TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 90
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.... erred in confirming the assessment proceeding u/s 147 r.w.s. 143(3) of the Act. 1.1 That on the facts and in the circumstances and in law of the case, the ld Assessing Officer grossly erred in making the addition beyond the reason recorded which is not permissible under the law and ld. CIT(Appeal) erred in confirming the same. 2. That on the facts and in the circumstances of the case, the ld. CIT(A) grossly erred in enhancing the assessed income by making addition of Rs. 4,69,22,650/- on account of rejecting the books of account and on the basis of re-casted income and expenditure account without considering the facts and circumstances of the case. 3. That on the facts and in the circumstances and in law of the case, the ld. Lower Authorities grossly erred in denying the exemption benefits to the assessee appellant trust as per the provisions of section 11 to 13 of the Incometax Act. 4. That on the facts and circumstances of the case ld. Lower Authorities grossly erred in making addition of Rs. 33,50,772/- to the income of the assessee appellant trust while disallowing the benefit of exemption under section 11(2) and 11(1)(a) of the Act as claim....
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....69/- to the income of the assessee appellant trust while disallowing the benefit of exemption under section 11(2) and 11(1)(a) of the Act as claimed by the assessee appellant trust. 5. That on the facts and in the circumstances of the case the ld. Lower Authorities grossly erred in making addition of Rs 66,94,824/- on account of unverifiable creditors. 6. That on the facts and in the circumstances of the case, the ld. Ld. Lower Authority grossly erred in disallowance of 15% of Rs 2,68,89,419/- i.e 40,33,412/- on account of construction expenses and added in total income of the assessee. without considering the fact that it was never claimed by the assessee appellant. 7. That on the facts and in the circumstances of the case, the ld. Ld. Lower Authority grossly erred in confirming the disallowance of Rs 1,71,897/-/- out of total expenses of Rs 11,45,980/- without considering the facts that it was not claimed by the assessee appellant 8. That on the facts and in the circumstances of the case, the ld. Lower Authority grossly erred in confirming the disallowance of Rs 1,03,03,005/- and Rs 39,000/- u/s 40(a)(ia) of the Act on account of non-deduction ....
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.... parties the facts of the case in ITA No. 961/JPR/2024 is considered as lead case. The brief facts of the case are that the assessee is a Trust and registered under the Non-Trading Companies Act Raj. Vide Reg. Certificate No. 215/1976 dated 09.03.1976 and trust having main objects of to developing the cloth business in Kota and for the benefit of the general public or businessmen under the name of Wholesale Cloth Merchant Association Kota. The Trust is also registered u/s 12A of the IT Act vide registration certificate No. 8/1993-94/2609 dated 10.08.1994. The main source of receipts/income of the assessee is annual fees from its members, rent, interest and Misc. receipts. In the present case the AO has issued the notice u/s 148 on 28.02.2018 on the reasons that "During the assessment year 2014-15, the assessee has not filed any return of income. As per AIR/CIB information generated on AST, it is noticed that assessee received amount of Rs. 22,37,641/- as per 26AS and refund interest received for the A.Y. 2011-12 of Rs. 5,278/- as per AIR information. The cash of Rs. 32,30,000/- was also deposited at State Bank of India and Cash Deposited is not verifiable as assessee has not fil....
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....sessee has also filed service tax return declaring gross value of services of Rs. 8,37,69,001/-which required verification. Hence asked to explain, how above transaction amounts are accounted for in the books of accounts of the assessee trust. Application of Funds deemed to have been made for the benefit of specified persons- [Sec 13(2)]:- Applications of the trust-income or the trust-property for the following purposes is deemed to have been made for the benefit of specified persons. (a) If a loan is given to a specified person for any period during the previous year without either adequate security or adequate interest or both; (b) If any land, building or other property of the trust, is allowed to be utilized by a specified person, without charging adequate rent or other compensation: (C) If payment is made by way of salary, allowance, etc. to a specified person for services rendered by him to the trust or institution, in excess of what may be reasonably paid for such services; (d) If the trust renders its services to a specified person without adequate remuneration Medical/Educational Institution) (e) If any share, security ....
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....ns @ 1,85,000/- and no details available regarding remaining 5 plots amount recoverable from concerning persons of all 22 plots has not been taken in books. The ld. AO stated that Shri Tejendra Pal Singh has taken loan & advances of Rs. 31,50,000/- from the trust and violated the provisions of Section 13(2), no books of accounts maintained, TDS provisions have not been complied properly, therefore the trust was not eligible for claiming exemption u/s 11 to 13. The president of the trust Shri Tejendra Pal has withdrawals huge amount from the trust account and utilized for personal benefit. The ld. AO has stated that assessee trust is not eligible for exemption u/s 11 & 12, the income of the trust will be charged at MMR u/s 164(2) as the trust doing business activity. With that observation ld. AO proceeded to make the following addition which the ld. AR of the assessee submitted that the same are made without issuing any show cause notice and not part of the reasons recorded: (a)Alleged bogus creditors of Rs. 16,75,286/-. (b) 15% of construction expenses of Rs. 8,00,02,935/- which comes to Rs. 1,20,00,440/- (c)15% of certain expenses payment of Rs. 24,63....
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....aid that the amount of Rs. 22,37,641/- as per 26AS was part of the accounts of the assessee association and by denying the benefit u/s 11 of the Act, the AO has taxed the receipts as per correct amounts mentioned in the books of accounts. Ld. AO reported that the assessee has not filed the return of Income originally u/s 139(1) of the Act. The total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum amounts which is not chargeable to tax, and thereby the assessee was required to file its return in Form ITR-7, before the date specified in section 139. However, no return of income was filed. Therefore, the assumption of jurisdiction remained with the AO till passing of final assessment order. The ld. CIT(A) referred various plea and confirmed the action of the AO on the aspect of the reopening of the assessment. 6. Aggrieved from the order of AO, the assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:- "4.8. I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the ....
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....e total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum amounts which is not chargeable to tax, it is required to file its return in Form ITR- 7, before the date specified in section 139. However, no return of income was filed. Therefore, the AO recorded reasons on the basis of limited information available as no return of Income was furnished by the assessee. The AO noted that assessee received amount of Rs. 22,37,641/- as per 26AS. The AO also noted that as per AIR information also Rs. 5278/- has been received by the assessee as income tax refund. The AO also noted that Cash of Rs. 32,30,000/- was also deposited in bank account of the assessee. The claim of the appellant is that no addition is made on these amounts. The argument of the appellant are considered. It is not that case that the information is found to be incorrect. The AO has considered the reply and made addition as per provisions of Income Tax Act. As such the addition made by the AO are based on return filed in response to notice issued u/s 148. Before the notice, there was no return filed by the assessee. Therefore, the notice issued u/s 148 is found to be vali....
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....gard to one or more of the amounts which is mentioned in the reasons of reopening. It can be said that the amount of Rs. 22,37,641/- as per 26AS was part of the accounts of the assessee association and by denying the benefit u/s 11 of the Act, the AO has taxed these receipts as per correct amounts mentioned in the books of accounts. It is important to note that the return of Income was not furnished originally u/s 139(1) of the Act. The total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum amounts which is not chargeable to tax, it is required to file its return in Form ITR-7, before the date specified in section 139. However, no return of income was filed. Therefore, the assumption of jurisdiction remained with the AO till passing of final assessment order. The Supreme Court in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) has held that at the stage of issue of notice under section 148 what is required is only reason to believe but not the established fact of escapement of income. The proposition laid down by the Supreme Court clearly goes to establish that the Assessing Officer is n....
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....for income escaping assessment under section 147 is contained in section 148 whereunder sub-section (2) makes it Mandatory for the Assessing Officer to record reasons before proceeding to issue notice. However, once assessment is reopened after recording reasons, the Assessing Officer has to complete the income escaping assessment by following the provisions of the Act as if the return furnished against notice under section 148 as one filed under section 139 of the Act. This obviously means that so far as procedure to be followed is concerned, there is no difference between income escaping assessment and regular assessment because the provisions generally provide for issue of notice, hearing of the assessee and taking of evidence, etc., which are the same for regular assessment and income escaping assessment. Therefore in the course of income escaping assessment, if it comes to the notice of the Assessing Officer that any other item or items of income other than the item of escaped income for the assessment of which, assessment originally completed was reopened, also have escaped from original assessment, he is bound to assess such item or items of income also in the course of reas....
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....n'ble High Court Of Karnataka in the case of N Govindaraju v. Income-tax officer, Ward-8(2), Bangalore and held as under- "32. Circular No. 5 of 2010 issued by the Central Board of Direct Taxes (CBDT) after the amendment of 2009, provided for the "Explanatory Notes to the Provisions of Finance (No. 2) Act, 2009" by which Explanation 3 to section 147 of the Act had been inserted with effect torn 1.4.1989. The relevant paragraph 47 of this Circular is reproduced below "47. Clarificatory amendment in respect of reassessment proceeding under S. 147. 47.1: The existing provisions of S.147 provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of S. 148 to 153, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment. Further Assessing Officer may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Assessing Officer is required to record the reasons for reopening the assessment before issui....
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....at the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, afresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee." 35. Thus, what has been held is that 'such income' in the first part of section 147 is joined with 'any other income of the second part of the section by the phrase "and also which is used in a "cumulative and conjunctive sense. Following the said judgment of the Bombay High Court, same view has been taken by the Delhi High Court in the cases of Ranbaxy Laboratories Ltd. v. CIT (2011) 336 ITR 136/200 Taxman 242/12 taxmann.com 74 and CIT v. Adhunik Niryat Ispat Ltd. (2011) 63 DTR 212 and also the Gujarat High Court in the case of CIT v. Mohmed Juned Dadani [2013] 214 Taxman 38/30 taxmann.com 1/(2014) 356 ITR 172 36. With due respect to the view taken in the aforesaid cases, we are unable to persuade ourselves to follow the same. 37. Insertion of 'Explanation in a section of an Act is fo....
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....he notice of the Assessing Officer subsequently during the course of the proceedings. Circular 5 of 2010 issued by the CBDT (already reproduced above) also makes this position clear. In our view, there is no conflict between the main section 147 and its Explanation 3. This Explanation has been inserted only to clarify the main section and not curtail its scope. Insertion of Explanation 3 is thus clarificatory and is for the benefit of the Revenue and not the assessee. 41. If there is ambiguity in the main provision of the enactment, it can be clarified by Insertion of an Explanation to the said section of the Act. Same has been done in the present case. Section 147 of the Act was interpreted differently by different High Courts, ie whether the second part of the section was independent of the first part, or not. To clarify the same. Explanation 3 was inserted by which it has been clarified that the Assessing Officer can assess the income in respect of any issue which has escaped assessment and also 'any other income' (of the second part of section 147) which comes to his notice subsequently during the course of the proceedings under the section. After the insertion....
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.... at the initial stage by challenging the notice. If the notice is challenged and found to be valid, or where the notice, is not at all challenged, then in either case it cannot be said that notice is invalid. As such, if the notice is valid, then the foundation remains and the proceedings on the basis of such notice can go on. We may only reiterate here that once the proceedings have been initiated on a valid notice, it becomes the duty of the Assessing Officer to levy tax on the entire income (including 'any other income') which may have escaped assessment and comes to his notice during the course of the proceedings initiated under section 147 of the Act. 45. In view of the aforesaid, we answer the first two substantial questions of law in favour of the Revenue and against the assessee." In this case also the proceedings have been initiated on a valid notice, it becomes the duty of the Assessing Officer to levy tax on the entire income (including 'any other income') which may have escaped assessment and comes to his notice during the course of the proceedings initiated under section 147 of the Act. Therefore, the argument of the appellant are not ....
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....e AO also noted that a survey was also conducted on the assessee and services of the assessee require verification. Therefore one or more addition made by the AO are therefore directly or indirectly reflected in the reasons of reopening. The disallowance of benefit of section 11 of the Income Tax Act questions all receipts of the assessee association and addition is made on net surplus amount after allowing the expenditure allowable. Hence, the receipts as per 26AS and services as per service tax return were considered while making addition. The case of the association has to be viewed from the peculiar fact that no return of Income was furnished by the assessee u/s 139(1). In view of the above facts and discussion made the reliance placed by the appellant on the decisions of in the case of CIT vs. Shri Ram Singh 306 ITR 0343 (Raj.) and in the case of CIT vs. Jet Airways (1) LTD 331 ITR 0236 (Bom) are not found to be applicable as addition have been made on the reasons recorded for reopening by the AO. In view of above discussion, this ground of appeal is treated as dismissed. Ground No. 2 5.6 I have considered the facts of the ....
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.... have not been complied properly. Therefore, the trust is not entitled for claiming exemption under the section 11 to 13 of the I.T. Act, 1961. The AO further noted that the president of the trust Shri Tejendra Pal Singh Sahni has withdrawn huge amounts from the trust's account and utilized for personal benefit which is also evident from the submission of the AR. The submission of the AR is reproduced as under:- "Details of amount withdrawn by the past president of the association: As per records of the association and FIR filed by the association against the past president of the association total amounting Rs. 2,52,00,000/- withdrawn by the past president. out of this amounting Rs. 1,08,00,000/- transferred in the account of Sh. Rajendra Gupta and remaining amount withdrawn from back through bearer Cheques and vouchers made in the name of some contractors of the association but out of these contractors some contractors denied the receipt of cheques from the association After that episode association tried to know the truth, therefore association went to bank and get all the copies of disputed cheques and found all the cheques are bearer. List of Disputed che....
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....wn in the books of accounts 22 plots has been given to the persons who are not the members of association. Hence, the objects of the trust have been violated. Amount recoverable (Being sale price) from the concerning person of all the 22 plots has not been taken in books. 4. The trust property is used Personal benefit of the president Shri Tejndra Pal Singh has taken loan & advances of Rs. 31,50,000/- from the trust and violated the provisions of section 13(2) of the Act. Further no proper books of accounts have been maintained. TDS provisions have not been complied properly. The president of the trust Shri Tejendra Pal Singh Sahni has withdrawn huge amounts from the trust's account and utilized for personal benefit. Total amounting Rs. 2,52,00,000/- withdrawn by the past president, out of this amounting Rs. 1,08,00,000/- transferred in the account of Sh. Rajendra Gupta and remaining amount withdrawn from back through bearer Cheques and vouchers made in the name of some contractors of the association but out of these contractors some contractors denied the receipt of cheques from the association. In the light of above observations made by the....
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....omatic but available only when the assessee satisfies the requirement of section 13-Assessee entitled to the registration under & 12AA This decision was rendered for declining registration u/s 12A of the Income Tax Act. With regard to issue of denial of exemption u/s 11 it is held that Exemptions under ss. 11 are not automatic but available only when the assessee satisfies the requirement of section 13. In this case, the AO has clearly established violation of section 13. Hence, the decision is not found to be applicable in the facts of the case. The appellant has relied upon the case of Kunhitharuvai Memorial Charitable Trust vs CIT(Central) (2017) (1) TMI 1671 (Cochin) It has been held that the CIT was erred in withdrawing registration granted u/s 12AA, by using her powers u/s12AA(3) It is submitted that the ratio of the above judgment is also applicable in the present case because exemption is available on the registration u/s 12A and in the present case the assessee is registered u/s 12A This decision was rendered for declining registration u/s 12A of the Income Tax Act. The issue of denial of exemption u/s 11 is not decided in this decision.....
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....sessee cannot be permitted, to convert these reassessment proceedings as his appeal or revision in disguise and seek relief in respect of items earlier not claimed in the original return of income. Reliance is placed on the the judgment rendered by the Hon'ble Bombay High Court in K. Sudhakar S. Shanbhag Vs ITO [2000] 161 CTR (Bom) 391 [2000] 241 1TR 865 (Bom). This decision was rendered by taking notice of the principle laid by the Hon'ble apex Court in CIT Vs Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209: [1992] 198 ITR 297 (SC) to the effect that in reassessment proceedings, an assessee can neither claim nor be allowed a deduction that was not claimed in the original return. New claim of deduction or exemption cannot be allowed in reassessment proceedings. If it is so allowed, then the same shall become discriminatory to the other regular assessee's who have lost a right as such to claim deduction by efflux of time or by mandate of the Act. Since, the assessee neither made any such claim in the original retum filed under Section 139(1) of the Act nor in revised return therefore returns filed in response to notice under Section 148 of the Act are not sub....
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....s of section 11 if any part of income or any property of the trust is used or applied directly or indirectly for the benefit of persons specified in section 13(3). This year is relevant to the year before the amendment. Hence the claim of the appellant is not found to be acceptable. Once, exemption is denied, income shall be computed under normal accounting principles by considering all income and expenses to determine profit/loss. The section 164(2) of the Income Tax Act reads as under- (2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, "for which is of the nature referred to in sub-clause (a) of clause (24) of section 2.] for which is of the nature referred to in sub-section (4A) of section 11.] tax shall be charged on so much of the relevant income as is not exempt under section 11 for section 121, as if the relevant income not so exempt were the income of an association of persons: Hence, the AO shall assess the income of the assessee as income of an association of persons. This ground of appeal is treated as dismissed. Ground No. 3 6. In Ground No.....
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....d vouchers and also no confirmation filed even during the appellate and remand proceedings, the addition made by the AO treating the creditors as bogus of Rs. 16,75,286/- is found to be justified and confirmed. This ground of appeal is treated as dismissed. 7. In Ground No. 4 of appeal the appellant has challenged the addition of Rs. 1,20,00,440/- on account of disallowance of construction expenses and in exemption u/s 12A and In Ground No. 5 of appeal addition of Rs. 3,69,567/- on account of disallowance of certain expenses. The A/R of the appellant has also clubbed the submissions in reply filed during the appellate proceedings. Therefore, both grounds are taken together for adjudication. 7.1 At the time of passing of assessment order u/s 147/148 r.w.s. 143(3) of the Income tax Act, 1961 the AO has briefly stated relevant facts and some of excerpts are reproduced as under:- "11. Construction expenses. The auditor has mentioned that construction expenses of Rs. 8,00,02,935/- has been paid vide bearer cheques without any details or supporting bills. After giving two opportunities of being heard, no details have been furnished by the trust Therefo....
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....oney from prospective buyers and constructs house and delivers. Hence, the receipts from the members is not loan but income for the association and the expenditure made on the construction is to be considered as expenditure for the purpose of Income and Expenditure account of the association. Any surplus or loss will be taken into the balance sheet. The directly taking these receipts and expenses in the balance sheet is not found to be correct method. Therefore, the books of account of the assessee is not found to be correct. The books of accounts are therefore rejected by invoking section 145(3) of the Income Tax Act and income and expenditure account is to be recasted by applying correct method. The ITAT CHENNAI BENCH 'C' in the case of Deputy Commissioner of Income-tax (Exemptions)-II, Chennai v. Chennai Kammavar Trust [2017] 81 taxmann.com 365 (Chennai Trib.)/[2017] 166 ITD 196 (Chennai - Trib.)/[2017] 187 TTJ 674 (Chennai - Trib.) [11-05-2017] decided similar issue and held as under- "6. We have heard both the parties and perused the material on record. The issue before us is whether, on the facts and circumstances of the case and having regard to the....
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....n 11(4A) of the Act would apply only to a case where the business is not held under trust. Thus, there is difference between property or business held under trust and business carried on by or on behalf of the trust. 9. This distinction was recognized by the Supreme Court in the case of Addi. CIT v. Surat Art Silk Cloth Manufacturers Association [1978] 121 ITR 1/[1979] 2 Taxman 501 wherein it was observed that if a business undertaking is held under trust for a charitable purpose, the income there from would be entitled to the exemption u/s. 11(1) of the Act. In the present case, the finding of the CIT(A) is that running of community Hall was incidental to the object of the trust, it was not business commenced/carried on by the assessee. Though the business was commenced by the trust and it was carried on by the Trust after its formation. it cannot be said to constitute property held under trust. u/s. 11(4), it is only the business which is held under the trust that would enjoy exemption in respect of its income u/s. 11(1) of the I.T. Act and there is a distinction between the objects of a trust and the powers given to the trustees to effectuate the purpose of the trust. T....
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....stitute a business held under trust, but only as a business carried on by or on behalf of the trust, so long as the profits generated by it are applied for the charitable objects of the trust, the condition imposed u/s. 11(4A) of the Act should be held to be satisfied, entitling the trust to the tax exemption. 14. In our opinion, these observations have to be understood in the light of the facts before the Supreme Court in the case of Thanthi Trust (supra), wherein the trust carried on the business of a newspaper and that business itself was held under trust. The charitable object of the trust was the imparting of education which falls u/s. 2(15) of the Act. The newspaper business was incidental to the attainment of the object of the trust, namely that of imparting education and the profits of the newspaper business are utilized by the trust for achieving the object of imparting education. In this case, there is no such nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote cause of charity, mission activities, welfare, employment, diffusion of useful knowledge. upliftme....
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....section 11(4A) of the Act would apply in the present facts of the case. Further, the appellant has not established that the object of the trust was to act as builder for housing construction Therefore, the business activity as builder is not found to be as per objects of the trust. Hence, the section 11(4A) is clearly found to be applicable on the facts of the case. After having the books of accounts rejected, the receipts of the year are treated as income for Income and expenditure account and the expenditure for the construction etc. which are directly taken into balance sheet are treated as expenditure for the year. The accounts of the assessee are therefore treated as recasted accordingly. On recasting of the accounts, the expenditure made is subjected to normal provisions of Income Tax Act. The section 11(4A) of the Act empowers the AO to treat the such receipts as income from business and profession. The AO is accordingly directed to treat the receipts as business receipts and the surplus should be taxed as the benefit of deduction u/s 11 are not to be given on such amount The ITAT Delhi Bench 'G' in the case of UMAK Education Trust v. Joint....
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.... disallowance/additions does not arise. The argument of the appellant are considered but not found acceptable. As discussed, the books of accounts have been rejected and the amount received from the members during the year is treated as turnover/sale receipts of the association and the expenditure made for construction etc. is treated as expenditure and the Income and Expenditure account is treated as recasted accordingly. On recasting of the accounts, the expenditure made is subjected to normal provisions of Income Tax Act. Coming to the disallowance made by the AO, the AO made disallowance because the amounts of Rs. 8,00,02,935/- has been paid vide bearer cheques without any details or supporting bills. The appellant also admitted this fact. The Auditor had mentioned in Audit report this fact and the association has failed to controvert these findings. The AO had disallowed 15% of above expenses which comes to Rs. 1,20,00,440/- (15% of Rs. 8,00,02,935/-) and added to the total income of the assessee. The assessee association made expenditure without there being details or supporting vouchers. In these circumstances, the expenses may be manipulated and e....
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....at charitable activities is not applicable in the case of the assessee during this year under consideration. Hence, the provisions of section 40(a)(ia) is applicable in this case considering it a business entity. Accordingly, as the assessee trust has not deducted TDS on the aforesaid expenses of as per provisions of section 1940, then the same amount of Rs. 2,18,50,444/- was disallowed as per the provision of section 40(a)(ia) of the I.T. Act. 1961 and added to the total income of the assessee. Hence the then AO had rightly made the addition of Rs. 2,18,50,444/- for the year under consideration & it should be sustained. Further, during the re-verification a proceeding, the assessee has submitted that the Ld.AO has made the addition without confronting or giving opportunity of being heard. The reply of the assessee has considered but not found acceptable, as during the course of assessment proceedings, the assessee was given opportunity to explain the reason of non deduction of TDS but the assessee trust had failed to explain the same. Hence the then AO had rightly made the addition of Rs. 2,18,50,444/- for the year under consideration & it should be sustained." ....
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....(a)(ia) are not applicable are not found to be acceptable in the present case. The decisions relied upon by the appellant are therefore not found to be applicable on the facts of the case of the assessee. Therefore, considering the above provisions of the Income Tax Act, the action of the AO is found to be correct as the AO has calculated income of the business under the normal assessment related provisions of the Act. The expense are made are held to be normal business expenditure and hence, the section 40(a)(ia) is found to be applicable on the facts of the case of the association. Hence, the disallowance made by the AO is found to be justified and upheld. This ground of appeal is treated as dismissed. 9. The last Ground of appeal is that the appellant craves leave to add, alter, modify or amend any ground of appeal on or before the date of hearing. 9.1 The appellant has added one additional ground of appeal which is discussed in forgoing para 4. The appellant has not altered, modified or amended any ground of appeal on or before the date of hearing. Accordingly such mention by the appellant in his ground is treated as general in natur....
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....erated on AST, it is noticed that assessee had received amount of Rs. 22,37,64 1/- as per 26AS and refund interest received for the A.Y. 2011-12 of Rs. 5,278/- as per AIR information. The cash of Rs. 32,30,000/- was also deposited at State Bank of India and Cash Deposited is not verifiable as assessee has not filed return of Income. Thus the assessee has earned income of Rs. 22,42,919/- and made further investment of Rs. 32,30,000/- in bank account. Assessee has also filed service tax return declaring gross value of services of Rs. 8,37,69,001/-which required verification. A survey was also conducted on 30.06.2016 and hard disk was impounded which also required examination. Therefore, I am satisfied that assessee has earned that much income during the year which has escaped from assessment. In view of the above facts, I have reason to believe that Income of the assessee to the extent of Rs. 54,72,919/- has escaped assessment for the A.Y. 2014- 15. The services rendered by the assessee also required verification. Notice u/s 142(1) was also issued for 1TR filing on 11.09.2017 but no return was filed by the assessee. Therefore, notice u/s148 of the IT Act,1961 is required to be issued....
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....ansferred by the trust to specified person, for inadequate consideration; (g) if any income or property of the trust, exceeding Rs. 1000 in value, is diverted to a specified person; and h) If the trust-funds are invested, or remain invested, for any period in any concern wherein any of the specified persons has a substantial interest. In view of above provisions of the Act, it is gathered that a complaint has been filed against the trust that books of accounts for the A.Y 2014-15 to 2016-17 have not been written or Audit proceedings were also pending before issuing notice us 148 of the Act. The news regarding irregularities in financial records of the Assessee trust has also been published in newspapers. President ShriTejendra Pal SahniRimpi' and Treasurer Shri Manohar Gotewalahave withdrawn huge amounts through Cheques from accounts of theTrust which are not accounted for in the books of accounts. Kindly, explain how withdrawn amounts are accounted for in the books of accounts. 4. Further the section 12A(1)(b) states that: [(1)] The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or ins....
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....B was performed on dt.14.11.2017 and a number of discrepancies have been noted by the Auditor, who mentioned in Sr. No.3(c) that as per FIR copy, 22 plots has been given to the person who are not the member of Association and received conversion charges from 17 persons @ 1,85,000/- and no details available regarding remaining 5 plots amount recoverable from concerning persons of all 22 plots has not been taken in books. The ld. AO stated that Sh. Tejendra Pal Singh has taken loan & advances of Rs. 31,50,000/- from the trust and violated the provisions of Sec. 13(2), no books of accounts maintained, TDS provisions have not been complied properly, therefore the trust is not eligible for claiming exemption u/s 11 to 13. The president of the trust Sh. Tejendra Pal has withdrawals huge amount from the trust account and utilized for personal benefit. The ld. AO has stated that assessee trust is not eligible for exemption u/s 11 & 12, the income of the trust will be charged @ MMR u/s 164(2) as the trust doing business activity. Thus, after noting this the ld. AO further made the following additions without issuing any show cause notice and not part of the reasons recorded: (a) Al....
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....t can be said that the amount of Rs. 22,37,641/- as per 26AS was part of the accounts of the assessee association and by denying the benefit u/s 11 of the Act, the AO has taxed these receipts as per correct amounts mentioned in the books of accounts. It is important to note that the return of Income was not furnished originally u/s 139(1) of the Act. The total income of the trust (before allowing exemption under sections 11 and 12) exceeds the maximum amounts which is not chargeable to tax, it is required to file its return in Form ITR- 7, before the date specified in section 139. However, no return of income was filed. Therefore, the assumption of jurisdiction remained with the AO till passing of final assessment order. The ld. CIT(A) referred various plea and confirmed the action of the ld. AO. 1. Invalid notice or action and assessment proceedings u/s 148:Firstly we would like to submit that in the present case the notice u/s 148 as well as the assessment is invalid, is illegal, is bad in law and is without jurisdiction. Because the assessee is a trust registered u/s 12AA and coming in the jurisdiction of the ITO Ward Exemption Kota and Pr. CIT (Exemption), Jaipur. As t....
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.... the invocation of section 153A on the basis of the statement recorded in search action against a third person. We may note that the AO has used this statement on oath recorded in the course of search conducted in the case of a third party (i.e., search of Pradeep Kumar Jindal) for making the additions in the hands of the assessee. As per the mandate of Section 153C, if this statement was to be construed as an incriminating material belonging to or pertaining to a person other than person searched (as referred to in Section 153A), then the only legal recourse available to the department was to proceed interms of Section 153C of the Act by handing over the same to the AO who has jurisdiction over such person. Here, the assessment has been framed under section 153A on the basis of alleged incriminating material (being the statement recorded under 132(4) of the Act). As noted above, the Assessee had no opportunity to cross-examine the said witness, but that apart, the mandatory procedure under section 153C has not been followed. On this count alone, we find no perversity in the view taken by the ITAT. Therefore, we do not find any substantial question of law that requires our....
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....ules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year- (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and li....
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....and over it to AO having jurisdiction of such assessee. Satisfaction of AO receiving the seized material that the material handed over has a bearing for determination of total income of such other person for the relevant preceding years. On fulfillment of twin conditions the AO shall proceed in accordance with the provisions of Section 153A. Special procedure is prescribed under Section 153A to 153D for assessment in cases of search and requisition. There cannot be a quibble with the proposition that the special provision shall prevail over the general provision. To say it differently the provisions of Section 153A to 153D have prevalence over the regular provisions for assessment or reassessment under Section 143 & 147/148. Section 153A and 153C starts with non-obstante clause. The procedure for assessment/reassessment in Section 153A, 153C in cases of search or requisition has an overriding effect to the regular provisions for assessment or reassessment under Sections 139, 147, 148, 149, 151 & 153. The language of explanation 2 to new Section 148 is akin to Section 153A and Section 153C. Corollary being that after seizing of operational period of Sectio....
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....sions of Section 153A held that in case of absence of incriminating material seized during the search, the department is not remediless for reassessing the unabated assessment on the basis of material received from the other sources and can proceed u/s 148. The decision does not support the contentions raised that Section 148 is rendered redundant if Section 153C is to be resorted to in the facts of the present case. If the Department has chosen not to proceed u/s 153C, no right is created to the petitioner for getting the notice under Section 148 quashed. Moreover, learned Single Judge was not having the benefit of the decision of Abhisar Buildwell P. Ltd. (supra). The appeal against the order was dismissed having rendered infructuous in view of the subsequent developments that the assessment order was passed. The decision of the Madras High Court in the case of Saloni Prakash Kumar [2023 (10) TMI 207 - MADRAS HIGH COURT] is of no help to the respondents. The High Court held that Section 153C does not preclude issuance of notice u/s 148. The field of applicability of two sections was not the issue before the Court. The notices issued u/s 148 and the impugned orde....
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....ion under Section 148 r.w.s. 147. The provisions of Sections 147, 148 vis-a-vis Section 153A and Section 153 are quite compartmentalized. To avoid any overlapping of these provisions, the legislature in its wisdom has thought it appropriate to provide for an independent effect, to be given u/s 153A r.w.s. 153C by incorporating the "non-obstante" clause, in these provisions, which carves out an exception to any normal/regular action being resorted u/s 147. We are of the clear opinion that the impugned notice u/s 147 and all actions consequent thereto are required to be held to be without jurisdiction and bad in law. The petition is accordingly allowed in terms of prayer clauses (a) and (b). 1.4. Same view has been expressed by Hon'ble Karnataka High Court in the case of PCIT v. VSL Mining Company Ltd. in [2024] 9 TMI 1383 by holding as under: Assessment u/s 153C - disallowance of deduction claimed u/s 10B - HELD THAT:- It is forthcoming that the Tribunal while adjudicating regarding the disallowance of deduction claimed u/s 10B has noticed that the said aspect is covered by a coordinate Bench judgment of this Court in the case of Tata Elxsi Ltd. [2015 (10)....
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....lso. The ld. CIT(A) has also not spoken anything on the same, which shows his acceptance on our contentions. Hence the notice as well as the assessment is without jurisdiction and liable to be quashed. 3. No income escaped: Further the assessee is trust registered u/s 12A and its income is not taxable as per law, the issue raised by the ld. AO is not matching with the expenses and income claimed and shown in the Income & Expenditure accounts, and the receipts and income which is relating to the trust has already been taken in the books and audited accounts. If so, then how it can be said that any income has escaped. 4. No addition made on the reasons recorded u/s 148: Further it is submitted that as the ld. AO issued the notice u/s 148 on the reasons recorded vide para 1 of above in facts. However on perusal of the assessment order admittedly it has been come to know that the ld. AO has not made additions on these issue or on the issue recorded in the reason for reopening the case(except minor addition of IT refund interest which is already was on record of the revenue) and he has made different additions vide assessment order, which is illegal and now it is the s....
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....to correct what it regarded as an interpretational error in the view which was taken by certain Courts that the AO has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment- However, Expln. 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of s. 147-AO has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings-However, if after issuing a notice under s. 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him to independently assess some other income-If he intends to do so, a fresh notice under s. 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. (c) In the case of PCIT v. Sunlight Tour....
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....larifies that the jurisdiction of the AO was not confined to assessing or reassessing of the income of an Assessee only in respect of the issue, which formed a part of the reasons recorded for reopening the assessment. The said explanation cannot be interpreted to mean that the AO could assess other incomes of the Assessee even in cases where no addition is made on account of the reasons for which reassessment was initiated. No substantial question of law arises in the present appeal. (d) Also refer following decisions: Ranbaxy Laboratories Ltd. v. CIT 336 ITR 0136(Del),CIT v. Dr. Devendra Gupta 336 ITR 0059(Raj),AVG Construction Pvt. Ltd v. ITO in ITA no. 90/Jp/2020 dt. 02.09.2021,Shambhu Dayal Saraf v. ITOin ITA No. 558/Jp/2013,Pappu Qureshi v. ITO in ITA No. 314//Jp/2019 dt. 28.04.2020, Vikram Singh v. ITO (2021) 63 CCH 0044 Lucknow Trib, CIT(EXEMPTION) v. B.P. Poddar Foundation For EducationSep 13, 2022 (2022) 115 CCH 0026 KolHC. 4.1. On the observation of the ld. CIT(A) we would like to submit that when we have already taken the income in the books of accounts, in audit report and in the ITR and no addition in the ITR on the income declared has been made, the....
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....cions to re-examine the material which were already available on record at the time of passing of t earlier assessment orders. The legislature under Section 147 has not clothed AO with such jurisdiction therefore the action could not be upheld in the background of facts of instant case. One more redeeming fact which had direct nexus with the subsequent re-assessment proceedings and ramification of the same had culminated into re-assessment orders was the impugned order where AO rejected the objections submitted by Assessee's pursuant to notice under Section 147/148. Order passed by AO in this behalf was not a speaking order which could not be sustained. In view of legal infirmity in the notice under Section 147/148 and laconic order of AO while rejecting objections Assessee the consequential assessment Orders were liable to be annulled.(para16) In view of the above the impugned order as well as the notice are illegal invalid and liable to be quashed. GOA-2: Enhancement of Rs. 4,69,22,650/- by exercising powers u/s. 251(2) and invalid invoking of the provisions of Sec. 145(3) and rejecting the books of accounts by the ld. CIT(A): FACTS: 1. The facts of the....
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....that: With regard to following disallowances made by the AO from AY 2014-15 to AY 2017-18 the appellant claimed that these expenses were not routed through P & L A/c or income and expenditure account. Detail of such expenses are as under- Amount of Addition Description A.Y. 1,20,00,440/- Construction Expenses 2014-15 3,69,567/- Payment without Voucher 2014-15 2,18,50,444/- Non deduction of TDS 2014-15 (i) Please explain ultimate source of these expenses right from the day when these amounts were received by the assessee in its accounts. Please furnish copy of such accounts and supporting bank statement. (ii) Please explain the reason for not routing these expenses through income and expenditure or P&L A/c of the assessee. Explain the legal basis also. (iii) If your explanation is not found to be satisfactory, explain why the books of account maintained by you should not be rejected by invoking section 145(3) of the Income Tax Act and income and expenditure account should not be recasted by applying correct method. This may result in enhancement of income or reduction of refund. This may be treated as n....
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....he object of the trust was to act as builder for housing construction. Therefore, the business activity as builder is not found to be as per objects of the trust. Hence, the section 11(4A) is clearly found to be applicable on the facts of the case. 5.3 After having the books of accounts rejected, the receipts of the year are treated as income for Income and expenditure account and the expenditure for the construction etc. which are directly taken into balance sheet are treated as expenditure for the year. The accounts of the assessee are therefore treated asrecasted accordingly. On recasting of the accounts, the expenditure made is subjected to normal provisions of Income Tax Act. The section 11(4A) of the Act empowers the AO to treat the such receipts as income from business and profession. The AO is accordingly directed to treat the receipts as business receipts and the surplus should be taxed as the benefit of deduction u/s 11 are not to be given on such amount. 6. The ld. CIT(A) has also stated that the receipts of amounts for land and construction activity are treated as commercial nature and hence, the AO shall treat the receipts as busines....
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....tion/advances from the members. Thus the owner of the land and constructions are of the respective members not of the trust, as wrongly presumed by the ld. CIT(A). The Land with construction is being shown in the balance sheet in assets and money/advances received from members is being shown in liabilities in the balance sheet. As and when the construction is/shall completed the possession of the land shall be given to the respective members. The construction work is being done through the trust only to avoid any litigation among the members and to curtail the cost being the work in bulk. Hence the same has been shown in the balance sheet on the advice of the counsel and as per the accounting system and for the purpose of record. 1.3 As assessee we have already stated that to construct Residential Houses for its members the Association purchased Agriculture land. Later on it was converted u/s 90 to residential. Out of 422 members of association 380 members opted for the scheme and therefore their residential plots were got converted in their names. Those members requested to the Trust Executives to construct their houses for them because to construct for 380 houses togethe....
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....vailable before them. If they was having any doubt they should have made the in dependedinquiry from the respective members but failed, rather made a huge enhanced addition. The lower authorities has not made any inquiry from any members before making the additions. 1.6 The ld. CIT(A) has failed to appreciate the accounting treatment and above facts and circumstances. The ld. CIT(A) at the worst would have said that the addition of Rs. 4,69,22,650/- is liable to be made in the hands of respective members after seeing all the facts and inquiry. The income and expenses of other cannot be treated of the person. The ld. CIT(A) nowhere proved with the help of the documentary evidences that the income and expenditure both are to the assessee and assessee was only keeping their accounts being as a head of family. The ld. CIT(A) has failed to appreciate the facts that the assessee trust itself with the honesty has shown the interest income on the funds of members laying in its bank account. 2. Further the ld. CIT(A) has invoked the provisions of Sec. 145(3) and rejected the books of account which is illegal and invalid because the ld. CIT(A) cannot be invoked the new prov....
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....ng additions, net income and in net profit. When the ld. Pr. CIT has already raised the issue regarding the fall in G.P. rate and if G.P. rate, if any, is applied, then in the trading result all the other issues are covered i.e closing stock or valuation of closing stock, purchases, trading result etc also include or Net profit rate is applied if any after rejecting the books of accounts, then there is no requirement of making various separate disallowances and additions is also the settled law. Further as the G.P. rate slightly down by 0.25% in comparison to last year but at the same time the N.P. rate ison very higher side i.e 2.85% as against the last year 1.15% which have also been ignored by the ld. Pr. CIT. For the sake of convenience and brevity in the matter, the Bench feels to note down the provisions of Section 263 of the I.T. Act. Hence in view of the above facts and circumstances the addition so enhanced by the ld. CIT(A) and addition/disallowance so made by the ld. AO may kindly be deleted in full. 3. Further the ld. CIT(A) has himself allowed the appeal of the assessee appellant for A.Y. 2017-2018 vide order dated 15.05.2024 (Copy enclosed) and has n....
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....llation of registration u/s 12A cannot be done. However, Hon'ble ITAT has not examined the violation of section 13(1)(c) therefore, denial of exemption u/s 11 is found to be justified by the AO. The ld. CIT(A) has observed that Any new claim in the return filed u/s 148 of the act is not acceptable as the reopening proceedings are for the benefit of the revenue rather than assessee. The returns are filed u/s 148 of the act are as a consequence of income escaped from assessment and thus can't be advantageous for the assessee and these are proceedings for the benefit of Revenue and not that of the assessee. The assessee cannot be permitted, to convert these reassessment proceedings as his appeal or revision in disguise and seek relief in respect of items earlier not claimed in the original return of income. returns filed in response to notice under Section 148 of the Act are not substitute of revised return for making claim of such benefits. Having regard to the provisions of s.139(5) of the Act and since the assessments under s. 148 are in relation to income escaped from assessment, it is precisely for this reason that new claim of deduction or allowance cannot be made in th....
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....ative society and State Autonomous body applied for registration u/s 12A-CIT(A) declined registration u/s 12A to assessee on basis of report submitted by Accountant General (GOI), where it was mentioned that accounts were not properly maintained and funds were not properly utilised and kept idle in bank-Tribunal granted registration to assessee u/s 12A-Held, defect in maintenance of account was curable-Refusal of registration u/s 12A on basis of report submitted by Accountant General was unjustified-Non utilization of fund and keeping same in Bank cannot be ground for cancellation of registration-Expression "any other object of general public utility" u/s 2(15) includes all objects which promote welfare of general public-Even if there is some profit in activity carried on by trust/institution, so long as dominant object is of general public utility, it cannot be said that the trust/institution was not established for charitable purposes-Tribunal had given a categorically finding that objects of assessee were of General Public utility-Registration u/s 12A was rightly granted to assessee 3.2. In the case of CIT v. A.S. Kupparaju Brothers Charitable Foundation Trust (2012) 20....
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.... been found in personal possession of Mr. Shane John Khanna and therein, there are certain entries reflecting cheque payments and cash payments. The presumption therefore is that such note pad belongs to Mr. Shane John Khanna and the contents thereof are in his handwriting and he has to explain the contents thereof. He has however disputed and has stated that the entries of cash payments are not in his handwriting. Once he has objected and the note-pad is in possession of the Revenue authorities, the right course of action would have been to refer the matter to the handwriting expert in some government authorized forensic laboratory who could have confirmed whether the entries are in the handwriting of Mr. Shane John Khanna or not. However, no such reference has been made in the instant case and the ld PCIT has proceeded and held that basis his own analysis, the handwriting is that of Mr. Shane John Khanna and he accordingly reached the conclusion that cash has been paid as part of transaction coupled with inflating the transaction value. More so, such a conclusion has been reached without confronting the entries in the note- pad entries to the Chairperson who has signed the exchan....
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....ent case because exemption is available on the registration u/s 12A and in the present case the assessee is registered u/s 12A 4. No denial of exemption for the reason not filling the ITR and Audit Report: 4.1 Further it is submitted that ld. AO has cancelled the registration on the ground that the assessee has not filed its ROI and Audit report. The reason of not filing of the same are that as the assessee is trust and was depended on the accountant and the president and the other members were under impression that the act of return filling, Audit report and books are being care take by them. As there was on default since its registration from 1976 to 2013. And the fraud done by the president and books not completed by the accountant was not in the knowledge of the assessee. However when these facts have come to the notice of the assessee it filed its ROI income and Audit report. Hence for the negligence of the President and accountant the whole institute must not be punished. 4.2 However it is also settled legal position of law that if an assessee has not filed his ROI and filed ROI and not shown any claim or deduction in the ROI filed and claim the sam....
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....147 and section 148 of the Income Tax Act 1961 itself provide the opportunity to assessee for filing the return of income, hence we could not say that the Income Tax Return was late filed. And the Return filed u/s 148 is treated as filed u/s 139 and all the provision are applicable for the same. If there was any default why the show cause notice has been given when the default had come to the notice of the Revenue in July 2016 and the notice has been issued 31 Months i.e. Feb. 2019. And even in last three years i.e form F.Y. 2016-17 to 2018-19 no defaults have been found. 4.4 Further the ld. AO in the entire order has stated that the assessee has not filed Tax audit report. In this regard it is submitted that the assessee is trust registered u/s 12A and not a businessman and not doing the business. Hence Tax Audit u/s 44AB is not applicable in this case. The same is applicable for the person who is doing business or trading. Hence the allegation of the ld.AO is wrong or incorrect or invalid. And liable to be quash. The Audit of the trust comes u/s 12A(b) in form 10B. 4.5 Further if there was any procedure default for non-filing the ITR and Audit report, for that t....
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....SOT 517(Del) held that though filing of Form No. 10 in respect of accumulation of Income of surplus income is mandatory to claim exemption u/s 11 and 12, the same can be filed at any time during the pendency of assessment proceeding and benefit of accumulation of income cannot be denied. Here the case of assessee is on much strong footing because the assessee had filed the same much before show cause notice by the Pr. CIT although after due date of return filling. * In the case of Haryana Welfare Board v/s CIT 83 CCH 268(P&H) it has been held that information in form 10 was required to be furnished at any time before the finalization of the assessment proceedings. * In the case of Association of Corporation & Apex Societies of Handlooms v/s ADIT 351 ITR 287(Del) it has been held that when the revenue re-open the assessment by invoking S. 147 of the said Act the assessee would not be remediless and would not be barred from furnishing Form -10 during those assessment proceedings. * Also refer Raghavan Nair vs. ACIT 402 ITR 0400 (Ker) (2018) 4.6. The ld. Pr. CIT stated that if a person fails to get audited his books of accounts from a chartered acco....
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....d CIT vs. HardeodasAgarwalla Trust ( 1992) 198 ITR 511 (Cal), wherein it was held that audit report field in Form No.10B in the course of assessment proceedings is sufficient to claim exemption u/s. 11 of the Act." 4.6.2. In the case of CIT v. HardeodasAgarwalla Trust 198 ITR 511(Cal) it has been held that It is now well-settled that a procedural provision, ordinarily, should not be construed as mandatory, if the defect in the act done in pursuance of it can be cured by permitting the appropriate rectification to be carried out at a subsequent stage. Procedural laws are devised and enacted for the purpose of advancing justice. It does not mean that the procedural laws should be brushed aside by the Court. It depends on the facts and circumstances of a particular case as to whether a breach in the observance of any procedural law, if not excused or overlooked, would cause real and substantial injustice to the parties. Having regard to the object of s. 12A, it cannot be said that the legislature intended that, even where the trust has got its accounts audited and the certificate obtained in Form No. 10B before the assessment is completed, merely because such report could not....
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....cedural and not mandatory-Same can be furnished before completion of assessment-Assessee is entitled to exemption under s. 11 4.6.4. In the case of Kunhitharuvai Memorial Charitable Trust v. DCIT (2019) 6 TMI 595 (Cochin)it has been held that Exemption u/s. 11 - filing of return of income belatedly - returns of income were filed consequent to the notice u/s. 153A - the assessee has not filed the regular return of income u/s. 139(4A) but filed the return of income u/s. 153A(a) consequent to search u/s. 132 - HELD THAT:- Compliance of requirement of the Act will have to be at any time before the completion of assessment proceedings. However, for claiming the benefit of exemption u/s. 11 on the basis of information supplied consequent to the completion of the assessment proceedings would mean that the assessment order will have to be re-opened. The Act does not contemplate such reopening of the assessment. However, in the present case, it was filed consequent to the notice issued u/s. 153A(a). Further, in the present case, exemption u/s. 11 was denied because of non filing of return of income on time and also due to the discrepancies mentioned above. In our opinion, ....
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....g substantial interest. 6.1. Only due to the negligence or cheating of past executive members and bad intention/intention of miss appropriation of funds of ex-president, they were not willing to maintained the books of accounts and get their accounts audited by a chartered accountant. But after change of management and involvement of new committee, books of accounts have been prepared and audit has also done and now all the work is going on in proper way. During the A.Y. form 2014-15 to 2016-17 heavy amount withdrawn by the ex-president, out of total amount some entries are debited in account of Sh. TejendraPal Singh and some entries are debited in other parties account because vouchers was made in the name of other parties name and later on came to know that these parties have not received amount and when management went to bank to trace out the truth all disputed entries were bearer cheques, but at that time books of accounts have been finalized and audited, so assessee was not able to change the account name. Hence at the time of filing FIR they include all the amount. This amount not given by the trust to the president but the same was misappropriated, pinched, embezzl....
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....nue did not make out any case to substantiate the violations in respect of 13(1)(c), 13(2)(a), 13(2)(g) and 13(2)(h) of the Act. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld." 9. Further it is submitted that that the exemption of the assessee Trust cannot be denied for the reasons for not filing of income tax return and audit report for the A.Y. 2014-15 to 2016-17. In this regard, it was submitted that clause (ba) was inserted by Finance Act, 2017 to section 12A(1) of the Act, w.e.f. 01.04.2018: (ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section. 9.1. The memorandum explaining the relevant provisions of the Finance Bill, 2017 reads as under: "as per the existing provisions of said section, the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not cha....
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....ciety was carrying out educational activities which fell within charitable activities u/s 2(15), it was granted registration u/s 12A - whether, the filing of audit report alongwith the return filed in response to notice u/s 148 will entitle the assessee for benefit of computation of section 11 ? - HELD THAT:- We are of the view that, whether it is a case of a regular assessment or it is a case of an assessment consequent to issue of notice u/s 148, not only the procedure of return as given in section 139 has to be applied, but also such the income has to be computed on the basis of such return in accordance with the provision of the Act, which of course will be subject to any specific provision in the Act which itself bars a claim or an exemption. Section 148 provides that all the provision of the Act has to apply on such return furnished in response to notice u/s 148. The Ld. CIT DR has referred to the words 'so far as may be' to canvass the proposition that all the provision will not apply. This contention of the Ld. DR is not correct in view of our reasoning given above. The meaning of these words 'so far as may be' will not mean to exclude provision of section 11 of th....
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....ring total income only after receiving notice u/s 148 of the Act. The AO has passed the order accepting the returned income after considering explanation and details filed by assessee. As decided in case of United Educational Society [2019 (7) TMI 738 - ITAT DELHI] filing of income u/s 139(4A) of the Act was not statutorily compulsory in AY.2017-18. Hence, the AO has rightly accepted the return of the assessee field u/s 148 of the Act. We find that clause (ba) to sub-section (1) of section 12A was inserted by Finance Act, 2017 w.e.f. 01.04.2018. The said clause provides w.e.f. 01.04.2018, and applicable for AY.2018-19 and subsequent years, that the person in receipt of income shall furnish the return of income referred to in sub-section (4A) of section 139 within the time allowed under that section. The assessment year involved in this appeal is AY.2017-18 which is prior to insertion of clause (ba) of section 12A(1) by Finance Act, 2017. When the provisions were not in the statute, the AO could not have invoked the provision and asked the assessee to fulfil the conditions included therein. AO has taken the correct view while passing the order and he has adopted on....
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....l), Rajasthan, Jaipur under whose jurisdiction the transferee Assistant Commissioner of Income Tax, being ACIT, Central Circle, Kota, functions?" 4. Let notice be issued to the respondents. 5. Mr. Siddharth Ranka, learned counsel accepts notice on behalf of the respondents on caveat being filed. 6. Caveat stand discharged. 7. Heard learned counsel for the parties on question of stay. 8. We do not find any ground for accepting the same, therefore, prayer for stay is rejected. Stay application (No.1263/2021) stands dismissed. 9. List on 15.09.2023. 13.1. Substantial Question of Law qua violation of section 13(1)(c)/13(2), amendment made by Finance Act, 2017 being retrospective or not has not even BEEN ADMITTED by the Hon'ble High Court. 13.2. Thus the stand of the CIT(A) in not following the findings recorded by the Hon'ble ITAT in assessee appellant's own case is CONTEMPTOUS to say the least and it deserves to be deplored. GOA- 3 TO 6 Firstly we would like to submit Common WS on the addition /disallowances made as per GOA 3 to 6: COMMON SUBMISSIONS ON ADDITIONS/DSIALLOWANCES MADE AS PE....
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....the addition so made may kindly be deleted in full kindly refer Sanghi Brothers (Indore)Limited v/s Inspecting ACIT 122 CTR 19(MP), Malik Packaging v/s CIT 284 ITR (All), T.C.N. Menon v/s ITO 96 ITR 148(Ker). 3.1. In the case CIT vs. Paramjit Singh (2014) 90 CCH 0499 PHHC(2015) 231 TAXMAN 0450 (P&H)Held :Assessing Officer did not comply with the statutory provisions of law, inasmuch, as that the assessee was not given sufficient opportunity to rebut the report of the Assessing Officer. Not only this, even the assessee was not confronted with letter obtained from the office of Ludhiana Stock Exchange in order to enable him to rebut or lead evidence in support of his stand, particularly when it has come on record that the forms were issued during the relevant period when the annual returns were filed on 3.3.2007, on a duly stamped form, submitted by the Registrar of Companies on 29.1.2007. The effect of the same was also duly recorded in the board meeting of the Company held on 10.3.2007. There was no occasion for the Assessing Officer to disbelieve the explanation submitted by the assessee before the Assessing Officer. The clarification sought from the office of the Ludhian....
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....he payments/consideration/advances from the members. Thus the owner of the land and constructions are the respective members not of the trust. The Land with construction is being shown in the balance sheet in assets and money/advances received from members is being shown in liabilities in the balance sheet. As and when the construction is/shall completed the possession of the land shall be given to the respective members. The construction work is being done through the trust only to avoid the litigation among the members and to curtail the cost being the work in bulk. Due to this reason neither the advances/money received from the members has been claimed as income or receipts of the trust nor the expenses incurred in construction has been claimed as expenditure of the trust because it is not for the trust. If so then no addition/disallowance can be made in the hands of the assessee trust. The addition/disallowances were to be made only when the same was incurred or claimed by the assessee trust in its Income & expenditure accounts. And the ld. AO has ignored these vital facts despite the audited Balance Sheet and Income & Expenditure accounts available before him....
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.... AO has also not invoked any provisions of IT Act while making the lump Sum addition of Rs. 50,00,000/- for cash deposits in the bank account during the Demonetization Period, Unsecured Loan & capital introduced. Hence, in our view lump-sum addition cannot be made under these accounts. The AO must have referred the specific amount with specific details and documents which he has not provided and as to what basis lump sum addition has been made and also failed to mention that on which account and as to what amount of addition consists of. It is also noted that the AO has not stated under which provisions or section he has made the lump-sum addition either u/s 68 or 69 or 69A or trading or u/s 56 i.e. other sources. It may be worthwhile to mention that when in the Act for every additions, the provisions or section has been provided by the legislature, otherwise there shall be no meaning of the Act. Hence the addition is wrongly made against the Act. (vide page 21-22 of the order)." 7.7. The same has also been reiterated recently in the case of Rajendra Kumar Meena v. ITO Sawaimodhopur in ITA No.516/Jp/2024 dt. 2507.2024. 7.8. In the case of Pasari Casting And Rollin....
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.... assessee was asked to explain the discrepancy pointed out by the auditor and assessee has also not filed the confirmation of creditors. The ld. AO has alleged that assessee has shown bogus creditors of Rs. 16,75,286/- and the same is disallowed and made the addition of Rs. 16,75,286/- on account of alleged bogus sundry creditors, without issuing any show cause notice for this effect. 2. In first appeal assessee filed the detailed WS also vide page 53 to 55 of CIT(A) order, additional evidence and legal position. The ld. CIT(A) called the remand report and send the same to the ld. AO who has send his remand report. The ld. AO in the remand report has stated that that pursuant to the direction of your good office the additional evidences produced by the assessee has been entertained & taken on record. Further on perusal of ledger account of sundry creditors, it is noticed that the ledger accounts are not supported with the bills/vouchers. Hence the additional evidences produced by the assessee are not acceptable & remains unexplained. 3. In response to the remand report assessee has submitted a detailed rejoinder vide page 59 to 62 of CIT(A) order. However the ld. ....
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.... which was not desirable in the eye of law. 4. No provisions has been applied by the ld. AO: The ld. AO made the addition on account of sundry creditors but he has not invoked or applied any provisions of law. The ld. AO has not stated under what provision of law he has made addition whether, under business or other sources or 41(1) or u/s 56 or u/s 68 or 69. Thus the addition so made without any provision of is also against the law and liable to be deleted on this ground alone. 5. Further the submissions on the issue without any show cause and other plea kindly consider our common WS as above as also here. (i) Trust auditors M/s Raj Kishore & Associates in relation to sundry creditors, listed in schedule 'B' of Balance Sheet have stated as under:- "An amount of Rs. 1675286/- has been shown as payable under the head sundry creditors as per schedule 'B' showing the outstanding balances is enclosed. Amount credited in the personal account is not supported by proper bills / vouchers and other supporting in most of the cases." (i) Based on comments of Hon'ble Auditors the ld. AO vide para 10 page 13 of the assessment order stated as under:- ....
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....therefore question of disallowance does not arise. (iii) We therefore with utmost respect request you to please delete these additions in interest of justice, law and equity. 7. In your letter your honour has asked us to file rejoinder on or before 25.01.2024. We are therefore filing it within schedule time. However we request you to please provide us opportunity for personal hearing before deciding appeals. The Wholesale Cloth Merchants Association, Kota 6. Also vide chart at page 60 to 62 of CIT(A) order. However the ld. CIT(A) has not considered this detailed reply and explanation in their true perspective and sense rather confirmed the addition on wrong basis and he has only stated that the ledger accounts submitted are admitted as additional evidence. However, these do not prove genuineness of creditors in the absence of any bills and vouchers and also no confirmation filed even during the appellate and remand proceedings, the addition made by the AO treating the creditors as bogus of Rs. 16,75,286/- is found to be justified and confirmed. The ld. CIT(A) has not brought any contrary evidence except above suspicion on the basis of which no addition sh....
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....s effect. 2. The ld. CIT(A) has stated that the Auditor had mentioned in Audit report (Form No. 10B), that the assessee had made payments of Rs. 24,63,780/- vide bearer cheques or account payee cheque without any supporting vouchers. The assessee was asked to explain the same but no details had been furnished by the assessee. Hence, the then AO 3. had disallowed 15% of above expenses which comes to Rs. 3,69,567/- (15% of Rs. 24,63,780/-) and added to the total income of the assessee. The appellant also admitted this fact. The Auditor had mentioned in Audit report this fact and the association has failed to controvert these findings. The assessee association made expenditure without there being details or supporting vouchers. In these circumstances, the expenses may be manipulated and excess expenditure might have been booked. Therefore, the disallowance of only 15 per cent expenses by the AO is found to be reasonable and upheld. SUBMISSIONS ON GOA 4&5: 1. Firstly it is submitted that as the ld. AO has never issued any show cause notice before making the disallowance of 15% expenses on account of construction and certain expenses vide entire facts....
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.... the ld. AO: The ld. AO made the addition on account of sundry creditors but he has not invoked or applied any provisions of law. The ld. AO has not stated under what provision of law he has made addition whether, under business or other sources or 41(1) or u/s 56 or u/s 68 or 69. Thus the addition so made without any provision of is also against the law and liable to be deleted on this ground alone. 7. Further the submissions on the issue without any show cause and other plea kindly consider our common WS as above as also here. Hence in view of the above facts and circumstances the addition so made may kindly be deleted in full and oblige. GOA-6: Addition/disallowance of Rs. 2,18,50,444/- u/s 40(a)(ia) on account of alleged non deduction of TDS. 1. FACTS: The ld. AO has further noted that auditor pointed in audit report that the assessee trust has not deducted the TDS or Short TDS was deducted in some case vide page 13-14 of assessment order, according to that the amount of expenses of Rs. 2,18,50,444/- on which no TDS was not deducted or short deducted. The ld. AO has alleged that an opportunity was provided to produce the books of account but ....
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....)(ia). As the Hon'ble ITAT in the case of Rakesh Construction Co. V/s ACT Circle -7 Jaipur in ITA No.274/Jp/2014 dt.23.09.2016 It has been held that "We have heard the rival contentions and perused the material available on record. In the instant case, the books of accounts were rejected u/s 145(3) of the Act and thereafter the AO has estimated net profit @ 5.05% on contract receipt after deduction of depreciation, interest and remuneration paid to partners as against net profit of 2.39% declared by the assessee. From the perusal of the assessment order, it is noted that there have been discussions between the AO and the assessee in terms of estimating the net profit rate once the books of account have been rejected. As part of that discussion, it is noted that in response to AO's show-cause as to why 8.5% net profit rate should not be allowed, the ld. AR has submitted that if the net profit at the rate of 8.5% is applied, then the deduction on account of payment of hiring charges for machinery taken on rent amounting to Rs. 22,41,600/- and Rs. 21,60,000/- are also to be allowed. The Ld. AO finally decided to apply net profit of 5.05% which has been agreed upon by the asse....
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.... The disallowances if any were to be made in the hands of respective members in their shares. The disallowance under this provisions of the act can only be made when the assessee has claimed the expense and debited to the Income & Expenditure A/c. 4. Further the lower authorities have ignored or overlooked the very vital facts and provision of law which are applicable in the case of assessee or trust. As the assessee is registered u/s 12A and provisions of Sec. 11 to 13 are applicable in the present case. The ld. AO has wrongly invoked the provisions of Sec. 40(a)(ia) and wrongly made the disallowance, because the sec. 40(a)(ia) is not applicable in the present case for the year under consideration. Because explanation-3of Sec. 11(1) which provides as under: Explanation 3.-For the purposes of determining the amount of application under clause (a) or clause (b), the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head "Profits and gains of business or profession". And the explanation 3 was inserted by the finance....
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....able trust or institution where income and expenditure was computed in terms of section 11-Section 40 was applicable only when deductions u/ss. 30 to 38 were being made in computing income chargeable under head profits and gains of business or profession u/s. 28-Disallowance made u/s. 40(a) would only enhance business profit of assessee whose income was assessable u/s. 28 and not otherwise-Hence provisions of section 40(a)(ia) were not applicable in case of charitable trust or institution where income and expenditure was computed in terms of section 11-Order passed by CIT(A) sustained-Revenue's appeal dismissed. 5.3 In the case of Paediatric Infectious Diseases Academy Vs ITO (ITAT Kolkata) in ITA No. 2355/Kol/2017 dt. 24.05.2018 it has been held "4. I have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the assessee in the present case is an association of paediatric doctors with the principal object of general public advancement. It is duly registered under the West Bengal Society Registration Act, 1961 as well as under section12A of the Income Tax Act, 1961. During the year under consideration, it had ....
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....o was not applicable in computing income of entities registration u/s 12A of the Act. I, therefore, hold that the disallowance made by the A.O. under section 40(a)(ia) and confirmed by the Ld. CIT(A) is not sustainable and deleting the same, I allow this appeal of the assessee." 6. Further there is also contradictory approach of the ld. AO because one side he has already made addition on account of sundry creditors, construction expenses, certain expenses and other and other side he has invoked the provisions of sec. 40(a)(ia), which shows the contradictory approach of the ld. AO. And therefore also no addition/ disallowance is liable to be made. Also the contradictory approach of the ld. CIT(A) on the same grounds. 7. Hence in view of the above facts and circumstances the addition so made may kindly be deleted in full and oblige. Note:-Further alternatively and without prejudice to the above it is submitted that one side the ld. CIT(A) has enhanced the income on account of the alleged business receipts and also confirmed various disallowance of expenses and also rejected the books of account. Hence when he has rejected the books of account then only reco....
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.... response to the Show-cause notice dated 01.03.2024 issued by the ld. CIT(A) u/s 251(2) of the Act. 123 126 S.No. Particulars Page No. From To 1. Copy of Written Submission 218 285 2. PCIT v. M/s Wholesale Cloth Merchant Association (D.B. Income Tax Appeal No. 66/2021) Rajasthan High Court dated 27.07.2023 286 287 3. Arvind Kumar Nehra v. ITO (ITA No. 32/JP/2024) (ITAT Jaipur Bench A) 288 310 4. M/s. Bharti Construction Company v. DCIT (ITA 128 to 134/ JODH/2023) 311 361 5. Shri Siddhanath Mahadev Temple Trust v. CIT(E) 2024 (11) TMI 1320-ITAT SURAT 362 365 6. M/s Kajri Minerals Pvt Ltd v. DCIT (ITA No. 216-2018/JODH/2024 dated 21.11.2024 ITAT Jodhpur Bench) 366 397 7. Rakesh Construction Co. v. ACIT (ITA No. 274/JPR/2014 dated 23.09.2016 ITAT Jaipur Bench) 398 404 8. Copy of order passed by ld. CIT(A) for the A.Y.2017-18 dated 15.05.2024 405 415 8. On the other hand, the ld. DR to counter the submission of the assessee has filed the following written submission:- "REVENUE'S WRITTEN SUBMISSIONS I. Validity of Notice u/s 148 and Juri....
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....rmissible. 9. Further, mere reference to a third-party search does not automatically attract Section 153C, unless the strict conditions of that section are fulfilled, which is not the case here. V. Additions Outside Scope of Reasons - Legally Sustainable 10. As per Explanation 3 to Section 147, the AO is empowered to assess or reassess not only the escaped income referred to in reasons recorded, but also any other income which comes to his notice during the reassessment proceedings. 11. Delhi High Court in Ranbaxy Laboratories Ltd. [336 ITR 136] and Jet Airways [331 ITR 236] are distinguishable on facts. Subsequent decisions have clarified that no fetter exists if the AO makes addition on other issues discovered during reassessment, provided the original belief was genuine. VI. Registration u/s 12A Does Not Bar Reopening 12. Merely because the assessee is registered under Section 12A does not make it immune from reassessment. If there is material to believe that the income has escaped assessment due to misuse of charitable status, then proceedings under Section 147/148 are maintainable. VII. Reason to Believe v. Reason ....
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.... consider all matters arising in the case and even enhance the assessment if justified. II. Section 145(3) Rightly Invoked - Books Incomplete and Misleading 4. The rejection of books under Section 145(3) was valid because: Substantial construction expenditure was not routed through the income and expenditure account. No proper correlation of receipts and payments was available. The trust acted more as a commercial builder and failed to maintain books that reflect the correct state of affairs. 5. The assessee itself admitted that land and construction belonged to individual members but the entire activity was conducted through the trust. This hybrid treatment where receipts and expenses are parked in the balance sheet but not in I&E-renders the books incomplete and misleading. 6. Genuine business-like activity: The nature of operations (collecting funds from 380 members, constructing houses, maintaining books) is akin to a real estate developer or builder. The trust acted as a contractor or developer, and hence Section 11 exemption rightly denied under Section 11(4A). III. Rs. 4.69 Crore Enhancement is Based on ....
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....01) 247 ITR 785 (SC), any business income must be incidental to the objectives of the trust and separate books of account must be maintained. In the present case: * The business activity (construction and land development) is not incidental to trust's object, * No separate books have been maintained, * Hence exemption u/s 11 is clearly not available. VII. Revenue's Prayer In view of the above submissions: * The enhancement of Rs.4,69,22,650 by the Ld. CIT(A) is based on facts, law, and supported by proper procedure. * The invocation of Section 145(3) is justified as books are unreliable and incomplete. * The assessee has failed to demonstrate how the said surplus is exempt or not part of its real income. * The Revenue respectfully prays for upholding the enhancement and rejection of books by the CIT(A), and dismissal of the assessee's appeal. 1. Misuse of Trust Funds - Section 13(1)(c) Violation The assessee's repeated contention that the alleged misuse of funds by the President "not attributable to the assessee" is factually and legally untenable. * The misus....
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....of Exemption via Return Filed u/s 148 - Legally Barred * It is settled law that return filed in response to Section 148 is not a substitute for revised return. Refer Goetze (India) Ltd. v. CIT [284 ITR 323 (SC)]. * Any fresh claim must be made through a revised return under Section 139(5) not permissible under reassessment. * CIT(A) rightly held that reopening proceedings cannot be used to secure exemptions not claimed earlier. 5. Retroactive Application of Section 12A(1)(ba) * Assessee misstates that the amendment introduced by Finance Act 2017 is not applicable. The CIT(A)'s finding that it is retrospective is legally debatable, but irrelevant here. * Even prior to amendment, timely return filing and audit were essential to verify claim of application under Section 11. * Hence, default in filing audit report and ROI was not merely technical but disabled the Revenue from assessing true charitable application. 6. Misplaced Reliance on Section 139(9) or Natural Justice * The assessee had full opportunity during assessment and appeal. * Procedural delay in filing Form 10B/Form 10 is not a gr....
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....tantiated liabilities under Section 68 or Section 41(1) (unexplained liabilities or cessation thereof), and therefore, addition is valid. 4. Legal Precedents cited by assessee (Dhakeshwari Mills, etc.) are distinguishable in those cases, the courts held against arbitrary estimation. Here, the AO has relied on audit report, books, and specific deficiencies. REBUTTAL TO GOA-4 & GOA-5: Disallowance of Rs.1,20,00,440/- & 23,69,567/-on Construction & Other Expenses 1. Estimated disallowance of 15% is a well-accepted judicial principle in cases of unverifiable expenditure, especially when bearer cheques, absence of vouchers, and lack of itemized breakup is evident from the audit report. 2. The assessee's plea that the trust merely acted as a conduit for construction on members' behalf is untenable. The entire transaction-land purchase, conversion, construction-was operated through the trust, and hence, it cannot disclaim responsibility. 3. No evidence of sub-allocation to members was submitted. If expenses are unvouched and routed through the trust, the AO has full authority to disallow the same under the doctrine of real income and ta....
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....tatutory disallowances under specific provisions, including Section 40(a)(ia), where specific defaults like TDS non-deduction are established based on available records. * Hon'ble Gujarat High Court in the case of CIT vs. Ujjal Singh Bhullar [2016] 76 taxmann.com 204 (Guj) held that even after estimation of profit, specific disallowances under section 40(a)(ia) are independent and can still be made if relatable payments are found without TDS. * Further, in the case of M/s. Shiv Construction Co. vs. ITO [ITA No. 463/Ahd/2015], it has been held that estimation of income and disallowance under 40(a)(ia) operate on different footing and both can co-exist. Hence, the assessee's reliance on Jaipur ITAT in Rakesh Construction Co. and Power Liners is distinguishable on facts and cannot override the jurisdictional principles laid down by Hon'ble High Courts. 2. Applicability of Section 40(a)(ia) to Charitable Trusts - Misinterpretation of Explanation 3 to Section 11 The assessee argues that Explanation 3 to Section 11 was introduced w.e.f. 01.04.2019 and hence is not applicable to A.Y. 2017-18. This contention is misleading b....
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.... alleges that no specific show cause was issued before disallowance u/s 40(a)(ia). However: * As per assessment order and order sheet entries, the AO had discussed the issue of TDS non-deduction, and assessee failed to justify the same. * Procedural lapse, if any, does not negate statutory disqualification for claiming deduction or application under the Act. 5. Case Laws Relied Upon by Assessee Are Distinguishable * In Army Wives Welfare Association (Lucknow ITAT) and Paediatric Infectious Disease Academy (Kolkata ITAT), the trust had shown no business activity, and the nature of payments and purpose of application were not disputed. * In the present case, the trust has engaged in construction-like activity, received income from members, and incurred expenses where TDS default is apparent. * The CIT(A) rightly held that Explanation 3 now affirms that such disallowance will apply and clarified the position from A.Y. 2019-20, but even earlier, the principle of genuine application of income with lawful compliance applies. 6. Contradictory Approach Argument - Without Substance * The AO and CIT(A) are empowered to m....
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....stimation by AO. 4. Denial of Exemption under Section 11 due to Section 13(1)(c) Violation * DIT v. Bharat Diamond Bourse (SC. 2003 - 259 ITR 280): Held loan to specified person without adequate security disqualifies entire exemption under Section 11. * Charanjiv Charitable Trust v. CIT (Delhi HC. 1999) & Agappa Child Centre v. CIT (Kerala HC): Both held that even indirect benefit to a trustee prohibits exemption. These decisively underline that any benefit to a person specified under Section 13(3/2) results in full denial of exemption for the relevant year(s). 5. Disallowance under Section 40(a)(ia) * CIT v. Ujjal Singh Bhullar (Guj HC, 2016): Held that rejection of books does not preclude disallowance of non-TDS payments under Section 40(a)(ia). * Shiv Construction Co. (ITAT Ahmedabad): Asserted that book rejection and Section 40(a)(ia) disallowance may co-exist. * Programme for Community Organisation (SC, 2001-248 ITR 1): Upheld that application of income (exemption) can be invalidated for statutory noncompliance - supporting that added liabilities follow. * Finance Act 2018's Explanation 3 to S....
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....ond Bourse (2003, SC), the Supreme Court held that loan to a specified person without adequate security results in denial of Section 11 exemption. * Courts in Delhi and Kerala (e.g. Charanjiv Charitable Trust, Agappa Child Centre) unequivocally state that any benefit to a person under Section 13(3) results in total denial of exemption. * The case of Society for Integration... v. DCIT supports denial where trust assets were misused for personal liabilities. 5. Section 40(a)(ia) Disallowance Amidst Book Rejection * In CIT v. Ujjal Singh Bhullar (Guj HC, 2016), the Court held that book rejection does not negate disallowance under Section 40(a)(ia). * ITAT Ahmedabad in Shiv Construction Co. upheld co-existence of book rejection and Section 40(a)(ia) disallowance. * The Supreme Court in Programme for Community Organisation affirmed that statutory compliance-like TDS-cannot be bypassed, even in exempt entities. * The Finance Act 2018's Explanation 3 to Section 11 formally clarified that Section 40(a)(ia) applies to trusts, reinforcing Revenue's position. PRAYER: It is most respectfully prayed that the appeal ....
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..... AO has not made additions on the basis of reasons recorded viz-a-viz additions made by him (except minor addition of IT refund interest which was already on record). On the other hand, ld. DR has reiterated that the notice u/s. 148 was validly issued and thereby he stood up the finding recorded in the order of the ld. CIT(A). The bench noted that it is not in dispute that the assessee had not filed the Audit Report and ITR within time permitted as per provision of section 139 of the Act. The premises of the assessee was covered by way of survey by the revenue officials on 30.06.2016, consequent to search carried out at the premises of 'Bajaj Group' of Kota. As the all the case of that Bajaj Group were centralized even the case of the assessee was also centralized for limited purpose, i.e., for the Co-ordinate assessment with the cases of SPS Bajaj Group and accordingly an order dated 06.12.2016 was passed u/s. 127 by the competent authority whereby jurisdiction was transferred from ITO, Ward Exemption, Kota to ACIT, Central Circle, Kota. As per the record since the assessee has not filed the ITR u/s. 139 of the Act reasons were recorded on 31.01.2018 and after taking the ap....
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.... 11. Ground No. 2 & 3: 11.1 Vide these two ground the assessee challenges the action of the ld. CIT(A) in making the addition of Rs. 4,69,22,650/- while also rejecting the books of account on the basis of re-casted income and expenditure account without considering the facts and circumstances of the case. The assessee also challenged the action of the ld. CIT(A) in denying the exemption benefits to the assessee appellant trust as per the provisions of section 11 to 13 of the Income-tax Act. First, we will deal with the issue of denial of benefit of charitable trust to the assessee. As is evident from the facts recorded in the assessment order that ld. Assessing Officer denied the benefit of section 11 & 12 by holding that this benefit can only be granted if the Audit Report & ITR was filed by the assessee u/s. 139 of the Act. Whereas in the facts of the present case for the year under consideration the assessee filed the Audit Report & ITR upon issue of notice u/s. 148 of the Act and thereby the benefit was denied to the assessee. While holding so ld. AO noted that there were violation of section 13(2) of the Act in the facts of the case and therefore, the ld. AO also made ....
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....ld. CIT(A). 11.2 So far as the merits of the dispute it was submitted the additions have been made by the ld. Assessing Officer without rejecting the books of accounts not only that ld. AO made the addition beyond the show cause notice issued to the assessee. Even the ld. AO has not appreciated the fact that the expenses which was disallowed were not forming part of Income & Expenditure account of the assessee. When that issue of addition on merits challenged before the ld. CIT(A) the assessee preferred an application under Rule 46A for the additional evidence and also filed an application seeking additional grounds of appeal. Based on the additional evidence so filed the ld. CIT(A) called for remand report from the Assessing Officer to which reply was filed by the assessee and realizing the factual position as highlighted by the assessee, the ld. CIT(A) issued an enhancement notice dated 01.03.2024 u/s. 251(2) of the Act to the assessee. A detailed objection to the same was filed by the assessee vide letter dated 05.03.2024. Thereafter vide impugned order dated 15.05.2024 the ld. CIT(A) has rejected the books of accounts of the assessee and consequentially has confirmed the ....
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....2018, would be prospective in nature and would apply for A.Y. 2018-2019, no specific violation to section 13 found by the Assessing Officer and no addition was made in the hands of Shri Tejinder Pal Singh Sahni himself towards the so-called misappropriated income and that registration cannot be cancelled from retrospective effects thereby attained finality. The ld. AR has further highlighted that surprisingly, the appeal of the assessee for A.Y. 2017- 2018 was also decided by CIT(A) vide its order dated 15.05.2024, however, no such enhancement was made by the ld. CIT(A) towards the housing project by treating it to be a commercial venture and neither notice u/s. 251(2) was issued nor books of accounts were rejected, further, benefit of section 11 & 12 was granted and the appeal of the assessee was allowed by holding that since benefit u/s. 11 & 12 is to be granted, hence, provisions of section 40(a)(ia) were in-applicable. The ld. AR further submitted that the ld. CIT(A) failed to appreciate the nature of activity carried out by the Trust and that neither the advances/money received from the members has been claimed as income or receipts of the trust nor the expenses incurred in co....
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.... Ltd Vs ITO [1977] 106 ITR 1 wherein the Apex Court held that; "At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity". Even in the case of Radha Soami Satsang v. CIT (1991) 11 TMI 2 the Apex Court noted that ; "We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no ch....
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....he legislature is not specifically made retrospective by the statute. Notwithstanding the fact that such amendment to the substantive provision has been given prospective effect, the judicial or quasi-judicial authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. Following the above decision, it is held that the provision is retrospective and is applicable on proceedings pending as on 1st April,2018. ............. It is undisputed fact that the funds were used for personal benefit of the president. Hence, the denial of exemption is found to be justified. The misappropriation is not made by simple employee but a president of the assessee. Hence, the denial of exemption u/s 11 is found to be justified. The appellant has relied upon the decision of Hon'ble ITAT against the order of the PCIT(Central) in the case of assessee. Hon'ble ITAT in its order has stated that the assessee has not violated the provisions of section 12AA(3)/12AA(4) of the Act. It is held that cancellation of registration u/s 12A cannot be done. However, Hon'ble ITAT has not examined the violation of section 13(1)(c) therefore, denial of exemptio....
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....ons of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income- tax shall furnish the return of income within the time allowed under section 139 of the Act. These amendments are clarificatory in nature. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years Circular No.02/2018 dated 15.02.2018 containing "Explanatory Notes to the Provisions of the Finance Act, 2017" on insertion of clause (ba) in Sub section (1) of section 12A is quoted as under: "the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139 of the Income-tax Act, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to....
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....s been inserted imposing a further condition that such return of income is to be furnished in terms of section 139(4A), within the time allowed under that section. Firstly, this requirement was not there before this amendment; and secondly, this insertion of additional clause clearly shows that such condition was not there in existing clause (b) of section 12A. Had such condition being there in clause (b) itself, then there was no need to insert a further clause (ba) by the Legislature for denying benefit of section 11 & 12 in case return is not filed in time as per provision of section 139 (4A). We are also not in agreement with the contention of the Ld. DR that this amendment is clarificatory in nature. As rightly pointed out by the Ld. Counsel that this amendment has been made by the Finance Act, 2017 effective from A.Y. 2018-19, meaning thereby that this clause has not been made applicable even for the A.Y. 2017-18, the return of which were still to be filed. Thus, the Legislature has thought fit to make this amendment applicable from next assessment years onwards and not even to the current A.Y. 2017-18. While interpreting the amendment made by the Finance Ac....
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....d any interest and the said sum was returned by the Trust, the amount advanced not being investment could not be held to be in violation of section 13(1)(d), 11(5) of the Act. Therefore, respectfully following the view taken by this Tribunal in the assessee's own case, and as per our findings, we hold that there are no violations and the revenue did not make out any case to substantiate the violations in respect of 13(1)(c), 13(2)(a), 13(2)(g) and 13(2)(h) of the Act. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld." 24. In view of the above facts and circumstances, we observe that the ld. Pr. CIT has cancelled the registration on the ground that the assessee has not filed its ROI and Audit report. The reason of not filing of the same according to the assessee are that as the assessee is trust and was depended on the accountant therefore the president and the other members were under impression that the act of return filling, Audit report and books are being taken care by them. As there was no default since its registration from 1976 to 2013. The fraud done by the president and books not completed by the acc....
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....4F, AO was directed to verify genuineness and veracity of claim of assessee- Claim of exemption u/s 54F, as raised by assessee should be allowed- Assessee's appeal allowed. 25. We also observe that the assessee had file the ROI and Audit report in response to the notice u/s 148 of the Act also much prior to issuance of show cause notice for cancellation and therefore, at the time of issuance of Show cause notice u/s 12AA(3)/12AA(4) no return or Audit report were pending. Section 147 and section 148 of the Act itself provide opportunity to the assessee for filing the return of income, hence it cannot be said that the Income Tax Return was late filed and the return filed u/s 148 is treated as filed u/s 139 and no show cause notice was given to the assessee when they had come to the notice of the Revenue in July 2016 and the notice has been issued 31 Months i.e. Feb. 2019. Even in last three years i.e form F.Y. 2016-17 to 2018-19 no defaults have been found. The ld. Pr. CIT in its order has stated that the assessee has not filed Tax audit report. In this regard we observe that the assessee is trust registered u/s 12A and not a businessman and not doing the business. In our vi....
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....r years then it should be deemed to be filed in subsequent year till there is no change. In the case of Additional Director of Income Tax (Exemption) v/s Manav Bharati Child Institute & Child Psychology 20 SOT 517(Del) was held that "though filing of Form No. 10 in respect of accumulation of Income of surplus income is mandatory to claim exemption u/s 11 and 12, the same can be filed at any time during the pendency of assessment proceeding and benefit of accumulation of income cannot be denied. Here the case of assessee is on much strong footing because the assessee had filed the same much before show cause notice by the Pr. CIT although after due date of return filling." 27. We also noticed that the ld. Pr. CIT stated that if a person fails to get audited his books of accounts from a chartered accountant, then he will not able to get benefit of section 11, 12 and 12A. In our view, the provisions are in the nature of 'procedural compliance' hence even if that kind of provision is not satisfied even then assessee would not be punished for cancellation of registration u/s 12A of the Act. In this regard, the ld AR has relied on the decision in the case of M/s Sir Kik....
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....it has been held that: It is now well-settled that a procedural provision, ordinarily, should not be construed as mandatory, if the defect in the act done in pursuance of it can be cured by permitting the appropriate rectification to be carried out at a subsequent stage. Procedural laws are devised and enacted for the purpose of advancing justice. It does not mean that the procedural laws should be brushed aside by the Court. It depends on the facts and circumstances of a particular case as to whether a breach in the observance of any procedural law, if not excused or overlooked, would cause real and substantial injustice to the parties. Having regard to the object of s. 12A, it cannot be said that the legislature intended that, even where the trust has got its accounts audited and the certificate obtained in Form No. 10B before the assessment is completed, merely because such report could not be filed in the course of the assessment proceedings, it would deprive a trust of getting the exemption if it is otherwise entitled to it in law. As in this case, the audit report had been obtained before the assessment was completed. The ITO, before completion of the assessment, did....
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....and the other members were involved knowingly and were part of that fraud. And if any fraud has been done behind the assessee, then the same cannot be treated as done by the assessee. Therefore, keeping in view our above discussion and observation, we are of the view that registration of the assessee could not be cancelled because of non-filing of I.T. return and audit report or on account of misdeeds of ex-president. 29. We further observe that the ld. Pr.CIT (Central) cancelled such approval from A. Y. 2014-15, though the assessee has already assessed from A.Y. 2014- 15 under section 143(3)/148 of the Act. It is also settled legal position of law that Registration cannot be cancelled from retrospective effects. In this regard, the ld AR has relied on the decision of the Hon'ble Supreme Court in case of State of Rajasthan and others vs Basant Agrotech India Ltd. and other 388 ITR 81(SC) wherein it has been decided that "only a legislation can make a low retrospective and prospectively subject justifiability and acceptability within the constitutional para-meters. The subordinate legislation can be given with retrospective effect if a power in this behalf is c....
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....from where documents were impounded. The registration was cancelled for the assessment years 2000-01 and 2001-02 for the reasons that the surplus was quite heavy. In the impugned order, it was mentioned by the CIT that there was an unusual huge margin and the petitioner was engaged in the commercial activities rather than charitable. As per the balance- sheet, huge amount from the student was charged. The profit margin embodied in the charges taken from the students are so huge and it proves the profit motive of the petitioner. The funds were misused by the president and his family members of the petitioner. 20. The expression "charitable purpose" is defined in Section 2(15) of the IT Act, 1961. It is of inclusive nature as revealed in the language. Earlier the words "the advancement of any other object of general public utility" in this definition were succeeded by the words "not involving the carrying on of any activity for profit". These words were omitted by the Finance Act, 1983, w.e.f. 1st April, 1984. 26. In the light of the above discussion and by considering the totality of the facts and circumstances of the case, we hold that the order dt. 9th March, 200....
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....s held to have only a prospective effect the effect of cancellation, in the event the pending Tax Appeal is decided in favour of the Revenue, will operate only from the date of the cancellation order, that is 30.12.2010. In other words, the exemption cannot be denied to the petitioner for and up to the Assessment Year 2010-11 on the sole ground of cancellation of the certificate of registration. Also refer Indian Medical Trust v/s Pr. CIT &ors 182 DTR 252(Raj.) is held that cancellation of registration with retrospective effect is invalid." Therefore, in view of the decision of Hon'ble High Court, we are also of the view that cancellation of registration with retrospective effect is invalid in the present case. The issue has also been dealt by the co-ordinate bench of ITAT, Delhi in the case of United Educational Society v. JCIT (2019) 7 TMI 738 (ITAT Delhi) as regards to amendment made by Finance Act, 2017 and that amendment is whether prospective or retrospective. The relevant finding reads as under:- "Reopening of assessment u/s 147 - exemption u/s 11 denied- assessee has not filed the return u/s 139 (4A) reads with section 12A (b) - assessee society was car....
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....t years onwards and not even to the current A.Y. 2017-18. While interpreting the amendment made by the Finance Act No. 2 of 2014 whereby section 11 (6) was inserted so as to exclude such assets while computing depreciation in respect of which deduction has been allowed as an application of income u/s 11. In view of the above, we hold that AO was not justified in denying the benefit of the exemption u/s 11 of the Act and we direct the AO to compute the income in accordance with the provision of section 11. Ground no.6 is accordingly allowed. " Now so far as to the issue of invocation of section 145(3) by the ld. CIT(A), it would be appropriate to refer to the finding of the co-ordinate bench of Jodhpur in the case of Bharti Construction Co. in ITA No. 128 to 134/Jodh/2024 order dated 29.10.2024 wherein the co-ordinate bench has held that ; "The Bench feels that notice u/s 251(2) can be given by the Ld. CIT(A) only to reduce, enhance or annulment of assessment but for not invoking the new provision which has not been invoked by the AO. In our view the Ld. CIT(A) cannot invoke new provisions of the Act in the appellate proceedings and he may enhance the a....
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....he assessment by discovering new sources of income not mentioned in the return of the assessee or considered by the ITO in the order appealed against", and the case reported in CIT vs. Rai Bahadur Hardutroy Motilal Chamaria (supra) wherein it has been held that, "It is not, therefore, open to the AAC to travel outside the record, i.e., the return made by the assessee or the assessment order of the ITO, with a view to finding out new sources of income and the power of enhancement under s. 31(3) is restricted to the sources of income which have been the subject-matter of consideration by the ITO from the point of view of taxability. Their Lordships considered the meaning of the word 'consideration' and held that, "Consideration' does not mean, incidental' or 'collateral' examination of any matter by the ITO in the process of assessment, therefore, there must be something in the assessment order to show that ITO applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its nontaxability and not to any incidental connection". In the instant case, the AAC has, after issuing notice, himself considered ....
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....t go to the extent of displacing powers under, say, sections 147, 148 and 263. We also draw strength from the decision in the case of BP Sherafudin in [2017] 87 taxmann.com 330, wherein the Hon'ble Kerala High Court has held as under "Undeniably, the precedential position on the powers of the first appellate authority under section 251 undulates. There are seeming contradictions. But, as held by Union Tyres, and as affirmed on reference by Sardari Lal, there is a consistent judicial assertion that the powers under section 251 are, indeed, very wide; but, wide as they are, they do not go to the extent of displacing powers under, say, sections 147, 148 and 263." 9. It is a trite law that the ld. CIT(A) cannot touch upon issues which do not arise from the order of assessment and was outside the scope of order of assessment. In this regard, we draw strength from the following decisions of different Coordinate Benches of the Tribunal. (i) Bikram Singh in [2017] 82 taxmann.com 230 (Del-Trib) (ii) Sundaram Medical Foundation in (2016) 45 ITR (Trib) 500 (Chennai- Trib) As is evident from the record that ld. CIT(A) has neither applied % comple....
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....h in its order. The said order has come to a finality as no Substantial Question of Law has been admitted against the afore-said finding. In compliance with the notice issued u/s. 148 of the Act, ITR & Audit Report has been filed by the assessee. Proceedings u/s. 148 are akin to proceedings u/s. 139 of the Act. Hence, benefit u/s. 11 & 12 is to be granted to the assessee. Consequently, the addition of Rs. 3350772/- made by the ld. AO at maximum marginal rate is deleted and is set aside. Thus the Ground No. 4 is decided in favour of the assessee. Ground No. 5, 6, 7 & 8: 13. Vide Ground no. 5 the assessee challenges the addition of Rs 16,75,286/- on account of unverifiable creditors. Ground no. 6 deals with the disallowance of Rs. 1,20,00,440/- being 15% of Rs 8,00,02,935/- on account of construction expenses and adding it in total income of the assessee appellant without considering the fact that it was never claimed by the assessee appellant. Ground no. 7 deals with the disallowance of Rs 3,69,567/- out of total expenses of Rs 24,63,780/- without considering the facts that it was not claimed by the assessee appellant. Whereas ground no. 8 deals with the disallowance of Rs 2,1....
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....er which head the amount is being put to tax has not been spelt out in the assessment order. He has further submitted that the CIT(A) was not justified in ignoring the binding order passed by the this co-ordinate bench of Jaipur ITAT in assessee's own case, which had in fact restored the registration u/s. 12AA of the Act. He has further submitted that surprisingly entire sundry creditors as at 31.03.2014 of Rs. 16,75,286/- has been held to be bogus. During the first appellate proceedings an application u/r 46A was filed to take additional documents on record and during which supporting evidence were filed. The CIT(A) has held that confirmation has not been filed, however, the AR submitted at first hand it was never desired from the assessee. He has submitted that since no consequential expenses were debited in Income & Expenses A/c., hence, no question of disallowance is there. He has further submitted that 15% of construction expenses amounting to Rs. 1,20,00,440/- has been disallowed. He submitted that amount was incurred by bearer cheques. The CIT(A) has justified on the ground that he has rejected the books of accounts, which was not done by the AO. The CIT(A) has confirmed the....
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....ld. DR has submitted that Explanation 3 inserted by Finance Act, 2018 to section 11(1) would be clarificatory in nature and hence would also apply for this year under consideration. With regards to contradictory stand adopted by the CIT(A) for A.Y. 2017-2018, the ld. DR has submitted that each year is independent year and may be due to tax effect, no appeal could be filed against the same, however, she is not in a position to make any statement with regards to same. We have considered the rival contentions and note that additions were made by the AO which has been confirmed by the ld. CIT(A) for the reasons mentioned hereinabove. The basic issue which first needs to be decided is whether the construction expenses is part of the business activity carried out by the trust. It is submitted that the pattas over the land belongs to the members, the members of the trust thought it expedient to carry out the construction activity of housing through the common pool of the trust at no profit, no loss basis to save costs and carry out work expediently. Even prior to A.Y. 2014-2015 the entries were made in similar nature in the books of accounts. Even subsequently the entries were made in ....