TaxTMI 
TaxTMI 
2006 (2) TMI 509
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.... validity of notice issued under section 147/148. At 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 re....
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.... affidavit of Sri Suraj Bhan, Notice Server of Income-tax Department dated 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. I....
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....f of the revenue assessment record was produced on 10-1-2005. On that date, the A.R. of the assessee 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 asses....
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.... to show the details of filing of return, issuance of notice and service of notice on unauthorized person : 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 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 a....
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....e seen as to whether the notices issued under section 143(2) were issued and served within 12 months from the end of the month in which the return was filed and as to whether the service of such notices was effected upon proper person. It has to be pointed out that the assessee has taken the stand that the notices were not served within the 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 th....
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....e Court issuing the summons shall declare that the summons had been duly served on the defendant. Rule 10. Mode of service.-Service of the summons shall be made by delivering or tendering a copy thereof signed by the Judge or such officer as he appoints in this behalf, and sealed with the seal of the Court. Rule 11. Service on several defendants.-Save as otherwise prescribed, 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 ....
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.... of D.R. dated 12-12-2005, the date of issuance of notice is shown to be 30-11-1999. However, in the table a further date of 30-3-1998 after 30-11-1999 has been written in ink and attempt is made to show that the notice was served on 30-3-1998 upon the assessee for assessment year 1991-92. In support of this, photocopy of notice has also been filed which is on page 5 of the Paper Book. This argument of 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 th....
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.... this ground itself. I.T.A. No. 3416 (Delhi)/2005 - A.Y. 1997-98 29. Facts of this year are similar to the facts of assessment year 1991-92. As per the table filed by the assessee, the return was filed for this assessment year on 26-3-1998. As per the table filed by the assessee, the notice was issued on 30-11-1999. Similar is the position of the table filed with the letter of D.R. dated 12-12-2005. Although in the letter 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 rea....
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....der section 143(2) of the Income-tax Act for the assessment years 1992-93, 1993-94, 1994-95, 1995-96 and 1996-97 issued to Adarsh Education Society (Regd.) c/o Adarsh Sr. Secondary School, Arya Nagar, Rohtak upon Shri Sanjiv Kumar, who was working as clerk in the school at that time. Dated 20th December, 2005 Sd. Suraj Bhan Deponent." 34. The department has also filed the photocopies of the notices for these assessment years which are 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 ....
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....e other educational institution having objects similar to the objects of the society. These stipulations are contained in items (a) to (d) of the Memorandum and are reproduced below :- "(a) The income and property of the Society shall be applied solely towards the promotion of the objects of society as set forth in the Memorandum of Society, and no portion thereof shall be paid or transferred, directly on undirectly, by way of dividend, bonus, or otherwise by way of profit, to 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 sa....
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....97-98 and were impounded. The list of such account books and other registers appeared on pp. 14-15 of the assessment order for the year 1995-96 and consists among others, the cash books, ledgers, attendance registers and salary registers. According to the appellant, the impounded books are still in the custody of the Income-tax Department though they have not been examined and no reasons have been given as to why the figure of surplus/deficit shown for the financial year 1996-97 for which complete 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 ....
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....owever, its recognition by Education Department of Haryana Government and its status as registered society has no relevancy from the Income-tax point of view. The said society is neither a recognized trust nor it has the sole purpose of education. Thus it cannot avail of the privilege of exemption under section 10(22) of the Income-tax Act, 1961 due to the following reasons :- I.The school is not a registered/recognized trust. II.The school through its Manager Shri S.S. Khanna had applied in Form No. 10A for registration of charitable or the religious trust or institution under section 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 Overse....
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....ng a nominal rent of Rs. 2,000 per month for a big building located in the thickly populated area. Shri Khanna is the Principal as well as the Manager of the Adarsh Education Society and as per statement recorded of Shri Kundan Lal Malhotra, President of the Society, the Manager of the School is over-all incharge of the School and is authorized to appoint the school staff and the President and other members of the society are only consulted when need be. Shri Khanna also admitted in the statement recorded during the course of survey operation as well as during the course of assessment proceedings that 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 memb....
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....quire the assessee to either file the return of income or to maintain accounts in the prescribed manner and to have them audited. Therefore, the only requirement under section 10(22) as it then existed was that the purpose of the institution should be dissemination of education and the underlying motive must not be to make profit. (b)That the Assessing Officer has laid unnecessary emphasis on two facts namely (1) that the affairs of the school are mainly managed or conducted by its Principal Shri S.S. Khanna, and (2) that a number of bank accounts maintained by Shri S.S. Khanna and his family members have been 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 a....
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....ccounts which was audited by Haryana State Education Department which suggested that the society existed at the material time. The audit and inspection reports of the Haryana State Education Department were furnished before the Commission for the period from May, 1995 to March, 2003. They were furnished before the CIT(A) also and before us during the course of hearing of the appeal. 47. The Settlement Commission, after examination of the evidence including the assessment order of Shri S.S. Khanna, Principal/Manager of the school, held at page No. 15, para 22 that "the society was different from the applicant (Shri S.S. Khanna). 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 orde....
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....nal for each year offered accordingly." 49. The order of the Settlement Commission has become final and the Department has failed to show that another appeal thereagainst has been filed. 50. The CIT(A) vide the consolidated order dated 8-6-2005 dismissed the appeals and upheld the orders of the Assessing Officer for each of the seven years by largely agreeing with the reasons given by the Assessing Officer. However, he converted the protective assessments in the hands of the society into substantive assessments by observing in para 1 of his order as under : "The protective assessment etc. made by the Assessing Officer shall go and 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 d....
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.... up. Unfortunately they got destroyed due to flood in Rohtak for which he relied upon the certificate dated 25-6-1998 from the Dy. Commissioner of Rohtak to show that Arya Nagar locality of Rohtak City (where the school was situated) was under flood from 4th September, 1995 to 25th September, 1995. 54. Shri Ajay Wadhwa further stated that from the financial year 1996-97 onwards, complete books of account and supporting records are available and duly audited every year. Since in respect of the assessment year 1996-97, the appellant society compiled the accounts on the basis of the uncompleted records found during the course of survey. As per such accounts, 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....
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....ent appointee of the Society and that no other person enjoyed similar powers as him. He stressed the point that Shri S.S. Khanna was running the school de facto as his proprietary concern. 61. It was also argued that the profit in an educational society is fatal to the claim under section 10(22). 62. As regards the estimate of income, the ld. DR mainly, relied on the assessment order. He submitted that the AR has not placed any argument on the reopening of assessment under section 148 of the Act. 63. In respect of the order of the Settlement Commission, the ld. DR submitted that the decision of the Settlement Commission is for the limited purpose of settling dispute with an individual and does not lay down any legal proposition. Besides, the Settlement 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. Coun....
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.... Shri Khanna. This the Department has failed to do. For this proposition, he relied upon the judgment of the Supreme Court in CIT v. Daulatram Rawatmull [1973] 87 ITR 349 (SC). Shri Wadhwa further stated that assuming without admitting that some funds of the school were taken advantage of by Shri Khanna even then the society cannot be denied exemption in view of the decision of the Rajasthan High Court in the case of Dy. CIT v. Cosmopolitan Education Society [2000] 244 ITR 494 (Raj.) wherein the Hon'ble High Court observed that "if there was any mis-utilization or any mis-management, action could be taken against the members of the society". But it could not be denied exemption under section 10(22) of the Act. 68. It was alternatively argued that the stand of the department 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 han....
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.... the deposit in those bank accounts came from the income of the assessee-society is not found to be correct. 70. Further simply because all the fee collected by the assessee-society has not been deposited in its bank account cannot mean that the funds of the assessee-society was utilized for the personal purposes of Shri Khanna or any other individual. 71. We find that it is not in dispute that the assessee-society is running a school in which education is imparted in a systematic manner. It is also not in dispute that as per the memorandum or constitution of the society, the assessee-society is not legally permitted to apply its income for the benefit of any individual person. No positive evidence was produced before us to show that any part of the income of the assessee-society 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 Rajast....
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....t sources, but if a particular income is from an educational institution which exists solely for educational purposes and not for purposes of profit, then that income would be entitled to exemption and further the income should be directly relatable to educational activity. This position operated from the assessment years 1962-63 to 1998-99." 72.1 On facts, in the instant case also, as observed above, it is found that the assessee-society was existing solely for educational purposes and was running the educational institution only for such purpose and not for any profit motive. Further, it is found that the surplus funds or profit earned from the educational institution was not diverted or utilized or misappropriated towards any other object except the running and maintenance of the educational institutions. 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-t....
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....tional purposes and not for the purpose of profit and, therefore, the departmental authorities were not justified in drawing a contrary conclusion. Thus, in our considered opinion, the society is entitled for exemption under section 10(22) of the Income-tax Act, 1961. Hence, we reverse the findings of Assessing Officer and that of the learned CIT(A) and direct that exemption under section 10(22) of the Income-tax Act shall be granted to the assessee, society for all the assessment years involved in these appeals. B. The observations and findings of the departmental authorities that the assessee is not entitled for exemption under section 10(22) on the ground that funds of the society were misappropriated, is not found to be substantive. Hence, the findings of the departmental authorities are set aside on this issue. We, therefore, hold that the departmental authorities were not justified in rejecting the claim of exemption under section 10(22) on the ground of alleged misappropriation of funds. Reliance in support of this finding is placed on the decision of Hon'ble Rajasthan High Court in the case of Cosmopolitan Educational Society (supra). The grounds taken on this issue are,....