Chinmaya Educational Society, Solan V. CIT(E), Chandigarh

ITA 38/CHANDI/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7443 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 15-04-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Revision of order; Period of limitation; Benefit of exemption
• Section: 263; 143(3); 153

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A, CHANDIGARH , ! ' # $ %! , BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.38/CHD/2021 / ASSESSMENT YEAR : 2016-17 CHINMAYA EDUCATIONAL SOCIETY, CHINMAYA VIDYALYA, UHF NAUNI, DISTT. SOLAN, HP. C.I.T.(EXEMPTIONS), CHANDIGARH. ./PAN NO: AAATC2581J /APPELLANT /RESPONDENT /ASSESSEE BY : SHRI VISHAL MOHAN, ADV. ! / REVENUE BY : SMT.C.CHANDRAKANTA, CIT DR ' # $ /DATE OF HEARING : 18.08.2021 %&'( $ /DATE OF PRONOUNCEMENT : 25.08.2021 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER : THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (EXEMPTIONS), [(IN SHORT REFERRED TO AS LD. CI T(E)] DATED 04.03.2021, LUDHIANA RELATING TO ASSESSMENT YEAR 2016-17, PASSED U/S 263 OF THE OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT). ITA NO.38/CHD/2021 A.Y. 2 016-17 PAGE 2 OF 8 2. A PERUSAL OF THE ORDER OF THE LD.CIT(E) REVEALS THAT ON FINDING THE ASSESSMENT ORDER HAVING BEEN PASSED BY INCORRECT APPLICATION OF LAW, THE LD.CIT(E) EXERCIS ED HIS REVISIONARY JURISDICTION AND CANCELLED THE ASSESSME NT ORDER SO PASSED DIRECTING THE AO TO PASS AN ORDER AFRESH IN ACCORDANCE WITH LAW. THE INCORRECT APPLICATION OF L AW BY THE AO NOTED BY THE LD.CIT(E) WAS THE DENIAL OF EXEMP TION U/S 10(23C(VI) OF THE ACT SUO MOTO, WHILE THE LAW AUTH ORIZED ONLY THE PR. COMMISSIONER OF INCOME TAX OR CHIEF COMMISSIONER OF INCOME TAX TO DO SO. 3. THE BACKGROUND AND FACTS OF THE PRESENT CASE ARE THAT THE ASSESSEE SOCIETY WAS RUNNING A SCHOOL UNDER THE NAME OF CHINMAYA VIDYALAYA AT NAUNI SOLAN AND WAS APPROVED FOR CLAIMING THE EXEMPTION U/S 10(23C(VI) OF THE ACT VI DE ORDER OF THE CHIEF COMMISSIONER OF INCOME TAX, SHIMLA, D ATED 29.09.2011. THE RETURN FOR THE IMPUGNED ASSESSMENT YEAR WAS FILED BY THE ASSESSEE DECLARING NIL INCOME. THE REAFTER SCRUTINY ASSESSMENT PROCEEDINGS WERE INITIATED DURI NG THE COURSE OF WHICH THE AO NOTED THAT THE ASSESSEE SOCI ETY HAD PAID SALARIES TO TWO OF ITS DIRECTORS WHICH WERE VE RY HIGH IN COMPARISON TO THE SALARIES PAID TO OTHER STAFF MEMB ERS OF THE SCHOOL. HE FURTHER NOTED THAT THE APPROVAL HAD BEEN ITA NO.38/CHD/2021 A.Y. 2 016-17 PAGE 3 OF 8 GRANTED BY THE CHIEF COMMISSIONER OF INCOME TAX, SH IMLA MENTIONING THAT NO PART OF ITS INCOME OR PROPERTY W OULD BE PAID OR TRANSFERRED DIRECTLY OR INDIRECTLY TO ANY I NTERESTED PERSONS. THE AO HELD THAT UNDUE BENEFIT WAS BEING P ROVIDED TO TWO DIRECTORS BY PAYING THEM HUGE SALARIES AND W HICH SHOWED THAT THERE WAS A PROFIT MOTIVE OF THE SOCIET Y. HE ACCORDINGLY HELD THAT THE ASSESSEE SOCIETY HAD VIOL ATED THE CONDITIONS FOR GRANT OF APPROVAL FOR EXEMPTION PROV IDED U/S 10(23C)(VI) OF THE ACT AS PER PROVISO (IIIA) AND TH US WITHDREW THE BENEFIT OF EXEMPTION TO THE ASSESSEE S OCIETY, ASSESSING ITS INCOME IN THE STATUS OF AOP. 4. THE LD.CIT(E) NOTED THAT THE PROVISION OF LAW RE QUIRED THE AO TO REFER THE MATTER OF VIOLATION OF CONDITIO NS FOR CLAIMING EXEMPTION U/S 10(23C(VI) OF THE ACT TO THE PR. COMMISSIONER OF INCOME TAX OR THE COMMISSIONER AND ONLY AFTER THE ORDERS WERE PASSED BY SAID SUCH HIGHER AU THORITY WITHDRAWING THE APPROVAL, THE AO COULD HAVE PROCEED ED TO FINALIZE THE ASSESSMENT. THE RELEVANT PROVISION IN THIS REGARD RELATED TO SECTION 143(3) OF THE ACT, 1 ST PROVISO, PRESCRIBING SUCH REFERENCE BY THE AO TO THE HIGHER AUTHORITIES AND SECTION 153 OF THE ACT, EXCLUDING S UCH PERIOD OF REFERENCE MADE BY THE AO TILL THE DATE OF RECEIPT OF ITA NO.38/CHD/2021 A.Y. 2 016-17 PAGE 4 OF 8 THE ORDER OF COMMISSIONER OR PR. COMMISSIONER, FROM THE PRESCRIBED PERIOD OF LIMITATION FOR PASSING THE ASS ESSMENT ORDER U/S 153 OF THE ACT. THE LD.CIT(E), THEREFORE , HELD THAT THE AO HAD PASSED THE ORDER BY AN INCORRECT AP PLICATION OF LAW. THAT THE AO HAD ERRONEOUSLY PROCEEDED TO WI THDRAW THE EXEMPTION GRANTED TO THE ASSESSEE WHEN HE SHOUL D HAVE REFERRED THE MATTER TO THE CIT(E) FOR REVOCATION OF THE EXEMPTION. THAT THE AO COULD HAVE PASSED AN ASSESSM ENT ORDER ONLY AFTER THE ISSUE WAS DECIDED BY THE CIT(E ). HE, THEREFORE, HELD THAT THE VIEW TAKEN BY THE AO DENYI NG EXEMPTION TO THE ASSESSEE WAS IN VIOLATION OF THE P ROVISIONS OF SECTION 10(23C)(VI) READ WITH EXPLANATION TO SEC TION 153 OF THE ACT AND THE SAME WAS UNSUSTAINABLE IN LAW AN D, THEREFORE, THE ORDER WAS ERRONEOUS AS WELL AS PRE-J UDICIAL TO THE INTEREST OF THE REVENUE. HE ACCORDINGLY, CANCEL LED THE ORDER PASSED BY THE AO DIRECTING HIM TO PASS AN ORD ER AFRESH IN ACCORDANCE WITH LAW. 5. WE HAVE HEARD BOTH THE PARTIES. THE PRIMARY CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE IS TH AT THERE IS NO PREJUDICE CAUSED TO THE REVENUE BECAUSE THE ASSE SSEE IN ANY CASE HAS BEEN DENIED EXEMPTION BY THE AO AND EV EN IF THE PRESCRIBED PROCEDURE HAD BEEN FOLLOWED, THE RES ULT STILL ITA NO.38/CHD/2021 A.Y. 2 016-17 PAGE 5 OF 8 WOULD HAVE BEEN THE SAME. THEREFORE, THE EXERCISE O F REVISIONARY JURISDICTION BY THE LD.CIT(E), IT WAS P LEADED, WAS NOT IN ACCORDANCE WITH LAW. 6. WE HAVE HEARD BOTH THE PARTIES. IT IS NOT DISPUT ED THAT THE LAW MANDATES THAT THE POWER OF DENIAL OF EXEMPT ION U/S 10(23C(VI) OF THE ACT DOES NOT LIE WITH THE AO. SEC TION 143(3) OF THE ACT, FIRST PROVISO, STIPULATES THAT WHERE AN ASSESSEE WHO HAS BEEN GRANTED EXEMPTION U/S 10(23C)(VI) OF T HE ACT IS FOUND TO BE FUNCTIONING IN VIOLATION OF THE COND ITIONS GRANTING APPROVAL, THEN THE MATTER IS TO BE BROUGHT TO THE NOTICE OF THE PR. COMMISSIONER OF INCOME TAX OR COMMISSIONER OF INCOME TAX BY THE AO BY MAKING A REFERENCE TO THEM, WHO AFTER CONSIDERING THE SAME, MAY CANCEL THE APPROVAL GRANTED TO THE ASSESSEE AND ONL Y AFTER CONSIDERATION OF THE REFERENCE BY THE AO BY WAY OF PASSING AN ORDER BY THE COMMISSIONER OF INCOME TAX/PR. COMMISSIONER OF INCOME TAX, THE AO CAN PROCEED WITH THE ASSESSMENT. SECTION 153 OF THE ACT, WHICH PRESCRIBE S LIMITATION FOR PASSING OF ASSESSMENT ORDER, TAKES C ARE OF THIS PERIOD OF REFERENCE BY EXCLUDING THE SAID PERIOD FO R THE PURPOSE OF LIMITATION PRESCRIBED FOR PASSING AN ASS ESSMENT ORDER. THERE ARE NOT TWO VIEWS, THEREFORE, THAT IT IS ONLY THE ITA NO.38/CHD/2021 A.Y. 2 016-17 PAGE 6 OF 8 PR. COMMISSIONER OF INCOME TAX OR CHIEF COMMISSIONE R OF INCOME TAX WHO IS AUTHORIZED TO DECIDE WHETHER AN A SSESSEE IS ENTITLED TO AVAIL EXEMPTION OR NOT. THE AO CLEAR LY HAS NO POWER TO DECIDE THE SAME UNDER LAW. IN THE PRESENT CASE, THEREFORE, DENIAL OF EXEMPTION BY THE AO IS BEYOND HIS POWERS. WE, THEREFORE, AGREE WITH THE LD.CIT(E) TH AT THE ORDER SO PASSED BY THE AO BY INCORRECT APPLICATION OF LAW IS CLEARLY UNSUSTAINABLE IN LAW AND THIS IN ITSELF MA KES THE ORDER OF THE AO ERRONEOUS AS WELL PREJUDICIAL TO TH E INTEREST OF THE REVENUE. THE DENIAL OF EXEMPTION BY THE AO B EING BEYOND HIS POWERS, THE ASSESSMENT ORDER CANNOT SURV IVE AND THE ASSESSEE THEREFORE WOULD BE REVERTED BACK TO HI S ORIGINAL CLAIM OF EXEMPTION U/S 10(23C)(VI) OF THE ACT. THIS IS THE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS O RDER OF THE AO .AND WHICH HAS BEEN REVISED AND SET RIGHT BY THE LD.CIT(E) BY EXERCISING HIS REVISIONARY POWERS U/S 263 OF THE ACT SETTING ASIDE THE ASSESSMENT ORDER AND DIRE CTING THE AO TO PASS AFRESH ORDER IN ACCORDANCE WITH LAW. AS RIGHTLY POINTED OUT BY THE LD.CIT(E), THE HONBLE APEX COUR T IN THE CASE OF MAX POWER LTD. 295 ITR 282 (SC) HAS HELD TH AT VIEW OF THE AO WHICH IS UNSUSTAINABLE IN LAW INVITES THE APPLICATION OF SECTION 263 OF THE ACT. ITA NO.38/CHD/2021 A.Y. 2 016-17 PAGE 7 OF 8 7. MOREOVER, PREJUDICE IS ALSO CAUSED ON ACCOUNT OF THE AO NOT HAVING DISALLOWED THE EXCESS REMUNERATION PA ID AFTER FINDING SO, WHILE COMPUTING THE ASSESSABLE INCOME O F THE ASSESSEE. 8. IN VIEW OF THE SAME, THEREFORE, WE UPHOLD THE OR DER OF THE LD.CIT(E) AND DISMISS THE APPEAL OF THE ASSESSE E. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED ORDER PRONOUNCED ON 25 TH AUGUST, 2021. SD/- SD/- ' # $ %! (SANJAY GARG) (ANNAPURNA GUPTA) /JUDICIAL MEMBER &' /ACCOUNTANT MEMBER )' /DATED: 25 TH AUGUST, 2021 * ! * &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35# / GUARD FILE &) ' / BY ORDER, ITA NO.38/CHD/2021 A.Y. 2 016-17 PAGE 8 OF 8 / ASSISTANT REGISTRAR