Citation Codes

Equivalent Citations

citation codes

Case Number

I.T.A No. 461(Asr)/2011, Assessment Year: 2006-07

Attorney(S)

Appellant by: Sh. Amrik Chand, DR
Respondent by: Sh. Sameer Aggarwal, CA

Judges

H.S Sidhu, J.M
B.P Jain, A.M

Acts

u/s 234A Rs. 2,93,478/- Interest u/s 234B Rs. 10,76,087/- Total tax payable Rs. 46,30,435/-Issue Penalty notice u/s 271(1)(c) of the Income Tax Act
provision of section 11(2)(a) read with rule 17 of the Income Tax Rule 1962
SECTION 11 INCOME TAX ACT
section 11(2)(a) read with rule 17 of the Income Tax Rule 1962,
Section 142(1) of the Income Tax Act, 1961 (in short the Act)
Registration u/s 12AA(I)(b)(i) of the Income Tax Act, 1961.
provision of section 40(a)(ia) of the Income Tax Act
provision of section 11(2) of the Income Tax Act.
provisions of Section 2(15) of the I.T Act, 1961
provisions of section 11(1)(b) of Income Tax Act,
10 r/w Rule 17 of the I.T Rules, 1962
u/s 12AA of the Income Tax Act, 1961
Section 12A(1)(b) of the I.T Act, 1961.
INCOME TAX ACT
PUNJAB TOWN IMPROVEMENT ACT 1922
Rule 17 of the I.T Rules, 1962
sub-section 1 of Section 200.
sub-section 1 of Section 139,
u/s 11 of the Income Tax Act.
Improvement Act, 1922

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Smart Summary

Structured Summary of the Tribunal's Opinion (Revenue Appeal) — Assessment Year 2006-2007

Factual and Procedural Background

The Revenue challenged an order of the Commissioner of Income Tax (Appeals), Amritsar dated 22.06.2011 relating to assessment year 2006-2007. The assessee, Gurdaspur Improvement Trust, filed an audited report on 31.10.2006 but did not file its return within the initial statutory time; notices under sections 142(1) and 271 were issued and penalty proceedings under section 271(1)(b) were initiated. The assessee ultimately filed a return on 23.07.2007 declaring nil taxable income but showing gross receipts and claiming them exempt.

The Assessing Officer (AO) issued notices under section 143(2) and sought reconciliation of discrepancies between the audit report and the income & expenditure statement. The AO found significant cash/bank balances and concluded that most receipts had been used in activities resembling commercial development (land acquisition, development and sale), not predominantly for charitable purposes. The AO treated Rs. 91,49,311 as business income (taxable) and disallowed Rs. 7,05,030 under section 40(a)(ia). The AO also found non-compliance with section 11(2) / Rule 17 (form No.10 timing) and computed total income and tax; penalty proceedings were initiated separately.

On appeal the CIT(A) deleted the addition of Rs. 91,49,311 (while sustaining the Rs. 7,05,030 addition) principally because the assessee had been granted registration under section 12AA(1)(b)(i) by the ITAT, Amritsar (order dated 28.05.2007), which the CIT(A) considered to have attained finality. The Revenue appealed to the Tribunal, which heard both sides and restored the AO's assessment order dated 29.12.2008.

Legal Issues Presented

Whether the deletion by the CIT(A) of the addition of Rs. 91,49,311 (income treated as business income by the AO) was correct, where the AO had concluded that the trust's activities were largely commercial and that the receipts were not applied to charitable objects to the extent required under section 11.
Whether grant of registration under section 12AA(1)(b)(i) and confirmation of that registration by the ITAT / High Court precludes the AO from examining entitlement to exemption under section 11 during assessment proceedings.
Whether the assessee complied with section 11(2) and Rule 17 (form No.10 / timing) so that amounts not applied to charitable purposes could nevertheless be treated as exempt.
Whether amounts of Rs. 2,65,000 and Rs. 4,40,030 (total Rs. 7,05,030) could be disallowed under section 40(a)(ia) for failure to deduct/pay tax at source in the relevant period.

Arguments of the Parties

Revenue / Appellant (learned DR)

The CIT(A) erred in deleting the addition of Rs. 91,49,311 merely because registration under section 12AA(1)(b)(i) had been granted; registration does not automatically entitle the assessee to exemption under section 11.
The assessee showed gross receipts of Rs. 2,13,05,319 and expenses of Rs. 1,21,56,008 (about 57% applied) which is less than the 85% application requirement under section 11(1)(b) — hence the addition was justified.
The AO's factual findings (discrepancies in audit report vs return, substantial bank balances, minimal expenditure on public-benefit items) support treating the income as business income and denying exemption.
The issue had been decided in favour of the Revenue by the same Bench in Assistant Commissioner of Income Tax v. Amritsar Improvement Trust (I.T.A Nos. 476 & 477(Asr)/2011) dated 15.01.2013; Revenue urged restoration of the AO's order.

Assessee (learned counsel / authorised representative)

Relied on the CIT(A)'s order deleting the Rs. 91,49,311 addition, principally because registration under section 12AA was granted (ITAT order dated 28.05.2007) and confirmed by the Punjab & Haryana High Court.
Contended that the case-laws relied upon by Revenue/DR were not identical to the facts of the assessee and filed decisions of the jurisdictional High Court in favour of the assessee, namely: Commissioner of Income Tax v. Improvement Trust, Phagwara (I.T.A No. 518 of 2007, 3 Oct 2008); Commissioner of Income Tax v. Simla Chandigarh Diocese Society ((2009) 318 ITR 96); and Commissioner of Income Tax v. Ms. Jagriti Aggarwal ((2011) 339 ITR 610).
In written replies before AO, the assessee explained reconciliation differences between audit report and return and described schemes and development works undertaken (details of schemes, small expenditures on parks and street lights, etc.).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Jyoti Prabha Society v. CIT ((2003) 81 TTJ Delhi 942)	That grant of registration/registration certificate is prima facie and does not preclude the Assessing Officer from examining in detail whether the assessee complied with s.11 or s.12 at assessment stage.	The Tribunal found this authority applicable and relied on it to support the proposition that the AO can examine entitlement to exemption during assessment — and used it to sustain the AO's detailed inquiry.
PUDA v. CIT ((2006) 103 TTJ (Chd.) 988)	Warns against misuse of charitable status; where activities are commercial or profit-making (e.g., development and sale of land), such activities are not charitable in nature.	The Tribunal treated facts of the assessee as no better than PUDA and relied on PUDA to support the AO's conclusion that much of the trust's activities were commercial and not charitable; applied to sustain taxation of the disputed income.
Assistant Commissioner of Income Tax v. Amritsar Improvement Trust (I.T.A Nos. 476 & 477(Asr)/2011, 15.01.2013)	Cited by Revenue as an adjudication favourable to Revenue on similar issues.	The Tribunal noted that this Bench had decided the issue in favour of Revenue in those matters and treated that prior decision as supporting restoration of the AO's assessment order.
Commissioner of Income Tax v. Improvement Trust, Phagwara (I.T.A No. 518 of 2007, 03.10.2008)	Case cited by the assessee in support of its position (specific principles not summarised in the opinion beyond being relied upon by assessee).	The Tribunal held that this and other cases relied upon by the assessee were not applicable to the facts of the present case and therefore were not helpful to the assessee's argument.
Commissioner of Income Tax v. Simla Chandigarh Diocese Society ((2009) 318 ITR 96)	Case cited by the assessee in support of exemption contentions.	The Tribunal considered it and found it not applicable to the facts of the present case; therefore it did not assist the assessee.
Commissioner of Income Tax v. Ms. Jagriti Aggarwal ((2011) 339 ITR 610)	Case cited by the assessee in support of its contention.	The Tribunal held that this case was not helpful on these facts and did not rely on it to disturb the AO's findings.
Commissioner Of Income-Tax v. Nagpur Hotel Owners Association ((2001) 247 ITR (SC))	Cited by CIT(A) among apex-court authorities relied upon for the approach to registration/entitlement issues and associated principles (as quoted in the impugned order).	The CIT(A) invoked this apex court authority in support of condonation of delay and the approach to registration and s.11 matters; the Tribunal noted the CIT(A)’s reliance but ultimately disagreed with the CIT(A)'s outcome on the specific facts.
Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust ((1994) 206 ITR 152)	Calcutta High Court decision cited by CIT(A) as part of authorities on registration/entitlement issues.	Referenced by CIT(A) in reasoning about registration and condonation; Tribunal recorded this reliance but determined that overall the CIT(A) outcome was contrary to the AO's factual findings and applicable precedents favouring the AO.
CIT v. Ace Multitaxes Systems P. Ltd. (317 ITR 207 (Kar))	Karnataka High Court decision cited in the impugned order as supporting authorities for approach to registration/entitlement or related procedural points.	The CIT(A) cited this case; the Tribunal acknowledged the citation in the CIT(A)'s reasoning but ultimately restored the AO's assessment on the facts.
CIT v. Haryana Warehousing Corporation ((2011) 53 DTR (P&H))	Jurisdictional High Court decision cited by CIT(A) to support his conclusions on registration and related procedural reliefs (condonation).	Invoked by the CIT(A) in sustaining deletion; the Tribunal reviewed the CIT(A)'s use of such authorities and concluded that the CIT(A)'s legal reliance did not justify deletion in light of the AO's factual findings.
Agarwal Shiksha Samiti Trust v. CIT ((1987) 168 ITR 751 (Raj))	Cited within the Tribunal's narration (via Jyoti Prabha) as part of authorities supporting registration principles.	Mentioned in the reproduced material; the Tribunal relied principally on Jyoti Prabha and PUDA in reaching its decision rather than on these subsidiary citations.
CIT v. Saraswati Poor Students Fund ((1984) 150 ITR 142 (Kar))	Cited in the reproduced material supporting registration principles.	Appears in the background authorities; the Tribunal focused on applicability of Jyoti Prabha and PUDA to the facts and ultimately restored the AO's order.
CIT-Asstt. CIT v. Thanthi Trust ((2001) 247 ITR 785 (SC))	Case cited in PUDA and related authorities discussing registration/refusal where activities are not charitable.	Used in the assessment order's comparative discussion (PUDA and similar authorities); Tribunal found these lines of authority supporting the AO's approach to scrutinise activities for commercial character.
Bihar State Forest Development v. CIT (1997) 224 ITR 757 (Pat)	Cited in the assessment order among authorities distinguishing charitable v. commercial activities.	Referenced by the AO and considered by the Tribunal in context of whether the assessee's activities were charitable; supported the AO's approach.
Addl. CIT v. Surat Silk Cloth Manufacturers Association ((1980) 121 ITR 1 (SC))	Supreme Court authority cited by the AO in the assessment order dealing with charitable status issues.	Included among authorities discussed in the assessment order; Tribunal relied on the AO's factual application and these authorities to uphold the assessment.
CIT v. Andhra Pradesh State Road Transport Corporation ((1986) 159 ITR 1 (SC))	Supreme Court authority cited in assessment order's discussion on charitable/servicing activities.	Referenced in the assessment-order discussion; Tribunal accepted the AO's analysis on the factual matrix and law.
New Life in Christ Evangelistic Association (NLC) v. CIT ((2000) 246 ITR 532 (Mad))	Authority cited in the assessment order's discussion distinguishing charitable activities.	Mentioned in the AO's comparative survey of case-law; Tribunal upheld the AO's conclusions informed by such precedents.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded from the factual findings recorded by the Assessing Officer and the appellate resolution by the CIT(A). Key analytical steps (as expressed in the opinion) were:

Examination of the AO's factual findings: The AO noted discrepancies between the audit report (form 3CB dated 31.10.2006) and the income & expenditure statement filed with the return; asked for reconciliation which the assessee failed to adequately supply during multiple adjournments. The AO also recorded the detailed nature of expenditures and substantial bank/FDR balances (showing a large increase in bank balance in the year).
Scrutiny of how receipts were applied: The AO itemised small amounts actually spent on public-benefit items (e.g., street lights and park development totalling Rs. 3,09,296, about 1.45% of total receipts of Rs. 2,13,05,319) and contrasted those limited public-benefit expenditures with the trust's predominant activities of land acquisition, development and sale — activities resembling commercial developers.
Legal compliance under section 11 and Rule 17: The AO concluded that the assessee failed to comply with section 11(2)/Rule 17 (form No.10 filing within the prescribed time) and that the assessee did not apply 85% of receipts for charitable purposes; the AO quantified shortfall and treated the relevant surplus as taxable business income.
TDS non-compliance: The AO found payments of Rs. 2,65,000 (architect fees) and Rs. 4,40,030 (advertisement) where tax was not deducted/paid in the relevant year; applying section 40(a)(ia), the AO disallowed those deductions, adding Rs. 7,05,030 to income.
Review of CIT(A) reasoning: The CIT(A) deleted the business-income addition of Rs. 91,49,311 primarily on the basis that registration under section 12AA(1)(b)(i) had been granted by the ITAT and confirmed by the High Court; the CIT(A) also relied on several authorities and condoned the delayed filing of form No.10 in the particular facts (e.g., because of waiting for ITAT order).
Tribunal's weighing of authorities and facts: The Tribunal acknowledged the legal propositions that registration does not immunize an assessee from scrutiny under section 11 (as per Jyoti Prabha) but observed that, on the facts, the AO had cogent material (discrepancies, non-cooperation, substantial bank balances, minimal expenditure on public-purpose items) to treat the activity as largely commercial. The Tribunal found PUDA and other authorities persuasive on the commercial-character point and held that the CIT(A) erred in deleting the addition merely because registration had been granted.
Outcome of analysis: On the combined factual and legal analysis, the Tribunal concluded that the AO's determination was sustainable: the assessee did not satisfy the statutory application requirements for exemption under section 11 and the disallowances under section 40(a)(ia) were justified. Accordingly, the Tribunal cancelled the CIT(A)'s impugned order and restored the AO's assessment order dated 29.12.2008.

Holding and Implications

Holding: The Tribunal concluded with the following operative result:

APPEAL ALLOWED — the impugned order dated 22.06.2011 of the CIT(A) is cancelled and the assessment order dated 29.12.2008 passed under section 143(3) is upheld.

Direct consequences and implications for the parties:

The addition of Rs. 91,49,311, which the AO treated as income from business (on the basis that the trust's activities were largely commercial and the receipts were not applied for charitable purposes to the required extent), stands restored and is taxable as per the assessment order.
The disallowance of Rs. 7,05,030 under section 40(a)(ia) (for failure to deduct/pay TDS on specified payments) remains sustained — the CIT(A)'s partial sustainment of that addition was maintained by the Tribunal through restoration of the AO's order.
The AO's overall computation of total income (Rs. 98,54,341) with tax, surcharge, cess and interest, and initiation of penalty proceedings (section 271(1)(c) noted), were part of the assessment order that the Tribunal upheld.
No new legal precedent was laid down by this decision; the Tribunal applied existing authorities (notably Jyoti Prabha and PUDA among others) to the facts and determined that the CIT(A) had erred in overriding the AO's fact-based conclusions solely on the ground of registration under section 12AA.

Note: This summary is strictly confined to the content of the provided opinion and does not add or infer information beyond that opinion.

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Deputy Commissioner Of Income Tax, Circle-Vi, Pathankot () v. M/S. Gurdaspur Improvement Trust, Hanuman Chowk, Gurdaspur ().

1. The Revenue has filed the present appeal against the impugned order dated 22.06.2011 passed by learned CIT(A), Amritsar, for the assessment year 2006-2007 on the following grounds:

i. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals), Amritsar, has errored in deleting the addition of Rs. 91,49,311/- on the ground that the assessee has been granted Registration u/s 12AA(I)(b)(i) of the Income Tax Act, 1961. However in this case the assessee has shown income amounting to Rs. 2,13,05,319/- and expense to the tune of Rs. 1,21,56,008/- i.e about 57% of the total income which is less than 85%. The assessee thus does not fulfill the condition as laid down in provisions of section 11(1)(b) of Income Tax Act, 1961

ii. On the facts and circumstances of the case, the order of the Learned Commissioner of Income Tax (Appeals), Amritsar be vacated and that of the Assessing Officer be restored.

iii. Appellant craves leave to amend or add any or more grounds of appeal.

2. The facts relating to the issue in dispute are that the assessee filed a certified audit report on 31.10.2006 Thereafter, a notice under Section 142(1) of the Income Tax Act, 1961 (in short “the Act”) was issued to the assessee on 03.11.2006 requiring the assessee to file the return of income on or before 15.11.2006 On that date, Executive Officer of Gurdaspur Improvement Trust filed application seeking adjournment. The Assessing Officer also issued notice under Section 274 read with Section 271 of the Act to the assessee on 18.12.2006 as the assessee did not file the return up to that date. On 28.12.2006, assessee filed reply again seeking time to file the return. Penalty under Section 271(1)(b) of the Act was imposed on 26.06.2007 In the meantime, assessee filed return of income on 23.07.2007 declaring nil income. In the column 18, the assessee declared income from business or profession Rs. 2,82,32,543/- in column 20 declared income from other sources Rs. 14,46,748/- thus the total income declared was Rs. 2,96,79,721/- the same was claimed exempt. The Assessing Officer issued notice under Section 143(2) of the Act to the assessee on 01.05.2008 fixing the case of the assessee for 13.05.2008 In response to the same, nobody attended the proceedings and the Assessing Officer again issued notice under Section 143(2) of the Act for 27.05.2008 In response to the same, the Accountant of the assessee attended the proceedings and the case was adjourned sine die. On 04.06.2008, again notice under Sections 143(2), 142(1) and questionnaire were issued to the assessee fixing the case for 24.06.2008 In response to the same, the authorized representative of the assessee along with other office bearers attended the proceedings and filed requisite details.

3. The Assessing Officer noticed that the assessee has claimed its income exempt on the basis of the order of the I.T.A.T, Amritsar Bench, Amritsar, dated 28.05.2007, whereby this Bench allowed the appeal of the assessee and granted the registration to the assessee under Section 12AA of the Act.

4. Keeping in view the order of I.T.A.T, Delhi C-Bench reported in (2003) 81 TTJ Delhi 942 in the case of Jyoti Prabha Society v. CIT, the Assessing Officer held that allowing of registration to the assessee does not mean that it got impunity from fulfilling the requirement of Section 11 or 12 of the Act, as the case may be. He also held that it is the duty of the Assessing Officer that during the assessment proceedings he should obtain details of various receipts and expenditure and verify whether the same has been utilized for achieving the aims and objectives for which the trust is created. In the income and expenditure statement attached with the return, the gross receipt are shown at Rs. 2,13,05,319/- and the gross expenses at Rs. 1,21,56,008/- and net profit is worked out at Rs. 91,49,311/-. But in the audit report filed by the assessee in from no. 3-CB on 31.10.2006, the gross receipt are to the tune of Rs. 2,13,41,000/- and the gross expenditure is to the tune of Rs. 1,23,12,708/- and net profit of Rs. 90,28,417/-. The Assessing Officer asked the assessee to reconcile these discrepancies in the audit report filed on 31.10.2006 and the income and expenditure account attached with the return. The assessee was further asked to give the details of various steps/activities under taken by it to fulfill the aims and objectives for which trust is created and the case of the assessee was adjourned to 10.12.2008 On 10.12.2008, on these issues no reply was filed and the case was adjourned to 12.12.2008 On that date, again no reply was filed and the case was adjourned to 23.12.2008, on that date, the Authorized Representative of the assessee filed his written reply in which he has mentioned about the various schemes framed by the assessee-trust as well as the details of differences in income and expenditure, as mentioned above and finally stated that the difference is due to the correction of Heads of income side, which were earlier taken on wrong Heads.

5. Assessing Officer has also reproduced the details of various expenses incurred by the assessee during the year under consideration in para no. 7 at page no. 5 of the assessment order and the expenses totaling at Rs. 2,13,05,319/-; and also mentioned the amount lying in the bank as on 31.03.2006 i.e amounting to Rs. 2,63,06,915/-. In para nos. 9 and 10 (page nos. 6 & 7) of the assessment order, the Assessing Officer has mentioned about the object of the assessee trust which are to be achieved as given in the schemes under the Act and finally concluded that the assessee i.e Gurdaspur Improvement Trust except for acquiring land and developing the same into residential as well as commercial projects like any other private builder have done little for achieving the aims and objectives for which it is created. As per income and expenditure account, assessee has spent Rs. 2,26,359/- for providing street light (item no. 22) and Rs. 82,937/- on development of parks (item no. 28). Thus, out of the total income of Rs. 2,13,05,319/- the expenditure to achieve the aims and objectives for betterment of the town is Rs. 3,09,296/- i.e 1.45% of the total income. The rest of the expenditure incurred by the assessee is like any other private builder who acquire land, develop the same into residential and commercial projects and then sell it for profit. The assessee cannot claim even the lack of resources for not undertaking the development activities to achieve the aims and objectives as mentioned above, as the assessee is having huge bank balances. Even the claim of the assessee that it developed chowks is insignificant vis-à-vis the surplus funds assessee is having with it.

6. Finally, keeping in view the judgment of I.T.A.T, Chandigarh ‘B’-Bench, Chandigarh in the case of PUDA v. CIT reported at (2006) 103 TTJ (Chd.) 988, the Assessing Officer has held that the facts of the assessee's case is not better than PUDA, rather facilities provided by assessee have no match to the facilities provided by PUDA. The benefit of a few development scheme launched by the Gurdaspur Improvement Trust benefited only a handful of people who purchased properties from trust. The trust did little for the benefit of the public at large of Gurdaspur town. Therefore, the business income of Rs. 91,49,311/- arising from the activities of the trust does not qualify for exemption under Section 11 of the Act and the same is brought to tax as income from business, as per provisions of the Income Tax Act and added to the returned income of the assessee. He has also disallowed a sum of Rs. 7,05,030/- (Rs. 2,65,000/- + Rs. 4,40,030/-) as a deduction from the income of the assessee so the same is added to the returned income of the assessee because as per the provisions of Section 40(a)(ia) of the Act, the payment of Rs. 2,65,000/- and 4,40,030/- shall not be deducted in computing the income chargeable under the head “profit and gains” of business or profession on which tax is deductable at source under Chapter XVIIB and such tax has not been deducted or, after deduction has not been paid during the previous year or in subsequent year before the expiry of time prescribed under sub-section 1 of Section 200. The Assessing Officer finally completed the assessment vide order dated 29.12.2008 by holding that the assessee failed to comply with the provisions of Section 11(2) of the Act as well as failed to spend 85% of the receipts for the charitable purposes for which the trust is created.

7. Aggrieved with the aforesaid order, the assessee filed an appeal before the learned First Appellate Authority, who vide impugned order dated 22.06.2011, partly allowed the appeal of the assessee sustaining the additions of Rs. 7,05,030/- made under Section 40(a)(ia) of the Act and deleted the addition of Rs. 91,49,311/- mainly on the ground that the registration has been granted to the assessee-trust under Section 12AA (1)(b)(i) of the Act vide order dated 28.05.2007 by the jurisdictional final fact-finding authority i.e I.T.A.T, Amritsar and the same has been confirmed by the jurisdictional Hon'ble Punjab and Haryana High Court. Learned First Appellate Authority held that the Assessing Officer is not justified in making an addition of Rs. 91,49,311/- by not giving specific instances of diversion and misdirections of the trust's accumulated funds/income from its main charitable objectives of general public utility as envisaged under provisions of Section 2(15) of the Act. Now, the Revenue being aggrieved with the impugned order, filed the present appeal challenging the deletion of addition of Rs. 91,49,311/- on the ground that the learned First Appellate Authority has wrongly deleted the addition in dispute only on the basis that the assessee-trust has been granted registration under Section 12AA(1)(b)(i) of the Act, ignoring the fact that the assessee has shown income amounting to Rs. 2,13,05,319/- and the expense to the tune of Rs. 1,21,56,008/- i.e about 57% of the total income which is less than 85%.

8. Learned DR further stated that the issue in disputed has already been adjudicated and decided in favour of the Revenue by this Bench in the case of Assistant Commissioner of Income Tax v. Amritsar Improvement Trust, passed in I.T.A Nos. 476 & 477(Asr)/2011, pertaining to assessment years 2006-2007 & 2007-2008, on 15.01.2013 The Revenue requested that the appeal filed by him may be accepted and the order passed by the Assessing Officer may be restored.

9. Learned counsel for the assessee relied upon the order passed by learned First Appellate Authority and stated that the case-laws relied by learned DR is not identical to the facts and circumstances of the case of the assessee and he has also filed some case-laws of Hon'ble Jurisdictional High Court, decided in favour of the assessee, namely, Commissioner of Income Tax v. Improvement Trust, Phagwara, passed in I.T.A No. 518 of 2007, dated 3rd October, 2008; Commissioner of Income Tax v. Simla Chandigarh Diocese Society, reported in (2009) 318 ITR 96; and Commissioner of Income Tax v. Ms. Jagriti Aggarwal, reported in (2011) 339 ITR 610. No other point has been argued by both the parties on the issue in dispute.

10. We have heard both the parties and perused the relevant records available with us, especially the orders passed by Revenue Authority. Learned First Appellate Authority has adjudicated the issue in dispute in para no. 7 at page nos. 11 & 12 of the impugned order, the same are reproduced as under:

“7. Ground No. 1 pertains to the appellant's grievance that its income amounting to Rs. 91,49,311/- does not qualify exemption u/s 11 and as such it has been wrongly brought to tax by the A.O being self-contradictory when visualized from his own findings given in para 15 of his assessment order under appeal. In this connection, the first and basic requirement to be seen is as to whether the appellant enjoyed registration u/s 12AA of the Income Tax Act, 1961 or not. Nevertheless, the registration was refused by the learned Commissioner of Income Tax-II, Amritsar, but as per copy of assessment order u/s 143(3) dt. 20.12.2007 for the assessment year 2005-2006 in the case of this very appellant, the ld. A.O has himself categorically and admittedly stated in the bottom of his above order that the Hon'ble I.T.A.T, Amritsar Bench, Amritsar has granted exemption under Section 12AA(a) vide their order dated 28.05.2007 and it is further stated by the ld. A/R that even the Revenue's appeal before the Hon'ble Punjab & Haryana High Court has been dismissed and the matter of registration having been granted u/s 12AA(a) to the appellant has attained finality. From the perusal of 2nd and 3 paras of assessment order u/s 143(3) dt. 2.12.2007 of the same A.O in the appellant's own case for assessment year 2005-2006, the A.O was well apprised with the fact that the appellant has already been granted registration u/s 12AA(1)(b)(i) vide their order dt. 28.05.2007 (supplied copy has been brought on appellate record). It is now well settled that Improvement Trust of the entire Punjab State are governed by the Improvement Trust Act, 1922 and these are liable to be abolished for one year by specific orders of the Punjab Govt. and for their administrative and financial matters they are controlled by Department of Local Bodies as well as the local Dy. Commissioner and mandatory audit of their annual accounts is required under Section 12A(1)(b) of the I.T Act, 1961. After this, the only action required on the part of the A.O is to examine from the appellant's audited income & expenditure statement as to whether, these have been utilized/applied upto minimum extent of 85% of its total income and whether the accumulated surplus so set apart exceeded the prescribed limit of 15% or not as provided under clause (b) of sub-section (1) of Section 11 of the Income Tax Act and if so, whether intimation to this effect in the prescribed from 10 in accordance with Rule 17 of the I.T Rules, 1962 has been filed before the Assessing Officer within the prescribed period. It is now well settled fact that the registration granted under section 12AA(1)(b)(i) vide order dated 28.05.2007 by the jurisdictional final fact-finding authority, Honourable Income Tax Appellate Tribunal, Amritsar has been confirmed by the jurisdictional Hon'ble Punjab & Haryana High Court as stated by the ld. A/R for the appellant that Revenue's appeal dismissed by the Hon'ble P&H High Court. Respectfully following the judgments of the Apex Court in the case of Commissioner Of Income-Tax v. Nagpur Hotel Owners Association.'s Association reported in (2001) 247 ITR (SC), Honourable Calcutta High Court's decision in the case of Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust quoted at (1994) 206 ITR 152 as well as Hon'ble Karnatka High Court's decision in the case of CIT v. Ace Multitaxes Systems P. Ltd. cited at 317 ITR 207 (Kar.) and also keeping into consideration the CBDT's circular No. 273 dated 3.6.1980 as well as appellant's arguments that it was prevented by sufficiently reasonable cause in not filing form No. 10 by the prescribed due to awaiting registration from the Hon'ble I.T.A.T, Amritsar and also looking to the fact that the form No. 10 dt. 11.07.07 accompanying the return duly filed on 25.07.07 with the ld. Assessing Officer and under these facts I am of the considered opinion that it is a fit case for condonation of delay delegated to an officer of the rank of Commissioner of Income Tax as envisaged under the Board's above quoted circular. By showing utmost regard and by following the finding judgment of the jurisdictional Hon'ble Punjab & Haryana High Court in the case of CIT v. Haryana Warehousing Corporation cited at (2011) 53 DTR (P&H) and after giving thoughtful consideration to overall facts and circumstances, it can be safely held that the ld. Assessing Officer is not justified in making an addition of Rs. 91,49,311/- by not giving specific instances of diversion and misdirections of the Trust's accumulated funds/income from its main charitable objectives of general public utility as envisaged under provisions of Section 2(15) of the I.T Act, 1961 and before doing so denying the opportunity of confrontation and hearing to the appellant in the larger interest of natural justice. Instead of doing this, he ought to have allowed the benefit of carrying forward the set apart accumulated funds on the strength of form No. 10 r/w Rule 17 of the I.T Rules, 1962 laying already available with him. On both these counts, the addition made by the A.O cannot be sustained in the eye of justice. Accordingly, the addition so made at Rs. 91,49,311/- is hereby deleted. This disposes of appellant's ground of appeal No. 1 & 4 in favour of the appellant accordingly.”

11. We have thoroughly gone through the assessment order dated 29.12.2008 passed by the Assessing Officer, under Section 143(3) of the Act. For the sake of conveniences, the findings of the Assessing Officer on the issue in dispute given in para nos. 3 to 15 (page nos. 2 to 9) are reproduced as under:

“3. During assessment proceeding it is noted that assessee has claimed its income exempt on the basis of the order of the Hon'ble I.T.A.T Amritsar Bench, Amritsar vide order dated 28.05.2007 The Hon'ble I.T.A.T allowed the appeal of the assessee and granted the registration to the assessee u/s 12AA. In the order mentioned above the Hon'ble I.T.A.T simply allowed the appeal holding that order of the ld. CIT(A) refusing registration is unsustainable the relevant part of the order is as under:

“In these cases, registration was refused, holding that by not filing audited accounts along with the return within the prescribed time, though the income of the trust was more than Rs. 50,000/-, the provisions of section 12A(b) of the Act have been violated.

This view of the learned CIT is entirely unsustainable in law. As per Section 12AA(1)(b), the learned CIT after satisfying himself about the objects of the trust or institution and the genuineness of its activities, shall pass an order in writing registering the trust or institution. As such, registration can be refused to a trust or institution only if CIT is not satisfied about the objects of the trust or institution & the genuineness of its activities. In the impugned orders, however, the registration has been refused merely for the reasons that the audited accounts were not filed along with the return within the prescribed time, though the income of the trust was more than Rs. 50,000/- the ld. CIT has not expressed any dissatisfaction with regard to either the objects of the assessee-trust or the genuineness of its activities. That being so, both the impugned orders are not entitled to be upheld and both the appeals of the assessee are entitled to be allowed. Ordered accordingly.”

4. The Hon'ble I.T.A.T Delhi C-Bench Delhi reported at (2003) 81 TTJ Delhi 942 in the case of Jyoti Prabha Society v. CIT held that:

“At the time of processing the application seeking registration the CIT was not expected to go in detail & prima facie the assessee was able to make out a case for registration. Even if registration is granted that will not be precluding the Assessing Officer to examine in detail the very object of the assessee and to give the finding in assessment proceedings as to assessee had complied with the requirement of s. 11 or not. At the most registration certificate, if granted, will make out a prima facie case in favour of assessee that its activities are of charitable but that will not be obstacle in the way of AO at the time of when assessment proceedings are to be taken up and to decide as to whether assessee entitled for the benefit of s. 11 or 12, as the case may be. That will be the second stage. But at this stage the objects and activities of the assessee make out a case for granting registration. Accordingly, the order of the CIT is reversed and assessee is entitled for registration under s. 12A - Agarwal Shiksha Samiti Trust v. CIT (1987) 66 CTR (Raj) 95 : (1987) 168 ITR 751 (Raj) and CIT v. Saraswati Poor Students Fund (1985) 46 CTR (Kar) 107 : (1984) 150 ITR 142 (Kar)”

5. Thus the allowing of registration to an assessee does not mean that he got impunity from fulfilling the requirement of the section 11 or 12 as the case may be. It is the duty of the A.O that during assessment proceeding he should obtain details of various receipt & expenditure & verify whether the same has been utilized for achieving the aims & objectives for which trust is created. In this case under consideration it is found that in the audit report filed by the assessee in form no. 3-CB on 31.10.2006 the gross receipt are to the tune of Rs. 2,13,41,000/- and gross expenditure is to the tune of Rs. 1,23,12,708/- and net profit of Rs. 90,28,417/-. However, in the income & expenditure statement attached with the return the gross receipt are shown at Rs. 2,13,05,319/- & gross expenses at Rs. 1,21,56,008/- and net profit is worked out at Rs. 91,49,311/-.

6. Vide order sheet entry dated 27.11.2008 assessee was asked to reconcile these discrepancies in the audit report filed on 31.10.2006 ad income & expenditure account attached with the return. Assessee was further asked to give the details of various steps/activities undertaken by it to fulfill the aims & objectives for which trust is created. The case of the assessee was adjourned to 12.12.2008 On that date again no reply was filed and case was adjourned to 23.12.2008, on that date Sh. Anil Sharma CA file the written reply which is reproduced as under:

“The Punjab Govt. Under Section 4 constituted the Gurdaspur Improvement Trust Gurdaspur. The Trust framed under mentioned scheme for the development of Town under section 36 and finally approached by the Govt. under section 2 of the said Act.

1. Scheme No. 1 Measuring 27-Acre (App.) Residential.

2. Scheme No. 3 Measuring 1.5 (App.) Commercial.

3. Scheme No. 5 Measuring 34-Acre (App.) Residential.

4. Scheme No. 6 Measuring 8-Acre (App.) Residential, which is pending in the Hon'ble Punjab & Haryana High Court at Chandigarh.

5. Scheme No. 7 Measuring 84.77 - Acre (App.) Residential, which is pending in the Hon'ble Punjab & Haryana High Court at Chandigarh.

6. Scheme No. 8 Measuring 0.62 Acre (App) Commercial, which is also pending in the Hon'ble Punjab & Haryana High Court at Chandigarh.

The Activities of the Improvement Trust are defined in the Punjab town Improvement Act, 1922 in various provisions under the control of Punjab Govt., Local Govt. Department Chandigarh. Any proposal forwarded by the Trust is sent to the Govt. and after obtaining the approval from the Govt. further action is initiated 5 years after the completion of fully developed scheme it is handed over the Municipal Council.

It is also worthwhile to mention that Improvement Trust Gurdaspur developed/beautified. The Sahidi Chowk in heart of city, Post Officer Chowk, Kahnuwan Chowk and Guru Ravi Das Chowk situated in the town, after obtaining prior approval from the Govt. under section 69-A of the said Act.

Besides this, the Improvement Trust under taken development works in different schemes as detailed below:—

1. Scheme No. 1 41,83,797-00 2. Scheme No. 5 34,65,558-00 3. Scheme No. 1 (Park) 82,937-00 4. Provision of Street Light 2,26,359-00

The Trust sells its residential plots/Flats by way of draw of lots and allotment is made at the reserve price that is fixed by the Trust, keeping in view the cost of acquisition of land plus development charges. The commercial plots/Shops/Booths are sold by way of auction.

The difference in the income and Expenditure submitted is as detailed below:—

As per Income & Expenditure Account submitted with the Audit Report 2,13,41,123-31 As per Income & expenditure submitted with Income Tax Return 2,13,05,319-31 Difference 35,806-00 Interest on installment received As per Income & Expenditure Account 8,19,215-00 Submitted with Audit Report As per Income & Expenditure Account 7,55,435-00 Submitted with Income tax Return 1,35,780-00 Less Interest on FDR's As per Income & Expenditure Account 4,97,450-00 Submitted with Income Tax Return As per Income & Expenditure Account 4,02,477-00 94,973-00 Submitted with Audit Report Interest on HBL As per Income & Expenditure Account 12,000-00 Submitted with Income Tax Return As per Income & Expenditure Account 10,000-00 2,000-00 Submitted with the Audit Report Recovery As per Income & Expenditure Account 11,281-00 Submitted with Income Tax Return. As per Income & Expenditure Account 8,281-00 3,000-00 Submitted with Audit Report Miscellaneous Income As per Income & Expenditure Account 5,65,002-82 Submitted with Income Tax Return As per Income & Expenditure Account 5,65,001-82 1-00 99,974-00 Submitted with Audit Report Net Difference 35,806-00

The difference is due to correction of Heads of income side, which were earlier taken on wrong Heads. It is evident from the Balance sheet submitted alongwith the Audit Report and Income Tax Return; the difference in closing Balance of Rs. 94974-00 is due to increase in interest on FDR of Rs. 94973-00 and increase of Rs. 1-00 in Misc. income A/c.

Total of Expenditure in of Income & Expenditure

Account submitted with Audit Report:—

Total of debit side 2,13,41,125-31 Less Excess of Income over Expenditure 90,28,417-31 “A” 1,23,12,707-00

Total of Expenditure in of Income & Expenditure

Account submitted with Income Tax Return:—

Total of debit side 2,13,05,319-31 Less Excess of Income over Expenditure 91,49,311-44 “B” 1,21,56,007-87 Difference “A-B” 1,56,700-00

The Difference is due to as detailed below:—

Amount of Fringe Benefit Tax taken in Income & Expenditure Account submitted with the Audit Report but not in Income & Expenditure Account submitted with the Income Tax Return 1,50,000-00 Difference in Salary Account Rs. (2260922-2254222) 6,700-00 Total 1,56,700-00

The Income Tax Return has been filed as per Income & Application of income statement Annexed with the Balance Sheet submitted along with the Return, which shows a surplus of Rs. 1,32,04,876-92, that can be verified from the Receipt & Payment Account, which shows an increase of Rs. 1,32,04,876-92.

I am sure that you will find above explanation in order & up to your satisfaction”

7. Before commenting upon the assessee's reply it is pertinent to give the details of various expenses as incurred by the assessee during the years which are as per Income & Expenditure Account attached with the return are as under:—

S. No. Nature of Expenditure Amount 1. Arch. Fee 354000/- 2. Advertisement 440030/- 3. Bank Charges 1840/- 4. Car Repair 20035/- 5. Electric Repair 13864/- 6. Electricity 27300/- 7. Generator Exp. 13051/- 8. House tax 5832/- 9. Insurance of Car 5274/- 10. Legal Exp. 9860/- 11. Misc. Exp. 53984/- 12. News Paper 980/- 13. Pension Contribution DDLG 153254/- DLG 183067/- 14. Petrol Exp. 39744/- 15. Postal Exp. 10000/- 16. Printing & Stationary 101367/- 17. Salary 2254222/- 18. Dev. Scheme No. 1 4183797/- 19. Dev. Scheme No. 5 3465558/- 20. Water & Electricity 52456/- 21. Sewerage 994/- 22. Street Light 226359/- 23. Telephone Exp. 47961/- 24. Travelling Exp. 36616 25. Office Maintenance 22678/- 26. Trustee Allowance 1200/- 27. Audit fees 30400/- 28. Dev. Sch. 1 Park 82937/- 29. Depreciation 207182/- 30. LA Tribunal 110165/- 31. Net Profit 9149311/- Total 21305319/-

8. Further as per detail attached with the return assessee is having following amount lying in the bank as on 31.03.2006

S. No. Name of the Bank Amount 1. Bank of India-16531 2377700/- 2. Bank of India-16596 817381/- 3. Bank of Indian-5005 6285/- 4. Central Bank of India -8622884/- 5. Gsp. Co-op. Bank -4369673/- 6. HDFC Bank 1164164/- 7. Indian Overseas Bank 9301004/- 8. Oriental Bank of Commerce 1088604/- 9. Punjab & Sind Bank 3236719/- 10. Punjab National Bank -2278367/- 11. SBI 2056/- 12. SB of Patiala 521877/- 13. Union Bank of Indian -688607/- 14. Central Bank of Indian (EWS) 1268840 3825103/- 15. FDR 22481812/- Total Bank Balance as on 31.03.2006 26306915/- The Bank balance as on 31.03.2005 13103388/- Increase in bank balance during the year 13203527/-

9. In its application filed for registration u/s 12A the Improvement Trust Gurdaspur it is mentioned that the aim of the Improvement Trust is to make provision for improvement & expansion of towns in Punjab for which Punjab Town Improvement Act 1922 was incorporated. The matter provided in the scheme covers to improve building unfit for human habitation, providing of streets, Housing accommodation scheme, Rehousing of displaced House owners providing drinking water, provision of drains, provision of facilities, for communication etc.

10. Some of the objective of the Improvement Trust which are to be achieved as given in the schemes under the Act are as under:—

Section-22 Matter to be provided for by general improvement scheme or rebuilding scheme whenever it appears to the trust that:

a) Any building which are used or are intended or likely to be used as dwelling places within its local area are unfit for human habitation, or

b) Danger is caused or likely to be caused to the health of the inhabitants of such local area or part thereof by reason of.

i) The congested condition of streets or buildings or group of buildings in such local area or part or

ii) The want of light, air, ventilation or proper conveniences in such local area, or part, or

iii) any other sanitary defects in such local area or part is in, an in sanitary locality and that “a general improvement scheme” ought to be framed in respect of the such locality and may than proceed to frame such a scheme.

2. Whenever the trust declares any local area or part thereof to be an in sanitary locality within the meaning or this section and is of opinion the having regard to the comparative value of the building in such local area or part and the sites on which they are erected it is undesirable to frame a general improvement scheme and the most satisfactory method of dealing with the local area or any part thereof is a ‘rebuilding scheme’ it may proceed to frame such a scheme, which may provide for the reservation of streets and the enlargement of existing streets, the relaying out of the sites of the local area or part thereof upon streets so reserved or enlarged: the demolition of existing buildings and their appurtenances upon such sites: and the erection of building in accordance with the scheme.

Section 23. Street schemes and deferred street schemes - (1) whenever it appears to the trust that for the purpose of:—

I. Providing building sites, or

II. Remedying defective ventilation, or

III. Creating new or improving existing means of communication and facilities for traffic, or

IV Affording better facilities for conservancy.

Within its local area of part thereof it is expedient to lay out new streets, thoroughfares and open spaces, or after existing streets, the trust may pass a resolution to that effect and shall the proceed to frame “a street scheme” which shall prescribe improved alignments for streets thoroughfares and open spaces for such local area or part as the trust may deem fit.

(2) Whenever it appears to such trust that for any of the purposes mentioned in sub-section (1) within its local area or part thereof it is expedient to provide for the ultimate widening of any existing street by altering the existing alignment to improve alignment to be prescribed by the trust, but that it is not expedient immediately to acquire all or any of satisfied of the sufficiency of its resources may pass a resolution to that effect and forthwith proceed to frame a deferred street scheme prescribing an alignment on each side of such street.

11. Perusal of the facts narrated above clearly shows that Gurdaspur Improvement Trust Gurdaspur except for acquiring land & developing the same into residential as well as commercial projects like any other private builder have done little for achieving the aims & objectives for which it is created. As per income & Expenditure account assessee has spent Rs. 2,26,359/- for the providing street light (item No. 22) & Rs. 82,937/- on development of parks (Item No. 28). Thus out of the total income of Rs. 2,13,05,319/- the expenditure to achieve the aim & objective of betterment of the town is Rs. 3,09,296/- i.e 1.45% of the total income. The rest of the expenditure incurred by the assessee is like any other private builder who acquire land, develop the same into residential and commercial projects and then sell it for profit. The assessee cannot claim even the lack of resources for not undertaking the development activities to achieve the aims & objectives as mentioned above, as assessee is having huge bank balances. Even the claim of the assessee that it developed chowks is insignificant vis-à-vis the surplus funds assessee is having with it. The Hon'ble I.T.A.T Chandigarh ‘B’ - Bench Chandigarh in the case of PUDA v. CIT reported at (2006) 103 TTJ (Chd.) 988 has observed as under:—

“It is well known fact that in some of the situations the provisions of law are misused in the names of charities. If an expanded/broader latitude is extended to the word charity, then there are so many institutions/departments who will try to come under the umbrella of this provision to misuse the provision. Therefore, for the broad development of nation/society, a strict and positive vigil is required so that the provision can be saved from its misuse in any manner. No activity can be carried on efficiently, properly unless and until it is carried out on business principle but it does not mean that the provision is misused in any manner under the garb of charity & any institution to become richer & richer under the garb of charity by making it a non tax payable organization. Charitable institutions provide services for charitable purposes free of cost & not for gain. In the present scenario, similar activities are performed by big colonizers/developers who are earning a huge profit if disregistration is granted then anybody will claim the exemption from the tax. If this registration is granted then anybody will claim the exemption from the tax. If the account of the assessee are analyzed it has turned into huge profit making agency for which it is taking money if the institution of public importance like schools, community centers are created/developed the assessee is charging the cost of it from the public at large the money is coming from the coffer of the Government. It can be said that object/activities of the assessee are more of commercialized nature and no charity is involved in it. At the same time, if these facilities are not provided, then nobody will purchase a plot. It can be said that it is a means of attracting the people so that maximum people may apply for the same & the hidden cost is already added, so no charity is involved. At best, the assessee can be said to be an authority created top help it to achieve certain objects. It can be said that it is the duty of the government to create/provide all these facilities to public at large, which is being done through his agency in a particular area. At the same time, the funds which are provided to the assessee by the Government is again a public money or generated from public itself. The objects of the assessee, though claimed to be charitable, but actually are of purely commercial nature where profit motive is involved. It is a known fact that the assessee is acquiring a land at very low prices & selling the same land on very higher rates & is earning a profit therefrom. A new trend has also emerged that the assessee has started auctioning the plots by way of bidding at the market rate & sometimes more than that & charging interest on belated payments. In such a situation, no charity is involved. Rather the assessee has converted itself into a big businessman. Similar development/infrastructure/facilities are also provided by private developers these days, then they will also claim the status of a charitable institution. The facilities which are provided to the plot holders are incidental to the commercial activity carried out by the assessee and if certain facilities like parks, community center, school are provided, it is not only basic requirement, rather a tool of attracting the investors wherein the hidden cost of these facilities is already included. In the absence of these facilities, normally the purchaser may not invest and the prices may be less. In view of these facts, the assessee's activities not being of charitable nature, the application of registration u/s 12A has been rightly rejected by CIT-Asstt. CIT v. Thanthi Trust (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC) and Bihar State Forest Development v. CIT (1997) 224 ITR 757 (Pat.) relied on; Addl. CIT v. Surat Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC), CIT v. Andhra Pradesh State Road Transport Corporation (1986) 52 CTR (SC) 75 : (1986) 159 ITR 1 (SC) and New Life in Christ Evangelistic Association (NLC) v. CIT (2001) 165 CTR (Mad) 446 : (2000) 246 ITR 532 (Mad) distinguished.”

12. The facts of the assessee's case no better than PUDA, rather facilities provided by assessee are no match to the facilities provided by PUDA. The benefit of a few development scheme launched by the Gurdaspur Improvement Trust benefitted only a handful of people who purchased properties from trust. The trust did little for the benefit of the public at large of Gurdaspur town. Therefore the business income of Rs. 91,49,311/- arising from the activities of the trust does not qualify for exemption u/s 11 of the Act and the same is brought to tax as income from business, as per provisions of the Income Tax Act and added to the returned income of the assessee. Penalty proceeding u/s 271(1)(c) are being initiated separately for furnishing inaccurate particulars of income.

13. It may not be out of place to mentioned here that the CIT which refusing registration to the assessee did not consider the case of assessee on merit and rather refused the registration on technical ground. The Hon'ble I.T.A.T also allowed the registration without considering the merits of the case as discussed above.

14. During assessment proceeding while verifying the deduction & deposit of TDS from various payments made by the assessee it is found that

i) Assessee has made payment of Rs. 2,65,000/- as a architure fees on which no tax was deducted/deposited by the assessee even up to the date of filing of their return.

ii) Similarly assessee paid Rs. 4,40,030/- on account of advertisement on which no tax was deducted/deposited by the assessee even up to the date of filing of their return.

In fact the tax was deducted & deposited on account of both the above payments on 31.03.2008 when the ITO(TDS) conducted survey at assessee's premises and pointed out the lapses. As per provision of section 40(a)(ia) of the Income Tax Act the above amount shall not be deducted in computing the income chargeable under the head profit and gains of business or profession on which tax is deductable at source under chapter XVIIB and such tax has not been deducted or, after deduction has not been paid during the previous year, or in subsequent year before the expiry of time prescribed under sub-section 1 of Section 200.

Thus the sum of Rs. 7,05,030 (Rs. 2,65,000/- + Rs. 4,40,030/-) is to be allowed as a deduction from the income of the assessee so the same is added to the returned income of the assessee.

15. Without prejudice to the facts narrated above it may be mentioned here that assessee has failed to comply the provision of section 11(2) of the Income Tax Act. As the assessee has failed to spent 85% of the receipts for the charitable purposes for which the trust is created. The gross receipts as shown by the assessee itself in the column 23 of the return is Rs. 2,96,79,721/-, 85% of its comes to Rs. 2,52,27,762/- against this as per income & application of income account attached with the return assessee has applied Rs. 1,64,74,414/- only. Thus there is a short fall of Rs. 87,52,983/-. As per section 11(2)(a) read with rule 17 of the Income Tax Rule 1962, assessee was required to specify by notice in writing given to the Assessing Officer in form no. 10 and shall be delivered before the expiry of time allowed under sub-section 1 of Section 139, for furnishing the return of income. In the case of assessee the time was 31st October, 2006 whereas assessee has attached form no. 10 signed by Sh. Gurnam Singh, Executive Officer, Improvement Trust Gurdaspur with the return of income filed on 25.07.2007 The form no. 10 is dated 11.07.2007 Thus by non-compliance of the provision of section 11(2)(a) read with rule 17 of the Income Tax Rule 1962 the short fall of Rs. 87,52,983/- is not eligible for exemption u/s 11 of the Income Tax Act. However no separate addition is being made because net income of the assessee amounting to Rs. 98,54,341/- has been brought to tax as business income as discussed above.

Charge interest u/s 234A and 234B of the Income Tax Act.

With the above observation income is computed as under:

Income as per return Nil Addition as per para-12 above Rs. 91,49,311/- Addition as per para-14 above Rs. 7,05,030/- Total Income Rs. 98,54,341/- Tax payable Income Tax Rs. 29,06,302/- Surcharge Rs. 2,90,630/- Edu cess Rs. 63,938/- Total Rs. 32,60,870/- Interest u/s 234A Rs. 2,93,478/- Interest u/s 234B Rs. 10,76,087/- Total tax payable Rs. 46,30,435/-

Issue Penalty notice u/s 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income as discussed above.”

12. After going through the aforesaid order passed by the Revenue Authority, we are of the view that the assessee remained non-cooperative in the assessment proceedings before the Assessing Officer and did not file return of income in spite of various notices issued to the assessee-trust and finally the assessee has stated that I.T.A.T, Amritsar Bench Amritsar vide its order dated 28.05.2007 granted registration to the assessee-trust under Section 12AA of the Act, therefore the assessee is entitled for the exemption under Section 11 of the Act. We have reproduced the relevant part of the I.T.A.T order in the forgoing paragraphs, in which learned CIT refused to grant registration to the assessee-trust merely on the ground that the audited account was not filed within the prescribed time and this Bench has cancelled the order of learned CIT and allowed the appeal of the assessee, meaning thereby registration under Section 12AA of the Act has been granted to the assessee. We are of the view that allowing the registration to the assessee does not mean that the assessee has been exempted from fulfilling the requirement of Section 11 & 12 of the Act. The case in hand is the case of exemption under Section 11 of the Act, not granting registration to the society. Before granting the exemption to the assessee under Section 11 of the Act, it is the duty of the Assessing Officer that during the assessment proceedings, he should obtain details of various receipts & expenditures and verify whether the same have been utilized for achieving the aims & objectives for which trust is created. The Assessing Officer found that in the audit report dated 31.10.2006, the gross receipts shown to the tune of Rs. 2,13,41,000/-, gross expenditure at Rs. 1,23,12,708/- with net profit of Rs. 90,28,417/- but in the income and expenditure statement attached with the return, the gross receipts are shown at Rs. 2,13,95,319/-, gross expenses at Rs. 1,21,56,008/- and net profit at Rs. 91,49,311/-, for which, the Assessing Officer has given opportunity to the assessee to reconcile these discrepancies in the audit report filed on 31.10.2006 and the income and expenditure account attached with the return but the assessee failed to reconcile in spite of various opportunities given by the Assessing Officer.

13. The assessee has mentioned various schemes of the assessee-trust for development of the town along with income and expenditure details and stated that the difference is due to the correction of Heads of income side, which were earlier taken on wrong Heads, which is not sustainable in the eye of law. The Assessing Officer has also mentioned the details of various expenses incurred by the assessee during the year under consideration as well as the amount lying in the bank as on 31.03.2006, which are in para nos. 7 & 8 (page nos. 5 & 6) respectively, reproduced above, which shows that the assessee-trust having huge surplus funds with it, which is contrary to the law.

14. Keeping in view the aims and objectives of the assessee-trust which the Assessing Officer has reproduced in para no. 10 (page nos. 6 & 7) of the impugned order, as well as the application of funds of the assessee-trust and after examining the income and expenditure accounts, we found that the assessee i.e Gurdaspur Improvement Trust, Gurdaspur except for acquiring land and developing the same into residential as well as commercial projects like any other private builder, have done little for achieving the aims and objectives for which it is created. As per income and expenditure account, the assessee has incurred very small portion i.e 1.45% of the total income to achieve the aims and objectives of the trust and for betterment of the town.

15. Keeping in view the various case-laws rendered by the Assessing Officer in the assessment order, we are of the view that the Assessing Officer has rightly disallowed the exemption under Section 11 of the Act to the assessee and brought to tax the income from business. But learned CIT(A) has only allowed the deleted addition in dispute merely on the basis of registration granted to the assessee under Section 12AA of the Act, which is contrary to the provisions of Section 11 of the Act.

16. The case-laws relied upon by the learned counsel for the assessee i.e Commissioner of Income Tax v. Improvement Trust, Phagwara, passed in I.T.A No. 518 of 2007, dated 3 October, 2008; Commissioner of Income Tax v. Simla Chandigarh Diocese Society, reported in (2009) 318 ITR 96; and Commissioner of Income Tax v. Ms. Jagriti Aggarwal, reported in (2011) 339 ITR 610, are not helpful to the assessee because these are not applicable to the facts and circumstances of the present case. Learned counsel for the assessee has not established that merely on the basis of registration under Section 12AA of the Act granted to the assessee, assessee is entitled for the exemption under Section 11 of the Act.

17. As regards to the case-laws relied upon by learned DR i.e Assistant Commissioner of Income Tax v. Amritsar Improvement Trust, passed in I.T.A Nos. 476 & 477(Asr)/2011 on 15.01.2013 and the case-laws cited by the Assessing Officer reported in (2003) 81 TTJ Delhi 942 in the case of Jyoti Prabha v. CIT; and (2006) 103 TTJ (Chd.) in the case of PUDA v. CIT, which the Assessing Officer has reproduced in the assessment order, we are of the view that these are very much applicable to the facts of the present case.

18. Keeping in view the facts and circumstances explained above, we are of the considered view that learned First Appellate Authority has passed the impugned order contrary to the law and facts on the file, which is not sustainable in the eye of law and accordingly we cancel the impugned order dated 22.06.2011 and uphold the assessment order dated 29.12.2008 passed under Section 143(3) of the Act and allow the appeal filed by the Revenue.

19. In the result, the appeal filed by the Revenue is allowed.

Deputy Commissioner ... v. M/S. Gurdaspur Impro...