DANI CHARITABLE FOUNDATION ,MUMBAI vs. CIT (EXEMPTIONS), MUMBAI

1 ITA 560/Mum/2021 IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI

BEFORE SHRI G.S. PANNU (HON’BLE PRESIDENT) AND SHRI SAKTIJIT DEY (HON’BLE JUDICIAL MEMBER)

I.T.A. No.560/Mum/2021 (Assessment year 2016-17)

Dani Charitable Foundation vs CIT(EXEMPTIONS), MUMBAI 3-A, Barodawala Mansion 81, Dr Annie Besant Road Worli, Mumbai-400 018 PAN : AAATD2747D APPELLANT RESPONDENT

Appellant by Shri H.N. Motiwala / Shri Dalpat Shah Respondent by Shri S Murli Mohan (CIT)

Date of hearing 20-10-2021 Date of pronouncement 18 -11-2021 O R D E R Per Bench Captioned appeal has been filed by the assessee assailing order dated 23- 02-2021 passed by learned Commissioner of Income Tax (Exemptions), Mumbai under section 263 of the Income Tax Act, 1961 for the assessment year 2016-17. 2. Briefly the facts are, the assessee is a charitable trust registered with Charity Commissioner, Mumbai as well as under section 12A of the Act. For the assessment year under dispute, assessee filed its return of income on 10-09-2016 declaring total income at Rs.2,09,620/-. Assessment in case of the assessee was

2 ITA 560/Mum/2021 completed under section 143(3) of the Act vide order dated 08-12-2018 determining the total income at Rs.15,09,615/-. The variation in total income as offered by the assessee and as determined by the assessing officer was due to disallowance of exemption claimed in respect of accumulation of income of Rs.13 lakh under section 11(2) of the Act. 3. Be that as it may, after completion of the assessment as aforesaid, learned Commissioner of Income Tax (Exemptions), Mumbai, in exercise of powers conferred under section 263 of the Act, called for and examined the assessment records for the impugned assessment year. On examining the assessment records, he noticed that in the financial year 2014-15 assessee had received fully paid up equity shares of M/s Asian Paints Ltd as gift from Shri Jalaj Ashwin Dani, Director of M/s S.C. Dani Research Foundation Pvt Co. Further, in financial year 2015-16 relevant to the assessment year under dispute, the assessee had received exempt income by way of dividend on such shares amounting to Rs.18,22,287/-. Whereas, the assessee had not invested the equity shares received as gift in the modes specified in section 11(5) of the Act. Thus, he observed, due to non investment in terms of section 11(5) of the Act, provision contained under section 13(1)(d) of the Act would get attracted and assesee’s claim of exemption under section 11(2) cannot be allowed. Being of the view that the assessing officer, while completing the assessment, has failed to verify the non compliance with the provisions contained under section 11(5) r.w.s. 13(1)(d) of the Act, the assessment order is erroneous and prejudicial to the interest of the revenue, learned Commissioner issued a notice under section 263 of the Act directing the assessee to show cause as to why the assessment order should not be revised. As alleged by learned Commissioner, in response to the notice issued,

3 ITA 560/Mum/2021 there was complete non compliance from assessee’s side. Therefore, he proceeded to complete the proceeding initiated under section 263 of the Act. While doing so, he relied upon various judicial precedents to hold that the assessing officer having not made necessary enquiry as provided under Explanation 2 to section 263 of the Act, the assessment order is erroneous and prejudicial to the interest of revenue. Accordingly, he set aside the assessment order with a direction to the assessing officer to pass a fresh assessment order keeping in view the issue raised in the proceedings under section 263 of the Act and after conducting proper enquiries after providing due opportunity of being heard to the assessee. 4. The learned authorized representative of the assessee submitted, assessee had received the equity shares of Asian Paints Ltd as gift in the financial 2014-15. He submitted, as per section 11(5) of the Act, the assessee has to invest the shares in the mode and manner prescribed therein. However, drawing our attention to clause (iia) to the Proviso to section 13(1)(d), he submitted, since the shares were received by the assessee in financial year 2014-15, the assessee had time limit to invest in the mode and manner prescribed under section 11(5) of the Act till the expiry of a period of one year from the end of the financial year in which the shares were received. Thus, he submitted, violation, if any, under section 11(5) r.w.s. 13(1)(d) could be reckoned only after expiry of one year from the end of the financial year in which the shares were received. He submitted, in assessee’s case, shares were received in financial year 2014-15. Therefore, the assessee can hold on to the shares till 31.03.2016. Therefore, the assessing officer could not have disallowed assessee’s claim of exemption for alleged violation of section 11(5) and section 13(1)(d) of the Act in the impugned assessment year.

4 ITA 560/Mum/2021 He submitted, violation, if any, due to non compliance with section 11(5) r.w.s. 13(1)(d) could only have been examined in assessment year 2017-18. Thus, he submitted, the assessment order passed for the impugned assessment year cannot be considered to be erroneous and prejudicial to the interest of revenue. That being the case, the exercise of jurisdiction under section 263 of the Act is erroneous. 5. To stress upon the fact that the assessee has an outer limit of one year for investing in the mode and manner prescribed under section 11(5) of the Act, he relied upon CBDT circular No.636 dated 13-01-1992. 6. The learned departmental representative strongly relied upon the observations of learned Commissioner and submitted that since the assessee had violated the conditions of section 11(5) r.w.s. 13(1)(d) of the Act, assessee’s claim of exemption could not have been allowed. The assessing officer, having failed to examine the applicability of the relevant statutory provisions, the assessment order is erroneous and prejudicial to the interest of the revenue. 7. We have considered rival submissions and perused materials on record. Undisputedly, assessee is registered as a charitable trust under section 12A of the Act. There is also no dispute even by the revenue that assessee is otherwise eligible for claiming exemption under section 11 of the Act. Learned Commissioner has invoked jurisdiction under section 263 of the Act on the limited issue that the assessee has not invested the shares of M/s Asian Paints Ltd received as gift in the financial year 2014-15 in the mode and manner prescribed under section 11(5) of the Act. It is not in dispute that the assessee has received fully paid up equity shares of M/s Asian Paints Ltd as gift in financial year 2014-15. It is also a fact on record that in the financial year 2015-16 relevant to assessment

5 ITA 560/Mum/2021 year under dispute, assessee had not invested the equity shares in any of the mode and manner prescribed under section 11(5) of the Act. Thus, the issue arising for consideration is, for not investing in the equity shares in the investments prescribed under section 11(5) of the Act, whether assessee’s claim of exemption under section 11(2) of the Act can be denied in the impugned assessment year. 8. Before we proceed to decide the issue, it is necessary to look into the relevant provisions. As per sub section (1) of section 11 of the Act, income derived from property held under trust is eligible for exemption to the extent to which such income is applied for the object for which the trust is created. It also provides that any amount out of such income not in excess of 15% will also be eligible for exemption if it is accumulated or set apart for the object of the trust. Sub section (2) of section 11 provides that if, in a particular previous year the income applied towards charitable or religious object of the trust falls short of 85% of the income derived during that year, still, the assessee would be eligible for exemption, if such income is accumulated or set apart for application to such charitable purposes subject to the following conditions:- (i) The person concerned must furnish a statement in the prescribed form and in the prescribed manner stating the purpose and the period for which the income is accumulated or set apart, which in no case shall exceed five years; (ii) The money so accumulated or set apart is deposited in the forms or modes specified in sub section (5); and

6 ITA 560/Mum/2021 (iii) The statement has to be furnished before the due date of furnishing of return of income as specified u/s section 139(1) of the Act. 9. Sub section (5) of section 11 of the Act prescribes the forms and modes of investing or depositing the money as referred to in clause (b) of sub section (2) of section 11 of the Act. Section 13 of the Act speaks of certain situation / conditions in which provisions of section 11 would not apply. Section 13(1)(d) provides that a charitable or religious trust would not be eligible to avail exemption under section 11 of the Act unless the funds accumulated or set apart is invested in terms of section 11(5) of the Act. However, Proviso to section 13(1)(d) carves out certain exceptions. Clause (iia) of Proviso to section 13(1)(d), relevant for our purpose, reads as under:- “(iia) any asset, not being an investment or deposit in any of the forms or modes specified in sub- section (5) of section 11, where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in sub- section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1 1993 whichever is later;”

7 ITA 560/Mum/2021 applicable from 01-04-2016, falling in financial year 2016-17 relevant to assessment year 2017-18. Thus, insofar as the impugned assessment year is concerned, there is no breach or violation of the conditions of section 11(5) r.w.s. 13(1)(d) of the Act. That being the case, the assessing officer could not have invoked the provisions of section 13(1)(d) r.w.s. 11(5) of the Act to deny assessee’s claim of exemption under section 11(2) of the Act in the impugned assessment year. Therefore, for this particular reason, the assessment order cannot be considered to be erroneous. Thus, one of the vital conditions of section 263 remains unfulfilled. That being the case, the revisionary authority cannot clothe him with the power to revise the assessment order under section 263 of the Act. Therefore, as a natural corollary, the order passed under section 263 of the Act has to be set aside and the assessment order is to be restored. Accordingly, we do so. 12. In the result, appeal is allowed as indicated above. Order pronounced on 18/11/2021. Sd/- sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER Mumbai, Dt : 18/11/2021 Pavanan

8 ITA 560/Mum/2021 Copy to : 1. Appellant 2. Respondent 3. The CIT concerned 4. The CIT(A) 5. The DR, ITAT, Mumbai 6. Guard File /True copy/ By Order

Asstt. Registrar, ITAT, Mumbai