Sardarni Uttam Kaur Educational Society vs Commissioner of Income Tax

Rakesh Kumar Garg, J.—This is a bunch of five appeal Nos. 266 to 270 of 2007, which have been filed by the assessee against the consolidated order dt. 6th Oct., 2006 of the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for short ''the Tribunal''), passed in ITA Nos. 253, 254, 255 and 256/Asr/2002, for the asst. yrs. 1994-95, 1995-96, 1997-98 and 1998-99 and ITA Nos. 281 and 282/Asr/2002, asst. yrs. 1995-96 and 1996-97 in the appeals filed by the assessee as well as Revenue against the same order of the Commissioner of Income Tax (Appeals) [for short the ''CIT(A)''], dt. 21st May, 2002. Since the issue involved in the appeals filed by the assessee are inter-related and arise from the same common order of the Tribunal, all the appeals are being disposed of with common order for the sake of convenience.

The facts of the case common to all the assessment years are that the assessee filed the returns of income for the asst. yrs. 1994-95, 1995-96, 1996-97, 1997-98 and 1998-99 on 1st July, 1994, 30th June, 1995, 28th June, 1996, 27th June, 1997 and 17th Aug., 1998 respectively declaring therein Nil income, as the assessee had claimed exemption in respect of its income, u/s 10(22) of the IT Act, 1961 (for short the Act''), on the plea that the assesses was an educational institution. These returns were processed u/s 143(1)(a)/143(1) of the IT Act, 1961. Subsequently, it appears that the AO carried out inquiries with the prior permission of the CIT under Sub-section (6) of Section 133 of the Act. Such inquiries revealed that assessee was not running any educational institution/school/college/ vocational institute at village Sarai Naga or its surrounding areas. There was only a sign board of its name, placed outside a room occupied by security guard of Brar family. The AO observed that in the absence of any educational institution/school or building for educational purposes, the assessee was not entitled to exemption as claimed under Sub-section (22) of Section 10 of the Act and the funds have not been utilized for this object. The AO, therefore, initiated action u/s 147 of the Act by issuing notices u/s 148 on 2nd March, 2000. In response to said notices, the returns, declaring Nil income were filed for all the assessment years. Thereafter, the case was picked up for scrutiny. The AO issued a detailed questionnaire and observed that the assessee failed to furnish replies in respect of many questions. He observed that in the returns of income filed, the assessee had mentioned code No. 8 for AOP (Trust). However, the assessee was a society registered with Registrar of Societies. He observed that the assessee had claimed wrong status and it was repeatedly asked to clarify the position by issue of several notices/letters, but the same was not properly explained. The AO therefore, adopted the status as an AOP with code No. 7 for all the assessment years.

During the course of assessment proceedings, the assessee was asked to explain how it had claimed exemption in respect of its income u/s 10(22) of the Act, whereas no expenditure was incurred and the income was not utilized for educational purposes. The assessee stated that the institution has been formed with the sole object of setting up educational institute/college. However, the same could not be set up due to nonavailability of sufficient funds. The assessee had claimed exemption u/s 10(22) of the Act because it had reimbursed the school tuition fee to help needy students. It was also explained that funds collected had been invested in certain limited companies for the better returns and secured investments. Thus, it was contended that it had not violated the provisions of Sections 11 and 12 of the Act. The AO examined the explanation and observed that the list of students to whom tuition fee had been reimbursed were studying in premier schools/colleges of Chandigarh, Panchkula and Mohali and the students belonged to the elite class who could very well afford the study and therefore, the contention of the assessee that object was to help the needy students in backward area was factually incorrect. He also went on to observe that students to whom such fee was reimbursed belonged to the families who were closely connected with Brar family or the persons who made donations to society. He specifically mentioned such names in the assessment order. He also observed that assessee reimbursed a meagre sum of Rs. 1,41,305 by way of tuition fee to some students out of available funds of Rs. 79,41,734 collected by the assessee. He also observed that though the society was registered with the Registrar of Societies in 1993, the only action taken by the assessee was the purchase of the land for an amount of Rs. 15,41,250. The balance amount was invested in share application money and also deposits in various companies of Brar family who were members of the assessee society. He also observed that major chunk of donations amounting to Rs. 54,00,000 had been received from Tilok Tirath Vidyawati Chuttani Charitable Trust, of which Dr. Chuttani was a founder member and he had very close relations with Brar family. He also observed that the assessee was not entitled to exemption u/s 10(22) of the Act because it was not running any educational institute/school/college/vocational institute itself.

The AO also observed that in the present case, the assessee has not been able to establish its own institution though it had been in existence for the last 8 years. That apart, it had not even undertaken any activity other than buying a land for setting up the institution or even related to educational field. He also observed that sole purpose of setting up the society was to act as a conduit to route money received from other trusts and certain individuals to the companies run by Brar family on purely commercial consideration. Thus, he held that the assessee had violated the provisions of Section 13(1)(d) of the Act and was, therefore, not entitled to exemption of its income under Sections 10(22) and 11 of the Act. The AO, therefore, completed the assessment for the above mentioned years by disallowing exemptions both in respect of its income and donations received from the various persons in the respective assessment years.

Aggrieved with the order of the AO, the assessee filed appeals before the CIT(A), where the action of the AO for initiating reassessment proceedings was, inter alia, challenged. It was submitted before the CIT(A) that the trust was established with a view to open, run, continue an educational and vocational institution in healthy surroundings. The returns for all the assessment years were filed in the status of trust which was also registered by the CIT u/s 12A of the Act. The returns were processed u/s 143(1)(a) of the Act. It was submitted that the AO misdirected himself by considering the claim for exemption of its income u/s 10(22) of the Act instead of considering the same as per provisions of Sections 11 and 12 of the Act. However, while denying the exemption, the AO totally overlooked the nature of donations received i.e., whether the same were towards corpus or for its application. It was submitted that the donations received from Tilok Tirath Vidyawati Chuttani Charitable Trust, were towards the corpus of the trust. The assessee also filed a photocopy of the certificate in confirmation of the donations given for corpus by the said trust. It was also submitted that the assessee was not supplied with a copy of reasons recorded by the AO while issuing notices u/s 148 of the Act. Therefore, the action of the AO for reopening the assessments was void ab initio. This fact was strongly disputed by the Departmental Representative, who contended that such reasons were supplied to the assessee''s representative. The Departmental Representative also submitted before the CIT(A) that inquiries made during the course of assessment proceedings revealed that the assessee had not established any educational institution/school/college/vocational institute and, therefore, the assessee was not entitled to exemption u/s 10(22) of the Act. Further, the donations received were also diverted to business concerns of Brar family and were not utilized for the objects for which the trust was set up. Members of Brar family were the members of the assessee society. It was, therefore, submitted that the assessments had been rightly reopened and claim for exemption in respect of its income u/s 10(22) of the Act has also been rightly denied by the AO. The issue regarding completion of assessments in the status of an AOP with code No. 7 was contested and it was contended that assessee was a trust and therefore, the assessment was to be made in the status of a trust with code No. 8. The learned CIT(A) considered these submissions and held that since the trust was set up for running an educational institution/school/college or vocational institute and the same was not found in existence when inquiries were made by the Department, the assessee was not entitled to exemption u/s 10(22) of the Act. He, therefore, held that the AO had rightly initiated reassessment proceedings and the same were valid.

The CIT(A) also considered other submissions and observed that apart from the fact that the assessee was registered with the Registrar of Societies, Punjab on 21st July, 1993, the trust was also registered u/s 12 by the CIT, Jalandhar, vide order dt. 21st Sept., 1993. The assessee was also granted exemption u/s 80G of the Act. By referring to the certificate dt. 2nd May, 2002 of Tilok Tirath Vidyawati Chuttani Charitable Trust, the CIT(A) observed that donations of Rs. 25 lakhs and Rs. 29 lakhs received from the said trust in the asst. yrs. 1995-96 and 1996-97, respectively were towards the corpus and not towards its income and the same qualified for exemption u/s 11(1)(d) of the Act for these two assessment years. However, he observed that the income arising from the donations was not utilized for the objects for which it was set up and violated the provisions of Sections 11 and 13 of the Act and such income was not exempt. He further observed that correct status of the assessee was a trust with code No. 8 and not an AOP with code No. 7. While holding the view that the assessee had contravened the provisions of Section 13(1)(d) of the Act, the CIT(A) took note of the fact that the funds received or invested in the firms, companies and other entities where the trustees and their family members had substantial interest were not eligible for exemption u/s 11 of the Act. While taking such view the learned CIT(A) held that other receipts in the form of voluntary donations were not entitled to any exemption because the assessee had failed to furnish any evidence that those were given with the specific direction that these shall form part of the corpus of the trust.

Aggrieved against the order of the CIT(A) for the asst. yrs. 1994-95, 1995-96, 1997-98 and 1998-99, the assessee filed ITA Nos. 253, 254, 255 and 256/Asr/2002 before the Tribunal, whereas the Revenue feeling aggrieved against the order of the CIT(A) for the asst. yrs. 1995-96 and 1996-97 filed ITA Nos. 281 and 282/Asr/2002 before the Tribunal challenging the order of the CIT(A) for allowing exemption in respect of donations of Rs. 25 lakhs, and Rs. 29 lakhs respectively. The assessee did not challenge the order of CIT(A) for the asst. yr. 1996-97.

During the course of proceedings before the Tribunal, the assessee was also allowed to raise the following additional grounds being purely legal in nature:

(i) That the order under appeal is void ab initio as legal requirements for supplying copy of reasons recorded have not been supplied and the reasons as mentioned by the learned CIT(A) in his order do not show that any income has escaped assessment. It only talks of the inapplicability of the provisions of Section 10(22) of the IT Act.

(ii) Neither the status of the assessee can be changed in proceeding u/s 148 nor any assessment can be framed without including income which is alleged to have escaped assessment or under assessed.

It was submitted by the assessee before the Tribunal that it was mandatory on the part of the AO to communicate the reasons recorded u/s 148 so as to enable the assessee to make its submissions on the legal aspect of reopening the assessments. He further referred to the identical stereotyped reasons recorded by the AO which were supplied to the assessee as per directions given by the Bench. The learned Counsel submitted that assessments had been reopened on the ground that the assessee was not entitled to exemption in respect of its income u/s 10(22) of the Act. However, the AO had included all receipts in the form of donations, subscriptions and interest income as the income which had escaped assessment. The learned Counsel submitted that all the returns were accompanied by audited accounts and balance sheet and loss of Rs. 5,208, Rs. 13,674 and Rs. 16,500 was shown for the asst. yrs. 1994-95, 1997-98 and 1998-99 respectively after adjusting the income applied against the receipts. Only for the asst. yr. 1995-96, the assessee had shown income of Rs. 12,097. The audited accounts indicated that donations were received towards corpus. Thus, the inference drawn by the AO that income of the amounts mentioned in the reasons recorded was untenable in view of the fact that the assessee was a trust registered with the CIT u/s 12A of the Act in the year 1993 and, therefore, the income of the trust was to be considered only as per provisions of Sections 11 and 12 of the Act irrespective of the fact that the assessee had claimed exemption in respect of its income u/s 10(22) of the Act.

The Tribunal after a detailed discussion held that additional grounds raised by the assessee were devoid of any merit and the assessments were legal and valid, more so, when the assessee has not even disputed the order of the CIT(A) for the asst. yr. 1996-97. The Tribunal also refused to interfere with the findings of the CIT(A) to the extent of taxing the income of the assessee and petty donations received towards corpus but not specifying the same. The Tribunal also upheld the findings of the CIT(A) to the effect that the assessee trust contravened the provisions of Section 13(1)(d) of the Act and therefore, the income earned by the appellant trust in all the years is taxable and similarly the petty donations received from time to time without indicating the purpose of the same are held to be taxable and not exempted. However, the Tribunal allowed the appeals filed by the Revenue challenging the order of the CIT(A) for the asst. yrs. 1995-96 and 1996-97 allowing the assessee the status of trust as against AOP taken by AO and allowing exemption in respect of donations of Rs. 25 lakhs and Rs. 29 lakhs received from Tilok Tirath Vidyawati Chuttani Charitable Trust during the accounting year relevant to asst. yrs. 1995-96 and 1996-97 respectively which were liable to tax as the assessee was not liable to exemption in respect of such donations under Sections 10(22), 11 and 13 of the Act. While allowing these appeals of the Revenue, the Tribunal also held that the CIT(A) had relied on additional evidence in violation of provisions of Rule 46A of the IT Rules, 1962, while taking into account the certificate dt. 2nd May, 2002 from the assessee without complying with the provisions of Rule 46A of the IT Rules, 1962 and without giving any opportunity to the Revenue to rebut the same. Vide impugned order, the appeals of the Revenue for the years 1995-96 and 1996-97 were accepted and order of the CIT(A) was set aside in the following terms:

Having regard to these facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the learned CIT(A) was not justified in deleting the additions of Rs. 25 lakhs and Rs. 29 lakhs for the asst. yrs. 1995-96 and 1996-97 by relying on fresh evidence without complying with the provisions of Rule 46A and also without taking into account the contraventions of provisions of Sections 13(1)(c) and 13(1)(d) of the Act. We, therefore, set aside the orders of the CIT(A) and restore the appeals to his file to be decided de novo as per law and after complying with the provisions of Rule 46A and also by taking into account the observations made herein above. Needless to say that while redeciding the appeals, the learned CIT(A) shall allow adequate opportunity to both the parties. We order accordingly. These grounds of appeals of the Revenue are treated as allowed for the asst. yrs. 1995-96 and 1996-97.

Not satisfied with the judgment of the Tribunal, the assessee has filed these appeals before this Court challenging the order of the Tribunal passed in ITA Nos. 253, 254, 255 and 256/Asr/2002, asst. yrs. 1994-95, 1995-96, 1997-98 and 1998-99 and ITA No. 282/Asr/2002, asst. yr. 1996-97. The assessee has not challenged the order of the Tribunal passed in ITA No. 281/Asr/2002, asst. yr. 1995-96. According to the Counsel for the assessee, following substantial questions arise from the impugned order of the Tribunal for consideration of this Court:

(i) Whether the Tribunal is justified in setting aside the orders of the CIT(A) having deleted the addition after due verification of facts, evidences and provisions of law?

(ii) Whether the Tribunal is justified in setting aside the orders of the CIT(A) having deleted the addition after due verification of facts, evidences and provisions of law and having accepted the additional evidence which is a matter of fact and thus having committed no error and thus the order of the CIT(A) being legal?

(iii) Whether under the facts and circumstances of the present case, the orders of the Tribunal in concurring with the authorities below in confirming the action of reassessment u/s 148 of the IT Act, 1961 is bad in law, arbitrary and perverse?

(iv) Whether under the facts and circumstances of the present case, the orders of the authorities below and that of the Tribunal is bad in law being passed without appreciating the fact that the appellant was not supplied copies of the reasons recorded u/s 148 of the IT Act, 1961 and thus denying it proper opportunity in complete defiance of the judgment of Hon''ble Supreme Court of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Others,

(v) Whether under the facts and circumstances of the present case, the orders of the Tribunal, in concurring with the authorities below in confirming their action by denying exemption u/s 10(22) and/or Sections 11 and 12 of the IT Act, 1961 by holding that the appellant trust/society is not involved in educational activities is bad in law?

(vi) Whether under the facts and circumstances of the present case, the orders of the Tribunal- in concurring with the authorities below in confirming their action by denying exemption u/s 10(22) and/or Sections 11 and 12 of the IT Act, 1961 without appreciating the fact that the society has been duly registered u/s 12A by the CIT and also exemption u/s 80G of the IT Act, 1961 was duly allowed considering the appellant society as a genuine educational society and thus the impugned order of the Tribunal is bad in law?

(vii) Whether under the facts and circumstances of the present case, the orders of the Tribunal in concurring with the authorities below in confirming their action by denying exemption u/s 10(22) and/or Sections 11 and 12 of the IT Act, 1961 without appreciating the fact that the society has been duly carrying out its objects in the best interests and for the benefit of the society within legal norms wherein it is established principles of law that a charitable institution can even do business and thus the impugned order of the Tribunal is bad in law?

(viii) Whether under the facts and circumstances of the present case, the orders of the Tribunal in concurring with the authorities below in confirming their action by denying exemption u/s 10(22) and/or Sections 11 and 12 of the IT Act, 1961 without appreciating the fact that the society has been duly registered u/s 12A by the CIT and also exemption u/s 80G of the IT Act, 1961 was duly allowed considering the appellant society as a genuine educational society and the voluntary donors/iristitutions/charitable trusts/persons were for the corpus of the society and thus was exempt under express provisions of law laid down u/s 12 r/w Clause (d) of Sub-section (1) of Section 11 of the IT Act, 1961, thus the impugned order of the Tribunal is bad in law?

(ix) Whether under the facts and circumstances of the present case, the orders of the Tribunal in concurring with the authorities below in confirming their action by denying exemption under s, 10(22) and/or Sections 11 and 12 of the IT Act, 1961 without holding that since the appellant society had violated the provisions of Section 13(1)(c) r/w Section 13(2)(b) of the IT Act, 1961 and further holding that there was gross and blatant misutilization of funds of the society without appreciating the facts and evidences on record and without bringing in any material on record to prove any single instance and thus the impugned order of the Tribunal is bad in law?

(x) Whether under the facts and circumstances of the present case, the orders of the Tribunal in concurring with the authorities below in confirming their action by denying exemption u/s 10(22) and/or Sections 11 and 12 of the IT Act, 1961 without appreciating the fact that the society has been duly registered u/s 12A by the CIT and also exemption u/s 80G of the IT Act, 1961 was duly allowed considering the appellant society as a genuine educational society and thereby holding donations of Rs. 2,40,051 as taxable income and thus the impugned order of the Tribunal is bad in law?

(xi) Whether under the facts and circumstances of the present case, the orders of the Tribunal in view of above explained facts, circumstances and contentions is perverse, bad in law and needs to be quashed by the interference by this Hon''ble Court?

(xii) Whether on the facts and in the circumstances of the case and in view of legal provisions, the Tribunal was justified in denying the benefits of Section 10(22) of the IT Act, 1961 for the reason that the society is not having any educational building but has purchased land within eight years of its establishment and has reimbursed tuition fees to deserving and needy students?

Mr. S.K. Mukhi, advocate, learned Counsel for the appellant has argued that the reassessment proceedings were initiated u/s 147 of the Act by issue of notices u/s 148 of the Act on 2nd March, 2000 without supplying the reasons recorded for initiating the reassessment proceedings which has vitiated the proceedings against the assessee and the impugned orders passed by the authorities below are void ab initio. It has been further argued by the Counsel for the appellant that it was mandatory on the part of the AO to communicate the reasons recorded u/s 148 of the Act so as to enable the assessee to make its submissions on the legal aspect of reopening the assessment. Learned Counsel has further argued that the audited accounts indicated that donations were received towards corpus, therefore, the inference drawn by the AO was untenable in view of the fact that the assessee was a trust registered with the CIT u/s 12A of the Act in the year 1993 and therefore, the income of the trust was to be considered only as per provisions of Sections 11 and 12 of the Act irrespective of the fact that the assessee had claimed exemption in respect of its income u/s 10(22) of the Act. Thus, it was argued that reassessment proceedings have been initiated on the basis of irrelevant facts for making a roving inquiry. It was further argued that the law casts a duty on the assessing authority to complete an assessment on the same person to whom a notice u/s 148 of the Act has been issued and the change in status vitiated the orders.

Shri Mukhi further argued that the Tribunal was not justified in confirming the additions in respect of other donations and the assessee was entitled to exemption in respect of the said income and voluntary donations. He has also challenged the order of remand by the Tribunal in the appeals filed by the Revenue for the asst. yr. 1996-97 in ITA No. 282/Asr/2002.

The pith and substance of the questions of law as raised by the Counsel for the appellant'' is that initiation of reassessment proceedings by the Revenue is void ab initio as legal requirements for initiation of such proceedings are lacking in the case and that the assessee is entitled to exemption in respect of its income u/s 10(22) of the Act and the authorities below have wrongly made additions against the assessee.

We have heard learned Counsel for the appellant and perused the record.

A bare reading of the provisions of the Act shows that the AO can initiate reassessment proceedings, if he has ''reason to believe'' that any income chargeable to tax has escaped assessment for any assessment year subject to the provisions of Sections 148 - 153 of the Act. In such a case, the AO is empowered to assess or reassess such income. Such escapement of income could be due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The proviso to Section 147 of the Act provides that in case the assessment completed u/s 143(3) or 147 of the Act is to be reopened after the expiry of four years from the end of the relevant assessment year, the AO could take recourse to such action only if the escapement of income chargeable to tax was on account of assessee''s failure to disclose fully and truly all material facts necessary for assessment. In case such assessment completed u/s 143(3) or 147 is to be reopened within a period of four years from the end of the relevant assessment year or the assessment was completed u/s 143(1)(a) or 143(1), it is not necessary to establish the escapement of income due to omission and failure on the part of the assessee to disclose fully and truly all material facts. But the conditions precedent for initiating the reassessment proceedings must exist before such action could be initiated by the AO. Explanation 2(c) to Section 147 of the Act deals with deemed escapement of income where assessment has been made, but income chargeable to tax has been underassessed or such income has been assessed at too low a rate or such income has been made the subject-matter of excessive relief under this Act or excessive loss or depreciation allowance or any other allowance under this Act has been allowed.

The expression ''reason to believe'' used in Section 147 of the Act has special significance. It does not mean ''reason to suspect''. It is reasonable belief of an honest and reasonable person based upon reasonable grounds. The expression used is not ''satisfied''. The ''reason to believe'' requires higher level of evidence and material than the requirement of ''satisfaction'' of the AO which essentially means the material which comes to the notice of AO must be a definite, specific and direct and not unspecific or vague. This issue was considered by the Hon''ble Supreme Court in the case of Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, , where the apex Court observed that "reason to believe" does not mean "reason to suspect". The reasons for the formation of the belief contemplated u/s 147 of the Act necessary for reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee. The apex Court further observed that it was not every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to the escapement of the income of the assessee from assessment. Again, this issue was considered by the Hon''ble Supreme Court in the case of Ganga Saran and Sons P. Ltd. Vs. Income Tax Officer and Others, , where the apex Court observed that expression "reason to believe" was stronger than the words ''satisfied''. The belief entertained by the AO must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material. If there is no rational and intelligible nexus between the reasons and belief, the reopening of the assessment would be without jurisdiction and bad in law.

The basis for initiating the reassessment proceedings is to be judged solely on the basis of reasons recorded by the AO and the material and information referred to by him in the reasons for initiating such action. It is settled law that AO cannot initiate the reassessment proceedings merely on the basis of suspicion or for the purpose of making roving and fishy inquiries. The AO cannot support the reopening of the assessment by collecting the material or by making inquiry subsequently after the date of initiation of the proceedings. Thus, the reopening of the assessment is to be seen on the date when the AO initiated action u/s 147 of the Act. But at the same time, the formation of the belief of the AO is a prima facie belief on the date when he initiated the reassessment proceedings. It is not necessary that AO must establish the factum of concealment/escapement of income on the date of initiation of the reassessment proceedings itself. The assessment reopened by the AO is subject to normal procedure of assessment where the AO is required to examine the case by issue of notices u/s 143(2)/142(1) of the Act and allow an opportunity to the assessee. Later, if it turns out that there is no escapement of income, AO can drop the proceedings initiated u/s 147 of the Act.

The undisputed facts of the case are that the assessee had filed returns for the various assessment years declaring therein Nil income. All these returns were processed only u/s 143(1)(a) of the Act. It is also a fact that in all the returns, the assessee had claimed exemption in respect of its income u/s 10(22) of the Act which is admissible in a case of an educational institution. The facts brought on record further confirm that this is not a case where the AO directly initiated reassessment proceedings, merely on the basis of returns filed by the assessee. It appears that substantial portion of donations amounting to Rs. 54 lakhs had been received from Tilok Tirath Vidyawati Chuttani Charitable Trust. Dr. P.N. Chuttani was founder member of the said trust. Inquiries were initiated to find out as to how the donations given to the assessee trust had been utilized by the assessee. Such inquiries were made after obtaining approval of the CIT u/s 133(6) of the Act. Before initiating the reassessment proceedings, the assessee was asked to furnish information with regard to loans and advances given to various parties, details of bank deposits, the details of advances taken by the assessee, the details of creation of corpus fund etc. It was also mentioned by the AO that failure to furnish information would result in taking action u/s 147 of the Act. In the assessee''s reply dt. 15th April, 1999, it has again reiterated its claim u/s 10(22) of the Act. The AO issued another letter dt. 19th April, 1999 stating that requisite information has not been furnished. The question of receipt of donations amounting to Rs. 25 lakhs and Rs. 29 lakhs from Tilok Tirath Vidyawati Chuttani Charitable Trust had been specifically asked from the assessee and the details of utilization of the same were also called for. Thereafter, the proceedings u/s 147 of the Act were initiated for all the assessment years on 2nd March, 2000. The assessee''s letter dt. 18th Dec, 2000 to the AO stating therein that the reply/information as per questionnaire can be furnished only after receipt of reasons recorded by the AO clearly show that the AO tried to ascertain the position before initiating the reassessment proceedings u/s 147 of the Act and somehow the assessee has not fully complied with such information. On the contrary, the claim for exemption u/s 10(22) of the Act was reiterated.

A perusal of the reasons recorded by the competent authority shows that the basis of the initiation of such action was with regard to exemption claimed u/s 10(22) of the Act .The AO has referred to the results of inquiries made in this case which revealed that the assessee was not running any such educational institution/school/college or vocational institute at the given place and there was only a signboard of its name outside the room occupied by the security guards of family of Shri H.S. Brar. The AO has mentioned that in the absence of such educational institution, the assessee was not entitled to exemption u/s 10(22) of the IT Act and, therefore, he had reason to believe that income chargeable to tax in the form of donations, subscriptions and interest had escaped assessment. The same are the reasons for the subsequent assessment years with variation in the amounts. The results of inquiries incorporated by the AO in the reasons recorded, that the assessee was not running any institution/school/college at the given place have not been controverted by the assessee. Therefore, on the basis of such information, the AO was justified in forming a belief that income chargeable to tax had escaped assessment more so when the assessee did not furnish the desired information before him during the course of inquiries made before initiation of reassessment proceedings.

The objection of the assessee relating to non-communication of the reasons recorded u/s 148 of the Act to the assessee is also without any merit. The Tribunal has given a categoric finding in this regard to the effect that initially Shri Kapil Khanna, Authorized Representative, made a request for supply of reasons and the Department asked for requisite copying charges which were not deposited. Later on, the assessee changed the Counsel, who made no such request. The discussion and findings of the Tribunal in this regard are reproduced:

We find that initially when Shri Kapil Khanna was representing this case before the AO, such request was made to the AO. The correspondence placed on record further shows that the AO asked the assessee to pay the requisite copying charges so that reasons recorded could be supplied. The assessee did not comply with the same. Later, there was a change in the Counsel. The AO wrote to the earlier Counsel that since he was not an authorized person, the reasons recorded could not be supplied to him. We have gone through the entries in ''the order-sheet supplied by the Revenue. We find that later the case was represented by another Counsel, namely, Shri R.K. Rathore, along with Shri Taran Chugh, accountant. No request for supply of reasons appears to have been made. It is also significant to mention that unsigned letter of the earlier Counsel dt. 13th Feb., 2001 placed at page No. 27 of the paper book does include a para for supply of reasons. However, a copy of the same letter filed with the AO does not contain such request for supply of reasons. Be that as it may, it appears that the assessee was fully aware of the reasons recorded by the AO for initiating the reassessment proceedings. This is clear from the inquiry letters sent to the assessee before initiating reassessment proceedings and also subsequent inquiries made by the AO during the course of reassessment proceedings. In fact, the letters dt. 19th April, 2001, 16th July, 2001 and 30th Sept., 2001 of the AO to the assessee forming part of the assessment order and assessee''s reply dt. 30th Sept., 2001 at Annex. 1 show that assessee was aware of the basis of action for initiating the reassessment proceedings. Therefore, there does not appear to be any merit in the submission of the assessee that reasons were not communicated to the assessee.

Since the assessee has already been supplied copies of reasons recorded and its objections have been considered while deciding these appeals, this grievance no longer survives. As regards decision of Tribunal, Bombay Bench, in the case of (2006) 101 TTJ 1108 relied upon by the learned Authorised Representative, a copy of the same has not been supplied. Therefore, we are unable to refer to this decision. Thus, taking into account the fact that the assessee has already been supplied copies of reasons and objections have been taken into account and the reassessments have been completed after allowing opportunity to the assessee, we are of the opinion that this plea is also devoid of any merit. Hence rejected.

The next grievance of the assessee relates to sustaining of the additions made by the AO for the abovementioned assessment years. While completing assessment u/s 147 of the Act r/w Section 143(3) of the Act, the AO held that the assessee was not entitled to exemption in respect of its income u/s 10(22) of the Act. The AO further considered the case for exemption of its income under Sections 11 and 12 of the Act because the assessee was granted registration u/s 12A of the Act. The AO observed that inquiries made in the case revealed that donations collected by the assessee trust were invested/deposited with the various companies/business concerns of Brar family in the shape of share application money amounting to Rs. 25 lakhs with M/s Dashmesh Haegens Agro Tech. Ltd., Rs. 25 lakhs in M/s Dashmesh Feb. Yarns Ltd. as share application money, Rs. 25 lakhs as a deposit with M/s Dashmesh Falcon T&M Enterprises (P) Ltd. Even the income was invested in the said concerns.

The AO observed that assessee society came into being only with an objects of routing money received from other trusts and certain individuals to the companies run by Brar family purely on commercial considerations. He observed that family members of Brar were members of the assessee society. He further observed that by investing these amounts in the business concerns of the Brar family of which the trustees/members of the assessee trust had substantial interest, the assessee contravened the provisions of Section 13(1)(d) of the Act. He also observed that provisions of Section 13(1)(d) of the Act were also attracted to this case because the property of the trust and the income of the institution had been utilized for the benefit of persons mentioned in Sub-section (3) of Section 13 of the Act. The assessee has not disputed the findings of the AO for diverting the funds of assessee in the form of investments/deposits in the business concerns of Brar family covered under Sub-section (3) of Section 13 of the Act. However, assessee''s claim is that the contributions made towards corpus are exempt u/s 11(1)(d) of the Act. The Revenue''s stand is that assessee has failed to furnish any evidence during the course of assessment proceedings that the voluntary contributions made by the donors were with specific directions that these were towards corpus. The CIT(A) accepted the contention of the assessee that once the trust was registered u/s 12 of the Act and the income of the trust has not been utilized for the objects of the trust, the income accrued from the property of the trust could alone be denied exemption and the amounts received by way of donations for the corpus qualify for exemption u/s 11(1)(d) of the Act. During the course of proceedings before the CIT(A), the assessee furnished a certificate dt. 2nd May, 2002 from Tilok Tirath Vidyawati Chuttani Charitable Trust, stating that the donations of Rs. 54 lakhs given by the said trust to the assessee in the accounting years relevant to asst. yrs. 1995-96 and 1996-97, were for its corpus. Relying on the certificate, the CIT(A) allowed exemption in respect of amount of Rs. 25 lakhs and Rs. 29 lakhs received in the accounting year relevant to asst. yrs. 1995-96 and 1996-97, respectively, despite the fact, that he has accepted the findings of the AO that funds have not been utilized for the objects for which trust was set up. However, in regard to the remaining amounts received by way of donations, the CIT(A) observed that these were invested in the business concern of Brar family where trustees/members of the society had substantial interest and, therefore, this contravened the provisions of Section 13(1)(d) of the Act. He also rejected the submissions of the assessee that these donations were received towards corpus on the ground that no evidence was furnished by the assessee. No evidence whatsoever has also been produced before the Bench that these donations were given for the corpus. Further, as per Clause (h) of Sub-section (2) of Section 13 of the Act, if any funds of the trust or the institution continue to remain invested for any period during the previous year in any concern in which any person referred to in Sub-section (3) of the said Section has substantial interest the assessee would not be entitled to exemption u/s 11(1)(d) of the Act in respect of such voluntary donations.

A categoric finding of fact has been recorded by the Tribunal in this regard after relying upon a catena of judgments. It is well-settled that if any income or any property of trust or institution is used or applied directly or indirectly for the benefit of any person referred to in Sub-section (3) of Section 13 of the Act, the assessee shall not be entitled to exemption in respect of voluntary contributions or income u/s 11(1)(d) of the Act. Thus, we do not find any Justification to interfere with the findings of the Tribunal so far as this relates to the appeals filed by the assessee for all the abovementioned assessment years.

ITA No. 268 of 2007 has been filed by the assessee against the order of the Tribunal passed In ITA No. 282/Asr/2002 by the Revenue challenging the order of the CIT(A), whereby the assessee was allowed to produce additional evidence under Rule 46A of the IT Rules, 1962 without any notice to the Revenue. Vide order dt. 6th Oct., 2006 passed by the Tribunal in this appeal, the matter has been remanded to the CIT(A) to pass the order afresh after giving due opportunity to the parties to decide tie novo and after complying with the order under Rule 46A of the Rules.

Aggrieved against this order of the CIT(A) for the asst. yrs. 1995-96 and 1996-97, the Revenue filed appeals bearing Nos. 281 and 282/Asr/2002 before the Tribunal challenging the order of the CIT(A) for allowing exemption in respect of donations of Rs. 25 lakhs and Rs. 29 lakhs, respectively. In these appeals, the grievance of the Revenue was that the CIT(A) was not Justified in allowing status of the trust as against AOP taken by the AO. However, this ground of the Revenue was rejected by the Tribunal and it was held that the assessee was allowed the status of the trust correctly. Against these findings of the Tribunal, the Revenue has not filed any appeal before this Court. The grievance of the Revenue common to both the assessment years was that the CITtA) was not justified in allowing exemption In respect of donations of Rs. 25 lakhs and Rs. 29 lakhs received from Tilok Tirath Vidyawati Chuttani Charitable Trust, during the accounting year relevant to asst. yrs. 1995-96 and 1996-97 respectively which were liable to tax. Further grievance of the Revenue is that the assessee was not entitled to exemption in respect of such donations under Sections 10(22), 11 and 13 of the Act. Connected with this Is the ground of appeal of the Revenue that while taking such view, the CIT(A) has admitted and relied on additional evidence in violation of provisions of Rule 46A of IT Rules, 1962. It was also argued that the certificate dt. 2nd May, 2002 from Tllok Tirath Vidyawati Chuttani Charitable Trust stating that donations aggregating to Rs. 54 lakhs given to the assessee were for its corpus was not furnished before the AO during the course of reassessment proceedings and the same was submitted before the CIT(A). It was further argued that admission of such evidence was subject to provisions of Rule 46A of the Rules and no opportunity was given to the Revenue to examine the evidence or to produce any evidence in rebuttal to the evidence produced by the assessee. The Tribunal found that since the provisions of Rule 46A of the Rules for admitting the fresh evidence have been violated, therefore, the action of the CIT(A) was not in conformity with the provisions of the Act and also the Rules and held that the CIT(A) was not justified in deleting the additions of Rs. 25 lakhs and Rs. 29 lakhs for the asst. yrs. 1995-96 and 1996-97 by relying on fresh evidence without complying with the provisions of Rule 46A of the Rules and also without taking into account the contraventions of provisions of Sections 13(1)(c) and 13(1)(d) of the Act. Thus, the Tribunal set aside the orders of the CIT(A) and restored the appeals of the Revenue to his file to be decided de novo as per law and after complying with the provisions of Rule 46A of the Rules and also by taking into account the observations made in the order.

The admission of fresh evidence is governed by provisions of Rule 46A of the IT Rules which read as under:

46A. Production of additional evidence before the Dy. CIT(A) and CIT(A).-

(1) The appellant shall not be entitled to produce before the Dy. CIT(A) or, as the case may be, the CIT(A), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the AO except in the following circumstances, namely:

(a) where the AO has refused to admit evidence which ought to have been admitted; or

(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the AO; or

(c) where the appellant was prevented by sufficient cause from producing before the AO any evidence which is relevant to any ground of appeal; or

(d) where the AO has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.

(2) No evidence shall be admitted under Sub-rule (1) unless the Dy. CIT (A) or, as the case may be, the CIT(A) records in writing the reasons for its admission.

(3) The Dy. CIT(A) or, as the case may be, the CIT(A) shall not take into account any evidence produced under Sub-rule (1) unless the AO has been allowed a reasonable opportunity,-

(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or

(b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.

(4) Nothing contained in this rule shall affect the power of the Dy. CIT(A) or, as the case may be, the CIT(A) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty, whether on his own motion or on the request of the AO under Clause (a) of Sub-section (1) of Section 251 or the imposition of penalty u/s 271.

A bare reading of the aforesaid rule shows that the assessee is not entitled to produce additional evidence until one of the conditions spelt out in Clauses (a) to (d) of Sub-rule (1) of Rule 46A of the Rules is satisfied. In case, such condition is satisfied, the learned CIT(A) is required to record reasons in writing for admission of such additional evidence.

A perusal of the order of the Tribunal shows that after considering the provisions of Rule 46A of the IT Rules and taking into consideration the undisputed facts on the record of the case, the Tribunal has found that the CIT(A) was not justified in relying on the fresh evidence without complying with the provisions of Rule 46A of the Rules and also without taking into account the contraventions of provisions of Sections 13(1)(c) and 13(1)(d) of the Act.

During the course of arguments, learned Counsel for the appellant was unable to challenge the findings of the Tribunal in this regard. Even otherwise, the Tribunal has only remanded the case to the CIT(A) to decide the issue de novo after complying with the provisions of Rule 46A of the Rules. We find no error in the order in this regard.

Thus, no question of law arises for our determination in this case. The appeals being devoid of any merit are hereby dismissed.