2015 (5) TMI 3 - HC - Income Tax

Exemption under Section 10 (23C) (vi) refused - Held that - Evidently, the application itself was filed without the audited accounts for the last three years. The provision of 30th day of September of the assessment year concerned as the cut-off-date for filing of the application has been clearly given so that the balance sheet and audited account of the said year could also be given. The petitioner not only failed to supply initially the audited accounts and balance-sheet for the financial year which pertained to the said assessment year but despite opportunities granted, the same was not produced nor the books of account were shown and thus rejection of the claim on the said ground cannot be said to be contrary to law. The petitioner had approached the Settlement Commission and showed his undisclosed income to the extent of ₹ 4 crores. In this connection it is submitted that the society is systematically generating huge surplus year after year and there is an institutional mechanism through which the society is perpetuating its profit motive every year. It is now well settled that if surplus is generated year after year, it cannot be said to be existing solely for educational purposes and in support of the said proposition learned counsel for the revenue has rightly relied on the decision of Uttarakhand High Court in the case of CIT Vs. Queens Educational Society and St. Pauls Sr. Secondary School (2007 (9) TMI 347 - UTTARAKHAND HIGH COURT). The said decision has not been assailed by learned counsel for the petitioner. - Decided against assesee.

Summary

Issues:
1. Quashing of order refusing approval for exemption under Section 10 (23C) (vi) of the Income Tax Act.
2. Application for exemption under Section 10 (23C) (iv) of the Act.
3. Legality of the application filing date and limitation.
4. Merits of the application for the assessment year 2010-11.
5. Non-production of audited accounts and balance sheet.
6. Rejection of claim based on undisclosed income and surplus generation.
7. Judicial review of the decision-making process.

Analysis:
1. The petitioner sought to quash the order refusing approval for exemption under Section 10 (23C) (vi) of the Income Tax Act. The petitioner claimed to be running an educational institution and voluntarily disclosed unaccounted income. The Director General rejected the application for exemption under Section 10 (23C) (vi) after considering discrepancies in income and non-production of audited accounts for the financial year 2009-10. The petitioner accepted the consideration under Section 10 (23C) (vi) and not (iv).

2. The application for exemption under Section 10 (23C) (iv) was made, but the Director General rejected it on grounds of being time-barred and improper maintenance of books of accounts. The petitioner's counsel argued that the application filing date was not barred by limitation, citing the proviso to Section 10 (23C) regarding the deadline for application submission.

3. The court analyzed the legality of the application filing date and limitation, determining that the difference of one or two days in filing did not affect the application's compliance with the prescribed deadline. The Director General's decision on this point was deemed incorrect.

4. On the merits of the application for the assessment year 2010-11, the petitioner's counsel contended that despite incomplete audited accounts, an opportunity for consideration should have been granted. However, the Director General noted repeated failure to produce books of account, leading to the rejection of the claim.

5. The non-production of audited accounts and balance sheet for the relevant assessment year was a crucial factor in the Director General's decision. The petitioner failed to provide the required financial documents despite opportunities granted, leading to the rejection of the claim.

6. The rejection of the claim based on undisclosed income and surplus generation was supported by the fact that the petitioner disclosed unaccounted income and systematically generated surplus, indicating profit motives beyond educational purposes. The court referenced a relevant decision and upheld the rejection based on these grounds.

7. In reviewing the decision-making process, the court emphasized that judicial review focuses on the process rather than the final decision. The Director General's reasoned findings and consideration of available material were deemed sufficient, leading to the dismissal of the writ application.

In conclusion, the court dismissed the writ application, upholding the Director General's decision to reject the petitioner's claim for exemption under Section 10 (23C) of the Income Tax Act based on various grounds, including non-compliance with filing requirements, non-production of financial documents, and profit motives beyond educational purposes.