SARASWATI EDUCATIONAL SOCIETY REGD.,NEW DELHI vs. CIT EXEMPTION , DELHI

3 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) on this issue, thus erred in setting aside the whole asstt. to A.O. for making denovo asstt.

4.1 That under the facts and circumstances, in view of the fact that the assessee was not allowed exemption U/s.11 & 12 by the A.O., the issue of alleged loan of Rs.1,20,90,501/- did not survive for further examination and directions U/s.263.

5.1 That under the facts and circumstances, in view of the fact that the assessee was not allowed exemption U/s.11 & 12 by the A.O., the issue of interest of Rs.43,62,640/- whether to be allowed or not in relevant asstt. order did not survive for further examination and directions U/s.263. 6. That under the facts and circumstances Ld. CIT(E) grossly erred in law and on merits in holding that A.O. has failed to examine the issue of admissibility ofRs.5,04,450/- claimed under the head "loan processing fee" and Rs.1,80,181/- under the head "insurance charges of the hypothecated property mortgaged for loan" since the loan was not utilized to achieve the aims and objectives of the trust and consequently in setting aside the whole asstt. denovo to A.O.

5.1 That under the facts and circumstances, in view of the fact that the assessee was not allowed exemption U/s.11 & 12 by the A.O., the issue of loan processing fee Rs.5,04,450/- and insurance charges Rs.1,80,181/- whether to be allowed or not in relevant asstt. order did

4 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) not survive for further examination and directions U/s.263.

6.1 That in view of the fact that exemption U/s.11 & 12 was not allowed by the A.O. in relevant asstt. order, this issue did not survive for further examination and directions U/s.263.

7.1 That in view of the fact that exemption U/s.11 & 12 was not allowed by the A.O. in relevant asstt. order, this issue did not survive for further examination and directions U/s.263.

5 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) 3. Brief facts of the case are that, the Assessee is registered

under 12AA of Income Tax Act, 1961 (‘Act’ for short) and also u/s

80G (5)(vi) of the Act. The case of the Assessee was selected for

complete scrutiny on the issue of ‘transaction of Trust with

specified persons’. The statutory notices u/s 143(2) and 142(1) of

the Act were issued to the Assessee along with questionnaire calling

for specific information. The Assessee responded to the

notices/letters issued from time to time. The assessment order

came to be passed on 16/08/2021 u/s 143(3) r.w. Section 144 of

the Act holding that exemption cannot be allowed to the Assessee

and by completing the assessment in the status of AOP, assessed

the income of the Assessee at Rs. 2,67,63,316/- as against NIL

income declared by the Assessee. Subsequently, the Ld. CIT(E)

while exercising the power conferred u/s 263 of the Act, called for

the record for examination and noticed some ‘discrepancies’ in the

assessment order as the A.O. failed to make requisite verification

and enquiries on the issues involved. An order u/s 263 of the Act

came to be passed on 29/03/2024 by setting aside the assessment

order dated 16.08.2021 and directed the AO to make de-novo

assessment after proper examination of the issues discussed in the

6 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) order. As against the order of the Ld. CIT(E) dated 29/03/2024, the

Assessee preferred the present Appeal on the grounds mentioned

above.

the Appeal submitted that the service of show cause notice u/s 263

of the Act has been issued/served after the date of hearing, hence

no opportunity of being heard been given to the Assessee and the

impugned order u/s 263 of the Act has been passed in gross

violation of principles of natural justice and the same is void ab-

initio. The Ld. Counsel further relying on the plethora of

Judgments, contended that since the order u/s 263 of the Act has

to be passed within the limitation period contemplated under

Section 263(2) of the Act, which has been already lapsed, it would

not necessary to remand the matter to the file of CIT(E) and

submitted that the order impugned of the CIT(E) deserves to be

quashed.

synopsis on Ground No.2 :-

7 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) “G.No.2

Service of SCN U/s.263 after expiry of date of hearing - hence no opportunity of hearing - gross violation of principles of natural justice order void ab-initio - to be quashed

In this case, solitary SCN U/s.263 Dtd.05.03.24 fixing the matter for 14.03.24 has been served by two modes, however, both times service is after 14.03.24.

For above contention, following factual facts are relevant:- Date Event P/B Pg No. 05.03.2024 Date of preparing SCN 1-2 U/s.263 (manual) 08.03.2024 Intimation of DIN 5 generated for preparing SCN U/s.263 Dtd.05.03.24 14.03.2024 Date of hearing fixed as 2 per SCN Dtd.05.03.24 16.03.2024 Handing over SCN 3,3A U/s.263 to postal para-6 authorities for speed post of PCIT 18.03.2024 Service of SCN U/s.263 3 Dtd.05.03.24 by speed post 29.03.2024 Date of passing Order 6 U/s.263 and uploading the same on ITBA and simultaneously also sent on email of the assessee. 30.03.2024 SCN and intimation of 4 DIN Dtd.08.03.24 uploaded on ITBA and simultaneously sent on email of assessee.

8 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E)

Only single SCN U/s.263 Dtd.05.03.24 issued in this case.

It has been served through two different modes of service.

1st mode - through speed post

SCN U/s.263 Dtd.05.03.24.

Date of hearing fixed 14.03.24.

Delivered to postal authorities for speed post 16.03.24.

(3, 3-A, Para-6 of PCIT) (3)

Service on assessee on 18.03.24.

Thus, the SCN fixing the matter for 14.03.24 has been served on 18.03.24, therefore there is no legally valid service of the notice, therefore, this notice cannot be deemed to have been served. 2nd mode through ITBA and simultaneously on email of assessee

* SCN U/s.263 Dtd. 05.03.24.

Date of hearing fixed 14.03.24.

SCN and intimation of generating DIN of SCN, uploaded on ITBA and simultaneously on email of assessee on 30.03.24 (after passing order U/s.263 Dtd.29.03.24). (4,5)

Thus, there is no legally valid service of notice vide above mode also since served after date of hearing i.e. 14.03.24 as well as after the date of impugned order U/s.263 which is Dtd.29.03.24.

9 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) Hence it is a case where there is no legally valid service of notice U/s.263.

No cognize of the service can be taken when service has been made subsequent to the date of hearing fixed.

CASE LAWS

Tulsi Tracom (P.) Ltd Vs. CIT [2017] 86 taxmann.com 35 (DHC) - Dtd.14.09.17 (Now Filed)

From Headnote

"IT: Where show cause notice by Commissioner under section 263 was not properly served upon assessee which resulted in assessee not being given an opportunity of heard, order passed pursuant to said show cause notice was contrary to law and unsustainable"

Para-23

(On the issue whether now opportunity of hearing can be afforded Ans. No)

"This Court has also examined the question as to whether an opportunity of hearing could now be afforded to the Appellant. However, Section 263(2) of the Act is a clear bar for any order being passed pursuant to a notice under Section 263 of the Act, after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. Thus, there is an outer limit in the statute under Section 263 which, in the present case, is 31st March, 2013. Since, no useful purpose will be served in giving an opportunity to the Appellant of being heard at this stage, this Court answers question No.1 in the negative i.e. in favour of the Assessee and against the Revenue."

10 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) M.L. Chains Vs. PCIT Dtd.16.08.23 [2023] 154 taxmann.com 508 (Allahabad) (Now Filed)

From Headnote

"INCOME TAX: Where Commissioner issued a notice under section 263 to assessee, however no opportunity was given to assessee for defending or presenting its case, and moreover, revenue recorded a contrary findings in respect of reply submitted by assessee, impugned order passed under section 263 could not be sustained. Para-18

"Further, the notice under section 263 dated 27-3-2022 was prepared and uploaded/sent on 28-3-2022 and the same was received on the date fixed, i.e., 29-3-2022 and the impugned order dated 31-3-2022 has been passed in gross violation of the principles of natural justice. [Para 18].

Para-19

"Since there is an apparent violation of the principles of natural justice, as no opportunity was given to the petitioner for defending or presenting its case, the impugned order cannot be sustained in the eyes of law. [para 19]”

the para-wise reply based on the information collected from the

A.O. which reads as under:-

“1. That a notice dated 05.03.2024 u/s 263 of the Income Tax Act, 1961 was uploaded on ITBA on 05.03.2024 itself and as per ITBA data, the same was shared with E-proceeding on 08.03.2024. It is therefore

11 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) clear that the notice was served upon the assessee on the same date i.e. 08.03.2024. Further, as per the prevalent practice, it was notified by the system on 08.03.2024 to the assessee on the e- mail addresses available in the data. A copy of case history as available on ITBA portal is enclosed herewith for your reference. 2 Since, the notice was already served on the assessee through ITBA on 08.03.2024 and no compliance whatsoever was made by the assessee, a copy of the same was again sent to the assessee as reminder on 16.03.2024 through Speed Post which was received by the assessee on 18.03.2024 as also confirmed by the speed post tracking record and the assessee itself. 3. It may be mentioned that the notice was transmitted electronically on 08.03.2024 to the Assessee and as per its own admission it has also received the notice through speed post on 18.03.22024, 3.2/2024, still it did not bother to make compliance thereto and submit the details/documents to the undersigned. 4. It is not that the department hurriedly passed the order immediately after lapse of compliance date, rather it waited till 29.03.2024 expecting to hear from the assessee and thereafter passed the order u/s 263 of the Income Tax Act, 1961, as it was not possible to wait further, as it was a time barring matter on 31.03.2024. 5. It is worthwhile to mention here that the assessee seems to have taken this plea of not providing an opportunity of being heard as an afterthought for the reason that the assessee has not seen any communication from the department until 15.04.2024. It can be verified from the records available on ITBA, a copy whereof is attached herewith (Last Column gives the date on which the assessee viewed the notice). 6. In view of the above facts and circumstances of the case, it is clear that the assessee has not co-operated the department during the revisionary proceedings u/s 263 of

12 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) IT Act and sensing that it has no merits in its case, it has taken the technical grounds just to get undue benefits before Hon'ble ITAT. 7. It is therefore requested that the technical grounds taken by the assessee in appeal before Hon’ble ITAT deserves to be dismissed.”

that it is the duty of the Assessee who being a registered society to

verify the ITBA Portal, wherein the Ld.CIT(E) sent mail on

30/03/3024, shared with e-proceedings on 08/03/2024 which has

not been read by the Assessee on time and the Assessee read the

mail only on 15/04/2024 for which the Assessee cannot blame the

Department on the other hand due to Assessee’s failure to check

the ITBA Portal on time the Assessee failed to appear before the

CIT(E), which ultimately resulted in passing the ex-parte order by

the CIT(E). Further submitted that the notice sent by speed post

has been served on the Assessee before passing of the final order,

therefore, the Ld. Departmental Representative sought for dismissal

of the Appeal filed by the Assessee.

available on record. In the present case, the assessment of the

13 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) Assessee for Assessment Year 2018-19 was completed u/s 143(3)

r.w. Section 144B of the Act on 16/08/2021 by the A.O. at the

taxable income of Rs. 2,67,63,316/- against NIL returned

incomefiled by the Assessee. Subsequently, while exercising power

conferred u/s 263 of the Act, the Ld. CIT(E) called for the records

from the A.O. and was of the opinion that some ‘discrepancies’ were

noticed as the A.O. has failed to make requisite verification and

enquiries on certain issue involved in the assessment. The Ld.

CIT(E) by placing the Assessee ex-parte passed the order on

29/03/2024 by setting aside the assessment order dated

16.08.2021and directed for making de-novo assessment after

affording reasonable opportunity being heard to the Assessee,

which is under challenge before us.

illegal, unwarranted, unsustainable in law and the same has been

passed in violation of principles of natural justice, there is an

absence of service of show cause notice before passing the

impugned order u/s 263 of the Act. To examine the said

14 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) contentions of the Assessee, we have visited and examined certain

factual aspects which are as under:-

9.1 The Ld. CIT(E) has prepared the manual show cause notice on

05/03/2024, fixing the date of hearing on 14/03/2024 at 4.00 P.M.

On 08/03/2024, a DIN has been generated for preparing the above

show cause notice dated 05/03/2024 to be issued u/s 263 of the

Act. Though the date of hearing in the show cause notice was

mentioned as 14/03/2024, the said notice has been handed over to

the postal authorities for dispatching the same to the Assessee by

speed post after the two date of schedule hearing i.e. on

16/03/2024, which can be corroborated from Page No. 3 of the

Paper Book. The said item comprising the show cause notice dated

05/03/2024 fixing the date of hearing as on 14/03/2024 has been

booked and dispatched for service on 16/03/2024. The said postal

cover comprising the show cause notice dated 05/03/2024 has

been delivered to the addressee/Assessee on 18/03/2024 on which

date the date for fixing the hearing ( i.e. on 14/03/2024) has

already been lapsed. Thus, it is evident that, the show cause notice

15 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) was served on the Assessee after the date for the hearing, which

cannot be treated as proper service done by the CIT(E).

9.2 The other mode of service adopted by the CIT(E) was by way of

ITB Portal and simultaneously on e-mail of the Assessee. The Ld.

Departmental Representative has produced dispatch details of the

portal. As could be seen from the dispatch details produced by the

Ld. Departmental Representative, the show cause notice and

intimation of generating DIN to show cause notice uploaded and

ITBA and simultaneously sent by e-mail of the Assessee on

30/03/2024 which is even after passing of the impugned order u/s

263 of the Act. It is also clear that as reflected from the dispatch

details presented by the Ld. DR that,the Assessee has read the said

notice only on 15/04/2024 much after passing of the order

impugned. Thus, the second mode of service of notice ITBA and e-

mail to the Assessee is also not served well within the date of

hearing fixed by the Ld. CIT(E).

u/s 263 of the Act, the Hon'ble High Court of Allahabad in the case

16 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) of M L Chains Vs. Pr. CIT (2023) 154 Taxman.com 508(Allahabad)

held as under:-

“10. After hearing the learned counsel for the parties, the Court has perused the record. 11. Admittedly, the notice under section 263 of the Income- tax Act dated 27-3-2022 was prepared and the same was got approved for uploading on the portal. The Office of the respondent sent the information to the petitioner on its portal on 28-3-2022. The petitioner came to know about the notice on 29-3-2022 in the morning and immediately thereafter, moved an adjournment application on 29-3- 2022 itself. On the adjournment application, e-proceeding response acknowledgment no. 480299081300322 was generated (Annexure No. - 6 to the writ petition). The fact that the adjournment was moved has not been denied by the respondent. The order sheet of the proceedings under section 263 of the Income-tax Act have been filed. The copy of the computer generated order sheet has been brought on record as Annexure No. CA - 2 to the counter affidavit. On perusal of the same shows that no order was passed on 29-3-2022 either allowing the adjournment application or rejecting the same or fixing any other date. The order sheet only shows that an adjournment application was moved on 30-3-2022. Further, the order sheet shows that on 31-3-2022, the order has been passed. The impugned order does not reveal the fact that what happened on 29- 3-2022, whether the date was fixed for 30-3-2022 or 31-3- 2022 or the judgement was reserved on 29-3-2022. The impugned order is silent about this fact and the manual order sheet has been brought on record as Annexure No. CA-8 to the counter affidavit, where handwritten order has been shown that the counsel for the petitioner appeared and his signature has been obtained thereon. No explanation has been submitted in the impugned order or in the counter affidavit as to why and under what

17 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) circumstances as well as under which law, two different order sheets are being maintained 12. Ld. Counsel for the petitioner has specifically denied the signature on the manual order sheet and has relied on the signature on the adjournment application (Annexure No. 5 to the writ petition), on perusal of which creates a doubt on two count; firstly, the signature are different and secondly, there was no occasion for adopting two different modes of maintaining order sheet; one computer generated order sheet and other manual order sheet. This aspect creates a serious doubt about the functioning of the respondent - authority. Further, in paragraph no. 4 of the impugned order, following finding has been made:- "In response to the above Notice u/s 263, Shri Rajendra Sharma, Adv. Counsel of the assess filed only adjournment application on dated 29-3-2022 requesting that one week time kindly be allowed to the assessee but did not filed reply to the Notice u/s 263 of the Income-tax Act, 1961. However, in response to the above Notice u/s 263 no reply has been submitted by the assessee to refute the findings as communicated vide Notice u/s 263 having DIN & Notice No. ITBA/REV/M/REV1/2021- 22/1041859754(1) dated 27-3-2022" 13. On perusal of the paragraph no. 4 of the impugned order, it clearly shows that the assessee has not submitted any reply in response to the notice under section 263 of the Income-tax Act dated 27-3-2022. 14. Further, in paragraph no. 5 of the impugned order, following finding has been recorded:- "5. The Assessee was issued Notice under section 263 on 27-3-2022, which was dully served. In response, the Assessee has submitted its reply. The same was duly examined. Based on examination of the submission of the Assessee, facts of the case, documentary evidences produced, past assessment orders and material information available, the reply of the Assessee has

18 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) been found to be grossly unsatisfactory, not responding to the queries raised in the notice issued." 15. Perusal of paragraph no. 5 of the impugned order shows that the assessee has submitted its reply after due examination of the same and material on record, the impugned order has been passed. 16. From the perusal of the aforesaid paragraph nos. 4 & 5 of the impugned order, it clearly reveals that the same are self-contradictory. The respondent authority is trying to blow hot & cold at the same time. Whereas, in paragraph no. 4 of the impugned order, it has been mentioned that no reply has been submitted by the petitioner, to the contrary, in paragraph no. 5 of the impugned order, it has been mentioned that the assessee has submitted its reply. Neither in the impugned order, nor in the counter affidavit filed before this Court, any reference of the reply submitted by the assessee, as alleged in the paragraph no. 5 of the impugned, has been made. 17. On the pointed query to the counsel for the respondent as to whether reply, as referred to in paragraph no. 5 of the impugned order, has been submitted, he categorically refers Annexure No. CA - 5 to the counter affidavit and submits that the reply has been submitted by the assessee in the proceedings under section 142(1) of the Income-tax Act, which was considered. The said submission, on the face of it, has no legs to stand on, as the instant proceedings and the impugned order have been passed pursuant to the notice under section 263 of the Income-tax Act. Once the respondent - authority himself records that no response has been filed in pursuance of the notice under section 263 of the Income-tax Act dated 27-3-2022, a contrary finding, as recorded in paragraph no. 5 of the impugned order, cannot be accepted in the eyes of law. 18. Further, the notice under section 263 dated 27-3-2022 was prepared and uploaded/sent on 28-3-2022 and the same was received on the date fixed, i.e., 29-3-2022 and

19 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) the impugned order dated 31-3-2022 has been passed in gross violation of the principles of natural justice. 19. Since there is an apparent violation of the principles of natural justice, as no opportunity was given to thepetitioner for defending or presenting its case, the impugned order cannot be sustained in the eyes of law in view of the law laid down by the Apex Court in Whirlpool Corporation v. Registrar of Trade Marks [1998] 8 SCC 1. 20. Further, the impugned order does not refer any finding as enumerated in Explanation - II of section 263 of the Income-tax Act to suggest that the assessment order was prejudicial to the interest of the Revenue in view of the judgment of the Apex Court in Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 and therefore, on this count also, the impugned order cannot be sustained in the eyes of law. 21. In view of the above, the impugned order dated 31/03/2022 passed by the respondent No. 1 is hereby quashed.”

Tracom (P) Ltd. Vs. CIT reported in (2017) 86Taxman.com 35 dated

14.09.2017, while quashing the order passed u/s 263 of the Act

held that no useful purpose will be served in giving opportunity to

the Assessee of being heard at this stage on considering the

provisions of Section 263 (2) of the Act which bars for any order

being passed pursuant to the notice u/s 263 of the Act, after the

expiry of two years from the end of Financial Year in which the

20 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) order sought to be revised was passed. The relevant portion of the

observation of the Hon'ble High Court of Delhi are as under: -

“This Court has also examined the question as to whether an opportunity of hearing could now be afforded to the Appellant. However, Section 263(2) of the Act is a clear bar for any order being passed pursuant to a notice under Section 263 of the Act, after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. Thus, there is an outer limit in the statute under Section 263 which, in the present case, is 31st March, 2013. Since, no useful purpose will be served in giving an opportunity to the Appellant of being heard at this stage, this Court answers question No.1 in the negative i.e. in favour of the Assessee and against the Revenue.”

which was issued and served on the Assessee in either of the mode

of RPID and ITBA/email to the Assessee which were adopted by the

CIT(E). The notices were served only after the date of hearing i.e. on

14/03/2024, thus the order of the CIT(E) passed on 29/03/2024 is

not only erroneous but also in violation of principles of natural

justice. The provision of Section 263(2) of the Act specifically bars

for any order being passed pursing to the notice u/s 263 of the Act

after lapse of two years from the end of Financial Year in which the

orders sought to be revised was passed. Considering the fact that

21 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) the outer limit in the statute u/s 263 which in the present case

being 31-03-2024, we find no useful purpose will be served in giving

opportunity to the Assessee of being heard in this stage by the Ld.

CIT(E). By relying on the judgment of the Hon'ble High Court of

Allahabad in the case of M L Chains (supra) and the judgment of

Tulsi Tracom (P) Ltd by the Hon'ble High Court of Delhi (supra) and

in view of the above discussions, we quashed the order dated

29/03/2024 passed by the CIT(E) u/s 263 of the Act by allowing

Ground No. 2 of the Assessee.

the order impugned has been passed in the absence of service of

proper show cause notice and quashed the order of the CIT(E),

theother grounds of Appeal on merit requires no adjudication.

Order pronounced in open Court on 28th November, 2024

Sd/- Sd/-

(AVDHESH KUMAR MISHRA) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28/11/2024 R.N, Sr. PS

22 ITA No. 1889/Del/2024 Saraswati Educational Society Vs. CIT(E) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT, NEW DELHI