TaxTMI 
TaxTMI 
2026 (1) TMI 973
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....assessing officer to be re framed on issue of taxation of investment of funds made in a related entity with reference to section 131 13(2) read with sec 11(5) of the Income-tax Act. 1961 3. (Nothing is mentioned at Ground number 3) 4. The ld Commissioner of Income Tax has erred in exercising jurisdiction u/s 263 and issuing directions to the AO to reopen the case in respect of issue of investment related party despite the said issue was thoroughly discussed and scrutinized by the Assessing Officer while passing the assessment order u/s 143(3) of the Act 5. The ld Commissioner of Income Tax has erred in exercising jurisdiction under section 263 and directed the AO to re-examine the issue of investment in related party since the assessing Officer has already examined the said issue and taken one view with which the Commissioner of Income Tax did not agree Thus two views are possible which vitiate the remand proceedings u/s 263 6. Further the ld. CIT was unable to bring on record and to point out the enabling provision to tax the ineligible investment in related party and also to point out the AOs complete failure in examination / verification of th....
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....oceedings, that Investment made in Prabodh Artha Sanchay was not application of income of the trust, it was merely parking of funds. It was submitted during assessment proceedings, that the Amount invested in Prabodh Artha Sanchay was out of Corpus. 6. The Assessing Officer after considering the submission of the Assessee, accepted the Return of Income and completed the Assessment without any addition. 7. Ld.Commissioner of Income Tax (Exemption) Pune on perusal of the records, issued notice u/s.263 of the Act, dated 03.02.2025. On behalf of assessee, Mr. Abhay Avachat-Chartered Accountant appeared before ld.CIT(Exemption) and filed the submissions. In para 11 of the order, the ld.CIT(Exemption) held as under : "The assessee, a charitable trust, made an investment of Rs 32,75,000/- in M/s Prabodh Artha Sanchay, a partnership firm where its trustee had a substantial interest. This investment is in direct violation of Sections 13(1)(c), 13(1)(d), 13(2)(a). 13(2)(g), and 13(2)(h), as well as the prescribed modes of investment under Section 11(5). Therefore, the FAO was required to disallow the entire investment of Rs 32,75,0007/- and tax it at the Maximum Marginal Rate ....
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.... Number and Class of shares Held Nominal value of the investment Income from the Investment Whether the amount in col. 4 exceeded 5 per cent of the capital of the concern during the previous year - say, Yes/No 1 2 3 4 5 6 1 M/s Prabodh Artha Sanchay No 32,75,000/- 2,95,102 Yes Total 32,75,000/- For M/s Milind Kale & co., Chartered Accountants Firm Registration No 106399W Sd/- Milind A. Kale Proprietor Membership No. 35030 Place : Pune Date : 18^th May 2020 11. As per Schedule-1 filed by Assessee, during the assessment proceedings along with Audit Report, the investment made is as under : SHETH CHIMANLAL GOVINDDAS MEMORIAL TRUST SCHEDULES FORMING PART OF ACCOUNTS A.Y.2020-21 F.Y.2019-20 Schedule : 1 Details Of Investments FY 2019-20 Sr. No Mode of Investment as per section 11(5) Amount of Investment 1 F D with M/s Prabodh Artha Sanchay 32,75,000 TOTAL 32,75,000 11.1 Thus, it is an admitted position that Assessee has invested Rs. 32,75,000/- with Prabodh Artha Sanchay, which is a related party as defin....
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....or clause (b) of sub-section (1) read with the Explanation to that sub- section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:- (a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5); (c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year: 3............................... ....
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.... investment or deposit made under this clause for the period up to the date on which such investment or deposit becomes repayable by such company; (viii) deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industrial development in India and which is eligible for deduction under clause (viii) of sub-section (1) of section 36; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36; (ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India. Explanation.-For the purposes of this clause,- (a) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along wi....
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.... property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub- section (3) : Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in ....
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....ition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business. Explanation.-For the purposes of sub-clause (ii) of clause (c), in determining whether any part of the income or any property of any trust or institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of July, 1972, no regard shall be had to the amendments made to this section by section 7 [other than sub-clause (ii) of clause (a) thereof] of the Finance Act, 1972. (2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- (a) if any part of the income or property of the trust or institution is, or continues to be, lent to ....
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....tha Sanchay is a related party as defined in Section 13, relevant part of Audit Report already reproduced. Therefore, as per Section 13 of the Act, the provisions of Section 11 shall not be applicable to the Assessee. 15. In this case, though the details were filed during assessment proceedings, Assessing Officer failed to apply the correct law. Assessing Officer erroneously allowed deduction under section 11 of the Act, on the impugned income. 16. The Hon'ble Karnataka High Court in the case of CIT Vs. Fr. Mullers Charitable Institutions [2014] 44 taxmann.com 275 dated 10.02.2014 has held as under : "11. With regard to second and third substantial questions of law are concerned, reading of Section 13(1)(d) of the Act makes it clear that it is only the income from such investment or deposit which has been made in violation of Section 11(5) of the Act that is liable to be taxed and that violation under Section 13(1)(d) does not tantamount to denial of exemption under Section 11 on the total income of the assessee. ...................... Reading of the proviso to Section 142 is very clear that the legislature has clearly contemplated that in a case, w....