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Facts
The assessee, Sri Guru Teg Bahadur Public School, was subject to proceedings initiated by the PCIT under Section 263 of the Income Tax Act, based on a reassessment order. The assessee contested the PCIT's jurisdiction and the validity of the underlying reassessment.
Held
The Tribunal held that the PCIT's action under Section 263 was void ab initio because the assessment order itself was flawed, having been based on a notice issued to a non-existent entity. The Tribunal found that the Sri Guru Teg Bahadur Public School was consistently treated as part of the B.N. Khalsa Trust in previous proceedings.
Key Issues
Whether the PCIT had valid jurisdiction under Section 263 to revise an assessment order based on a notice issued to a non-existent entity, and whether the assessee entity was a distinct legal person or part of a larger trust.
Sections Cited
263, 147, 148, 144, 144B, 2(31), 148A, 12AA
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Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘B’, CHANDIGARH
Before: SHRI LALIET KUMAR & SHRI KRINWANT SAHAY
�नधा�रती क� ओर से/Assessee by : Shri Ashok Goel, CA राज�व क� ओर से/ Revenue by : Smt. Kusum Bansal, CIT DR सुनवाई क� तार�ख/Date of Hearing : 10.03.2025 उदघोषणा क� तार�ख/Date of Pronouncement : 27.05.2025 आदेश/Order Per Krinwant Sahay, AM : Appeal in this case has been filed by the assessee against the order dated 2703.2024 of ld. Ld. Principal Commissioner of Income Tax (PCIT), Patiala for A.Y. 2017-18.
Grounds of appeal are as under: -
1. On the facts & circumstances of the case and case and in law the PCIT Patiala has erred in initiating proceeding u/s 263 of the income tax Act by wrongly 482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 2 assuming jurisdiction u/s 263, hence the order passed by PCIT u/s 263 of the Income tax Act is bad in law & void ab-initio.
2. That having regard to the facts and circumstances of the case. Ld, Pr. CIT has erred in law and on facts in assuming jurisdiction u/s 263 which is bad in law inter alia for this reason that the reassessment order passed u/s 147 r.w.s 144 r.w.s 144B dated 29.03.2022 which is sought to be revised u/s 263 itself was invalid inter alia on various grounds as mentioned below and thus proceedings initiated u/s 263 against the invalid reassessment order is clearly bad in law, which were summarily rejected, a) That notice u/s 148 was issued to non-existent Assessee b) Objection to reason were filed on 01.01.2022 there is no disposal order before the assessment order passed, c) The assessment framed u/sec. 144 is not as per law.
3. Without prejudice to ground no. 2 above, on the facts and circumstances of the ease and in Law, the ld. PCIT has erred in assuming jurisdiction and passing the revisionary order u/s 263 of the Income Tax Act, 1961 in spite of the fact that the Ld. AO has made adequate inquiries and verification as required for proceeding u/s 147 of the IT Act and the order passed by the AO is neither erroneous nor prejudicial to the interest of revenue, hence the order of PCIT should be set aside.
4. Without prejudice to ground no. 2 above, on the facts and circumstances of the case and in law, the ld. PCIT has erred in assuming jurisdiction and passing the revisionary order u/s 263 of the Income Tax Act. 1961 on the basis that no return has been filed by B.N. Khalsa educational trust for A.Y. 2017-18 482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 3 ignoring the fact that AO while framing above assessment has referred for action in the case of B.N. Khalsa educational trust for A.Y.2017-18 and notice u/sec. I48 has been issued in the case of B.N. Khalsa educational trust hence the set aside is infructuous.
5. That the learned PCIT has erred in invoking explanation 2 of section 263 for the first time in the above order. Otherwise also the adequate inquiry/verifications have been made as required for reassessment u/s 147 of the IT Act. Hence the order of PCIT should be set aside.
6. That the case law which have been cited by the worthy PCIT Chandigarh are not applicable to the facts of the else.
7. The appellant craves leave to add amend alter any of the ground of appeal or to take any additional ground of appeal before the appeal is finally disposed of.
3. During the proceedings before us, ld. Counsel for the Assessee has filed a written submission. He has also argued the case on the line of his submission. The written submission filed by him is reproduced as under:-
Our main ground, during 263 proceeding is that the assessment order passed for which notice for 263 is given is invalid due to the following: - 1. Notice u/s 148 has been issued to non-existent person non-existent assessee hence the same is void abinito and assessment framed on said basis is also null & void.
482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 4 Reliance was placed on the submissions and finding referred in CIT(A) order for A.Y 2010¬11 with the following conclusions. (Reproduced above also) "As per the law, notwithstanding the appellant's conduct I hold that the Shri Tegh Bahadur Public School, Tripuri Road Patiala is not a person within the meaning of Section 2(31) of the Act. Further the CIT has confirmed the following:- That the Shri Tegh Bahadur Public School, Tripuri Road Patiala was set up the B.N Khalsa Trust is matter of record and established clearly by the resolution of Trust and Affidavit of Trustee of the B.N. Khalsa Educational Trust at the stage of start of school, the List of management committee appointed by patron of the above trust and the copy of the Balance Sheet of the school in which all surplus stand in the name of B.N. Khalsa Educational as well of the fact that funds from the School were transferred to the trust. It is also pertinent to mention that the School is affiliated with the CBSE and in as the CBSE given affiliation only to Schools run by societies, the Society whose details are with the CBSE as well as State educational department qua the appellant, Shri Tegh Bahadur Public School, Tripuri Road Patiala is the B.N Khalsa Trust. The same was the decision of CIT appeal for A.Y 2011- 12.
482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 5 The above decisions has accepted by the department and no appeal has been filed against the above decisions. The learned PCIT has dealt the above objections as under:-the remarks of CIT (A) on page 14 are reproduced as under - "That Shri Tegh Bahadur Public School, Tripuri Road Patiala obtained a PAN that too with the 4th Character F signifying Firm, obtained audited balance sheets and P& L accounts duly audited by a Chartered Accountant, filed Returns of Income, obtained refunds on interest in bank accounts are clearly the connected stages of a series of Irregular if not illegal acts. The allotment of PAN and the filing of Returns of the appellant is prima-facie illegal and void ab-initio" Additionally, the Ld. CIT(A) on page no. 15 of the order has indicated towards the element of mala-fide in the appellant's conduct. It is also relevant to note here that as per the records the assessee not only applied and got the PAN allocated but also used the PAN to obtain refunds on interest in bank accounts. Further, despite of the assessee's contention that the firm is a "non-existent entity", the assessee failed to get the PAN deleted instead continued to use the PAN which contradicts the assessee's claim of it being a non-existent entity. Submissions 482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 6 The learned PCIT has only mentioned that the PAN has obtained and same is used for bank account hence the assessee is not non-existent entity. Further a para from CIT appeal order has been mentioned which is past conduct of the assessee only. The learned PCIT have not given any finding on the following conclusion of CIT (A) Regarding finding of the CIT regarding holding the said entity is not a person. The finding by CIT appeal that Shri Tegh Bahadur Public School was set up by the B.N Khalsa Trust. It is matter of record and same was by resolution of the trust and affidavit of the Trustee of B.N Khalsa Trust at the stage of start of school. Further holding that list of management committee of Shri Tegh Bahadur Public School is appointed by the pattern of B.N Khalsa Trust. The copy of the balance sheet of the school shows that all the surplus stand in the name of B.N Khalsa Trust. Nothing has brought on record to rebut the above that the entity Shri Tegh Bahadur Public School is a person u/s 2(31) of the IT Act and is not a branch of B.N Khalsa Trust. It is submitted that just by obtaining PAN No. and submissions to the Bank does not validate or create an person with the meaning of section 2(31) of the IT Act. During hearing, the query was raised regarding status at the time of affiliation with CBSE, it is clear from the 482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 7 finding of CIT appeal it is B.N Khalsa Trust. Regarding query for operation of bank accounts of Shri Tegh Bahadur Public School the same were operated by management committee appointed by pattern of is B.N Khalsa Trust every five years. In support of our contention that of Shri Tegh Bahadur Public School is part of the B.N Khalsa Trust has been accepted in various decisions. The same are as under- 2. We refer to the decision of Hon'ble IT AT Chandigarh bench against the order passed u/s 12AA. The relevant part is as under: "The appellant trust, having PAN NO AADTB4478Q has been running four schools:
1. 1. B.N.Khalsa Senior Secondary School, Sirhind Road, Patiala 2. B.N. Khalsa Senior Secondary School, Mall Road, Patiala.
3. B.N. Khalsa Senior Secondary School, Ragumajra, Patiala.
4. Sri Guru Teg Bahadur Public School, Tripuri Road, Patiala. Para 6 "After considering the rival submissions, we are of the view that if the previous dispute has been sorted out and the Trust is presently managing all the four schools and pursuing the objects of imparting education then the application of the assessee trust should not be rejected 482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 8 only because that earlier some litigation ensued between the Trustees inter-se or otherwise.
Refer to order passed u/s 148A(d) of the IT act for A.Y 2019-20, in the case of Sri Guru Teg Bahadur Public School which was passed with the approval of Principal CIT Patiala. the relevant part is as under:- The reply of the assessee has been considered u/s 148A(c) of the lT Act 1961, which is found to be tenable due to the following reasons: - a) Further, the assessee has stated that the above said transactions have duly been accounted for in the books of Sri Guru Teg Bahadur Public School, which is a branch of B.N Khalsa Educational Trust with PAN AADTB4478Q. The jurisdiction of the original PAN AADTB4478Q which is active PAN of the Trust pertains to ITO (Exemption), Chandigarh. Since the assessee has disclosed all the above-mentioned financial transaction in the correct PAN of the TRUST AADTB4478Q, but not filed ITR for the Year under consideration, the information will be forwarded to the Jurisdictional Assessing Officer for reopening of assessment proceeding by uploading information on CRIU/VRU functionality as the assessee Trust has not filed ITR for A.Y 2019-20. Moreover the assessee Trust has itself stated in his reply that the information may be passed on the concerned jurisdictional A.O.
482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 9 The case of Guru Teg Bahadur Public School ( PAN ABFFS9344H) is found to be not a fit case for issuance of notice u/s 148 of the Act for A.Y 2019-20 4. We also refer to order passed u/s 148A(d) in the case of B.N. Khalsa Educational Trust for A.Y 2019-20 which have been passed with the approval of Principal CIT Patiala. In the said order the receipts of the Sri Guru Teg bahadur Public School for the cash deposit in Axis Bank amounting to Rs. 34249337/- have been considered in the case of B.N. khalsa Educational Trust.
We refer to the Assessment order passed in the case of B.N. Khalsa Educational Trust for the A.Y 2019- 20 in which receipts of Sri Guru Teg bahadur Public School also were considered. "3.1 The gist of reasons of reopening of case is as "the assessee has deposited cash in bank account amounting to Rs. 3,42,49,337/-, time deposit amounting to Rs. 3,25,00,000/- and received interest income from Bank, amounting to total of Rs. 11,62,847/- during the year under consideration. The source of cash and time deposits remains unexplained as the assessee has not filed the Return of Income for the year under consideration. Accordingly, notice under section 148 of the Act has been issued." The above orders from S.N 2 to 5 were filed to support our submissions that notice u/s 148 has been issued to non- existent assessee which have been accepted by the department 482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 10 in the said orders also but learned PCIT has dealt with the above submissions mentioning that no return has been filed by the B.N. Khalsa Educational Trust. The objections raised for issue of 148 notice to non-existent assessee. Rather the appellant submitted all proceeding that the transactions relate to B.N. Khalsa Educational Trust and that case be reopened which have been reopened also. The non-filling of return by B.N. Khalsa Educational Trust does not validate the notice issued on 28.03.2021 in the name of Sri Guru Teg bahadur Public School. Hence it is submitted that the original assessment was invalid and cannot be revised u/s 263 of IT Act.
4. The ld. DR relied on the order of Ld. PCIT, Patiala.
5. We have gone through the findings given by the Ld. PCIT in his order passed u/s 263 of the Income Tax Act, 1961 (in short 'the Act'). We have also considered the written submissions as well as arguments made by the ld. Counsel of the Assessee. During the proceedings before us, we find that the assessment made in the name of Sri Guru Teg Bahadur Public School, Tripuri Road, Patiala was, in fact, a part of the B.N. Khalsa Trust. Even the Ld. CIT(A) in his earlier appellate order for A.Y. 2011-12 had accepted this fact. Once the matter was decided by the ld. CIT(A) in his appellate order for A.Y.
482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 11 2011-12 that Sri Guru Teg Bahadur Public School was a part of the B.N. Khalsa Trust, then without any change in the Trust deed or any other documentary evidence against the findings of the ld. CIT(A), treating Sri Guru Teg Bahadur Public School as a separate and individual entity, other than part of the B.N. Khalsa Trust was not justified. The only evidence that the ld. PCIT has relied on is that Sri Guru Teg Bahadur Public School had obtained a separate PAN and the same was used for bank account and banking purpose. The Counsel of the Assessee brought it on record that PAN obtained by Sri Guru Teg Bahadur Public School was an irregular Act which should have been avoided. He also argued that the Sri Guru Teg Bahadur Public School got this PAN allocated inadvertently. But at the same time, he brought it on record the findings given by the CIT(A) in his appellate order for A.Y. 2011-12, wherein the CIT(A) has categorically brought it on record that Sri Guru Teg Bahadur Public School was set up by B.M. Khalsa Trust. It is a matter of record and the same by the resolution of the trust and affidavit of the trustee of B.N. Khalsa Trust at the stage of the start of the school. The CIT(A) has also pointed out that the list of 482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 12 management committee. The members of Sri Guru Teg Bahadur Public School is cleared and appointed by the Patron of B.N. Khalsa Trust only. The copy of the balance sheet of the school shows that all surplus stand in the name of B.M. Khalsa Educational Trust. It was also argued by the Counsel that the Revenue failed to rebut above findings give by the ld. CIT(A). That the entity of Sri Guru Teg Bahadur Public School is not a person u/s 2(31) of the I.T. Act and that it is a branch of B.M.Khalsa Educational Trust. It was also argued that merely by obtaining a PAN and submission to the bank does not validate to create a person within a meaning of section 2(31) of the Act. The Counsel of the Assessee has also relied on the ITAT Chandigarh Bench order dated 02.06.2020 passed in in Assessee’s own case on the issue relating to section 12AA of the Act on which the Coordinate Bench had given its findings as under: - "The appellant trust, having PAN NO AADTB4478Q has been running four schools: 1. B.N.Khalsa Senior Secondary School, Sirhind Road, Patiala 2. B.N. Khalsa Senior Secondary School, Mall Road, Patiala.
482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 13
3. B.N. Khalsa Senior Secondary School, Ragumajra, Patiala.
Sri Guru Teg Bahadur Public School, Tripuri Road, Patiala. After considering the rival submissions, we are of the view that if the previous dispute has been sorted out and the Trust is presently managing all the four schools and pursuing the objects of imparting education….”
We have considered the arguments made by the Counsel of the Assessee as well as written submissions filed by him during the proceedings before us. We have also gone through the order passed by the ld. PCIT, Patiala u/s 263 in this case. We find that the Revenue has already accepted that Sri Guru Teg Bahadur Public School is a branch of B.M Khalsa Trust. Even the Revenue has accepted it in the appellate order passed by the CIT(A) in Assessee’s own case for the A.Y. 2011-12, then without bringing anything to rebut the findings given by the ld. CIT(A), the same cannot be treated as separately as a person, within the meaning of section 2(31) of the I.T. Act to be taxed separately and individually. Therefore, the act of issuance of notice and then passing an order u/s 263 by the ld. PCIT, Patiala on such an assessment order is not as per 482-Chd-2024 Sri Guru Teg Bahadur Public School, Patiala 14 the provisions and spirit of the Income Tax Act. Therefore, the notice of the order issued by the Ld. PCIT u/s 263 of the Act is treated as void ab-initio. Since the Assessee’s appeal is allowed on this legal issue, therefore, we are not inclined to give our findings on the merits of the case.
In the result, the Assessee’s appeal is allowed.
Order pronounced on 27.05.2025.