1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 15TH DAY OF SEPTEMBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.415 OF 2011 c/w I.T.A.NO.407 OF 2011 I.T.A.NO.415/2011 BETWEEN: 1. DIRECTOR OF INCOME TAX EXEMPTIONS, C.R. BUILDING QUEENS ROAD, BANGALORE. 2. DY. DIRECTOR OF INCOME TAX EXEMPTIONS, CIRCLE-17(1) C.R. BUILDINGS, QUEENS ROAD BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: ISKCON CHARITIES 8TH MILE, KANAKAPURA ROAD DODDAKALLASANDRA BANGALORE. ... RESPONDENT (BY SMT. VANI H, ADV.) --- 2 THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 13.05.2011 PASSED IN ITA NO.313/BANG/2009 FOR ASSESSMENT YEAR 2004-05, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW APPEAL AND SET ASIDE ORDER OF ITAT, BANGALORE IN ITA NO.313/BANG/2009 DATED 13-05-2011 AND CONFIRM ORDER PASSED BY DEPUTY DIRECTOR OF INCOME TAX, EXEMPTION, CIRCLE-17(1), BANGALORE, IN INTEREST OF JUSTICE AND EQUITY. I.T.A.NO.407/2011 BETWEEN: 1. DIRECTOR OF INCOME TAX EXEMPTIONS, C.R. BUILDING QUEENS ROAD, BANGALORE. 2. DY. DIRECTOR OF INCOME TAX EXEMPTIONS, CIRCLE-17(1) C.R. BUILDINGS, QUEENS ROAD BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: ISKCON CHARITIES 8TH MILE, KANAKAPURA ROAD DODDAKALLASANDRA BANGALORE. ... RESPONDENT (BY SMT. H. VANI, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 13.05.2011 PASSED IN ITA NO.314/BANG/2009 FOR ASSESSMENT YEAR 2005-06, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. 3 (I) ALLOW APPEAL AND SET ASIDE ORDER OF ITAT, BANGALORE IN ITA NO.314/BANG/2009 DATED 13-05-2011 AND CONFIRM ORDER PASSED BY DEPUTY DIRECTOR OF INCOME TAX, EXEMPTION, CIRCLE-17(1), BANGALORE, IN INTEREST OF JUSTICE AND EQUITY. THESE ITAs COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: COMMON JUDGMENT These appeals under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) have been preferred by revenue. subject matter of I.T.A.No.415/2011 pertains to Assessment Year 2004-05, whereas, subject matter of I.T.A.No.407/2011 pertains to Assessment year 2005-06. Since, common substantial questions of law arise for consideration in these appeals, they were heard analogously and are being decided by this common judgment. appeals were admitted by bench of this Court vide order dated 17.09.2012 on following substantial questions of law: (i) Whether appellate authorities were correct in holding that Assessing Officer had no locus standi to examine 4 activities of assessee trust in order to find out whether they were carrying charitable activity as assessee had already been granted exemption under Section 11 of Act? (ii) Whether Tribunal was correct in holding that provisions for doubtful debts of Rs.1,98,818/- should be allowed as expenditure even though same is not written off and same is continued as provision in assessee s books? (iii) whether in facts and circumstances of case, re-opening of assessment under Section 147 of Act is justified when time limit for initiation of regular assessment under Section 143(3) of Act has not expired? 2. For facility of reference, facts from I.T.A.No.415/2011 are being referred to. Facts leading to filing of these appeals briefly stated are that assessee is Trust and has been incorporated with object to provide educational, medical relief to poor 5 and to provide services of general public utility. For Assessment Year 2004-05, assessee filed return of income on 31.03.2006, by which total expenditure of Rs.23,46,79,122/- was shown over income. assessee claimed sum of Rs.17,04,250/- being provision for bad and doubtful debts. assessment was re-opened under Section 147 of Act by issuance of notice under Section 148 of Act dated 31.01.2007, which was served on assessee on 02.02.2007. assessee by communication dated 28.02.2007, requested return of income filed on 31.03.2006 as response to notice under Section 148 of Act. Assessing Officer by order dated 31.12.2007 inter alia held that free food, which was claimed to have been distributed to weaker section of public in general by assessee was not substantiated by producing any evidence. It was further held that assessee distributed Prasada to visitors who belonged to middle class and donations, 6 which were collected were not expended for purposes of which Trust was incorporated. It was further held that sum of Rs.13,26,099/- was paid to Jadu Works Private Limited, which was shown as provision and same cannot be treated as provision for bad and doubtful debts. Accordingly, Assessing Officer completed assessment and levied tax and penalty. assessee thereupon filed appeal before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) by order dated 19.01.2009 inter alia held that activities carried on by assessee were charitable in nature and bad debts were found to be allowable deduction as party to whom amount was advanced was not traceable. Thereupon assessee approached Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). Tribunal by order 13.05.2011 inter alia held that Assessing Officer had no locus standi to examine activities carried on by 7 Trust while passing order of assessment and once order of exemption has been passed under Section 11 of Act, Assessing Officer is bound by same. It was further held that provision for bad and doubtful debt is necessary charge as per accounting principle and even if Section 11 of Act is not applicable, same has to be allowed. Accordingly, Tribunal allowed appeal preferred by assessee. In aforesaid factual background, these appeals have been filed. 3. Learned counsel for revenue submitted that order of re-opening of assessment was justified and additional substantial question of law cannot be examined at instance of assessee. It is argued that Assessing Officer has examined issue whether assessee has incurred expenditure to achieve objects of trust and therefore, Tribunal erred in holding that Assessing Officer had no locus to examine activities of Trust. It is also 8 submitted that burden was on assessee to prove fact that expenses incurred were towards object of trust and assessee has failed to discharge same. It is also pointed out that Tribunal has proceeded on erroneous assumption that assessee has questioned objects of Trust. It is also argued that Tribunal ought to have appreciated that purpose of making advance to party has to be made in course of business and then only assessee is entitled to write off same as expenditure as provision for bad and doubtful debt. In instant case, assessee has failed to demonstrate that amount paid to Jadu Works Private Limited was made in course of business. In support of his submissions, reliance has been placed on decision of Supreme Court in VIJAYA BANK VS. COMMISSIONER OF INCOME-TAX AND ANOTHER , (2010) 323 ITR 166 (SC). 4. On other hand, learned counsel for 9 assesses submitted that prior to amendment of Section 153 by Finance Act, 2005 which came into force with effect from 01.04.2006, aforesaid provision mandated that no order of assessment shall be made under Section 143 or Section 144 at any time after expiry of two years from end of Assessment Year, in which income was first assessable. It is further submitted that amendment incorporated by Finance Act, 2005 with effect from 01.04.2006 is not applicable to fat situation of case as Assessment Years in question are 2004-05 and 2005-06. It is further submitted that Finance Act, 2005 by which proviso has been inserted in Section 153 is prospective in nature. It is also argued that notice under Section 148(1) of Act was issued on 31.01.2007 by taking recourse to Section 143(2) of Act and without completing assessment, notice under Section 148 cannot be issued. It is pointed out that assessee had filed return on 31.03.2006 and within 12 months, 10 notice under Section 143(2) could be issued i.e., upto 31.03.2007 and assessment had to be completed under Section 143(3) of Act before 31.12.2006 as required under Section 153 of Act. However, notice was issued under Section 148 of Act on 31.03.2007 without completion of proceeding pending on basis of return, which was already filed and therefore, notice issued under Section 148(1) on 31.03.2007 is per se without jurisdiction. 5. It is further submitted that assessee had given donation to another Trust having similar objects and in this regard, additional documents were filed before Commissioner of Income Tax (Appeals) and remand report from Assessing Officer was called for. However, in remand report, Assessing Officer did not offer any comments to additional documents produced by assessee. It is also argued that even if benefit is given to section of society, object of charity is fulfilled and depreciation has to be allowed to 11 assessee viz., Charitable Trust also, as expenditure on acquisition of assets, which has to be computed in commercial manner even though, Trust may not be carrying on any business. In this regard, our attention has also been invited to Circular issued by Central Board of Direct Taxes dated 19.06.1968. In support of aforesaid submissions, reliance has been placed on decisions in TRUSTEES OF H.E.H. NIZAM S SUPPLEMENTAL FAMILY TRUST VS. COMMISSIONER OF INCOME-TAX , (2000) 3 SCC 501, COMMISSIONER OF INCOME-TAX VS. J.K.CHARITABLE TRUST , (1992) 196 ITR 31 (ALL), ASSISTANT COMMISSIONER OF INCOME-TAX VS. THANTHI TRUST , (2001) 247 ITR 785 (SC), AHMEDABAD RANA CASTE ASSOCIATION VS. COMMISSIONER OF INCOME-TAX, GUJARAT , (1971) 82 ITR 704 (SC), COMMISSIONER OF INCOME TAX-III, PUNE VS. RAJASTHANI AND GUJARATI CHARITABLE FOUNDATION, POONA , 12 (2018) 7 SCC 810, CIRCULAR NO.5-P(LXX-6) OF 1968, DATED 19.06.1968, COMMISSIONER OF INCOME-TAX, KARNATAKA-I VS. SOCIETY OF SISTERS OF ST.ANNE , (1984) 146 ITR 28 (KAR), and K.P.VARGHESE VS. INCOME-TAX OFFICER, ERNAKULAM AND ANOTHER , (1981) 131 ITR 597 (SC). 6. We have considered submissions made by learned counsel for parties and have perused record. Admittedly, assessee is charitable institution registered under Section 12A of Act. Supreme Court in COMMISSIONER OF INCOME TAX VS. ANDHRA CHAMBERS OF COMMERCE , (1965) 55 ITR 722 held that object beneficial to section of public is object of general public utility. It has further been held that in order to serve charitable purpose, it is not necessary that object should be to benefit of whole of mankind or all persons in particular country or state and it is sufficient, if 13 intention is to benefit section of public as distinguished from specified individual is present. aforesaid view was reiterated with approval in AHMEDABAD RANA CASTE ASSOCIATION supra. On touchstone of aforesaid well settled legal position, even if order of Assessing Officer is seen, it can be deciphered from para 7 of order that prasadam has been distributed to visitors. Commissioner of Income Tax (Appeals) in paragraph 5.2 has held that Assessing Officer has ignored submission made by assessee that assessee provides free meals to general public on every Sunday morning in free distribution hall and therefore, finding recorded by Assessing Officer that assessee has not carried any charitable activity is perverse. aforesaid finding has also been affirmed by Income Tax Appellate Tribunal by holding that all pilgrims who visit ISKON Temple are served with Prasadam without probing into their caste, creed, religion and nationality. Thus, 14 expenditure has definitely been incurred on section of society and therefore, same would tantamount to charitable purpose. aforesaid concurrent findings of fact have been recorded by Commissioner of Income Tax (Appeals) as well as Income Tax Appellate Tribunal on basis of meticulous appreciation of evidence on record. No perversity could be pointed out in aforesaid concurrent findings of fact. Therefore, in fact situation of case, first substantial question of law in fact, does not arise for consideration as assessee was carrying on charitable activity. 7. It is well settled in law that income of trust has to be computed in normal commercial manner and only real income has to be taken into account. loss of sale of investment is not allowable in computing income for purposes of Section 11 of Act. [See: COMMISSIONER OF INCOME TAX- III vs. RAJASTHANI AND GUJARATI CHARITABLE 15 FOUNDATION, POONA supra]. In context of aforesaid well settled legal principle, second substantial question of law may be examined. It is pertinent to note that Assessing Officer during course of assessment did not ask for any document from assessee for making advance. assessee before Commissioner of Income Tax (Appeals) had filed application under Rule 46A of Income Tax Rules, 1962 on 25.02.2008. aforesaid paper was forwarded to Assessing Officer. Assessing Officer submitted remand report, however, Assessing Officer did not offer any comment with regard to additional evidence adduced by assessee before Commissioner of Income Tax (Appeals). purchase of immovable properties for purposes of objects of Trust is application of income and even if assessee has earned income from selling land for achieving objects of Trust, same would be allowable under Section 11 of Act. Tribunal 16 has also held that as per prevalent accounting principles which clearly lay down that loss on sale of investment should be taken into account while determining commercial income, assessee is entitled to expenditure in respect of provision for doubtful debt. Accordingly, aforesaid substantial question of law is answered against revenue and in favour of assessee. concurrent findings of fact on both substantial questions of law have been recorded by Commissioner of Income Tax (Appeals) as well as Income Tax Appellate Tribunal on basis of meticulous appreciation of evidence on record. No perversity could be pointed out in aforesaid concurrent findings of fact. It is well settled in law that until and unless perversity is pointed out in concurrent findings of fact, this court in exercise of powers under Section 260A of Act cannot interfere with concurrent findings of fact. 17 In view of our answer to common questions of law involved in both appeals, it is not necessary to answer additional substantial question of law. In result, we do not find any merit in these appeals. same fail and are hereby dismissed Sd/- JUDGE Sd/- JUDGE ss Director of Income-tax Exemptions, Bangalore / Dy. Director of Income-tax Exemptions, Circle-17(1), Bangalore v. Iskcon Charitie