M/S SURAJMAL CEMORIAL EDUCATION SOCIETY,,NEW DELHI vs. CIT(E), NEW DELHI

This appeal has been filed by the assessee against the order dated 23.03.16 passed u/s 263 of the Income Tax Act, 2961 (hereinafter referred as the Act) by the Commissioner of Income Tax(Exemption), New Delhi on the following grounds:-

1. That the learned CIT(Exemptions) has erred

in invoking the jurisdiction under section 263 of the Act in the instant case.

2. That the learned CIT(Exemptions) has erred in holding that the assessment order passed

u/s 143(3) of the Act on 24.03.14 by the Assessing Officer is erroneous in as much as it is prejudicial to the interest of the Revenue. b) That the learned CIT has erred in holding that the Assessing Officer has not addressed the issues raised in the notice u/s 263 of the Act and that the assessee’s claim of exemption of income under various sections and provisions of law has been accepted by the Assessing Officer without application of mind and without bringing on record necessary details and making necessary inquiries.

That the learned CIT has erred in drawing the aforesaid conclusion without appreciating the fact that the assessing Officer has made all due and necessary inquiries on all the issues raised in the notice u/s 263 and has passed the order only after being satisfied with the explanation and evidences filed by the assessee and after examining the books of accounts, bills vouchers etc. during the course of assessment proceedings. c) That the learned CIT(Exemp.) has erred in drawing adverse inference against the assessee only on the basis of suspicion without pointing out any specific discrepancy in various details and documentary evidences filed by the assessee before the Assessing Officer in response to questionnaire issued by him and duly examined by him during the course of assessment proceedings. d) That the learned CIT (Exem.) has erred in passing the impugned order u/s 263 of the Act without having any valid basis / material on record to hold that the order of the Assessing Officer was erroneous and prejudicial to the interests of revenue. e) That the learned CIT (Exem.) has erred in invoking the jurisdiction u/s 263 of the Act only on the basis of whims and fancies and has also erred in setting aside the order of the A.O. for making fishing and roving inquiries. f) That the learned CIT (Exemp.) has erred in passing the impugned order without verifying the details and documentary evidences filed by the assessee before the A.O. which are available on the assessment record.

3. That the appellant craves the right to amend,

append, delete any or all grounds of appeal.

The return was processed u/s. 143(1) of the Act. The case of the assesee was selected for scrutiny through CASS and notice u/s. 143(2) was issued on 16.8.2013. In response to the same Authorised Representatives of the assessee appeared and filed the details of record as required by the AO from time to time. In the assessment order dated 24.3.2014 passed u/s. 143(3) of the I.T. Act, the AO has stated that the Assessee Society is registered u/s. 12A of the Income Tax Act, 1961 vide order dated 31.3.1973 and has also notified u/s. 80G of the Act vide order dated 14.1.2008. The necessary details were called for and submitted from time to time as per the order sheet entries.

The books of accounts alongwith supporting vouchers / bills were produced and test checked. After verification, the AO observed that the assessee society is found eligible for benefits of Section 11 & 12 of the Act and held that the total application of income was required to be made upto 85% i.e. Rs. 23,54,28,688/-, which stands satisfied and assessment was allowed the benefit of section 11 & 12 of the Act and assessment was being made at NIL Income. u/s. 143(3) of the I.T. Act on 24.3.2014.

Act dated 23.3.2016 by holding the assessment order dated 24.3.2014 passed u/s. 143(3) of the Act was passed in a hurried and casual manner without application of mind, without making proper inquiries. Therefore, he held that the assessment order dated 24.3.2014 is erroneous and prejudicial to the interest of revenue and set aside the same with the directions to the AO to examine the issues and pass a fresh assessment in accordance with law after affording due opportunity of hearing to the assessee.

5.1 Regarding the second issue relating to room rent receipts amounting to Rs.41,93,810/- raised by the CIT(E) in his show cause notice, the A.O. submitted that these room rent receipts were in respect of hostel fee received by the assessee society from its own students in the various institutes run by it and was incidental to the activity of education carried out by the assessee society. He further submitted that the assessee society had been earning such hostel fees from its students in all the earlier years and our attention was drawn to the comparative chart of hostel fee receipts placed at page No.170 of the assessee’s paper book. It was further contended by the learned A.R. that the allegation of the CIT(E) in the notice u/s 263 that the assessee has not filed details to explain the nature of these receipts and whether these are eligible u/s 11 of the Act, is also factually wrong and not borne out of any material on record. The A.R. pointed out that the Assessing Officer in his questionnaire dated 23.1.14 has raised a specific query in question No.26 whereby he has required the assessee to justify the hostel receipts in the light of amended provisions of section 2(15) of the Act. He further submitted that reply to this query had been submitted by the assessee during the course of assessment proceedings vide its letter dated 18.02.14 placed at pages No.64to65 of the assesee’s paper is engaged in providing education and therefore the hostel receipts are duly covered u/s 2(15) of the Act and eligible for exemption u/s 11 of the Act. The A.R. contended that this explanation stood accepted by the Assessing Officer when he noted in the assessment order that the assessee has earned income from room rent receipts in addition to tuition fees, admission fees etc. It was further contended by him that such income was earned by the assessee in all the earlier years also and has been consistently accepted to be eligible for exemption u/s 11 of the Act being an activity incidental to education carried out by the assessee society in all the earlier years. It was further contended by him that the CIT(E) in his order passed u/s 263 has also not brought on record any material to show that hostel facility was provided to any other students except for the students of the assessee society. It was contended by him that the hostel facility available in the assessee’s institutes was limited and therefore the assessee society had provided this facility only to its own students. There was thus no material on the basis of which the CIT(E) could have drawn any adverse inference against the assessee on this issue when the same stood accepted in the case of the assessee in all the earlier years.

5.2 Regarding the third issue raised by the CIT(E) relating to capital work in progress of land at Bahadurgarh, the A.R. pointed out that the A.O. had duly made inquiries in relation to all additions to fixed assets during the instant year when he raised two questions namely Question No.8 and Q. No.21 in his show cause notice dated 23.01.14 requiring the assessee to submit the details of all assets purchased and additions to fixed assets along with bills / vouchers. He drew our attention to the audited accounts of the assessee society filed before the Assessing Officer and referred to page No.45 of the paper book which is a Schedule of fixed assets of the society enclosed with the audited Balance Sheet wherein he pointed out that land at Bahadurgarh had been shown and where addition of Rs.1,19,03,750/- was declared. It was pointed out by him that addition to the land at Bahadurgarh was made during the instant year when the adjoining land was purchased by the assessee society in addition to the land purchased by it in the same location in the immediately preceeding year for expansion of the assessee’s educational activity. The A.R. pointed out that the assessee had duly submitted a copy of the registered sale deed before the Assessing Officer and a copy thereof is placed at pages No.78 to 83 of the assessee’s paper book.

It was contended by him that the observation of the CIT(E) that no evidence in support of the expenditure has been submitted is factually wrong, when the assessee has duly submitted the copy of the registered sale deed and thus the entire detail regarding investment of Rs.1,19,03,750/- in land at Bahadurgarh in the form of sale deed in favour of the appellate society was furnished. The A.R. further submitted that the details of payment made for purchase of this land were duly given in the registered sale deed and it clearly proved that the assessee society had paid the sale consideration through cheques drawn on its bank account with Indian Overseas Bank, Janakpuri, New Delhi. It was further contended by the A.R. that during the course of assessment proceedings the details of bank accounts as well as bank statements were duly verified by the Assessing Officer along with books of accounts and therefore there is no valid basis for the CIT(E) to hold in the impugned order that the source of acquisition of land at Bahadurgarh has not been verified. The A.R. further contended that the source of acquisition as well as utilisation for the Aims and Objects of the assessee society was duly verifiable from the copy of registered sale deed filed by the assessee. He further pointed out that similar issue had also been raised in the immediately preceeding year namely assessment year 2011- 12 in the case of the assessee society when the assessee had purchased adjoining land in that year and the Hon’ble ITAT in that year had found in para 16 of its order that when the assessee had submitted the copy of the registered sale deed which was executed in favour of the assessee society and all details of payment contained therein were found in order then it was not necessary to conduct any further inquiry regarding prevalent market rate and the collector rate of the area or surrounding area so as to ascertain if there has been any under statement or over statement in the land purchase. It was contended by him that on the basis of the order of ITAT for assessment year 2011-12 in the case of the assessee itself, the conclusion of the A.O. on this issue during the instant year also could not be held to be unsustainable or erroneous and prejudicial to the interest of Revenue. It was further contended by him that it was found by the ITAT in assessment year 2011-12 on similar facts that the A.O. had conducted the required and adequate inquiry and that the order could not be said to be either erroneous or prejudicial to the interest of Revenue.

5.3 As regards the fourth issue in relation to expenses of Rs.20,13,652/- incurred on statue, the A.R. submitted that all documentary evidences relating to the same were duly filed before the A.O. when the A.O. had required the assessee to specifically give details of additions to fixed assets along with bills / vouchers etc. in his questionnaire issued during the course of assessment proceedings. The A.R. pointed out that a copy of the ledger account in respect of the statue and all the bills which are placed at pages No. 192 to 203 of the paper book were duly submitted before the Assessing Officer. It was further submitted by him that the statue of Shri Surajmal was installed by the assessee society during the instant year and all the expenses on statue were incurred in relation to such statue. The A.R. further pointed out that a copy of the Memorandum of Association of the assessee society was also filed before the A.O. which is available at pages No. 171 to 191 of the paper book. He drew our attention to page No.171 where it was pointed out that under the Aims & Objects of the assessee society it was clearly stated that the society is a non political and non Sectarian organisation formed to perpetuate the memory of the great Indian Hero and patriot Surajmal of Bharatpur. It was contended by the A.R. that the name of the assessee society was also after the same Indian Hero and Patriot Shri Surajmal of Bharatpur and therefore the expenditure incurred by the assessee society on installation of his statue was in accordance with Aims & Objects of the assessee society. The A.R. further submitted that even in the immediately preceeding year query had been raised by the Assessing Officer during the course of assessment proceedings relation to the advances given in respect of statue of Maharaja Surajmal and a specific reply was given to the A.O. vide letter dated 28.10.13, a copy whereof is placed at page No.204 to 206 of the assessee’s paper book.

He further contended that even though the issue relating to the making of statue of Maharaja Surajmal was on record in the immediately preceeding year namely assessment year 2011-12, no objection had been taken by the CIT(E) in that year while issuing the notice u/s 263 or even while passing the order u/s 263 of the Act for that year. He thus submitted that there was no justification for the CIT(E) to hold that the order of the assessment was either erroneous or prejudicial to the interest of Revenue as all the necessary inquiries had been duly conducted by the Assessing Officer on this issue and that the expenditure having been incurred as per the Aims & Objects of the assessee society was duly verifiable from the Memorandum of Association of the 5.4 Thereafter the learned Counsel contended that this is a case where voluminous documentary evidences have been filed by the assessee in respect of all the four issues raised by the CIT(E) in the show cause notice u/s 263 and that all these evidences were filed by the assessee before the A.O. in response to specific queries of the A.O. raised in his questionnaire issued to the assessee during the course of assessment proceedings, and the A.O. has framed the assessment after due examination of the same and therefore it cannot be said that the assessment was framed by the A.O. without carrying out necessary verification or without application of mind. It was further contended by him that the CIT(E) has alleged that no independent inquiries and verifications were carried out without pointing out any specific discrepancy in the documentary evidences filed by the assessee and also without pointing out any error of law or facts on part of the Assessing Officer in accepting such documentary evidences filed by the assessee in response to specific queries raised by the Assessing Officer during the course of assessment proceedings. It was further argued by the A.R. that the CIT(E) himself had not drawn any conclusive finding on any of the issues raised by him and has merely held the assessment order to be erroneous and prejudicial to the interest of Revenue by directing the A.O. to examine the issues afresh and that it results into an order to carry out roving and fishing inquiries which is not permissible in law. He relied on the decisions of Hon’ble Delhi High Court in the case of DIT vs. Jyoti Foundation reported in 357 ITR 388 as also the judgment of Hon’ble Supreme Court in the case of CIT vs. Malabar Industries reported in 243 ITR 83. The A.R. also relied on the order of ‘G’ Bench of Delhi ITAT in the case of the assessee society for assessment year 2011-12 in ITA No. 2011/Del/2015. He prayed for quashing the notice u/s 263 as well as the order passed the u/s 263 of the Act.

5.5 The learned CIT(DR) appearing for the Revenue submitted that from a perusal of the impugned assessment order it appeared that the A.O. had issued a routine questionnaire and had framed the assessment only on the basis of details and information submitted by the assessee without carrying out any independent inquiry and verification. She further referred to the order of the CIT(E) and submitted that the CIT(E) had found the assessment order to be erroneous as well as prejudicial to the interest of Revenue on all the four issues raised by him in his notice u/s 263 of the Act. The learned DR supported the action of the CIT(E) by pointing out that the assessment order was passed by the A.O. in undue hurry and without verification of the details submitted by the assessee and that it was a fit case for invoking the provisions of section 263 of the Act. It was contended by the D.R. that the Assessing Officer had not even issued any notice u/s 131 to any of the donors, whose confirmation was submitted and the source of acquisition of land was also was not examined by him. The D.R. also drew our attention to para 5 of the CIT(E) order wherein the CIT(E) has found that the assessee has not produced any supporting documents before him. She contended that in view of this fact the CIT(E) could not have given any finding on the various documentary evidences claimed to have been filed by the assessee before the A.O. and that the direction of the CIT(E) was merely to pass a fresh assessment order in accordance with law after allowing due opportunity of hearing to the assessee. She also stated that no prejudice is caused to the assessee because of this order of CIT(E). The learned D.R. also filed a compilation of the case laws in support of her contentions that the CIT(E) was justified in passing the impugned order u/s 263 of the Act. She relied on the judgment of Hon’ble Delhi High Court in the case of GEEVEE Enterprises (199 ITR 374), Duggal & Company (220 ITR 456), DLF Power Limited (245 ITR 446).

She also relied on the order of Delhi ITAT in the case of Shri Virender Kumar Gupta (ITA No. 2995/D/2009) and Kavadi Narsimha (ITA Nos. 953 to 958 and 960/D/2011) in support of her contentions. The learned D.R. contended that the order passed by CIT (E) u/s 263 of the Act should be upheld.

5.6 The learned A.R. in rejoinder pointed out that it is not a case of no inquiry or lack of inquiry as all relevant and required inquiries that should have been made in this case were infact carried out by the A.O. when he issued questionnaire on all the relevant points including the four issues raised by the CIT(E) in the notice u/s 263 of the Act.

It was further submitted by him that once the A.O. was satisfied with the documentary evidences filed by the assessee to support the fact of corpus donations received by it, then it was not the requirement of law that the A.O. will have to issue notices u/s 131 of the Act necessarily to each of the donors. For this proposition he relied on the judgment of Patna High Court in the case of Bahri Brothers reported in 154 ITR 244. He further argued that the source of acquisition of land was verifiable from the registered sale deed filed by the assessee and was also verifiable from the audited accounts of the assessee as also the bank accounts and books of accounts which were duly produced and examined by the Assessing Officer during the course of assessment proceedings. The A.R. further submitted that the learned CIT(E) had also erred in drawing adverse inference against the assessee by holding in para 5 of the impugned order that the assessee had not produced supporting documents in his office. He contended that the entire supporting documents were available on the assessment record, and the learned CIT(E) ought to have examined the same before issue of notice u/s 263 and even during the course of the proceedings u/s 263 of the Act. He also contended that the judgments relied upon by the learned D.R. were not applicable in the facts of the assessee’s case as in this case the assessment order was passed after making all inquiries and verification which should have been made and that the assessment order could not be held to be erroneous and prejudicial to the interest of the Revenue when none of the conclusions of the A.O. were found to be unsustainable in law and also when there was no finding regarding assumption of any wrong fact or wrong application of law by the A.O. while passing the assessment order.

5.7 We have heard the rival contentions and perused the records. We find that the Hon’ble Supreme Court of India in the case of Malabar Industrial Company Ltd. reported in 243 ITR 83 has held as under:-

“A bare reading of section 263 of the Income Tax

Act, 1961, makes it clear that the prerequisite for the exercise of juridcition by the Commissioner suo moto under it, is that the order of the Income tax Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The pharase “prejudicial to the interests of the Revenue” is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”

5.8 In the instant case we find that that the Assessing Officer has made the required inquiries on all the four issues raised by the Ld. CIT(E) in the impugned notice u/s 263, when the A.O. issued questionnaire dated 23.01.14. It is further seen from a perusal of the documents filed by the assessee in its paper book that the assessee has duly filed its reply along with supporting documentary evidences in respect of all the issues raised by the Ld. CIT(E) in his notice and order u/s 263. We note that the AO has taken note of room rent receipts, corpus donations as well as additions to fixed assets in the assessment order passed by him, which clearly indicates that all these four issues were duly considered by him while passing the assessment order.

Therefore it cannot be said that it is a case of no inquiry on the issues raised by the CIT(E). A perusal of the impugned order u/s 263 also shows that it is not a case of incorrect assumption of facts or incorrect application of law. We are also unable to agree with the learned D.R. that the A.O. has not made any independent inquiry or verification of details and documentary evidences furnished by the assessee during the course of assessment proceedings. A perusal of the copies of documentary evidences filed by the assessee as placed by it in the paper book show that the A.O. accepted the claim of corpus donations on the basis of confirmations and documentary evidences which contained the complete names, addresses, PAN numbers, copies of account payee cheques, audited accounts, audit reports and other documents proving the identity and credit worthiness of all the donors. The genuineness of the donation is also proved from the specific direction in each of the confirmation that the amount has been paid by them towards corpus donation and the Assessing Officer has therefore correctly allowed exemption u/s 11(1)(d) of the Act by making a specific note thereof in the assessment order passed by him.

In view of the voluminous documentary evidences filed by the assessee in support of the claim on corpus donation, it cannot be said that the fact of corpus donation has been accepted by the Assessing Officer without verification, more so when the learned CIT(E) has not pointed out any specific discrepancy in the documentary evidences in respect of any donor. It is a settled law that once the quasi judicial power vested in A.O. has been exercised by him in accordance with law and in exercise of such power he has arrived at a conclusion, then merely because the CIT does not feel satisfied with the conclusion it cannot be said that the assessment order is erroneous. In the instant case the A.O. has required the assessee to furnish confirmations of each of the donors along with their PAN number and addresses and the assessee has complied with by filing documentary evidences to prove the identity and credit worthiness of the donors as also the genuineness of the corpus donations given by them. Therefore it cannot be said that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue on this issue.

5.9 Regarding the issue of room rents, it is found that the assessee society is engaged in the activity of providing education and therefore the provision of hostel to the students is an incidental activity and therefore the room rent receipts from hostel are found to be covered by section 2(15) of the Act and the order of assessment cannot be said to be erroneous and prejudicial to the interests of Revenue when the claim of the assesse was accepted only after making inquiry on this point. It is also seen that such room rent receipts have been earned by the assessee society in all the earlier years also and exemption u/s 11 of the Act has always been allowed. Accordingly even as per the rule of consistency no adverse inference can be drawn against the assessee society on this issue.

5.10. The assessee society in support of the investment made by it in land at Bahadurgarh has submitted a copy of registered sale deed. A perusal of this registered sale deed shows that the details of payment made by the assessee society for acquisition of the land are duly stated in the sale deed itself where the details of bank account of the assessee society from which payments have been made are duly reflected. It is further seen that the investment made by the assessee society in this land is duly included in the fixed assets schedule forming part of the audited accounts which are drawn from the books of accounts examined by the Assessing Officer during the course of assessment proceedings. Therefore we are unable to agree with the contention of the D.R. that the source of acquisition of land has not been verified. In our opinion the conclusion of the Assessing Officer cannot be held to be erroneous and prejudicial to the interests of the Revenue as he has accepted the same on the basis of registered sale deed in favour of the assessee society and this cannot be said to be unsustainable in law, more so when no material on record has been brought on record by the CIT(E) to prove the contrary.

5.11 Similarly the expenditure on Statue is found to have been incurred as per the Aims & Objects of the assessee society stated in its Memorandum of Association. We agree with the contention of the learned A.R. that the assessment order cannot be said to be erroneous and prejudicial to the interests of Revenue on this ground as the expenditure has been incurred as per the Aims & Objects of the assessee society to perpetuate the memory of Shri Surajmal in whose name the assessee society was set up and the Assessing Officer has accepted the expenditure on statue only after examination of all bills and vouchers of this expenditure.

The learned CIT(E) before holding the assessment order to be erroneous has neither conducted any inquiry or verification to show that the finding given by the Assessing Officer is erroneous nor has found that the view of the Assessing Officer is unsustainable in law. On the contrary it appears that the learned CIT(E) has simply expressed the view that the A.O. should have conducted inquiry in a particular manner as desired by him. Such a course of action of the learned CIT(E) is not in accordance with the mandate of provisions of section 263 of the Act. In this case the A.O. is found to have passed the assessment order after making all inquiries or verifications which should have been made including on all four issues raised by the CIT(E) and therefore the assessment order passed by A.O. cannot be held as “erroneous in so far as it is prejudicial to the interest of Revenue”. The case of the assessee is found to be squarely covered in its favour by the various decisions of Hon’ble jurisdictional High Court including the judgment in the case of CIT vs. Jyoti Foundation reported in 357 ITR 388 wherein it has been held that it is only in the case of no inquiry that the provisions of section 263 of the Act can be validly invoked and that once the conclusion of the Assessing Officer after making all necessary inquiries and verifications which should have been made, is not contrary to the provisions of the Act and is not something which is unsustainable in law, then the order cannot be held to be erroneous. It is also an undisputed fact in this case that the ld. CIT(E) has not conducted any inquiry or verification himself to record the finding that the asseement order was erroneous. We are also not impressed by the finding of the CIT(E) and the contention of ld. DR that the CIT(E) could not have carried out any verification and inquiry as the assesse has not filed any documentary evidences before him in 263 proceedings , which are claimed to have been filed before the A.O. in assessment proceedings. The fact remains that proceedings u/s 263 of the Act can be initiated only when the CIT calls for and examines the record of any proceeding under the Act and therefore he cannot be heard to say that the assesse has not filed copies of such record before him.

In view of above, it is held that the assessment order passed u/s 143(3) of the Act by the A.O. in this case cannot be said to be erroneous in so far as it is prejudicial to the interests of the revenue. Accordingly the notice u/s 263 dated 19.02.15 and the order u/s 263 dated 23.03.16 passed by CIT(E) Delhi in this case are quashed.

Order pronounced in the Open Court on 30/5/2016.