THE COMMISSIONER OF INCOME TAX vs. VISHWA BHARATHI VIDYA MANDIR

1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 13TH DAY OF AUGUST 2012 PRESENT THE HON'BLE MR.JUSTICE K.SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B.MANOHAR ITA.NO.1255/2006 C/W ITA.NO.1256/2006 ITA.NO.1255/2006 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, C.R.BUILDING, QUEENS ROAD, BANGALORE. 2. THE DEPUTY DIRECTOR OF INCOME TAX, EXEMPTIONS, C.R.BUILDING, QUEENS ROAD, BANGALORE. …APPELLANTS (BY SRI.M.THIRUMALESH, ADV) AND: VISHWA BHARATHI VIDYA MANDIR, NO.17, ‘A’ MAIN, 5TH BLOCK, RAJAJINAGAR, BANGALORE – 560 010. …RESPONDENT

2 (BY SRI.A.SHANKAR, ADV) ITA FILED U/S. 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 04-05-2006 PASSED IN IT (SS) A.164/BANG/2002 FOR THE ASSESSMENT YEARS 1990-91 TO 2000-01, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN IT (SS) A.164/BANG/2002 DATED 04-05-2006 AND CONFIRM THE ORDER PASSED BY THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY DIRECTOR OF INCOME TAX, EXEMPTIONS, BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. ITA.NO.1256/2006 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, C.R.BUILDING, QUEENS ROAD, BANGALORE. 2. THE DEPUTY DIRECTOR OF INCOME TAX, EXEMPTIONS, C.R.BUILDING, QUEENS ROAD, BANGALORE. …APPELLANTS (BY SRI.M.THIRUMALESH, ADV) AND: VISHWA BHARATHI VIDYA MANDIR, NO.17, ‘A’ MAIN, 5TH BLOCK, RAJAJINAGAR, BANGALORE – 560 010. …RESPONDENT

3 (BY SRI.A.SHANKAR & SRI.M.LAVA, ADVS) ITA FILED U/S. 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 04-05-2006 PASSED IN IT (SS) A.167/BANG/2002 FOR THE ASSESSMENT YEAR 1990-91 TO 2000-01, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN IT (SS) A.167/BANG/2002 DATED 04-05-2006 AND CONFIRM THE ORDER PASSED BY THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY DIRECTOR OF INCOME TAX, EXEMPTIONS, BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THESE ITA’S ARE HAVING BEEN HEARD AND RESERVED AND COMING ON FOR PRONOUNCEMENT OF JUDGEMENT THIS DAY, B.MANOHAR J., MADE THE FOLLOWING: JUDGMENT These appeals are filed by the Revenue challenging the order dated 04-05-2006 made in IT(SS)A No.164/Bang/2002 and IT(SS)A No.167/Bang/2002 passed Income Tax Appellate Tribunal, Bangalore dismissing the appeal filed by the Revenue and partly allowing the appeal filed by the assessee for the block period from 01.04.1990 to 13.07.1999.

4 2. Since common question of law and fact involved in this appeals, and common order passed by the appellate tribunal, both the appeals clubbed together and disposed off by this order. 3. The respondent-assessee is a Society registered under the Mysore Society’s Registration Act. It is running an educational institution in the name and style as ‘Venkat International Public School’ at Rajajinagar. Sri.T.Balakrishna is the President of the Society and Principal of the School. The assessee had not filed any return though he is running the educational institution. The search warrant was issued under Section 132 of the Income Tax Act (hereinafter referred to as ‘the Act’) to search the premises of Venkat International Public School and the residential premises of T.Balakrishna, President and the Principal of the School. Search was concluded on 03-08-1999. The books of accounts relating to the School were seized along with other materials. A notice under Section 158BD of the Act was issued in the name of the assessee-Society on 26-10-1999 directing the assessee to file

5 its return for the block period. Further notice was also issued under Section 158BC of the Act to T.Balakrishna who is the President of the Society and Principal of the School on 10-12-1999. The respondent-assessee filed the return for the block period from 1-1-1990 to 13-7-1999 on 29-12-2000 declaring “NIL” income. The respondent-assessee also claimed exemption under Section 10(22) of the Act. 4. The Assessing Officer passed the assessment order dated 31-10-2001 and determined the income in the block assessment period at Rs.1,81,45,710/-. Further denied the claim of the assessee for exemption under Section 10(22) of the Act and also the deficit cash balance in each financial year as unexplained investment and also held that not qualified for voluntary contribution fund and added the excess income over expenditure deleting the unaccounted loans. Being aggrieved by the assessment order dated 31-10-2001, the respondent-assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-V, Bangalore (hereinafter referred to as “CIT (Appeals)”) regarding denial of exemption under Section 10(22) of the

6 Act and also voluntary contributions/donations. The CIT (Appeals) granted partial relief and denied the exemption under Section 10(22) of the Act and other additions. Being aggrieved by the partial relief and denying the exemption under Section 10(22) of the Act, the assessee preferred an appeal before the Income Tax Appellate Tribunal in IT(SS)A No.167/Bang/2002 mainly contending that the assessment order is barred by limitation and the Assessing Authority ought to have passed the assessment order within a period of two years i.e. on or before 31-08-2001 whereas the assessment order has been passed on 31-10-2001. The same is barred by the limitation. 5. The Revenue being aggrieved by the order passed by the CIT (Appeals) insofar as deletion of the additions on account of deficit cash balance; deletion of additional unaccounted borrows and deletion of voluntary contributions has filed an appeal before the Tribunal in IT(SS)A No.164/Bang/2002 mainly contending that inspite of receiving donations, the receipts were not accounted and the books of accounts are not properly maintained. Hence

7 the assessee is not entitled for exemption under Section 10(22) of the Act and voluntary contributions and cash credits. 6. The Appellate Tribunal after considering the matter in detail partly allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue holding that the assessment order has not been passed within the period of limitation and the same is barred by limitation. Being aggrieved by the order passed by the Income Tax Appellate Tribunal, the Revenue has preferred these two appeals. 7. The above appeals were admitted for consideration of the following substantial questions of law: (1) Whether the Tribunal was correct in holding that the search conducted based on the warrant issued in the names of Venkat International Public School, Sri.Balakrishna and Smt.Sulochana would be proceedings initiated on behalf of the assessee society under Sec.158BC of the Act and not under Sec.158BD as held by the Assessing Officer and therefore barred by limitation? (2) Whether the Tribunal was correct in holding that the assessee would be entitled to claim exemption under Sec.10(22) of the Act when the donations received by the society was not

8 correctly accounted in the books and part of it was declared as the assets of the promoters under VDIS Scheme and for purchase of shares and unaccounted expenditure? (3) Whether the Tribunal was correct in holding that a sum of Rs.4,50,000/- undisclosed income Rs.74,22,796/- deficit cash balance and Rs.21,00,000/- cannot be treated as the income of the assessee.? 8. Sri.M.Thirumalesh, learned counsel appearing for the Revenue contended that the order passed by the Appellate Tribunal is contrary to law. Pursuant to the search warrant issued under Section 132 of the Act, after seizing the books of accounts and other materials notice under Section 158BD was issued to the assessee-Society on 26-10-1999 and also notice under Section 158BC of the Act was issued to Sri.T.Balakrishna who is the President of the Society and Principal of the School on 10-12-1999, calling upon them to file the return for the block period. They have filed NIL assessment on 29-12-2000. Since the notice is issued under Section 158BD, no limitation is applicable. Further, the assessee is not entitled for exemption under Section 10(22) of the Act since they have not maintained the accounts for the donations received and also in respect of the undisclosed

9 income from voluntary contributions. The difference of income over the expenditure cannot be treated as undisclosed income for the block period. Further the Appellate Authority erred in holding that the deficit cash balance cannot be treated as income of the assessee and sought for setting aside the order passed by the Appellate Tribunal. 9. On the other hand, Sri.A.Shankar, learned counsel appearing for the assessee contended that there is no infirmity or irregularity in the order passed by the Appellate Tribunal. Notice was issued under Section 158BD of the Act, for which assessment has to be completed within a period of 2 years. In the instant case, admittedly, the assessment order has been passed on 31-10-2001 and the same is barred by limitation. He also relied upon the order made in ITA NO.1254/2006 disposed off on 28th September 2011 in respect of the sister institute of the assessee. On the very same day, search warrant was issued and concluded the search and assessment was also made on the same day. The said assessment order was set aside by the Income Tax

10 Appellate Tribunal on the ground that the order is barred by limitation. The order passed by the Appellate Tribunal is questioned before this court. This court dismissed the appeal filed by the Revenue holding that the assessment order passed by the Tribunal is barred by limitation. Order made in ITA 1254/2007 covers the issue raised by the Revenue and sought for dismissal of the appeals. 10. We have carefully considered the arguments addressed by the learned counsel for the parties and perused the orders impugned passed by the authorities below. 11. The issue raised in these appeals is no more res- integra. The Division Bench of this Court in ITA NO.1254/2006 disposed off on 28th September 2011 (THE COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE v/s ST.ANN’S EDUCATIONAL SOCIEITY) has held that search of the school premises was finally concluded on 02.08.1999, the search of residential premises was concluded on 26.08.1999, books and other documents were seized. Thereafter notice under Sec.158BD was issued and assessee

11 has filed return. However, the assessment order came to be passed on 31.10.2001 which is clearly barred by the limitation. The Division Bench of this Court in para 2 and 3 has held as follows: 2. A search warrant came to be issued in the case of Sri.T.Balakrishna and Smt.Sulochana Balakrishna. However, the warrant showed that the premises to be searched is that of the assessee St.Ann’s High School at No.742 and 747, 6th Block, Rajajinagar, Bangalore. The search was finally concluded on 02.08.1999 at the premises of St.Ann’s School, Rajajinagar, Bangalore. The search at the residence of Sri.T.Balakrishna was concluded on 26.08.1999. The books of accounts maintained by the assessee were seized. Therefore, it is not in dispute that the premises of the assessee was searched and the books and other documents pertaining to the assessee were seized. It is thereafter a notice was issued under Section 158BD, calling upon the assessee to file a return and block assessment proceedings were initiated and the assessment order came to be passed on 31.10.2001 where as the notice for assessment was issued on 26.10.1999. 3. Even thought the Tribunal has set aside the order, the case of the revenue was it is a proceedings under Section 158BD and not 158BC and therefore, the period of 2 years for passing the assessment order would not arise. The Tribunal has held that the premises of the assessee was searched on 13.07.1999. Again it was searched for the

12 second time on 02.08.1999. 2 years is the time prescribed for passing the assessment order from the date of last panchanama. Even though 02.08.1999 is taken as the date of last panchanama, the assessment order ought to have been passed on or before 31.08.2001. The assessment order is passed on 31.10.2001. Therefore, it was of the view, it is clearly barred by time. These dates are not disputed. If that is so, the order of the Tribunal is legal and valid and do not call for interference. 12. Since the facts and circumstance of these appeals are similar to that of ITA.NO.1254/2006 and in view of the order passed in the above said appeal, the appeals filed by the Revenue are liable to be dismissed and substantial questions of law framed in these appeals are held against the Revenue. Accordingly, we pass the following: ORDER Both the appeals are dismissed.

Sd/- JUDGE Sd/- JUDGE mpk/-*