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Before: Shri I.C. Sudhir & Shri L.P. Sahu
In the Income-Tax Appellate Tribunal, Delhi Bench ‘A’, New Delhi Before : Shri I.C. Sudhir, Judicial Member And Shri L.P. Sahu, Accountant Member ITA No. 3718 to 3721/Del./2012 Assessment Year: 2003-04 to 2006-07 A.D.I.T. (Exemption), vs. Asian Centre For Organisation Inv. Circle-1, Delhi. Research & Development , C-126, (Appellant) Greater Kailash-1, New Delhi (PAN –AAATA0349J) (Respondent) Appellant by Sh. S.K. Jain, Sr. DR Respondent by Sh. Manu K. Giri, Advocate
Date of Hearing 24.05.2017 Date of Pronouncement 16.06.2017
ORDER Per L.P. Sahu, A.M.: The above batch of four appeals of the Revenue arise out of the separate orders of ld. CIT(A)-XII, New Delhi all dated 27.04.2012 for the assessment years 2003-04 to 2006-07 respectively. Since all these appeals involve common issues, the Revenue has raised common grounds barring the difference in the amounts of additions in all these appeals, they were heard together, therefore, for the sake of brevity and convenience, all these appeals are decided by this consolidated order and we take first the appeal of the Revenue for A.Y. 2003-04, the decision on which shall equally apply to all these appeals.
The revenue has raised following grounds in this appeal :
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“On the facts and in the circumstances of the case and in law, the Ld. C1T(A) has erred in holding the reopening of the case u/s 148 of the Act. 1961 as invalid and in quashing the assessment order. 2. On the facts and in the circumstances of the case and in law, the Ld. C1T(A) has failed to appreciate the fact that AO has clearly stated that assessee's income has escaped assessment in the last but one para of his "Reasons for Action u/s. 148 of the I.T. Act which read as "From the above, it is prima-facie evident that the assessee organization is a professional firm and its professional receipts should be taxed. Income on account of professional receipts during the Asstt. Year 2003-04, 2004-05, 2005-06 and 2006-07 were Rs. 24,82,300/-, Rs. 41,15,752/-, Rs. 63,88,000/- and Rs. 40,86,791/- respectively, which has escaped assessment" and in the last para which read “In the light of foregoing, I have reasons to believe that taxable income has escaped assessment in the case of the assessee for the Asstt. Year 2003-04, 2004-05, 2005-06 and 2006-07. Notices u/s. 148 is issued to the assessee for the stated years. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in applying the decision of Apex Court rendered in the case of C1T vs. Kelvinator of India Ltd. 320 561 (SC) when the facts and circumstances of the case of the assessee are different as in the assessee's case there is material in hand which form the basis of belief that income has escaped assessment and there is no change of opinion as the assessee's case was never subjected to scrutiny u/s. 143(3) before issue of notice u/s. 148 of the Income Tax Act. 1961.”
The brief facts of the case are that the assessee is an old Society, enjoying registration u/s. 12A and approval u/s. 80G for more than last 27 years with the following objects : (i) To sponsor, conduct and collaborate with research, investigations and studies on management subjects, specially in the area of organization development in industry, health, environment, agriculture, and rural sectors, and propagate and make use of the results thereof. (ii). To conduct, organize, participate in and otherwise associate with seminars, discussions, conferences, courses, teams training and educational programmes pertaining to matters of interest to the development of industrial, rural and health organizations.
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(iii). To write, design & publish books, video-films, cassettes, manuals, journals, and other literature or audio-visual aids for the furtherance of the objects.
(iv). To render assistance and advise on scientific methods of management of men, materials, machinery, money and other resources, and or, operations.
(v). To do all other things and such other lawful things as may be conducive to the attainment of the above object or objects identical thereto, but not to engage in business as such.
(vi). To utilize the income of the Society towards the promotion and aims and objects of the society.
(v). To seek and accept Grants, Donations and Loans both from Govt. & Non Govt. Organisations, Banks and Financial Institutions for promoting and achieving the aims and objectives of the Society.
The assessee filed its return of income on 04.11.2003 declaring total income at Rs. Nil, which was processed u/s. 143(1). The learned DDIT(E), the Assessing Officer, reopened the case of assessee society on the premise that the DGIT (E) while rejecting the application of assessee society filed for seeking notification u/s.10(23C)(iv) of the Act, found that the assessee society is a self serving institution for its own benefit with no intention to carry out any activity for general public utility; that the assessee society is a group of professionals providing professional services to various Govt. & non-Govt. organizations and also charging consultancy receipts; that during the years under consideration, the assessee has received such professional receipts during the years under consideration as follows :
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A.Yrs. Professional receipts Total Receipts 2003-04 24,82,300 1,33,78,823 2004-05 41,15,752 66,08,520 2005-06 63,88,000 74,27,148 2006-07 40,86,791 61,84,556
It was also observed that the assessee society had also charged service tax on these payments. Besides, the assessee society had made payments/Salary to Ms. Kroan Wadhera, who was the President / CEO of assessee trust and as such was the person covered by section 13(3) of the IT Act. It was further observed that the assessee was found to be a commercial organization not eligible for benefit u/s. 11 & 12 and accordingly, the DIT(E) withdrew the registration u/s. 12A from assessment year 2009-10, as the assessee was found violating the provisions of section 12AA(3) of the Act.
Noticing the aforesaid facts, the AO issued notice u/s. 148 after recording the reasons for reopening of assessment and made following additions after considering the explanations of the assessee:
(i). Project grants of Rs.68,35,128/-: The AO made this addition to the total income of assessee keeping in view the fact that receipt of this grant does not entail incurring of any expenditure by the assessee society.
(ii). Donations received of Rs.36,64,723/- :-
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This amount of donations received was added to the income of assessee on the premise that on being asked, the assessee failed to produce any donation receipts nor produced any other details of the donors and that the assessee would have not expanded any amount for receiving these donations.
(iii). Unexplained expenditure Rs.1,52,82,577/- :- This addition was made to the total income of assessee observing that apart from above two heads of receipts, i.e. ‘project grants’ and ‘donations’ the only major head of receipts, which remained with the assessee was ‘professional fee’ under which the assessee has received Rs.24,82,300/-. Since the above two heads of receipts, i.e., ‘project grants’ and ‘donations’ were found not entailing any expenditure, the AO observed that the expenditure of Rs.1,67,71,957/- claimed by the assessee is not acceptable for earning receipt of professional fee of Rs.24,82,300/-. He, therefore, allowed expenditure to the extent of Rs.14,89,380/- representing to 60% of professional fee of Rs.24,82,300/- and disallowed remaining expenditure of Rs.1,52,82,577/-.
The assessee carried the matter in appeal before the ld. CIT(A),who quashed the re-assessment proceedings holding them as invalid as under :
“I have perused the facts stated in the assessment order as well as the remand report and the facts stated by the assessee in his oral and written submissions.
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During the course of assessment proceedings, the assessee has filed a copy of reasons for action u/s 148 for the Income Tax Act in the assessment year 2003-04, 2004-05, 2005-06 and 2006-07 it is reproduced below:- “The assessee filed its return for the year under reference claiming benefit of exemption u/s 11, 12 & 13 of the I T Act. Meanwhile assessee filed an application on 06/11/2006 inform no. 56 seeking notification u/s 10(23C)(iv) of the I T Act, 1961. The appellant was required to furnish certain requisite details/information in my office on 21/02/2007 vide this office letter No. DDIT(E)/Inv. Cir.-1/2006-07/523 dated 08/02/2007. In response to this office letter, Sh M. Khan Accounts Officer attended on 01/03/2007 and filed details vide letter dated 28/02/2007. On perusal of these details and after discussion, the applicant was required to clarify certain points vide note sheet entry dated 01/03/2007 which is reproduced below:- "(i) Your Organization is mainly a group of Professionals providing professional services to various Govt. and Non Govt. entities, in consideration for professional fees on which service tax is being charged. Please explain & justify this in the light of your aims & objects. (ii) Please furnish supporting documentary evidence in support of your activities carried out during the last three years. (iii) Please furnish evidence in support of your claim that Bharat Overseas Bank is a scheduled bank. (iv) Please justify & explain payment of solely of Ms Kiran Wadhera in the light of clauses of MOA and Rules & Regulations. Please file your reply as required on 14/03/2007. Adjourned for 14/03/2007" On the fixed date i.e. 14/03/2007 neither any body attended nor any details/clarification were filed. On perusal of details/information filed by applicant and available on file, following facts have been noticed:- The assessee society is mainly a group of professionals providing professional services/consultancy in the field of management to various Govt. and Non Govt. Organizations in consideration for professional fees on which service tax is being charge. As such, the activities of the assessee are not charitable in nature and are not in accordance with the Aims & objects of the society, as contained in clause 3(1) to 3(7) of MOA.
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A comparative study of the total receipts and professional receipts of the applicant during the last three years is as under:- A.Y. 2003-04 A.Y.2004-05 A.Y.2005-06 Total receipts Rs.1,33,78,823/- Rs.66,08,520/- Rs.74,27,148/- Professional receipts Rs. 24,82,300/- Rs.41,15,752/- Rs.63,88,000/- (out of above) As is clear from the above, professional receipts are showing an increasing trend over the year. The assessee has other receipts also, which have been merged with the professional receipts and final accounts are prepared. There is nothing to suggest that separate books of accounts are maintained by the assessee in respect of its professional activities as required under the provisions of the I T Act 1961. The assessee failed to produce such books of account for verification as required vide this office letter dated 08/02/2007. During the last three years, the assessee has made deposits/investments with Bharat Overseas Bank Ltd. The assessee was requested to explain and justify in the light of provisions of section 11(5) of the IT Act, 1961, vide this office letter dated 08/02/2007 and note sheet entry dated 01/03/2007. However, the assessee did not file any reply/clarification, in support that the investment made with the above Bank was as per the provisions of section 11(5). Clause 8 of Rules & Regulations of the assessee organization reads as under:- "the income of the society from its property or donations whensoever derived, shall be applied solely towards the promotion of the objects of the society as sought out in its Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly by way of bonus or otherwise to the persons who at any time are, or have been, members of the society or to any of them or any person claiming through any of them." It was observed that the assessee has paid salary of approx Rs 2 lacs p.m. to Mrs. Kiran Wadhera, President and CEO of the assessee organization. The assessee failed to explain and justify payment of salary to Ms Kiran Wadhera, in the light of above stated clause 8 of Rules & regulation. From the above, it is prima facie evident that the assessee organization is a professional firm and its professional receipts should be taxed. Income on account or professional receipts during the AYs 2003-04, 2004-05, 2005-06 and 2006-07 were Rs 24,82,300/-, Rs 41,15,752/-, Rs 63,88,000/- and Rs 40,86,791/-, respectively, which has escaped assessment.
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In light of foregoing, I have reasons to believe that taxable income has escaped assessment, in the case of the assessee for AYs 2003-04, 2004-05, 2005-06 and 2006-07. Notices u/s 148 is issued to the assessee for the stated years." From the reasons so recorded, it is seen that the Assessing Officer has no where stated that assessee income has escaped assessment. The reasons so recorded are for verification, examination and clarification of facts not for escapement of income. Therefore, in view of several decisions relied upon by the AR at page 11 & 12 of this order, wherein it is reiterated that, in the case of change in opinion reassessment proceedings cannot be initiated unless there is surfacing of fresh fact after completion of original assessment. Such view has come out in the case of CIT vs Kelvinator of India Ltd. 320 ITR 561 (SC) and, KLM Royal Dutch Airlines v CIT 292 ITR 49(Del) and M/s. Eicher Ltd. 294 ITR 310 (Del) and several other cases In fact, Apex Court has in the above case held as under: "On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 of the Act (w.e.f. 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989 power to reopen is much wider. However, one needs to give schematic interpretation to the words 'reason to believe failing which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of 'mere change of opinion which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has got power to reassess. Bur reassessment has to be based on fulfillment of certain precondition and if the concept of change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an inbuilt test to check abuse of power by the AO". [Emphasis supplied] Further, it is also on record that Ms. Kiron Wadhera was only an employee of the institution and in no way was connected as a person falling within the definition of Sectionl3(3) of the Act, the copy of the appointment letter is placed on record at Pages 36-38 of the paper book relevant to A.Y. 03-04. The above facts with regard to applicability of Service tax on NGO and Ms. Kiron Wadhera is just an employee (not a person falling u/s 13(3) of the Act) are evident from the assessment
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order passed by the Assessing Officer u./s 143(3) of the Act relevant to A.Y.08-09. Therefore, following the settled principle of law it is held that, the reopening of the case u/s 148 in the instant case is not valid, hence the reassessment order stands quashed and this issue is allowed. Hence there is no need to go in to the merit of the case Rahul Kumar Baiaj (Pune Bench) IT AT. Therefore, other grounds do not need any adjudication.”
During the course of hearing, the ld. DR relying on the order of the AO, submitted that the ld. CIT(A) was not justified in quashing the reopening proceedings ignoring the fact that the Assessing Officer had sufficient material in its possession to initiate these proceedings. The assessee was found indulged in commercial activities and not eligible for benefit of section 11 & 12 of the Act for the reasons assigned in the assessment order as well as reason to believe recorded by the AO for reopening the assessment. Elaborate reasons were recorded for initiation of proceedings u/s. 147 and the ld. CIT(A) has failed to consider the fact that there will be no question of change of opinion when the assessee’s cases for the years under consideration were never subjected to scrutiny assessments u/s. 143(3) of the Act. He, therefore, submitted that the decisions relied on the change of opinion are, therefore, not applicable in the instant case.
On the other hand, the ld. AR of the assessee, relying on the impugned order, submitted that the respondent society has been enjoying registration u/s. 12A and approval u/s. 80G since 1983, which have been granted after considering the activities of the society as charitable; that the objects of
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society noted above completely satisfy the criteria stipulated u/s. 2(15) of the Act; that the fee received against various projects were solely to meet out the objects of the society and the same has been wrongly construed as professional receipts treating the same as taxable income of assessee; that the AO has not applied its mind to the material available with him and such material has no rational connection or bearing on the formation of belief; that the impugned assessment is based on the finding of DIT(E) who rejected the registration u/s. 12A from A.Y. 2009-10, but the registration of the assessee society u/s. 12A was operative during the years under consideration and thus, the assessment could not be made in the status of AOP; that Ms. Kiran Wadhera was wrongly considered as person covered u/s. 13(3) whereas she was employee of assessee society as is evident from her appointment letter and her affidavit filed before the authorities below and the fact that the AO itself has accepted her as employee of assessee not covered u/s. 13(3) in the assessment order for A.Y. 2008-09. Similar is the position with respect to charging of service tax, which has not been taken as adverse against the assessee in assessment order for A.Y. 2008-09, as it is essential to charge service tax even by the exempted NGOs. It was submitted that all the material facts were declared by assessee and therefore, without applying its mind and merely on the basis of findings of DGIT(E), the reassessment order passed by the Assessing Officer is not sustainable and the ld. CIT(A) has rightly quashed the same relying upon various decisions of Hon’ble Higher courts.
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We have considered the rival submissions and have gone through the entire material available on record and we find no justification to sustain the conclusions reached by the ld. Assessing authority in the impugned reassessment order. A perusal of assessment order shows that the reassessment order and consequential additions made by the AO are based on the following findings recorded by DGIT(E) :
(i). The activities of assessee-society were found commercial while deciding the application of assessee for seeking notification u/s. 10(23C);
(ii). The assessee society had had received professional receipts against the professional services rendered in various projects of Govt. and non-Govt. organizations;
(iii). The assessee society charged service tax on such professional receipts;
(iv). The assessee society made payments to Ms Kiran Wadhera, the Person covered u/s. 13(3) of the Act.
(v). The registration u/s. 12A stood withdrawn w.e.f. A.Y. 2009-10;
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As regards the first reason which led the Assessing officer to form a belief of escapement of income is that the DGIT(E) found the activities of assessee society as commercial. The Assessment order nowhere reveals any enquiry by the Assessing Officer as to the exact nature of assessee’s activities during the years under consideration. The only fact which inspired the AO to hold the activities of the assessee as commercial or business oriented was receipts termed as professional receipts, as noted above and charge of service tax. However, we do not find any material on record to justify that the impugned receipts were not applied by assessee to meet out the objects of society, as enumerated above. The record further reveals that the alleged professional receipts were shown by the assessee in its books of account submitted by him before the AO and the AO has not disbelieved the same nor did he reject the account books of the assessee.
Moreover, it is significant to note that the whole proceedings U/s. 147 centre round the impugned professional receipts, which led the AO to form a belief of escapement of income and gave birth to all the subsequent objections of the AO. However, the reassessment order made by AO reveals that no addition towards professional receipts has been made by the AO, which itself leads to hold the reason to believe as vague and assessment order as invalid, as the reason to believe are found to have no nexus with the escapement of income, as assessed in the assessment order. We are fortified for this proposition by several decisions of Hon’le Higher courts. Therefore, this observation itself is suffice to hold the order of the AO as invalid.
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As regards the charge of service tax by the assessee society, we do not find that charge of service tax is sine qua non to hold a particular receipt as business receipt taxable under the IT Act. In fact, the exempted NGOs are also liable to charge service tax on the taxable services if rendered by them and to deposit it with the Govt. In the instant case, it is not the case of department that the assessee society has not deposited the service tax though charged. Moreover, the Assessing Officer while passing the assessment order of assessee for A.Y. 2008-09 dated 30.12.2010 has accepted the above position stating that charging of service tax is mandatory and there is no exemption for persons claiming benefit of section 11 and 12 of the IT Act. Therefore, this reason is also not found fit to form a belief of escapement of income.
As far as the objection of the Assessing Officer based on the finding of DGIT(E) that the assessee society made payments to Ms. Wadhera, a person covered by section 13(3) of the Act, is concerned, the learned CIT(A) has accepted the contention of the assessee that Ms Wadhera had been the employee of assessee society as was evident from her appointment letter and an affidavit. Not only this, the Assessing Officer in the remand report has not made any adverse comment on this appointment letter and affidavit of Chairman of Society, submitted before him. Besides, the assessee in its assessment proceedings for A.Y. 2008-09 had stated that Ms. Wadhera had been an employee of assessee society since July, 1982 till her retirement in September, 2010 and also submitted her appointment letter dated 20.07.1982,
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increment letters, promotion letters, re-designation letters etc. The Assessing Officer in the assessment order of assessee for A.Y. 2008-09 has categorically accepted that Ms. Wadhera was an employee of the assessee not covered u/s. 13(3) of the IT Act. Therefore, given the aforesaid facts, it is wrong to observe during the years in question that Ms. Wadherra was the president/CEO of assessee society covered u/s. 13(3) of the Act, as this observation of AO is not found corroborated by any evidence on record. In presence of these facts, the belief of escapement of income formed on the strength of this reason is also found vague to sustain the assessment order.
Adverting to withdrawal of registration u/s. 12A, we find substance in the contention of the assessee that during the years under consideration the registration of the assessee society u/s. 12A was well operative and the withdrawal of registration was made effective from A.Y. 2009-10, that too has been set aside by the ITAT vide their order dated 17.09.2012. Similar is the position with respect to approval u/s. 80G vide order of ITAT dated 15.03.2013, whereby the Tribunal adjudicating the issue in detail has held as under : “10. We have heard the parties and have perused the material on record. Undisputedly, the assessee society is registered u/s 12A of the IT Act w.e.f. 16.07.1983 and it has been granted exemptions u/s 80G (5) of the Act from time to time. The last exemption was granted upto 31.03.2008. It has not been disputed that the facts have not undergone any change subsequently. The relevant certificates for grant of such exemption u/s 80G of the Act have been placed before us. It has also remained undisputed that grant of registration u/s 12A of the Act has been allowed to the assessee by the Tribunal vide Order dated 17.09.2012 (supra). That the assessee's activities, aims and objects are charitable and remained unchanged, is also not under dispute. The activities carried out by the
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assessee are workshop for solid waste segregation management and Bhagidari workshop, on appointment by the assessee by the Delhi Government as consultant. The assessee had also carried out sensitization of school students on road safety, again, at the instance of- the Delhi Government. A three-day future search workshop on the perfect future of Delhi-2010, was also carried out, similarly-. The assessee had also conducted a similar future search work as per the requirement of the Rajasthan Government. An FM Radio Programme called 'Aao Dilli Sanwarein' was also aired at the behest of the Delhi Government. 11. Now, Section 80G (5) (vii) i.e., the governing Section herein, provides as follows:- "Section 80 G (5)(vii) - where any institution or fund had been approved under clause (vi) for the previous year beginning on the 1st day of April, 2007 and ending on the 31st day of March, 2008, such institution or fund shall, for the purposes of this section and notwithstanding anything contained in the proviso to clause (15) of section 2, be deemed to have been,— (a) established for charitable purposes for the previous year beginning on the 1st day of April, 2008 and ending on the 31st day of March, 2009; and (b) approved under the said clause (vi) for the previous year beginning on the 1st day of April, 2008 and ending on the 31st day of March, 2009." 12. So, where any institution has been approved as per the' provisions of the said Section, it shall be deemed to, inter alia, have been established for charitable purposes for the previous year from 01.04.2008 to 31.03.2009. That it is, so, in the present case, stands established on record and remains unchallenged. For this reason alone, by virtue of the provisions of Section 80G (5) (vii), the application filed by the assessee is entitled to be allowed and we hold so. 13. Further, in 'Sonepat Hindu Educational and Charitable Society vs. CIT and Anr, 278 ITR 262 (P&H), relied on by the Id. counsel for the assessee, it has been held, Inter alia, that the scope of inquiry by the Commissioner, while dealing with the application u/s 80G (5) of the Act extends to eligibility to exemption under various provisions of the Act referred to in the Section, but not actual computation of income under the Act, particularly when the society is claiming exemptions u/s 11 and 12 of the Act and not under Section 10 of the Act. The same, mutatis mutandis is the position obtaining herein is nowhere in dispute. Therefore, in keeping with 'Sonepat Hindu Educational and Charitable
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Society' (supra) also, the application of the assessee is entitled to be allowed. 14. In view of the above, we find merit in the grievance sought to be raised by the assessee and the same is hereby accepted. The Order passed by the Id. DIT (Exemptions) is, therefore, cancelled and the application filed by the assessee for exemption u/s 80G of the Act is directed to be allowed.”
In view of aforesaid observations of the Tribunal, there remains nothing on record to justify the action of the Assessing Officer for forming belief of escapement of income and to belie the contention of assessee that once the registration u/s. 12A was operative during the years under question, the assessment cannot be made in the status of AOP. We, therefore, find no justification to sustain the impugned assessment order on this count.
Given the aforesaid facts, circumstance and discussion, we are of the considered opinion that the re-assessment orders passed for all these years in question are not sustainable in the eyes of law and the ld. CIT(A) has rightly quashed the same vide impugned orders. Accordingly, all the four appeals of the Revenue deserve to fail. 16. In the result, all these appeals filed by the Revenue are dismissed. Order pronounced in the open court on 16.06.2017. Sd/- Sd/- (I.C. Sudhir ) (L.P. Sahu) Judicial member Accountant Member Dated: 16.06.2017 *aks*