DCIT, CENTRAL CIRCLE, BELLARI vs. M/S. NAVODAYA EDUCATION TRUST, RAICHUR

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

1. The order of CIT(A) is bad and erroneous in law and against the facts and circumstances of the case. 2 The order of CIT(A) is incorrect in annulling the assessment order in this case considering the facts and circumstances of the case. 3 The CIT(A) is incorrect in holding that the AO has not followed the provisions of section 143(3) in framing the assessment order and that the same is bad in law.

M/s. Navodaya Education Trust, Bangalore

Page 2 of 27 4 The order of CIT(A) is incorrect in granting relief to the assessee on technical grounds without discussing the merits of the issues involved in the assessment order considering the facts and circumstances of the case. 5 The CIT(Appeals) erred in holding that the AO has not followed the 1st Proviso of the Section 143(3) of the Act. The CIT(Appeals) has not considered the fact that the Assessee is not only an approved Educational Institution u/s 10(23C) of the Act but also a registered trust u/s 12A or 12AA of the Act. It has also filed Audit reports in Form 10B (to be furnished by a charitable or religious trust or institution that has been registered u/s 12A), Form 10BB (Audit report under section 10(23C) of the Act) and the Form 3CD. The afore-mentioned facts were also brought under the order of the CIT(A). The assessee is claiming exemptions available to both 10(23C)(vi) and 12A registered entities and moreover the assessee is also availing the benefits provided to entities registered under 12A/12AA such as exemption of Corpus fund donations etc., Further, at para 21 of the impugned order of the AO, the Assessing officer also referred to the Section 11 of the Act, as under: "21. The above mentioned amount of Rs. 12,49,08,600 which has been received but not accounted for in the books of Navodaya Medical College, could not have been applied for the purpose of education. Therefore, the Navodaya Education Trust is not eligible for exemption u/s 10(23C)(iv) or u/s 11 of the IT,Act, 1961 on this amount if Rs. 12,49,08,600. Therefore, the entire unaccounted receipts of Rs.12,49,08,600/- is brought to tax as the income of the Navodaya Education Trust for the AY 2009-10." A plain reading of the above, shows that the AO has also made addition as per Sec.ll of the Act (applicable to the persons registered u/s 12A/12AA of the Act). Further, it is submitted that the first proviso of the section 143(3) of the Act i& not required to be followed in case of the persons registered u/s 12A/12AA of the Act. Hence, the impugned order of the AO needs to be upheld as the CIT(A), despite bringing facts to the order, failed to appreciate it and uphold the order.

6. The CIT(A) erred in granting relief on technical grounds without considering the fact that the impugned addition made towards unaccounted donations of Rs12,49,08,6007- would not have been utilised for the purpose of education and the assessee would not be eligible for claiming any exemption under section 10(23)(C) or under sec 11 of the Income tax Act. The CIT(Appeals) erred in not considering that, the 1st Proviso of the Section 7. 143(3) of the Act is not required to be followed in respect of the addition of Rs. 2,99,12,250 proposed as Anonymous donations u/s 115BBC, since the Section 115BBC merely prescribes the special rate of taxation of the donations received

M/s. Navodaya Education Trust, Bangalore

Page 3 of 27 of specific nature and does not deny the exemption available u/s 10(23C) or any other section. In view of the above, the impugned order of the AO may be treated as valid and has duly followed the prescribed procedure as detailed in the Section 143(3) of the Act in respect of additions proposed as Anonymous donations u/s 115BBC of the Act of Rs. 2,99,12,250/- which was reflected in the books of accounts. 8 Any other grounds on the issues involved in the case to be added during the course of appellate proceedings, if any.

M/s. Navodaya Education Trust, Bangalore

Page 4 of 27 3.1. The ld. CIT(A) admitted the additional ground and called for the remand report from the AO, which reads as follows:- “Additional Grounds. raised by the AR of the assessee: We would like to raise the following additional ground of Appeal before Your Goodself; which arises out of the said assessment order and the same is to be treated s t first ground of appeal. Accordingly all other grounds of appeals so raised 'in the appeal filed in Fora: No. 35 on 24th January, 2017 may be renumbered. "The Appellant prays that the Assessment Order passed under section 143(3) r.w.s 147 of the Act may please be treated as void- ab-initio as the same is passed without considering the provisions of First proviso to section 143(3) of- the Act. The Learned AO has erred in passing the assessment order without giving effect to the provisions of section 10(23C) of the Act, 'rig the assessee is an educational institution which has filed the return u/s 139(4C) of the Act, 1961." The ld. CIT(A) called for remand report from the AO. The ld. AO sent his remand report vide his letter dated 13.4.2022.

Comments of the Assessing Officer: As per the said provisions of Section 143(3) -of the: art, no assessment order u/s 143(3) shall be passed without giving effect teethe provisions of the 'section 10 of the act, in case the said assessee f institution is approved under the said provision of the act, by the competent authority. Further, it is bright on record that the assessee trust has been granted approval under sub-clause (vi) of clause (23C) of Section 10 of the I.T. Act, 1961, by the Chief Commissioner of Income- tax, Hubli vide order in Lr.F.No.CCCIT-HBL/10(23C)(vi)/16/2008-19 Dated: 13/02/2009. (Copy enclosed for reference). Cited Subject already discussed during the course of assessment proceedings: Nevertheless, it is submitted that the issue of allowability of claim of exemption u/s 10(23C) o the act, was discussed during the course of assessment proceedings. It is brought on record that, the issue of exemption u/s 10(23C)(iv) or u/s 17 of the act, was put across to, the assessee for comments vide Notice u/s 142(1) in Lr.F.No.DCIT/CC/BLR/Scrutiny/2016-17 Dated: 15/11/2016 as under:

"4. It may also be noted that the above mentioned amount of Rs. 12,49,08,600/- which has been received but not accounted for in the books of Navodaya Medical College, could not have been applied for the: purpose of education. Therefore, the Navodaya Education Trust is not eligible, for exemption u/s M/s. Navodaya Education Trust, Bangalore

Page 5 of 27 10(23C)(iv) or u/s 11 of the I.T,Act, 1961 on this amount of Rs. 12;49,08,600/-. Therefore, the entire unaccounted receipts of Rs. I2,49,08,600/- is proposed to be brought to tax as the income of the Navodaya Education Trust for the. AY- 2009-10.

In response – Reply filed by the assessee vide letter dated 2.12.2016 Penultimate Paragraph: Your good selves have stated that our trust is not eligible to claim for exemption u/s 10(230riv) of the act, therefore the entire unaccounted receipt of Rs. 12,49,08,600/- is proposed to be brought to tax as the income, in this regards we wish to state that when we have not received such donation at all the claiming of any such exemption-does notarise."

Accordingly, the Assessing Officer at para no. 21 / page no.12 of the Assessment Order u1s 143(3) r.w.s 147 dated: 30112/2016 has made a clear-mention above the eligibility of exemption u/s 10(23C)(iv) or 11 of the act, as under: "21. The above-mentioned amount of Rs.12,49,08,600/- which has been received but not accounted for in the books of Navodaya Medical College could not have been applied for the purpose of education. Therefore, the Navodaya Education Trust is not eligible for exemption u/s 10(23C)(iv) or u/s 11 of the I.T. Act, 1961 on this amount of Rs.12,49,08,600/- Therefore, the entire unaccounted receipts of Rs-.12,49,08,600/- is brought to tax as the income of the Navodaya Education Trust for the AY-2009-10."

6. It is reemphasized from assessment order that Donation received has not been accounted in the books of accounts. Hence, the financials prepared by the assessee are wrong ab-initio including audit report Therefore, assessee's request for granting exemptions under section 10(23C) of the Act does not arise-and plainly rejected. Taking into account the facts and circumstances of the. case, it is submitted that 7. the ground raised by the assessee before the CIT(A)-2 has already-been discussed -by the Assessing Officer in the Assessment Order in detail: as brought -on record above Hence, the, undersigned stands by the assessment order. Accordingly, -the. Hon`ble Commissioner of Income-Tax (Appeals)-2, Panaji is requested to dispose of` the-appeal in the case of the-assessee on the merits.”

3.2. On perusal of the contents of the remand report by him, the ld. CIT(A) observed that the AO has neither explicitly contested admission of the additional ground of appeal nor has given any justified reasons as to why the additional ground of appeal should not be admitted. In view of the ratio of the decision of the various courts including the Hon’ble Apex Court, departmental guidelines as M/s. Navodaya Education Trust, Bangalore

Page 6 of 27 well as the comments of the AO in the remand report dated 13.04.2022, the additional ground raised which is on a question of law; whose omission to be raised earlier was manifestly neither willful nor was it unreasonable for it, to be admitted at the appellate stage and where all the relevant facts relating to it are on record, was admitted.

3.3. Further, ld. CIT(A) called for another remand report from the AO. The AO vide letter dated 6.7.2022 and the ld. AO submitted second remand report as follows:-

"3. It is clear from the first proviso to Section 143(3) of the act; that no assessment order u/s 143(3) of the Act, shall be passed without giving effect to the provisions of the section 10 of the act, in respect of the cases where the assessee/institution is approved under provisions and clauses of section 10 of the Act by the. Competent Authority and the said assessee filed its return u/s 139(4C) of the Act.

3.1 Further, it is also mentioned that no order shall be made by the Assessing Officer without giving effect to the provisions of Section 10 unless the Assessing Officer has intimated to the competent authority about the contraventions of the said provisions by the assessee and the. approval granted by the Competent Authority has been withdrawn or notification issued for rescinded of the said trust or institution.

3.4. The copy of remand report dated 6.7.2022 was forwarded to the assessee vide notice dated 8.7.2022 for filing the rejoinder. The assessee filed his rejoinder vide letter dated 12.7.2022, which is as follows: "On perusal of the remand report dated;6r1, July 2022 it may be observed that the Assessing Officer has quoted in his report in para 4 as follows: "It is hereby bought to the notice that as per records available, the assessee trust has been granted

M/s. Navodaya Education Trust, Bangalore

Page 7 of 27 approval under sub-clause (V) of clause (23C) of Section of the I.T. Act, 1961 by the Chief Commissioner of Income-tax, Hubli vide order in Lr.F.No. CCCIT- HBL/10(230(v0/16/2009-09 dated 13/02/2009 ie. Wef Asst. Year-2009-10. In light of the above discussion and plain reading of the contents of the Section 143(3) the assessment should have been c o m p l e t e d a s p e r f i r s t p r o v i s o t o s e c t i o n 1 4 1 ( 3 ) o f t h e I T A c t i n t h e assessee case for the Asst. Year 2009-10, as the assessee appears io have satisfied the conditions of the provision as detailed above."

We observe that 'the Learned AO in his remand report has concurred with our submissions filed -in hearing dated 27th April 2022, stating that the First Proviso to section 143(3) of the Act is applioable4to the Assessee Trust and 'that the Predecessor to the current Learned AO has- not taken cognizance of -the same. While passing-the Assessment order. 'Thus, the order so passed -u/s 143(3) r.w.s. 147 of the Act for the subject year is bad in law and void-ab-initio, which is liable to be quashed 1n full. The reasoning as, to-why the same is liable to be quashed is as under: The Assessee is approved Educational Institution u/s 10(2.3C) of the Income Tax, Act, 1961 ('the Act) and also approved usf'-1-251Aof the Act. The Assessee filed its return of income u/ss 139 (4C) of the. Aet and also got its books of account audited in Form: 10BB, Form 10B and Form 3CD, as prescribed by the Income Tax Rules, 1962 ((the Rules’). A copy of the Approval of the Trust u/s 10(23C)(vi) of the Act-dated 13th February 2009 is already furnished as Annexure in the submission dated 27th April 2022. Further, the acknowledgement of the return of income filed and various other-details like Audit report in Form No 10B, 10BB and 3CD are available on record of the Learned AO. We believe that the act of the Learned AO, while passing the assessment order u/s 143(3) r.w.s. 147 of the. Act, is bad in law as, the same is not in accordance with the provisions of section 143(3) of-the Act, which reads

"(3) On the specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to . him on the basis of such assessment: Provided that in the case of a— (a) research association referred to in clause (21) of section 10; (b) news agency referred to in clause (22B) of section 10; (c) association or institution referred to in clause (23A) of section 10;

M/s. Navodaya Education Trust, Bangalore

Page 8 of 27 (d) institution referred to in clause (23B) of section 10; (e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub sec (via) of clause (23C) of section 10, which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10, unless— the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) clause (22B) or clause (23A) or clause (23B) or sub-,clause (iv) or sub clause (v) or clause. (v) or sub-clause (vi) or sub-clause (via) of sub clause (23C) of section 10 as the case may be, by such research association, news agency, association or institution or find or trust or-university or other educational institution or any hospital or other medical institution, where in his view, such contravention have taken place; and (ii) the approval granted-to such research association or other association or fund or trust or institution or university or other educational institution or hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded:

Provided further that where the Assessing Officer is satisfied that the activities of the university, college or other institution referred to in clause (it) and clause (iii) of sub-section (1) of section 35 are not being carried out in :accordance with all or any of the conditions subject to -which such 'university, college or other institution was approved, he may, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommend to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a copy of the order to the concerned university, college or other institution and the Assessing Officer:

Provided also that notwithstanding anything contained in the first and the second provisos, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10. in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in such. previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded."

M/s. Navodaya Education Trust, Bangalore

Page 9 of 27 On a plain reading of the provisions above, it can be observed that the Assessee Trust being an entity registered u/s 10(23C)(vi) of the Act, the First Proviso to. section 143(3) of the Act is applicable in the given case. As per the First Proviso to section 1430) of the Act, in case of an Assessee who is registered/ recognised / approved u/s 10(23C) of the Act and is required to file a. return of income u/s 139.(4C) of the Act, it is pertinent to the Learned AO to give effect to provisions of section 10 while passing the assessment order u/s 143(3) of the Act.

However, it may be observed that while passing the assessment order u/s 143(3) r.w.s. 147 of the Act, the Learned AO has grossly erred in not following, the relevant proviso to section 143(3) of the Act. As the act of omission by the Learned AO in not following the provisions of section 143(3)- of the Act, we believe that the entire assessment order itself is bad in law. We would like to draw Your Honors attention to Para 21 on page 12 of the Assessment order dated 30th December 2016 passed u/s 143(3) r.w.s. 147 of the Act, wherein it is merely stated that the addition proposed to be made in the course of the assessment order on account of anonymous donation and unaccounted donation are not eligible for exemption u/s 10(23C)(vi) / section 11 of the Act, without following the appropriate procedure for denial of benefit u/s 10(23C) of the Act. If the Learned AO believed that the. exemption is not available, then the same should have been done by obtaining approval from the Central Government / Prescribed Authority by way of cancellation of recognition u/s 10(23C) of the Act, the way it was done for AY 2010-11 to AY 2016-17. The act of the Learned AO in not following the prescribed procedures and denial of exemption u/s 10(23C) suo motu without obtaining approval from concerned higher authorities is Ultra-vires the provisions and procedures laid down-under the Act. Hence, the denial of exemption u/s 10(23C) by himself is bad in. law and beyond his powers and thus, the same entire assessment order works out to be Void-ab-initio and bad in lam Thus, we believe that the assessment order so passed is liable to be quashed as the same is without following appropriate procedures and are passed without approval from appropriate authority.

The Learned AO -in his remand report dated 6th July 2022, very categorically stated that the Assessee trust has satisfied the conditions prescribed in First Proviso to section 143(3) of the Act -and the same ought to have been considered by his Predecessor AO while passing the assessment order. We request Your, Goodself to please refer to para 4 on page no 4 of the remand report passed u/s 250(4) of the Act; Thus, we believe that going by the said report and our submissions filed earlier, the order of the Learned AO passed on 30th December 2016 u/s 143(3) r.w.s. 147 of the Act is bad in law and void-ab-initio, requiring to be quashed in full.

M/s. Navodaya Education Trust, Bangalore

Page 10 of 27 Therefore, we are of the opined view that in the instant case, the Learned AO has not considered the provisions of section 143(3) of the Act while passing the assessment order u/s 143(3) r.w.s. 147 of the Act and therefore, the entire assessment order is liable to be quashed as the same is void-ab- initio. The order of approval u/s 10(23C) of the. Act was a existence and in force for the subject year and therefore, passing an assessment order without obtaining approval from appropriate authority for denial of exemption u/s 10(23C) of the Act is absolutely Further, the Assistant Director of Income. Tax (Inv.), Ballari (the Investigating Dicer) in the course of the Search Proceedings cancelled the approval u/s 10(23C) of the Act for the period from AY 2010-11 to AY 2016- 17. The approval u/s 10(23C) was not cancelled by the investigating officer for AY 2009-10 and that the same is in force and valid for the said year. Thus, the Learned AO was bound .to pass the assessment order by giving effect to provisions of section 10(23C) to the amount added to the income for the year as additional income over and above the regular income reported by the. Assessee the return of income filed.

The Investigating Officer, who has carried out the Search and also prepared the Appraisal Report being mindful of the facts of the case for the subject year, did not initiate for cancellation of the approval for the AF 2009-10. It is based on the report and recommendation of the said officer that the case was taken up for re-assessment for subject year. If the Investigating officer believed that there was violation of such provisions, then the order- u/s 10(23C) of the Act for cancellation would have, been passed for the period from A.Y 2009-1.0 as. well along with subsequent 7 assessment years. This further suggests that the investigating officer was mindful. of -this fact that and purposely not cancelled as the revenue effect would be nil considering the actual expenditure incurred for the. year by the Assessee.

Therefore, in view of the above contentions, we once again reiterate that the Learned AO has not followed the prescribed procedures as envisaged under section 143(3) of the Act and that the entire assessment order is void-ab- initio and is liable to be quashed. We would also- like to state that we have furnished various other submissions which are denying the fact of receipt of unaccounted donation and bring the corpus donation to: tat as Anonym us donation over the earlier years after the appeal was filed 3 years ago. We request you to please-consider the same as well before concluding the appellate proceedings."

M/s. Navodaya Education Trust, Bangalore

Page 11 of 27 3.5. Finally, ld. CIT(A) decided the issue on additional ground by observing that the AO in his remand report submitted that the submissions of the assessee are to be considered in light of the facts reported by the AO in the remand report dated 06.07.2022. AO, in the remand report, has affirmed that no assessment order under Section 143(3) of the Act can be passed without giving effect to the provisions of the Section 10 of the Act in respect of the cases where the assessee/institution is approved under provisions and clauses of section 10 of the Act by the competent authority and where the assessee has filed its return under section 139(4C) of the Act. The AO has also mentioned that the assessee trust has been granted approval under sub-clause (vi) of clause (23C) of Section 10 of the Act by the Chief Commissioner of Income Tax, Hubli vide order in Lr.F.No.CCIT- HBL/10(23C)(vi)/16/2018-19 dated 13.02.2009. He has also mentioned that in the instant case the benefit of the Section 10 was not given to the appellant.

3.6. The ld. CIT(A) observed that the remand report confirms that no assessment order under Section 143(3) of the Act shall be passed without giving effect to the provisions of 'the Section 10 of the Act in respect of the cases where the assessee/institution is approved under provisions and clauses of Section 10 of the Act by the competent Authority. The remand report further states as under:

“In light of the above discussion and plain reading of the contents of the Section 143(3) the assessment should have been completed as per first proviso to section 143(3) of the IT Act in the assessee case for the Asst.Year-2009-10”.

3.7 The report therefore concludes that the assessment in this case should have been Completed as per the-provisions of first proviso to section 143(3) of the I T Act, which has manifestly not been done.

M/s. Navodaya Education Trust, Bangalore

Page 12 of 27 3.8 While the AO has further observed that provisions of first proviso to section.143(3) of the Act have not been followed in this case, however, the remand report is silent on the effect of third proviso to section 143(3) of the Act which became effective from Assessment Year 2009-10 and which states as under: - “Provided also that notwithstanding anything contained in the. first and the second provisos, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the Provisions of the first proviso to clause (15) of section. 2 become applicable in the case of such person in such previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded.” 3.9 The ld. CIT(A) asked the assessee to clarify as to how the case of the assessee was not covered by the provisions of the third proviso which expressly over-ride the provisions of the first proviso. In this regard, during the course of hearing on 25.8.2022, ld. A.R. submitted as under:-

`Analysis of Third Proviso of section 143(3) of the Act:

The third proviso. of section 143(3) of the. Income Tax Act, 1961 (as amended by FA 2012 -w.e.f. 01-04-2009) is reproduced below as under for ready reference: 143(3) — Third Proviso:- "Provided also that notwithstanding anything contained in the first and the second proviso, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15)of section 2 become applicable in the case of such person in such previous year, whether or-not the approval granted to such trust or institution: or notification issued in respect of such trust or institution has been withdrawn or rescinded.

M/s. Navodaya Education Trust, Bangalore

Page 13 of 27 On perusal of the above, it is important to note that the First and Second Proviso of section 143(3) of the Act shall not be applicable in cases where, a Trust is covered by the First Proviso to section 2(15): of the. Act. Therefore, it is important to view and analyse the provisions of section 2(15) of the Act, which deals with definition for 'Charitable Purpose'.

"Section 2(15) —

"charitable purpose includes relief-of the poor, education, medical relief preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility, shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity

Provided further that the first proviso shall apply if the aggregate value of the receipts from the activities refer to therein is twenty-five lakh rupees or less in the previous year; "

From the above, it may be observed that the proviso to section 2(15) deals with a case where a Trust- is involved in advancement of any other object of general public utility. In the instant case, the Trust is not involved in carrying out any other object of general, public utility The Trust has been involved in rendering charitable activity, in the, field of education alone for the subject year. In the assessment order passed under section 143(3) r.w.s. 147 of the Act also nowhere it- has been held that the Trust is involved in- carrying out any other object of general public utility.

Further, it has been held that the activity of advancement of any other object of general public utility shall involve carrying on of any activity in the nature of trade, commerce or business. Hence, in absence of any activity of trade, commerce or business, the Trust shall not be covered by the First Proviso to section .2(15) of the Ad. Basically, the First Proviso to section. 2(15) of the Act deals with instances where a Trust is involved in preying out- trade, commerce or business activity which is not incidental to the charitable purpose of the Trust

For instance, truth. like Patanjali or- Art of living; etc, where there are business activities of sale of medicines or such other products, which is in the nature of trade and commerce. It is for such cases, where the Trusts are earning business

M/s. Navodaya Education Trust, Bangalore

Page 14 of 27 profits from such business activities that this amendment was introduced to state that the Trusts shall not be eligible for benefit u/s 1Q(23C) of the Act.

In the case of Navodaya Education Trust, the Trust was wholly involved in imparting education to the students and to render the same it has charged fees and, donation to students, which was then used for the purpose. OF developing the educational facilities and imparting education to students. Hence, the same is not: in the- nature of trade,, commerce or business and that the First Proviso of section 2(15) of the Act which deals with Activity, of advancement of any other general public utility is not triggered As the First Proviso: of section 2(15) of the Act is not applicable in the instant case, the third proviso of section 143(3) of the Act which says that first and second proviso of section 141(3) of the Act shall not be, applicable only where a trust is covered by first proviso of section 2(15) of the Act,

The Assessee Trust is squarely not covered by the third proviso of section 143(3) of the Act in absence of not being involved in any activity of advancement of any other object of general public utility as prescribed in first proviso of section 2(15) of the Act. Hence, the Trust is covered under first and second proviso of section 143(3) of the Act and therefore, the assessment order is annulled and bad in law as the said provisions are not followed by the Learned AO while passing the assessment order u/s 143(3) r.w.s. 147 of the Act.'

3.10 The ld. CIT(A) has considered the Para 2.1 of CBDT Circular No.11/2008, dated 19.12.2008 wherein states as under:

“2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying of commercial activities.”

3.11 Apart from this, the ld. CIT(A) relied on judgements of various courts wherein held as under:

• In the case of Malco Vidyalaya Matriculation Higher Secondary School v. Chief Commissioner of Income-taxi" 0191 103 taxmann.com 104 (Madras), the Hon'ble High Court of Madras held that where assessee, running a higher secondary school, claimed exemption under section 10(23C)(vi), in view of fact that assessee was not carrying on any other activity apart from imparting education and, moreover, surplus generated had been utilised for M/s. Navodaya Education Trust, Bangalore

Page 15 of 27 school development purposes, claim so raised by assessee was to be allowed.

• In the case, of Shaheed Udham Singh Educational Society v. Income-tax Officer (Exemptions), Jalandhar[2019] 107 taxmann.com 282 (Amritsar - Trib.), Amritsar Bench of ITAT has held that where assessee-society was engaged in imparting education as a learning centre of a University i.e. PTU, since object of assessee was charitable in nature within meaning of section 2(15), a part of semester fee paid by PTU to assessee could not be regarded as commission: and, assessee'' claim for exemption under section 10(23C)(iiiad) in respect of amount so received, was.-to be allowed.

• In the case of Madhya Pradesh Madhyam v. Assistant Commissioner of Income-tax -1(2), Bhopal[20191 101 taxmann.com 456 (Indore - Trib.), ITAT Indore Bench has held that where assessee-society was engaged in 'activities of publication of newspaper and complementary publication to provide information regarding Government welfare schemes to general public and its activities had not changed at all since its inception and it was fully eligible for exemption under sections 11 and 12 and, further, in-come-generated by assessee was utilized fully for purposes of objects of assessee, Assessing Officer was not justify . in holding that assessee was involved in carrying on activity in nature of trade, commerce or business.

• In the case of Director of Income-tax, (Exemptions) v .Gujarat Cricket Association[2020] 120 taxmann.com 50 (Gujarat), Hon'ble High Court of Gujarat held that where driving force of assessee-State cricket association was not desire to earn profit but object was to promote game of cricket and nurture best of talent, merely because it put up tickets of international cricket matches for sale, and earned some profit out of same and said profit was used in activities

M/s. Navodaya Education Trust, Bangalore

Page 16 of 27 of 'promotion of game, it would not lose its character of having been established for a charitable purpose.

3.12 The ld. CIT(A) observed that the inference that is evident from Circular No.11/2008 dated 19.12.2008 issued by CBDT as well as the aforesaid judgements is that third Proviso to Section 143(3) of the Act is applicable to institute which are covered under First Proviso to Section 2(15) of the Act. First Proviso to Section 2(15) is applicable to a Trust/Institution which is carrying on activity of advancement of any other object of general public utility and largely deals with cases where there is activity of trade, commerce or business. The ld. CIT(A) was of the view that in the instant case, as the trust is not carrying on any other object of general public utility other than education or medical relief, the third proviso to Section 143(3) is not applicable.

3.13 The ld. CIT(A) further noted that in the course of the search proceedings, approval u/s 10(23C) of the Act was cancelled by the concerned authority AY 2010-11 to AY 2016-17. The approval u/s 10(23C) was not cancelled for AY 2009-10 and the same remained in force and valid for the said year. The assessee had filed their return of income u/s 139(4C) of the Act. The additions have been made in the assessment order on account of anonymous donation and unaccounted donation on the ground that these are not eligible for exemption u/s 10(23C)(vi) / section 11 of the Act. But these additions are made without following the appropriate procedure for denial of benefit u/s 10(23C) of the Act. The available exemptions could have been denied only with the approval of the Prescribed Authority by way of cancellation of recognition u/s 10(23C) of the Act, the way it was done for AY 2010-11 to AY 2016-17. The act of the AO in not following the prescribed procedures and denial of exemption u/s 1.0(23C) of the. Act suo motu without obtaining approval from concerned higher

M/s. Navodaya Education Trust, Bangalore

Page 17 of 27 authorities is ultra-vires the provisions and procedures laid down under the Act. AO, in the remand report dated 06.07.2022, has already agreed that the assessment in this case should have been completed as per first proviso to section 143(3) of the I T Act and this has not been done.

3.14 In view of the aforesaid discussion, the ld. CIT(A) observed that it was evident that the AO has not followed the provisions of section 143(3) in framing the assessment order and that the same is bad in law. Therefore, he allowed the additional ground of appeal is allowed and thus, the assessment order is to be annulled. Against this the revenue is in appeal before us.

4. With regard to ground Nos.1 to 3 and ground nos.5 & 6, the ld. D.R. submitted as follows:

Ground Nos. 1-3 & 5-6 4.1 The ld. CIT (DR) submitted as follows:

(a) The order of ld. CIT(A) is factually and legally wrong in annulling the impugned assessment order by stating that the AO did not follow 1st Proviso of Section 143(3) as the A.O has also made the addition of donations of Rs. 12,49,08,600 received by the assessee, but not accounted in its books, u/s 11 of the Act as undisclosed receipts (Para 21/Page 12 of the impugned order of the AO). Therefore, the order of Ld. CIT(A) is liable to be set-aside. (b) The failure on the part of Ld. CIT by not adjudicating the appeal by NOT considering the addition made by AO also u/s 11, makes his order "legally erroneous" and, therefore the order of Ld. CIT(A) is liable to be set-aside.

M/s. Navodaya Education Trust, Bangalore

Page 18 of 27 (c) The failure on the part of Ld. CIT(A) in appreciating the facts of the case renders his order legally erroneous as the assessee is claiming exemption both under 10(23C)(vi) and 12A of the I.T. Act and the A.O has also made the addition of donations of Rs. 12,49,08,600 received, but not accounted in its books, u/s 11 of the Act as undisclosed receipts (Para 21/Page 12 of the impugned order of the AO). The failure on the part of Ld. CIT(A) to consider this fact renders his order “legally erroneous” and, therefore, the order of ld. CIT(A) is liable to be set aside.

"Addition as long term capital gain Rs.2,94,26,600/- (point 7) The assessee's argument in this regard are M/s. Navodaya Education Trust, Bangalore

Page 19 of 27 acceptable. Addition as income from other sources - Foreign Travel- Rs.1,12,475/-( Point 11)

The assessee has filed certificate issued by the Director of M/s Classic Coffee & Spices (P) Ltd., wherein it is stated that Sri. D.M. Purnesh, Director was requested to represent the Company and attend Specialty Coffee Association of America's Trade Show and Conference at 3oston, U.S.A. in April 2003. Further, it is stated that the expenditure of Rs.1,12,475/-has been pasted under the head of account 'business promotion expenses of the company. The argument of the assessee in this regard may be accepted.

On addition of Rs.84,61,055/ The assessee's Chartered Accountant Sri Kiron has stated that the cheque deposits in assessee's Savings account are all transfers from within the family members, firms and companies wherein He is either a partner or a director. The assessee's submissions may be accepted. Addition as income from other sources-unexplained investment in Harey estate of Rs.9,45,000/-(Point 15) Assessee's submissions may be accepted."

So far as other substantial questions of law are concerned, it is not necessary for us to answer the same as the Remand Report is accepted in respect of the aforesaid three heads, the appeal filed by the revenue would not be acceptable before this Court in view of the circular 2019 dated 8.8.2019. In view of the preceding analysis, we do not find any merit in this appeal. The same fails and is hereby dismissed.”

Page 20 of 27 Act prescribes various eventualities under which an assessee files the return. Sub-section (1) provides the filing of voluntary return of the Act within prescribed time. Sub-section (2) authorizes the ITO to call for return from an assessee who is assessable to income tax. In this case, the return has to file from 30 days from the issue of notice by ITO. However, the section 139(2) of the Act has been omitted w.e.f. 1.4.1989. Sub-section (3) provides that if no notice under sub- section (2) was served upon the assessee, who has sustained a loss under the head “business”, he is required to file the loss returned within the time allowed under sub-section (1) or till such further extended time as allowed by the ITO, if he claims the loss to be carried forward. Under section 139(4) of the Act any person who has not furnished return within the time allowed to him under sub-section (1), or within time allowed under a notice issued under sub-section (1) of section 142 of the Act, may furnish the return for any previous year at any time before expiry of one year from the end of the relevant assessment year or before the completion of assessment, whichever is earlier. Now under the relevant provisions, the assessee seeks the help from sub-section (4C) of section 139 of th Act, which reads as follows:- “Section 139(4C) Every— a) [scientific research association] referred to in clause (21) of section 10; b) news agency referred to in clause (22B) of section 10; c) association or institution referred to in clause (23A) of section 10; d) institution referred to in clause (23B) of section 10; e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in [sub-clause (iiiad) or] sub-clause (vi) or any hospital or other medical institution referred to in [sub-clause (iiiae) or ] sub-clause (via) of clause (23C) of section 10; f) trade union referred to in sub-clause (a) or association referred to in sub- clause (b) of clause (24) of section 10;

M/s. Navodaya Education Trust, Bangalore

Page 21 of 27 Shall, if the total income in respect of which such [scientific research association], news agency, association or institution, fund or trust or university or other educational institution or any hospital or other medical institution or trade union is assessable, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1)].”

6.1 In the present case, the assessee’s case has been reopened u/s 148 of the Act vide notice dated 31.3.2016 and vide AO letter dated 18.4.2016, the assessee was asked to file return in response to notice u/s 148 of the Act. The assessee vide letter dated 31.5.2016 requested the AO to treat the original return of income filed on 29.9.2009 vide acknowledgement No.297 as return of income filed in response to notice u/s 148 of the Act. Now the question before us is that is the return filed after the issue of notice u/s 148 of the Act to be considered as return u/s 139(4C) of the Act or not? The ld. DR’s contention is that recourse to section 148 of the Act is a remedy available to the department to assess or reassess the income which escaped assessment. But at the same time, we cannot overrule the right of the assessee to file the return filed u/s 139(4C) of the Act. In our opinion, it cannot be taken away or whittle down by the revenue by issuing a notice u/s 148 of the Act. Notice u/s 148 of the Act as aforesaid is issued to assess or reassess the escaped income and notice should be deemed invalid if ultimately that there was a loss, the whole basis of issue of notice u/s 148 of the Act falls down and the notice, therefore, becomes for all practical purposes invalid. It should be deemed as if it was never issued. As a natural consequence, therefore, it has to be assumed that there was no notice

M/s. Navodaya Education Trust, Bangalore

Page 22 of 27 u/s 148 of the Act if it is so. Now we have to see whether the assessee has filed return u/s 139(4C) of the Act. For that purpose, we have to see the original assessment order passed u/s 143(3) of the Act on 18.11.2011, which is reproduced herein below:

M/s. Navodaya Education Trust, Bangalore

M/s. Navodaya Education Trust, Bangalore

Page 24 of 27 6.2 There was no claim of the assessee u/s 10(23C)(vi) of the Act. The assessee’s claim is only u/s 11 of the Act. This assessment order has been reached finality and the assessee never pursued the claim of section 10(23C) of the Act. However, the same claim made by assessee by way of additional ground before ld. CIT(A). U/s 139(4C) of the Act every educational institution referred in sub-section (iiiad) or sub-section (vi) of section 10(23C) of the Act whose total income, without giving effect to the provisions of section 10 of the Act, exceeds the maximum amount which is not chargeable to income tax, shall furnish the return of income. As seen from th assessment order passed u/s 143(3) of the Act, the assessee not at all claimed the deduction u/s 10(23C) of the Act by showing that the assessee has filed the return u/s 139(4C) of the Act, however, by way of additional ground, the same has been claimed by assessee before ld. CIT(A). At this point, it is pertinent to mention that reopening of an assessment u/s 147 r.w.s. 148 of the Act would be taken up if the AO has reason to believe that income has escaped assessment. Then AO would assess or reassess such income as also any other income chargeable to tax which comes to his notice subsequently during the proceedings u/s 147 of the Act. The emphasis is on the words “such income” which means income which has escaped assessment. The provisions of section 147 of the Act leaves no scope for the assessee to make an additional claim in the return filed in response to notice u/s 148 of the Act, more so, by way of additional ground before ld. CIT(A). There is no jurisdiction to AO/CIT(A) to entertain such new claim, which is prejudicial to the interest of revenue. The reopening of assessment is only for the benefit of revenue. It has been held in the case of CIT Vs. Sun Engineering Works Pvt. Ltd. (192 ITR 297) (SC) as follows: “The High Court clearly fell in error by framing the assessee to reagitate, in the reassessment proceedings u/s 147(9) of the Act, the finally concluded assessment proceedings and to grant to him relief in respect of items not only earlier rejected, but also unconnected with the escapement of income by assuming as if the original return had not been concluded or was still open”.

M/s. Navodaya Education Trust, Bangalore 6.3 The ratio of the above decision in the case of Sun Engineering Works Pvt. Ltd. cited (supra) is that once an assessment is validly reopened, only the previous assessment is set aside and not the original assessment proceedings particularly if it has reached finality. In the reassessment proceedings, it is not open to an assessee to seek a review of the concluded item unconnected with escapement of income. Being so, in our opinion the ld. CIT(A) is not justified in entertaining the new claim in the reassessment proceedings by holding that first proviso to section 143(3) of the Act is applicable and he exceeded his jurisdiction in admitting the additional grounds of appeal.

6.4 Further, the ld. A.R. relied on the judgement of jurisdictional High Court in the case of Shri D.M. Purnesh cited (supra) for the proposition that the AO has accepted that the assessment should have been completed as per the first proviso to section 143(3) of the Act in the AY 2009-10. In our opinion, there is no base in this argument of the ld. A.R. In exercising the discretion by court, the Court has to certify its judicial conscience alike other instances of exercise of such discretion by the Court. Secondly, the admission must be clear, unequivocal, unconditional and unambiguous so that there may not be necessity for the Court to wait determination of other question. Thirdly, the admission must be taken as a whole unless the part of the claim which the Court proposes to allow on admission is severable from other parts of the plaintiff’s claim. Reliance was placed upon Himani Alloys Ltd. Vs. Tata Steel Ltd. in Civil Appeal No.5077 of 2011 dated 5.7.2011, whereby the Hon’ble Supreme Court held that for purpose of Order XII Rule 6, admission should be categorical by holding as follows. “It should be a conscious and deliberate act of the party making it, showing an intention to be M/s. Navodaya Education Trust, Bangalore

Page 26 of 27 bound by it”. It was further held that the Court has to exercise its judicial discretion keeping in mind that a judgement of admission is a judgement without trial which permanently denies any remedy to the defendant, by way of an appeal on merits. “Therefore, unless the admission is clear, unambiguous and unconditional, the discretion of the Court should not be exercised.” Further, it was held in the case of CIT Vs. Syed Jafer & Sons (194 ITR 645) (SC) that a provision granting the right of appeal to the subject should be construed liberally.

6.5 In our opinion, the right to file appeal to be given liberal construction since they are remedial in nature. A right to appeal will not be restricted or denied unless such construction is unavoidable as per the judgement in the case of CIT v. Bengal Card Board Industries & Printers (P) Ltd. (1989) 176 ITR 193, 197 of Calcutta High Court.

6.6 Further, the Courts always holding that an appeal of a cause is a valuable right to the litigant and, in absence of unmistakable indications to the contrary, statutes regulating appeals are given liberal construction. It is also recognized that an appeal is a remedy that is favoured in law and an important right, which should never be denied, unless its forfeiture or abandonment is conclusively shown, and in case of doubt, an appeal always to be allowed to file rather than denied as per the judgement in the case of Gopi Lal v. CIT (1967) 65 ITR 477, 481 of Punjab High Court.

6.7 Being so, we do not find any merit in this argument of the ld. A.R. Accordingly, this argument of the assessee’s counsel is dismissed.

M/s. Navodaya Education Trust, Bangalore

Page 27 of 27 6.8 Accordingly, we vacate the above findings of ld. CIT(A) and restore the entire matter to the file of ld. CIT(A) to decide the grounds relating to the merit of the additions made by AO. He has to decide the issue on merit only not on legal issue. Though the revenue raised various grounds on merit of the additions, at this stage we refrain from going into those grounds as we have remitted the issue to the file of ld. CIT(A) to decide the same on merits.

Order pronounced in the open court on 6th Apr, 2023.