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Income Tax Appellate Tribunal, B BENCH, MUMBAI
order : 08.03.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. These are 2 appeals pertaining to Assessment Year 2015-16 and 2016-17 preferred by the Assessee against the orders passed by the Ld. Commissioner of Income Tax (Exemptions) –Mumbai [hereinafter referred to as „the CIT(E)‟] in appeal for under Section 263 of the Act, both, dated 05.08.2022. Since the appeals involve identical issues the same were heard together and are being & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 disposed by way of a common order. (Assessment Year 2015-16) 2. We would first take up appeal for the Assessment Year 2015-16 challenging the order, dated 05.08.2022, passed by the CIT(E) for the Assessment Year 2015-16, whereby the Ld. CIT(E) had set aside the Assessment Order, dated 31.10.2017, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) for de-novo assessment.
The Appellant has raised the following grounds in the Appeal “1. That in the given facts and circumstances of the case and in law, the Show Cause Notice dated 04.03.2021 is barred by limitation since the proceedings u/s. 263 ought to have been initiated earlier in order to provide the Appellant within an effective opportunity of being heard, as the time limit for issuance of notice u/s. 263 was expiring on 31.03.2021, de hors the extension of limitation provided under Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020. 2 That in the given facts and circumstances of the case and in law, the impugned order is illegal, invalid and bad in the eyes of law as the Respondent has not complied with the 7 direction of the Hon'ble Income-Tax Appellate Tribunal, Mumbai, by not giving effect to the order within 3 months of the receipt of the order of the Tribunal.
3. That in the given facts and circumstances of the case, the Respondent erred in holding that the Assessing Officer concluded the assessment proceedings without making basic enquiries and verifications regarding the nature of Appellant's activities, whereas the same were specifically looked into by the Assessing Officer during the assessment proceedings.
4. That in the given facts and circumstances of the case and in law, the Respondent having accepted that the Appellant has been undertaking educational activities, failed to appreciate that in-service training programmes and consultancy activities carried on by the Appellant are also only a part of the educational activities.
5. That in the given facts and circumstances of the case and in & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 law, the Respondent having accepted that the Appellant has been undertaking educational activities, failed to 5 appreciate that in-service training programmes carried on by the Appellant are also only a part of the educational activities, and in any case, cannot be regarded as 'business' carried on by the Appellant.
6. That in the given facts and circumstances of the case and in law, the Respondent having accepted that the Appellant has been undertaking educational activities, failed to appreciate that the consultancy activities carried on by the Appellant are only a part of the educational activities, and in any case, are de- minimis and purely incidental to the educational activities, which cannot be regarded as 'business' carried on by the Appellant.
7. That in the given facts and circumstances of the case and in law, without prejudice the above grounds, the Respondent erred in holding that the books of accounts maintained by the Appellant are not books of accounts as contemplated in law, when the documents maintained by the Appellant sufficiently establish the income and expenditure relating to the alleged business activities.”
4. This is the second round of appeal. In the first round the Appellant had challenged the order, 16/11/2021, passed by the CIT(E) before the Tribunal in appeal in ITA No. 543/Mum/2021. The Tribunal had, vide order dated 16.11.2021, disposed the aforesaid appeal with directions to the CIT(E) to pass a fresh order under Section 263 of the Act. Pursuant thereto, the CIT(E) passed order, dated 05.08.2022 which has been impugned by way of present appeal on the grounds in paragraph 2 above.
4.1 The brief facts of the case are that the Appellant is a charitable trust registered under the Bombay Public Trust Act, 1950. The Appellant was also granted registration under Section 12A and 80G of the Act.
4.2 For the Assessment Year 2015-16, the Appellant filed return of income on 22/09/2015 declaring „Nil‟ income. The case of the Appellant was selected for scrutiny and notice under Section & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 142(1) of the Act, dated 23/02/2017 was issued to the Appellant along with questionnaire which was followed by other notice dated 22/09/2017, issued under Section 142(1) of the Act. The Appellant vide letter, dated 14.03.2017, filed reply to notice dated 23.02.2017 issued under Section 142(1) of the Act whereby the Appellant submitted, inter alia, (i) Memorandum of Association (ii) Certificate of Registration of Charity Commissioner, (iii) Certificate of registration under Section 12A and 80G of the Act, (iv) detailed note on objects of the trust and activities along with Balance Sheet and Income of Expenditure Account for the Assessment Year 2015- 16, and (v) Assessment Order for the Assessment Year 2014-15 passed under Section 143(3) of the Act. The Assessing Officer completed the assessment vide Assessment Order, dated 31/10/2017 passed under Section 143(3) of the Act accepting the claim of exemption under Section 11(1) and 11(2) of the Act. The relevant extract of the aforesaid Assessment Order read as under:
“3. In response to the notices issued, Shri Tushar K Doctor, Chartered Accountant & Authorized Representative of the assessee attended from time to time and submitted the details called for. The details filed have been examined and discussed during the course of scrutiny proceeding. The Appellant trust is registered under Section 12A of the I.T. Act and also registered with the Charity Commissioner, Mumbai.
Subject to the above remarks and discussion and after verification of details furnished, total income of the assessee is being worked as under: Income 1,14,24,27,859 Less : Expenses as claimed in 38,01,90,815 computation 76,22,37,044 Less: Set apart u/s 11(2) 59,08,72,865 17,13,64,179 Less : Exemption u/s 17,13,64,179 17,13,64,179 11(1)(a) up to 15% of Rs. 1,14,24,27,859/- & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 “(Emphasis Supplied) 4.3 Subsequently, the CIT(E) issued notice, dated 04/03/2021 under Section 263(1) of the Act to the Appellant as the CIT(E) was of the view that the Assessment Order was erroneous in so far as prejudicial to the interest of the Revenue as the Assessing Officer had passed the Assessment Order without basic verification of the following facts:
(i) According to CIT(E) scrutiny of Memorandum of Association and records of the Appellant revealed that the Appellant was engaged in the activities for the promotion of training, research, professionalism and skill formation at all levels for the construction and other allied industries. The Appellant was a service provider charging service training fee and consultancy charges. The activities of the Appellant could not be characterized solely as education. The Appellant existed for profit as was evident from the analysis of Income and Expenditure Account and the Assessment Order for the Assessment Year 2013-14 to Assessment Year 2016-17. The percentage of profit over income for the Assessment Years 2013-14 to 2016-17 was 66.95%, 66.29%, 66.72% and 65.74%, respectively.
(ii) The Appellant was running various programmes and certification courses. In addition, the Appellant also conducted programmes for the management of family own construction businesses (PGP MFOCB) and conducted in-service training programmes, at campus or on customer sites, which were designed as per the requirements of the customer. Further, the Appellant also & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 carried out consultancy work for various industries. The aforesaid was evident from TDS reconciliation submitted by the Appellant for the Assessment Year 2015-16. The aforesaid activities of the Appellant did not qualify as educational activities and income therefrom was, thus, taxable as per Section 11(4A) of the Act.
(iii) On verification of Schedule M forming part of annual accounts for the Assessment Year 2014-15 to 2016-17 it could be seen that the Appellant was continuously granted advances Mushtifund Saunstha. The total advance given by the Appellant to Mushtifund Saunstha at the end of the Financial Year 2015-16 stood at INR 1,30,00,000/-. Similarly, as per Schedule H of the annual accounts, the Appellant had paid INR 20,66,66,995/- to ASBM Trust towards purchase of building during the previous year relevant to Assessment Year 2015-16 and had claimed the same as application of income accumulated under Section 11(2) of the Act. There was nothing on record to show that the aforesaid organization were registered under Section 12AA or Section 10(23C) of the Act. Further, according to CIT(E) the amounts paid to the aforesaid organization were out of accumulated income of earlier year which could not be allowed as applicable of income for charitable purposes during the current year.
4.4 In response to the above show-cause notice, dated 04/03/2021, the Appellant filed written submissions along with supporting documents on 25.03.2021. However, the PCIT proceeded to pass order dated 26/03/2021 under Section 263 of the Act stating that ITA. No. 2180 & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 no reply was filed by the Appellant. The aforesaid order, dated 26/03/2021 was set aside the Tribunal vide common order, dated 16/11/2021 passed in & 544/Mum/2021. The Tribunal had directed that the effect be given to the order passed by the Tribunal with a period of 3 months from the date of the order passed by the Tribunal. However, on account of Covid - 19 Pandemic, the aforesaid timelines could not be complied with. Pursuant to the directions issued by the Tribunal, fresh opportunity of being heard was given to the Appellant and notice, dated 11/05/2022, was issued to the Appellant fixing the hearing on 18.05.2022. At the request of the Appellant, the hearing fixed for 18.05.2022 was adjourned to 07.06.2022 on which date the Learned Authorized Representative of the Appellant appeared and filed written submissions. Thereafter, the hearing was adjourned to 14.06.2022, on which date, the Learned Authorized Representative of the Appellant made some submissions regarding application of receipts and maintenance of separate books of account. Learned Authorized Representative of the Appellant was also asked to furnish written submissions in support of the oral submission as per note-sheet dated 14/06/2022 recorded by the CIT(E). The Authorized Representative of the Appellant did not file written submission till 23/06/2022 and was, therefore, issued a reminder. In response, the Learned Authorized Representative of the Appellant filed Letter, dated 24/06/2022, giving explanation in respect of the issues raised in the notice issued under Section 263(1) of the Act. Vide Letter, dated 04/07/2022, the Appellant was asked to confirm whether the ledger submitted by the Appellant formed part of separate books of accounts maintained by the Appellant. In response, the Learned Authorized Representative of the Appellant filed Letter dated 04/06/2022. On 13/07/2022, the Director General of the Appellant 7 & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 appeared in person and explained the Appellants position as regards various issued raised by the CIT(E). After taking into consideration the submissions of the Appellant, the CIT(E) passed order dated 05/08/2022 setting aside the Assessment Order, dated 31/10/2017, and directed the Assessing Officer to frame de-novo assessment holding as under:
In the present case, AO has passed an assessment order without basic verification of issues mentioned in preceding paras. The lack of verification/inquiries on these issues during the assessment proceedings renders this order erroneous in so far as it is prejudicial to the interests of revenue within the meaning of Explanation 2 to Section 263 of the Act. In view of the facts and circumstances and legal precedence as narrated above, and by virtue of the powers vested in the undersigned vide the provisions of Section 263 of the I.T. Act. 1961, the assessment order dated 31.10.2017 is set aside with a direction to AO to do the assessment proceedings de novo. In the de novo assessment, the AO is directed to take necessary action as per law in view of the clear non- compliance/default of the assessee to the provisions of Section 11(4A) of the Act.” 4.5 Being aggrieved, the Appellant has preferred the present appeal against the order passed by CIT(E), dated 05/08/2022.
The Learned Senior Counsel for the Appellant appearing before us submitted that the Appellant was registered under the Bombay Public Trust Act, 1950, and held registration under Section 12A and 80G of the Act on 06.02.1984 which continued to be valid during the relevant previous year. The activities of the Appellant continue to be the same ever since its inception in 1984. The Appellant was allowed exemption under Section 10(22) of the Act till A. Y. 1998-1999. After the omission of Section 10(22) of the Act by the Finance Act 1998, the Appellant has been claiming its income as exempt under Section 11 of the Act as an institution undertaking educational activities. 8 & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 5.1 Learned Senior Counsel submitted that the core issue for consideration is whether the in-service training programmes and consultancy activities carried on by the Appellant are non- educational activities. He vehemently contended that the aforesaid issue stood decided in favour of the Appellant by the Tribunal in the case of the Appellant in appeal preferred by the Appellant for the Assessment Year 1985-86 decided vide order dated 13.06.1990 [reported (1990) in 34 ITD 445] (placed at page 39 to 42 of Paper-Book 1). In its return of income for the AY 1985- 86, the Appellant claimed its income as exempt u/s 10(22) of the Act, as well as under Section 11 of the Act Section 10(22) of the Act, as it stood before its omission by Finance Act, 1998, granted exemption to any institution "existing solely for educational purposes, and not purposes of profit". The section read as under, before its omission. The objects of the Appellant-Society, since its inception, have been unchanged and included, inter alia, the following “(b) To undertake special projects and activities in various parts of India to promote management and professional training in construction and other allied industries. (g) To undertake consultancy, set up consultancy centres its own and/or in collaboration with other organization in the areas of construction management and other allied subject.“ (refer to para 3 of the Tribunal‟s Order for the Assessment Year 1985-86) 5.2 The Assessing Officer denied the exemption claimed by the Appellant under Section 10(22) the Act for the Assessment Year 1985-86, on the ground that the Appellant was carrying on business activities, and not education activities. The allegations of & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 the Assessing Officer were similar to the allegations raised in the show-cause notice issued under Section 263 of the Act. The Tribunal, in the case of the Appellant - National Institutes of Construction Management & Research (Nicmar) v. ITO: [1990] 34 ITD 445 (Mum) - allowed the claim for exemption under Section 10(22) of the Act holding that the activities of the Appellant were educational activities. The facts now before the Tribunal are identical to the facts that were before the Tribunal in the appeal for Assessment Year 1985-86. It was held by the Tribunal that in- house training programme, and consultancy activities were part of educational activities. There is no change in facts. The activities of the Appellant being educational activities, the question of treating them as separate business and maintaining separate books of account for the purpose of Section 11(4A) of the Act did not arise.
5.3 The Learned Senior Counsel relied upon the judgment of the Hon‟ble Bompnay High Court in the case of DIT v. Shri Vile Parle Kelvani Mandal, [2015] 373 ITR 593 (Bom), and submitted that the that (i) in-service training programmes, and (ii) consulting activities, are nothing but educational activities as has been held by the Hon‟ble Bombay High Court in the aforesaid judgment. Elaborating upon the same, the Learned Senior Counsel submitted that in-service training programme provided by the Appellant are conducted by the same set of lecturers and professors training students in all the other programmes. The professors do not separately trained or qualified for training the participants of the In-service Training Programme. The experience gained by the professors from the in-service training programme are used by the professors in training the students in the other educational programme. The Appellant uses the same infrastructure (classrooms, library, etc.) for undertaking the in-service training 10 & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 programme. Therefore, the in-service training programme cannot be considered as different or independent from other educational activities conducted by the Appellant. Regarding the consultancy activities, the Learned Senior Counsel submitted that the same also form part and parcel of the educational activities. Appellant is an industry recognized Institution - recognised as a Scientific and Industrial Research Organisation (SIRO) by the Department of Scientific and Industrial Research (Gol). The Faculty of the Appellant are mandated to undertake applied research and consulting assignments. Consulting activities undertaken by the faculty are viewed as dynamic learning process for the institution. The knowledge gained in applied research activities and practical collaboration with industries improves the perspective with which the faculty members teach their students. The students working on such assignments gain to understand ground level problems faced by industries. During the Financial Year 2014-15, the Appellant received research and consultancy fees from Sara Plast Pvt Ltd and from PMI Organisation Centre, aggregating to INR.5,25,000/-. During the Financial Year 2015-16, the Appellant received a fee of INR.50,000/- from PMI Organisation Centre.
5.4 The Learned Senior Counsel for the Appellant submitted that since the activities of in-service training and consulting activities are integral to the educational activities, clearly, the requirement to maintain separate books for businesses did not arise in the case of the Appellant. The Learned Senior Counsel submitted that when the activities of in-service training and consulting activities are provided by the same faculty members who teach regular educational courses in the Appellant Institution. The Appellant uses the same infrastructure (classrooms, library, etc.) as are used for educational activities, for undertaking the in-service training 11 & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 programme and consulting activities. The activities are so interlinked and inseparable from one another, the question of maintaining separate books for the two activities does not arise. The activities relating to in-service training programmes and consultancy services formed part of regular educational activities of the Appellant.
5.5 However, at the same time, the Learned Senior Counsel submitted that the in-service training programmes and consultancy services are undertaken by the Appellant only when any organisation specifically makes a request to the Appellant for training or research. Before taking up the assignment, the Head of Department of the concerned faculty will have to present a proposal to the management about the scope of proposed assignment, lecturers and students who would work on the assignment, the expected cost of taking up the assignment, the amount that can be recovered from the person requiring the services, etc. Thus, all the relevant data regarding the aforesaid services is maintained by the Appellant. The Appellant prepares a detailed cost and revenue budget before taking up any assignment. The budget clearly captures the estimated that would be incurred towards each possible expense head, including training material, printing cost, transportation, boarding and lodging, etc. The finding returned by the CIT(E) that separate books of accounts were not maintained by the Appellant is based upon incorrect appreciation the submission made during the course of hearing.
5.6 Finally, the Learned Senior Counsel for the Appellant submitted provisions of Section 11(4A) of the Act did not apply to the Appellant as the business was held under Trust. In this regard, he & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 relied upon the judgment of the Hon‟ble Delhi High Court in the case of Hamdard Laboratories India v. ADIT(E) [2015] 379 ITR 393 (Delhi).
Per contra, the Learned Departmental Representative relied upon the order passed by the CIT(E) and submitted that there was no infirmity in issuance of show cause notice and/or order passed under Section 263. The show cause notice under Section 263(1) of the Act was issued on 04.03.2021 and the original order under Section 263 of the Act was passed on 26.03.2021, before the expiry of limitation on 31.03.3021. The CIT(E) had rightly observed that the activities of the Appellant cannot be regarded as educational only. The in-service training service and consultancy services are clearly commercial in nature and fall within the definition of term „business‟ as contained in Section 2(13) of the Act since the same have been undertaken in an organised manner. Even if for the sake of argument it is accepted that the dominant object of the Appellant is „education‟ and the in-service training and consultancy services provided by the Appellant are incidental to the attainment of the main objectives, the provisions of Section 11(4A) of the Act would still be attracted. The Learned Departmental Representative submitted that even if for the sake of argument, it is accepted that the consultancy were „de- minimis‟, the same would not affect the applicability of the provisions of 11(4A) of the Act. He submitted that the Assessing Officer was duty bound to examine these aspects which he failed to do and therefore, the CIT(E) was justified setting aside the Assessment Order. The Learned Departmental Representative submitted that in the case of the Appellant provisions of Section 11(4A) of the Act would be attracted. The provisions contained in Section 11(4) of the Act are not attracted in the case of the 13 & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 Appellant. Therefore, the Appellant was under obligation to maintain separate books of accounts. Relying upon paragraph 10.4 to 10.7 of the order passed by the CIT(E), the Learned Departmental Representative submitted that the Appellant had not maintained separate books of accounts of Accounts and had, therefore, failed to comply with the requirements of Section 11(4A) of the Act. In this regard, Learned Departmental Representative relied upon the judgment of the Hon‟ble Bombay High Court in the case of Indian Machine Tools & Manufacturers' Association vs The Director Of Income Tax(E): 254 Taxman 243. He further submitted that the Assessing Officer failed to make basic inquiry regarding application of funds claimed by the Appellant in respect of payments made to Mushtifund Saunstha and ASBM Trust. Relying upon the provisions of Explanation to Section 263 of the Act, Learned Departmental Representative submitted that since the Assessing Officer has failed to carry out necessary inquiry and verification of the above issues, the CIT(E) was justified in setting aside the Assessment Order.
We have given a thoughtful consideration to the rival contentions and have perused the material on record and judicial precedents cited during the course of hearing.
7.1 The show-cause notice dated 04.03.2021 was issued and the order dated 26.03.2021 were passed within the extended period of limitation which was to expire on 31.03.2021 as per the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, dated 31.03.2020 read with Notification dated 24.06.2020 issued thereafter. Section 263 of the Act only provided the time limit within which order under Section 263 is to be passed and does not prescribe the time limit for issuance of notice under & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 Section 263 of the Act. It is admitted position the aforesaid time limit stood extended till 31.03.2021. The period of 3 months specified in the order dated 16.11.2021 passed by the Tribunal was to give effect to the order passed by the Tribunal which required an opportunity of being heard to be granted to the Appellant. On perusal of paragraph 3 to 4.2 of the order impugned we find that necessary steps were taken by the CIT(E). Therefore, we reject the contention of the Appellant that the order impugned by way of present appeal is bad in law since the same has not been passed with 3 months from the receipts of the order dated 16.11.2021 passed by the Tribunal. Thus, the proceedings before the CIT(E) and the order passed by the CIT(E) do not suffer from any infirmity in account of expiry of limitation. .
7.2 On perusal of notice issued under Section 142(1) of the Act, copy of reply filed by the Appellant placed on record and the Assessment Order we find that the Assessing Officer had not made any inquiry or verification regarding the in-service training service and consultancy service. The Appellant had bifurcated the various receipts into categories other than educational Income in the Statement of Receipts for the period ended 31/03/2015 which were as under: Receipts Amount (INR) Educational Income 96,43,51,756/- In-Service Training Programs 27,34,229/- Research and Consultancy 5,25,000/- Conference and Seminar Nil Publications and Journals 3,80,859/- Other Receipts 14,97,65,558/- 7.3 Section 11 of the Act provides exemption for income derived from property held under trust wholly for charitable purposes to the extent such income is applied for charitable purpose in India. & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 Since the Appellant was engaged in educational activities, the Assessing Officer was under obligation to verify receipts and their application before accepting the Appellant‟s claim of exemption under Section 11 of the Act. The facts that the above bifurcation given by the Appellant was sufficient to invite inquiry in the part of the Assessing Officer regarding the nature of receipts. However, no enquiry regarding the nature of the receipts was made by the Assessing Officer. Similarly, the Assessing Officer failed to inquire into the payments made to Mushtifund Saunstha, & ASBM Trust, and whether the Appellant has claimed the aforesaid payments as application of income during the current year.
7.4 The CIT(E) set aside the Assessment Order by invoking provisions of Section 263(1) read with Explanation 2 thereto which read as under: “Revision of orders prejudicial to revenue. 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. xx xx
Explanation 2 For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 the order is passed without making inquiries or verification (a) which should have been made; xx xx”
7.5 The above provisions empower the CIT(E) to set aside the assessment order and direct fresh assessment in case the CIT(E) is of the view that the Assessment Order is erroneous in so far as it is prejudicial to the interest of the Revenue. Explanation 2 creates a deeming fiction and provides that Assessment Order would be deemed to be erroneous in so far as it is prejudicial to interest of Revenue provided the Assessing Officer fails to make inquiry or verification which should have been made. In our view, the provisions of Explanation 2 are clearly attracted in the facts of the present case as the Assessing Officer had failed to carry out the basic inquiry/verification as was warranted in the facts and circumstances of the case.
7.6 During the appellate proceedings before us, arguments were advanced by both sides on the merits of the issues to contented that the order passed by the Assessing Officer was not erroneous or prejudicial to the interest of Revenue even through Explanation 2 creates a deeming fiction by which Assessment Order is deemed to be erroneous in so far as it is prejudicial to the interest of Revenue in case in the opinion of the Principal/Chief Commission or Commission the Assessing Officer fails to make inquiry/verification which should have been made. In the present case the CIT(E) has given the basis or reasoning of formation of opinion that the Assessing Officer had failed to make inquiry or verification which should have been made by referring to the merits of the matter. This necessitated advancement of & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 arguments on merit by both the sides even though the CIT(E) has directed denovo assessment. Accordingly, we now proceed to deal with the same to the extent necessary to deal with the Appellant‟s challenge to the order impugned.
7.7 It was contended on behalf of the Appellant that since inceptions in the year 1984, the objects of the Appellant have remained unchanged. All the activities undertaken by the Appellant during the relevant previous year were considered by this Tribunal while passing the order, dated 13/06/1990, in the appeal preferred by the Appellant for the Assessment Year 1985-86 [reported in (1990) 34 ITD 445 Bom]. It was contended on behalf of the Appellant that in the aforesaid decision, after examining the objects of the Appellant, the Tribunal had concluded that Appellant was nothing but an educational institution within the meaning of Section 10(22) of the Act. However, on bare perusal of aforesaid decision of the Tribunal, we find that the examination by the Tribunal in the said decision was limited to the courses conducted by the Appellant namely Diploma in Master Construction Management, and Post- Graduate Diploma in Construction Management and Certificate course in building supervision. In the aforesaid decision of the Tribunal, though a passing reference has been made to the training for executed development programmes, in-service training programs, and consultancy having been provided by the Appellant, no factual finding in respect of the same was given by the Tribunal.
7.8 During the course of the hearing, reliance was placed on behalf of the Appellant on the documents available in public domain relating to similar in-house training and consultancy provided by other institutions (placed at Pages 1 to 25 of the combined Paper- & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 Book No. III) and also the additional evidence (running into 202 pages) accompanied by application for admission of additional evidence. It is admitted position that the aforesaid documents and additional evidence were neither before the CIT(E) nor before the Assessing Officer. Therefore, the question of considering the same while considering the judicial propriety of the review order passed by CIT(E) under Section 263 of the Act does not arise. The Appellant would be able raise all these contention in the proceedings before the Assessing Officer as the CIT(E) has in conclusion directed the Assessing Officer to frame denovo assessment leaving all issues open except one relating to maintain books of accounts. We note that there appears to be dispute regarding what transpired during the proceedings before the CIT(E). The CIT(E) has recorded that the Learned Departmental Representative of the Appellant appearing before CIT(E) produced only a ledger account and made a submission that separate books of accounts were not maintained by the Appellant. Whereas, before us it was contended by the Appellant, without prejudice to the legal submission that the Appellant was not under obligation to maintain separate books of accounts, that the Appellant did maintain the details of receipt and expenses relating to in-service training services and consultancy service as the same required specific approval. We would first deal with the legal contentions raised by the Appellant since it had contended that the Appellant was not required to maintain separate books of Accounts.
7.9 We are not inclined to accept the contention of the Appellant that the Appellant would not be required to maintain separate books of account even if in-service training and consultancy services are regarded as business activity since the Appellant would be covered by the provisions contained in Section 11(4) of the Act. 19 & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 The Hon‟ble Supreme Court has, in the case of Assistant Commission of Income Tax Vs Ahmedabad Urban Development Authority: [2022] 449 ITR 1 (SC) while explaining the distinction between Section 11(4) and 11(4A) of the Act, observed as under:
“155. Section 11(4) applies to cases where the business undertaking itself is the property held by a trust. Thus, where the property held in trust, or where property settled by the donor or trust creator in favour of the trustees itself is a business undertaking, then the income from such an undertaking is covered by Section 11(4). Section 11(4A) operates differently. It is applicable to cases where the trust carries on a business. Section 11(4A) states that when a trust carries on a business, unless the business is incidental or ancillary to the attainments of the objectives of the trust, it would be disentitled to an exemption under section 11(1). It imposes a further condition that separate books of accounts need to be maintained in such cases.
Section 11(1) confers an exemption from tax only where the property itself is held under a trust or other legal obligation. It does not apply to cases where a trust or legal obligation is not created on any property, but only the income derived from any particular property or source is set apart and charged for a charitable or religious purpose. Similarly, when a business itself has been set aside for the objects of the trust, then such business is held under trust and will fall under sub-section (4). However, where the profits of a business of a trust are applied for charitable purposes, then such business and trust will be governed by sub-section (4A).” (Emphasis Supplied)
7.10 In our view, in the facts and circumstances of the present case it cannot be said that the in-service training services and consultancy services constitute business undertaking held as property under the trust covered by provisions of Section 11(4) of the Act. Thus, we reject the contention of the Appellant that in view of the provisions of Section 11(4) of the Act the Appellant would not be required to maintain separate books of account even & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 if it is presumed that the Appellant is engaged in business activity.
7.11 Whether the in-service training services and consultancy services form part of the educational activities, or business incidental to the attainment of objects of the trust, or a separate business would have to be examined by the Assessing Officer in the set- aside proceedings while framing denovo assessment. The finding of facts returned by the Assessing Officer would then require determination of next issue whether it can be said that separate books of accounts have been maintained by the Appellant in respect of business activity, if any, including in-house training services, and consultancy services. The CIT(E) had concluded that separate books of accounts were not maintained by the Appellant on the basis of, inter alia, the submissions made by the Learned Authorized Representative which are contended to have been understood by the CIT(E) incorrectly. Therefore, we deem it appropriate to leave this issue open for examination/adjudication by the Assessing Officer in the set-aside proceedings while framing de-novo assessment. In our view, sufficient facts were not available on record before the CIT(E) to return a finding of fact that separate books of accounts were not maintained by the Appellant.
7.12 Thus, in conclusion we have rejected both the contentions of the Appellant that (a) in the case of the Appellant for the Assessment Year 1985-86 [reported in (1990) 34 ITD 445 Bom] it was held by the Tribunal that the in-service training services and consultancy services were educational services, and (b) that the Appellant was not required to maintain separate books of accounts as the Appellant was covered by the provisions of Section 11(4) of the Act. & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17
We uphold the exercise of powers of revisions by CIT(E) under Section 263 of the Act by invoking Explanation 2 thereto since the Assessing Officer has failed to make inquiry/verification as warranted in the facts and circumstances of the case. The Assessing Officer would now carry out necessary inquiry/verification before framing de novo assessment on the Appellant, and the Appellant would be at liberty to raise all the contentions on merits, except those rejected by us hereinabove, before the Assessing Officer.
However, we modify the order passed by the CIT(E) to the extent the issue pertaining to maintenance of separate books of account, as the said issue is left open for determination in the set-aside proceedings by Assessing Officer while framing de novo assessment.
Accordingly, Ground No. 1, 2 and 3 raised by the Appellant are dismissed, whereas Ground No. 4 to 7 are treated as partly allowed for statistical purposes. In view of the aforesaid the present appeal stands disposed off as partly allowed for statistical purposes.
(Assessment Year 2016-17) 8. Both the sides had agreed that facts and issues raise in appeal for the Assessment Year 2016-17 are identical to the appeal for the Assessment Year 2015-16, therefore, the decision rendered in appeal for the Assessment Year 2015-16 shall apply mutatis mutandis to appeal for the Assessment Year 2016-17. Accordingly, in terms of paragraph 7.12 above, Ground No. 1, and 2 raised by the Appellant in appeal for the Assessment Year 2016-17 are dismissed, whereas Ground No. 3 to 6 are treated as partly 22 & 2181/Mum/2022 Assessment Year: 2015-16 & 2016-17 allowed for statistical purposes. In view of the aforesaid the present appeal stands disposed off as partly allowed for statistical purposes.
In result, the appeals preferred by the Appellant for the Assessment Year 2015-16 and 2016-17 are partly allowed for statistical purposes.
Order pronounced on 08.03.2023.