2019 (7) TMI 302 - HC - Income Tax

Section under which assessment order was passed - validity of corrigendum that the assessment passed u/s 144 - assessee contested that assessment was completed u/s 143(3) r/w. 153(A) - HELD THAT - The assessee failed to comply with the notice u/s 142(1) dated 12.02.2013. The summon which followed the notice u/s 131 was also ignored. The assessee having filed his return of income on 09.11.2011 failed to comply with the terms of the notice issued u/s 143(2). In such contingency, the AO after taking note of the particulars available on record, seized the documents and statements recorded during the course of search completed the assessment. This has been clearly brought out in paragraph 4 of the assessment order. Therefore, we are of the clear view that the assessment for the year under consideration were u/s 144 and mentioning of Section 143(3) in the preamble of the assessment order is an error which is apparent on the face of the order and requires to be rectified. Therefore, the corrigendum dated 22.01.2015 is legal and valid. Cancellation of registration u/s 12AA with retrospective effect - withdrawal of approval granted u/s 10(23C)(vi) with retrospective effect - order of cancellation was passed based on recommendation made by AO while making assessment of AY 2010-2011 - HELD THAT - Admittedly, the business premises of the assessee was subjected to search during the assessment year 2010-2011. The AO while completing the assessment found large scale diversion of funds and several improper actions on the part of the assessee in direct conflict to the terms of the Deed of Trust and conditions of registration/exemption. Therefore, it was recommended to the competent authority to initiate proceedings for cancellation of the exemption/registration. The matter was decided after due opportunity to the assessee and speaking orders have been passed and obviously these orders will take effect from the assessment year 2010-2011 and it is a mis-nomer to state that the orders are retrospective or retroactive. The lis which was the subject matter is for the assessment year 2010-2011 and though the orders of cancellation of the exemption/registration was passed on 18.11.2014 and 07.12.2016 they would take effect from the assessment year 2010-2011 during which year the cause of action arose. In an appeal u/s 260A, we are not required to go into the facts nor or we are entitled to re-adjudicate the factual details in the absence of any perversity or illegality. Yet since the learned counsels had advanced arguments on those lines, we perused the orders dated 18.11.2014 and 07.12.2016, from which we find that there are substantial documentary evidence and other details which clearly show that the assessee Trust has violated all the conditions and they are not entitled for any approval u/s 10(23C)(vi) or a registration u/s 12AA. Hence, both the grounds raised by the learned counsel for the assessee has to necessarily fail. The AO pointed out that the assessee has violated its own objectives by diverting substantial portion of its funds by and to the Managing Trustee without truly recording in the books of accounts maintained by it and as these funds were diverted outside its books of accounts the audit report furnished does not reflect the true and correct affairs of the assessee. After referring to the facts discovered during the course of search coupled with the admission of the Managing Trustee and the officers incharge of the accounts in their deposition, the AO held that such a contumacious conduct in running the affairs of the Trust to go against the basic tenets of the Trust and Trusteeship warrants cancellation of the approval. All these factual findings are perfectly justified and consequently, approved. - the substantial questions of law are answered against the assessee

Issues Involved:

1. Validity of assessment under Section 143(3) without following the mandatory procedure.
2. Retrospective withdrawal of approval under Section 10(23C)(vi).
3. Retrospective cancellation of registration under Section 12AA.
4. Legality of converting an assessment under Section 143 to Section 144 via corrigendum.
5. Jurisdiction of authorities in deciding business expediency of expenditure.
6. Applicability of Sections 11 and 13 when approval under Section 10(23C)(vi) is granted.
7. Challenge to orders lacking jurisdiction in collateral proceedings.
8. Perverse findings by the Income Tax Appellate Tribunal.

Detailed Analysis:

1. Validity of Assessment under Section 143(3) without Following Mandatory Procedure:
The assessee contended that the assessment was not carried out as per the mandatory procedure under Section 143(3) of the Income Tax Act, 1961. However, the court noted that the assessment was actually a best judgment assessment under Section 144 due to the assessee's non-compliance with notices under Sections 142(1) and 143(2). The court held that the corrigendum issued to correct the section under which the assessment was made was valid, as the assessment order clearly indicated it was a best judgment assessment due to the assessee's non-cooperation.

2. Retrospective Withdrawal of Approval under Section 10(23C)(vi):
The court observed that the withdrawal of approval under Section 10(23C)(vi) was not retrospective but effective from the assessment year 2010-2011, the year in which the cause of action arose. The court emphasized that the withdrawal was based on substantial evidence of large-scale diversion of funds and violations of the conditions of approval. The court rejected the argument that the withdrawal was retrospective, stating it was effective from the year of the cause of action.

3. Retrospective Cancellation of Registration under Section 12AA:
Similar to the withdrawal of approval under Section 10(23C)(vi), the cancellation of registration under Section 12AA was also effective from the assessment year 2010-2011. The court held that the cancellation was based on findings of diversion of funds and activities not in accordance with the objects of the trust. The court found that the cancellation was justified and not retrospective.

4. Legality of Converting an Assessment under Section 143 to Section 144 via Corrigendum:
The court upheld the corrigendum issued to correct the assessment order from Section 143(3) to Section 144, stating that the assessment was indeed a best judgment assessment due to the assessee's non-compliance. The court noted that the procedural requirements under Section 144 were met, and the corrigendum was valid and legal.

5. Jurisdiction of Authorities in Deciding Business Expediency of Expenditure:
The court did not specifically address this issue in detail but implicitly upheld the authorities' jurisdiction in assessing the business expediency of expenditures based on the findings of diversion of funds and improper activities by the assessee.

6. Applicability of Sections 11 and 13 when Approval under Section 10(23C)(vi) is Granted:
The court did not provide a detailed analysis on this issue, but the overall judgment indicates that the benefits under Sections 11 and 13 were not applicable due to the violations and improper activities found by the authorities.

7. Challenge to Orders Lacking Jurisdiction in Collateral Proceedings:
The court rejected the argument that the order withdrawing approval under Section 10(23C)(vi) could be challenged in collateral proceedings. The court held that the withdrawal was based on substantial evidence and was not a void order. The court emphasized that the assessee could not refuse to comply with the conditions of approval and that the withdrawal was justified.

8. Perverse Findings by the Income Tax Appellate Tribunal:
The court upheld the findings of the Income Tax Appellate Tribunal, stating that the Tribunal's decision was based on substantial evidence of diversion of funds and violations by the assessee. The court found no perversity in the Tribunal's findings and dismissed the appeals.

Conclusion:
The appeals filed by the assessee were dismissed, and the substantial questions of law were answered against the assessee. The court upheld the validity of the corrigendum, the withdrawal of approval under Section 10(23C)(vi), and the cancellation of registration under Section 12AA, all effective from the assessment year 2010-2011. The court found that the authorities acted within their jurisdiction and based their decisions on substantial evidence.

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