CHEMBUR MAHATMA EDUCATION SOCIETY,MUMBAI vs. ITO (E) -I(1), MUMBAI

We heard the parties and perused the record. The assessee is a Society and it is running educational institutions. It is registered u/s 12A of the Act. The Committee members of the assessee Society had earlier formed another Society by name “Mahatma Education Society”, which was claimed to be parent body of the group. It is stated that the Mahatma Education Society has initially started schools at various places and subsequently each of the schools were given to Separate Societies formed for specific purpose of running the schools.

During the course of assessment proceedings, the AO noticed that the approval to run schools was granted to the Mahatma Education Society and not to the assessee society, i.e., the assessee society was running schools without requisite approval from the Government. Accordingly, the AO took the view that the schools run by the assessee society are illegal and void. He further noticed that the parent body, viz., Mahatma Education Society has transferred its movable assets without any basis and without any consideration. The immovable properties were continued to be owned by the Mahatma Education Society. The transfer of license to the assessee society has been done without requisite approval from charity commissioner or appropriate Government authorities. Accordingly the AO took the view that the receipts of the assessee, in effect, belong to the parent body, viz., Mahatma Education Society. For the above said reasons, the AO rejected the books of accounts of the assessee. However, since the assessee has reported receipts, he assessed the gross receipts as income of the assessee without allowing any deduction towards expenditure. According to Ld A.R, the assessing officer has also assessed corpus donations that were received in the earlier years. The Ld CIT(A) also confirmed the order of the AO.

On a perusal of the facts available on record and rival contentions, we notice that the assessing officer has not pointed any defect in the books of accounts maintained by the assessee. The various deficiencies pointed out by the AO relate to the transfer of schools and assets. According to the assessing officer, the assessee society was running schools without getting permission in its own name and hence the activity of running schools on the strength of license obtained in the name of another society is not legal. Further, the AO has 3 Chembur Mahatma Education Society discussed about the contravention of the provisions relating to registration/approval with/by Charity commissioner. Thus, we notice that the AO has not pointed out any defect with the books of accounts of the assessee.

We have noticed that the assessee society is registered by the DIT (Exemption) u/s 12A of the Act and no action has been taken to withdraw registration even after making observation that the assessee society was not authorised to run schools. For the reasons discussed in the preceding paragraph, we are of the view that there is no justification for rejecting the books of accounts of the assessee. We have noticed that the AO has expressed the view that the receipts of the assessee society, in effect, belong to the parent body, viz., Mahatma Education Society, but proceeded to assess the gross receipts on substantive basis in the hands of the assessee. Thus, the observation so made was rendered meaningless. Thus, we notice that the assessing officer has proceeded to complete the assessment in a half hearted manner without giving any concrete decision on various defects pointed out by him.

Since we have held that the rejection of books of accounts was not justified in the facts and circumstances of the case and since the AO has completed the assessment without proper basis, we are of the view that the matter relating to assessment of income needs to be set aside to the file of the assessing officer. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to do the assessment de-nova after affording adequate opportunity of being heard to the assessee.

In the result, the appeal filed by the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Open Court on 8.6.2016.