Income Tax Appellate Tribunal - Delhi
Dr. Puran Chand Dharmarth Trust, New ... vs Acit, Gurgaon on 9 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'F' NEW DELHI
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
&
SHRI WASEEM AHMAD, ACCOUNTANT MEMBER
ITA Nos.-670 & 671/Del/2015
(Assessment Years: 2005-06 & 2006-07)
Dr. Puran Chand Dharmarth Trust, vs ACIT
C/o RRA TAXINDIA, Circle 1(1)
D-28, South Extension, Part-1, Gurgaon.
New Delhi.
PAN No. AAATD7474R
Assessee by Sh. Shantanu Jain, Adv. &
Sh. Deepesh Garg, Adv.
Revenue by Sh. Atiq Ahmad, Sr. DR
Date of Hearing 09.04.2018
Date of Pronouncement 09.04.2018
ORDER
PER JOGINDER SINGH, J.M.
Both these appeals are by the assessee for AY 2005-06 & 2006-07, challenging imposition of penalty amounting to Rs.
56,53,541/- and Rs. 52,00,470/-, respectively imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter the 'Act').
2. During hearing, the Ld. Counsel for the assessee Shri Shantanu Jain alongiwth Shri Deepesh Garg, Ld. Advocates for the assessee claimed that the Tribunal vide order dated 10.04.2017 (ITA ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust No. 1992 & 1993/Del/2011), while adjudicating the quantum appeals decided in favour of the assessee. A copy of the aforesaid order was also filed. It was prayed that the penalty has to be deleted. On the other hand, Shri Atiq Ahmad, Ld. Sr. DR did not controvert the aforesaid claim of the assessee.
2.1 We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion form the aforesaid order of the Tribunal dated 10.04.2017 for ready reference and analysis:
"The common first appellate order for the assessment years 2005-06 and 2006-07 have been questioned by the assessee on the following common grounds :-
" 1. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in reopening the assessment u/s 147 read with section 148, more so when statutory conditions of section 147 to 151 were not fulfilled.
2. That in any case and in any view of the matter, reopening the impugned assessment u/s 147 is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in denying the exemption u/s 11 & 12 and erred in making addition of Rs.1,54,50,000/-, more so when there was no violation of any statutory conditions.
4. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in denying the exemption u/s 11 by holding that the case of appellant hit by section 13(l)(c) read with section 13(2)(a) and section 13(1)(d) and that too disregarding the Hon'ble Tribunal's decision in appellant's own case and has further erred in giving direction to Ld. AO to rework the taxable income of the appellant. "2
ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust
2. Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
3. The relevant facts as per the orders of the authorities below are that the assessee filed its returns of income for both the assessment years on 18.10.2005 at 'NIL' by claiming exemption of entire income, which were processed under section 143(1) of the Act. Subsequently, assessment under section 143(3) was framed at returned income vide order dated 26.12.2007. The assessee was granted exemption under section 10(23C)(vi) for assessment years 2005-06 and 2006-07 and 2007-08 vide order dated 26.02.2007, which was withdrawn vide order dated 29.09.2008 in terms of 13th proviso to sub section 23 of section 10 of Income Tax Act. It was alleged that the assessee had violated the terms of clause (b) of 3rd proviso to section 10(23C) by advancing a loan of Rs.1,54,50,00,000/- to another trust, namely, Hare Krishna Dharmarth Trust, which as per the Revenue was not specified form of investment or deposit as per section 11(5) of the Act. In view of the above withdrawal of exemption under section 10(23C)(vi), the Assessing Officer reopened the assessment under section 147 and treated the amount of Rs.1,54,50,000/- advanced to Hare Krishna Dharmarth Trust in violation of section 11(5) of the I. T. Act and added to the returned income of the assessee. The ld. CIT (Appeals) has upheld the same leading to the filing of present appeals.
4. Ground Nos. 1 & 2 : In these grounds the assessee has questioned validity of assumption of jurisdiction under section 147 of the Act by the Assessing Officer. In support of the grounds, the ld. AR referred the reasons recorded, reproduced at page No. 7 of the first appellate order with this contention that the same do not lead to the belief that income of the assessee has escaped assessment. The "reason" mentioned that assessee was granted exemption under section 10(23C), which was withdrawn by the ld. CCIT on the ground that loan of Rs.1,54,50,000/- was advanced to another trust, which is in contravention of section 11(5) of the I. T. Act was not tenable in law. The ld. AR submitted that it is a settled law that "reason should lead to believe that income has escaped assessment and placed reliance on the following decisions :-
(i) Balkrishna Hiralal Wani Vs. ITO 321 ITR 519 (Mum.);
(ii) Shipra Srivastava & Another Vs. ACIT 319 ITR 221 (Del.);
(iii) Prashant S. Joshi Vs. ITO, 324 ITR 154 (Bom).
4.1 The ld. AR contended further that validity of reopening is to be seen only with reference to the reasons recorded and placed reliance on the following decisions :-
(i) Prashant S. Joshi Vs. ITO 324 ITR 154 (Bom.);
(ii) Hindustan Lever Ltd. Vs. R.B. Wadkar 268 ITR 332 (Bom).3
ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust 4.2 The ld. AR further submitted that assessee had filed its returns of income for the years which were assessed under section 143(3) of the Act on the basis of registration granted under section 12AA and not with reference to section 10(23C) and, therefore, withdrawal of registration under section 10(23C) does not have any bearing on the assessment of income and could not lead to the escapement of income. He pointed out further that since exemption under section 10(23C) was not claimed in the return of income and hence, no belief about the escapement of income could be formed as held in the following decisions :-
(i) Bhubaneswar Stock Exchange Vs. ACIT 96 ITD 480 (Cuttak);
(ii)Pirojsha Godrej Foundation Vs. ADIT (E) 133 TTJ 194 (Mum.)(Trib).
4.3 The ld. AR also referred page No. 37 of the paper book i.e. copy of registration under section 12AA; page Nos. 15 to 18 i.e. copy of audit report in form No. 10B etc. to show that exemption was claimed under section 12A; page Nos. 12 to 14 i.e. copy of complete set of original return filed under section 139(1) showing that exemption was claimed under section 12A of the Act; page Nos. 34 to 36 i.e. copy of assessment order dated 26.12.2007 passed under section 143(3) by the Assessing Officer granting the benefit of exemption under section 11(1)(a) on the basis of registration under section 12A of the Act; and page Nos. 79 to 82 i.e. copy of withdrawal of registration under section 10(23C).
4.4 The ld. AR submitted further that it is also an established position of law that section 10(23C) benefit may be denied, but benefit under section 11 is still available and that benefit under section 12AA can be claimed without there being registration under section 10(23C) of the Act as both the sections are independent to each other. He contended further that section 12AA(3) cannot be invoked merely for the reason that section 10(23C) was rejected. He placed reliance on the following decisions :-
(i) CIT Vs. Mahasabha Gurukul Vidyapeeth Haryana 326 ITR 25 (P&H);
(ii) CIT Vs. Sunbeam English School 361 ITR 325 (All.);
(iii) Bharati Vidyapeeth Medical Foundation Vs. ACIT 1255 TTJ 152 (Pune);
(iv) CIT Vs. Society of Advanced Management Studies 325 ITR 269 (All).
4.5 The ld. AR contended further that even there could be no belief about the escapement of income as there was no surplus earned by the assessee trust rather assessee trust incurred loss to the tune of Rs.92.66 lakhs. In support he referred page Nos. 5 and 9 to 11 of the paper book i.e. copy of income and expenditure account of the assessee showing that there was 4 ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust loss. He contended that the ld. CIT (Appeals) has also erred in mentioning that once registration is not there, corpus donations would constitute income and cited foreign decisions holding that even corpus donations cannot be brought to tax in case of an unregistered society/trust :-
(i) Shri Shankar Bhagwan Estate Vs. ITO
61 ITD 196 (Cal.);
(ii) ITO Vs. Gaudiya Granth Anuved Trust
65 SOT 137 (Agra) (Trib.);
(iii) ITO(E) Vs. Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust (I. T. Appeal No.5082/Del/2010 dated 30.01.2009);
(iv) Pentafour Software Employees Welfare Foundation Vs. ACIT, [ I. T. Appeal Nos. 751 and 752/Mad./2007.
4.6 The ld. AR submitted that even loan to another trust having similar object cannot be said to be breach of conditions of section 11(5) read with section 13(1)(d) and supported the same with the assistance of following decisions :-
(i) DIT (Exemption) Vs. Alarippu
244 ITR 358 (Delhi High Court );
(ii) DIT (E) Vs. Acme Educational Society
326 ITR 146 (Delhi High Court );
(iii) DIT Vs. Pariwar Sewa Sansthan
254 ITR 268 (Delhi High Court ).
4.7 The ld. AR also referred page No. 61 of the paper book
i.e. registration of other society under section 12A of the Act; page No. 53 to 60 i.e. objects in Memorandum of Association of other society; and pager Nos. 83 to 87 is the copy of account of other society in the books of the assessee. Therefore also, the reasons could not lead to the belief of escapement of income. In any case section 13(1)(d) for alleged violation of section 11(5) does not deny the benefit for sections 11 and 12 as held in the following judicial decisions :-
• " Commissioner of Income Tax vs. FR. Mullers Charitable Institutions 363 ITR 230(Karnataka)(HC) • JamshetJi Tata Trust vs. Joint Director of Income Tax (Exemption) 101 D I R 305 (Mumbai)(Tribu.) 5 ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust • Gurdayal Berlia Charitable Trust vs. Income Tax Officer 34 ITD 489 (Mum.)(Tribu.)
5. Reopening is bad for this reason also that original assessment was made u/s 143(3) after taking into consideration the fact of the loan to another society amounting to Rs. 1,54,50,000/- and hence reopening is nothing but is based on change of opinion.
PB 32-33 is assessee reply fded during original assessment proceeding showing voluminous details having been filed.
PB 4 is the copy of balance sheet clearly showing a sum of Rs. 1,54,50,000/- loan to another society.
PB 34-36 is the copy of assessment order u/s 143(3) Reopening is not possible on account of change of opinion as held in the case of Commissioner of Income Tax vs. Kelvinator of India Ltd. 320 ITR 561 (SC)
6. Impugned reopening is bad for this reason also that there was mechanical approval u/s 151.
is the approval Case laws are relied upon:-
• CIT Jabalpur v. S. Goyanka Lime & Chemicals Ltd. 120151 56 taxmann.com 390/231 Taxman 73 (MP) [SLP dismissed].
• Hari Ram Gupta vs. ITO, ITA No. 5111/Del./2013, dated 04.07.2016 • Chaudhary & Sons Forgings P. Ltd. vs. ITO, ITA No. 1008/Del./2015, dated 12.07.2016.
PB 89-105 are the submissions made before Ld. CIT(A).
PB 387 is the copy of notice u/s 148 Ld. CIT (A) has mentioned in para 3.3 at page 7 of the appeal order that appellant has not disputed that a loan for Rs.
6ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust 1,54,50,000/-was given to Hare Krishana Dharmarth Trust, which is not one of the modes of investment specified u/s 11 (5) In reply, this observation of Ld. CIT(A) is not correct and assessee always disputed that loan to another trust is not violation of section 11(5) PB 107-108 are the submissions before Ld. CIT(A), submitting that there is no violation of section 11(5) or is not hit by section 13(1 )(d) and relying upon Director of Income Tax (Exemption) vs. Alarippu 244 ITR 358 (Del.)(HC) and other judicial decisions:-
Ld. CIT(A) has mentioned that once section 11(5) is violated, disability u/s 13(1 )(d) comes into play and exemption would not be available u/s 11.
In reply, it is submitted that first there was no violation of section 11(5) as assessee's case is supported by • Director of Income Tax (Exemption) vs. Alarippu 244 ITR 358 (Del.)(HC) • Director of Income Tax (Exemption) vs. Acme Educational Society 326 ITR 146 (Del.)(HC) • Director of Income Tax vs. Pariwar Sewa Sansthan 254 ITR 268 (Del.)(HC) Even courts have held that in the following judicial decisions that in any case section 13(1 )(d) does not deny the benefit of section 11 & 12 and all that can be disallowed is the income referable to such violation which in the instant case is nil.
• Commissioner of Income Tax vs. FR. Mullers Charitable Institutions 363 ITR 230(Karnataka)(HC) • Jamshetji Tata Trust vs. Joint Director of Income Tax (Exemption) 101 DTR305 (Mumbai)(Tribu.) • Gurdayal Berlia Charitable Trust vs. Income Tax Officer 34 ITD 489 (Mum.)(Tribu.) Ld. CIT (A) has mentioned in para 3.6 at page 13 of the appeal order that the appellant as per the statement filed had claimed exemption u/s 11(1 )(d) amounting to Rs. 1,54,50,000/- which is relatable to the donation received towards the corpus of the 7 ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust trust.
In reply, it is submitted that sum of Rs. 1,54,50,000/- was not the donation received by was the loan given to another trust and therefore what has been recorded by CIT(A) is factually incorrect and in any case corpus donations would not constitute income even when the registration is denied or cancelled in view of the under mentioned judicial decisions, (though in aassesse's case, registration u/s 12AA was intact) • Shri Shankar Bhagwan Estate vs. Income Tax Officer 61 ITD 196 (Cal.) • Income Tax Officer vs. Gaudiya Granth Anuved Trust 65 SOT 137(Agra)(Tribu.) • ITO (Exemption) v. Suit. Basanti Devi & Shri Chakhan Lai Garg Education Trust |IT Appeal No. 5082 (Delhi) of 2010, dated 30-1- 2009] (para 6) and • Pentafour Software Emplyees Welfare Foundation v. Asstt. ClT [IT Appeal Nos. 751 & 752 (Mds.) of 2007] (para 6).
"
4.8 The ld. AR pointed out further that registration granted under section 12A of the Act was subsequently cancelled on 18.05.2010 i.e. after issuance of notice under section 148 on 20.10.2008. In support he referred page Nos. 111 to 126 of the paper book. He submitted further that the Hon'ble High Court was, however, pleased to reverse the cancellation of registration and referred page Nos. 127 to 137 of the paper book.
5. The ld. Sr. DR, on the other hand, placed reliance on the orders of the authorities below with the submission that there was sufficient reason with the Assessing Officer to initiate reopening proceedings in the present case as there was taxable income after withdrawal of the registration of the assessee which had escaped assessment. In support he referred the contents of para Nos. 5 to 5.5 of the first appellate order with this submission that there was violation of provisions of section 11(5) read with section 13(1)(d) of the Act by the assessee trust.
6. When we go through the reasons recorded for initiation of reopening proceedings (reproduced at page No. 7 of the first appellate order), we find that the sole reason for forming the belief for escapement of assessable income, shown is withdrawal of approval granted to the assessee for the 8 ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust assessment years 2005-06, 2006-07 and 2007-08 in terms of 11th proviso of clause (23C) of section 10 of the I.T. Act by observing that by advancement of loan of Rs.1,54,50,000/- to another trust, the assessee had violated the terms of section 10(23C) of the Act. It has been further noted that in view of the above withdrawal of approval the income had escaped assessment on gross receipt of Rs.7,94,14,052/-. In the assessment framed under section 143(3) vide order dated 26.12.2007 the assessee was granted exemption under section 10(23C)(vi) for the above three assessment years. The approval was withdrawn on 19.09.2008 and notice under section 148 was issued on 20.10.2008.
6.1 The initiation of reopening proceedings has been objected by the assessee on several grounds. One of these objections is non-service of notice issued under section 148 of the Act and secondly, the reason recorded is without application of mind as it does not lead to escapement of taxable income. Amongst the other objections is also that there is no prohibition in advancing a loan by a trust to another trust. And above all, on the date when approval granted under section 10(23C) of the Act was withdrawn, the registration under section 12A granted to the assessee was very much in operation and it remain as such when the reasons were recorded and notice under section 148 of the Act was issued. Thus also there was no question of escapement of assessment of taxable income. The registration under section 12AA was cancelled on 18.05.2010 whereas notice under section 148 of the Act was issued on 20.10.2008 and it is equally pertinent to mention over here that subsequently, the Hon'ble High Court was subsequently pleased to restore the registration.
6.2 Now when we examine the service of notice under section 148 of the Act in view of the objections raised in this regard by the ld. AR, discussed hereinabove, we find that it is not coming out when the assessee refused to receive the notice issued to it on the address given nor is it coming out as to when affixture of the said notice at the address of the assessee was made and who had witnessed it. It is also not coming out from the submission of the ld. Sr. DR or the orders of the authorities below as to what effort was made by the Department before resorting to substitute mode of service. There is no doubt that refusal of service of notice by an assessee is itself sufficient to deem that the notice was duly served, but at the same time, it is also equally important that when such service claimed by the Department is objected by the assessee, onus is heavy on the Assessing Officer to establish that the notice was actually refused to receive by the assessee. The Assessing Officer has thoroughly failed to discharge such 9 ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust onus, hence, we have no option, but to accept the contention of the assessee that notice issued under section 148 of the Act was never served upon the assessee, which is mandatory to validate the assumption of jurisdiction by the Assessing Officer to proceed for framing assessment under section 147 read with 143(3) of the Act. It is also pertinent to note that the similar objection regarding non-service of notice issued under section 148 of the Act was raised before the Assessing Officer and the ld. CIT (Appeals), but nowhere it is coming in their orders as to when the service of the notice was offered to the assessee and the same was refused. The assumption of jurisdiction by the Assessing Officer to frame assessment under section 147 in absence of service of notice under section 148 of the Act upon the assessee is thus, not valid and thus the assessment framed in furtherance thereto is also held void ab initio and is quashed as such. Though we also find substance in the other objections of the assessee that the reasons recorded do not lead to forming of belief that taxable income has escaped assessment, as there was no escapement of income as registration under section 12A of the Act granted to the assessee was very much in the operation on the date when reasons were recorded and notice under section 148 was issued and it was a case of change of opinion etc. but in view of our above submission holding the very assessment in question as void, the other objections have turned academic only as well as these have become infructuous. In result, ground Nos. 1 and 2 are allowed and other grounds do not need adjudication as having become infructuous in view of the findings on ground Nos. 1 and 2.
7. In result, appeal is allowed."
2.2 We have perused the aforesaid order and find that the assessment, reopened u/s 147 r.w.s. 148 of the Act and consequent denial of exemption u/s 11 & 12 of the Act leading to addition was considered by the Tribunal and finally found that the assessee was registered u/s 12A of the Act and the assessment was framed merely on the basis of change of opinion etc. and finally the assessment was held to be void. It is also noted that in the aforesaid order the Tribunal following various orders from Hon'ble High Courts, Tribunal 10 ITA Nos. 670 & 671/Del/2015 Dr. Puran Chand Dharmarth Trust and made an elaborate discussion and thereafter reached to a particular conclusion. Neither any contrary facts nor a contrary decision was brought to our notice by either side and more specifically the Revenue. This factual aspect was not controverted by the Revenue. In view of this factual finding, we are of the view that the addition on the basis of which penalty was imposed u/s 271(1)(c ) of the Act, remained no more in existence, the penalty in itself cannot stand on its legs, therefore, deserves to be deleted. Our view find support from the decision in K.C. Builders vs ACIT (2004) 265 ITR 562 (SC) and the ratio laid down in CIT vs S.P. Viz, 176 ITR 76 (Patna). Thus, we direct the Ld. AO to delete the penalty.
Finally, the appeals of the assessee are allowed.
This order was pronounced in the open court, at the conclusion of the hearing, in the presence of Ld. DR on 09.04.2018.
Sd/- Sd/-
(WASEEM AHMAD) (JOGINDER SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 09.04.2018
*Kavita Arora
11
ITA Nos. 670 & 671/Del/2015
Dr. Puran Chand Dharmarth Trust
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
TRUE COPY
ASSISTANT REGISTRAR
ITAT NEW DELHI
This order was directly dictated 09.04.2018 on Computer to the P.S. Draft dictated on 09.04.2018 Draft proposed & placed before the second member Draft discussed/approved by Second Member.
Approved Draft comes to the 09.04.18
Sr.PS/PS
Kept for pronouncement on 09.04.18
File sent to the Bench Clerk 10.04.18
Date on which file goes to the
AR
Date on which file goes to the
Head Clerk.
Date of dispatch of Order.
12