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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAMIT KOCHAR
आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being 2005-06 is directed against the appellate order dated 17.03.2016 passed by learned Commissioner of Income-tax (Appeals)-1, Mumbai (hereinafter called “the CIT(A)”) for assessment year 2005-06, appellate proceedings had arisen before learned CIT(A) from the assessment order dated 22.03.2013 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) r.w.s 147 of the Income-tax Act, 1961 (hereinafter called “the Act”).
2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under- “ 1. On the facts and circumstances of the case the learned Commissioner of Income Tax (Appeal's) has erred in confirming the re-opening of the assessment U/s.148 without co-gent reason.
The learned Commissioner of Income Tax (Appeal's) has not considered the fact that as per the reason recorded in writing which states that the appellant has not filed the return of income, whereas the appellant had filed the return of income on 31.10.2005 and the proof the same was submitted to the Assessing Officer.
The learned Commissioner of Income Tax (Appeal's) has failed to appreciate the fact that the reason recorded in writing for verification of cash deposit does not attract the provision of section 148.
4. The learned Commissioner of Income Tax (Appeal's) was not justified in not considering the fact that the appellant had declared the cash of Rs.34,68,000/- deposited in the bank as their income before issuing the notice U/s.148 of the Income Tax Act.
5. The learned Commissioner of Income Tax (Appeal's) was not justified in disallowing the expenditure of Rs.67,48,467/- on the ground that the appellant trust is not registered U/S.12A as such the primary condition for availing exemption U/s.1 1 has rightly been denied by the Assessing Officer. Particulars Amount Expenses on object of the Trust 59,86,842 Purchase of Physical Fitness Equipment 5,45,000 Renovation of Ambulance 2,16,625 Total 67,48,467
The appellant craves, leave to add to alter or amend the above grounds of appeal
.”
3. The assessee has raised additional grounds of appeal before the tribunal , which read as under:- “6. On the facts and circumstance of the case, the learned CIT(A) failed to appreciate that reopening is bad in law as the notice u/s.148 dt.27/03/2012 has been issued without obtaining prior approval / sanction / satisfaction as required u/s. 151 of the Income tax Act and without providing recorded reasons. Hence, the reopening is bad in law.
7. Without prejudice to the above, notice u/s. 148 dt.27/03/2012 was issued by the AO 15(1)(2) who had no jurisdiction over the assessee, 2 hence the notice and assessment based on wrong jurisdiction and wrong assumption is bad in law and liable to be quashed.
8. Without prejudice to the above, donation of Rs.79,73,282/- is a capital receipt not liable to the tax even though the assesse has wrongly shown in the tax computation. Therefore confirming the tax on the donation received as an income of the Assessee and disallowance of expenditure made by treating donation as income is not correct as per law. Hence the disallowance of expenditure confirm by the CIT(A) may be deleted.
The Appellant craves leave to add, amend, alter or delete any or all the above grounds of appeal.” The assessee has raised additional grounds as above and prayed for admission of additional grounds of appeal . It is the claim of the assessee that these are grounds with goes to the root of the matter as these grounds are in respect of subject matter of the tax proceedings before us and hence may be admitted in the interest of justice.
The Ld. DR did not objected to the admission of the aforesaid additional grounds of appeal . Keeping in view ratio of decision of Hon‟ble Supreme Court in the case of Jute Corporation of India v. CIT (1991) 187 ITR 688 (SC) and Ahmadabad Electricity Company Ltd. v CIT (1993) 199 ITR 351(Bom.) , we direct admission of these additional grounds as they are in respect of subject matter of the tax proceedings before us. We order accordingly.
The assessee is a trust and the case of the assessee was reopened under the provision of Section 147 of the Act wherein reasons for reopening of the concluded assessment were recorded by the AO , as under:- "Out of the list received i.e. list of non filers based on AIR Information, it is verified from the system that above mentioned assesses has not filed return of income for A. Y.2005-06 even though there is taxable income. In this case the AIR information is as follows: Assessee has deposited cash of Rs. 10 lakhs or more in SB A/c i.e. Rs. 34,68,000/- Therefore I have reason to believe that the income to the extent of Rs 34,68,000/- to chargeable to tax in A. Y. 2005-06, as escaped assessment and I propose to re-open the assessment by invoking the provisions of section 147 of the Income Tax Act, 1961. Hence , notice U/s 148 of I T Act, 1961 is being issued to the assesses" Thus it is mainly based upon the list of the non filers of the return of income received by the AO based on AIR information that the assessee had deposited cash of Rs. 34,68,000/- in the saving bank account leading to formation of belief by the AO that the income of the assessee has escaped assessment within the meaning of Section 147 led to reopening of the concluded assessment u/s 147 of the 1961 Act. The assessee in its reply submitted that it filed is return of income for impugned assessment year 2005-06, wherein income from other sources were declared to the tune of Rs. 81,18,098/- which was claimed as an exempt income . The said return of income was filed in form no. 3A showing Nil Income after claiming exemption. The assessee also filed copies of Balance Sheet as on 31.03.2005, and income of expenditure account for the year ended 31.03.2005. The assessee could not produce books of accounts before the AO as the said book of accounts were already seized by Police Department for which necessary documentation was submitted by assessee before the AO to evidence that books of accounts are in the custody of police department. The assessee also submitted that the assessee had filed request letter to the Senior Inspector EOW Unit-3 with a request to supply photocopy of the books of accounts which as claimed by the assessee were not supplied to the assessee by the Police Department. The assessee also pointed out before the AO from the audit report dated 25.10.2005 that it maintained proper books of accounts and it is only due to the reasons as stated above the same could not be produced before the AO. The assessee submitted before the AO that it is not registered u/s. 12A and hence income is to be assessed as business income and parameters of allowability of business expenses as provided under the Income Tax Act, 1961 needs to be followed. The assessee submitted that it received donation of Rs. 79,73,282/-, income form physical fitness of Rs. 1,37,000/- and interest of Rs.7,816/- , totalling to Rs. 81,18,098/- . The assessee submitted that it had claimed following expenses against the said income, as under:-
Particulars Amount (Rs) 59,86,842 Expenses on object of the Trust 1,93,393 Administrative Expenses 5,45,000 Purchase of physical Fitness Equipment
2,16,625 Renovation of Ambulance 4,05,375 Depreciation 73,47,235 Total It was claimed that these expenses were incurred towards object of the trust and were paid by account payee cheque. The assessee had submitted copy of bank statement and cash summary. The assessee , however, agreed that Rs. 7,70,863/- claimed u/s 11(2) should be disallowed . It was also submitted that assessee does not have any assets physically with it as all the assets were seized by Police Department including physical fitness instruments and Ambulance Van. It was also submitted by assessee before the AO that the Economic Offence wing of CB-CID has stopped all the transactions in the bank account of the assessee. The AO rejected the contentions of the assessee by holding as under:- “ I have considered the submission of the AR of the assessee trust as above carefully, however, the contention of the AR that the income and Expenditure has to be treated as business income and only the deduction u/s 11(2) is not allowed to the assessee in the absence of the certificate u/s 12A, the entire expenses cannot be disallowed simply on the trust is not registered u/s 12A is not tenable and acceptable due to the reasons as under:- Under the provisions of the Income Tax Act, 1961 as amended from time to time, whereas all the expenses wholly and exclusively incurred for the purpose of business of the assessee during the previous year relevant to assessment year under consideration are allowable expense, the expenses incurred for personal non-business and expenses of capital in nature are not deductable. i. It may be seen from the computation of Income filed on record and details of income and expenditure given under para 4 (a) and (b) of ARs letter dated 19.02.2013 that the expenses on the object of the Trust of Rs.59,86,642/-cannot treated as expenses incurred for the purpose of business carried out by the assessee during the previous year relevant to assessment year under consideration, as such the same are disallowed in view of the provisions of IT Act 1961 referred to above. ii. In regard to expenses incurred for the purchase of physical fitness equipment of Rs. 5,45,000/-, it is stated that the same are expenses of capital in nature, as such capitalized and not allowed as revenue expenses iii. So far expenses incurred on renovation of Ambulance of Rs. 2,16,625/- is non- business expenses as such disallowed. 5
In view of the facts discussed above, the following expenses only are deductable from the total income of Rs.81,81,098/ - (Rs. 79,73,282/- donation + Physical fitness Rs.137000/- and interest Rs.7816/-) Administrative expenses Rs.193393/- and (ii) Depreciation Rs.405375/- Subject to the above remarks, the total income of the assessee trust is computed as under :- Amount in Rs. Total receipts as per Income & 81.18.098/- Expenditure A/c for the year ended 31-03-2005 5,98,768/- Less: Allowable expenses as discussed above (i) Administrative Expenses 193393/- (ii) Depreciation 405375/- Total Income 75,19,330/- ____________ “ 6. The assessee went in appeal before the Ld. CIT-A challenging the additions made by the AO , wherein the assessee submitted before the learned CIT-A as under:- “ 5.1. During the course of appellate proceedings, appellant made submissions which are summarised as under - i. The appellant submitted that it had filed return of income on 31.10.2005 with ADIT(E)I(2) showing Nil income. The return was filed along with its audited accounts showing the all the receipts and payments made by the trust. The assessment for A.Y.2005-06 was reopened U/s. 148 vide notice dated 27.03.2012.The assessment was completed U/s. 143(3)/147 on 22.03.2013 assessing total income at Rs.75,19,330/-. While passing the above Assessment Order the Assessing Office disallowed the entire expenses by way of donation paid by the trust towards its objects simply on the ground that the trust was not registered U/s. 12A. ii. The appellant with reference to the reopening of assessment stated that grounds mentioned for re-opening of the assessment was not correct as the appellant had already filed it's return of income on 31.10.2005 with ADIT(E)I(2) showing Nil income along with audited accounts. The above assessment was also re-opened for verification of cash deposits of Rs.34,68,000/- in the bank account. The above reason does not indicate that the appellant income has not fully disclosed its true income. The same cannot be the reason to believe that income to the extent of Rs.34,68,000/- chargeable to taxed has escaped assessment. Simply verification of deposit cannot be the basis 6 for reopening of the assessment. The appellant relied on the order in ITA N0.3814/DEL/11 for A.Y.2008-09 passed by ITAT Delhi „A' Bench in the case of Bir Bahadur Singh Sijwali V/s. ITO wherein similar facts were considered by the honorable ITAT who has allowed the appeal by stating that the reasons recorded by the Assessing Officer, as set out earlier, were not sufficient reasons for re-opening of the assessment proceedings. From the above facts it is clear that the re- opening proceedings are based on wrong information. The Assessment Order passed U/s. 143(3)/147 is illegal and is liable to be cancelled. iii. The appellant without prejudice submitted that Assessing officer has failed to appreciate that the trust accounts were duly audited by the Chartered Accountant and were filed with the Charity Commission. He has not allowed the deduction of various expenses incurred by the appellant such as donation paid by the trust towards its objects simply on the ground that the trust was not registered U/s, 12A.From the above facts we request your honor to kindly direct the Assessing Officer to allow the various expenses claimed by the appellant towards the object of the trust.”
The learned CIT-A considered the contentions of the assessee and rejected the same by holding as under:- “ 5.2. I have considered the facts and circumstances of the case, gone through the assessment order of the A.O and the submissions of the appellant and also discussed the case with the AR of the appellant. The contentions and submissions of the appellant are being discussed and decided here in under: i. The appellant has agitated reopening of assessment u/s. 147 of the Income Tax Act in grounds of appeal
no. 1 to 3. Objecting to the reopening of assessment u/s. 147 it was stated that on the basis of AIR information assessment cannot be reopened for verification of cash deposits. The appellant in this regard has relied upon the judgment of Hon'ble ITAT in the case of Bir Bahadur Singh Sijwali (supra). However, on perusal of this judgment it is noted that the facts in these two cases are distinguishable. In the case before Hon'ble ITAT there was no information received from AIR while in the case of the appellant the information has been received from an independent source on the basis of which the AO has formed the belief to reopen the assessment u/s.
147. Further it is noted that in the case before Hon'ble ITAT, the reasons were recorded after the notice was served on the appellant and hence Hon'ble ITAT observed that reasons are to be recorded before issuance of notice and in absence thereof the reassessment proceedings were not valid. No such fact is there in the case of the appellant as evident from the reasons recorded and quoted in the assessment order. In view of these distinguishable facts the ratio of judgment relied upon by the appellant is not applicable to its facts. ii. Further it is noted that appellant in its return of income has claimed its status as 'charitable trust' which is governed by special provisions contained under sections 11 to 13 of the Income Tax Act. In the computation of income filed alongwith the return it has claimed
application of income u/s. 11(1)(a) @ 15%. Reliance in this regard is placed upon the judgment of Hon'ble Allahabad High Court in the case of Fateh Chand Charitable Trust, 36 Taxmann.com 67 wherein it was held that reopening of the assessment wherein no opinion was expressed by the AO regarding donation disclosed by the assessee trust was valid. Dealing with this issue Hon'ble Court observed as under : "17. At this stage, we may refer the judgement of the Apex Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316. The Apex Court has noted the difference in between the pre- existing section 147 prior to 1st of April, 1989 and its substitution thereafter. It has also considered that at the stage of notice as the case here is what is required is "reason to believe" but not the established fact of escapement of income. At this stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether the materials would conclusively prove the escapement is not concerned at that stage. This is so because the formation of the belief by the Assessing Officer is in the realm of subjective satisfaction." From the above judgement it may be inferred that the receipt of information by way of AIR was sufficient for the AO to form requisite belief that the income relating to donations has escaped assessment. Also in the case of Rohilkhand Educational Charitable Trust 42 Taxmann.co. 586, Hon'ble Allahabad High Court held that where assessee trust running hospital had not produced list of donors and expenditures claimed were reported by medical council to be bogus, initiation of proceedings u/s. 147 was justified. In the case under consideration also the information has been received from AIR. Further in the case of Rajat Export Import India Pvt. Ltd. Vs. ITO 252 CTR 307 Hon'ble Delhi High Court observed as under: "At this stage, the Court is not concerned whether the material before the AO is sufficient for the formation of the belief. At this stage, the Court is concerned with whether the material before the AO is relevant for forming the prima facie belief that income chargeable to tax has escaped assessment. It is also well settled that at that stage, that is at the stage when reasons are recorded for reopening the assessment, the AO is not required to build a foolproof or a fort-like case for making the addition to the assessee's income; all that he is required at that stage is to form a prima facie opinion or belief that income has escaped assessment. The relevancy of the material before the AO is to be judged only from that perspective and not from the perspective as to whether the material is sufficient or adequate to sustain the addition ultimately. That will be an aspect which the AO will examine and decide in the course of the reassessment proceedings after hearing the assessee in the manner required by law."
Relying upon these judicial pronouncements it is held that the AO had reason to believe that the income has escaped assessment . Reopening of the assessment is, therefore, upheld. iii. The appellant has not made any submission with regard to non supplying of the reasons recorded. In view of the facts and legal position as discussed above grounds of appeal no. 1 to 3 are dismissed. iv. In grounds of appeal no. 4 to 7, the appellant has objected to disallowance of expenses. It was stated that the trust accounts were duly audited by the Chartered Accountant and were simply disallowed since it was not registered u/s. 12A. In this regard, it is mentioned that holding valid registration u/s. 12A is the primary condition for availing exemption u/s. 11 which has rightly been denied by the AO. Further, it is noted that the AO has taxed the appellant's income on commercial principles and has allowed deduction for administrative expenses and depreciation. Further, it is noted that the appellant could not produce complete books of accounts before AO. Further, it could not prove that the expenses of Rs. 59.86 lakhs were incurred for the purpose of business. It was also noted that the expenditure of Rs. 5.45 lakhs was capital in nature and the expenditure of Rs. 2.16 lakhs was for non- business purposes. These observations of the AO have not been rebutted even during the course of appellate proceedings. Accordingly, I have no reason to deviate from the findings given by the AO in his order. Grounds of appeal nos. 4 to 7 are, therefore, dismissed.
6. Ground No. 8 of appeal is vague, general and has not been availed. Therefore, same needs no separate adjudication and is accordingly disposed off.”
8. Aggrieved by the appellate order dated 17-03-2016 passed by learned CIT(A) , the assessee has filed an appeal before the tribunal. The assessee raised additional grounds before the tribunal which are raised for the first time as the same were not raised before the authorities below. We have already admitted these additional grounds in the interest of justice keeping in view ratio of decision of Hon‟ble Supreme Court in the case of Jute Corporation of India v. CIT (supra) and decision of Hon‟ble Bombay High Court in the case of Ahmadabad Electricity Co. Ltd. v. CIT (supra), as these grounds have arisen in respect of subject matter of the tax proceedings . The assessee vide additional grounds is agitating that that notices u/s. 148 was issued by the AO without obtaining prior approval as is required u/s. 151 and without providing recorded reasons. The other contention which is raised for the first time before the tribunal is that donation of Rs. 79,73,282/- was a capital receipt and it is claimed that even if there is no registration of the assessee u/s. 12A , still the same cannot be brought to tax within provisions of the 1961 Act . The assessee has averred before the tribunal that no prior approval/sanction was obtained by AO before reopening of the concluded assessment u/s. 147 and hence the entire proceedings are bad in law. The assessee filed assessment order dated 22- 03-2013 passed by the AO u/s. 143(3) r.w.s. 147 which was duly certified by M/s. R. K Chaudhary & Associates, Chartered Accountants, Kamanwala Chambers, 3rd Floor, Sir P.M Road, Fort, Mumbai-400001. Since there was some confusion as to the completeness of the said assessment order w.r.t. second page (assessment order is not numbered by the AO) , the assessee was asked to produce certified copy of the said order from the AO. The assessee filed certified copy of the assessment order duly certified by Shri Sanjay Kamble, ITO(E) -2(3), Mumbai which is on record, wherein relevant extract where there is some confusion(marked as „???‟), is reproduced hereunder :-
“INCOME TAX DEPARTMENT
; Name of the Assesses Shiv Shambhu Narayan Trust • Address 716/744 Pandhare Compound Dagdi Chawl, B.J. Marg, Byculla, Mumbai -400011. I AADTS 8307 B PAN ', Ward/Circle/Range ADIT (E)-ll(2), Mumbai. * Status Trust I 2005-2006 Assessment Year ' Whether Resident/Resident but not Resident ordinarily resident/ Non resident ; Method of Accounting Mercantile : Previous Year 31.05,2005 ! Dates(s) of hearing As per Order Sheet Noting
', Date of order 22/03/2013 '- Section and sub-section under Assessed U/s 143(3) r w s 147 of which the assessment is made the l.T.Act, 1961
ASSESSMENT ORDER This case has been received on transfer from I.T.O. 15(1)(2), Mumbai vide transfer memo received in this office dated 02.01.2013 for completing the assessment for the A.Y. 2005-06 u/s. 143(3) rws 147 of IT Act, 1961 recording the reasons as under:-
Out of the list received i.e. list of non filers based on AIR Information, it is verified from the system that above mentioned assessee has not filed return of income for A.Y. 2005-06 even though there is taxable income. In this case the AIR information is as follows: Assessee has deposited cash of Rs. 10 lakhs or more in SB A/c i.e. Rs. 34,68,000/- Therefore I have reason to believe that the income to the extent of Rs 34.68.000/- to chargeable to tax in A. Y. 2005-06, as escaped assessment and I propose to re-open the assessment by invoking the provisions of section 147 of the Income Tax Act, 1961, Hence , notice U/s 148 of I T Act, 1961 is being issued to the assessee ????? ????? alongwith the following documents :- I. Copy of the Notice u/s 148 dated 27.03,2012 II. Copy of the first page of the return of income for A.Y.2005-06 in Form No. 3A showing NIL Income after claiming exemption III. Copies of audited Balance Sheet as on 31.03.2005 and Income and Expenditure Account for the year ended 31.03.2005 *** *** *** Penalty proceedings u/s 271(1)(c) for furnishing in accurate particulars of income is initiated separately.
Assessed accordingly U/s 143(3) of the I.T.Act. Allow credit of prepaid taxes after verification. Charge interest as per Law. Tax calculation as per ITNS-150 is part of this order. Issued demand notice/ RO accordingly.