INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “H” NEW DELHI
BEFORE SHRI R. P. TOLANI, JUDICIAL MEMBER
SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
ITA No. 2308/Del/2012
Assessment Year: 2007-2008
The Civil Services Society,
C/o Sanskriti School,
Dr. S. Radhakrishnan Marg,
San Martin Marg, Chnkya Puri,
AAATT 2933 M
Director of Income-tax
(Exemptions), New Delhi.
Appellant by: Sh. O.P. Sapra Adv. & Sh. Sanjeev Sapra FCA
Respondent by: Srhri A.K. Mishra CIT(DR)
O R D E R
PER R. P. TOLANI, J. M:
This is assessee’s appeal against the order dated 30-3-2012 passed by the Director of Income-tax (Exemptions), Delhi u/s 263 of the Income-tax Act, 1961 relating to assessment year 2007-08. Following grounds are raised:
“1. That the impugned order dated 30-03-2012 as passed by the Ld. Director of Income-tax (Exemptions), Delhi by which he has set aside assessment order u/s 143(3) dated 04-09-2009 for the assessment year 2007-08 by invoking provisions of section 263 of the I.T. Act is arbitrary, unjust and illegal on various factual and legal grounds. Various observations made by the Ld. DIT(E) in the impugned order are either incorrect or are untenable. The submissions made before him by the appellant were either ignored or had not been appreciated properly.
2. That the impugned order as passed u/s 263 of the I.T. Act being illegal deserves to be cancelled.”
2. Brief fats are: The assessee is a charitable Society, registered u/s 12A of the I.T. Act and runs Sanskriti School, at Chankya Puri, New Delhi. Assessment order for assessment year 2007-08 was passed on 4-9-2009 by allowing exemption u/s 11, assessing the income at Nil and refusing to carry over the loss declared by the assessee at Rs. 5,27,39,780/-. DIT(E) thereafter issued a notice u/s 263 dated 12-3-2012 alleging that the assessment in question was erroneous and prejudicial to the interests of revenue. Assessee filed reply and explanation in this behalf and attended the proceedings. DIT(E), however, held that assessment order was erroneous and prejudicial to the interests of revenue on following counts:
(a) The various receipts recovered by the assessee were contractual receipts/business receipts and therefore, section 11 (4A) was applicable for which the Appellant had to maintain separate account books, which was not complied. Further, TDS certificate issued by ONGC showed that its payment of Rs.14,90,000/- was a payment to assessee as a contractor and was not a grant.
(b) The Appellant having received only Rs. 50 Lacs from Ministry of Personnel,' Govt. of India being less than 10% of total fee collected at Rs.8,27,52,498/- and salary payment at Rs.5,45, 19,586/-, the Appellant's Institution could not be said to be wholly or substantially financed by the Govt. and therefore the appellant was not entitled to exemption u/s 10(23C)(iii)(ab) - an aspect not examined by the AO.
(c) The assessment had been framed in a hurry and casual manne without application of mind and without making proper enquiries and therefore he set aside the assessment order with the directions to the AO to examine the issues and pass a fresh assessment in accordance with law.
2.1. In view of the above, assessment in question was set aside u/s 263 and a fresh assessment was ordered. Aggrieved, assessee is in appeal before us.
3. Ld. Counsel for the assessee made following submissions:
(i) Provisions of section 263 have no application to the facts of this case because the Ld. AO while passing the assessment order dated 04/09/2009 had duly applied his mind after examining the account books along with bills/vouchers regarding expenditure incurred and amounts received under different heads as was specifically pointed out to the Ld. DIT(E) in appellant's reply dated 21/03/2012 to notice u/s 263.
(ii) As regards TDS claimed by the Appellant on the alleged contractual payments made by various parties also, the AO had applied his mind. Details of the same were also filed before the Ld. DIT(E).
(iii) As regards contribution made by ONGC, the Appellant had filed letter dated 08/05/2006 received from ONGC in response Appellant's letter dated 27/02/2006 from which it is evident that ONGC had given financial support/grant of RS.14.90 Lacs for the setting up Math's Lab. In Assessee's account books/audited balance sheet, such receipt from ONGC are reflected separately in schedule 3 to the accounts under 'earmarked funds' as under:
Oil & natural Gas Corporation Ltd.
As per last balance sheet Nil
Add: Grants received during the year 14,90,000/-
Less: Grant utilized during the year 12,88,931/-
Balance available 2,01,069/-
(iv) The above documents reveal the grant given by ON.GC to the Appellant's School and the mere fact that ONGC had made TDS @ 1% thereon as a matter of abundant caution did not convert the actual nature of grant into contractual payment.
(v) Similarly, the payments received from the other parties mentioned in the impugned order u/s 263 at page 3-4 represented advertisement receipts which were duly published in the souvenir 'khazana' brought out by the school produced before CIT(A) and is placed on P.B.
(vi) Section 11 (4A) of the I.T. Act as invoked by the Ld. DIT(E) has no application to the facts of Appellant's case because it did not carryon any business. Even if it is assumed, though not admitted, that the Ld. DIT(E) is correct in assuming that the Appellant had carried
on business even then the Appellant having maintained proper books of accounts for the aforesaid receipts, section 11 (4A) stood complied with coupled with the fact that the same was incidental to the attainment of the objective of the Assessee Society and not main activity.
(vii) As regards other receipts, the same represented receipts for advertisement and souvenir except receipt from Mrs. Ramneeka Lobo Rs.99,871/- which represented expenses in order to meet its expenses towards electricity, water, housekeeping, security etc. for the dance classes conducted by Mrs. Lobo. Similarly, receipts of Rs.1,05,000/- from Tata Consultancy Services Ltd., represented maintenance charges for conducting computer classes for students for which the appellant was charging above mentioned maintenance cost.
(viii) The Ld. DIT(E) is also incorrect in holding that because during this year the Appellant received only Rs. 50 Lacs from Govt. of India which being less than 10% of the total fee collected and expenses on salary etc. the Appellant institution could 'not be said to be wholly or substantially financed by the Govt. Vide letter dated 26/03/2012 it was highlighted before the Ld. DIT (E) that as per the consolidated balance sheet of the assessee society, total asset side as on 31/03/2007 was Rs.26,08,24,028/- of which the source was substantially the funds
received from Govt. Depts. aggregating at Rs.21,08,00,000/- as per the list filed before DIT(E).
(ix) The Ld. DIT(E) in the impugned order at page 6 has himself held as under:
'Therefore even if exemption u/s 11 is denied, the claim of exemption u/s 10(23C)(iii)(ab) will lie".
(x) Even if exemption granted u/s 11 (1 )(a) of RS.1 ,58,97,413/- was not allowed to the assessee (though not admitted), then too, the result was net loss as the AO had computed the net loss Rs.5,27,39,780/-. Therefore, the assessment order was neither erroneous nor prejudicial to the interest of revenue particularly when the AO has specifically mentioned in the assessment order that such loss/deficit was not to be allowed to be set off against the income of the subsequent years. In Supreme Court judgment in the case of Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 it was clearly held that the CIT has to be satisfied of twin conditions namely (i) the order of the AO is erroneous and (ii)' it is prejudicial to the interest of Revenue. If one of them is absent, recourse cannot had to section 263(1) of the Act. From
this angle also, the impugned order as passed u/s 263 deserves to be cancelled.
3.1. Reliance is placed on:
- CIT Vs. Arvind Jewellers 259 ITR 502 (Guj.);
- CIT Vs. Gabriel India Ltd. 203 ITR 108 (Bom.)
- Malabar Industrial Co. Ltd. Vs. CIT 243 ITR 83 (SC);
- CIT Vs. Development Credit Bank Ltd. 323 ITR 206 (Bom.);
- CIT v. Design & Automation Engineers (Bombay) P. Ltd. 323 ITR 632 (Bom);
- CIT Vs. Ashish Rajpal 320 ITR 674 (Del.);
- CIT Vs. Ratlam Coal Ash Co. 171 ITR 141 (MP)
- T.P. Srivastava & Sons Vs. CIT 111 ITR 326 (All.);
3.2. The assessee society has been assessed to income-tax since last so many years on the same pattern. It is mentioned that for subsequent year 2008-09the DIT(E) cancelled the registration already granted to the assessee u/s 12A of the I.T. Act alleging contravention of the provisions. The dispute reached to the stage of ITAT which vide its order dated 8-2-2013 restored the registration u/s 12A by following observations:
“6.3. There is sufficient evidence available on record which is uncontested that the objects of the society are charitable in nature and a finding to the said effect has been given in the impugned order itself. Regarding the shortfall in the requisite no. of students belonging to the EWS category students in the facts as they stand no evidence of non-compliance has been brought to our notice either in the arguments or in the impugned order. The reasons consistently advanced for the situation in regard to locational aspect in the face of the evidence to the contrary have to be accepted as where there is no alleged violation of any of the requirements either of the Urban Ministry or of the Directorate of Education the authorities under the Income tax Act cannot be said to presume to sit over tin judgment for the implementation of the public policy on the judgment of the authorities empowered to implement them. The DIT(E) in the facts of the peculiar case cannot cancel registration in the facts of the present case for the reasons set out in the impugned order as the same amounts to usurping the Role of an authority constituted to implement the government policy. Only when there is any instance of violation of terms and conditions pointed out by the Directorate of Education and/or the Urban Ministry on the information of de-recognition of the school by the Directorate of Education. The tax authorities can take notice. The gravity of the consequences of holding a certain school as de-recognized is not to be trifled with or taken lightly and it is a powerful tool in the hands of the Directorate of Education and if it is taken away, serious consequences are visited on the school which is not a fact in the present case.
6.4. Before parting it is necessary to address the judgment of the coordinate Bench sitting at Chennai in the case of M/s Rajah Sir Sannamalai Chettiar Foundation vs. DIT(E) (supra) wherein the facts were entirely distinguishable. In the facts of the said case there was an admission on the part of the assessee school that they were in the business of running the school of commercial lines. A perusal of the order dated 20th June 2011, copy of which has been filed before the Bench shows that in fact the assessee school in clarification as per para 8 of the impugned order clarified that no free education was being impart ed by the assessee school to the poor section of the society and the only concession being given was in reduction of fees belonging to the children of the teachers as such the activities of the said school were not considered to be charitable as per section 2(15) of the Act. In the facts of the present case
the assessee is offering admission to EWS category students on free-ship as such once the requirement of section 2(15) are fulfilled, the action of the DIT(E) in withdrawing registration cannot be upheld.
6.5. Accordingly, for the reasons and findings addressed at length in the earlier part of the order, the assessee’s ground is allowed and the action of canceling the registration is set aside
and registration u/s 12A is restored.”
3.3. The assessee’s books of account are audited. There is no qualifying note about any voucher or information being not produced before the auditors. Similarly, assessing officer has no where pointed out that assessee did not file any document or explanation. In these circumstances, an assessee who is assessed since last couple of decades on the same pattern, it is not necessary for assessing officer to write an elaborate order if he is satisfied about the accounts, record and correctness of assessee’s claim. It is usual that where the assessing officer is satisfied about the books of a/c and the compliance of provisions of sections 11 & 12, there is no requirement in the Income-tax Act that he should not write a short order. Besides, the allegation that assessment was framed in a hurried manner is not correct in as much as assessing officer has mentioned about the due appearance of assessee’s C.A./authorized representative in the assessment proceedings from time to time. The assessing officer duly applied his mind to the accounts, explanation of the assessee; compliance of provisions of sections 11 & 12 and gave a finding that there is no violation u/s
13. Assessing officer further gave a clear finding that objects and activities of the assessee squarely fell within the ambit of sec. 2(15) of the I.T. Act, which constitute charitable purpose.
3.4. Assessing officer having adverted to all the relevant provisions about the correctness, genuineness of the assessee’s account books, objects, activities and issues relating to sections 11,12,13 and 2(15), the assessment by no stretch of imagination can be held to be erroneous or prejudicial to the interests of revenue. The assessee has demonstrated that there is no discrepancy in the contract receipts as alleged at pages 3 & 4 of the order passed u/s 263 of the Act. There is no issue about section 10(23C)(iiiab) because what has been applied are provisions of sec. 11 & 12. Therefore, non-consideration of sec. 10(23C)(iiiab) makes no difference as it is not applied by the assessing officer and assessee has no issue on that. There is no provision of hurried assessment in the income-tax provision inasmuch as assessment can be framed even by one appearance also and there is no legal bar in the Act. Thus, the observation of ld. DIT(E) in this behalf are not tenable and has no legal basis. Therefore, the entire exercise of sec. 263 is without any justification and the order deserves to be quashed.
4. Ld. DR, on the other hand, contends that: DIT(E) has distinctly pointed out that the issues about contract receipts and applicability of Sec. 10(23C)(iiiab)has not been examined. The assessing officer as statutory authority has certain duties to perform in respect of inquiry of the various receipts of the assessee which has not been undertaken by the assessing officer. In case relevant inquiries are not conducted by the assessing officer, the order becomes erroneous and prejudicial to the interests of revenue. The assessment order is very short and does not reflect the application of mind, therefore, the revisional order u/s 263 is valid, justified and in accordance of Sec. 263.
5. We have heard rival contentions and perused the material available on record. From the assessment order it no where emerges that the assessment was carried out in hurry. All the relevant findings of the assessing officer are on the record i.e. in respect of completeness of the books of account; the verification of gross receipts; expenditure; compliance of sections 11 & 12 of the I.T. Act; non-violation of section 13 and assessee’s objects being charitable purpose in terms of section 2(15). In our considered view, the assessing officer has given findings on all the relevant aspects with further findings about application of mind i.e. having gone through the accounts record and activities in sum and substance. There is no particular proforma which is provided by any provision of the I.T. Act. DIT(E) has taken some adverse view on the short order and the fact that it was completed in one or two hearings. In our considered view these observations cannot be a basis for holding the assessment order as erroneous and prejudicial to the interests of revenue. The assessing officer is a quasi judicial authority and his findings on fact which are in accordance with law, cannot be called erroneous in the eyes of the law. The order may be short or long. Similarly, the assessment is completed in one or more than one hearing is the discretion of the assessing officer and there is no legal bar on that. There is no error in respect of non-consideration of sec. 10(23C)(iiiab) as the assessing officer has only applied section 11 & 12 and held the assessee’s case covered
thereunder. This course of action is accepted by assessee. Thus, on this count also there is no error in the order. From the assessing officer’s order it does not appear that proper enquiries were not carried out, consequently on this count also we do not agree with the ld. DIT(E).
5.1. Coming to the other objections i.e. holding the assessee as a contractor become some TDS was deducted is not correct inasmuch as the assessee has demonstrated that they were either in terms of grant or advertisement and it was explained before assessing officer. The same was demonstrated before DIT(E) also from the record. Merely because the donors have deducted some TDS will not convert the real nature of the receipt i.e. being donation, grant or advertisement into one of being subcontractor. Under these circumstances, on this point also we see no error in the order of assessing officer and no justification for DIT(A) assuming jurisdiction u/s 263.
5.2. Similarly, in respect of ONGC the funds were provided for setting up of math’s lab and TDS was deducted by the donor as a matter of abundant caution, which cannot be held against assessee so as to hold as subcontractor.
So also the cases as mentioned in paras 3 & 4 of DIT(E)’s order in respect of receipt from Mrs. Ramneeka Lobo and Tata Consultancy, assessee has demonstrated that there was no infirmity therein. Merely because the assessment order is short cannot led to an assumption that proper inquiries were not carried out. Under these circumstances and reliance on several case laws pleaded by the assessee we hold that order of assessing officer can neither be termed as erroneous nor prejudicial to the interests of revenue. Accordingly, order passed by ld. DIT(E) u/s 263 of the I.T. Act is quashed.
6. In the result, assessee’s appeal is allowed.
Order pronounced in open court on 17-05-2013.
(T.S. KAPOOR) (R.P. TOLANI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 17th May, 2013.