KALIYAGANJ REGULATED MARKET COMMITTEE,UTTAR DINAJPUR vs. ITO, WARD - 1, RAIGANJ, UTTAR DINAJPUR

These appeals of the assessee arise out of the common consolidated order of the Learned CIT(A), Jalpaiguri in Appeal Nos. 109 & 110/RNJ/CIT(A)/JAL/06-07 ; 137/RNJ/CIT(A)/JAL/07-8; 168/RNJ/CIT(A)/JAL/08-09 and 07/RNJ/CIT(A)/JAL/09- 10 for the Asst Years 2003-04 , 2004-05, 2005-06 , 2006-07 and 2007-08 respectively arising out of the separate orders of assessment framed by the Learned AO u/s 143(3) r.wss 147 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

(26AAB) any income of an agricultural produce market committee or board constituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce.

AY Gross income/receipt Excess income over % of Excess income Expenditure over expenditure 2003-04 Rs. 97,40,995/- Rs. 42,83,906/- 43.98% 2004-05 Rs. 93,80,549/- Rs.41,09,043/- 43.80% 2005-06 Rs.1,22,85,661/- Rs.52,08,165/- 57.6% 2006-07 Rs. 88,74,124.79 Rs.19,32,297.86 78.22% 2007-08 Rs.1,19,68,743.85 Rs.25,95,652.39 78.41% 3.1. The Learned AO observed from the chart that the assessee had not spent 85% of the receipts for the objects of the trust and had not furnished Form No. 10 prescribed under Rule 17 of the IT Rules within the due date of filing the return u/s 139(1) of the Act. Since the assessee had not spent the minimum required amount at 85% of receipts and in view of the fact that Form No. 10 not filed before the Learned AO within the time limit prescribed in Rule 17 of the IT Rules, the Learned AO brought the surplus in excess of 15% to tax by ignoring the Form No. 10 filed by the assessee during the course of assessment proceedings for all the assessment years. On first appeal, the assessee argued that since the Form No. 10 was filed before the completion of assessment proceedings, the Learned AO ought to have taken cognizance of the same by allowing the assessee to accumulate the funds and grant exemption u/s 11 of the Act. The assessee placed reliance on the decision of the Hon’ble Apex Court in the case of CIT vs Nagpur Hotel Owners Association reported in (2001) 247 ITR 201 (SC) , wherein it was held that the intimation required u/s 11 (Form No.10) has to be furnished before the assessing authority completes the concerned assessment. The Learned CITA observed that the order of the apex court relates to a case for AY 1974- 75 and 1975-76 when no time limit for giving the notice u/s 11(2) was mentioned in Rule 17 of the IT Rules and at that time, the same was mentioned in the form prescribed for this purpose. The Learned CIT(A) observed that the apex court held :- "It is abundantly clear from the wording of sub-section (2) of section 11 that it is mandatory for the person claiming the benefit of section 11 to intimate to the assessing authority the particulars required, under rule 17 in Form No.10 of the Rules. If during the assessment proceedings, the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation arises from section 11 and is subjected to the conditions specified therein. Therefore, it is necessary that the assessing authority must have this information at the time he completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the assessee the benefit of such exclusion and once the assessment is so completed. In our opinion, it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee. Therefore, even assuming that there is no valid limitation prescribed under the Act and the Rules even then, in our opinion, it is reasonable to presume that the intimation required under section 11 has to be furnished before the assessing authority completes the concerned assessment because such requirement is mandatory and without the particulars of this income, the assessing authority cannot entertain the claim of the assessee under section 11 of the Act, therefore, compliance with the requirement of the Act will have to be any time before the assessment proceedings.”

3.2. The Learned CIT(A) further observed that Rule 17 has been substituted w.e.f. 1.4.1990 as below:- "Notice for accumulation of income by charitable or religious trust or institution or association referred to in clause (21) and (23) of section 10-

Rule -17 : The notice to be given to the Assessing Officer or the prescribed authority under sub- section (2) of section 11 or under the said provision as applicable under clause (21) or clause (23) of section 10 shall be in Form No.10 and shall be delivered before the expiry of the time allowed under sub-section (1) of section 139, for furnishing the Return of income."

Accordingly, the Learned observed that the decision of the Supreme Court was not based on the present Rule 17 of the IT Rules and to that extent, the decision is not applicable to the facts of the present case. He further observed that the assessee had failed to establish that the funds set apart in the aforesaid assessment years have been utilised for the specified purpose within a period of 5 years as per the second proviso to section 11(2) of the Act. In respect of Asst Years 2006-07 and 2007-08, the Learned AO has clearly mentioned that the purpose of setting a part of the fund has not been mentioned in the audit reports. The assessee has vaguely mentioned it in Form No.

2. That Ld. Commissioner of Income-Tax Appeals erred in holding that the assessee didn't utilize 85% of the income under the provisions of section 11(2) of the Income -Tax Act, 1961 whereas no such observations were made out by the Ld. Assessing Officer in his assessment order.

3. That the Ld. Assessing Officer erred in computing the Total Income at Rs. 42,83,900/- in place of Rs. NIL returned by the assessee.

5. That the appellant craves leave to add, amend and modify the above grounds at the time of hearing of he appeal.

The assessee had raised similar grounds for other asst years also except change in figures of taxable income.

4. The Learned AR argued that it has raised an additional ground and vehemently prayed for admission of the same. The additional ground is as below:- "For that the appellant being "Charitable Institution", established in the year or before 1983 and in course of carrying out its objects for the interest or the public, has invested a sum or Rs. 2,38,79,935/- in cold storage, apparent from Balance Sheet for A.Y. 2003-04, filed before the Ld. A.O. and the said amount ought to have been adjusted by the Ld.

Lower Courts against the shortfall of the application of money in the year under appeal."

4.1. The Learned AR argued that assessee had invested in cold storage plant in Asst Year 2000-01 amounting to Rs. 2,38,79,935/- which if considered would result in Excess of Expenditure over Income in that year and that would in turn be available to be considered as an Application of Income in the Asst Years 2003-04 to 2007-08. Accordingly he prayed for admission of this additional ground. He reiterated the arguments advanced before the Learned CITA and argued that had the Form No. 10 been considered by the Learned AO, there would be no question of making any addition. He argued that the sole reason for making addition is non filing of Form 10 within the time limit prescribed in Rule 17 of the IT Rules. He further argued that though the decision of the Hon’ble Apex Court in the case of CIT vs Nagpur Hotel Owners Association reported in (2001) 247 ITR 201 (SC) was rendered for the Asst Years 1974-75 and 1975-76 at which point of time , amendment in Rule 17 prescribing time limit was not there in the statute, still the principle laid down by the apex court that the Form No. 10 if made available before the completion of assessment proceedings should have been considered by the Learned AO. He further placed reliance on the decision of the co-ordinate bench of Cuttack Tribunal in the case of Paradip Port Trust vs CIT reported in 141 TTJ 220 (CTK) which was rendered for Asst Year 2007-08 on the similar set of facts.

4.2. In response to this, the Learned DR argued that section 20 of The West Bengal Agriculture Produce Marketing (Regulation) Act, 1972 which is part of the paper book filed by the assessee stipulates that how the funds of the assessee market committee may be applied for different purposes. He argued that the assessee had not actually spent anything in accordance with the said section as could be evident from the increase in fixed deposits and bank balances figures between 31.3.2003 and 31.3.2007. For this purpose, he referred to the balance sheets of the assessee enclosed in pages 12 to 22 of the paper book of the assessee. He further argued that the additional ground raised by the assessee is of no relevance as in Asst year 2000-01, ie the year in which investment in cold storage plant was made, the assessee was enjoying exemption u/s 10 of the Act and accordingly were not obliged to file any returns of income. Hence the same cannot be available for set off as application of income in future years. Accordingly, he prayed for non-interference of the orders of the lower authorities.

5.1. With regard to the additional ground raised by the assessee, we find that the ground raised thereon goes to the root of the issue and hence the same is hereby admitted for adjudication.

5.2. We find that the Learned AR heavily relied on the decision of the co-ordinate bench of Cuttack Tribunal in the case of Paradip Port Trust vs CIT reported in 141 TTJ 220 (CTK) wherein it was held that the Form No. 10 intimating the Learned AO for setting apart the funds , even if filed before the completion of assessment proceedings, that delay cannot be the reason for denial of exemption u/s 11 of the Act. We find that the assessee’s case and facts before the Cuttack Bench are similar. However, we find that the point of investment in cold storage plant of Rs. 2,38,79,935/- point was raised before us for the first time and was never examined by the Learned AO. Moreover, the Learned AO had not considered Form No.10 filed by the assessee during the assessment proceedings. We find that the entire dispute would get settled once Form No. 10 is considered by the Learned AO. In these facts 7 Kaliaganj Regulated Market Committee and circumstances, to meet the ends of justice, we deem it fit and appropriate, to set aside the entire issues raised in the grounds of appeal, for denovo adjudication, to the file of the Learned AO , with all the issues on merits left open for both the sides and with complete liberty to both the sides to adjudicate on all the documents , evidences and decisions in this regard, in accordance with law. Needless to mention that the assessee be given reasonable opportunity of being heard. The assessee is also directed to co-operate with the set aside proceedings to resolve these disputes at the earliest without seeking unnecessary adjournments. Accordingly, the grounds raised by the assessee for all the asst years are allowed for statistical purposes.