Income Tax Appellate Tribunal - Amritsar
Sardarni Uttam Kaur Educational ... vs Ito on 6 October, 2006
ORDER
Joginder Pall, A.M.
1. This is a bunch of six appeals out of which four have been filed by the assessee against the consolidated order dated 21-5-2002 of Commissioner (Appeals), Bhatinda, for the assessment years 1994-95, 1995-96, 1997-98 and 1998-99 and two appeals have been filed by the revenue against the same order of Commissioner (Appeals). for the assessment years 1995-96 and 1996-97. Since the issues involved in the appeals filed by the assessee and by the revenue are inter-related and arise from the same consolidated order of Commissioner (Appeals), all the appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. At the time of hearing of the appeals, the learned Counsel for the assessee submitted an application of the assessee dated 20-11-2005 requesting for admission of the following additional ground of appeals for the assessment years 199495,1995-96,1997-98 and 1998-99:
That the order under appeal is void ab initio as legal requirements for supplying copy of reasons recorded have not been supplied and the reasons as mentioned by the learned Commissioner (Appeals) in his order does not show that any income has escaped assessment. It only talks of the inapplicability of the provisions of section 10(22) of the Income Tax Act.
Neither the status of the assessee can be changed in proceeding under section 148 nor any assessment can be framed without including income which is alleged to have escaped assessment or underassessed."
The learned Counsel for the assessee submitted that the above additional ground is purely legal in nature for which relevant facts are already on record. He, therefore, submitted that the same deserves to be admitted in view of the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd v. CIT .
3. The learned departmental Representative, Sh. Achal Sharma, conceded that the additional ground raised by the assessee for all the assessment years was purely legal in nature and, therefore, there was no objection to the admission of additional ground.
4. We have heard both the parties and carefully considered the respective submissions, The additional ground raised by the assessee is purely legal in nature for which relevant facts are already on record. Relying on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra), the additional ground raised by the assessee for all the abovementioned assessment years is admitted.
5. In all the appeals filed by the assessee, the following identical issues with variation in amounts have been raised:
"That the learned Commissioner (Appeals) has failed to appreciate the facts and circumstances of the case and has thereby erred in holding donations of Rs. 2,40,051 for the assessment year 1994-95 (Rs. 1,76,000 for the assessment year 1995-96, Rs.88,500 for the assessment year 1997-98 and Rs.2,89,000 for the assessment year 1998-99) received towards corpus fund from various donors duly reflected in the balance sheet as taxable. Donations towards corpus fund are exempt under Section 11(1)(d) of the Income Tax Act, 1961.
In view of the above stated facts and circumstances it is prayed that the addition upheld by the Commissioner (Appeals) may kindly be deleted or such other relief be granted as is deemed fit."
6. In the appeals filed by the revenue for the assessment years 1995-96 and 1996-97, the following identical grounds have been raised:
(i) The learned Commissioner (Appeals) has erred in allowing the status of 'Trust' as against 'AOP' assigned by the assessing officer.
(ii) That the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 25 lakhs (Rs. 29 lakhs for the assessment year 1996-97) received by the assessee as donations from the Tilok Tirath Vidyawati Chuttani Charitable Trust holding that donations formed the corpus of the trust and the trust was not liable to tax.
(iii) That the learned Commissioner (Appeals) has erred in relying upon the certificate which was not produced before any of the authorities during the assessment proceedings and the applicant was not entitled to produce fresh evidence before the appellate authority under Rule 46A of the IT Rules, 1962.
(iv) That the learned Commissioner (Appeals) has erred in not appreciating the fact that the representatives of the assessee invested the funds in companies in which they were substantially interested and the funds were not used for the purposes for which the trust was created. Further, the assessee was not running any educational institution for which it was eligible for exemption under Section 10(22) or under sections 11 and 13 of the Income Tax Act, 1961.
(v) That it is prayed that the order of the learned Commissioner (Appeals) be set aside and that of the assessing officer be restored."
7. The facts of the case common to all the assessment years are that the assessee filed the returns of income for the assessment years 1994-95, 1995-96, 1996-97, 1997-98 and 1998-99 on 1-7-1994, 30-6-1995, 28-6-1996, 27-6-1997 and 17-8-1998 respectively declaring therein nil income as the assessee had claimed exemption in respect of its income under Section 10(22) of the IT, 1961 (in short the Act) on the plea that the assessee was an educational institution . These returns were processed under section 143(1)(a)/143(1) of the Income Tax Act, 1961. Subsequently, it appears that the assessing officer carried out enquiries with the prior permission of the CIT under Sub-section (6) of section 133. Such enquiries revealed that assessee was not running any educational institution/school/college/ vocational institute at village Sarai Naga or its surrounding areas. There was only a sign board of its name, placed outside a room occupied by security guard of Brar family. The. Assessing Officer observed that in the absence of any educational institution/school or building for educational purposes, the assessee was not entitled to exemption claimed under sub section (22) of Section 10 of the Act and the funds have not been utilized for this object. The assessing officer, therefore, initiated action under section 147 by issue of notices under Section 148 on 2-3-2000. In response to said notices, the returns declaring nil income were filed for all the assessment years. Thereafter, the case was picked up for scrutiny. The assessing officer issued a detailed questionnaire and observed that the assessee failed to furnish replies in respect of Q. Nos. 1, 2 and 4. Question Nos. 4 and 6 were not fully answered. The assessing officer observed that in the returns of income filed, the assessee had mentioned Code No. 08 for AOP (trust). However, the assessee was a society registered with registrar of societies. The assessing officer observed that the assessee had claimed wrong status and it was repeatedly asked to clarify the, position by issue of several notices/letters. But the same was not properly explained. The assessing officer, therefore, adopted the status as an AOP with Code No. 07 for all the assessment years. 7.1 During the course of assessment proceedings, the assessee was asked to explain how it had claimed exemption in respect of its income under section. 10(22) of the Act whereas no expenditure was incurred and the income was utilised for educational purposes. The assessee stated that the institution has been formed with the sole object of setting up educational institute/college. However, the same could not be set up due to non availability of sufficient funds. The assessee had claimed exemption under section 10(22) because it had reimbursed the school tuition fee. It was also explained that funds collected had been invested in certain limited companies for the better returns and secured investments. Thus, it was contended that it had not violated the provisions of Section 11 and 12 of the Act. The assessing officer examined such explanation and observed that the list of students to whom tuition fee had been reimbursed were studying in premier schools/colleges of Chandigarh, Panchkula & Mohali and the students belonged to the elite class who could very well afford the study. Thus, the contention of the assessee that object was to help needy students in backward area was factually incorrect. He also observed that students to whom such fee was reimbursed belonged to the families who were closely connected with Brar family or the persons who made donations to the society. He specifically mentioned such names on p. 5 of the assessment order. He also observed that assessee reimbursed a meagre sum of Rs. 1,41,305 by way of tuition fee to some students out of funds available of Rs. 79,41,734 collected by the assessee. He also observed though the society was registered with the Registrar of Societies in 1993, the only action taken by the assessee was to purchase the land for an amount of Rs. 15,41,250. The balance amount was invested in share application money and also deposits in various companies of Brar family who were members of the assessee society. He also observed that major chunk of donations amounting to Rs. 54,00,000 had been received from Tilok Tirath Vidyawati Chuttani Charitable Trust, of which Dr. Choutani was a founder member and he had very close relations with Brar family. He also observed that the assessee was not entitled to exemption under Section 10(22) of the Act because it was not running any educational inslilute/school/college/vocationaI institute itself. He relied on the judgments of Hon'ble Madras High Court in the cases of CIT v. Devi Educational Institution and in the case of Addl. CIT v.
Aditanar Educational Institution upheld by the Hon'ble Supreme Court in Aditanar Educational Institution Etc. v. Asstt. CIT where it was held that if the assessee was not running a school or college itself, the assessee would not be entitled to exemption of its income under section 10(22) of the Act. He further relied on the judgment of Hon'ble Gujarat High Court in the case of CIT v. Sorabji Nusserwanji Parekh, , where it was held that in the absence of any educational institution established for educational purposes, it could not be said that the trust was carrying on educational activities. He also relied on the decision of Tribunal, Pune Bench, in the case of Bhaskaracharya Pratishthan v. Asst. CIT (1995) 52 ITD 28 (Pune) and decision of Tribunal, Bombay Bench in the case of Shri Bhanbai Nenshi Mahila Vidyalaya v. ITO (1986) 26 TTJ (Bom) 79 :
(1986) 18 ITD 115 (Bom). He observed that in the present. case the assessee has not been able to establish its own institution though it had been in existence for the last 8 years.
That apart it had not even undertaken any activity other than buying a land for setting up the institution or even related to educational field. He also observed that sole purpose of setting up the society was to act a conduit to route money received from other trusts and certain individuals to the companies run by Brar family on purely commercial consideration. He referred to the judgment of Honble Supreme Court in the case of McDowell & Co. Ltd. v. CTO to come to conclusion that it was merely a collusive device to evade tax. The assessing officer also observed that the major portion of donations amounting to Rs. 54 lakhs had come from Tilok Tirath Vidyawati Chuttani Charitable Trust, whose founder member was Dr. P.N. Choutani. Dr. P.N. Choutani was a close family member of Brar family. The said trust namely, Tilok Tirath Vidyawati Chuttani Charitable Trust had claimed exemption in respect of donations given to the assessee on the ground that this institution was set up for educational purposes duly recognized and registered by CIT under sections 80G and 12A of the Act. However, by referring to the results of enquiries made in this case which revealed that assessee had not set up any educational institution, the assessing officer having jurisdiction over the case of Tflok Tirath Vidyawati Chuttani Charitable Trust, disallowed the exemption claimed in respect of donations given to the assessee. The assessee filed an appeal before the Commissioner (Appeals) against the said order. The assessing officer referred to the observations made by the Commissioner (Appeals) in the order passed in the case of Tilok Tirath Vidyawati Chuttani Charitable Trust, where she had observed that Sardarni Uttam Kaur Educational Society had not rendered any worthwhile services in the field of nursery education and the funds received have been misutilised by the trustees of the assessee trust. He also observed that if any trust to whom donations have been given does not deploy/invest/utilise its funds in accordance with the objects and the various modes and forms mentioned under section. 11(5) of the Act, such donations are liable to forfeiture of exemption by virtue of Section 13(1)(d) of the Act. After drawing the support from the said order of the Commissioner (Appeals), the assessing officer observed that the donations received from Tilok Tirath Vidyawati Chuttani Charitable Trust, were invested in share application money of the companies and also as deposits in the business concerns in which the members of the Brar family were in full control. Thus, he held that the assessee had violated the provisions of Section 13(1)(d) and was, therefore, not entitled to exemption of its income under sections 10(22) and 11 of the Act. The assessing officer, therefore, completed the assessments for the abovementioned years by disallowing exemptions both in respect of its income and donations received from the various persons in the respective assessment years.
8. Aggrieved with the order of the assessing officer, the assessee filed appeals before the Commissioner (Appeals), where the action of the assessing officer for initiating reassessment proceedings was inter alia challenged. It was submitted before the Commissioner (Appeals) that the trust was established with a view to open, run, continue an educational and vocational institution in healthy surroundings. The returns for all the assessment years were filed in the status of trust which was also registered by the CIT under Section 12A of the Act. The returns were processed under Section 143(1)(a). It was submitted that the assessing officer misdirected himself by considering the claim for exemption of its income under Section 10(22) of the Act instead of considering the same as per provisions of sections 11 and 12 of the Act. However, while denying the exemption, the assessing officer totally overlooked the nature of donations received i.e. whether the same were towards corpus or for its application. It was submitted that the donations received from Tilok Tirath Vidyawati Chuttani Charitable Trust, were towards the corpus of the trust. The assessee also filed a photocopy of the certificate in confirmation of the donations given for corpus by the said trust. It was also submitted that the assessee was not supplied a copy of reasons recorded by the assessing officer for issuing notices under Section 148. Therefore, the action of the assessing officer for reopening the assessments was void ab initio. This fact was strongly disputed by the Jt. CIT, who contended that such reasons were supplied to the Authorised Representative. The assessing officer also submitted before the Commissioner (Appeals) that enquiries made during the course of assessment proceedings revealed that the assessee had not established any educational institution/school/college/ vocational institute and, therefore, the assessee was not entitled to exemption under Section 10(22) of the Act. Further, the donations received were also diverted to business concerns of Brar family and were not utilized for the objects for which the trust was set up. Members of Brar family were the members of the assessee society. It was, therefore, submitted that the assessments had been rightly reopened and claim for exemption in respect of its income under Section 10(22) of the Act has also been rightly denied by the assessing officer. The issue regarding completion of assessments in the status of an AOP with Code No.07 was contested and it was contended that assessee was a trust and, therefore, the assessment was to be made in the status of a trust with Code No. 8. The learned Commissioner (Appeals) considered these submissions and held that since the trust was set up for running an educational institution/school/college or vocational institute and the same was not found in existence when enquiries were made by the department, the assessee was not entitled to exemption under Section 10(22) of the Act. He, therefore, held that the assessing officer had rightly initiated reassessment proceedings and the same were valid.
8.1 The learned Commissioner (Appeals) observed that the donations of Rs. 54 lakhs were given by Tilok Tirath Vidyawati Chuttani Charitable Trust of which Dr. P.N. Choutani was founder member. Dr. P.N. Choutani was very close with Brar family. However, he observed that this fact itself could neither go against the assessee nor in its favour more so when the learned Commissioner (Appeals), Chandigarh, has accepted the claim of Tilok Tirath Vidyawati Chuttani Charitable Trust for exemption in respect of donations given to the assessee trust on the ground that once the donations have been given to a trust recognized/registered as charitable purpose, it had no power to withdraw the same even if the said trust i.e. Assessee trust had misused the said donations under the Act. As regards the claim of the assessee that it had filed returns in the status of a trust, the revenue had contended that the assessee was a society and the same has been registered with registrar of societies. Therefore, the status of the assessee was taken as an AOP with Code No.7. Revenue has also stated that even during the course of assessment proceedings, the assessee could not prove its status as that of a trust despite various opportunities allowed. Revenue had also contended that during the course of assessment proceedings, the assessee failed to furnish any evidence or even certificate that donations of Rs. 54,00,000 received from Tilok Tirath Vidyawati Chuttani Charitable Trust, were towards corpus of the trust mentioned in clause (d) of Sub-section (1) of Section 11 of the Act. Relying on the decision of Tribunal, Bombay Bench in the case of Prabodban Prakashan v. Asst. DIT (1994) 50 ITD 135 (Bom), it was submitted that the certificate issued by the trustee of the donor trust dated 2-5-2002 was merely an afterthought and should not be accepted. Thus, it was submitted that the, assessee was not entitled to exemption under Section 11(1)(d) in respect of voluntary donations received from the said trust. The learned Commissioner (Appeals) considered these submissions and observed that apart from the fact that the assessee was registered with the Registrar of Societies, Punjab, on 21-7-1993, the trust was also registered under Section 12 by the CIT, Jalandhar vide order dated 21-9-1993. The assessee was also granted exemption under Section 80G of the Act. By referring to the certificate dated 2-5-2002 of Tilok Tirath Vidyawati Chuttani Charitable Trust that donations of Rs. 25 lakhs and Rs. 29 lakhs received from the said trust in the assessment years 1995-96 and 1996-97 respectively were towards the corpus and not towards its income, the learned Commissioner (Appeals) held that the same qualified for exemption under Section 11(1)(d) of the Act for these two assessment years. However, he observed that the income arising from the donations was not utilized for the objects for which it was set up and violated the provisions of Section 11 and 13 of the Act, such income was not exempt. He further observed that correct status of the assessee was a trust with Code No. 8 and not an AOP with Code No.
7. While holding the view that the assessee had contravened the provisions of section 13(1)(d) of the Act, the learned Commissioner (Appeals) took note of the fact that the funds received or invested in the firms, companies and other entities where the trustees and their family members had substantial interest were not eligible for exemption under Section 11 of the Act. While taking such view the learned Commissioner (Appeals) held that other receipts in the form of voluntary donations were not entitled to any exemption because the assessee failed to furnish any evidence that those were given at the specific direction that these shall form part of the corpus of the Trust Act. The assessee is aggrieved with the order of the Commissioner (Appeals) for the aforesaid four assessment years and the revenue is also aggrieved with the order of Commissioner (Appeals) for the assessment years 1995-96 and 1996-97 for allowing exemption in respect of donations of Rs. 25 lakhs and Rs. 29 lakhs respectively. Hence, these appeals before us.
9. The learned Counsel for the assessee, Sh. B.M. Khanna filed written submissions vide his letter dated 7-9-2006 and also reiterated the submissions which were made before the authorities below. He submitted that all the returns filed for the assessment years under consideration were processed under Section 143(1)(a). Thereafter, reassessment proceedings were initiated under Section 147 by issue of notices under section 148 on 2-3-2000 for all the assessment years. However, the reasons recorded for initiating the reassessment proceedings were not supplied to the assessee. Relying on the two judgments of Honble Allahabad High Court in the cases of Herbs (India) (P) Ltd. v. Dy. CIT and Anand Kumar Sharma v. Asst. CIT and the decision of Tribunal, Bombay Bench in the case of Dy. CIT v. Maharashtra State Corporation (a copy not supplied to the Bench), the learned Counsel submitted that it was mandatory on the part of the assessing officer to communicate the reasons recorded under Section 148 so as to enable the assessee to make its submissions on the legal aspect of reopening the assessments. He further referred to the identical stereotyped reasons recorded by the assessing officer which were supplied to the assessee as per directions given by the Bench. The learned Counsel submitted that assessments had been reopened on the ground that the assessee was not entitled to exemption in respect of its income under Section 10(22) of the Act. However, the assessing officer had included all receipts in the form of donations, subscriptions and interest income as the income which had escaped assessment. The learned Counsel submitted that all the returns were accompanied by audited accounts and balance sheet and loss of Rs. 5,208, Rs. 13,674 and Rs. 16,500 was shown for the asst yrs. 1994-95, 1997-98 and 1998-99 respectively after adjusting the income applied against the receipts. Only for the assessment year 1995-96., the assessee had shown income of Rs. 12,097. The audited accounts indicated that donations were received towards corpus. Thus, the inference drawn by the assessing officer that income of the amounts mentioned in the reasons recorded were untenable in view of the fact that the assessee was a trust registered with the CIT under Section 12A in the year 1993 and, therefore, the income of the trust was to be considered only as per provisions of sections 11 and 12 of the Act irrespective of the fact that the assessee had claimed exemption in respect of its income under Section 10(22) of the Act. Thus, the learned Counsel submitted that reassessment proceedings have been initiated on the basis of irrelevant facts for making fishing and roving enquiry. He further submitted that the law casts a duty on the assessing authority to complete an assessment on the same person to whom a notice under Section 148 has been issued and change in status vitiates the order. However, he submitted that the learned Commissioner (Appeals) has restored the status to the assessee as a charitable institution for all the assessment years with Code No. 08. The department has challenged the findings for the assessment years 1995-96 and 1996-97, but has accepted the findings of the learned Commissioner (Appeals) for the assessment years 1994-95, 1997-98 and 1998-99. He relied on the decision of Tribunal, Visakhapatnam Bench, in the case of Jashua Gootam v. Asst. CIT (2003) 80 TTJ (Visakha) 658 : (2003) 85 ITD 727 (Visakha), where it was held that without mentioning the status in notice itself i.e. oral trust, the assessment completed in pursuance of such an illegal notice issued under Section 148 was invalid and, therefore, was to be quashed. He submitted that in proposal sent to the Jt. CIT for initiating the reassessment proceedings under Section 147, the status of AOP (society trust) has been written in hand which shows interpolation at a later date. Relying on the judgment of Honble Allahabad High Court in the case of CIT v. Ishwar Singh & Sons (All), the learned Counsel submitted that issue of a valid notice under Section 148 is a condition precedent and the same must be issued to a specific assessee. Thus, he submitted that the assessment proceedings initiated for making roving and fishing enquiries were invalid and bad in law. He submitted that it is clear from the order of the Commissioner (Appeals) that the assessee had furnished a certificate from Tilok Tirath Vidyawati Chuttani Charitable Trust to show that donations of Rs. 54 lakhs given to the assessee were with a specific direction that they shall form part of the corpus of the trust. He submitted that the assertion of the revenue that this evidence was furnished only before the Commissioner (Appeals) was not correct. Thus it was submitted that the donations received towards corpus for setting up nursery schools were exempt and not subject to tax as per Section 11(1)(d) of the Act. He also relied on the judgment of Honble Punjab & Haryana High Court in the case of Vipan Khanna v. CIT where it was held that reassessment proceedings could be initiated only in respect of income escaping assessment or in cases of underassessment and not for making roving and fishing enquiries. He also stated that audited accounts indicated that even the remaining donations were for the corpus of the trust and these were so included in the accounts of the assessee. He submitted that Commissioner (Appeals) was not justified in confirming the additions in respect of other donations. Thus, he submitted that the appeals of the assessee deserve to be allowed for the reason that initiation of proceedings by the assessing officer under Section 147 was illegal and bad in law and the assessee was entitled to exemption in respect of the income and voluntary donations.
10. The learned departmental Representative, Sh. Achal Sharma, filed written submissions vide his letter dated 21-4-2006. He submitted that the contention of the assessee that assessment orders passed by the assessing officer were void ab initio, was not correct because it was neither a case of absence of any reason nor there was any lack of jurisdiction or any basic flaw in the assumption of jurisdiction. He submitted that it is a fact that in all the returns filed for the assessment years under consideration that the assessee had claimed exemption in respect of its income under section 10(22) of the Act. He also drew our attention to p. 2 of the assessment order and copy of reasons recorded for all the assessment years which indicated that enquiries made with the permission of CIT under Section 133(6) of the Act revealed that the assessee had not set up any educational institution/school or college at village Sarai Naga and there was only sign board of its name outside the room occupied by the security guard of Brar family of Sh. H.S. Brar. Thus, he submitted that the claim of the assessee for exemption under Section 10(22) of its income was not found to be valid. The assessing officer was, therefore, justified in forming a reason to believe that income chargeable to tax had escaped assessment. He submitted that for this purpose, the income not only included earnings of the assessee on the funds by way of interest, but also included voluntary donations and subscriptions. These were duly taken into account by the assessing officer while recording the reasons for initiating reassessment proceedings. He further submitted that the contention of the assessee that the Jt. CIT. had accorded his approval without due application of mind was factually incorrect because such approval was granted only after due application of mind and on the basis of the reasons recorded by the assessing officer. He also submitted a copy of letter dated 28-2-2002 where proposal submitted by the assessing officer under Section 147 was duly approved and returned to the assessing officer. As regards the contention of the assessee that reasons recorded under Section 148 were not communicated to the assessee, the learned departmental Representative submitted that this was a non-issue. He submitted that records revealed that there were some correspondence of the assessing officer with the counsel of the assessee with Sh. Kapil Khanna. Vide his letter dated 9-1-2001, the assessing officer informed him since Sh. Khanna was not authorised person as there was a change in counsel, the copy of the reasons could not be given to him. He further submitted that assessing officer vide his letter dated 29-1-2001 had informed the assessee that for obtaining the copy of reasons recorded, the assessee was required to pay the prescribed copying fee which had not been paid. A copy of this letter is placed at p. 3 of the paper book. Thereafter, the proceedings were attended by Sh. Taran Chugh, accountant and Sh. R. K. Rathore, chartered accountant, who appeared before the assessing officer upto the conclusion of the assessment proceedings. He enclosed therewith copies of the notings in the order-sheets and submitted that no demand for supply of reasons was raised by the authorized representative of the assessee, which only showed that either reasons were supplied to the assessees representative or otherwise, this no longer remained the issue with the assessee. He further submitted that the object of the requirement of supply of reasons under Section 148 was only to ensure that there was no denial of opportunity to the assessee. He drew our attention to the notings made in the order-sheet during the period 8-2-2001 to 15-3-2002 which showed that ample opportunities were given to the assessee during the course of assessment proceedings. He also referred to annex. 1, 2, 3 and 4 of the assessment orders which are copies of questionnaires issued by the assessing officer under Section 142(1)/143(2) on 25-4-2001, 16-7-2001, 3-9-2001 and 5-3-2001 where specific information was called for. He particularly drew our attention to question No.3 of questionnaire dated 25-4-2001 (Annex.-l) where the assessee was specifically asked to furnish details of expenses incurred and utilization of income as provided under sections 11 and 12 to show that 75 per cent of its income had been expended or utilized for the objects for which the society had been set up. The assessee was also asked to furnish details of the investment and the difference between the corpus fund and investment fund in view of the submissions that only corpus has been invested and no income was utilised. He then drew our attention to pp. 2 and 3 of the assessment order where the assessee failed to furnish reply in respect of question Nos.1, 2 and 4 and Q. No.3(iii) and 6 were either not specifically answered/fully answered. He further referred to Q.No.5 of Annex.-H, where the assessee was asked to furnish relationship of the members of the society with the companies mentioned therein, directors and persons having substantial interest in respect of which the assessee had stated that members of the society were also directors. However, this information was not furnished and again vide letter dated 3-9-2001 (listed as Annexure A-III of the assessment order), the assessee was asked to furnish- details of relationship of the members of the society with those of directors/persons interested in the companies/firms/ business concerns having substantial interest along with their names and addresses etc. Again such information was not furnished. Thus, he submitted that the assessee has been avoiding furnishing of such information even upto the date of the completion of the assessments. He further referred to p. 27 of the paper book filed by the assessee for the assessment year 1996-97 which is a copy of letter dated 13-2-2001 of the assessee, which is unsigned and is not on the assessment record of the assessee. He submitted that in this letter a reference has been made in para 2 of non-supply of the reasons recorded under Section 148. He submitted that the letter which is on the file of the assessing officer does not contain any request for supply of the reasons recorded under Section 148. He submitted that the assessee was fully aware of the reasons recorded and had been given full opportunity during the course of assessment proceedings. As regards the status of the assessee, the learned departmental Representative relied on the judgment of Hon'ble Supreme Court in the case of Income Tax Officer v. Ch. Atchaiah , where it was held that the assessing officer must tax the right person and right person alone. It was also held that merely because a wrong person is taxed with respect to particular income, the assessing officer is not precluded from taxing the right person with respect to that income. He submitted that the judgment of Hon'ble Supreme Court was also with reference to the assessment to be made in the correct status by way of issue of notice under Section 148. He submitted that in this case, the assessee was repeatedly asked to explain how the status was claimed in the return as AOP (trust). However, the assessee evaded explaining this matter during the course of assessment proceedings. Thus, he submitted that the assessment had been rightly made in the status of AOP with Code No. 7.
10.1 The learned departmental Representative, further submitted that in this case enquiries made by the assessing officer has confirmed that the assessee had not at all set up any educational institution for which it was formed. Therefore, the assessee was not entitled to exemption in respect of its income under Section 10(22) of the Act as claimed in the returns of income filed for the various assessment years under consideration. He submitted that it is also a fact that the assessee had diverted voluntary donations received mainly from Tilok Tirath Vidyawati Chuttani Charitable Trust amounting to Rs. 54 lakhs to the companies and business concerns of Brar family, who were members of the society and thereby violated the provisions of Section 13(1)(c) of the Act. He submitted that during the course of assessment proceedings, the assessee only furnished the list of persons from whom donations have been received but evaded to indicate the relationship with members of the assessee's society though specifically asked for by the assessing officer. He particularly referred to pp. 15 to 18 of the paper book filed for the assessment year 1995-96 which contains list of persons from whom donations were received. He further referred to the provisions of Section 13(3) which mentions the persons covered under clause (c) of sub-section (1) and Sub-section (2) of Section 13 of the Act and it is not disputed by the assessee that these persons were not (sic) covered under these sections. He further referred to the provisions of clause (h) of Sub-section (2) of Section 13 which provide that if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year, in any concern, in which any person referred to in Sub-section (3) has a substantial interest, the assessee would not be entitled to exemption under Section 11 of the Act. He further relied on the judgment of Hon'ble Andhra Pradesh High Court in the case of T. Bapanaiah Vidyadharma Trust v. CIT where the funds referred to in clause (h) Sub-section (2) of Section 13 of the Act have been held to include both corpus as well as the income derived from. Thus, he submitted that despite the fact the learned Commissioner (Appeals) has upheld the finding of the assessing officer that the assessee was not entitled to exemption in respect of its income under Section 10(22) and section 11 of the Act as it had invested funds in the business concerns and companies of the persons closely related to the members of the assessee society/trust, he was not justified in holding that the amounts of voluntary donations amounting to Rs. 54 lakhs received by the assessee during the assessment years 1995-96 and 1996-97 would be entitled to exemption under Section 11(1)(d) of the Act. He further stated that while deciding the appeals for the assessment years 1995-96 and 1996-97, the learned Commissioner (Appeals) has relied on a certificate dated 2-5-2002 of Tilok Tirath Vidyawati Chuttani Charitable Trust that donations were given to the assessee with a specific direction that these shall form part of the corpus. He submitted that this certificate was not filed during the course of assessment proceedings. The same was also not given at the time of making the donations. This was only an afterthought and did not deserve to be accepted by the Commissioner (Appeals). However, the learned Commissioner (Appeals) accepted a fresh evidence in the form of such certificate and deleted the additions made for the assessment year 1995-96 and 1996-97 without complying with the provisions of Rule 46A which inter alia required that such evidence should not be accepted without recording reasons in writing and also without allowing sufficient opportunity to the assessing officer to examine and furnish any contrary evidence. No such opportunity was allowed to the assessing officer. He submitted that the order of the Commissioner (Appeals) so far it relates to assessment years 1995-96 and 1996-97 is contrary to the provisions of the Act and IT Rules.
10.2 The learned Authorised Representative submitted byway of rejoinder that the certificate submitted before the Commissioner (Appeals) was not a fresh evidence. It was all along the claim of the assessee that donations have been received towards the corpus. He drew our attention to p. 12 of the paper book for the assessment year 199697 which is a copy of assessing officer's letter dated 27-1-1999 asking the assessee to furnish the details of corpus funds along with other information. He submitted that reply of assessee is at p. 13 of the paper book, where it was mentioned that details of the funds for the corpus of trust and mode of receipts were enclosed. He submitted a copy of letter dated 19-4-1999 placed at p. 14 of the paper book addressed to assessee which mentions about the manner of utilization of the donations. The assessee's letter dated 18-12-2000 is at p. 15 where it was mentioned that such information would be furnished only if the copy of reasons recorded were supplied. Thus, he submitted that the information in regard to the donations given to the corpus of the trust was supplied to the assessing officer during the course of enquiries made.
11. We have heard both the parties at some length and given our anxious consideration to the rival contentions, examined the facts, evidence and material placed on record. We have also gone through the orders of the authorities below and referred to the relevant pages of the paper book to which our attention has been drawn. We have also referred to the relevant judgments cited at the bar. Now the first issue that requires to be decided by this Bench is whether the assessing officer was justified in initiating the reassessment proceedings on the basis of evidence and material placed on record. Before recording our findings on this issue, we consider it appropriate to reproduce hereunder the provisions of Section 147 of the Income Tax Act, 1961 read with Expln. 2(c) of Section 147, which reads as under:
147. If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
Explanation 1 : .................
Explanation 2 : For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has, escaped assessment', namely:
(a) ..............
(b) ..............
(c) where an assessment has been made, but;
(i) income chargeable to tax has been underassessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed."
A bare reading of the above provisions of the Act shows that the assessing officer can initiate reassessment proceedings, if he has, "reason to believe' that any income chargeable to tax has escaped assessment for any assessment year subject to the provisions of sections 148 to 153 of the Act. In such a case the assessing officer is empowered to assess or reassess such income. Such escapement of income could be due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Such escapement of income could also be without any omission or failure on the part of the assessee to disclose fully and truly all material facts. The proviso to Section 147 provides that in case the assessment completed under Section 143(3) or section 147 is to be reopened after the expiry of four years from the end of the relevant assessment year, the assessing officer could take recourse to such action only if the escapement of income chargeable to tax was on account of assessee's failure to disclose fully and truly all material facts necessary for assessment. In case such assessment completed under Section 143(3) or Section 147 is to be reopened within a period of four years from the end of the relevant, assessment year or the assessment was completed under section 143(l)(a) or Section 143(1), it is not necessary to establish the escapement of income due to omission and failure on the part of the assessee to disclose fully and truly all material facts. But the conditions precedent for initiating the reassessment proceedings must exist before such action could be initiated by the assessing officer. Expln. 2(c) deals with deemed escapement of income where assessment has been made, but income chargeable to tax has been underassessed or such income has been assessed at too low a rate or such income has been made the subject matter of excessive relief under this Act or excessive loss or depreciation allowance or any other allowance under this Act has been allowed.11.1 The expression used in Section 147 is that if the assessing officer has 'reason to believe' that any income chargeable to tax has escaped assessment. The expression "reason to believe" used in Section 147 has special significance. It does not mean 'reason to suspect'. It is reasonable belief of a honest and reasonable person based upon reasonable grounds. The expression used is not 'satisfied'. The 'reason to believe' requires higher level of evidence and material than the requirement of satisfaction' of the assessing officer which essentially means the material which comes to the notice of assessing officer must be definite, specific and direct and not unspecific or vague. This issue was considered by the Hon'ble Supreme Court in the case of Income Tax Officer v. Lakhmani Mewal Das where the apex court observed that "reason to believe" does not mean "reason to suspect". The reasons for the formation of the belief contemplated under s, 147 necessary for reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of income of the assessee. The apex court further observed that it was not every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to the escapement of the income of the assessee from assessment. Again this issue was considered by the Hon'ble Supreme Court in the case of Ganga Saran & Sons (P) Ltd v. ITO (1981) 22 CTR (SC) 112 : (1981) 130 ITR (SC), where the apex court observed that expression "reason to believe" was stronger than the words 'satisfied'. The belief entertained by the assessing officer must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. If there is no rational and intelligible nexus between the reasons and belief, the reopening of the assessment would be without jurisdiction and bad in law. 11.2 The basis for initiating the reassessment proceedings is to be judged solely on the basis of reasons recorded by the assessing officer and the material and information referred to by the assessing officer in the reasons for initiating such action. It is settled law that assessing officer cannot initiate the reassessment proceedings merely on the basis of suspicion or for the purpose of making roving and fishing enquiries. The assessing officer cannot support the reopening of the assessment by collecting the material or by making enquiry subsequently after the date of initiation of the proceedings. Thus, the reopening of the assessment is to be seen on the date when the assessing officer initiated action under section 147. But at the same time the formation of the belief of the assessing officer is a prima facie belief on the date when he initiated the reassessment proceedings. It is not necessary that assessing officer must establish the factum of concealment/escapement of income on the date of initiation of the reassessment proceedings itself. The assessment reopened by the assessing officer is subject to normal procedure of assessment where the assessing officer is required to examine the case by issue of notices under section 143(2)/142(l) and allow an opportunity to the assessee. Later, if it turns out that there is no escapement of income, assessing officer can drop the proceedings initiated under Section 147 of the Act.
11.3 In the present case also, whether the assessing officer was justified in initiating reassessment proceedings or not has to be decided on the basis of material and evidence placed on record and the legal position discussed above. The undisputed facts of the case are that the assessee had filed returns for the various assessment years declaring therein nil income. All these returns were processed only under section 143(l)(a). Thus, there was no requirement on the part of the assessing officer to establish that the income had escaped assessments by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It is also a fact that in all the returns, the assessee had claimed exemption in respect of its income under section 10(22) of the Act Which is admissible in a case of an educational institution. The facts brought on record further confirm that this is not a case where the assessing officer directly initiated reassessment proceedings merely on the basis of returns filed by the assessee. It appears that substantial portion of donations amounting to Rs. 54 lakhs had been received from Tilok Tirath Vidyawati Chuttani Charitable Trust. Dr. P.N. Choutani was founder member of the said trust. Enquiries were initiated to find out as to how the donations given to the assessee-trust had been utilized by the assessee. Such enquiries were made after obtaining approval of the CIT under Section 133(6) of the Act before initiating the reassessment proceedings. The letter dated 27-1-1999 issued by the assessing officer to the assessee is at p. 12 of the paper book filed for the assessment year 1996-97. A perusal of the same shows that the assessee was asked to furnish information with regard to loans and advances given to various parties, details of bank deposits, the details of advances taken by the assessee, the details of creation of corpus fund etc. It was also mentioned by the assessing officer, failure to furnish information will result in action under Section 147 of the Act. The assessee's reply dated 15-4-1999 is placed at p. 13 of the same paper book, where the assessee has again reiterated its claim under Section 10(22) of the Act. The assessing officer issued another letter dated 19-4-1999 (copy placed at p. 14 of the paper book) stating that requisite information has not been furnished. The question of receipt of donations amounting to Rs. 25 lakhs and Rs. 29 lakhs from Tilok Tirath Vidyawati Chuttani Charitable Trust had been specifically asked from the assessee and the details of utilization of the same were also called for.
11.4 Thereafter, the proceedings under. Section 147 were initiated for all the assessment years on 2-3-2000. The assessees letter dated 18-12-2000 to the assessing officer stating therein that the reply/information as per questionnaire can be furnished only after receipt of reasons recorded by the assessing officer clearly show that the assessing officer tried to ascertain the position before initiating the reassessment proceedings under Section 147 and somehow the assessee has not fully complied with such information. On the contrary, the claim for exemption under Section 10(22) was reiterated. We have referred to the reasons recorded by the assessing officer which are similar in nature for all the assessment years. The same read as under for the assessment year 1994-95.
"Reasons for the belief that income has escaped assessment:
The assessee filed its return of income for the assessment year 1994-95 on 1-7-1994 declaring therein nil income processed under Section 143(1)(a) on 19-9-1994. The assessee in its return of income claimed the status of educational society by mentioning the code as '08'. The said return of income was accompanied by an audit report, income and application account, balance sheet which is reproduced hereunder:
Income and Application Account for the period ending 31-3-1994 :
Application Amount Income Amount To reimbursement of school fee 4,090 By interest 446 To bank charges 234 By excess of application over income 5,208 To misc. exp.80
To preliminary exp.750
To audit fees 500 5,654 5,654 Balance sheet as on 31-3-1994 Liabilities Assets Donations 2,34,551 Fixed deposit 75,000 Subscription 5,550 2,40,051 Add: intt. accr.446
75,446 Sundry creditors 1,250 bank bal.
1,420 Cash in hand Excess in application over income 5,208 2,41,301 2,41,301 In the return of income the assessee claimed the income of the society is exempt from income as per Section 10(22) of the Income Tax Act.
The assessee did not furnish the detail of donations received as well as subscription received totalling Rs. 2,41,301. The assessee did not furnish the copy of memorandum of rules and regulations as well as the objects of the society. From the copy of memorandum of rules and regulations, obtained from other sources, it is seen that one of the objects of the society is to open, run, continue an educational and vocational institution in healthy surrounding. On enquiries, it has been found that the assessee is not running any such educational institution/school/college or vocational institute etc. at village Sarai Naga or its surrounding areas whereas only a sign board of this name has been placed outside a room occupied by the security guard of Brar family of S. H.S. Brar, Ex. C.M. Punjab at village Sarai Naga. Thus, in the absence of any educational institution/school or building for educational purposes, the assessee is not entitled for exemption under Section 10(22) as the funds have not been utilized for this object. Therefore, I have reasons to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 to the extent of Rs.
2,45,701 i.e. donations, subscription and interest (Rs. 2,34,551 + 5,550 + 5,654). To assess the same approval to issue notice under Section 148 for the assessment year 1994-95 is sought."
A perusal of the reasons recorded show that the basis of the initiation of such action was exemption claimed under Section 10(22) of the Act. The assessing officer has referred to the results of enquiries made in this case which revealed that the assessee was not running any such educational institution/school/college or vocational institute at the given place and there was only a sign board of its name outside the room occupied by the security guard of family of Sh. H.S. Brar. The assessing officer has mentioned that in the absence of such educational institution, the assessee was not entitled to exemption under section 10(22) of the Income Tax Act and, therefore, he had reason to believe that income chargeable to tax in the form of donations, subscription and interest had escaped assessment. The same are the reasons for the subsequent assessment years with variation in the amounts. The results of enquiries incorporated by the assessing officer in the reasons recorded that assessee was not running any institution/school/college at the given place have not been controverted by the-assessee. Therefore, on the basis of.. such, information, the assessing officer was justified in forming a reason to believe that income chargeable to tax had escaped assessment more so when the assessee did not furnish the desired information before the assessing officer during the course of enquiries made before initiation of reassessment proceedings. We do not agree with the learned Authorised Representative that the assessments have been reopened only for making roving and fishing enquiries. The claim of the learned Counsel that the assessing officer should have seen the case in the light of exemption under sections 11 and 12 of the Act because the trust was registered with the CIT is without any merit. The assessing officer was required to confine himself to the claim made in the returns which was again reiterated in subsequent letter submitted by the assessee during the course of enquiries. Even the reliance of the learned Counsel on the judgment of Hon'ble Punjab & Haryana High Court in the case of Vipan Kbanna v. CIT (supra) is misplaced because in that case, the Hon'ble, High Court had upheld the reopening of the assessment on the point of allowing excess deduction of depreciation. The Honble High Court has clearly mentioned that what was required to be seen is whether the income chargeable to tax had escaped assessment or not. In case, the income has escaped assessment, the reopening of the assessment would be justified irrespective of the fact that the return was processed under Section 143(1)(a). We also rely on the subsequent judgment of Hon'ble Punjab & Haryana court in the case of Aditya & Company v. CIT , where the Honble High Court upheld the initiation of the reassessment proceedings in a case where the original return was processed under Section 143(1)(a). The Honble High Court held that processing of return is not a bar for initiating reassessment proceedings provided the income chargeable to tax had escaped assessment or under assessed. The plea of the assessee that as per returns filed, the net result for most of the years was a loss and, therefore, there cannot be escapement of income is again without any merit. This is a case of trust. While considering the case of a trust for exemption of its income, the meaning is different . It does not mean income computed as per provisions of the Act. It includes receipts in the form of voluntary donations also. If the income/receipts are utilized for investment in capital assets like construction of school building for the objects of the trust, the same would be considered application of income even though the expenditure incurred relates to capital field. In case, the assessee has not utilized the income or even the voluntary donations for objects of the trust and there are violations of the provisions of sections 13(1)(c) and 13(1)(d) of the Act, even the voluntary donations would not be entitled to exemption under Section 11 of the Act. In any case, at the time of recording the reasons, the assessing officer is required to prima facie form a reason to believe whether on the basis of evidence and material placed on record, there is escapement of income chargeable to tax. He is not required to conclusively establish this fact at the time of initiation of reassessment proceedings itself. Thus, the objection raised by the assessee on this ground is untenable and hence rejected.
11.5. The next objection of the assessee relates to non-communication of the reasons recorded under Section 148 to the assessee. We find that initially when Sh. Kapil Khanna was representing this case before the assessing officer, such request was made to the assessing officer. The correspondence placed on record further shows that the assessing officer asked the assessee to pay the requisite copying charges so that reasons recorded could be supplied. The assessee did not comply with the same. Later, there was a change in the counsel. The assessing officer wrote to the earlier counsel that since he was not an authorized person, the reasons recorded could not be supplied to him. We have gone through the entries in the order-sheet supplied by the revenue. We find that later the case was represented by another counsel, namely Sh. R.K. Rathore along with Sh. Taran Chugh, accountant. No request for supply of reasons appears to have been made. It is also significant to mention that unsigned letter of the earlier counsel dated 13-2-2001 placed at p. No. 27 of the paper book does include a para for supply of reasons. However, a copy of the same letter filed with the assessing officer does not contain such request for supply of reasons. Be that as it may, it appears that the assessee was fully aware of the reasons recorded by the assessing officer for initiating the reassessment proceedings. This is clear from the enquiry letters sent to the assessee before initiating reassessment proceedings and also subsequent enquiries made by the assessing officer during the course of reassessment proceedings. In fact, the letters dated 19-4-2001, 16-7-2001 and 30-9-2001 of the assessing officer to the assessee forming part of the assessment order and assessees reply dated 30-9-2001 at Annex.-I show that assessee was aware of the basis of action for initiating the reassessment proceedings. Therefore, there does not appear to be any merit in the submission of the assessee that reasons were not communicated to the assessee. However, we must add it is mandatory on the part of the assessing officer to furnish the reasons recorded under section 148 for initiating the reassessment proceedings so as to enable the assessee to put across its objection on the legality of such action. In the case of GKIV Driveshafts (India) Ltd v. Income Tax Officer & Anr. (2003) 179 CTR (SC) 11 : (2003) 259 ITR 19 (SC), the Hon'ble Supreme Court has held that the assessing officer is bound to furnish reasons recorded under Section 148 within a reasonable time. Since the matter arose in a writ petition, the Hon'ble Supreme Court directed the assessing officer to consider this aspect while completing the reassessment. The learned Counsel has also relied on two judgments of Hon'ble Aliahabad High Court in the cases of Anand Kumar Sharma (supra) and Herbs (India) (P). Ltd. (supra) where the grievance of the assessee was that reassessments have been completed without furnishing reasons recorded under Section 148. In both the cases, the matter was restored to the assessing officer for supply of reasons recorded under Section 148. The assessments were not quashed for this reason. Now in this case also, the matter can be restored to the file of the assessing officer for supply of reasons. But the same would only prolong the litigation. Since the assessee has already been supplied copies of reasons recorded and its objections have been considered while deciding these appeals, this grievance no longer survives. As regards decision of Tribunal, Bombay Bench in the case of Dy. ClT v. Maharashtra State Corporation (sic-Gay Silk Mills v. Income Tax Officer) (2006) 101 TTJ (Mumbai) 1108 relied upon by the learned Authorised Representative, a copy of the same has not been supplied. Therefore, we are unable to refer to this decision. Thus, taking into account the fact that the assessee has already been supplied copies of reasons and objections have been taken into account and the reassessments have been completed after allowing opportunity to the assessee, we are of the opinion that plea is also devoid of any merit. Hence, rejected.
11.6. The next aspect of the case relating to legality of initiation of reassessment proceedings is that the assessing officer cannot change the status while completing the reassessment. We find from the assessment orders that the assessing officer completed the assessments in the status of AOP (society trust) with Code No. 07. The assessee had filed the returns in the status of trust with Code No. 8. The assessee has contended that law casts a duty on the assessing authority to complete an assessment on the same person to whom notice under Section 148 has been issued. We have referred to the proposal submitted by the assessing officer for initiating the reassessment proceedings, where the status is mentioned as an AOP (society trust). The assessing officer has also completed the assessments in the same status with Code No.07. It is only the Commissioner (Appeals) who has held that correct status of the assessee was a trust with Code No.08. Therefore, there is no illegality in the orders of the assessing officer because the notices under section 148 have also been issued to AOP (society trust) and the assessments have also been completed in the same status. This issue was subject-matter of appeal before the Commissioner (Appeals) who has held that the assessment should be completed in the status of trust because the same was registered with the CIT, Jalandhar, under Section 12 of the Act and was also granted exemption under Section 80G of the Act. The facts placed on record further show that the assessee was allowed repeated opportunities to justify the status claimed in the returns as trust. However, the assessee has given evasive reply and did not furnish complete information. The fact that the learned Commissioner (Appeals) has treated the status as a trust would not vitiate the reassessments completed by the assessing officer because the assessing officer has examined the case both from point of view of Section 10(22) of the Act and also under sections 11 to 13 of the Act relating to exemption of income of charitable institution. In the reassessments completed, the assessing officer has applied his mind to all the claims made by the assessee and has held that income is not exempt under section 10(22) and 11(l)(d) of the Act. Therefore, this plea of the assessee is also rejected.
11.7. Thus, in the light of detailed discussions in the preceding paras and having regard to the facts and circumstances of the case, we are of the considered opinion that additional ground raised by the assessee for an the assessment years is devoid of any merit. The assessments completed are legal and valid more so when the assessee has not even disputed the order of Commissioner (Appeals) for the assessment year 1996-97. Hence the same is rejected for all the assessment years.
12. The next grievance of the assessee projected through the grounds of appeals relate to sustaining of the additions made by the assessing officer for the above- mentioned assessment years. Briefly stated, the facts of the case are that while completing assessments under Section 147 read with Section 143(3), the assessing officer held that the assessee was not entitled to exemption in respect of its income under Section 10(22) of the Act. The assessing officer further considered the case for exemption of its income under sections 11 and 12 of the Act because the assessee was granted registration under section 12A of the Act. The assessing officer observed that enquiries made in the case revealed that donations collected by the assessee trust were invested/deposited with the various companies/business concerns of Brar family in the shape of share application money amounting to Rs. 25 lakhs with M/s Dashmesh Haegens Agro Tech. Ltd, Rs. 25 lakhs in M/s Dashmesh Feb. Yarns Ltd. as share application money, Rs. 25 lakhs as a deposit with M/s Dashmesh Falcon T & M Enterprises (P). Ltd. Even the income was invested in the said concerns. He also noted the relevant dates on which the amounts were invested with these concerns. The assessing officer observed that assessee society came into being only with an object of routing money received from other trusts and certain individuals to the companies run by Brar family purely on commercial considerations. He observed that family members of Brars were members of the assessee society. The assessing officer observed that by investing these amounts in the business concerns of the Brar family of which the trustees/members of the assessee trust had substantial interest, the assessee contravened the provisions of section 13(1)(d) of the Act. He also observed that provisions of Section 13(l)(c) were also attracted to this case because the property of the trust and the income of the institution had been utilized for the benefit of persons mentioned in Sub-section (3) of Section 13 of the Act. The assessee has not disputed the findings of the assessing officer for directing the funds of assessee in the form of investments/deposits in the business concerns of Brar family covered under, Sub-section (3) of Section 13 of the Act. However, assessee's claim is that the contributions made towards corpus are exempt under Section 11(l)(d) of the Act. The revenue's stand is that assessee has failed to furnish any evidence during the course of assessment proceedings that the voluntary contributions made by the donors were with specific directions that these were towards corpus. The learned CIT(A) accepted the contention of the assessee that once the trust was registered under Section 12 and the income of the trust has not been utilized for the objects of the trust the income accrued from the property of the trust could alone be denied exemption and the amounts received by way of donations for the corpus qualify for exemption under Section 11(1)(d) of the Act. During the course of appeal proceedings, the assessee furnished a certificate dated 2-5-2002 from Tilok Tirath Vidyawati Chuttani Charitable Trust, stating that the donations of Rs. 54 lakhs given by the said trust to the assessee in the accounting years re evant to assessment years 1995-96 and 1996-97 were for its corpus. Relying on the certificate, the learned Commissioner (Appeals) allowed exemption in respect of amount of Rs. 25 lakhS and Rs. 29 lakhs received in the accounting years relevant to assessment years 1995-96 and 1996-97 respectively, despite the fact that he has accepted the findings of the assessing officer that funds have not been utilized for the objects for which trust was set-up.
However, in regard to the remaining amounts received by way of donations, the learned Commissioner (Appeals) observed that these were invested in the business concerns of Brar family where trustees/members of the society had substantial interest and, therefore, this contravened the provisions of Section 13(l)(d) of the Act. He also rejected the submissions of the assessee that these donations were received towards corpus on the ground that no evidence was furnished by the assessee. No evidence whatsoever has also been produced before the Bench that these donations were given for the corpus. Further, as per clause (h) of Sub-section (2) of Section 13, if any funds of the trust or the institution continue to remain invested for any period during the previous year in any concern in which any person referred to in sub-section(3) of the said section has substantial interest, the assessee would not be entitled to exemption under Section 11(l)(d) in respect of such voluntary donations. The judgment of Honble Andhra Pradesh High Court in the case of T. Bapanaiah Vidyadbarma Trust (supra) relied upon by the learned departmental Representative supports the case of the revenue that if any income or any property of trust or institution is used or applied directly or indirectly for the benefit of any person referred to in sub-section (3) of Section 13, the assessee shall not be entitled to exemption in respect of voluntary contributions or income under Section 11(l)(d). Thus, we do not find any justification to interfere with the findings of the Commissioner (Appeals) so far these relate to the appeals filed by the assessee for all the above mentioned assessment years. Therefore, the orders of the Commissioner (Appeals) are upheld and respective grounds of appeals of the assessee are dismissed.
13. We now turn to grounds of appeals of the revenue for the assessment year 1995-96 and 1996-97. The first grievance of the revenue is that the learned Commissioner (Appeals) was not justified in allowing status of the 'trust' as against AOP taken by the assessing officer. The facts relating to this ground and the respective submissions of both the parties have already been discussed while dealing with the appeals filed by the assessee.
14. Briefly stated the facts are that assessing officer completed the assessments in the status of AOP because of assessees failure to furnish information in support of its claim. However, the learned Commissioner (Appeals) observed that the assessee was a society registered with registrar of societies, Punjab on 21-7-1993. But the trust was also registered under Section 12 of the Act by the CIT, Jalandhar, vide order dated 21-9-1993 and the assessee was also granted exemption under Section 80G of the Act. He, therefore, held that the status of the assessee was a trust. The grouse of the revenue is that the assessee was repeatedly asked to furnish information in support of its claim for filing the return in the status of trust.
15. We have considered the rival submissions of both the parties and gone through the evidence and material placed on record. The fact that assessee was registered with CIT under Section 12A is not in dispute. The assessee was also allowed exemption under Section 80G of the Act. The very fact that registration has been allowed by the CIT does not by itself entitle the assessee to claim exemption in respect of its income. The registration with the CIT under Section 12A is only a first step for claiming exemption of its income. But the exemption of its income under Section 11 is subject to assessee fulfilling the other conditions. The assessee is required to fulfil the remaining conditions regarding utilization of 75 per cent of its income for the objects for which it has been set up and nondiverting of funds to the business concerns of the members/trustees etc. Even the accumulation of 25 per cent of the remaining income is again subject to the conditions mentioned therein. Moreover, the revenue has also accepted the decision of Commissioner (Appeals) for the assessment years 1994-95, 1997-98 and 1998-99 for treating the status of the assessee as a trust. Thus, keeping in view these facts of the case, we are of the considered opinion that the learned Commissioner (Appeals) was justified in treating status as trust with Code No. 08. We confirm his order and reject the respective grounds of appeal for both the assessment years.
16. The next grievance of the revenue common to both the assessment years is that the learned Commissioner (Appeals) was not justified in allowing exemption in respect of donations of Rs. 25 lakhs and Rs. 29 lakhs received from Tilok Tirath Vidyawati Chuttani Charitable Trust, during the accounting years relevant to assessment years 1995-96 and 1996-97 respectively which were liable to tax. Further grievance of the revenue is that the assessee was not entitled to exemption in respect of such donations under,ss. 10(22), 11 and 13 of the Act. Connected with this is the ground of appeal of the revenue that while taking such view, the learned Commissioner (Appeals) has admitted and relied on additional evidence in violation of provisions of Rule 46A of IT Rules, 1962. The facts relating to these grounds have also been discussed while dealing with the appeals filed by the assessee. Briefly stated, the facts are that during the course of enquiries made before initiation of reassessment proceedings and also during the course of reassessment proceedings, the assessing officer repeatedly asked the assessee to furnish information in respect of persons from whom it had received donations. The assessee furnished the information which revealed that assessee had inter alia received donations of Rs. 25 lakhs and Rs. 29 lakhs from Tilok Tirath Vidyawati Chuttani Charitable Trust in the accounting years relevant to assessment years 1995-96 and 1996-97 respectively. In, the accounts, these amounts along with other donations were shown as forming part of corpus. However, no evidence in support of the fact that these donations were given by Tilok Tirath Vidyawati Chuttani Charitable Trust were with specific directions that they shall form part of the corpus of the trust was produced before the assessing officer. Taking into account the fact that the assessee had invested the amount of voluntary contributions received from various persons including Tilok Tirath Vidyawati Chuttani Charitable Trust in the companies, business concerns/firms of Brar family for commercial consideration where members of the assessee society/trustees had substantial interest, the assessing officer observed that the assessee had violated the provisions of sections 13(l)(c) and 13(l)(d) and, therefore, the assessee was not entitled to exemption in respect of such donations. Accordingly, he disallowed the exemption in respect of such voluntary donations.
17. When the assessee carried the matters in appeals before the Commissioner (Appeals), the assessee filed a certificate dated 2-5-2002 from Tilok Tirath Vidyawati Chuttani Charitable Trust stating that donations aggregating to Rs. 54 lakhs given to the assessee were for its corpus. The certificate read as under
To whom it may concern It is hereby confirmed that the donations of Rs. 54 lakhs: given by the Tilok Tirath Vidyawati Chuttani Charitable Trust during the assessment years 1995-96 and 1996-97 were made to Sardarni Uttarn Kaur Education Society for its corpus." Relying on this certificate, the learned Commissioner (Appeals) held that the donations given by the said trust towards corpus were exempt under Section 11(1)(d) of the Act. The revenue is aggrieved with the order of the Commissioner (Appeals). Hence, these appeals before us.
18. The submissions made by the learned departmental Representative and learned Counsel have already been summarized while dealing with the respective submissions of the assessee. Briefly stated, the contention of the learned departmental Representative is that no such evidence was furnished before the assessing officer during the course of reassessment proceedings. He further submitted that admission of such evidence was subject to provisions of Rule 46A. However, the learned Commissioner (Appeals) has neither recorded any reason for admission of such evidence nor has forwarded this certificate to the assessing officer for enquiries and comments. Thus, he submitted that the learned Commissioner (Appeals) has violated the provisions of Rule 46A for admitting the fresh evidence. He further submitted that since the funds were diverted to business concerns of the members of the society/trustees in violation of provisions of sections 13(l)(c) and 13(l)(d), the assessee was not entitled to exemption under Section 11(l)(d) of the Act. The learned Authorised Representative, on the other hand, submitted that during the course of assessment proceedings copies of receipts were furnished in respect of donations. Thus, it was not a fresh evidence. He also stated that even the auditors had shown such receipts as forming part of corpus. He further submitted that since donations were given towards corpus of the trust, the same were eligible for exemption under Section 11(l)(d) of the Act.
19. We have heard both the parties and carefully considered the rival submissions, examined the facts, evidence and material placed on record. Clause (d) of Sub-section (1) of Section 11 of the Act provides exemption in respect of income in the form of voluntary contributions made with a specific direction that they shall form a part of the corpus of the trust or institution. A bare reading of the aforesaid section reveals that all voluntary contributions other than given with specific direction that they shall form part of the corpus of the trust be considered as income of the trust. But for the purpose of claiming exemption under Section 11(l)(d) it is necessary that such voluntary contributions must have been made with specific direction that these shall form part of the corpus. However, the onus is entirely on the assessee that donations received were given with a direction that these shall form part of corpus of the trust. We have referred to the relevant pages of the paper book placed on record to which our attention has been drawn. We find that during the course of assessment proceedings, the assessee has not furnished any evidence that these donations were given with a direction that these shall form part of the corpus of the trust. The mere fact in the audited accounts these were shown as part of the corpus does not mean that the assessee had furnished requisite evidence during the course of assessment proceedings. The intention of the donor is to be seen on the date when he made the donations and not subsequently. The certificate dated 2nd May, 2002 was furnished before the Commissioner (Appeals). The reassessment orders in all the cases were passed on 22-3-2002. This clearly shows that the certificate is obtained after the completion of the assessments and constituted a fresh evidence furnished before the Commissioner (Appeals). The admission of fresh evidence is governed by provisions of Rule 46A of the IT Rules which read as under:
"46A(l) The appellant shall not be entitled to produce before the Dy. Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the assessing officer except in the following circumstances, namely:
(a) where the assessing officer has refused to admit evidence which ought to have been admitted; or
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the assessing officer; or
(c) where the appellant was prevented by sufficient cause from producing before the assessing officer any evidence which is relevant to any ground of appeal;
or
(d) where the assessing officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the Dy.
Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) records in writing the reasons for its admission.
(3) The Dy. Commissioner (Appeals) or, as the case may be, the CIT(A) shall not take into account any evidence produced under sub-rule (1) unless the assessing officer has been allowed a reasonable opportunity-
(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or
(b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.
(4) Nothing contained in this rule shall affect the power of the Dy.
Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty whether on his own motion or on the request of the assessing officer under clause (a) of Sub-section (1) of Section 251 or the imposition of penalty under Section 271." (Emphasis, italicised in print, supplied is ours) A bare reading of the aforesaid rule shows that the assessee is not entitled to produce additional evidence until one of the conditions spelt out in clauses (a) to
(d) of sub-rule (1) of Rule 46A is satisfied. In case, such condition is satisfied, the learned Commissioner (Appeals) is required to record reasons in writing for admission of such additional evidence. We have gone through the order of the Commissioner (Appeals). Nowhere, he has recorded the reasons as to why he considered it to be a fit case for admitting additional evidence. Thus, the provisions of sub-Rules (1) and (2) of Rule 46A have not been kept in view while admitting fresh evidence. Sub-Rule (3) of Rule 46A further mandates that the learned Commissioner (Appeals) shall not take into account the additional evidence unless the assessing officer had been allowed reasonable opportunity to examine the evidence or to produce any evidence in rebuttal of the evidence produced by the assessee. Again this part of rule has not been complied with by the learned Commissioner (Appeals) while admitting and relying upon fresh evidence. The learned Commissioner (Appeals) not only admitted fresh evidence but also deleted the additions without referring the same to the assessing officer under sub-rule (3) of Rule 46A by relying on such evidence. Thus, the action of the learned Commissioner (Appeals) is not in conformity with the provisions of the Act and also the Rules. Moreover, there is no doubt about the fact that assessee had invested/deposited the amounts of voluntary contributions received from various persons including Tilok Tirath Vidyawati Chuttani Charitable Trust, in the companies, business concerns, firms by way of share application money, deposits etc. In these business concerns, the members of Brar family/trustees had substantial interest. Thus, the assessee contravened the provisions of sections 13(l)(c), 13(l)(d) and 13(2)(h) of the Act. The learned Commissioner (Appeals) has already accepted the findings of the assessing officer about violations of the provisions while confirming other additions made by the assessing officer in the appeals filed by the assessee. In the case of Chairman, Andhra Pradesh Welfare Fund v. CIT , the Hon'ble Andhra Pradesh High Court has held that even if small portion of the voluntary contributions is used for noncharitable purposes, the entire contributions will lose the benefit of being exempt from tax. In the case of T. Bapanaiah Vidyadharma Trust v. CIT (supra), the Hon'ble Andhra Pradesh High Court has held that the term 'fund' mentioned in Section 13(2)(h) includes both the corpus as well as income derived therefrom. In the case of Action for Welfare and Awakening in Rural Environment (AWARE) v. Dy. CIT , the facts of the case were that the funds in the form of fixed deposits the name of assessee-trust worth Rs. 16 lakhs were pledged as security in the bank enabling one of the members of the assessee to avail loan without adequate security and consideration and certain transaction of purchase of land was routed through an AOP in which all members were directors and employees of assessee. The Hon'ble Andhra Pradesh High Court observed that misutilisation was glaring and it could not escape the clutches of law as it had violated the provisions of Section 13(1)(c)(ii) read with Section 13(2)(b), It was held that it was not entitled for exemption. In this case also there is a gross and blatant misutilisation of funds of the trust. The only charitable activity the assessee has done is to finance the business concerns of Brar family where members/trustees have substantial interest in utter disregard of the provisions of the Act. Thus, the sum and substance of these judgments is that assessee shall not be entitled to exemption of its income and voluntary contributions if the funds have been misutilised by the assessee for non-charitable purpose and invested in the business concerns of members for commercial considerations. The mere fact that these were given with the direction that these shall form part of corpus was not enough in order to entitle the assessee to claim exemption under Section 11(1)(d) of the Act.
20. Having regard to these facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the learned Commissioner (Appeals) was not justified in deleting the additions of Rs. 25 lakhs and Rs. 29 lakhs for the assessment years 1995-96 and 1996-97 by relying on fresh evidence without complying with the provisions of Rule 46A and also without taking into account the contravention of provisions of sections 13(1)(c) and 13(1)(d) of the Act. We, therefore, set aside the orders of the Commissioner (Appeals) and restore the appeals to his file to be decided de novo as per law and after complying with the provisions of Rule 46A and also by taking into account the observations made hereinabove. Needless to say that while redeciding the appeals, the learned Commissioner (Appeals) shall allow adequate opportunity to both the parties. We order accordingly. These grounds of appeals of the revenue are treated as allowed for the assessment years 1995-96 and 1996-97.
21. In the result, while the appeals of the assessee are dismissed, the appeals filed by the revenue are allowed for statistical purposes.