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TMI Blog2008 (6) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 Societies Registration Act with the object of imparting education and is running three educational institutions. The assessee was granted registration under s. 12A of the Act in September, 1993. The assessee was claiming exemption under s. 10(22) upto the asst. yr. 1998-99 and in subsequent years. it was claiming exemption under s. 11, as s. 10(22) was deleted from the Act w.e.f. 1st April, 1999. During the assessment years under consideration, the assessee filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rikakulam, 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 additions made under s. 68 of the Act. The learned CIT(A) upheld the reopening of the assessment and also confirmed the addition of chit fund contributions. However, learned CIT(A) deleted the addition made under s. 68 on the ground that the additions made by the AO without conducting proper enquiries are not sustainable. 6. Aggrieved against the order of learned CIT(A), both the assessee and Revenue are in appeal before us. Learned counsel for the assessee cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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) apply only to such accumulated funds. However, in the present case, there is no such accumulated fund and hence provisions of s. 11 (5) r/w s. 11(2)(b) of the Act are not applicable to the assessee during these three years. However, as per s. 13(1)(d) of the Act, if any funds of the trust are invested otherwise than in one or more forms or modes specified in s. 11(5), exemption under s. 11 shall be denied. In this connection, the learned counsel invited our attention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings 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 provisions of s. 13(1)(d) and s. 11(5) and held as under: "In other words, there is absolute prohibition, by virtue of s. 13(1)(d), against any charitable institution investing any amount at any point of lime in any investment or mode of investments other than those narrated in s. 11(5)." As the AO has specifically referred to the above case law in the reasons recorded by him for reopening the assessment, which specifically deals with the provisions of s. 13(1)(d) r/w s. 11(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 adverted our attention to the decision of this Tribunal in the case of Gurajada Educational Society (ITA No. 471/Visakha/2004), wherein it was observed that 'invest' is a positive act on the part of a person whereby the funds are committed in a particular property or business or transaction with the object of earning a profit or a financial advantage or return. The term 'deposit' has been explained as an act whereby one entrusts a thing to somebody for safe custody with the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 contributions only to the chit fund scheme of M/s Model Chit Fund Corporation. As observed by learned CIT(A), the assessee has also made chit contributions with another concern named "Margadarsi Chits", but the same has not been considered by the AO in view of the fact that the assessee has won the prize money and the decision rendered in Gurajada Educational Society squarely applies to Margadarsi Chits. The following observations of this Bench in the above cited case are also relevant to decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uously 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 per chit scheme, the participating bidders would quote the discount offered by him and usually the person who is offering highest discount will be selected as the winner. The above said discount amount, after deducting the foreman's commission, will be distributed to the subscribers equally in the form of dividend, which is an income in the hands of the subscribers. From the statement of accounts produced before us, we notice that the assessee has accounted for following dividend receipts in its incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, 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 additions under s. 68 without making further enquiries and without furnishing the details of such cash credits. 26. Sec. 68 places the burden of proof on the assessee to prove the cash credit to the satisfaction of the AO. If the assessee discharges the initial burden placed upon him, the burden of proof is shifted to the AO. However, the AO has failed to give the details of cash credit on which the addition has been made. Such action of the AO only reveals the half-hearted approach of the AO in discharging the statutory duty cast upon him. Without pointing out the specific cases in which the AO wanted to make enquiries, the AO has asked the assessee to produce all the creditors. From the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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