2021 (2) TMI 323 - AT - Income Tax

Tribunal quashes reassessment, upholds exemption eligibility, dismisses Revenue appeal on key issues.

The Tribunal quashed the reassessment proceedings under Section 147, citing lack of jurisdictional requirements and upheld the eligibility for exemption ... Exemption u/s 11 - status of the assessee trust - irrevocable trust or not? - Denial of claim by invoking provisions of section 13(1)(c)(ii) r.w.s.13(2)(g) - as per AO no clause of irrevocability mentioned in trust deed and also funds transferred by the trustee is the property of the founder of the trust as per trust deed - CIT-A allowed deduction - HELD THAT:- CIT(A) has returned a finding that the assessee trust is duly registered u/s 12A as well section 80G of the Act and as such, we find that the status of the assessee trust as irrevocable trust has been accepted by the Department. If for any reasons, the AO has any apprehension, which we find none in the instant case, on reading of Hindi version of the trust deed as against the English version, the matter could have been referred to the ld CIT(E) for taking appropriate action as per law. Therefore, the factual situation as far as the status of the assessee trust is concerned, it remains undisputed before us that it is a case of an irrevocable trust which is duly registered under section 12A and thus, eligible for exemption u/s section 11 and 12 of the Act. Violation of section 11(5) - CIT(A) has returned a finding that Lord Krishna Bank is a Scheduled Bank as per Schedule-II of Reserve Bank of India Act, 1934 and therefore, the amount deposited in such bank doesn’t violate the provisions of Section 11(5) of the Act. We don't see any infirmity in the said findings and the same are hereby confirmed. Violation of section 13(1)(c)(ii) - CIT(A) has returned a finding basis review of the evidence/details regarding qualification of the specified persons and their working experience and valuable contribution toward attaining, the purpose and objects of the trustee that the assessee trust has satisfactorily demonstrated that salary paid to these persons were not excessive or not in violation of provisions of sec. 13(3) - said findings of the ld CIT(A) remain uncontroverted before us in absence of any adverse material brought on record by the Revenue and hence, the said findings are hereby confirmed. The assessee trust is irrevocable trust which is duly registered under section 12A and thus, eligible for exemption u/s section 11 and 12 of the Act and during the period relevant to impugned assessment year, there was no violation of section 11(5) as well as section 13(1)(c)(ii) of the Act and thus, the exemption under section 11 and 12 has been rightly claimed by the assessee trust - Decided in favour of assessee. Issues Involved:1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.2. Eligibility for exemption under Section 11 of the Income Tax Act, 1961.3. Violation of provisions under Section 13(1)(c)(ii) and Section 13(2)(g) of the Income Tax Act, 1961.4. Violation of provisions under Section 11(5) of the Income Tax Act, 1961.5. Payment of excessive salary to persons specified under Section 13(3) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147:The assessee challenged the reopening of assessment under Section 147 on the grounds that it was done without proper jurisdiction and was based on a change of opinion without new tangible material. The Tribunal noted that the Assessing Officer (AO) relied on the Trust Deed, financial statements, and audit report, which were already part of the original assessment records. The Tribunal held that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal cited several judicial precedents, including the Hon’ble Delhi High Court in CIT v. Multiplex Trading & Industrial Co. Ltd. and the Hon’ble Madras High Court in Arvind Remedies Ltd., to conclude that the reopening was invalid as it did not meet the jurisdictional requirements under Section 147. Consequently, the reassessment proceedings were quashed.2. Eligibility for Exemption under Section 11:The AO denied exemption under Section 11, alleging that the trust deed contained clauses making it a private trust for the personal benefit of the managing trustee. The Tribunal found that the assessee trust was duly registered under Section 12AA and Section 80G, and its status as an irrevocable trust was accepted by the Department. The Tribunal held that the AO misinterpreted the trust deed and failed to establish that any benefit was passed to the trustee. The Tribunal upheld the CIT(A)’s finding that no violation of Section 13(1)(c) occurred, and the denial of exemption under Section 11 was unjustified.3. Violation of Provisions under Section 13(1)(c)(ii) and Section 13(2)(g):The AO alleged that the assessee violated these provisions by making unreasonable salary payments to specified persons. The Tribunal noted that the AO relied solely on the auditor’s opinion without any external comparable data. The Tribunal found that the assessee satisfactorily proved that the salaries were reasonable and not excessive. The Tribunal cited the Jaipur Bench decision in ACIT v. Mahima Shiksha Samiti to support its conclusion. The Tribunal upheld the CIT(A)’s finding that the salary payments were justified and no violation of Section 13(1)(c)(ii) occurred.4. Violation of Provisions under Section 11(5):The AO observed that the assessee made deposits in Lord Krishna Bank, which he alleged was not a mode of investment approved under Section 11(5). The Tribunal found that Lord Krishna Bank is a Scheduled Bank as per Schedule-II of the Reserve Bank of India Act, 1934, and thus, the deposits did not violate Section 11(5). The Tribunal upheld the CIT(A)’s finding and confirmed that there was no violation of Section 11(5).5. Payment of Excessive Salary to Persons Specified under Section 13(3):The AO disallowed part of the salary payments made to specified persons, alleging they were excessive. The Tribunal found that the assessee provided evidence of the qualifications and contributions of these persons, justifying the salary payments. The Tribunal upheld the CIT(A)’s finding that the salaries were not excessive and there was no violation of Section 13(3).Conclusion:The Tribunal allowed the cross-objection filed by the assessee, quashing the reassessment proceedings under Section 147 and confirming the eligibility for exemption under Section 11. The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)’s findings on all issues, including the non-violation of Sections 11(5) and 13(1)(c)(ii). The order was pronounced in the open Court on 22/01/2021.