2011 (12) TMI 364 - AT - Income Tax

Reopening - Exemption u/s 11 - Validity of reassessment made by Assessing Officer - the assessee is a registered society with sole object of imparting education without any profit motive - Since the assessee was denied approval u/s 10(23)(iiiad), the assessee completed assessments for assessment years 2006-07 and 2007-08 were reopened - The assessee attended in the re assessment proceeding and produced all the books of account which are verified by the Assessing Officer - It was alleged that the assessee was using the trust fund for the benefit of a person who was a specified person within meaning of section 13(1)(c) r.w.s. 13(3) of the Act, being a Government Body Member - It is further contended that Assessing Officer has not been disputed that the sole object and activity of the assessee are educational in nature and the assessee is an educational institution solely existing and operating for educational purposes and not for the purposes of profit - Held that AO has not placed any material on record as to how the rate of 12% is unreasonable but for making a bald statement Regarding depreciation - It has not been disputed that the furniture and fixed assets, namely, computer, furniture and fixture, building, library, books, vehicles etc. were utilized for the equities of the assessee - It has not been disputed by the Ld.DR that the assessee is solely engaged in the education activity and except running a CBSC recognized secondary school, no other activities were carried out - The assessee being eligible u/s 10(23C), the entire income become exempt as the assessee s receipts are in this year i.e. assessment year 2006-07 is below Re.1 crore - Decided in favor of the assessee

Summary

Issues Involved:
1. Validity of the order of the Assessing Officer (AO) and denial of exemption under Section 11 of the I.T. Act.
2. Validity of the reassessment proceedings.
3. Denial of exemption under Section 10(23C)(iiiad) of the I.T. Act.
4. Alleged violation of provisions under Section 13(1)(c) read with Section 13(3) of the I.T. Act.
5. Penalization of the appellant society for the actions of its members.
6. Denial of depreciation on assets used for attaining its objectives.

Detailed Analysis:

1. Validity of the Order of the Assessing Officer and Denial of Exemption under Section 11:
The assessee contended that the CIT(A) erred in upholding the AO's order denying exemption under Section 11 and completing the assessment at Rs. 18,26,010/- against the declared Nil income. The assessee argued that it is a registered society solely engaged in imparting education without profit motive, and thus, its income should be exempt under Section 10(23C)(iiiad).

2. Validity of the Reassessment Proceedings:
The reassessment was challenged on the grounds that the AO had no valid reason to believe that the income had escaped assessment. The reasons recorded for reopening the assessment for the year 2006-07 were found to be non-existent and not applicable to that year, indicating non-application of mind by the AO. The Tribunal found the reassessment proceedings invalid, citing the case of Ranbaxy Laboratories Ltd. vs. CIT, where it was held that reassessment is not justified if the reasons for initiation cease to exist.

3. Denial of Exemption under Section 10(23C)(iiiad):
The assessee argued that its receipts were below Rs. 1 crore, thus qualifying for exemption under Section 10(23C)(iiiad). The Tribunal noted that the AO did not dispute the educational nature of the assessee's activities and that the CIT(A) failed to consider this aspect. The Tribunal concluded that the assessee's income is exempt under Section 10(23C)(iiiad) as the receipts were less than Rs. 1 crore.

4. Alleged Violation of Provisions under Section 13(1)(c) read with Section 13(3):
The AO alleged that the assessee violated Section 13(1)(c) by using trust funds for the benefit of a specified person, Mohinder Singh, who was a Governing Body Member. The Tribunal found that the AO did not provide cogent reasons for this conclusion and noted that the matter of loan or donation from Mohinder Singh was pending adjudication in the Delhi High Court. The Tribunal held that the denial of exemption under Section 11 was not justified.

5. Penalization of the Appellant Society for the Actions of Its Members:
The assessee argued that it was penalized for the actions of its members, particularly Mohinder Singh, who allegedly converted a loan into a donation and vice versa. The Tribunal observed that the society should not be punished for the actions of an individual member, especially when the matter was under litigation.

6. Denial of Depreciation on Assets Used for Attaining Its Objectives:
The Tribunal noted that the AO disallowed depreciation without assigning any reason, despite the assets being used for the society's educational purposes. The Tribunal found this disallowance unjustified.

Conclusion:
The Tribunal allowed the appeal, holding that the reassessment proceedings were invalid and the assessee's income was exempt under Section 10(23C)(iiiad). The denial of exemption under Section 11 and the disallowance of depreciation were also found to be unjustified. Consequently, the issues regarding the maximum marginal rate of tax became inconsequential as there was no taxable income.