MOTHER THERESSA EDUCATIONAL SOCIETY,AMALAPURAM vs. ASSISTANT COMMISSIONER OF INCOME TAX, EXEMPTION CIRCLE, VIJAYAWADA

These appeals and cross objection are filed by the assessee and revenue, against different orders of the Learned Commissioner of Income Tax (Appeals / Exemption) for the A.Y.2018-19. Since all these appeals relates to same assessee, these appeals are being clubbed and heard together. For the sake of convenience, consolidated order being passed.

Brief facts of the case are that, the assessee being the society is registered under section 12A r.w.s. 12AA(1)(b) of the Act vide Registration No. H.QRS/III/114/2003-04 dated 28.10.2005 and also registered under section 80G of the Act vide Registration No. F.NO. H.QRS/III/107 80G on 29.01.2010 by the CIT, Rajahmundry. The assessee filed its return of income declaring NIL income after claiming of application of income under section 11 of the Act. The case was selected for complete scrutiny under CASS and accordingly the assessment was completed under section 143(3) r.w.s. 144B of the Act on 15.04.2021 assessing the total income at Rs. Nil. However, during the scrutiny assessment proceedings, Assessing Officer noticed that assessee has mis-reported claim of expenditure on account of depreciation amounting to Rs.7,95,54,942/- and thereafter initiated penalty proceedings under section 270A of the Act requiring the assessee to submit his reply online electronically. The Assessing Officer observing that the assessee has claimed application of fund as capital application while acquiring the assets amounting to Rs.8,36,91,167/- and simultaneously has claimed depreciation amounting to Page No. 3 &229/VIZ/2024 C.O. No. 01/VIZ/2024 Mother Theressa Educational Society Rs.7,95,54,942/-. Therefore, the Assessing Officer treated the claim of depreciation as tantamount to double deduction. The Assessing Officer noticed that assessee has claimed application on revenue account Rs.56,70,42,821/- after deducting the depreciation claimed but included application of capital expenditure aggregating to total claim u/s 11 for Rs. 65,07,33,988/- which is more than 85% of total receipts of Rs.73,04,73,622/- i.e. Rs.62,09,02,578/-. Thereafter, the Assessing Officer accepted the assessee income at Rs. NIL while finalising the assessment. However, Assessing Officer considered that the assessee has mis-reported the claim of expenditure on account of depreciation and therefore initiated penalty proceedings under section 274 r.w.s. 270A of the Act. The Assessing Officer thereafter issued show-cause notice dated 15.04.2021. In response, assessee submitted its reply on 28.07.2021. Considering the reply submitted by the assessee, Assessing Officer did not accept the justification made by the assessee and therefore imposed penalty of Rs.4,91,64,956/- which the Assessing Officer states that it is 200% of the amount of tax on the under-reporting of the income.

The only contention of the revenue is with respect to deletion of penalty on the mis-reporting of income by the assessee which is not allowed under section 11(6) of the Act. The Ld. Departmental Representative [hereinafter in short “Ld.DR”] by placing heavy reliance on the orders of the Assessing Officer stated that the assessee has furnished false information and mis-reported the application of income while filing the return of income, and therefore pleaded that the penalty levied by the Assessing Officer be upheld.

Per contra, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that assessee has fulfilled obligation of spending 85% of the total receipts even after the disallowance made on account of depreciation. He further submitted that there is no leakage of revenue and no tax is payable or no Page No. 5 &229/VIZ/2024 C.O. No. 01/VIZ/2024 Mother Theressa Educational Society income has escaped tax. The Ld.AR referring to Sub-Section (2) of section 270A where in it is clearly mentioned that a person shall be considered as under-reported the income, if the following conditions are satisfied.

We have heard both the sides and perused the material available on record and the orders of lower authorities. It is an undisputed fact that the assessee has fulfilled the obligation of spending 85% of the revenue collected. However, assessee has claimed depreciation which is not permissible as per section 11(6) of the Act. The Assessing Officer has rightly disallowed depreciation of Rs.7,95,54,942/- and has framed the assessment stating that even after disallowance of depreciation the assessee has spent more than 85% of the total receipts and therefore the income offered by the assessee at Rs.NIL was accepted while finalising the assessment. However, Assessing Officer resorted to levy penalty under section 270A of the Act stating that the assessee has mis-reported income by computing the tax on the amount disallowed as depreciation and subjected it to the maximum marginal rate and levied the Page No. 7 &229/VIZ/2024 C.O. No. 01/VIZ/2024 Mother Theressa Educational Society penalty 200% on the amount of tax payable. We find that Assessing Officer has contradicted himself by levying penalty whereas while framing the assessment accepted Rs. Nil as income even after disallowance of depreciation. However, the Assessing Officer has resorted to compute notional tax on the disallowance on which no tax is payable by the assessee. Further as argued by the Ld.AR, the assessee has not under-reported his income as per section 270A sub-section (2) clause (a) to clause (g). Further sub-section (7) of section 270A refers to penalty leviable on the amount of tax on the under-reported income. However, in the instant case there is no tax payable by the assessee as the assessee has spent more than 85% of the revenue collected during the year. This fact is not disputed by the revenue. We are therefore of the considered view that Ld.CIT(A) has rightly deleted the penalty and hence we find no infirmity in the order of the Ld. CIT(A) thereby dismissing the appeal filled by the revenue.

In the result, appeal filed by the revenue is dismissed.

In the result, cross objection filed by the assessee is dismissed.

This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax, Exemption, Hyderabad at Vizag [hereinafter in short Ld.CIT(E)] passed under section 263 of Income Tax Act, 1961 (in short ‘Act’) in DIN & Order No. ITBA/REV/F/REV5/2023-24/1063374578(1) dated 26.03.2024 arising out of the order passed under section 143(3) of the Act dated 15.04.2021.

Brief facts of the case are that, Ld. CIT(E) considered the assessment order passed by the Assessing Officer as erroneous and prejudicial to the interest of the revenue while exercising his powers under section 263 of the Act, stating that Assessing Officer has not disallowed the claim of depreciation on assets, thereby amounting to claim of double deduction of the same amount. He therefore considered the assessment order as erroneous and prejudicial to the interest of the revenue, thereby, directed the Assessing Officer to redo the assessment after verification of the issue in accordance with law as per the issues mentioned in Para No. 6 to 6.2 of the order of the Ld. CIT(E) passed under section 263of the Act.

Aggrieved by the order of the Ld.CIT(E), assessee is in appeal before us by raising following grounds of appeal: -

The learned Commissioner of Income Tax (Exemption) is not justified in assuming jurisdiction u/s 263 of the Act in as much as the assessment order u/s 143(3) r.w.s. 143(3A) & 143(B) dated 15.04.2021 for the A.Y.2018-19 is neither erroneous nor prejudicial to the interests of revenue.

The learned Commissioner of Income Tax (Appeals) failed to appreciate that the Assessing officer had already disallowed the claim for deprecation and hence there was no case for redoing the assessment on the same ground.

Any other ground that may be urged at the time of appeal hearing.”

The only issue emanate from the above grounds is with respect to the validity of the order passed by the Ld.CIT(E) under section 263 of the Act wherein the Assessing Officer has already disallowed a sum of Rs.7,95,54,942/- on account of depreciation claimed as revenue expenditure by the assessee. Ld.Authorised Representative [hereinafter “Ld.AR”] submitted that since the Assessing Officer has already disallowed a sum of Rs. 7,95,54,942/- the order of the Ld.CIT(E) deserves to be quashed.

Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] relied on the order of the Ld.CIT(E).

It is the contention of the Ld.AR that since the Assessing Officer has already disallowed claim of depreciation, order of the Ld. CIT(E) deserves to be Page No. 11 &229/VIZ/2024 C.O. No. 01/VIZ/2024 Mother Theressa Educational Society quashed. We find merit in the argument of the Ld.AR that since the Assessing Officer has already disallowed the depreciation amount of Rs. 7,95,54,942/- the order passed under section 263 of the Act by the Ld.CIT(E) directing the Assessing Officer has no merits. We therefore quash the order passed by the Ld. CIT(E) u/s 263of the Act. Accordingly, grounds raised by the assessee are allowed.

In the result, appeal of the assessee is allowed.

To sum-up, the adjudication of appeals is follows: