2016 (2) TMI 466 - AT - Income Tax

Tribunal upholds re-assessment order, rules in favor of assessee on unexplained advances and trust expenses.

Chawara Educational Trust Versus The Income Tax Officer, Ward-3 (1), Dhule

The Tribunal upheld the validity of the re-assessment order despite the non-service of notice under section 143(2) due to the nonest nature of the filed ... Legality of reopening of assessment - non issue of notice under section 142(1) - Held that:- In the present case, as noted earlier, law itself does not oblige the Assessing Officer to issue notice u/s 143(2) in the absence of return u/s 139 or u/s 142(1). Concurrently, we notice that the impugned assessment was framed after proper opportunity were afforded to the Assessee by issuing notice under section 142(1) in sync with principles of natural justice. Therefore, we do not find any force in the contention of the Ld. Authorized Representative for the assessee that non issuance of notice under section 143(2) is fatal and has vitiated the re-assessment order and rendered it bad in law. To reiterate, we take note of the fact that the assessee has appeared before the Assessing Officer and was in acquiescence and privy to the re-assessment proceedings. Thus, interest of the Assessee is not jeopardized in any manner. Omission to serve or any defect in the service of the notice not statutorily required in the facts of the case will not, in our view, impinge upon the legality of impugned re-assessment order. we are of the considered view that in the absence of return filed in accordance with law or any valid return being on record, the objections raised by the assessee is not sustainable in law and is thus without any merit. - Decided against assessee Addition on advances to sister concern instead of using the fund on the object of the Trust - Held that:- The assessee trust has correctly utilized the funds for the purpose of the object of trust. When the amount has been spent by the assessee for the construction of the building that was for its stated education purpose, then the amount claimed can be considered as utilized for the purpose of the object of trust and the requirements of section 11(2) r.w.s. 11(3)(a) of the Act stands fulfilled. Thus, the relief claimed under section 11(2) of the Act has been rightly allowed by the CIT(A) as noted above. The advance of ₹ 13,00,000/- made to VISEA Trust therefore can be said to be out of surplus accumulated and remained at the disposal of the assessee and does not offend provisions of section 11(2) of the Act in any manner. Hence, we are not inclined to interfere with the order of the CIT(A) - Decided in favour of assessee Issues Involved:1. Legality and validity of the re-assessment order under section 143(3) r.w.s. 147 of the Income-tax Act, 1961.2. Non-service of notice under section 143(2) and its impact on the jurisdiction of the assessment.3. Addition of Rs. 13,00,000 as unexplained advances.4. Addition of Rs. 9,48,585 for the amount not spent on the objects of the trust.Issue-wise Detailed Analysis:1. Legality and Validity of the Re-assessment Order:The assessee challenged the legality of the re-assessment order dated 03.12.2009 under section 143(3) r.w.s. 147 of the Act, claiming it was without jurisdiction due to the absence of service of statutory notice under section 143(2). The Tribunal noted that the return filed on 09.03.2007 was beyond the statutory time limit and thus nonest in the eyes of law. The Tribunal emphasized that for proceedings under section 147, the issuance of notice under section 143(2) is mandatory if a valid return is on record. However, since no valid return was filed under section 139(1), 139(4), or in response to section 148, the provisions of section 143(2) did not get triggered. The Tribunal concluded that the re-assessment order was valid despite the non-service of notice under section 143(2) as the return filed was nonest, and the assessee had been provided with ample opportunity to present their case.2. Non-service of Notice under Section 143(2):The Tribunal examined whether the non-service of notice under section 143(2) invalidated the re-assessment order. It was noted that the return filed on 09.03.2007 was beyond the time limit and thus invalid. The Tribunal observed that section 143(2) mandates issuance of notice only when a return is filed under section 139 or 142(1). Since the return filed was nonest, the provisions of section 143(2) did not apply. The Tribunal held that the non-issuance of notice under section 143(2) did not vitiate the re-assessment order as the assessee had participated in the re-assessment proceedings, and the interest of the assessee was not jeopardized.3. Addition of Rs. 13,00,000 as Unexplained Advances:The Assessing Officer added Rs. 13,00,000 as unexplained advances under section 68, contending that the assessee had given advances to its sister concern instead of using the funds for the trust's objects. The CIT(A) in the first round of proceedings agreed with the assessee that section 68 was not applicable as it deals with unexplained credits and not payments. The Tribunal upheld this view, stating that the amount given to VISEA Trust was duly reflected in the audited accounts and was for similar educational purposes. Thus, the addition of Rs. 13,00,000 was not justified.4. Addition of Rs. 9,48,585 for Amount Not Spent on Objects of the Trust:The Assessing Officer added Rs. 9,48,585, claiming the assessee failed to spend 85% of its income on the trust's objects and did not file Form No.10B within the due date. The CIT(A) found that the assessee had indeed spent more than 85% of its income on educational purposes, including building construction, and had filed Form No.10B before the assessment was completed. The Tribunal agreed with the CIT(A) that the amount spent on building construction was for the trust's stated educational purpose and thus met the requirements of section 11(2). Consequently, the addition of Rs. 9,48,585 was deleted.Conclusion:The Tribunal dismissed the grounds challenging the legality of the re-assessment order and the non-service of notice under section 143(2). However, it allowed the ground regarding the addition of Rs. 13,00,000 as unexplained advances and deleted the addition of Rs. 9,48,585 for the amount not spent on the objects of the trust. The appeal was partly allowed.