1. Charitable Trust – Section 11 – Accumulation of income – Can before plurality of purposes

DIT (Exam.) vs. Eternal Science of Man’s Society [2007] 290 ITR 535 (Delhi.)

The Department objected to the accumulation of income for following objects on the ground that the plurality of purposes as well as the purpose of acquiring movable or immovable property does not satisfy the conditions precedent to allow accumulation of income.

1. Publication of books, literature, magazines, pamphlets, etc. for children and for educating people in the art of living based on the Indian traditions and modern scientific knowledge.

2. To provide monetary assistance to any educational or other institution engaged in the promotion of education or physical health, or social and spiritual upliftment or to collaborate with organization having such national or international programme for promotion of social and educational and/or physical health including sports.

3. To establish and run nursery schools for children.

4. To establish and run libraries for children and adults.

5. To donate to educational and other institution engaged in promotion of physical health, mental and intellectual health and so develop selflessness, love truth and real brotherhood.

6. To acquire any movable and immovable property or lease, or gift or hire or purchase for any of the purposes of the society including the above objects.”

The Hon’ble Court upheld the order of the Appellate Tribunal with the observations that accumulation of income is permissible for a plurality of purposes. The assessee had accumulated its income for six different purposes. There was no controversy about five of the said objects being charitable in character. The criticism about the sixth object was that it permitted acquisition of property whether movable or otherwise for the achievement of other objects for which the trust/society had been established. The assessee trust had been established in terms of memorandum. All the object mentioned as purposes of accumulation were the 22 objects enumerated therein as a charitable object. If that be so, clause (f) permitting acquisition of movable or immovable property for achievement of one of those purposes would necessarily imply that the property was acquired for one of the charitable purposes stipulated in the memorandum.

2. True and full disclosure – Section 245d – Settlement Commission – Mere statement is not sufficient
   
   Centurion Bank of Punjab Ltd. vs. Income Tax Settlement Commission [2007] 290 ITR 555 (Bom)
   
   The assessee before the Hon’ble Bombay High Court was a company engaged in the business of banking and related activities including leasing. The assessee’s application for settlement of income was rejected by the commission on the ground that the case does not involve complexity and there was no full and true disclosure by the assessee. The assessee challenged the order of the commission rejecting the application. The assessee brought to the notice of Court the points which show that matter involves complexity of investigations. It was further pointed out that the commission had called for a report from the Commissioner of Income-tax in which complexity was pointed out by referring to the Appellate Tribunal’s Order.
   
   The Hon’ble Court observed that in the instant case the Commissioner of Income-tax by his report, when called for by the Settlement Commission under section 245D(1), had categorically held that the complexities of investigation were involved. The material on record showed that the assessment was spread over 15 assessment years involving approximately 1900 lease transactions, that the case required examination and cross examination of multiple parties who were spread out across the length and breadth of the country, that the case involved nearly Rs. 420 crores in disputed additions and disallowances and that the documents were admittedly lost owing to fire etc. The Settlement Commission had merely observed that the petitioner had not made full and true disclosure.

3. Appellate Tribunal – No power to enlarge the scope of proceedings while remanding the matter
   
   Coca Cola India P. Ltd. vs. ITAT [2007] 290 ITR 464 (Bom.)
   
   The assessee claimed certain expenditure as deductible. The A.O. disallowed the same. On an appeal the CIT(A) partially confirmed the disallowance. The assessee being aggrieved by the CIT(A) order preferred an appeal before the Appellate Tribunal. The Department neither filed any appeal against the said order nor filed any cross objection. However, the Appellate Tribunal without considering the specific grounds raised in the appeal relating to disallowance of expenses restored the matter to the Assessing Officer for de novo consideration. The assessee, being aggrieved by the order of the Appellate Tribunal filed an application under section 254(2) of the Act raising the contention that the Appellate Tribunal ought not to have remanded the case to the file of the A. O. for redetermination of the issue without deciding the issues specifically raised in the appeal. The Appellate Tribunal rejected the application. The assessee filed Writ Petition challenging action of the Appellate Tribunal.
   
   The Hon’ble Court accepted the contention of the assessee with the observation that section 254(1) of the Income-tax Act, 1961, requires the Tribunal to give both the parties to the appeal an opportunity of being heard and pass such orders on the appeals filed before it as it thinks fit. The expression “pass such orders thereon as it things fit” in section 254(1) though wide enough to include the power of remand, such power can be exercised only if it is necessary to decide the issues which are the subject-matter of the appeal. In the present case, none of the issues specifically raised in the appeal have been considered by the Tribunal before remanding the matter to the file of the Assessing Officer.
    

4. Expenditure incurred on issue of debentures is revenue expenditure
   
   CIT vs. Thirani Chemicals Ltd. [2007] 290 ITR 196 (Delhi.)
   
   The assessee issued debentures on rights basis to the existing shareholders with a view to augment its long-term capital requirements. It incurred an expenditure in this regard of Rs. 22,09,889 and claimed it as deduction from its taxable income. The authorities below took the view that the expenditure would qualify only for amortization under section 35D but the Tribunal reversed that view relying on Circular No. 52, dated March 19, 1971. On an appeal by the Department, the Hon’ble Court, observed that the circular in question notwithstanding section 35D covered cases of expenditure incurred on expansion of the existing business of the assessee and would exclude any other provision which may have permitted deduction of expenditure that requires to be amortised under the section is not correct. The circular clearly says that the expenditure incurred on the issue of debentures is an admissible deduction in the light of the Supreme Court decision. The circular extends the logic underlying the said decision to cases where the expenditure is incurred by the assessee by issue of debentures. Therefore, the Tribunal was justified in holding that the expenditure was permissible deduction and accordingly deleting the additions made by the Assessing Officer.
    

5. Search & Seizure – Abetment of regular assessment proceedings Section 153a
   
   Abhay Kumar Shroff vs. CIT [2007] 290 ITR 114 (Jharkhand)
   
   The assessee filed his Income-tax return voluntarily under section 139(1) of the Act along with the profit and loss account for the financial year ending March 31, 2004. After the returns were filed on May 17, 2004, the assessee’s authorized representative appeared before the Assessing Officer, and filed the assessee’s letter dated July, 25, 2006, along with various details in respect of income, receipt, expenses, assets and liabilities as reflected from the profit and loss account and the balance-sheet. On August 24, 2006, search and seizure operations were carried out by the officials of the Income-tax Department and the investigation wing at the offices and residence of the petitioner, which continued for a number of days. The Assessing Officer, thereafter, issued notice to the petitioner under section 142 asking him to file his return for the assessment year 2004-05 and to produce the books of account, etc. The Assessee submitted to him that no notice under section 153A had been issued to the petitioner asking him to file his income-tax return for the sixth assessment year as contemplated in the section and that the assessment proceeding for the assessment year 2004-05 which was pending on the date of initiation of search and seizure under section 132 had abated. However, the Assessing Officer completed the assessment by passing an order u/s. 143(3). The assessee challenged the Assessing Officer’s action before the Hon’ble High Court.
   
   The court observed that the search and seizure was initiated by the respondents on August 24, 2006, which was carried out by various authorized officials. Thereafter, admittedly no notice as required under section 153A was issued to the petitioner for the six assessment years i.e., from 2001-02 to 2006-07. On the date on which the search was initiated the assessment proceeding was pending on the basis of the return furnished by the petitioner. Consequently, the pending assessment proceeding stood abated by virtue of the second proviso to section 153A. Instead of complying with the pending assessment proceeding for the assessment year 2004-05 and passed an assessment order during the pendency of the writ application. The entire action of the respondents in proceeding with the assessment after search in contravention of the provision of section 153A was vitiated in law.
    

6. Concealment Penalty – Section 271(1)(c) – Penalty is not automatic
   
   CIT vs. M. M. Gujamgadi [2007] 290 ITR 168 (Karn.)
   
   The assessee accepted the additions with respect to certain cash credit as he was not able to lead evidence, in spite of best of his efforts, to show that the loans are genuine. The A. O levied penalty rejecting the assessee explanation that he has voluntarily come forward and offered the loans as income. Therefore, no penalty can be levied. The levy of penalty was deleted by the Appellate Tribunal.
   
   On reference u/s. 256(1) the Hon’ble Court confirmed the order of the Appellate Tribunal with the observations that a reading of sections 271 and 271(1)(c) of the Income-tax Act, 1961, and the Explanation appended thereto manifestly makes it clear that every addition of income by the Income-tax Officer will not automatically attract levy of penalty. It is clear from Explanation 1(B) to section 271(1)(c) of the Act that while computing the total income of an assessee, if the assessee fails to prove that such explanation is bona fide then there will be a deemed concealment by the assessment by the assessee.