TaxTMI 
TaxTMI 
2021 (2) TMI 323
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....ppeals) 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 cross objection, the assessee has taken the following grounds of appeal:- ....
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....s 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 necessary for assessment. In the present case, perusal of reasons to believe reveals that Trust Deed, Report u/s ....
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.... 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 such basis is illegal and void-ab-initio. Reliance was placed on the following judicial pronouncements wherein it has been held that no valid reopening can ta....
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....fter 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 basis of which the AO could re-open the case. The sufficiency or the correctness of the material is nothing to be considered at this stage. In the instant case, reasons have been duly recorded by the AO for arriving on....
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....s 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 question of any change of opinion. 4.2 From the decision in the cases Supra it is clear that the Assessing Officer was fully justified to reopen the assessment for the purpose of enquiring the assessee's eligibility of exemption 11 & 12 of the Act. In view ....
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.... 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 the total income and entire income of the trust is liable to pay income-tax as envisaged in the aforesaid provisions. This omission has resulted in irregular tax exemption of the trust income of Rs. 1,58,99,324/-. The same is disallowable as per provisions of Section 13(1) and to be added in the total income of the assessee. ....
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....d 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 Department in the instant case, because the details of such claim has been revealed during the regular assessment and complete details have been provided before the Assessing Officer. If the Assessing Officer has not considered the same at the time of passing an order under Section 143(3) of the Income Tax Act, the assessee cannot be fastened with any liab....
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....ich 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 period of four years has not been fulfilled in this case. Since the order passed by the CIT(A) for asst. yr. 2007- 08 has been passed after the assessment for asst. yr. 2005-06 has been sought to be reopened by the notice dt. 29th June, 2011, we have, for the purposes of this discussion, kept that circumstance out of consideration. We have come to the conclusion that the AO hav....
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....on, 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 failure on part of the assessee company, the Assessing officer cannot assume jurisdiction u/s 147 of the Act. 18. In light of aforesaid discussions and respectfully following the decisions referred supra, we are of the considered view that in the instant case, the Assessing officer doesn't have the legal basis to acquire jurisdiction for reassessment u/s 147 and thus, the notice issued ....
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....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 salary of Rs. 4,20,000/- is disallowed. In In view of the above mentioned discussion provisions of sec. 13(1)(c)(ii) row. 13(2)(g) of the Act are attracted and the assessee's exemption u/s 11 is rejected and moreover a sum of Rs. 7,20,000/- as discussed above is added to the total income of the assessee trust. (Addition- Rs. 7,20,000/-) The assessee has furnished inaccurate particulars of income and concealed income, therefore, penalty proceedings u....
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.....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 is vested in them for the purpose of carrying out the objects of the trust. It is further submitted that the power to grant registration and withdraw registration vests with ld. PCIT or ld. CIT as per the provisions of section 12AA. The AO only by invoking the provisions of section 13 can deny the benefit of section 11 and 12 for that particular year in which violation takes place. No violation as specified in section 13 takes place if the trust deed does not mention about irrevocability. I....
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....ition 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 trust violated the provisions of the Act by passing on the benefit to persons mention u/s 13(3) then only such part of income in violation of section 13(1)(c)(ii) can be brought to tax at MMR and entire income cannot be denied exemption under section 11. Reliance was placed on the following decisions:- * Hon'ble Supreme Court in the case of CIT v. Fr. Mullers Charitable Institutions [2014] 51 taxmann.com 378 (SC) wherein SLP was rejected and decision of Hon'ble Court of Karnataka in the case of CI....
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....erpreted 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 than purpose and objects for which the trust was established, Thus, no benefit has been passed to the founder of the trust. In absence of any 'benefit', there was no violation of any of the conditions contained in section 13(1)(c) of the Act, as held in the assessment order Consequently, the action of the assessing officer in the denying exemption under section 11/12 of the Act is held as unjustified. 5.4 As regards violation of provision of section 11(5) of the Act, the AO observed that the AO observed that mode of certain deposits were not as per investment approve....
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....he 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, agreement or arrangement. 5.6.1 From the above, definition, it is clear that there must be present an express clause for revocability for a trust to be revocable and merely, absence of such a clause itself makes it irrevocable. It may be noted that the appellant trust has been granted the registration u/s 12A of the Act by Commissioner of Income Tax - II, Jaipur vide his Letter No. 722 dated 27.06.2003 w. e f. 05.10.2002. Moreover, the Trust has also registration u/s 80G of the Act by the CIT - II, Jaipur. Thus, there is no valid basis before the AO to dispute the status of trust. 5.7 In view of the above facts and discussions, it is held that the AO was no....