ITO WD 4(4), THANE vs. VIDYAVARDHINI TRUST, THANE

आदेश / O R D E R Per Bench: These three appeals have been filed by the Revenue against the three different orders of Ld. Commissioner of Income Tax (Appeals), Mumbai {(in short ‘CIT(A)’}, for assessment years 2001-02, 2002-03 & 2003-04, passed against the penalty order u/s 271(1)(c) of the Act. Following identical ground has been raised in all the three years:

3 Vidyavardhini Trust 3.1. We have gone through the orders of lower authorities. The brief facts noted from the orders of one of these years i.e. A.Y. 2003-04 are that the assessee trust was engaged in running educational institutions at Vasai, Thane. A search & seizure action u/s 132 of the I.T. Act was carried out at the assessee's premises on 20.07.2005. In response to notice u/s 153A, the return of income declaring NIL income was filed. In the return of income, the surplus as per Income & Expenditure account was shown at Rs.2,55,66,729/-. Against this surplus, capital expenditure was claimed at Rs.1,77,02,160/- and set-off of brought forward losses of earlier years was claimed at Rs. 83,64,569/-. The return was filed after claiming exemption u/s 11 of the I.T. Act as a Trust registered u/s 12A of the I.T. Act. In the assessment order passed u/s 153A r.w.s. 143(3), income of the assessee was determined at Rs. 3,04,20,532/- after disallowing exemption u/s 11 of the Act as the assessee was not registered u/s 12Aof the I.T. Act. The assessment was made in the status of an AOP. Penalty proceedings u/s 271(1)(c) were also initiated. The CIT(A) in his order dated 15.12.2008 allowed various reliefs to the assessee and after giving effect to the order of the CIT(A), the income of the assessee was determined at Rs.1,82,00,483/-. Penalty u/s 271(1)(c) of the I.T. Act, amounting to Rs. 60,00,000/- has been imposed being 100% of the tax sought to be evaded (in fact the amount of tax sought to be evaded was worked out at Rs.57,05,851/- on the concealed income of Rs. 1,82,00,483/-.

4 Vidyavardhini Trust 3.2. Being aggrieved, the assessee contested the matter before Ld. CIT(A), where part relief was given by him. Penalty with regard to addition of Rs.7,75,000/- made by the AO on account of receipt of capitation fee by the Honorary Secretary was confirmed and balance was deleted by Ld. CIT(A). It has been confirmed that the assessee has accepted the order of Ld. CIT(A) and no appeal has been filed by it. Whereas the Revenue has filed an appeal before the Tribunal for relief given by Ld. CIT(A).

3.3. It is noted from the perusal of the order of Ld. CIT(A) that he has analysed in detail, the correctness or otherwise of the penalty levied by the AO with respect to all the issues by dealing with them separately for each issue. It is noted that penalty u/s 271(1)(c) has been imposed in this case primarily in respect of two types of additions- firstly those additions in respect of which exemption u/s 11 of the Act was claimed even when the assessee did not have registration u/s 12A i.e. disallowance of capital expenditure, allowance of depreciation at a lower amount than the amount computed by the special auditors, voluntary donations which were held as general donations as against corpus donations claimed by the assessee and disallowance of brought forward losses. Secondly, penalty has been imposed in respect of addition on account of donations/ capitation fee, collected by Sh. Arun K. Patil, Hon. Secretary of the assessee- trust for granting admission to students into various educational institutions run by the assessee-trust found out

5 Vidyavardhini Trust on the basis of incriminating documentary evidences found during the course of survey at his business.

3.4. With regard to second type of penalty in respect to addition on account of capitation fee collected by Shri Arun K. Patil, it is noted that levy of penalty has been confirmed by Ld. CIT(A) and it has not been contested before us.

3.5. With respect to first type of additions which were made for denial of benefit of registration u/s 12A, it is noted that penalty has been deleted by Ld. CIT(A) by making following observations:

“With regard to the issue of registration u/s. 12A it is seen that the appellant had registration u/s 12A of the Act w.e.f. 1.04.2000 (i.e. AY 2001-02) in terms of CIT-III, Thane's order dated 29.03.2004. Subsequent to search and seizure action u/s 132 which was carried out on the appellant on 20.07.2005, this registration was cancelled by CIT (C), Pune vide his order u/s I2AA(3) dated 29/08/2007 for various reasons discussed in detail in that order. In the appeal against this order, the ITAT Mumbai vide their order in Appeal No. 6509/M/07 dated 14/05/2010 cancelled the above mentioned order u/s. 12AA(3) and restored the registration of the appellant's trust. The order giving effect to the said order of the 6 Vidyavardhini Trust tribunal was passed by CIT-III, Thane on 19/09/2011 restoring the registration of the appellant u/s. 12A w.e.f. 01.04.2000. Thus after the order of the ITAT dated 14.05.2010 the appellant had registration u/s 12A and consequently exemption u/s 11 was available to the appellant with effect from 1.04.2000.

the first type of additions.”

3.6. It is thus, noted that the Hon’ble ITAT has restored the benefit of registration u/s 12A to the assessee. Thus, as on date, impugned additions/disallowances do not survive any more. Thus, in our considered view, Ld. CIT(A) has rightly deleted the penalty levied by the AO with respect to these additions/disallowance which were made by the AO for denial of benefit of registration u/s 12A.

3.7. It is further noted that an additional issue was raised by Ld. CIT(A) in the quantum proceedings for denying benefit of exemption u/s 12A on the ground that provisions of sections 13(1)(c) were attracted in the case of the assessee. It is noted by us that Ld. CIT(A) has dealt with this issue also extensively in his order. Relevant para’s of his order are reproduced below:

“However for the year under consideration, an additional issue regarding disallowance of benefit u/s 11/ 12 of the Act on the ground of provisions of section 13(l)(c) being attracted in the appellant's case also needs to be considered. The Hon'ble ITAT decided the appellant's quantum appeal vide their order dated 20.0 1.2012. Though the appellant was having registration u/s 12A and thus benefit of exemption u/s 11 of the Act as already discussed above, vide this order dated

8 Vidyavardhini Trust

20.01.2012 the ITAT disallowed the appellant's claim of benefit u/s 11/12 of the Act by holding that provisions of section 13(1)(c) were attracted for the year under consideration. The violation of provisions of Sec. 13(1)(c) has been held to arise for the reason that Sh. Arun K. Patil, the Hon. Secretary of the trust had collected and pocketed certain amounts as donations/capitation fee for admitting students to educational institutions of the appellant trust. The ITAT in this regard held that such donations were income of the appellant trust and because such income had not been reflected in the appellant trust's books of account and had been used for the benefit of persons specified u/s 13(3), provisions of section 13(1)(c) were attracted and therefore, benefit of exemption u/s 11/12 was not available to the appellant. The issue that needs to be examined therefore is - whether holding the appellant in violation of provisions of Sec. 13(1 )(c) of the Act will also result in holding the appellant guilty of having concealed his income or having furnished inaccurate particulars for its income attracting the levy of penalty u/s. 271(l)(c).

The AR of the appellant in this regard has submitted that the AO in the assessment order had not invoked the provisions of section 13(1)(c)

9 Vidyavardhini Trust of the Act in respect of the matter pertaining to donations collected by Sh. Arun K. Patil. Further with regard to donations collected by Sh. Arun K Patil, the ITAT in the appeal against the order u/s 12AA(3) while restoring registration of the Trust had observed that "If any one person of any one institution indulges in wrong activities that does not mean that the said institution has indulged in wrong activities". According to the AR this comment by the Hon. jurisdictional tribunal absolved the appellant of any wrongdoing attracting levy of penalty.

After a careful consideration of the appellant's submissions, it is seen that originally in the assessment order, the A.O. had held violation of provisions of Sec. 13(1)(c) in the appellant's case on account of the fact that appellant had awarded some contracts at favorable rates to MIs. Deepkala, a construction concern wherein Mrs. Alka P. Khokhani, the daughter of the founder trustee and Chairman of the appellant trust, was a partner. It was held by the A.O. that by awarding contracts to MIs. Deepkala at favorable rates, the funds of the trust had been diverted for the benefit of the interested persons as mentioned u/s. 13(3) of the Act. CIT(A) after discussing this issue in detail held that this observation of the A.O. was not correct and the 10 Vidyavardhini Trust appellant trust had not passed any benefits to the contractor M/s. Deepkala. During the course of the appeal proceedings, the AO wrote a letter to the CIT(A) requesting him- to look into the issue of violation of provisions of section 13(1)(c) on account of donations collected by Sh. Arun K. Patil, the Hon. Secretary of the appellant trust. The CIT(A) after considering the whole issue in detail and after giving an opportunity of being heard to the appellant held that such donations were collected by the Hon. Secretary on behalf of the trust and such donations were the appellant trust's income. Further as the said donations had not been accounted for in the appellant's books of accounts and had been used by the trustees and the Hon. Secretary who were persons specified u/s. 13(3) of the Act, there was violation of provisions of Sec. 13(1)(c) and the exemption u/s. 11 was therefore, not available to the appellant. This finding of the CIT(A) has been upheld by the ITAT in the quantum order as referred to above. Thus the contention of the appellant that at the time of initiation of penalty proceedings u/s 271(1)(c) in the assessment order, the violation of section 13(1)(c) had been held for a different reason which has been deleted by the CIT(A), is factually correct. The CIT(A) independently has held the appellant in violation of provisions of 11 Vidyavardhini Trust section 13(1)(c) for the reason of collection of donations by the Hon Secretary of the appellant trust but has not initiated penalty proceedings u/s 271(1 )(c). Further though the ITAT has upheld these findings of the CIT(A) in the quantum appeal in their order dated 20/01/2012, however it is seen that while restoring registration of the appellant trust u/s. 12A of the Act vide their order dated 14/05/2010, the ITAT had observed that if any one person of any institution indulges in wrong activities that does not mean that the said institution has indulged in any wrongdoing. Therefore, the contention of the appellant that the violation of provisions of Sec. 13(1)(c) resulting in attracting the deeming provisions whereby the trust registered u/s. 12AA is denied the benefit of exemption u/s. 11 of the Act pertaining to application of income itself was based on a finding which was debatable as the ITAT had absolved the appellant trust from any wrong doing on account of activities of the Secretary of the trust, appears to have a lot of merit.

Keeping in view, the facts of the case as discussed in detail as above it is held that though the violation of provisions of Sec 13(1)(c) may have led to taxability of the income of the appellant's trust on account of denial of exemption u/s. 11

12 Vidyavardhini Trust of the Act, however, the same cannot be held to be a ground for attracting penalty a/s. 27 1(1 )(c) of the Act. Therefore, with regard to the first type of the additions i.e. those additions which were held to be taxable by the A.O. for the reason that exemption u/s 11 was not available to the appellant trust, levy of penalty u/s. 271(1)(c) was not justified and the same is deleted. The AO is directed accordingly.”

3.8. It is noted by us that Ld. CIT(A) has rightly deleted the penalty. Firstly, though findings of Ld. CIT(A) in the quantum appeal were upheld by the Tribunal, but while disposing another appeal ( which was filed before the Tribunal against the order passed by CIT- (exemptions) cancelling registration u/s 12A), the Tribunal in its order dated 14.05.2010 restored registration of the assessee trust u/s 12A, and further observed that if any one person of any institution indulges in wrong activities that does not mean that the said institution has indulged in wrong activities. Therefore, contention of the assessee that allegations for violation of provisions of section 13(1)(c) resulting in attracting the deeming the provisions whereby benefit of registration was denied, were based on findings which were debatable, in as much as, the ITAT had absolved the assessee-trust from any wrong doing on account of activities of the Hon. Secretary of the trust is also correct on facts.

13 Vidyavardhini Trust 3.9. Lastly, it is noted by us that levy of penalty by the AO on this addition was beyond the jurisdiction of the AO. It is noted that Ld. CIT(A), in the quantum appeal, for the first time held the assessee had made violation of provisions of section 13(1)(c) for the reason of collection of donation by the Hon. Secretary of the assessee trust. Thus, it is a case of enhancement of income made by Ld CIT(A) in the appeal order passed against the assessment order. Thus, the jurisdiction to initiate and levy penalty was with Ld. CIT(A) only. But he neither recorded any satisfaction about concealment of income nor he initiated the penalty proceedings u/s 271(1)(c), while disposing appeal against the quantum order. Thus, Ld. CIT(A) did not assume jurisdiction to levy penalty.

3.10. It is further noted that since no such issue was raised and no addition or disallowance was made by the AO in the assessment order, therefore, while initiating the penalty proceedings in the assessment order, the AO clearly did not assume any jurisdiction to levy the penalty with respect to this issue. For this legal proposition, we derive support from the judgment of Hon’ble Delhi High Court in the case of CIT vs. ‘SPL’s Sidhartha Ltd. 345 ITR 223, wherein it has been held that if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the act authorised under other circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to record his

14 Vidyavardhini Trust satisfaction on any particular issue, then it is that authority alone who should apply his independent mind to record his satisfaction.

3.11. The Apex Court in the case of Anirudh Sinhji Karan Sinhji Jadeja Vs. State of Gujarat, (1995) 5 SCC 302 has held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or in compliance with some higher authorities instruction, then it will be a case of failure to exercise discretion altogether.

3.12. We have analysed the correct position of law on this issue. It has been rightly contended that the jurisdiction to record satisfaction, initiate and levy the penalty with respect to additions made by Ld. CIT(A) by way of enhancement of income in the appeal against quantum order was with Ld. CIT(A) alone and that to in the course of appellate proceedings. The requisite satisfaction and initiation of penalty proceedings must have been done by Ld. CIT(A) in the course of appellant proceedings only. This jurisdiction does not lie with any other authority including the AO. The perusal of section 271(1)(c) shows that it begins with the following words:-

"If the AO or the CIT(A) or the Commissioner in the course of any proceedings is satisfied that any person.......”

15 Vidyavardhini Trust It is worth noting here that earlier, the word ‘CIT(A)’ was not there and it was inserted in this section w.e.f. 10.07.1978. Similarly the word ‘Commissioner' was also not there earlier which has been inserted by Finance Act 2002 w.e.f. 01.06.2002. It shows that the legislature is conscious of this fact and now w.e.f. 01.06.2002 the power has been given to the Commissioner to record satisfaction and to impose penalty in case of addition or disallowance made by him. It is settled law that with regard to the aspect of jurisdiction the legislative frame work is such that if a particular power/obligation has been conferred upon a particular authority, then that power/obligation can be exercised by that particular authority and the same cannot be delegated at the discretion of any other authority and it has to be exercised in that manner only in which the law has envisaged it to be exercised. The recording of satisfaction with respect to the initiation of penalty is a condition precedent for assumption of jurisdiction. The satisfaction has to be recorded and the penalty has to be levied as per law by that authority alone which has made the addition. In this case Ld CIT(A) has made the disallowance/addition by way of enhancement and has passed the quasi-judicial order. It is Ld CIT(A) only who had the jurisdiction to record any satisfaction about concealment of income.

16 Vidyavardhini Trust 3.13. Thus, when the AO passed penalty order 271(1)(c), he could not have levied penalty with respect to additions/disallowance made by the Ld. CIT(A), since he did not record satisfaction and initiate the penalty proceedings qua these items. Thus, he had no jurisdiction to levy penalty with respect to these items. Similar was taken by the Hon’ble Allahabad High Court in the case of CIT vs. Shadiram Balmukand 84 ITR 183 and CIT vs. Dwarka Prasad Subhash Chandra 94 ITR 154. Similar view has also been taken in two judgments of the ITAT in the case of ITO vs. Goldpar Hosiery Mills & Knitwears 77 ITD 340 (Chandigarh) and ACIT vs. Pardeep Publication 130 TTJ 92 (Amritsar). Thus, the penalty levied by the AO was illegal.

3.14. Further, it is noted by us that the ground raised by the Revenue is also irrelevant and unsustainable in law on the face of it. Only grievance raised by the Revenue in its ground is that order of Ld. CIT(A) in cancelling the penalty is not justified on the ground that Revenue has filed an appeal before Hon’ble High Court against the order of the Tribunal allowing restoration of registration u/s 12AA of the Act. In our considered view, there cannot be any ground to continue with the penalty merely because an appeal has been filed by the Revenue in the quantum proceedings. Once quantum additions are deleted, the basis for levy of penalty cease to exist and so must penalty. Thus, we find that Revenue’s appeal is totally misplaced and unsustainable.

17 Vidyavardhini Trust 3.15. Thus, viewed from any angle, we find that the order of Ld. CIT(A) in deleting the penalty is factually and legally justified. No interference is called for therein by us and therefore, endorsing the findings recorded by the Ld. CIT(A), grounds raised by the Revenue are dismissed.

Order pronounced in the open court on 20th January, 2016.