Nababharat Shiksha Parishad, Rourkela V. DCIT, Rourkela

ITA 163/CTK/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5371 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUNAL SINGH
• Assessee Lawyers: S K AGRAWALLA
• Keywords: Opportunity of being heard; Principle of natural justice; Notional interest; Commercial expediency
• Section: 143(3); 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAV AN KUMAR GADALE, JM ./ ITA NO. 163 / CTK /20 1 5 ( / ASSESSMENT YEAR : 20 10 - 20 1 1 ) M/S NABABHARAT SHIKSH A PARISHAD, PLOT NO.247/246, PANI TANKI ROAD, SHAKTI NAGAR, ROURKELA VS. DCIT, CIRCLE - ROURKELA, ROURKELA ./ ./ PAN/GIR NO. : AA BTN 1687 R ( / APPELLANT ) .. ( / RESPONDENT ) /AS SESSEE BY : SHRI S.K.AGRAWALLA, AR /REVENUE BY : SHRI KUNAL SINGH, CITDR / DATE OF HEARING : 0 3 / 10 /201 7 / DATE OF PRONOUNCEMENT 11 / 10 /201 7 / O R D E R PER SHRI PAV AN KUMAR GADALE, JM : TH E ASSESSEE HAS FI LED AN APPEAL AGAINST THE ORDER OF CIT(A) - 2 , BHUBANESWAR , IN APPEAL REFERENCE NO. 0111 / 12 - 13 , DATED 20.02.2015 , PASSED U/S.143(3)/250 OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 20 10 - 20 1 1 , WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : - 1. THAT, THE AUTHORITIES BELOW ARE WRONG IN HOLDING THAT THE ADVANCE OF RS. 88,04,000 GIVEN TO SAI NIBEDITA REALCON (P) LTD. FOR CONSTRUCTION OF THE SCHOOL BUILDING AS DIVERSIFICATION OF FUND AND THEREFORE THE ADDITIONS OF 88,04,000 IS LIABLE TO BE DELETED. 2. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS), BHUBANESWAR IS NOT CORRECT IN TAXING THE NOTIONAL INTEREST IN VIEW OF THE FACT THAT THE REAL INCOME OF TRUST IS TAXABLE NOT THE NOTIONAL INCOME, TH EREFORE THE ENHANCEMENT OF THE INCOME OF 8,80,000 IS LIABLE TO BE DELETED. 3. THAT, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS COMMITTED AN ERROR OF LAW IN ENHANCING THE INCOME OF THE APPELLANT WITHOUT BEING GIVING A SHOW CAUSE NOTICE OR A REASONA BLE OPPORTUNITY OF BEING HEARD AS PER THE PROVISIONS OF SECTION 251(2) OF THE ACT AND THEREFORE THE ENHANCEMENT OF INTEREST OF 8,80,000 IS LIABLE TO BE DELETED. ITA NO. 163 /CTK/201 5 2 4. THAT, THE ASSESSMENT ORDER PASSED U/S 143(3) IS BAD IN LAW IN VIEW OF THE FACT THAT NEITH ER THE CASE OF THE APPELLANT WAS SELECTED UNDER CASS NOR AS PER THE SCRUTINY GUIDELINE ISSUED BY THE CBDT AND FURTHER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS WRONG IN HOLDING THAT, THE GUIDELINE ISSUED BY THE CBDT ARE NOT THE LOOK OUT OF THE APPELL ANT AND NOT BINDING ON THE AO, THEREFORE THE ASSESSMENT ORDER IS LIABLE TO BE QUASHED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN RUNNING EDUCATIONAL INSTITUTION AND FOLLOW THE MERCANTILE SYSTEM OF ACCOUNT AND ACCORDED APPROVAL U/S.10( 23C)(VI) OF THE ACT FROM THE CHIEF COMMISSIONER OF INCOME TAX, ODISHA, BHUBANESWAR COMMUNICATED VIDE MEMO NO.CCIT/TECH./10(23C)/72/2011 - 12/3660 - 719, DTD.19 TH MAY, 2011 AND FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 2011 ON 18.11.2010 WITH TOTA L INCOME OF RS. NIL AND THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY MANUALLY AND NOTICE U/S.143(2) & 142(1) ALONG WITH QUESTIONNAIRE WAS ISSUED. IN COMPLIANCE TO THE SAME, THE LD. AR OF THE A SSESSEE APPEARED FROM TIME TO TIME AND FILED INFORMATION . THE AO ON PERUSAL OF BALANCE SHEET FOUND THAT IN SCHEDULE - C THE ASSESSEE HAS DISCLOSED ADVANCE TO OTHERS BEING RS.88,04,000/ - TO M/S SAI NIBEDITA REALCON PVT. LTD. AND IT WAS FOUND SM T . NIBEDITA BE HERA WHO IS THE DIRECTOR OF M/S SAI NIBEDITA REALCON PVT.LTD. AND IS WIFE OF MANAGEMENT TRUSTEE OF THE ASSESSEE TRUST SRI CHANDAN KUMAR BEHERA AND THE SAID ADVANCE WAS GIVEN FOR THE PURCHASE OF LAND. SINCE THE LAND DEAL WAS NOT MATERIALIZED , THE AO OBSERVE D THAT THERE IS DIVERSION OF FUN D S AND ISSUED SHOW CAUSE NOTICE, WHEREAS THE ASSESSEE FILED EXPLANATIONS ON ITA NO. 163 /CTK/201 5 3 5.11.2013, WHICH IS REFLECTED IN THE ASSESSMENT ORDER. LD. AR SUBSTANTIATED THE SUBMISSIONS WHICH IS REFERRED AS UNDER : - WITH REFERENCE TO YOUR N OTICE DTD.24 TH DECEMBER, 2012, I HAVE TO STATE THAT RS.88,04,000/ - IS GIVEN TO SAI NIBEDITA REALCON P. LTD. FOR PURCHASE OF LAND. A COPY OF THE BOARD RESOLUTION AND A COPY OF THE AGREEMENT WITH THE SAID COMPANY IS ALSO FURNISHED TO YOU IN THIS REGARD. THE SOCIETY IS PLANNING TO START A SCHOOL FOR THIS PURPOSE, ADVANCE IS GIVEN BY THE SOCIETY TO HE SAID COMPANY. MERELY BECAUSE WIFE OF THE TRUSTEE IS A DIRECTOR IN THE SAID COMPANY DOES NOT MEAN THAT THERE IS DIVERSION OF FUNDS. THE ADVANCE IS BEING GIVEN WH OLLY AND EXCLUSIVELY FOR THE PURCHASE OF LAND AND CONSTRUCTION OF BUILDING. THE USE OF WORDS FUNDS OF THE TRUST ARE INVESTED OR DEPOSITED CLEARLY CONTEMPLATED THAT MONIES BELONGING TO THE TRUST SHOULD BE INVESTED OR DEPOSITED BY A POSITIVE ACT ON BEHALF OF THE TRUST AND IF SUCH INVESTMENT IS NOT IN ANY OF THE MODES SPECIFIED U/S.11(5) OF THE ACT, ONLY THEN THE BENEFIT OF EXCLUSION OF SUCH INCOME FROM THE TOTAL INCOME WOULD NOT BE AVAILABLE TO THE TRUST. THEREFORE, TO DENY THE BENEFIT OF EXCLUSION U/S.11 AND 12 AND OF DEDUCTION U/S.80 - G OF THE ACT, BY APPLYING SEC.13(1)(D) OF THE ACT, IS NOT JUSTIFIED. ACCORDING TO SEC.13(1)(D), THE MONEY AVAILABLE TO THE TRUST SHOULD HAVE BEEN INVESTED OR DEPOSITED BY DEFINITE POSITIVE E ACT ON THE PART OF THE TRUST, OTHERWI SE THAN IN THE MODES SPECIFIED IN SEC.11(5) OF THE ACT., THE AO FOUND THE SUBMISSIONS OF ASSESSEE LACKS MERITS AND ALSO THERE IS A VIOLATION OF PROVISIONS OF SECTION 11(5) OF THE ACT BY THE ASSESSEE AND FINALLY THE AO AFTER THOROUGH EXAMINATION OF THE FA CTS AND JUDICIAL DECISIONS CAME TO A CONCLUSION THAT THERE IS DIVERSION OF THE FUNDS ADVANCE D TOWARDS ACQUIRING OF LAND RS.88,04,000/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE AND PASSED THE ORDER U/S.143(3) OF THE ACT DATED 16.1.2013. 3 . AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED AN APPEAL WITH THE CIT(A) . IN THE APPELLATE PROCEEDINGS THE LD. AR OF THE ASSESSEE APPEARED AND ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS MADE BEFORE THE AO . THE LD. CIT(A) CONSIDERED THE FINDINGS OF AO AND THE GROUNDS DEALT ITA NO. 163 /CTK/201 5 4 INDEPENDENTLY ON EACH GROUND AND CALLED FOR VARIOUS INFORMATION WHICH WAS SUBMITTED BY THE ASSESSEE AND FURTHER DISCUSSED ELABORATELY AT PAGES 9 TO 19 OF ITS ORDER AND ENHANCED THE INCOME TO THE EXTENT OF RS.96,84,000/ - BY MAKING ADDITION OF 10% OF ADVANCES AS INTEREST INCOME AND DISMISSED THE APPEAL OF THE ASSESSEE. 4 . AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. 5 . BEFORE US, LD. AR SUBMITTED THAT THE ASSESSEE FOR THE FIRST TIME RAISED THE GROUND T HAT THE ASSESSMENT ORDER U/S.143(3) IS BAD IN LAW AS THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY UNDER THE MANUAL SCRUTINY NORMS AND THE ASSESSEE DOES NOT FALL INTO THE GUIDELINES ISSUED BY THE CBDT AND FILED JUDICIAL DECISIONS SUPPORTING HIS STAND AND F URTHER THE CIT(A) HAS ENHANCED THE INCOME TO RS. 96,84,000/ - WITHOUT GIVING SHOW CAUSE NOTICE OR REASONABLE OPPORTUNITY OF HEARING, WHEREAS THE ADVANCE WAS PROVIDED TO SAI NIBEDITA REALCON PVT.LTD. BY THE ASSESSEE FOR CONSTRUCTION OF SCHOOL BUILDING AND THE RE IS NO DIVERSIFICATION OF THE FUNDS AND ADDITION HAS TO BE DELETED . CONTRA, LD. DR SUPPORTED THE ORDERS OF THE CIT(A) AND FURTHER SUBSTANTIATED THAT THE ASSESSEES CASE FALLS WITHIN THE MANUAL SCRUTINY NORMS AND PRAYED FOR DISMISSAL OF THE APPEAL. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE FIRST ARGUMENT EMPHASIZED BY THE LD. AR IN RESPECT OF ASSESSMENT ORDER PASSED U/S.143(3) OF THE ACT IS BAD IN LAW AS THE CASE WAS SELECTED FOR SCRUTINY IN CASS NOR THE SCRUTINY GUIDE LINES ISSUED BY THE CBDT CIRCULAR. LD.AR DREW OUR ATTENTION TO THE PAGE 1 OF THE PAPER ITA NO. 163 /CTK/201 5 5 BOOK WHERE GUIDELINES OF THE SELECTION CASE FOR SCRUTINY FOR ASSESSMENT YEAR 2010 - 2011 WERE DISCLOSED. LD. ARS SUBMITTED THAT THE ASSESSEE DOES NOT SATISFY ANY OF THE C RITERIA. ON THE QUERY OF THE BENCH WITH RESPECT TO CLAUSE (G) OF SELECTION CRITERIA APPLICABLE TO ALL IS MENTIONED AS UNDER : - G) ASSESSING OFFICER MAY SELECT ANY RETURN FOR SCRUTINY AFTER RECORDING THE REASON AND OBTAINING APPROVAL OF THE CCIT/DGIT. THE CASES UNDER THIS CATEGORY SHOULD BE SELECTED IF, THERE ARE COMPELLING REASONS AND THE CASE IS NOT SELECTED THROUGH CASS. THESE CASES SHOULD BE WATCHED BY CCIT/CIT IN RESPECT OF THE QUALITY OF ASSESSMENT. LD. AR COULD NOT PROVE THAT THERE IS LACK OF JURI SDICTION OF THE AO OR DOES NOT HAVE APPROVAL OF CIT FOR SELECTION OF SCRUTINY EXCEPT MAKING THE SUBMISSIONS WITH SUPPORTING GUIDELINES. ON THE QUERY FROM THE BENCH WHY THE CASE OF THE ASSESSEE DOES NOT FALL UNDER CLAUSE (G) AS DISCUSSED ABOVE. THE EXPLAN ATIONS OF LD. AR ARE NOT CONVINCING TO US AND ACCORDINGLY, WE ARE NOT INCLINED TO ACCEPT THE REASONS EXPLAINED BY THE LD. AR ON GUIDELINES AND WE DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 7. ON THE SECOND DISPUTED ISSUE OF ADVANCE OF RS.88,04,000/ - F OR CONSTRUCTION OF SCHOOL BUILDING, LD.AR COULD NOT SATISFY WITH ANY EVIDENCE THAT THE CONSTRUCTION HAS TAKEN PLACE AND IT WAS SUBMITTED THAT DUE TO VARIOUS REASONS THE CONSTRUCTION COULD NOT BE TAKEN UP AND FILED CONFIRMATION TO THE EXTENT THAT THE COMPAN Y WHICH HAS RECEIVED ADVANCES FROM THE ASSESSEE. WE FIND THE ASSESSEE COULD NOT SUBSTANTIATE BEFORE THE LOWER AUTHORITIES EVEN BEFORE US THAT THE CONSTRUCTION OF THE BUILDING WAS WITH ANY STATUTORY APPROVAL AND THERE IS AMBIGUITY IN THE TRANSACTION AND WE ARE NOT IN A POSITION TO UNDERSTAND WHY THE ADVANCE AMOUNT WAS LYING WITH THE COMPANY EVEN THOUGH THE TRANSACTION HAS FAILED AND THE L D. ITA NO. 163 /CTK/201 5 6 ARS EXPLANATION THAT THE AMOUNT HAS BEEN REFUNDED IN THE SUBSEQUENT YEAR IS WITHOUT EVIDENCE AND FAIL TO STRENGTH THE CASE. WE ARE NOT CONVINCED WITH THE EXPLANATION ON COMMERCIAL EXPEDIENCY AND ACCORDINGLY WE UPHOLD THE ACTION OF CIT(A) ON THIS GROUND AND DISMISS THE GROUNDS OF APPEAL OF ASSESSEE. 8. WE FIND THE CIT(A) HAS ENHANCED THE ASSESSMENT BY RS.8, 80 , 4 00/ - TOWARDS INTEREST ON ADVANCE WITHOUT GIVING SHOW CAUSE NOTICE OR REASONABLE OPPORTUNITY TO THE ASSESSEE. LD. AR SUBMITTED THAT THE CIT(A) HAS CALLED FOR THE VARIOUS INFORMATION AND ASSESSEE HAS COOPERATED IN SUBMITTING THE SAME BUT THE CIT(A) HAS ESTIMATED THE ENHANCED INCOME WITHOUT ISSUING SHOW CAUSE NOTICE WE ARE OF THE SUBSTANTIAL OPINION THAT THERE IS A GROSS VIOLATION OF PRINCIPLE OF NATURAL JUSTICE AS THE INFORMATION COLLECTED BY THE CIT(A) IS USED AGAINST THE ASSESSEE , WITHOUT PROVIDING REASONABL E OPPORTUNITY TO DEFEND ITS CASE. CONSIDERING THE APPARENT FACTS AND MATERIAL ON RECORD , WE SET ASIDE THE ENHANCE MENT OF INCOME BY THE CIT(A) IN HIS ORDER TO THE EXTENT OF RS.8,80, 4 00/ - AND PARTLY ALLOW THE GROUNDS OF APPEAL OF ASSESSEE. 9. THE ASSESSEE H AS CHALLENGED THE LEVY OF INTEREST WHICH IS CONSEQUENTIAL AND THE AO IS DIRECTED ACCORDINGLY. 10 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 11/10 / 201 7 . SD/ - ( N. S. SAINI ) SD/ - ( P A V AN KUMAR GADALE ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER CUTTACK ; DATED 11/10 /201 7 . . / PKM , SENIOR PRIVATE SECRETARY ITA NO. 163 /CTK/201 5 7 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUTTACK 1. / THE APPELLANT - 2 . / THE RESPONDENT - 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. / GUARD FILE. //TRUE COPY//