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Income Tax Appellate Tribunal, ‘C’ BENCH, BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI INTURI RAMA RAO
This is an appeal filed by the assessee directed against the order of the Commissioner of Income-tax [CIT], Davangere passed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] dated 30/07/2013 for the assessment year 2010-11.
2. The assessee raised the following grounds of appeal:
Page 2 of 8 1. “The order passed by the Commissioner of Income Tax Davengere is perverse and contrary to the facts and circumstances of the case.
The appellant denies itself being liable to be assessed at Rs.51,84,582/- as against the returned income.
The Commissioner of Income tax Davengere was not justified in directing the assessing officer under section 263 of the Act to bring to tax the entire donation amount that was received by the Appellant Trust.
4. The Commissioner of Income Tax Davangere failed to appreciate that the donation received by the Appellant trust was in the form of corpus donation which is capital receipt in nature and the same was not liable to tax.
5. The Commissioner of Income Tax Davengere failed to appreciate that the income of the Appellant Trust was exempted from tax under section 10(23c)(iiiac) of the Act and consequently the section 263 order passed by the CIT was perverse.
The Commissioner of Income Tax Davangere lacks jurisdiction as the order passed by the assessing officer was in accordance with law and there was no error nor was the order prejudicial to the interest of the revenue.
7. The Commissioner of Income Tax Davangere failed to appreciate that, all donations were properly accounted along with name and address of the donee hence section 68 of the act would not be attracted.
8. The Commissioner of Income Tax Davangere was not justified in directing the assessing officer to add the loan amount availed from M/s Subhas Projects Limited to the income of the appellant.
The Appellant crave leave of this court to add, amend such grounds as it deems fit and proper in the interest of justice and equity.”
Page 3 of 8 3. Briefly, facts of the case are that the assessee is a trust formed for the purpose of imparting education to the general public. It was established in the year 2008. Return of income for the assessment year 2010-11 was filed on 21/09/2011 declaring loss of Rs.66,26,070/-. The assessee-trust had claimed exemption of income u/s 10(23C) of the Act. Against the said return of income, assessment was completed by the Addl.CIT, Shimoga u/s 143(3) vide order dated 28/3/2012 at a total income of Rs.51,84,582/-.
While matter stood thus, the CIT, Davangere, had issued a show cause notice dated 17/4/2013 calling upon the assessee- trust to show cause why the assessment order passed u/s 143(3) dated 28/03/2012 should not be treated as erroneous and prejudicial to the interests of revenue, as the AO failed to bring to tax corpus donation to the extent of Rs.45,58,900/- as the assessee-trust was not granted registration u/s 12A of the Act. In response to the said show cause notice, the assessee-trust replied vide its letter dated 23/4/2013 that out of the total donations received of Rs.70,58,900/-, an amount of Rs.20 lakhs was received as loan from International Construction Ltd., thus leaving a balance of Rs.45,58,900/- and out of this, an amount of Rs.42,47,000/- was brought to tax by the AO. It was contended that since the assessee-trust was assessed in the status of AOP, the corpus donation does not form part of the income of the trust as per sec.2(24)(iia) of the Act.
Page 4 of 8 4.1 After considering the above submissions of the assessee- trust, the CIT called upon the assessee-trust to substantiate that amount of Rs.20 lakhs was received as loan, assessee-trust was asked to produce donations receipt books for verification. The assessee-trust had not complied with this direction of the CIT. However, assessee-trust filed a letter dated 6/7/2013 on 9/7/2013 in the office of the CIT which is extracted below: "As per the original statement of accounts submitted, the total corpus donations received was Rs.70,58,900/-. This donation received i n cl u de s l o a n am o u n t al so t re a te d a s d o n ati o n r e ce i v e d f r om International construction Ltd. As a proof of this transaction, we have produced before Assessing Officer copy of letter served by lender demanding repayment of loan. During the course of assessment proceedings, we claimed that the total donations received at Rs.45,58,9001- is corpus donation arid the same treatment is also given in our books. The Learned Assessing Officer while completing the assessment has brought to tax Rs.41,47,0001- as unproved cash credit. The trust was not granted recognition u/s.12AA of the Act for the year 31.03.2010. Hence, out of this corpus donation of Rs.45,58,900/-, Rs.41,47,000/- was brought to tax u1s.68 of the Act as cash credit. The Assessing Officer has not given any exemption as per Sec.12(1) of the Act in respect of donation treated as corpus donation. When Rs.41,47,0001- is brought to tax u1s.68, out of the total corpus - donation of Rs.45,58,9001-, the same issue cannot be subject matter of /Revision on change of opinion. However, the learned Assessing Officer has accepted loan amount of Rs. 25,00,000/- received from International Construction Ltd after satisfying himself regarding the genuineness of this transaction. The xerox copy of Receipt No.247 dated 13.04.2009 issued to Subhash Projects is enclosed. Considering the above, we request you to kindly drop the proceedings and oblige.”
Page 5 of 8 4.2 After considering the above explanation filed by the assessee-trust, the CIT observed that when the trust was not recognized under the provisions of sec.12A of the Act for the assessment year 2010-11, donations received by the assessee- trust towards corpus fund are clearly taxable by the clear provisions of sec.11(1)(d) of the Act. It was further stated that under the specific provisions of sec.12 of the Act, the provisions of sec.11 are applicable only if the trust is granted registration u/s 12A. The CIT was of the opinion that though the AO brought the donations amount of Rs.41,47,000/- to tax on the ground that credit worthiness of the doner was not established, but on the ground that donations were not exempt from tax, as the necessary registration u/s 12A of the Act was not granted to the assessee-trust, therefore he was of the opinion that the entire amount of donations received of Rs.45,59,,900/- should be brought to tax. Further, the CIT observed that though the AO categorically held that the amount of Rs.25 lakhs received from International Construction Ltd., as loan is rejected had failed to bring to tax and in the circumstances, the CIT held that the order of assessment dated 28/3/2012 passed u/s 143(3) is erroneous and prejudicial to the interests of revenue. Therefore, the CIT set aside the assessment to be redone by the AO in the light of the observations made in the order u/s 263. It was specifically mentioned that while passing consequential order, the Page 6 of 8 AO had to afford reasonable opportunity of being heard to the assessee.
Being aggrieved by this order of the CIT, assessee-trust is in appeal before us in the present appeal.
6. Learned counsel for assessee contended that the order passed u/s 263 exercising power of revision on the mere proposal sent by the new AO without application of mind and therefore, he prayed that exercise of power by the CIT u/s 263 was not justified. Learned counsel for the assessee further contended that issues raised in show cause notice were examined by the AO and submitted that the very fact that out of total donations of Rs.70,50,900/- an amount of Rs.41,47,000/- was brought to tax goes to show that the AO had applied his mind. Therefore, an issue on which AO applied his mind cannot be subject matter of revision u/s 263.
6.1 On the other hand, ld.CIT(DR) supported the order of the CIT and prayed that the CIT’s order should be upheld as the AO had not applied his mind to the relevant provisions of the Act.
We heard rival submissions and perused material on record. The only issue in this appeal to be adjudicated is whether the CIT was justified in assuming jurisdiction u/s 263. From a bare reading of the impugned order passed by the CIT it is clear that revision power was exercised by the CIT as he felt that corpus donations received by the assessee-trust were not Page 7 of 8 examined in view of the provisions of Act as the trust was not registered under the provisions of sec.12A of the Act. Needless to mention that provisions of sec.12 clearly lay down that any voluntary contributions made to a trust shall be treated as the income of the property held under trust which is exempt u/s 11(1) of the Act. Further the provisions of sec.11(1)(a) of the Act, income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the institution, shall be exempt from tax only if the trust is recognized u/s 12A of the Act. It is undisputed fact that the AO had not examined the issue from this angle. Furthermore, the AO, having rejected the contention of the assessee-trust that the amount of Rs.25 lakhs was received from International Construction Ltd., as loan, had failed to bring to tax. Thus, there is a clear contradiction in the order of assessment and non-application of mind on the material aspect of the issues raised by the show cause notice u/s 263. Therefore, the ratio laid down by the Hon’ble Apex Court in the case of Malabar Industrial Co.Ltd. Vs. CIT (243 ITR 83) is clearly applicable wherein it was held that non-application of mind on the issue, renders the assessment order erroneous and prejudicial to the interests of revenue. Furthermore, the Hon’ble jurisdictional High Court in the case of CIT vs. Infosys Technologies Ltd. (341 ITR 290) has clearly laid down that by exercising power u/s 263, if the order is set aside, there was no prejudice caused to the assessee. Hence, order u/s Page 8 of 8 263 is maintainable. Respectfully following the decisions, we hold that the order of the CIT dated 30/07/2013 is valid in law and CIT is justified in exercising revision power u/s 263 of the Act.
In the result, the appeal filed by the assessee is dismissed.