporting document and also produce the reason regarding the application being higher than the receipt. The Assessing Officer has also asked the assessee to provide the letter for the corpus donation received and also explain that the receipts were correctly shown in the return of income. The AO has also asked various details pertaining to donation received and its application. In this regard, the assessee has submitted the details along with copies of document vide letter dated 27.11.2018. The HT Parekh Foundation 7 & 806/M/2021 copies of the notices and details given by the assessee were placed as per Annexure C, D & E in the Paper Book. The Ld. counsel has also referred page No. 25 of the Paper Book pertaining to copy of notice issued u/s 142(1) of the Act dated 05.04.2018 and page No. 26 to 31 of the Paper Book showing the detail of Annexure to notice u/s 142(1) and detail of submission made by the assessee during the course of assessment proceeding. The Ld. counsel has also referred page No. 32 to 36 pertaining to the copies of the notice u/s 142(1) of the Act dated 25.10.2018 along with Annexure showing the detail of document information asked by the Assessing Officer and details of letters showing the different submission made by the assessee during the course of assessment proceedings. The Ld. counsel has also referred page No. 11 of the Paper Book showing that in the assessment order, the Assessing Officer has allowed accumulation only to the extent of ₹1,11,97,935/- which was much below the revised amount of computation worked out at ₹7,28,23,118/-. The Ld. counsel has also referred other various pages of the Paper Book showing that complete thorough inquiry was conducted by the Assessing Officer and assessee has submitted the various details and copies of document which was not taken into consideration by the Ld. CIT(E) at the time of proceedings u/s 263 of the Act. The Ld. counsel has also referred the judicial pronouncement in the case of Torrent Pharmaceuticals Ltd. v. DCIT [ITA No. 164/Ahd/2018 dated 8th August, 2018] (ITAT Ahd). The Ld. counsel has also referred the other judicial pronouncement placed in the Paper Book.
On the other hand, the Ld. Departmental Representative (DR) contended that the Assessing Officer has passed the order u/s 143(3) of the Act without making inquiry and referred Explanation (2) to section 263 of the Act which HT Parekh Foundation 8 & 806/M/2021 clarify but would constitute order erroneous and prejudicial to the interest of Revenue. The Ld. DR has referred section 11 to section 11(1) and stated income received not receivable to be taken into account for computing 15% of the income which may be accumulated. The Ld. DR has supported the order of Ld. CIT(E).
Heard both the sides and perused the material on record. Assessment u/s 143(3) of the Act was completed by the Assessing Officer vide order u/s 143(3) of the Act on 01.12.2018. Subsequently, the CIT(E) vide order u/s 263 of the Act dated 23.03.2021, and vide order u/s 154 r.w.s. 263 of the Act dated 31.03.2021 set aside the assessment order passed by the Assessing Officer u/s 143(3) of the Act holding the same as erroneous in so far as it is prejudicial to the interest of Revenue and directed the Assessing Officer to undertake assessment proceedings de novo. The Ld. CIT(E) mainly stated in the order u/s 263 of the Act that on examination of donation received by the assessee it was found that out of donation of ₹74.04 crores, donation of ₹26 crores as on 31.03.2016 was shown as receivable. He was of the view that donation was not liability of the donor and the same was not considered by the Assessing Officer during the course of assessment proceedings. He was also of the view that the assessee has given the entire donation amount of ₹46.27 crores to various other trusts which has been claimed as capital expenditure but the Assessing Officer has not examined the activities and object of the trust to whom the donation was giving by the assessee. The Ld. CIT(E) has also mentioned that in the income and expenditure account, the assessee has only shown income to the extent of ₹109.3. Further, the Ld. CIT(E) stated that assessee has paid excessive salary of ₹90 lacs to four persons which was not examined by the Assessing Officer.
HT Parekh Foundation 9 & 806/M/2021 In this regard, we have gone through the detailed submission made by the assessee during the course of assessment proceedings before the Assessing Officer. With the assistance of Ld. DR we have gone through the notices issued u/s 142(1) of the Act dated 05.04.2018. It is noticed that Assessing Officer has made specific queries vide question No. 7 and 12 as mentioned in the Annexure to the notice. The relevant part of the query raised in the said notice are reproduced as under :
“Details of Corpus & Non-Corpus Donation Received during the year, if any, in the following format :
Name, Address & PAN of Amount involved in ₹ Mode of Payment Nature of Donations Donor (Cheque/DD No. & Bank if (Corpus or Non-Corpus) non-cash) Details of persons/institutions to whom donation have been made during the year in the format below:
Name, Address & PAN of Amount, Cheque/DD No. Details of Charitable activities in Donee Bank A/c No. & Branch which Donee is engaged.” from wich paid 7.1 Again, vide notice dated 25.10.2018, the Assessing Officer has also raised specific queries on the issue of accumulation and application of the funds and other detail related to the donation received. The relevant part of the inquiries made by the Assessing Officer is reproduced as under :
“4. Furnish the income accumulated/set apart for the period of last 6 years and also provide it application and reason for accumulation and along with it furnish Form 10 and the copy of resolution passed by the Trust for the same, also provide the details of income accumulated as per Form 10B.
Furnish the details of grant received during the year along with the purpose, letter of approval and other necessary documents. Also state regarding the accounting entry done in your books of account.
Furnish the details regarding the amount deemed to have applied to charitable or religious purpose (Column (g)(iv) of Part B-TI of ITR).
HT Parekh Foundation 10 & 806/M/2021 10. Furnish the detail of 80G received during the year in following format:
Sr. No. Name of Donor Amount Address of Donor PAN of Relation with received Donor Trust” 7.2 The assessee had made detailed submission in response to the queries raised by the Assessing Officer during the course of assessment proceedings. In its submission dated 15.06.2018, placed in the Paper Book, the assessee has made detailed submission in response to the query raised by the Assessing Officer vide notice u/s 142(1) of the Act on the issue of object of the trust and detail of corpus and non-corpus donation received during the year under consideration. Further, vide letter dated 29.10.2018, the assessee has made detailed submission along with copies of document in response to the queries raised by the Assessing Officer vide notice u/s 142(1) of the Act, the assessee has given the detailed application of income along with statement giving detail of grant received along with purpose and treatment given in its books of account. The assessee has also provided copy of Form No. 9A to the Assessing Officer. The assessee has also given the complete detail along with acknowledgement and receiptsof different institutions in respect of application of its funds. We have also perused the copy of Form 9A submitted by the assessee before the Assessing Officer during the course of assessment proceedings in accordance with the provisions of section 11(1) of the Act. As per provision of clause (b) of Explanation (1) to sub-section (1) of section 11 the assessee can make application in Form No. 9A in respect of amount of income not received during the year. Accordingly, the assessee has made the application in Form No. 9A and intimated the Assessing Officer that the amount of ₹26 crores was not received during the year and the same was shown as receivable as per the provision to section 11 sub-section (1) of the Act. The HT Parekh Foundation 11 & 806/M/2021 assessee submitted that in accordance with the provisions as referred above it had included the sum of ₹26 crores in its total income and then claimed deduction of 15% amount accumulated as per provisions of section 11 sub- section (1) of the Act. The assessee has also explained in its submission dated 23.03.2021 before the Ld. CIT(E) that after including the sum of ₹26 crores in its total income amount accumulated to the extent of 15% come to ₹11,18,23,118/- and without including the amount in its total income amount accumulated to the extent of 15% worked at ₹7,28,23,118/-. However, in the assessment order, the AO has allowed the accumulation to the extent of 15% at ₹1,11,97,935/- only. The Ld. CIT(E) has failed to controvert this claim of the assessee-company that it had not claimed any excess amount of deduction of 15% as per provisions of section 11 of the Act. As per the provisions, the assessee has mentioned in the Form No. 9A that the amount receivable was applied in the subsequent year after the same was received. It is demonstrated from the facts and material placed on record as discuss (supra) that during the course of assessment, the Assessing Officer made detailed inquiries and raised different queries on the issue of receipt and disbursement of donation and other expenditure incurred by the assessee during the year under consideration. During the course of proceedings u/s 263 of the Act before the Ld. CIT(E), the assessee has submitted the details about the inquiries already made by the Assessing Officer at the time of original assessment and copies of document and relevant material which the assessee has submitted before the Assessing Officer. In this regard, we observed that the Ld. CIT(E) has not controverted the supporting and relevant evidences put up before him during the course of proceedings u/s 263 of the Act. We consider that it is necessary for the Ld. CIT(E) to state in what manner he considered that the order of the HT Parekh Foundation 12 & 806/M/2021 Assessing Officer is erroneous and prejudicial to the interest of Revenue and what the basis was far such conclusion. The Ld. counsel has demonstrated from the material placed in record that the Assessing Officer after considering the entire books of account and the reply furnished by the assessee passed the order u/s 143(3) of the Act. 7.3 After perusal of the material on record and copies of letter issued by the Assessing Officer and submission made by the assessee during the course of assessment proceedings u/s 143(3) it is evident that Assessing Officer has made specific inquiries with respect to the issue of donation and other claim made by the assessee during the course of assessment proceedings. 7.4 In the light of the above facts and material on record, we observed that the Ld. CIT(E) was not justified in holding that the assessment order u/s 143(3) of the Act on 18.12.2018 was erroneous as much as was prejudicial to the interest of Revenue. We considered that order passed u/s 263 of the Act is not sustainable in law, therefore, the order u/s 263 is quashed. Accordingly, both the appeals of the assessee are allowed.