2017 (4) TMI 339 - AT - Income Tax

Reopening of assessment - denial of exemption under section 10(23C)(iiiad) - proof of educational purposes of school - Held that - Neither of the Authorities below, nor the ld. DR before us has been able to repudiate the assessee s categorical assertion that no religious education has ever been imparted by the assessee school right from since its inception and that the assessee school is affiliated with the Punjab School Education Board (In short, PSEB ), and it is imparting education only on the pattern of the PSEB, which pattern is a recognized pattern in India and is the pattern prescribed by the State Govt. in Punjab. The existence of the assessee solely for educational purposes has been elaborated and confirmed by us in the preceding paras. So far as regards the receipts of the assessee, firstly, neither of the Authorities below has raised any objection with regard to the receipts of the assessee being less than the prescribed limit of ₹ 1 crore. For the A.Y. 2007-08, the receipts of the assessee, as per the Income & Expenditure Account for the year ending 31.03.2007, amounted to ₹ 52,01,115.28, i.e., much below the prescribed limited of ₹ 1 crore. The above apart, it is patent on record that in the case of Arya Shiksha Mandal, the governing body of the assessee school, in scrutiny assessment, vide order dated 29.11.2012 (APB 2007-08 Pg 12 13), the status as well as the nature of service of the Mandal was accepted as that of a charitable educational society. From the above discussion, it is evident that both the reasons recorded by the AO for reopening the completed assessments of the assessee are based on factual errors, rendering the notice issued u/s 147, finding its basis in the aforesaid reasons, to be an invalid notice - Decided in favour of assessee

Issues Involved:
1. Reopening of assessment proceedings under sections 147/148 of the Income Tax Act.
2. Formation of belief by the Assessing Officer (AO) regarding income escapement.
3. Disposition of objections raised by the assessee regarding reopening.
4. Denial of exemption under section 10(23C)(iiiad) of the Income Tax Act.
5. Evaluation of the order passed by CIT(A) as non-speaking and ignoring relevant judgments.

Issue-wise Detailed Analysis:

1. Reopening of Assessment Proceedings under Sections 147/148:
The primary issue was whether the reopening of the assessment proceedings by the AO under sections 147/148 was justified. The AO initiated proceedings based on the belief that the income of ?22,18,321/- had escaped assessment due to the religious nature of the aims and objectives of the society running the assessee institution. The Tribunal found that the AO's reasons for reopening were not based on any tangible material, as the institution had been imparting education as per the Punjab School Education Board (PSEB) pattern and not engaging in any religious activities.

2. Formation of Belief by the AO Regarding Income Escapement:
The AO's belief that the income had escaped assessment was based on two reasons: the religious nature of the parent society's objectives and the rejection of the assessee's application for approval under section 10(23C)(vi) for the A.Y. 2012-13. The Tribunal held that the AO did not have a reasonable basis for this belief, as the assessee institution was solely engaged in educational activities and had not imparted any religious education. The Tribunal referenced the case of 'Harf Charitable Trust (Regd) vs. Chief CIT and Another' to support its conclusion that mere existence of certain religious objectives in the parent society's memorandum did not justify the belief of income escapement.

3. Disposition of Objections Raised by the Assessee Regarding Reopening:
The assessee had raised objections to the reasons recorded for reopening the assessment, arguing that the school had not engaged in any religious activities and was solely imparting education as per the PSEB pattern. The AO rejected these objections without providing a convincing rationale. The Tribunal found that the AO's dismissal of the objections was not justified, as the assessee's affiliation with PSEB and its adherence to the prescribed educational pattern were not disputed.

4. Denial of Exemption under Section 10(23C)(iiiad):
The AO denied the exemption under section 10(23C)(iiiad) on the grounds that the assessee institution did not exist solely for educational purposes due to the religious nature of the parent society's objectives. The Tribunal found this reasoning flawed, as the assessee institution had not engaged in any religious activities and had been solely imparting education. The Tribunal cited the case of 'C.P. Vidya Niketan Inter College Shiksha Society vs. Union of India and others' to assert that the possibility of future non-educational activities could not be a ground for denying the exemption.

5. Evaluation of the Order Passed by CIT(A) as Non-Speaking and Ignoring Relevant Judgments:
The assessee contended that the CIT(A) passed a non-speaking order by ignoring relevant judgments and failing to address the assessee's arguments adequately. The Tribunal agreed with this contention, noting that the CIT(A) had not provided a detailed analysis of the assessee's objections and had merely upheld the AO's decision without proper justification.

Conclusion:
The Tribunal concluded that the reopening of the assessment proceedings was invalid, as the AO's reasons for reopening were not based on tangible material and the assessee institution had been solely engaged in educational activities. Consequently, the Tribunal quashed the reopening of the assessment and allowed the appeals filed by the assessee. The stay applications filed by the assessee were dismissed as infructuous.

← Previous Next →