A trust’s income must be assessed under Sections 11-13 once its tax registration is restored.

ORDER

1. These two appeals have been filed by the assessee against the separate orders of the ld. CIT(A)-3, Lucknow dated 19.03.2024 and 22.03.2024, passed under section 250 of the Income Tax Act, 1961, for the A.Ys. 2017-18 and 2018-19, dismissing the appeals of the assessee against orders passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961. The grounds of appeal are as under:-

ITA No.181/LKW/2024

“(1).That the Ld. Authorities below have erred in law as well as on facts in not considering the fact that in the alleged assessment order, the columns of name of assessee, PAN, Asst year, date of assessment and section under which passed, are blank.

(2)That the Ld. Authorities below have erred in law as well as on facts in treating the demand as valid which was not computed on the basis of order that may not be termed to be an order under section 143(3).

(3) That a demand of tax as computed in the computation sheet is without jurisdiction void-ab-inito and is liable to be annulled.

(4) That the Ld. Authorities below have erred in law as well as on facts in confirming the addition of Rs. 736591857/- comprising

And thus confirming the demand that is raised.

(5) That the entire demand of Rs. 35,32,80,589/- is infructuous and without jurisdiction and is liable to be deleted.

(6) That the appellant craves leave to add, amend or alter any grounds of appeal.”

ITA No.182/LKW/2024

1. On the facts and circumstances of the case, the order passed by the learned authorities below is bad both in the eye of law and on facts.

2. On the facts and circumstances of the case, the order passed by Ld. authorities is without jurisdiction and needs be annulled.

3. On the facts and circumstances of the case, the matter of jurisdiction of Ld. A.O. is subjudice. As such the order passed by Ld. AO is against law.

4. On the facts and circumstances of the case, the assessment order passed by the learned authorities below is in violation of the principle of natural justice and without giving adequate time and opportunity to the assessee to represent its case and to file its replies and clarification, is bad in the eye of law and liable to be quashed.

5. On the facts and circumstances of the case, the learned authorities below have erred, both on facts and in law, in making assessment at an income of Rs. 50,48,01,279 as against NIL income declared by the assessee.

6. On the facts and circumstances of the case, the learned authorities below have erred, both on facts and in law, in making the assessment in the status of AOP as against the status of the Charitable Trust claimed by the assessee.

7. (1) On the facts and circumstances of the case, the learned authorities below have erred, both on facts and in law, in adding the excess of income over expenditure amounting to Rs.30,48,01,279 in the income of the assessee, thereby denying it the exemption under Section 11 of the Act.

8. The learned authorities below have erred in law as well as on facts in not allowing the charitable expenditure at Rs. 20 crore, being donation to other charitable trust registered under section 12A and having recognition under section 80G(5) is also against law.

9. While passing order treating the Trust as business entity Ld. A. O. was under obligation to allow deduction under section 80G. However, no such deduction is allowed.

10. On the facts and circumstances of the case, the learned authorities below have erred, both on facts and in law, in charging interest under Sections 234A, 234B and 234C of the Act.

11. The appellant craves leave to add, amend or alter any of the grounds of appeal.”

2. The facts of the case are that, in the assessment year 2017-18, the ld. AO observed that the registration of the assessee trust had been cancelled by the ld. PCIT (Central), Lucknow, vide his order under section 12AA(3) of the Income Tax Act, 1961 passed on 20.03.2019. In view of the same, he held that the assessee was not eligible to claim the benefit of sections 11 and 12 of the Income Tax Act, 1961. From a perusal of the return of income, he found that the assessee had claimed the benefits under these sections in its return. Accordingly, the assessee was asked to show cause in this regard and after considering the reply of the assessee, the ld. AO added back a sum of Rs.7,68,95,000/- received as corpus donation. He also brought the surplus of Rs.18,18,45,925/-to tax, which had been claimed as exempt under section 11(1) of the Act. The ld. AO also disallowed the accumulation of Rs. 22,00,00,000/- under section 11(2) of the Act and furthermore added back the same of Rs.14,96,91,583/- claimed as purchase cost of fixed assets and application of income. However, he thereafter allowed a deduction of Rs.1,55,15,994/-, being the depreciation on the same. The ld. AO also observed that the assessee had deposited cash amounting to Rs. 5,59,55,800/- in its various bank accounts during the demonetization period. He asked the assessee to furnish copies of the cash book and comparison chart of monthly cash deposits of F.Y. 2016-17 and F.Y. 2015-16 along with explanation of significant increase in the F.Y. 2016-17. However, he recorded that the assessee neither furnished copy of the cash book nor any other details in this regard though asked specifically. Accordingly, he held the cash credit of Rs.5,59,55,800/- to be unexplained and added the same back under section 68 of the Act. Finally, noticing that the assessee had claimed an aggregate expenditure of Rs.67,71,75,436/- (excluding depreciation), as expenses in its income and expenditure account, the ld. AO asked the assessee to furnish copies of bills and vouchers related to such expenses, but the assessee furnished only the ledger accounts. Therefore, the ld. AO held, that as the genuineness of the expenses could not be verified, leakages could not be ruled out and on this account and he added back 10% of such expenditure amounting to Rs.6,77,19,543/-.

3. In the assessment year 2018-19, the ld. AO observed that a donation of Rs.4,00,00,000/- had been made to M/s Keshraj Educational Trust and another donation of Rs.16,00,00,000/- had been given to M/s Varunarjun Trust and that these donations had been parked by those trusts in bank accounts in the form of fixed deposits. However, since the assessee was not eligible to claim the benefits of sections 11 and 12, in view of the order under section 12AA(3) of the Act dated 20.03.2019 passed by the ld. PCIT, Central, therefore, donations were held to be not allowable as a deduction to the assessee and therefore, were added back to the income of the assessee. The ld. AO further noted that during the assessment year in question, the assessee had incurred excess of income over expenditure of Rs.30,48,01,279/- and in view of the cancellation of the registration of the trust, held the same to be liable for taxation. Accordingly, an addition of this amount was also made.

4. Aggrieved with the said assessment orders, the assessee filed appeals before the ld. CIT(A)-3, Lucknow. In the assessment year 2017-18, the assessee submitted that it was a public charitable trust formed on 26.05.1998 and registration under section 12A had been granted to it since its inception, by the CIT Bareilly, vide his order dated 26.06.1999. The assessee trust had filed its return of income at nil income on 15.11.2017 and the case was taken up for scrutiny. Subsequently, an assessment order was uploaded on the internet on 31.12.2019, in which its income was assessed at Rs.73,65,91,860/- and a demand of Rs.57,91,04,955/- was raised. It was also submitted that a demand notice was issued separately, in which income derived during the previous year were shown at Rs.122,87,32,944/-, but this was invalid because the assessment order showed an assessed income of Rs.73,65,94,860/-. It was submitted that the present appeal was against the notice of demand of Rs.57,91,04,955/- issued on 31.12.2019 but as this demand of tax was void ab initio, it was liable to be annulled. It was also argued that even the alleged assessment order was void, because the columns of the name of the assessee, PAN, assessment year, date of assessment and section under which the order was passed, all had been left blank. Therefore, it was submitted that the entire demand was infructuous, without jurisdiction and liable to be deleted. On the merits of the case, the assessee submitted that the ld. AO had not doubted the authenticity of the donations towards corpus, or the accumulation under section 11(2). He had also not doubted the additions to fixed assets, but had only made the disallowance on account of the fact that the registration of the trust had been cancelled by the Pr. CIT, Central, Lucknow. Similarly, the excess of income over expenditure had also been brought to tax only on this account. However, in the assessments for the assessment years 2013-14, 2014-15, 2015-16 and 2016-17, which were also reopened by issue of notice under section 148 on account of the cancellation of registration under section 12A, the assessments had been completed at nil income after allowing the benefit of section 11, on account of the restoration of registration under section 12A of the Act through an order dated 20.10.2021 and while the Department had filed appeal against the said order of the ITAT, the same was pending adjudication before the Hon’ble Allahabad High Court. With regard to the addition of Rs. 5,59,55.800/- under section 68, it was submitted that the said deposits were made out of the cash available with the assessee and the assessee explained such cash in hand, as arising out of fees received from various persons. It was submitted that there was no basis for making the addition as the amount stood recorded in its books and reflected in its income and expenditure account. It was further submitted, that an addition of Rs.6,77,19,453/- was unjustified, because the said addition had been made without pointing out even the smallest defect in the accounts, in respect of the expenditure incurred. It was submitted that the assessee trust keeps all the bills and vouchers and in case of any doubt, specific vouchers could have been called for. However, after the notice dated 19.11.2019, no further query letter was issued and no such query had been raised before the counsel after he had produced the books of account. In the absence of rejection of the books of account and in the absence of pointing out any bogus expenditure, there was no basis to disallow 10% of the expenses. Furthermore, it was submitted that the assessee was a public charitable trust and no tax benefit could accrue on claiming bogus expenditure as the income of the trust was not chargeable to tax on account of the availability of exemption under section 11. Furthermore, in assessment years 2013-14, 2014-15, 2015-16 and 2016-17, no such disallowance had been made. It was further submitted that in the case of the assessee, a search and seizure proceeding had been carried out under section 132 of the Act on 18.09.2014. Subsequent to the search proceedings, the assessee had filed an application for settlement before the Hon’ble Settlement Commission on 5.01.2017, which had been admitted by the Hon’ble Settlement Commission under section 245D(1) of the Act, for the assessment years 2009-10 to 2015-16 and it had also challenged the notice under section 153A, in a writ petition before the Hon’ble Allahabad High Court. The Hon’ble Allahabad High Court had dismissed the writ petition on the grounds that the assessee was already pursuing alternative remedy before the Settlement Commission. Subsequently, the assessee went in Special Leave Petition before the Hon’ble Supreme Court and the Hon’ble Supreme Court directed, that the jurisdictional questions raised by the assessee needed to be disposed of on merits and for the same it remanded the matter back to the Hon’ble Allahabad High Court. The Hon’ble Allahabad High Court thereafter stayed the Settlement Commission’s proceedings till it decided the legal issue and accordingly, the Settlement proceedings remained pending for adjudication. Subsequent to discovery of certain allegedly incriminating documents during the search, the ld. PCIT, Central Lucknow had cancelled the registration on 20.03.2019 and the assessee had filed an appeal against this before the ITAT and also a writ petition before the Hon’ble Allahabad High Court. While the writ petition had been admitted and was pending adjudication, the assessee’s appeal had been disposed of by the Hon’ble ITAT and the registration under section 12A had been restored. Aggrieved by this order of the ITAT, the Department had gone before the Hon’ble High Court but the decision of the Hon’ble High Court was still pending on the issue. Hence the trust enjoyed exempt status and the additions made were not sustainable.

5. The ld. CIT(A) after considering the arguments of the assessee on the legal grounds raised, with regard to the validity of the demand, noted that the case had been selected for scrutiny under the CASS and a notice under section 143(2) had been issued by the ld. AO and duly served upon the assessee. During the assessment proceedings, the assessee had furnished its submissions and attended the hearing from time to time. The issue of jurisdiction had not been raised during the assessment proceedings therefore she held that there was no question of accepting the plea that the jurisdiction was not vested in the Assessing Officer. She also noted that in the Form No.35, the assessee had mentioned the details of the assessment order and the date of the assessment order, the amount of income etc. Therefore, since the assessee was well aware about the assessment order, it could not make the plea that the demand notice did not arise out of the said assessment order. She also invited attention to the provisions of section 292B of the Act and held that the mere absence of details regarding the assessee in the columns preceding the order, which appeared to have been caused due to technical glitches, would not invalidate the order when the notice of demand as well as the assessment order bore a DIN and the assessment order was uploaded on the portal. Therefore, she held that the assessment order could not be regarded as invalid. On the discrepancy between the assessment order and the demand notice, she advised the assessee to pursue remedies under section 154. Thereafter, on consideration of the merits of the case, she observed that despite the restoration of registration of the trust the trust still had to fulfil the conditions of sections 11 & 12 to get the exemption. In this context she observed that the assessee had failed to furnish confirmation letters from five donors, who had purportedly donated to the corpus. She examined the corpus donations under the provisions of section 11(1)(d) of the Act and came to the conclusion that some of the donors had not made voluntary contributions but that these had been made on the request of the assessee trust. Thus, she held that the donation of Rs.1,95,40,000/- does not fall under the head, ‘corpus donation’ for the purposes of section 11(1)(d) of the Act. She further noted that there was no specific direction in the said letters that pointed to the purpose for which the donations had been made. Since the mention of specific purpose was missing, the said donations could not fall under the ambit of corpus donations. With regard to the accumulation under section 11(1) of the Act, the ld. CIT(A) observed that the assessee could be permitted to accumulate atleast 15% of its income, if it exercised the option to do so before the expiry of the time allowed under section 139(1) of the Act and as per rule 17 of the Income Tax Rules, 1962, this option had to be exercised in Form No.9A. However, the assessee had failed to furnish Form 9A and therefore, the amount of Rs.18,18,45,925/- would not be treated as application of income and therefore, the exemption under section 11(1)(a) was not allowable to the assessee. With regard to the accumulation of income in excess of 15%, amounting to Rs.22,00,00,000/-, sought to be accumulated in terms of section 11 sub-section 2 of the Act, the ld. CIT(A) acknowledged that the assessee had furnished Form 10 as prescribed in Rule 17(2) of the Income Tax Rules, 1962, but stated that section 11(2) of the Act enjoins on the assessee to state the specific or concrete purpose to which its income was being accumulated, for application at a later point of time. She acknowledged the fact that the setting apart an accumulation could be for more objects than one, but the same had to be specified in Form No.10. The generality of the objects of the trust could not take the place of specificity of the need for accumulation. Holding that the same was the legislative intent and that the assessee had not specified the purpose of the accumulation in Form 10, the ld. CIT(A) held that the assessee did not qualify for accumulation of income under section 11(2) of the Act and therefore, held that the same was liable to be added back to the income of the assessee. On the issue of disallowance of Rs.14,96,91,583/- of capital expenditure, the ld. CIT(A) observed that the assessee had constructed these assets out of huge profits generated from the hospital and educational institutions run by it and since these assets had been constructed and purchased out of its income, with a view of expanding institution and earning more income, even though the trust had been granted registration under section 12A, the expenditure claimed by the assessee in respect of capital expenditure towards of application of income should be denied, as it was not for charitable purposes. The ld. CIT(A) also referred to the deposit of cash of Rs.5,59,55,800/- in cash and observed that the assessee had failed to furnish the information during assessment proceedings. However, during remand proceedings, the assessee had furnished information to claim that cash deposits of Rs.2,85,57,800/- were made out of the fees received from the students’ parents for which PAN had been provided. However, cash had also been received amounting to Rs.2,15,34,668/- from identifiable persons whose PANs were not available and from unidentifiable persons at Rs.51,33,332/-. The ld. CIT(A) observed that the fees range from Rs.1,000/- to Rs.16,95,000/- and observed that the cash deposit claimed to have been paid by students towards fee, seemed to be improbable. A majority of payments were seen to be more than Rs.5,00,000/- each and from the same, the ld. CIT(A) concluded that the assessee trust had actually been receiving capitation fees under the guise of donation. She held that since charging of capitation fees had been held to be illegal by the Hon’ble Supreme Court in the case of Modern Dental College & Research Centre v. State of Madhya Pradesh [Civil Appeal No. 4060 of 2009, dated 2-5-2016], they were a violation of the Prohibition of Unfair Practices in Technical Education Institution, Medical Education and Universities Act, 2010. Since the assessee has failed to furnish any documentary evidences to substantiate its claim that the cash deposit had been made out of known and genuine sources, accordingly she held that cash deposited during the demonetization period had rightly been added back to the income of the assessee. On the disallowance of expenditure to the extent of Rs.6,77,19,543/-, she observed that the assessee was required to furnish various details along with copies of bills and vouchers relating to such expenses during the assessment proceedings, but had only furnished copies of ledger accounts and no other details. She noted that the matter had been remanded back to the ld. AO and even in remand proceedings, only ledger accounts were submitted before the ld. AO by the assessee. Since the onus, which was on the assessee to prove the genuineness of the expenses, had not been discharged by furnishing supporting documentary proof, she was of the view that the expenses had been rightly disallowed and accordingly she confirmed the addition.

6. In the assessment year 2018-19, regarding the issues of addition of Rs.50,48,01,279/- against nil income declared by the assessee, the assessment as an AOP against the status of charitable trust and the addition of excess of income over expenditure amounting to Rs.30,48,01,279/- after denying the assessee the benefit of section 11, the ld. CIT(A) took note of the submissions of assessee that the additions had been made merely on the ground that in the case of the assessee trust, registration under section 12A had been cancelled by the Pr. CIT and that 12A registration could not be cancelled retrospectively. She further recorded the submissions of the assessee that the donations given by the assessee trust to other trusts had also been denied only on this basis. She held that the case had been centralized consequent to search and seizure operation and the necessary notices had been issued by the Assessing Officer providing opportunities to the assessee and the order under section 143(3) had been passed after examining the explanations and submissions made by the assessee and in view of the same, she was of the opinion, the assessment order was neither invalid in the eyes or law or on facts. On the issue of jurisdiction not vesting with the ld. AO and the order being passed in violation of the principles of natural justice, she held that at the time of passing the order, the assessee trust did not have registration under section 12A of the Act and the registration was only subsequently restored by the ITAT. The ld. AO was justified in completing assessment based on the facts prevailing at the time when he passed the order. Further, she noted that notices under section 142(1) had been given on numerous occasions and therefore, she did not find any merits in these grounds laid by the assessee. On the merits of the case, she held that restoration of registration under section 12A does not automatically entitle the assessee to claim exemptions under section 11(1) and section 11(2) of the Act unless the requirements of these sections of the Act read with Rule 17(2) of the Income Tax Rules and other relevant provisions of the Act were fulfilled. Going through the provisions of section 11(1)(a), she held that income derived from property held under trust was to be treated as exempt to the extent that such income was applied to charitable purposes in India. She remanded the matter to the assessing officer for examination of this and noted the submissions of the Assessing Officer in the remand report that the main object of the assessee trust was to provide medical relief and medical education but the main object of M/s Keshraj Educational Trust (to whom a donation of Rs. 4 crores had been made) was to establish and support educational institutions like Management Colleges, Engineering Colleges and other Professional Colleges. Furthermore, that trust was not maintaining/ running any hospital since its inception till date. The ld. AO had also pointed out that the donation received from the assessee trust had not been utilized fully by the donee trust and therefore, placing reliance on the decision of the Hon’ble ITAT Allahabad Bench in the case of Nazareth Hospital Society v. Dy. CIT(Exemption) 394 (Allahabad – Trib.), she held that donation made by one charitable trust to another charitable trust will only be treated as application of income in the hands of the donor-trust, if the other charitable organization advances the same cause as that of the of the donor charitable trust. She considered the judgments of the Hon’ble Andhra Pradesh High Court in the case of CIT v. J.K. Charitable Trust 602/196 ITR 31 (Allahabad) and the judgment of the Hon’ble Delhi High Court in the case of the Mool Chand Khairati Ram Trust v. DIT (Exemptions)  222 /377 ITR 650 (Delhi) and thereafter upheld the disallowance of Rs.4,00,00,000/- on account of the donation given to M/s Keshraj Educational Trust as it did not comply with the mandate of section 11(1)(a) of the Act. She also took note of the Assessing Officer’s remand report which found that three trustees of the assessee’s trust were also trustees in the case of M/s Keshraj Educational Trust and M/s Varunarjun Trust and she held that this constituted a violation of section 13(3) of the Income Tax Act, 1961 therefore, she upheld the decision of the AO to disallow Rs.20,00,00,000/- on account of donations made to related trusts. On the exemption claimed by the assessee amounting to Rs.30,48,01,279/- being surplus of income under section 11, she pointed out that even if one instance of application or use of the income or property of the trust directly or indirectly for the benefit of any prohibited person arose, the trust will lose exemption in respect of the entire income. Since the trust had violated the provisions of section 13(1)(c)(ii) of the Act, it was not entitled to exemption under section 11 of the Act on the entire surplus of the assessee amounting to Rs.30,48,01,279/- and therefore, she confirmed this addition also and dismissed the appeal of the assessee trust on these grounds. She also rejected the plea of the assessee that the Assessing Officer was under obligation to allow deduction under section 80G, pointing out that no written submissions had been furnished in support of these grounds and also noted that donations made to M/s Keshraj Educational Trust and M/s Varun Arjun Trust had been claimed as application of income and not claimed as deduction under section 80G. In view of these facts, she held that the ground raised by the assessee did not have any force whatsoever. She also upheld the decision of the Assessing Officer to levy interest under sections 234A, 234B and 234C of the Act and thus came to dismiss this appeal also.

7. The assessee is aggrieved at these dismissals of its appeals by the ld. CIT(A) and has accordingly come in appeal before us. Sh. Rakesh Garg, Advocate (hereinafter referred to as the ld. AR) offering arguments in favour of the assessee’s claims, submitted that the entire order was invalid in the eyes of law as the name of the assessee, the PAN, the assessment year, the date of assessment and the section in which the order was passed were left blank. Furthermore, it was argued that the demand notice that was issued, bore no relation to the assessment order, because it was not computed on the basis of the income determined in that order. Therefore, it was deserving of being quashed. The ld. AR pointed out that the ld. CIT(A) had glossed over these fundamental issues and applied the provisions of section 292B to cover up the mistakes, which in fact could not cover such mistakes. She had not even held the demand notice to be unlawful, even though she was clear that it did not arise out of assessment order. Therefore, the ld. AR prayed that the entire demand may be quashed on account of the invalid assessment order. Without prejudice to the above, the Ld AR argued that additions to the income of the assessee had only been made because the ld. Pr. CIT, Central had cancelled the registration of the assessee trust. It was submitted that once the registration of the assessee trust had been restored by the ITAT and had not been reversed by any order of any superior court, the additions that had been made in the hands of the assessee could not be made, because once the objects of the trust had been considered as charitable, then the assessee trust had to be assessed according to the scheme laid down under sections 11 to 13 of the Act and the disallowances made were not sustainable. Thereafter, the ld. Authorized Representative assailed the orders of the ld. CIT(A) and invited our attention to para 10.5.3 of the order of the ld. CIT(A). It was submitted that in the said para, the ld. CIT(A) had made an erroneous observation that the provisions of section 11(1)(d) of the Income Tax Act should be for a specific purpose and that since there was no specific direction as to what purpose the said donation was to be applied to, these could not be regarded as having been made towards the corpus. It was also submitted that the ld. CIT(Exemption) had affirmed the view of the ld. AO that since the assessee had asked for the donation, the donations made towards the corpus were not voluntary. It was submitted that the fact that the assessee requested for the donation did not in any way make the donation involuntary, because the donors had confirmed that they had made the donation voluntarily. Furthermore, it was submitted that the only condition that was laid down in section 11(1)(d), was that there should be a specific direction that the donation should be towards the corpus. There was no requirement that the purpose of the donation should also be stated and the ld. CIT(A) was incorrect in her assumption that this was so. The ld. AR, thereafter, invited our attention to pages 191 to pages 214 of his paper book which contained the letters of the various donors. He pointed out that in almost all the cases, the donors had indicated that they were making the contributions voluntarily and that the donations were being made by them towards the corpus of the trust. In the circumstances, since the conditions of section 11(1)(d) stood complied, there was no occasion for the ld. CIT(A) to sustain the addition made on account of donations to corpus, which had not been and were not required to be taken to the income and expenditure account. The ld. AR, thereafter invited our attention to para 10.6.81 of the order of the ld. CIT(A), in which the ld. CIT(A) had refused to allow the accumulation of Rs.22,00,00,000/- on account of the fact that in its application under in Form 10, the assessee had only mentioned that the accumulation was being done for the purposes of the trust. It was submitted that the assessee had filed Form 10 on 28.10.2017, i.e. before the due date of filing of the return for that assessment year and had mentioned the purpose for which the excess of 15% amount was accumulated or set aparti.e. for the charitable objects of the trust. Our attention was invited to section 11(2)(a) of the Income Tax Act, which required the assessee to state the purpose for which the income was being accumulated and set apart and the period for which the income was being accumulated and set apart in a prescribed format. It was submitted that the assessee had complied with these conditions. It was a public charitable trust running a hospital and providing medical education. These objects had been pursued by it since the inception of the trust and this had been accepted by the ld. AO also. Thus, the purpose for which accumulation was done was clearly indicated and the requirement of law had been duly complied with, in terms of section 11(2)(a). There was no dispute on compliance of section 11(2)(b) and 11(2)(c) that the income should be deposited in specified modes and Form 10 should be filed within the prescribed time. Therefore, there was no justification to hold that the said accumulation was not in accordance with section 11(2). Accordingly, he prayed that the addition made in this regard should be deleted. With regard to the addition of Rs.18,18,45,925/-, being 15% of the income derived from the property held in trust that was set apart as per section 11(1)(a), it was argued that the same was not included in the total income of the assessee as per the scheme of assessment of charitable trusts. The disallowance had only been made because the registration of the assessee had been cancelled but once the registration had been granted by the Tribunal, thus the same was automatically allowable. It was submitted that the ld. CIT(A) was misdirected in saying that the details of the accumulation had to be provided in Form 9A as Form 9A was for cases where 85% of the income could not be applied towards charitable purposes, on account of either non-receipt of the income or for any other cause, which was not there in the assessee’s case and the assessee trust had furnished the details of accumulation under section 11(1)(a) in the ITR filed by it. Therefore, the sustenance of addition on such grounds was unjustified. On the issue of addition to fixed assets, the ld. AR invited our attention to para 10.7.01 of the order of the ld. CIT(A), in which the ld. CIT(A) had disallowed the investment in fixed asset on the grounds that the assessee was earning huge profits and has utilized the same to purchase fixed assets, for the purposes of earning further profits. The ld. AR submitted, that capital expenditure also allowed as application of income for charitable purposes during the year under consideration. It was pointed out that in the remand report, the ld. AO had pointed out, that the assessee had incurred the capital expenditure on fixed assets relating to the hospital run by it and also pointed out, that assets had not been acquired for the other objects of the trust. It was submitted that while the ld. AO had tried to guide the assessee in the manner in which it should spend its funds, he had confirmed that the fixed assets were created for the trust purposes and that the capital expenditure had been incurred for the objects, as per the object clause of the trust. Under these circumstances, the ld. CIT(A) was not justified in holding that the expenditure on capital assets was not allowable, because they were only made with a view of earning further income. It was submitted that the assessee was a public charitable trust and any income earned by the trust, would only subsequently be applied towards the objects of the trust i.e. charitable purposes. Therefore, it was prayed that the addition may be deleted. As regards, the issue of depreciation, the ld. AR submitted that once the claim for investment in capital assets was allowed as an application of income, he had no objection to the withdrawal of depreciation on such assets. The ld. AR, thereafter invited our attention to para 10.8.01 of the ld. CIT(A’s) order on the issue of cash deposit. It was pointed out that the ld. CIT(A) had come to a completely erroneous conclusion that the cash deposits were made out of capitation fees or that they were unexplained by the details filed by the assessee. It was submitted that during the remand proceedings, the assessee had submitted the details of cash deposited to the ld. AO and the same were contained in para 10.8.2 of the order of the ld. CIT(A). It was submitted that the information that had been submitted by the assessee, had not been disproved at any stage and therefore there was no basis to make an addition under section 68, on this account. Our attention was also invited to the decision of the Hon’ble ITAT Lucknow ‘B’ Bench in the case of Dy. CIT (Exemption) v. Shri Ram Swaroop Charitable Trust [IT Appeal No. 557/LKW/2018, dated 28-6-2019], wherein the Hon’ble ITAT had held that section 68 had no application to the facts of that case, because the assessee had disclosed the donations as its income and it could not be disputed that all receipts, other than corpus donations, would be income in the hands of the assessee. It was argued that in this case also, the amounts deposited by way of cash had been disclosed as the income of the assessee trust and therefore, without rejecting the explanation submitted by the assessee, no part of the same could be brought to tax under section 68 of the Act. On the issue of ad hoc disallowance of 10% on account of unverified expenses that had been sustained by the ld. CIT(A) on the grounds that only ledgers had been produced and no bills and vouchers had been produced, it was submitted that the assessee was a public charitable trust and was maintaining all the bills and vouchers. It was in a position to produce whatever was required so as to justify the expenses. However, had they been specifically asked for they would have been submitted. Even otherwise, it was held that there was no justification for making ad hoc disallowances. If the AO had any doubts with regard to any expenditure, he could do further enquiries and disallow that expenditure, but there was no justification for assuming that there had been leakages and the disallowances had therefore merely been made on surmises and conjectures. He invited our attention to various decisions of the Tribunals and the Hon’ble High Court, wherein it had been consistently held that ad hoc disallowances of this nature were not sustainable. Accordingly, it was prayed that the disallowances made may kindly be deleted.

8. Arguing on the additions sustained by the ld. CIT(A) in the assessment year 2018-19, the ld. AR held that the facts brought out by the ld. AO in the remand report did not indicate that the funds of the trust had not been utilized for the objects of the trust. It was submitted that the ld. AO had himself brought out that the object clause of M/s Keshraj Educational Trust makes mention of establishment, maintenance and support of institutions and hospitals and this was in accordance with the objects of the assessee trust. The donations so advanced had not been utilized for any other purpose as brought out by the ld. AO himself, but had been invested in the specified modes and therefore, ought not to have been disallowed on that account. Furthermore, in respect of M/s Varunarjun Trust and Keshraj Educational Trust, the ld. AO had completely misrepresented the provisions of section 13 of the Income Tax Act and held that merely because there were some common trustees amongst the Rohilkhand Educational Charitable Trust, M/s Keshraj Educational Trust and M/s Varunarjun Educational Trust, there was a violation of section 13(3), but this opinion had been arrived at by an erroneous interpretation of section 13(2)(h), because the other trusts could not be said to be concerns, in which the trustees had a substantial interest. It was submitted that there was no finding that the money advanced to these trusts had been spent in any manner so as to give advantage to the trustees and accordingly there was no occasion for the disallowance of Rs.20,00,00,000/- on this account. With regard to the sustenance of addition of Rs.30,48,01,279/-, the ld. AR submitted that the ld. CIT(A) had disallowed the benefit of surplus of income which was exempt as per the provisions of section 11, only on account of the fact that there was perceived violation of section 13(1). However, in view of the fact that in fact there was no such violation, the ld. CIT(A) was unjustified in sustaining the disallowance, accordingly it was prayed that the addition made by the Assessing Officer may kindly be deleted now that the exemption had been restored to the assessee by the ITAT.

9. Shri. H.S. Usmani, CIT DR (hereinafter referred to as the ld. CIT DR), arguing on behalf of the Revenue, pointed out that the ld. CIT(A) had passed speaking orders in which she had pointed out the reasons for rejecting the assessee’s claims. Referring to her order for the Assessment year 2017-18, he submitted that in para 7.2 of her order, the ld. CIT(A) has pointed out that the case was selected for scrutiny under CASS and a notice under section 143(2) was duly served upon the assessee. Furthermore, in response to notices under section 142(1) of the Act, the assessee had furnished submissions and attended hearings. On perusal of the notice of demand issued under section 156, it was noted that the PAN number, date, assessment order etc. had all been specifically mentioned along with the DIN and notice number. On perusal of the assessment order, it had been noted that DIN and order number had been mentioned. Both the assessment order as well as the notice of demand had been digitally signed by the Assessing Officer on 31.12.2019 at 10:35 pm. The ld. CIT(A) has also pointed out how the assessee was well aware that an assessment order for the instant assessment year was awaited in its case. Furthermore, the ld. CIT(A) had pointed out that there was no confusion in the mind of the assessee while filing Form 35, as the assessee had mentioned all the details which it stated was missing in the order such as the section under which the order was passed, the date of the order, the assessment year, the amount of income assessed, the total addition to income and the amount of disputed demand. Thus, in the instant case, when the order that was issued was in conformity with and according to the intent and purpose of the Act, the same could not be held to be invalid only because there were certain omissions in the said order due to technical mistakes while uploading. The ld. CIT DR submitted that in view of this judicious finding in the order of the ld. CIT(A), no interference was called for and the order could not be invalidated on this account. On the issue of erroneous computation of tax as reflecting in the demand notice, the ld. CIT DR pointed out that the same would not invalidate the tax notice, but the assessee was entitled to seek rectification of the same and the ld. CIT(A) had accordingly advised him so. Thus, there could be no challenge to either the assessment order or the demand notice. On the issue of disallowance of corpus donation, the ld. CIT DR submitted that the Assessing Officer and the ld. CIT(A) had clearly brought out that the donations were not made voluntarily, but had been actively sought by the assessee and therefore, the assessee was not entitled to the benefits as laid down under section 11(1)(d). On the issue of accumulation under section 11(2), the ld. CIT DR invited our attention to paragraph 10.6.3 of the order of the ld. CIT(A) in which he pointed out that the ld. CIT(A)had elaborately discussed why specification of purpose was a requirement of section 11(2) of the Act and generality of the objects of the trust could not take the place of specificity. He submitted that no section could be read in a manner that rendered its provisions otiose. When sub section (2) of section 11 requires specification of purpose, then the purpose was required to be indicated. It could not be argued that by accumulating for the generality of the objects of the trust, the purpose was being indicated, because in any case a charitable trust could not apply its income for any purpose other than the objects. Thus, the very fact that the statute requires the purpose for accumulation to be specified, implied that such a purpose should be a concrete one and one must be stated. The ld. CIT(A) had clearly brought this out in her order and therefore, the addition of Rs.22,00,00,000/- made on this account deserved to be sustained. With regard to the amount of Rs.18,18,45,925/-, being 15% accumulated under section 11(1)(a) and the addition of Rs. 13,41,75,589/- on account of investments in capital assets, the ld. CIT DR relied upon the orders of the ld. CIT(A). With regard to the addition of Rs.5,59,55,800/- under section 68 and addition of Rs. 6,77,19,543/- by way of ad hoc disallowances, the ld. CIT(DR) submitted that the additions had been made primarily because the assessee had failed to furnish supporting evidences and therefore, he would not have objection to the matter being remanded back to the Assessing Officer for re-examination, after considering those evidences which the assessee claimed to possess.

10. On the disallowances relating to assessment year 2018-19, the ld. CIT DR pointed out that it had very clearly been brought out by the AO and the ld. CIT(A), that the donations to M/s Keshraj Education Trust were made to an organization that did not have similar objects and that the donations had been made to trusts in which the trustees of the assessee trust had substantial interest. Thus, it fell into section 13(2)(h) and was a violation of section 13(1)(c). In the circumstances, the ld. CIT(A) was justified in disallowing Rs. 20,00,00,000/- as application of income on this account and also in denying the exemption to the assessee trust for violation of section 13(1)(c). He also justified the action of the Ld CIT(A) in disallowing the surplus of Rs.30,48,01,279/-, submitting that once the fact of violation of section 13(1)(c) had been established, the assessee trust forfeited its exemption altogether and in the alternative fell short of the threshold of 85% expenditure for charitable purposes. He therefore prayed that the additions may be upheld

11. We have duly considered the facts and circumstances of the case and the arguments of the rival parties. At the very outset, we note that the disallowances were made by the Assessing Officer primarily on account of the fact that the registration of the assessee trust had been cancelled by the Pr. CIT, Central, Lucknow with retrospective effect on 20.03.2019. Subsequently, upon restoration of the registration vide orders of the ITAT Lucknow Bench in Rohilkhand Educational Charitable Trust v. Pr. CIT (Central) [IT Appeal No. 737/LKW/2019, dated 20-10-2021], the additions made by the Assessing Officer have been sustained by the ld. CIT(A) on examination of other issues that arose during the course of remand proceedings. Thus, the appeal of the assessee is primarily against the modified additions that have been made/sustained by the ld. CIT(A) on account of the findings in the remand report submitted by the Assessing Officer. Be that as it may, in view of the fact that the registration under section 12A stands restored by the aforesaid orders of the ITAT and have not been reversed by any order of the Hon’ble High Court, the income of the assessee would have to be assessed according to the special provisions laid down under sections 11, 12 and 13 of the Income Tax Act, 1961 and any disallowances that are required to be made can only be sustainable within the mandate of those provisions.

12. Before we proceed to adjudicate upon the merits of the additions, it is important to address the legal grounds that have been raised by the assessee against the two assessments. In the assessment year 2017-18, the assessee has drawn our attention to the fact that the assessment order that was issued by the Assessing Officer did not carry the name of the assessee, the date of the order or the section and/sub section under which the assessment was made. Neither did it contain the PAN number of the assessee or the assessment year. The assessee has agitated that, on these accounts, the assessment order is invalid in the eyes of law. However, the ld. CIT(A) has pointed out that the assessment order indicates a DIN number which also contains the section under which the assessment was done and that the same was accompanied by a demand notice that had the PAN number, date, assessment order specifically mentioned DIN and notice number whereby a demand of Rs.57,91,04,955/- had been raised. On these accounts, the ld. CIT(A) has held that there was no confusion in the mind of the assessee and this is evidenced by the appeal filed by the assessee in Form No.35. She has also invited our attention to the provisions of section 292B of the Income Tax Act. We have duly considered the matter. It is true that Assessment proceedings under section 143(3) were initiated in respect of the assessment year in question and proceedings were on going. It is also true that the Assessment Order was uploaded on the portal and was visible to the assessee through its’ log in credentials. The assessment order had a DIN which indicates that it was an order under section 143(3). It is digitally signed by the Assessing Officer. Furthermore, it was accompanied by a demand notice that indicated all the missing details. In view of these facts that make out that a proceeding was validly initiated, ongoing and concluded by way of an order that was communicated to the assessee, we are in agreement with the ld. CIT(A), that the issue is covered under the provisions of section 292B and the omissions in the order cannot invalidate it. As regards the validity of the demand notice, on perusal of the details relating to the same as given in para 8.2 of the order of the ld. CIT(A), it appears that the tax and interest that have been computed against the assessee, do not appear to be in congruence with the income indicated in the demand notice. But in our view, this does not render the demand notice as invalid because it has been issued pursuant to a proceeding and an order. Rather it would be a rectifiable mistake apparent from record which may be corrected either at the behest of the assessee or suo motu by the assessing officer. Therefore, we are not inclined to interfere with the order of the Ld CIT(A) on this issue, especially because the said demand notice would undergo further modification on account of appeal effect to be given, after the passing of these orders. Accordingly, Grounds Nos. 1 to 3 of the Assessee’s appeal in AY 2017-18 are dismissed. As regards, the legal issues taken by the assessee in AY 2018-19 relating to lack of jurisdiction of the Assessing Officer, we observe that following a search, the case of the assessee trust was centralized with the present Assessing officer. The Ld AR has also not offered any arguments to explain why the Ld Assessing Officer did not enjoy the jurisdiction to assess the income of the Assessee. Therefore, we dismiss ground nos. 1 to3 in AY 2018-19 also.

13. Coming to the additions made on account of alleged involuntary contribution to the corpus fund, we note that merely because the assessee wrote to the donors asking them to make donation towards the corpus, does not make these donations as involuntary. The assessee had no power to compel the donors to make these donations against their free will. Therefore, there is no justification in holding that the donations that were made were not voluntary. It is observed that the assessee was subjected to a search under section 132 of the Income Tax Act. However, no material has been brought on record by the Assessing Officer in the course of the assessment proceedings, to suggest any malpractice in the receipt of these donations towards the corpus, on the basis of which it could be held that the donations to the corpus were not genuine. Therefore, the donors having clearly stated that they were making the donation towards the corpus, there is no reason to ascribe an involuntary nature to such donations, only on the fact that the assessee had asked for them, or to prescribe conditions such as purpose of utilization, where the donors have indicated that the donation was towards the corpus. The addition of Rs.7,68,95,000/- made on this account being unsustainable, is therefore liable to be deleted. However, the LD CIT(A) has indicated in her order that the assessee has not placed confirmations in respect of 5 donors amounting to Rs 1,95,40,000/-. Therefore, the donations made by these 5 donors are restored to the file of the assessing officer for submission of their confirmations, while the remaining additions made on account of corpus donations are deleted. With regard to the addition of Rs. 18,18,45,924/- that are claimed as exempt under section 11(1) of the Income Tax Act being upto 15% of gross receipts, we note from a perusal of Form No. 9A and the provisions of Clause (2) of the Explanation to section 11(1) of the Income Tax Act, that such form is to be filed in a case where less than 85% of the income is applied towards charitable purposes on account of the funds not being received or on any other account. There does not appear to be any requirement for the same to be filed in every case prior to the filing of return, where atleast 85% of the income has been applied towards charitable purpose. The assessee already having been granted the benefit of registration under section 12A, can therefore, not be denied the accumulation under section 11(1)(a) of Rs. 18,18,45,924/-. Accordingly, the addition sustained in this regard is unwarranted and is therefore deleted.

14. On the issue of accumulation under section 11(2), this Bench has extensively considered the requirements of the said section in the matter of ITO v. U.P. Awas Evam Vikas Parishad 152 (Lucknow–Trib.)/ITA Nos. 532 & 533/LKW/2014, vide our order dated 28.02.2025. In the same, we have held as under:-

“24.We observe that the facts of the assessee’s case and the arguments presented by the learned AR in furtherance of its’ claim are quite similar to the case of DIT(Exemption) v. Trustees of Singhania Charitable Trust 199 ITR 819 (Cal), as many of the facts in that case resemble that of the assessee parishad. In that case, the assessee, a public charitable trust had claimed exemption under section 11 for assessment year 1984-85, including for accumulation under section 11(2), for which purpose it had filed Form No.10. In the said form, as purposes of accumulation of income, the assessee had listed all the charitable objects for which it was created. These were 16 in number. The resolution passed by the Board of Trustees of the trust was to the effect that the balance of unapplied income of the year was to be accumulated and/or set apart for application to any one or more of the objects of the trust as set out in Item Nos. (I) to (XVI) under paragraph 1 of the deed of the trust. The assessment was completed allowing the exemption under section 11, including accumulation under section 11(2). Subsequently, the ld. Commissioner revised the case under section 263. According to him, section 11(2) contemplated only specific or concrete purposes and since those were not specified by the assessee, the assessment order was erroneous and prejudicial to the interest of revenue. Accordingly, the assessment was set aside. On appeal to the Tribunal, the Tribunal held, that on an examination of the scheme of the Act, since a plurality of charitable purpose was not ruled out, no objection could possibly be taken to the assessee listing out all its objects in Form No.10. It held that it had complied with the provisions of the Act and disagreed with the findings of the Commissioner. Before the Hon’ble Calcutta High Court, it was contended on behalf of the assessee that one purpose of accumulation was interlinked with the other and therefore, the mention of all the purposes did not make any difference and satisfied the requirements of section 11(2). However, the Hon’ble Calcutta High Court observed that the Tribunal’s decision overlooked the scheme relating to accumulation of income for particular future use. It held that while accumulation under section 11(1) could be taken for the broad purposes of the trust as a whole, which is why the statute did not require an assessee to state to specify the purpose, long term accumulation was only permissible under sub- section (2) and that could only be for a definite and concrete purpose or purposes. The Hon’ble High Court held that the assessee had sought permission to accumulate for the objects as enshrined in the trust deed in a blanket or global manner which, in its view, was definitely not in the contemplation of section 11(2), when it was construed in its setting. The Hon’ble High Court held that accepting the assessee’s contention that saving and accumulation of income for future application was for the purposes of the trust under widest terms so as to embrace the entirety of the objects clause of the trust deed, would render the requirement of specification for the purposes of acquisition in that sub-section, redundant. The Hon’ble High Court further observed that when section 11(2) required the specification of the purpose, it did so with the objective of calling an assessee to state some specific purpose, out of the multiple purposes for which the trust stood; had it not been so, there would not have been any mandate for such specification since, in any case, a charitable trust could, in no circumstances, apply its income, whether current or accumulated, for any purpose other than the objects for which it stood. The very fact that the statute required the purpose of accumulation to be stated, implied that such a purpose be a concrete one, an itemized purpose for a purpose instrumental or ancillary for the implementation of its object or objects. The very requirement or purpose predicated that the purpose must have an individuality. The Hon’ble High Court further observed that it was not necessary that the assessee had to mention only one specific object; there could be setting apart and accumulation of income for more objects than one, but whatever the objects or purposes might be, the assessee must specify in the notice, the concrete nature of the purposes for which the application was being made. Plurality of purposes of accumulation may not be precluded, but it must depend on the exact and precise purposes for which the accumulation was intended; generality of the objects of the trust could not take the place of the specificity of the need for accumulation. According to the Hon’ble High Court, the provision of section 11(2) was a concession provision to enable a charitable trust to meet the contingency, where the fulfilment of any project within its object or objects, needed heavy outlay calling for accumulation to amass sufficient money to implement it and, therefore, specification of purpose, as required by section 11(2), admitted of no amount of vagueness about such purposes. The facts of the assessee’s case are exactly similar to the facts in the case of DIT (Exemption) v. Trustees of Singhania and Charitable Trust (supra). In this case also, the assessee has filed the Form 10, in which it has given notice of accumulation for the generality of the objects of the functions of the parishad as enshrined in section 15 of the U.P.A.E.V.P.A. 1965. The ld. AR has submitted that the functions (which are 21 in number) are all inter-related and because the assessee parishad cannot spend any money outside of its objects, it is fully compliant with the requirements of section 11(2) of the Act.

25.Another decision upon which the Ld CIT(A) has relied in order to deny the benefit of accumulation under section 11(2) to the assessee, is that of the Delhi Tribunal in the case of Sir Sobha Singh Public Charitable Trust v. Assistant Director of Income Tax (Exemption) 79 ITD 1 (Del). In this case there was a difference of opinion between the members as to whether that assessee was eligible for accumulation in the given facts of that case and the matter had to be referred to a third member. However, both Members were unanimous in their understanding that specificity was required in the notice in Form 10 for compliance to the provisions of section 11(2). Para 5, of the order written by the Accountant member is worth reproducing in this regard. In the said para it was held as under:-

25.1Thus it has been clearly brought out in the judgments of Trustees of Singhania Charitable Trust and Sir Sobha Singh Public Charitable Trust that the language of section 11(2)(a) as it stood at the time, mandates that the notice under section 10 be specific about the purpose for which the income was being accumulated and a reference to the objects of the trust as the purpose for accumulation, would not meet the requirements of the said section. It is however true, that the Courts are divided on this issue. While the views of the Hon’ble Calcutta High Court in the case of DIT(Exemption) v. Trustees of Singhania Charitable Trust (supra) have been followed by the Hon’ble Madras High Court in the case of CIT v. M.CT Mutthaiah Chettiar Family Trust 245 ITR 400, some other Hon’ble High Courts like the Hon’ble Delhi High Court in the case of CIT v. Hotel and Restaurants Association 261 ITR 190 have held, while refusing to admit Revenue’s appeal, that plurality of purpose of accumulation was not precluded, the purpose or purposes to be specified could not have been beyond the objects of the trust and Revenue had not come to a finding that any of the objects of the assessee-company were not for charitable purposes. The concurrent findings by the lower authorities were findings of fact and they gave no rise to questions of law. Both these judgments had been followed by various other courts and Tribunals. The decision of the Hon’ble Delhi High Court has been followed in subsequent decisions of the Hon’ble Delhi High Court in Bharat Kalyan Pratisthan v. DIT(Exemption) 299 ITR 406 (Del), DIT v. Mitsui and Co. Environmental Trust 303 ITR 111 (Del)and Bharat Krishak Samaj v. DDIT (Exemption) 306 ITR 153 (Del). The ld. Special Counsel has pointed out that the judgment of the Hon’ble Delhi High Court in the case of CIT v. Hotel and Restaurant Association cannot constitute a valid precedent because it related to the question of an admission of a case, which was rejected on the basis of concurrent findings of lower authorities and therefore, could not be read as an exposition of law on the issue of section 11(2). Be that as it may, the fact remains that the said decision has been followed by subsequent orders of the Hon’ble Delhi High Court, as narrated above. However, as the Ld CIT(DR) has pointed out, the Constitution Bench of the Supreme Court in the case of Commissioner of Customs (Import) Mumbai v. Dilip Kumar & Company  327 (SC) has held, that exemption provisions have to be strictly applied and whenever there was an ambiguity in the exemption clause or notification, which was subject to strict interpretation, the benefit of such ambiguity could not be claimed by the assessee, it must be interpreted in favour of the Revenue and the burden of proving the applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. Section 11(2) is not a charging section. Rather it is a section which confers an exemption from tax on the fulfilment of certain conditions. Hence it is to be strictly applied. Therefore considering the decision in CC(I) Mumbai v. Dilip Kumar & others (supra), where in section 11(2)(a), it is written that the person is required to specify the purpose for which the income is being accumulated or set apart, the views in support of such interpretation, as expressed in Singhania Charitable Trust and Sir Sobha Singh Public Charitable trust regarding the requirement of specificity in the notice in Form 10, must be upheld.

26. It is however, pertinent to mention that the Hon’ble Supreme Court in the said judgment of Dilip Kumar, has clarified that, in the said case, they were only concerned with a situation where there was an ambiguity in the exemption notification or the exemption clause. However, with regard to the question of whether a person claiming exemption, was required to comply with the procedure strictly to avail the benefit, the Hon’ble Supreme Court, referred to its own earlier judgment in the case of CCE v. Hari Chand Shri Gopal (2011) 1 SCC 236 in which case, the Constitution Bench had held that, if exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed a fulfilled exactly, though at times, some latitude can be shown, if there is failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. The Constitution Bench in that case, then considered the doctrine of substantial compliance and held in paragraph 33 and 34 of its order as under:-

Thus, considering that that there is no ambiguity in the wordings of section 11(2), the only question left to be determined is whether stating of specific purposes for accumulation in form 10, as provided in section 11(2), was a mandatory or directory condition to claim the benefit of accumulation. If the nature of compliance was mandatory, then it would have to be exactly complied with as laid down by the Hon’ble Supreme Court in the case CCE v. Hari Chand Shri Gopal (supra) but if it was directory then some leeway could be offered, by noting that the assessee had substantially complied with its provisions by filing a Form 10 stating the general purpose for accumulation. We believe the answer to this question lies in the provisions of section 11(3A). Section 11(3A) of the Act reads that, where due to circumstances beyond the control of a person in receipt of income, which has been invested or deposited in accordance with the provisions of clause (b) of sub section (2), cannot be applied for the purpose for which it was accumulated or set apart, the ld. AO may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India, as is specified in the application by such person and is in conformity with the objects of the Trust and thereupon, the provisions of sub section 3 will apply, as if the purpose specified by such a person in the application under this sub section, were a purpose specified in the notice given to the ld. AO under clause (a) of sub-section (2). Thus, from a plain reading of section 11(3A), it becomes clear that specificity of purpose is mandatorily required as per the provisions of section 11(2), failing which, section 11(3A) would be rendered otiose. No provision of the Act can, in our opinion, be interpreted in such a manner, so as to render a related provision as otiose. Therefore, in view of the specific provisions contained in section 11(3A) which point out that, if the assessee who has accumulated the income for a particular purpose cannot spend it for that purpose, he can spend it on any other purpose within its objects, with the permission of the ld. AO, and then such other purpose would be treated as the purpose given in Form No.10 submitted under Rule 17 and section 11(2)(a) as the purpose of accumulation, makes it clear that the said provision could not be operable, if the arguments of the assessee were accepted that the notice of accumulation for the general objectives of trust were compliant with the requirement of section 11(2). In the circumstances, after considering the provisions of section 11(2)(a) and section 11(3A), we are inclined to agree with the ld. CIT(A), that the assessee cannot be allowed the benefit of accumulation on the basis of such a loosely worded notice under section 11(2), that does not enable the ld. AO to subsequently examine whether the purposes for which the amount was accumulated, was actually utilized for such purposes. Therefore, the decision of the Ld CIT (appeals) on this account for the assessment year 2007-08 is accordingly upheld and ground no. 1 of the assessee’s appeal is accordingly dismissed.”

Therefore, following our orders in the aforesaid matter, we hold that the ld. CIT(A) was justified in refusing to allow the accumulation of income by the assessee trust under section 11(2), without stating the specific purpose for which the income was being accumulated. The addition of Rs. 22,00,00,000/- made in this regard is accordingly confirmed.

15. With regard to the disallowance of purchase cost of fixed assets during the year aggregating to Rs.14,96,91,583/-, as being application towards charitable purposes, we observe that the disallowance was only made by the Assessing Officer because of the fact that the assessee was not enjoying exemption under section 11 due to the cancellation of registration under section 12A. However, once the said registration stood restored and it had been established that the said capital expenditure was made for a purpose, which was within the objects of the assessee trust, there does not appear to be any reason for the Assessing Officer to desire its application for any other purpose within the objects or for the ld. CIT(A) to speculate that such assets, if acquired, would only be for earning more income. This is because the assessee is a public charitable trust and is obliged under law to apply its income towards public charitable purposes. We, therefore, see no justification for the sustenance of the addition and we accordingly delete the same. With regard to cash deposits aggregating to Rs.5,59,55,800/-, that had been made by the assessee during the demonetization period, we observe that the assessee had filed an explanation explaining how the amounts were reflected in its books of accounts and emanating out of the same. We find that no exercise has been taken by the Assessing Officer or the ld. CIT(A), to disprove any of the sources of the assessee. Rather they have indulged in speculation to conceive of where the amounts may have come from. We are of the opinion that such conjectures cannot form the basis of an addition under section 68. Furthermore, we note that the assessee has offered these receipts as its income in its income and expenditure account. However, after considering the provisions of section 68 that mandate a higher rate of tax, we deem it appropriate to restore this matter back to the file of the ld. Assessing Officer for de novo consideration of the submissions made by the assessee and to enable the assessee to file the necessary evidences before the ld. Assessing Officer, in support of such submissions. Furthermore, on the issue of ad hoc disallowance of expenses of Rs.6,77,19,543/-, we observe that the disallowance had been made only because the assessee did not produce certain bills and vouchers before the Assessing Officer. While it is clear that the assessee is obliged to furnish evidence in support of the expenditures made by it, the Assessing Officer’s action in making an ad hoc disallowance, without pointing out any specific defect in the books of the assessee cannot be sustained. The assessee has maintained that it is a public charitable trust, which maintains all its records and produces them for audit. Accordingly, in the interest of justice, we deem it necessary to restore this issue back to the file of the Assessing Officer, so that the Assessing Officer may call for proof of such expenditure which he doubts and the assessee may be given an opportunity to furnish the necessary evidences in this regard. Thus, Ground nos. 4 & 5 of AY 2017-18 are held to be partly allowed. Ground no. 6 does not require a decision as no fresh grounds have been preferred or amended. Accordingly, ITA No. 181/LKW/2024 is held to be partly allowed.

16. Coming to the assessment year 2018-19, we note that the disallowances have been made by the Assessing Officer purely on the grounds that the registration to the assessee trust had been cancelled by the ld. Pr. CIT, Central on 20.03.2019, but subsequently have been sustained on the strength of the remand report wherein it had been pointed out that certain trustees of the assessee trust were also trustees of M/s Keshraj Education Trust and M/s Varunarjun Trust. Consequently, the provisions of section 13(2)(h) have been invoked to suggest, that the trust falls under the conditions of section 13(1)(c). However, we note from Explanation 3 to sub-section 11 of section 13, that for the purposes of this section, a person shall be deemed to have a substantial interest in a concern if a person is entitled to not less than 20% of the profits of that concern. That being the case, to our mind it is doubtful as to whether the giving of donations to another public charitable trust in which the trustees of the assessee trust are also associated with, can be considered to be a violation of section 13(1)(c) owing to the provisions of section 13(2)(h), because a public charitable trust, which is not entitled to distribute its profits, cannot be classified as a concern in which the common trustees have a substantial interest, given the definition of the same in Explanation 3 to Section 11. Thus, the giving of donations by one public charitable trust to another, having common trustees, would not require the exemption of the assessee trust to be withdrawn, so long as it could not be proved that the income of the donee trust was being utilized for the benefit of the trustees in some way. However, these aspects have not been looked into by the Assessing Officer during the course of assessment or examined at all during remand proceedings either. Hence the withdrawal of exemption from the assessee trust by alleging violation of section 13(1)(c) read with section 13(3), without bringing any such facts on record is held to be unjustified and unsustainable. We note that the ITAT Kolkata Bench in the case of St Joseph’s Convent Chandan Nagar Educational Society v. JCIT(OSD) [IT Appeal No. 1695 (Kol) of 2012, dated 11-5-2016], has also held that the payment made by one trust to another as donation, does not fall in any of the categories of section 13(3). That section only refers to payments to individuals, their relatives or concerns in which they have substantial interest. Further the Kolkata bench has held in that case, that when the donation given by one trust to another out of current years income is permitted in section 11, the same cannot be curtailed by another provision of the Act (i.e. Section 13(1)(c) read with section 13(3) of the Act) as it would defeat the very purpose of such provision. Hence it was held that the payment of donation by one public charitable trust to another is not in violation of section 13(1)(c) of the Act as the said payment is not made for the benefit of any person referred to in section 13(3), either directly or indirectly. We are in agreement with the views of the Kolkata bench and since no instance of utilization of funds of the donee trusts for the benefit of the common trustees have been brought on record by the Ld AO or the CIT(A), we hold that the decision to disallow the donation to both the trusts, as application of income, on this ground was unjustified.However, while the disallowance in respect of Varun Arjun Trust has not been made on any other account and for this reason we allow the application in respect of the said donation, we note that the Ld CIT(A) has also brought on record the fact that the aims and objects of M/sKeshraj Educational trust were not the same as that of the assessee trust and for this reason the donation to them cannot be regarded as application in the assessee’s hands. We believe this aspect requires more enquiry and the assessee is required to explain as to how, if this is so, then the donation towards M/s Keshraj Educational trust can be considered as furtherance of the objectives of the assessee trust and therefore application of income in its hands. In the interests of justice, we restore this matter to the file of the assessing officer so as to enable the assessee to satisfy the assessing officer that donations so made were towards furtherance of the objectives of the assessee trust. Ground number 8 is therefore partly allowed as above.

17. In view of our finding that the provisions of section 13(1)(c) read with Section 13(3) have been incorrectly applied against the assessee by the Ld AO and the Ld CIT(A), we see no justification for denial of exemption to the assessee and assessing it as an AOP. Accordingly, we hold that the assessee is entitled to be assessed as a charitable trust under the provisions of sections 11, 12 & 13 and therefore ground number 6 is held to be allowed. Furthermore, since, the disallowance on account of surplus has only been made because of the denial of exemption, owing to alleged violation of section 13(1)(c) r.w.s. 13(3) and as the said issue has been decided by us in favour of the assessee, there remains no basis to sustain the addition made by the assessing officer in this regard. Accordingly, we deem it appropriate to delete this addition as the assessee is entitled to accumulate this surplus of up to 15%, without paying tax as per the Provisions of Section 11(1)(a). Accordingly the addition of Rs.30,48,01,279/- is deleted. Ground no 7 is accordingly allowed and ground no. 5 is partly allowed. With regard to ground no. 9, the same is rendered infructuous on account of the recognition of the assessee as a public charitable trust by the ITAT and is accordingly dismissed. Ground no.10 being consequential to the additions made in assessment or appeal is also dismissed as infructuous since the additions have been deleted or restored to the file of the Assessing Officer. Ground no. 4 is also rendered infructuous as the assessee has been heard on all issues. Ground no. 11 does not require a decision. Therefore, ITA No.182/LKW/2024 is also partly allowed.

18. In the result, both appeals of the assessee in ITA No. 181/LKW/2024 and ITA No.182/LKW/2024 are held to be partly allowed.