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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-I, Raipur dated 24.03.2016, which in turns arises from the order passed by the A.O under Sec. 147 of the Income-tax Act, 1961 (in short ‘the Act’) dated 28.03.2014 for assessment year 2007-08. Before us the assessee has assailed the impugned order on the following revised grounds of appeal: “1. On the facts and circumstances of the case and in law, the ld CIT(A) has erred in upholding the action of the ld AO in initiating reassessment proceeding without having any tangible material in his possession for making 'reason to believe' for such alleged escapement of income of Rs.54,17,572/- by misapprehending the applicability of 85% utilization for claiming exemption u/s. 10(23C)(iiiad), which is based on opinion of 'audit party' based on audit scrutiny of income tax return. 2. On the facts and circumstances of the case and in law, the ld CIT(A) has erred in upholding the reassessment made by the ld AO, without disposing off the objections raised against the reasons recorded by way of speaking order, the reassessment is vitiated in law and is liable to be quashed. 3. On the facts and circumstances of the case and in law, the Id CIT(A) has erred in sustaining the addition of Rs.54,17,572/- on mere presumption that the assessee's objectives are not solely for educational purposes and denied the exemption u/s.10(23C)(iiiad), more so, the ld AO himself admitted that the alleged non-educational objectives, in fact were not pursued in the AY07-08, as held in Geetanjali Education Society (2014) 267 CTR 369 (Kar).
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On the facts and circumstances of the case and in law, the ld CIT(A) has erred in sustaining the addition of Rs.54,17,572/- on mere presumption that the assessee's objectives are not solely for educational purposes and denied the exemption u/s.10(23C)(iiiad), more so, in absence of any allegation that the assessee-society had carried on for the purposes of profit, as held in Queen's Educational Society (2015) (SC)."
Succinctly stated, the assessee which is a charitable society had filed its return of income for the assessment year 2007-08 on 31.03.2008, declaring an income of Rs. Nil. The return of income filed by the assesee society was processed as such u/s. 143(1) of the Act. Subsequently, the case of the assessee was reopened by the A.O for the reasons, viz. (i). that as the assessee society had not applied 85% of its gross income as was required under the Income-tax Act, therefore, it was not entitled for claim of exemption u/s.10(23C)(iiiad) of the Act; and (ii). that as the assessee society had filed an application for registration u/s.12A of the Act on 28.11.2007, which was granted on 11.04.2008 i.e. w.e.f. 01.04.2007 from A.Y.2008-09 onwards, therefore, its income for the year under consideration i.e. A.Y.2007-08 would not be exempted and would be exigible to tax.
2.1 On the basis of his aforesaid observations the A.O holding a belief that the income of the assessee society chargeable to tax had escaped assessment, thus, reopened its case u/s.147 of the Act. For
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the sake of clarity the copy of “reasons to believe” (Page 9 of APB) on the basis of which the case of the assessee society was reopened are culled out as under: “HOLY HEARTS EDUCATIONAL SOCIETY RAIPUR A.Y. 2007-08 Reasons for reopening u/s.148 17.05.2012 The Assessee is a charitable Society and has filed its return of income for the A.Y. 2007-08 on 31.03.2008 and the same was processed u/s 143(1) at nil income. In the consolidated income & expenditure account filed along with Return of income, Rs.54,17,572/- was shown as excess of income over expenditure but no tax was paid on the above income. Computation of income as mentioned in the return was also not enclosed therewith. Further the society has not applied 85% of its gross income as required by the income tax act, therefore exemption u/s.10(23C)(iiiad) will also not be allowable. Moreover, it had filed application u/s 12A of I.T. Act, 1961 on 28th Nov.2007 in the prescribed format for seeking registration. The approval u/s 12A was granted on 11.04.2008 w.e.f. 01.04.2007 i.e. from A.Y. 2008- 09 onwards. Hence, the income for the A.Y. 2007-08 will not be exempted and tax would be leviable on the above income. Failure to do so resulted in underassessment of income to the tune of Rs. 5417572/- with consequential short levy of tax of Rs.1767453/- along with interest. In view of the, I have reason to believe that the assessee had income to the tune of Rs.54,17,572/- which escaped assessment during the F.Yr.2006-07 relevant to A.yr.2007-08. Hence, I deem it a fit case for issuing notice u/s.148 of the Income tax Act, 1961. Submitted. Sd/- DCIT-1(1)”
2.2. Thereafter, the A.O vide his order passed u/s.147 dated 28.03.2014 declined the assessee’s claim of exemption
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u/s.10(23C)(iiiad) of the Act and determined its income at Rs.54,17,572/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) but without any success.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
At the very outset of the hearing of the appeal the Ld. Authorized Representative (for short ‘AR’) for the assessee assailed the validity of the jurisdiction that was assumed by the A.O under Section 147 of the Act. Elaborating on her aforesaid contention the Ld. AR has taken us through the copy of the “reasons to believe” on the basis of which proceedings u/s.147 of the Act were initiated in the case of the assessee. It was submitted by the Ld. AR that the AO had grossly misconceived the settled position of law and in the “reasons to believe” had wrongly observed that as the assessee had failed to apply 85% of its gross income, therefore, it was not entitled for exemption under Sec. 10(23C)(iiiad) of the Act. It was submitted by the ld. AR that there was no obligation cast upon an assessee to apply 85% of its gross income as a pre-requisite condition for claim of exemption
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u/s.10(23C)(iiiad) of the Act. It was averred by the ld. AR that as the very basis for reopening of the assessee’s case u/s 147 was blatantly not as per the mandate of law, therefore, the assumption of jurisdiction by the AO being devoid and bereft of any force of law was liable to be struck down. It was further submitted by the ld. AR that the A.O had further wrongly observed that as the assessee had filed an application for registration u/s.12A on 28.11.2007, which thereafter was granted on 11.04.2008 w.e.f. 01.04.2007 i.e. A.Y.2008- 09 onwards, therefore, it was during the year under consideration not entitled for claim of exemption. It was submitted by the Ld. AR that the said observation of the A.O was totally uncalled for in context of the assessee’s claim for exemption during the year under consideration. It was the claim of the Ld. AR that as the assessee had in its return of income for the year under consideration i.e. A.Y.2007- 08 claimed exemption u/s.10(23C)(iiiad) of the Act and had not sought any exemption u/s.11 of the Act, therefore, the aforesaid reason forming the very basis for taking recourse to proceedings u/s. 147 was totally incorrect. On the basis of her aforesaid contention it was the claim of the Ld. AR that as both the reasons forming the basis for taking recourse to proceedings u/s.147 of the Act were incorrect and
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misconceived, therefore, the initiation of the proceedings which thereafter had culminated into the impugned order u/s.147, dated 28.03.2014 could not be sustained and was liable to be struck down on the said count itself.
Per contra, the Ld. DR relied on the orders of the lower authorities.
We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
Admittedly, it is a matter of fact borne from record that the case of the assessee society was reopened by the AO u/s.147 of the Act for two fold reasons, viz. (i) that as the assessee society had not applied 85% of its gross income as required under the Income-tax Act, therefore, it was not entitled for claiming exemption u/s.10(23C)(iiiad) of the Act; and (ii) that as the assessee society had filed an application for registration u/s.12A of the Act on 28.11.2007, which was granted on 11.04.2008 i.e. w.e.f. 01.04.2007 from A.Y.2008-09 onwards,
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therefore, its income for the year under consideration i.e. A.Y.2007-08 would not be exempted and would be exigible to tax.
Having given a thoughtful consideration to the facts involved in the present case before us, we are unable to comprehend the very basis for the AO to take recourse to proceedings u/s.147 of the Act. As application of 85% of gross income is by no means a requisite condition for claim of exemption under Sec. 10(23C)(iiiad) of the Act, therefore, in our considered view the A.O had grossly misconceived; or in fact misunderstood the settled position of law, and thus, had wrongly taken recourse to proceedings u/s.147 of the Act. In order to dispel all doubts we herein cull out the provisions of Sec. 10(23C)(iiad) of the Act, which reads as under : “10. In computing the totalincome of a previous year of any person, any income falling within any of the following clauses shall not be included :- (23C). any income received by any person on behalf of – (iiiad). any university or other educational institution existing solely for educational purposes and not for the purposes of profit ifthe aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed.”
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As such, there is no obligation cast upon an assessee to apply 85% of its gross income to claim exemption under the aforesaid statutory provision. Ostensibly, the AO had wrongly read in the statutory requirement contemplated in the “3rd proviso” to Sec. 10(23C), which we are afraid is only applicable to institutions/trusts/funds referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of Sec. 10(23C) of the Act. Be that as it may, as there is no obligation cast upon an assessee to apply 85% of its gross income for claiming exemption u/s 10(23C)(iiiad) of the Act, therefore, the very basis for reopening of the assessee’s case by the AO is incorrect and misconceived on the said count.
Ostensibly the second reason forming the very basis for reopening of the case of the assessee also does not stand on a better footing. As regards the observation of the A.O that as the assessee society had filed an application for registration u/s.12A of the Act on 28.11.2007, which thereafter was granted on 11.04.2008 i.e from A.Y.2008-09 onwards, therefore, it was not eligible for claiming exemption on the said count during the year under consideration i.e. A.Y.2007-08, the same also in our considered view is based on wrong
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facts. On a perusal of the return of income filed by the assessee, Page 13 to 48 of APB, it transpires that the assessee had claimed the exemption of his income of Rs. 54,17,572/- u/s.10(23C)(iiiad) of the Act. Although the assessee in its return of income had in substance claimed exemption of its income u/s.10(23C)(iiiad) of the Act, but had also referred to claim for exemption u/s.11(1)(a) of the Act of Rs. Nil. However, as the assessee had not claimed any part of its income as exempt under Sec. 11(1)(a) of the Act, therefore, there could have been no basis for the AO to arrive at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment on the said count i.e wrong claim of exemption u/s 11(1)(a) of the Act. On the basis of our aforesaid observation, we are of the considered view that as the “reasons to believe” forming the very basis for taking recourse to proceedings u/s.147 of the Act in the case of the assessee are absolutely misconceived and incorrect, therefore, the very assumption of jurisdiction on the part of the A.O cannot be sustained and is liable to be struck down. Consequent to want of valid assumption of jurisdiction by the AO the assessment framed by him u/s.147 of the Act, dated 28.03.2014 cannot be sustained and is hereby quashed in terms of our aforesaid observations.
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As we have quashed the assessment framed by the A.O u/s.147 of the Act, dated 28.03.2014 for want of valid assumption of jurisdiction, therefore, we refrain from adverting to and therein adjudicating the other contentions that were advanced by the Ld. AR on the merits of the case, which, thus, are left open.
Resultantly, appeal filed by the assessee is allowed in terms of our aforesaid observations. Order pronounced under rule 34(4) of ITAT Rules, 1963 on 17th day of October, 2022. Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 17th October, 2022 **SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.