DCIT, EXEMPTION CIRCLE, GHAZIABAD vs. UNITED EDUCATIONAL SOCIETY C/O NIMT COLLEGE, GHAZIABAD

PER AMIT SHUKLA, J.M

The aforesaid cross-appeals have been filed by the assessee and by the Revenue against separate impugned orders, passed by Ld. CIT (Appeals) for the quantum of assessment for the Assessment Years 2006-07 to A.Y. 2009-10. Since the issues involved in all the appeals are common, arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order. 2. First we will take up the cross appeal for the Assessment Year 2006-07. In the appeal filed by the assessee, following grounds have been raised:-

I. “On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax {CIT (A)} is bad, both in the eye of law and on facts. II. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the order under Section 147 read with Section 148, ignoring the fact that the same was bad in the eye of law as the conditions and procedure prescribed under the statute have not been satisfied and complied with. III. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned AO are bad in the eye of law as the reasons recorded for the issue of notice under Section 148 are bad in the eye of law and are contrary to the facts. IV. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the addition made on the basis of the material collected at the back of the assessee without providing copy of the same & providing opportunity to rebut the same. V. On the facts and circumstances of the case, the ld. CIT(A) has erred both on facts and in law in confirming the action of the AO in referring the case for the special audit under Section 142(2A) of the Act without there being any basis of the same. VI. (i) On the facts and circumstances of the case, the ld. CIT (A) has erred, both on facts and in law in confirming the action of the AO in denying exemption under Section 11 of the Act.

(ii) On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the said action of the A.O. ignoring the fact that the failure to file return under Section 139(4A) can be a cause for levy of penalty u/s 272A(2)(e) & not denying exemption u/s 11 of the Act. VII. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and law in confirming the action of AO in taking Rs. 6,61,58,482/- as returned income of the Assessee. VIII. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the action of the AO in taking the financials with Syndicate Bank, Shastri Nagar, Ghaziabad as correct financials and determining the income on the basis of such figures without ascertaining the correctness of such finding. IX. (i) On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the action of the A.O. in ignoring the balance sheet and income and expenditure account prepared by the assessee and relying on the balance sheet submitted to the bank. (ii) In the absence of any supporting evidence AO was not justified in relying upon the balance sheet and income and expenditure account filed before the bank. X. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the action of the A.O. in ignoring the fact that having got the accounts audited from the special auditor there was no justification to take into consideration the figure stated in the balance sheet submitted to the bank, to be the basis of assessment. XI. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the case, the disallowance of an amount of Rs.10,716/- on account of electricity expenses.

XII. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the disallowance of an amount of Rs.19,965/- on account of car insurance expenses. XIII. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming addition of an amount of Rs.56,700/- made by A.O. holding the same to be undisclosed work in progress. XIV. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the disallowance of an amount of Rs.17,91,779/- made by A.O. Invoking the provision of Section 40(a)(ia) of the Act. XV. (i) On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the disallowance of an amount of Rs.4,91,171/- made by A.O. on account of penalty. (ii) That the AO had disallowed the above amount ignoring the fact that the said amount does not pertain to penalty related to infraction of nay statutory law. XVI. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the addition of an amount of Rs.1,82,92,536/- made by A.O. on account of investigation in FDR under Section 68 of the Act. XVII. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the addition of Rs.20,938/- made by A.O. on account of job work done. XVIII. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in disallowing an amount of Rs.1,72,781/- on account of depreciation on building. XIX. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in rejecting the contention of the assessee in computing the income by applying provisions of section 28 to 44 D for computing profits and gains from business & profession, ignoring the fact that the assessee is a

charitable institution and its income is to be computed on the basis of the provisions of sections 11 and 12 of the Act. XX. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the action of the A.O. in not computing the income in accordance with the provision of section 11 of the Act. XXI On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in not considering the capital expenditure incurred during the year while computing income of the assessee. XXII. That the appellant craves leave to add, amend or alter any of the grounds of appeal.”

VI. The Ld. CIT(A) has erred in law and facts in allowing the addition of out of books cash deposit Rs. 1,21,06,000/- VII. The order of Ld. CIT (A) be cancelled and the order of the AO be restored. 4. First we will take up the appeal filed by the assessee, being ITA No.3674/Del/2017. 5. Ground No. 1 & 22 are general in nature and hence need no adjudication. On ground No. 2 to 5, no arguments were addressed by the Ld. Counsel for the assessee and therefore, same are considered dismissed as not pressed.

income. Accordingly, the assessing officer issued notices under section 148 asking the assessee to file the return of income for the purpose of assessing the income which has escaped assessment. In response thereto the assessee filed the return of income showing ‘nil’ taxable income after application of income as allowed under section 11 of the Income Tax Act. The computation of income declared by the assessee was as under:- "Surplus as per Income & Expenditure account; Rs. 1,02,20,504 Less: 15% set apart u/s 11(1)(a) Rs. 15,33,075.60 Balance 85% of above Rs. 86,87,428.40 Less: Fund utilization for charitable purpose Addition to fixed assets as pr scheduled Rs. 97,90,393 Addition to fixed Deposits as per Scheduled Rs. 80,88,000 Total fund utilized Rs. 1,78,78,393 Taxable Income/(Deficit) to be carried forward Rs. (91,90,964.60) Computation of Taxable Tax on Rs.(91,90,964.60) Nil"

variances in the Balance Sheet and Profit & Loss Account filed with the Syndicate Bank and the Balance Sheet and Profit & Loss Account filed with the return of income, the assessing officer was of the view that difference remained un-reconciled and accordingly considering the complexity of accounts, he referred the case for special audit under section 142(2A) to M/s R. Mohla and Co. for carrying out the audit and also made a reference to the District Valuation Officer for ascertaining the investment made in the construction of the building. The special auditor, M/s R Mohla and Co. after examining the books of accounts, submitted its special audit report to the AO on 31.03.2012 with their observations and comments. Based on the observations and comments made by the Special Auditor in its audit report, the assessing officer issued questionnaire to the assessee to explain the various contentions and the issues pointed out by the special auditor in their audit report. After taking into consideration above facts and the observation made in the special audit report, the assessing officer computed the income of the society as Rs.10,47,71,546. The assessing officer further disallowed the benefit of the exemption under section 11 on the reasoning that assessee society has not filed the return as required under section 139(4A) reads with section 12A(b) of the Income Tax Act in time. Accordingly, the income was assessed as income from business/profession in the status of AOP.

exemption under section 11 in respect of the Income applied towards charitable purposes during the year besides the various additions and disallowances made while computing income. Before the CIT (A), the assessee had also filed additional evidences along with application for admission of such additional evidences under Rule 46(A). The CIT (A) admitted the additional evidences and called for a remand report from the assessing officer. The assessee in response to notices by the Assessing Officer had appeared before the assessing officer in the remand proceedings. Thereafter, a remand report dated 15.07.2013 was submitted by the assessing officer. In response to the remand report, the assessee had also filed a rejoinder. The CIT (A) called for further comments of the AO in the light of the rejoinder filed by the assessee. The assessing officer submitted his remand report to the above rejoinder. The CIT (A) vide order dated 22.03.2017 disposed of the appeal by giving partial relief to the assessee.

Act, and has to be filed alongwith the return of income. The CIT (A) held that the assessee never filed return as per the stipulated legal provisions given under section 139(4A) of the Act and it is only after the issue of notice under section 148, the appellant society was forced to file the return. The CIT (A) held that non- filing of return is a sufficient ground to deny the benefit under section 11 and 12 of the Act. Ld. Counsel submitted that both AO and CIT (A) have erred in law in not computing the income of the society as per the provisions of the Act. He submitted that assessee is a registered as charitable trust under section 12A of the Act. This fact is not in dispute. Assessee Society is engaged in imparting education as is evident from its objects as well as the activities carried out by it which again is not in dispute. Accordingly, its income is to be computed in accordance with the provision of section 11 of the Act which provides the method for computation of income of a charitable society. He submitted that, as per section 11, income to the extent which is applied towards charitable purposes is not to be included in the total income of the previous year including such income which is accumulated or set apart for application to such purposes to the extent the income so accumulated or set apart is not in excess of 15% of the income.

In this regard he invited our attention to the provisions of section 148, whereby the return filed in response to notice issued under section 148, is considered as if such return was a return required to be furnished under section 139 and all the provisions of this Act are to applied which will include section 11 also. On this basis, it was contended that the Act does not make any distinction in the return filed in response to notice under section 148 or a return furnished under section 139. In fact section 148 specifically provides that the provision of this Act shall apply which will include application of section 11 while computing income of the society.

and 10B whereby income of newly established undertaking in free trade zone and income of newly established 100% EOU are exempt. In section 10A(1A), a proviso was inserted by the Finance Act, 2005 with effect from Assessment Year 2006-07, stating that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income before the due date specified under section 139(1) of the Act. Similar proviso was inserted under section 10B(1)to deny exemption in case the return is not filed before the due date from A.Y. 2006-07. Similarly, the Finance Act, 2006 inserted section 80AC of the Act stating that no deduction under section 80-IA, 80-IAB, 80-IB and section 80-IC of the Act shall be allowed unless the assessee furnishes the return of income before the due date prescribed under section 139(1). The scope of this section 80-AC was further widened by Finance Act, 2007 to deny exemption under section 80-ID and section 80-IE in case return is not filed before the due date prescribed under section 139(1).

assessment years under consideration. In support of the above contention, Ld. Counsel placed reliance on the judgment of ITAT Chandigarh in the case of Genius Education Society v. ACIT - ITA No. 238/Chd/2018 dated 20.08.2018, wherein similar issue has come up.

 It is relevant to point out the provision of section 246 of the IT Act under which the proceedings u/s 142(2A) is not an appealable section. The section is reproduced as under — Section 246 (1) Subject to the provisions of sub-section (2), any assessee aggrieved by any of the following orders of an Assessing Officer (other than the Deputy Commissioner) may appeal to the Deputy Commissioner (Appeals) '’[before the 1st day of June, 2000] against such order— (a) an order against the assessee, where the assessee denies his liability to be assessed “under this Act 'f, or an intimation under sub-section (1) or sub-section (1B) of section 143, where the assessee objects to the making of adjustments,] or any order of assessment under sub- section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed; (b) an order of assessment, reassessment or recomputation under section 147 or section 150; (c) an order under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under either of the said sections; (d) an order made under section 163 treating the assessee as the agent of a non-resident: (e) an order under sub-section (2) or sub-section (3) of section 170; (f) an order under section 171, (g) any order under clause (b) of sub-section (1) or under sub- section (2) or sub-section (3) or sub-section (5) of section 185 2°{***]21[in respect of any assessment for the assessment year commencing on or before the 1st day of April, 1992]; (h) an order cancelling the registration of a firm under sub- section (1) or under sub-section (2) of section 186 22{***]23 [in respect of any assessment for the assessment year commencing on or before the 1st day of April, 1992];

(i) an order under section 201; (j) an order under section 216 in respect of any assessment for the assessment year commencing on the 1st day of April, 1988 or any earlier assessment year; (k) an order under section 237; (l) an order imposing a penalty under— (i) section 221, or (ii) section 271, section 271A, section 271B, 24[***]25 section 272A, section 272AA or section 272BB]; (iii) 26[***] section 272, section 272B or section 273, as they stood immediately before the 1st day of April, 1989, in respect of any assessment for the assessment year commencing on the 1st day of April, 1988 or any earlier assessment years.  For limitation period sec. 153 Expl. 1 clause (iii) clearly stipulates that the period of special audit will be excluded from the limitation enumerated u/s 153. The only requirement is that there should be an order for special audit. Whether for that order opportunity was given to the assessee or not, whether extension of time for special audit granted by AO is correct or not or any grievance relating to the order in respect of section 142(2A) is not a subject-matter of appeal and cannot be challenged before Hon'ble ITAT and can be challenged only in writ jurisdiction before Hon’ble High Court which Appellant has not preferred to. Order u/s 142(2A)/(2c) is not an appealable section and Appellant has no right of appeal to challenge the order passed by AO u/s 142(2A)/ 142 (2C) before appellate authority u/s 246 and Hon’ble ITAT has also no authority to adjudicate on this. This view is also confirmed by Hon'ble Supreme Court in the case of Rajesh Kumar vs DCIT 287 ITR 91 order dated 01.11.2006 (copy enclosed) where Hon'ble Supreme Court has observed in para 52 & 53 of its order that “Whereas the order of assessment can be subject-matter of an appeal, a direction issued under section 142(2A) of the Act is not. No internal remedy is prescribed. Judicial review

cannot be said to be an appropriate remedy in this behalf. The appellate power under the Act does not contain any provision like section 105 of the Code of Civil Procedure. The power of judicial review is limited. It is discretionary. The Court may not interfere with a Statutory power.” “The hearing given, however, need not be elaborate. The notice issued may only contain briefly the issues which the Assessing Officer thinks to be necessary. The reasons assigned therefore need not be detailed ones. But, that would not mean that the principles of justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law. If the principles of natural justice are to be excluded, the Parliament could have said so expressly. The hearing given is only in terms of section 1 42(3) which is limited only to the findings of the special auditor. The order of assessment would be based upon the findings of the special auditor subject of course to its acceptance by the Assessing Officer. Even al that stage the assessee cannot put forward a case that power under section 142(2A) of the Act had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed hereinbefore, would not serve any real purpose as the appellate authority would not go into such a question since the direction issued under section 142(2A) of the Act is not an appellate order.” The order of Hon’ble Supreme Court in the case of Rajesh Kumar (Supra) is also followed by Hon’ble ITAT Jodhpur Bench in the case of ACIT vs Badri Ram Choudhary 355 ITR 223 (Jodhpur) order dated 25.10.2007 (copy enclosed). In this order Hon’ble ITAT has discussed in a great length the jurisdiction of Tribunal to examine the validity of section 142(2A) which is as under :-

“Jurisdiction of the Tribunal to examine validity of s. 142(2A) order 3.5.1 The learned Authorised Representative has forcefully contended that the appointment of the special auditor be declared null and void as the due process of law has not taken place. We are not inclined to go into this question for the reason that the Tribunal is not competent to examine the validity of the order appointing special auditor under s. 142(2A). The scope of the appeals to the Tribunal has been set out in s. 253 from which it is discernible that the order of the learned CIT appointing special auditor under s. 142(2A) is not subject-matter of challenge before it. The assessee could have challenged such appointment by way of writ petition before the Hon'ble High Court. The learned Authorised Representative has stated that the validity of search including appointment of special auditor has been challenged by the assessee before the Hon'ble High Court, which is subjudice and no final order has been passed by the Hon'ble High Court so far., In our considered opinion, the assessee cannot assail the validity of the order passed by the learned CIT appointing special auditor under s. 142(2A) in the appellate proceedings before the Tribunal. Our view is fortified by the judgment of the Hon'ble Supreme Court in the case of Rajesh Kumar (supra) in which it has been held that "the order of assessment would be based upon the findings of the special auditor subject of course to their acceptance by the AO. Even at that stage the assessee cannot put forward a case that power under s. 142(2A) had wrongly been exercised and he has unnecessarily been saddled with a heavy expenditure. An appeal against the order of assessment, as noticed here in before, would not serve any real purpose as the appellate authority would not go into such a question since the direction issued under s. 142( 2A) is not an appealable order." (emphasis, italicized in print, supplied by us).

3.5.ii It is further observed that the said decision in the case of Rajesh Kumar (supra) came up for consideration before the Hon'ble Supreme Court in a later decision in the case of Sahara India ( Firm) v. CIT [2007] 209 CTR (SC) 20 : [2007] 289 ITR 473 (SC) in which the said decision has been referred to a larger Bench. Here, it would be relevant to note the brief judgment in the case of Sahara India ( Firm) (supra), which is reproduced as under: "When the matter was taken up, the. learned counsel for the petitioner placed reliance on a decision of this Court in Rajesh Kumar v. Dy. CIT [2006] 206 CTR (SC) 175 : [2006] 287 ITR 91 (SC). According to the learned counsel for the petitioner, before any direction can be issued under Ss. 142(2A) of the IT Act, 1961 for special audit of the account of the assessee, there has to be a pre-decisional hearing and an opportunity has to be granted to the assessee for the purpose. A close reading of the decision shows that the observations in this regard appear to have been made in the context of the assessments in terms of s. 158BC (block assessment) of the Act. Such assessments are relatable to a case when raid has been conducted at the premises of an assessee. Had that been so, limited to the facts involved in that case, we would have negative the contentions of the learned counsel for the petitioner. But certain observations of general nature have been made. The effect of these observations appears to be that in every case where the AO issues a direction in terms of s. 142(2A) of the Act, the assessee has to be heard before such order is passed. This does not appear to us to be the correct position of law. Therefore, we refer the matter to a larger Bench. The records be placed before the Hon'ble Chief Justice of India for constituting an appropriate Bench." 3.5. iii On a careful reading of this judgment, it is clearly deducible that the observation of the Hon'ble Supreme Court in the case of Rajesh Kumar (supra) qua the opportunity of predecisional hearing for appointment of special auditor has to be granted to the assessee before issuing direction in a search 19

case has been held to be valid. What is found to be not a correct position of law are the observations about directions in term of s. 142(2A) to be given in all cases only after the assessee is heard. Insofar as discussion in this case regarding non- appealability of the direction issued under s. 142(2A) before the Tribunal is concerned, the decision in the case of Rajesh Kumar (supra) is final and binding as that aspect has not been disturbed. Even otherwise, a simple and plain reading of the appealable orders as enumerated in s. 253 leaves nothing to doubt that the validity of the appointment of special auditor under s. 142(2A) cannot be questioned before the Tribunal in the disposal of the appeal on smerits. On contention of the learned Authorised Representative that the observations of the Hon'ble apex Court in case of Rajesh Kumar (supra) qua the examination of validity of the appointment of auditor under s. 142(2A) are "passing remarks" and hence should not be read as substantive law, we are afraid that this submission deserves to be repelled at the very outset for the reason that even the obiter dicta of the Hon'ble Supreme Court is binding on the Tribunal. Almost similar contention was made before the Mumbai Bench of the Tribunal in the case of Dy. CWT v. Ashwin C. Shah [2002] 76 TTJ (Mumbai) 823 : [2002] 82 ITD 573 (Mumbai). On p. 103 it has been observed as under : "The question whether obiter dicta of the Hon'ble Supreme Court is binding on the High Courts may be one for consideration and there may even be divergent views. But, so far as the Tribunal is concerned, we have grave doubts whether it is at all open to it (the Tribunal) to consider certain observations of the highest Court of the country as ‘obiter dicta! and proceed to disregard the same. In fact, our humble view is that it cannot do so." 3.5.iv In view of the above discussion, it is amply clear that the Tribunal being a much inferior authority is bound by the observations of the Supreme Court, even if these are obiter and hence cannot look into the validity of order passed under s. 142(2A) as has been held in the case of Rajesh Kumar (supra). 20

The scope of examining the issues by the Tribunal has been spelt in s. 253. The orders under the sections, which are not brought within the purview of s. 253 cannot be considered and adjudicated upon by the Tribunal. There are various sections, the orders under which are not appealable. To cite a few, the order passed by the CIT under s. 264 is not appealable before the Tribunal. Similarly, the order passed for transfer of case under s. 127 is also precluded from examination by the Tribunal. All such orders are outside the ambit of the Tribunal's jurisdiction. Our view is fortified by the recent decision in the case of Smt. Jaswinder Kaur Kooner v. CIT [2007] 211 CTR (P&H) 200 : [2007] 291 ITR 80 (P&H). In this case the assessee raised a plea that the order of transfer of It is further observed "If no such challenge is made at the initial stage, the issue cannot be raised in appeal against the assessment order"jurisdiction under s. 127 being void, the entire assessment proceedings should be annulled on that ground. The Tribunal came to the conclusion that since the assessee had not challenged such order at the relevant forum the assessment could not be set aside. When the matter finally travelled to the Hon'ble High Court, it was held that the scope of assessment proceedings under the Act is confined to determining the income of the assessee liable to tax. If the assessee is aggrieved by the order of transfer the remedy of the assessee is to challenge such an order in independent proceedings either before the higher administrative authorities as per the Act or in any independent proceedings by way of writ petition. 3.5.v We are, therefore, not inclined to accept the submission made by the learned Authorised Representative in this regard and, therefore, hold that the “Tribunal is incompetent to examine the validity of the order for appointment of special auditor under s. 142(2A) in the course of appeal before it. Once the Tribunal is held to be debarred from examining the validity of such order, there is no need to consider the aspects of complexity of accounts and other matters that weighed with the

AO before initiating the process of appointment of special auditor.....” On the basis of the above discussion the grounds related to proceedings u/s 142(2A) of the appeal deserves to be rejected. B. The following decisions may kindly be considered with regard to reopening of cases u/s 147 of I.T.Act: In the case of Mona Mahesh Bhojani Vs ITO 83 Taxman.com 363 Hon’ble Gujarat High Court has held that reopening initiated in case of an assessee who had not filed his return, is valid, when the AO has tangible material at his command to form a bonafide belief that income chargeable to tax has escaped assessment, the writ court would not interfere with the formation of such belief unless it is shown to be wholly perverse. (copy enclosed) Hon’ble Supreme Court has dismissed the SLP in the case of Mona Mahesh Bhojani Vs ITO 2017-TIOL-345-SC-IT against appeal challenging the judgment of Hon’ble High Court. (copy enclosed) In the case of S. Narayanappa vs. CIT 63 ITR 219 Hon'ble Supereme Court has held that “The sufficiency of the grounds which induced the ITO to act is not a justifiable issue. It is of course open for the assessee to contend that the ITO did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief.” Further in the case of BawaAbhai Singh v. DCIT 117 Taxmann 12 Hon'ble High Court of Delhi has held that “After 1-4-1989 the position is somewhat different. Section 147 with effect from 1-4-1989 provides that where the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of sections 148 to 153. He may assess or reassess the income which has escaped assessment. it is to be noted that section 147 as it stands with effect from 1-4-1989 22

not only merges clauses (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain conditions mandatory in character before reassessment proceedings should be initiated in the pre-amended section. Conditions precedent for initiation of action under section 147(a) or 147(b) of the pre-amended section are highlighted above. The amended provisions are contextually different and the cumulative conditions spelt out in clause (a) or (b) of section 147 prior to its amendment, are not present in the amended provision. The only condition for action is that Assessing Officer should have reason to believe that income has escaped assessment, which belief can be reached in any manner and is not qualified by a pre-condition of faith and true disclosure of material fact by an assessee as contemplated in the pre-amended section 147(a) and the Assessing Officer can under the 7 amended provisions legitimately reopen the assessment in respect of an income which has escaped assessment. Viewed in that angle power to reopen assessment is much wider under the amended provision and can be exercised even after assessee has disclosed fully and truly all the material facts. It is to be noted at this juncture that twin conditions must be fulfilled if the case is one which is covered by the proviso to section 147 operative with effect from 1-4-1989. It is to be noted that decision to initiate proceedings is not to be preceded by any judicial or quasi- judicial enquiry. Reasons which may weigh with the Assessing Officer may be the result of his own investigation and may come from any source that he considers reliable. Formation of his belief is not a judicial decision but is an administrative decision. Nevertheless, he is required to act fairly and judiciously.” In the case of CIT vs Nova Promoters and Finlease Pvt. Ltd. 18 taxmann.com 217 dated 15- 02-2012 the Hon’ble Delhi High Court has held that as long as there is a ‘live link’ between the material which was before the Assessing Officer at the time

when reasons for reopening were recorded, proceedings u/s 147 would be valid. The court also held that - “We are aware of the legal position that at the stage of issuing the notice u/ 148, the merits of the matter are not relevant and the Assessing Officer at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment”. In the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. v ACIT (2007) 291 ITR 500 Hon'ble Supreme Court has held that - “All that is required for the revenue to assume valid jurisdiction u/s 148 is the existence of cogent material that would lead a person of normal prudence, acting reasonably, to an honest belief as to the escapement of income from assessment. ” In the case of Raymond Woolen Mills Ltd. 236 ITR 34 Hon’ble Supereme Court has held that- “We have only to see whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency of correctness of the material is not a thing to be considered at the stage of notice u/s 148. ” C. In the case of DIT vs. Spic Educational Foundation 257 ITR 46 order of High Court of Madras has held that “in the case of Section 12A(b) requires the trust which claims the benefit of sections 17 and 12, when it files a return of income, to file along with that return the report of the audit for that year in the Form prescribed under rule 17B of the Income-tax Rules, 1962. To the extent the return is not accompanied by that audit report in Form No. 10B, the assessee will not be eligible to claim the benefit of sections 11 and 12”. (Copy enclosed) D. In the case of Coimbatore Spinning & Weaving Co. Ltd. vs CIT 95 ITR 375 order of High Court of Madras has held that “The Tribunal was not inclined to accept the assessee's stand that the overall stock position should alone be considered. According to the Tribunal the assessee was in a fiduciary

capacity in respect of the stock declared to the banks, that the assessee would not have resorted to exaggerate the stock position as there was the possibility of the bank Officials checking the stocks and any manipulation discovered by the banks would be against its interests and, therefore, the assessee should be taken to have given the correct stock particulars to the banks in respect of each variety. The Tribunal also took the view that it was improbable that the assessee confused one variety of cotton for the other and declared the stocks to the banks incorrectly because of such a mistake and that the stocks declared to the banks should, therefore, represent the true stock position and the stock position as shown in the books of account could not be relied on. Regarding submission that the Tribunal should have taken judicial notice of the practice followed by the business houses of declaring larger stocks to the banks purely for the purpose of getting higher loans or overdraft facilities, it was to be held that such practice was shown to exist or that it had been recognised in the commercial circles or by courts. Even assuming that such a practice existed the Tribunal was not expected to take judicial notice of such sub-standard morality on the part of the assessee so as to enable them to go back on their own sworn statements given to the banks as to the stocks held and hypothecated by them to the banks, In a case where the assessee is confronted with his own sworn statements which show a different state of affairs than the one shown in his own books of account, heavy burden lies on the assessee to prove that the books of account alone give the correct picture, and the sworn statements given to the banks were motivated.” (Copy enclosed)”

“In continuation of the Written Submission filed in the above case on 02.05.2019, the following written submission may kindly be considered on the issue of setting aside the matter to the AO for granting the benefit u/s 11 & 12 of the Act in addition to my oral submission may on 02.05.2019. During the course of hearing on 02.05.2019 the Ld. AR of the appellant has mainly pleaded ground no. 6 & 7 of the appeal and requested the Bench to set aside the cases to the jurisdiction of AO to give the benefit of section 11 & 12 in the light of the amendment in the Act and insertion of section 12A(ba) which is w.e.f. A.Y. 2018-19. During the course of hearing a strong objection was taken by the Revenue on this issue as the appellant has never filed the return of income u/s 139(4A) and not entitled for grant of registration u/s 12A(b) of the Act. On this, Hon'ble Members has directed for the clarification on the issue of introduction of section 12A(ba) in the Act which is w.e.f. A.Y. 2018-19. This written submission is with regard to this clarification which is as under:- The taxation of charitable trusts is governed by Chapter III of the Income-tax Act which contains sections 11, 12, 12A, 12AA and 13. Section 12A/12AA contains the provisions concerning the Registration and the Registration Procedure under the Income- tax Act. Sections 11 and 12 contains the provisions concerning the condition to be fulfilled by the charitable trusts in order to claim exemption from income tax. Section 13 stipulates the provisions concerning the trusts which are not eligible for exemption u/s. 11 & 12. Conditions for applicability of section 11 and section 12- The provision of section 12A of the Act is reproduced as under:- 12A. [(1)] The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:— (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed 26

form and in the prescribed manner to the [Principal Commissioner or] Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, [whichever is later and such trust or institution is registered under section 12AA]: [Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution, — (i) from the date of the creation of the trust or the establishment of the institution if the [Principal Commissioner or] Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons; (i) from the 1st day of the financial year in which the application is made, if the [Principal Commissioner or] Commissioner is not so satisfied:] [Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;] [(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the [Principal Commissioner or] Commissioner and such trust or institution is registered under section 12AA;] [(ab)the person in receipt of the income has made an application for registration of the trust or institution, in a case where a trust or an institution has been granted registration under section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)], and, subsequently, it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, in the prescribed form and manner, within a period of thirty days from the date of said adoption or modification, to the Principal

Commissioner or Commissioner and such trust or institution is registered under section 12AA;] (b) where the total income of the trust or institution as computed under this Act without giving effect to [the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the pres-cribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed;] [(ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section.] The provision of section 139(4A) which is Substituted by Finance Act, 1972 ,w.e.f. 1-4-1973 reads as under:- [(4A) Every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes, or of income being voluntary contributions referred to in sub-clause (iia) of clause (24) of section 2, shall, if the total income in respect of which he is assessable as a representative assessee (the total income for this purpose being computed under this Act without giving effect to the provisions of sections 11 & 12) 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. Section 12A(b) of the Act requires the trust which claims the benefit of sections 11 and 12 of the Act, when it files a

return of income, to file along with that return the report of the audit for that year in the form prescribed under rule 17B of the Income-tax Rules, 1962. To the extent the return is not accompanied by that audit report in Form No. 10B the assessee will not be eligible to claim the benefit of sections 11 and 12 of the Act. The return so filed by such an assessee would therefore be defective, as the return filed by the trust is filed, inter alia, with the object of claiming a benefit under sections 11 and 12 of the Act. Such a defect when noticed by the Assessing Officer is a defect which the Assessing Officer may bring to the notice of the assessee so that the assessee can rectify that defect within the time allowed by the Assessing Officer.” Mandatory filing of returns From the above provisions of the Act it is apparent that one of the important provisions relates to liability to file tax returns cast on charitable institutions. According to the provision of section 139(4A) of the Income-tax Act, 1961 (‘the Act’), all charitable institutions availing exemption under sections 11 and 12 are required to file their return of income for each year within the time prescribed under section 139. Here it is pertinent to point out that in cases where the total income of the institution exceeds Rs. 50,000 in any previous year, its accounts are required to be audited by a qualified chartered accountant and the report obtained in the prescribed Form No. 10B. While in the case of institutions whose accounts are not required to be audited the due date for filing of return is 31st July of each year, in case of institutions whose accounts are to be audited, the due date is 31st October of each assessment year. Clarification on the issue of insertion of section 12A(ba) of the Act- During the course of appellate proceedings on 02.05.2019 it was argued by the Ld. AR that the registration cannot be denied on the ground of non-filing of return by the trust as this

provision was inserted u/s 12A w.e.f. 01.04.2018 and the case of the appellant has been completed much before this date. The plea of Ld. AR is not acceptable as section 12A(1)(b) and section 139(4a) was there in the statute and the appellant has violated these provisions. The background of amendment made by the Finance Act 2017 is clarified by the following letter of CBDT which is self-explanatory- F.No, 173/193/2019-ITA-I Government of India- Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, Dated: 23 April, 2019 To, The Pr. DGIT (Systems), New Delhi. Subject: Clarification with regard to the time allowed for filing of return of income subsequent to the insertion of Clause (ba) in sub-section 1 of section 12A of the income -tax Act, 1961. Sir, Undersigned is directed to refer to the representation (s) received on above mentioned subject stating that while processing of ITR-7 for the A.Y. 2018- 19, in respect of the belated returns filed u/s 139(4) of the Income Tax Act, 1961 (Act), the following is being communicated u/s 143(1)(a) of the Act:- “As per section 12A(1)(ba) of the Income -tax Act , 1961 the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed

under that section. Otherwise the exemption u/s-11 i.e. sr. no 4(i) and 4 viii in schedule Part BTI is not allowed.” Based on this, exemption u/s 11 of the Act has been denied to otherwise eligible trust, thereby creating huge demand. 2. In the matter, the memorandum explaining the relevant provisions of the Finance Bill, 2017 reads as under: “as per the existing provisions of said section, the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Act. These amendments are clarificatory in nature. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018- 19 and subsequent years.” 3. Additionally, an excerpt of circular 02/2018 dated 15.02.2018 “Explanatory Notes to the Provisions of the Finance Act, 2017” on insertion of clause (ba) in Sub section (1) of section 12A is quoted as under: ‘the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139 of the Income -tax Act, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. Amendment to section 12A of the Income-tax has been made so as to provide for additional condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Income -tax Act.”

Order of CIT(A) “9.3 Decision & Reasons: I have considered that facts and law involved and considered rival submissions. The contention of appellant on the issue is found to be completely misplaced and in contradiction to law on the issue from plane reading of the provisions of section 12A(1b) of the Act. A bare perusal of this provision of the Act makes it clear that assessee is required to file a return of Income along with Audited accounts to claim the benefit of section 11 of the IT Act. It has been held in [Director of Income tax (Exemptions) v. Spic Educational Foundation, (2002) 257 ITR 46, 47, 48 (Mad.)]. Provision of section 12A(b) about compulsory audit are mandatory for availing the trust must comply with the provision of section 11 and 12 — In order to claim the benefit of section 11 and 12, the trust must comply with the provisions of section 12A(b) requiring furnishing of an audit report in prescribed form along with the return of income. The fact is that assessee never filed return as per the stipulated legal provisions given u/s 139(4A) of the Act and it is only after the proceeding’s u/s 147/148 of the Act that the Appellant eventually was forced to file the return. Thus, non-filing of Return is in itself a sufficient ground to deny the benefit u/s 11 & 12 of the Act which exacerbated and magnified by the fact that not only did the Appellant did not file the return which eventually happened only after issuance of Notice u/s 148 of the Act. In this case the Assessee has not even filed the return the Appellant and then went on rampantly flouting the law by doctoring the Balance sheet and submitting to the Syndicate Bank for obtaining loan. There is a clear and contumacious disregard of law in this case.” The CIT (A) has relied upon the decision of Director of Income tax (Exemptions) v. Spic Educational Foundation, (2002) 257 ITR 46, 47, 48 (Mad.) in which the Hon’ble Madras High 33

Court has held in para 6 of the order which is reproduced as under:- Section 12A(b) of the Act requires the trust which claims the benefit of sections 11 and 12 of the Act, when it files a return of income, to file along with that return the report of the audit for that year in the form prescribed under rule 17B of the Income-tax Rules, 1962. To the extent the return is not accompanied by that audit report in Form No. 10B the assessee will not be eligible to claim the benefit of sections 11 and 12 of the Act. The return so filed by such an assessee would therefore be defective, as the return filed by the trust is filed, inter alia, with the object of claiming a benefit under sections 11 and 12 of the Act. Such a defect when noticed by the Assessing Officer is a defect which the Assessing Officer may bring to the notice of the assessee so that the assessee can rectify that defect within the time allowed by the Assessing Officer. Hence, it is apparent that the provisions of section 139(4A) read with section 12A(1)(b) lays down conditions for applicability of section 11 and 12 wherein it has specifically been mentioned that a trust should file return of income along with audit report. Thus, filing of Return of Income along with audit report is the mandatory condition for applicability of section 11 and 12. Hence, the plea of appellant for restoring the case to the jurisdiction of the AO deserves to be rejected and no benefit should be given to the appellant on this account which has boldly violated the mandatory conditions for granting exemption from the taxability under the Act.” 16. In rejoinder, the Ld. Counsel submitted that the income, whether it is a case of assessment or re-assessment, has to be computed in accordance with the provisions of the Act. In the present case as is evident from the assessment order itself that assessee society is a registered society under section 12A of the Act and it is engaged in education which falls within the meaning 34

of charitable purpose. There is no allegation against the society of doing any activity other than the objects stated in its memorandum which is even evident from the assessment order. Thus, the assessee society is eligible for computing its income in accordance with the provision of section 11 of the Act. He was submitted that, it is a case of assessment under section 143(3) and the issue of notice under section 148 is only to call for the return of income and assessee having filed the return along with the audited balance sheet and profit and loss account, the assessment order has to be passed under section 143(3). In fact the order passed by the AO also states that this has been passed under section 148/143(3) and if that be so, the income has to be computed in accordance with the provisions of the Act which includes section 11. In the absence of any specific provision being applicable for the assessment year under consideration no new condition can be read into.

unconnected with the issue of escapement of income on the basis of which income has been computed by the assessing officer. Deduction under section 11 is part of the computation of income which has escaped assessment. Section 11 itself states that the income to the extent to which it has been applied for charitable purposes is not to be included in the total income of the previous year.

contention placed reliance on the judgment of the Supreme Court – Commissioner of Income Tax (Central)- I, New Delhi Versus Vatika Township Private Limited – 367 ITR 466 (SC) whereby the apex court has held that a legislation is presumed not to be intended to have a retrospective operation. The law passed today cannot apply to the events of the past. He also placed reliance on the judgment of Karnataka High Court dated 28.06.2016 in the case of PR. COMMISSIONER OF INCOME TAX VERSUS SRI. DICHUNCHUNAGIRI SHIKSHANA TRUST ADICHUNCHUNGIRI KSHETRA NAGAMANGALA TALUK MANDYA – ITA NO. 384 OF 2016.

in accordance with sections 11 to 13 of the Act. The assessee society had not filed its return of income and it was only in response to notice issued by the Assessing Officer under section 148, the assessee has filed its return of income alongwith the audited Balance Sheet and Profit & Loss Account. Now, whether the income of the assessee society is to be computed in accordance with the provisions of section 11 of the Act, as it has not filed the return as required under section 139(4A) of the Act, but has filed return in response to notice under section 148.

years impugned in these appeals, there is no such provision in the Act that in case return is not filed by charitable society under section 139(4A), then its income cannot to be computed in accordance with the provision of the Act.

our view, clear. Even after a notice is issued under s. 148, if the ITO proposes to make a variation in the income returned pursuant to such notice which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board, the ITO must forward a draft of the proposed order of the assessment to the assessee. The assessee is entitled to forward objections to such variation. If he does not do so, the ITO may complete the assessment or reassessment on the basis of the draft order. If, however, the assessee does raise objections, the ITO must forward the draft order together with the objections to the IAC and the IAC must, after considering the draft order, the objections and the record, issue such directions as he thinks fit for the guidance of ITO to enable him to complete the assessment or reassessment, but no directions which are prejudicial to the assessee may be issued before an opportunity is given to the assessee to be heard. The directions issued by the IAC are binding on the ITO. 14. If, therefore, the procedure that is prescribed by s. 144B is to be applied even to assessments and reassessments under s. 147 and, as we have stated, we think it must, having regard to the terms of the provisions of the Act herein before referred to as also because the provisions of s. 144B are intended to safeguard the interest of the assessee, the extended period of limitation prescribed by Expln. 1(iv) to s. 153 must apply. 15. It was submitted on behalf of the assessee that the provisions of s. 144B were not applicable to assessments and reassessments under s. 147 because s. 144B stated that it applied only to "an assessment to be made under sub-s. (3) of s. 143". The submission cannot be accepted because the words we have quoted from s. 148 cannot be ignored. A notice having been issued under s. 148, the procedure set out in the sections subsequent to s. 139 has to be followed "so far as may be". Sec. 144B is a procedural provision. It fits into the procedural scheme as hereinbefore noted and, therefore, it cannot be excluded by reason of the use of the words "so far as may be". Nor is there any other good reason to exclude it from the procedure to be followed subsequent to a notice under s. 148.

the income has to be computed on the basis of such return in accordance with the provision of the Act, which of course will be subject to any specific provision in the Act which itself bars a claim or an exemption. Thus, section 148 provides that all the provision of the Act has to apply on such return furnished in response to notice under section 148. The Ld. CIT DR has referred to the words ‘so far as may be’ to canvass the proposition that all the provision will not apply. This contention of the Ld. DR is not correct in view of our reasoning given above. The meaning of these words ‘so far as may be’ will not mean to exclude provision of section 11 of the Act. It is only such provision which are inconsistent with the provision of section 148 as compared to section 139 regarding procedure for assessment will not be applicable so far as may be. As regards the reliance placed by the Ld. DR on the judgment in the case of Commissioner of Income- tax v. Sun Engineering Works (P.) Ltd. 198 ITR 297 (SC), we are not in agreement with the contention of the Ld. DR that in the re- assessment proceedings under section 148, no deduction can be allowed in respect of the income which has escaped assessment. In reassessment proceedings even the income which has escaped assessment has to be computed in accordance with the provisions of the Act which will include section 11 as is in the present case. It will not be correct to say that while computing income under section 148 the entire gross receipts are to be taxed. Further, it is not the case of the assessee that it is re- agitating or seeking review of the issue or the deduction for which determination has already taken place. The case of the assessee is that while computing income which has escaped assessment,

the computation has to be done in accordance with the provision of the Act which include section 11 of the Act. It is a case of a determination of correct escaped income as per the provision of the Act.

bench of the ITAT in the case of Genius Education Society vs. ACIT ITA No.238/Chd/2018 dated 20.08.2018 wherein the Tribunal has held as under:- “…10. Undoubtedly the requirement of filing of return of income and the report of audit have been specified for being eligible for claiming exemption u/s 11 & 12 of the Act, alongwith the grant of registration u/s 12AA of the Act. In the case of the assessee, we find, that the return of income has been filed in response to notice u/s 148 of the Act. Therefore the condition of filing of return of income stands fulfilled. The section, we find, nowhere prescribes the filing of return by any due date, therefore the findings of the CIT(A) that the assessee having not filed its return within the prescribed time it had failed to comply with the requirement prescribed, is not tenable. As for the requirement of filing report of audit in the prescribed form, the said condition has been held by courts to be merely procedural and therefore directory in nature and not mandatory for the purpose of claiming exemption u/s 11 & 12 of the Act. The Hon’ble Jurisdictional High Court in the case of CIT v. Shahzadanand Charity Trust [1997] 228 ITR 292 (Punj. &Har.), has categorically held so in para 10-14 of its order as under: “10. Calcutta High Court in Rai Bahadur Bissesswarlal’s case (supra) while interpreting s. 12A(b) held that the provision was directory in nature and the AO could allow the assessee to file the audit report, at any time before the completion of the assessment. In this case the assessee, a charitable trust registered with the CIT filed its return on 17th Sept., 1984, declaring a deficit of ₹ 1,61,452. The return so filed was not accompanied by audited accounts and audit report in Form No. 10B as required under s. 12A of the Act. The audit report dt. 12th Nov., 1984 was, however, filed by the assessee in the prescribed form on 6th March, 19897, before the completion of the assessment. The ITO while completing the assessment refused to allow the benefit of exemption under s. 11 of the Act to the assessee on the ground that audit report in Form No. 10B was not filed along with the return. Income of the assessee was put to tax. Order of the ITO was upheld by the CIT(A) against which assessee filed further appeal before the Tribunal which was accepted.

On these facts, it was held that the IT authority had taken hyper-technical view of the matter where the assessee has complied with the provisions of the Act in the course of assessment by curing the defect in the return by filing an audit report. The ITO cannot ignore such audit report or the return in completing the assessment. The delay in getting the account audited and in filing the return (sic-report) in Form No. 10B did not defeat any object of the Act and, therefore, the provision was directory in nature. It also referred to the circular of the Board dt. 9th Feb., 1978. 11. Gujarat High Court in Gujarat Oil & Allied Industries’ case (supra) was considering s. 80J(6A). Gujarat High Court took the view put by this Court in Jaideep Industries’ case (supra). It was held that the provision about furnishing of the auditor’s report along with the return has to be treated as procedural provision and, therefore, directory in nature. 12. Provisions of s. 80J(6A) and s. 12A of the Act are para materia. The ratio of the law laid down in Jaideep Industries’ case (supra) would have been applicable to the facts of the present case as well had the CBDT not issued the Circular dt. 9th Feb., 1978, reproduced in the earlier part of the judgment. As per this circular, it is not mandatory under. s. 12A(b) to file the audit report along with return of income. Normally, a charitable religious trust or institution is expected to file auditor’s report along with the return but in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report, the ITO, for reasons to be recorded, has been authorised to condone the delay in furnishing the auditor’s report and accepting the same at a belated stage. It has been clarified that the exemption available to the trust under s. 11 may not be denied merely on account of delay in furnishing the auditor’s report. The word “shall” occurring in s. 12A cannot, under the circumstances, be read as a “must” making it mandatory for the trust to furnish the auditor’s report along with the filing of the return. If for certain unavoidable circumstances, the assessee is unable to furnish the auditor’s report along with the return then the same can be furnished at a later date with the permission of the AO who may permit the assessee to do so after recording its reasons for so doing.”

the audit report at any point of time and hence the exemption cannot be granted in the absence of audit report. Thus, it was a case of complete failure to file the audit report which is not the case here. In the present case the assessee society has filed the return of income and has also filed audited accounts with the audit report in response to the notice under section 148 on the basis of which AO has completed the assessment under section 148/143(3). Thus, the audit report was before the AO.

DR that this amendment is clarificatory in nature. As rightly pointed out by the Ld. Counsel that this amendment has been made by the Finance Act, 2017 effective from A.Y. 2018-19, meaning thereby that this clause has not been made applicable even for the A.Y. 2017-18, the return of which were still to be filed. Thus, the Legislature has thought fit to make this amendment applicable from next assessment years onwards and not even to the current A.Y. 2017-18.

something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lexprospicit non respicit : law looks forward not backward. As was observed in Phillips vs. Eyre (1870) LR 6 QB 1, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 32. The obvious basis of the principle against retrospectivity is the principle of 'fairness’, which must be the basis of every legal rule as was observed in the decision reported in L’Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co.Ltd (1994) 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 33. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco

Association (2005) 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra &Ors. (2006) 6 SCC 286 It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here. 34. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectively. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.” The above judgment has been followed by the Karnataka High Court in its judgment dated 28.06.2016 in the case of PR. COMMISSIONER OF INCOME TAX VERSUS SRI. DICHUNCHUNAGIRI SHIKSHANA TRUST ADICHUNCHUNGIRI KSHETRA NAGAMANGALA TALUK MANDYA BEING ITA NO. 384 OF 2016, While interpreting the amendment made by the Finance Act No. 2 of 2014 whereby section 11 (6) was inserted so as to exclude such assets while computing depreciation in respect of which deduction has been allowed as an application of income under section 11 of the Act.

accounts. These observations were with reference to the balance sheet and income and expenditure which were audited by the special auditor as is evident from the special audit report placed at paper book page 72 onwards. The AO has accepted the Special Auditors report and has made various addition and disallowances based on this report. However, while computing income at the last page of the assessment order he has taken the income as per the balance sheet and income and expenditure account which he had received from Syndicate Bank rather than taking the figure of income as per the balance sheet and income and expenditure account which has been subject matter of Special Audit appointed by the AO himself.

liabilities stated therein. The CIT (A) has also taken note of the contention of the assessee that the AO on the one hand has taken surplus from the financials with the Syndicate Bank but on the other hand has made disallowances/addition on the basis of the financials as submitted by the appellant. He submitted that the CIT(A) however, has arbitrarily rejected the contention of the assessee merely on the ground that it is not the duty of the AO to prove the financials submitted to the Syndicate Bank are correct rather it was duty of the assessee to prove as to why the financial statement filed by the assessee are to be ignored. The CIT(A) has also ignored the alternative contention of the assessee that in case the AO was of the view that the financials with the Syndicate Bank were the correct financials then the income has to be computed taking into account all the figures stated therein which will include the application of the income towards the expenditure stated in the such financial. On this basis it was argued that the stand of the AO is contradictory.

as giving a true and fair view with subject to the observation as per Annexure- A attached with the special auditors report. Thus, the financials submitted by the assessee along with the return having been verified by the AO himself through the Special Auditor, that financial itself should be the basis of computation of income. It was submitted that the judgment in the case of Coimbatore Spinning and Weaving Company Ltd. vs. CIT 95 ITR 375 is not applicable in the present case as in that case the dispute was the stock as per the books of accounts and the stock pledged with the bank. The stock was pledged which means that it was physically available with the bank and hence, what was stated in the balance sheet was not correct.

to the special auditor. In the show cause notice issued to the assessee dated 18.12.2011, it has been stated by the Assessing Officer that the special audit is required as there are two set of profit and loss account and balance sheet and under these circumstances there is a complexity and at this stage income, surplus as well as application cannot be worked out correctly and hence, it is necessary to get the special audit done under section 142(2A) of the Act. The special auditor after examination of the books of accounts have stated in their report that the balance sheet and the profit and loss account are in agreement with the books of accounts subject to the comments given in the annexure. Further, the Special Auditor has also certified that the balance sheet and the profit and loss account give a true and fair view subject to the observation stated in the audit report. The AO having referred the matter to the special auditor and having obtained the special auditor report on the financials statement submitted by the assessee and having been certified as giving a true and fair view subject to certain observations thereon, the AO cannot ignore such balance sheet and the profit and loss account audited by the special auditor. Further, on perusal of the assessment order we note that AO has not brought any material to support that the facts and figures stated in the balance sheet and profit and loss account submitted to the Syndicate Bank are the actual facts and figures. The AO being an adjudicating officer is supposed to assess the correct income. He cannot assess the income arbitrarily. On going through the assessment order we note that he has made various additions and disallowances on the basis of the Special Auditor’s observations coming out of the

balance sheet and profit and loss account submitted by the assessee. The AO has also relied upon the special auditor’s report as is evident from the assessment order and he has also issued show cause notices for making various addition and disallowances on the basis of observation made in the special audit report. But without giving any reason or justification in his order, Assessing Officer has just picked up the figure of the excess of income over expenditure from the financials with the Syndicate Bank rather than taking the figure of excess of income over expenditure as per the income and expenditure account audited by the special auditor. The judgment relied upon by the Ld. CIT DR in its order is not applicable to the present set of facts. In the judgment relied upon by the Ld. DR, the issue was of pledged stock with the bank which was physically available in lock and key with the bank and that is why it was held that the stock statement given to the bank is to be considered and not the stock as shown by the assessee in its balance sheet. In the present case, the dispute about the financial submitted to the bank and submitted by the assessee with the return of income has been got resolved by the AO by making a reference to the special auditor who after auditing has given its report proposing various additions and disallowances on the financials submitted by the assessee. The AO has also made addition and disallowances on the basis of such report. It is not the case where the AO has rejected the report of the special auditor. On the contrary he has accepted the report of the special auditor.

the return of income which has been audited by the special auditor should be the basis for computing income as per provision of section 11 and 12 of the Act. We direct the AO accordingly.

taken into consideration while considering application of income towards charitable purposes. In case it is held that assessee society has not produced the evidence in support of its claim, such amount has to be excluded while considering application of income under section 11 of the Act. On going through the facts we note that the AO made a total disallowance of Rs.26,548/- out of which the CIT(A) has deleted the addition of Rs.15,832/- after calling for remand report on the additional evidences submitted by the assessee in support of its contention. It has been stated by the CIT (A) that assessee has submitted proof of payment with respect to amount of Rs.15,832/- and the payment is also through banking channel. However, assessee has not produced any cogent evidence in respect of balance amount of Rs.9,653/- and Rs.1,063/- and hence, the disallowance was confirmed. Since, the assesse has not produced cogent evidence about these expenses of Rs.10,716/-, we confirm the action of the CIT(A) in disallowing the same. However, this amount instead of making addition as income need to be excluded while considering application of income in terms of section 11 of the Act. This ground of appeal is disposed of accordingly.

income of the society is to be computed in terms of section 11 of the Act and accordingly such amount need to be excluded while computing total application of income. Following the same reasoning we direct the AO that this amount instead of making addition as income needs to be excluded while considering application of income in terms of section 11 of the Act. This ground of appeal is disposed of accordingly.

of its income under section 11 of the Act, the only issue to be examined is whether such expenditure can be disallowed by invoking provision of section 40(a)(ia) of the Act on the reasoning that assessee has failed to deduct tax at source while making such payments. Chapter-III of the Income Tax Act is regarding incomes which do not found part of the total income. Section 11 which falls in this Chapter is regarding computation of income from property held for charitable/religious purposes and its mode of computation as per the condition prescribed in these sections itself. As against this section 40(a)(ia), 40A(3) and section 43B falls in Chapter IV-D which are applicable for computing profits and gains of business or profession. Thus, the provisions of these sections are applicable in respect of profit and gains of business or profession. This Chapter IV-D is not applicable in respect of charitable trust or institution whose income is to be computed under Chapter–III. Accordingly, no disallowance or adjustment can be made while determining the income of the society under section 11 of the Act. Our view is supported by the judgment of the various benches of the ITAT in following cases as relied upon by the Ld. Counsel:

application of income while computingincome of the assessee society in terms of section 11 of the Act. This ground of appeal is accordingly allowed.

the year on which interest of Rs.6,13,853/- was accounted for and interest on balance FDR of Rs.40,88,000/- has not been accounted for. It was clarified by the assessee that this interest was not accounted for as the assessee society is crediting interest only when interest is received from the bank. Thus, it was a case of a misinterpretation of the observation of the special auditor. The CIT (A) has confirmed the above addition on the reasoning that there is no clarity on the source of investment.

matured FDR, it is seen that the assessee has accounted for the interest of Rs.6,13,853/-. As regards the interest on the closing balance of FDR of Rs.40,88,000/- the same having not been received during the year and assessee society following policy of accounting of interest accrued on FDRs on receipt basis no addition on this account otherwise can be made. In view of the above facts and analysis, we direct the AO to delete the addition of Rs. 1,82,92,536/. This ground of appeal is thus allowed.

income of the society is to be computed in terms of section 11 of the Act and accordingly such amount need to be excluded while computing total application of income. Following the same reasoning we direct the AO that this amount instead of making addition as income needs to be excluded while considering application of income in terms of section 11 of the Act. This ground of appeal is disposed of accordingly.

expenditure incurred during the year as application of income towards charitable purposes while computing income under section 11 of the Act. Ground no.21 is accordingly allowed. 47. Now we take up the appeal filed by the Revenue being ITA No.4392/Del/2017.

Rs.15,832/- on the basis of additional evidences in the form of payment proof after calling from the remand report from the AO. We note that the disallowance has been deleted by the CIT (A), as the assessee has submitted the necessary evidence in support thereof. Accordingly, we uphold the order of the CIT (A) and this ground of the Revenue is dismissed.

(A) after considering the additional evidences and the remand report submitted by the AO we find no reason to interfere with the order of the CIT (A) and this ground of the Revenue is accordingly dismissed.

i.e. Rs.54,00,000/- and Rs.49,46,000/- as these deposits in the bank account do not pertain to the year under consideration. As regards the balance the CIT (A) noted cash deposits reported by the AO have been duly recorded by the assessee in its books accounts as tuition fees and hence addition made by the AO is double addition. The CIT (A) also noted that the Special auditor appointed by the AO has also not made any adverse observation about the cash deposited in the bank. The Ld. DR could not controvert the above finding of the CIT (A). We are of the view that the CIT (A) has examined the issue. The deposit in the bank account having been made out of the books of accounts the same cannot be considered to be unexplained deposits in the bank account and accordingly we uphold the order of the CIT (A) and dismiss this ground of appeal. 55. In the result, appeal of the assessee is partly allowed for statistical purposes and that of the Revenue is dismissed. Assessment Year 2007-08 ITA No.3675/Del/2017 and ITA No.4393/Del/2017 56. First we take up the appeal of the assessee being ITA No.3675/Del/2017. 57. In this appeal the assessee has raised following grounds of appeal: 1. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad, both in the eye of law and on the facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the proceedings under Section 147, read with Section 148,

ignoring the fact that the same was bad in the eye of law as the conditions and procedure prescribed under the statute have not been satisfied and complied with. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned AO are bad in the eye of law as the reasons recorded for the issue of notice under Section 148 are bad in the eye of law and are contrary to the facts. 4. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law in confirming the addition made on the basis of the material collected at the back of the assessee without providing copy of the same & providing opportunity to rebut the same. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in referring the case for the special audit under Section 142(2A) of the Act without there being any basis for the same. 6.(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in denying exemption under Section 11 of the Act . (ii) On the facts and circumstance of the case, the learned CIT(A) has erred, both on facts and in law, in ignoring the fact that failure to file return under section 139(4A) can be a cause for levy of penalty under section 272(2)(e) and not denying exemption under section 11 of the Act. 7. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and law in confirming the action of AO in taking Rs.6,39,13,382/- as returned income of the Assessee. 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in confirming the action of the AO in taking the financials with Syndicate Bank,

Shastri Nagar, Ghaziabad as correct financials and determining the income on the basis of such figures without ascertaining the correctness of such finding. 9.(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in ignoring the balance sheet and income and expenditure account prepared by the assessee and relying on the balance sheet submitted to the bank. (ii) In the absence of any supporting evidence, it was not justified in relying upon the balance sheet and Income and expenditure account filed before the bank. 10. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in ignoring the fact that having got the accounts audited from the special auditor there was no justification to take into consideration the figure stated in the balance sheet submitted to the bank, to be the basis of assessment. 11. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of Rs.22,812/- out of various expenses. 12. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law, in confirming the disallowance of an amount of Rs.27,84,767/- invoking the provision of section 40A(3). 13. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the disallowance of an amount of Rs.73,58,134/- invoking the provision of section 40(a)(ia) of the Act. 14.(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of Rs.5,60,975/- on account of penalty.

(ii) That the disallowance was made ignoring the fact that the said amount does not pertain to penalty related to infraction of any statutory law. 15. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.3,40,399/- on account of investment in FDR under section 68 of the Act. 16. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.6,35,842/- on account of depreciation on building. 17. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the A.O. in computing the income by applying provisions of section 28 to 44 D for computing profits and gains from business and profession, ignoring the fact that the assessee is a charitable institution and its income is to be computed on the basis of the provision of sections 11 and 12 of the Act. 18. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the A.O. in not computing the income in accordance with the provision of section 11 of the Act. 19. On the facts and circumstance of the case, the learned CIT(A) has erred both on facts and in law, in not considering the capital expenditure incurred during the year while computing income of the assessee. 20. The appellant craves leave to add, amend or alter any of the grounds of appeal. 58. Ground No. 1 & 20 are general in nature and hence need no adjudication; and with regard to ground nos. 2 to 5, no arguments were addressed by the Ld. Counsel for the assessee and the same are dismissed as not pressed.

both the parties fairly stated that the outcome of the appeal in ITA No.3674/Del/2017 for assessment year 2006-07 would be squarely applicable to these ground nos.7 to 10 of this appeal. As we have already decided the appeal for assessment year 2006-07 vide ITA No.3674/Del/2017 and, for the detailed discussion in that appeal we have held that the income and expenditure account submitted by the assessee with the return of income which has been audited by the special auditor should be the basis for computing income as per provision of section 11 of the Act. Following the same reasoning we hold that the income and expenditure account submitted by the assessee with the return of income which has been audited by the special auditor shall be the basis for computing the income of the society in accordance with the provisions of section 11 of the Act. We direct the AO accordingly. Further, as regards the alternative contention of the Ld. AR that in case balance sheet and income and expenditure account submitted with the Syndicate Bank as collateral security for obtaining bank loan is to be considered as the correct financial of the assessee society, we are of the view then the same has to be considered in entirety. The AO cannot pick and choose certain figures from the financials which have been audited and certain figures from the balance sheet with Syndicate Bank. However, since, we have held that the balance sheet and income and expenditure account which has been audited by the special auditor shall be the basis for computation of income, this alternative contention become academic in nature. Ground nos.7 to 10 are accordingly allowed.

Rs.3,40,339/- ignoring the other FDR appearing in the schedule of investment of Rs.40,17,936/-. If we take into consideration this FDR of Rs.40,17,936/- then the amount of investment in FDR disclosed is more than the FDR investment considered by the AO of Rs.54,75,000/-. In view of this the addition sustained by the CIT(A) is untenable and we direct the AO to delete the same. Accordingly this ground of appeal is allowed. 67. Ground no.16 is regarding disallowance of depreciation of Rs.6,35,842/-. This ground is identical to ground no.18 of assessee’s appeal for the A.Y. 2006-07. In the said appeal we have in the absence of supporting evidence, upheld the disallowance made by the CIT (A). However, we have held in ground no.11 while considering disallowances in the absence of supporting evidence that the income of the society is to be computed in terms of section 11 of the Act and accordingly such amount need to be excluded while computing total application of income. Following the same reasoning we direct the AO that this amount instead of making addition as income needs to be excluded while considering application of income in terms of section 11 of the Act. This ground of appeal is disposed of accordingly.

with the provision of section 11 of the Act. Following the order passed by us for the A.Y. 2006-07, we direct the AO to compute the income in accordance with the provision of section 11 of the Act and not in accordance with provision of section 28 to 44 D of the Act. Ground no.17 and 18 are disposed of accordingly.

the assessee has submitted additional evidences in respect of these payments which has not been rebutted in the remand report by the AO. The Assessee having submitted evidences and nothing adverse being brought on record by the AO in the remand report, we are of the view that the CIT (A) was justified in deleting this addition. Accordingly, the finding of the CIT (A) on this issue is upheld and ground no.4 of Revenue’s appeal is dismissed.

has also not made any adverse observation about the cash deposited in the bank. We are of the view that in the absence of any mismatch being pointed out by the special auditor about the amount shown in the books of account and the amount credited in the bank account, the AO was not justified in making this addition. From the assessment order it is evident that the AO has made the addition merely on the ground that cash has been deposited in the bank ignoring the fact that assessee receives tuition fees etc. from the students and mere deposit in the bank account cannot be a ground for making addition. The deposit in the bank account having been made out of the books of accounts the same cannot be considered to be unexplained deposits in the bank account and accordingly we uphold the order of the CIT (A) and dismiss this ground of Revenue’s appeal. 77. Ground no.7 of Revenue’s appeal is general in nature and hence need no adjudication. 78. In the result, appeal of the assessee and of the Revenue is partly allowed for statistical purposes.

A.Y. 2008-09 ITA No.2733/Del/2018 and ITA No.4563/Del/2018 79. First we take up the appeal of the assessee being ITA No.2733/Del/2018.In this appeal the assessee has raised following grounds of appeal: 1. On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad, both in the eye of law and on the facts.

income on the basis of such figures without ascertaining the correctness of such finding. 10. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in ignoring the balance sheet and income and expenditure account prepared by the assessee and relying on the balance sheet submitted to the bank. (ii) In the absence of any supporting evidence, it was not justified in relying upon the balance sheet and Income and expenditure account filed before the bank. 11. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in ignoring the fact that having got the accounts audited from the special auditor there was no justification to take into consideration the figure stated in the balance sheet submitted to the bank, to be the basis of assessment. 12. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of Rs.2,28,318/- on account of unsupported expenditure. 13. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law, in confirming the disallowance of an amount of Rs.23,500/- invoking the provision of section 40A(3). 14. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the disallowance an amount of Rs.3,61,855/- on the account of various expenses on the basis of special audit report. 15. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the disallowance of an amount of Rs.56,45,698/- invoking the provision of section 40(a)(ia) of the Act. 16. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of Rs.5,81,493/- on account of penalty.

(ii) That the disallowance was made ignoring the fact that the said amount does not pertain to penalty related to infraction of any statutory law. 17. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.3,03,354/- on account of depreciation on building. 18. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the A.O. in computing the income by applying provisions of section 28 to 44 D for computing profits and gains from business and profession, ignoring the fact that the assessee is a charitable institution and its income is to be computed on the basis of the provision of sections 11 and 12 of the Act. 19. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the A.O. in not computing the income in accordance with the provision of section 11 of the Act. 20. On the facts and circumstance of the case, the learned CIT(A) has erred both on facts and in law, in not considering the capital expenditure incurred during the year while computing income of the assessee. 21. The appellant craves leave to add, amend or alter any of the grounds of appeal.

this ground raised and the facts in this appeal is identical to the facts and ground no.6 raised in appeal for assessment year 2006- 07 vide ITA No.3674/Del/2017. Therefore, both the parties fairly stated that the outcome of the appeal in ITA No.3674/Del/2017 for assessment year 2006-07 would be squarely applicable to grounds no.6 & 7 of this appeal.

we have upheld the disallowance of expenditure in respect of which assessee has not been able to submit evidences. However, as the assessee’s income is to be computed in accordance with the provisions of section 11 of the Act, we have directed the same be excluded while computing income in terms of section 11 of the Act. Following the same reasoning as the assesse has not produced cogent evidence about these expenses of Rs.2,28,318/- and Rs.3,61,855/- respectively, we direct the AO that this amount instead of making addition as income need to be excluded while considering application of income in terms of section 11 of the Act. This ground of appeal is disposed of accordingly

said appeal we have deleted this disallowance holding that Explanation to section 37 is not applicable while computing income of charitable institution under section 11 of the Act and further amount paid to bank will not fall within the meaning of expenditure for any purpose which is an offence or which is prohibited by law. The facts in this year being identical to facts of the A.Y. 2006-07, accordingly, we direct the AO delete this addition while computing income of the assessee society in terms of section 11 of the Act. This ground of appeal is allowed.

passed by us for the A.Y. 2006-07 we direct the AO to compute the income in accordance with the provision of section 11 of the Act and not in accordance with provision of section 28 to 44 D of the Act. Ground no.18 and 19 are disposed of accordingly.

assessee did not file any supporting document in support of its claim and CIT(A) has wrongly treated the expenses as capital in nature. 3. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 13,20,948/- on account of unsupported expenditure as assessee has also failed to substantiate the expenses with proper bills/vouchers. 4. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,83,98,749/- on account of unsupported expenditure as assessee has failed to substantiate the expenses. 5. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.65,69,360/- on account of various expenses on the basis of special audit report as the assessee has not submitted any documentary evidence to prove the genuineness the transaction. 6. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.3,59,90,244/- on account of investment in FDR under section 68 of the Act as the assessee has failed to submit the source of investment in FDR. 7. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,30,68,467/- on account of depreciation on building as the assessee was unable to file any document in support of its claim of the depreciation. 8. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.5,00,000/- on account of cash deposits in bank accounts as the assessee has failed to submit the source of cash deposits. 9. That the order of the Ld. CIT(A) be cancelled and the order of the A.O. be restored. 10. Appellant craves leave to modify/amend or add any one or more grounds of appeal. 93. Ground no.1 in Revenue appeal is regarding deletion of addition of Rs.10,12,427/- made by the AO on the ground of unsupported expenditure. This addition was part of the total disallowance of Rs.2,15,91,772/- made by the AO. In the remand

proceedings the appellant submitted complete analysis of the above along with the supporting bills and vouchers. We note that the CIT (A) after examining the remand report noticed that a sum of Rs.10,12,427/- is the double addition. Accordingly, the CIT(A) deleted this amount. Since, the disallowance has been deleted by the CIT (A) on the reasoning that this amount have been considered twice and after considering the details submitted by the assessee and examined in the remand report we uphold the order of the CIT(A) and this ground is accordingly dismissed.

which assessee could not submit evidences. The finding of the CIT (A) has not been controverted before us. In view of these facts we uphold the order of CIT (A) and accordingly ground no.5 of Revenue’s appeal is dismissed.

there is no allegation of any investment outside the books of accounts. It appears that AO has simply picked up the figure from the balance sheet with the Syndicate Bank and has on that basis made addition ignoring the fact that the balance sheet submitted by the assessee was subject matter of special audit and assessment has to be completed on the basis of the said balance sheet. We have already held while adjudicating ground no.8 to 11 of the assessee’s appeal that the basis for the assessment has to be the balance sheet and income and expenditure account which were subjected to special audit and not the balance sheet and income and expenditure account filed with the Syndicate Bank for collateral security for obtaining the loan. Accordingly, we uphold the order of the CIT (A) and this ground of appeal is dismissed.

CIT (A) is correct and we see no reason to interfere with the order of the CIT (A) and accordingly, this ground is dismissed.

A.Y. 2009-10

ITA No.2734/Del/2018 and ITA No.4564/Del/2018

the AO in referring the case for the special audit under Section 142(2A) of the Act without there being any basis for the same. 6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in denying exemption under Section 11 of the Act . 7. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in ignoring the fact that failure to file return under section 139(4A) can be a cause for levy of penalty under section 272(2)(e) and not denying exemption under section 11 of the Act. 8. On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and law in confirming the action of AO in taking Rs.10,28,50,526/- as returned income of the Assessee. 9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in confirming the action of the AO in taking the financials with Syndicate Bank, Shastri Nagar, Ghaziabad as correct financials and determining the income on the basis of such figures without ascertaining the correctness of such finding. 10. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law, in ignoring the balance sheet and income and expenditure account prepared by the assessee and relying on the balance sheet submitted to the bank. (ii) In the absence of any supporting evidence, it was not justified in relying upon the balance sheet and Income and expenditure account filed before the bank. 11. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in ignoring the fact 98

that having got the accounts audited from the special auditor there was no justification to take into consideration the figure stated in the balance sheet submitted to the bank, to be the basis of assessment. 12. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of Rs.14,86,474/- on account of unsupported expenditure. 13. On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law, in confirming the disallowance of an amount of Rs.20,000/- invoking the provision of section 40A(3). 14. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the disallowance an amount of Rs.2,15,519/- on the account of various expenses on the basis of special audit report. 15. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the disallowance of an amount of Rs.1,04,74,647/- invoking the provision of section 40(a)(ia) of the Act. 16. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of Rs.3,89,845/- on account of penalty. (ii) That the disallowance was made ignoring the fact that the said amount does not pertain to penalty related to infraction of any statutory law. 17. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the 99

addition of an amount of Rs.7,33,09,230/- on account of investment in FDR’s under section 68 of the Income tax Act. 18. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.26,09,866/- on account of depreciation on building. 19. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.10,70,000/- on account of cash deposits in bank accounts. 20. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the A.O. in computing the income by applying provisions of section 28 to 44 D for computing profits and gains from business and profession, ignoring the fact that the assessee is a charitable institution and its income is to be computed on the basis of the provision of sections 11 and 12 of the Act. 21. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the A.O. in not computing the income in accordance with the provision of section 11 of the Act. 22. On the facts and circumstance of the case, the learned CIT(A) has erred both on facts and in law, in not considering the capital expenditure incurred during the year while computing income of the assessee. 23. The appellant craves leave to add, amend or alter any of the grounds of appeal.

audited by the special auditor shall be the basis for computation of income, this alternative contention become academic in nature. Ground nos.8 to 11 are accordingly allowed.

reasoning we hold that no disallowance can be made while computing income under section 11 of a charitable institution by invoking provision of section 40A(3) and section 40(a)(ia). Accordingly, ground nos. 13 and 15 are allowed.

assessee has made any investment outside the books of accounts. The observation of the special auditor was with reference to accrual of interest and the details thereof. The submission of the assessee were forwarded by the CIT(A) to the AO and AO in his remand report has not controverted the contention of the assessee and has simply reiterated what was stated in the assessment order. The CIT (A) has taken into consideration the rejoinder submitted by the appellant pointing out that the AO has wrongly interpreted the finding of the special auditor and in fact special auditor has not mentioned any investment outside the books of accounts. However, the CIT(A) instead of deleting the entire addition surprisingly took into consideration the income and expenditure account with the Syndicate Bank and on that basis after deducting income shown therein has confirmed the balance amount as unexplained investment. After perusing the order passed by the AO and the CIT(A) and also after going through the submission and the details submitted by the assessee we are of the opinion that the CIT(A) has gone wrong in drawing adverse inference on the basis of the balance sheet and income and expenditure account with Syndicate Bank ignoring the balance sheet and income and expenditure account which has been subject matter of special audit.In fact the AO has incorrectly interpreted the observation of the special auditor. In the special audit report there is no allegation of any investment outside the books of accounts. The observation was limited to computation of accrued interest on FDR. There is no allegation of anyunexplained investment in FDR. The AO has simply picked up the figure from the balance

sheet with the Syndicate Bank and has on that basis made addition ignoring the fact that the balance sheet submitted by the assessee was subject matter of special audit and assessment has to be completed on the basis of the said balance sheet. We have already held while adjudicating ground no.8 to 11 that the basis for the assessment has to be the balance sheet and income and expenditure account which were subjected to special audit and not the balance sheet and income and expenditure account filed with the Syndicate Bank for collateral security for obtaining the loan. Thus, we hold that the addition made on the basis of balance sheet with Syndicate Bank is unsustainable and accordingly, we direct the AO to delete this addition. In the result this ground no.17 of appeal is allowed.

bank account. The CIT (A) has confirmed the addition despite deleting similar addition in the preceding assessment year. In the preceding year the CIT (A) has held that the Special auditor appointed by the AO has not made any adverse observation about the cash deposited in the bank. However, in this year the facts being identical still the CIT (A) took a different view and held that assessee has not satisfied him about the source of such deposit. We are of the view that in the absence of any mismatch being pointed out by the special auditor about the amount shown in the books of account and the amount credited in the bank account the CIT(A) was not justified in confirming this addition. Had there been a mismatch between the books of accounts and the bank statement, the special auditor would have stated so. From the assessment order it is evident that the AO has made the addition merely on the ground that cash has been deposited in the bank ignoring the fact that assessee receives tuition fees etc. from the students and mere deposit in the bank account cannot be a ground for making addition. The deposit in the bank account having been made out of the books of accounts the same cannot be considered to be unexplained deposits in the bank account and we direct the AO to delete this addition. This ground of appeal is accordingly allowed.

with the provision of section 11 and 12 of the Act. Following the order passed by us for the A.Y. 2006-07, we direct the AO to compute the income in accordance with the provision of section 11 and 12 of the Act and not in accordance with provision of section 28 to 44 D of the Act. Ground no.20 and 21 are disposed of accordingly.

expenditure as assessee did not file any supporting document in support of its claim and Ld. CIT has wrongly considered as twice addition. 2. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.67,22,420/- on account of unsupported expenditure as assessee did not file any supporting document in support of its claim. These expense is a part of expenses debited in book of account amounting to Rs.2,30,48,689/-. Ld. CIT(A) has wrongly treated the expenditure as capital in nature. 3. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of unsupported expenses amounting to Rs.17,44,403/- as assessee has also failed to substantiate the expenses with proper bills/vouchers. 4. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.67,06,750/- on account of unsupported expenditure as documents and vouchers filed by assessee have failed to pass the test of veracity. 5. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,40,64,916/- on account of payment made to M/s Ansal Housing Construction. However, the assessee has failed to substantiate the genuineness of the transaction. 6. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.9,59,321/- on account of cash received from Campus Business School as the assessee has not submitted any documentary evidence to prove the genuineness the transaction. 7. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.4,28,693/- as some of the bills of expenditure

were in the name of other concern as the assessee has failed to substantiate the expenses claimed. 8. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.13,51,97,096/- on account of investment in FDR under section 68 of the Act as the assessee failed to substantiate the source of income. 9. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,07,61,955/- on account of depreciation on building as assessee was unable to file any document in support of its claim of the depreciation. 10. That the order of the Ld. CIT(A) be cancelled and the order of the A.O. be restored. 118. Ground no.1 in Revenue appeal is regarding deletion of addition of Rs.63,88,462/-. The above disallowance was part of the total disallowance of Rs.2,30,48,689/- made by the AO on the ground of unsupported expenditure. In the remand proceedings the appellant submitted complete analysis of the above along with the supporting bills and vouchers. We note that the CIT(A) after examining the remand report noticed that a sum of Rs.63,88,462/- is the double addition. Accordingly, the CIT (A) deleted this amount. On going through the order passed by the CIT(A) and the paper book we note that the assessee in the remand proceedings has given complete details and the reconciliation voucher wise pointing out the same amount being added twice. Before us nothing has been produced to controvert the findings recorded by the CIT (A). The disallowance has been deleted by the CIT (A) on the reasoning that this amount has been considered twice and after considering the details submitted

by the assessee and examined in the remand report. Accordingly, we uphold the order of the CIT(A) and dismissed this ground of the Revenue’s appeal.

of unsupported expenditure. During the appellate proceedings, the assessee submitted additional evidences along with details of each of the expenditure incurred by it. The CIT (A) on the basis of the additional evidences submitted by the assessee called for the remand report. The first remand report was submitted by the AO on 28.02.2013. In response thereto assessee filed a rejoinder. The CIT(A) called for the further remand report from the AO. Consequent, thereto the assessee again appeared before the AO in the remand proceedings and submitted various details and evidences. The AO submitted second remand report dated 15.07.2013. The assessee thereafter again submitted a rejoinder. On the basis of the rejoinder the CIT (A) again called for the remand report. In response thereto assessee again attended the proceedings before the AO and further remand report was submitted by the AO on 18.08.2015. The assessee during the remand proceeding has produced all possible evidences. The assessee has also produced evidences in respect of the various expenses incurred. The CIT(A) after considering the remand report and the explanation and evidences submitted by the assessee deleted the above addition. Thus, the deletion has been made by the CIT(A) taking into consideration all the facts and the details. The above finding of the CIT(A) has not been controverted before us and accordingly we uphold the order of the CIT(A) deleting the above additions. Ground nos.3 and 4 of Revenue’s appeal are accordingly dismissed.

observation that no supporting evidences in support thereof was provided by the assessee. During the remand proceedings the assessee submitted copy of the supporting evidences which were examined by the AO and no adverse remark was given in the remand report. The CIT (A) has deleted addition holding that firstly the assessee has submitted the evidences and moreover such expenditure being capital and having not been claimed in the income and expenditure account the same cannot be subject matter of disallowance. Before us nothing has been brought to controvert the finding of the CIT (A). The assessee having submitted the evidence in support of the amount incurred and that too on capital account there was no reason for making disallowance. Accordingly, we uphold the order of the CIT (A) and dismiss this ground of appeal.

During the remand proceedings the assessee has explained that it was a inadvertent error whereby the amount has been debited to a wrong head but the fact remains that the expenditure has been incurred. The CIT (A) has deleted the addition on the reasoning that mere wrong posting of an entry of expenditure in the books of accounts cannot be a ground to disallow the same. We are of the view the expenditure having been actually incurred the same cannot be disallowed merely because it has been debited under a different head of the expenditure. The CIT (A) accordingly was right in deleting the addition and this ground of appeal is accordingly dismissed.

not in doubt as the valuation officer appointed by the AO itself has confirmed the same and the said report has also been relied upon by the AO subsequently. On this basis the CIT (A) has restricted the disallowance in respect of the addition during the year. We are of the view that the fact building was in existence and was in use is not in dispute and hence the CIT (A) was correct in allowing depreciation on the building. The finding given by the CIT(A) are correct and we see no reason to interfere with the order of the CIT(A) and accordingly, this ground is dismissed.

ITAT, New Delhi