2016 (11) TMI 1042 - AT - Income Tax

Tribunal Decision: Key Issues Ruled in Favor of Assessee, Emphasizes Importance of Evidence

Apeejay Education Society, Rajeshwari Sangeet Academy Versus Assistant Commissioner of Income-Tax

The Tribunal upheld the validity of the assessment order, denied the exemption under Section 11, and disallowed expenses and depreciation. However, it ... Non grant of exemption u/s 11 - Held that:- As all the conditions of section 11 of the Act stand fully satisfied by the assessee cumulatively. Section 12 is not applicable to the facts of the case. Firstly, the income is derived from property held wholly for charitable purposes. Hence, the mandate as per 'M. Visvesvaraya Industrial Research and Development Centre' (2012 (11) TMI 235 - BOMBAY HIGH COURT), as to whether the assessee has satisfied the conditions stipulated in section 11 stands complied, as all the three conditions regarding deriving income from property held under trust wholly for charitable purposes, application of income to charitable purposes in India and accumulation not being more than 15 per cent. of such income are satisfied. The position with regard to the other assessee remains undisputedly the same. Neither of the authorities below has challenged the financials of either of the assessees, and therefore, the requirements of section 11 of the Act, as noted, qua both the assessees, has remained unquestioned, nullifying the impugned orders on this score. On the basis of the above discussion, we hold that the learned Commissioner of Income-tax (Appeals) has erred in confirming the non- grant of exemption under section 11 of the Act to the assessee and, accordingly, none of the alternative submissions raised by the assessee requires to be adjudicated, that they having been rendered merely academic. - Decided in favour of assessee Issues Involved:1. Validity of the assessment order.2. Denial of exemption under Section 11 of the Income-tax Act.3. Application of Section 13(1)(c) of the Income-tax Act.4. Classification of income as business income instead of under Sections 11 to 13.5. Disallowance of depreciation on computer software.6. Disallowance of expenses and assessment of income at an exorbitant figure.7. Charging of interest under Sections 234A, 234B, 234C, and 234D.Issue-wise Detailed Analysis:1. Validity of the Assessment Order:The assessee contended that the assessment order was bad in law, without jurisdiction, and barred by time limitation. However, the Assessing Officer (AO) conducted the assessment under Section 143(3) and issued notices under Sections 143(2) and 142(1) within the stipulated time frame. The Tribunal upheld the validity of the assessment order, finding no jurisdictional or procedural errors.2. Denial of Exemption under Section 11:The AO denied the exemption under Section 11, alleging that the assessee violated the provisions of Section 13(1)(c) by engaging in bogus transactions with M/s. Washington Software Ltd. (WSL). The AO's conclusion was based on statements from Sh. Sanjay D. Sonawani, who admitted providing accommodation entries. The Tribunal found that Sh. Sonawani's statements were inconsistent and unreliable. The Tribunal emphasized that the assessee provided evidence of software installation and offered to allow an independent expert to verify the software. The Tribunal concluded that the denial of exemption under Section 11 was unjustified.3. Application of Section 13(1)(c):The AO invoked Section 13(1)(c), alleging that the assessee's income was used for the benefit of a related person, Sh. Vijay Berlia. The Tribunal noted that there was no concrete evidence of any benefit accruing to Sh. Berlia or any other related person. The Tribunal highlighted that the AO failed to establish a direct nexus between the alleged bogus transactions and any benefit to the related person. Consequently, the Tribunal held that the application of Section 13(1)(c) was unwarranted.4. Classification of Income as Business Income:The AO assessed the income as business income instead of under Sections 11 to 13, arguing that the assessee engaged in commercial activities. The Tribunal found that the assessee was a registered charitable trust engaged in running educational institutions, and its activities were in line with its charitable objectives. The Tribunal ruled that the income should be assessed under Sections 11 to 13, not as business income.5. Disallowance of Depreciation on Computer Software:The AO disallowed depreciation on computer software, claiming that the software purchases from WSL were bogus. The Tribunal noted that the assessee provided evidence of software installation and offered to allow an independent expert to verify the software. The Tribunal found the AO's disallowance of depreciation to be unjustified, as the assessee demonstrated the genuineness of the software purchases.6. Disallowance of Expenses and Assessment of Income at an Exorbitant Figure:The AO disallowed various expenses and assessed the income at a highly exorbitant figure. The Tribunal observed that the AO's disallowances were based on the assumption of bogus transactions without concrete evidence. The Tribunal found that the assessee provided sufficient evidence to support its claims and that the AO's assessment was excessive and unjustified.7. Charging of Interest under Sections 234A, 234B, 234C, and 234D:The AO charged interest under Sections 234A, 234B, 234C, and 234D. The Tribunal held that the charging of interest was consequential and dependent on the final assessment of income. Since the Tribunal ruled in favor of the assessee on the substantive issues, the interest charged was also deemed incorrect and was to be recalculated based on the revised assessment.Conclusion:The Tribunal allowed the assessee's appeals, ruling that the denial of exemption under Section 11, the application of Section 13(1)(c), the classification of income as business income, the disallowance of depreciation, and the disallowance of expenses were all unjustified. The Tribunal emphasized the importance of concrete evidence and proper verification in making such determinations.