WHOLE SALE CLOTH MERCHANT ASSOCIATION ,KOTA vs. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE KOTA , KOTA

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR

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BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 961 to 963/JPR/2024
fu/kZkj.k o"kZ@Assessment Years : 2014-15 to 2016-17
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAATW0127C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Siddharth Ranka, Adv.,

Shri Shrawan Kumar Gupta, Adv. &

Shri Saurav Harsh, Adv.
jktLo dh vksj ls@ Revenue by : Mrs. Anita Rinesh, JCIT-DR lquokbZ dh rkjh[k@ Date of Hearing : 23/07/2025
mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 24/09/2025

vkns'k@ ORDER

PER DR. S. SEETHALAKSHMI, J.M.

Because the assessee was dissatisfied with the finding given in the order of the Learned Commissioner of Income Tax (Appeals)-2, Udaipur
[ for short CIT(A) ] all dated 15.05.2024 for the assessment years 2014-
15 to 2016-17 these appeals were filed. That order of the ld. CIT(A) arises because the assessee has challenged orders dated 19.12.2018
passed under section 147/148 read with section 143(3) of the Income Tax

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Act 1961 [ for short “Act”) by the DCIT, Central Circle, Kota [ for short
AO].
2.1
In ITA No. 961/JPR/2024, the assessee has raised the following grounds of appeal:-
“1.That on the facts and in the circumstances and in law of the case, the ld.
CIT(A) grossly erred in confirming the assessment proceeding u/s 147 r.w.s.
143(3) of the Act.
1.1 That on the facts and in the circumstances and in law of the case, the ld
Assessing Officer grossly erred in making the addition beyond the reason recorded which is not permissible under the law and ld. CIT(Appeal) erred in confirming the same.

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7. That on the facts and in the circumstances of the case, the ld. Ld. Lower
Authority grossly erred in confirming the disallowance of Rs 1,71,897/-/- out of total expenses of Rs 11,45,980/- without considering the facts that it was not claimed by the assessee appellant
8. That on the facts and in the circumstances of the case, the ld. Lower
Authority grossly erred in confirming the disallowance of Rs 1,03,03,005/- and Rs 39,000/- u/s 40(a)(ia) of the Act on account of non-deduction of TDS.
9. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.”

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7. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.”

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(e) If any share, security or other property is transferred to the trust from a is more specified person, for a consideration which than adequate, any share, security or other property is transferred by the trust to specified person, for inadequate consideration;
(f) if any income or property of the trust, exceeding Rs. 1000 in value, is diverted to a specified person; and g) If the trust-funds are invested, or remain invested, for any period In any concern wherein any of the specified persons has a substantial interest.
In view of above provisions of the Act, it is gathered that a complaint has been filed against the trust that books of accounts for the A.Y 2014-15 to 2016-17
have not been written or Audit proceedings were also pending before issuing notice us 148 of the Act. The news regarding irregularities in financial records of the assessee trust has also been published in newspapers. President
ShriTejendra Pal Sahni Rimpi' and Treasurer Shri Manohar Gotewalahave withdrawn huge amounts through Cheques from accounts of the Trust which are not accounted for in the books of accounts. Kindly, explain how withdrawn amounts are accounted for in the books of accounts.
In response thereto the assessee has filed the reply on 16.11.2018
also reproduced at page 5 to 10 of the assessment order. In its reply assessee has explained and replied to all the issue with the details and explanation. However, the ld. AO did find it acceptable and stated that the assessee has not filed ITR for the year, the ITR was filed after reopening of the proceedings u/s 148. The ld. AO has stated that the total income of the trust before allowing the exemption u/s 11 and 12 exceed the total income which is not chargeable to tax. And required to file return in the form 7 before the specified date u/s 139 which is 30 September. The trust was also required to get its accounts audited under the act. The ld. AO had noted that section 12A(1)(b) provides that the exemption u/s 11 will be available only if the accounts are audited and audit report furnished

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along with return. From the audit report so filed in the Form no. 10B dated 14.11.2017 it is evident that number of discrepancies have been noted by the Auditor, who mentioned in Sr. No.3(c) that as per FIR copy,
22 plots has been given to the person who are not the member of Association and received conversion charges from 17 persons @
1,85,000/- and no details available regarding remaining 5 plots amount recoverable from concerning persons of all 22 plots has not been taken in books.
The ld. AO stated that Shri Tejendra Pal Singh has taken loan &
advances of Rs.31,50,000/- from the trust and violated the provisions of Section 13(2), no books of accounts maintained, TDS provisions have not been complied properly, therefore the trust was not eligible for claiming exemption u/s 11 to 13. The president of the trust Shri Tejendra Pal has withdrawals huge amount from the trust account and utilized for personal benefit. The ld. AO has stated that assessee trust is not eligible for exemption u/s 11 & 12, the income of the trust will be charged at MMR u/s 164(2) as the trust doing business activity. With that observation ld.
AO proceeded to make the following addition which the ld. AR of the assessee submitted that the same are made without issuing any show cause notice and not part of the reasons recorded:

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(a)Alleged bogus creditors of Rs.16,75,286/-.
(b) 15% of construction expenses of Rs.8,00,02,935/- which comes to Rs.1,20,00,440/-
(c)15% of certain expenses payment of Rs.24,63,780/- which comes
Rs.3,69,567/-.
(d) Addition/disallowance of Rs.2,18,50,444/- u/s 40(a)(ia) on account of non- deduction of TDS.
(e)The ld. AO has disallowed the income of Rs. 33,50,772/- (33,45,494/-
+5,278/-) and also taxed the same @ Maximum Marginal Rate U/s 164(2).
The Id. AO has alleged that the assessee trust is doing business activities in and not complying statutory provisions of the Act.
Thus the AO has completed the assessment assessing the income of the assessee at Rs.3,92,46,509/- against the Nil Income.
5. When the matter challenged before the ld. CIT(A) the assessee challenged that order of the ld. AO on the legal ground which was not considered by the ld. CIT(A) and had confirmed the action of the ld. AO and had dismissed that legal ground. In that proceeding ld. CIT(A) called for the remand report of the ld. AO on the legal ground of challenging the proceeding u/s. 147/148 proceedings and thereby the assessment made. In that remand report of the Id. AO he has stated that in this case, the ld. AO clarified that the assessment proceedings u/s 147 was initiated after recording reasons of reopening and prior approval has been obtained from the Joint Commissioner of Income Tax, Central Range Udaipur vide his office letter number JCIT/CR/UDR/2017-18/1994 Dated 21.02.2018. The reasons of reopening the assessment proceedings were provided to the ITA No. 961 To 963/JPR/2024
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assessee vide his office letter number DCIT/CC-Kota/2018-19/479 Date
11.06.2018. Assessee/AR has not objected to the assessment proceedings u/s 147 of the Act. He also reported that the income of Rs. 33,45,494/- +
Rs. 5,278/- was added by the AO by disallowing exemption u/s 11(2) and 11(1)(a) of the Act. Further, addition of Rs. 5,278/- is made on account of interest on Income Tax Refund. Thus, all these additions made are part amount reflected as per 26AS. Therefore, addition has been made on this amount also part of reasons of reopening. Therefore, claim of the assessee cannot be accepted as correct that no addition is made on the reasons of reopening.
The Id. AO also stated that the assumption of juri iction by the AO by issuing notice u/s 148 of the Act is found to be justified as the appellant has not filed return of Income u/s 139(1). In the final assessment addition is made regarding one or more of the amounts which was mentioned in the reasons of reopening. It can be said that the amount of Rs. 22,37,641/- as per 26AS was part of the accounts of the assessee association and by denying the benefit u/s 11 of the Act, the AO has taxed the receipts as per correct amounts mentioned in the books of accounts.
Ld. AO reported that the assessee has not filed the return of Income originally u/s 139(1) of the Act. The total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum

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amounts which is not chargeable to tax, and thereby the assessee was required to file its return in Form ITR-7, before the date specified in section 139. However, no return of income was filed. Therefore, the assumption of juri iction remained with the AO till passing of final assessment order. The ld. CIT(A) referred various plea and confirmed the action of the AO on the aspect of the reopening of the assessment.
6. Aggrieved from the order of AO, the assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:-
“4.8. I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:-
In this case, the AO noted that the assessment proceedings u/s 147 was initiated after recording reasons of reopening and prior approval has been obtained from the Joint Commissioner of Income Tax, Central Range Udaipur vide his office letter number JCIT/CR/UDR/2017-18/1994 Dated 21.02.2018. The reasons of reopening the assessment proceedings are provided to the assessee vide this office letter number DCIT/CC-Kota/2018-19/479 Date
11.06.2018, Assessee/AR has not objected the assessment proceedings u/s 147
of the Act.
4.8.1 Addition is made on the reasons of reopening
The appellant has raised the issue that no addition made on the reasons recorded us 148. It is argued that the Id. AO has not made additions on these issue or on the issue recorded in the reason for reopening the case (except minor addition of IT refund interest which is already was on record of the revenue) and he has made different additions vide assessment order, which is illegal and now it is the settled legal position of law that if no addition on the reasons recorded has been made then no other addition can be made.

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It is admitted fact that in the reasons of reopening in addition to other amounts an amount of Rs. 5,278/- is mentioned which is interest on Income Tax Refund on which addition is made in the assessment order also. Therefore, claim of the appellant is not found to be correct that no addition is made on the reasons of reopening.
It is noted that the income of 33,45,494/- + 5,278/-) is added by the AO by disallowing exemption u/s 11(2) and 11(1)(a) of the income Tax Act. Further, addition of Rs. 5,278/- is made on account of interest on Income Tax Refund.
The amount of Rs. 33,50,772/- (33,45,494/- + 5,278/-) must have been part of amount received of Rs. 22,37,641/- reflected as per 26AS. Therefore, addition has been made on this amount also which is also part of reasons of reopening.
Therefore, claim of the appellant is not found to be correct that no addition is made on the reasons of reopening.
It is important to note that it is recorded by the AO that the assessee has not filed any return of income for AY 2014-15. The assessee claimed exemption u/s 12A of the I.T. Act, 1961. The total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum amounts which is not chargeable to tax, it is required to file its return in Form ITR- 7, before the date specified in section 139. However, no return of income was filed.
Therefore, the AO recorded reasons on the basis of limited information available as no return of Income was furnished by the assessee. The AO noted that assessee received amount of Rs. 22,37,641/- as per 26AS. The AO also noted that as per AIR information also Rs. 5278/- has been received by the assessee as income tax refund. The AO also noted that Cash of Rs. 32,30,000/- was also deposited in bank account of the assessee.
The claim of the appellant is that no addition is made on these amounts. The argument of the appellant are considered. It is not that case that the information is found to be incorrect. The AO has considered the reply and made addition as per provisions of Income Tax Act. As such the addition made by the AO are based on return filed in response to notice issued u/s 148. Before the notice, there was no return filed by the assessee. Therefore, the notice issued u/s 148 is found to be valid The appellant has not challenged the validity of the notice. The only return filed by the assessee was in response to notice issued u/s 148 of the Income Tax act. Before that the assessee was non filer. It is not the case that the assessee was not required to file Return of Income. Once, the return is filed then it is duty of the AO to make assessment of the Income of the assessee which has been done by the AO The audit report in form Number 108 was performed on dated 14.11.2017 and a number of discrepancies have been noted by the Auditor Shri A.K.Lodha Partner of Raj
Kishor & Associates (M. Number 007655). These documents were not filed by ITA No. 961 To 963/JPR/2024
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the assessee on or before due date prescribed under Income Tax Act.
Therefore considering peculiar facts of the case, the argument of the appellant are not found to be valid. The AO has made addition on the reasons of reopening but following the provisions of Income Tax Act.
Arguments of the appellant in this regard are not found to be acceptable.
4.8.2 Assumption of Juri iction by AO is Valid and it remain till final assessment order.
It is recorded by the AO that the assessee has not filed any return of income for AY 2014-15. The assessee claimed exemption u/s 12A of the I.T. Act,
1961. The total income of the trust (before allowing exemption under sections
11 and 12) exceeds the maximum amounts which is not chargeable to tax, it is required to file its return in Form ITR-7, before the date specified in section 139. However, no return of income was filed. There was information with the AO that assessee received amount of Rs. 22.37,641/- as per 26AS. The AO also noted that as per AIR information also Rs. 5278 has been received by the assessee as income tax refund. The AO also noted that Cash of Rs. 32,30,000/- was also deposited in bank account of the assessee. The AO further recorded that as per service tax return services of Rs. 8,37,69,001/-has been declared which required verification as no return of Income is furnished by the assessee. The AO also noted that a survey was also conducted on the assessee and services of the assessee require verification.
In view of these facts assumption of juri iction by the AO by issuing notice u/s 148 of the Act is found to be justified as the appellant has not filed return of Income u/s 139(1). In the final assessment addition is made with regard to one or more of the amounts which is mentioned in the reasons of reopening. It can be said that the amount of Rs. 22,37,641/- as per 26AS was part of the accounts of the assessee association and by denying the benefit u/s 11 of the Act, the AO has taxed these receipts as per correct amounts mentioned in the books of accounts. It is important to note that the return of Income was not furnished originally u/s 139(1) of the Act. The total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum amounts which is not chargeable to tax, it is required to file its return in Form ITR-7, before the date specified in section 139. However, no return of income was filed. Therefore, the assumption of juri iction remained with the AO till passing of final assessment order.
The Supreme Court in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd.
[2007] 291 ITR 500/161 Taxman 316 (SC) has held that at the stage of issue of notice under section 148 what is required is only reason to believe but not the established fact of escapement of income. The proposition laid down by ITA No. 961 To 963/JPR/2024
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the Supreme Court clearly goes to establish that the Assessing Officer is not confined to the grounds or reasons stated by him to reopen the assessment and he can make assessment after detailed enquiry. So much so, once the assessment is reopened for any valid reason recorded under section 148(2), then the entire assessment is open for the Assessing Officer to bring to tax any item of escaped income which comes to his notice in the course of such reassessment.
Hon'ble High Court Of Kerala (FULL BENCH) in the case of Commissioner of Income-tax, Cochin v. Best Wood Industries & Saw Mills (2011) 11
taxmann.com 278 (Kerala) (FB)/[2011] 331 ITR 63 (Kerala) (FB)/[2011] 237
CTR 404 (Kerala) (FB)[21-12-2010] held as under-
"3. In the first place we notice that in the decision of the Supreme Court relied on by the Tribunal, that is, in CIT v. Sun Engg. Works (P.) Ltd. [1992] 198
ITR 297/ 64 Taxman 442, no such proposition canvassed by the assessee was laid down. Secondly section 147 of the Income-tax Act has undergone various changes and the provision applicable for relevant assessment years is extracted hereunder for easy reference:
"147. Income escaping assessment-If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." (Emphasis supplied)
What is clear from the above provision is that once assessment is reopened for bringing to tax any income that escaped assessment in terms of sections 148 to 153, then the Assessing Officer has to assess or reassess such income and also any other income chargeable to tax which has escaped assessment. The purpose of this provision is that if in the course of reassessment initiated under section 147 to bring to tax any item of escaped income, it comes to the notice of the Assessing Officer that any other income also has escaped income, then the Assessing Officer should bring to tax such income also. The procedure for income escaping assessment under section 147 is contained in section 148
whereunder sub-section (2) makes it Mandatory for the Assessing Officer to record reasons before proceeding to issue notice. However, once assessment is reopened after recording reasons, the Assessing Officer has to complete the income escaping assessment by following the provisions of the Act as if the ITA No. 961 To 963/JPR/2024
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return furnished against notice under section 148 as one filed under section 139 of the Act. This obviously means that so far as procedure to be followed is concerned, there is no difference between income escaping assessment and regular assessment because the provisions generally provide for issue of notice, hearing of the assessee and taking of evidence, etc., which are the same for regular assessment and income escaping assessment. Therefore in the course of income escaping assessment, if it comes to the notice of the Assessing Officer that any other item or items of income other than the item of escaped income for the assessment of which, assessment originally completed was reopened, also have escaped from original assessment, he is bound to assess such item or items of income also in the course of reassessment under section 147. In view of the specific provision providing for assessment of other items of income that have escaped assessment, and that comes to the notice of the Assessing Officer in the course of income escaping assessment, the reassessments made are valid and the orders of the Tribunal to the contrary are not sustainable."
In this case also the AO was bound to assess such item or items of income also in the course of reassessment under section 147 which came escaped from assessment. In view of the specific provision providing for assessment of other items of income that have escaped assessment, and that comes to the notice of the Assessing Officer in the course of income escaping assessment, the reassessments made are valid.
4.8.3 Addition can be made on all issues which may come to notice of Assessing Officer subsequently during course of proceedings, even though reason for notice for 'such income' which may have escaped assessment, may not survive
Hon'ble High Court Of Punjab And Haryana in the case of Majinder Singh
Kang v Commissioner of Income-tax [2012] 25 taxmann.com 124 (Punjab &
Haryana)/[2012] 344 ITR 358 (Punjab & Haryana) [13-09-2010] examined this issue. Head notes of this decision are as under-
"Section 147 of the Income-tax Act, 1961 Income escaping assessment
General -Assessment year 2001-02 In reassessment, Assessing Officer can make addition even on ground on which reassessment notice might not have been issued, but he arrives at a conclusion that such other income has escaped assessment which comes to his notice during course of proceedings for reassessment [In favour of revenue]
A plain reading of Explanation 3 to section 147 clearly depicts that the Assessing Officer has power to make additions even on the ground on which reassessment notice might not have been issued during reassessment

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proceedings, but he arrives at a conclusion that such other income has escaped assessment which comes to his notice during course of proceedings for reassessment under section 148. The provision no where postulates or contemplates that it is only when there is some addition on the ground on which reassessment had been initiated, that the Assessing Officer can make additions on any other ground on the basis of which income may have escaped assessment."
This issue was examined by Hon'ble High Court Of Karnataka in the case of N
Govindaraju v. Income-tax officer, Ward-8(2), Bangalore and held as under-
"32. Circular No. 5 of 2010 issued by the Central Board of Direct Taxes
(CBDT) after the amendment of 2009, provided for the "Explanatory Notes to the Provisions of Finance (No. 2) Act, 2009" by which Explanation 3 to section 147 of the Act had been inserted with effect torn 1.4.1989. The relevant paragraph 47 of this Circular is reproduced below
"47. Clarificatory amendment in respect of reassessment proceeding under S.
147. 47.1: The existing provisions of S.147 provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of S.
148 to 153, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment. Further Assessing Officer may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Assessing Officer is required to record the reasons for reopening the assessment before issuing notice under S.148 with a view to reassess the income of assessee.
47.2 Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to the reasons recorded for reopening of the.
assessment and he is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent
47.3: Therefore, to articulate the legislative intention clearly Explanation 3 has been inserted in S.147 to provide that the Assessing Officer may examine, assess or reassess any issue relevant to income which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of S.148. ITA No. 961 To 963/JPR/2024
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47.4: Applicability - This amendment has been made applicable with retrospective effect from 1st April, 1989 and will apply accordingly in relation to assessment year 1989-90 and subsequent years."
33. It is thus clear that once satisfaction of reasons for the notice is found sufficient, i.e., if the notice under section 148(2) is found to be valid, then addition can be made on all grounds or issues (with regard to 'any other income' also) which may come to the notice of the Assessing Officer subsequently during the course of proceedings under section 147, even though reason for notice for 'such income' which may have escaped assessment, may not survive.
34. In the case of CIT v. Jet Airways (1) Ltd. [2011] 331 ITR 236/(2010) 195
Taxman 117 the Bombay High Court has held that "Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147 An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override or render the substance or core nugatory, Section 147 has this effect that the Assessing
Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, afresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee."
35. Thus, what has been held is that 'such income' in the first part of section 147 is joined with 'any other income of the second part of the section by the phrase "and also which is used in a "cumulative and conjunctive sense.
Following the said judgment of the Bombay High Court, same view has been taken by the Delhi High Court in the cases of Ranbaxy Laboratories Ltd. v.
CIT (2011) 336 ITR 136/200 Taxman 242/12 taxmann.com 74 and CIT v.
Adhunik Niryat Ispat Ltd. (2011) 63 DTR 212 and also the Gujarat High Court in the case of CIT v. Mohmed Juned Dadani [2013] 214 Taxman 38/30
taxmann.com 1/(2014) 356 ITR 172
36. With due respect to the view taken in the aforesaid cases, we are unable to persuade ourselves to follow the same.

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37. Insertion of 'Explanation in a section of an Act is for a different purpose than insertion of a 'Proviso 'Explanation' gives a reason or justification and explains the contents of the main section, whereas 'Proviso' puts a condition on the contents of the main section or qualifes the same. 'Proviso is generally intended to restrain the enacting clause, whereas Explanation explains or clarifies the main section. Meaning thereby, 'Proviso limits the scope of the enactment as it puts a condition, whereas Exploriation clantes the enactment as it explains and is useful for settling a matter or controversy.
38. Orthodox function of an 'Explanation is to explain the meaning and effect of the main provision. It is different in nature from a 'Proviso', as the latter except, excludes or restricts, while the former explains or clarifies and does not restrict the operation of the main provision It is true that an "Explanation may not enlarge the scope of the section but it also does not restrict the operation of the main provision. Its purpose is to clear the cob-webs which may make the meaning of the main provision blurred. Ordinarily, the purpose of insertion of an "Explanation' to a section is not to limit the scope of the main provision but to explain or clarity and to clear the doubt or ambiguity in it. 39.Explanation is also different from Rules framed under an Act. Rules are for effective implementation of the Act whereas Explanation only explains the provision of the Section. Rules cannot go 'beyond or against the provision of the Act as it is framed under the Act and if there is any contradiction, the Act will prevail over the Rules. Same is not the position vis-à-vis the Section and its Explanation. The latter, by its very name, is intended to explain the provision of the Section, hence there can be no contradiction Section has to be understood and read hand-in-hand with the Explanation, which is only to support the main provision, like an example does to explain any situation.
40. In the present case, insertion of Explanation 3 to section 147 does not in any manner override the main section and has been added with no other purpose than to explain or clarify the main section so as to also bring in 'any other income' (of the second part of section 147) within the ambit of tax, which may have escaped assessment, and comes to the notice of the Assessing
Officer subsequently during the course of the proceedings. Circular 5 of 2010
issued by the CBDT (already reproduced above) also makes this position clear. In our view, there is no conflict between the main section 147 and its Explanation 3. This Explanation has been inserted only to clarify the main section and not curtail its scope. Insertion of Explanation 3 is thus clarificatory and is for the benefit of the Revenue and not the assessee.
41. If there is ambiguity in the main provision of the enactment, it can be clarified by Insertion of an Explanation to the said section of the Act. Same has been done in the present case. Section 147 of the Act was interpreted

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differently by different High Courts, ie whether the second part of the section was independent of the first part, or not. To clarify the same. Explanation 3
was inserted by which it has been clarified that the Assessing Officer can assess the income in respect of any issue which has escaped assessment and also 'any other income' (of the second part of section 147) which comes to his notice subsequently during the course of the proceedings under the section.
After the insertion of Explanation 3 to section 147 it is clear that the use of the phrase "and also" between the first and the second parts of the section is not conjunctive and assessment of 'any other income' (of the second part) can be made independent of the first part (relating to 'such income' for which reasons are given in notice under section 148), notwithstanding that the reasons for such issue ('any other income') have not been given in the reasons recorded under section 148(2) of the Act. We are thus in agreement with the view taken by the Punjab & Haryana High Court in the cases of Majinder Singh Kang and Mehak Finvest (supra).
42. Considering the provision of section 147 as well as its Explanation 3, and also keeping in view that section 147 is for the benefit of the Revenue and not the assessee and is aimed at garnering the escaped income of the assessee (viz.
Sun Engg. (supra)) and also keeping in view that it is the constitutional obligation of every assessee to disclose his total income on which it is to pay tax, we are of the clear opinion that the two parts of section 147 (one relating to 'such income' and the other to 'any other income') are to be read independently. The phrase 'such income' used in the first part of section 147 is with regard to which reasons have been recorded under section 148(2) of the Act, and the phrase 'any other income' used in the second part of the section is with regard to where no reasons have been recorded before issuing notice and has come to the notice of the Assessing Officer subsequently during the course of the proceedings, which can be assessed independent of the first part, even when no addition can be made with regard to 'such income', but the notice on the basis of which proceedings have commenced, is found to be valid.
43. In the end it was vehemently argued by the learned counsel for the appellant that the reason to be given under sub-section (2) of section 148
would be the very foundation of the issuance of notice and if it is false or baseless, then everything goes and the structure erected on such foundation would crumble
44. It is true that if the foundation goes, then the structure cannot remain.
Meaning thereby, if notice has no sufficient reason or is invalid, no proceedings can be initiated. But the same can be checked at the initial stage by challenging the notice. If the notice is challenged and found to be valid, or where the notice, is not at all challenged, then in either case it cannot be said

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that notice is invalid. As such, if the notice is valid, then the foundation remains and the proceedings on the basis of such notice can go on. We may only reiterate here that once the proceedings have been initiated on a valid notice, it becomes the duty of the Assessing Officer to levy tax on the entire income (including 'any other income') which may have escaped assessment and comes to his notice during the course of the proceedings initiated under section 147 of the Act.
45. In view of the aforesaid, we answer the first two substantial questions of law in favour of the Revenue and against the assessee."
In this case also the proceedings have been initiated on a valid notice, it becomes the duty of the Assessing Officer to levy tax on the entire income
(including 'any other income') which may have escaped assessment and comes to his notice during the course of the proceedings initiated under section 147
of the Act. Therefore, the argument of the appellant are not found to be acceptable.
Further the addition made by the AO are based on return filed in response to notice issued u/s 148. Before the notice, there was no return filed by the assessee. Therefore, the notice issued u/s 148 is found to be valid. The appellant has not challenged the validity of the notice. The only return filed by the assessee was in response to notice issued u/s 148 of the Income Tax act.
Before that the assessee was non-filer. It is not the case that the assessee was not required to file Return of Income. Once, the return is filed then it is duty of the AO to make assessment of the Income of the assessee which has been done by the AO. The audit report in form Number 108 was performed on dated
14.11.2017 and a number of discrepancies have been noted by the Auditor
Shri A.K. Lodha Partner of Raj Kishor & Associates (M. Number 007655).
These documents were not filed by the assessee on or before due date prescribed under Income Tax Act. Therefore, when the notice under section 148(2) is found to be valid, then addition can be made on all grounds or issues
(with regard to 'any other income' also) which may come to the notice of the Assessing Officer subsequently during the course of proceedings under section 147, even though reason for notice for 'such income' which may have escaped assessment, may not survive. In the peculiar facts of this case, all the relevant information required for assessment is furnished by the assessee only after issuance of notice u/s 148 of the Income Tax act.
Therefore, the notice issued u/s 148 and assumption of juri iction by the AO is found to be valid and upheld.
4.8.4 This is a case where no return of Income was furnished by the assessee even when having huge amount of transactions.

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It is recorded by the AO that the assessee has not filed any return of income for AY 2014-15. There was information with the AO that assessee received amount of Rs. 22,37,641/- as per 26AS. The AO also noted that as per AIR information also Rs. 5278 has been received by the assessee as income tax refund. The AO also noted that Cash of Rs. 32,30,000/- was also deposited in bank account of the assessee. The AO further recorded that as per service tax return services of Rs. 8,37,69,001/-has been declared which required verification as no return of Income is furnished by the assessee. The AO also noted that a survey was also conducted on the assessee and services of the assessee require verification.
Therefore one or more addition made by the AO are therefore directly or indirectly reflected in the reasons of reopening. The disallowance of benefit of section 11 of the Income Tax Act questions all receipts of the assessee association and addition is made on net surplus amount after allowing the expenditure allowable. Hence, the receipts as per 26AS and services as per service tax return were considered while making addition.
The case of the association has to be viewed from the peculiar fact that no return of Income was furnished by the assessee u/s 139(1).
5.6 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:-
The AO noted that M/s Wholesale Cloth Merchant Association has not filed income tax returns for A.Y. 2014-15, 2015-16 & 2016-17. Returns were filed after reopening the assessment proceedings u/s 148 of the Act. It is also pertinent to mentioned here that the assessee claimed exemption u/s 12A of the I.T. Act, 1961. The total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum amounts which is not chargeable to tax, it is required to file its return in Form ITR-7, before the date specified in section 139. The due date specified under section 139 is 30th

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September every year where the trust is required to get its accounts audited under any provision of the Act. The assessee trust has not filed its return of income before issuing notice u/s 148 of the Act. The assessee trust would never filed its ITR if department has not carried out survey proceedings.
The assessee trust is required to be audited as per provisions of section 12 of the I.T. Act, 1961. Though Section 12A(1)(b) provides that the exemption u/s 11 will be available only if the accounts are audited and audit report "furnished along with the return.
It is further noted by the AO that the audit report in form Number 10B was performed on dated 14.11.2017 and a number of discrepancies have been noted by the Auditor. Auditor has also mentioned in serial number 3(c) that as per FIR copy, 22 plots has been given to the persons who are not the members of association. Association has received conversion charges from 17 persons
(Who are not members) @ 1,85,000/- from each person. And this amount has been deposited with UIT. The amount received has been shown in the list of amount received from other members. No details available regarding 5
remaining plot. Amount recoverable (Being sale price) from the concerning person of all the 22 plots has not been taken in books.
The AO also noted that Shri Tejndra Pal Singh has taken loan & advances of Rs. 31,50,000/- from the trust and violated the provisions of section 13(2) of the Act. Further no proper books of accounts have been maintained. TDS provisions have not been complied properly. Therefore, the trust is not entitled for claiming exemption under the section 11 to 13 of the I.T. Act, 1961. The AO further noted that the president of the trust Shri Tejendra Pal Singh
Sahni has withdrawn huge amounts from the trust's account and utilized for personal benefit which is also evident from the submission of the AR. The submission of the AR is reproduced as under:-
"Details of amount withdrawn by the past president of the association: As per records of the association and FIR filed by the association against the past president of the association total amounting Rs.2,52,00,000/- withdrawn by the past president. out of this amounting Rs. 1,08,00,000/- transferred in the account of Sh. Rajendra Gupta and remaining amount withdrawn from back through bearer Cheques and vouchers made in the name of some contractors of the association but out of these contractors some contractors denied the receipt of cheques from the association After that episode association tried to know the truth, therefore association went to bank and get all the copies of disputed cheques and found all the cheques are bearer. List of Disputed cheques for the year under consideration is here by produced for your kind reference:…………………

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All of above mentioned details of cheques has already been conveyed to all the members of the association by its management through circulating a letter among its members copy of the letter is enclosed with this letter for your kind perusal and ready reference.
The specified person has been allowed to use fund of the trust for his personal interest
Assessee trust has shown gross receipts of income of Rs. 50,75,850/- and amount applied to charitable proposes in India During the previous year at Rs.
17,30,356/- AR filed that this amount is utilized as revenue expenditure. The remaining amount is claimed exempted u/s 11(2) and 11(1)(a) of the Act which is not allowable. The Trust is a public charitable trust and mainly formed for the upliftment of the cloth merchants of the city but fund of trust was utilized for personal benefit of president. The trust has received interest on refund of Rs. 5,278/- which was not shown in ITR filed under section 148 of the Act. Hence same is also added in total income of the trust. The legal requirements have also not been completed by the Trust i. e. filing ITR and get books of accounts audited. Therefore, the income of Rs.33,50.772/-
(33,45,494/- + 5.278/-) will be taxed Maximum Marginal Rate u/s 164(2) as the assesse trust is doing business activities in India but not complying statutory provision of the Act..
The AO has denied the benefit u/s 11(2) and 11(1)(a) as claimed by the assessee because there are violations as noted by the AO. The major violations noted by the AO are as under 1. Not filing return of Income u/s 139(1)
The total income of the trust (before allowing exemption under sections 11
and 12) exceeds the maximum amounts which is not chargeable to tax, it was required to file its return in Form ITR- 7, before the date specified in section 139. However, no return of Income was furnished.
2. Audit Report was not furnished
The assessee trust is required to be audited as per provisions of section 12 of the I.T. Act, 1961. Section 12A(1)(b) provides that the exemption u/s 11 will be available only if the accounts are audited and audit report "furnished along with the return. However, no such report is filed.
3. Receipts are not shown in the books of accounts
22 plots has been given to the persons who are not the members of association.
Hence, the objects of the trust have been violated. Amount recoverable (Being

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sale price) from the concerning person of all the 22 plots has not been taken in books.
4. The trust property is used Personal benefit of the president
Shri Tejndra Pal Singh has taken loan & advances of Rs. 31,50,000/- from the trust and violated the provisions of section 13(2) of the Act. Further no proper books of accounts have been maintained. TDS provisions have not been complied properly. The president of the trust Shri Tejendra Pal Singh Sahni has withdrawn huge amounts from the trust's account and utilized for personal benefit. Total amounting Rs.2,52,00,000/- withdrawn by the past president, out of this amounting Rs. 1,08,00,000/- transferred in the account of Sh. Rajendra
Gupta and remaining amount withdrawn from back through bearer Cheques and vouchers made in the name of some contractors of the association but out of these contractors some contractors denied the receipt of cheques from the association.
In the light of above observations made by the AO, the reply of the appellant is considered in the following paragraphs.
The appellant argued that no denial of exemption u/s 11 and 12 for the misappropriation of fund by other persons. Further it is submitted that the id.
AO has denied the exemption u/s 11 on the misappropriation of fund by other persons, which is also incorrect.
It is undisputed fact that the funds were used for personal benefit of the president. Hence, the denial of exemption is found to be justified. The misappropriation is not made by simple employee but a president of the assessee. Hence, the denial of exemption u/s 11 is found to be justified.
The appellant has relied upon the decision of Hon'ble ITAT against the order of the PCIT(Central) in the case of assessee. Hon'ble ITAT in its order has stated that the assessee has not violated the provisions of section 12AA(3)/12AA(4) of the Act. It is held that cancellation of registration u/s 12A cannot be done. However Hon'ble ITAT has not examined the violation of section 13(1)(c) therefore, denial of exemption u/s 11 is found to be justified by the AO.
The appellant has relied upon the case of CIT Vis State Urban Development
Agency (Suda) (2013) 85 CCH 0179 ANHC, it has been held that Chantable trust Registration u's 124-Denial of Assessee a registered co-operative society and State Autonomous body applied for registration u/s 124- CIT(A) declined registration u/s 12A to assessee on basis of report submitted by Accountant

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General (GO), where & was mentioned that accounts were not property maintained and funds were not properly utilized and kept idle in bank
This decision was rendered for declining registration u/s 12A of the Income
Tax Act. The issue of denial of exemption u/s 11 is not decided in this decision.
Charitable Foundation Trust (2012) 205 TAXMAN 0009 It has been held that Charitable trust Registration under S. 12A-Genuineness of-Refusal to grant registration certificate to assessee trust on the ground that the trust does not exist genuinely for the purpose of the objects mentioned in the deed.
Misappropriation of funds is not a ground to deny the registration-Exemptions under ss 11 & 124 are not automatic but available only when the assessee satisfies the requirement of section 13-Assessee entitled to the registration under & 12AA
This decision was rendered for declining registration u/s 12A of the Income
Tax Act. With regard to issue of denial of exemption u/s 11 it is held that Exemptions under ss. 11 are not automatic but available only when the assessee satisfies the requirement of section 13. In this case, the AO has clearly established violation of section 13. Hence, the decision is not found to be applicable in the facts of the case.
The appellant has relied upon the case of Kunhitharuvai Memorial Charitable
Trust vs CIT(Central) (2017) (1) TMI 1671 (Cochin) It has been held that the CIT was erred in withdrawing registration granted u/s 12AA, by using her powers u/s12AA(3)
It is submitted that the ratio of the above judgment is also applicable in the present case because exemption is available on the registration u/s 12A and in the present case the assessee is registered u/s 12A
This decision was rendered for declining registration u/s 12A of the Income
Tax Act. The issue of denial of exemption u/s 11 is not decided in this decision. Hence, the decision is not found to be applicable in the facts of the case.
It is argued that no denial of exemption for the reason not filling the ITR and Audit Report
Further it is submitted that id. AO has cancelled the registration on the ground that the assessee has not filed its ROI and Audit report. The reason of not ITA No. 961 To 963/JPR/2024
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filing of the same are that as the assessee is trust and was depended on the accountant and the president and the other members were under impression that the act of retum filling. Audit report and books are being care take by them. As they were on default since its registration from 1976 to 2013 and the fraud done by the president and books not completed by the accountant was not in the knowledge of the assessee. However when these facts have come to the notice of the assessee it fled its ROI income and Audit report. Hence for the negligence of the President and accountant the whole institute must not be punished.
The claim of the appellant is not found to be acceptable if the institute is not following law with regard to legal compliances the institute has to suffer it is for the institute to punish the responsible person. The president is an important person for the institute. if he is doing fraud and not filing return of Income then consequential action has to be taken against the institute.
it is argued that it is also settled legal position of law that if an assessee has not flet his ROI and fled ROI and not shown any claim or deduction in the ROI filed and claim the same during the course of assessment proceedings even although during the course of appellate proceedings. The Hon'ble courts has allowed the same by stating that if the assessee is entitled for any claim as per law cannot be denied for the reason that he has not claimed in the ROI
It is argued that the assessee had file the ROI and Audit report in response to the notice u/s 146. The argument of the appellant are considered. Any new claim in the return filed u/s 148 of the act is not acceptable as the reopening proceedings are for the benefit of the revenue rather than assessee. The returns are filed u/s 148 of the act are as a consequence of income escaped from assessment and thus can't be advantageous for the assessee and these are proceedings for the benefit of Revenue and not that of the assessee. The assessee cannot be permitted, to convert these reassessment proceedings as his appeal or revision in disguise and seek relief in respect of items earlier not claimed in the original return of income. Reliance is placed on the the judgment rendered by the Hon'ble
Bombay High Court in K. Sudhakar S. Shanbhag Vs ITO [2000] 161 CTR
(Bom) 391 [2000] 241 1TR 865 (Bom). This decision was rendered by taking notice of the principle laid by the Hon'ble apex Court in CIT Vs Sun
Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209: [1992] 198 ITR 297
(SC) to the effect that in reassessment proceedings, an assessee can neither claim nor be allowed a deduction that was not claimed in the original return.
New claim of deduction or exemption cannot be allowed in reassessment proceedings. If it is so allowed, then the same shall become discriminatory to ITA No. 961 To 963/JPR/2024
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the other regular assessees who have lost a right as such to claim deduction by efflux of time or by mandate of the Act. Since, the assessee neither made any such claim in the original retum filed under Section 139(1) of the Act nor in revised return therefore returns filed in response to notice under Section 148 of the Act are not substitute of revised return for making claim of such benefits.
Having regard to the provisions of s. 139(5) of the Act and since the assessments under s. 148 are in relation to income escaped from assessment, it is precisely for this reason that new claim of deduction or allowance cannot be made in the completed assessments. It is a settled principle of law that what cannot be done directly can also not be done indirectly. Reference can be made on the judgment rendered by Hon'ble Allahabad High Court in Anupam
Sushil Garg v. CIT (2003) 185 CTR (All) 505 [2004] 265 ITR 474 (All).
When rules of interpretation are applied it would not allow making of fresh claims as such Principle of interpretation laid by Hon'ble apex Court in Poppatlal Shah v. State of Madras 1953 AIR 274 (SC) reads as under:
"It is a settled rule of construction that to ascertain the legislative intent, all the constituent parts of a statute are to be taken together and each word, phrase, or sentence is to be considered in the light of the general purpose and object of the Act itself. The title and preamble, whatever their value might be as aids to the construction of a statute, undoubtedly throw light on the intent and design of the legislature and indicate the scope and purpose of the legislation itself."
It has been observed by the Hon'ble Supreme Court in K.P. Varghese v. ITO
[1981] 131 ITR 597/7 Taxman 13 as under-
………………..
In this case of the appellant also, it is admitted fact in this case that there is a violation of sec. 13(1)(c) of the Act therefore, the Assessing Officer was correct in invoking the provisions of sec. 13(1)(c) of the Act and denying exemption to the assessee u/s 11 of the Act.
Further, Section 13 has the title 'Section 11 not to apply in certain cases'.
Section 13(1)(c) says that if any part of income or any property of the trust is used or applied directly or indirectly for the benefit of persons specified in section 13(3), it is not eligible for the benefits of section 11. Now the Finance
Act, 2022 has amended section 13(1)(c) to state that the benefit of section 11
will not be available only to such part of income referred therein. This amendment is brought w.e.f. 1-04-2023. From this amendment itself it is evident that before this amendment the assessee it is not eligible for the benefits of section 11 if any part of income or any property of the trust is used or applied directly or indirectly for the benefit of persons specified in section ITA No. 961 To 963/JPR/2024
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13(3). This year is relevant to the year before the amendment. Hence the claim of the appellant is not found to be acceptable.
Once, exemption is denied, income shall be computed under normal accounting principles by considering all income and expenses to determine profit/loss. The section 164(2) of the Income Tax Act reads as under-
(2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, "for which is of the nature referred to in sub-clause (a) of clause (24) of section 2.] for which is of the nature referred to in sub-section (4A) of section 11.] tax shall be charged on so much of the relevant income as is not exempt under section 11 for section 121, as if the relevant income not so exempt were the income of an association of persons:
Hence, the AO shall assess the income of the assessee as income of an association of persons.
This ground of appeal is treated as dismissed.
Ground No. 3
6. In Ground No. 3 of appeal the appellant has challenged the addition of Rs.
16,75,286/- on account of sundry creditors without providing any opportunity to file confirmation of creditors……………..
6.9 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:-
During the course of assessment proceedings, it had been noticed by the AO that on perusal of balance sheet as well as discrepancies noticed by the Auditor, the assessee trust had shown sundry creditors of Rs.16,75,286/- and auditor had also pointed out that amount credited in the personal account was not supported by proper bills/ vouchers and other supporting in most of the cases. During the course of assessment proceedings, the assessee was asked to explain discrepancies pointed by the Auditor but the trust had failed to explain it. Hence the then AO had concluded that the assessee had shown bogus creditors of Rs. 16,75,286/- and the same had disallowed and added in the total income of the assesse for the year under consideration.
In the appellate and during the remand proceedings, the assesse has submitted the copy of ledger account of the sundry creditors.

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During the course of assessment proceedings, the assessee was asked to explain discrepancies pointed by the Auditor. However, the appellant claimed that confirmations were not specifically asked by the AO. In these circumstances, the ledger accounts submitted are admitted as additional evidence. However, these do not prove genuineness of creditors. The AO has pointed out that the assessee has not submitted bills and vouchers in support of these creditors or the ledgers of these creditors.
The AO has objected admission of additional evidence. It is stated that the case of the assessee is not covered by the provisions of Rule 46A as conditions prescribed therein are not met in this case. It is therefore submitted that the additional evidences should not be admitted. The appellant has also not explained how conditions prescribed in rule 46A are met in its case. Therefore, the additional evidences are not found to be admissible.
Without prejudice to the above, in the absence of any bills and vouchers and also no confirmation filed even during the appellate and remand proceedings, the addition made by the AO treating the creditors as bogus of Rs. 16,75,286/- is found to be justified and confirmed.
This ground of appeal is treated as dismissed.
7. In Ground No. 4 of appeal the appellant has challenged the addition of Rs.
1,20,00,440/- on account of disallowance of construction expenses and in exemption u/s 12A and In Ground No. 5 of appeal addition of Rs. 3,69,567/- on account of disallowance of certain expenses. The A/R of the appellant has also clubbed the submissions in reply filed during the appellate proceedings.
Therefore, both grounds are taken together for adjudication.
7.1 At the time of passing of assessment order u/s 147/148 r.w.s. 143(3) of the Income tax Act, 1961 the AO has briefly stated relevant facts and some of excerpts are reproduced as under:-
"11. Construction expenses. The auditor has mentioned that construction expenses of Rs. 8,00,02,935/- has been paid vide bearer cheques without any details or supporting bills. After giving two opportunities of being heard, no details have been furnished by the trust Therefore, 15% of above expenses of Rs. 1,20,00,440/- is disallowed and added in total income.
12. Payments made but no vouchers produced for examination: The trust has made payments of Rs. 24,63,780/- without any supporting vouchers. After giving two opportunities of being heard, no details have been furnished by the trust Therefore, 15% of above expenses of Rs. 3,69,567/- is disallowed and added in total income."

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7.2 The A/R of the appellant filed written submission during the appellate proceedings vide dated
11.01.2023, the same is reproduced as under:………………..
7.8 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:-
During the course of assessment proceedings, the AO noticed that the Auditor had mentioned in Audit report (Form No. 10B), that construction expenses of Rs.8,00,02,935/- has been paid vide bearer cheques without any details or supporting bills. The assessee trust was asked to explain the same but no details had been furnished by the assessee. Hence, the then AO had disallowed
15% of above expenses which comes to Rs. 1,20,00,440/- (15% of Rs.8,00,02,935/-) and added to the total income of the assessee.
In the appellate proceedings, the assessee stated that the AO has made the addition without confronting or giving opportunity of being heard. The claim of the assessee is not found acceptable, as during the course of assessment proceedings, the assessee was given opportunity to produce the details or supporting bills of such construction expenses but the assessee had not furnished any details.
7.8.1 Enhancement of Income
From the details furnished by the appellant it is evident that in balance sheet of Bajaj Nagar Awasiya Yojna advance from members Rs. 23,00,85,284/- has been shown whereas for the land and construction expenses Rs. 18,31,62,634/- has been shown.
The action of the appellant is not found to be as per correct accounting method. The assessee is constructing houses for its members. Hence, the activity of the association is like a builder. As a builder, the assessee association is constructing houses for its members. The builder also takes money from prospective buyers and constructs house and delivers. Hence, the receipts from the members is not loan but income for the association and the expenditure made on the construction is to be considered as expenditure for the purpose of Income and Expenditure account of the association. Any surplus or loss will be taken into the balance sheet. The directly taking these receipts and expenses in the balance sheet is not found to be correct method.
Therefore, the books of account of the assessee is not found to be correct. The books of accounts are therefore rejected by invoking section 145(3) of the ITA No. 961 To 963/JPR/2024
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Income Tax Act and income and expenditure account is to be recasted by applying correct method.
The ITAT CHENNAI BENCH 'C' in the case of Deputy Commissioner of Income-tax (Exemptions)-II, Chennai v. Chennai Kammavar Trust [2017] 81
taxmann.com 365 (Chennai Trib.)/[2017] 166 ITD 196 (Chennai -
Trib.)/[2017] 187 TTJ 674 (Chennai - Trib.) [11-05-2017] decided similar issue and held as under-
"6. We have heard both the parties and perused the material on record. The issue before us is whether, on the facts and circumstances of the case and having regard to the terms of the Trust Deed, it can be said that the activities carried on by the assessee in the form of running of community hall, viz
"Chennai Kamawar Kalyana Mahal" was itself held under the Trust. For this purpose it is proper to go through the objects for which assessee-Trust is formed. The objects for which the Trust established are enumerated in Trust
Deed in clause 3 which reads as under- "3. The Objects of the Trust are: a. To establish and maintain educational institutions. b. To grant scholarships, donations and other incentives to benefit students and others in their education persuits. c. To establish, maintain and conduct orphanages. d. To establish and maintain hospital and dispensaries. e. To establish and maintain homes and institutions for the poor and disabled and physically and mentally handicapped persons. f. To aid and improve music, dance, drama and other fine arts and other popular arts. g. To construct a community hall for letting out to all peoples irrespective of casts, creed or religion for a nominal rent without making any point. h. To encourage and improve handicrafts. i. To render financial help to already existing institutions with objects similar to those of this trust."
7. It is to be noted that section 11(1) of the Act grants exemption to the income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. There is no exhaustive definition of the words "property held under trust" in the Act, however, sub-section (4) says that for the purposes of section 11, the words "Property held under trust" "includes a business undertaking so held". Subsection (4A) as it stands amended by the Finance (No. 2) Act. 1991, with effect from April 1, 1992, is in the following terms: "(4A) Sub-section (1) or sub-section (2) or subsection (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business"

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8. Thus, if a property is held under trust, and such property is a business, the case would fall u/s. 11(4) and not u/s. 11(4A) of the Act. Section 11(4A) of the Act would apply only to a case where the business is not held under trust.
Thus, there is difference between property or business held under trust and business carried on by or on behalf of the trust.
9. This distinction was recognized by the Supreme Court in the case of Addi.
CIT v. Surat Art Silk Cloth Manufacturers Association [1978] 121 ITR
1/[1979] 2 Taxman 501 wherein it was observed that if a business undertaking is held under trust for a charitable purpose, the income there from would be entitled to the exemption u/s. 11(1) of the Act. In the present case, the finding of the CIT(A) is that running of community Hall was incidental to the object of the trust, it was not business commenced/carried on by the assessee.
Though the business was commenced by the trust and it was carried on by the Trust after its formation. it cannot be said to constitute property held under trust. U/s. 11(4), it is only the business which is held under the trust that would enjoy exemption in respect of its income u/s. 11(1) of the I.T. Act and there is a distinction between the objects of a trust and the powers given to the trustees to effectuate the purpose of the trust. Though the objects of the trust were charitable, they were mere powers conferred upon the trustees to carry on the business and the profits from such business would benefit the charitable objects. The exemption u/s. 11 cannot be granted on the reason that the business itself was not in existence at the time of formation of the trust and the property held under trust at the time of formation of the trust was not spelt out in the Trust Deed of the assessee. The running of Community Hall was not at all in existence at the time of formation of the trust so as to say that the business is property held under trust. Thus, the activities relating to running of "Community Hall was not even in the contemplation of the Trust Deed on the basis of which the Society is formed and therefore, could not have been settled upon trust. The business carried on behalf of a trust rather indicates a business which is not held in trust, than a business of the trust run by the assessee. In this case, the activities viz., running of community hall, was carried on by the assessee for and on behalf of the trust and it was not business held under trust.
Section 11(1) of the Act confers exemption from tax only where the property is itself held under trust or other legal obligation; it does not apply to cases where a trust or legal obligation is not created on any property but only the income derived for a charitable or religious purpose. Surplus funds of a trust, which was claimed to be exempt on the footing that it was property held under trust within the meaning of sec. 11(1) of the Act, was not property held under trust since the property from which the surplus was generated was itself not held under trust In other words, merely carrying on business for and on behalf of the trust and applying the profits of the same for the object of the trust does

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not entitle for exemption us. 11(4) of the Act unless the business is incidental to the attainment of the objects of the trust. 10. We now proceed to consider the question whether the said activities carried on by the assessed were ---------
----------In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee", 13. Prima facie the above observation would appear to support the assessee's case in the sense that even if running of "Community Hall" is held not to constitute a business held under trust, but only as a business carried on by or on behalf of the trust, so long as the profits generated by it are applied for the charitable objects of the trust, the condition imposed u/s. 11(4A) of the Act should be held to be satisfied, entitling the trust to the tax exemption. 14. In our opinion, these observations have to be understood in the light of the facts before the Supreme Court in the case of Thanthi Trust (supra), wherein the trust carried on the business of a newspaper and that business itself was held under trust.
The charitable object of the trust was the imparting of education which falls u/s. 2(15) of the Act. The newspaper business was incidental to the attainment of the object of the trust, namely that of imparting education and the profits of the newspaper business are utilized by the trust for achieving the object of imparting education. In this case, there is no such nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge. upliftment and education and to create an awareness of self- reliance among the members of the public etc. We are therefore, of the opinion that the observations of the Supreme Court must be understood and appreciated in the background of the fact in that case and should not be extended indiscriminately to all cases, Being so, we are inclined to hold that the assessee is not entitled for any exemption u/s. 11 of the I.T. Act. 15. In this case, it is brought on record by the AO that the assessee collected Rs.
11,28,000/- as corpus donation from 93 persons who performed functions at "Chennai Kamawar Kalyana Mahal". In addition to this, Rs.4,70,000/- was rent for utilizing the facilities of "Chennai Kamawar Kalyana Mahal" by 53
persons, totaling is Rs.15,98,000/-. As against this, in guise of corpus donation collected Rs.11,28,000/- from the persons, who have performed the functions in the "Chennai Kamawar Kalyana Mahal". That amount of Rs.11,28,000/- cannot be considered as corpus donation instead it should be a rental income.
On enquiry by assessing officer. it was proved that the persons who paid rent of community hall and who paid the corpus donation were same. This is an act of quid pro for hiring the hall and no question of voluntary contribution in this payment. It is also to be noted that the dates exhibited in both cases were same. Being so, the provisions of sec.2(15) of the Act is squarely applicable as total receipts of rent from community hall exceeds Rs.10 lakhs, and we do not ITA No. 961 To 963/JPR/2024
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find any infirmity in the order of AO in rejecting the claim of exemption u/s.
11 of the Act. Accordingly, the order of Ld.CIT(A) is reversed and the order of AO is restored.
16. In the result, the appeal of Revenue is allowed."
As held in the above decision, if a property is held under trust, and such property is a business, the case would fall u/s. 11(4A) of the Act. Section 11(4A) of the Act would apply only to a case where the business is not held under trust. Thus, there is difference between property or business held under trust and business carried on by or on behalf of the trust. In the present case it is admitted fact that the property on which construction of houses is being done is owned by individual persons in their name and the land is not in the name of trust. Hence, the business activity is being undertaken by or on behalf of the trust and hence, section 11(4A) of the Act would apply in the present facts of the case. Further, the appellant has not established that the object of the trust was to act as builder for housing construction Therefore, the business activity as builder is not found to be as per objects of the trust. Hence, the section 11(4A) is clearly found to be applicable on the facts of the case.
After having the books of accounts rejected, the receipts of the year are treated as income for Income and expenditure account and the expenditure for the construction etc. which are directly taken into balance sheet are treated as expenditure for the year. The accounts of the assessee are therefore treated as recasted accordingly.
On recasting of the accounts, the expenditure made is subjected to normal provisions of Income Tax Act. The section 11(4A) of the Act empowers the AO to treat the such receipts as income from business and profession. The AO is accordingly directed to treat the receipts as business receipts and the surplus should be taxed as the benefit of deduction u/s 11 are not to be given on such amount
The ITAT Delhi Bench 'G' in the case of UMAK Education Trust v. Joint
Commissioner of Income-tax (Exemption) [2023] 146 taxmann.com 324
(Delhi -Trib.) decided similar issue. The head notes of the decision is read as under-……………….
Officer treated said fee as income from business and professionIt was noted that main object of assessee was to give technical training of workmanship to those who were seeking employment However, as per MOU, assessee was merely responsible for organizing qualified trainers for conducting above mentioned training program and all remaining Infrastructural facilities were of two hotele Merely because at end of training of recruit they were green a ITA No. 961 To 963/JPR/2024
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certificate by assessee could not change nature of its activity from commercial to charitatile Whether there was no force in claim of assessee that these training programs were incidental to main activities and thus, Assessing
Officer was justified in treating aforesaid training fee as income from business and profession as per provisions of section 11(44) Hald, yss (Paras 19 and 21)
(In favour of revenue)"
In the present case also, the receipts of amounts for land and construction activity are treated as commercial nature and hence, the AO shall treat the receipts as business receipts and the surplus as per the accounts should be taxed as the benefit of section 11 are not to be given on such amount/As per details furnished Bajaj Nagar Awasiya Yojna advance from members Rs.
23,00,85,284/- has been shown whereas for the land and construction expenses
Rs. 18,31,62,634/- has been shown. Hence, the surplus of Rs. 4,69,22,650/- becomes taxable as no benefit of section 11 is to be allowable. This is to be treated as enhancement to the Income of the assessee.
With regard to addition made by the AO, it is evident that the assessee has violated section 13(1)(c) of the Income Tax Act. The benefit of section 11 is already found to be not available to the assessee. The activity of construction of houses for its members by the association is considered as business activity.
The assessee association has admitted in its reply that during the year construction was done wherein non availability of supporting voucher cannot be denied. Only defense of the appellant is that we have not requested for allowing these expenses. We have not claimed these expenses in Income &
Expenditure
A/c also.
Therefore, it is argued that question of disallowance/additions does not arise.
The argument of the appellant are considered but not found acceptable. As discussed, the books of accounts have been rejected and the amount received from the members during the year is treated as turnover/sale receipts of the association and the expenditure made for construction etc. is treated as expenditure and the Income and Expenditure account is treated as recasted accordingly.
On recasting of the accounts, the expenditure made is subjected to normal provisions of Income Tax Act. Coming to the disallowance made by the AO, the AO made disallowance because the amounts of Rs. 8,00,02,935/- has been paid vide bearer cheques without any details or supporting bills. The appellant also admitted this fact. The Auditor had mentioned in Audit report this fact and the association has failed to controvert these findings.

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The AO had disallowed 15% of above expenses which comes to Rs.1,20,00,440/- (15% of Rs. 8,00,02,935/-) and added to the total income of the assessee. The assessee association made expenditure without there being details or supporting vouchers. In these circumstances, the expenses may be manipulated and excess expenditure might have been booked. Therefore, the disallowance of only 15 per cent expenses by the AO is found to be reasonable and upheld.
Similarly, the Auditor had mentioned in Audit report (Form No. 10B), that the assessee had made payments of Rs. 24,63,780/- vide bearer cheques or account payee cheque without any supporting vouchers. The assessee was asked to explain the same but no details had been furnished by the assessee.
Hence, the then AO had disallowed 15% of above expenses which comes to Rs.3,69,567/- (15% of Rs.24,63,780/-) and added to the total income of the assessee. The appellant also admitted this fact. The Auditor had mentioned in Audit report this fact and the association has failed to controvert these findings. The assessee association made expenditure without there being details or supporting vouchers. In these circumstances, the expenses may be manipulated and excess expenditure might have been booked. Therefore, the disallowance of only 15 per cent expenses by the AO is found to be reasonable and upheld.
In these circumstances, the disallowances made by the AO are found to be justified and upheld.
The ground no. 4 and ground no. 5 of appeal are treated as dismissed and income is treated as enhanced as discussed above.
8. In Ground No. 6 of appeal the appellant has challenged the addition of Rs.
2,18,50,444/- on account of disallowance u/s 40(a)(ia) on account of alleged non deduction of TDS.
8.1 At the time of passing of assessment order u/s 147/148 r.w.s. 143(3) of the Income tax Act, 1961 the AO has briefly stated relevant facts and some of excerpts are reproduced as under:-
"13. Non deduction of TDS: From the discrepancies mentioned by the Auditor at pointed at serial No. 6 of the audit report (From No. 10B) that the assessee trust has not deducted TDS or short TDS was deducted in the following cases:-
…………………..
During the course of assessment proceedings, the assessee had simply submitted that this expenditure was not part of its Income & Expenditure account for the year under consideration and payments were made directly

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from the Balance sheet. Further the assessee was asked to produce books of accounts & explain the reason of non deduction of TDS but same was not explained despite given opportunity. Hence the then AO had considered that charitable activities is not applicable in the case of the assessee during this year under consideration. Hence, the provisions of section 40(a)(ia) is applicable in this case considering it a business entity. Accordingly, as the assessee trust has not deducted TDS on the aforesaid expenses of as per provisions of section 1940, then the same amount of Rs.2,18,50,444/- was disallowed as per the provision of section 40(a)(ia) of the I.T. Act. 1961 and added to the total income of the assessee. Hence the then AO had rightly made the addition of Rs.2,18,50,444/- for the year under consideration & it should be sustained.
Further, during the re-verification a proceeding, the assessee has submitted that the Ld.AO has made the addition without confronting or giving opportunity of being heard. The reply of the assessee has considered but not found acceptable, as during the course of assessment proceedings, the assessee was given opportunity to explain the reason of non deduction of TDS but the assessee trust had failed to explain the same.
Hence the then AO had rightly made the addition of Rs.2,18,50,444/- for the year under consideration & it should be sustained."
7. Further, as required by your good office, the comments are being offered on the issues which are as under.
Issues

Comments
On the issue of disallowance us
The AO had rightly been made 40(a)(ia) of the IT Act disallowance as discussed in aforesaid para.
8.5 During the appellate proceedings the A/R of the appellant filed written submission vide dated 11.12.2023 in which clubbed the ground no. 4,5 and 6
the same is reproduced in forgoing para 7.5. Therefore, the same is not reproducing here for the sake of brevity.
8.6 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under-
The facts of the case are considered. The argument of the appellant with regard to disallowance made by the AO u/s 40(a)(ia) is that these are not ITA No. 961 To 963/JPR/2024
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claimed by the appellant in the Income and Expenditure account or profit and loss account and that the section is not applicable in case of trusts.
Both of these arguments are discussed and decided while deciding the ground no.4 and 5 of the appeal. The activity of the appellant are held to be of business nature similar to that of a builder.
The books of accounts are not found to be correct and rejected as the association was not maintaining the books of accounts properly.
In this case, section 11(4A) is found to be applicable as discussed in detail in para 7.8 of this order.
In the present case it is admitted fact that the property on which construction of houses is being done is owned by individual persons in their name and the land is not in the name of trust. Hence, the business activity is being undertaken by or on behalf of the trust and hence, section 11(4A) of the Act would apply in the present facts of the case. Further, the appellant has not established that the object of the trust was to act as builder for housing construction. Therefore, the business activity as builder is not found to be as per objects of the trust. Hence, the section 11(4A) is clearly found to be applicable on the facts of the case.
Since, the appellant is not eligible for benefit of section 11 as discussed earlier, the argument of the appellant that section 40(a)(ia) are not applicable are not found to be acceptable in the present case. The decisions relied upon by the appellant are therefore not found to be applicable on the facts of the case of the assessee.
Therefore, considering the above provisions of the Income Tax Act, the action of the AO is found to be correct as the AO has calculated income of the business under the normal assessment related provisions of the Act.
The expense are made are held to be normal business expenditure and hence, the section 40(a)(ia) is found to be applicable on the facts of the case of the association. Hence, the disallowance made by the AO is found to be justified and upheld.
This ground of appeal is treated as dismissed.
9. The last Ground of appeal is that the appellant craves leave to add, alter, modify or amend any ground of appeal on or before the date of hearing.
9.1 The appellant has added one additional ground of appeal which is discussed in forgoing para 4. The appellant has not altered, modified or amended any ground of appeal on or before the date of hearing. Accordingly

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such mention by the appellant in his ground is treated as general in nature, no needing any specific adjudication and is accordingly treated as disposed of.
10. In the result, the appeal of the appellant is treated as dismissed.”
7. Feeling dissatisfied from the above order of the ld. CIT(A), the assessee preferred the second appeal before this tribunal. Apropos to the grounds so raised by the assessee, ld. AR of the assessee relied upon the following written submission which is reproduced here in below :-
1. “The brief facts of the case are that the assessee is a Trust and registered under the Non-Trading
Companies
Vide
Reg.
Certificate
No.
215/1976
dt.09.03.1976(PB36)and trust having main objects of to develop the cloth business in Kota and for the benefit of the general public or businessmen under the name of Wholesale Cloth Merchant Association Kota. The Trust is also registered u/s 12A of the IT Act vide registration certificate No. 8/1993-94/2609dt. 10.08.1994 (PB 37).
Since the issues challenged by way of these appeals are identical in nature in all the years and for sake of convenience we are submitting common submission. That year wise detail of issue under challenge and addition made by the ld. Assessing officer &
CIT(A) is as under:
A.Y.
Ground
Issue
Addition by AO
CIT(A)
2014-2015
1. Notice issued u/s 147 of the Act is bad in law.
-
Confirmed the Action of the Assessing
Officer
3. Denial of exemption of Sec 11 and 12 of the Act.
-
Confirmed by the Ld.
CIT(A)
4. Disallowance u/s section 11 (2) and 11(1)(a) of the Act
33,50,772/-
33,50,772/-
5. Unverifiable Creditors
16,75,286/-
16,75,286/-
6. 15%
of Construction
Expenses
1,20,00,440/-
1,20,00,440/-
7. Disallowance of Rs
3,69,567
out of total expenses of Rs 24,63,780
3,69,567/-
3,69,567/-

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8. Addition u/s 40(a)(ia) of the Act
2,18,50,444/-
2,18,50,444/-
2. Enhancement by the ld.
CIT(A)
4,69,22,650/-
4,69,22,650/-
1.1. The main source of receipts/income of the assessee is annual fees from its members, rent, interest and Misc. receipts. In the present case the ld. AO has issued the notice u/s 148 on dt. 28.02.2018(PB38)on the reasons (PB 39) that “During the assessment year 2014-15, the assessee has not filed any return of income.As per
AlR/CIB information generated on AST, it is noticed that assesseehad received amount of Rs.22,37,64 1/- as per 26AS and refund interest received for the A.Y.
2011-12 of Rs. 5,278/- as per AIR information. The cash of Rs.32,30,000/- was also deposited at State Bank of India and Cash Deposited is not verifiable as assessee has not filed return of Income. Thus the assessee has earned income of Rs.22,42,919/- and made further investment of Rs. 32,30,000/- in bank account. Assessee has also filed service tax return declaring gross value of services of Rs. 8,37,69,001/-which required verification. A survey was also conducted on 30.06.2016 and hard disk was impounded which also required examination. Therefore, I am satisfied that assessee has earned that much income during the year which has escaped from assessment.In view of the above facts, I have reason to believe that Income of theassessee to the extent of Rs.54,72,919/- has escaped assessment for the A.Y. 2014- 15. The services rendered by the assessee also required verification. Notice u/s 142(1) was also issued for 1TR filing on 11.09.2017 but no return was filed by the assessee. Therefore, notice u/s148 of the IT Act,1961 is required to be issued.”
1.2. That the ld. AO has issued a show cause notice dated 06.11.2018 vide page 2
to 4 of assessment order in which he has asked to the assessee that:
“(1) the trust is required to get its accounts audited under anyprovision of the Act,Assessee trust has not filed its return of income before issuing noticeus 148 of the Act and asked to explain the reasons for not submitting ITRwithin time limit. If return is not filed by prescribed date then benefit ofaccumulation us 11(2) will not be available.
(2) As per AlR/CIB information generated on AST, it is noticed thatassessee had received amount of Rs.22,37,641/- as per 26AS andrefund interest received for the A.Y. 2011-12 of Rs. 5,278/- as per AIRinformation. The cash of Rs. 32,30,000/ was also deposited at StateBank of India and Cash Deposited is not verifiable as assessee has notfiled its regular return of Income. Thus the assessee has earnedincome of Rs.
22,42,919/- and made further investment of Rs.32,30,000/- in bank account. Assessee has also filed service tax returndeclaring gross value of services of Rs. 8,37,69,001/- which requiredverification.Hence asked to explain, howabove transaction amounts are accounted for in the books of accountsof the assessee trust.

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3. Application of Funds deemed to have been made for the benefit ofspecified persons- [Sec 13(2)]:- Applications of the trust-income orthe trust-property for the following purposes is deemed to have beenmade for the benefit of specified persons.
(a) Ifa loan is given to a specified person for any period during theprevious year without either adequate security or adequate interest orboth;
(b) If any land, building or other property of the trust, is allowed to beutilized by a specified person,without charging adequate rent or othercompensation: (C) Ifpayment is made by way of salary, allowance,etc. to a specified person for services rendered by him to the trust orinstitution, in excess of what may be reasonably paid for such services;
(d) If the trust renders its services to a specified person withoutadequate remunerationMedical/Educational Institution)
(e) If any share, security or other property is transferred to the trustfrom a specified person, for a consideration which is more thanadequate,;anyshare, security or other property is transferred by the trust tospecified person, for inadequate consideration;
(g) if any income or property of the trust, exceeding Rs. 1000 in value,is diverted to a specified person; and h) If the trust-funds are invested, or remain invested, for any period inany concern wherein any of the specified persons has a substantialinterest.
In view of above provisions of the Act, it is gathered that acomplaint has been filed against the trust that books of accounts forthe A.Y 2014-15 to 2016-17 have not been written orAudit proceedings were also pending before issuing notice us 148 ofthe Act.
The news regarding irregularities in financial records of theAssessee trust has also been published in newspapers. President ShriTejendra Pal SahniRimpi' and Treasurer
Shri Manohar Gotewalahave withdrawn huge amounts through Cheques from accounts of theTrust which are not accounted for in the books of accounts.
Kindly,explain how withdrawn amounts are accounted for in the books ofaccounts.
4. Further the section 12A(1)(b) states that:
[(1)] The provisions of section 11 and section 12 shall not apply inrelation to the income of any trust or institution unless the followingconditions are fulfilled, namely:-
(b)where the total income of the trust or institution as computedunder this Act without giving effect to [the provisions of section 11 andsection 12 exceeds the maximum amount which is not chargeable toincometo in any previous year], the accounts of the trust orinstitution for that year have been audited by an accountant as definedin theExplanation below sub-section (2) of section 288 and the personin receipt of the income furnishes along with the return of income forthe relevant assessment year the report of such audit in the prescribedform duly signed and verified by such accountant and setting forthsuch particulars as may be prescribed.
Section 12A(1)(6) of1T Act 196l clearly provides for not allowingexemption u/s 11 &
12 when assessee trust has not filed its return ofincome before due date. The trust has TDS claim and also depositedhuge amount in bank accounts but failed to file ITR.

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Therefore, it is notentitled for exemption u/s 11 & 12 of the Act. The income of the trustwill be charged@ Maximum Marginal Rate Us 164(2) as theassessee trust is doing business activities in India but not complyingstatutory provisions of the Act.
Penalty proceeding in respect of thisis also required to be initiated for furnishing inaccurate particulars of income.”
1.3. That in response thereto the assessee has filed the reply on. 16.11.2018(PB74-
81) also reproduced at page 5 to10 of the assessment order. In its reply assessee has explained and replied all the issue with the details and explanation.
1.4. However the ld. AO did not feel satisfy and stated vide assessment order dated
19.12.2018 thatthe assessee has not filed ITR for the year, the ITR was filed after reopening the proceedings u/s 148. The ld. AO has stated that the total income of the trust before allowing the exemption u/s 11 and 12 exceed the total income which is not chargeable to tax. And required to file return in the form 7 before the specified date u/s 139 which is 30 Sep. where the trust is required to get its account audited under the act. The ld. AO has noted that sec. 12A(1)(b) provides that the exemption u/s 11 will be available only if the accounts are audited and audit report furnished alongwith return.
1.5. The ld. AO has further noted that audit report in form No.10B was performed on dt.14.11.2017 and a number of discrepancies have been noted by the Auditor, who mentioned in Sr. No.3(c) that as per FIR copy, 22 plots has been given to the person who are not the member of Association and received conversion charges from 17
persons @ 1,85,000/- and no details available regarding remaining 5 plots amount recoverable from concerning persons of all 22 plots has not been taken in books. The ld. AO stated that Sh. Tejendra Pal Singh has taken loan & advances of Rs.31,50,000/- from the trust and violated the provisions of Sec. 13(2), no books of accounts maintained, TDS provisions have not been complied properly, therefore the trust is not eligible for claiming exemption u/s 11 to 13. The president of the trust Sh.
Tejendra Pal has withdrawals huge amount from the trust account and utilized for personal benefit. The ld. AO has stated that assessee trust is not eligible for exemption u/s 11 & 12, the income of the trust will be charged @ MMR u/s 164(2) as the trust doing business activity. Thus, after noting this the ld. AO further made the following additions without issuing any show cause notice and not part of the reasons recorded:
(a)
Alleged bogus creditors of Rs.16,75,286/-.
(b)
15% of construction expenses of Rs.8,00,02,935/- which comes to Rs.1,20,00,440/-
(c)
15% of certain expenses payment of Rs.24,63,780/- which comes
Rs.3,69,567/- .
(d)
Addition/disallowance of Rs.2,18,50,444/- u/s 40(a)(ia) on account of non- deduction of TDS.
(e)
Income of Rs. 33,50,772/- (3345494+5278)and also taxed the same @
Maximum Marginal Rate U/s 164(2).

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The ld. AO has alleged that the assessee trust is doing businessactivities and is not complying statutory provisions of the Act. Thus the ld. AO has completed the assessment at Rs.3,92,46,509/-.
1.6. In first appeal the assessee filed the detailed WS (PB1-35), with the legal position. However the ld. CIT(A) has confirmed the action of the ld. AO on the legality of 147/148 proceedings and assessment, while doing so he called the remand report of the ld. AO thereafter he has stated thatin this case, the AO noted that the assessment proceedings u/s 147 wasinitiated after recording reasons of reopening and prior approval has been obtained from the Joint Commissioner of Income Tax, Central
Range Udaipur vide his office letter number JCIT/CR/UDR/2017-18/1994 Dated
21.02.2018. The reasons of reopening the assessment proceedings are provided to the assessee vide this office letter number DCIT/CC-Kota/2018-19/479 Date 11.06.2018. Assessee/AR has not objected the assessment proceedings u/s 147 of the Act.
It is noted that the income of 33,45,494/- + 5,278/-) is added by the AO bydisallowing exemption u/s 11(2) and 11(1)(a) of the Income Tax Act. Further, additionof Rs.
5,278/- is made on account of interest on Income Tax Refund. The amount ofRs.
33,50,772/- (33,45,494/- + 5,278/-) must have been part of amount received ofRs.
22,37,641/- reflected as per 26AS. Therefore, addition has been made on thisamount also which is also part of reasons of reopening. Therefore, claim of theappellant is not found to be correct that no addition is made on the reasons ofreopening.
The ld. AO also stated that the assumption of juri iction by the AO by issuing notice u/s148 of the Act is found to be justified as the appellant has not filed return of Incomeu/s 139(1). In the final assessment addition is made with regard to one or more of theamounts which is mentioned in the reasons of reopening. It can be said that theamount of Rs. 22,37,641/- as per 26AS was part of the accounts of the assesseeassociation and by denying the benefit u/s 11 of the Act, the AO has taxed thesereceipts as per correct amounts mentioned in the books of accounts. It is important tonote that the return of Income was not furnished originally u/s 139(1) of the Act. Thetotal income of the trust (before allowing exemption under sections 11
and 12)exceeds the maximum amounts which is not chargeable to tax, it is required to file itsreturn in Form ITR- 7, before the date specified in section 139. However, no return ofincome was filed. Therefore, the assumption of juri iction remained with the AO tillpassing of final assessment order. The ld. CIT(A) referred various plea and confirmed the action of the ld. AO.
1. Invalid notice or action and assessment proceedings u/s 148:Firstly we would like to submit that in the present case the notice u/s 148 as well as the assessment is invalid, is illegal, is bad in law and is without juri iction. Because the assessee is a trust registered u/s 12AA and coming in the juri iction of the ITO Ward Exemption
Kota and Pr. CIT (Exemption), Jaipur. As the search u/s 132 was carried out at the residence of Bajaj Group and president of trust on 30.06.2016, consequent thereto or post search inquiry a survey u/s 133A was carried out in the case of assessee on dt.
30.06.2016. Thus in this case if it is deemed that this is a case of survey u/s 133A,

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then the notice u/s 148 can be issued only by the juri ictional AO which falls with the ITO Ward Exemption Kota not with the ACIT Central Kota. If it is deemed that some incriminating documents and material were found during the course of search or post search in the case of Bajaj Group and president of the trust, then only the notice can be given u/s 153C also by the ITO Ward Exemption Kota, after recording the satisfaction by the ACIT Central Circle Kota. The observations of the ld. CIT(A) was wrong because if any objection has not been raised during the course of assessment proceedings, then it does not mean that an invalid juri ictions/action will be valid. If there is any illegality the same can be raised at any stage. The ld. CIT(A) has not rebutted our contention on this legal issue except that assessee has not raised the same before AO during the course of assessment proceedings. The Hon'ble Delhi High
Court in case of PCIT v AnandKumar Jain (HUF) & Ors. 432 ITR 384(Del) held as under:
"3. A search was conducted u/s. 132 on 18th November, 2015 at the premises of the Assessee {being Anand Kumar Jain (HUF), its coparceners and relatives} as well as at the premises of one Pradeep Kumar Jindal. During the search, statement of Pradeep
Kumar Jindal was recorded on oath u/s. 132(4) on the same date, wherein he admitted to providing accommodation entries to Anand Kumar Jain (HUF) and his family members through their Chartered Accountant. The assessing officer framed the assessment order detailing the modus operandi as to how the cash is provided to accommodation entry operator in lieu of allotment of shares of a private company.
Thereafter when the matter was carried up in appeal before the CIT(A), the findings of AO were affirmed. However, in further appeal before the ITAT, the said findings were set aside vide the impugned order.
4. The Revenue is aggrieved with the aforesaid impugned order and has filed the present appeal under Section 260A of the Act, proposing the following questions of law……
10. Now, coming to the aspect viz the invocation of section 153A on the basis of the statement recorded in search action against a third person. We may note that the AO has used this statement on oath recorded in the course of search conducted in the case of a third party (i.e., search of Pradeep Kumar Jindal) for making the additions in the hands of the assessee. As per the mandate of Section 153C, if this statement was to be construed as an incriminating material belonging to or pertaining to a person other than person searched (as referred to in Section 153A), then the only legal recourse available to the department was to proceed interms of Section 153C of the Act by handing over the same to the AO who has juri iction over such person. Here, the assessment has been framed under section 153A on the basis of alleged incriminating material (being the statement recorded under 132(4) of the Act). As noted above, the Assessee had no opportunity to cross-examine the said witness, but that apart, the mandatory procedure under section 153C has not been followed. On this count alone, we find no perversity in the view taken by the ITAT.

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Therefore, we do not find any substantial question of law that requires our consideration.
11. Accordingly, the present appeals, along with all pending applications, are dismissed.’’
(B) The same view has been reiterated by this Hon’ble ITAT Benchin the case of Jai
Singh Yadav in ITA No. 125 and 168/JP/2022 dt. 15.06.2022. And the same thing is also applicable in the present case and the case of the assessee is on much strong footings.
1.1. The action taken by the ld. AO u/s. 148 is gross breach violation of the specific provision of sec. 151 of the IT Act. When for the search related matter there is specific provision (i.e Sec. 153Cin the present case) for assessment then in a general provision (i.e Sec. 148 as taken) no assessment can be taken.
Assessment of income of any other person.
153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,—
(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing
Officer having juri iction over such other personand that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A:
Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition undersection132Ain the second proviso to sub-section (1) of section 153Ashallbe construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having juri iction over such other person :
Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment or reassessment has abated.

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(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having juri iction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year—
(a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having juri iction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.
1.2. Under the same facts and circumstances Hon’ble Rajasthan High Court in the case of Shyam Sunder Khandelwal v. ACIT in [2024] 471 ITR 45 (Raj) has quashed the assessment proceedings-initiatedu/s 148 by holding as under:
Reopening of assessment v/s assessment u/s 153C - Applicability of Sections 153C and 148 of the Act in case of seizure of material in search or requisition of books- documents relating to assessee other than on whom the search was conducted or requisitioned made - Petitioner contented basis of issuance of notice u/s 148 is the material seized during the search conducted on Manihar Group the proceedings should have been initiated u/s 153C
HELD THAT: The reasons supplied in case in hand for initiation of proceedings u/s 147/148 are based on the incriminating material and documents including Pen Drives seized during the search carried out of the Manihar Group and the statements recorded during proceedings. From the information received the AO noticed that the loan advanced and interest earned thereon were unaccounted. The basis for initiation of Section 148 proceedings is the material seized relating to or belonging to the petitioner, during the search conducted of Manihar Group.
In the case where search or requisition is made, the AO u/s 153A mandatorily is required to issue notices to the assessee for filing of income tax return for the relevant preceding years. AO assumes juri iction to assess/reassess ‘total income’ by passing separate order for each assessment.
In cases of the person other than on whom search was conducted but material belonging or relating such person was seized or requisition, the AO has to proceed u/s 153C. The two pre-requisites are that the AO dealing with the assessee on whom search was conducted or requisition made, being satisfied that seized material belongs or relates to other assessee shall hand over it to AO having juri iction of such assessee. Satisfaction of AO receiving the seized material that the material handed

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over has a bearing for determination of total income of such other person for the relevant preceding years. On fulfillment of twin conditions the AO shall proceed in accordance with the provisions of Section 153A.
Special procedure is prescribed under Section 153A to 153D for assessment in cases of search and requisition. There cannot be a quibble with the proposition that the special provision shall prevail over the general provision. To say it differently the provisions of Section 153A to 153D have prevalence over the regular provisions for assessment or reassessment under Section 143 & 147/148. Section 153A and 153C starts with non-obstante clause. The procedure for assessment/reassessment in Section 153A, 153C in cases of search or requisition has an overriding effect to the regular provisions for assessment or reassessment under Sections 139, 147, 148, 149, 151 & 153. The language of explanation 2 to new Section 148 is akin to Section 153A and Section 153C. Corollary being that after seizing of operational period of Section 153A to 153D, the cases being dealt thereunder were circumscribed in the scope of newly substituted Section 148. Department has not set up a case that for initiating proceedings u/s 148 it had material other than the material seized during the search of Manihar Group. The contention was that though the material with regard to unaccounted loan advanced by the petitioner was received, the earning of interest on unaccounted loan was derivation of the AO from the material received. The submission is that the derived conclusion cannot be acted upon u/s 153C. The submission lacks merit and shall defeat the concept of single assessment order for each of relevant preceding years for assessing
‘total income’ in case of incriminating material found during search or requisition.
The argument that by enactment of Section 153A to 153D has not eclipsed Section 148 does not enhance the case of respondent to initiate the proceedings u/s 148. On fulfillment of two conditions for invoking Section 153C the proceeding in accordance with Section 153A are to be initiated. The operating field of and Section 153A to 153D and Section 148 are different. Applicability of Section 153C in cases where the seized material related to or belonged to person other than on whom search is conducted or requisition made does not render Section 148 otiose. Section 148 shall continue to apply to the regular proceedings and also in cases where no incriminating material is seized during the search or requisition.
The argument that Section 153C can be invoked in case there is incriminating material for all the relevant preceding years and otherwise Section 148 is to be resorted to, is misplaced. On satisfaction of the twin condition for proceedings under Section 153C, the AO has to proceed in accordance with Section 153A. Notice is to be issued for filing of the returns for relevant preceding years and thereupon proceed to assessee or reassessee the ‘total income’. As not obligatory on the AO to make assessment for all the years, the earlier orders passed may be accepted. But once there is incriminating material seized or requisitioned belonging or relatable to the person other than on whom search was conducted, Section 153C is to be resorted to.

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Supreme Court in the case of Abhisar Buildwell P. Ltd. [2023 (4) TMI 1056 -
SUPREME COURT] while dealing with the provisions of Section 153A held that in case of absence of incriminating material seized during the search, the department is not remediless for reassessing the unabated assessment on the basis of material received from the other sources and can proceed u/s 148. The decision does not support the contentions raised that Section 148 is rendered redundant if Section 153C is to be resorted to in the facts of the present case.
If the Department has chosen not to proceed u/s 153C, no right is created to the petitioner for getting the notice under Section 148 quashed. Moreover, learned Single
Judge was not having the benefit of the decision of Abhisar Buildwell P. Ltd. (supra).
The appeal against the order was dismissed having rendered infructuous in view of the subsequent developments that the assessment order was passed.
The decision of the Madras High Court in the case of Saloni Prakash Kumar [2023
(10) TMI 207 - MADRAS HIGH COURT] is of no help to the respondents. The High
Court held that Section 153C does not preclude issuance of notice u/s 148. The field of applicability of two sections was not the issue before the Court. The notices issued u/s 148 and the impugned orders are quashed.
1.3. Same view has been expressed by Hon’ble Bombay High Court in the case of Sejal Jewellery v. Union of India in [2025] 2 TMI 870 by holding as under:
Validity of reassessment proceedings on the basis of a search action u/s 132 - HELD
THAT:- As in the event any incriminating material is found during the search, the Revenue necessarily would be required to take recourse to the provisions of Section 153A and in the event no incriminating material found during the search, then the power of the Revenue to have the reassessment u/s 147/148 stands saved, failing which, the Revenue would be left without remedy.
Rajasthan High Court in Shyam Sunder Khandelwal s/o. Late Damodar Lal
Khandelwal [2024 (4) TMI 196 - RAJASTHAN HIGH COURT] also had taken a similar view when the issue which had arisen before the Court was in regard to the notice issued u/s 148 the basis of issuance of such notice was the material seized during search. The contention of the assessee was to the effect that in the said circumstances, the proceedings ought to have been initiated u/s 153C. The Division
Bench referring to the decision of Supreme Court in Abhisar Buildwell P. Ltd. [2023
(4) TMI 1056 - SUPREME COURT] as also the decision of Sri Dinakara Suvarna
[2022 (7) TMI 800 - KARNATAKA HIGH COURT] allowed the petitions observing that the department had not set up a case, that for initiating proceedings under Section 148, it had material other than the material seized during the search of a related party.
We are of the clear opinion that the foundation of the present case was certainly a search action which was undertaken by the Revenue against one Shilpi Jewellers Pvt.
Ltd. and in such search and seizure action, materials were seized and such materials were further explored and enquired. Such enquiry revealed significant information in regard to M/s. Green Valley Gems Pvt. Ltd., which according to the Revenue had provided accommodation entries to the petitioner, in which it was also revealed that ITA No. 961 To 963/JPR/2024
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Green Valley Gems Pvt. Ltd. was a shell company. We do not find that the record would indicate something which is not on the basis of such new materials gathered under the search and seizure action under Section 132. There cannot be any doubt on the position in law when the Revenue intends to proceed purely on materials relevant for an action under Section 148 r.w.s. 147. The provisions of Sections 147, 148 vis-a-vis Section 153A and Section 153 are quite compartmentalized. To avoid any overlapping of these provisions, the legislature in its wi om has thought it appropriate to provide for an independent effect, to be given u/s 153A r.w.s. 153C by incorporating the “non-obstante” clause, in these provisions, which carves out an exception to any normal/regular action being resorted u/s 147. We are of the clear opinion that the impugned notice u/s 147 and all actions consequent thereto are required to be held to be without juri iction and bad in law.
The petition is accordingly allowed in terms of prayer clauses (a) and (b).
1.4. Same view has been expressed by Hon’ble Karnataka High Court in the case of PCIT v. VSL Mining Company Ltd. in [2024] 9 TMI 1383 by holding as under:
Assessment u/s 153C - disallowance of deduction claimed u/s 10B - HELD THAT:- It is forthcoming that the Tribunal while adjudicating regarding the disallowance of deduction claimed u/s 10B has noticed that the said aspect is covered by a coordinate
Bench judgment of this Court in the case of Tata Elxsi Ltd. [2015 (10) TMI 634 -
KARNATAKA HIGH COURT] Having regard to the fact that the Tribunal has decided the matter in accordance with a judgment of this Court, the Revenue has not demonstrated as to how the same is erroneous. The substantial question of law No.1 is answered against the Revenue and in favour of the assessee.
AO has not followed the procedure as envisaged u/s 153C - It is relevant to note that Chapter VI of the IT Act contemplates the procedure for assessment, wherein various stipulations are provided in terms of Sections 136 to 153 of the IT Act. Section 153A,
153B and 153C have been inserted by the Finance Act, 2003 w.e.f., 1.6.2003, which specifically contemplates assessments in cases of search or requisition. Section 153A of the IT Act contains various stipulations with regard to the person searched and Section 153C of the IT Act contains various stipulations with regard to such other person, other than the person searched.
A coordinate Bench of this Court in the case of Dinakar Suvarna [2022 (7) TMI 800 -
KARNATAKA HIGH COURT] while considering an appeal of the assessee, in a fact situation wherein an assessment was re-opened u/s 147 of the IT Act based on a search conducted and the procedure u/s 153 of the IT Act was not followed was under consideration.
In view of the settled position of law as noticed above, once material pursuant to a search is relied upon, the AO is required to follow the procedure as contemplated under Section 153A, 153B and 153C and it is impermissible for the AO to continue the regular assessment. Decided in favour of the assessee and against the Revenue.
2. Further the trust is registered u/s 12A the Act and consequent to the above facts and proceedings the Registration u/s 12A was revoked by the Pr. CIT(Central),

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Jaipur. We had challenged the same before the Hon'ble ITAT on the ground of Juri iction and also on other grounds. The Hon'ble ITAT quashed the order of the ld.
Pr. CIT on the grounds of Juri iction and also on other grounds vide its detail order in ITA No.688/Jp/2019 dt.06.01.2021(PB82-138). Thus it is also held that when there was no juri iction of the Pr. CIT(Central), then there is also no juri iction of the ACIT Central Circle-1 Kota, to issue the notice and to pass the assessment order.
Hence on juri iction point kindly refer this order of Hon'ble ITAT here also. The ld.
CIT(A) has also not spoken anything on the same, which shows his acceptance on our contentions. Hence the notice as well as the assessment is without juri iction and liable to be quashed.
3. No income escaped: Further the assessee is trust registered u/s 12A and its income is not taxable as per law, the issue raised by the ld. AO is not matching with the expenses and income claimed and shown in the Income & Expenditure accounts, and the receipts and income which is relating to the trust has already been taken in the books and audited accounts. If so, then how it can be said that any income has escaped.
4. No addition made on the reasons recorded u/s 148: Further it is submitted that as the ld. AO issued the notice u/s 148 on the reasons recorded vide para 1 of above in facts.However on perusal of the assessment order admittedly it has been come to know that the ld. AO has not made additions on these issue or on the issue recorded in the reason for reopening the case(except minor addition of IT refund interest which is already was on record of the revenue) and he has made different additionsvide assessment order, which is illegal and now it is the settled legal position of law that if no addition on the reasons recorded has been made then no other addition can be made, for this kindly refer following decisions:
(a) In the case of CIT v. Ram Singh 306 ITR 0343 (Raj.)the Hon’ble Rajasthan High
Court has held that It is only when, in proceedings under s. 147 the AO assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under s. 147. To put it in other words, if in the course of proceedings under s. 147, the AO were to come to conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the juri iction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under s. 147. It is a different story that for such other income, the AO may have recourse to such other remedies, as may be available to him under law, but then, once it is found, that the income, regarding which he had "reason to believe" to have escaped assessment, is ITA No. 961 To 963/JPR/2024
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not found to have escaped assessment, the AO is required to withhold his hands, at that only. Once the AO came to the conclusion, that the income, with respect to which he had entertained "reason to believe" to have escaped assessment, was found to have been explained, his juri iction came to a stop at that, and he did not continue to possess juri iction, to put to tax, any other income, which subsequently came to his notice, in the course of reassessment proceedings, which were found by him, to have escaped assessment.—CIT vs. Atlas Cycle Industries (1989) 180 ITR 319 (P&H) concurred with.
(b) In the case of CIT v. Jet Airways (I) LTD 331 ITR 0236 (Bom):Held
Reassessment—Scope—Items unconnected with escapement for which notice was issued—When Expln. 3 to s. 147 was introduced, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain
Courts that the AO has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment—
However, Expln. 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of s. 147—AO has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings—However, if after issuing a notice under s. 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him to independently assess some other income—If he intends to do so, a fresh notice under s. 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.
(c) In the case of PCIT v. Sunlight Tour and Travels Pvt. Ltd. 2024 (11) TMI 1384the
Hon’ble Delhi High Court has held that: Validity of Reopening of assessment u/s 147
- Addition on the ground other than assessment was reopened - Assessee contention that since no addition had been made on account of the reasons on the basis of which the reopening of the assessment was sustained no other addition was permissible accepted by ITAT - HELD THAT:- Section 147 of the Act enables the reopening of concluded assessments only in exceptional cases, where there the AO has reason to believe that Assessee’s income for the relevant period has escaped assessment. It is trite law that concluded assessment should not be lightly interfered with. If the ground on which the concluded assessment is sought to be re-opened, cannot be sustained, there would be little rationale for expanding the reassessment proceedings.
In our view, it would not be apposite to accept an expansive interpretation to the provision of Section 147 of the Act. Given that the nature of the proceedings is to unsettle concluded assessment, a strict interpretation of the plain language of Section 147 of the Act, is warranted. We respectfully concur the view of this court as articulated in Ranbaxy Laboratories Limited [2011 (6) TMI 4 - DELHI HIGH
COURT] and ATS Infrastructure Ltd.[2024 (7) TMI 1441 - DELHI HIGH

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COURT] and Jaguar Buildcon Pvt. Limited. [2024 (8) TMI 517 - DELHI HIGH
COURT]
It is also relevant to note that various courts had taken a view that the reassessment proceedings were confined under Section 147 of the Act only to the issues (reasons to believe) on the basis of which the assessments were reopened. Thus, there was no scope for making any addition other than those which were circumscribed by the reasons to believe as recorded by the AO prior to the issuing a notice under Section 148 of the Act. However, this controversy was set at rest by introduction of Explanation 3 by virtue of the Finance Act, 2009 with retrospective effect from 01.04.1989. Explanation 3 to Section 147 merely clarified that the AO would assess or reassess the income in respect of the issue which had escaped assessment and such other issue, which came to the notice subsequently. However, the said explanation does not control the import of the plain language of Section 147 of the Act. Explanation 3 to Section 147 of the Act, merely clarifies that the juri iction of the AO was not confined to assessing or reassessing of the income of an Assessee only in respect of the issue, which formed a part of the reasons recorded for reopening the assessment.
The said explanation cannot be interpreted to mean that the AO could assess other incomes of the Assessee even in cases where no addition is made on account of the reasons for which reassessment was initiated. No substantial question of law arises in the present appeal.
(d) Also refer following decisions: Ranbaxy Laboratories Ltd. v. CIT 336 ITR
0136(Del),CIT v. Dr. Devendra Gupta 336 ITR 0059(Raj),AVG Construction Pvt. Ltd v. ITO in ITA no. 90/Jp/2020 dt. 02.09.2021,Shambhu Dayal Saraf v. ITOin ITA No.
558/Jp/2013,Pappu Qureshi v. ITO in ITA No. 314//Jp/2019 dt. 28.04.2020, Vikram
Singh v. ITO (2021) 63 CCH 0044 Lucknow Trib, CIT(EXEMPTION) v. B.P. Poddar
Foundation For EducationSep 13, 2022 (2022) 115 CCH 0026 KolHC.
4.1. On the observation of the ld. CIT(A) we would like to submit that when we have already taken the income in the books of accounts, in audit report and in the ITR and no addition in the ITR on the income declared has been made, then how it can be said the addition has been made. The income declared in the ITR is not the part of income, as wrongly interpreted by the ld. CIT(A). The ld.CIT(A) misinterpreted our submissions.
5. Reason to believe and not reason to suspect:
5.1. It is further submitted that even under the amended law by the finance act
1989 the condition precedent or words, which continues right since inception till date, are “reason to believe" and not "reason to suspect". The word “believe” has to be understood in contradistinction of suspicion or opinion. Belief indicates something concrete or reliable. Kindly referGangasharan& Sons Pvt. Ltd. 130 ITR 1 (SC), and ITO v. Lakhmani Mewal Das, (1976) 103 ITR 437 (SC).
5.2. The belief of the Officer should be as to escapement of income and the belief should not be a product of imagination or speculation. There must be reason to induce

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thebelief. The Court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court (Sheo
Nath Singh v. AAC, (1971) 82 ITR 147 (SC).
5.3. In the case of Mukesh Modi & Ors. v. DCIT 366 ITR 418 (Raj) held that Evasion of tax was menace to society but Assessee contributing to the exchequer in form of tax could not be allowed to suffer on mere pretence that it had evaded payment of tax. Rowing and fishing enquiry in hands of AO on mere suspicion or change of opinion could not satisfy expression "reason to believe" exposing Assessee for reopening of assessment. Notice for reopening of assessment was not in consonance and in conformity with under Section 147 and made specified notice vulnerable. High Court pointed that, reasons given by AO for issuance of notice for Re-assessment were not plausible and convincing. In fact order, where objections were rejected by AO, was not self-contained speaking order. Upon perusal of the order, it was amply clear that the same contains conclusions and is bereft of reasons.(para 12)
Notices issued to Assessee by AO under Section 147/148 were not satisfying the pre- requisites for same. There was no whisper in the notice, or iota of proof that while issuing same. AO had reason to believe that any income chargeable to tax had escaped assessment for the assessment year. Notice issued by AO simply for his own verification and to clear his doubts and suspicions to re-examine the material which were already available on record at the time of passing of t earlier assessment orders.
The legislature under Section 147 has not clothed AO with such juri iction therefore the action could not be upheld in the background of facts of instant case. One more redeeming fact which had direct nexus with the subsequent re-assessment proceedings and ramification of the same had culminated into re-assessment orders was the impugned order where AO rejected the objections submitted by Assessees pursuant to notice under Section 147/148. Order passed by AO in this behalf was not a speaking order which could not be sustained. In view of legal infirmity in the notice under Section 147/148 and laconic order of AO while rejecting objections Assessee the consequential assessment Orders were liable to be annulled.(para16)
In view of the above the impugned order as well as the notice are illegal invalid and liable to be quashed.

GOA-2:
Enhancement of Rs.4,69,22,650/- by exercising powers u/s. 251(2) and invalid invoking of the provisions of Sec. 145(3) and rejecting the books of accounts by the ld. CIT(A):
FACTS: 1. The facts of the issue are that in the appeal before the ld. CIT(A) assessee had taken the grounds on account of (i) 15% disallowance of Rs.1,20,00,440/- on construction expenses of Rs.8,00,02,935/- and during the course of appeal before the ld. CIT(A) we filed the detailed Written Submission on this issue vide page 64to 66 of CIT(A) order. However the ld. CIT(A) after seeing this has ITA No. 961 To 963/JPR/2024
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called the remand report of the ld. AO on 11.01.2023 on the following points (Page 66
of CIT(A), para 7.3):
(i) The appellant has argued that with regard to construction expenses disallowed-
(i)
No details were asked
(ii)
No show cause notice issued
(iii)
These expenses are not claimed in income and expenditure account onthis issue please furnish your specific comments.
2. In response thereto Remand report submitted by AO vide his office letter
No.507 dated 31.10.2023 (Page 66 of CIT(A), para 7.4) as under:-
“5. Addition of Rs.1,20,00,440/- made on disallowances of construction expenses:
During the course of assessment proceedings, it had been noticed by the thenAO that the Auditor had mentioned in Audit report (Form No. 10B), that constructionexpenses of Rs.8,00,02,935/- has been paid vide bearer cheques without any detailsor supporting bills. The assessee trust was asked to explain the same but no detailshad been furnished by the assessee. Hence, the then AO had disallowed 15% ofabove expenses which comes to Rs.1,20,00,440/- (15% of Rs.8,00,02,935/-) andadded to the total income of the assessee.
Further, during the re-verification a proceeding, the assessee has submittedthat the Ld.AO has made the addition without confronting or giving opportunity ofbeing heard. The reply of the assessee has considered but not found acceptable, a uring the course of assessment proceedings, the assessee was given opportunity toproduce the details or supporting bills of such construction expenses but theassessee had not furnished any details.
Hence the then AO had rightly made the addition of Rs. 1,20,00,440/- for theyear under consideration & it should be sustained.
3. In response to this remand report assessee filed the WS on dt. 11.12.2023(Page
68 of CIT(A), para 7.5).
4. Thereafter the ld. CIT(A) has issued a show cause notice u/s 251(2)dated
01.03.2024 (PB 211-212) wherein he has stated that:
With regard to following disallowances made by the AO from AY 2014-15 to AY
2017-18 the appellantclaimed that these expenses were not routed through P & L A/c or income and expenditure account.
Detail of such expenses are as under-
Amount of Addition
Description

A.Y.
1,20,00,440/-
Construction Expenses

2014-15
3,69,567/-

Payment without Voucher
2014-15
2,18,50,444/-
Non deduction of TDS

2014-15
(i) Please explain ultimate source of these expenses right from the day when these amountswere received by the assessee in its accounts. Please furnish copy of such accounts andsupporting bank statement.
(ii) Please explain the reason for not routing these expenses through income and expenditure orP&L A/c of the assessee. Explain the legal basis also.

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(iii) If your explanation is not found to be satisfactory, explain why the books of accountmaintained by you should not be rejected by invoking section 145(3) of the Income Tax Actand income and expenditure account should not be recasted by applying correct method. Thismay result in enhancement of income or reduction of refund. This may be treated as notice forenhancement as per provision of section 251(2) of the IT Act.
2. You are required to show cause as to why an order of enhancement of yourassessment/penalty or reduction of refund should not bepassed.
5. In response thereto the assessee filed his objection and reply dt.
05.03.2024(PB 213-217). However the ld. CIT(A) did not feel satisfy with the same and sate that:
5.1
In balance sheet of Bajaj Nagar AwasiyaYojna advance from members Rs.
23,00,85,284/- has beenshown whereas for the land and construction expenses Rs.
18,31,62,634/- has been shown.
The action of the appellant is not found to be as per correct accountingmethod. The assessee is constructing houses for its members. Hence, the activity ofthe association is like a builder. As a builder, the assessee association isconstructing houses for its members. The builder also takes money from prospectivebuyers and constructs house and delivers. Hence, the receipts from the members isnot loan but income for the association and the expenditure made on theconstruction is to be considered as expenditure for the purpose of Income andExpenditure account of the association.
Any surplus or loss will be taken into thebalance sheet. The directly taking these receipts and expenses in the balance sheetis not found to be correct method.
Therefore, the books of account of the assesseeis not found to be correct. The books of accounts are therefore rejected by invokingsection 145(3) of the Income Tax Act and income and expenditure account is to berecasted by applying correct method.
5.2
The ld. CIT(A) has further stated that if a property is held under trust, and such property is abusiness, the case would fall u/s. 11(4A) of the Act. Section 11(4A) of the Act would applyonly to a case where the business is not held under trust. Thus, there is difference betweenproperty or business held under trust and business carried on by or on behalf of the trust. Inthe present case it is admitted fact that the property on which construction of houses is beingdone is owned by individual persons in their name and the land is not in the name of trust.
Hence, the business activity is being undertaken by or on behalf of the trust and hence,section 11(4A) of the Act would apply in the present facts of the case. Further, the appellanthas not established that the object of the trust was to act as builder for housing construction.
Therefore, the business activity as builder is not found to be as per objects of the trust.Hence, the section 11(4A) is clearly found to be applicable on the facts of the case.
5.3
After having the books of accounts rejected, the receipts of the year aretreated as income for Income and expenditure account and the expenditure for ITA No. 961 To 963/JPR/2024
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theconstruction etc. which are directly taken into balance sheet are treated asexpenditure for the year. The accounts of the assessee are therefore treated asrecasted accordingly.
On recasting of the accounts, the expenditure made is subjected to normalprovisions of Income Tax Act. The section 11(4A) of the Act empowers the AO totreat the such receipts as income from business and profession. The AO isaccordingly directed to treat the receipts as business receipts and the surplus shouldbe taxed as the benefit of deduction u/s 11 are not to be given on such amount.
6. The ld. CIT(A) has also stated that the receipts of amounts for land and construction activity are treated as commercial nature and hence, the AO shall treat the receipts as business receipts and the surplus as per the accounts should be taxed as the benefit of section 11 are not to be given on such amount. As per details furnished,
Bajaj Nagar AwasiyaYojna advance from members Rs. 23,00,85,284/- has been shown whereas for the land and construction expenses Rs. 18,31,62,634/- hasbeen shown. Hence, the surplus of Rs. 4,69,22,650/- becomes taxable as no benefit of section 11 is to be allowable. This is to be treated as enhancement to the Income of the assessee.
SUBMISSIONS:
1. Invalid action or rejections of books of accounts by the ld. CIT(A) and Wrong
Enhancement has been made by the ld. CIT(A):
1.1
In this regard it is submitted that the ld. CIT(A) has wrongly made the enhancement of Rs.4,69,22,650/- only on the basis of entries made in the balance sheet the ld. CIT(A) has failed to understand the modus operandi of the assessee the real facts that:
1.2
As in balance sheet of Bajaj NagarAwasiyaYojna advance from members Rs.
23,00,85,284/- has been shown, whereas for the land and constructionexpenses Rs.
18,31,62,634/- has been shown. In page 62 of these papers details of construction account has also been given. Further vide page 63 of the papers consolidated balance sheet is also appended where from the amountreceived from members and land and construction expenses are verifiable very well. The assessee has no owner either on the amount received from the members nor the expenses incurred, the assessee was only acted as a trustee because assessee has not entitled to get any profit and loss on this account, assessee only has account of the members to avoid any litigation between the members. As we before the lower authorities had stated that as the disallowances and additions which have been made on account of sundry creditors, constructionExpenses, TDS certain expenses etc are related to the construction activities carried out on the lands for makingresidential house /flats for the members .
The correct the facts and contentions are thatFirstly the trust has purchased or acquired an agriculture land in F.Y. 2008-09 and thereafter get it converted inresidential land and there after patta and lease has obtained or issued in the name of members of the trust not in the name of the trust, in support we filed Copies of some pattas are (Pg
146-152) against which the trust had received

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thepayments/consideration/advances from the members. Thus the owner of the land and constructions are of therespective members not of the trust, as wrongly presumed by the ld. CIT(A).The Land with construction is being shown in the balance sheet in assets and money/advances received frommembers is being shown in liabilities in the balance sheet. As and when the construction is/shall completed thepossession of the land shall be given to the respective members. The construction work is being done through thetrust only to avoid any litigation among the members and to curtail the cost being the work in bulk. Hence the same has been shown in the balance sheet on the advice of the counsel and as per the accounting system and for the purpose of record.
1.3
As assessee we have already stated that to construct Residential Houses for its members the Association purchasedAgriculture land .Later on it was converted u/s 90
to residential. Out of 422 members of association 380 members opted for the scheme and therefore their residential plots were got converted in their names. Those members requested to the Trust Executives to construct their houses for them because to construct for 380 houses together will reduce their cost. As the money was paid by members and construction of houses are made for members. Thus neither the money received nor money spent/expenses are taken to trust income and expenditure a/c however interest earned on money deposited in Bank A/c is taken in Association
Income & Expenditure A/c. Thus perusal of Balance Sheet (PB-57) of Bajaj Nagar
AvasiyaYojna that till 31.03.2014 Rs. 23,00,85,284/- are received from members and construction expenses of Rs.18,31,62,634/- is made or incurred. Construction of Rs.
10,18,61,237/- was made till 31.03.2013 and during FY 2013-14 further construction of Rs. 8,13,01,397 (PB-62) is made. Sundry Creditors and Sunder Debtors relating to construction activities are at Rs.16,75,286/- (PB-60) and 3,02,67,118/- (PB-61) respectively."
Thus the source of money as well as expenditure are very much appearing in books maintained by the Trust and books of accounts are audited by a Chartered Accountant.
1.4
The ld. CIT(A) has proceeded on his own assumption, presumption and suspicion,only on the basis of its own assumption and presumption, suspicion and guess he made the addition, which is against the settled law and it is the settled legal position that no addition can be the basis of suspicion, assumptions’ and presumption.
An allegation remains a mere allegation unless proved. Suspicion may be strong however cannot take the place of reality, are the settled principles. Kindly refer
Dhakeshwari Cotton Mills 26 ITR 775 (SC), R.B.N.J. Naidu v. CIT 29 ITR 194 (Nag),
Kanpur Steel Co. Ltd. v. CIT 32 ITR 56 (All), CIT v. KulwantRai 291 ITR 36(Del).In CIT v. Shalimar Buildwell Pvt Ltd 86 CCH 250(All)it has been held thatthe AO made the addition merely on suspicion which was not desirable in the eye of law.
1.5
Due to this reason neither the advances/money received from the members has been claimed as income orreceipts of the trust nor the expenses incurred in construction has been claimed as expenditure of the trustbecause it is not for the trust.
If so then how the addition/disallowance can be made in the hands of the assessee

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trust. The same were to be made only when the same was incurred or claimed by the assessee trustin its Income & expenditure accounts. And the lower authorities have ignored these vital facts despite the audited BalanceSheet and Income & Expenditure accounts available before them. If they was having any doubt they should have made the in dependedinquiry from the respective members but failed, rather made a huge enhanced addition. The lower authorities has not made any inquiry from any members before making the additions.
1.6
The ld. CIT(A) has failed to appreciate the accounting treatment and above facts and circumstances. The ld. CIT(A) at the worst would have said that the addition of Rs.4,69,22,650/- is liable to be made in the hands of respective members after seeing all the facts and inquiry. The income and expenses of other cannot be treated of the person. The ld. CIT(A) nowhere proved with the help of the documentary evidences that the income and expenditure both are to the assessee and assessee was only keeping their accounts being as a head of family. The ld. CIT(A) has failed to appreciate the facts that the assessee trust itself with the honesty has shown the interest income on the funds of members laying in its bank account.
2. Further the ld. CIT(A) has invoked the provisions of Sec. 145(3) and rejected the books of account which is illegal and invalid because the ld. CIT(A) cannot be invoked the new provisions of the act and cannot rectify the mistake of the ld. AO.
For this we rely upon the decision of Hon’ble ITAT Jodhpur Bench in the case ofBharti Construction Co. in ITA No. 128 to 134/Jodh/2024 dt.29.10.2024, where it has been held that…The Bench feels that notice u/s 251(2) can be given by the Ld.
CIT(A) only to reduce, enhance or annulment of assessment but for not invoking the new provision which has not been invoked by the AO. In our view the Ld. CIT(A) cannot invoke new provisions of the Act in the appellate proceedings and he may enhance the assessment, while he has not enhanced the assessment but he rectified the mistake of the AO after making the submissions of the assessee before him. The CIT(A) has no power to rectify the mistake of the AO, if any by invoking the new provisions of Act, Further the AO has already made disallowance on account of material expenses @ 15% hence no further disallowance is required to be made and this is tantamount of double disallowances which is not permitted as per law and this is the rough estimated document and there is no proof that the assessee has really paid such cash amount. The AO has not made any further enquires in this regard and only on a rough estimate papers, no addition can be made.
3. Further when the books of accounts have been rejected no separate addition can be made only estimated N.P. rate should be applied as the Hon’ble ITAT Jodhpur
Bench in the case of Pyrotech Electronics (P) Ltd v. PCIT Udaipur in ITA No.
3/Jodh/2021 dt. 10.01.2023 where it has been held that:
“Further onperusal of the issue raised by the ld. Pr. CIT it is also observed that all the issue arerelated to the addition and disallowance on various accounts, which may result in thetrading additions, net income and in net profit. When the ld. Pr. CIT has already raisedthe issue regarding the fall in G.P. rate and if G.P. rate, if any, is ITA No. 961 To 963/JPR/2024
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applied, then in thetrading result all the other issues are covered i.e closing stock or valuation of closingstock, purchases, trading result etc also include or Net profit rate is applied if any afterrejecting the books of accounts, then there is no requirement of making variousFurther onperusal of the issue raised by the ld. Pr. CIT it is also observed that all the issue arerelated to the addition and disallowance on various accounts, which may result in thetrading additions, net income and in net profit. When the ld. Pr. CIT has already raisedthe issue regarding the fall in G.P. rate and if G.P.
rate, if any, is applied, then in thetrading result all the other issues are covered i.e closing stock or valuation of closingstock, purchases, trading result etc also include or Net profit rate is applied if any afterrejecting the books of accounts, then there is no requirement of making variousseparate disallowances and additions is also the settled law. Further as the G.P. rateslightly down by 0.25% in comparison to last year but at the same time the N.P. rate ison very higher side i.e 2.85% as against the last year
1.15% which have also beenignored by the ld. Pr. CIT. For the sake of convenience and brevity in the matter, theBench feels to note down the provisions of Section 263
of the I.T. Act.
Hence in view of the above facts and circumstances the addition so enhanced by the ld. CIT(A) and addition/disallowance so made by the ld. AO may kindly be deleted in full.
3. Further the ld. CIT(A) has himself allowed the appeal of the assessee appellant for A.Y. 2017-2018 vide order dated 15.05.2024 (Copy enclosed) and has neither invoked the provisions of Sec. 145(3) or/and sec. 251(2) and has not made any addition on account of gross receipts received less amount incurred. The ld. CIT(A) has relied upon order dated 06.01.2021 passed by the Hon’ble ITAT and has infact allowed the appeal of the assessee appellant. Thus CONTRARY stand has been adopted by the ld. CIT(A) for A.Y. 2014-2015, 2015-2016, 2016-2017 viz. A.Y.
2017-2018. GOA-3 Disallowance of exemption u/s 11(2) & 11(1)(a):
FACTS:
1. The ld. AO has noted that assessee trust has shown gross receipts of income of Rs. 50,75,850/- and amount applied to charitable proposes in India during the previous year at Rs. 17,30,356/- this amount is utilized as revenue expenditure. The remaining amount is claimed exempted u/s 11(2) and 11(1)(a) of the Act which is not allowable. The ld. AO stated that Trust is a public charitable trust and mainly formed for the upliftment of the cloth merchants of the city but fund of trust was utilized for personal benefit of president. The ld. AO has further stated that trust has received interest on refund of Rs.5,278/- which was not shown in ITR filed under section 148
of the Act. Hence same is also added in total income of the trust. The legal requirements i.e filing ITR and get books of accounts audited have also been not complied by the Trust. The ld. AO has computed the income of Rs. 33,50,772/-
(33,45,494/- +5,278/-) and also taxed the same @ Maximum Marginal Rate U/s ITA No. 961 To 963/JPR/2024
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164(2). The ld. AO has alleged that the assessee trust is doing business activities in and not complying statutory provisions of the Act.
2. In first appeal assessee filed the detailed WS and legal position of the law vide
(PB1-35) also reproduced at page 24-30 of the CIT(A) order. The ld. CITA(A) also called the remand report of the ld. AO. The ld. AO has submitted his report dt.
31.10.2023(page 30 of the CIT(A) order). In response to the remand report assessee filed its comments dt. 11.12.2023(page 31-33 of CIT(A) order). However the ld.
CIT(A) did not feel satisfy and confirmed the order of the ld. AO by observing that:
The funds were used for personal benefit of the president.Hence, the denial of exemption is found to be justified. Hon’ble ITAT in its order has statedthat the assessee has not violated the provisions of section 12AA(3)/12AA(4) of theAct. It is held that cancellation of registration u/s 12A cannot be done. However,Hon’ble ITAT has not examined the violation of section 13(1)(c) therefore, denial ofexemption u/s 11 is found to be justified by the AO.
The ld. CIT(A) has observed that Any new claim in the return filed u/s 148 of the act is not acceptable as the reopening proceedings are for thebenefit of the revenue rather than assessee. The returns are filed u/s 148 of the actare as a consequence of income escaped from assessment and thus can’t beadvantageous for the assessee and these are proceedings for the benefit of Revenueand not that of the assessee. The assessee cannot be permitted, to convert thesereassessment proceedings as his appeal or revision in disguise and seek relief inrespect of items earlier not claimed in the original return of income . returns filed in response to notice under Section 148 of the Act are not substitute ofrevised return for making claim of such benefits. Having regard to the provisions of s.139(5) of the Act and since the assessments under s. 148
are in relation to incomeescaped from assessment, it is precisely for this reason that new claim of deductionor allowance cannot be made in the completed assessments.
3
The ld. CIT(A) also contemptuously held that the amendment made is retrospective and is applicable on proceedings pending as on 1st April 2018. 4
The ld. CIT(A) has stated that the amount given to the president directly or indirectlywould not fall within any of forms or modes of investment or deposit of money asreferred to in section 11(5) and such amount also in violation of section 13(1)(c).Therefore, the denial of exemption u/s 11 is found to be justified. In support the ld. CIT(A) referred some of judgments which is not applicable looking to the facts of the case.
SUBMISSIONS:
1. At the very outset it is submitted that the observations of the ld. CIT(A) thatthe funds were used for personal benefit of the president. Hence, the denial of exemption is found to be justified. Hon’ble ITAT in its order has stated that the assessee has not violated the provisions of section 12AA(3)/12AA(4) of the Act. It is held that cancellation of registration u/s 12A cannot be done. However, Hon’ble ITAT has not examined the violation of section 13(1)(c) therefore, denial of exemption u/s 11 is found to be justified by the AO.:-This is absolutely incorrect because the Hon’ble

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ITAT has discussed about the violation of section 13(1)(c) vide page 15,16,24,43-45,
51,52 of ITAT order (PB 96-97,105-106,132-133). Hence now the matter is covered and no further question should be there for doubt.
2. The ld. CIT(A) has support to the ld. AO who has denied the exemption u/s 11(2) & 11(1)(a) only on the three issue that (i) funds of the trust was utilized for personal benefit of president
(ii) trust has not filed the return
(iii) trust has not get books of account audited.
Only on these reasons the ld. AO denied the exemption u/s 11 of the act and the ld.
CIT(A) has also confirmed the action of the by misinterpreting the submission of the assessee.
3. No denial of exemption u/s 11 and 12 for the misappropriation of fund by other persons:It is submitted that as the ld. AO has denied the exemption u/s 11 on the misappropriation of fund by other persons, which is also incorrect.
3.1. In the case of CIT v. State Urban Development Agency (Suda) (2013) 85 CCH
0179 AllHC.It has been held thatCharitable trust—Registration u/s 12A—Denial of—
Assessee a registered co-operative society and State Autonomous body applied for registration u/s 12A—CIT(A) declined registration u/s 12A to assessee on basis of report submitted by Accountant General (GOI), where it was mentioned that accounts were not properly maintained and funds were not properly utilised and kept idle in bank—Tribunal granted registration to assessee u/s 12A—Held, defect in maintenance of account was curable—Refusal of registration u/s 12A on basis of report submitted by Accountant General was unjustified—Non utilization of fund and keeping same in Bank cannot be ground for cancellation of registration—Expression
“any other object of general public utility” u/s 2(15) includes all objects which promote welfare of general public—Even if there is some profit in activity carried on by trust/institution, so long as dominant object is of general public utility, it cannot be said that the trust/institution was not established for charitable purposes—Tribunal had given a categorically finding that objects of assessee were of General Public utility—Registration u/s 12A was rightly granted to assessee
3.2. In the case of CIT v. A.S. Kupparaju Brothers Charitable Foundation Trust
(2012) 205 TAXMAN 0009It has been held that Charitable trust – Registration under S. 12A – Genuineness of – Refusal to grant registration certificate to assessee trust on the ground that the trust does not exist genuinely for the purpose of the objects mentioned in the deed – Held, once it is admitted that in pursuance of the trust deed and in terms of the objects set out therein, schools and colleges are being run and educational institutions are being run, nothing more requires to be established to show that the trust in question is a genuine trust – Misappropriation of funds is not a ground to deny the registration – Exemptions under ss. 11 & 12A are not automatic but available only when the assessee satisfies the requirement of section 13 – Assessee entitled to the registration under s. 12AA

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3.3. In the case ofKunhitharuvai Memorial Charitable Trust v. CIT(Central) (2017)
(1) TMI 1671 (Cochin)It has been held that Admittedly, the students are being admitted every year. Students are studying in all courses. Thus, the object of the constitution of the Trust namely imparting of education is going on uninterruptedly.
Therefore, it cannot be said that the activities of the Trust are not being carried out in accordance with the objects of the Trust. When the aforesaid two conditions are fully satisfied, the registration of the Trust cannot be cancelled for the reasons stated by the CIT in her order, i.e. non maintenance of books, non filing of returns of income or belated filing of returns of income, collection of additional fees and diversion of funds in violation of sections 11(5) and 13(1)(c) as these are passing remarks which are not relevant for the purpose of section 12AA(3) and also all observations of the CIT has been negated by the assessee with enough evidences which are discussed in detail in foregoing paragraphs.
Therefore, we are of the considered view that the CIT was erred in withdrawing registration granted u/s 12AA, by using her powers u/s 12AA(3). Hence, we set aside order passed by the CIT u/s 12AA(3) and restored registration granted u/s 12AA of the Act. - Decided in favour of assessee
3.4. In the case of ST. PETERS EDUCATIONAL SOCIETY vs. Pr.CIT ITA NO.
370/Chd/2021 February 27, 2023 (2023) 67 CCH 0562 ChdTrib (2023) 223 TTJ 0145
(Chd). It has been held that 84. We therefore have a situation where a note pad has been found in personal possession of Mr. Shane John Khanna and therein, there are certain entries reflecting cheque payments and cash payments. The presumption therefore is that such note pad belongs to Mr. Shane John Khanna and the contents thereof are in his handwriting and he has to explain the contents thereof. He has however disputed and has stated that the entries of cash payments are not in his handwriting. Once he has objected and the note-pad is in possession of the Revenue authorities, the right course of action would have been to refer the matter to the handwriting expert in some government authorized forensic laboratory who could have confirmed whether the entries are in the handwriting of Mr. Shane John Khanna or not. However, no such reference has been made in the instant case and the ld PCIT has proceeded and held that basis his own analysis, the handwriting is that of Mr. Shane John Khanna and he accordingly reached the conclusion that cash has been paid as part of transaction coupled with inflating the transaction value. More so, such a conclusion has been reached without confronting the entries in the note- pad entries to the Chairperson who has signed the exchange deed on behalf of the assessee society as well as without taking any steps to reach out or summoning Mr Arun Kumar Dhir, the other signatory to the exchange deed and the person who is alleged to have paid part consideration in cash. In any case, where the Revenue chooses to take appropriate steps in this regard, it can be well be taken up at the time of assessing the income in the hands of the assessee society in the relevant assessment year as per law, and where needed, the addition can be made to the income of the assessee society and which should be restricted only to ITA No. 961 To 963/JPR/2024
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the issue involved. However, as the matter stand today, we are of the considered view that basis aforesaid discussion, the same cannot lead to a situation where the approval granted u/s 10(23C)(vi) can be withdrawn and that too, from a retrospective effect.
We find that similar view has been taken by the Coordinate Indore Benches in case of Shri Jairam Education Society vs PCIT (Central)(Supra). Further, we draw support from the decisions of Hon’ble Rajasthan High Court in case of DCIT vs.
Cosmopolitan education Society 244 ITR 0494 (Raj.) wherein the Hon’ble High
Court affirming the finding of the Tribunal held that where there is allegation of misutilisation of the funds of the Society or mismanagement of the activities of the Society, the action could be taken against the members of the society as per the provision of governing the Society. However, even such misutilisation and mismanagement by the members could not be the basis of rejection of the claim of exemption to the assessee education Society and the SLP against the judgement stood dismissed by Hon’ble Supreme Court reported in 241 ITR 132 (St).
In this judgments the Hon’ble Madras High Court in case of Auro Lab vs ITO (2019)
102 taxmann.com 225, has also been followed which is also applicable in the present case.
3.5. It is also settled that if in case both the side has been referred then it is the settled legal position that to remove the undue hardship and considering the decision of supreme Court in case of CIT Vs. Vegetable Products Ltd. 88 ITR 192 (SC) where it is held that when two views are possible on an issue, the view in favour of the assessee has to be preferred. And also many High court also held the same.
It is submitted that the ratio of the above judgment is also applicable in the present case because exemption is available on the registration u/s 12A and in the present case the assessee is registered u/s 12A
4. No denial of exemption for the reason not filling the ITR and Audit Report:
4.1
Further it is submitted that ld. AO has cancelled the registration on the ground that the assessee has not filed its ROI and Audit report. The reason of not filing of the same are that as the assessee is trust and was depended on the accountant and the president and the other members were under impression that the act of return filling,
Audit report and books are being care take by them. As there was on default since its registration from 1976 to 2013. And the fraud done by the president and books not completed by the accountant was not in the knowledge of the assessee. However when these facts have come to the notice of the assessee it filed its ROI income and Audit report. Hence for the negligence of the President and accountant the whole institute must not be punished.
4.2
However it is also settled legal position of law that if an assessee has not filed his ROI and filed ROI and not shown any claim or deduction in the ROI filed and claim the same during the course of assessment proceedings even although during the course of appellate proceedings. The Hon'ble courts has allowed the same by stating that if the assessee is entitled for any claim as per law cannot be denied for the reason that he has not claimed in the ROI. For this purpose kindly refer.

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4.2.1. In the case of Amina IsmilRangari v. ITO (2017) 51 CCH 0595 MumTrib it has been held that Capital gains—Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house—Rejection of claim of exemption—Case of assessee was re-opened and notice u/s 148 was issued—Assessee filed her return of income declaring taxable income after claiming exemption u/s 54F against ‘Long-term capital gains’ arising from sale of shares—AO held that share transaction entered into by assessee resulting in long term capital gains were not genuine—Since long-term capital gains were not treated to be genuine, AO also rejected claim of assessee for exemption u/s 54F—CIT(A) held that, rejection of claim of exemption u/s 54F by AO, was in order—Held, section 54F, neither provided as pre-condition requirement of filing of ‘return of income’ by assessee within stipulated time period, nor places any embargo as regards claim of such exemption in case ‘return of income’ filed by assessee involves some delay—When assessee raised claim u/s 54F in ‘return of income’ filed by her in compliance to notice u/s 148, therefore, it was obligatory on part of AO to have deliberated on entitlement of assessee towards claim of exemption u/s 54F—Due to dismissal of claim of exemption in limine by AO, there was no occasion for lower authorities to have deliberated upon satisfaction of requisite conditions contemplated u/s 54F by assessee—As assessee had during course of hearing of appeal submitted complete details as regards his entitlement towards claim of exemption u/s 54F, AO was directed to verify genuineness and veracity of claim of assessee—Claim of exemption u/s 54F, as raised by assessee should be allowed—Assessee’s appeal allowed.
4.3
However the assessee had filed the ROI and Audit report in response to the notice u/s 148. And also much prior to issuance of show cause notice for cancellation.
And at the time of issuance of Show cause notice u/s 12AA(3)/12AA(4)no return or Audit report were pending. As per the section 147 and section 148 of the Income Tax
Act 1961 itself provide the opportunity to assessee for filing the return of income, hence we could not say that the Income Tax Return was late filed. And the Return filed u/s 148 is treated as filed u/s 139 and all the provision are applicable for the same. If there was any default why the show cause notice has been given when the default had come to the notice of the Revenue in July 2016 and the notice has been issued 31 Months i.e. Feb. 2019. And even in last three years i.e form F.Y. 2016-17 to 2018-19 no defaults have been found.
4.4
Further the ld. AO in the entire order has stated that the assessee has not filed
Tax audit report. In this regard it is submitted that the assessee is trust registered u/s 12A and not a businessman and not doing the business. Hence Tax Audit u/s 44AB is not applicable in this case. The same is applicable for the person who is doing business or trading. Hence the allegation of the ld.AO is wrong or incorrect or invalid.
And liable to be quash. The Audit of the trust comes u/s 12A(b) in form 10B.
4.5
Further if there was any procedure default for non-filing the ITR and Audit report, for that there many other penalties or provision has been given and in Sec.

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12AA(3)/12AA(4) it has not been provided anywhere that if an assessee has not filed
ITR and Audit report the registration shall be cancelled.

In the case CIT vs. Raj State Seed & Organic Production Certification (2018)
98 CCH 0466 RajHC It has been held that Charitable Trust—Charitable purposes—
Denial of registration—Application for registration sought by assessee society u/s 12A came to be rejected on ground that its activities were not charitable within meaning of s. 2(15) and audit report was not filed in Form 10B—However, ITAT directed CIT(E) to grant registration—Held, Madras High Court in Director of Income Tax (Exemptions) vs. Spic Educational Foundation, observed that non-filing of audit report in Form No. 10B would not defeat claim of assessee for exemption under Ss 11 & 12—Activities of assessee were for advancement of object of general public utility, hence charitable within meaning of s. 2(15)—If an institution was having surplus, then after considering application and accumulation prescribed u/s 11, remaining amount was chargeable to tax—But that in itself does not lead to a conclusion that institution was not meant for charitable purpose—Delay in moving registration application was also explained that it was due to bona fide belief that assessee was a part of government hence, not liable to income tax—Revenue’s appeal dismissed.

In the case of Cotton Textiles Export Promotion Council v/s ITO (Exemption)
117 ITD 90 (Mum) it has been held that notice for accumulation in form No.10 r/w s.
11(2) can be made not only in respect of current assessment year but also in respect of subsequent assessment year and it is not necessary to file form No. 10 for each assessment year. Exemption u/s 11 could not be denied on the ground that form no. 10
was not filed along with return for subsequent year. The above case is fully applicable in the present case because the assessee has filed form no. 10 in earlier year and also filing in subsequent year when there is no change facts and circumstance. Hence once the form 10 No. admittedly filed and accepted in earlier years then it should be deemed to be filed in subsequent year till there is no change.

In the case of Additional Director of Income Tax (Exemption) v/s Manav
Bharati Child Institute & Child Psychology 20 SOT 517(Del) held that though filing of Form No. 10 in respect of accumulation of Income of surplus income is mandatory to claim exemption u/s 11 and 12, the same can be filed at any time during the pendency of assessment proceeding and benefit of accumulation of income cannot be denied. Here the case of assessee is on much strong footing because the assessee had filed the same much before show cause notice by the Pr. CIT although after due date of return filling.

In the case of Haryana Welfare Board v/s CIT 83 CCH 268(P&H) it has been held that information in form 10 was required to be furnished at any time before the finalization of the assessment proceedings.

In the case of Association of Corporation & Apex Societies of Handlooms v/s
ADIT 351 ITR 287(Del) it has been held that when the revenue re-open the assessment by invoking S. 147 of the said Act the assessee would not be remediless

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and would not be barred from furnishing Form -10 during those assessment proceedings.

4.6. The ld. Pr. CIT stated that if a person fails to get audited his books of accounts from a chartered accountant, then he will not able to get benefit of section 11, 12 and 12A. But many provisions are in the nature of procedural compliance hence if that kind of provision are not satisfied even though assessee would not be punished for cancellation of registration u/s 12A.
4.6.1. In the case of Sir Kika Bai Prem Chand Trust Vs. ITO Mumbai ITAT it has been held that "Though s. 12A (1)(b) provides that the exemption u/s 11 will be available only if the accounts are audited and audit report “furnished along with the return”, the same is not mandatory but is directory. The audit report in Form 10B affirms the statements contained in the balance sheet and income-expenditure statement and is intended to enable the AO to allow the exemption by relying on the audit report and without having to ask the assessee to furnish supporting documents in support of the claim. Such a procedural provision cannot be construed as mandatory because the defect can be cured at a subsequent stage. It is not the intention of the Legislature that the exemption u/s 11 should be denied merely because the audit report was not filed with the return."
"Aggrieved by the order of the Assessing Officer the assessee preferred an appeal before CIT(A). Before CIT(A) the assessee reiterated the stand as taken before the AO. The assessee further contended that in the event of Form No.10B not having been field along with return of income, the return of income ought to have been considered as defective and a notice u/s. 139(9) of the Act ought to have been issued to the assessee to rectify the defect. The asses see further relied on certain judicial pronouncements and submitted that the requirement of filing Form No.10B along with return of income is not a mandatory requirement and that the said form even if filed in the course of assessment proceedings should be treated as sufficient compliance.
Further reliance was also placed on the decision of Hon’ble Supreme Court in the case of CIT vs. Nagpur Hotel Owners Association, 247 ITR 201, wherein the Hon’ble
Supreme Court held that filing of Form No.10 as required under section 11(2) r.w.r.
17 is mandatory and the same can be filed during the course of assessment proceedings. Specific reference was made to decision of the Hon’ble Calcutta High
ITR 825(Cal) and CIT vs. HardeodasAgarwalla Trust ( 1992) 198 ITR 511 (Cal), wherein it was held that audit report field in Form No.10B in the course of assessment proceedings is sufficient to claim exemption u/s. 11 of the Act."
4.6.2. In the case of CIT v. HardeodasAgarwalla Trust 198 ITR 511(Cal) it has been held that It is now well-settled that a procedural provision, ordinarily, should not be construed as mandatory, if the defect in the act done in pursuance of it can be cured by permitting the appropriate rectification to be carried out at a subsequent stage.
Procedural laws are devised and enacted for the purpose of advancing justice. It does

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not mean that the procedural laws should be brushed aside by the Court. It depends on the facts and circumstances of a particular case as to whether a breach in the observance of any procedural law, if not excused or overlooked, would cause real and substantial injustice to the parties. Having regard to the object of s. 12A, it cannot be said that the legislature intended that, even where the trust has got its accounts audited and the certificate obtained in Form No. 10B before the assessment is completed, merely because such report could not be filed in the course of the assessment proceedings, it would deprive a trust of getting the exemption if it is otherwise entitled to it in law. As in this case, the audit report had been obtained before the assessment was completed. The ITO, before completion of the assessment, did not allow any opportunity to the assessee to furnish the audit report. The direction that the audit report should accompany the return is not mandatory as the omission to do it may be rectified by filing the report at a later stage before the assessment is completed. The result of ignoring such return or the audit report will be denial of exemption to the trust although the income has been spent for charitable or religious purposes. This was not intended by the legislators. If an assessee fails to obtain the audit report in the prescribed form before the assessment is completed, he may not, ordinarily, be entitled to get the benefit of exemption. In this case, however, the assessee was not given an opportunity to file audit report in the prescribed form which was available with assessee before assessment was completed. In such a case, appeal being a continuation of the original proceedings, the appellate authority has the power to accept the audit report and direct the Assessing Officer to re-do the assessment
4.6.3. In the case of CIT v. Lucknow Public Educational Society318 ITR 0223 (All HC) it has been held that Charitable trust—Exemption under s. 11—Effect of non- availability of exemption under s. 10(23C) vis-a-vis filing of return—Assessee, a registered society, filed original return claiming exemption under s. 10(23C)—Later, when it was known that it was not eligible for exemption under s. 10(23C), filed a revised return claiming exemption under s. 11 along with supporting documents like audit report—AO treated the revised return as non est, as original return has been filed after due date and completed assessment on the basis of original return denying exemption under s. 11—Not justified—AO himself had passed the order under s.
143(3) in respect of the original return—AO was aware that the assessee was entitled to exemption under s. 11, if not under s. 10(23C)—Department should not take advantage of the ignorance of the assessee—Duty cast on the AO to ask information at the time of scrutiny—AO had not done so in the instant case—Filing of audit report is only procedural and not mandatory—Same can be furnished before completion of assessment—Assessee is entitled to exemption under s. 11
4.6.4. In the case ofKunhitharuvai Memorial Charitable Trust v. DCIT (2019) 6 TMI
595 (Cochin)it has been held that Exemption u/s. 11 - filing of return of income belatedly - returns of income were filed consequent to the notice u/s. 153A - the assessee has not filed the regular return of income u/s. 139(4A) but filed the return of income u/s. 153A(a) consequent to search u/s. 132 - HELD THAT:- Compliance of ITA No. 961 To 963/JPR/2024
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requirement of the Act will have to be at any time before the completion of assessment proceedings. However, for claiming the benefit of exemption u/s. 11 on the basis of information supplied consequent to the completion of the assessment proceedings would mean that the assessment order will have to be re-opened. The Act does not contemplate such reopening of the assessment. However, in the present case, it was filed consequent to the notice issued u/s. 153A(a). Further, in the present case, exemption u/s. 11 was denied because of non filing of return of income on time and also due to the discrepancies mentioned above.
In our opinion, the returns of income were filed consequent to the notice u/s. 153A.
The sections 11 & 12 of the Act nowhere prescribe filing of return by any due date for the assessment years under consideration so as to grant exemption u/s. 11. Therefore, the findings of the CIT(A) that the assessee having not filed its returns of income within the prescribed time had failed to comply with the requirement prescribed under the Act, is not tenable. - Decided in favour of assessee
5. Further all the above submissions and judgments have already been considered by the Hon’ble ITAT while deciding the appeal on the cancellations of 12A registration vide order of the Hon’ble ITAT. Hence there is no force or meaning of the observations made by the ld. CIT(A) rather he overlooked the same despite available before him.
6. Application of funds deemed to have been made for the benefit of specified person Section 13(2): In some earlier years there was a miss happening with the assessee association that his president deliberately withdraw cash from association's bank account for his personal use in the name of other person, out of that kind of withdrawal some amount has been debited to our ex-president account (Sh. Tejendra
Pal Singh), by keeping the other members in dark or without their knowledge. For that kind of transaction association had also filed FIR against him for miss utilization of funds/ betray/ Forgery/imitation/ replica of signatures/ for unfaithful work and Misappropriation of funds of trust. Except above mentioned transactions no any mistakes is found in daily activities/transactions of the trust. As the assessee:
a.
No Loan given to any specified person during the year under consideration.
b.
None of any specified persons are allowed to use land, building or any other property.
c.
No Salary, allowances are paid to specified persons during the year under consideration.
d.
Association will not provide any kind of services to specified persons without inadequate remuneration.
e.
No property / Shares and security transferred by any specified person to association.
f.
No property / Shares and security transferred to any specified person from association.
g.
No income or property of trust diverted to a specified person.

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h.
Trust has not invested any fund where specified person having substantial interest.
6.1. Only due to the negligence or cheating of past executive members and bad intention/intention of miss appropriation of funds of ex-president, they were not willing to maintained the books of accounts and get their accounts audited by a chartered accountant. But after change of management and involvement of new committee, books of accounts have been prepared and audit has also done and now all the work is going on in proper way. During the A.Y. form 2014-15 to 2016-17 heavy amount withdrawn by the ex-president, out of total amount some entries are debited in account of Sh. TejendraPal Singh and some entries are debited in other parties account because vouchers was made in the name of other parties name and later on came to know that these parties have not received amount and when management went to bank to trace out the truth all disputed entries were bearer cheques, but at that time books of accounts have been finalized and audited, so assessee was not able to change the account name. Hence at the time of filing FIR they include all the amount.
This amount not given by the trust to the president but the same was misappropriated, pinched, embezzled and cheated by the ex-president therefore FIR filed by the trust against the ex-president (i.e. TejendraPal Singh). Copy of FIR is enclosed (PB 153-
159). And for the cheating or fraud by the Ex-President, if any, the whole trust cannot be suffered, which is against the principal of natural justice.
7. Further nowhere it has been proved that the Act of the President was in the knowledge of the assessee and the other members were involved knowingly. And was part of that fraud. And if any fraud has been done behind the assessee cannot be treated as done by the assessee. Assessee has not itself given any benefit to the assessee.
8. Further interestingly in the instant case, the ld. Assessing Officer & ld. Pr.
Commissioner of Income-tax without any independent verification have allegedmisappropriation of funds. The assessment of the assessee appellant trust and its ex-president Shri Tejendra Pal Singh was done by the same Assessing Officer and in the assessment orders passed u/s. 153A of the Act dated 20-21.12.2018 for the A.Y.
2014-2015 to 2016-2017 in the case of Shri Tejendra Pal Singh, no addition has been proposed for so called misappropriated income. Thus, without carrying out any independent verification and on account of mere suspicion, without any proof the said allegation has been levelled against the assessee appellant Trust.
8.1. Hon’ble ITAT, Visakhapatnam Bench in the case of ACIT v. Sri Koundinya
Educational Society (2019) 1 TMI 266 (ITAT Visakhapatnam) has held as under:
Charitable activity - grating exemption u/s 10(23C)(vi) - exemption u/s 11 - CCIT observed that, assessee cannot be said to be existed only for educational purposes and accordingly rejected the contention of the assessee for grating exemption u/s 10(23C)(vi) - Held that:- ITAT Delhi Bench in the case of PuranchandDharmath Trust
Vs. ITO, Wd-1, Gurgaon [2018 (5) TMI 630 - ITAT DELHI] held that where the assessee Trust advanced money as a loan to another Trust for which the assessee had ITA No. 961 To 963/JPR/2024
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not received any interest and the said sum was returned by the Trust, the amount advanced not being investment could not be held to be in violation of section 13(1)(d),
11(5) of the Act.
Therefore, respectfully following the view taken by this Tribunal in the assessee’s own case, and as per our findings, we hold that there are no violations and the revenue did not make out any case to substantiate the violations in respect of 13(1)(c),
13(2)(a), 13(2)(g) and 13(2)(h) of the Act. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld.”
9. Further it is submitted that that the exemption of the assessee Trust cannot be denied for the reasons for not filing of income tax return and audit report for the A.Y.
2014-15 to 2016-17. In this regard, it was submitted that clause (ba) was inserted by Finance Act, 2017 to section 12A(1) of the Act, w.e.f. 01.04.2018:
(ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section.
9.1. The memorandum explaining the relevant provisions of the Finance Bill, 2017
reads as under:
"as per the existing provisions of said section, the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Act.
These amendments are clarificatory in nature.
These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years .
9.2. Circular No.02/2018 dated 15.02.2018 containing "Explanatory Notes to the Provisions of the Finance Act, 2017” on insertion of clause (ba) in Sub section (1) of section 12A is quoted as under:
15.4 Further, as per the provisions of said section, the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139 of the Income-tax Act, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income- tax. However, there was no clarity as to whether the said return of income was to be filed within time allowed under section 139 or otherwise.
15.5 In order to provide clarity in this regard, further amendment to section 12A of the Income-tax has been made so as to provide for additional condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Income-tax Act.

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15.6 These amendments are clarificatory in nature.
15.7 Applicability: These amendments take effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.
Hence, the Assessing Officer can deny the grant of exemption u/s. 11 of the Act for belatedly filing of return from the assessment year 2018-19 onwards. Not for this year”
10. The Coordinate Bench of ITAT, Delhi Bench in the case of United
Educational Society v. JCIT (2019) 7 TMI 738 (ITAT Delhi) has held as under:
Reopening of assessment u/s 147 - exemption u/s 11 denied - assessee has not filed the return u/s 139 (4A) reads with section 12A (b) - assessee society was carrying out educational activities which fell within charitable activities u/s 2(15) , it was granted registration u/s 12A - whether, the filing of audit report alongwith the return filed in response to notice u/s 148 will entitle the assessee for benefit of computation of section 11 ? - HELD THAT:- We are of the view that, whether it is a case of a regular assessment or it is a case of an assessment consequent to issue of notice u/s 148, not only the procedure of return as given in section 139 has to be applied, but also such the income has to be computed on the basis of such return in accordance with the provision of the Act, which of course will be subject to any specific provision in the Act which itself bars a claim or an exemption.
Section 148 provides that all the provision of the Act has to apply on such return furnished in response to notice u/s 148. The Ld. CIT DR has referred to the words ‘so far as may be’ to canvass the proposition that all the provision will not apply. This contention of the Ld. DR is not correct in view of our reasoning given above. The meaning of these words ‘so far as may be’ will not mean to exclude provision of section 11 of the Act.
Our above view gets further supported from the amendment made by the Finance Act,
2017 whereby a further clause (ba) has been inserted imposing a further condition that such return of income is to be furnished in terms of section 139(4A), within the time allowed under that section. Firstly, this requirement was not there before this amendment; and secondly, this insertion of additional clause clearly shows that such condition was not there in existing clause (b) of section 12A. Had such condition being there in clause (b) itself, then there was no need to insert a further clause (ba) by the Legislature for denying benefit of section 11 & 12 in case return is not filed in time as per provision of section 139 (4A).
We are also not in agreement with the contention of the Ld. DR that this amendment is clarificatory in nature. As rightly pointed out by the Ld. Counsel that this amendment has been made by the Finance Act, 2017 effective from A.Y. 2018-19, meaning thereby that this clause has not been made applicable even for the A.Y.
2017-18, the return of which were still to be filed. Thus, the Legislature has thought fit to make this amendment applicable from next assessment years onwards and not even to the current A.Y. 2017-18. ITA No. 961 To 963/JPR/2024
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While interpreting the amendment made by the Finance Act No. 2 of 2014 whereby section 11 (6) was inserted so as to exclude such assets while computing depreciation in respect of which deduction has been allowed as an application of income u/s 11. In view of the above, we hold that AO was not justified in denying the benefit of the exemption u/s 11 of the Act and we direct the AO to compute the income in accordance with the provision of section 11. Ground no.6 is accordingly allowed.
11. The Coordinate Bench of ITAT, Surat Bench in the case of Shri Siddhanath
Mahadev Temple Trust v. CIT (2024) 11 TMI 1320has held as under:

Revision u/s 263 - eligibility of exemption u/s 11 - assessee had not filed the original return of income u/s 139 within the due date and also the audit report (Form
10B) within the due date specified for filing the audit report. Hence, assessee was not eligible for any claim of exemption u/s 11 and 12 - HELD THAT:- There is no dispute regarding the fact that assessee had not filed its return of income u/s 139 of the Act. It filed the return of income, declaring total income only after receiving notice u/s 148 of the Act. The AO has passed the order accepting the returned income after considering explanation and details filed by assessee.
As decided in case of United Educational Society [2019 (7) TMI 738 - ITAT DELHI]
filing of income u/s 139(4A) of the Act was not statutorily compulsory in AY.2017-
18. Hence, the AO has rightly accepted the return of the assessee field u/s 148 of the Act.
We find that clause (ba) to sub-section (1) of section 12A was inserted by Finance
Act, 2017 w.e.f. 01.04.2018. The said clause provides w.e.f. 01.04.2018, and applicable for AY.2018-19 and subsequent years, that the person in receipt of income shall furnish the return of income referred to in sub-section (4A) of section 139 within the time allowed under that section. The assessment year involved in this appeal is AY.2017-18 which is prior to insertion of clause (ba) of section 12A(1) by Finance
Act, 2017. When the provisions were not in the statute, the AO could not have invoked the provision and asked the assessee to fulfil the conditions included therein.
AO has taken the correct view while passing the order and he has adopted one of the courses permissible in law. The CIT(E) has stated that the amendment is only clarificatory and the decision of ITAT is not mandatory. In the memorandum explaining the above provisions of the Finance Bill, it was explained that the amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to AY.2018-19 and subsequent years. The clause will not be applicable to the subject AY.2017-18. As clause (ba) of sub-section (1) of section 12A is applicable for AY.2018-19
onwards and not for AY.2017-18 with which we are concerned. Hence, we hold that the order of AO was not erroneous and prejudicial to the interests of revenue and therefore, it was not amenable to revision u/s 263. Appeal of the assessee is allowed.
12. Further kindly also consider the order of the Hon'ble ITAT in the case of assessee’s in ITA No. 688/JP/2019 dt. 06.01.2021 wherein all these issues have already been considered and given finding and decisions in the favour of the assessee.

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If when the Hon'ble ITAT has decided the issue then there is no meaning to deny the exemption u/s 11. And the finding given in the said order may also kindly be considered our WS and arguments before your honour.
13. IMPORTANTLY the revenue itself in appeal filed before Hon’ble Rajasthan
High Court has admitted Substantial Question of Law vide order dated 27.07.2023 in DBITA No. 66/2021 only qua juri iction of PCIT(C) to pass order u/s. 12AA & Stay
Application filed by the revenue was also dismissed as under:
1. Heard.
2. Admit.
3. Following substantial questions of law arise for consideration in this appeal:-
"(1)
Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in law in holding that the Principal Commissioner of Income
Tax did not have any juri iction to pass order under Section 12AA(3) and 12AA(4) of the Income Tax Act 1961?
(2)
Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred by not taking proper notice of juri iction Order
No.CIT(E)/JPR/ ITO(Hqrs.)/ 2016-17/4555 dated 05/06.12.2013, validly passed u/s 127 of the Income Tax Act, 1961 by the Commissioner of Income Tax (Exemptions),
Jaipur, whereby the case has been transferred to the juri iction of Principal
Commissioner of Income Tax (Central), Rajasthan, Jaipur under whose juri iction the transferee Assistant Commissioner of Income Tax, being ACIT, Central Circle,
Kota, functions?"
4. Let notice be issued to the respondents.
5. Mr. Siddharth Ranka, learned counsel accepts notice on behalf of the respondents on caveat being filed.
6. Caveat stand discharged.
7. Heard learned counsel for the parties on question of stay.
8. We do not find any ground for accepting the same, therefore, prayer for stay is rejected. Stay application (No.1263/2021) stands dismissed.
9. List on 15.09.2023. 13.1. Substantial Question of Law qua violation of section 13(1)(c)/13(2), amendment made by Finance Act, 2017 being retrospective or not has not even BEEN ADMITTED by the Hon’ble High Court.
13.2. Thus the stand of the CIT(A) in not following the findings recorded by the Hon’ble ITAT in assessee appellant’s own case is CONTEMPTOUS to say the least and it deserves to be deplored.
GOA- 3 TO 6
Firstly we would like to submit Common WS on the addition /disallowances made as per GOA 3 to 6:
COMMON SUBMISSIONS ON ADDITIONS/DSIALLOWANCES MADE AS PER
GOA 3 to 6:

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1. At the very outset it is submitted that the ld. AO has made all the additions without issuing any show notice. As he issued the notice u/s 142(1)(PB70-73) on dt14.09.2018 in response thereto the assessee filed the replies with details time to time. Thereafter the ld. AO has issued a show cause notice dt. 06.11.2018 vide page 2
to 4 of assessment order in response thereto the assessee filed the reply on dt.
16.11.2018(PB74-81) which is also reproduced at page 5-10 of the assessment order.
In these there was no any query discussion regarding the additions made.
Thereafter the A/R of assessee with accountant appeared before the ld. AO on dt.
14.12.2018 and the ld. AO stated that “ Sh. Ashish Jain FCA and accountant of the trust Sh. Manish Jain appeared. They produced books of accounts for examination.
They failed to produce the following books of accounts’
(1)
Auditors had mentioned various discrepancies in the audit report. They have failed to explain discrepancies or to file confirmation
(2)
TDS was not deducted properly
(3)
Cash payments were made through self made vouchers which are not verifiable
(4)
Brochures of the scheme and minute books not produced for examination
Copy of order sheets are enclosed(PB139-145 )
2. Thereafter the ld. AO straightaway passed the assessment order on dt.
19.12.2018 without issuing any show cause notice for making the additions. And in the show cause notice dt. 06.11.2018 there was no mentions of these additions.
3. Thus the AO made the disallowance/additions without issue any show cause notice before making the addition/disallowance.
During the course of assessment proceeding the ld. AO only required the assessee to file the details and reasons of other issue. In response thereto the assessee filed details and reply of the same. After receiving details and reasons he did not ask the assessee that why these additions should not be done. The AO must have issued show cause notice in the interest of natural justice but he did not do so and made a huge disallowance. It is very settled legal position that a person(assessee) is entitled to opportunity to show cause as to why not the income of the assessee is determined in the manner as proposed by the assessing officer but in the instant case no such type of opportunity had been provided hence the addition so made may kindly be deleted in full kindly refer Sanghi Brothers (Indore)Limited v/s Inspecting ACIT 122 CTR
19(MP), Malik Packaging v/s CIT 284 ITR (All), T.C.N. Menon v/s ITO 96 ITR
148(Ker).
3.1. In the case CIT vs. Paramjit Singh (2014) 90 CCH 0499 PHHC(2015) 231
TAXMAN 0450 (P&H)Held :Assessing Officer did not comply with the statutory provisions of law, inasmuch, as that the assessee was not given sufficient opportunity to rebut the report of the Assessing Officer. Not only this, even the assessee was not confronted with letter obtained from the office of Ludhiana Stock Exchange in order to enable him to rebut or lead evidence in support of his stand, particularly when it has come on record that the forms were issued during the relevant period when the annual

ITA No. 961 To 963/JPR/2024
Whole Sale Cloth Merchant Association, Kota.
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returns were filed on 3.3.2007, on a duly stamped form, submitted by the