Income Tax Appellate Tribunal - Chandigarh
Swami Vivekanand Educational Society, ... vs Department Of Income Tax on 5 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B' CHANDIGARH
BEFORE Shri H.L.KARWA, VICE PRESIDENT
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No. 1046/CHD/2010
Assessment Year: 2005-06
Swami Vivekanand Educational V DCI T,
Society, Sector 17, HUDA, Yamuna Nagar.
Jagadhri, Yamuna Nagar.
PAN: AAAJV-0306N
&
ITA No.1077/Chd/2010
Assessment Year :2005-06
DCIT,Circle, V M/s Swami Vivekanand
Yamuna Nagar. Educational Society,
Sector 17, HUDA,
Jagadhri,
Yamunanagar.
(Appellant) (Respondent)
Assessee by : None
Department by : Shri S.K.Khemwal
Date of Hearing : 05.01.2012
Date of Pronouncement : 06.01.2012
ORDER
PER MEHAR SINGH, AM
The present cross-appeals filed by the assessee and Revenue respectively are directed against the order dated 01.06.2010 passed by the ld. CIT(A) u/s 250(6) of the Income-tax Act,1961 (in short 'the Act').
2. In assessee's appeal (No. I TA 1046/Chd/2010), the assessee has raised the following Grounds of Appeal:
"1. On the f acts and circumstances of the case, the ld.
CIT(A) erred in treating the donation of assets by 2 the appellant society to other societies as capital gains.
2. On the f acts and circumstances of the case, the ld.
CIT(A) erred in holding that the re-assessment proceedings u/s 148 were not bad in law.
3. The assessee reserves the right to amend, al ter, add or delete any of the grounds of appeal".
3. In revenue's appeal (ITA No. 1077/Chd/2010), revenue has raised the following grounds of appeal :
"i) Whether on the facts and in the circumstances of the case , the ld. CIT(A) has erred in law as well as in f acts in deleting the addition of Rs.82,31,154/- on the basis of accounts, bills, vouchers etc. not pertaining to the accounts attached with original return.
ii) The appell ant craves leave to add or amend the grounds of appeal bef ore the appeal is heard and disposed off.
iii) It is prayed that the order of ld. CIT(A) be set aside and that of the AO may be restored."
4. The assessee did not appear despite issue of notice, therefore, the appeal is decided on the basis of the submissions made by the assessee as incorporated from page 84 to 90 of the Paper Book and other relevant material available on record.
5. In the first ground of appeal, the assessee contended that the CI T(A) erred in treating the donation of assets by the appellant society to other societies as capital gains. The AO held that the assessee transferred assets valued at Rs.1,05,82,364/- at book value and received consideration 3 by way of book entries. The written down value of these assets is Rs. Nil as the entire cost has already been allowed as application of income in the year of acquisition. Consequently, the AO is of the opinion that the entire sale consideration is capital gain, chargeable u/s 11(1A) of the Income-tax Act,1961. The AO also gave margin of the cost of assets added during the year, which amounted to Rs.26,22,173/- to be the new assets acquired out of capital gains and made addition of Rs.79,60,191/-. The main argument of the assessee is that these assets were transferred to two societies which had been registered u/s 12AA of the Act and pursuing the same object as pursued by the present assessee. The assessee is of the opinion and argued that the transfer of assets to the two societies by way of donation is application of income and relied on the Board's Instruction No.1132 dated 4.12.2009. The findings of the ld. CIT(A) are recorded, in the matter in question, in para 7.1 and the same are reproduced hereunder :
"7.1 On caref ul consideration of the above f acts and submissions, I do not f ind any merit in arguments of the counsel and the same are re jected. The main contention of the counsel is that the transf er of assets to the two societies is by way of donation. This is f actually incorrect. The AO has already mentioned that the transf er of assets is for consideration which has been received by way of book entries and hence the transf er is not donation. Since, the transf er of assets is f or consideration, the appellant has earned capital gains as per provisions of Section 11(1A) of the IT Act. The Board instruction relied upon by the counsel does not help him since 4 the present case is not f or donation but of transf er of assets and consideration. The AO is justif ied in assessing the capital gain on transfer of assets and making addition of the same to the receipts of the appellant and in not treating it as appl ication of income. The addition made by the AO is upheld. This ground of appeal is re jected."
6. We have carefully perused and considered the submissions made by the assessee before the CI T(A) as also before the Tribunal. The assessee has placed reliance on the Instructions No.1132 issued by the CBDT. However, the interpretation of the said instruction issued by CBDT was not accepted by the CI T(A) who upheld the findings of the AO. The ld. CI T(A) categorically held that in the present case, there is a transfer of assets for consideration, which has been received by way of book entries and hence the transfer is not donation. The impugned instructions issued by the CBDT categorically speaks of the payment of a sum and not transfer of the asset, as misconstrued by the assessee. Therefore, we are in complete agreement with the findings of the ld. CIT(A) and do not find any infirmity in the findings of the CI T(A) and the same are upheld. This ground of appeal of the assessee is dismissed.
7. In Ground No.2, the assessee contended that the CIT(A) erred in holding that the re-assessment proceedings u/s 148 were not bad in law. In this case, the AO invoked the provisions of Section 148 for the reason that the assessee transferred land and other assets of Rs.1,05,82,364/- to another society and such transfer cannot be construed as 5 application of income for charitable purpose. The AO held, after excluding this amount, the income applied for charitable purpose is less than 85% of the receipts, at Rs.77,41,843/-. The assessee challenged the validity of re- opening of the assessment proceedings on the ground that the reasons taken by AO for re-opening the assessment are not tenable in view of the Board's instructions No.1132. The AO also intimated the assessee that the case had been reopened on account of transfer of assets and not on account of donation. The assessee filed application before the JCIT for issuing necessary instructions u/s 144A of the Act. The AO held that the entire sale consideration is the capital gain chargeable to tax u/s 11(1A) of the Act.
8. Before CI T(A), it was contended that the very issue of notice u/s 148 of the Act is bad in law. It was further argued that transfer of assets by way of donation to another society is proper application of income. The assessee placed reliance on a number of decisions to support his contentions that transfer of assets constitutes application of income. The argument of the assessee in the specific context pertains to the realm of re-assessment proceedings and not in the context of issuance of notice u/s 148 of the Act. The factum, whether said transfer constitutes application of income or otherwise, is to be adjudicated on merit.
9. The assessee placed reliance on a number of decisions before the CIT(A) to support his contentions against issue of notice u/s 148 of the Act. The ld. CIT(A), on appreciation of 6 fact situation of the present case and careful considering the decisions relied upon by the assessee, adjudicated the issue against the assessee. The relevant and operative part of the findings of the CI T(A), on this issue are reproduced hereunder :
"4.1 I have caref ully considered the application of the appellant f or admission of additional ground of appeal. In vie w of the Hon'ble Supreme Court decision relied upon by the counsel, there appears to be no reason for not admitting the additional ground of appeal which has important bearing f or deciding the present appeal. The additional ground is, theref ore admitted.
5. The additional ground of appeal is taken up f irst and is regarding the re-opening of the assessment u/s 148 of the IT Act. The counsel f or the appellant has argued that the re-opening of the assessment was challenged bef ore the AO f or two reasons. Firstly for the reason that the transf er of assets by way of donation to another educational society is proper appl ication of income and makes no difference ho w the donation is treated by the donee and secondly that it is a case of change of opinion on the same f acts on which the original assessment was f ramed earlier. The counsel argued that the reason given f or re-opening the assessment is that a donation to another charitable trust is not application of income within the meaning of Section 11 which is not a tenable reason in law. The counsel has relied on the Board instruction No.1132 dated 05.01.1978 and has also relied on a number of case laws in this regard which have been discussed as part of his written submissions. The counsel f urther argued that the assessment cannot be reopened on a mere change of opinion and has placed rel iance on case laws which have been discussed as part of his written submissions. The AO in reply to the objection raised by 7 the appell ant f or re-opening of the assessment inf ormed the appellant that the assessment has been reopened on the ground of transf er of assets and not on account of donation to another trust.
5.1 I have caref ully considered arguments of the counsel f or the appellant and have also considered the case laws rel ied upon by him. I have caref ully perused the assessment order. In the present case, the assessment was reopened by the AO f or the reason that the assessee society transf erred its land and other assets worth Rs.1,05,82,364/- to another society which is not application of income to wards charitable purposes. The AO held that the income applied to ward charitable purposes was less than 85% of its receipts by Rs.77,41,843/-. The AO mentioned that the transf er of the assets is clear f rom the schedule of f ixed assets f iled with original return and the fact that the transfer of assets f or a consideration is clear f rom schedule C to the bal ance sheet in which the two societies to whom the assets have been transf erred are sho wn as creditors of Rs.2,58,07,834/-. The sale consideration has been reduced f rom the credit balance and thus has been received by the appellant through book entries. It is clear that the transf er of assets is not donation given to the two societies as claimed by the appellant. The transf er of assets being f or a consideration, the capital gains arising on the same has to be treated as receipt u/s 11(1A) of the IT Act. The appellant has treated the transf er of the assets as donation and hence application of income whereas the AO has mentioned that this is a transf er of assets f or consideration and hence the appellant has earned capital gains on the same. The two grounds taken by the counsel for challenging the re- opening of the assessment do not carry any f orce and are re jected. The f irst argument is that the transf er is by way of donation which is f actually incorrect and is rejected. The second argument is that the re-opening of 8 the assessment amounts of change of opinion is also without any merit and is rejected. In the original assessment, the AO completely missed assessing the capital gains earned on transf er of the assets for consideration. The re-opening of the assessment for bringing the capital gains to tax which was omitted earl ier does not amount to change of opinion. The provisions of Section 11(1A) are clearly applicable. The omission to apply the provisions of the Act and later on applying them by re-opening the assessment does not amount to change of opinion. The arguments of the counsel f or re-opening of the assessment are rejected. The case laws relied on by the counsel are not appl icable to the f acts of the present case and do not help the appell ant. The AO has validly reopened the assessment by issuing notice u/s 148 of the IT Act. The additional ground of appeal is re jected."
10. The reasons recorded by the AO constitute the foundational material or facts, which led to invocation of provisions of Section 148 of the Act. The reasons recorded by the AO are specific and squarely fall within the contemplation of Section 147 of the Act. The findings of the CIT(A), that there is no change of opinion in the context of the factual position of the case, does not suffer from any infirmity. The reasons recorded by the AO have live nexus with the escaped income, chargeable to tax. The AO is not required to establish the factum of escapement at the stage of issuance of notice u/s 148 of the Act as held in a number of decisions by the Hon'ble Supreme Court, particularly in the case of A C I T V R a j e s h J h a v er i S t o ck B ro k e r s P v t . L td. ( 2 0 0 7 ) 2 91 I TR 50 0 ( S . C ) .
9
11. In view of the above factual and legal discussions, we do not find any merit in the contentions raised by the assessee in this ground of appeal as the findings of the ld. CIT(A) are well reasoned and based on appreciation of the fact situation of the case, case laws and relevant provisions of the Act. Consequently, we do not find any reason to interfere with the findings of the ld. CI T(A) and the same are upheld. The ground of appeal raised by the assessee is dismissed.
12. Ground No.3 raised by the assessee is general in nature and needs no separate adjudication.
13. In the result, appeal of the assessee is dismissed. ITA No. 1077/Chd/2010 (Revenue's appeal)
14. In Ground No.1, the revenue contended that CIT(A) erred in law and on facts in deleting the addition of Rs.82,31,154/- on the basis of accounts, bills, vouchers etc. not pertaining to the accounts attached with original return. The ld. CIT(A) held that there is force in the argument of the assessee that advances of Rs.11,89,398/- are old and an advance of Rs.70,41,756/- had been given to the Lotus Valley School for constructing the building, which is an application of income. In view of this the CI T(A) held that AO is not justified in making addition of Rs.82,31,154/- and deleted the addition.
15. We have carefully perused the assessment order, relevant record and submissions of the assessee and found that the findings of the AO cannot be sustained in view of 10 specific findings given by the ld. CIT(A) that an amount of Rs.11,89,398/- are old advances and further, an advance of Rs.70,41,756/- had been given to the Lotus Valley School for constructing the building which is an application of income and not the receipts of the assessee. The assessee produced the bills for construction before AO, which were verified by him, copy of the bill account, building account with supporting bills and copies of bank statement reflecting the payments of the contractors were also produced. It was argued by the assessee that all the payments were made by account payee cheque and TDS was deducted. In view of this, we do not find any infirmity in the findings of the ld. CIT(A) and hence, the same are upheld.
16. Ground Nos. 2 & 3 are general in nature and need no separate adjudication.
17. In the result, appeal of the Revenue is dismissed.
18. Resultantly, both the appeals are dismissed.
Order pronounced in the Open Court on 6 t h Jan.,2012.
Sd/- Sd/- (H.L.KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 6 t h Jan.,2012. 'Poonam' Copy to:
The Appellant, The Respondent, The CI T(A), The CIT,DR Assistant Registrar, I TAT Chandigarh