TaxTMI 
TaxTMI 
2021 (2) TMI 323
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts and circumstance of the case and in law the Ld.CIT (Appeals) has erred in ignoring the facts that AO had denied exemption u/s 11 for the year under consideration as 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. 3. On the facts and circumstance of the case and in law the Ld.CIT (Appeals) has erred in deleting the addition of surplus by ignoring the facts mentioned and certified by Auditor in part-II [Application or use of income or property for the benefit of persons referred to section 13(3)] of his audit report [Form 10B] that payment of salary was paid to Persons Specified u/s 13(3) of the I.T. Act, 1961. 4. On the facts and the circumstances of the case and in law the Ld. CIT (Appeals) has erred in deleting the addition of Rs. 7,20,000/- made on account of excess salary paid to Persons Specified u/s 13(3) of the I.T. Act,1961 without appreciating the facts that excessive salary has been given to persons specified u/s 13(3) as compared to others staff having same educational qualifications, working conditions and services rendered." 3. In its c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cross objection and the same is hereby condoned and the cross objection so filed by the assessee trust is admitted for adjudication. 6. In this regard, the ld. AR submitted that the provisions of section 147, being prejudicial to the interest of the assessee, are safeguarded by certain preconditions. In the present case, ld. AO has flouted such preconditions and therefore, the reopening is challenged on various grounds such as there was no failure on the part of assessee trust to disclose fully and truly all material of facts, reopening has been done on account of change of opinion, no new tangible material is in possession of the AO, audit report has been made the basis for reopening, it's a case of borrowed satisfaction and there has been incompleteness of the reasons recorded. 7. It was submitted that the proviso to section 147 provides for an additional condition for assuming jurisdiction u/s 147. It provides that where assessment already stands completed u/s 143(3) or 147, and four years from the end of relevant assessment year have elapsed then reopening can be done only if there is failure on the part of the assessee to disclose fully and truly all material facts neces....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * ACIT vs. Mangalam Cement Ltd. [2017] 78 taxmann.com 334 (Jaipur - Trib.) 9. Without prejudice to the fact that same audit report was considered in the original assessment proceedings u/s 143(3), it was submitted that from the reasons itself, it is evident that no enquiry, of whatsoever nature, was made before formation of belief. Only 10B report of auditor, wherein he expressed his personal opinion, was made a base for reopening the case. It was submitted that an opinion of auditor cannot be considered as a tangible material or information. Even the audit findings of section 142(2A) audit cannot be considered sacrosanct and cannot be acted upon unless an opportunity to assessee has been provided. Therefore, without discharging the liability as casted upon the ld. AO under section 147, she cannot just blindly place reliance on someone else's opinion. The law required AO and only AO to carry out analysis, check, cross check information received and then come to the conclusion that income has escaped. In the present case, AO has jumped to a conclusion without applying her mind. Therefore, the present case is nothing but a case of "Borrowed Satisfaction". Reopening on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orm a reasonable belief that the income had escaped assessment. Hence, the appellant's contention regarding initiation of proceeding u/s 147 and issuance of the notice u/s 148 are rejected. 4.1.2. The AO after considering the details furnished by the assessee, noted certain defects with regard to the non- compliance of provisions of sec. 11(2)(b) and 11(5) and 13(3). The Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. [198 ITR 297 (SC)] held that proceedings u/s. 147 are for the benefit of revenue and are aimed at gathering the "escaped income" of an assessee. It has been held by the Hon'ble Supreme Court that although for reassessment of income there must exist reasons to believe that income has escaped assessment, the question whether the reasons are adequate or otherwise is not for the Court to decide (Phool Chand Bajrang Lal vs. ITO, reported in 203 ITR 456). Further in the case of Raymond Woolen Mills Ltd. vs. ITO, reported in 236 ITR 34, the Hon'ble Supreme Court held that to determine 'Whether the commencement of reassessment proceeding was valid, it has only to be seen whether there is prima facie some material on the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s conferred on the Assessing Officer under the Amended provisions are wide as has been clarified by the Hon'ble Delhi High Court in the case of Bawa Abhai Singh Vs. DCIT (117 Taxman 12) in which it has been held that - "The provisions of section 147, as amended with effect from 1-4-1989, are contextually different and the cumulative conditions spelt out in clauses (a) and (b) of section 147 prior to its amendment are not present in the amended provision. The only condition for action is that the Assessing Officer should have reasons to believe that income has escaped assessment. Such belief can be reached in any manner and is not qualified by a pre-condition of faith and true disclosure of material fact by an assessee as contemplated in the pre-amended section 147(a). Viewed in that angle, power to reopen assessment is much wider under the amended provision and can be exercised ever after the assessee has disclosed fully and truly all the material fact." 4.1.5 In the case of Praful Chunilal Patel vs. M.J. Makwana ACIT ( 148 CTR 62Guj.), it has been held that where the Assessing Officer had over looked something at the first assessment, there would be no questi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e are deemed to be the property of the founder of the trust. Further, founder of the trust was always be managing trustee for the life time. ii) provision of irrevocability did not exist in the trust deed. iii) Accordingly to the Sl. No. 6 of part I of 10B report, it was pointed out by the CA that funds of the trust were not invested or deposited in the manner laid down in section 11(2)(b) of the IT Act, 1961. iv) it was also seen that funds of Rs. 50,54,000/- as FDR and Rs. 11,69,777/- as cash deposited in the Lord Krishna Bank Ltd. proof regarding applicability of section 11(5) was not filed by the assessee. v) According to the Sl No. 4 of part II of 10B report, it was pointed out by the CA that salary of Rs. 5,70,000/- was paid to settler of the trust for being acting as a dean of the college and Rs. 3,00,000/- each to the other two trustees but management do no explain about the genuineness of those two payments. vi) Further, the application of funds was not to be extent of 85% of receipts during the previous year. Thus, according to Section 13(1) nothing contained in sec. 11 or sec. 12 shall operate so as to exclude from th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed is that there has to be a failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. 13. In this regard, the observations of the Hon'ble Delhi High Court in case of CIT v. Multiplex Trading & Industrial Co. Ltd. 378 ITR 350 are relevant wherein it was held that: "24. In our view, the question whether the Assessee could have been stated to disclosed fully and truly all material facts have to be examined in the light of facts of each case and also the reasons that led the AO to believe that income of an Assessee has escaped assessment. In a case where the primary facts have been truly disclosed and the issue is only with respect to the inference drawn, the AO would not have the jurisdiction to reopen assessment. But in cases where the primary facts as asserted by the Assessee for framing of assessment are subsequently discovered as false, the reopening of assessment may be justified"." 14. Similarly, the Hon'ble Madras High Court in case of Arvind Remedies Ltd (supra) held as under:- "9. Explanation (1) to Section 147 of the Income Tax Act cannot be pressed into service by the Depart....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iction to reopen an assessment beyond a period of four years as spelt out in the proviso to s. 147 is that there ought to be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. In the present case, the sole basis on which the assessment proceedings were sought to be reopened is the order which has been passed on 5th July, 2011 for asst. yr. 2007-08. In that order, according to the Revenue, it has been held that the assessee acts as a mere facilitator and is not a manufacturer so as to entitle it to the deduction under s. 10A. The issue, however, before the Court, is as to whether that can form the basis of the reopening of the assessment beyond a period of four years. The reasons which have been disclosed by the AO do not set out as to what facts the assessee had failed to fully and truly disclose. Even a prima facie reference to the basis on which it is sought to be inferred that there was a failure to disclose all material facts has not been set out in the reasons. In that view of the matter, we are of the view that the primary jurisdictional requirement for reopening the assessment beyond a perio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed assessment. To our mind, these are all primary documentation disclosing objects and activities of the assessee trust and reflection of such activities by way of disclosure in its books of accounts which are also subject matter of audit and all these documents which are duly disclosed during the original assessment proceedings and where on reappreciation of such primary documentation, the Assessing officer is of the view that the assessee is not eligible for exemption u/s 11 and 12, it is his inference and analogy which he has drawn basis review of such primary documentation. However, as far as onus on the assessee to disclose the primary facts are concerned, the same has been duly satisfied and there is no such failure and infact, in the reasons so recorded, there is no allegation made by the Assessing officer that there is any such failure on the part of the assessee company and as we have stated above, it is for the Assessing officer to disclose and open his mind through the reasons recorded by him and he has to speak through the reasons. Therefore, we agree with the contention so advanced by the ld AR that this being a jurisdiction requirement and in absence of any such fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n and working conditions. In such circumstances the observations made the Auditor Shri Gajanand Gupta, Chartered Accountant were after due consideration of the material produced before him and he has made the aforementioned observation as such the assessee's contention that the payment of salary was justified is not acceptable. Accordingly, in the absence of justification of salary paid to the aforementioned two persons namely Dr. Raj ID Khare and Dr. S. Ramanathan the entire salary cannot be allowed however, as both the above mentioned persons were trustees and prima facie it appears that they might be contributing to some extent in the day to day working of the trust, as such I consider it fair and reasonable to disallow 50% of the salary paid to the aforementioned persons as such a sum of Rs. 1,50,000/- out of the salary paid to Dr. Raj I.D. Khare and a sum of Rs. 1,50,000/- out of the salary paid to Dr. S. Ramanathan is considered as payment made for personal benefit of the persons specified u/s 13(3) of the Act. Similarly in the case of Dr. Sohan Singh Rathore also there is no justification of such salary and in his case sum of Rs, 1,50,000/- is allowed and remaining salar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o re- assume power directly or indirectly over the whole or any part of the income or assets. The trust deed nowhere mentions that the properties of the trust shall be re-transfer directly/indirectly or the transferor reserves right to re-assume power directly/indirectly. Hence, without any doubt the trust is an irrevocable trust. The assessee trust was, on the basis of same trust deed, on 27.06.2003 granted registration u/s 12AA from CIT -II, Jaipur vide order no. 29/8/2003-04/723, on 05.04.2005 obtained registration u/s 80G and on 07.09.2011 obtained registration u/s 10(23C) . Thus, in the opinion of the higher officer i.e. Commissioner the assessee trust was eligible to avail benefit of exemption u/s 11 and 12. Therefore, the Trust Deed of the assessee trust is complete in all respects and all the objectives as specified therein are charitable. The Trust was not made with the objective of providing benefit to settler or trustee of the trust. The AO without any power pointed out defects in the Trust Deed. The AO referred the Hindi Translation of the Trust Deed and not the Original Trust Deed. The Original Trust Deed clarifies that the ownership of the amount received by trustees ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of identifiable third party transactions in similar area of operation of education. It was submitted that AO, at both the times i.e. while recording reasons as well as while framing assessment, placed sole reliance upon the auditor's opinion. Thus, the disallowance was purely made on surmises and assumption. No adverse material was brought on record. It is worth mentioning that the submissions of the assessee trust were not controverted and no defect in the same was pointed out. In view of the above, addition made by ld. AO is illegal, devoid of merits and, therefore, department's ground of appeal deserves to be rejected. 24. Regarding Department's ground No. 1, the ld. AR submitted that the AO, after observing that assessee violated the provisions of section 13(3), withdrew the benefit of section 11 and 12 by invoking the provisions of section 13(1)(c)(ii) r.w.s. 13(2)(g). As submitted above, the assessee trust did not pay excessive salary to its specified persons and, therefore, the exemption cannot be withdrawn by invoking the provisions of section 13(1)(c)(ii) r.w.s. 13(2)(g). Alternatively, it is submitted that, without agreeing, even if it is considered that the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntended to ensure that the income of such a trust / institution is not diverted towards the benefit of persons who are closely connected with tie creation, establishment and conduct of the affairs of the trust I institution. From the provisions of section 13(1)(c)(i1), it may be seen that if any part of income or any property of the trust is applied directly or indirectly for the benefit of any trustee, etc, then the benefit of exemption under section 11 of the Act, will not be available to the trust, in respect of such income. l find that in the instant case, the AO misinterpreted the clause and even otherwise also, this clause does not alter the status of the charitable trust to private trust, it is a fact that appellant trust s registered us. 12A and thus its status as irrevocable trust, Once the property is transferred to the trust it completely belongs to the property of the trust whether it is transferred by any person in any mode, The AC failed to establish that the any benefit were passed on to the trustee. Merely because trust properties are vested in trustee, it does not mean that ownership of said properties is vested with trustee and they used these properties other tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the trustee, the appellant has satisfactorily proved that salary paid to these persons were not excessive or not in violation of provisions of sec. 13(3). These persons duly disclosed salary received from trust in their respective IT returns and paid due taxes thereon. 5.6 As regards the AO's observation that in the trust deed, there was no clause which could justify the revocability of the trust, therefore, it is not eligible to become public/charitable trust and hence, exemption u/s. 11 was denied to it, the appellant referred to meaning of Revocable Transfer as provided in sec. 63 of the Act. For the sake of clarity, the same is reproduced as under:- "Transfer" and "revocable transfer" defined for the purposes of sections 60, 61 and 62 of this section a) transfer shall be deemed to be revocable if- (i) it contains any provision for the retransfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets; b) "transfer" includes any settlement, trust covenant, agree....