FATEH CHAND CHARITABLE TRUST,MUZAFFARNAGAR vs. ADDL. CIT, MEERUT

IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH “B”: NEW DELHI

BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER

AND

SHRI O.P. KANT, ACCOUNTANT MEMBER

ITA No. 289/Del/2012 A.Y. : 2005-06

FATEH CHAND CHARITABLE TRUST, VS. ADDL. CIT, RANGE-2 115 KM MILE STONE, MUZZAFARNAGAR DELHI DEHRADUN HIGHWAY, MUZAFFARNGAR (PAN:AAATF1445N) (Appellant) (Respondent)

Assessee by : Sh. K. Sampath, Adv. Department by : Sh. Anil Kr. Sharma, Sr. DR

O R D E R PER H.S. SIDHU, JM

This appeal is filed by the Assessee is directed against the

Order dated 20.9.2011 of the Ld. CIT(A), Muzaffarngar relevant to

assessment year 2005-06 on the following grounds:-

proceedings u/s. 148 as fresh proceedings

calling for fresh claims of the assessee with the

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view to compute correct income. By doing so he

has gone against the intent of ITO vs. KL Shri

Hari 250 ITR 193 (SC).

disallowance of brought forward and set off of

loss holding the same to be a case of double

deduction, although, the assessee has not

claimed depreciation at all. Hence the entire

discussion and findings on page 8, para 3.2 of

his order are rendered prejudicial and against

the actual facts of the case.

law in disallowing the claim of the assessee on

account of brought forward and set off of loss

emanating from excess application of funds.

income on 31.10.2005 declaring NIL income, which was processed

u/s. 143(1) of the Income Tax Act, 1961 (in short “Act”) on

24.01.2005. Thereafter, the notice u/s. 148 of the Act was issued on

4.2.2008 and compliance thereto the Assessee filed its return of

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income on 7.3.2008 claiming therein the loss of Rs. 52,52,299/- to be

carried forward to AY 2006-07. After examining the return filed by the

assessee, AO is of the view that assessee has failed to file loss

returns, it cannot take refuge of reopened assessment to claim loss. It

is not permissible u/s. 139(3) to claim loss if the return if filed late. In

this case, Assessee has filed the original return showing NIL income.

Later a notice u/s. 148 of the Act was issued assessee has utilized

notice u/s. 148 as an excuse to claim loss of Rs. 52,52,299/-. The AO

completed the assessment u/s. 143(3)/148 of the Act on 02.06.2008

on NIL income. Against the same, the assessee appealed before the

Ld. CIT(A), who vide his impugned order dated 13.10.2008 directed

the AO to verify and allow loss carry forward. Against the order of the

CIT(A), the Department went in appeal before the ITAT who vide its

order dated 17.11.2009 set a aside the matter back to the file of the

AO to decide the same afresh in accordance with law after examining

the case laws, cited by the assessee. Thereafter, the AO issued the

notice u/s. 142(1) of the Act dated 7.10.2010 to the assessee and in

response thereto the A.R. of the assessee attended the proceedings

from time to time and filed written submission dated 22.11.2010

stating therein that in case of excess expenditure has been

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incurred on charity, over and above the income for that it has to be

recognized in terms of the carrying it forward and then applying it in

the next year by setting it off against the income which is generated

in the current year and placed the reliance of various case laws.

However, the AO vide his order dated 16.12.2010 has observed that

the case laws relied upon by the assessee are distinguished on facts

and assessee failed to justify the excess expenses or excess

application of income can merit allowance of loss to the assessee and

therefore, the excess application cannot be allowed to the assessee to

carried forward, by relying upon the decision of the ITAT, Delhi Bench

in the case of Pushpawati Singhania Research Institute for Liver,

Renal & Digestive Diseases vs. Dy. DIT (2009) 29 SOT 316 (Del).

Accordingly, the AO observed that assessee is not entitled to carry

forward the amount of expenditure over the income, to the next year,

therefore, the claim of loss and its carry forward is unacceptable and

accordingly, the assessment was completed on the NIL income vide

assessment order dated 16.12.2010 passed u/s. 254/143(3) of the

I.T. Act, 1961.

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assessee preferred an appeal before the Ld. CIT(A), who vide his

impugned order dated 20.9.2011 has dismissed the appeal of the

assessee by confirming the action of the Assessing Officer.

the Tribunal.

that the assessee falls under the jurisdiction of Hon’ble Allahabad

High Court and the AO as well as the CIT(A) were bound to follow the

judgment of the Hon’ble Allahabad High Court on this issue. He

claimed that the issue is covered in favour of the assessee by the

following decisions:

i) ACIT, Range-I, Meerut vs. City Education Social Welfare

Society order of Delhi ‘B’ Bench dated 26.8.2011 in ITA No.

5627/Del/2010; and

ii) ACIT vs. M/s Subrathi KKB Charitable Trust Delhi ‘G’ Bench

order dated 115.2012 in ITA No. 1553/Del/2011 for AY

2006-07.

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covered by the ITAT, Delhi Bench in the case of ITO vs. M/s Sanathan

Dharam Shiksha Samiti, Hisar passed in ITA No. 3266 to

3269/Del/2011 (Ayrs. 2005-06 to 2008-09) wherein the Tribunal has

allowed all the four appeals of the Department by respectfully

following the judgment of the Hon’ble Supreme Court of India in the

case of CIT vs. Sun Engineering P Ltd. (1992) 198 ITR 297 and

requested to respectfully follow the same and dismiss the appeal of

the Assessee accordingly.

the facts and circumstances of the case and a perusal of papers on

record and the orders of the authorities below, we are of the

considered view that the issue in dispute is squarely covered by the

ITAT, Delhi Bench decision in the case of ITO vs. M/s Sanathan

Dharam Shiksha Samiti, Hisar passed in ITA No. 3266 to

3269/Del/2011 (Ayrs. 2005-06 to 2008-09) wherein the Tribunal has

allowed all the four appeals of the Department by respectfully

following the judgment of the Hon’ble Supreme Court of India in the

case of CIT vs. Sun Engineering P Ltd. (1992) 198 ITR 297. For the

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sake of convenience, we are reproducing the relevant finding of the

Tribunal vide para no. 9 to 9.4 as under:-

“9. We have heard both the parties and

gone through the facts of the case.

Indisputably, the assessee trust is running

schools at Hansi and claimed exemption

u/s 1 0(23C)(iiiad) of the Act. On rejection

of their application for exemption uls

1O(23C)(vi) of the Act for the AYs 2005-

06 to 2008-09, the assessee approached

Hon'ble Punjab & Haryana High Court by

way of writ. Hon'ble High Court vide their

order dated 29.01.2010 in CWP no.8258

quashed the order dated 23.03.2009 of

the CCIT, declining to allow exemption uls

10(23C) of the Act. The ld. AR explained

before us that the effect to the aforesaid

order of the Hon'ble High Court is yet to

be given by the concerned authorities.

However, the issue of exemption uls

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1O(23C)(iiiad) of the Act is not before us

nor the ld. AR on behalf of the assessee

placed before us copy of the aforesaid

order of the CCIT or of the Hon'ble High

Court. In any case, the assessee may seek

appropriate relief from the concerned

authorities in accordance with law.

Meanwhile, since the applicant trust was

registered uls 12A of the Act, they made

an alternative claim before the AO for

exemption uls 11 & 12 of the Act in the

returns filed u/s 148 of the Act for the AYs

2005-06 to 2007-08 and consequently

sought that the loss or excessive

application of income be determined and

carried forward for set off in subsequent

years, the provisions of the Act regarding

carry forward and set off of business

losses, being not applicable in the case of

assessee, claiming exemption uls 11 & 12

of the Act. We are not disputing the Page 8 of 27

proposition that a trust can be allowed to

carry forward deficit of current year and

seek set off of the same against income of

subsequent years and such an adjustment

of deficit of current year against income of

subsequent year would amount to

application of income of trust for charitable

purposes in subsequent year within

meaning of section 11(l)(a)of the Act, as

held in Raghuvanshi Charitable Trust &

Ors(supra). But in the instant case before

us , can such determination of loss or

excess application of income or its carry

forward and set off is possible in

proceedings uls 148 of the Act, needs to

be examined, especially when in the

original returns filed by the assessee, no

such claim was ever made. In nutshell, the

only issue for our consideration is as to

whether claim of the assessee for

determination, carry forward and set off of Page 9 of 27

excessive application of income in the

returns filed in response to notice uls 148

of the Act for the A Ys 2005-06 to 2007-

08, can be allowed in the assessment for

the A Ys 2005-06 to 2008-09. Admittedly,

in the original returns filed by the assessee

for the A Ys 2005-06 to 2007-08, no such

claim was ever made. It is well settled that

proceedings uls 148 of the Act are for the

benefit of the Revenue and not for

claiming relief by the assessee, which

relief was never claimed in the original

returns for the AY 2005-06 & 2006-07.

Indisputably, the assessments in the

present case for the AYs 2005-06 to 2007-

08 were made by the AO in the

proceedings under section 147 of the Act

initiated by issue of notice under section

148 of the Act. The issue of validity of

proceedings uls 147 of the Act was never

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raised by the assessee either before the

AOI Id. CIT(A) or even before us.

The question that arises for consideration

is whether in such proceedings, initiated

for the purpose of assessment of escaped

income, the assessee is entitled to claim

determination of loss or excessive

application of income in the A Ys 2005-06

& 2006-07 to enable it to carry forward

the same to be set off against the income

of subsequent years 2007-08 & 2008-09

to the detriment of the Revenue. The AO

made the assessment in proceedings

under section 147 of the Act initiated with

a view to assessing income which had

escaped assessment and having not found

any escaped income, accepted the

returned income in the A Ys 2005-06 &

2006-07. He, however, did not accept the

claim for determination of excessive

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application of income in these two

assessment years, the assessment having

been made in proceedings initiated under

section 147 of the Act for assessing the

escaped income nor accepted the claim of

carry forward of the same and set off of

the said excessive application in the AYs

2007-08 & 2008-09. However, the ld,

CIT(A) accepted the claim of the assessee,

ignoring the fact assessments for the A Ys

2005-06 to 2007-08 were completed uls

143(3) read with sec. 147 of the Act. The

real controversy, therefore, is about the

scope and ambit of the power of the

Income-tax Officer in proceedings initiated

under section 147 of the Act for

assessment of income, which has escaped

assessment.

9.1. Section 147 of the Act empowers the

AO to assess income which escaped

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assessment in the relevant assessment

year. It is applicable only to a case where

the AO has reason to believe that the

income of the assessee has escaped

assessment. The power under this section

can also be exercised in cases where

excessive loss or depreciation allowance

has been computed. In the instant case,

re-assessment proceedings were initiated

by the AO for the A Ys 2005-06 to 2007-

08 by issue of notice under section 148 of

the Act because he was satisfied that the

income of the assessee for these years

had escaped assessment. The assessee

never disputed the reasons recoded by the

AO or validity of the proceedings initiated

uls 147 of the Act before any of the lower

authorities or even before us. In such a

case, if at any stage of the proceedings,

the AO finds that income chargeable to tax

has not escaped assessment, he is free not Page 13 of 27

to take further action pursuant to the

notice under section 148 of the Act and

drop the proceedings. He is not bound to

conclude the proceedings and make

assessment to the detriment of the

Revenue. If, pursuant to notice under

section 148 of the Act, the assessee

submits a loss return, and the AO is

satisfied that the income of the assessee

during the relevant year was really

negative as claimed by the assessee in his

return, he is entitled to close the

proceedings. He cannot complete the

assessment to determine the loss or

excessive application of income thereby

giving the assessee a right to claim set off

of the loss in subsequent years to the

detriment of the Revenue. Such an act will

be contrary to the object, scope and ambit

of section 147 of the Act. Proceedings

under section 147 being for the benefit of Page 14 of 27

the revenue and not the assessee, the

assessee cannot be permitted to take

advantage of the reassessment

proceedings and seek relief which, in the

absence of the proceedings for assessment

of escaped income, he could not have

claimed. Income for the purpose of

assessment under section 147 of the Act

cannot be a negative figure. Similarly, in

case of reassessment of income already

assessed, the income not be reduced

beyond the income originally assessed nor

the loss originally determined can be

re-determined at a higher figure.

9.2. The object, scope and ambit of

section 147 of the Act is now well settled

by the decision of the Hon'ble Supreme

Court in CIT v Sun Engineering Works P.

Ltd, [1992] 198 ITR 297. The Hon'ble

Supreme Court also considered the

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observation in their earlier decision in V.

Jagmohan Rao's case cannot be read to

imply as laying down that in the

reassessment proceedings validly initiated,

the assessee can seek reopening of the

whole assessment and claim credit in

respect of items finally concluded in the

original assessment. The assessee cannot

claim re-computation of the income or

redoing of an assessment and be allowed a

claim which he either failed to make or

which was otherwise rejected at the time

of original assessment which has since

acquired finality. The Supreme Court,

therefore, held as under;

"As a result of the aforesaid discussion, we

find that, in proceedings under section 147

of the Act, the Income-tax Officer may

bring to charge items of income which had

escaped assessment other than or in

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addition to that item or items which have

led to the issuance of the notice under

section 148 and where reassessment is

made under section 147 in respect of

income which has escaped tax, the

Income-tax Officer's jurisdiction is

confined to only such income which has

escaped tax or has been underassessed

and does not extend to revising, reopening

or reconsidering the whole assessment or

permitting the assessee to reagitate

questions which had been decided in the

original assessment proceedings. It is only

the underassessment which is set aside

and not the entire assessment when

reassessment proceedings are initiated.

The Income-tax Officer cannot make an

order of reassessment inconsistent with

the original order of assessment in respect

of matters which are not the subject

matter of proceedings under section 147. Page 17 of 27

An assessee cannot resist validly initiated

reassessment proceedings under this

section merely by showing that other

income which had been assessed originally

was at too high a figure except in cases

under section 152(2): The words" such

income" in section 147 clearly refer to the

income which is chargeable to tax but has"

escaped assessment" and the Income-tax

Officer's jurisdiction under the section is

confined only to such income which has

escaped assessment. It does not extend to

reconsidering generally the concluded

earlier assessment. Claims which have

been disallowed in the original assessment

proceeding cannot be permitted to be

reagitated on the assessment being

reopened for bringing to tax certain

income which had escaped 'assessment

because the controversy on reassessment

is confined to matters which are relevant Page 18 of 27

only in respect of the income which had

not been brought to tax during the course

of the original assessment. A matter not

agitated in the concluded original

assessment proceedings also cannot be

permitted to be agitated in the

reassessment proceedings unless relatable

to the item sought to be taxed as

"escaped income". Indeed, in the

reassessment proceedings for bringing to

tax items which had escaped assessment,

it would be open to an assessee to put

forward claims for deduction of any

expenditure in respect of that income or

the non-taxability of the items at all.

Keeping in view the object and purpose of

the proceedings under section 147 of the

Act which are for the benefit of the

Revenue and not an assessee, an assessee

cannot be permitted to convert the

reassessment proceedings as his appeal or Page 19 of 27

revision, in disguise, and seek relief in

respect of items earlier rejected or claim

relief in respect of items not claimed in the

original assessment proceedings, unless

relatable to escaped income", and

reagitate the concluded matters. Even in

cases where the claims of the assessee

during the course of reassessment

proceedings relating to the escaped

assessment are accepted, still the

allowance of such claims has to be limited

to the extent to which they reduce the

income to that originally assessed.

The income for purposes of

“reassessment" cannot be reduced beyond

the income originally assessed.

It would be seen that whereas in the case

of Anglo-French Textile Co. Ltd's case

[1953] 23 ITR 82 (SC), the question as to

the rights of an assessee to claim

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"redoing", "revising" or "recomputing" the

entire income during the reassessment

proceedings was left open, that question

did not come up for consideration in the

case of H. R. Sri Ramulu [1977] 39 STC

177 (SC) or H. M. Esufali's case [1973] 90

ITR 271 (SC) or even in V. Jaganmohan

Rao's case [1970] 75 ITR 373 (SC). Some

of the High Courts, therefore, fell in error

in reading those judgments, divorced from

the context in which the precise questions

came up for consideration in those cases,

and to hold that the assessee could"

reagitate " the concluded issues and claim

relief in respect of items finally concluded

in the original assessment proceedings,

during the reassessment proceedings,

unconnected with the escapement of

income. We cannot, therefore, approve the

broad proposition laid down in that regard

in Deputy Commissioner of Commercial Page 21 of 27

Taxes v. Indian Refrigeration Industries P.

Ltd.[1980] 46 STC 264 (Mad), CIT v.

Ramsevak Paul [1977] 110 ITR 527 (Cal),

CIT v. Assam Oil Co. Ltd. [1982] 133 ITR

204 (Cal), CIT v. Standard Motor Products

of India Ltd. [1983]142 ITR 877 (Mad),

CIT v. Rangnath Bangur [1984] 149 ITR

487 (Raj), State Bank of Hyderabad v. CIT

[1988] 171 ITR 232 (AP) and CIT v. Indian

Rare Earth Ltd. [1990] 181 ITR 22 (Born)

[FB].

Keeping in view the above principles, we

may now turn our attention to the

question formulated by the High Court as

noticed in the earlier part of the judgment.

The Tribunal rightly found that the loss

which the assessee wanted to be set off

against the “escaped income" could not be

allowed to be so set off because in the

original assessment proceedings, no " set

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off" was claimed or permitted and the

original assessment had acquired finality

when the appeal against the order of

assessment failed before the Appellate

Assistant Commissioner and the assessee

took no further steps to agitate the issue.

The Tribunal was also right in concluding

that the items which the assessee wanted

to be taken into account in the

proceedings under section 147 of the Act

were unconnected with the escapement of

income. The High Court clearly fell in error

in holding otherwise. Since the original

assessment had been concluded finally

against the assessee, it was not

permissible for the assessee in the

reassessment proceedings to seek a

review/revision of the concluded

assessment for the purpose of

computation of the escaped income. The

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High Court clearly fell in error in permitting

the assessee to reagitate, in the

reassessment proceedings under section

147(a) of the Act, the finally concluded

assessment proceedings and to grant to

him relief in respect of items not only

earlier rejected, but also unconnected with

the escapement of income by assuming as

if the original assessment had not been

concluded or was still open.

Therefore, our answer to the question

formulated by the High Court and noticed

in the earlier part of this judgment is that,

in the reassessment proceedings, it is not

open to an assessee to seek a review of

the concluded item, unconnected with the

escapement of income, for the purpose of

computation of the escaped income."

9.3 . The aforesaid decision was followed

by the Hon'ble Apex Court in Chettinad

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Corporation Pvt. Ltd. vs. CIT.200

ITR320(SC). Subsequently, Hon'ble

Calcutta High Court in CIT vs. Keshoram

Industries,271 ITR 353(Cal.) relying on

the aforesaid decision denied deduction

u/s 80G of the Act in the reassessment

proceedings, which was not claimed in the

original return. It is clear from the above

decision of the Hon'ble Supreme Court that

proceedings under section 147 of the Act

are for the benefit of the Revenue and not

of the assessee and the assessee cannot

be permitted to convert the reassessment

proceedings to his advantage. The

assessee cannot claim that assessment

should be completed and loss/excessive

application of income should be

determined to enable him to claim the

benefit of carry forward and set off against

the income of subsequent years.

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9.4 In view of the foregoing, we have

not hesitation in vacating the findings of

the Ld. CIT(A) and restoring the

assessment orders of the AO. Therefore,

ground nos. 1 & 2 in the appeals for the

AY 2005-06 & 2006-06 and ground no. 1

in the appeals for the AY 2006-07 and

2008-09 are allowed.”

the order of the authorities below and reject the ground raised by the

Assessee.

Order pronounced in the Open Court on 07-06-2017.

Sd/- Sd/-

[O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date: 07/06/2017 SRBhatnagar Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4.CIT (A) 5. DR, ITAT

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