TaxTMI 
TaxTMI 
2014 (3) TMI 361
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....lance sheet, annual account of income, annual statement of schemes, annual account of expenditure etc. The Assessing Officer processed the return of the assessee under Section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") vide intimation dated 19.02.2004 and later on the case of the assessee was taken up for scrutiny by issuing a statutory notice under Section 143(2) of the Act which was served upon the assessee on 25.04.2005. The Assessing Officer again issued notices under Sections 143(2) and 142(1) of the Act along with a detailed questionnaire to the assessee on 06.10.2005. In response to the same, the authorized representative of the assessee along with some officials of the assessee-trust attended the proceedings from time to time. 3.2 As per para no. 2 of the assessment order, the assessee remained non-cooperative in the assessment proceeding and sought various adjournments. To corroborate this version, the averment made by the Assessing Officer at page nos. 2 and 3 of the assessment order, establishing that the assessee remained non-cooperative before the Assessing Officer, are reproduced as under:- Date 23-01-2006 Smt. Suri....
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.... show cause notices and observations of the assessee as per Order Sheet entry dated 11-10-2006 another letter No. Addl.CIT/R-V/Asstt./2006-07 dated 26- 10-2006 was written to the assessee to afford one more opportunity of being heard. The case was fixed for hearing on 24th November, 2006 and it was duly conveyed that in view of long period already given for filling of information no further adjournments will be given. 26-11-2006 The case was transferred from Addl. Commissioner of Income Tax, Range-V to Income Tax Officer, Ward 5(1), Amritsar as per CIT-II's Letter No. CITII/ Asr/HQ/Jurd./2005-06/3030 dated 20-11-2006. Notices u/s 143(2) and 142(1) were issued by the ITO, Ward 5(1), Asr. on 24th November, 2006 and the case was fixed for fresh hearing on 28th November, 2006. 28-11-2006 Sh. Daman Bhalla Accountant attended the assessment proceedings and instead of filling the information as per Questionnaire dated 26-10-2006, he asked for short adjournment. He was also requested to file details of Bank accounts and balances as on 30th November, 2006 and the case was adjourned for 30-11-2006 30-11-2006 Sh. Daman Bhalla Accountant attended the assessment proceedings ag....
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..../s 12A(a) has been rejected by Worthy Commissioner of Income Tax-II, Amritsar vide his order No. CITII/ Asr/Tech/179 Dated 19/20.4.2004 for failure on your part to furnish information with regard to PAN, TAN, original copy of instrument creating the trust, documents evidencing the creation of trust where it is created otherwise than under an instrument and audited accounts despite specific opportunities allowed in this regard. Your application dated 27.10.2004 requesting for revision of orders passed for rejection of registration u/s 12A(a) stands also rejected by Worthy Commissioner of Income Tax-II, Amritsar vide his order No. CIT-II/Tech/2004-05/3865- 67 dated 20.01.2005. 2. Your attention is also drawn to the fact that the provisions of section 12(20A) which provided that "any income of authority constituted in India by or under any law enacted either for the purpose of planning, development or improvement of cities, towns and villages or for both" would not form part of the total income, has been omitted by the Finance Act, 2002 w.e.f. 1.4.2003. Thus from the Asstt. Year 2004-05, such type of income is also liable to tax." 1. In view of the foregoing paragraphs, no deduc....
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....Loss account has not been filed with the return of income stating that the accounts of the trust are maintained on single entry system. It is also not properly explained as to why no proper Profit and Loss account has been drawn in this case. 3. Thirdly, it is admitted by the assessee trust that there is no information available with the trust so far as the contingency liabilities are concerned and even the audit done, on the basis of which return has been filed, is with regard to payments and receipts of the trust and no examination of such payments and receipts has been looked into from the angle of Revenue or Capital expenditure vis-à-vis Revenue or capital receipts. This also makes it difficult for the assessing officer to arrive at the true profit of the trust. It may also be referred here that in this case, while attending before the Worthy Commissioner of Income Tax-II, Amritsar in connection with claim for deduction u/s 12A(a), no relevant details were filed by the trust and your office being not satisfied with the objects of the trust or institutions and the genuineness of its activities had refused to grant registration. I may mention here that during the cou....
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....equested the assessee to bring all written submissions in connection with its various claims so that its case will be disposed of and to furnish explanation/clarification, if any, on the various discrepancies as pointed out in the audit report and further to furnish a certified copy of the special audit report carried out by the auditors. The relevant portion of the special audit report, which the Assessing Officer has mentioned in its order at pages 7, 8 & 9, are reproduced as under: "As per above report, excess of income over expenditure for the Asstt. Year 2004-05 works out to Rs 5,74,88,431/- as against loss of Rs. 594.92 lacs shown in the return of income filed by you on 01.11.2004 The following discrepancies have been pointed by the Auditors:- (i) As per col. 15(a)(ii) of Annexure to Form No. 6B of the Audit Report, the cess amount collected @ 4% from vendees during the year amounting to Rs. 49,46,592 is shown on the liability side of the balance sheet as the same is payable to the Govt. and has been deposited by the you in the financial years 2004- 05 and 2005-06. Thus this amount is required to be added to your income under Section 43B of the Act. Objections, if an....
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....oposed to be added to your income. Please file your objections, if any, in this regard. As per Col. 7(c), FDRs for Rs. 5 Crores were encashed by you from the bank but the same have not been accounted for in the Cash Book The un-reconciled difference in Bank balance as on 31.03.2004 is Rs. 17.89 Lacs. As per Col. 8(a) of Annexure there is large variation in the new allotments made during the year as per vendees ledger and as per Auction Statement and such variation has been worked out at Rs. 1309.57. As per Col. 11 (a), there is a different of Rs. 49.14 Lacs in respect of receipt of FDRs encashed/interest on FDRs as recorded in the Cash Bank as compared to Investment register, which has not been reconciled. The amount advanced to staff as per Receipt & Payment account is Rs. 195800/- whereas as per the Staff advances Ledger the amount is Rs. 528040/-. The difference is proposed to be added to your income. Please file your objections, if any. As per Col. 12 of the Annexure to the Audit Report there is difference of Rs. 13,16,915/- in rental income shown by you and as worked out by Auditors. The difference is proposed to be added to your income. Please file your objecti....
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....ns of Business of Profession" or "Income from Other Sources" shall, subject to the provision of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. As the assessee is following cash basis of accounting so FDR interest is not taxable being not received. 4. Diff. In Reconciliation of Banks:- As per audit report Balance Sheet has been prepared and the Trust funds has been computed as Balancing Figure at the End of the year (i.e. 31.03.2003) instead of Start of the Year (01.04.2002). There is difference of Rs. 1657808/- which is standing from last so many years and there is no difference of Rs. 12766060/-. There were cheque of Rs. 18436191.00 issued on 27.03.2002 which had been encashed after 31.03.2002 but the effect of the same has not taken into account by the Special Auditor. So no question of addition arises. Difference of Rs. 1657808/- has been pertaining to previous years and cash balance is more than Bank Balance. 6. Sale Proceeds:- As per the audited balance sheet of Special Auditor they have accounted for Rs. 2158.41 Lacs against the lesser amount of Rs. 1707.80 Lacs as auction statement, as ....
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....ate Ltd. 1982 PLJ 505 : 1983(I) LLR 356 (P&H). (c) As per Statement of Particulars -Annexure to Audit Report u/s 142(2A) furnished by Sh. Sanjiv Mehra, CA, the management has clearly admitted as under:- It has been further explained by the Management that upto and including the Assessment Year 2002-03 the assessee was not required to compute its annual income and taxable income for each year and file the income tax return as the assessee's operations were covered under Section 10(20A) of the Income Tax Act, 1961 and its income was exempt under the said section, before the said section was omitted by the Finance Act, 2002 w.e.f. 1.4.2003. From the Assessment Year 2003-04 the assessee 'income is outside the ambit of section 10(Exempt Income) of the Income Tax Act, 1961. The management has admitted that from Assessment Year 2003-04 the assessee is required to file its income tax return and comply with the requirement of the income tax return preparation and filing as laid down under the Income Tax Act, 1961. B. Applicability of provisions of section 43B Here again the assessee has contended that being state govt. owned during the period provision of section 43B are not app....
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....in Debts in respect of Allotted Property: On the issue of large variation in the receipts from vendees as per vendees register as per cash book as pointed out by the Audit as per 8 to Annexure A to the Audit report and the contentions of the assessee have been considered. The same are reproduce for ready reference. "Debts in respect of allotted properties [Schedule-F] The party-wise outstanding in respect of each property allotted by the trust has been prepared by the management from various records/registers/file etc. and has been submitted to us at the fag end of audit after lot of reminders and persuasion. No records have been made available to us for the verification of the debtors statement furnished to us. As such, we are not in a position to comment on the correctness or otherwise on the debts outstanding in respect of allotted properties. However, on perusal of the debtors statements we find glaring un-reconciled amounts and shortcomings as follows:- (a) There is also a large variation in the receipts from vendees during the year as follows: Rs. Lacs Receipts from vendees as per Cash Book 2246.90 (Including interest) Receipts from Vendees as p....
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....come. The auditors during the year under consideration has not calculated the same. Last year, it was around Rs. 216610/-. During the year the amount advanced to staff as per receipt and payment account is Rs. 1,95,800/- whereas as per staff advances ledger the amount is Rs. 5,28,040/-. This there is difference of Rs. 3,32,240/- the assessee was asked to explain the difference but not reply on this point was furnished. Accordingly, Rs. 3,32,240/- is added as income of the assessee along with proceedings under section 271(1)(c) of the Income-tax Act, 1961. G. Suspense account (Debit) Col. 10 to Annexure: There is difference of Rs. 49.14 Lacs in respect of receipts of FDRs encashed/interest on FDRs as recorded in the cash book as compared to investment register which has not been reconciled. The said difference of Rs. 49.14 Lacs is added. Staff advances: H. Difference in Rental Income: As per Audit report, there is difference in rental income of Rs. 13,16,915/- as pointed out as per Col. 12 of the Annexure to Audit Report and the same shall, therefore, be added to the income of the assessee accordingly the same is added as concealed income of the Assessee along with pr....
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....forming part of this assessment order. Tax and interest payable by the assessee is as per ITNS-150 (copy enclosed):- 4. Being aggrieved with the assessment order dated 06.12.2006, the assessee filed the appeal before learned CIT(A), Amritsar, who vide common order dated 04.10.2013, passed for both the assessment years 2004-05 & 2005-06, partly allowed the appeal of the assessee-trust. 5. The assessee has filed these two appeals through Sanjay Kapoor & Co., Chartered Accountants of Amritsar on 29.10.2013. The assessee has also filed two stay applications i.e. S.A. Nos. 40 & 41(Asr)/2013 in the present appeals which came up for hearing before the Bench on 29.11.2013. C.A., Amit Handa appeared for the assessee and requested for withdrawal of the stay applications and for early hearing of the main appeals. The Bench accepted the request of the assessee counsel and fixed the main appeals, as requested by the authorized representative of the assessee, for 05.12.2013 and ordered for dismissal of stay applications as withdrawn on 29.11.2013. On 04.12.2013, Sh. Y.K. Sud, CA of Jalandhar, filed another two stay applications i.e. S.A. Nos. 42 & 43(Asr)/2013 in the said appeals alongwith....
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....ntical in both the appeals. For the sake of convenience, the additional grounds of appeal raised in I.T.A. No. 636(Asr)/2013 are reproduced as under: In the Income Tax Appellate Tribunal Amritsar Bench Amritsar Re: Amritsar Improvement Trust Amritsar ITA No. 636/Asr/2013 Asst. Year: 2004-05 Subject: Additional Grounds Most respectfully submitted that the assessee appellant would like to raise the following grounds as additional grounds: 1. That the order of the CIT(A) is totally illegal as it has travelled beyond the purview of the issue pending before him. 2. That the CIT(A) has negated the issues already settled by the Pb & Haryana High Court, I.T.A.T. and his predecessor which were binding on him. 3. That the CIT(A) has no power to review the settled order of the predecessor and he could only pass the order strictly according to remand order of the I.T.A.T. Since the above grounds are purely legal the same may kindly be admitted 7. Learned counsel for the assessee stated that the additional grounds raised by the assessee are purely legal and requested that the same may be admitted keeping in view the judgment of the Hon'ble Supreme Court of I....
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....upheld. iv. That the learned A.O. had erred in giving directions for Special Audit U/s. 142(2A) and the approval for the same was granted by the CIT in a mechanical manner without application of mind. The Audit Report was mechanically understood by the A.O. without application of mind. v. That even as per computation of income made on the basis of Special Audit, the expenditure exceeds 85% of Income as worked out by the Special Auditor and the assessee being a Trust existing for solely Charitable purpose, its income is fully exempt and the same cannot be assessed like a private business concern existing solely for private business concern. vi. That the learned Assessing Officer had further erred in not allowing proper and reasonable opportunity to the appellant Trust for making exorbitant additions which have been wrongly sustained by the CIT(A). The observations made are against facts and are based on surmises and do not afford any legal justification to the additions made. vii. That the learned A.O. has further erred in charging interest and initiating penalty proceedings. viii. That the appellant craves leave to add or amend the grounds of appeal before the appeal....
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....al is heard and disposed of. 11. Learned CIT(A), Amritsar, in the impugned order dated 04.10.2013 passed for the assessment years 2004-05 & 2005-06, narrated the brief background of the case of the assessee in which he has stated that these appeals have been arisen from the consolidated order dated 03.09.2012 passed by I.T.A.T., Amritsar Bench, Amritsar in I.T.A. No. 355 & 356(Asr)/2011 for the assessment years 2004-05 & 2005-06 respectively, in which the matter was restored back to the file of CIT(A), Amritsar, for fresh adjudication after affording opportunity to the assessee with following directions contained in para no. 4.1 at page 3 of the I.T.A.T. order dated 03.09.2012, which are reproduced as under: "We have also perused the directions given by the learned CIT(A) to the A.O. in the impugned orders and we are of the considered view that the learned first appellate authority have no power to set aside the issue in dispute to the A.O. to decide the same as directed by the learned CIT(A) in the impugned orders. Keeping in view the powers of the learned CIT(A), mentioned in section 251(A) as reproduced above, we are of the view that the learned first appellate authority h....
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....ious other grounds in the appeals. We refrain from dealing with other grounds at present, since the main issue regarding applicability of Section 11 & 12 has been restored to the file of the learned CIT(A) for fresh examination. Therefore, if still the assessee is having any grievance, the assessee will be at liberty to pursue other grounds before the Tribunal." Thus it can be seen from above that Hon'ble I.T.A.T., Amritsar has given clear direction to CIT(A) to look into applicability of section 11 &12 of the I.T. Act. 13. After considering the assessment order for the assessment years in dispute in which the Assessing Officer has noted down various observations from records regarding various accounting entries and an auditor's report in the case of assessee especially the auditor report dated 20.06.2008 for the assessment year 2005-06 in which the auditor has reported that the Amritsar Improvement Trust, Amritsar, has not kept proper books of accounts as the assessee is maintaining books on single entry system along with the applicability of provision of Section 11 of the Act as well as various case-laws referred in the impugned order relied upon by the assessee and ....
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....of value of closing stock an unallotted properties of last year i.e. as on 31.03.2004. When he is clearly mentioning dates as 31.03.2004 & 31.03.2005 and also making adjustment of accretion of properties during year 2004-05, these is no question of any misinterpretation in this regard, and these figures are to be part of P&L account of Financial Year 2004-05 as opening stock and closing stock and any increase in value of closing stock over opening stock will have direct effect of increases in profits of F.Y. 2004-05. I do not agree with my learned predecessor that, this amount is Notional income. My predecessor has wrongly understood it as sale and hence considered it as Notional Income. This observation is incorrect. These figures represent closing stock of inventories and are to be shown in P&L Account for computing correct profit of the business entity. In view of above observation, the A.O. was correct in making this addition of Rs. 50,11,13,788/-. 15. Last addition made by the Assessing Officer and upheld by learned CIT(A) in the impugned order i.e. amounting to Rs. 23,42,92,045/- on account of understatement of assets in the balance sheet. Learned first appellate authority....
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.... allowed the appeal filed by the assessee by passing the consolidated order 04.10.2013 for both the assessment years in dispute against which, the assessee has filed the present two appeals. 18. Sh. Salil Kapoor, Advocate, learned counsel for the assessee stated that the Assessing Officer completed the assessment for the assessment years in dispute as business income and status of the trust was taken as local authority. At the time of framing the assessment, the registration of the trust applied under Section 12A of the Act was declined by CIT and also a special audit u/s 142(2A) was ordered by the Assessing Officer to compute the business income for both the years and additions were made and income was computed according to the report of the special auditor. The order of the CIT declining the registration was challenged before the I.T.A.T. and the I.T.A.T. vide its order dated 22.02.2008 granted the registration to the assessee and by relying on the order of Gurdaspur Improvement Trust and Kapurthala Improvement Trust. He further stated that the assessee is an improvement trust constituted under the provisions of Punjab Improvement Trust Act, 1922. The principal object of the t....
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.... our attention to the list of such expenses incurred by the assessee on its objects as per page no. 2 to 4 and page nos. 2 to 6 of the assessee's paper book filed by the assessee for the assessment year 2004-05 and 2005-06 respectively. 20. He further stated that the assessee-trust had undertaken no business activity and as such learned CIT(A) was not justified in invoking the provisions of Section 11(4) of the Act as the assessee-trust had made no such claim that it was doing business and as such the provision of the said section were not applicable in the assessee's case. 21. Mr. Salil Kumar further stated that on 18.03.2011, learned CIT(A) has passed an order as per direction of the I.T.A.T. considering the assessee is registered charitable trust in para no. 4 of the order, he directed the Assessing Officer to examine as to whether the appellant's income for both the above mentioned assessment years can be treated as exempt, thereby fulfilling all the parameters/conditions laid down under the provisions of sections 11, 12 and 13 of the Act i.e. as to whether the year-wise surplus is less than 15% of the total income or not otherwise the Assessing Officer is directed to tak....
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....xamination by learned CIT(A) to the provisions of Section 11(1)(a) of the Act which makes it mandatory to incur expenditure by more than 85% of the income earned. He further stated that learned CIT(A) has rightly held that the assessee has been undertaking business activities akin to private developer and that too in selected area in Amritsar and services are not viable to public at large but are being sold to few persons through auction/sale. He further stated that no details of its projects have been submitted by the assessee. Since the assessee is making profit out of auction of the properties, it clearly proves that it is existing for profit and not undertaking charitable activities as its objectives and amenities, if any being provided are the part of the project schemes. 24. Sh. Mahavir Singh has also produced the copy of the order dated 15.01.2013 passed by this Bench in the assessee's case for the assessment years 2006-07 and 2007-08 in I.T.A. Nos. 476 & 477(Asr)/2011, wherein this Bench has held that the activities carry out by the assessee-trust do not qualify it for exemption 11 of the Act and the activities undertaken by the assessee-trust is the same as undertaken d....
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.... of Allotted Properties as discussed [Interest not accounted for] in para 12-G Rs. 13000000/- 5. Difference in Recovery of Principal Amount of Loans in para 12-H Rs. 3,32,240/- 6. Difference in Suspense account- Rs. 49,14,000/- 7. Difference in Rental Income as discussed in para 12-J Rs. 1316915/- Total Rs. 83918158/- [Rounded off u/s 288A] Rs. 83918160/- 26.2 The assessee has raised the issue in ground no. 1, which is reproduced as under: "That the learned CIT(A) has, in view of the facts & circumstances of the case, grossly erred in law in upholding assessment at Income of Rs. 8,39,18,160 against declared loss of Rs. 594.92 lacs." In our considered view, the ground no.1 raised by the assessee, is not proper and not as per law. Learned first appellate authority has upheld the aforementioned additions made by the Assessing Officer on the ground that the assessee has not provided details of expenditure incurred by the assessee-trust on various activities undertaken to achieve its aims and objects and even no details of purchase and expenditure has been submitted before the Assessing Officer as well as before the learned first ap....
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.... 26.4 Keeping in view the facts and circumstances of the present case as well as the case already decided by this Bench against the assessee for the assessment years 2006-07 and 2007-08, we are of the considered view that the assessee has failed to furnish the details as required by the Assessing Officer before the learned first appellate authority and even before us. We further find that the functioning of all the Improvement Trust in Punjab are mandated by the Punjab Town Improvement Act, 1922. In the case of other trusts like Improvement Trust, Bathinda, passed in I.T.A. No. 366(Asr)/2012, dated 18.12.2012 and Improvement Trust, Abohar passed in I.T.A. No. 320(Asr)/2013, dated 09.12.2013, this Bench had already held that the activities are not such as may earn the exemption stipulated under Section 11 of the Act. We are of the considered view that the assessee has been involved in carrying out the activities which are in nature of trade, commerce or business. We have not found any activity which the assessee trust has done for advancement of general public utility. The activities being undertaken by the assessee trust and the other trusts mentioned above are almost identical.....
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....n in I.T.A. No. 636(Asr)/2013 for the assessment year 2004-05. 26.8 As regards to ground no. 5 of the appeal for the assessment year 2005-06, learned counsel for the assessee raised the ground of confirming the additions of Rs. 99,11,57,859/- and stated that the learned CIT(A) could not disturb the order of his predecessor who had deleted this addition by holding that it was a notional profit and no addition on account of notional profit can be made. On the contrary, learned DR stated that this Bench has set aside the department's appeal no. 161(Asr)/2009 vide its directions at para 8 of its order dated 26.06.2009. The learned CIT(A) had been directed to make fresh adjudication on department's appeal also and as such the successor learned CIT(A) was within his rights to adjudicate the issue afresh. He further stated that perusal of the statement of profit as on 31.03.2005 reveals that the assessee on the one hand had increased its surplus by a sum of Rs. 50,11,13,788/- to its income determined at Rs. 27,77,18,883/- and taking it to Rs. 77,88,32,671/- but this sum of Rs. 50,11,13,788/-had earlier been debited to profit & loss account as expenditure. The assessee has taken the sum....
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....s of the case, including the special audit report. I do not agree with the decisions of my predecessor in this regard. For any business undertaking profit cannot be computed merely on basis of business receipts and business expenditure but opening stock of inventories as well as closing stock of inventories should also be considered. The Auditor in his audit report has clearly mentioned valuation of unallotted properties as on 31.03.2004 & on 31.03.2005 (by typing mistake mentioned opening stock as on 31.03.2005) and has merely written as prior period adjustment for the purpose of value of closing stock an unallotted properties of last year i.e. as on 31.03.2004. When he is clearly mentioning dates as 31.03.2004 & 31.03.2005 and also making adjustment of accretion of properties during year 2004-05, these is no question of any misinterpretation in this regard, and these figures are to be part of P&L account of Financial Year 2004-05 as opening stock and closing stock and any increase in value of closing stock over opening stock will have direct effect of increases in profits of F.Y. 2004-05. I do not agree with my learned predecessor that, this amount is Notional income. My predeces....