ASSISTANT COMMISSIONER OF INCOME TAX (E) CIRCLE-1 , BANGALORE vs. M/S VISVESVARAYA TECHNOLOGICAL UNIVERSITY , BELGAVI

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENTAND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER

ITA Nos.2854 to 2860/Bang/2018 Assessment years : 2004-05 to 2010-11 The Assistant Commissioner of Vs. M/s. Visvesvaraya Technological Income Tax (E), University, Circle - 1, 6th Floor, Unity “Jnana Sangama” Campus, Building, Bengaluru. Santebastwad Road, Belagavi. PAN : AAAJV 0064 F APPELLANT RESPONDENT C.O. Nos.136 to 142/Bang/2019 Assessment years : 2004-05 to 2010-11 M/s. Visvesvaraya Technological Vs. The Assistant Commissioner of University, Belagavi. Income Tax (E), PAN : AAAJV 0064 F Circle - 1, Bengaluru. APPELLANT RESPONDENT Revenue by : Shri. Shivaprasad Reddy, Shri. Balachandar, Advocates Assessee by : Shri. Pradeep Kumar, CIT Date of hearing : 27.02.2019 Date of Pronouncement : 13.03.2019 O R D E R Per Jason P. Boaz, Accountant Member These seven appeals by Revenue are directed against separate orders of CIT(A), Belagavi, all dated 19.07.2018, deleting the penalty levied on the assessee u/s 271(1)(c) of the Income Tax Act, 1961 (in

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 2 of 14 short ‘the Act’) by the Assessing Officer (AO) for Assessment Years 2004-05 to 2010-11. The assessee has also preferred cross objections (C.O.) for all the seven Assessment Years 2004-05 to 2010-11. Since common issues are involved and these appeals and C.O’s were heard together, we deem it appropriate to dispose off all these matters by way of this consolidated order for the sake of convenience.

2.1 The assessee, a university established u/s 3 of the VTU Act w.e.f. 01.04.1988 vide Karnataka Government Notification No. ED 2 VTU 98 dated 25.03.1998, functioning from Belgaum since 01.04.1998, is having jurisdiction of about 181 Engineering Colleges in Karnataka which are affiliated to it. In the case on hand, for the Assessment Years 2004-05 to 2010-11, which are presently before us, orders of assessment were passed, denying the assessee exemption claimed by the assessee university u/s 10(23c)(iiiab) of the Act. Penalty proceedings u/s 271(1)(c) of the Act were simultaneously initiated by issue of notices u/s 274 r.w.s. 271 of the Act and subsequently orders were passed levying penalty u/s 271(1)(c) of the Act on the assessee for concealment of its income.

2.2 Aggrieved by the orders of the AO levying penalty u/s 271(1)(c) of the Act for Assessment Years 2004-05 to 2010-11, the assessee preferred appeals before the CIT(A), Belagavi. The CIT(A) vide separate orders dated 19.07.2018 for the aforesaid seven years, allowed

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 3 of 14 the assessee’s appeals by deleting the penalty levied u/s 271(1)(c) of the Act on the assessee. Since the CIT(A)’s finding in all the seven impugned orders for Assessment Years 2004-05 to 2010-11 are similar, we have extracted hereunder the CIT(A)’s finding for Assessment Year 2004-05only; at paras 8 to 10.1 of the impugned order:

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 4 of 14

3.1 Revenue, being aggrieved by the orders of CIT(A), Belagavi, for Assessment Years 2004-05 to 2010-11 all dated 19.07.2018, deleting the penalty levied on the assessee by the AO, has preferred these 7 appeals raising common grounds for all 7 years and we therefore extract hereunder only the grounds raised for Assessment Year 2004-05.

The Ld. CIT(A) has erred in holding that the concealment of i) income stated in the penalty order becomes redundant. The Ld.CIT(A) ought to have appreciated that the asst. order for the A.Y 2004-05 has been confirmed by the Hon'ble High Court of Karnataka. ii) The Ld. CIT(A) has failed to discuss the circumstances under which the penalty was levied by the Assessing Officer. The CIT(A) failed to appreciate that the assessee had not even furnished a return of income for the Asst. Year in question, till the Department issued a notice u/s 148 of the I.T. Act, 1961. iii) The Ld. CIT(A) has erred in holding that the registration u/s 12A w.e.f. 01.04.1998 would make the issue redundant. The Ld.CIT(A) has not considered that even if the registration u/s 12A is restored with retrospective effect, the claim u/s 11 &, 12 cannot be considered in view of the assessee University not making any claim of exemption under the said section. iv) The Ld. CIT(A) has not appreciated the fact that mere registration u/s 12A would not grant the assessee a blanket exemption to its income and the University would be required to prove that it satisfies the condition laid down in Sections 11 & 12 of the Act for considering its income to be exempt under the said sections.

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 5 of 14 On limitation of time Whether the Ld.CIT(A) was right in condoning the long delay i) of 527 days in filing appeal without appreciating the fact that the order in question had been served on the assessee well within time and the day-to-day reason for the delay in filing the appeal has not been brought out on record? ii) Whether the Ld.CIT(A) was right in condoning the long delay of 527 days in filing appeal against the order in question when the assessee has taken a long period of more than 11 months to even file the revision petition u/s 264 of the I.T.Act, and taking another 6 months to withdraw the petition filed before the CIT(Exemptions) ?

3.2 The assessee has preferred similar cross objections in respect of Revenue’s appeals / CIT(A)’s orders for Assessment Years 2004-05 to 2010-11 and we, therefore, extract hereunder the cross objections of the assessee for Assessment Year 2004-05 alone. The appeal of the Revenue is devoid of any merit and liable 1. to be dismissed as not maintainable. 2. The appeal of the Appellant-Revenue is liable to be dismissed as none of the grounds taken by the appellant is maintainable on facts and in law. NOTICE U/S. 271(1)(c). 3.1. The Appellant-Revenue has failed to appreciate that even though the grounds of the Respondent on assumption of jurisdiction u/s.271(1)(c) were not adjudicated by the Learned Appellate Commissioner in allowing the appeal, the conditions precedent for a valid penalty order u/s.271(1)(c) were absent, and in this factual background, contesting the order of the Learned Appellate Commissioner was a mere academic exercise and therefore, the appeal is liable to be dismissed as in fructuous and not maintainable. 3.2. The Appellant-Revenue ought not to have failed to appreciate that the Show-Cause Notice u/s.271 (1)(c) r.w.s.274 was

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 6 of 14 defective and issued without application of mind, which has rendered the penalty order void ab-initio as per the settled law, and as such, its appeal before the Hon'ble ITAT was not maintainable. 3.3. The Appellant-Revenue ought to have appreciated that the Learned Assessing Officer has neither recorded the satisfaction u/s.271(1)(c) expressly for initiating the penalty proceedings, nor complied with the provisions of sub-section (1B) of Sec.271, which is a condition precedent for a valid initiation of the proceedings under the said section and therefore, the penalty order was void and consequently, its appeal before the Hon'ble ITAT was not maintainable. EXPLANATION OF THE RESPONDENT. 4.1.The Appellant-Revenue ought to have appreciated that the Explanation of the Respondent in the penalty proceedings was bona- fide and therefore the penalty u/s.271(1)(c) should not have been levied at all, and in view of this, its appeal before the Hon'ble ITAT was a mere academic exercise and not maintainable. 4.2. The Appellant Revenue ought to have appreciated that the levy of penalty u/s. 271(1)(c) on mere denial of exemption under Clause (iiiab) of section 10(23)C was unwarranted and unjustified, since the Respondent was under the bona fide impression that it was eligible for the said exemption as it was constituted under an Act of the Government of Karnataka and existed solely for the purpose of education, and not for the purpose of profit. OBJECTIONS TO THE GROUNDS OF APPEAL. 5.1. The Ground of the Revenue in No.(i) that the Learned Commissioner of Income Tax (Appeals) has failed to appreciate that the assessment order was confirmed by the Hon'ble High Court of Karnataka in holding that the penalty order becomes redundant is irrelevant and not maintainable, since the penalty proceedings are different and distinct from the assessment proceedings, and the matter required to be considered afresh from a different angle because, a finding in an assessment proceedings that a receipt is income cannot ipso facto constitute a finding of

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 7 of 14 either concealment of income, or furnishing of inaccurate particulars of income in the penalty proceedings. 5.2. The Ground of the Revenue in No.(ii) that the Learned Commissioner of Income Tax (Appeals) has failed to appreciate that the Respondent had not filed the return of income for the assessment year under reference until the issue of Notice u/s.148 of the Act is not maintainable, because the Respondent was under the bona fide belief that it was eligible for the exemption under Clause (iiiab) of section 10(23C) of the Act and there was no requirement of furnishing of return of income under the said Clause. 5.3 The Ground of the Revenue in No.(iii) that the Learned Commissioner of Income Tax (Appeals) was in error in not appreciating that even if registration u/s.12A is restored with retrospective effect, the claim u/s.11 & 12 cannot be considered since such claim of exemption was not made by the Respondent University is frivolous, and not maintainable because the Revenue cannot circumvent the bar of limitation u/s.153 of the Act and conduct the assessment proceedings to disallow any income as not application of income under the sections 11 & 12 of the Act. 5.4 The Ground of the Revenue in No. (iv) that mere registration u/s.12A would not grant the Respondent a blanket exemption and it is required to prove that it satisfies the condition for exemption of income in sections 11 & 12 of the Act is also not maintainable, because no such disallowance was made under sections 11 & 12 in the assessment order under reference, and the Revenue cannot examine a fresh issue that was not the subject matter of assessment originally while implementing the order of the Hon'ble ITAT directing grant of registration with retrospective effect from 01-04-1998. 6. The Grounds of the Appellant—Revenue contending that the application of income under sections 11 & 12 is required to be examined by the assessing officer are not maintainable because the assessing officer cannot be conducting the fresh assessment proceedings as if he were acting u/s.263 implementing the directions of the Commissioner of Income Tax to that effect, or as

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 8 of 14 if he were conducting the re-assessment proceedings u/s.147 of the Act. 7. The Grounds of the Appellant-Revenue are also not maintainable in view of the bar of limitation u/s.153, which would not permit the Revenue to examine a fresh issue that was not the subject matter of assessment originally, and in the guise of implementing the order of the Hon'ble ITAT granting registration u/s.12A retrospectively, the Revenue cannot conduct de novo assessment proceedings. ON CONDONATION OF DELAY. 8. The Ground of the Revenue objecting the condonation of delay by the CIT(A) is also not maintainable in view of the settled legal proposition that in the absence of deliberate intent of delay, condonation cannot be refused and if a case is made out by an Appellant, delay ought to be condoned, since condonation of delay in itself cannot cause prejudice to the opponent and ultimately, the issues would be decided on merits on adjudication. 9. The respondent assessee craves leave to add, to alter, to amend or to delete any of the grounds of cross objections, and to file written submissions and paper book at the time of actual hearing before the Hon'ble ITAT For these and other Grounds of Cross Objection that may be taken at the time of hearing, it is most respectfully prayed that the Hon'ble ITAT may be pleased to dismiss the Appeal of the Revenue and allow the Cross Objections of the Respondent.

Assessee’s cross objections in C.O. Nos. 136 to 142/Bang/2018 for Assessment Years 2004-05 to 2010-11

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 9 of 14 4.1 At the outset , the learned Counsel for the assessee urged the common grounds of cross objections Nos. 3.1 to 3.3 for Assessment Years 2004-05 to 2010-11, contending that, even though the CIT(A) had deleted the penalty levied u/s 271(1)(c) of the Act for all 7 Assessment Years; since the notices u/s 274 r.w.s. 271 of the Act for initiation of penalty u/s 271(1)(c) of the Act for all these Assessment Years was defective and issued without any application of mind by the AO, the conditions precedent for a passing of valid penalty orders u/s 271(1)(c) of the Act was absent. In this regard, the learned AR drew the attention of the Bench to the copies of the impugned notices, issued u/s 274 r.w.s. 271(1)(c) of the Act for Assessment Years 2004-05 to 2010-11, placed at page 4 of each of the Paper Books filed by the assessee, for the seven Assessment Years involved, to demonstrate that the said notices were defective, in as much as it did not indicate whether it was issued to the assessee for concealment of income or for furnishing of inaccurate particulars of income. In support of the proposition that notice issued u/s 274 r.w.s. 271 of the Act, without specifying the default; i.e., whether the notice is issued for concealment of income or furnishing of inaccurate particulars of income; is invalid and consequential penalty proceedings / orders are also not valid; the learned AR placed reliance on the decision of the Hon’ble Karnataka High Court in the case of M/s. Manjunatha Cotton & Ginning Factory in 359 ITR 565 (Kar). It was prayed that in the light of the above judicial pronouncements of the Hon’ble Karnataka High Court (supra), the orders levying penalty u/s 271(1)(c) of the Act for Assessment Years 2004-05 to 2010-11 in the case on hand are liable to be quashed / cancelled.

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 10 of 14 4.2 Per contra, the learned DR for Revenue placed reliance on the orders of the AO as being in order.

4.3.1 We have heard and carefully considered the rival contentions and submissions on record and the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (Supra). The notices issued by the AO u/s 274 r.ws 271 of the Act for initiation of penalty proceedings u/s 271(1)(c) of the Act for Assessment Years 2004-05 to 2010-11 in the case on hand, (copies of the aforesaid notices placed on page 4 of Paper Books for each Assessment Year) have also been carefully perused and we find that the AO has not deleted the inappropriate words and facts in the relevant paragraph of the notice; whereby it is not clear as to which default is committed by the assessee, i.e., whether it is for furnishing of inaccurate particulars of income OR concealing particulars of income that the penalty u/s 271(1)(c) of the Act is sought to be levied.

4.3.2 The Hon'ble Karnataka High Court in the case of M/s Manjunatha Cotton & Ginning Factory in (359 1TR 565) (Kar) has held that a notice issued u/s 274 r.ws 271 of the Act without specifying the nature of default; i.e. whether the notice is issued for concealment of particulars of income or furnishing of inaccurate particulars of income; is invalid and the consequential penalty proceedings/orders are also not valid. The relevant portion of the aforesaid judgment of the Hon'ble Karnataka High Court (Supra) at paras 59 to 61 are extracted hereunder:-

"59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein, if the order passed by the Authority categorically records a finding regarding the existence of any said

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 11 of 14 grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a rase of relying on deeming provision contained in Explanation-I or in Explanation- 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is' penal in nature. in either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty oil as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271 (I)(c) c/a not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of tax liability. As the said provisions have to be held to be standby construed notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 12 of 14 identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pal reported in 292 ITR 11 at page 19 has held that. concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of M4NU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO IvL4RKETING reported in 171 Taxman 156, has held that penalty has to be clear as to the limb for which it is levied and the action being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind."

4.3.3 The aforesaid view taken by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (Supra) was followed by the Hon'ble Karnataka High Court in the case of SSAS Emerald Meadows in ITA No.380 of 2015 dated 23/11/2015; wherein the Hon'ble Court upheld the order of co-ordinate bench of this Tribunal, cancelling the penalty levied on the basis of the defective notice issued by the AO. Revenue's SLP filed against the said judgment of the Hon'ble High Court in the case of SSAS Emerald Meadows (Supra) has also been dismissed by the Hon'ble Apex Court in CC/I485/2016 dated 5/8/2016.

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 13 of 14 4.3.4 Respectfully following the judgments of the Hon'ble Karnataka High Court in the cases of M/s. Manjunatha Cotton & Ginning Factory (359 ITR 565) (Kar) and SSAS Emerald Meadows in ITA No.380 of 2015 dated 23/11/2015, we hold that the notices issued by the AO u/s 274 r.w.s 271 of the Act for initiating penalty proceedings for asst. years 2004-05 to 2010-11 are invalid and consequently, the penalty proceedings conducted in pursuance thereof, are also invalid. We therefore cancel the penalty levied u/s. 271(1)(c) of the Act for Assessment Years 2004-05 to 2010-11. Consequently, assessee’s cross objection Nos.3.1 to 3.3 for the aforesaid seven assessment years are allowed.

Revenue’s appeals in ITA No.2854 to 2860/Bang/2018 for Assessment Years 2004-05 to 2010-11

ITA Nos.2854 to 2860/Bang/2018 C.O. Nos.136 to 142/Bang/2019 Page 14 of 14 the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra), the grounds raised in the 7 appeals filed by Revenue (supra) are rendered academic in nature and accordingly dismissed as infructuous.

Pronounced in the open court on 13th March, 2019.

Sd/- Sd/- (N. V. VASUDEVAN) (JASON P. BOAZ) VICE PRESIDENT Accountant Member Bangalore. Dated: 13th March, 2019. /NS/* Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order Assistant Registrar, ITAT, Bangalore.