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2021 (10) TMI 739 - AT - Income TaxReopening of assessment u/s 147 - unaccounted receipts on account of donation - Exemption u/s 11 denied - commercializing the education and thus violating the objects for which it was created - assessee was charging capitation fees from the students seeking admission in MBBS/PG courses - As submitted assessee is a charitable trust carrying on activities in the field of education as a part of Santosh Group, which is also engaged in the field of education in Medical, Dental, Para-medical and other courses - HELD THAT - Correlation between the underlying material and the information, which was available in the balance sheet and income and expenditure account of the assessee, was clearly not made. Therefore the formation of belief by the Income-tax Officer that income of the assessee chargeable to tax had escaped assessment, was unreasonable and irrational, as it could not be related to the underlying information ; something which was discernible from a bare reading of the order recording reasons. AO also failed to correlate the statement of Mr. Mahalingam with the reasons recorded by the learned assessing officer and resultant amount of escapement of income. The facts in this case are similar to the facts decided by the honourable Delhi High Court in case of Sinfonia Tradelinks private limited 2021 (3) TMI 1177 - DELHI HIGH COURT where the honourable Delhi High Court quashed reassessment wherein even the assessment was earlier not made u/s 143 (3) of the act for not correlating the information available in the original return filed by the assessee. In the present case the assessment was already made u/s 143 (3) of the act, therefore, the case of the assessee is on much stronger footing against the facts of the case decided by the honourable Delhi High Court. We do not have any hesitation in holding that the learned assessing officer has not applied his mind at the time of recording of the reason u/s 148 of the act and therefore the reopening is quashed. Exemption u/s 11 - In respect to the allowing the exemption u/s 11 of the income tax act we find that the assessee is registered u/s 12 A of the act as well as u/s 10 (23C) (IV) of the act also. This registration certificate is still valid and not withdrawn. Assessee is also held to wholly exist for the purpose of education. The addition of the donation is not been made in the hence of the assessee u/s 68 of the income tax act but as income of the charitable trust denying the exemption u/s 11 of the act. We find that there is no reason to deny assessee benefit of Section 11 of the act when the assessee is registered u/s 12 A as well as u/s 10 (23C)(iv) of the act. It is the case of the revenue that assessee is not utilizing the sum so received towards educational activities. In view of this, we do not find any reason that assessee should not be allowed exemption u/s 11 is and 12 of the income tax act as assessee is doing a charitable activity. - Decided in favour of assessee. Computing excess of income over the expenditure of the assessee - CIT A has adopted the findings of the settlement commission in case of the assessee for deriving at the set-off of the expenditure. There is no reason to hold that that the reason given by the settlement commission which is adopted by the learned CIT A is not a plausible way of computing excess of income over the expenditure of the assessee. CIT A correct held that a sum of ₹ 2 77,57,629/ after applying the ratio laid down by the settlement commission is an unaccounted excess of income over the expenditure of the assessee. Further, the trustee has disclosed a sum of ₹ 3 crores in his hands has also been granted as a set of against the above addition based on the decision of the coordinate bench in case of the assessee. - Decided against revenue.
Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the Income Tax Act. 2. Denial of exemption under Section 11 of the Income Tax Act. 3. Addition of unaccounted receipts amounting to ?10,16,64,790. 4. Validity of the approval granted for reopening the assessment. 5. Application of mind by the Assessing Officer (AO) while recording reasons for reopening the assessment. 6. Whether the reopening of assessment is barred by Section 153A of the Income Tax Act. 7. Consideration of seized documents and statements during the assessment process. Detailed Analysis: 1. Validity of the Reopening of Assessment under Section 147: The Tribunal examined whether the reopening of the assessment for AY 2007-08 was valid. The AO had reopened the assessment based on information from a search operation indicating unaccounted receipts. However, the Tribunal found that the AO did not apply his mind to the information received and relied solely on the investigation wing's report without independent verification. The Tribunal held that the AO's failure to examine the material facts and the assessment records before recording the reasons for reopening indicated non-application of mind, rendering the reopening invalid. 2. Denial of Exemption under Section 11: The AO denied the exemption under Section 11, claiming the assessee was engaged in commercial activities by charging capitation fees. The Tribunal upheld the CIT(A)'s decision that the exemption under Section 11 could not be withdrawn merely because the assessee engaged in commercial activities. The Tribunal noted that the assessee was registered under Section 12A and Section 10(23C)(vi), and the registration had not been withdrawn. The Tribunal emphasized that the AO could not re-examine the charitable nature of the trust once it was registered under Section 12A. 3. Addition of Unaccounted Receipts: The AO added ?10,38,30,790 to the assessee's income, claiming it represented unaccounted receipts. The CIT(A) reduced this addition to ?21,66,000, treating it as anonymous donations taxable under Section 115BBC. The Tribunal upheld the CIT(A)'s decision, noting that the AO had failed to consider the seized documents in their entirety and had not accounted for unaccounted expenditures. The Tribunal agreed with the CIT(A)'s approach of following the Settlement Commission's method of determining the net unaccounted income by considering both unaccounted receipts and expenditures. 4. Validity of the Approval Granted for Reopening: The Tribunal examined the approval granted by the CIT for reopening the assessment. The Tribunal found that the approval merely stated, "Yes, I am satisfied that it is a fit case for issue of notice u/s 148," without providing detailed reasoning. The Tribunal referred to the Delhi High Court's decision in Experion Developers Pvt. Ltd. v. ACIT, which held that such an endorsement was sufficient if the reasons recorded by the AO were based on correct and irrefutable facts. The Tribunal concluded that the approval was valid. 5. Application of Mind by the AO: The Tribunal found that the AO had not applied his mind while recording the reasons for reopening the assessment. The AO failed to consider the assessment records and the income and expenditure account of the assessee, which already included a significant portion of the alleged unaccounted receipts. The Tribunal held that the AO's reliance on incorrect and unverified information indicated a lack of application of mind, rendering the reopening invalid. 6. Reopening Barred by Section 153A: The Tribunal addressed the argument that the reopening of the assessment was barred by Section 153A, which mandates reassessment for six preceding years following a search. The Tribunal clarified that Section 153A applies to the six specified assessment years, and for years beyond this period, the AO could invoke Section 147 if other conditions were satisfied. The Tribunal upheld the AO's action of invoking Section 147 for AY 2007-08, which was beyond the six-year period covered under Section 153A. 7. Consideration of Seized Documents and Statements: The Tribunal noted that the AO had failed to properly consider the seized documents and the statements made by Dr. P. Mahalingam. The AO had relied on certain annexures that did not pertain to the relevant assessment year and had not verified the claims made by the assessee regarding the inclusion of certain receipts in the regular books of accounts. The Tribunal found that the AO's approach was flawed and upheld the CIT(A)'s decision to allow the exemption under Section 11 and reduce the addition of unaccounted receipts. Conclusion: The Tribunal quashed the reopening of the assessment under Section 147 due to the AO's failure to apply his mind and verify the information received. The Tribunal upheld the CIT(A)'s decision to allow the exemption under Section 11 and reduce the addition of unaccounted receipts. The appeal filed by the AO was dismissed.
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