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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI KULDIP SINGH, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), Mumbai -1 [hereinafter in short “Ld.CIT(A)”] dated 10.11.2016 for the A.Y.2008-09.
Brief facts of the case are, assessee is an autonomous R&D institution under the administrative control of the Department of 2 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research Information Technology, Ministry of Communications and Information Technology. It is engaged in pursuing research and development activities in the field of Linear Accelerators, Radar based Instrumentation, Atmospheric Remote Sensing & Meteorology, RF & Microwave systems and components, Navigational aids, Photonics, EMI/EMC, etc. Assessee was set up by the Department of Electronics, Government of India vide its Office Memorandum No. DE-NRC/JK-501 dated 24th January, 1984. The Office Memorandum provides the following objectives for setting up of the assessee:- “It has been decided to set up Society for Applied Microwave Electronics Engineering Research (SAMEER) as an institution with the following goals and objectives. (i). to develop new microwave components, sub-systems, systems and instrumentation; (ii). to supply custom-built components for systems being designed in other institutions; (iii). to interact with other R&D agencies, and to help advance their development efforts and results to meet the national needs; and (iv). to interact with user agencies for obtaining firsthand knowledge of systems and their specialized requirements. Recognising that the microwave electronics is a high technology area, one of the primary aims of SAMEER will be the encouragement and promotion of microwave electronics development for achieving self-reliance in the country, and for advancing the general state-of-the-art in this field through scientific research and development, education, promotion of commercial and industrial applications and wider utilization or microwave technology and products."
3 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research 3. The aims for of the assessee has been established, which is provided in its Memorandum of Association are: “3.1.1. To be a premier institution of International repute for Research and Development in the area of science and technology of microwave/RF electronics, Electromagnetic Interference / Compatibility (EMI/EMC) and allied areas through intensive research, design, development and be a path setter in the shifting paradigm of R&D. 3.1.2. To contribute to the growth of science and technology of RF/Microwave electronics, Electromagnetic Interference/ Compatibility (EMI/EMC) and allied areas through intensive research, design, development, commercial and industrial applications and wider utilization of microwave technology and products, training of manpower and setting up of facilities for National progress. 3.1.3. To encourage and promote the development and progress of microwave electronics for self reliance in the country and for advancement of state-of-the-art in microwave electronics through scientific research and development, education, commercial and industrial applications and wider utilization of microwave technology and products. 3.1.4. To undertake R&D in the thrust areas of the Society such as Atmospheric Instrumentation, RF and Microwave Electronics, EMI/EMC, Medical Linear accelerator, Photonics, Thermal Engineering, Microwave and Millimeterwave components and take pro-active initiatives aiming at core research on visionary and challenging long term goals in an integrated and collaborative manner that are timely and also having strong potential for future impact. 3.1.5. To keep abreast of Microwave/RF, Electromagnetic Interference/Compatibility (EMI/EMC) and allied technology developments worldwide, track, evaluate and tap potentially applicable technologies for their appropriate usage to enhance economic competitiveness and address social needs of the country. 3.1.6. Create and maintain the environment conducive to R&D and innovation and intellectual property generation on a consistent basis meeting International standards of quality and processes to ensure its productive and meaningful usage.
4 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research 3.1.7. Adopt and introduce effective measures to take the R&D outputs and apply appropriate technologies towards commercialization and proliferation to address the requirements in the country and outside. Clause 3.2.2.16 of the Memorandum provides that, "All the incomes, earnings, movable and/or immovable properties of the Society shall be solely utilized and applied towards the promotion of the objectives only, as set forth in this Memorandum of Association, and no portion thereof shall be paid or transferred directly or indirectly by way of dividends, bonus, profit or in any manner, whatsoever to the members of the Society, or to any person or persons claiming through any one or more of the members. No member of the Society shall have any personal claim on any movable and/or immovable properties of the Society or make any profit, whatsoever by virtue of his/her membership."
Assessee has therefore been established for the development of microwave technology in India. Assessee has been registered as a society under the Societies Registration Act, 1860 vide Registration No. Maharashtra State, Mumbai 172, 1984 GBBSD dated 8th March 1984 and assessee registered with the Charity Commissioner, Maharashtra State, vide Certificate No. F-9343 (Mumbai) dated 30th April 1984. Assessee also registered under section 12AA of the Act vide Registration No.INS/28808 dated 24th June 1992 and has been claiming exemption u/s. 11 as applicable to a charitable trust carrying out a charitable activity.
Assessee undertakes projects on behalf of various Government Departments like Ministry of Defence, Defence Research and Development Organization (DRDO), Indian Space Research Organization
5 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research (ISRO), Department of Electronics and Information Technology (Deity), etc., Assessee receives grant from the Ministry of Communications and information Technology, Department of Electronics and Information Technology towards certain projects. In addition to the grants, your assessee also earns income from certain projects and from consultancy services. Rule 208(ii) of General Financial Rules, 2005 of the Ministry of Finance, Government of India provides that,
"All autonomous organisations, new or already in existence should be encouraged to maximize generation of internal resources and eventually attain self sufficiency."
Assessee has developed Linear accelerator technology for developing medical linear accelerator machine (LINAC) for radiotherapy treatment of cancer patients. It has developed technology for microwave and radio frequency dryers for drying applications of agricultural commodities in order to increase the shelf life of the agricultural produce. These activities followed and developed by assessee are testimony to its present, past and long term commitment in medical, social sector, education and security of the nation, thereby benefitting general public. The fees charged by the assessee for testing are fixed on the basis of the actual costs of the assessee, and are not linked to the market value of 6 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research such services. It is submitted that assessee earns surplus only because of government grants by bringing on record the following table: -
Surplus before Assessment Surplus as per I & E Miscellaneous Grant Received Grant Received year Account Income & Misc. Income 2008-09 1399,66,511 2311,10,585 6,95,40,240 (16,06,84,314)
Assessee filed the return of income for A.Y. 2008-09 on 26.09.2008 declaring a total income of NIL and claiming exemption u/s. 11 of the Act. Thereafter, the case was selected for scrutiny assessment u/s. 143(3). The then Assessing Officer passed an order u/s 143(3) accepting the claim of the assessee u/s 11, however disallowed the claim of depreciation on fixed assets purchased on the basis that it amounts to double deduction and hence disallowed u/s 11(1)(a). The income assessed was as under:
Gross Income 33,64,09,186 Less: Expenditure on objects 27,25,22,479 Add; Depreciation 7,60,79,804 19,64,42,675 13,99,66,511 Less: Addition to Fixed Assets 2,53,88,027 11,45,78,484 Less: Deemed Accumulation u/s 11(1)(a) 5,04,61,378 @ 15% of Gross Receipts Net Income 6,41,17,106
Assessee preferred an appeal to the Commissioner (Appeals) against the order passed u/s 143(3), Commissioner (Appeals) allowed the 7 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research claim of depreciation allowance u/s. 11(1)(a), which was upheld by the Coordinate Bench vide order dated 5th June 2013. After appellate effect, the computation of income of the assessee was as under:
Gross Income 33,64,09,186 Less: Expenditure on objects 27,25,22,479 Less: Deemed Accumulation u/s 5,04,61,378 51,20,96,553 ll(l)(a) @ 15% of Gross Receipts Less: Depreciation 7,60,79,804 Less: Unabsorbed depreciation for 11,30,32,892 earlier years Restricted to 33,64,09,186 Net Income NIL
Assessee has been claiming exemption u/s. 11 for all earlier years and the exemption has been allowed by the Assessing Officer even for A.Y. 2008-09 in assessment proceedings u/s, 143(3). Assessee received a notice u/s. 148 dated 28.03.2014 by which the Assessing Officer proposed to reassess the income of assessee and directed assessee to file a return of income in response to the notice u/s 148. The reasons recorded for re- opening the assessment are: -
“The assessee is a registered charitable trusts (public trusts) is governed by the provisions of section 1 to 13 of the Income Tax Act, 1961. The assessee trust is engaged purely in the research work in the area of microwave (electronics) and claimed exemption u/s.11 which was allowed by the Department. The allowance of exemption u/s.11 was not in order as the activities of the assessee, the activities were not for charitable purpose but purely a research work. For the 8 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research persons involved in research activities, separate provisions have been provided in the Act under section 10 subject to fulfillment of conditions under section 1- subject to fulfillment of conditions therein. During the year the assessee had received Rs.44.80 Crs as grant from the Government of India and other income and earned a surplus of Rs. 19,84,73,896/- before depreciation and claimed on fixed asset. This amount was claimed exempt u/s.11 by way of accumulation under section 11/2) and explanation (2) to section 11(1) and depreciation. Further as per the procedure there is no intimation was on record for accumulation under explanation (2) to section 11(1). In view of the same, I am of the considered opinion that the assessee is not eligible for exemption u/s.11 of the Income Tax Act, 1961 which has been allowed to them at the time of original assessment u/s. 143(3) of the Income Tax Act, 1961. This resulted in escapement of income of Rs.19,84,73,896/- with consequent short levy of tax of Rs.67,461,278/-. The assessee has failed to disclose fully and truly material facts for the assessment as far as the aforesaid issue is concerned, which has entitled into escapement of income to that extent. In view of the above facts and circumstances of the case, I have reasons to believe that income to the tune of Rs. 19,84,73,896/- has escaped within the meaning of section 147 of the Income Tax Act, 1961 in this case and accordingly the case needs to be reopened u/s.147 of the Income Tax Act, 1961. The sanction u/s.151(1)(2) of the Income Tax Act, 1961, is solicited for issuance of notice u/s 148 of the Income Tax Act, 1961, from the Director of Income-tax (Exemptions), Mumbai. As the assessment for the year under consideration has been finalized u/s.143(3) of the Income Tax Act, 1961 and a period of four year have lapsed from the end of the relevant assessment year."
During the reassessment proceedings, the assessee filed various submissions and explanations as called for. Vide order u/s 143(3) r.w.s. 147 dated 20 March 2015, the Assessing Officer denied exemption claimed by the assessee u/s. 11 on the ground that the objects of the assessee being the nature of research and development, was not a charitable
9 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research purpose. He accordingly brought net surplus of ₹.13,99,66,510 as per Income & Expenditure Account to tax. Further, the Assessing Officer did not allow the claim of depreciation ₹.8,04,82,405 by charging the net surplus before depreciation as per Income & Expenditure A/c of ₹.13,99,66,510 to tax. Ld.CIT(A) vide order dated 26th April 2011 for AY 2008-09 has allowed the deduction of unabsorbed depreciation of ₹.11,30,32,892. However, the same was not allowed by the Assessing Officer in his order u/s 143(3) r.w.s. 147 dated 20.03.2015. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) sustained the action of the Assessing Officer.
Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “As regards reassessment under section 147 of the Income Tax Act, 1961 (the Act)
1. The learned Commissioner of Income Tax (Appeals) erred in upholding validity of the reassessment proceedings initiated by the Assessing Officer.
2. The learned Commissioner of Income Tax (Appeals), while holding that the Assessing Officer had not formed any opinion, failed to appreciate that there was therefore no belief that income had escaped assessment.
3. The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that in the original assessment proceedings, the 10 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research issue regarding exemption under section 11 had already been examined by the Assessing Officer.
4. The learned Commissioner of Income Tax (Appeals) erred in upholding the initiation of reassessment proceedings under section 148 by the Assessing Officer without his having any fresh material leading to the belief that income has escaped assessment.
5. The learned Commissioner of Income Tax (Appeals) erred in holding that no opinion was formed by the Assessing Officer hitherto and therefore, there was no "change" of opinion.
6. The learned Commissioner of Income Tax (Appeals) erred in upholding the initiation of reassessment proceedings after the expiry of 4 years from the end of the relevant assessment year, presuming that there was failure on the part of the appellant to disclose fully and truly all the facts necessary to make the assessment. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant bad not sought any accumulation u/s 11(2), and that therefore the question of not submitting the copy of Form No 10 and resolution for accumulation did not arise. On the contrary, this demonstrated the lack of application of mind by the learned Assessing officer. As regards denial of exemption under section 11 1. The learned Commissioner of Income Tax (Appeals) erred in upholding the denial of exemptions / 21 and 12 by the learned Assessing Officer.
2. The learned Commissioner of Income Tax (Appeals) erred in holding that the testing, measurement and consultancy services carried on by your appellate amounted to business as defined in section 2(13), which was hit by the provisions of section 11(4A).
The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the research activity carried on by your appellant is charitable in nature, to benefit the society in the field of Microwave (Electronics) and not carried out with a motive to earn profit.
11 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research 4. The learned Commissioner of Income Tax (Appeals) erred in upholding the Assessing Officer's view that if an entity is a research organization, it cannot be a charitable organization.
5. The learned Commissioner of Income Tax (Appeals) erred in not appreciating that the very fact of continuing section 12A registration demonstrated that the objects of the appellant were charitable in nature, and that a contrary view as to the charitable nature of the objects could not be taken.
6. The learned Commissioner of Income Tax (Appeals) erred in not appreciating that the Assessing Officer failed to appreciate the fact that the activities of your appellant had not changed since earlier years and that exemption under section 11 had always earlier been granted to your appellant as a charitable organization. As regards denial of deduction of depreciation 7. The learned Commissioner of Income Tax (Appeals) erred in not deciding the ground of appeal
relating to denial of deduction for depreciation.
8. The learned Commissioner of Income Tax (Appeals) erred in merely directing the Assessing Officer to expeditiously dispose of the rectification application, without giving any specific direction on the issue. Relief Sought Your appellant prays that: 1 the reassessment proceedings under section 147 be treated as invalid and bad in law and the reassessment order be quashed; 2. the order of the learned Assessing Officer be modified by allowing exemption u/s 11, and accordingly allowing accumulation of 15% of income u/s 11(1), as well as claim of capital expenditure incurred towards the objects of the appellant as an application of income; and 3. The Assessing Officer be directed to allow depreciation to your appellant.
12 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research The above grounds are independent of, and without prejudice, to one another. Your appellant craves leave to add to, alter or delete any of the above grounds, if and when necessary.”
At the time of hearing, Ld. AR brought to our notice various facts on completion of original assessment and also initiation of reopening of assessment was brought to our notice and further, he submitted that the assessment was reopened by issue of notice dated 28.03.2014 which is clearly beyond four years. Therefore, the proviso of section 147 of the Act is applicable in this case and he brought to our notice Page No. 18 of the Paper Book which is the reasons recorded for reopening of assessment in which Assessing Officer has not brought on record what is the failure on the part of the assessee. Ld. AR submitted that it is very well known to the Assessing Officer at the time of original assessment itself that the assessee is a research organization. In this regard he brought to our notice Para No. 3 of the original Assessment Order. Further, he brought to our notice various findings of the Assessing Officer in the original Assessment Order itself about the functioning of the assessee. Further, he brought to our notice Page No. 7 of the Assessment Order and in which assessee has brought to the notice of the Assessing Officer clearly that assessee is educational institution carrying on research and development
13 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research activities. Therefore, there is no failure on the part of the assessee to disclose clearly about the object of the assessee. In this regard he relied on the decision of Calcutta Discount Co. Ltd., v. ITO [41 ITR 191 (SC)] and Ananta Landmark P. Ltd. v. DCIT [439 ITR 168 (Bom)].
Ld. AR submitted his second proposition that Assessing Officer has to disclose what information was not submitted by the assessee. In this regard he relied on the Ananta Landmark P. Ltd. v. DCIT (supra). In this regard he brought to our notice Page No. 18 of the Paper Book wherein the Assessing Officer has not mentioned about the failure on the part of the assessee.
Further, Ld. AR submitted his third proposition that amount mentioned in the notice of ₹.44.80 crores of revenue and ₹.19.85 crores of excess of income over expenditure are wrong, in this regard he brought to our notice Page No. 32 of the Paper Book which is Income and Expenditure Account for the year ended 31.03.2008 in which he brought to our notice grant received from Ministry is only ₹.23.11 crores and assessee has earned the excess of income over expenditure is only ₹.5.9 crores. He submitted that from where Assessing Officer has quoted
14 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research the figure of ₹.19.84 crores as profit. Therefore, he submitted that the figures quoted by the Assessing Officer are not matching to the reasons recorded by him to reopening the assessment. He submitted that Assessing Officer proceeded with the wrong facts on record and in this regard also re-assessment initiated by the Assessing Officer is bad in law. Accordingly, he relied on the case of Hon'ble Bombay High Court in the case of Tata & Sons Ltd. v. DCIT in writ petition No 2545 of 2010 dated 03.02.2022.
Further, Ld. AR submitted his fourth proposition that, assessee has not claimed accumulation at all. Assessing Officer recorded in reasons the in reopening that assessee claimed accumulation. He brought to our notice Page No. 17 of the Paper Book which is the original assessment passed by the Assessing Officer in which assessee has not claimed any accumulation. Therefore, it clearly shows that once again Assessing Officer has proceeded with incorrect facts on record. Further, he submitted that Assessing Officer has no tangible material to proceed with the re-assessment proceedings. In this regard he relied on the case of CIT v. Kelvinator of India Ltd., [2010] 320 ITR 561 (SC)].
15 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research 16. On the other hand, Ld. DR brought to our notice Page No. 10 of the appellate order and submitted that the various case laws relied by the Ld.AR are not applicable in the present case, what is relevant is the reasons to believe for reopening of the assessment and even if there is any mismatch of figures are not relevant. Further, he brought to our notice Page No. 4 of the Paper Book and questioner 9 to the notice issued u/s.142(1) of the Act, as per which assessee has to disclose accumulation made u/s. 11 of the Act during the last ten years for which assessee has not submitted any reply or statement. Therefore, he relied on the orders passed by the lower authorities.
In the rejoinder, Ld. AR of the assessee submitted that assessee has not accumulate anything at all during the last ten years. Therefore, it is not required to disclose anything when there is no accumulation at all.
Considered the rival submissions and material placed on record, we observe from the record that the assessment u/s. 143(3) of the Act was completed on 28.12.2010 for the relevant A.Y. 2008-09. However, Assessing Officer issued the notice u/s. 148 of the Act on 28.03.2014 by recording the reasons for reopening with the reason that the allowance of 16 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research exemption u/s. 11 was not in order as the activities of the assessee were not for charitable purposes but purely research work. He observed that for the persons involved in research activities, the separate provision has been provided in the Act u/s. 10 subject to fulfillment of conditions provided u/s.10 thereon. Assessing Officer also observed various financial figures for reopening of the assessment. Further, we observe that all the numbers recorded by the Assessing Officer is not matching with the finance records submitted before us. However, it is fact on record that the present re-assessment proceedings were initiated beyond four years and from the record we observe that Assessing Officer has not recorded anything to suggest that what is the failure on the part of the assessee especially when the re-assessment proceedings were initiated beyond four years. Therefore, proviso to section 147 of the Act are very much applicable. Further, we observe that while completing the original assessment the Assessing Officer has clearly observed the activities of the assessee as research organization and further, it is brought to our notice that the assessee is a government organization. The facts on record clearly indicate that Assessing Officer miserably failed to brought on record anything to bring on record that what is the actual failure on the part of the assessee. In absence of any record of failure on the part of 17 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research the assessee it is the duty of the Assessing Officer to disclose various failures on part of the assessee. This proposition itself clearly indicate that the re-assessment proceedings were initiated only to reassess the income of the assessee without there being any failure on the part of the assessee, it indicate the change of opinion. This issue is squarely covered by the decision of the Hon'ble Bombay High Court in the case of Ananta Landmark Pvt. Ltd. v. DCIT (supra) and the Hon'ble Bombay High Court held as under: - “Held, that the assessee had filed the annual returns with the required documents as provided under section 139. Not only were the material facts disclosed by the assessee truly and fully but they were carefully scrutinized and figures of income as well as deduction were reworked carefully by the Assessing Officer. In the reasons for reopening, the Assessing Officer had in fact relied upon the audited accounts to say that the claim of deduction under section 57 of the Act was not correct, the figures mentioned in the reasons for reopening of assessment were also found in the audited accounts of the assessee. In the reasons for reopening, there was not even a whisper as to what was not disclosed. In the order rejecting the objections, the Assessing Officer admitted that all details were fully disclosed. The assessment was sought to be reopened on account of change of opinion of the Assessing Officer about the manner of computation of the deduction under section 57. The notice of reassessment was not valid.”
Since facts in the present appeal are exactly similar to the facts on the above decision of the Hon'ble Bombay High Court, respectfully following the above said decision, we are inclined to treat the notice issued
18 ITA.NO.430/MUM/2017 (A.Y: 2008-09) Society for Applied Microwave Electronic Engineering & Research u/s. 148 of the Act for reassessment was not valid. Accordingly, the assessment order passed by the Assessing Officer is also equally bad in law.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 17th February, 2023