TMI Blog2008 (6) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... ravention of provisions of s. 11(5) of the Act. Consequent to the abovesaid information, the AO reopened the assessments - When the question is raised about the validity of reassessment notice, it is only to be seen whether there are reasonable grounds with the AO to initiate the proceedings of reopening of assessment and not whether the omission or failure and escapement of income is established. This view is supported by the decision of Hon'ble Supreme Court in Sri Krishna (P) Ltd. Etc. vs. ITO [ 1996 (7) TMI 2 - SUPREME COURT] . The letter issued by the AO also addresses upon certain objections raised by the assessee with regard to applicability of s. 11(5). However, the moot point here is that the assessee has not raised any objection to tile reopening, after furnishing the reasons letter, though a new ground has been raised before us. On a conspectus of the matter, we hold that the reopening of assessments u/s 147 of the Act is in accordance with the law and hence, the assessee fails on this issue. Contributions to chit are not in the nature of deposit or investment within the meaning of s. 13(1)(d) r/w s. 11(5) of the Act - main contention of the ld AR is that the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of learned CIT(A) with regard to the following issues: (1) Validity of reopening of assessment under s. 147 of the IT Act, (the Act) on the ground that: (i) Since the AO has not furnished the reasons actually recorded by him on his note file, reassessment proceedings are liable to be quashed. (ii) Since there is no accumulated income, reopening of assessment on the ground of violation of s. 11 (5) of the Act could not be sustained. (iii) The main ingredient for reopening viz., the reason for AO's belief regarding escapement of income did not exist at the time of initiation of proceedings under s. 147. (iv) The AO has not made any reference to violation of s. 13(1)(d) of the Act in the assessment order and hence, the AO's action in reopening of the assessment could not be sustained. (2) Contributions to chit are not in the nature of deposit or investment within the meaning of s. 13(1)(d) r/w s. 11(5) of the Act. 3. The Department is contesting against the decision of learned CIT(A) in deleting the additions made under s. 68 of the Act. 4. The facts of the case in brief are that the assessee is a charitable institution registered under Societie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the impugned years. It appears that the assessee earlier filed its objections in the proceedings for recognition under s. 80G of the Act and the AO has considered those objections in the abovesaid letter. During the course of assessment proceedings, the AO noticed that the assessee has raised unsecured loans from many persons from different places. To verify these cash credits, the AO issued commissions to the ITOs located at Kakinada, Vizianagaram and Srikakulam, to examine these creditors. Only the ITO, Kakinada, responded to the commission and sent the sworn statements recorded from the creditors. Subsequently, the AO requested the assessee to produce the creditors. The assessee, though produced some creditors, expressed its inability to produce all the creditors for examination. However, it filed the names and addresses of the creditors. The AO, however, made addition under s. 68 on a portion of the cash credits without furnishing details of such cash credits. 5. Aggrieved, the assessee carried the matter in appeal before learned CIT(A). In its appeal, the assessee contested the reopening of assessment on the basis of audit objection/observation and also disputed the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, that no such request was made by the assessee. Instead, the details like nature of income, how the AO's belief was established and the quantum of income have been sought for by the assessee. However, the AO has understood the requirement of the assessee and sent a detailed letter dt. 10th March, 2004 elaborating the reasons for reopening. From the contents of the above cited letter of the AO and on comparison of the file notings, we find that the AO has supplied the reasons for reopening as required by law. In fact, the above said letter is captioned as reasons for reopening of the assessment. The learned Authorised Representative also could not point out any variation between the contents of exact file notings and the contents of the above said letter . Hence, we reject this ground o[ appeal of the assessee. 9. The learned Authorised Representative submitted that s. 11(5) of the Act refers to the modes and form of investing or depositing money referred to in s. 11 (2)(b) of the Act. The said s. 11 (2)(b) refers to the monies accumulated or set apart for a specific purpose and hence strictly speaking, the modes and forms of investment specified in s. 11 (5) ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to other funds. However, according to the learned counsel for assessee, the omission to make specific reference to s. 13(1)(d), which is the apposite section, either in the notice or in the assessment order, only proves that the AO did not have the requisite belief regarding the escapement income at the time of initiation of proceedings under s. 147 and in any case there is ambiguity in the AO's reasoning. We find from the assessment order that during the course of proceedings for granting recognition under s. 80G of the Act, the Department has noticed the chit fund contributions and according to the Department, these deposits have been made in contravention of provisions of s. 11(5) of the Act. Consequent to the abovesaid information, the AO reopened the assessments. The AO has quoted the Hon'ble Kerala High Court's judgment reported in (2003) 72 ITR 67 (Ker) not only in the file notings recorded for reopening the assessment but also in the detailed reply sent and also in the assessment order. The relevant portion of the judgment has also been extracted in the AO's letter dt. 10th March, 2004. The Hon'ble Kerala High Court, in that case. considered the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fails on this issue. 14. The next issue is regarding the nature of contribution made to chit fund scheme. Learned Authorised Representative submitted that the subscription to chit will not fall either under the category of investment or under deposit . As the Act has not defined these two terms, one has to look into their definition in a common parlance. According to Law Lexicon by Anantharama Iyer, the term 'invest' means putting out money on interest either by way of a loan or purchase of income producing property. 'Deposit' is explained as 'storing or entrusting for safe custody, an act by which a person receives a thing of another person to keep it and return it in kind. In this connection, learned Authorised Representative relied upon the following decisions: (i) CIT vs. Polisetty Somasundaram Charities (1990) 183 ITR 377 (AP); (ii) CIT vs. Nachimuthu Industrial Association (1982) 31 CTR (Mad) 50 (1982) 138 ITR 585 (Mad); (iii) Director of IT (Exemption) vs. Alarippu (2000) 161 CTR (Del) 432 : (2000) 244 ITR 358 (Del); (iv) CIT vs. Sir Sobha Singh Public Charitable Trust (2001) 167 CTR (Del) 358 : (2001) 250 ITR 475 (Del). He also adver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. A close reading of s. 13(1)(d) brings out that the charitable institutions should not invest or deposit any fund otherwise than in any of the forms or modes specified in s. 11(5). The term any fund would indicate that it is not restricted to surplus funds alone but also includes all other funds like corpus fund, general fund, borrowed funds etc. Hence, we do not agree with the contention of the learned Authorised Representative that the assessee should have surplus funds in order to make investment or deposit. 16. The main contention of the learned Authorised Representative is that the contribution to chit fund cannot be regarded as either an investment or deposit and hence the provisions of s. 11 (5) would not be applicable. In the case of Gurajada Educational Society vs. CIT on which the assessee has placed reliance, this Bench noticed that the prize money had been taken by the concerned assessee at an early stage of the chit scheme and hence, it was held that the contributions made thereafter were actually in the nature of repayment of the loan so taken. However in the present case under consideration, during all these three years, the assessee has been making cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrow money only. We notice that though the assessee society joined in the chit scheme in the month of February, 2000, the resolution in this connection has been passed subsequently on 24th March, 2000. We also notice that as per the resolution, the object is to start a chit (in order) to clear the loans/development of the institution. However, from the records we find that, the original intention has not been implemented. Instead the assessee continued to contribute to the chit fund scheme continuously for a period of three years. It was also stated that it could not win the bid in all these three years but could win only in March, 2003. However, the contention of the Department is that the assessee did not participate in the bid during these three years and hence the intention of the assessee is to make investment only. 20. The undisputed fact is that the chit fund scheme also constitutes a convenient instrument for savings. If one bids at the fag end of the chit period, it may result in a gain. In that case this instrument can be termed as income producing property and hence contributions to chit fund, in that case, will fall under the category of investment . 21. As pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity has outweighed the borrowing activity. 24. In view of the above discussions, we are driven to hold that the contributions made to chit fund scheme of Model Chit Fund Corporation are an investment and since this investment is not in the form or mode prescribed under s. 11(5) of the Act, the provision of s. 13(1)(d) is attracted. Hence, we do not find any infirmity in the orders of learned CIT(A). 25. As stated earlier, the AO, in all the above said three years, has made the addition under s. 68 in respect of certain cash credits without furnishing the details of such cash credits. Learned CIT(A) deleted the said addition on the ground that the AO has failed to make proper enquiries. Hence, the Revenue is in appeal before us. We find from the record that the AO has initially issued commissions to the ITOs located at Kakinada, Vizianagaram and Srikakulam. However, only the ITO, Kakinada, responded to the commission and sent the sworn statements recorded from some of the creditors. Subsequently, the AO issued summons to the assessee asking it to produce all the creditors. However, the assessee expressed its inability to produce all the creditors. Finally the AO made add ..... X X X X Extracts X X X X X X X X Extracts X X X X
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