TaxTMI 
TaxTMI 
2016 (10) TMI 311
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....n the impugned order has erred in not appreciating that the appellant was not provided with the "reasons for reopening of assessment", despite having been requested to supply the same to the assessee, as a result of which the entire re-assessment proceedings were null and void. 4. Without prejudice to the above, and in addition thereto, the Ld. CIT(A) has failed to appreciate that there were "no reasons for reopening" recorded by the assessing officer, which is a condition precedent tor invoking the provisions of section 147/148 of the I.T. Act, which rendered the entire proceedings null and void. 5. Without prejudice to the above and in addition thereto, the Ld. CIT(A) in the impugned order has erred in upholding the reopening of assessment u/s 147 of the IT Act by the AO, when in the present case, there were no "reasons to believe" and / or a rational nexus between the material on record and the reasons for reopening, and therefore the reassessment is bad in law. 6. Because the Id. CIT (A) has erred in facts and law in upholding the action of the AO, in invoking section 13(3) of the IT Act, wrongly denying exemption u/s 11, when there was no such violat....
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.... provisions of Section 13(3) of the Act and denying the exemption u/s 11 of the Act. 5. From the aforesaid grounds raised by the department it would be clear that the main grievance of the department in this appeal relates to action of the ld. CIT(A) allowing the deduction on account of depreciation on the value of the assets which had been claimed as application of income. 6. Facts of the case in brief are that the assessee filed the return of income on 29.09.2009. A survey & inspection was carried out on the premises of the assessee u/s 133A of the Income Tax Act, 1961 (hereinafter referred to as the Act). During the course of survey, it was noticed that a sum of Rs. 1,16,57,941/- being development charges were not shown as income in the income and expenditure statement for the year ending on 31.03.2009. The AO was of the view that there was an escapement of income of Rs. 1,16,57,941/- and that the assessee had employed specified persons as per Section 13(3) of the Act in the School run by the Society on various capacities. On the basis of aforesaid reasons, the AO recorded the reasons to believe for issuing the notice u/s 148 of the Act on 08.02.2011. In the mean time, the....
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....sp; 7. Thereafter, the AO rectified the assessment order vide order dated 09.03.2012 when the assessee u/s 154 of the Act pointed out mistake in the calculation of taxable income and the AO determined the income at Rs. 1,86,68,234/- by rectifying the mistake in calculation i.e. totaling. 8. The assessee challenged the validity of the reopening before the ld. CIT(A) who observed that the case was reopened u/s 148 of the Act on the basis of certain informations and that the Hon'ble High Court had directed the AO to proceed in accordance with law vide order dated 02.02.2012. The ld. CIT(A) accordingly dismissed the grounds raised by the assessee against the reopening of the assessment. As regards to the addition made by the AO, the assessee submitted written submissions dated 30.07.2012 before the ld. CIT(A) which has been reproduced in para 3 of the impugned order and read as under: "The Assessing Officer has raised some Queries during the assessment proceedings u/s. 143(3) relating to the survey conducted on the premises of the assessee on 14.01.2011 and we had submitted all papers and documents before the assessing officer during the assessment proceedings itself, bu....
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.... ensure that buses are kept road worthy at all times of the year, copy of proof for payment of salary to vehicle mechanic and electrician is enclosed herewith for your kind consideration. The school has made facilities available to repair the school but in the school premises itself and for this purpose it buys commonly used spare parts and stores the same to meet the emergency. We also hire buses from outside transporter if school bus breaks down and tyre punctures, Further, complete detail of nature of expenditure incurred by transport department has already been submitted with the submission dated 10.05.2012. 3. Appointment of Principal, Vice Principal and Director (Administration) has properly been made as per norms and procedures prescribed by the Directorate of Education, NCT of Delhi in this behalf. Copy of documents, statement in this regard has already been submitted with submission dated 10.05.2012. 4. The assessing officer has invoked the provision of Sec. 13(3) of the IT Act, 1961 for the use of word Lancer, here we would like to say that the word Lancer neither registered nor copyright by the society anywhere as a brand Name and any person can use the....
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....tion. Hence there is no concealment of income on account of development fund at all. Therefore the order passed by the assessing authority u/s.147/143(3) of the IT Act, 1961 is totally wrong, illegal and arbitrary as per the Law prescribed and the same should be quashed. 2. The assessee is a society properly registered under the society registration Act, 1860 vide regn.No.13042/1982 w.e.f. 04.11.1982 and the same has been registered u/s.12A(a) of the IT Act 1961 by the Commissioner of Income Tax (E), New Delhi-VI vide order bearing No.CIT/DVI/ TE/269/84/19 dated 01.04.1985 and also registered u/s.80G(vi) of the IT Act, 1961, copy of order is enclosed herewith for your kind consideration. Further the society is running only one school under the name and style of LANCERS CONVENT SCHOOL AT PRASHANT V1HAR, ROHINI, Delhi-110085 and no other activities has been done ever by the society since its inception and the Memorandum of Association of the society have only on object, EDUCATION and no other object are exist in the Memorandum of Association of any type, copy of Memorandum of Association and registration u/s.12A(a) of the IT Act, 1961 is enclosed herewith for your kind consi....
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.... Vs Union of India and others 307 ITR 226 (Raj) E. ITO Vs Trilok Tirath Vidavati Chuttani Charitable Trust 90 ITD 569 (Chd) F. Ananda Marga Pracharaka Sangha Vs CIT 218 ITR 254 (Cal.) 4. The Assessing Officer has denied the exemption u/s. 11 of the IT Act, 1961 to the society for violation of the provision of section 13(3) of the IT Act, 1961 for the payments made to specified person on account of salary, whereas the society has not violated the provision of section 13(3) of the IT Act, 1961 in any manner. The provisions of section 13(3) does not impose any bar and restriction to remunerate the specified persons and the Trust and charitable Society can made payments of salary to specified persons commensurate to their service provided. Here we would like to say that the Assessing Officer was not fully aware about the provisions of section 13(3) of the IT Act, 1961 and has made his own interpretation in this regard which is not in any way permitted by the law. Hence in this allegation the Assessing Officer was not legally correct and action of the Assessing Officer to denying the exemption u/s. 11 to the society was illegal, arbitrary and unilateral. ....
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.... C) Career Launcher Vs DGIT (E) ITA No. 2849/Del/2011." 10. The ld. CIT(A) after considering the submissions of the assessee pointed out that the AO in the assessment order observed that there was violation of Section 13(3) of the Act for the following reasons: "1. Sh. A.S. Mann is the President of the society and his son Sh. Joginder Singh Mann is the Secretary of the society. In 'Lancers Convent' School, Rohini, Principal is Mrs. Sudesh Singh and Vice Principal is Mrs. Latesh Chaudharv, the two daughters of Sh. A.S. Mann and sisters of Shri Joginder Singh Mann. Mrs. Sudesh Singh, Mrs. Latesh Chaudharv and Mrs. Anita Mann are in receipt of salary of Rs. 66,047/- pm, Rs. 49,382/- pm, and Rs. 73,471/- pm respectively. All the three ladies are stated to be MA. B.Ed. Mrs. Sudesh Singh has been provided with car by the school. As per the norms of Education Department, the schools cannot have the post of Director (Admn.) but Mrs. Anita Mann is occupying the seat of Director (Admn.) and is being paid a hefty amount in the name of salary. Sh. A.S. Mann was stated to be looking after the transportation, sale purchase, school activity etc. No remuner....
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....for Transport Manager, Care Taker & Secretary of the Society, which were claimed in the accounts of the school without any justification about the services rendered by them to the assessee Society and corresponding facilities given to others and that the AO disallowed 50% of those expenses being excessive in nature. The ld. CIT(A) further observed that the finding of the AO were very specific that the assessee had violated the provisions of Section 13(3) of the Act by giving undue benefit to the family members which had cost a huge financial loss to the assessee Society and the explanation given by the assessee was not convincing. He further observed that Mrs. Anita Mann was occupying the seat of Director Administration and was being paid hefty salary and that Sh. A.S. Mann who was 79 years old was provided phone facilities and car, however, it was not known that what kind of activities were performed by him. The ld. CIT(A) also observed that unreasonable salary was being paid to Mrs. Sudesh Singh and Mrs. Latesh Chaudhary. He also mentioned that Sh. A.S. Mann was the President of the society, his son Sh. Joginder Mann was the Secretary and that Mrs. Sudesh Singh and Mrs. Latesh Ch....
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.... GKN Driveshafts (India) Ltd. Vs ITO and Others (2013) 259 ITR 19 (SC) Haryana Acrylic Manufacturing Company Vs CIT and Anr. (2009) 308 ITR 38 (Del) CIT Vs Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom) M/s Jagat Talkies Distributors Vs DCIT in ITA No. 1068 to 1073/Del/2008 order dated 10.06.2015 14.1 It was further submitted that the AO had recorded two reasons for reopening the assessment, the first one was regarding "development charges" not shown in the income and expenditure statement, which was factually incorrect. Therefore, reopening on this basis was not justified. The reliance was placed on the decision of the Hon'ble Delhi High Court in the case of Lalit Bagai Vs DCIT, WP(C) No.5054/2014 order dated 05.12.2014. 15. It was further submitted that the second reason recorded for reopening u/s 148 of the Act was that, the assessee had employed specified persons in violation of the Section 13(3) of the Act. The said reason could not be a valid reason for reopening, as there was no prohibition in employing specified persons u/s 13(3) of the Act unless the amount is in excess then what may be reasonably paid for such services. It was furthe....
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.... not justified. 17. On the merit of the case the ld. Counsel for the assessee submitted that the ld. DG of the Income Tax Department withdrew the exemption u/s 10(23C) of the Act but the order was quashed by the Hon'ble High Court and the matter was directed to be decided afresh. It was further submitted that the AO repeated the order of the DG(Exemption) passed u/s 10(23C) of the Act in the assessment order. It was pointed out that para 2.1 of the order of the DG (Exemption) was repeated in para 1 of the assessment order and similarly para 2.3 of the order of the DG(Exemption) was repeated in para 3 of the assessment order. It was submitted that the Principal of the School was appointed in 1996 after following the proper procedure (a reference was made to page nos. 111 & 112 of the assessee's paper book). He also submitted that the applications were received against the advertisement for the post of the Principal (a reference was made to page nos. 116 to 118 of the assessee's paper book). It was contended that the salary was fixed in accordance with the fixation by the 6th Pay Commission, so there was no violation of Section 13(3) of the Act as there was no prohibition in appoi....
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....xemption of its income under Section 11. The only question is whether the income of the assessee should be computed on commercial principles and in doing so whether depreciation on fixed assets utilised for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT(Appeals) as well as the Tribunal. In CIT vs. The Society of the Sisters of St. Anne (Supra), an identical question arose before the Karnataka High Court There the society was running a school in Bangalore and was allowed exemption under Section 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. JagannathaSetty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the "total income" as defined in Section 2(45) of the Act and that the word "income" is a wider term than the expression "profits and gains of business or profession". Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, dete....
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....n of India (supra) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purposes- It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV-D of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions we are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under Section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research The question was whether af....
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....ional High Court in the case of DIT(Exemption) Vs Manav Bharti Institute of Child Education & Child Psychology (supra) has held as under: "The AO brought nothing on record to show that either of the facilities provided to her was used for personal purposes. The facilities were the basic facilities necessary for management and administration of the institution as Principal and the Chairman. Further, the AO has brought nothing on record to show that the expenditure on salary or facilities provided to her was excessive having regard to fair market value of services provided by her." 23. In the present case also the AO simply stated that there was violation of the provisions of Section 13(3) of the Act and unreasonable salary was paid to Mrs. Sudesh Singh, Mrs. Latesh Chaudhary and Mrs. Anita Mann. However, nothing is brought on record as to how much salary paid to these ladies was excessive. On the contrary, the assessee adopted the proper procedure for appointment of the Principal and Vice-Principal by giving an advertisement in the newspaper Hindustan Times, New Delhi dated 28.05.1996 (copy of which is placed at page no. 111 of the assessee's paper book). Thereafter, Mrs....
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....that it was a family affairs of the assessee without appreciating the functioning of the Society and the requirement of law and also did not bring any material on record to substantiate that the facilities provided by the assessee to the aforesaid persons or the remuneration paid was not for the services rendered by the relatives of the trustees to achieve the objectives of the assessee society. In the instant case, it is an admitted fact that the assessee was registered u/s 12A of the Act and run the school in the name of Lancers Convent School at Prashant Vihar, Rohini, Delhi. The primary object of the assessee society is to impart the education among the general public. It is well settled that the imparting of education is a charitable activity. However, the AO denied the exemption u/s 11 of the Act to the assessee, which is available on the income from property held for charitable or religious purposes, for denying the said exemption, the AO invoked the provisions of Section 13(3) r.w.s. 13(2)(c) of the Act. The provisions contained in Section 13(2)(c) of the Act reads as under: "13(2)(c) Without prejudice to the generality of the provisions of clause (c) and clause (d....