TaxTMI 
TaxTMI 
2017 (12) TMI 1475
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.... for the assessment year 2013-14, the AO observed that the assessee does not satisfy the conditions laid down u/s 10(23C)(vi) of the Act to enjoy the benefit of exemption. Accordingly, the AO vide his letter dated 28.03.2016 sent a proposal to the ld. CIT(Exemptions) to withdraw the approval granted u/s 10(23C)(vi) of the IT Act. In pursuant to the report/ proposal of the Assessing Officer, the ld. CIT(Exemptions), Jaipur issued a show cause notice to the assessee vide letter dated 08.07.2016. In response the assessee vide letters dated 25.07.2016, 10.08.2016 & 02.09.2016 filed its reply. The ld. CIT (Exemptions) found that the assessee has not fulfilled the conditions as provided in the 3rd proviso to section 10(23C(vi) r.w.s. 11(5) and 13(3) of the Income Tax Act. The ld. CIT (Exemptions) noted that the assessee has made investments/deposits of funds which is not in the prescribed mode and as per sub-clause-B of 3rd proviso of section 10(23C)(vi) the assessee was required to invest or deposit the funds in the modes specified u/s 11(5) of the Act. The ld. CIT(Exemptions) noted that as per balance sheet as on 31.03.2013 the assessee society has shown loans and advances which are as....
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..... 2011-12 onwards, on basis of order dated 17.11.2016. 2. That on the facts and in the circumstances of the case and in law the Ld. CIT erred in initiating withdrawal proceedings on basis of issues relating to assessment, which have no bearing with registration u/s 10(23C)(vi), namely investment as per section 11(5), application of section-13 etc., which are issues on basis of which approval/ registration cannot be withdrawn. 3. That on the facts and in the circumstances of the case and in law the Ld. CIT erred in not appreciating that since inception (beginning) assessee has conducted and engaged itself solely and exclusively for purposes of education, and has not carried any activity outside the ambit of education, which is veritable from various assessment orders, where no adverse inference is drawn. 4. That on the facts and in the circumstances of the case and in law the Ld. CIT erred in initiating withdrawal proceedings on basis of proposal received from AO based on incorrect and premature hypothesis. 5. That on the facts and in the circumstances of the case and in law the Ld. CIT erred in interpreting section-11(5), which is confined to ....
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....t the additional ground may be admitted for adjudication. 5. On the other hand, ld. Dr has objected to the admission of the additional ground and submitted that the assessee did not raised this ground before the ld. CIT(E) despite appropriate opportunity was given to the assessee. 6. We have considered the rival submissions as well as relevant material on record. There is no dispute that the additional ground raised by the assessee is purely legal in nature and goes to the root of the matter. It is also not disputed that no new facts are required to be examined nor any further enquiry was needed for adjudication of the issue raised in the additional ground. Further, this is first appeal against the impugned order and not a case of raising afresh plea for the first time before the Tribunal without raising the same before the first appellate authority. The assessee could have raised this ground in the original grounds of appeal without seeking any leave of the Tribunal. The additional ground was required to be filed because of the reason that the assessee could not raise the same in the form 36 along with the memo of appeals. Therefore, it is only matter of revising the grounds....
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....2-13 were completed u/s 143(3) and the Assessing Officer had not found any violation of the provisions of section 11(5) or 13(3) or any other provisions of the Act while completing the scrutiny assessment. However, due to impugned order the Assessing Officer has reopened the completed assessment of the earlier assessment years. Therefore, the withdrawal of approval with retrospective effect is not valid as the impugned order has been passed on the basis of the report of the AO for the assessment year 2013-14. In support of his contention he has relied upon the decision of Hon'ble Supreme Court in case of State of Rajasthan and others vs. Basant Agrotech India Ltd. and others 388 ITR 81 and submitted that only a legislation can make a law retrospective and prospectively subject justifiability and acceptability within the constitutional parameters. The subordinate legislation can be given with retrospective effect if a power in this behalf is contained in the principle Act. In the absence of such conferment of power the Government the delegated authority has no power to issue a notification with retrospective effect. Therefore, in the absence of any provision contained in legislative....
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....pplied its income in accordance with the provisions contained in clause (a) of the third proviso; or (B) invested or deposited its funds in accordance with the provisions contained in clause (b) of the third proviso; or (ii) the activities of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution- (A) are not genuine; or (B) are not being carried out in accordance with all or any of the conditions subject to which it was notified or approved, it may, at any time after giving a reasonable opportunity of showing cause against the proposed action to the concerned fund or institution or trust or any university or other educational institution or any hospital or other medical institution, rescind the notification or, by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer" The 13th proviso to section 10(23C)(vi) confers the....
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....ice clearly manifest that it was issued by the DCIT (Hqr.) and not by the CIT(E). The language of the show cause notice does not give any impression or inference that it is an expression of the satisfaction of ld. CIT(E). The Kolkata Bench of this Tribunal in case of Arun Kanti vs. CIT (supra) while considering the issue of validity of show cause notice issued u/s 263 of the Act not signed by the ld. CIT has observed in para 5 and 5.1 as under:- 5. Investment/deposits of funds not in the prescribed modes:- The sub clause (b) of 3rd proviso of section 10(23C) requires the society to invest/deposit the funds in the modes specified under section 11(5) of the Act. However, it is noticed that the society has made advances which is neither as per the objects nor in the modes prescribed u/s 11(5) of the Act. In the Balance Sheet as on 31.03.2013, it is noticed that the society has shown loans and advances in the following names:- S.No. Name Amount 1. Trumurti Colonisers & Builders Pvt. Ltd. 1,38,00,000/- 2. A.K. Education Welfare Society 1,00,00,000/- 3. Ambience Land Developer 60,07,953/- 4. Surendra Kumar Meena 3,00,00,000/- ....
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....8.2016 that we had given time to party either to give land or refund the money before the end of August, 2016, now they have requested that the present time is very bad for construction industries and they wanted time till end of this year. They assured us that they will certainly fulfill their commitment. In fact we also do not have any other option to wait till year end, or to file a case against them." A similar view was taken by the Kolkata Bench of this Tribunal in case of M/s Assam Bangal Carriers vs. CIT (supra) in paras 7 and 8 as under:- "7. We have considered the rival submissions. A perusal of the records shows that the show cause notice u/s 263 of the Act dated 26.02.2013 was signed by A.C.I.T.(HQ)-XXI, Kolkata and not by C.I.T. The question regarding validity of the order passed u/s 263 of the Act when the show cause notice u/s 263 of the Act is not signed and issued by C.I.T. and had come for consideration before this Tribunal in the case of Bardhman Co-op Milk Producers' Union Ltd. Vs CIT, Burdwan (supra). This Tribunal on identical facts as in the present case has held as follows :- "4. We have carefully considered the submissions and perused the record ....
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....assessment and directing fresh assessment." Now we can also refer to the notice u/s. 263 of the Act issued to the assessee. This notice was signed as under:- " Yours faithfully Sd/- Vikramaditya (Vikramaditdya) ACIT, Hqrs., Burdwan, For Commissioner." From the above, it is clear that the said notice u/s. 263 of the Act ha s not been signed by the "Commissioner of Income Tax" rather it has been signed by ACIT, Hqrs., Burdwan. The Hon'ble Allahabad High Court in the case of Rajesh Kumar Pandey (supra) has expounded that when the Ld. CIT has not recorded his satisfaction, but it was the satisfaction of the Income Tax Officer (Technical) who is not competent to revise his order u/s. 263 of the Act, the order passed was liable to be set aside. The relevant portion of the order of Hon'ble Allahabad High Court reads as under:- "6. On perusal of the aforesaid provisions, it will be abundantly clear that the provisions of Section 299-BB deals with the procedure for service of notice and in case, there is a defective service of notice, it provides that if the assessee has cooperated, it will not be open for him to raise the plea, whereas in the instant case, it is not the case of the service....
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....ection 299BB has observed as under:- "299BB Notice deemed to be valid in certain circumstances- Where as assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under the Act that the notice was-- (a) not served upon him; or (b) not served upon time in time; or (c) served upon him in an improper manner; Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment." Thus, it is settled proposition of law that the notice issued by the authority other than the prescribed authority is not valid and consequential order passed by the ld. CIT(E) is without jurisdiction. The show cause notice confers the jurisdiction to proceed and to pass the order. In case the notice itself is not valid then the jurisdiction assumed....
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....f fund not as per the mode prescribed under the Act. The ld. AR of the assessee has submitted that this is not an investment nor diversion of fund but the assessee society made banafide efforts for acquiring another piece of land which is wrongly being termed by the ld. CIT(E) as investment in violation of section 11(5) of the Act. After the commencement of construction on the plot of land allotted by the Rajasthan Housing Board pursuant to the order of Hon'ble High Court the assessee received back the said amount of Rs. 1,38,00,000/- from the builder on 10.10.2016. The ld. AR has further pointed that since the builder could not get the land use changed to institutional purpose, therefore, even otherwise the said land could not have purchased by the assessee and accordingly the assessee received back the advance amount of Rs. 1,38,00,000/-. 12. As regards the advance of Rs. 60,07,953/- given to Ambience Land Developer for purchase of two flats the ld. AR of the assessee has submitted that after the allotment of the land by the Rajasthan Housing Board the assessee acquire the flat for the office staff to stay their during the construction and further the flat was purchased for th....
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....ck in the financial year 2014-15. The ld. AR of the assessee has referred to the agreement for purchase of the land from Surendra Kumar Meena under which the said advance was paid. Thus, he has contended that this payment was made for purchase of land for constructions and running the school and cannot be termed as investment or diversion of fund. 15. Undue benefit given to the specified persons:- Salary paid to specified persons:- The ld. AR of the assessee has submitted that the salary was paid to the persons who are duly qualified and have requisite experience in the field of education and therefore, the salary was paid for the services rendered by these persons. He has further contended that due to the efforts of these persons the assessee society could grow and establish schools at different cities. The salary paid was commensurate to the qualification and experience and was as per the need of the assessee society. Once services rendered by these persons are not denied then the payment of salary cannot be termed as undue benefit. He has further contended in the earlier assessment year a similar remuneration paid to these persons was found to be reasonable by the AO while....
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....ssion investment, deposit and loan and held that these words have different meanings. The advance given resulting no income or return cannot be termed as investment or loan it cannot be said to be deposited as it is not made for safe keeping or earning any interest income. Thus, the ld. AR has submitted that the impugned order is not sustainable and the same may be set aside. 18. On the other hand, ld. DR has submitted that the assessee has given a sum of Rs. 1,38,00,000/- to Trimurty Colonizers & Builders Pvt. Ltd. without charging any interest. The ld. CIT(E) has examined the record and found that this amount was shown in the balance sheet as on 31.03.2013 and it remained outstanding even on 31.03.2014 thus, the assessee has diverted its fund for giving this amount to Trimurty Colonizers & Builders Pvt. Ltd. without charging interest. Though the assessee has claimed that this amount was given as an advance payment for purchase of additional plot however, since May, 2011 neither any plot was purchased by the assessee society nor any interest has been received on such advances. Therefore, even if it is not an investment by the assessee the same is in-contravention of the provisi....
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....for withdrawal of the approval. 21. As regards undue benefit given to the specified persons, the ld. DR has contended that the assessee society has paid salary to the persons which are covered u/s 13(3) of the I.T. Act. Therefore, this payment on account of salary is unreasonable benefit given to the specified persons. The ld. CIT(E) has given finding that the Director/Chairman and other trustee performed only supervising and managerial role to the public service and therefore, this high payment given as salary is nothing but giving undue benefit to the specified persons in violations of the provisions of Section 13(3) r.w. the provisions of Section 10(23C)(vi) 3rd proviso and 13th proviso. He has relied upon the finding of the ld. CIT(E) and submitted that the payment given to these persons is not justified when the assessee society is doing a charitable activity. Apart from the salary the assessee has also incurred expenditure on the foreign tour of specified persons. The expenditure incurred on the tour cannot be treated as expenditure incurred for educational purpose and therefore, it is in violation of the provisions of Section 13(3) as well as 3rd proviso to Section 10(23C....
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....fore in order to ascertain whether such investment/ deposit is in violation of the mode prescribed u/s 11(5) of the I.T. Act there must be investment or deposit of funds. For ready reference we quote the provisions of section 11(5) as under:- "[(5) The forms and modes of investing or depositing the money referred to in clause (b) of sub-section (2) shall be the following, namely :- (i) investment in savings certificates as defined in clause (c) of section 250 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). Explanation.-In this clause, "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (....
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....an infrastructure in India. Explanation.-For the purposes of this clause,- (a) "long-term finance" means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; (b) "public company" shall have the meaning assigned to it in section 356 of the Companies Act, 1956 (1 of 1956); (c) "urban infrastructure" means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport;] (x) investment in immovable property. Explanation.-"Immovable property" does not include any machi-nery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;] 57[(xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964);] 58[(xii) any other form or mode of investment or deposit as may be prescribed.59]" In light of the....
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....ncelled and this amount was received back by the assessee on cancellation of the agreement, therefore, until and unless the agreement dated 27.05.2011 is held as bogus or non-est the payment under the said agreement cannot be considered as an investments or deposits. The Hon'ble Delhi High Court in case of DCIT vs. Alarippu (supra) has observed that the investment means to lay down money in business with a view to obtain an income or profit or the said amount should be capable of result of income, return or profit to the investor. In every case of investment the intention and positive act on part of the investor to earn such income, return, profit. The word deposit does not cover transaction of loan being the advance given for purchase of asset. Further, in the absence of the intention to earn the income out of such transaction the same cannot be termed as investments/ deposits. Therefore, when the advance was paid for purchase of education plot for construction and running of school which is in accordance with the objects and purpose of the assessee society then, the same cannot be treated as investments or deposits and therefore, there is no violation of provisions of section 11(....
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....chool. Therefore, even if the assess as originally proposed to purchase two flats and subsequently acquired only one flat the excess amount paid at the time of initial agreement cannot be treated as investment or deposit in violation of the provisions of section 11(5) of the IT Act. Though the ld. CIT(E) doubted the use of the flat, however when the flat was finally used for the residence of principal of the school then it cannot be treated as diversion of fund but the fund was applied only for the purpose of education which is the primary object of the assessee society. Hence, this transaction cannot be termed either investments or deposits and therefore, there is no violation of provisions of section 11(5) of the I.T. Act. 25. The payment to Shri Surendra Kumar Meena: The assessee has made an advance of Rs. 3,00,00,000/- to one Shri Surendra Kumar Meena for purchase of land in Jaipur vide agreement dated 04.04.2007. It is clear that the said land was to be purchased for the purpose of construction and running of a new school. Subsequently when the land was not converted to non agricultural use for the purpose of education as there was a public interest litigation filed against....
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....eady reference we quote section 13(2) as under:- "(2) Without prejudice to the generality of the provisions of clause (c) 17[and clause (d)] of sub-section (1), the income or the property18 of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- (a) if any part of the income or property19 of the trust or institution is, or continues to be, lent19 to any person referred to in subsection (3) for any period during the previous year without either adequate security19 or adequate interest or both; (b) if any land, building or other property19 of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or i....
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....ons and the fact that these persons have managed the affairs of the society since its inception and they are closely and actively involve in management and day to affairs of the assessee society, the salary and allowances paid to them is reasonable visa- vis legitimate needs of the assessee society and benefit derived or accruing to the assessee society. We do not see any justifiable reason to disturb the decision which has been taken by the management of the assessee society in terms of determining the appropriate remuneration payable to these persons. The only scenario where one can think of disturbing the said decision taken by the management of the assessee society is where people holding similar position and having similar experience and qualification have been drawing lesser remuneration compared to what has been paid to these persons by the assessee society. In other words, the test of reasonableness can be invoked where there is contemporary data in terms of identifiable third party transactions in similar area of operation of education. In the instant case, the revenue has not brought on record any such contemporary data in terms of other educational institutions of same s....
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....hed the details of 23 persons who have gone on education tour. The list of these persons is as under:- S.No. Name of Staff Post 1 Vaibhav Singh Director 2 Sunita Bali Vice Principal 3 SN Vaishav Post Graduate Teacher 4 RK Jain Post Graduate Teacher 5 Satish Gosain Trained Graduate Teacher 6 Arun Sahoo Trained Graduate Teacher 7 Ravina Anand Trained Graduate Teacher 8 Mona Jain Trained Graduate Teacher 9 Reva Jain Primary Teacher 10 Usha Gosain Primary Teacher 11 Pratima Dhar Trained Graduate Teacher 12 Alka Sharma Trained Graduate Teacher 13 Neelam Madan Trained Graduate Teacher 14 Asha Singh Trained Graduate Teacher 15 Deep Mala Trained Graduate Teacher 16 Lla Singh Trained Graduate Teacher 17 Kalpna Ojha Trained Graduate Teacher 18 H Rautela Primary Teacher 19 R Kukreti Primary Teacher 20 ZU Khan Post Graduate Teacher 21 Madi Modi Primary Teacher 22 Rekha Vajpai Trained Graduate Teacher 23 Anil Trained Graduate Teacher It is apparent from the list that ....