TaxTMI 
TaxTMI 
2026 (3) TMI 794
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.... 1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition for claim of Rs. 1,25,82,774/- for the A.Y. 2005-06 and Rs. 3,86,28,412/- for the A.Y. 2006-07 investment in fixed deposits as application of income incomplete disregard. 2. The appellant craves leave to add or amend the grounds of appeal before this appeal is heard and disposed off. 1.2 It is admitted position that the issue in revenue's appeal has been adjudicated by Special Bench of Tribunal vide order dated 29- 09-2025. The copy of the same has been placed on record. Considering the same, our adjudication would be as under. Assessment Proceedings 2.1 The sole grievance of the revenue is that Ld. CIT(A) has allowed claim for Rs. 1,25,82,774/- in AY 2005-06 and similar claim of Rs. 3,86,28,412/- in AY 2006-07. From case records, it emerges that the assessee is a charitable society which is registered under Section 12AA. The assessee filed 'nil' income after claiming exemption u/s 11. The return was initially processed u/s 143(1) and later on, scrutinized u/s 143(3) on 25-10-2007 accepting the returned income. However, the case was reopened u/s 147 r.w.s. 1....
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....aritable or religious purposes?" Brief Facts 2. The Ved Prakash Mukund Lal Educational Society - the appellant-assessee is a charitable society registered under Section 12AA of the Income Tax Act, 1961 ('Act' for short). The assessee filed its Return of Income (RoI) for assessment year 2005-06 on 30.10.2005 declaring total income at Nil, claiming surplus of income over expenditure as exempt under Section 11 of the Act. The RoI was processed under Section 143(1) of the Act. Subsequently, the case was selected for scrutiny and the assessment was finalized under Section 143(3) of the Act vide order dated 25.10.2007 accepting the returned income. Later on, the case was selected for reassessment under Section 147 r.w.s. 148 of the Act on the ground that the Income and Expenditure account of the assessee showed that out of the total receipts of Rs. 8,86,35,665/-, only a sum of Rs. 7,06,25,737/- (revenue expenditure of Rs. 3,67,90,756/- + capital expenditure of Rs. 3,38,81,961/-) has been spent towards its objects, which approximately formed only 80% of the total receipts. In order to cover the deficit, the assessee claimed that balance amount of Rs. 1,25,82,774/- was de....
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.... treated as application of income for charitable purposes. A perusal of the order of learned CIT(A) shows that for the purpose of ground no. 3 the learned CIT(A) has placed reliance on the decision of Chandigarh Benches in assessee's own case for assessment year 2008-09 (ITA No. 952/Chandi/2011 dated 25.01.2012). In that view of the matter, the appeals came to be partly allowed by the learned CIT(A). 6. The present set of four appeals comprise of two appeals each filed by the assessee and the Revenue for assessment year 2005-06 and 2006-07. 7. When the appeals came up before the Division Bench, the Division Bench expressed its inability to agree with the decision of the co-ordinate Bench in assessee's own case in ITA No. 952/Chandi/2011 for assessment year 2008-09. In such circumstances, the Division Bench by an order dated 17.03.2020 has required the aforesaid issues to be placed before a Special Bench. Although the Division Bench has observed that the Special Bench may also decide the other/all issues involved in these appeals, the President in his discretion has only referred the aforesaid two issues to the Special Bench. In the present reference, we are only c....
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....me. It is submitted that the assessee is registered under Section 12AA of the Act. It is pointed out that the competent authority on the basis of the objects as set out in the Memorandum of Association (MoA) has granted the registration and, therefore, the AO was not justified in refusing to treat the investment so made as application of income. The learned counsel was at pains to point out that clause III (1) to (6) of the MoA have to be read together with clause (7). He submitted that the Division Bench in assessee's own case for assessment year 2008-09 has allowed the claim of such investment being treated as application of income, which has rightly been relied upon by the learned CIT(A). He, therefore, submitted that the issues referred may be answered in favour of the assessee. 12. On behalf of the assessee, reliance is placed on the decision of Delhi High Court in Director of Income Tax (Exemption) vs DLF Qutab Enclave Complex Medical Charitable Trust, 248 ITR 41 (Delhi) and the decision of Gauhati High Court in CIT vs Highway Construction Co. (P.) Ltd., 217 ITR 234 (Gauhati). Consideration 13. We have given our anxious consideration to the rival ci....
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.... 10. To give donations to institutions, organizations or Societies engaged in social welfare programmes. 11. To give loans to institutions being run/managed by registered Societies/Trusts. 12. To do all such other things as may be incidental or conducive to the attainment of the above objects." 14. Section 11 of the Act, to the extent relevant, reads as under:- "11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to suc....
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.... not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. (3) .............. (3A) .............. (4) .............. (4A) .............. (5) The forms and modes of investing or depositing the money referred to in clause (b) of subsection (2) shall be the following, namely :- (i) investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a co-operative land development bank). Explanation.-In this clause, "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (....
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.... 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 with interest thereof during a period of not less than five years; (b) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (c) "urban infrastructure" means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport; (x) investment in immovable property. Explanation.-"Immovable property" does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth; (xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964); (xii) any other form or mode of investment or deposit as may be prescribed." 15. From a plain reading of the aforesaid provisions, the follo....
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....indicates that it refers to investment of the fund/money of the assessee "in a manner as provided under Section 11(5) of the Act". As noticed earlier, Section 11(5) of the Act refers to the forms or modes of investment of the money which is accumulated or set apart, which would be distinct from the application of income as contemplated in Section 11(1) of the Act. We are, therefore, clearly of the view that the investment/deposit of income, as is referred to in Section 11(5) of the Act, cannot partake of the nature of an application of income as contemplated in Section 11(1) of the Act. 18. There is yet another reason why we are unable to accept that clause III (7) of MoA can be said to be application of income. Section 2(15) of the Act defines "charitable purpose" as under:- "15) "charitable purpose" includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utili....
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....alf of the assessee that the net additions to the Fixed Deposit Receipts (FDRs) of Rs. 6,00,42,237/- should be treated as application of income in view of Section 11(5) of the Act. The Bench placing reliance on clause III (7) of the MoA held that the net addition to the FDRs should be treated as application of income. 21. A perusal of para 12 of the order for assessment year 2008-09 indicates that the Tribunal, on facts, found that as against the gross receipts of Rs. 15,52,33,648/-, the Trust was found to have applied the income to the extent of Rs. 18,32,95,603/-. In these circumstances, this Tribunal found that there was no merit in the stand of the authorities that the assessee was required to show its intention of setting apart the income by notice under Section 11(2) of the Act. The following observations in para 12 are relevant for the purpose:- "12. In view of our observations in paras hereinabove, the total expenditure incurred by the assessee and the additions to fixed assets and FDRs, which are allowed as application of income of the previous year, amounts to Rs. 18.32,95,603/. The gross receipts of the previous year in the hands of the assessee-society....
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....istinction between application of such income to charitable purpose as against accumulation or setting apart, the same cannot be concurred with even assuming that for certain earlier years, viz. 2005-06 and 2007-08, such investment in deposit was allowed as an application of income. 22. Coming to the present case, and even assuming for the sake of argument that the investment/deposit as contemplated under Section 11(5) of the Act can be treated as application of income, the AO has found on facts that the assessee in this case has not complied with the said provisions by furnishing a statement in the prescribed formas contemplated under Section 11(2)(a) of the Act. It is clear that such accumulation or setting apart of income which falls short of the required 85% can be so accumulated or set apart for a maximum period of 5 years. This is another indicator to hold that it is an interim measure which the Trust can adopt for accumulation or setting apart of whole or part of income for a period of 5 years, after which it has to be applied for charitable purposes as contemplated under Section 11(1) of the Act. 23. Reliance on the decision in case of DLF Qutab Enclave Co....
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....o. Pvt. Ltd. (supra) before the Gauhati High Court, it was, inter alia, held that a Special Bench has no jurisdiction to decide matters which are not referred to it. Incidentally, in that case, one of the questions was whether the Tribunal was justified in taking up the case on assessee's appeal when earlier the Tribunal had remitted the matter back to the AO in an appeal by the Revenue. We are unable to see as to how that decision can come to the aid of assessee in this case. 26. In the result, we answer both the issues as referred to in the negative. The appeals shall now be placed before the regular Division Bench for disposal according to law. This issue has thus finally been settled by Special Bench in revenue's favor. It has been held by the bench that the object of an assessee society to invest its income in the mode and manner as per provisions of Section 11(5) cannot be said to be an object of charitable nature. Further, investment in FDRs could not be said to an application of income for charitable or religious purposes. Respectfully following the same, the adjudication of Ld. CIT(A), for both the years, stand reversed and that of Ld. AO stand restored. The re....
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....e total receipts are / were required to be applied for its objects / charitable purposes. In order to cover the deficit, a sum of Rs. 1,25,82,774/- is claimed to have been have been deposited in the bank fixed deposit Receipts in pursuance of Section 11(2) and 11(5) of the Income Tax Act. However, for the purposes that income of the trust so accumulated or set apart shall not be included in its total income, the assessee trust was required to given an intimation to the Assessing Officer in Form No.10 with regard to purpose and period for which the income is accumulated or set apart, within a prescribed time limit as prescribed in provisions of Section 11(2)(a) of the Income Tax Act, 1961. However, further perusal of the record, the assessee does not appear to have filed Form No.10 to the Assessing Officer. As the assessee has failed to follow the prescribed procedure and hence a shortfall in application of income of Rs. 46,67,770/- was to be assessed as total income of the assessee. Upon perusal of the same, it is quite discernible that though there was shortfall in application of income in this year, the assessee did not file mandatory Form No.10 and still laid claim on impugne....
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....case of Raymond Woollen Mills Ltd. vs ITO (236 ITR 34), it was held by Hon'ble Supreme Court that in determining whether the commencement of reassessment proceedings was valid, it has only to be seen whether there was, prima-facie, some material on the basis of which the department could reopen the case. The sufficiency or correctness of material is not a thing to be considered at this stage. In the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (291 ITR 500),it was held that even if reason to belief about escapement of income is prompted by audit objections, the assessment would be valid. 3.4 In the present case, Ld. AO duly considered the objections of the assessee on reopening of the case of the assessee. In the assessment order, Ld. AO brought on record the reasons for reopening the case, the assessee's replies thereto and his findings in the assessment order. On the issue of change of opinion, it was observed that in AY 2005-06, no query was raised by Ld. AO either during show-cause notice or through any order sheet entry. In the order sheet, Ld. AO only asked for copy of judgement reported as 115 Taxman 520 (DIT vs. DLF Qutab Enclave Complex Medical Charitable Tru....
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....nd proposed application of income. The same would show that all the material facts necessary for the assessment was not fully and truly disclosed by the assessee. The same would also establish that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment in the present case. The Hon'ble Delhi High Court in the case of Honda Siel Power Products Ltd. (2012; 340 ITR 53) held as under: - The term 'failure' on the part of the assessee is not restricted only to the income tax return and the columns of the income-tax return or the tax audit report. This is the first stage. The said expression "failure to fully and truly disclose material facts" also relates to the stage of the assessment proceedings, the second stage. There can be omission and failure on the part of the assessee to disclose fully and truly material facts during the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the Assessing Officer complete and correct information and details which it is required to disclose under an obligation. Burden is on the assessee to make full and true disclosu....
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....s, therefore, omission and failure on the part of the assessee to disclose fully and truly material facts. [Para 16] This decision was upheld by Hon'ble Supreme Court (20 Taxmann.com 5) confirming the proposition that the assessee having not pointed out during assessment proceedings about expenses incurred relatable to tax free income, there was omission and failure on its part to disclose fully and truly material facts and hence reopening of assessment was justified. 3.6 In the background of all these facts and judicial decisions, it was concluded by Ld. CIT(A) that Ld. AO was fully justified to reopen the case as there was failure on the part of the assessee and the assessee had not disclosed fully and truly all the material facts necessary for the assessment. Finally, the reassessment proceedings were held to be justified for both the years. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. The material facts and relevant dates are not much in dispute. Admittedly, the assessee's return of income for AY 2005-06 was initially processed u/s 143(1) and later on, scrutinized u/s 143(3) on 25-10-2007 accepting the returned income. How....
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....was restricted to the queries as raised by Ld. AO. There is no discussion on Bank FDRs whatsoever. Considering these replies, the original assessment has been framed by Ld. AO on 25-10-2007. In AY 2006-07, Ld. AO raised the issue through a show-cause notice dated 22-12-2008. In this notice, Ld. AO sought justification by the assessee for treating the FDRs as application of income for charitable purposes. The assessee, vide replies dated 26-12-2008 &30-12-2008, justified its claim and referred to a decision of Chandigarh Tribunal to support the same. However, while framing the assessment on 30-12-2008, Ld. AO has not recorded any finding on the issue nor is there any discussion, whatsoever, on the impugned issue, in the assessment order. These facts would establish that the impugned issue was not examined by Ld. AO during the course of regular assessment proceedings for both the years. 5. During hearing before us, Ld. AR has sought different interpretation of these facts. However, no factual error could be demonstrated in the findings of Ld. CIT(A). It could be gathered that in AY 2005-06, no specific query has been raised by Ld. AO on the impugned issue and what was demanded fro....
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....assessment proceedings and the reopening was on mere change of opinion. The same is not the case here. 7. The Ld. AR has further pointed out that on the basis of audit objections, notice u/s 154 was issued on 29-01-2009 to which the assessee objected. Finally, no rectification u/s 154 was ever passed clearly indicating that the proceedings u/s 154 were dropped. Thereafter, the case has been reopened after four years which is nothing but change of opinion. However, we concur with the adjudication of Ld. CIT(A) that proceedings u/s 154 could not be equated with assessment proceedings. It is open for revenue to initiate appropriate proceedings in accordance with law. The dropping of proceedings u/s 154 could not lead to a conclusion that an opinion was formed on the issue and the case could not be reopened thereafter. The proceedings u/s 154 have limited application to correct mistakes which are apparent on the facts of the record and nothing beyond. This argument does not hold any water. 8. The Ld. AR has further argued that the case of the assessee has been reopened at the behest of audit objections. The reasons recorded by Ld. AO to reopen the case for AY 2005-06 has been pla....
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....rt in the case of Indian & Eastern Newspaper Society (119 ITR 996) for the proposition that audit objection could not be treated as information u/s 147 of the act. However, upon perusal of this case law, we find that this case law deal with a situation when an opinion was already formed by Ld. AO during original assessment proceedings on the heads of income whereas audit party opined differently. The same is not the case here. Similar are the facts in the case law of Hon'ble Bombay High Court in PCIT vs. Yes Bank Ltd. (135 Taxmann.com 161). In this case, Ld. AO had taken a stand contrary to the view expressed in the audit objection and had even addressed a letter to the Director of Audit intimating that objections raised by audit party were not acceptable. Nevertheless, the Assessing Officer reopened and issued notice u/s 148. Thus, this is the case which was reopened merely on audit objection which was not accepted by Ld. AO. The same is not the case here. The other case laws, as quoted by Ld. AR, are similarly distinguishable and do not render any assistance to the case of the assessee. 10. On the issue of full and true disclosure by the assessee, Ld. CIT(A) has referred to th....
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....appen when the assessee does not disclose or furnish to the Assessing Officer complete and correct information and details which is required to be disclosed under an obligation. Burden is on the assessee to make full and true disclosure. The law postulates a duty on every assessee to disclose fully and truly all material facts for its assessment. The disclosure must be full and true. Material facts are those facts which, if taken into account, would have an adverse effect on the assessee by the higher assessment of income than the one actually made. They should be proximate and should not have any remote bearing on the assessment. Omission to disclose may be deliberate or inadvertent. This is not relevant, provided there is omission or failure on the part of the assessee. The latter confers jurisdiction to reopen an assessment. Whether or not there was a failure or omission to disclose fully and truly material facts, is essentially a question of fact. We find that this case law duly support the case of the revenue in reopening the case of the assessee. 12. Finally, considering the facts and circumstances of the case, we would hold that reassessment proceeding, for both the years....