SME GROWTH FUND,MUMBAI vs. CIT - 15, MUMBAI

order dated 07/03/2013 & 8/3/2013 of the CIT-15,Mumbai,passed u/s.263 of the Act for assessment years 2008-09 and 2009-10 respectively and order,dated 13/02/2015 of CIT(A)-17,Mumbai, for AY 2008-09 the assessee has filed the present appeals. Assessee-trust is a venture capital fund ,was created under a trust Deed,dated 23.6.04 by a unit scheme of SIDBI SME Venture Fund alongwith some other nationalized banks. M/s. SIDBI Trustee Co. Ltd is the trustee of the fund and M/s. SIDBI Venture Capital Ltd. is the investment manager of the fund.The dates of filing of return, dates of assessment orders, dates of 263 orders for both the years are tabulated as under :- filed on Returned Assessment Assessed Income Dt. of Order of Income dt. CIT(A)/CIT 2878/Mum/2015 29/09/2008 Nil 16/01/2014 Rs.76,85,904/- 13/02/2015 2638/M/2013 29/09/2008 Nil 29/10/2010 - 07/03/2015 2639/M/2013 30/09/2009 Nil 23/09/2011 - 08/03/2013 2.Vide its application,dated 11/3/14,the assessee has made a request to admit additional evidences. In its application,the assessee had mentioned that it is a determinate trust, that each of the beneficiaries were taxable on their respective shares of income from the trust, that it would obtain and keep on record confirmations from contributors stating that shares of income received from income was included in their return of income,that some of the confir- mations were submitted during 263 proceedings, that it had obtained confirmation from ;2878/M/15&2639/M/13 SME Growth Fund contributors that were PSU banks and Financial Institutions, that in the confirmation those institutions had quantified the amount of taxes paid by each of them on their shares of income received from the assessee,that it was not possible to obtain confirmation at short notice from PSU banks,that show cause notice u/s. 263 was received on 4/01/2013, that the last hearing was on 16/01/13, that the tax payment confirmations established that income had been duly assessed in the hands of contributors and taxes had been paid thereon, that the confirmations supported the argument that when the beneficiaries had paid the tax, same income could not be taxed in the hands of the assessee . 2.1.During the course of hearing before us, the AR made same submission and referred to Pg.s1 to 11 of the PB containing additional evidences.The DR left the issue of admitting additional evidences to the discretion of the Bench. 2.2.We have perused the additional evidences.We find that assessee was prevented by sufficient cause for not producing them before the CIT during the revisionary proceedings. In our opinion these documents are important to decide the issue raised in the appeals filed before us.Therefore, we admit the same,as per the provisions of rule 29 of the ITAT Rules. ITA/2638/Mum/2013 3.The assessee had filed its return of income in ITR-V on 30/09/ as stated earlier.The first return of income of the assessee trust was filed for A.Y. 2005-06.The CIT after going through the notices,dated 19.01.2010 and 23.06.2010,issued u/s. 142 (1) of the Act,held that there was not even a whisper about the issue of liability of the assessee as representative assessee as provided in section 161(1) of the Act, that in the order sheet of the assessment proceedings there was no discussion or query on that issue.After calling for and examining the assessment proceedings for AY.2009-10 as well as earlier years,the CIT held that the assessment order passed by AO was erroneous and prejudicial to the interest of revenue. An opportunity of being heard was given to the assessee by issuing a show cause. The assessee filed submission on 10/1/12013 and 16.1.2013.After considering the same,the CIT held that upto AY.2007-08,the assessee had been claiming exemption u/s 10(23FB) of the Act,that the return for that AY. was filed on form ITR 7,that Schedule L to the return relating to particulars of the Trust were also duly filled up,that the status in which the return was filed, was stated in the computation of income attached with the return of income as AOP,that it had filed the return of income as a representative assessee u/s. 160 and fulfilled the liability provided u/s.161(1) of the Act for the AY. 2007-08,that an amendment to the Sec.10(23 FB)was introduced by Finance Act, 2007 w.e.f 1-4-08, ,that the amendment went to the root of the allowability of exemption u/s.10(23FB),that the notices issued u/s 142(1) on 2 ;2878/M/15&2639/M/13 SME Growth Fund 19-1-2010 and 23-06-2010 and the order sheet maintained by the AO did not depict even a whisper of enquiry about the amendment,that in the assessment order there was nothing about examina -tion by the AO regarding applicability of amended provision,that the assessment order passed for AY.2008-09 was almost a replica of the assessment order for AY. 2006-07 and had been drafted in a mechanical stereotyped manne,thtat there was no query whatsoever during the assessment proceedings about Sec. 166 of the Act, which had been invoked on page 2 of the assessment order,that the slip-shod manner in which the assessment proceedings had been carried out were evident when it was noticed that even the finding of distribution of the income of Trust to the contributors was not borne out by the information gathered by the AO during the assessment proceedings.He further observed that if the stand of the assessee was to be examined as per rule 12C of I.T.Rules 1962 the statement of distributed income was required to be furnished by the 30th November of the Financial year following the previous year during which such income is distributed, that the statement was to be furnished to the CCIT or CIT of Venture Capital Fund,that the AO had not examined as to whether such a submission in prescribed form No.64 duly verified and certified by a CA had been made within the time prescribed alongwith the enclosures,that failure of the AO to examine material facts relating to an assessment would turn the assessment order as erroneous,that there was not even an iota of evidence of any application of 'judicial mind' or 'awareness of the issues' involved reflected in the assessment records, notices or the assessment order,that it was only pure mechanical exercise without proper application of mind which the AO had involved himself in,that the arguments of the assessee on this aspect were devoid of any substance,that the assessment order was also prejudicial to the interest of Revenue,that after the amendment the income of the assessee-trust was not exempt under Sec. 10(23FB),that the assessee had till AY.2007-08 had filed the returns in the status of representative assessee,that after amendment the assessee conveniently changed its stand.He also held that every represen -tative assessee,even if the claim of mistaken ticking of a wrong box by the assessee was admitted but not accepted, as per section 161 of the Act,was liable to assessment in its own name in respect of Trust income,that the plain language and placement of the section made it abundantly clear that it merely provided for a situation which could be utilised,but did not in any way over-ride the liability in section 161 of the Act.Referring to the provisions of section 166 he held that it was an enabling provision for Revenue,that it did not give an option to assessee,that the assessee's own conduct till AY. 2007-08 was as per section 161 of Act,that merely because there was amendment to the Act, the assessee could not be allowed to change its stand. In any case, this aspect was required to be examined in detail by the AO, which he 3 ;2878/M/15&2639/M/13 SME Growth Fund had failed to do,that the requirements of Rule 12C were also to be complied with,that in view of the amendment to section 10(23FB)income should have been taxed in the hands of the assessee.He directed the AO to frame a fresh assessment order. 4.During the course of hearing before us,the AR argued that income should be assessed in the hands of contributors,that assessee was a representative assessee,that it was a venture capital - ist,that upto AY.2007-08 it was claiming exemption u/s.10(23)(FB)r.w.s. 115,that from AY. 2008-09,the definition of venture capitalist changed,that it did not claim exemption, that the AO verified the claim that the contributors had paid the taxes, that he had rightly assessed its income at nil,that AO had applied his mind about claim of assessee being representative assessee.He refrred to pg no 54, 72, 89, to 96 and pg-177 of the PB specially question no.2 at Pg.177,where AO had made specific query about contributors,that it had made relevant disclosures in the return of income and audit report,that the AO had considered the available material and passed an order,that his order was neither erroneous nor prejudicial to the interest of revenue,that it had produced confirmation from 9 of the contributors,that once the contributors had paid the taxes there was no justification in taxing the same income in the hands of the assessee.He referred to the cases of Gabriel India Ltd.(203 ITR108),Malabar Industiral Co.(243 ITR 83),India Advantage Fund-VII (ITA/178/Bang/2012 AY 2008-09 dtd, 17/10/14), (ITA No./191 & Ors.of 2015 dtd. 1/2/2017 )of the Hon'ble Karnataka High Court, Indian Corporate Loan Securitization Trust -2008 ,Series-14(ITA 3986/Mum/2013 AY 09-10 dtd. 17/2/17).The DR supported the order of the CIT and stated that assessee was changing its goal posts,that AO did not apply his mind,that he did not raise any question even when there was change in definition of venture capitalist,that he did not deliberate upon the issue as to whether it was application of income,that the assessee had to pay the taxes, that it had paid advance tax, that the argument that liability to pay taxes was of the contributors was an afterthought. In his rejoinder,the AR stated that the AO made reference to section 161 and irrevocability of the terms of trust deed , that he had granted refund after considering available material, that the liability to pay tax was as per the Act and not as per trust deed. 5.We have heard the rival submissions and perused the material before us.We find that the assessee is a venture capital fund that was created under a trust by a unit scheme of SIDBI SME Venture Fund,that M/s. SIDBI Trustee Co. Ltd was the trustee of the fund and M/s. SIDBI Venture Capital Ltd. was the investment manager of the fund,that till AY.2007-08 it was claiming exemption u/s.10(23(FB)of the Act,that in the year under appeal change was 4 ;2878/M/15&2639/M/13 SME Growth Fund