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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARI
PER BENCH:
These appeals by assessee are directed against different orders of CIT(A)-11, Bangalore for the assessment years 2017-18 to 2020- 21 having common order dated 13.7.2022.
The common ground in all these appeals is with regard to denying exemption u/s 11 of the Act and computed the income of the assessee u/s 115BBE of the Income-tax Act,1961 ['the Act' for short] even though provisions of section 68, 69A, 69B & 69D of the Act have not been invoked in the assessment order and also erred in law and
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar
Page 2 of 11 facts in holding that section 154 of the Act is not applicable. In addition to this, assessee is challenging the non-granting of depreciation. 2.1 Ground No.1 is general in nature, which do not require any adjudication.
Ground Nos. 2 – Computation of Tax:
The ld. A.R. for the assessee submitted that in the assessment order passed u/s 143(3) of the Act for AY 2020-21 the learned assessing officer disallowed the exemption u/s 11 of the Act and determined the total income at Rs.93,48,99,765/-. The ld. A.R. submitted that during the search, no unaccounted investment or sum of money or any other article or thing or bullion etc. was found. In the assessment order also, there was no discussion of any amount being added u/s 68, 69, 69A, 69B, 69C & 69D of the Act. Apart from denying the exemption u/s 11 of the Act, the learned AO added certain unaccounted capitation fee alleged to have been received. The assessee has filed an appeal against the aforesaid assessment order and the appeal is pending. The total tax payable was determined as under: Particulars Reference Amount Assessed Income A 93,48,99,765 Income Tax (A) B = A*37.21% 35,16,07,430 Surcharge (B) C = B * 47.14% 16,57,57,162 Total D = B + C 51,73,64,592 Add: Cess E = D * 4% 2,06,94,584 Total Tax F = A + B + E 53,80,59,176
According to the assessee the correct amount of tax, surcharge and cess is as under: -
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar
Page 3 of 11 Particulars Reference Amount Assessed Income A 93,48,99,765 Income Tax (A) B = Slab Rates on A 28,02,82,430 Surcharge (B) C = B * 15 % 4,20,42,365 Total (C=A+B) D = B + C 32,23,24,795 Add: Cess E = D * 4% 1,28,92,992 (D=C*3%) Total Tax (C+D) F = A + B + E 33,52,17,787
3.1 The ld. A.R. submitted that on receipt of the above order, the assessee filed an application u/s 154 of the Act on 08.11.2021 and also another application on 09.11.2021. In the application filed on 08.11.2021, the assessee stated that it is not clear as to how the total tax and surcharge was levied at Rs.51,73,64,592/-. The ld. A.R. submitted that the as per circular no.320 dated 11.01.1982 (134 ITR ST 166), the income is to be computed as if it is an income of Association of Persons and not at the maximum marginal rate (MMR). Even otherwise assuming that tax is to be levied at MMR, the total tax leviable would be as under: Particulars Reference Amount Assessed Income A 93,48,99,765 Income Tax B = A * 30% 28,04,69,930 Surcharge C = B * 15 % 4,20,70,490 Total D = B + C 32,25,40,420 Add: Cess E = D * 4% 1,29,01,617 Tax Liability F = A + B + E 33,54,42,036
3.2 In view of the above submissions, he stated that it is clear that there is an error committed by the learned assessing officer in
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar
Page 4 of 11 computation of tax and therefore, it is a mistake apparent from record and liable of rectification. 3.3 Further he submitted that, on appeal with CIT(A), it was held that the capitation fees is taxed u/s. 115BBE of the Act. However, there is no error in tax computation. 3.4 The ld. A.R. submitted that the learned lower authorities failed to understand that there is no discussion in the assessment order or CIT(A) order regarding the taxation of capitation fees under which provisions of the Act. The orders are silent on this issue. Therefore, without any discussion or justification on the taxability of capitation fees and the provisions attracted, the provisions of section 115BBE of the Act cannot be applied. Further, the learned lower authorities do not discuss anything regarding the provisions of 68, 69, 69A, 69B, 69C & 69D of the Act. Without justifying that the above provisions are attracted, the income cannot be taxed u/s. 115BBE of the Act. Hence, the taxing the capitation fees u/s. 115BBE of the Act is not correct and requires rectification.
On the other hand, the ld. D.R. submitted that on the issue of tax calculation, it is observed that the AO had taxed the amount of Rs 23,77,50,000/- as per provisions of Section 115BBE of the Act and for the balance amount the normal tax rate as applicable for AOP had been applied. So as such there doesn't appear to be any error in tax computation, as argued by the assessee. The issue whether the provisions of Section 115BBE of the Act were applicable or not or whether the same were correctly applied by the AO is an issue on which two opinions can be there and as such it is disputable. So this issue cannot be considered as a mistake apparent from record which could have been rectified by the AO.
We have heard the rival submissions and perused the materials available on record. In this case, the main grievance of the assessee is with regard to charging of the tax u/s 115 BBE of the Act without invoking the provisions of section 68, 69, 69A, 69B, 69C & 69D of the Act. However, we
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar
Page 5 of 11 noticed that in the assessment order, AO quantified the collection of undisclosed capitation fees. Thereafter, he taxed the undisclosed collection of capitation fees as per provisions of section 115BBE of the Act and for the balance amount he has applied the normal rate of tax as applicable for AOP. Now the contention of the ld. A.R. is that the AO unilaterally applied provisions of section 115BBE of the Act without discussing anything with regard to application of this provision. In our opinion, the reading of the assessment order passed u/s 143(3) r.w.s. 153A/153D of the Act shows that the assessee has collected unaccounted capitation fees which was brought to tax and the same is taxed at the higher rate as per provisions of section 115BBE of the Act. In our opinion, there is no infirmity in the action of the AO on this issue and even if there is a mistake, it is debatable and the remedy lies with the assessee elsewhere and not by way of proceedings u/s 154 of the Act. Further, it was brought to our notice at the time of haring that the assessee has filed appeal against the assessment order passed u/s 143(3) r.w.s. 153A/153D of the Act before the ld. CIT(A) and the same are pending before the ld. CIT(A). Being so, if the assessee has any grievance, it can agitate it before the first appellate authority and the first appellate authority shall not be influenced by our findings on this issue in this appeal and he shall take independent view on this subject on merit in accordance with law while disposing the appeal before him for all these assessment years. This ground of appeals of the assessee is dismissed in all appeals.
Ground Nos. 3 – Depreciation – Rs. 14,85,18,591/- 6. The ld. A.R. submitted that the assessee claimed exemption u/s 11 & 12 of the Act in the return of income and therefore, did not claim depreciation as per S. 11(6) of the Act. In the assessment order, the learned assessing officer denied the exemption u/s 11 of the Act. Therefore, automatically the assessee becomes eligible for depreciation which is claimed in the Income and Expenditure account for the year ended 31.03.2020. Consequently, the assessee filed an application for rectification u/s. 154 of the Act. The learned
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar
Page 6 of 11 assessing officer stated that there is no discussion regarding the issue of disallowance of depreciation in the assessment order. Further, the learned assessing officer denied the claim of the assessee stating that the depreciation claim was not made in the return of income. This observation of the learned assessing officer is bad in law and as stated above that the assessee has claimed exemption u/s 11 and 12 of the Act and therefore, the depreciation cannot be allowed in the return of income. The learned CIT(A) also stated that this is a fresh claim by the assessee therefore, it is not part of rectification of the order.
6.1 The ld. A.R. further submitted that the learned assessing officer has never sought for any cause before disallowing exemption u/s. 11 of the Act. Hence, in the absence of such show cause notice before denying exemption u/s. 11 of the Act, it cannot be said that the assessee has not made any claim before the assessing officer during the assessment proceedings. In addition, the learned lower authorities claim that the assessee has not claimed the depreciation in the return of income. The ld. A.R. submitted that the assessee has claimed exemption u/s. 11 and 12 of the Act therefore, claiming depreciation as deduction despite the fact that the capital expenditure being claimed as application of income will amount to violation of provisions of the Act.
6.2 Without prejudice to the above submissions and assuming but without admitting that the issue regarding the depreciation is not discussed in the assessment order and such claim was never made in the return of income, the ld. A.R. submitted that it is settled law that a fresh claim can be made before the authorities during the proceedings pending before them for the relevant assessment year. The ld. A.R. relied on the decision of Hon’ble Supreme court in Goetze India 284 ITR 323 for the above proposition.
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar
Page 7 of 11
6.3 The ld. A.R. further submitted that it is the duty of the assessing officer to provide the deductions and exemptions to the assessees who are rightfully eligible for the same without considering the fact that such claim was made by them in the return of income or not. Based on the facts and documents available on record, if an assessee is entitled for any deduction or exemption benefit, the learned assessing officer has to educate the assessee to allow such claim. The ld. A.R. relied on the Circular No. 14 of 1955 dated 11.04.1955 wherein it is expressed that the assessing officers are expected to educate the assessee and allow claims that are legitimately due to the assessee, even when such claim is not made in the return of income.
On the other hand the ld. D.R. submitted that as regards the claim of depreciation, here again it is an issue on which two different opinions are possible. The AO has not discussed it in his order as neither the assessee had claimed it in its return of income nor claimed it during assessment proceedings. The merits of the claim of the depreciation of the assessee including a fresh claim can surely be examined by the CIT(A) in an appeal against the assessment order but it cannot be considered as a mistake apparent from record which could have been rectified by the AO. 8. We have heard the rival submissions and perused the materials available on record. In our opinion, when the income of the assessee is assessed as business income by rejecting the exemption claimed by assessee u/s 11 of the Act and the assessee is entitled for all usual deductions under the provisions of the Act while computing the income of the assessee under the head “business”, more so deduction u/s 30 to 38 of the Act to be granted and not the gross income to be taxed. In other words, when the exemption u/s 11 of the Act is rejected, the income of the assessee has to be computed in normal commercial manner. Even if there is no claim of deduction
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar
Page 8 of 11 towards depreciation, the same to be granted as this is the mandatory deduction to be granted u/s 32 of the Act if the assessee owns and puts the assets to use. Accordingly, we direct the AO to grant the allowable deduction towards depreciation to the assessee. Ordered accordingly. This ground of appeals of the assessee is allowed in all appeals.
Ground Nos. 4 – Denial of exemption u/s. 11 of the Act
The ld. A.R. for the assessee submitted that in the application dated 09.11.2021 the assessee submitted that in view of the fact that the order passed u/s 12AA(3) of the Act has been set aside, the assessing officer has to compute the income by allowing the exemption u/s 11 of the Act. Accordingly, the assessee claimed that a sum of Rs.57,14,46,073/- is exempt under section 11 of the Act.
9.1 The learned assessing officer held that exemption u/s 11 cannot be granted because the issue of cancellation of registration is still pending before the learned Principal Commissioner of Income Tax and also on the ground that the exemption is denied as per fresh findings of the second search carried out on 10.10.2019.
9.2 The ld. A.R. submitted that the Hon’ble Tribunal vide its order dated 18.06.2022 in ITA No. 155/Bang/2022 sets aside the order of the Principal Commissioner of Income Tax passed u/s. 12AA(3) of the Act and restored the registration u/s. 12A of the Act from 20.01.1992. The order u/s. 12AA(3) of the Act was passed confirming the cancellation of registration u/s. 12A of the Act based on the findings of the second search carried out on 10.10.2019. Therefore, the learned Commissioner of Income-Tax (Appeals) be pleased to direct the assessing officer to consider the above order of the ITAT
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar
Page 9 of 11 and allow the exemption u/s. 11 of the Act. The ld. A.R. has reproduced the relevant portion of the judgment as below;
“7. Further, Ld. Principal CIT considered the seized material collected by search conducted on 10.10.2019 and assessment completed on 30.9.2021. In our opinion, second search is a different proceeding that materials cannot be imported for cancellation of the registration granted u/s 12A of the Act, when the issue was restored to him by order of the Tribunal in ITA No.1463/Bang/2018 dated 20.10.2021. Being so, the Principal CIT is not expected to place reliance on material gathered in second search and he cannot be considered it so as to cancel registration at this point of time. Accordingly, we restore the registration granted to the assessee w.e.f. 20.1.1992.”
9.3 The ld. A.R. stated that based on the above submissions, the learned CIT(A) held that the copy of ITAT order was not before the assessing officer at the time of passing the assessment order. Therefore, the above denial of exemption u/s. 11 of the Act does not result to mistake apparent from record. However, the learned CIT(A) did not consider that the above order was in existence and available on record on the date of passing his order. Hence, the assessment amounts to rectification.
The ld. D.R. submitted that in relation to the issue of allowing exemption under Section 11 of the Act on the basis of the order of the ITAT passed on 20.10.2021 i.e. after the assessment order had been passed by the AO, here again it is an issue on which two different opinions are possible. The ITAT had restored the matter of cancellation of registration under Section 12AA of the Act to the file of PCIT for fresh adjudication and the same was still pending at the time of passing of rectification order by the AO. During appellate proceedings the assessee has not raised any argument against the rejection of this plea of the assessee by the AO but it has raised a fresh issue that the AO should have rectified the order on the basis of a subsequent ITAT order dt. 08.06.2022. It is noted that this ITAT order was passed even after the rectification order had been passed by the AO. So this order was never available with the AO at the time of rectification and as such the same could not have been considered by him. So non consideration of this ITAT order or rectifying the assessment order on the basis of this fresh order
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar Page 10 of 11 was never an issue before the AO during rectification proceedings. The assessee can surely argue the matter on the basis of this fresh order during the appellate proceedings against live assessment order but non-consideration of this order of ITAT by the AO cannot be considered as an issue arising out of the rectification order passed by the AO. In the rectification application the AO has decided on the issues which had been raised by the assessee in its rectification application, on the basis of material available on record at that point of time. So it cannot be said that there was any mistake apparent from record which could have been rectified by the AO. 11. We have heard the rival submissions and perused the materials available on record. The assessee is claiming exemption u/s 11 of the Act by filing application u/s 154 of the Act. In our opinion, this is debatable issue and the AO has given reasons in the assessment order passed u/s 143(3) r.w.s. 153A/153D of the Act. This issue cannot be dealt under proceedings u/s 154 of the Act as it is very much debatable. However, we make it clear that the ld. CIT(A) while disposing the appeals before him against the order passed u/s 143(3) r.w.s. 153A/153D of the Act, he should take independent view of the matter without influencing by our this finding herein. Ordered accordingly. This ground of appeals of the assessee is dismissed in all appeals.
In the result, the appeals of the assessee are partly allowed.
Order pronounced in the open court on 13th Mar, 2023.
Sd/- Sd/- (N.V. Vasudevan) (Chandra Poojari) Vice President Accountant Member
Bangalore, Dated 13th Mar, 2023. VG/SPS
ITA Nos.809 to 812/Bang/2022 M/s. Sri Devaraj Urs Educational Trust, Kolar
Page 11 of 11 Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The CIT(Judicial) 5. The DR, ITAT, Bangalore. 6. Guard file By order
Asst. Registrar, ITAT, Bangalore