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TMI Blog2012 (7) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... in proper perspective. As long as an institution exists solely for educational purposes it would qualify for grant of exemption under section 10(23C)(vi) of the Act. Merely because profits have resulted from the activity of imparting education that would not change the character of the institution existing solely for educational purposes. Therefore, even if the assessee has not deposited the TDS on the payment of rent, but if the assessee has satisfied the requirement of section 10(23C)(iiiad) of the IT Act, then the assessee would be entitled for exemption. Regarding reassessment - The reasons for reopening of assessment have, therefore, been properly recorded by the AO, which was in accordance with the provisions of section 40(a)(ia) of the IT Act. At that stage, there was nothing before the AO to prove whether the amount was paid or payable or whether the assessee’s income was exempt u/s. 10(23C) of the Act. - the AO has properly invoked the jurisdiction u/s. 147/148 of the IT Act and the AO had genuine reasons to believe that income chargeable to tax had escaped assessment and at the stage of reopening, sufficiency of reasons could not have been challenged. - ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of Rs.10/- per sq. ft. and the circle rate fixed by the District Magistrate was at Rs.6.97 per sq. ft. The cost in the hands of the trustee was more than Rs.25.00 lacs as against rent of Rs.16.80 lacs paid by the society. The ld. CIT(A), however, did not accept the contention of the assessee because the AO genuinely recorded the reasons that the income chargeable to tax has escaped assessment. It was noticed that it is well settled position of law that at the time of reopening of assessment, the fact of income escaping assessment need not be conclusively proved. If the AO has genuine reasons to believe that the income chargeable to tax has escaped assessment, re-assessment proceedings can be initiated. The sufficiency of reasons cannot be questioned at that stage. The ld. CIT(A), accordingly, rejected this ground of appeal challenging the reopening of assessment in the matter. 3.2 Further the assessee made a claim that its income is exempt u/s. 10(23C)(vi) of the IT Act. It was submitted before the ld. CIT(A) that the AO himself in subsequent assessment year 2007-08 accepted the claim of the assessee u/s. 10(23C)(iiiad) of the Act on the advice / directions of the Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reflected in the accounts. The same is unexplained. I have, therefore, reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147. Accordingly, proceedings u/s. 147 is initiated. Issue notice of 148. 5.1 The ld. counsel for the assessee submitted that prior to reopening of assessment, proceedings u/s. 143(3) have not been done in the case of assessee. He has, therefore, submitted that it was merely wrong belief of the AO to suspect that the income has escaped assessment. He has referred to paper book page 46 and 47, which are schedule of income to show that the assessee earned income of Rs.15,56,479/- on account of educational activities carried on by the assessee and spent Rs.22,07,707/- on educational activities and after deducting depreciation etc. there is excess of expenditure over income in a sum of Rs.7,52,091/-. He has submitted that the assessee solely exists for educational purpose and in subsequent assessment year 2007-08, the AO granted benefit to the assessee u/s. 10(23C) of the Act. Copy of assessment order is filed at page 24 of the paper book. He has also filed copy of the order of CCIT dated 15.09.2008 (PB-55) in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. 5.2 He has also relied upon the decision of Allahabad High Court in the case of Jamna Lal Kabra vs. ITO, 69 ITR 461, in which it was held Held, (I) the recording of reasons before issuing a notice under section 148 is mandatory and prerequisite to the assumption of jurisdiction by the office for initiating proceedings for assessing or reassessing income which has escaped assessment; (2) the reasons are of particular significance when action is taken under section 147(a) because they indicate the reasons which the officer had in mind for believing that income had escaped assessment by reason of one or other default of the assessee specified therein; (3) in order to justify action under section 147(a), it is not open to the officer to refer to reasons other than those recorded by him pursuant to section 148(2); (4) in the instant case there is nothing in the reasons so recorded by the officer attracting the terms in which section 147(a) is set out so far as the petitioner is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed . The prescribed limit is Rs.1.00 crore in the assessment year under appeal. The Income and expenditure account of the assessee shows that the assessee earned income for running educational institution and ultimately, there was an excess of expenditure over income as noted above. The ld. CIT(A), however, rejected the claim of the assessee by following the order of ld. CCIT dated 15.09.2008, copy of which is filed in the paper book to show that the annual receipts of the assessee were not above Rs.1.00. crore. It is also noted in this order that the rent was paid for the full year despite the fact that the building was incomplete in the assessment year under appeal. The assessee, however, explained in the written submissions before the ld. CIT(A) that the premises of educational institution was taken on rent on 01.04.2005. Therefore, the rent shall have to be paid w.e.f. 01.04.2005, which is relevant to the assessment year under appeal and in the minutes of meeting of Society dated 10.10.2005, it was clarified that as the rent agreement was not registered, therefore, it was proposed to get the rent agreement registered by February, 2006. Therefore, there was no discrepancy i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23C)(iiiad) of the IT Act and addition to the extent of section 40(a)(ia) of the Act. Ld. CIT(A) did not address issue of rent payable or paid u/s. 40(a)(ia) and its applicability in case of units where income is not computed u/s. 10(23C)(iiiad). Therefore, in our view, the matter requires reconsideration at the level of the ld. CIT(A) on these issues. 7. Now, we take up the issue of reopening of assessment. It is well settled law that sufficiency of reasons of reopening of assessment cannot be subjected to challenge. The AO recorded proper reasons for reopening of the assessment u/s. 147 / 148 of the IT Act. The AO was of the view that since TDS deducted on rent payment was not deposited within the prescribed time, therefore, the same would not be allowable deduction. The reasons for reopening of assessment have, therefore, been properly recorded by the AO, which was in accordance with the provisions of section 40(a)(ia) of the IT Act. At that stage, there was nothing before the AO to prove whether the amount was paid or payable or whether the assessee s income was exempt u/s. 10(23C) of the Act. Therefore, in the opinion of the AO, the amount was not allowable deduction. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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