DIRECTOR OF INCOME TAX Vs. ISKCON CHARITIES

JUDGEMENT

(1.) These appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) have been preferred by the revenue. The subject matter of I.T.A.No.415/2011 pertains to Assessment Year 2004-05, whereas, the subject matter of I.T.A.No.407/2011 pertains to the 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. The appeals were admitted by a bench of this Court vide order dated 17.09.2012 on the following substantial questions of law:

(2.) For the 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 the assessee is a Trust and has been incorporated with an object to provide educational, medical relief to the poor and to provide services of general public utility. For the Assessment Year 2004-05, the assessee filed the return of income on 31.03.2006, by which total expenditure of Rs.23,46,79,122/- was shown over income. The assessee claimed a sum of Rs.17,04,250/- being a provision for bad and doubtful debts. The assessment was re-opened under Section 147 of the Act by issuance of notice under Section 148 of the Act dated 31.01.2007, which was served on the assessee on 02.02.2007. The assessee by a communication dated 28.02.2007, requested return of income filed on 31.03.2006 as response to notice under Section 148 of the Act. The Assessing Officer by an order dated 31.12.2007 inter alia held that free food, which was claimed to have been distributed to the weaker section of public in general by the assessee was not substantiated by producing any evidence. It was further held that the assessee distributed 'Prasada' to the visitors who belonged to middle class and the donations, which were collected were not expended for the purposes of which the 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 a provision and the same cannot be treated as provision for bad and doubtful debts. Accordingly, the Assessing Officer completed the assessment and levied tax and penalty. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order dated 19.01.2009 inter alia held that the activities carried on by the assessee were charitable in nature and bad debts were found to be allowable deduction as the party to whom the amount was advanced was not traceable. Thereupon the assessee approached the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by an order 13.05.2011 inter alia held that the Assessing Officer had no locus standi to examine the activities carried on by the Trust while passing an order of assessment and once an order of exemption has been passed under Section 11 of the Act, the Assessing Officer is bound by the same. It was further held that provision for bad and doubtful debt is a necessary charge as per accounting principle and even if Section 11 of the Act is not applicable, the same has to be allowed. Accordingly, the Tribunal allowed the appeal preferred by the assessee. In the aforesaid factual background, these appeals have been filed.

(3.) Learned counsel for the revenue submitted that order of re-opening of the assessment was justified and additional substantial question of law cannot be examined at the instance of the assessee. It is argued that the Assessing Officer has examined the issue whether the assessee has incurred expenditure to achieve objects of the trust and therefore, the Tribunal erred in holding that the Assessing Officer had no locus to examine the activities of the Trust. It is also submitted that burden was on the assessee to prove the fact that the expenses incurred were towards object of the trust and the assessee has failed to discharge the same. It is also pointed out that the Tribunal has proceeded on erroneous assumption that the assessee has questioned the objects of the Trust. It is also argued that the Tribunal ought to have appreciated that purpose of making an advance to a party has to be made in the course of business and then only the assessee is entitled to write off the same as expenditure as provision for bad and doubtful debt. In the instant case, the assessee has failed to demonstrate that the 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 the Supreme Court in 'VIJAYA BANK VS. COMMISSIONER OF INCOME-TAX AND ANOTHER', (2010) 323 ITR 166 (SC).