Income Tax Appellate Tribunal - Delhi
Chandra Swami, New Delhi vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "B" NEW DELHI)
BEFORE SHRI RAJPAL YADAV AND SHRI K.D. RANJAN
ITA No. 1120/Del/2011 Assessment Year: 2002-03
ITA No. 1121/Del/2011 Assessment Year: 2003-04
ITA No. 1122/Del/2011 Assessment Year: 2005-06
ITA No. 1123/Del/2011 Assessment Year: 2006-07
ITA No. 1124/Del/2011 Assessment Year: 2007-08
Shri Chandra Swami, Vs. Assistant Commissioner of IT,
C-18-19, Central Circle 20,
Qutab Institutional Area, New Delhi.
New Delhi.
(PAN: ABJPS5374H)
(Appellant) (Respondent)
ITA No. 1125/Del/2011 Assessment Year: 2002-03
ITA No. 1126/Del/2011 Assessment Year: 2005-06
ITA No. 1127/Del/2011 Assessment Year: 2006-07
ITA No. 1128/Del/2011 Assessment Year: 2007-08
Shri Vishwa Dharmayatan, Vs. Assistant Commissioner of IT,
C-18-19, Central Circle 20,
Qutab Institutional Area, New Delhi.
New Delhi.
(PAN: AAATV0507B)
(Appellant) (Respondent)
ITA No. 1245/Del/2011 Assessment Year: 2002-03
ITA No. 1246/Del/2011 Assessment Year: 2005-06
ITA No. 1247/Del/2011 Assessment Year: 2006-07
Deputy Commissioner of IT, Vs. Shri Vishwa Dharmayatan,
Central Circle-20, C-18-19,
New Delhi. Qutab Institutional Area,
New Delhi.
(PAN: AAATV0507B)
(Appellant) (Respondent)
Assessee by: Shri MS Shekhon, CA
Respondent by: Shri Rohit Garg, Sr.DR
2
ORDER
PER BENCH:
In thus Bunch of twelve appeals, five are directed at the instance of Chandra Swami against the separate orders of Learned CIT(Appeals) dated 28.12.2010 passed for assessment years 2002-03 to 2007-08, four are directed at the instance of Vishwa Dharmayatan Trust against the separate orders of Learned CIT(Appeals) dated 20.12.2010 and 9.12.2010 passed for assessment years 2002-03, 2007-08, 2005-06 and 2006-07 respectively. The revenue is in cross appeals in the case of Vishwa Dharmayatan Trust in assessment years 2002-03, 2005-06 and 2006-07. The issues in all the appeals are inter-connected, therefore, we heard them together and deem it appropriate to dispose of them by this common order.
2. First, we take ITA Nos. 1125, 1120 & 1245/Del/2011 which relates to assessment year 2002-03. In assessment year 2002-03, Shri Chandra Swami has filed his return of income on 23rd July 2002 declaring nil income.
Similarly, M/s. Vishwa Dharmayatan Trust has filed its return of income on 30th October 2002 declaring total income at nil. Assessing Officer has passed the assessment order in the case of both the assessees on 4th March 2005 under sec. 143(3) of the Act. He first passed the order in the case of trust and 3 observed that the trust has received donation of Rs.12,16,521. It has bank interest of Rs.301. The total receipts of the trust are Rs.12,16,822. Assessing Officer observed that trust was not carrying out any charitable activity. All the income relates to Shri Chandra Swami, however, he estimated an expenditure of Rs.1 lac for running the trust and determined the taxable income at Rs.11,16,822. On the basis of his finding in the block assessment order passed in the cases of both the assessees, he arrived at a conclusion that income in the hands of the trust deserves to be assessed on protective basis whereas income in the hands of Shri Chandra Swami deserves to be assessed on substantive basis. Accordingly, addition of Rs.11,16,822 on protective basis has been made in the hands of the trust and on substantive basis in the hands of Shri Chandra Swami. -
3. On appeal, Learned CIT(Appeals) has observed that since the additions in the hands of Shri Chandra Swami are being confirmed on substantive basis, therefore, there is no need to make protective addition in the hands of the trust. He accordingly deleted the addition.
4. In the case of Chandra Swami, Learned CIT(Appeals) confirmed the addition made by the Assessing Officer. He upheld the assessment order.
4The revenue in its cross-appeals has submitted that the issue regarding taxability of the amount on substantive basis in the hands of Shri Chandra Swami or in the hands of trust has not attained the finality, therefore, Learned CIT(Appeals) ought to have not deleted the protective addition. In the case of Chandra Swami, revenue has not filed any cross appeals. The assessee in his appeal has submitted that the ITAT in assessment years 1989- 90 to 1993-94 has upheld he genuineness of the trust. This issue has been discussed by the ITAT in the order passed on the appeals for the block period. He placed on record copy of the ITAT's order and submitted that the issue in dispute is squarely covered. Learned DR was unable to controvert the contentions of the learned counsel for the assessee.
5. We have duly considered the rival contentions and gone through the record carefully. Assessing Officer has not recorded any independent finding in this assessment order. He is harping upon the observations made by the Assessing Officer in the block assessment. We find that the ITAT has examined this issue in detail. The finding of the ITAT in the block assessment wherein it has taken cognizance of the findings recorded in assessment years 1989-90 and 1993-94 read as under:
5"The assessment made by the A.O. in the case of the trust for the A.Y. 1989-90 to 1993-94 had come in appeal before the Tribunal in ITA Nos.771 to 775(Del)/98. In Para 2 to 4 of the order dated 11-05- 2007, the Tribunal summarized the AO's order and CIT(A)'s order pertaining to A.Y. 1989-90 as under:-
"ITA No. 771(Del)/1998- A.Y. 1989-90
2. Eighteen grounds were taken in the Form of Appeal (Form No. 36) filed on 10.2.1998. These grounds were revised to seven grounds on 25.8.2005. In the course of hearing before us, it was pointed out that the appeal contained two basic grounds, namely, that on the facts and in the circumstances of the case, the learned CIT(A) has -(i) failed to appreciate the findings recorded by the Appellate Tribunal in assessee's case for assessment year 1988-89 and erred in holding that that order was not applicable to the facts of this year; (ii) erred in holding that the trust was not validly created or was not genuine in complete disregard of the fact that it was duly registered u/s 12-A of the Act. Before going into the controversy, it may be worthwhile to summarize the orders passed by the Assessing Officer and the learned CIT(Appeals).
3. It is mentioned in the assessment order that the return was filed in compliance to notice u/s 148 on 2.12.1992 showing deficit of Rs. 74,878/-. It was claimed that the assessee had carried out substantial charitable and religious activities, which did not require expenditure of any money. Therefore, no expenditure was shown to have been incurred in the books on the aforesaid purposes. The Assessing Officer called for production of evidence regarding actual carrying on of religious or charitable activities. However, nothing could be brought on record in this matter. The assessee had debited rent amounting to Rs. 1.89 lakh, interest amounting to Rs. 1,38,441/- and some other minor expenses under the heads "general expenses", 6 "printing and stationery" etc. In these circumstances, the claim that the assessee actually carried out any charitable or religious activity was not accepted.
3.1 It was pointed out that the trust premises were used by Shri Chandra Swami as his residence. He was a life trustee of the trust. The assessee was required to furnish the details of his stay in the Ashram and the expenditure incurred on him during such stay. However, these details were not filed. It was further pointed out that no record was kept about the movement of Swamiji in and out of the Ashram. It is also mentioned that in the course of search of the premises of the trust, it was found that they were used as residence of Shri Chandra Swami and as a guest house to accommodate his disciples and the position has not changed since the date of search. In the course of search, statement of Shri Vallabh Vyas, In-charge of building at C-4/41, Safdarjung Development Area, New Delhi, from where the activities of the trust were being carried out, was recorded. He deposed that the building was used as residence of Swamiji and guest house for his disciples. In view thereof, it was held that the assessee trust violated the provisions contained in section 13(1)(c)(ii) read with section 13(2)and sections 13(3)(a) and (cc) of the Act. In view of these facts and also the fact the denial of exemption for assessment year 1988-89 was confirmed by the CIT(Appeals), it was held that the assessee was not entitled to exemption u/s 11 for this year also.
3.2 In the course of assessment proceedings, the assessee was required to produce books of account. The assessee could not produce the same. Therefore, it is held that one of the conditions laid down for grant of registration u/s12-A was not fulfilled. Therefore, it was held that the assessee was not entitled to exemption u/s 11 of the Act.
3.3 The Assessing Officer also noted certain other facts. It was found that rent of Rs.1.89 lakh was paid in respect of aforesaid premises. The premises were not used for any charitable purpose but for stay of Swamiji and his disciples.7
Therefore, this amount was not allowed to be deducted in computing the income. It was further noted that the assessee debited a sum of Rs. 1,38,441/- as interest payable to Shri Harak Chand Lalit Kumar Nahta (HUF). This amount along with principal amount was not paid till the close of the previous year. Liability of Rs. 7,65,441/- was shown due to the aforesaid HUF. However, the books of the HUF showed the liability of Rs. 7,72,700/- as on that date as per the confirmation filed by it. In view of the discrepancy, the assessee was required to reconcile the same. However, no satisfactory explanation could be provided. It was noted that an advance of Rs.5.00 lakh was to be paid to the owner of the premises as deposit and the amount was taken as loan from the aforesaid HUF. The interest related to the aforesaid advance. However, since the premises were not used for the purpose of furthering the objects of the trust, the aforesaid expenditure by way of interest was also not allowed in computing the income.
3.4 In the course of search in 1988 at the premises of the trust, a sum of Rs. 20,000/- was seized. Shri Vallabh Vyas, In-charge of the premises, deposed in statement u/s 132(4) of the Act that the money belonged to the trust. However, in the course of assessment, it was stated that money belonged to one of the disciples, Shri Bhupinder Singh, R/o Charakh Dhoni, Haryana. This explanation could not be substantiated. Therefore, the amount was added to the income from undisclosed sources. In the year under consideration, Shri Chandra Swami had undertaken foreign and inland tours. The assessee was required to furnish the details of the tours and the expenditure incurred thereon. It was explained that the expenses were met out of cash gifts or donations received from the devotees. However, donors were not identified and the amount of expenditure or donations were also not quantified. The assessee was required to produce a copy of his passport. The same was not done. Swamiji had also visited Bombay, Hyderabad, Madras by air on six occasions. The air fare was taken into account but the source of expenditure during the stay was not explained. Therefore, a sum of Rs. 1.50 lakh in respect of 8 foreign tours and Rs. 50,000/- in respect of inland tours were added to the income. Thus, the total income was computed at Rs. 4,72,560/- against the returned loss of Rs. 74,878/-.
4. It was submitted before the learned CIT(A) that the trust was created by Shri Suraj Prasad Gupta, s/o Late Lala Bandra Singh vide trust deed dated 30.6.1980 He settled an amount of Rs. 10,000/- towards the corpus of the trust and Shri Chandra Swami s/o Shri Dharam Chand Gandhi, Shri Suraj Prasad Gupta, Settlor and Shri Pawan Kumar Sharma s/o Late Jagnath Chand Sharma were appointed the trustees of the trust. Shri Chandra Swami was appointed as the life-trustee. The aims and objects of the trust were the relief of the poor and other charitable activities. It was, inter-alia, provided that total number of trustees shall not be more than 10 and Shri Chandra Swami shall be the main trustee throughout his life and he shall enjoy the privileges of the Chairman for any meeting of the trustees, governing body and general meeting at which he shall be present. It shall not be competent for any other trustee either by rule, resolution or otherwise to deprive him of his legal right to be the life time chairman. In the context of this clause, the learned CIT(A) observed that Shri Chandra Swami had overriding and extraordinary powers over the affairs of the trust although not a single rupee was contributed by him to the trust. For this year, the assessee did not produce the books of account before the Assessing Officer. In view thereof, it was pointed out that one of the conditions laid down for registration of the trust u/s 12A(b) of the Act was not fulfilled.
4.1 The major expenditure incurred in this year was in respect of the rent paid for the premises amounting to Rs.1.89 lakh and interest payable to Harak Chand Lalit Kumar Nahta (HUF) amounting to Rs. 1,38,441/- in respect of loan of Rs. 7,65,441/-. The confirmation letter showed the loan at Rs.7,72,700/- and the discrepancy was not reconciled even though the Assessing Officer had asked the assessee to do the same. The loan was taken for making advance 9 payment to Shri Dara Singh, the wrestler and the actor, as owner of the property. Apart from this, expenses of Rs.248/-, Rs. 106/- and Rs. 187/- were incurred on "printing and stationery", "postage and telegram" and "general expenses" respectively.
4.2 During the course of search in 1988, a sum of Rs. 20,000/- was seized and the person In-charge of the premises, Shri Vallabh Vyas, deposed to the effect that the money belonged to the trust. However, later on it was claimed that the money belonged to a disciple who could not be produced in spite of repeated opportunities given in this behalf. Apart from that, Shri Chandra Swami undertook a number of foreign tours and inland tours for which no satisfactory explanation was given as to the source of the expenditure. Therefore, a sum of Rs. 1.50 lakh in respect of foreign tours and Rs. 50,000/- in respect of inland tours were added to the income of the assessee. Thus, while a sum of Rs. 2,20,000/- was added as income of the assessee, expenditure amounting to Rs. 3,27,441/- in respect of rent and interest was disallowed, leading to computation of total income at Rs.4,72,550/-.
4.3 The learned CIT(A) referred to the decision of Hon'ble ITAT, Pune Bench, in the case of Rajnish Foundation in ITA No. 174/PN/82 for assessment year 1976-77. In that case the only object of the trust was to establish, project and perpetuate image of Shri Rajnish with all the vague and contradictory views which could neither be called religious nor educational nor charitable in nature, nor of general public utility. It was held that the identity of Shri Rajnish with the trust was complete and he controlled all the affairs of the trust with no corresponding obligation. He was free to preach vague contents in the manner he liked. On these objects, the Hon'ble ITAT came to the conclusion that the purchase of vehicle could not be said to be an expenditure for charitable purposes. Therefore, the income was not applied for religious or charitable purposes. Thus, the claim of exemption to the assessee was denied. The learned CIT(Appeals) was of the view that the ratio of that 10 order covered the facts of this case also. No expenditure was incurred on any religious or charitable purpose, while interest and rent were paid in respect of a property which was used by Shri Chandraswami as his residence and guest house by his disciples. As no other charitable activity was carried out in this year, and the property was used by Shri Chandraswami, it was held that the assessee trust violated the provisions contained in sections 13(1)(c)(ii) read with section 13(2)(b) and 13(3)(a) and 13(3)(ee) of the Act. Thus, the claim for exemption was denied and the order of the Assessing Officer was upheld."
49. After considering the orders of the authorities below and submsisins of both the parties, the Tribunal decided the matter vide Para 8 to 9.9 of the order dated 11-05-2007 in A.Y. 1989-90 as under:-
"8. We have considered the facts of the case and rival submissions. It may be worthwhile to summarize the facts of the case of this year on the basis of submissions made before us orally and in writing. The assessee is a trust which has been registered under section 12-A of the Income- tax Act. A search and seizure operation was conducted in the case on or about 23.2.1998. In the course of search, statement of Shri Vallabh Vyas, in-charge of the premises of assessee trust, was recorded. The sum and substance of the statement is that building situated at C-4/41, Safdarjung Development Area, New Delhi was a residence of Shri Chandraswami and was also used as a guest house for his disciples. There was no office in this building. Shri Chandraswami was occupying room No. 8. There were no books of account available in the premises. The return of income was filed on 2.12.1992, after the search, showing a deficit of Rs. 74,878/-. On examination of the return, it was found that the assessee had not incurred any expenditure on the avowed objects of the trust. The major expenditure was on rent of the premises and interest on loan taken for placing deposit with the owner of the premises for the purposes of rent. The assessee was not able to produce books 11 of account because they were seized by statutory authorities. However, on the basis of data made available, the books were re-constructed and produced. On the basis of statement of Shri Vallabh Vyas, the Assessing Officer came to the conclusion that the building was used for the residence of Shri Chandraswami, the life trustee and for accommodating his disciples. Therefore, it was held that benefit has been extended to the prohibited persons, mentioned u/s 13. Apart from interest and rent, there were very meager expenses in respect of printing and stationery, postage and telegram and general expenses. Since no religious or charitable activity was carried out and the premises were used by a prohibited person, the Assessing Officer came to the conclusion that the assessee was not entitled to exemption u/s 11. Apart from that, he added two sums of Rs. 2.00 lakh and Rs. 20,000/- to the income in respect of unexplained expenditure on inland and foreign tours of Shri Chandraswami, and cash found in the trust premises.
8.1 The case of the assessee was that it was a religious and charitable trust. It was carrying on such activity for which contributions were made by the disciples and as such the income and expenditure were not entered in the accounts of the assessee. Shri Chandraswami hardly stayed in the premises. In any case, his stay in the premises was only for the purpose of the trust. The assessee had not spent any amount on the inland and foreign tours of Shri Chandraswami. The sum of Rs. 20,000/- belonged to a disciple, who was identified but could not be produced before any of the lower authority. Therefore, his case was that the assessee was entitled to exemption u/s 11 in respect of rent and interest. The learned CIT(Appeals) held that the funds of the trust were utilized with the sole object of glorifying Shri Chandraswami. Its account showed that no charitable activity was being carried on. The premises were used by Shri Chandraswami, a prohibited person. Therefore, the assessee was not entitled to exemption u/s 11 and the assessee was not a public charitable trust. He also confirmed the additions of the two sums of Rs. 2.00 lakh and 12 Rs. 20,000/- by accepting the arguments furnished by the Assessing Officer in the assessment order.
8.2 Before proceeding with the determination of the controversy at hand, we may also summarize the findings of the Hon'ble ITAT in the order for assessment year 1988-
89. The question before the Tribunal was whether, the assessee was entitled to exemption u/s 11(1)(a) of the Income-tax Act? The Tribunal noted the fact regarding the search and seizure operation on 23.2.1988, falling in assessment year 1989-90. It was further noted that the income and expenditure account showed surplus of Rs. 1,941/-. The main expenditure was in respect of interest and rent of Rs. 60,000/- and Rs. 1,08,000/-. A sum of Rs. 22,260/- was also spent towards salary and wages and other administrative expenses. The objects of the trust were also taken note of by the Hon'ble Tribunal. On going through the objects, it was mentioned in paragraph 11 that the trust was created wholly for religious and charitable purposes. One of the objects was to distribute food, rugs, blankets and clothes to the poor, which gets some support from the statement of Shri Vallabh Vyas when it was deposed that 15 to 20 persons used to dine and food was served to them by spending the offerings made to the God in room No. 6. In this connection, it was noted that the value of offering and the expenditure on food were not recorded in the books. It was the view of the Tribunal that this may be an irregularity in the accounts maintained by the trust, but it does not militate against the quality of evidence about the user of trust money according to the aims and objects of the trust. The Hon'ble Tribunal also took note of the fact that the trust has been registered u/s 12-A by the Commissioner. It had also been granted recognition u/s 80-G and the renewal application for the period 1.7.1987 to 31.12.1991 was pending with the Commissioner. The Hon'ble Tribunal also took note of the fact that while profit & loss account, balance-sheet, auditor's report were filed, the books of account were not produced on the ground that they were not traceable and the books might have been seized by the department during the course of search. It 13 was held that such non-production need not create any serious doubt about the genuineness of the expenditure incurred by the assessee. Having considered various cases cited by the rival parties, it was held in paragraph 27 that the expenditure by way of rent, interest, salary and wages paid to employees and other administrative expenses were to be considered as application of income for charitable and religious purposes. This finding seems to be somewhat at variance with decision of Hon'ble Gujarat High Court, extracted on pages 24 and 25 to the effect that firstly the commercial income has to be determined after deducting outgoings including income-tax and such income will be the income available for application towards objects or accumulation etc. In view thereof, expenses on interest, rent, salaries will be outgoings and not application of income u/s 11(1)(a). For the sake of ready reference, the portion of the decision extracted by the Tribunal is reproduced below:-
"The view taken by the courts in the above referred cases is that before determining the income which could be actually applied or accumulated for the purposes of the trust under section 11(1)(a) of the Act, all outgoings, including the outgoing in the nature of payment of income-tax, must be deducted. It is only from the surplus income that remains in the hands of the trustees that actual application or accumulation for the purposes of the trust can be expected. If there is no income which could be actually applied or accumulated by the trustees for the purposes of trust, the trustees would not be capable of actually applying or accumulating the income for taking the benefit of section 11(1)(a) of the Act. Therefore, even in the case of an assessee following the mercantile system of accounting, there can be no doubt that for the purposes of actual application or accumulation or setting apart of income from trust property for the purposes of the trust, the trustees must 14 have on hand income which could be so utilized and what are outgoings towards payment of income-tax must be deducted for working out such surplus income. If a notional income calculated on the basis of accrual under the mercantile system of account is conceived as income for the purposes under section 11(1)(a) of the Act, it must be conceded that such notional income can never be actually applied or accumulated or set apart for the purposes of the trust and the assessee trust, while being liable to pay income-tax on accrual basis will not be able to derive the benefit conferred by the said provision. We are, therefore, of the view that the Tribunal was right in coming to the conclusion that the income derived from trust property must be determined on commercial principles and in doing so, all outgoings including outgoing by way of income-tax paid by the assessee trust must be deducted and it is only from the surplus income in the hands of the trustees that the question of application or accumulation or setting apart of income can arise."
It was further held in paragraph 41 that the assessee trust was entitled to exemption u/s 11(1)(a) and that its income should be determined at Rs. 2,170/-. It may be pointed out that the case of the learned counsel was that this order of the Tribunal should be followed by us, being the prior decision of the bench of same strength. With these remarks, we may proceed to decide various grounds (revised grounds) taken by the assessee in the appeal. We may add here that in view of various cases cited by the ld. counsel on the rule of consistency, an order can be followed to the extent it deals with the controversies at hand. If certain portions relating to the controversy are not discussed and debated at all, then, there will be no order on those controversies, which could be followed by us.
159. Ground No. 1 is that the learned CIT(Appeals) failed to appreciate the facts of the case and mis-directed himself in over-looking and ignoring the findings recorded by the ITAT in the order for assessment year 1988-89. It is further mentioned that he erred in holding that that order was not applicable to this year in spite of the fact that factual situation in the two years was identical. The findings of the learned CIT(A) in this respect are contained in paragraph 29 of his order, which is reproduced for the sake of ready reference - "The Ld. Members of the ITAT while disposing of appeal for A.Y. 1988-89 has simply relied on the facts that the trust has been recognized charitable in the past relying on the aims and objects of the trust and certain decisions. However, I have already pointed out that the case of each and every year is different and the taxability or exemption of receipt in a year depends upon the activities of the trust/society. The appellant has also contravened provision of section 13(1)(c)(ii) read with 13(2)(b) and 13(3)(a) and (ee) of the Income-tax Act." We have perused the objects of the trust as well as the order of the Hon'ble ITAT for assessment year 1988-89. We find that the objects are religious or charitable in nature. The trust has also been registered u/s 12-A of the Act. The Hon'ble Tribunal has given a finding that mere failure to produce the books or not entering income and expenditure relating to providing food in the books do not come in the way of the finding that the assessee is a religious-cum-charitable trust. We do not find any compelling reason to digress from this finding and, therefore, hold that the assessee is a religious- cum-charitable trust. Thus, ground No. 1 is disposed off by holding that the assessee is a religious and charitable trust and that the Ld. CIT(A) ought to have held the trust to be a religious & charitable trust.
9.1 The second ground is that the learned CIT(Appeals) erred in holding that the trust was not validly created and it was not a genuine trust in complete disregard of the fact that the trust was registered u/s 12-A of the Income-tax Act. The finding of the learned CIT(A) was that the question whether under a document the assessee is or is not a trust 16 is always a question of construction of the document and a question of construction of document is always a question of law. It has already been pointed out that the trust is virtually one man show and controlled by Shri Chandraswami. It cannot be a public charitable trust merely because it is evidenced by a deed. It has also been held in Fifth General Education Society Vs. CIT (1990) 185 ITR 634 (All.) that at the stage of registration u/s12-A, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with requirements u/s 12-A read with Rule 17- A and whether Form No. 10A has been properly filed. He may also see whether the objects of the trust are charitable or not. Thereafter, he cited certain cases including the case of Municipal Corporation of Delhi Vs. Children Book Trust, AIR (1992) SC 1456, to the effect that the element of public benefit or philanthropy has to be present in order to hold a trust to be existing for charitable purposes. These conditions are not fulfilled by the trust. Having considered the finding of the learned CIT(A), we find that there is an inherent contradiction when it is stated that the Commissioner can only examine whether the formalities have been completed or not and at the same time it is stated that he may also examine whether objects of the trust are charitable or not. The examination of objects is not an empty formality as the registration is crucially dependent upon the objects of the trust and genuineness of its activities. Once it is found that objects are charitable and activities are genuine, then, registration has to be granted. Thus, it follows that if registration is granted, then, the assessee is a charitable or religious trust. It is another matter that in spite of being so, it may not be entitled to exemption u/s 11 for the reason that its income has not been applied wholly or partly for religious or charitable purposes. However, after registration, there cannot be a case of the revenue that the trust was not religious and charitable trust till such time the registration was withdrawn. The registration has not been withdrawn in this case. Therefore, we are of the view that the trust is a genuine trust, duly registered u/s 12-A of the Act. Thus, this ground is also allowed.
179.2 Ground No. 3 is against the finding that no charitable activities were carried out by the assessee trust. Ground No. 4 is against the finding that the assessee violated the provisions contained in sections 13(1)(c)(ii) and 13(2)(b) etc. In this connection, the findings of the learned CIT(Appeals), contained on page 12 are reproduced below:-
"Out of receipt of Rs. 2,53,104/- in A.Y. 1989-90 the total expenditure on rent itself was Rs. 1,89,000/- and interest was Rs. 1,38,441/-. Other expenditure included printing and stationery Rs. 248/-, postage and telegram Rs. 106/-, general expenditure Rs. 187/-. Hence no expenditure was incurred on charitable purposes during this year."
9.3 The position stated by the learned CIT(A) in respect of receipt and expenditure is factually correct. The question is whether, rent and interest of Rs. 1,89,000/- and Rs. 1,38,441/- represented application of income for charitable objects? It is seen from the statement of Shri Vallabh Vyas, which has been relied upon in the order of the ITAT for assessment year 1988-89, that the premises were inter-alia used as a residence of Shri Chandraswami and as a guest house for his disciples. The premises did not have any office and the books were not there. Shri Chandraswami was occupying room No. 8. The affairs of the guest house were managed through contributions and offerings in the temple located in room No. 7. It transpires from this statement that there was a temple in the building and offerings were made in the temple, which were used to manage the affairs of the guest house. The Hon'ble Tribunal has given a finding that non-accounting of income and expenditure of the temple and the guest house is only an irregularity, not fatal to the preposition that the assessee was a religious and charitable trust. We do not find any reason to digress from this finding. It was also held that accommodating disciples was in the nature of maintaining a Sarai for the pilgrims. In these circumstances, the question is whether the assessee looses exemption in respect of expenditure by way of rent and interest, u/s 11(1)(a), as 18 application of income for religious and charitable purposes in view of the fact that a room in building was used as a residence of Shri Chandraswami, a prohibited person? The Hon'ble Tribunal mentioned that the expenditure towards rent and interest and other administrative expenses were to be considered as application of income. In coming to this conclusion, the applicability of section 13 was not considered and consequently the import of answers to question Nos. 6, 7 and 20 of the statement of Shri Vallabh Vyas was not taken into account. It was also not canvassed by the revenue. Since the statement has been relied upon in earlier year in favour of the assessee, we do not see why these portions of the statement should also not be taken as correct. Thus, we hold that on these issues statement of Shri Vallah Vyas is correct and subsequent statements of Shri K.N. Aggarwal cannot be relied upon. The statement shows that the building was used as residence of Shri Chandraswami and one room no. 8 was kept exclusively for Shri Chandraswami, the life- trustee. The case of the learned counsel is that the disciples considered Shri Chandraswami to be a God and, therefore, reservation of a room for him in the building should be taken as user of the property of the trust for the objects of the trust. Looking to statement of Shri Vallabh Vyas, order of the ITAT in A.Y. 1988-89 and the fact that on the date of search, keys of the room has to be brought from Chandra Swamy, we are unable to agree with this argument as it is not a case where a room in the building was made available to Shri Chandraswami as and when he came to Delhi. It is a case of reserving room No. 8 permanently for him.
9.4 Two issues arise for consideration in this matter. The first one is whether payment of rent and interest was expenditure liable to be deducted from receipts to arrive at the income or it is application of income u/s 11(1)(a)? The order of the Tribunal was that it was application of income. However, in the immediately preceding paragraph no. 26, the Tribunal had extracted certain portion from the decision of Hon'ble Gujarat High Court, the effect of which is that such expenses are outgoings, which have to be 19 deducted in arriving at surplus available for application towards the objects. Therefore, the real question here is not the applicability of section 11 but deductibility of the expenditure for arriving at commercial profits. Having regard to the fact that one room was reserved for the life trustee, a prohibited person u/s 13(3)(cc), we are of the view that expenditure related to the accommodation provided to him is not deductible in arriving at the surplus income. As the interest was also paid in order to take the premises on rent, similar consideration would apply to the deductibility of interest. The non-deductible portion may be worked out on the basis of area of the room to the total area of the building. In so far as accommodating of the disciples is concerned, the word 'disciples' is rather too loose a word, which does not specifically points towards a person. The decision in the case of Kamla Town Trust (supra) goes against the revenue. The Tribunal had also held that providing accommodation was in the nature of maintaining a Sarai, being one of the objects. Therefore, no adverse inference can be drawn in this matter.
9.5 The second issue is whether the trust looses the exemption u/s 11(1)(a) in view of the fact that one room was used by Shri Chandraswami. Even if he was considered to be the God by his disciples, the fact remains that he was a humaniform god i.e., a human being. He was the life-trustee of the trust. Like all human beings, he was required to be accommodated and the trust allotted him room no. 8 for his use. Thus, this part of the property of the trust was used directly for his benefit without charging an compensation, which leads to a clear inference of infringement of section 13(1)(c)(ii) read with section 13(3)(cc) and section 13(2)(b) read with section 13(3)(cc). This issue was not agitated or considered at all in the order of the appellate tribunal for assessment year 1988-89 or in the orders of lower authorities. Therefore, the order regarding exemption u/s11(1)(a) is per curium to this extent. Having considered arguments of both parties, we are of the view that the assessee is not entitled to exemption of its income u/s 11(1)(a) of the Act notwithstanding the fact 20 that it is a religious and charitable trust. Thus, ground Nos. 3 and 4 are dismissed as discussed above.
9.6 Ground No. 5 is against the finding that conditions for registration u/s 12-A(b) were not satisfied. We have seen that the assessee was validly registered under section 12- A, accounts were audited and report of the accountant was filed. Therefore, following the order of earlier year, this ground is allowed.
9.7 Ground No. 6 is against the adverse observations made at paragraphs 29 to 32 of the appellate order and it was stated that no opportunity was granted to the assessee to rebut the statement made therein. The contents of paragraphs 29 and 30 have been considered by us already to the extent they are applicable to assessment year 1989-
90. Paragraphs 31 and 32 of the order of the learned CIT(A) are reproduced below for ready reference:-
"31. While monitoring the St. Kitts case the Hon'ble Judges of the Supreme Court Justice J.S. Verma, as he then was, and Justice B.N. Kripal expressed their concern over huge amounts of donation received by Shri Chandraswami's trust, the appellant. Foreign donations received by the trust purported to have been set up for religious and charitable purposes have actually not being actuated by philanthropy.
Ramification of donations have actually crossed the national borders. Shri Chandraswami has gone abroad over more than 300 times and must have spent a mind bogging amount on these visits. The connection of Shri Chandraswami and the trust with a number of suspicious characters including Arms Dealer Adnan Khashoggi and LTTE cadres are not well known and established. The contention of the appellant trust that the foreign donations have been received mostly from disciples conceal more facts than they reveal. A religious and charitable trust cannot seek the shelter of 21 immunity if the donors themselves are under a streak of suspicion. How many people in this world give money for nothing? Huge amounts given are not mere philanthropy.
32. The report of William Carry, who headed a US Senate Sub-committee to prove the BCCI Bank Scam confirms that the bank had accounts of Arms Dealers Adnan Khashoggi and Ernie Millar. Both are known disciples of Chandraswami, life long trustee of the appellant trust. The Carry report also notes that 84 Million $US was transferred to the LTTE from these accounts. Carry also says that the money was used for the Rajiv Gandhi assassination.
Naturally donations from such persons can be for any other purpose but they cannot be for charitable and religious purposes. Shri Chandraswami and his trust has used all these unaccounted foreign money received from dubious and suspicious concerns for living in grand style in a palacial building named as Ashram, driving foreign cars, flying in India and in foreign countries, entertaining his disciples and guests- all in the name of the appellant trust. Can such a trust be called to have been set up for religious and charitable purposes? The above discussion of the facts of the case prove that the ostensible purposes for which the appellant trust was created and for which donations were collected and incomes were earned are not the real ones."
We find that no material exists on record to establish the facts narrated in the aforesaid paragraphs. The learned DR also did not make any arguments in this behalf. The facts do not seem to pertain to this year as no foreign donation has been received. Therefore, we are of the view that observations have no repercussion on our earlier findings, especially when the revenue has not even withdrawn 22 registration of the trust. Thus, this ground is allowed in the manner as discussed above.
9.8 Ground No.7 is against taxation of the gross receipts without allowing expenditure. We have already held that the assessee is a charitable and religious trust. It not entitled to deduction of rent and interest in respect of room no. 8 on a pro-rata basis. The Assessing Officer is also directed to allow other administrative expenses as outgoings, incurred for the purpose of keeping the trust in existence. However, the trust is not entitled to exemption u/s 11(1)(a). Thus, this ground is partly allowed.
9.9 In the result, the appeal is partly allowed".
50. In the light of the view taken by the Tribunal in A.Y. 1989-90, the Tribunal decided the appeals of other years, i.e. A.Y. 1990-91 to 1993-94 as under:-
A.Y. 1990-91:
10.3 We have considered the facts of the case and rival submissions. The facts are similar to the facts for assessment year 1989-90. Relying on the arguments furnished in that order, various grounds (in the revised grounds) are decided as under:
Ground Nos. 1 and 2 are identical to the effect that the learned CIT(A) ignored the findings of Hon'ble ITAT given in the order for assessment year 1988-89 and that he erred in drawing a conclusion that the trust was not genuine in spite of the fact that it was registered u/s 12-A of the Act. Following our finding in the order for assessment year 1989-90, these grounds are allowed.
10.4 Ground No. 3 is against the finding that no charitable activity was carried out by the assessee. We have already seen that in this year a sum of Rs. 39,230/- was applied towards charitable objects. The only case made out by the 23 learned DR was that receipts for the scholarships were not produced. On referring to pages 41 to 44, it is seen that these pages are nothing but receipts for scholarships. The other ground was that the scholarship was given to the children of one family only. There is no evidence on record that the children fall in the category of prohibited person u/s 13. That being so, grant of scholarship to children of one family does not come in the way of holding that it was charitable expenditure. Therefore, we are of the view that a sum of Rs. 39,230/- represented expenditure incurred in pursuance to the objects of the trust.
10.5 Ground No. 4 is that the learned CIT(Appeals) came to a wrong conclusion that there was violation of various provisions contained in section 13 of the Act. In our order for assessment year 1989-90, it has already been held that reserving a room permanently for Shri Chandraswami amounted to application of the trust property for the benefit of a prohibited person. Following that order, it is held that the case is hit by the provisions contained in section 13 and the trust is not entitled to exemption under sections 11 and 12 of the Act.
10.6 Ground No. 5 is against the finding that the assessee does not satisfy the conditions mentioned in section 12-
A(b) of the Act. We have already given a finding that since the trust is registered by the Commissioner and such registration has not been withdrawn. The conditions mentioned in section 12A(b) have also been satisfied. Therefore, it is held that the learned CIT(Appeals) erred in giving a finding that the assessee trust does not satisfy the conditions laid down in section 12-A(b) of the Act.
10.7 Ground No. 6 is against observations of the learned CIT(Appeals) in paragraphs 29 to 32. We have already held that observations in paragraphs 31 and 32 do not have any repercussion on assessment of the trust for A.Y. 1989-90. There is no foreign donation in this year. Therefore, the facts remain the same. Therefore, this ground is allowed.
2410.8 Ground No.7 is against bringing the gross receipt to tax. We have seen that the assessee had incurred administrative expenses, which were necessary for keeping the trust going. These expenses under the head salary and wages, postage and telegram, audit fees and traveling expenses do not really amount to application of income, but represent expenditure incurred for keeping the trust afloat. Therefore, these expenditures will be deductible in computing the income available for application u/s 11(1)(a). The rent and interest expenditure was inter-alia incurred for the purpose of the trust, and for housing Shri Chandraswami. This expenditure will be deducted on pro- rata basis. However, the assessee is not entitled to exemption u/s 11(1)(a). Thus, this ground is partly allowed.
10.9 In the result, the appeal is partly allowed."
A.Y. 1991-92:
"11.4 We have considered the facts of the case and rival submissions. We find that the facts are similar to the facts of earlier years. The assessee has incurred expenditure in pursuance to the objects amounting to Rs. 41,640/-. In view of our order for assessment year 1989-90, it is held that a part of the property held under trust by the assessee was partly used by Shri Chandraswamy. Therefore, rent and interest can be allowed only on pro-rata basis. Since the property was used by a prohibited person, the case is covered u/s 13 of the Act. Thus, the assessee is not entitled to exemption u/s 11. The assessee has taken up seven grounds in the revised grounds, which are identical with the grounds taken in assessment years 1989-90 and 1990-91. Therefore, relying on earlier orders, the appeal is partly allowed"
A.Y. 1992-93:
"12.4 We have considered the facts of the case and rival submissions. We find that the auditors had made a remark 25 in the income and expenditure account that voluntary donations included a sum of Rs. 10.00 lakh towards corpus. This issue was raised by the Assessing Officer with the assessee and it was explained that two cheques dated 11.2.1992, drawn on Bank of Baroda, New Delhi Overseas Bench, were received. It was also mentioned that photocopies of these cheques are produced. Beyond this, no other evidence was filed before the Assessing Officer, as seen from pages 73 to 76 of the paper book No. III. On consideration of facts of this year and earlier years, it is seen that the only distinction is that the corpus donation of Rs. 10.00 lakh was stated to have been received in this year for the first time, but evidence of donation or that it was towards corpus was not produced before any of the authorities below or before us. Therefore, it is held that there is no evidence that the impugned receipt was donation or that it was towards the corpus. Therefore, this receipt constitutes the income of the assessee either as unexplained credit or donation. Complete failure of the assessee to disclose the source of receipt lends some credence to the remarks made by him in paragraph 31 that the character of the receipts is suspicious. Nonetheless, the only conclusion that can be drawn for tax purposes is that the receipt is income and there is no evidence that it is towards the corpus. Subject to these remarks and relying on orders of earlier years, it is held that the assessee is entitled to deduct rent and interest expenditure on pro-rata basis and it is not entitled to exemption u/s 11(1)(a) as the property of the trust has been used by a prohibited person.
12.5 The assessee has taken up seven grounds in the revised grounds of appeal, which are identical with the grounds of earlier years. Subject to the remark that the donation of Rs. 10.00 lakh is the income of the assessee, the orders of earlier years are made applicable to this year also in respect of each ground of appeal. Thus, the appeal is partly allowed."
A.Y. 1993-94:
26"13.4 We have considered the facts of the case and rival submissions. On perusal of income and expenditure account, it is seen that the assessee had debited an amount of Rs. 51,089/- as charity expenditure. The break-up of the expenditure is not furnished in the paper book filed before us. The paper book No. III, from pages 77 to 83, contains letters dated 10.10.1995, 23.2.1996 and 26.2.1996 addressed to the Assessing Officer without any enclosure. In letter dated 10.10.1995 it was pointed out that the expenditure of Rs. 51,090/- was incurred towards payment of scholarships to needy students, food for poor and financial help to Santanvani . The details were stated to have been enclosed with the letter, but not enclosed in the paper book. In letter dated 26.2.1996, it was mentioned that donation of Rs. 10.00 lakh was received towards corpus. Another donation of Rs. 10.00 lakh was received in the immediately preceding year, which was reflected in the income and expenditure account of that year. However, the book entries to this effect were passed in this year. Copies of statement of account and computation of income were stated to be enclosed with this letter, but not filed in the paper book. It may, however, be mentioned that income and expenditure account and balance-sheet of this year were filed in paper book No. I, to which we have already referred to. On the basis of the aforesaid, it will be seen that no evidence was filed regarding the identity of the donor or the fact that it was towards the corpus although a note to that effect was made in the balance-sheet. No evidence has been filed before us about the identity of the donor or that the donation was towards the corpus. As mentioned earlier in the order for assessment year 1992-93, the failure of the assessee to disclose complete details of the donation lends some credence to the observations made by the ld. CIT(A) in paragraph 31 of his order. However, on the facts, the only conclusion that can be drawn is that the impugned amount is income of the assessee either as an explained credit or donation. In the assessment order, it was mentioned that the details of expenditure incurred on construction of building were not filed. However, such details were placed in paper book No. III at page 83. The total of the 27 expenditure has not been made, but it is in the vicinity of Rs. 20.86 lakh. In the statement of income, the expenditure of Rs. 21,40,509/- was deducted in this respect as application of income.
13.5 Apart from the aforesaid, the facts are similar to the facts of earlier years. In the earlier orders, we have held that the assessee is entitled to deduct rent and interest as outgoing only on pro-rata basis and it is not entitled to exemption u/s 11(1)(a) because the property of the assessee was used by a prohibited person. It is also seen that in the revised grounds, the assessee has taken up seven grounds, which are identical to the grounds of earlier years. Subject to the aforesaid remarks, the orders of earlier years are made applicable to grounds for this year also in respect of each ground. Thus, the appeal is partly allowed."
51. While deciding the appeal for A.Y. 1989-90, the Tribunal has noted the fact that (i) a search and seizure operation was conducted on or about 23-2-1988; (ii) statement of Shri Vallabh Vyas was recorded in the course of that search; (iii) Trust building situated at C-4/41, Safdarjung Development Area, New Delhi was a residence of Shri Chandra Swami and was also used as a guest house for his disciples;
(iv) Shri Chandra Swami was occupying room No.8. The Tribunal had taken note of the decision of the Tribunal pertaining to the A.Y. 1988-89 on the issue whether trust was entitled to exemption u/s 11 of the Act. In the light of the Tribunal's order for the A.Y. 1988-89, the Tribunal in subsequent years had taken a view that the trust in question is a religious-cum-charitable trust (Refer Para 9 of the order). On the basis of the fact that the trust premises were, inter-alia, used as a residence of Shri Chandra Swami and as a guest house for his 28 disciples, and Shri Chandra Swami was occupying room No.8 and taking into account the statement of Shri Vallabh Vyas, the Tribunal had taken a view that the trust property was being used by prohibited persons u/s 13(3)(cc) of the Act. The Tribunal then held that expenditure related to the accommodation provided to Shri Chandra Swami is not deductible in arriving at the surplus income of the Trust. The Tribunal then directed the A.O. to disallow pro-rata expenses relating to use by prohibited persons. The Tribunal also held exemption u/s 11(1)(a) is not available to the assessee as portion of the property was used directly for benefit of Shri Chandra Swami without charging any compensation, which leads to a clear inference of infringement of section 13(1)(c)(ii) read with section 13(3)(cc) and section 13(2)(b) read with section 13(3)(cc). The Tribunal held that though the assessee is a charitable and religious trust, it is not entitled to deduction of rent and interest in respect of room No.8 on a pro-rata basis and the trust is not entitled to exemption u/s 11(1)(a) (Refer Para 9.8 of the order).
52. In the A.Y. 1990-91, the Tribunal has taken an identical view to that of A.Y. 1989-90. In the light of the order of the Tribunal for A.Y. 1988-89, the Tribunal had taken a view that the CIT(A) erred in drawing a conclusion that the trust was not genuine in spite of fact that it was registered u/s 12A of the Act and, therefore, the Tribunal followed its finding in the order for assessment year 1989-90. Following the order for assessment year 1989-90, the Tribunal in the assessment year 1990-91 held that reserving a room permanently for Shri Chandraswami amounted to application of the trust property for the benefit of a prohibited person, and, thus, the case is hit by the 29 provisions contained in section 13 and the trust is not entitled to exemption under section 11 and 12 of the Act.
53. In the A.Y. 1991-92, the view taken in A.Y. 1989-90 and A.Y. 1990-91 has been followed in the light of identical facts involved.
54. In the A.Y. 1992-93, besides the view taken in earlier years, the Tribunal had taken a view that the receipt of donations of Rs.10.00 lakh through NRE account, which was claimed by the assessee trust to be on corpus account, has been held to be not eligible for exemption in the absence of evidence establishing that the amount was received towards corpus account. The receipt of Rs.10,00 lakh was held to be the income of the trust either as unexplained credit or donation. The Tribunal further held that the assessee was entitled to deduct rent and interest expenditure on pro-rata basis and it is not entitled to exemption u/s 11(1)(a) as the property of the trust was used by a prohibited person.
55. Identical view based on same set of facts were taken in A.Y. 1993-94.
56. From the said order of the Tribunal in the case of trust for the A.Y. 1989-90 to A.Y. 1993-94, it is clear that the fact that property of the trust was used by a prohibited person, viz., Shri Chandra Swami and donation received by the trust remained unexplained has been considered in the regular assessment of the trust. Thus, the same facts 30 already taken into account while making regular assessment of earlier years cannot be made a basis to determine undisclosed income in the block assessment required to be made u/s 158BC of the Act within the meaning of Chapter XIV-B of the Act. In the present block assessment, the A.O. has not been able to point out any piece of evidence or material found during the course of search conducted on 1-11-1996 and other material or information relatable to seized evidences to establish that the donations/receipts reflected in the books of the trust during various years was actually the income of the present assessee. The scope and ambit of block-assessment has already been discussed earlier in this order. In view of the scope and ambit of undisclosed income to be determined in the block assessment within the meaning of Chapter XIV-B of the Act, and in the absence of any seized material found during the course of search conducted against the assessee and/or the trust and the discussion made above, we are of the considered view that the receipt shown in the books of the trust during different years cannot be treated to be an undisclosed income of the present assessee to be includible in the block assessment made u/s 158BC within the meaning of Chapter XIV-B of the Act. We, therefore, direct to exclude the same from block assessment of the present assessee".
6. On due consideration of the ITAT's findings, we are of the view that Learned First Appellate Authority was not having the order passed by the ITAT. The issue regarding taxability of the amounts on substantive basis or 31 protective basis is required to be readjudicated after the finding of the ITAT.
The learned counsel for the assessee also submitted that the assessee has challenged the withdrawal of 12A in a writ petition bearing No.5044 of 1997. The Hon'ble High Court has stayed the order of withdrawal of registration under sec. 12A. He placed on record copy of the order passed by the Hon'ble High Court dated 22.1.1998. We find that this order was valid up to the next date of hearing i.e. 24.3.1998. What had happened thereafter, he has not placed copy on record copy of any order passed in civil writ petition No. 5044 of 1997 subsequent to 24.3.1988. Keeping in view all these facts and circumstances, we set aside the issues to the file of the Learned First Appellate Authority for readjudication.
7. Now, we take ITA Nos. 1122, 1126 & 1246/Del/2011. These three appeals pertain to assessment year 2005-06. Shri Chandra Swami has filed his return of income for assessment year 2005-06 on 31.10.2005 declaring nil income. Similarly, the trust filed its return of income on 31.10.2005 declaring nil income. The cases of both the assessees were selected for scrutiny assessment and a notice under sec. 143(2) was issued and served upon the assessee. In response to the notice, Shri Ajay Aggarwal, CA and Shri M.S. Sekhon, CA appeared from time to time. Assessing Officer has 32 passed the assessment orders in the case of both the assessees on 20.12.2007 under sec. 143(3) of the Act. Assessing Officer has discussed the issue in detail in the order of the trust and thereafter this order has been reproduced in the order of Shri Chandra Swami. Assessing Officer has computed total income at Rs.13,32,858 and assessed it on protective basis in the hands of the trust and on substantive basis in the hands of Shri Chandra Swami.
Assessing Officer did not make any independent discussion in this year rather his findings are almost similar to that of assessment year 2002-03. He was of the opinion that sufficient material was found during the course of search which demonstrates that trust is mere a façade and the real beneficiary is Shri Chandra Swami. After taking into consideration the total amount of donation and bank interest, he computed the income. He did not grant benefit of sections 11 and 12 of the Act to the assessee trust on the ground that apart from withdrawal of registration under sec. 12A, there are material which indicate that assessee was not carrying out any charitable activities.
8. On appeal, Learned CIT(Appeals) confirmed the order in the case of Shri Chandra Swami, however, in the case of trust, he observed that once additions are confirmed on substantive basis in the hands of Shri Chandra 33 Swami, therefore, no addition is required on protective basis. He deleted the protective addition.
9. Shri Chandra Swami in his appeals, has pleaded that that trust is a genuine trust and Assessing Officer has erred in making the addition on substantive basis in his hands. Similarly, in the case of the trust, assessee reiterated its contentions. It also submitted that Hon'ble High Court in its entrim order dated 30.5.1997 in the writ petition filed by the assessee against cancellation of registration had observed that during pendency of the writ petition for final decision, the exemption under sec. 11 of the Act will not be denied to the assessee. The learned counsel for the assessee submitted that the issue in dispute is squarely covered in favour of the assessee by the order of the ITAT passed in the block assessment appeals, he placed on record copies of the Tribunal's order. The revenue in its cross appeal, in the case of trust has pleaded that Learned CIT(Appeals) has erred in deleting the addition made on protective basis in the hands of the trust. According to the revenue, the issue in whose hands addition will be maintainable on substantive basis has not attained finality.
3410. With the assistance of learned representatives, we have gone through the record carefully and we find that there is no disparity in the facts and circumstances of this assessment year, vis-à-vis that of assessment year 2002-03. In that assessment year, we have observed that assessee failed to produce the order of the Hon'ble High Court exhibiting that during the pendency of writ petition exemption u/s.11 would not be denied. The order produced by the learned counsel for the assessee was valid till the next date of hearing. Whether on the next date, it was made absolute or not, it is not ascertainable. We have observed that in assessment years 1989-90 and 1990- 91 and in the block assessment appeal, ITAT has discussed this issue in detail and in the light of ITAT's order, the issue required readjudication.
Therefore, following our observations in assessment year 2002-03, we set aside the orders of the Learned CIT(Appeals) as well as of Assessing Officer and remit these issues to the file of the Learned First Appellate Authority for readjudication. All these appeals are allowed for statistical purposes.
11. Now, we take ITA Nos. 1123, 1227 & 1247/Del/2011. The present three appeals relate to assessment year 2006-07. Shri Chandra Swami and the trust have filed their returns of income on 30.3.2007 and 31.10.2006 declaring nil income in assessment year 2005-06 respectively. The 35 assessment order has been passed by the Assessing Officer on 4.12.2008 in both cases, under sec. 143(3) of the Act.. The approach of the Assessing Officer in determining the income of both the assessees is similar to that of assessment years 2002-03 and 2005-06. He determined the income of substantive basis in the hands of Shri Chandra Swami and on protective basis in the hands of the trust. The trust has received donation of Rs.21,44,505 and interest from bank at Rs.2397. The income of the assessee has been assessed at Rs.21,46,902. On appeal, Learned CIT(Appeals) confirmed the assessment order in the case of Shri Chandra Swami and deleted the protective addition from the hands of the trust. Hence, revenue is impugning the deletion of protective addition, whereas Shri Chandra Swami is impugning confirmation of addition on substantive basis in his hands. The trust is impugning denial of exemption under sections 11 and 12 of the Act.
12. With the assistance of learned representatives, we have gone through the record carefully. We do not find any disparity on facts. The issues agitated by the parties required to be readjudicated in the light of our observations made for assessment year 2002-03. Hence, we allow all the appeals for statistical purposes and remit these issues to the file of the Learned CIT(Appeals) for readjudication.
3613. Now, we take ITA Nos. 1124 & 1128/Del/2011. These appeals relate to assessment year 2007-08. Assessee Shri Chandra Swami has filed his return of income for assessment year 2007-08 on 29.8.2007 declaring nil income. The trust has filed its return of income on 29.10.2007 declaring nil income. Both the cases were selected for scrutiny assessment and a notice under sec. 143(2) of the Act was issued. Assessing Officer has passed the assessment order under section 143(3) of the Act in the case of both the assessees on 30.11.2009. He determined the taxable income at Rs.7,21,538 in the case of Shri Chandra Swami and at Rs.2,21,538 on protective basis in the case of trust. In the case of Shri Chandra Swami, Assessing Officer has observed that he failed to furnish details of personal expenses and the source of such expenses, therefore, he estimated the expenses at Rs. 5 lacs. Apart from this Rs.5 lacs, he further added Rs.2,12,538 which is protective addition in the case of the trust. In this way, the income has been determined at Rs.7,21,538. Assessing Officer has made reference to the block assessment passed in the case of Shri Chandra Swami.
14. On appeal, Learned CIT(Appeals) deleted the protective addition made in the case of the trust, however, he upheld the observations of the 37 Assessing Officer for denial of exemption under sections 11 and 12 of the Act.
15. On due consideration of the facts and circumstances, we do not find any disparity on facts between this assessment year amongst others i.e. assessment years 2002-03, 2005-06 and 2006-07. In view of our discussion made in the foregoing paragraphs for other years, both these appeals are allowed for statistical purposes and the issues are remitted to the file of the Learned CIT(Appeals) for readjudication
16. Now, we take ITA No.1121/Del/2011. In this appeal, the assessee Shri Chandra Swami, is impugning substantive addition made in his hands.
17. The brief facts of the case are that the assessee Shri Chandra Swami has filed his return of income for assessment year 2003-04 on 2nd December 2003 declaring nil income. A notice under sec. 143(2) dated 23.6.2004 was issued and served upon the assessee. However, no one has attended the proceedings on 30.7.2004, fixed by the Assessing Officer. Assessing Officer thereafter issued notices under sec. 143(2) and 142(1) of the Act. An employee from M/s. Sekhon & Co., CA, appeared on 16.1.2006 and filed 38 certain details. Thereafter, no one has come present on behalf of the assessee before the Assessing Officer. He passed the assessment order under sec. 144 of the Act on 13.3.2006. It revealed to the Assessing Officer from the audited balance sheet that the trust had received donation of Rs.14,31,995.
Bank interest is of Rs.137. Total receipt in the hands of the trust was computed at Rs.14,32,132. Assessing Officer allowed an estimated expenditure of Rs.1 lac and an income of Rs.13,32,132 was computed on protective basis in the hands of the trust. An addition of this amount has been made on substantive basis in the hands of the assessee.
18. Appeal to the learned CIT(Appeals) did not bring any relief to the assessee.
19. With the assistance of learned representatives, we have gone through the record carefully. We find that the facts and circumstances are similar to that of assessment year 2002-03. Therefore, in view our discussion made in that assessment year in the foregoing paragraphs of the order, we allow this appeal also for statistical purposes and remit all these issues to the file of the Learned CIT(Appeals) for readjudication.
3920. In the result, all the appeals are allowed for statistical purposes.
Decision pronounced in the open court on 21.10.2011 Sd/- Sd/-
( K.D. RANJAN ) ( RAJPAL YADAV )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 21/10/2011
Mohan Lal
Copy forwarded to:
1) Appellant
2) Respondent
3) CIT
4) CIT(Appeals)
5) DR:ITAT
ASSISTANT REGISTRAR