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TMI Blog2004 (6) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... ain that neither the survey team nor the CIT was able to bring anything on record to show that there was a diversion of income of society for the benefit of its members or the persons related thereto. In any event, the AO paid due regard to the decision of jurisdictional High Court in Dy. CIT vs. Cosmopolitan Education Society [ 1999 (8) TMI 13 - RAJASTHAN HIGH COURT] , for the proposition that for any misappropriation of funds by the members of society, action lies in their individual hands and the exemption u/s 10(22) cannot be denied to the society. The AO, therefore, did not commit any wrong by following the decision which was binding on him. On appreciation of facts if the AO was satisfied about the correctness and completeness of the claim and did not find any power vested in him for elucidation of cost by making reference to DVO, no error can be said to have been committed by him. The learned CIT herself did not refer to any of the provisions where the AO had powers to make any reference for elucidation of cost of construction. The very purpose that would have been attained by making reference or a reference was necessary has also not been stated by the learned CIT. In fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts are that the appellant is a society registered with Registrar of Societies, Jaipur, since 19th Oct., 1975. The society was set up amongst others with the object of imparting technical education and training. Over a number of years, the appellant has grown from running a primary school to an engineering college inter alia, diploma courses in pharmacy and business management, etc. A survey by the Investigation Wing of the Department was carried on the premises of the appellant on 11th Feb., 1999. The appellant had not been assessed to tax. As a sequel of survey an action under s. 147 was initiated for asst. yrs. 1996-97 to 1999-2000. In response thereto, the appellant filed returns of income for all the four years claiming exemption of its income under s. 10(22) of the Act. Returns were scrutinized, notice under ss. 142(1) and 143(2) were issued, enquiries with reference to survey report on record were made and assessment completed at NIL income after accepting the claim of exemption under s. 10(22) of the Act. 3. The learned CIT after giving show-cause notice to the appellant and after examination of record, was of the view that the assessment orders are erroneous insofar as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order-sheet entries at assessee s paper book pp. 28 to 86 and written reply before the AO and learned CIT on different dates. A prayer was made to quash the orders passed under s. 263 of the Act. 5. On the other hand, the learned CIT, Departmental Representative, Shri Chopra vehemently argues that there has been no application of mind by the AO to the provisions contained under s. 10(23C) of the Act which were applicable to asst. yr. 1999-2000 and thus the AO allowed exemption under a wrong section. For all other years, the learned CIT has recorded findings to show that the AO failed to make deep investigation into the facts nor did he verify the facts of inflation of expenses by the appellant. Diversion of income to the benefit of members was prima facie available on record and as such the exemption under s. 10(22) could not have been granted. In the written submissions dt. 29th Jan., 2004 and also on 28th April, 2004 and placing reliance thereon, it was pointed out that the AO collected various information and those information were considered simply by raising questions to the assessee and thus failed to make necessary enquiries on the important aspects as were noticed during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to say that the appellant did not pursue the main object of imparting technical education or training, etc. There is also no finding that the institution exists solely for the purpose of making profit. We find that the profits which have accrued to the assessee from year to year have also been utilised by the assessee in making infrastructure for the society in attaining its objective. The learned Departmental Representative before us also did not raise a dispute that the assessee is not engaged in imparting technical education or has failed to achieve its main objects. The profits which accrued to it as an incidence of carrying out of its main objects resulted in creation of assets of the appellant-society and not of any of the members personally or individually. Essentially the appellant is entitled to exemption under s. 10(22) of the Act. This is what exactly the AO has done in the assessment so framed for all the years under consideration before us. The findings have not been found wrong or perverse on facts or in law by the learned CIT. 8. The perusal of his orders, the order-sheet entries placed on record in assessee s paper book pp. 78 to 86 and assessee s replies to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also agree that in asst. yr. 1999-2000 the allowing of exemption under a wrong section was not taken a basis by the learned CIT for terming the order as erroneous. The same therefore cannot be held to be a ground for upholding her order in revision. Such a view is fortified by the decision of Hon ble Calcutta High Court in Jai Kumar Kankaria vs. CIT. 10. Learned Departmental Representative has placed reliance on the under mentioned decisions before us : 1. CIT vs. Emery Stone Mfg. Co. 2. Malabar Industrial Co. Ltd. vs. CIT 3. Gee Vee Enterprises vs. Addl. CIT. In Emery Stone the facts were totally different. There was a firm belonging to four brothers. Three of them retired and family member of only one remained. The firm was reconstituted and the fixed assets were revalued at a higher figure and, depreciation was claimed at the higher value. The IAC allowed the depreciation at a higher figure without calling for any explanation in the matter, and did not pay any heed to the provisions of Expln. 3 to s. 43(1) of the Act. No query was raised at all. In fact depreciation was allowed on value of land also. Thus there was a clear case of non-application of mind and as such the order w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not agree, it cannot be treated as an erroneous order prejudicial to the interest of Revenue, unless the view taken by the ITO is unsustainable in law. 13. The principles enunciated in Malabar Industrial Co. Ltd., admittedly have to be kept in mind. Viewing the case of appellants in that light, we find that this decision nowhere advances the case of Revenue. The CIT has nowhere proved what wrong facts the AO has assumed or what misapplication of law has been made by him. She has stated that the AO has not properly applied the provision of ss. 68 and 145 of the Act. The CIT did not realise that the appellant is an assessee whose income is exempt under s. 10(22) of the Act and consequently these provisions will have no effect on taxability of income and shall cause no prejudice to Revenue. Here the purpose of assessment is totally different unlike the assessment of a normal assessee. It is not a case of computation of taxable income but on the contrary is a case to grant exemption from taxation. The AO has to see the objects of the trust and the activities carried out by the assessee and whether the same satisfies the conditions for grant of exemption. Again it is not necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation made by the AO. We have perused the proceedings taken by the AO placed at assessee s paper book pp. 78 to 86. The AO completed the assessment in 19 sittings which continued from 15th Feb., 2001 to 23rd July, 2001 by raising various queries for collecting information, analysis thereof and thereafter coming to the conclusion within his competence as a quasi-judicial authority. These order-sheets entries as well as the written replies given by the assessee on the aspect of the facts of the case as well as the legal position with reference to the various judicial pronouncements speak volumes about the appropriate necessary enquiries made by the AO. It was not necessary for him to make all that as part of the assessment order what was being revealed by the Departmental file on record. This could not therefore be termed as a lapse on the part of the AO so as to hold the order as erroneous. 16. Issue Nos. 3 and 5 relate to diversions of funds for the personal use of properties/family members of Parashar s family. Assessee s paper book pp. 48 to 54 reveals the broad position as under: (Amounts in lakhs) 1997 1998 1999 2000 Income 53.63 137.49 180.71 207.92 Expenditure 50.76 64.08 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . For running such a big institution the expenditure cannot be held unreasonable. Correctness or genuineness of these payments have also not been disputed by the learned CIT nor by the learned Departmental Representative. The learned Departmental Representative was not able to show that failure to strike daily cash balances caused any difficulty in determination of total income of the assessee. The learned CIT did not find shortage of cash on any of the day even after examining all the books of account herself. The learned CIT also did not point or find that the assets owned or built by the various members of the Parashar family have been generated by diversion of funds of society. Even a single instance has not been given to support the allegation in her order. The AO formed an opinion on the genuineness of the claim of such expenditure incurred for the objects of the society on the basis of the evidence in the shape of vouchers produced before him. Looking into the magnitude of the receipts vis-a-vis the payment for services taken, the view taken by the AO upon examination of accounts and facts did not lead to a view that there was a diversion of funds for personal benefit of Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f receipts and did not show payment or diversion of any amount to the members of Parashar family. The funds were utilised for erecting infrastructure/building for the society for achieving its main objects. In case the AO could make addition in respect of such cash credits, still the income was to be held as exempt and would not cause any prejudice to Revenue. The learned CIT was unable to show as to how this leads to the order of the AO as erroneous and prejudicial to the interest of Revenue which are to be read in conjunction. The allegation that there is also a failure on the part of AO for making a reference to valuation officer for elucidation of cost, we find that the learned CIT after examination of books of account, survey material and other record was not able to bring even a single instance to show that there has been any inflation of expenditure incurred towards cost of construction or that these are not supported by genuine vouchers. In fact the assessee himself requested the AO to take an opinion from an independent valuer before taking any adverse view against the appellant. On appreciation of facts if the AO was satisfied about the correctness and completeness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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