TaxTMI 
TaxTMI 
2013 (8) TMI 736
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.... the application and implication of section 13 of the IT Act. 4. The Ld. CIT(A) has erred in law and on facts in deleting the total addition of Rs.34,71,646/- merely on the basis that the assessment of the assessee was made on protective basis. 5. The Ld. CIT(A) has erred in law and on facts in ignoring the doctrine of res-judicata is not applicable in the income tax proceeding and every assessment is separate than that of the other assessment year. Findings of one year cannot be imposed upon the assessment proceedings of the other year unless there is suitable reason to do that. 6. The Ld. CIT(A)'s order is not correct in the eyes of law as he ignored the facts and circumstances of the case that the assessment order has been passed u/s 144 of the IT Act due to non co-operation of the assessee. 7. Appellant craves leave to amend, alter, add, or modify any ground or grounds of appeal either before or at the time of hearing of case." 3. The brief facts of the case are that the A.O. made the assessment under section 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter). The A.O. completed the assessment under section 144 of....
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.... u/s 144 of the IT Act, 1961. As discussed above, since the assessment order in case of Shri Anwar Saeed for A.Y. 2002-03 has not become final and there is not question of double taxation of income in the hands of the assessee. Therefore I have no substantial ground to deviate from the finding given by my predecessor in his order dated 24.03.2005. Consequently I too, assess the income of assessee at Rs.31,45,000/- on the basis of reasons in the order u/s 144 of the IT Act, 1961 dated 24.03.2005 passed by my predecessor (copy of assessment order (twelve pages) dated 24.03.2005 is annexed as part of this order)." 4. The CIT(A) deleted the addition as under :- (Paragraph no.8.4, page no.23) "8.4 Keeping in view the fact that the appellant has been granted registration under section 12AA of the Act and its income is liable to be computed in accordance with section 11 to 13 of the Act and the provisions of Chapter IV-D relating to computation of business income are not applicable to it. Section 40A(3) falls within Chapter IV-D and would not have application in case of institution registered under section 12A of the Act unless it is engaged in business or profession. I hav....
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....sp; i) One is whether the appellant is entitled for exemption under section 10(22) of the I.T. Act, 1961. ii) The other one is find the effect and fate of addition made in the hand on protective basis and made on substantive basis in the hand of Shri S. Anwar Saeed. iii) Remaining question is with regard to two other additions i.e. capital expenditure debited to income & expenditure account and disallowance made by resorting to section 40A(3) of the Act. iv) Other issues like charging of interest under different section of the Act." 5. The CIT(A) decided the first issue in favour of the assessee as under :- (Paragraph nos.7.4, 7.5 & 7.6, page nos.22, 23 & 24) "7.4 No other purpose of the appellant has been alleged (I would refer to aspect of not for profit purpose, little later). Further, the CIT, Aligarh has himself granted the appellant registration under section 12A of the Act on the ground that it was an educational institution within meaning of section 2(15) of the 'Act'. Further, the....
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....sting solely for the purpose of education. 7.5 Here, the other question arises whether it was existing not for the purpose of profit. In this read, treading the assessment order would reveal that the only objection of the Assessing Officer, based on survey conducted on 21.11.2002, special audit and the statement of one Abdul Majid, Accounts Officer is that Shri S. Anwar Saeed, the then Registrar of the institute was running the institute for personal profits and he had used the institution for his personal gains. The AO has while allowed the Salary paid to Shri S. Anwar Saeed, but has disallowed the expenditure of such personal advantage gained by him from the hands of the appellant and that too on protective basis to be taxed in the hands of Shri S. Anwar Saeed on substantive basis. On going through the entire material, I am unable to reach to the conclusion that merely because the employee of the institution has gained personal benefit on account of his position or misappropriate funds of the institution, it can be said that the character of institution as a whole was changed from non profit to profit. Thus, this consideration of misappropria....
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....respect of disallowance under section 40A(3) observing that when assessee is eligible for exemption under section 10(22) of the Act, the disallowance under section 40A(3) becomes academic. 7. We have heard the ld. Representatives of the parties and records perused. The ld. Departmental Reprehensive did not dispute regarding the facts of the case. The admitted facts of the case are that the assessee is an Educational Institute and its income are exempt under section 10(22) of the Act. We noticed that the CIT(A) has rightly allowed the assessee's claim after a detailed discussion that the assessee is an Educational Institution existing solely for the that purpose and not for the purpose of profit and thus fulfilled the conditions of section 10(22) of the Act. The CIT(A) has rightly deleted the addition which was made in the hands of the assessee on protective basis as the addition in the hands of Shri S. Anwar Saeed has been added on substantive basis. Even on merit, the CIT(A) found that merely because the employee has gained personal benefit, it cannot change the character of the Institution as a whole from non-profit Institution to a profit making Institution.  ....
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....ng from the matter, it is relevant to mention that the A.O. while deciding the matter afresh on the direction of the I.T.A.T., has made some comments/observations. At the cost of repetition, the relevant observation/ comment of the A.O. is reproduced as below:- "In these circumstances, I am of the opinion that the Hon'ble ITAT has granted the relief to assessee only on the basis of assertion of Ld. AR which was not quite correct." 9. Such observations/comments are against judicial discipline. Here we would like to mention that the principles of judicial discipline require that the orders of higher appellate authorities should be followed by the subordinate authorities otherwise; entire judicial system would lead to chaos. In this regard, we would like to refer the following observations of Hon'ble Delhi High Court in the case of Nokia Corporation vs. Director of Income tax (International Taxation) [2007] 162 Taxman 369 (Delhi) :- "12. The Supreme Court stated, many years ago, in Union of India v. Kamlakshi Finance Corpn. Ltd. [1991] (55) ELT 433 as follows :- "...The principles of judicial discipline require that the orders of the higher a....