TaxTMI 
TaxTMI 
2006 (2) TMI 509
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....t the time of hearing this ground was not challenged. Therefore, the same is rejected being not pressed. 3.3 Ground Nos. 2 and 5 for assessment year 1995-96 and ground Nos. 3 and 6 in all other appeals are against not allowing exemption to the assessee under section 10(22) of the Income-tax Act, 1961. 3.4 Ground No. 3 in assessment year 1995-96 and ground No. 4 taken in all other appeals challenge the addition of income made in the hands of the assessee after disallowing the claim of exemption under section 10(22). 3.5 Ground No. 4 in assessment year 1995-96 and ground No. 5 in all other appeals challenge the order of learned CIT(A) in assessing bank deposits as the income of the assessee, ignoring the order of Settlement Commission in the case of Shri S.S. Khanna. 3.6 Ground No. 6 in assessment year 1995-96 and ground No. 8 in all other appeals relates to initiation of penalty proceedings under section 271(1)(c). 3.7 All other grounds taken in these appeals are general in nature and require no specific adjudication. 4. In view of the above set of grounds we proceed to dispose of the issue taken in ground No. 1 relating to validity of notice under section 143(2) and thereafte....
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....30-12-2005 have also been filed. 8. The learned Sr. D.R. has also filed written submissions on the issue relating to service of notice under section 143(2). In these submissions, he has raised some preliminary objections. 9. As the learned D.R. has raised preliminary objections regarding the admissibility of ground No. 1 taken by the assessee in these appeals, we deem it proper to consider the same first. 10. It has been averred that the ground as taken by the assessee regarding service of notice under section 143(2) is liable to be dismissed because the assessee did not take this ground either before the Assessing Officer or before the learned CIT(A). It has further been submitted that the ground as taken by the assessee is not a purely legal ground and hence the same cannot be taken for the first time before the Tribunal. In this regard, the reference has also been made to the decision of the Hon'ble Supreme Court in the matter of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 and the decision of the I.T.A.T., Delhi Bench 'C' in the case of Sat Narain v. ITO [2005] 94 TTJ (Delhi) 499. It is submitted that this ground cannot be adjudicated on the basis of facts avail....
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....essee denied the service of notice upon the assessee. The Bench directed the learned D.R. to supply photo-copies of the notices etc. This has been done with a view to properly adjudicate the ground referred to above. Again no objection was raised at this time also. 14. In view of the above since the entire relevant material for adjudication of ground No. 1 is available on record, it cannot be said that the adjudication of this ground will require any investigation into facts or scrutiny of record, which are not before the Tribunal. 15. The contention of the learned counsel for the assessee was that in view of the decision of Special Bench of I.T.A.T., Delhi Bench "B" in the case of Raj Kumar Chawla v. ITO [2005] 94 ITD 1, the ground relating to issuance of and service of notice is purely a legal ground. It was further contended by him that notice issued under section 143(2) is a statutory notice which is required to be served before the expiry of twelve months from the end of the month in which the return was filed and therefore, the issue involved in ground No. 1 taken by the assessee is purely a legal issue. He further submitted that the issue relating to service of notice is a....
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.... No. A.Y. Return filed Purported date of issuance of notice Purported date of service on unauthorized person Date of service as per asst. order 1. 1991-92 30-3-1998 30-11-1999 9-12-1999 7-12-1999 2. 1992-93 4-12-1996 8-1-1997 14-1-1997 19-1-1999 S. No. A.Y. Return filed Purported date of issuance of notice Purported date of service on unauthorized person Date of service as per asst. order 3. 1993-94 4-12-1996 9-1-1997 14-1-1997 19-1-1999 4. 1994-95 4-12-1996 8-1-1997 14-1-1997 19-1-1999 5. 1995-96 29-3-1996 8-1-1997 14-1-1997 24-3-1998 6. 1996-97 29-11-1996 8-1-1997 14-1-1997 19-1-1999 7. 1997-98 26-3-1998 30-11-1999 9-12-1999 30-11-1999 19.1 On behalf of the department also a table has been filed to show service of notice. This table has been prepared in the letter dated 12-12-2005. The details of service of notice from this table are as under : S. No. A.Y. Order sheet pages Notice under section 1. 1991-92 3 pages 143(2) dated 30-11-1999 2. 1992-93 3 pages 143(2) dated 8-1-1997 3. 1993-94 3 pages 143(2) dated 8-1-1997 4. 1994-95 3 pages 143(2) dated 8-1-1997 5. 1995-96 9 page....
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....period of 12 months from the end of the month in which the returns were filed upon or upon any representative authorized or empowered by it. Hence, we have to examine the issue in the light of the relevant legal provisions as well as the relevant facts for deciding the issue. The legal provisions are examined below. 24. Section 282 of the Income-tax Act lays down the mode of service of notices. The provisions of section 282 are as under : "282. (1) A notice or requisition under this Act may be served on the person therein named either by post or as if it were a summons issued by a court under the Code of Civil Procedure, 1908 (5 of 1908). (2) Any such notice or requisition may be addressed- (a )in the case of a firm or a Hindu undivided family, to any member of the firm or to the manager or any adult member of the family; (b)in the case of a local authority or company, to the principal officer thereof; (c )in the case of any other association or body of individuals, to the principal officer or any member thereof; (d)in the case of any other person (not being an individual) to the person who manages or controls his affairs." 24.1 Section 282(1) provides that notice is to be ....
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....cribed, where there are more defendants than one, service of the summons shall be made on each defendant. Rule 12. Service to be on defendant in person when practicable, or on his agent.-Wherever it is practicable, service shall be made on the defendant in person, unless he has an agent empowered to accept service, in which case service on such agent shall be sufficient. Rule 16. Person served to sign acknowledgement.-Where the serving officer delivers or tenders a copy of the summons to the defendant personally, or to an agent or other person on his behalf, he shall require the signature of the person to whom the copy is so delivered or tendered to an acknowledgement of service endorsed on the original summons. Rule 18. Endorsement of time and manner of service.-The serving officer shall, in all cases in which the summons has been served under rule 16, endorse or annex, or cause to be endorsed or annexed, on or to the original summons, a return stating the time when and the manner in which the summons was served, and the name and address of the person (if any) identifying the person served and witnessing the delivery or tender of the summons. 25. It may be pointed out that in ....
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.... the Department has been seriously challenged by the learned counsel for the assessee before us. It is submitted that as per relevant order sheet for assessment year 1991-92 available at page 2, the first date is 30-11-1999, which clearly shows that the notice under section 143(2) was issued on 30-11-1999 and not prior to it. We find force in the submissions of the assessee and hold that the notice under section 143(2) was issued for this assessment year on 30-11-1998 and was not served on 30-3-1998. Our reasons for drawing this conclusion are as under : (i)As per order sheet entry for assessment year 1991-92, the first order is as under : "30-11-1998 Case is fixed for 14-12-1998. Notices under section 143(2), 142(1) and questionnaire issued." The above entry clearly shows that the notice under section 143(2) was issued on 30-11-1998 and therefore, no question arises regarding its service prior to that date. Otherwise also, the Assessing Officer has not recorded any fact about service of notice prior to this date. (ii)In the assessment order for assessment year 1991-92, the Assessing Officer has mentioned that notice under section 143(2) was issued on 30-11-1999, which was serv....
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....tter of the department, the date of notice is shown as 30-11-1999, however, by ink another date i.e. 14-7-1998 has also been indicated showing service of notice. In support of this added entry, photocopy of notice dated 14-7-1998 has been filed, which is available at page 5 of the Paper Book. The submission of the learned D.R. on the basis of this document was that the notice for this year was served on 14-7-1998. According to the learned counsel for the assessee in this year also, notice under section 143(2) was issued on 30-11-1999. 30. On going through the entire material on record, it is found that the submission of the learned D.R. is not substantiated. On the other hand, from the record the stand taken by the assessee is found to be fully proved. Our reasons for holding so are as under : (i)In the assessment order, the Assessing Officer has observed in paragraph 2 that the notices under section 143(2) was issued on 30-11-1999. These observations are reproduced below : "Notices under sections 143(2) and 142(1) of the Income-tax Act, 1961 along with questionnaire were issued to the assessee on 30-11-1999 fixing the case for 14-12-1998." (ii)In this year also, the first orde....
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....available in the Paper Book. The assessee has not filed any counter affidavit and thus the contents of the affidavit remain uncontroverted. Hence, the affidavit has to be accepted as creditworthy. Thus, on the basis of the affidavit and the photocopy of the notices, it is found that the notices for these assessment years were served on the assessee within one year from the end of the month in which the returns were filed. 34.1 In view of the above, ground No. 1, as taken in assessment years 1992-93, 1993-94, 1994-95, 1995-96 and 1996-97 stand rejected. 35. Ground No. 2 in assessment year 1995-96 and ground No. 3 in all other appeals : These grounds relate to the claim of the assessee that the income of the assessee-society is exempt under section 10(22) as being income of the educational institution existing solely for educational purpose and not for the purpose of profit. 36. Ground No. 3 for assessment year 1995-96 and ground No. 4 in all other appeals relate to the submission that the learned CIT(A) erred in law and in facts in confirming the income assessed at Rs. 20,51,200 for assessment year 1995-96; Rs. 19,13,100 for assessment year 1994-95; Rs. 15,49,700 for assessment y....
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....o the members of the society provided that nothing herein shall prevent the payment of remuneration of its office bearers, staff servants and others in return for any services rendered by them to the Society. (b) No member of the Governing Body of the Society shall be appointed to any salaried office of the Society accept on special grounds. The members of the Governing Body shall be entitled to repayment of out of pocket expenses and interest of money lent or rent for premises demises to the Society. (c) The Society, by its Constitution is required to apply its profits, if any, or other income in promoting its objects. (d) If upon the winding up or dissolution of the Society, there remains after satisfaction of all its debits and liabilities any property whatsoever, the same shall not be paid to or distributed among the members of the Society, but shall be given or transferred to some other Institution having objects similar to the objects of the society to be determined by the members of the society at or before the time of dissolution." 39.2 The Memorandum was signed by 10 members and submitted for registration of the Society. 39.3 The Society has been running a school unde....
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....e contemporaneous records were available, could not be accepted. 39.8 The Assessing Officer (AO) worked out the gross receipt from school fees on the basis of the number of students as per the attendance register found during the course of survey. On the fees recorded in the diary in respect of a few students, he assumed that every student would have paid the same fee and in this way, he estimated the total receipt from tuition from the assessment year 1995-96 at Rs. 30,41,140. Taking the transport receipt, admission fees, students fund, prospective receipts and sale of newspapers on estimated basis, he worked out total receipts at Rs. 35,09,140. He increased the receipts by 10% in each of the total subsequent two years i.e., 1996-97 and 1997-98 by reducing them by 10% in each of the four preceding years from assessment years 1991-92 to 1994-95. From the receipt so estimated, he allowed expenses on account of salary at Rs. 9,00,000 for the assessment year 1995-96 and expenses on a similar scale in other years. He also allowed other expenses at an estimated basis at Rs. 3,50,000. In this way for the assessment year 1995-96, he estimated the total income at Rs. 20,51,200. 40. In th....
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....n 12A(1) of the Income-tax Act, 1961 only on 29-3-1996 and the application of the assessee in this respect is still under consideration. III.The school is actually managed by its Manager/Principal Shri S.S. Khanna and the surplus of income over expenditure is siphoned off by him for his personal benefit. This is evident from the fact that a number of bank accounts maintained by Shri Khanna and his family members have been detected in which huge deposits appear with no substantial explanation regarding the deposits. This is further supported from the entries in account No. 7101 of Indian Overseas Bank wherein deposits made from time to time are according to the salary payable to the staff while the receipts on account of school fees are in lacs. From this it is clear that the remaining fee receipts have been deposited by Shri Khanna in various accounts in his name and in the names of his family members. IV.No books of account etc. have been maintained in respect of the school and the fees charged from the students as collected by Smt. Chanchal Khanna w/o Shri S.S. Khanna. The assessee has made contradictory statements in this respect regarding maintenance of books of account till ....
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....the school fees are being collected by his wife Smt. Chanchal Khanna. In reply to query made regarding appointment of Shri Khanna as Principal of the school, the President of the Society, Shri Malhotra stated that Shri Khanna was appointed as Principal as he was having suitable qualification. However, no advertisement etc. was made for the post of Principal. Besides, during the course of survey operation as well as during the course of assessment proceedings it was stated by Shri Khanna that he utilized a part of his agriculture income towards the school expenses whereas no other members of the society contributed towards the school expenses. 40. All the above facts showed that the school was actually managed by Shri Khanna and the income from school was his individual income. He is being assessed to tax with ITO, Ward-2, Rohtak in the individual capacity. Therefore, the income of the society is liable to be assessed in the hands of Shri S.S. Khanna in his individual capacity. Accordingly a notice under section 143(3) dated 24-3-1998 was issued to the assessee wherein it was proposed to add the income of the society as computed in the said notice substantively in the hands of Shri....
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....detected in which huge deposits appeared with no substantial explanation. It has not been appreciated that, after all, it is the Principal of the institution who is responsible for the management and day-to-day conduct of the school. The member of the Society will only exercise supervisory role on its activities. The actual conduct of the affairs has only to be the responsibility of the Principal. (c )As regards the other allegations, no evidence has been adduced by the Assessing Officer to show that the fees collected from the students directly went into the personal account of Shri S.S. Khanna and his family members. No nexus is pointed out between the fees collected from the students and the deposits made in the bank accounts of Shri S.S. Khanna. The findings of fact by the Settlement Commission were also reiterated and were stated to be incontrovertible. (d)That the appellant maintained books of account and the same were destroyed during unprecedented floods in Rohtak city. The appellant wrote to the Secretary, Haryana Secondary Board of Education on 25-9-1995 and the Secretary of the Institution has acknowledged the receipt of the letter of the appellant vide their communica....
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....nna). Moreover as stated by the ld. AR, the applicant cannot held to be a benamidar of the society". By passing order under section 245C, the commission also deleted the additions made on a substantive basis in the income of Shri Khanna holding in at page No. 16 para 22, that "the society is separate and distinct from the applicant and its income cannot be held to be that of the applicant." 48. The findings of the Settlement Commission on other related issues including deposits in the bank account of Shri S.S. Khanna are given in paras 22 to 24 of their order dated 17th November, 2004 and are reproduced for ease of reference : "22. We have perused the evidence furnished before us by the applicant which in our view supports the claim that the society is evidenced by a memorandum and has been registered with Registrar of Firms and Society, Haryana. It appears to us that there is evidence in the form of audit by Haryana State Education Department to suggest that the society existed at the material time. It is true that the audit reports do not mention about the financial accounts of the society and that they deal only with some of the funds created for development of sports and heal....
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.... the orders now passed by the undersigned in appeal are in fact de novo assessments in respect of the assessee's appellants in question." 51. The ld. Counsel of the appellant, Shri Ajay Wadhwa, made the following submissions : I.The appellant society is duly registered under the Societies Registration Act. II.Its memorandum clearly lays down the objects of the society to the education to establish and run schools without any regard to caste or creed. III.It did not remit or distribute the surplus amongst the members. IV.In case of dissolution of the society, it is required to transfer its properties to another educational institution similar in nature to its objectives and no personal benefit can be derived. As such the society exists solely for the purpose of education and not for the purpose of profits. V.In this connection, he relied upon the decision of the Delhi High Court in CIT v. Delhi Kannada Education Society [2000] 246 ITR 731 Shri Wadhwa also stated that there is no legal requirement of filing the return and getting the accounts audited in view of the judgment of the Delhi Tribunal in ITO v. St. Michaeals Education Foundation [1992] 43 ITD 656 and Additional Direc....
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...., the surplus/deficit of the society for each of the years with yearly income and expenditure is as under : Financial year Income Expenditure Surplus/ Deficit 1995-96 27,24,398.70 27,66,373.98 -41,975.28 1996-97 33,94,367.75 34,36,881.00 42,513.25 1997-98 39,74,347.07 40,29,304.27 -49,557.20 1998-99 42,32,132.00 42,19,957.00 12,175.00 1999-2000 43,78,090.35 43,63,170.85 14,319.50 2000-01 46,35,493.54 46,32,542.87 2,950.67 2002-03 55,99,633.09 55,30,338.92 69,294.17 2003-04 52,68,417.63 55,30,338.92 70,227.98 2004-05 5,96,94,848.41 56,19,566.19 75,282.22 55. The ld. Counsel stated that the Department has accepted the results shown in the accounts from the assessment year 1998-99 onwards and have implicitly held that the society exists solely for educational purposes and not for profit because no assessment has been made. 56. The ld. CIT(DR) relied upon the reasons given in the orders of the authority below and submitted that the society existed for profit and not for education. Its income, therefore, not be exempted under section 10(22). As regards the quantum of additions, he stated that in absence of accounts, the Assessing Officer has n....
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....ent Commission have also accepted that the Society is not before them and, therefore, no finding can be given in respect of the Society. 64. It was, therefore, submitted that no cognizance should be taken in respect of the order of the Settlement Commission. The ld. DR further submitted that the substantive additions made in the hands of the society are correct and that the income estimate is also correct. 65. The ld. Counsel in his re-joinder submitted as follows : u That complete evidence has been filed to show that the Society runs the educational institution under the name and style of Adarsh Senior Secondary School which is recognized by the Education Department of the Government of Haryana. u That the Hon'ble Income Tax Settlement Commission have expressly held that the Society and Shri Khanna are two independent entities and the Society was very much in existence and was carrying on the activity of dissemination of education. That even if the Department's stand that the income earned by the Society finds place in the bank accounts of Shri S.S. Khanna is to be accepted, the very fact that the Settlement Commission has finally determined the income of Shri Khanna after con....
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....that the income is to be substantively assessed in the hands of Sh. S.S. Khanna and protectively in the hands of the order of the Society is also untenable in view of the order of the Settlement Commission. Since the Settlement Commission has finally determined the income of Sh. S.S. Khanna under section 245D(4) of the Act from assessment year 1986-87 to assessment year 2000-01, protective addition in the hands cannot be sustained in the hands of the Society. 69. Having given our careful consideration to the rival submissions, we are of the view that the exemption under section 10(22) was denied to the assessee for the reasons mentioned in paras 38 to 40 of the order of the assessment dated 31-3-1998 for the assessment year 1995-96 and this reason was precisely followed by the Assessing Officer in the other assessment years involved and the CIT(A) has also confirmed the above. As the reasons are already quoted above in this order we are not repeating the same. In our considered view income of any educational society, which existed solely for education purposes and not for the purposes of profit is exempt under section 10(22) and hence the observation made at paras 38 (i), (ii ), (....
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....ty was used for any purposes other than education. In the above facts and circumstances of the case in our considered opinion for the assessment years under consideration the assessee-society existed solely for the purposes of education and not for the purposes of profit and hence eligible for exemption under section 10(22) of the Act. Our above view finds support from the decision of the Hon'ble Rajasthan High Court in Cosmopolitan Education Society (supra) of the Hon'ble Calcutta High Court in the case of Birla Vidya Vihar Trust v. CIT [1982] 136 ITR 445 1 and also the Hon'ble Supreme Court in Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 3102 (SC). 72. In the case of Delhi Kannada Education Society (supra), the Hon'ble Jurisdictional High Court has considered the issue relating to exemption under section 10(22) available to educational institutions under section 10(22) of the I.T. Act. In that case, the assessee-society was registered under the Societies Registration Act and was running primary, middle and higher secondary schools. It claimed exemption under section 10(22). The Assessing Officer accepted the claim of the assessee only in respect of middle and hig....
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....nstitutions. It is also not found that the funds were not utilized in consonance with the objects of the society. Thus, the ratio of the Hon'ble Delhi High Court is fully applicable to the instant case. 72.2 The issue relating to allowability of exemption under section 10(22) was considered by Delhi Bench of the ITAT in the case of New Era Education Society v. Dy. Director of Income-tax (Exemption) [2004] 88 TTJ (Delhi) 97. In that case, exemption under section 10(22) was denied by the Assessing Officer by pointing out several facts which included expenditure on gifts to the members of staff, medical facilities, loans and advances and donations given by the society; and supervisory allowance given to members. The Assessing Officer on the basis of these facts held that unnecessary payments made by the society established profit motive on the part of management. It was also held that the funds were being distributed amongst the family members in the garb of supervisory allowance. It was thus held that schools were being used for the purposes of profit and therefore the assessee-society was not entitled to exemption. The learned CIT(A) confirmed the findings of Assessing Officer. Bef....