TaxTMI 
TaxTMI 
TaxTMI 
2011 (12) TMI 364
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in law, the CIT(A) erred in upholding Assessing Officer's finding that appellant had violated provisions of section 13(1)(c) r.w.s. 13(3) of the I.T. Act, 1961 and hence is not eligible to the benefit of sections 11 and 12. 5. On the facts and circumstances of the case, the lower authorities have erred in penalizing the appellant society by denying the requisite exemption for the fault of, if any, of its member/office bearers. 6. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding Assessing Officer Assessing Officer's act of not granting depreciation of Rs. 5,43,110/- (1,57,208/- + 3,85,902/-) to the appellant on assets used in, attaining its objects/earning income." 2. Further, assessee has filed application dated 5.4.2011raising following additional grounds: "1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in upholding Assessing Officer's act in reopening appellant's assessment for the year under consideration when the entire proceedings were illegal and void ab initio. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the validity o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the validity of assessment proceeding. They are not new grounds and are admitted as requested by the assessee. 9. Ground Nos.3 and 4 pertain to assessee's legal claim u/s 10(23C)((iiiad) of the Act which has been considered by the CIT(A) also. The claim being legal and CIT(A) having considered it, we are of the view that these two additional grounds should be admitted. Additional ground no.5 i.e. about the rate of tax, the same being purely legal is also admitted. 10. Coming to the facts of the case, the assessee is a registered society with sole object of imparting education without any profit motive. The assessee is running a school at under name of Starex International School which is formerly known as East Point School. No other activity except educational i.e. running the secondary school are claimed to have been carried on by the assessee. 11. The assessee filed its return of income and claimed deduction u/s 10(23C)(iiiad) being the institution solely engaged in the activity of imparting education without any profit motive which was accepted u/s 143(1) of the Act. 12. Immediately succeeding assessment year i.e. 2007-08, the assessee's annual receipts crossed at Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act, being a Government Body Member. According to Assessing Officer assessee did not furnish any cogent reason justifying such treatment. The Assessing Officer thus held as under: "The AR failed to furnish any cogent reason in support of such conversion, except direction of the Mohinder Singh, the donor. Clause 2 of the meeting clearly, shows the arbitrary manner, in which interest was allowed on that so called loan. No reasoning was given behind fixation of rate of interest on that loan. Further vide that resolution, the utilization of trust's surplus in future is directed towards payment of interest and repayment of loan. This amounts to tying up of trust fund for the benefit of a reason who is a specified person within the meaning of section 13(3) of the I.T. Act, 1961, in respect of the society. Sri. Mohinder Singh is here a specified person within the meaning of section 13(3) of the I.T. Act, 1961, in respect of the East Point Education Society, by virtue of his being a substantial contributor to the assessee's trust's corpus fund, and also on account of being a Governing Body Member, running the affairs of the Trust. In view of the above, I am of the opinion ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee adverting to reopening of assessment vehemently argues that the assessment was reopened on the same reasons for assessment years 2006- and 07-08. The reasons mentioned for reopening assessment for 2006-07 did not exist at all. 18. As far as assessment year 2006-07 is concerned, no proceedings were pending for exemption u/s 10(23C) of the Act. There is a totally wrong mention of reason about assessee's pending procveedings u/s 10(23C) of the Act which in fact were pending in assessment year 2007-08. There was thus no such failure to produce books of accounts for assessment year 2006-07, which clearly shows non-application of mind by Assessing Officer, in as much as reasons which did not exist in this year are recorded by Assessing Officer as reason for reopening of the assessment for assessment year 2006-07. 19. Thus, Assessing Officer's action in reopening the assessment for assessment year 2006-07 is totally illegal. The reasons for reopening are: 1. One member of the assessee has taken a loan without permission of the society. The executive committee of society has decided not to account for in the books. There is neither mention of the member being covered....
X X X X Extracts X X X X
X X X X Extracts X X X X
....we answer the first pat of question in the affirmative in favour of the Revenue and the second part of the question against the revenue. 23. It is contended that the reassessment is liable to be quashed as : 1. No new material came in possession of Assessing Officer in assessment year 2007-08 and not in 2006-07. 2. Non existent reasons were recorded by Assessing Officer and no additions on these accounts are made. Assessing Officer reopened the assessment only on the basis of assessee's own disclosure. Consequently, the entire basis for recording the reasons is unjustifiable without any new material on record and with total non-application of mind. The Assessing Officer in fact wanted to reopen the assessment for assessment year 2007-08 and in a sweep without caring to see that no such reasons existed in assessment year 2006-07, reopened the assessment, which is bad in law. 24. Ld.Counsel thus contended that appeal of the assessee deserves to succeed on both the counts: (i) the re-assessment is totally bad in law as held in the case of Ranbaxy Laboratories Ltd. vs. CIT (supra). In any case, even if it is assumed otherwise, it has not been disputed that the assessee is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion. It is pertinent to note that accounts for bath these year were signed only by Mr. Mohinder Singh and his san, none of the other governing body members were aware of this development. Perhaps this was done to show a healthy picture to the bank from whom he got a loan sanction for the society for Rs. 7.5 Crore far executing expansion plans. The governing body members due to demand of return of a sum of Rs. 1.75 Crore from Mr. Mohinder Singh reflected that amount as loan. Further loan taken by Mr. Mohinder Singh from the bank of about Rs. 4 Crores for construction of building was not reflected in the books as Mr. Mohinder Singh had not rendered the account of the construction expenditure. Consequently neither building nor loan on that account was reflected in the books. This fact has been disclosed in Note no. 5 of Schedule 14 being Notes of Accounts of Society. It should be noted that the governing body is constraint in the matter as no details have been handed over by Mr. Mohinder Singh in this regard. Further he has also filed legal case against the society. It should be noted that whether the sum of Rs. 1.75 Crore was loan or donation can be answered by Mr. Mohinder Singh an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the benefit of the persons specified in section 13(3). Kindly note no part of Society MOA or Rules has such clause therefore no violation of such provision arises. The second clause applies if any part of the society's income or property is utilized for the benefit of the specified persons. Kindly note appellant has not paid any interest to Mr. Mohinder Singh therefore utilizing any fund for the benefit of specified persons does not arise. The question of payment would arise only after the decision of the High Court. Thus it is a case where AO has preempted everything. The disallowance based on assumption is in violation of all the principles of natural justice and legal proprietary. Lastly, note that rate of interest as proposed to be paid on loan of Mr. Mohinder Singh was 12%. The same was fixed as per the prevailing market rates. The PLR of Bank for that period was 10.5%. Therefore 12% was' most reasonable rate. The AO has not placed any material on record as to how the rate of 12% is unreasonable but for making a bald statement. In any case he can question only excess amount of interest paid and not the entire amount. Further mere agreement to pay interest does not v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g to the Revenue, this information constituted sufficient reasons for the Assessing Officer to issue notice u/s 148. Assessee contends that the Assessing Officer's power to reopen the assessment, even in the case of section 143(1) is subject to conditions which have been enunciated by the various High Courts including jurisdictional High Court in the case of Ranbaxy Laboratories Ltd. vs. CIT (supra), wherein it has been held if the reasons for initiation of proceedings cease to survive, Assessing Officer reassessment is bad in law. The point for consideration before us is whether the Assessing Officer had sufficient reasons to reopen proceedings for assessment year 2006-07. The reasons recorded for both the years i.e. assessment years 2006-07 and 07-08 are mechanically identical. The proceedings u/s 10(23C) were undisputedly taken up only in assessment year 2007-08 and the factum of a loan disputed conversion of donation of one of the Governing Body members, Mohinder Singh was effected in the books of account in assessment year 2005-06 and not in 2006-07. In our view, the mere note about the audit being on the basis of test check voucher and auditor's audit does become the ....