Income Tax Appellate Tribunal - Chandigarh
The Tibetan Children'S Village, Kangra vs Assessee on 20 January, 2016
1
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND
MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER
ITA Nos.252 & 253/Chd/2015
Assessment Years:2004-05 to 2005-06
The Tibetan Children's Village, Vs. The I TO
Dharamshala Cantt Dharamshala
Distt. Kangra
PAN No. AAATT3933B
(Appellant) (Respondent)
Appellant By : Sh. Aditya Kumar
Respondent By : Sh. Manoj Mishra
Date of hearing : 20/01/2016
Date of Pr onouncement : 20/01/2016
ORDER
PER ANNAPURNA MEHROTRA A.M. Both these Appeals have been filed by the assessee against the common order of Ld. CIT(A), Shimla dated 29.01.2015. Since the issues involved in both the appeals are common, the same were heard together and for the sake of convenience we shall be dealing with appeal filed in ITA No. 252/Chd/2015 for Assessment year 2004-05. The Assessee has raised the following grounds of appeal.
(1) That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals), Shimla is against law and facts on the file in as much she was not justified to uphold the action of the Ld. Assessing Officer in treating a sum of Rs. 5,55,50,896/- received as specific purpose donations from various institutions as taxable u/s 12(1) of the Income Tax Act. 1961. (2) That she was further not justified to arbitrarily enhance the assessed income further by Rs. 4,41,58,892/- holding that the appellant has not filed Form 10 where as there was no need for the appellant for filing the form 10 as per the provisions of Income Tax Act, 1961.
(3) That the Ld. CIT(A) gravely erred in holding that proceedings u/s 148 have been decided against the appellant by the Hon'ble Himachal Pradesh High 2 Court dated 23.03.2012 whereas the Court had held that the appellant should use the alternate remedy to challenge the same in appeal and had not decided against the appellant on merits.
(4) That the Ld. CIT(A) gravely erred in not adjudicating on the detailed written and verbal submissions made during the course of hearing vide which it was submitted that should the amounts appearing under the head "Funds pending utilization" be treated in income and expenditure, the total spend of the appellant would exceed 85% as prescribed under the Act.
(5) That principles of natural justice were grossly violated in as much as neither any reasonable opportunity before enhancing the income was given nor the detailed submissions / requests made were considered while adjudicating the appeal.
(6) That the Ld. CIT(A) gravely erred in as much as not to consider the order of her predecessor wherein a speaking order was passed allowing the appellant relief. The Ld. CIT(A) has given no justification for not following the principles of consistency as relied upon by the appellant by placing reliance on the judgment Radhasoami Satsang v/s CIT (SC).That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals), Shimla is against law and facts on the file in as much she was not justified to uphold the action of the Ld. Assessing Officer in treating a sum of Rs. 5,55,50,896/- received as specific purpose donations from various institutions as taxable u/s 12(1) of the Income Tax Act. 1961.
2. Brief facts relating to the case are that the assessee is a charitable institute established for the purpose of carrying out various activities such as providing education, vocational training etc. at different places. For the impugned A/Y return declaring NIL income was filed by assessee on 1.11.2004 after claiming exemption u/s 11 of IT Act. 1961. The return was processed u/s 143 (1) vide intimation dated 17/12/2004 and thereafter the case was selected for scrutiny and assessment framed on the assessee u/s 143(3) at the income returned by the assessee vide order dated 14/09/2006. Subsequently notice u/s 148 was issued to the assessee on 29.10.2010 and the assessee's case was reopened for the reason that it was found that the assessee has earmarked funds amounting to Rs.20,66,74,263/- under the head 'Fund Pending Utilization' and had not included it in its Income and Expenditure statement. The same were considered as voluntary contributions received by assessee and it was observed by the A.O. that had the same been routed through the Income and Expenditure A/c the assessee's application of income would have fallen short of the statutorily required 85% and hence income had escaped assessment within the meaning of section 147 of the Act. During the course of assessment proceedings the 3 assessee contended that the earmarked funds had been received for a specific purpose and were therefore corpus donations, not to be included in the total income of the assessee as per section 12 of the Income Tax Act, 1961. Alternatively, the assessee contended that even if these amounts are taken as voluntary donations and included in the income of the assessee, the amount utilized during the year exceeded 85% of the total income and the assessee was therefore eligible to claim exemption of its entire income u/s 11 of the Act. The A.O. brushed aside the assessee's contention and held that the impugned donations could not be treated as corpus donations since in the return of FCRA the donations received had not been reflected in column 55 which required disclosure of donations received with specific direction that they shall form part of the corpus. The A.O. held that the documentary evidences filed by the assessee to prove that the donations were corpus donations were infact not available when the FCRA statement was filed and hence the A.O. held that there was no documentary evidence to substantiate the assessee's claim. Further the A.O. held that the application of funds made during the year would have to be first considered from the opening balance in the 'Fund Pending Utilization' A/c which showed substantial opening balances and only the balance remaining unutilized was to be adjusted against the donation received during the current year. This adjustment resulted in application of income less than 85% in the case of the assessee for the impugned AY to the extent of Rs. 5,55,05,896/- which was added back to the income of the assessee.
3. Aggrieved by the same, the assessee filed an appeal before the Ld CIT(A) agitating against the reopening of the case u/s 147 as well as against the additions made to the income of the assessee. Before the Ld. CIT (A) the assessee contended that the aspect of treatment of the impugned donations as corpus had already been raised during assessment proceedings and after considering the assessee's submissions and evidences no addition on that account had been made. The assessee therefore contended that reopening on 4 the same aspect merely amounted to change of opinion, which could not been resorted to during reassessment proceedings. On merits the assessee reiterated its contentions made before the AO that the impugned donations were corpus donation and therefore could not be added to the income of the assessee, and even if they were to be treated as income of the assessee the utilization of income during the impugned assessment year exceeded 85% and therefore the assessee was eligible to claim exemption of its entire income u/s 11 of the Act. Ld CIT (A) dismissed the assessee's appeal and held that in view of the order of the hon'ble Himachal Pradesh High Court dated 23.03.2012, in writ filed by the assessee the issue of initiation of proceeding u/s 148 stood decided against the assessee. On the aspect of treatment of donations received as voluntary donations and their utilization for the purpose of the activities of the trust, Ld. CIT(A) held that since no evidence was filed by the assessee to show that the donations were for a specific purpose, the same were to be treated as voluntary donations. Further the Ld. CIT (A) held the assessee had failed to substantiate the utilization of the above funds to the extent of 85% and hence the assessee was not entitled to claim exemption u/s 11 of IT Act. Ld. CIT (A) further held that the assessee was also not entitled to the benefit of 15% of exemption u/s 11(1) (a) and therefore enhanced the income of assessee to Rs.9, 97,09,788/-.
4. Aggrieved by the same the assessee filed the present appeal before us.
5. In ground no. 3 raised before us the assessee has agitated against the order of the Ld. CIT (A) dismissing the ground raised by the assessee challenging the validity of proceedings u/s 148 of the Act.
6. Before us Ld. AR stated that the reopening in the present case was bad, since it had been resorted to on an issue which had already been examined during assessment proceedings. Ld. AR stated that reopening on the same issue merely amounted to change of opinion which could not be resorted to during 5 reassessment proceedings u/s 147 of the Act. To substantiate its contention Ld. AR drew our attention to the reasons recorded for reopening the assessment which are reproduced as under:-
(REASONS FOR REOPENING OF THE CASE OF M/S TIBETAN CHILDREN VILLAGE, DHARAMSHALA CANTT. DHARAMSHALA FOR A.Y. 2004-05) "The assessee Trust undertakes various projects for providing Education, Vocational Training at various places. The assessee filed its return for the A.Y. 2004- 05 on 1-11-2004 declaring total income at NIL after claiming exemption u/s 1 i of the I T Act. The case of the assessee was selected for scrutiny and was completed on 14-9-2006 after accepting the returned income of Nil... However, perusal of the Balance sheet of the assessee for the A Y 2004-05, it is observed that under the Head 'FUND PENDING UTILISATION' the assessee has shown "Ear marked Funds" amounting to Rs 20,66,74,263/-. Perusal of the Income Expenditure Statement reveals that the assessee society has not included this receipt of Rs 20,66,74,263/ in its income.. The Income and Expenditure statement shows that the total receipts received by the assessee is Rs 21,70,46,459/- against which expenditure of Rs 19,69,13,819/- has been incurred. Thus the assessee ha: claimed to have expended more than 85% of the receipts. As stated above, the funds received under the Earmarked Funds have not been included in the total receipts and has been kept outside the Income Expenditure statement so as to reflect that the assessee has duly complied with the requirements of Income tax Act, 1961. The Auditors had in its Audit report stated that Eannarked Funds ar:
received specifically towards a particular purpose and are not treated as income and are directly credited to the fund without routing the same through the Income and Expenditure statement As per the provisions of section 12(1) of the Act, all voluntary contribution:! received by a Charitable or religious Institution are to be considered as Income , except for the donations made with specific directions that they shall form the par' of the Corpus of the Institution. Reliance is placed on the Honble Supreme Court; decision in the case of R B Shreeram Religious and Charitable Trust. ( 233 1TR 53) In light of above, it is clear that had the assessee routed this earmarked fund through its Income and expenditure statement then the assessee would have fallen Short of expending 85% of the receipts. I, therefore have reason to believe that the Eannarked Funds amounting to Rs 20,66,74,263/- which the assessee has failed to include in its income has escaped assessment within the meaning of section 147 oi the Act and it is fit case for issuance of notice u/s
148.Therefore in order to reassess this income and any other income which may come to the notice of the Assessing Officer during the course of reassessment proceedings, a notice u/s 148 for the asstt year 2004-05 is being issued."
Referring to the above, Ld. AR stated that the reopening was done for the reason that certain funds disclosed by the assessee in the account marked as 'Funds Pending Utilization' being voluntary contributions had not been routed through the Income and Expenditure A/c and hence the assessee utilization of fund had fallen short of 85 % as statutorily required and thus income had escaped assessment. Ld AR there after draw our attention to the questionnaire 6 issued during the original assessment proceedings placed at PB no 13-14 and specifically pointed to query no 9 which was relating to the issue of corpus donations and earmarked funds. Query no. 9 is reproduced as under:
Query No--9 "In respect of donations / amounts claimed to have been received towards corpus, please specify the total amount received along with evidence that the donations / amounts were received with specific directions that such amounts shall form part of the corpus of the institution. In this regard, please explain why the earmarked funds received have not been included in gross income in the computation of income filed along with return for the purpose of determining 85% utilization of income u/s 11(1)(a)".
There after Ld. AR drew our attention to the reply filed by assessee to their query vide its letter dated 8/9/06. The reply is reproduced as under:
"The earmarked funds were provided by the donors with a specific intent and a special report along with audit report is to be provided by the institution to these donors regarding the utilization of these funds and the balance unutilized amount can only be utilized as per specific will of the donor. Since these funds provided to the institution with a specific intent the same cannot be treated as income of the institution and the expenditure out of the "same is also not claimed while computing the utilization as per section 11. Further the available donors letter specifying such specific nature of the" receipt of the fund too are brought herewith".
Ld. AR thereafter drew our attention to the order passed U/S 143 (3) dated 14.09.2006 wherein no addition on account of treatment of corpus donation as voluntary donation was made. Thus the Ld. AR contended that it is clear that the issue of corpus funds/ earmarked funds had been raised during assessments proceedings in response to which the assessee had submitted that they were specific purpose funds and hence could not be treated as voluntary contributions and included in the income of the assessee. Further all available donor letters specifying the specific nature of the receipt of the funds were also filed before the A.O. The A.O thereafter formed a belief that the funds were corpus funds and therefore made no addition of the same was made to the income of the assessee. Thus the Ld AR contended that the issue on which the assesses's case had been reopened, i.e. corpus donations, had already been examined during assessment proceedings and a view formed by the A.O that the same were corpus donation. Reopening of the already examined issue merely amounted to change of opinion which could not be resorted to in 7 proceedings u/s 147. Ld AR placed reliance on a number of judicial decisions on this aspect. Further Ld. AR pleaded that the Ld CIT(A) had wrongly rejected these arguments of the assessee by stating that the Hon'ble HP High court had decided the issue against the assessee. Ld AR drew our attention to the order of the Hon'ble Himachal Pradesh High Court placed at Paper Book pg. no 30-32, which is reproduced hereunder:
Justice Rajiv Sharma, Judge (Oral):
Petitioners have challenged the issuance of notices dated 29.10.2010 (in CWP Nos. 11200 and 1 1288 of 2011 - Annexure P-3) and 4.3.2011 (in CWP No.5117 and 5118 of 2011 - Annexure P-6) respectively, issued to them under Section 148 of the Income Tax Act. Ms. Vandana Kuthiala, Advocate has informed the Court at bar that in sequel to the notices issued vide Annexures P-3 and P-6, the assessment order has already been made. Consequently, the present petitions are rendered infructuous and the same are dismissed having become infructuous, so also the pending application(s), if any. However, it will be open to the present petitioners to assail the assessment order in accordance with law, if not already challenged. No costs.
The Ld. A.R. stated that is clear from the above that proceedings initiated u/s147 had been rejected for the reason that the assessment proceedings had been finalized and the writ petition therefore had become infructuous. Ld AR stated that the legality of proceedings u/s 147 had not been dealt with by the Hon'ble High Court at all. Therefore to hold that the issue had been decided against the assessee was incorrect on the part of Ld CIT(A).
7. Ld DR on the other hand relied upon the order of Ld CIT(A).
8. We have heard the rival submissions and perused the orders of the authorities below and also the documents placed before us.
9. We find that in the present case reopening has been sought to be resorted to on an issue which had already been dealt with & discussed during regular assessment proceedings. The copy of reasons recorded for reopening reveal that proceedings u/s 147 was resorted to since the AO believed that funds amounting to Rs. 20,66,74,263/- shown in the balance sheet of the assessee as "Ear Marked Funds" under the head "Fund Pending Utilization"8
ought to have been included in the income of the assessee and there was shortfall in utilization of income to the extent of 85% resulting in taxability of income of the assesse which had escaped assessment. We further find that in regular assessment proceedings the assessee had been specifically asked why earmarked funds had not been included in the income of the assessee for determining 85% utilization of the same. The assessee had also been specifically asked to state the amount of corpus donations received alongwith evidence. All these queries were raised in the questionnaire issued to the assessee dated 01.09.2006 reproduced supra. The assessee had also duly explained the nature of earmarked funds as being given for a specific purpose and hence treated as corpus funds by the assessee. Evidences in the form of letter of the donees had also been submitted vide letter dated 08.09.2006 reproduced supra. Thereafter we find that assessment order u/s 143(3) was passed without making any addition on account of corpus funds, meaning thereby that after examining the issue of corpus / funds, the AO had formed an opinion that they were corpus funds and hence were not to be included in the income of the assessee. Having thus formed an opinion on the treatment of earmarked funds shown as Funds Pending Utilization the AO could not have resorted to reopening the case of the assessee on the same issue, since it amounts to change of opinion which cannot be resorted to in reassessment proceedings. The proceedings for reopening of assessment on the ground of income escaping assessment are an exception to the finality of proceedings arrived at under section 143(3) during the regular assessment proceedings of the assessment years. AO having applied his mind to the issue of corpus funds after the assessee explained the same with evidences in the regular assessment, impugned notice u/s 148 issued by the AO stating that the earmarked funds shown in the Funds pending Utilization are to be treated as income of the assessee on the same set of facts and material which were in the knowledge of the AO is invalid. The AO cannot issue notice u/s 148 merely because it felt that a decision which had been taken earlier needed to be 9 corrected. The Hon'ble Apex Court in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 has held that reassessment proceedings cannot be initiated on the basis of mere change of opinion. Further we find on perusal of the order of the High Court that the assesses writ petition had been found to be infructuous since assessment order in reassessment proceedings had already been passed. Thus, we find the Ld. CIT(A) was wrong in holding that the Hon'ble High Court had decided the issue of validity of proceedings u/s 147 against the assessee.
10. In view of the above we hold that notice issued u/s 148 was invalid since it was issued for reasons, which amounted to mere change of opinion and the order passed u/s 147 is set aside for the same reason.
11. This ground of appeal raised by the assessee is therefore allowed.
12. In ground no 1,2, 4,5 and 6 the assessee has agitated against the addition made by the Ld. AO and upheld by the Ld CIT(A) of the sum Rs. 5,55,50,896/- as voluntary donation and further against the enhancement of the assessed income by Rs. 4,41,58,892/- made by the Ld CIT(A) by disallowing the 15% application of income as per section 11(1)(a) of the Act.
13. Briefly stated the AO held that the funds amounting to Rs. 7,92,00,475/- received by the assessee as "Earmarked Funds" and shown in the Balance Sheet as 'Funds Pending Utilization' were not corpus donation but were infact voluntary donations and hence included the same in the income of the assessee. Thereafter he computed the shortfall in application of 85% of the income at Rs. 5,55,50,896/- and made addition thereto to the income of the assessee. In appeal, the Ld. CIT(A) upheld the addition made by the AO and further enhanced the same by disallowing benefit of 15% of exemption u/s 11(1)(a) on the ground that the assessee had not been able to spend 85% of its income and was therefore not entitled to benefit of 15% exemption u/s 11(1)(a). Ld. CIT(A) therefore enhanced the income of the assessee to Rs. 9,97,09,788/-. 10
14. Aggrieved by the same, the assessee filed the present appeal before us.
15. Before us Ld AR stated that the receipts shown under the head 'Funds Pending Utilization' amounting to Rs. 7,92,00,475/- were donations given for a specific purpose and were therefore to be treated as corpus donations which are not included in the total income of the assesses as per section 11 of the Act. Ld AR stated that evidence in the form of letters of donors stating that the donations had been made for the specific purpose had been filed before the AO during assessment proceedings. Ld AR stated that no infirmity had been found in the same yet they were rejected by the AO for the reason that corpus donations had not been disclosed in the FCRA form at point no. 55 where they were specifically required to be disclosed. Ld AR stated that the documentary evidence produced by the assessee to prove that the donation as corpus couldn't be brushed aside for this reason. Further Ld AR stated that even if the impugned donations are treated as voluntary and included in the income of the assessee the application of income during the impugned AY exceeds the total income including the corpus donations thus entitling the assessee to claim exemption u/s 11 of the Act. Ld AR drew our attention to a chart showing the income including the receipts under. 'Funds pending utilization' and utilization/ Application of the same during the year as follows :
Particulars Amount taken by Assessee (in
Rs. )
A Gross Income
As shown in Income & Expenditure 21,51,92,141
Receipts under 'Funds pending utilization' 7,92,00,475
Gross Income 29,43,92,616
85% of Gross Income 25,02,33,724
B Application:
As shown in Income & Expenditure 19,35,53,829
Out of 'funds pending utilization' 9,16,71,759
Total application during the year 28,52,25,588
Total Shortfall in application (3,49,91,864)
Income Chargeable
16. Ld DR. on the other hand argued that the utilization of Rs. 9,16,71,759/- shown by the assessee in the above chart could not been adjusted against the 11 income of the current year entirely since the assesee had substantial opening balance in the 'funds pending utilization' account. Ld DR stated that after adjusting the utilization of the current year against the opening balance of the fund, a balance of Rs. 11,28,999/- remained which could be adjusted as utilization out of the income of the current year. Ld DR stated that the total utilization as a result fell short of 85% of the income by Rs. 5,55,50,896/- which had been correctly added to the income of the assesee by the Ld A.O. and upheld by the Ld CIT( A). Ld Dr demonstrated the same through a chart as follows:
Particulars Amount taken by A.O. (in Rs.)
A Gross Income
As shown in Income & Expenditure 21,51,92,141
Receipts under 'Funds pending utilization' 7,92,00,475 Gross Income 29,43,92,616 85% of Gross Income 25,02,33,724 B Application:
As shown in Income & Expenditure 19,35,53,829
Out of 'funds pending utilization' 11,28,999
Total application during the year 19,46,82,828
Total Shortfall in application 5,55,50,896
Income Chargeable 5,55,50,896
Ld DR further stated that since the assessee had not utilized 85% of its income nor accumulated / set aside its income for future utilization it was not entitled for the benefit of exemption of 15% of its income also and the same had been correctly added back to the income of assessee by the Ld CIT (A) by the way of enhancing its income to the extent of Rs. 4,41,58,892/-. Ld AR as a rebuttal to the same pointed out that the utilization of its income to the extent of Rs. 9,16,71,759/- was not required to be adjusted from the opening balance shown in 'Funds Pending Utilization' account since the same represented only the 15 % surplus which the assessee is legally entitled to accumulate and it is not required to utilize the same. Ld AR pointed out that identical issue had come up for consideration in succeeding years also i.e. A/Y 06-07, 07-08 and 08-09 wherein the issue had been decided in favor of the assessee by the Ld. CIT(A) and 12 upheld by Hon'ble ITAT Chandigarh bench. Thus the Ld. AR pleaded that it was the utilization to the extent of Rs. 9,16,71,759/-, which was to be adjusted against the income of the assessee and not Rs.11,28,999/- as stated by the authorities below. Thus the Ld. AR pleaded that the assessee had utilized its entire income for charitable purposes during the year and was entitled to claim exemption of its income u/s 11 of the Act.
17. We have heard the rival submissions and perused the orders of the authorities below and also the documents placed before us.
18. At the outset it may be stated that the assessment order passed in the impugned case has been set aside by us in para 10 of the order since the notice issued u/s 148 has been held to be invalid. Therefore the grounds raised on the merits of the case remain merely academic in nature. Having said so, we still proceed to adjudicate the ground raised by the assessee. The issue before us is that if the amounts received in "earmarked funds" as "Funds Pending Utilization" is treated as voluntary contributions and included in the income of the assessee, whether utilization of the assessee income exceeds the statutorily specified limit of 85% for the purpose of claiming exemption of income u/s 11.
19. We find that while the Ld. AR claims that the utilization / application of income during the year exceeds 85% of its income including that received in earmarked funds, the claim of the Revenue is that, the utilization of income of the current year is to be first adjusted against the opening balance of "Funds Pending Utilization" and only remaining can be treated as utilization of income for the current year which comes to less than 85% thus disentitling the assessee to claim exemption u/s 11.
20. We find that identical issue had come up for consideration in A.Y. 2006-07 to A.Y. 2009-10 in the case of the assessee, wherein the Ld. CIT(A) had after 13 examining the books of accounts of the assessee given a categorical finding that starting from F.Y. 1999-2000 the utilization of "Fund Pending Utilization" of exceeded 85% in every year Ld. CIT(A) at para 4 - 4.3 of his order had held as follows:-
"The rival submissions have been carefully considered with reference to the facts of the case, the books of accounts produced, the audited balance sheets and income & expenditure statements w.e.f. the A. Y.2000-2001 and the case laws relied upon. It is noted that the appellant is a charitable origination established for the purpose of carrying out various activities which could ensure that all Tibetan Children achieve a firm cultural identity and become self-reliant and contributing members of the community. To achieve this purpose, the trust undertakes various projects for providing education, vocational trainings and other social and cultural support system to such children. It is further noted that a particular accounting practice of the appellant had led to the passing of an order u/s 263 of the Act. As per this practice, the funds received specifically for the earmarked projects were not routed by the appellant's auditors through the income & expenditure account. But the same were accounted for straightaway in the balance sheet under the head 'specific funds pending utilization'. On the basis of the said entry, the CIT, Shimla, while passing the order u/s 263, concluded that the funds received by the appellant for specific purposes were all voluntary contributions within the meaning of section 12 (1). since the said funds were not received with any specific directions that they shall form part of the corpus of the trust. At the same time, however. the CIT directed the A.O. to determine the portion of such funds which were utilized during the year towards the objects of the institution and to include such amount in the gross amount utilized during the year. The amount by which such application fell short of 85% of the income received, after considering the amount accumulated u/s 11(2), was directed to be taxed as the income of the year.
It is noted that while complying with the directions of the CIT, Shimla, the Ld. A.O. has taken into consideration the amount utilized during the year towards the objects of the institution, but has made no effort to ascertain the amount accumulated u/s 11(2). Accordingly he has not given the complete credit of such utilization to the appellant on the ground that the amount utilized was first to be set off against the opening balance under the given head. Thus the Ld. A.O. has ended up giving the credit of utilization of the funds to the appellant only to the extent the spending during the year exceeded the opening balance. While doing so, the Ld. A.O. has made no effort to trace the history of the appellant's accounts and the audited balance sheets submitted with the returns of income. It is noted that the practice of not routing the donations received for specific purpose though the Income f% Expenditure account has been followed by the appellant since the inception of the society, which was accepted as such by the Revenue. Therefore it was considered necessary to ascertain the pattern of accumulation of funds under the head fund pending utilization account'. While the Ld. A.O. has taken the gross receipts including the opening balances under consideration, he has paid no attention to the expenditure in the earlier years and to the net savings of the earlier years. It was noted that the appellant is maintaining its accounts separately in respect of the head office and also in respect of certain large projects like TCV Patlikuhl, SOS TCV Bylakuppe, SOS TCV Suja Bir, Lower TCV School, Dharamsala, etc. Thus, there are entries showing the transfer of funds from the head office to the various projects and vice-versa. Similarly, there are internal transfer entries from one unit to another unit on temporary borrowing and return basis. The fund pending utilization account' has been shown on the liability side of the balance sheet and the corresponding expenditure has been recorded on the assets side of the balance sheet. Thus the receipts and expenditure in respect of the donations received for specific projects have been accounted for in the balance sheet, instead of the income & expenditure account. But a scrutiny of the books of accounts of the appellant shows that no expenditure was incurred in respect of any receipt on anything other than the projects being undertaken by the appellant in accordance with its proclaimed objectives. On the basis of the entries in the balance sheet of the 14 appellant, which have also been duly accepted by the Ld. A.O. as clearly mentioned in the assessment order, the re-cast Income & Expenditure accounts of the appellant w.e.f. the assessment year 2000-01 were examined with a view to ascertain the exact pattern of accumulation in the fund pending utilization account, it is noted that starting from the F.Y. 1999-2000, the utilization of the 'fund pending utilization account' far exceeds 85% in every year. It was 179.65% in the F.Y. 1999-2000, 107.32% in the F.Y. 2000 01. 101% in the F.Y. 2001-02, 106.52% in the F.Y. 2002-03, 115.75% in the F.Y. 2003-04 and 526.40% in the F. Y. 2004-05. In the year under consideration, it was 151.38%) out of the earmarked funds. The utilization out of the other funds received, during the year towards the corpus of the Trust is 85.22%. Thus the total utilization out of the gross receipts is 93.30%- which is totally towards the charitable purposes. Thus it is clear that the appellant had not, in fact, accumulated any amount w.e.f. F. Y. 1999-2000, even though it was entitled to accumulate 25%/15% every year. Going by the said permissible accumulation, the appellant could have accumulated a huge amount under the "fund pending utilization" account. It was, therefore, not considered necessary to go into the details of the appellant's accounts beyond the financial year 1 999-2000.
4.2 In view of the above fact, it was not fair on the part of the Ld. A. 0. not to pay attention to the directions of the CIT, Shimla as per his order u/s 263 and to completely ignore the fact of the previous accumulation of funds within the permissible to club the old balances with the current receipts and to work out the % of expenditure from the gross total applying the FIFO method in an arbitrary manner. Thus the Ld. A.O. has made a fundamental error while calculating the 85% spending of the funds received by combining the accumulated opening balance with the receipts of the year under consideration.
On the basis of the discussion above, it is held that the appellant had, in fact, spent much more than 85% of its receipts under the head funds pending utilization' and also of the total receipts and the entire spending was towards the charitable purposes. Thus there was no income accumulated or set apart in excess of 15% of the income during the year under consideration. Therefore, the addition of Rs. 3,90,33,503/- made by the Id. Assessing Officer on account of deficiency in application of funds for charitable purposes is not found to be in order and is directed to be deleted."
Following the same, the Hon'ble ITAT had dismissed the Departments Appeal and upheld the findings of the Ld. CIT(A)
21. From the above we find that the Ld. CIT(A)has given a categorically finding for the impugned assessment years also, that the utilization of funds pending utilization exceeded 85%, which has been upheld by the ITAT. We therefore find no merit in the argument of the Ld. DR and hold that even if the funds received in the "Funds Pending Utilization" account treated as voluntary contribution, the utilization by the assessee exceeds 85% and the assessee is entitled to claim exemption u/s 11 of the Act.
22. The ground of appeal of the assessee are therefore allowed.
23. In the result, appeal of the assessee i s allowed.
15ITA No. 253/Chd/2015
24. Since the facts and issues involved in this appeal are identical to I TA No. 252/Chd/2015, the finding given by us in I TA No. 252/Chd/2015 will apply mutatis mutandis.
25. In the result both the appeals of the assessee are allowed.
Order pronounced in the Open Court.
Sd/- Sd/- (BHAVNESH SAINI ) (ANNAPURNA MEH ROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 20/01/2016 AG
Copy to: 1. The Appellant, 2. The Respondent, 3. The CIT, 4. The CIT(A), 5. The DR