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2015 (8) TMI 405 - AT - Income TaxEligibility to claim exemption u/s 11 - whether contribution to chit funds is violative of the provisions of section 11(5) and therefore the exemption u/s 11 of the Act cannot be granted? - Held that:- The requirement of investing or depositing, u/s 11(5) of the Act is confined to money in hand or cash. When the entire income of the year has already been spent towards the objects of the society, there cannot be said to be any funds remaining out of the funds received by way of income. A person can invest only the money which is in his hands. If the entire money in hand is already spent for a particular purpose then the question of spending the same amount for another purpose as well does not arise. Thus the interpretation of the term “any funds” by the Hon’ble Delhi High Court in the case of CIT Vs. Sri Sriram Foundation [2001 (2) TMI 71 - DELHI High Court] though made in the context of section 13(2)(h), is on all fours applicable, while interpreting section 13(1)(d) of the Act. Even the CBDT Circular No.335 dt.13.4.1982 explains the same position. The example given therein clearly explains that in a case where the trust derives income of ₹ 40,000 in a year, as per S.11(1)(a) it has to spend at least ₹ 30,000 on charitable purpose and the balance of ₹ 10,000 will have to be invested in the forms or modes prescribed u/s 13(5)(now S.11(5)). Therefore, in a case where the entire income of ₹ 40,000 is spent for charitable purposes exemption u/s 11(1)(a) has to be granted and there is no need to further examine whether any investments were made in violation of S.11(5) of the Act in as much as the trust is left with no more funds out of the income of ₹ 40,000 received. In the case of both the assessees, as per the charts submitted by the assessees it is evident that they have incurred deficit in every year and thus entire income of each assessment year was fully spent towards the charitable objects. In this case, contribution to the chit fund was made to enable the assessee society to raise funds for expansion. This is clear from funds flow statement and the projected investment required by the assessee. When the assessee is paying huge amount of interest to various banks, it is wrong to conclude that assessee has with an intention to earn profit or income made a contribution to the chit fund. As we have held that contribution to chit fund in this case, is not an investment, and much less an investment with someone else, and further that the provisions of S.11(1)(a) have been complied by investing the entire income of the year towards charitable purposes, we conclude that there is no violation of section 13(1)(d) r.w.s. 11(5) of the Act. - Decided in favour of assessee. Ropening of assessment - Held that:- It is an undisputed fact that at the time the assessment was originally completed u/s 143(3) the assessing officer was aware of the contribution made by the assessee to chit funds. However, the assessing officer was of the view that in such circumstances the denial of exemption u/s 11 would be restricted to the amount invested in violation of S.11(5). As rightly argued by the learned counsel for the assessee, this view taken by the assessing officer is supported by a few decisions. We do not wish to express any views on the correctness of these decisions. Suffice to say that on these facts and circumstances of the case, the view taken by the assessing officer cannot be termed as patently erroneous. It is the consistent view of various high courts that in the absence of any fresh material an assessment concluded u/s 143(3) cannot be reopened on mere change of opinion. In the decisions cited by the counsel for assessee this was the view taken by the hon’ble Delhi High Court and Gujarat High Court. Respectfully following these decisions, we hold that the CIT(A) was justified in quashing the assessment for A.Y.2005-06 on the ground that the reopening of the assessment was invalid. - Decided against revenue.
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