TMI Blog2021 (2) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... which is duly registered under section 12A and thus, eligible for exemption u/s section 11 and 12 of the Act. Violation of section 11(5) - CIT(A) has returned a finding that Lord Krishna Bank is a Scheduled Bank as per Schedule-II of Reserve Bank of India Act, 1934 and therefore, the amount deposited in such bank doesn t violate the provisions of Section 11(5) of the Act. We don't see any infirmity in the said findings and the same are hereby confirmed. Violation of section 13(1)(c)(ii) - CIT(A) has returned a finding basis review of the evidence/details regarding qualification of the specified persons and their working experience and valuable contribution toward attaining, the purpose and objects of the trustee that the assessee trust has satisfactorily demonstrated that salary paid to these persons were not excessive or not in violation of provisions of sec. 13(3) - said findings of the ld CIT(A) remain uncontroverted before us in absence of any adverse material brought on record by the Revenue and hence, the said findings are hereby confirmed. The assessee trust is irrevocable trust which is duly registered under section 12A and thus, eligible for exemption u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions and services rendered. 3. In its cross objection, the assessee has taken the following grounds of appeal:- 1. In the facts and circumstances of the case and in law, the ld. CIT(A) has erred in confirming the action of ld. AO in reopening the assessment u/s 147 of the Income Tax Act, 1961. The action of the ld. CIT(A) is illegal, justified, arbitrary and against the fact of the case. Relief may please be granted by quashing the reassessment proceedings being illegal and without jurisdiction. 2. In the facts and circumstances of the case and in law, the ld. CIT(A) has erred in confirming the action of ld. AO in issuing notice under section 148 of the Income Tax Act, 1961 without obtaining proper sanction under Section 151 of the Income Tax Act, 1961. The action of the ld. CIT(A) is illegal, justified, arbitrary and against the fact of the case. Relief may please be granted by quashing the reassessment proceedings being illegal and without jurisdiction. 4. Briefly the facts of the case are that the assessee appellant is a charitable trust running a veterinary college in the name of Apollo College of Veterinary Medicine. It is registered U/s 12AA vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fully and truly all material facts necessary for assessment. In the present case, perusal of reasons to believe reveals that Trust Deed, Report u/s 10B and Financial Statements were made basis for formation of reasons to believe that income has escaped assessment. It was submitted that the assessee trust during the original assessment proceedings duly placed on record its Trust Deed, Financial Statements and 10B Report. Therefore, the information which has been made basis for reopening was already supplied during the original assessment proceedings or even before that along with filing of return of income. Thus, there was no failure on the part of assessee trust to disclose fully and truly all material facts. It is not the case that the assessee trust failed to disclose fully and truly all the material facts as the same has not been alleged in the reasons. It is, therefore, submitted that the fact that reopening was done after 4 years and the proviso to section 147 would apply as there was no failure on the part of the assessee trust to disclose fully and truly all material facts. Fact of failure has not been mentioned in the reasons. Thus, the reopening was done without applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on such basis is illegal and void-ab-initio. Reliance was placed on the following judicial pronouncements wherein it has been held that no valid reopening can take place when there is borrowed satisfaction:- RMG Polyvinyl (I) Ltd. [2017] 83 taxmann.com 348 (Delhi) Meenakshi Overseas Pvt Ltd. [2017] 395 ITR 677 (Delhi) N.C. Cables Ltd. [2017] 88 taxmann.com 649 (Delhi) CIT vs. D. N. Pachori [2010] 189 Taxman 420 Balaji Health Care Private Limited (ITA No. 566/JP/2018) In view of above, it was submitted that reassessment proceedings are illegal, without jurisdiction and, therefore, deserve to be quashed. 10. Per contra, the ld. DR/CIT relied on the finding of the lower authorities and our reference was drawn to the findings of the ld. CIT(A) which are contained at para 4.1. to 4.2 which reads as under:- 4.1 I have given a careful consideration to the material facts on record as also the submissions made before me where after, I am of the view that the Assessing Officer was well justified in initiating the proceedings U/s 147 of the Act. It is observed that the Assessing Officer had valid jurisdiction over the case and had recorded proper reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case. The sufficiency or the correctness of the material is nothing to be considered at this stage. In the instant case, reasons have been duly recorded by the AO for arriving on belief that income chargeable to tax has escaped assessment. Hon ble Delhi High Court in the case of Usha International Ltd. ( 348 ITR 485 Del.) observed that where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order, if new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of change of opinion will not apply. Further it was observed that factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justified initiation of assessment proceedings. 4.1.3. The appellant has also duly co-operated with the AO and has furnished various details called for by him during the course of reassessment proceeding. Therefore, he cannot take a plea now that the proceedings were invalid. The Hon ble Delhi High Court in the case of Honda siel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the cases Supra it is clear that the Assessing Officer was fully justified to reopen the assessment for the purpose of enquiring the assessee s eligibility of exemption 11 12 of the Act. In view of the facts and discussion as above I hold that the Assessing Officer was well justified in initiating the proceedings u/s 147 of the Act by issue of notice u/s 148. The additional ground raised by the appellant is dismissed. 11. We have heard the rival contentions and purused the material available on record. There is no dispute and it is a settled legal proposition that for assumption of jurisdiction u/s 147, the Assessing Officer must form a prima facie opinion on the basis of material that there is an escapement of income, the opinion formed may be subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion, the reasons recorded and/or the documents available on record must show a nexus and relevancy to the opinion formed by the Assessing Officer regarding escapement of income and the reasons are required to be read as they were recorded by the Assessing officer. It is for the Assessing officer to disclose and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to pay income-tax as envisaged in the aforesaid provisions. This omission has resulted in irregular tax exemption of the trust income of ₹ 1,58,99,324/-. The same is disallowable as per provisions of Section 13(1) and to be added in the total income of the assessee. Thus, I have reason to believe that income of ₹ 1,58,99,324/- has escaped assessment and proceedings u/s 147 and 148 should be initiated. 12. On perusal of the reasons so recorded by the Assessing officer, it is noted that the material and information on the basis of which he has formed the belief that the assessee trust is not eligible for exemption under section 11 and income to the extent of ₹ 1,58,99,324 has escaped assessment is basis the review of assessee s trust deed, the financial statements and the audit report in Form 10B. It is an admitted fact that these documents were part of the assessment records which were available at the time of original assessment proceedings wherein the assessment was completed u/s 143(3) dated 27.08.2014. We therefore find that there is no new material brought on record by the Assessing officer and basis the re-appreciation of existing material availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim has been revealed during the regular assessment and complete details have been provided before the Assessing Officer. If the Assessing Officer has not considered the same at the time of passing an order under Section 143(3) of the Income Tax Act, the assessee cannot be fastened with any liability for the same. Therefore, Explanation (1) Section 147 does not get attracted to this case. In this case, we find that the finding of the Tribunal is that the Proviso to Section 147 of the Income Tax Act does not get attracted since it is clear from the order of the Tribunal that it was failure on the part of the Assessing Officer to consider the material and the assessee had placed all the materials before the Assessing Officer during the regular assessment. 10. We find from the order of the Tribunal and also on the facts as has been culled out from the assessment order in question that there is no element of failure to disclose fully and truly all material facts necessary for assessment. Therefore, there was no justification for the department for invocation of proceeding under Section 147 r/w 148 of the Income Tax Act. 12. In the light of the above, we hold that when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed by the CIT(A) for asst. yr. 2007- 08 has been passed after the assessment for asst. yr. 2005-06 has been sought to be reopened by the notice dt. 29th June, 2011, we have, for the purposes of this discussion, kept that circumstance out of consideration. We have come to the conclusion that the AO having failed to establish that there was a failure on the part of the assessee to disclose fully and truly all material facts for asst. yr. 2005-06, the reopening beyond a period of four years is clearly not valid. There was a finding of fact by the AO in the assessment order for asst. yr. 2005-06 that the business activity of the assessee is manufacturing of jewellery in a Special Economic Zone. That finding, as the assessment order notes, was based upon a consideration of the facts of the case and upon examining the contentions of the assessee. 16. The Hon ble Gujarat High Court in case of Gujarat Leasing Financing Ltd (supra) held as under:- 12. The stand take by the Revenue is that as per sub-section (5) of Section 115JB of the Act, these provisions apply to every assessee, being a company, the assessee has not correctly calculated the book profit which amounts to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assume jurisdiction u/s 147 of the Act. 18. In light of aforesaid discussions and respectfully following the decisions referred supra, we are of the considered view that in the instant case, the Assessing officer doesn t have the legal basis to acquire jurisdiction for reassessment u/s 147 and thus, the notice issued under section 148 and consequent reassessment proceedings are quashed and set-aside. 19. Now, we refer to the appeal filed by the Revenue wherein the findings of the ld CIT(A) have been challenged. 20. In this regard, the ld DR relied on the findings of the AO and our reference was drawn to Para 3.1 to 3.4 of AO s order which reads as under:- 3.1 Violation of provisions of Section 11(5):- The Details furnished have revealed that the assessee has made FDR of R 50,54,000/- and has also deposited a sum of ₹ 11,69,777/- in the bank account of Lord Krishna Bank Ltd. This is not a mode of investment approved u/s 11(5) as such the assessee has violated the provisions of section 11(5) and is not eligible for claim of exemption u/s 11. 3.2 Unreasonable payment of salary:- The details filed have revealed that the assessee has made payment of salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Dr. Sohan Singh Rathore also there is no justification of such salary and in his case sum of Rs, 1,50,000/- is allowed and remaining salary of ₹ 4,20,000/- is disallowed. In In view of the above mentioned discussion provisions of sec. 13(1)(c)(ii) row. 13(2)(g) of the Act are attracted and the assessee s exemption u/s 11 is rejected and moreover a sum of ₹ 7,20,000/- as discussed above is added to the total income of the assessee trust. (Addition- ₹ 7,20,000/-) The assessee has furnished inaccurate particulars of income and concealed income, therefore, penalty proceedings u/s 271(1)(c) r/w 274 are initiated separately 3.3 Revocable Trust:- On perusal of the trust deed it is noticed that in the trust deed there is no clause which can justify the recoverability of the trust as such the trust is held to be a revocable trust which is not eligible to become public/charitable trust and accordingly the assessee is not eligible to claim exemption u/s 11 of the Act. 3.4 Property of the trust:- In the trust deed it is mentioned that the fund which was transferred by the trustee on 05.10.2002 and money and things which are receivable from time to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Trust Deed and not the Original Trust Deed. The Original Trust Deed clarifies that the ownership of the amount received by trustees is vested in them for the purpose of carrying out the objects of the trust. It is further submitted that the power to grant registration and withdraw registration vests with ld. PCIT or ld. CIT as per the provisions of section 12AA. The AO only by invoking the provisions of section 13 can deny the benefit of section 11 and 12 for that particular year in which violation takes place. No violation as specified in section 13 takes place if the trust deed does not mention about irrevocability. In view of above, the action of ld. AO is illegal, against the facts of the case and, therefore, Department s ground of appeal no. 1 deserves to be dismissed. 22. Regarding Department s ground No. 3 4, the ld. AR submitted that the AO prejudiced his mind because of auditor s report i.e. because of auditor s personal opinion which is evident from the following query:- ..In the audit report at Sl/No. 4 of Part II the auditor has reported that salary of 3,00,000/- each to Dr. Raj I DKhare and Dr. S. Ramananthan is not genuine. You are therefore, required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 13(1)(c)(ii) r.w.s. 13(2)(g). Alternatively, it is submitted that, without agreeing, even if it is considered that the assessee trust violated the provisions of the Act by passing on the benefit to persons mention u/s 13(3) then only such part of income in violation of section 13(1)(c)(ii) can be brought to tax at MMR and entire income cannot be denied exemption under section 11. Reliance was placed on the following decisions:- Hon'ble Supreme Court in the case of CIT v. Fr. Mullers Charitable Institutions [2014] 51 taxmann.com 378 (SC) wherein SLP was rejected and decision of Hon'ble Court of Karnataka in the case of CIT v. Fr. Mullers Charitable Institutions [2014] 363 ITR 230 was affirmed. Madras High Court in the case of CIT vs Working Women Forum [2014] 365 ITR 353 (Madras) Bombay High Court in the case of DIT (Exemptions) v. Sheth Mafatlal Gagalbhai Foundation Trust [2001] 249 ITR 533/114 Taxman 19 (Bom.) In view of the above, it was submitted that the action of ld. AO is illegal, against the facts of the case and, therefore, department s ground deserves to be rejected 25. We have heard the rival contentions and perused the material available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip of said properties is vested with trustee and they used these properties other than purpose and objects for which the trust was established, Thus, no benefit has been passed to the founder of the trust. In absence of any 'benefit', there was no violation of any of the conditions contained in section 13(1)(c) of the Act, as held in the assessment order Consequently, the action of the assessing officer in the denying exemption under section 11/12 of the Act is held as unjustified. 5.4 As regards violation of provision of section 11(5) of the Act, the AO observed that the AO observed that mode of certain deposits were not as per investment approved u/s, 11(5) of the Act. Before me, the appellant stated that it had made investment of ₹ 50,54,000/- and Rs, 11,69,777/- in Lord Krishna Bank, which is a Schedule Bank as per List notified by the Reserve Bank of India. Upon perusal of Schedule-II of Reserve Bank of India Act, 1934, the name of Lord Krishna Bank Is found at page no. 61, hence there is no violation of the provisions of sec, 11(5) of the Act as alleged by the AO. Even otherwise also, as per the judgment of Karnataka High Court, in the case of CIT Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) it contains any provision for the retransfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets; b) transfer includes any settlement, trust covenant, agreement or arrangement. 5.6.1 From the above, definition, it is clear that there must be present an express clause for revocability for a trust to be revocable and merely, absence of such a clause itself makes it irrevocable. It may be noted that the appellant trust has been granted the registration u/s 12A of the Act by Commissioner of Income Tax - II, Jaipur vide his Letter No. 722 dated 27.06.2003 w. e f. 05.10.2002. Moreover, the Trust has also registration u/s 80G of the Act by the CIT - II, Jaipur. Thus, there is no valid basis before the AO to dispute the status of trust. 5.7 In view of the above facts and discussions, it is held that the AO was not justified in concluding that the provisions of section 13(I)(c)(ii) row 13(2)(g) of the Act are attracted in appellant's case and further not justified in holding that the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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