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2024 (1) TMI 847 - AT - Income TaxValidity of original assessment pursuant to revisional order passed by the CIT (Exemptions) - Doctrine of merger - validity of assessment order originally passed stands beore order passed by the ld. CIT(A) - Exemption u/s 11 denied - receipts collected from the students, in whatever form, are to be considered as income of the Trust/Society - as argued CIT(Appeals) erred on facts and law in upholding the addition made by AO by invoking the provisions of section 11 12 in case of appellant being an educational institution approved u/s 10(23C)(vi), upholding the order of the AO treating tied up grants received from the government as income of the appellant and disallowing depreciation as application of income - HELD THAT - It is not at all in dispute and rather it is a matter of record that the fact that the original assessment in this case was proceeded consciously with reference to the provisions of Sections 11 and 12 of the Act is at one apparent from the original assessment order itself, wherein reference has been made to order sheet notings whereby the assessee was show caused for making addition of the funds collected by the assessee, as income for the year. It is also been accepted by the department itself in its written submissions filed before us and also the comments of the DCIT (Exemptions), Circle-1, Chandigarh, assessment was proceeded with in reference to the provisions of Sections 11 and 12 of the Act. It is only in the said comments of the DCIT, Circle-1 (Exemption), Chandigarh that for the first time, a case has been tried to be made out, that the reference to Sections 11 and 12 of the Act was inadvertently made in the assessment order, which may be treated as a typing mistake. Such methodology, in our considered opinion, is unheard of. Firstly, the flow of the assessment order itself makes it amply clear and apparent that the AO was fully aware and conscious of invocation of the provisions of Sections 11 and 12 of the Act. From this last observation also, it is evident that the AO was fully conscious of the invocation of the provisions of Sections 11 and 12 of the Act while making the assessment. Likewise, the issue of depreciation was also dealt with accordingly. Further, in case the AO, after passing of the order, felt it so necessary, he would have invoked the provisions of Section 154 in order to rectify, if he so felt it necessary to do so. Still further, it was only and only the AO passing the order originally who could have taken remedial measures, if so advised, and none else. Here, it is the DCIT, Circle-1 (Exemption), Chandigarh, who, in his comments has sought to raise the issue of the alleged inadvertence in mention being made of Sections 11 and 12 in the original assessment order. It is not at all, under law, the purview of the said officer to raise these issues, and more particularly when the original assessment order has been the subject matter of appeal before the ld. CIT(A), who, vide order dated 05.03.2019, i.e., the order impugned in the present appeal, has upheld the original assessment order. By virtue of the passing of the CIT(A) s aforesaid order under appeal, the original assessment order got merged therein. The law is very clear in this regard. It was way back in 1958 that the Hon'ble Supreme Court in CIT Vs Amrit Lal Bhogilal Co 1958 (4) TMI 3 - SUPREME COURT held that if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law; that if the appellate authority implies or reversed the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced; in law, the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmation of the decision of the Tribunal by the appellate authority, the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement. In the present case, indubitably, the superior jurisdiction of the ld. CIT(A) was capable of reversing, modifying or affirming the original assessment order, which was put in issue before the ld. CIT(A) and the ld. CIT(A), in fact, has affirmed the original assessment order. Therefore, the doctrine of merger is squarely applicable and the assessment order originally passed stands fully merged in the order passed by the ld. CIT(A). Way back in 1953, that the Hon'ble Bombay High Court in Tejaji Farasram Kharawa 1953 (3) TMI 29 - BOMBAY HIGH COURT held that it is a well established principle of law that when an appeal is provided from a decision of a Tribunal and the Appeal Court after hearing the appeal passes an order, the order of the original Court ceases to exist and is merged in the order of the Appeal Court and although the Appeal Court may merely confirm the order of the Trial Court, the order that stands and is operative is not the order of the Trial Court but the order of the Appeal Court. In the case at hand, the Appeal Court, i.e. the ld. CIT(A) has affirmed/confirmed the order of the Trial Court, i.e., the AO and that too, by a speaking order. Therefore, it is the CIT(A) s order that the AO s order stands merged. No decision contrary to the above case laws has been cited by the Department before us, nor has it been pleaded that the law laid down therein is either not a law of the land or is not the law applicable to the facts of the present case. There is no force in the Department s contention that the original order dated 05.03.2017 is void ab-initio and that accordingly, the appeal of the assessee is also void ab-initio and it be dismissed as such. This argument of the Department is, accordingly, rejected. Validity of approval u/s 10(23C)(vi) - As we find ourselves to be in agreement with the assessee that the ld. CIT(A) went wrong in upholding the addition made by the AO by invoking the provisions of Sections 11 and 12 when the assessee is an educational institution duly approved u/s 10(23C)(vi) of the Income Tax Act. Accordingly, Ground No. 2 is accepted and the addition is deleted. Treating tied up grants received by the assessee from the Government as income of the assessee - We find that it is undisputed that the funds/surplus of receipts over expenditure were in the nature of grant-in-aid, which facts stand expressly accepted by the ld. CIT(A) himself. As such, this grant-in-aid cannot be considered as income of the assessee under the Act, either for ascertaining the amount to be expended or for ascertaining the amount to be accumulated. The grants-in-aid made available to the assessee by the Government of Punjab, being not the income of the assessee, are exempt from tax. Ground No.3 is accepted and the addition is deleted. Disallowance of depreciation as application of income - As per the provisions of Section 11(6), if acquisition of an asset has been claimed as application of income u/s 11 by the assessee in the concerned assessment year or in any other previous year, depreciation would not be allowed. In the present case, as observed from the record and as not disputed before us, no such claim was made by the assessee regarding application of income u/s 11 either in the year under consideration or in any of the earlier years. Still otherwise, again, as rightly contended on behalf of the assessee and not disputed by the Department, the assessee had not claimed expenditure incurred on acquisition of fixed assets as revenue expenditure in the Receipt Expenditure Account, in any of the earlier years. The aforesaid being the undisputed factual position, the assessee is again correct in pleading that the ld. CIT(A) went wrong in confirming the disallowance of depreciation as application of income. Accordingly, the disallowance of depreciation as application of income is hereby ordered to be deleted. Ground No. 4 is accepted.
Issues Involved:
1. Legality of the CIT(A)'s order upholding the addition made by the Assessing Officer (AO) by invoking the provisions of Sections 11 & 12 of the Income Tax Act. 2. Treatment of tied-up grants received from the government as income of the appellant. 3. Disallowance of depreciation as an application of income. Summary: Issue 1: Legality of the CIT(A)'s order upholding the addition made by the AO by invoking the provisions of Sections 11 & 12 of the Income Tax Act. The AO made an addition of Rs. 2,47,58,982/- to the appellant's income, invoking Sections 11 & 12, alleging failure to utilize 85% of receipts towards its objects. The CIT(A) upheld this addition, treating the collected amounts as income. The Tribunal found that the appellant was approved under Section 10(23C)(vi) and had claimed exemption accordingly. The Tribunal agreed with the appellant that the CIT(A) erred in upholding the addition under Sections 11 & 12, as the appellant was an educational institution approved under Section 10(23C)(vi), and no disallowance should have been made under Sections 11 and 12. The Tribunal referenced CBDT Circular No. 14 of 2015 and case laws supporting this view, thereby deleting the addition. Issue 2: Treatment of tied-up grants received from the government as income of the appellant. The AO treated tied-up grants from the government as income, which the CIT(A) upheld. The Tribunal noted that the CIT(A) accepted that the excess of income over expenditure was a grant-in-aid belonging to the consolidated fund of the State and could not be considered the appellant's income. The Tribunal found that these grants, being in the nature of grant-in-aid, were not the income of the appellant and were exempt from tax. Thus, the Tribunal accepted the appellant's grievance and deleted the addition. Issue 3: Disallowance of depreciation as an application of income. The AO disallowed depreciation claimed by the appellant as an application of income, arguing that the expenditure on asset acquisition had already been treated as an application of income. The CIT(A) confirmed this disallowance. The Tribunal found that the appellant had not claimed the cost of fixed assets as an application of income in earlier years, as it had claimed exemption under Section 10(23C)(iiiab) previously. The Tribunal held that the CIT(A) erred in disallowing depreciation, as the appellant had not claimed such expenditure as revenue expenditure in prior years. Consequently, the Tribunal deleted the disallowance of depreciation amounting to Rs. 51,69,258/-. Conclusion: The Tribunal allowed the appeal, deleting the additions and disallowances made by the AO and upheld by the CIT(A), and pronounced the order on 04th January 2024.
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