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TMI Blog2015 (10) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income are also harsh. Thus, the expression ‘undisclosed income’ would have to be viewed from the stand point of an Assessee and unless it is manifest from the conduct of the Assessee that he consciously intended to conceal his income, which he otherwise believed to be taxable; the same would not to be liable to be treated as undisclosed income of an Assessee. As indicated earlier, there is no material to conclude that the Assessee acted in a manner to conceal its income or activities from the Authorities. Thus, in the facts of the present case, even if it is found that the Assessee was not entitled to benefit of Section 10(22)/10(23C) of the Act, its income as recorded in its regular books of accounts, nonetheless could not be treated as ‘undisclosed income’. In view of the aforesaid, the assessment order made by the AO under Section 158BC of the Act is not sustainable as in the absence of any undisclosed income, the question of framing a block assessment does not arise. We find no infirmity with the decision of the Tribunal in setting aside the block assessment order dated 31st January, 2001. We accept the contention advanced on behalf of the Assessee that the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llments of ₹ 34,550/- each in the year 1999-2000. The Assessee had claimed that the payments made in the year 1999-2000 were only further installments of the investment already made and could not be considered as fresh investments. It is also not disputed that the funds invested by the Assessee in BVR Plantations Ltd. were unrecoverable. Thus, in our view, it cannot be disputed that the Assessee had realigned all its investments in the manner as specified under provisos to Section 10(23C) read with Section 11(5) of the Act prior to 30th March, 2001 and had complied with the provisos of Section 10(23C) of the Act. The activities of the Assessee must be viewed in the overall perspective of its nature and its principal object. It is not disputed that the surpluses generated by the Assessee could not be distributed to its members and there is also no allegation that the funds of the Assessee had been so distributed. The fact that certain advances had been made to Col. Satsangi and some of its family members who were also involved in running the school cannot be construed as diluting the predominant object of the Assessee. Seen from the overall perspective, it could hardly be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be considered as undisclosed income earned during the block period. Since the issues involved in the above captioned appeals and the writ petition are common and/or interlinked, the said matters were heard together. 3. ITA 705/2008 is an appeal preferred by the Revenue under Section 260A of the Act against an order dated 28th September, 2007 passed by the Income Tax Appellate Tribunal (hereafter the Tribunal ) in IT(SS)A.No.300/Del/2001 whereby the Assessee s appeal directed against the order dated 29th November, 2001 passed by the Commissioner of Income Tax (Appeals) [hereafter CIT(A) ] in Appeal No. 60/2001-II, was allowed. 4. ITA 924/2009 is an appeal preferred by the Revenue under Section 260A of the Act impugning an order dated 6th June, 2008 passed by the Tribunal in IT(SS)A.No.36/Del/2008, allowing the appeal of the Assessee against an order dated 10th January, 2008 passed by CIT(A) upholding the levy of penalty imposed by the Assessing Officer (hereafter the AO ) under Section 158BFA(2) of the Act. The said order was passed by the Tribunal as a consequence of the Assessee prevailing in its Appeal - IT(SS)A.No.300/Del/2001, before the Tribunal. 5. W.P.(C) 3797/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .M. Public School, Navrangpur, Gurgaon, Haryana. 3. C.S.K.M. Public School, Riico Industrial Area, Bhiwadi, Alwar, Rajasthan. 6.3 On 15thJanuary, 1999 a search and seizure operation was conducted under Section 132 of the Act on the premises of the school run by the Assessee at Mehrauli. The warrant of authorization for the search was not issued in the name of the Assessee but in the name of Col. Satsangi Kiran Memorial, AIPECCS Education Complex . The residence of Col. Satsangi (the Chairman of the Assessee), the Manager and the Principal of the School were also searched. 6.4 A survey under Section 132A of the Act was also carried out at the Accounts Department within the premises of the school. During the course of the survey, the Books of Accounts which were regularly maintained by the Assessee were inventorised, however, the same were not seized. Certain cash was also found at the residence of the Chairman of the Assessee. 6.5 Thereafter, a notice under Section 158BC of the Act was issued on 22nd December, 1999. In response to the aforesaid notice, the Assessee filed a return for the block period 1st April, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions as specified under Section 132(1) of the Act were satisfied. It was urged that a warrant of authorization, which did not specify a person but only the premises to be searched was contrary to the provisions of Section 132 of the Act and, therefore, was illegal. The Assessee also argued that no search had been conducted on the Assessee and, therefore, an assessment under Section 158BC could not be framed. 6.10 The CIT(A) passed an order dated 29th November, 2001 upholding the assessment order. However, the quantum of undisclosed income was reduced to ₹ 10,08,24,264/- as a consequence of allowance on account of depreciation. 7. Aggrieved by the order dated 29th November, 2001 passed by the CIT(A), the Assessee preferred an appeal before the Tribunal, which too was dismissed by an order dated 25th June, 2004. The Tribunal upheld the AO s finding that the Assessee was not functioning solely for the purposes of education and, therefore, was not eligible for exemption under Section 10(22) of the Act. 8. Thereafter, the Assessee filed a miscellaneous application under Section 254(2) of the Act being MA No. 143/2005 dated 8th October, 2004 which was registered with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pending before the prescribed authority. 12. On 29th December, 2010, the petitioner s application for grant of approval under Section 10(23C) of the Act was rejected. The Assessee has filed an application for rectification of the said order, which is stated to be pending. 13. The appeals (705/2008 and 924/2009) were, accordingly, heard on the following questions of law: A. Whether the Revenue is entitled to challenge the order dated 4th August, 2006 passed by the Tribunal in this appeal? B. If the answer to question (A) is in favour of the Revenue, whether on the facts of the present case, the Tribunal was correct in law in recalling its order dated 25th June, 2004? C. Whether, in the given facts and circumstances, an assessment under section 158BC could be made in respect of the income of Assessee as recorded in its books maintained in the regular course treating the same as undisclosed income ? D. Whether the Tribunal was correct in law in holding that the Assessee was entitled to the benefit of exemption under Section 10(22) of the Act? E. Whether the Tribunal was correct in deleting the penalty imposed on the Assessee? 14. In addition, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier order and the main order under Section 254(1) is passed thereafter, both the said orders could be challenged in an appeal preferred against the later order under Section 254(1) of the Act. 18. It was next contended by Mr Sawhney that the Tribunal had erred in accepting the Assessee s contention that the surpluses recorded in its books of accounts maintained in the normal course could not be considered as undisclosed income . He contended that since the Assessee had not filed its return of income, it was not open for the Assessee to urge that the surplus recorded in its books was disclosed. He contended that it was incumbent upon an Assessee claiming exemption under Section 10(22) of the Act to file its return of income if the same exceeded the maximum amount not chargeable to tax ignoring the provisions of Section 11 and 12 of the Act. 19. He submitted that it was not open for the Assessee to consider its income as not chargeable to tax under Section 10(22) of the Act and avoid filing a return of income. He argued, empathetically, that the question whether the Assessee s income was not taxable by virtue of Section 10(22) of the Act would arise only when the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e v. CBDT: (2008) 301 ITR 86 (SC). (4) Vishvesvaraya Technological University v. ACIT: (2014) 362 ITR 279 (Karnataka). Submissions on behalf of the Assessee 23. Countering the arguments advanced on behalf of the Revenue, Mr Ajay Vohra, learned Senior Counsel appearing for the Assessee submitted that since Revenue had not challenged the order dated 4th August, 2006 passed by the Tribunal under Section 254(2) of the Act, it was not open for the Revenue to impugn the same in the present appeal. 24. Mr Vohra next contended that by virtue of Section 10(22) of the Act, the income of the Assessee was not chargeable to tax and, therefore, the Assessee was also not liable to file its return of income under Section 139 of the Act. 25. Mr Vohra pointed out that during the period in question, the Assessee was not claiming any benefit under Section 11 or 12 of the Act, which related to exempting income derived from property held wholly for charitable or religious purposes; but was claiming benefit of section 10(22) of the Act, which provided a specific exemption to certain educational institutions. Therefore, the provisions of Section 139(4A) of the Act, which required an Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that if the aforesaid test is applied, it would be apparent that the Assessee was existing solely for educational purposes and not for the purposes of profit. He further submitted that the institutions managed and run by the Assessee were affiliated to the Central Board of Secondary Education (CBSE) and as per the prevalent rules, affiliation could be granted only to non-profit institutions/societies. Mr Vohra also referred to the objects of the Assessee Society and also drew the attention of this Court to clause 21 and 22 of the Rules and Regulations of the Society, which provided that on dissolution of the society, its properties both movable and immovable would not be distributed amongst the members but would be given to another society having similar aims and objects. He urged that the objects of the society and the Rules and Regulations prohibited distribution of any surplus and, therefore, it could not be disputed that the Assessee existed only for the purposes of education and not for profit. 28. Insofar as the instances relating to the funds of the Assessee being made available to the Chairman and his family members were concerned, Mr Vohra submitted that the same we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(23C)(vi) is to be granted at the beginning of the assessment year and, therefore, compliance of provisos to Section 10(23C), which also included the manner of utilization of funds by the Assessee, was outside the jurisdiction of DGIT(E). He referred to the decision of American Hotel Lodging Association, Educational Institute vs. CBDT: (2008) 301 ITR 86 (SC) in support of its contention. 31. In addition, it was submitted that the Assessee s application for approval could not be rejected on account of failure on the part of the Assessee to furnish the audit report along with the application. Mr Vohra contended that prescribed form for making an application for approval under Section 10(23C)(vi), Form-56D, only required that the same be accompanied by audited accounts and it was not mandatory to enclose the audit report of the Chartered Accountant. Further, the Assessee had furnished the audit report when called upon to do so and, therefore, its application for approval under Section 10(23C)(vi) of the Act could not be rejected for the reason that it was not accompanied with an audit report. Reasoning and Conclusions Whether the Revenue can impugn the Tribunal s order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) If an order is passed under Section 254(2) amending the order passed in appeal, the same can be assailed in further appeal on substantial question of law. 34. The Court had further clarified that in cases where an appeal was not maintainable against an order under section 254(2) of the Act, the same could be challenged by way of a writ petition under Article 226 and 227 of the Constitution of India. 35. In the given circumstances, it was always open for the Revenue to challenge the Tribunal s order dated 4th August, 2006 by filing an appeal on a substantial question of law, if it considered that the order dated 4th August, 2006 had partly amended the order dated 25th June, 2004. It was also open for the Revenue to challenge the said order by filing a writ petition as observed by the Full Bench of this Court in the aforementioned decision. However, the Revenue did neither. In the circumstances, it would not be open for the Revenue to assail the order dated 4th August, 2006 in the present appeals in the manner as is sought to be argued on behalf of the Revenue. 36. Accordingly, the first question question A, is answered in the negative; that is, against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, a conclusion that the Assessee would not have disclosed the surpluses as recorded in its books cannot be drawn. The only aspect that remains to be considered is whether the surpluses recorded in the books could be considered as undisclosed income of the Assessee solely for the reason that the Assessee had not filed a return disclosing the same. 40. The expression undisclosed income would connote assets or income, which the Assessee believes to be taxable and seeks to conceal the same from the Income Tax Authorities. The surpluses, which are recorded by the Assessee in its books maintained in the normal course and which according to the Assessee are not chargeable to tax cannot be assumed to be undisclosed income only for the reason that a return of income surrendering the said surpluses to tax has not been filed; particularly, where the Assessee, for bona fide reason, subscribes to the view that he is not required to file his return of income. 41. At this stage, it is also necessary to mention that the AO had issued a notice under Section 148 of the Act to tax the income of the Assessee on the ground that it had escaped assessment. These proceedings were abandoned an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (b) of Section 132(1) refers to cases where there is reason to believe that if any summons or notice, as specified in the said sub clause (a) has been issued or will be issued then that person will not produce or cause to be produced the books of accounts etc. In other words, the said provision refers to the belief which may be formed by the Appropriate Authority to the effect that the person concerned is not likely to voluntarily or even after notice produce documents before the Income Tax authorities. Where, for example, there is information that a person is hiding or likely to hide or destroy documents or books of accounts which are required or are relevant for the purposes of the Act then in such a case it can be said that unless and until search is conducted the said books of account or documents will not be recovered. The belief of the authority must be that the only way in which the Income Tax Department will be in a position to obtain books of accounts and documents from a person is by the conduct of a search and consequent seizure of the documents thereof. In our opinion some facts or circumstances must exit on the basis of which such a belief can be formed. For exampl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. Where, however, existence of the money or asset is known to the Income Tax Department and where the case of the assessed is that the said money or the valuable asset is not liable to be taxed, then, in our opinion, the provisions of sub-Clause (c) of Section 132(1) would not be attracted. An assessed is under no obligation to disclose in his return of income all the moneys which are received by him which do not partake of the character of income or income liable to tax. If an assessed receives, admittedly, a gift from a relation or earns agricultural income which is not subject to tax, then he would not be liable to show the receipt of that money in his Income Tax return. Non-disclosure of the same would not attract the provisions of Section 132(c). It may be that the opinion of the assessed that the receipt of such amount is not taxable, may be incorrect and, in law, the same may be taxable but where, the Department is aware of the existence of such an asset or the receipt of such an Income by the assessed then the Department may be fully Justified in issuing a notice under Section 148 of the Act, but no action can be taken under Section 132(1)(C). Authorisation under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed Explanation: In this sub-section, due date means- (a) where the assessee is a company, the 31st day of December of the assessment year; (b) where the assessee is a person, other than a company,- (i) in a case where the accounts of the assessee are required under this Act or any other law to be audited or in the case of a co-operative society, the 31st day of October of the assessment year; (ii) in a case where the total income referred to in this subsection includes any income from business or profession, not being a case falling under sub-clause (i), the 31st day of August of the assessment year; (iii) in any other case, the 30th day of June of the assessment year. ] xxxxx xxxxx xxxxx xxxxx (3) If any person who has sustained a loss in any previous year under the head Profits and ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deductions from the total income of an Assessee which may otherwise be available under other provisions of the Act such as Chapter VI-A. This is so because incomes exempt under Section 10 of the Act are not considered a part of total income of an Assessee. It was urged on behalf of the Revenue that whether an Assessee is entitled to exemption under Section 10(22) of the Act could only be assessed once the Assessee files a return and, therefore, it was necessary for the Assessee to do so in the present case. We are unable to accept this contention. The language of Section 139(1) of the Act is unambiguous and a person is required to file a return only if his income exceeds the maximum amount not chargeable to tax under the Act. We, respectfully, are unable to concur with the views of the Bombay High Court in Malad Jain Yuvak Mandal Medical Relief Centre (supra); if the reasoning as canvassed on behalf of the Revenue is accepted, all Assessees whose incomes are below the taxable limit would also necessarily have to file a return for verification of their respective incomes. In our view, this view is not supported by the plain language of Section 139 of the Act. 47. It is releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution or any hospital or other medical institution or trade union or body or authority or Board or Trust or Commission or infrastructure debt fund is assessable, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1). 48. It is relevant to note that even after the insertion of Sub-section 4C of Section 139 of the Act, university and educational institutions, which were covered under clause (iiiab) and (iiiad) of Section 10(23C) of the Act were excluded from the obligation to furnish their returns. The Memorandum explaining the provisions of Finance Bill, 2002 also expressly indicated that Sub-section 4C was proposed to be inserted in Section 139 because certain institutions claiming exemption under Section 10 were not obliged to file their returns and such amendment was, therefore, necessary to ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its income or activities from the Authorities. Thus, in the facts of the present case, even if it is found that the Assessee was not entitled to benefit of Section 10(22)/10(23C) of the Act, its income as recorded in its regular books of accounts, nonetheless could not be treated as undisclosed income . 50. In view of the aforesaid, the assessment order made by the AO under Section 158BC of the Act is not sustainable as in the absence of any undisclosed income, the question of framing a block assessment does not arise. We find no infirmity with the decision of the Tribunal in setting aside the block assessment order dated 31st January, 2001. We accept the contention advanced on behalf of the Assessee that the question whether the income of the Assessee was liable to be excluded from its total income by virtue of Section 10(22) of the Act was an issue which could not be made the subject matter of block assessment under Section 158BC, as the same is concerned only with the assessment of undisclosed income . 51. The third question, question C, is answered in the negative; that is, against the Revenue and in favour of the Assessee. Whether the Assessee is entitled to benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In Sole Trustee, Loka Shikshana Trust v. CIT: (1975) 101 ITR 234 (SC); (1976) 1 SCC 254, the Supreme Court had observed that: If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity . The learned Judge also added that the restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object . 55. The aforesaid view was reiterated by the Supreme Court in a later decision in Addl. Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers Association: (1980) 121 ITR 1 (SC), wherein the Supreme Court applied the predominant object test for determining whether the Assessee existed solely for charitable purposes or for making profit. The Supreme Court observed as under:- The test which has, therefore, now to be applied is whether the predominant object of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons. 58. In the facts of the present case, it is seen that the objects of the Assessee society are solely for the purposes of education and not for purpose of profit. Distribution of surpluses is prohibited. Further, in the event of dissolution of the Assessee society, its assets would have to be transferred to another institution carrying on similar activities and the same cannot be distributed to its members. The Assessee has been running three schools that are affiliated to CBSE; admittedly, this which would not be permissible in case the Assessee did not exist solely for educational purposes and/or if the Assessee was found to be pursuing the profit motive. The surpluses generated by the Assessee are necessarily to be applied towards its charitable objects. 59. In view of the aforesaid, the exemption under Section 10(22) of the Act cannot be denied to the Assessee only for the reason that it had been generating surpluses. 60. The next aspect to be considered is whether the investments m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f. 1st April, 1999, and the provisions to exempt income of universities and educational institutions existing solely for educational purposes were introduced in Section 10(23C) of the Act by introduction of clauses (iiiab), (iiiad) and (vi) in that section. Clause (iiiab) excludes from the net of income tax, any income received by any university or educational institution existing solely for educational purposes which is wholly and substantially financed by the Government. Clause (iiiad) exempts educational institutions whose annual receipts do not exceed the prescribed limit. Clause (vi) extends the exemption to universities and educational institutions, existing solely for educational purposes and not for purposes of profit, which are approved by the prescribed authority. The relevant clauses of Section 10(23C) of the Act are quoted below: 10. Incomes not included in total income. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (23C) any income received by any person on behalf of- (iiiab) any university or other educational institution existing solely for ed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corpus of any university or other educational institution or any hospital or other medical institution as on the 1st day of June, 1998; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation), acquired by the fund, trust or institution or any university or other educational institution or any hospital or other medical institution before the 1st day of March, 1983; (iii) any accretion to the shares, forming part of the corpus mentioned in sub-clause (i) and sub-clause (ia), by way of bonus shares allotted to the fund, trust or institution or any university or other educational institution or any hospital or other medical institution ; (iv) voluntary contributions received and maintained in the form of jewellery, furniture or any other article as the Board may, by notification in the Official Gazette, specify, for any period during the previous year otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11: Provided also that the exemption under sub-clause (w) or subclause (via) shall not be denied in relation to any funds invested or deposited before the 1st day of June, 1998, otherwis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application made by them under sub-clauses (vi ) and (via) of section 10(23C). This approval would be subject to their adherence of conditions similar to those specified for sub-clauses (iv) and (v) of section 10(23C) regarding maintenance of accounts, expenditure and accumulation of funds and investments of funds in specified assets. The accumulated income is required to be invested in the modes specified in section 11(5). These institutions are given time up to 30-03-2001 to transfer their investments to specified securities. The Rules and Forms in this regard have since been notified vide Notification No. S.O. 897(E) dated 12th October, 1998. By this notification the Central Board of Direct Taxes have been designated as the prescribed authority for the purpose of approval under sub-clauses (vi ) and (via) of section 10(23C). 8.5 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to assessment year 1999-2000 and subsequent years. 65. It is clear from the above that the restriction in accumulating surpluses generated by a university or an educational institution and investing the funds in a manner provided under Section 11( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le properties and further had advanced funds to Col. Satsangi, the Chairman of the Assessee and his family members. He also observed that the Assessee had made certain investments for the purposes of earning profits. In view of the aforesaid, he concluded that the Assessee did not exist solely for the educational purposes, but was existing for the purposes of making profit. 70. Insofar as the sale and purchase of immovable properties is concerned, the Assessee had explained that the immovable properties were purchased for utilizing the same for educational purposes. A DDA Flat at Sheikh Sarai, New Delhi was purchased for commencing an admission centre, but was subsequently sold as it did not serve the purpose. Similarly, the property at Kalu Sarai, Sarvpriya Vihar was purchased as the Assessee intended to start an admission and information centre for convenience of the parents of students as the schools managed by the Assessee were situated at a considerable distance from the city. However, subsequently, the said venue was not found suitable and the property was sold. It was further explained that farm land at Malbaro, Gurgaon and at Nainwal were purchased for starting schools. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved in managing the schools and/or the affairs of the Assessee would disentitle the Assessee from the benefit of Section 10(22)/10(23C)(vi) of the Act. 74. As indicated hereinbefore, the activities of the Assessee must be viewed in the overall perspective of its nature and its principal object. It is not disputed that the surpluses generated by the Assessee could not be distributed to its members and there is also no allegation that the funds of the Assessee had been so distributed. The fact that certain advances had been made to Col. Satsangi and some of its family members who were also involved in running the school cannot be construed as diluting the predominant object of the Assessee. Seen from the overall perspective, it could hardly be disputed that the predominant activity of the Assessee was managing schools and the substratal purpose of its activities was education. Thus, in our view, the conclusion that the Assessee did not exist solely for educational purposes, but for the purposes of profit on the basis that it had advanced the aforesaid sums to Col. Satsangi and/or his family members who were involved in the affairs of the Assessee, is unwarranted. 75. Thus, in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering other issues, it would be appropriate to consider the Assessee s contention that the scope of inquiry for the purposes of granting approval under section 10(23C) of the Act is limited. We find considerable merit in the Assessee s contention that for purposes of granting approval under Section 10(23C)(vi) of the Act, the prescribed authority, i.e. DGIT(E), would not be concerned with the compliance of the provisos to Section 10(23C)(vi) of the Act, which prescribe the manner and form in which the funds of the Assessee can be invested as well as the manner and extent to which application of income is necessary for availing the benefit of section 10(23C)(vi) of the Act. DGIT(E) s primary function would be to satisfy himself that the threshold conditions for grant of exemption under section 10(23C) exist; that is, the educational institution exists solely for the purposes of education and not for profit. In this regard, the DGIT(E) has to examine the Charter of the Society/Trust including its objects as also the bye-laws, rules and regulations for conduct of affairs of the Society/Trust. The DGIT(E) also has to satisfy himself that an educational institution does, in fact, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in a subsequent withdrawal. In short, according to learned counsel, at the stage of grant of approval the provisos dealing with items required to be monitored, as mentioned in the third proviso, are not to be considered by CBDT and in fact it would be impossible to ascertain compliance at the stage of approval... ***** ***** ***** Having analysed the provisos to Section 10(23C)(vi) one finds that there is a difference between stipulation of conditions and compliance thereof. The threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every petitioner has to move an application in the standardized form in terms of the first proviso. It is only if the pre-requisite condition of actual existence of the educational institution is fulfilled that the question of compliance of requirements in the provisos would arise. We find merit in the contention advanced on behalf of the petitioner that the third proviso contains monitoring conditions/requirements like application, accumulation, deployment of income in specified assets whose compliance depends on events that have not taken place on the date of the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to accept that the Assessee was not pursuing a charitable purpose within the meaning of section 2(15) of the Act. 83. The next issue to be considered is whether the approval could be denied to the Assessee on account its failure to file the audit report along with its application in Form-56D. 84. Rule 2CA (2) of the Income Tax Rules, 1962 specifically mandates that an application for approval under Section 10(23C)(vi) of the Act would be made in Form-56D. The said form clearly requires the Assessee to enclose copies of audited accounts and balance sheet for last three years along with a note on the examination of accounts and on the activities as reflected in the accounts and in the annual reports with special reference to the appropriation of income towards objects of the university or other educational institution or hospital or other medical institution .. . In our view, the Assessee s contention that an audit report is not required to accompany the audited accounts is meritless. The auditor s report contains the auditor s view on the accounts audited by the auditor and without such report, the accounts would only indicate the accounts as furnished by the Assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report specified under section 80HHC(4), which is required to be filed along with the return of income, is not so filed, the deduction claimed under that section can be disallowed as a prima facie adjustment. Some more examples in this regard are the non-filing of audit reports or other evidence along with the return of income as required under section 12A(b), 33AB(2), 35E(6), 43B (first proviso), 54(2), 54B(2), 54D(2), 54F(4), 54G(2), 80HH(5), 80HHA(4), 80HHB(3), 80HHD(6), 80HHE(4), 80-I(7), 80-IA(8) and the like. But if evidence is subsequently furnished, rectification under section 154 should be carried out to the extent permitted by Board's Circular No. 669, dated 25-10-1993. No prima facie disallowance shall however be made if any evidence, required to be filed along with the return of income only in pursuance of the non-statutory guidance notes for filling in the return of income, is not so filed. 87. It is apparent from the above that furnishing of report/certificate is necessary, if required under any provision of the Act; however, omission to furnish the same would not disentitle the Assessee to the benefit of the statutory provision, if the Assessee subsequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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