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TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 1446
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.... as on facts in treating the demand as valid which was not computed on the basis of order that may not be termed to be an order under section 143(3). (3) That a demand of tax as computed in the computation sheet is without jurisdiction void-ab-inito and is liable to be annulled. (4) That the Ld. Authorities below have erred in law as well as on facts in confirming the addition of Rs. 736591857/-comprising * Corpus Donation aggregating to Rs 7,68,95,000/-, * Accumulation of Rs 22,00,00,000/- u/s 11(2), * Excess of income over expenditure upto 15% of gross receipts at Rs 18,18,45,924/- claimed as exempt u/s 11(1) of the Act * purchase cost of Fixed Assets, during the year under consideration, aggregating to Rs 14,96,91,583 less depreciation at Rs 1,55, 15,994/- * cash deposits aggregating to Rs 5,59,55,800/- * 10% of the aggregate expenses of Rs 67,71,95,436/-which comes to Rs 6,77,19,543/- considering the possibility of Revenue Leakage on account of such huge unverified expenses. And thus confirming the demand that is raised. (5) That the entire demand of Rs. 35,32,80,589/- is infructuous and w....
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....aw. 9. While passing order treating the Trust as business entity Ld. A. O. was under obligation to allow deduction under section 80G. However, no such deduction is allowed. 10. On the facts and circumstances of the case, the learned authorities below have erred, both on facts and in law, in charging interest under Sections 234A, 234B and 234C of the Act. 11. The appellant craves leave to add, amend or alter any of the grounds of appeal." 2. The facts of the case are that, in the assessment year 2017-18, the ld. AO observed that the registration of the assessee trust had been cancelled by the ld. PCIT (Central), Lucknow, vide his order under section 12AA(3) of the Income Tax Act, 1961 passed on 20.03.2019. In view of the same, he held that the assessee was not eligible to claim the benefit of section 11 and 12 of the Income Tax Act, 1961. From a perusal of the return of income, he found that the assessee had claimed the benefits under these sections in its return. Accordingly, the assessee was asked to show cause in this regard and after considering the reply of the assessee, the ld. AO added back a sum of Rs. 7,68,95,000/- received as corpus donation. ....
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....penditure of Rs. 30,48,01,279/- and in view of the cancellation of the registration of the trust, held the same to be liable for taxation. Accordingly, an addition of this amount was also made. 4. Aggrieved with the said assessment orders, the assessee filed appeals before the ld. CIT(A)-3, Lucknow. In the assessment year 2017-18, the assessee submitted that it was a public charitable trust formed on 26.05.1998 and registration under section 12A had been granted to it since its inception, by the CIT Bareilly, vide his order dated 26.06.1999. The assessee trust had filed its return of income at nil income on 15.11.2017 and the case was taken up for scrutiny. Subsequently, an assessment order was uploaded on the internet on 31.12.2019, in which its income was assessed at Rs. 73,65,91,860/- and a demand of Rs. 57,91,04,955/- was raised. It was also submitted that a demand notice was issued separately, in which income derived during the previous year were shown at Rs. 122,87,32,944/-, but this was invalid because the assessment order showed an assessed income of Rs. 73,65,94,860/-. It was submitted that the present appeal was against the notice of demand of Rs. 57,91,04,955/- issued....
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....sel after he had produced the books of accounts. In the absence of rejection of the books of accounts and in the absence of pointing out any bogus expenditure, there was no basis to disallow 10% of the expenses. Furthermore, it was submitted that the assessee was a public charitable trust and no tax benefit could accrue on claiming bogus expenditure as the income of the trust was not chargeable to tax on account of the availability of exemption under section 11. Furthermore, in assessment years 2013-14, 2014-15, 2015-16 and 2016-17, no such disallowance had been made. It was further submitted that in the case of the assessee, a search and seizure proceeding had been carried out under section 132 of the Act on 18.09.2014. Subsequent to the search proceedings, the assessee had filed an application for settlement before the Hon'ble Settlement Commission on 5.01.2017, which had been admitted by the Hon'ble Settlement Commission under section 245D(1) of the Act, for the assessment years 2009-10 to 2015-16 and it had also challenged the notice under section 153A, in a writ petition before the Hon'ble Allahabad High Court. The Hon'ble Allahabad High Court had dismissed the writ petition o....
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....d held that the mere absence of details regarding the assessee in the columns preceding the order, which appeared to have been caused due to technical glitches, would not invalidate the order when the notice of demand as well as the assessment order bore a DIN and the assessment order was uploaded on the portal. Therefore, she held that the assessment order could not be regarded as invalid. On the discrepancy between the assessment order and the demand notice, she advised the assessee to pursue remedies under section 154. Thereafter, on consideration of the merits of the case, she observed that despite the restoration of registration of the trust the trust still had to fulfill the conditions of sections 11 & 12 to get the exemption. In this context she observed that the assessee had failed to furnish confirmation letters from five donors, who had purportedly donated to the corpus. She examined the corpus donations under the provisions of section 11(1)(d) of the Act and came to the conclusion that some of the donors had not made voluntary contributions but that these had been made on the request of the assessee trust. Thus, she held that the donation of Rs. 1,95,40,000/- does not fa....
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....e income, even though the trust had been granted registration under section 12A, the expenditure claimed by the assessee in respect of capital expenditure towards of application of income should be denied, as it was not for charitable purposes. The ld. CIT(A) also referred to the deposit of cash of Rs. 5,59,55,800/- in cash and observed that the assessee had failed to furnish the information during assessment proceedings. However, during remand proceedings, the assessee had furnished information to claim that cash deposits of Rs. 2,85,57,800/- were made out of the fees received from the students' parents for which PAN had been provided. However, cash had also been received amounting to Rs. 2,15,34,668/- from identifiable persons whose PANs were not available and from unidentifiable persons at Rs. 51,33,332/-. The ld. CIT(A) observed that the fees range from Rs. 1,000/- to Rs. 16,95,000/- and observed that the cash deposit claimed to have been paid by students towards fee, seemed to be improbable. A majority of payments were seen to be more than Rs. 5,00,000/- each and from the same, the ld. CIT(A) concluded that the assessee trust had actually been receiving capitation fees under t....
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.... had been passed after examining the explanations and submissions made by the assessee and in view of the same, she was of the opinion, the assessment order was neither invalid in the eyes or law or on facts. On the issue of jurisdiction not vesting with the ld. AO and the order being passed in violation of the principles of natural justice, she held that at the time of passing the order, the assessee trust did not have registration under section 12A of the Act and the registration was only subsequently restored by the ITAT. The ld. AO was justified in completing assessment based on the facts prevailing at the time when he passed the order. Further, she noted that notices under section 142(1) had been given on numerous occasions and therefore, she did not find any merits in these grounds laid by the assessee. On the merits of the case, she held that restoration of registration under section 12A does not automatically entitle the assessee to claim exemptions under section 11(1) and section 11(2) of the Act unless the requirements of these sections of the Act read with Rule 17(2) of the Income Tax Rules and other relevant provisions of the Act were fulfilled. Going through the provis....
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....if one instance of application or use of the income or property of the trust directly or indirectly for the benefit of any prohibited person arose, the trust will lose exemption in respect of the entire income. Since the trust had violated the provisions of section 13(1)(c)(ii) of the Act, it was not entitled to exemption under section 11 of the Act on the entire surplus of the assessee amounting to Rs. 30,48,01,279/- and therefore, she confirmed this addition also and dismissed the appeal of the assessee trust on these grounds. She also rejected the plea of the assessee that the Assessing Officer was under obligation to allow deduction under section 80G, pointing out that no written submissions had been furnished in support of these grounds and also noted that donations made to M/s Keshraj Educational Trust and M/s Varun Arjun Trust had been claimed as application of income and not claimed as deduction under section 80G. In view of these facts, she held that the ground raised by the assessee did not have any force whatsoever. She also upheld the decision of the Assessing Officer to levy interest under sections 234A, 234B and 234C of the Act and thus came to dismiss this appeal als....
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.... the ld. AO that since the assessee had asked for the donation, the donations made towards the corpus were not voluntary. It was submitted that the fact that the assessee requested for the donation did not in any way make the donation involuntary, because the donors had confirmed that they had made the donation voluntarily. Furthermore, it was submitted that the only condition that was laid down in section 11(1)(d), was that there should be a specific direction that the donation should be towards the corpus. There was no requirement that the purpose of the donation should also be stated and the ld. CIT(A) was incorrect in her assumption that this was so. The ld. AR, thereafter, invited our attention to pages 191 to pages 214 of his paper book which contained the letters of the various donors. He pointed out that in almost all the cases, the donors had indicated that they were making the contributions voluntarily and that the donations were being made by them towards the corpus of the trust. In the circumstances, since the conditions of section 11(1)(d) stood complied, there was no occasion for the ld. CIT(A) to sustain the addition made on account of donations to corpus, which had ....
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....m 9A as Form 9A was for cases where 85% of the income could not be applied towards charitable purposes, on account of either non-receipt of the income or for any other cause, which was not there in the assessee's case and the assessee trust had furnished the details of accumulation under section 11(1)(a) in the ITR filed by it. Therefore, the sustenance of addition on such grounds was unjustified. On the issue of addition to fixed assets, the ld. AR invited our attention to para 10.7.01 of the order of the ld. CIT(A), in which the ld. CIT(A) had disallowed the investment in fixed asset on the grounds that the assessee was earning huge profits and has utilized the same to purchase fixed assets, for the purposes of earning further profits. The ld. AR submitted, that capital expenditure also allowed as application of income for charitable purposes during the year under consideration. It was pointed out that in the remand report, the ld. AO had pointed out, that the assessee had incurred the capital expenditure on fixed assets relating to the hospital run by it and also pointed out, that assets had not been acquired for the other objects of the trust. It was submitted that while the ld....
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....ection 68 of the Act. On the issue of ad hoc disallowance of 10% on account of unverified expenses that had been sustained by the ld. CIT(A) on the grounds that only ledgers had been produced and no bills and vouchers had been produced, it was submitted that the assessee was a public charitable trust and was maintaining all the bills and vouchers. It was in a position to produce whatever was required so as to justify the expenses. However, had they been specifically asked for they would have been submitted. Even otherwise, it was held that there was no justification for making adhoc disallowances. If the AO had any doubts with regard to any expenditure, he could do further enquiries and disallow that expenditure, but there was no justification for assuming that there had been leakages and the disallowances had therefore merely been made on surmises and conjectures. He invited our attention to various decisions of the Tribunals and the Hon'ble High Court, wherein it had been consistently held that ad hoc disallowances of this nature were not sustainable. Accordingly, it was prayed that the disallowances made may kindly be deleted. 8. Arguing on the additions sustained by the ld. ....
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....for the Assessment year 2017-18, he submitted that in para 7.2 of her order, the ld. CIT(A) has pointed out that the case was selected for scrutiny under CASS and a notice under section 143(2) was duly served upon the assessee. Furthermore, in response to notices under section 142(1) of the Act, the assessee had furnished submissions and attended hearings. On perusal of the notice of demand issued under section 156, it was noted that the PAN number, date, assessment order etc., had all been specifically mentioned alongwith the DIN and notice number. On perusal of the assessment order, it had been noted that DIN and order number had been mentioned. Both the assessment order as well as the notice of demand had been digitally signed by the Assessing Officer on 31.12.2019 at 10:35 pm. The ld. CIT(A) has also pointed out how the assessee was well aware that an assessment order for the instant assessment year was awaited in its case. Furthermore, the ld. CIT(A) had pointed out that there was no confusion in the mind of the assessee while filing Form 35, as the assessee had mentioned all the details which it stated was missing in the order such as the section under which the order was pas....
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.... deserved to be sustained. With regard to the amount of Rs. 18,18,45,925/-, being 15% accumulated under section 11(1)(a) and the addition of Rs. 13,41,75,589/- on account of investments in capital assets, the ld. CIT DR relied upon the orders of the ld. CIT(A). With regard to the addition of Rs. 5,59,55,800/- under section 68 and addition of Rs. 6,77,19,543/- by way of adhoc disallowances, the ld. CIT(DR) submitted that the additions had been made primarily because the assessee had failed to furnish supporting evidences and therefore, he would not have objection to the matter being remanded back to the Assessing Officer for re-examination, after considering those evidences which the assessee claimed to possess. 10. On the disallowances relating to assessment year 2018-19, the ld. CIT DR pointed out that it had very clearly been brought out by the AO and the ld. CIT(A), that the donations to M/s Keshraj Education Trust were made to an organization that did not have similar objects and that the donations had been made to trusts in which the trustees of the assessee trust had substantial interest. Thus, it fell into section 13(2)(h) and was a violation of section 13(1)(c). In the c....
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....her did it contain the PAN number of the assessee or the assessment year. The assessee has agitated that, on these accounts, the assessment order is invalid in the eyes of law. However, the ld. CIT(A) has pointed out that the assessment order indicates a DIN number which also contains the section under which the assessment was done and that the same was accompanied by a demand notice that had the PAN number, date, assessment order specifically mentioned DIN and notice number whereby a demand of Rs. 57,91,04,955/- had been raised. On these accounts, the ld. CIT(A) has held that there was no confusion in the mind of the assessee and this is evidenced by the appeal filed by the assessee in Form No.35. She has also invited our attention to the provisions of section 292B of the Income Tax Act. We have duly considered the matter. It is true that Assessment proceedings under section 143(3) were initiated in respect of the assessment year in question and proceedings were on going. It is also true that the Assessment Order was uploaded on the portal and was visible to the assessee through its' log in credentials. The assessment order had a DIN which indicates that it was an order under sect....
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....e Income Tax Act. However, no material has been brought on record by the Assessing Officer in the course of the assessment proceedings, to suggest any malpractice in the receipt of these donations towards the corpus, on the basis of which it could be held that the donations to the corpus were not genuine. Therefore, the donors having clearly stated that they were making the donation towards the corpus, there is no reason to ascribe an involuntary nature to such donations, only on the fact that the assessee had asked for them, or to prescribe conditions such as purpose of utilization, where the donors have indicated that the donation was towards the corpus. The addition of Rs. 7,68,95,000/- made on this account being unsustainable, is therefore liable to be deleted. However, the LD CIT(A) has indicated in her order that the assessee has not placed confirmations in respect of 5 donors amounting to Rs 1,95,40,000/-. Therefore, the donations made by these 5 donors are restored to the file of the assessing officer for submission of their confirmations, while the remaining additions made on account of corpus donations are deleted. With regard to the addition of Rs. 18,18,45,924/- that ar....
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....ed only specific or concrete purposes and since those were not specified by the assessee, the assessment order was erroneous and prejudicial to the interest of revenue. Accordingly, the assessment was set aside. On appeal to the Tribunal, the Tribunal held, that on an examination of the scheme of the Act, since a plurality of charitable purpose was not ruled out, no objection could possibly be taken to the assessee listing out all its objects in Form No.10. It held that it had complied with the provisions of the Act and disagreed with the findings of the Commissioner. Before the Hon'ble Calcutta High Court, it was contended on behalf of the assessee that one purpose of accumulation was interlinked with the other and therefore, the mention of all the purposes did not make any difference and satisfied the requirements of section 11(2). However, the Hon'ble Calcutta High Court observed that the Tribunal's decision overlooked the scheme relating to accumulation of income for particular future use. It held that while accumulation under section 11(1) could be taken for the broad purposes of the trust as a whole, which is why the statute did not require an assessee to state to specify the....
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....ngency, where the fulfilment of any project within its object or objects, needed heavy outlay calling for accumulation to amass sufficient money to implement it and, therefore, specification of purpose, as required by section 11(2), admitted of no amount of vagueness about such purposes. The facts of the assessee's case are exactly similar to the facts in the case of DIT(Exemption) vs. Trustees of Singhania and Charitable Trust (supra). In this case also, the assessee has filed the Form 10, in which it has given notice of accumulation for the generality of the objects of the functions of the parishad as enshrined in section 15 of the U.P.A.E.V.P.A. 1965. The ld. AR has submitted that the functions (which are 21 in number) are all inter-related and because the assessee parishad cannot spend any money outside of its objects, it is fully compliant with the requirements of section 11(2) of the Act. 25.Another decision upon which the Ld CIT(A) has relied in order to deny the benefit of accumulation under section 11(2) to the assessee, is that of the Delhi Tribunal in the case of Sir Sobha Singh Public Charitable Trust vs Assistant Director of Income Tax (Exemption)79 ITD 1(Del)....
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....s per language used in clause (b) of sub-section (2) of section 11, the purpose for which the income is being accumulated or set apart has to be specific. The expression specific as commonly understood is something which is contrary to what is general and vague. As per the meaning given in the Random House Dictionary of the English language (the Unbridged Edition), the expression 'specific connotes having a special application explicit, or definite, to state one's specific purpose as against this, the expression general has been defined as 'pertaining to all persons or things belonging to the group or category...... common to most prevalent or usual. not limited to one class, field, product, service ete. Thus, the purpose has to be a definite and precise one. The expression 'specific' has to be read in the context and the text in which it has been used. Since the same has been used in the context of purpose, the same has to be definite and concrete one in distinction to general or vague one. At the same time, it could not be for all the purposes as given in the Trust Deed which would make the provisions of sub-section (2) of section 11 as meaningless. A....
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....rposes. The concurrent findings by the lower authorities were findings of fact and they gave no rise to questions of law. Both these judgments had been followed by various other courts and Tribunals. The decision of the Hon'ble Delhi High Court has been followed in subsequent decisions of the Hon'ble Delhi High Court in Bharat Kalyan Pratisthan vs. DIT(Exemption) 299 ITR 406 (Del),DIT vs. Mitsui and Co. Environmental Trust 303 ITR 111 (Del) and Bharat Krishak Samaj vs. DDIT(Exemption) 306 ITR 153 (Del). The ld. Special Counsel has pointed out that the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Hotel and Restaurant Association cannot constitute a valid precedent because it related to the question of an admission of a case, which was rejected on the basis of concurrent findings of lower authorities and therefore, could not be read as an exposition of law on the issue of section 11(2). Be that as it may, the fact remains that the said decision has been followed by subsequent orders of the Hon'ble Delhi High Court, as narrated above. However, as the Ld CIT(DR) has pointed out, the Constitution Bench Of the Supreme Court in the case of Commissioner of Customs (Impor....
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....he need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance with an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. 34. The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether th....
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....nterpreted in such a manner, so as to render a related provision as otiose. Therefore, in view of the specific provisions contained in section 11(3A) which point out that, if the assessee who has accumulated the income for a particular purpose cannot spend it for that purpose, he can spend it on any other purpose within its objects, with the permission of the ld. AO, and then such other purpose would be treated as the purpose given in Form No.10 submitted under Rule 17 and section 11 (2)(a) as the purpose of accumulation, makes it clear that the said provision could not be operable, if the arguments of the assessee were accepted that the notice of accumulation for the general objectives of trust were compliant with the requirement of section 11(2). In the circumstances, after considering the provisions of section 11(2)(a) and section and section 11(3A), we are inclined to agree with the ld. CIT(A), that the assessee cannot be allowed the benefit of accumulation on the basis of such a loosely worded notice under section 11(2), that does not enable the ld. AO to subsequently examine whether the purposes for which the amount was accumulated, was actually utilized for such purposes. Th....
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.... rate of tax, we deem it appropriate to restore this matter back to the file of the ld. Assessing Officer for de novo consideration of the submissions made by the assessee and to enable the assessee to file the necessary evidences before the ld. Assessing Officer, in support of such submissions. Furthermore, on the issue of adhoc disallowance of expenses of Rs. 6,77,19,543/-, we observe that the disallowance had been made only because the assessee did not produce certain bills and vouchers before the Assessing Officer. While it is clear that the assessee is obliged to furnish evidence in support of the expenditures made by it, the Assessing Officer's action in making an adhoc disallowance, without pointing out any specific defect in the books of the assessee cannot be sustained. The assessee has maintained that it is a public charitable trust, which maintains all its records and produces them for audit. Accordingly, in the interest of justice, we deem it necessary to restore this issue back to the file of the Assessing Officer, so that the Assessing Officer may call for proof of such expenditure which he doubts and the assessee may be given an opportunity to furnish the necessary e....
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.... Nagar Educational Society vs JCIT(OSD) Circle 2, Hoogly in ITA no. 1695 (Kol) of 2012, has also held that the payment made by one trust to another as donation, does not fall in any of the categories of section 13(3). That section only refers to payments to individuals, their relatives or concerns in which they have substantial interest. Further the Kolkata bench has held in that case, that when the donation given by one trust to another out of current years income is permitted in section 11, the same cannot be curtailed by another provision of the Act (i.e. Section 13(1)(c) read with section 13(3) of the Act) as it would defeat the very purpose of such provision. Hence it was held that the payment of donation by one public charitable trust to another is not in violation of section 13(1)(c) of the Act as the said payment is not made for the benefit of any person referred to in section 13(3), either directly or indirectly. We are in agreement with the views of the Kolkata bench and since no instance of utilization of funds of the donee trusts for the benefit of the common trustees have been brought on record by the Ld AO or the CIT(A), we hold that the decision to disallow the donat....