DCIT (EXEMPTIONS), CHANDIGARH vs. APEEJAY EDUCATION SOCIETY, LUDHIANA

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, “A”CHANDIGARH

BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRIR.L NEGI, JUDICIAL MEMBER

आयकरअपीलसं./ITA No.64/Chd/2017 िनधा�रणवष� / Assessment Year :2009-10 The DCIT, Apeejay Education society, बनाम Circle-1 (Exemptions), Jawahar Nagar, Chandigarh Jalandhar

�थायीलेखासं./PAN NO: AAAPA3534F अपीलाथ�/Appellant ��यथ�/Respondent C.O. No. 12/Chd/2017 (In ITA No. आयकरअपीलसं./ITA No. 64/Chd/2017) िनधा�रणवष� / Assessment Year : 2009-10 Apeejay Education society, The DCIT, बनाम Jawahar Nagar, Circle-1 (Exemptions), Jalandhar Chandigarh

�थायीलेखासं./PAN NO: AAAPA3534F अपीलाथ�/Appellant ��यथ�/Respondent Hearing through video Conferencing

िनधा�रतीक�ओरसे/Assessee by : Smt. C. Chandrakanta, CIT राज�वक�ओरसे/ Revenue by : Shri Salil Kapoor, Advocate and Shri Sumit Lal Chandani Advocate

सुनवाईक�तारीख/Date of Hearing : 17.12.2020 उदघोषणाक�तारीख/Date of Pronouncement : 22.02.2021 आदेश/Order आदेश आदेश आदेश PerR.L. Negi, Judicial Member:

These are the appeal and cross objection filed by the Revenue and

the assessee respectively against the order dated 7.10.2016 passed by the

2 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar Ld. Commissioner of Income Tax (Appeals)-2 Jalandhar (for short

CIT(A), whereby the Ld. CIT(A) has partly allowed the appeal filed by

the assessee against the assessment order dated 23.3.2015 passed by

Asstt. Commissioner of Income Tax (Exemptions) [for short ‘AO'] u/s

143(3) read with section 148 of the Act.

registered u/s 12AA of the Act, engaged in educational activities and

has been running various educational institutions in different parts of

the country. The assessee society filed its return for the assessment year

under consideration declaring ‘Nil’ income. The return was accepted by

the Assessing Officer vide order dated 23.3.2015, however, treated the

software purchased by the assessee as accommodation entry. The

assessee challenged the assessment order before the CIT(A). The Ld.

CIT(A) vide order dated 07.10.2016 allowed the appeal of the assessee

and held that the AO was not justified in holding that the purchase of

software was bogus. The Ld. CIT(A) accordingly directed the AO to

allow the claim of expenses amounting to Rs. 2.35 crores on account of

software purchase during the year relevant to the assessment year under

consideration. Subsequently, on the basis of information received,

registration granted u/s 12AA of the Act was cancelled on 25.3.2013

w.e.f. 2004-05. In view of cancellation of registration, the assessee’s

claim u/s 11 of the Act was withdrawn and the Assessing Officer

reopened the case and passed the assessment order u/s 143(3) read with

3 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar section 148 of the Act and determined the total income of the assessee at

Rs. 3,76,00,000/-after making addition of Rs. 2,84,51,943/-on account

of amount accumulated as per provisions of section 11(5) of the Act, Rs.

2,35,00,000/- on account of bogus purchases and depreciation of Rs.

1,41,00,000/-. The assessee challenged the assessment order before the

Ld. CIT(A). The Ld. CIT(A) afterhearing the assessee, partly allowed

the appeal and deleted the additions made by the Assessing Officer

holding that the assessee is entitled to the claim of exemption u/s 11 of

the I.T. Act, however, upheld the reopening of the case by the AO u/s

147 r/w section 148 of the Act.

Revenue is in appeal before this Tribunal. The Revenue has challenged

the impugned order onthe followinggrounds: -

(i) Whether the Id. CIT(A)-2, Jalandhar has erred in law while allowing the benefit under Section 11 of the Act without appreciating that there was a clear violation of Section 13 of the Income Tax Act.

(ii) Whether the CIT(A)-2, Jalandhar has erred in law while not considering Section 13(1)(c) of the I.T. Act, 1961, according to which, any income of the trust directly or indirectly applied for the benefit of any person referred to in Section 13(3) of the Act shall not be excluded from the total income and provisions of Section 11 shall not apply to the same.

(iii) Whether the CIT(A)-2, Jalandhar is right in law as the findings recorded are perverse and contrary to the evidence/material/statements available on record and duly considered by the AO.

(iv) Whether on facts and in the circumstances of the case, the Ld. CIT(A)-2, Jalandhar is right in deleting the addition when the

4 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar statement of Sh. Sanjay D. Sonawani was not reliable whereas he had clearly confirmed that he had provided accommodation entries to the assessee and had deposed that no software was sold to the assessee and his company had no infrastructure, manpower and expertise to even develop the softwares.

(v) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) -2, Jalandhar is right in deleting the addition even when A.O. has clearly brought out that the assessee could not produce the software developed by M/s WSL Limited during the survey operation and in fact did not follow the normal procedure and procurement as in the cases of other purchase.

(vi) The Appellant craves leave to add or amend the grounds of appeal on or before is heard and disposed off. 4. Since the Ld. CIT(A) upheld the action of the AO in reopening of

the case u/s 147 r.w.s. 148 of the Act, the assessee has filed Cross

objection by raising the following grounds: -

5 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar the end of relevant assessment year is illegal, bad in law and without jurisdiction.

that the Ld. CIT(A) has erred in allowing benefit under section 11 of the

Act to the assessee without considering that any income of the trust

directly or indirectly utilized for the benefit of any person referred to in

section 13(3) of the Act shall not be excluded from total income. The

Ld. DR further contended that the Ld. CIT(A) has wrongly deleted the

addition made by the AO on account of accommodation entries obtained

from bogus parties to show purchase of software by ignoring the

statement of Sh. Sanjay D. Sonawani, who has categorically stated that

no software was sold by the company to the assessee society. The Ld.

DR further contended that since the findings of the Ld. CIT(A) are

perverse and contrary to the evidence on record, the impugned order

may be set aside and the additions made by the AO may be confirmed.

there is no merit in the appeal of the Revenue as the Ld. CIT(A) has

rightly deleted the additions made by the Assessing Officer. The Ld.

Counsel further pointed out that the Amritsar Bench of the ITAT has

decided the issue regarding cancellation of registration granted under

section 12AA (1) of the Act in favour of the assessee in assessee’s own

case ITA No. 228(Asr)/2013vide common order dated 08.05.2014. Ld.

Counsel further pointed out that the Tribunal has also dealt with the

issue regarding purchase of software and decided the same in favour of

6 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar the assessee. The revenue challenged the said order before the Hon’ble

Punjab and Haryana High Court. The Hon’ble court dismissed the appeal

of the revenue holding that the questions of law sought to be raised in

this case do not arise.Further the Ld. Counsel submitted that in the

assessment years 2008-09,2010-11 & 2011-12, the AO denied the benefit

u/s 11 of the Act to the assessee. The assessee challenged the

assessment order before the Ld. CIT(A). However, the Ld. CIT(A)

affirmed the action of the AO. The matter travelled to the Amritsar

Bench of the ITAT.The ITAT set aside the order passed by the Ld.

CIT(A). In the present cases, again the AO denied the benefit of section

11 of the Act to the assessee and made addition on account of bogus

purchase and disallowance of depreciation apart from addition u/s 11(5)

of the Act, holding the software purchase from WSL as sham

transactions. In the first appeal, the Ld. CIT(A) set aside the assessment

order holding that matter relating to purchase of software from WSL has

already been considered by the Amritsar Bench of the Tribunal in

assessee’s cases ITA No. 712 to 714(Asr)2014 for the assessment year

2008-09, 2010-11 and 2011-12. The department has filed thepresent

appeal against the said order

the decisions of Amritsar Bench of the Tribunal, the Ld. Counsel

submitted that there is no merit in the appeal of the assessee, therefore

the same is liable to be dismissed.

7 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar During the course of arguments, the Ld. DR fairly admitted that the

Amritsar Bench of the Tribunal has decided the identical issues in

favour of the assessee.However, the Ld. DR supported the plea of the

Department that the Ld. CIT(A) has wrongly allowed the claim of the

assessee and deleted the addition made by the Assessing Officer.

material on record including the decisions of the Amritsar Bench of the

Tribunal rendered in assessee’s own case in ITA No. 228(Asr)

/2013(supra), ITA No 712 to 714 (Asr)/2014 for the Assessment Years

2008-09, 2010-11 & 2011-12. As pointed out by the Ld. Counsel, the

assessee vide ITA No. 228(Asr) /2013(supra) challenged the order dated

25.03.2013 passed by Ld. CIT, Jalandhar-11, withdrawing the

registration granted u/s 12AA(1), before the Amritsar Bench of the

Tribunal. The Tribunal vide common order dated 08.05,2014 allowed the

appeal of the assessee and set aside the action of the Ld. CIT. We

further notice that the Tribunalalso dealt with the issue relating to

purchase of software by the assessee and decided the same in favour of

the assessee. The findings of the Amritsar Bench of the Tribunal are as

under: -

“20) In the present case, the activities of the assessee-trust which are mainly of imparting education to the students under various institutions referred in the order of learned CIT, Jalandhar-II, Jalandhar, have been found to be genuine and no allegation regarding not imparting of education has been framed by learned CIT, Jalandhar-II, Jalandhar, in its order passed under Section 12AA(3) of the Act or by the Assessing Officer in his order passed for the assessment years 2004-05 & 2009-10, referred

8 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar hereinabove. The activities of the trust are found to be genuine and according to us the activities of the trust are genuine and cannot be said to be for non-charitable purposes, especially that there is not even a whisper from learned CIT, Jalandhar-II, Jalandhar, with regard to the non-genuineness of the activities of the trust which are found to be in consonance with the objects of the trust and therefore, the learned CIT, Jalandhar-II, Jalandhar, is not justified in cancelling and withdrawing the registration granted under Section 12AA of the Act i.e. w.e.f. the assessment year 2004- 05. In the present case, learned CIT, Jalandhar-II, Jalandhar, has not brought on record any materials that the activities of 39 I.T.A. No. 228 & 227(Asr)/2013 the trust are not genuine or are not being carried out in accordance with the objects of the trust. Thus, the order of learned CIT, Jalandhar-II, Jalandhar, cancelling the registration is bad in law and, therefore, is set aside.

21) Reliance has been placed by learned counsel for the assessee in the cases of Chaturvedi Har Prasad Education Society (supra), Maharashtra Academy of Engineering & Educational Research (Maeer) (supra), Institute of Science and Management (supra) and Ajit Education Trust, Bharuch (supra) and these case-laws support our views and all the decisions are placed on record.

22) As regards the purchase of software, much has been relied upon the statement of one Mr. Sanjay D. Sonawani Manager of M/s Washington Software Ltd. who stated that he has provided accommodation entries to the assessee society. From the statements given to the Department from time to time dated 16.03.2011, 12.04.2011, 12.05.2011 and 30.12.2011, it was argued that Mr. Sanjay D Sonawani has contradicted his statements every time and as regards the arguments made by learned Sr. DR Mr. Mahavir Singh that his stand has already been constant with regard to providing accommodation entries to the 40 I.T.A. No. 228 & 227(Asr)/2013 assessee whereas while reading page 26 of order of learned CIT, Jalandhar-II, Jalandhar, in which it has been clearly mentioned by him that Mr. Sonawani was threatened by the Department for the statement dated 16.03.2011 which is reproduced as under:

“I have not made any false statement in Pune on 16.03.2011. In fact, at that time, I was told that I would have a heavy liability of roughly 100 crores, so I got frightened and took the name of Parag Mehta.”

9 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar 23) The aforesaid statement recorded by the Department was whether under threat of tax liability of 100 crores is not evidenced by any documentary evidence by learned A.R. In the present issue, the assessee has submitted the explanation vide letter dated 14.09.2012 available at page 8 to 10 of the order of learned CIT, Jalandhar-II, Jalandhar, in which it was stated that the software purchased from Washington Software Limited though debited to various institutions, is installed in the central server at the head office of utmost importance and required secrecy. The software includes various modules and various types of reports which include data of students and also about the institutions. It generates reports which are very big and contain large number of pages. Some of the reports were produced before the learned CIT, Jalandhar-II, Jalandhar, and are available on record. Such reports 41 I.T.A. No. 228 & 227(Asr)/2013 have been stated to be wrong by learned CIT, Jalandhar-II, Jalandhar. The assessee, for supplementing his contention, has enclosed the report of Trident Information System Pvt. Ltd. certifying that the software were duly installed in the central server at the head office and the said report is available on record as mentioned hereinabove. It was argued that the said software system has generated the reports right from 2004 to 2011.

24) In this regard and keeping in view the facts and circumstances as above, it cannot be a case for withdrawal/cancellation of registration granted under Section 12AA(1) of the Act and therefore, in these facts and circumstances of the present case, our findings as hereinabove. Learned CIT, Jalandhar-II, Jalandhar, is not justified in withdrawing or cancelling the registration under Section 12AA(3) of the Act. Accordingly, all the grounds of the assessee are allowed.

CIT(A) upholding the findings of the AO denying the benefit of section

11 of the Act to the assessee by invoking provisions u/s 13(1)(c) and

assessing the assessee’s income under the head income from business in

assessee’s appeals ITA Nos. 712 to 714 (Asr)/2014 for the Assessment

Years 2008-09, 2010-11 and 2011-12.The Ld. CIT(A) allowed the

10 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar appeal of the assessee on merits by following the decision of the Amritsar

Bench of the ITAT in assessee’s own case ITA No 712 to 714

(Asr)/2014(supra).The operative part of the impugned order passed by the Ld.

CIT(A) reads as under:

“5.5 I have gone through the copy of order of the honourable ITAT Amritsar bench, in the case of the appellant in ITA number 712 to 714/Asr/2014 dated 12.08.2016 and find that this issue of purchase of software from M/s Washington Software Ltd., which is based at Pune has been examined in detail by the Honourable Tribunal and after going through the same it was held that exemption under section 11 of the IT Act was wrongly denied to the appellant. The order passed by the AO and confirmed by the CIT-A was reversed. 5.6 In view of the above stated facts, respectfully following the order of the honourable ITAT Amritsar bench, since there is no change in the facts of the case in this year, I hold that AO was not justified in making an addition of Rs. 2,35,00,000/- on account of bogus purchase of software and disallowance of the depreciation of Rs. 1,41,00,000/- on that account. Further, I hold that applicant is entitled to the claim of exemption u/s 11 of the IT Act. Accordingly, the additions made by the AO of Rs. 3,76,00,000 are deleted.” 10. We notice that the issues involved in the present case are covered

by the decisions of the Amritsar Bench of the Tribunal in assessee’s own

cases discussed above. The Ld. CIT(A) has passed the impugned order

by following the decisions of the Amritsar Bench of the Tribunal

rendered in assessee’s own cases particularly in ITA No 712 to 714

(Asr)/ 2014 (supra). Further, the Ld. CIT(A) has categorically

mentioned in its order that there is no change in the facts of the present

11 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar case. Hence, in the light of the aforesaid decisions of the ITAT Amritsar

Bench, there is no infirmity in the order passed by the Ld. CIT(A). On

the other hand, we do not find merit in the contention of the Revenue

that the Ld. CIT(A) has wrongly allowed the benefit u/s 11 of the Act to

the assessee society. We therefore, do not find any reason to interfere

with the findings of the Ld. CIT(A). Accordingly, we uphold the decision of the Ld. CIT(A) and dismiss the appeal of the Revenue. C.O. No. 12/Chd/2017:- So far as the cross objection filed by the assessee is concerned, the

Ld. Counsel for the assessee submitted before us that since the initiation

of the proceedings u/s 147 of the Act is contrary to law, the Ld. CIT(A)

ought to have quashed the proceedings as void ab initio. The Ld.

Counsel further pointed out that there was no fresh material / tangible

materialbefore the AO to form the belief that the income of the assessee

has escaped, the notice issued u/s 148 of the Act was bad in law. The

Ld. Counsel further submittedas per the settled law; the Assessing

Officer cannot issue notice u/s 148 on the basis of change of opinion.

The Ld. Counsel relied on the following case laws to substantiate the

contention that the notice issued u/s 148 of the Act is bad in law. The

Ld. Counsel placing reliance on the judgment of the Hon’ble Gujarat

High Court in the case of Ahmedabad Urban Development Authority vs.

Deputy Director of Income Tax [2017] 82 taxmann.com 177 (Guj)

submitted that as per the ratio laid down in the said case, the AO cannot

12 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar reopen assessment solely on the basis of order cancelling registration of

development authority u/s 122AA(3) retrospectively. The Ld. Counsel

further submitted that as per the Law laid down by the Hon’ble Supreme

Court in the case of CIT vs. Kelvinator Of India Ltd. 310 ITR 661(SC),

the AO can reopen the assessment, provided there is tangible material to

come to the conclusion that there is escapement of income from

assessment. Further the reason must have a live link with formation of

belief. The Ld. Counsel further relied on the decision of CIT vs.

Kelvinator of India Ltd. [2002] 123 Taxman 433 (Delhi) to substantiate

the contention that the AO cannot reopen the assessment on the basis of

change of opinion. In view of the law laid down in the aforesaid cases,

the Ld. Counsel contended that since the AO had initiated the

proceedings u/s 148 r/w section 147 of the Act in violation of the law

laid down by the Hon’ble Supreme Court and the High Courts, the Ld.

CIT(A) has wrongly upheld the reopening of assessment in this case.

Accordingly, the Ld. Counsel submitted that the findings of the Ld.

CIT(A) on this issue are liable to be set aside.

Ld. CIT(A) submitted that since the Assessing Officer had reason to

believe that the income of the assessee had escaped, the Ld. CIT(A) has

rightly upheld the action of the Assessing Officer.

material on record. Since we have upheld the findings of the Ld.

13 ITA No. 64/Chd/2017 & C.O. No. 12/Chd/2017 – Apeejay Education Soceity, Jalandhar CIT(A) 0n merits, deleting the addition made by the Assessing Officer

and also upheld the findings of the Ld. CIT(A) that the assessee is

entitled for exemption u/s 11 of the Act, the Cross Objection filed by

the assessee has become academic. Hence, we are of the considered view

that the issue raised by the assessee in cross objection do not require

adjunction.

In the result, the appeal filed by the Revenue and Cross objection

filed by the assessee are dismissed.

Order pronounced on 22.02.2021.

Sd/- Sd/- ( N.K. SAINI) (R.L.NEGI) उपा�य� /Vice President �याियकसद�य/ Judicial Member उपा�य� उपा�य� उपा�य� �याियकसद�य �याियकसद�य �याियकसद�य Dated :22.02.2021 “आर.के.” आदेशक�"ितिलिपअ#ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. "$यथ�/ The Respondent 3. आयकरआयु&/ CIT 4. आयकरआयु& (अपील)/ The CIT(A) 5. िवभागीय"ितिनिध, आयकरअपीलीयआिधकरण, च*डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar