2012 (7) TMI 683 - AT - Income Tax

Reassessment - Assessee claimed exemption of income u/s. 10(23C)(iiiad) of the IT Act and challenged the addition of Rs.16,18,000/- u/s. 40(a)(ia) of the IT Act. - AO accepted the claim of the assessee that the assessee is an educational society and running school and therefore, the income of the assessee was found to be exempt u/s. 10(23C) of the IT Act because the receipts of the assessee were below Rs. 1.00 crore. Held that - since in the case of the assessee, the annual receipts were not exceeding Rs. 1.00 crore, therefore, instead of applying provisions of section 10(23C)(vi), in which the approval of the CCIT is required, the provisions of section 10(23C)(iiiad) would be attracted. Therefore, the order of the ld. CCIT dated 15.09.2008 would be wholly irrelevant to the matter in controversy. The AO and the ld. CIT(A) should not have been influenced by the order of ld. CCIT dated 15.09.2008. The orders of the authorities below further reveal that the authorities below have not examined the issue of grant of exemption to the assessee U/s. 10(23C)(iiiad) of the IT Act in proper perspective. As long as an institution exists solely for educational purposes it would qualify for grant of exemption under section 10(23C)(vi) of the Act. Merely because profits have resulted from the activity of imparting education that would not change the character of the institution existing solely for educational purposes. Therefore, even if the assessee has not deposited the TDS on the payment of rent, but if the assessee has satisfied the requirement of section 10(23C)(iiiad) of the IT Act, then the assessee would be entitled for exemption. Regarding reassessment - The reasons for reopening of assessment have, therefore, been properly recorded by the AO, which was in accordance with the provisions of section 40(a)(ia) of the IT Act. At that stage, there was nothing before the AO to prove whether the amount was paid or payable or whether the assessee s income was exempt u/s. 10(23C) of the Act. - the AO has properly invoked the jurisdiction u/s. 147/148 of the IT Act and the AO had genuine reasons to believe that income chargeable to tax had escaped assessment and at the stage of reopening, sufficiency of reasons could not have been challenged.

Issues Involved:
1. Reopening of the assessment under Section 147 of the IT Act.
2. Claim of exemption of income under Section 10(23C)(iiiad) of the IT Act.
3. Addition of Rs.16,18,000/- under Section 40(a)(ia) of the IT Act.

Issue-wise Detailed Analysis:

1. Reopening of the Assessment under Section 147 of the IT Act:

The assessee challenged the reopening of the assessment under Section 147 of the IT Act. The AO had reopened the assessment by recording reasons on 30.05.2008, noting that the assessee society paid Rs.16,80,000/- as rent on 17.03.2006 and deducted tax at source of Rs.2,82,744/-, which was deposited in the Government Account on 30.03.2007. The AO believed that the income chargeable to tax had escaped assessment. The assessee objected, arguing that the income was exempt and the rent paid was not a business expenditure. However, the AO did not accept this contention, as the CCIT had rejected the application under Section 10(23C) of the IT Act. The CIT(A) upheld the reopening, stating that the fact of income escaping assessment need not be conclusively proved at the time of reopening, and the sufficiency of reasons cannot be questioned at that stage.

2. Claim of Exemption of Income under Section 10(23C)(iiiad) of the IT Act:

The assessee claimed that its income was exempt under Section 10(23C)(vi) of the IT Act, and submitted that the AO had accepted this claim for the subsequent assessment year 2007-08. However, the CIT(A) referred to the CCIT's order dated 15.09.2008, which rejected the approval under Section 10(23C)(vi) on the grounds that excessive rent was paid and the assessee was not existing solely for educational purposes. The CIT(A) rejected the assessee's claim for exemption under Section 10(23C)(iiiad) and confirmed the addition of Rs.16,80,000/- for the late deposit of TDS under Section 40(a)(ia).

3. Addition of Rs.16,18,000/- under Section 40(a)(ia) of the IT Act:

The AO disallowed Rs.16,80,000/- under Section 40(a)(ia) due to the late deposit of TDS. The CIT(A) confirmed this addition, noting that the TDS was admittedly deposited belatedly. The assessee argued that the provisions of Section 40(a)(ia) should not apply as it is meant for computation of business income, and the assessee was an educational institution. The assessee also cited case laws to support their contention that the reopening was based on mere suspicion and that the provisions of Section 40(a)(ia) would apply only to the expenditure payable as of 31st March of every year.

Judgment:

The Tribunal considered the rival submissions and the material on record. It noted that in the subsequent assessment year 2007-08, the AO accepted the assessee's claim that it was an educational society and its income was exempt under Section 10(23C) of the IT Act. The Tribunal observed that the annual receipts of the assessee were below Rs.1.00 crore, and therefore, the provisions of Section 10(23C)(iiiad) would be applicable. The Tribunal found that the authorities below did not properly examine the issue of exemption under Section 10(23C)(iiiad) and were influenced by the CCIT's order, which was irrelevant to the matter in controversy. The Tribunal also noted that the AO recorded proper reasons for reopening the assessment, which were in accordance with the provisions of Section 40(a)(ia).

The Tribunal set aside the order of the CIT(A) to the extent of denying exemption under Section 10(23C)(iiiad) and confirming the addition of Rs.16,80,000/-. It restored these issues to the file of the CIT(A) for reconsideration, directing the CIT(A) to re-decide the matter afresh in light of the assessee's explanation and the Tribunal's observations, providing a reasonable opportunity of being heard to the assessee. The appeal of the assessee was partly allowed for statistical purposes.

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