SHANTHI VIDYA MANDIR EDUCATION SOCIETY (R),BENGALURU vs. EXEMPTIONS WARD 3,BLR, BENGALURU

The Assessee has filed this appeal against the appellate order dated 09/04/2025 passed by the National Faceless Appeal Centre, New Delhi [the Ld. CIT(A)]. The said order dismissed, for non-prosecution, the Assessee’s appeal against the assessment order dated 26/03/2024 passed under Section 143(3) read with Section 144B of the Income-tax Act, 1961 (“the Act”) by the Assessment Unit of the Income-tax Department.

The Assessee has raised the following grounds of appeal:

That the Ld. CIT(A) has erred in law and on facts in dismissing the appeal ex- parte without granting a proper, effective and meaningful opportunity of being heard, thereby violating the mandate of Section 250(6) of the Act and the settled principles of natural justice.

That the Ld. CIT(A) has failed to pass a reasoned, speaking and appellate order, and has mechanically affirmed the order of the Assessing Officer without independent examination of the facts, evidence and grounds raised by the Appellant.

That the Ld. CIT(A) and the Assessing Officer have erred in invoking Section 13(1)(c) of the Act without establishing any real, direct or indirect benefit to any person specified under Section 13(3) of the Act, and without demonstrating diversion or misuse of income or property of the Society.

That the additions made towards advances and capital expenditure, namely ₹50,00,000/- and ₹2,52,00,000/- are wholly unjustified, arbitrary, contrary to law and facts, and made by ignoring the nature of such advances as genuine, recorded, audited and incurred wholly for the objects of the Society.

That the reliance placed by the Assessing Officer on unregistered agreements of earlier years, not pertaining to the assessment year under consideration, to draw adverse conclusions for A.Y. 2022-23 is erroneous, misconceived and contrary to settled judicial principles.

That the Ld. CIT(A) and the Assessing Officer have erred in treating loan repayment of ₹63,71,148/- and interest/finance charges of ₹20,22,592/- and ₹5,35,809/- as amounts applied for the benefit of a specified person, ignoring the fact that such repayments constitute valid application of income as per Explanation 4 to Section 11(1) of the Act.

That the Ld. Authorities below have erred in disallowing the donation expenditure of ₹35,00,000/-, despite the fact that the said donation was duly reflected in audited accounts and constitutes legitimate application of income for charitable purposes.

That the findings of the Assessing Officer are based on suspicion, conjectures, assumptions and surmises, and not on any credible evidence, as is evident from repeated use of expressions such as “it seems”, “prima facie”, “appears” etc. in the assessment order.

That the denial of exemption under Sections 11 and 12 of the Act is wholly unjustified, as the Appellant has not violated any of the statutory conditions and has not attracted the mischief of Section 13 of the Act.

That the assessment order suffers from serious procedural infirmities, non- consideration of submissions already forming part of records, improper appreciation of facts, and failure to apply correct legal principles, rendering the additions unsustainable.

That the impugned additions are excessive, bad in law, devoid of merits, and liable to be deleted in toto.

That the Appellant craves leave to add, amend, alter, vary, or withdraw any or all of the above grounds of appeal at any time before or during the hearing of the appeal.

Briefly stated, the Appellant is a charitable and educational society registered under the Karnataka Societies Registration Act. It also holds valid registration under Section 12A of the Income-tax Act, 1961 (“the Act”). 4. For A.Y. 2022-23, the Appellant filed its return of income on 01.10.2022 declaring nil income and claiming exemption under Sections 11 and 12 of the Act. The return was accompanied by Form 10B, financial statements, and all required particulars. The case was selected for scrutiny under CASS for “repayment of large amount of borrowed funds by Society.” Notices under Sections 143(2) and 142(1) were issued from time to time, and the Appellant, as recorded in the assessment order, filed replies on 07.10.2023, 01.11.2023, 17.11.2023, 22.12.2023, and 11.03.2024, besides participating in a video-conference hearing. 5. The Assessing Officer (“AO”) completed the assessment under Section 143(3) read with Section 144B of the Act on 26.03.2024, making additions on several counts by alleging violations of Section 13(1)(c), mainly on the basis of old and unregistered agreements relating to A.Ys. 2014-15 and 2017-18, an alleged benefit to a specified person, and alleged non-furnishing of certain documents. The additions comprised (i) alleged capital acquisition of ₹1,07,23,120; (ii) advance for land of ₹50,00,000; ₹2,52,00,000 (iii) advances for land/flat of and ₹1,22,50,000; (iv) loan repayment of ₹63,71,148; (v) interest/finance charges of ₹20,22,592; and (vi) donation of ₹35,00,000. 6. The Appellant preferred an appeal before the Ld. Commissioner of Income Tax (Appeals), NFAC. During the appellate proceedings, several notices were issued; however, owing to technical issues and communication lapses beyond the Appellant’s control, some responses could not be uploaded in time. The Ld. CIT(A), without deciding the issues on merits or complying with Section 250(6) of the Act, dismissed the appeal solely for alleged non-prosecution, 7. The Ld. AR, Shri Akshay, CA, contends that, although several replies were already on the assessment record and the AO had acknowledged various submissions, the Ld. CIT(A) dismissed the appeal for non- prosecution. The Appellant submits that the CIT(A)’s order is ex parte, mechanical, non-speaking, and lacks independent reasoning, as it merely affirms the assessment order in a blanket manner. According to the Appellant, the impugned additions are contrary to the facts of the case, the scheme of Sections 11, 12, and 13 of the Act, and the principles of natural justice. The Appellant further contends that the expenditure is genuine, duly recorded in the audited books, incurred solely for charitable and educational purposes, and has no nexus with any person specified under Section 13(3) of the Act. It is also submitted that AO’s conclusions are based on presumptions, suspicion, and misreading of the facts. 8. The Ld. DR supported the order of the Ld. CIT(A), submitting that the Assessee had failed to furnish the required information. 9. We have carefully considered the Assessee’s submissions. The Ld. CIT(A) did not decide the appeal on merits, but dismissed it on the ground that, despite issuance of several notices, the Assessee had not made any representation or submission and was therefore not interested in prosecuting the appeal. 10. On a plain reading of Sections 250 and 251 of the Act, once an appeal is filed before the Commissioner (Appeals), he is required to dispose of it in accordance with law. Under Section 250(4), he may make further inquiry as he thinks fit or direct the Assessing Officer to make further inquiry and report the result. Section 250(6) further requires the Commissioner (Appeals) to pass a written order stating the points for determination, the decision on each point, and the reasons for such decision. Section 251(1)(a) and (b) empowers him, while disposing of an appeal, to confirm, reduce, enhance, or annul the assessment or penalty. The Explanation to Section 251(2) also makes clear that he may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, even if such matter was not raised by the appellant. Thus, once an appeal is filed under Section 246A, neither can the assessee withdraw or abandon it as a matter of right, nor can the Commissioner (Appeals) dismiss it merely for non- prosecution. 11. Thus, The LD CIT (A) is duty-bound to adjudicate the appeal on merits. Since, with effect from 01.06.2001, the Commissioner (Appeals) no longer has the power to set aside an assessment and remand the matter to the Assessing Officer for fresh adjudication, his powers are co- terminus with those of the Assessing Officer. He can do what the Assessing Officer could have done. Just as an Assessing Officer cannot refrain from completing an assessment because an assessee seeks to withdraw its return, the Commissioner (Appeals) cannot dismiss an appeal for non-prosecution. Sections 251(1)(a), 251(1)(b), and the Explanation to Section 251(2) require him to apply his mind to all issues arising from the impugned order, whether or not they were specifically raised before him. Accordingly, the Act does not empower the Commissioner (Appeals) to dismiss an appeal solely for non- prosecution. 12. Thus, we restore the whole appeal back to the file of the ld CIT(A) to decide the appeal of the assessee on merits, the Assessee is directed to submit the information / submission as and when called for.

In the result, appeal filed by the Assessee is allowed for statistical purpose.