Iv. For The Assessment Year 2007-08 (Ita v. For The Assessment Year 2008-09 (Ita

IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA ITA No.28 of 2019 a/w ITAs No.29, 30, 31, 32 of 2019 and ITA No.1 of 2020Reserved on: 07.08.2023 Decided on: 22.08.2023 For the respondent: 3 Mr. Vishal Mohan, Senior Advocate with M/sRajeev Kumar, Sushant Kaprate and PraveenSharma, Advocates. M.S. Ramachandra Rao, Chief Justice The Revenue has filed the instant appeals under Section 260A ofthe Income Tax Act,1961 (for short, “the Act”) : i.for the assessment year 2004-05 (ITA no.1 of 2020), ii. for the assessment year 2005-06 (ITA no.28 of 2019), iii.for the assessment year 2006-07 (ITA no.31 of 2019), iv.for the assessment year 2007-08 (ITA no.29 of 2019), v.for the assessment year 2008-09 (ITA no.30 of 2019) andfor the assessment year 2008-09 (ITA no.30 of 2019) and vi. for the assessment year 2009-10 (ITA no.32 of 2019). 2.In all these appeals, orders passed by the Income Tax AppellateTribunal, Division Bench Chandigarh on different dates for therespective assessment years in respect of the respondent-assessee areunder challenge. 3.Only ITA no.1 of 2020 for the assessment year 2004-05 has been admitted on 22.03.2021 to consider the following substantial questionsof law: “1.Whether on facts and in the circumstances of the caseand in law, the Hon’ble ITAT is justified in treating the noticeand in law, the Hon’ble ITAT is justified in treating the notice 4 under Section 148 as invalid on the ground that the notice wasbased only on change of opinion and there was no escapementof income? 2.Whether on facts and in the circumstances of the caseand in law, the Hon’ble ITAT has erred in holding that specificpurpose donation are voluntary contributions in the hands ofthe assessee for charitable purpose u/s 12A of the Act evenwhen the same were not reflected in the FCRA return of theassessee? 3.Whether the ITAT, on the basis of facts and in thecircumstances of the case and in law, has erred inacknowledging a new concept “Fund Pending Utilization”introduced by the assessee in its balance sheet and thereaftercorroborating assessee’s contention that it need not be routedthrough the income and expenditure account? 4.Whether on facts and on the circumstances of the caseand in law, the Hon’ble ITAT is justified in not recognizing thefacts that “Fund Pending Utilization” of the assessee hadopening balances at the beginning of the year and any fundreceived afterwards during the year was to be spent after theinitial balance has already been exhausted?” 4.According to the Revenue, even in ITA no.28 of 2019 for the assessment year 2005-06, the same substantial questions of lawarise; and as regards ITA no.29 of 2019, ITA no.30 of 2019 and ITAno.32 of 2019 for the assessment years 2006-07, 2007-08, 2008-09and 2009-10, respectively questions 2, 3 and 4 raised in ITA no.1 of 2020 arise. In addition, according to the Revenue, the following question also arises in these 4 appeals: “Whether on the facts and in the circumstances and in law, theorder of the Appellate Tribunal is contrary to the evidence andmaterial on record of the case and therefore perverse?” order of the Appellate Tribunal is contrary to the evidence andmaterial on record of the case and therefore perverse?” 4.According to the Revenue, even in ITA no.28 of 2019 for the assessment year 2005-06, the same substantial questions of lawarise; and as regards ITA no.29 of 2019, ITA no.30 of 2019 and ITAno.32 of 2019 for the assessment years 2006-07, 2007-08, 2008-09and 2009-10, respectively questions 2, 3 and 4 raised in ITA no.1 of 2020 arise. In addition, according to the Revenue, the following question also arises in these 4 appeals: “Whether on the facts and in the circumstances and in law, theorder of the Appellate Tribunal is contrary to the evidence andmaterial on record of the case and therefore perverse?” order of the Appellate Tribunal is contrary to the evidence andmaterial on record of the case and therefore perverse?” 5.We may point out that these appeals had initially been filedbefore the High Court of Punjab and Haryana, but the said HighCourt had returned the same in 2016 directing the Revenue to filethem before the Court of competent jurisdiction, and thereafterthese appeals were filed in this Court and they were numbered, aftercondoning the delay, if any, in filing the same, and after making ofsuitable amendments in the grounds of appeals.before the High Court of Punjab and Haryana, but the said HighCourt had returned the same in 2016 directing the Revenue to filethem before the Court of competent jurisdiction, and thereafterthese appeals were filed in this Court and they were numbered, aftercondoning the delay, if any, in filing the same, and after making ofsuitable amendments in the grounds of appeals. The back ground facts 2004-05 and 2005-06 6.The background facts are that a return was filed by therespondent-assessee for the assessment years 2004-05 and 2005-06after claiming exemption under Section 11 of the Act.respondent-assessee for the assessment years 2004-05 and 2005-06after claiming exemption under Section 11 of the Act. 7.The cases of the assessee were, however, re-opened underSection 147 of the Act for the said assessment years on the groundSection 147 of the Act for the said assessment years on the ground that the assessee had earmarked funds amounting to 6 Rs.20,66,74,263/- for the assessment year 2004-05 under the head ‘Fund Pending Utilization’ and had not included in receipts. 8. The Assessing Officer in his order dt. 28[th] December, 2011observed that if the said amount was routed through the Income &Expenditure account, the application of income would have fallenshort of the statutorily required 85%, and hence income hadescaped assessment within the meaning of Section 147 of the Act.He held that the deficiency in application of fund for charitablepurposes during the year under assessment comes toRs.5,55,50,896/- and the same is added back to the taxable incomeof the assessee-trust. 9.The assessee filed an appeal before the Commissioner of IncomeTax (Appeals), Shimla against the re-opening of the case as well asagainst the additions made by the Assessing Officer.Tax (Appeals), Shimla against the re-opening of the case as well asagainst the additions made by the Assessing Officer. 10.By order dt. 29[th] January, 2015, the 2 appeals for the assessmentyears 2004-05 and 2005-06 were decided by the CIT(Appeals) by aconsolidated order. He dismissed the appeals filed by the assessee,and while doing so enhanced the taxable income of the assessee onthe ground that the assessee was not entitled to the benefit ofexemption of 15% under Section 11(1)(a) and (d) of the Act as they were unable to spend 85% of its income during the year in question. He enhanced the income of the assessee to Rs.9,97,09,788/-. 11.The assessee then preferred appeals before the Income Tax 10.By order dt. 29[th] January, 2015, the 2 appeals for the assessmentyears 2004-05 and 2005-06 were decided by the CIT(Appeals) by aconsolidated order. He dismissed the appeals filed by the assessee,and while doing so enhanced the taxable income of the assessee onthe ground that the assessee was not entitled to the benefit ofexemption of 15% under Section 11(1)(a) and (d) of the Act as they were unable to spend 85% of its income during the year in question. He enhanced the income of the assessee to Rs.9,97,09,788/-. 11.The assessee then preferred appeals before the Income Tax Appellate Tribunal, which passed the order on 20.01.2016 allowingthe appeals of the assessee. It accepted the plea of the assessee thatthe re-opening had been sought to be resorted to on an issue whichhad already been dealt with and discussed during regularassessment proceedings and copy of reasons recorded forreopening reveal that proceeding under Section 147 of the Act wasresorted to since the Assessing Officer believed that fundsamounting to Rs.20,66,74,263/- shown in the balance sheet of theassessee as earmarked funds under the head "Fund PendingUtilization" ought to have been included in the income of theassessee, and there was a shortfall in utilization of income to theextent of 85% resulting in taxability of income of the assesseewhich had allegedly escaped assessment. It held that in regular assessment proceedings, the assessee hadbeen specifically asked why earmarked funds had not been includedin the income of the assessee for determining 85% utilization of thesame; and the assessee had also been specifically asked to state the amount of corpus donations received alongwith evidence through aquestionnaire dt. 1[st] September, 2006; that the assessee had alsoduly explained the nature of earmarked funds as being given for aspecific purpose and hence treated as corpus funds by the assessee;evidences in the form of letter of the donees had also beensubmitted vide a letter dt. 8[th] September, 2006; thereafterassessment order under Section 143(3) of the Act was passedwithout making any addition on account of corpus funds, meaningthereby that after examining the issue of corpus/funds, theAssessing Officer had formed an opinion that they were corpusfunds, and hence were not to be included in the income of theassessee. The Tribunal held that having thus formed an opinion on thetreatment of earmarked funds shown as “Funds PendingUtilization”, the Assessing Officer could not have resorted to re-opening the case of the assessee on the same issue, since it amountsto change of opinion which cannot be resorted to in re-assessmentproceedings. The Tribunal held that proceedings for re-opening of assessmenton the ground of income escaping assessment are an exception to 9 the finality of proceedings arrived at under Section 143(3) of theAct during the regular assessment proceedings of the assessmentyears; the Assessing Officer, having applied his mind to the issue ofcorpus funds, after the assessee explained the same with evidencesin the regular assessment, impugned notice under Section 148 of theAct (issued by the Assessing Officer stating that the earmarkedfunds shown in the Funds Pending Utilization are to be treated asincome of the assessee on the same set of facts and material whichwere in the knowledge of the Assessing Officer), is invalid. The Tribunal held that the Assessing Officer cannot issue noticeu/s 148 of the Act merely because it felt that a decision which hadbeen taken earlier needed to corrected. It relied on the decision ofthe Supreme Court in Commissioner of Income Tax, Delhi vs.Kelivinator of India Limited,[1]to hold that reassessmentproceedings cannot be initiated on the basis of a mere change ofopinion. The Tribunal therefore allowed the appeals of the assessee anddeleted the additions made by the Assessing Officer on the abovegrounds for the assessment years 2004-05 and 2005-06. 12. The Tribunal held that the Assessing Officer cannot issue noticeu/s 148 of the Act merely because it felt that a decision which hadbeen taken earlier needed to corrected. It relied on the decision ofthe Supreme Court in Commissioner of Income Tax, Delhi vs.Kelivinator of India Limited,[1]to hold that reassessmentproceedings cannot be initiated on the basis of a mere change ofopinion. The Tribunal therefore allowed the appeals of the assessee anddeleted the additions made by the Assessing Officer on the abovegrounds for the assessment years 2004-05 and 2005-06. 12. In respect of assessment years 2006-07 to 2009-10 in the case of the same assessee identical issues had arisen and the issues had alsobeen decided in favour of the assessee by the CIT (Appeals) and theIncome Tax Appellate Tribunal had upheld the same. The Tribunal concluded that ‘Funds Pending Utilization’exceeded 85% even if the said funds are treated as voluntarilycontribution, and the utilization by the assessee exceeds 85% andthe assessee is entitled to claim exemption under Section 11 of theAct. Consideration by the Court ITA no.1 of 2020 and ITA no.28 of 2019 for the assessment years 2004-05and 2005-06. 13.In Kelivinator of India Limited (1supra), it was held that therecan be re-opening of assessment under Section 148 of the Act onlyif the Assessing Officer has reason to believe that any incomechargeable to tax had ‘escaped assessment’ for any assessmentyear; that the use of this power is conditional upon the fact that theAssessing Officer has some reason to believe that the income has‘escaped assessment’; that the words ‘reason to believe’ in Section 11 147 of the Act cannot be interpreted to have the consequence ofconferring arbitrary powers on the Assessing Officer who may eveninitiate such reassessment proceedings merely on his change ofopinion on the basis of same facts and circumstances which hasalready been considered by him during the original assessmentproceedings; and it would empower the Assessing Authorities to re-assess any income on the ground which was not brought on recordduring the original proceedings and escaped his knowledge and thesaid fact would have material bearing on the outcome of therelevant assessment order. Thus on account of a mere change ofopinion, re-assessment proceedings cannot be initiated by assessingoffice. This has been reiterated in Assistant Commissioner ofIncome Tax, Mumbai and others vs. ICICI Securities Primary and vs.Dealership Limited[2]Income Tax Officer, Ward No.16(2) Techspan India Private Limited and another.[3] So we do not findany merit in ITA no.1 of 2020 and ITA no.28 of 2019 for theassessment years 2004-05 and 2005-06. 14. 12 ITA. no.31 of 2019 and ITA no.29 of 2019, ITA no.30 of 2019 and ITAno.32 of 2019 Coming to ITA. no.31 of 2019 and ITA no.29 of 2019, for the assessment year 2006-07, assessment order was passed on25.06.2008, for the assessment year 2007-08, it was passed on31.12.2009, but the said orders were revised under Section 263 ofthe Act subsequently by the Commissioner of Income Tax on theground that they were prejudicial to the interest of Revenue and thatthe Assessing Officer had fail to apply the correct provisions ofSection 12(1) of the Act. The said assessment orders were set asidewith a direction to the Assessing Officer to pass fresh assessmentorders. 15.Thereafter fresh assessment orders for the assessment years2006-07 and 2008-09 were passed on 27.12.2010. 16.Assessment order for the assessment year 2009-10 was passedon 27.12.2011. 17.On 30.11.2012, CIT (Appeals) allowed the appeals for the assessment year 2009-10 and deleted the additions made by theAssessing Officer. 13 15.Thereafter fresh assessment orders for the assessment years2006-07 and 2008-09 were passed on 27.12.2010. 16.Assessment order for the assessment year 2009-10 was passedon 27.12.2011. 17.On 30.11.2012, CIT (Appeals) allowed the appeals for the assessment year 2009-10 and deleted the additions made by theAssessing Officer. 13 18.CIT (Appeals) also allowed the appeals on 21.03.2012pertaining to the assessment years 2006-07 and 2007-08 and 2008-09, holding that the assessee had in fact spent much more than 85%of its receipts under the head ‘Funds Pending Utilization’ , and alsoof the total receipts, that the entire spending was towards thecharitable purposes, and there was no income accumulated or setapart in excess of 15% of the income during the year underconsideration. He therefore directed the deletion of additions madeby the Assessing Officer on account of alleged deficiency inapplication of funds for charitable purposes. He also held that theassessee fully satisfies conditions under Section 11 and 13 read withSection 12(1) of the Act. 19.When this was challenged before the Income Tax AppellateTribunal, it disposed of all the appeals as infructuous and whiledismissing the appeals filed by the Department, upheld thereasoning given by the CIT(Appeals) and consequently deleted theadditions. 20.Thus, the findings of fact recorded by the CIT(Appeals) hadbeen confirmed by the Tribunal in all these appeals holding thatthese findings had not been assailed by the Revenue through any 14 evidence or material on record; and therefore it is established that the assessee utilized the fund for the purpose of achieving itsobjective, and that the utilization was more than the prescribedlimit, consequent upon which there was no reason to makeadditions against the assessee. 21.After considering the facts and circumstances and thecontentions of the Revenue, we are satisfied that no question of lawmuch less substantial question of law arises for consideration inthese appeals and we hold that the findings recorded by the Tribunalcannot, in the facts and circumstances, be said to be perverse.contentions of the Revenue, we are satisfied that no question of lawmuch less substantial question of law arises for consideration inthese appeals and we hold that the findings recorded by the Tribunalcannot, in the facts and circumstances, be said to be perverse. 22.We therefore do not find any merit in any of these appeals.Accordingly the same are dismissed alongwith pending. Accordingly the same are dismissed alongwith pending. application(s), if any. No costs ( M.S. Ramachandra Rao ) Chief Justice Chief Justice August 22, 2023 (vt) ( Ajay Mohan Goel ) Judge Judge