Rajiv Gandhi National University of Law, Chandigarh V. CIT (Exemption), Chandigarh

ITA 466/CHANDI/2022

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0936 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-07-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 24-05-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: KASHMIRI LAL; RISHAB SINGLA
• Keywords: Depreciation; Competent authority; Assessment record; Set aside
• Section: 263; 12; 10; 11; 143(3); 142(1); 12A; 12AA; 143(2); 10(23C)

Judgement Text

आयकर अपीलीय अिधकरण,च᭛डीगढ़ ᭠यायपीठ “बी” , च᭛डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ᮰ी आकाश दीप जैन, उपा᭟यᭃ एवं ᮰ी िवᮓम ᳲसह यादव, लेखा सद᭭य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA NO. 466/Chd/ 2022 िनधाᭅरण वषᭅ / Assessment Year : 2017-18 Rajiv Gandhi National University of Law C/o House No. 1385, Sector 40B, Chandigarh बनाम The CIT(Exemption) C. R. Building, Sector 17E Chandigarh ᭭थायी लेखा सं./PAN NO: AAAJR0714Q अपीलाथᱮ/Appellant ᮧ᭜यथᱮ/Respondent िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Kashmiri Lal, Sr. Advocate & Shri Rishab Singla, Advocate राज᭭व कᳱ ओर से/ Revenue by : Sh. Sarabjeet Singh, CIT, DR सुनवाई कᳱ तारीख/Date of Hearing : 11/07/2023 उदघोषणा कᳱ तारीख/Date of Pronouncement : 09/10/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. CIT(E), Chandigarh dt. 29/03/2022 passed under section 263 of the Act, pertaining to A.Y. 2017- 18 wherein the assessee has taken the following grounds of appeal: (i) “That the Ld. CIT has erred in law by revising order passed by the AO under Section 143(3) of the Income Tax Act, 1961 without there being any prejudice caused to the interest of the Revenue. (ii) That the Ld. CIT has erred in law and on facts in observing that the appellant has wrongly claimed loss of Rs. 7,39,66,112/- and depreciation of Rs. 16,16,28,635/-. (iii) That the Ld. CIT on the facts and circumstances of the case has erred in treating Building Fund Receipts as income. (iv) That the Ld. CIT has erred in observing that the receipts of grant received by the appellant from the Punjab Government are taxable in the hands of the appellant. (v) That the Ld. CIT has erred in observing that the appellant has not maintained true accounts. (vi) That the Ld. CIT has failed to appreciate the documentary evidence produced in support of claim of the appellant. (vii) That the Ld. CIT is not justified in setting aside the Assessment Order and revising the same by issuing directions to AO to decide the case afresh.” 2 2. Briefly the facts of the case are that the assessee, a Law University established under the Rajiv Gandhi National University of Law Punjab Act, 2006 had filed its return of income on 23/10/2017 claiming exemption under section 10(23C)(iiiab) of the Act for the assessment year 2017-18. The case of the assessee was selected for complete scrutiny under CASS and notice under section 143(2) and 142(1) were issued calling for necessary information and documentation and after considering the same, the AO held that the assessee is not eligible for exemption under section 10(23C)(iiiab) of the Act as it has received less than 50% grant from the Government during the year under consideration and is therefore not substantially financed by the Government as so required for seeking exemption under the aforesaid provisions. 3. It was further held by the AO that the assessee is also not eligible for exemption under section 11 of the Act in view of the fact that the assessee do not have registration under section 12AA for the year under consideration as the assessee has filed application in Form 10A on 03/05/2017 and has been granted registration by the Competent Authority w.e.f A.Y. 2018-19 onwards. 4. At the same time, considering the fact that the assessee has incurred losses during the year under consideration, total income of the assessee was assessed at NIL as per the return of income. However, no benefit of carry forward of loss was given to the assessee since the assessee has not claimed the same in its return of income. 5. The assessment records were subsequently called for and examined by the Ld. CIT(E) and a show cause notice under section 263 was issued to the assessee on 16/03/2022 as to why the assessment order so passed under section 143(3) dt. 19/12/2019 should not be set aside. Thereafter after considering the submissions of the assessee but not finding the same acceptable, the assessment order framed under section 143(3) was held by the ld CIT(E) as erroneous in so far as prejudicial to the interest of the Revenue and the same was cancelled with the direction to pass an order afresh in accordance with law keeping in view the observations made in the impugned order and after providing reasonable opportunity to the assessee. 6. Against the said order and the findings of the Ld. CIT(E), the assessee is in appeal before us. 3 7. During the course of hearing, the Ld. AR submitted that the assessee has claimed exemption from payment of tax under section 10 (23C)(iiiab) of the Act for earlier years which was granted by the Revenue authorities up to A.Y. 2016-17. Similarly, for the A.Y. 2017-18, the assessee filed its return of income claiming exemption under the said provision, however, the said claim was not accepted by the AO as the assessee was not fulfilling the condition of Rule 2BBB relating to 50% Government grants of the total receipts. The AO also observed that the assessee was not entitled for any exemption from payment of tax under section 11 & 12 of the Act. At the same time, the AO accepted the returned income wherein loss was declared after claiming deduction for depreciation and income was assessed at NIL figure. It was submitted that as the return income was accepted, the assessee did not filed any appeal against the said order so passed by the AO. 8. Further, referring to the revision order passed by the Ld. CIT(E), it was submitted that the Ld. CIT(E) in para 3.1 and 3.2 of his order has observed that the assessee has shown aggregate Annual receipts amounting to Rs. 28,51,52,356/- against Expenses of Rs. 13,33,18,395/- in Schedule – OS of ITR and the difference between the two amount of Rs. 15,81,33,961/- has been shown as income. On the other hand, the assessee has shown net loss of Rs. 7,62,31,312/- in its Income & Expenditure account submitted during the course of assessment proceedings. In this regard, it was submitted that during the revisionary proceedings, the assessee has submitted consolidated Income & Expenditure account wherein loss of Rs. 7,39,66,112/- has been shown and basis the same, the Ld. CIT(E) has stated that the assessee has submitted different amounts at different instances and has failed to reconcile these figures during the revisional proceedings. 9. In this regard, it was submitted that the receipt figure of Rs. 28,51,52,356/- shown in computation of total income in ITR is as per consolidated Income & Expenditure Account and as per the said consolidated account, there are expenses of Rs. 12,93,95,240/- as well. Besides this, in the ITR, deduction amounting to Rs. 39,23,155/- was claimed as the assessee was advised that these are capital receipts and not includible in the total income. It was submitted that as far as the total receipt are concerned, there is no dispute and the same are to the tune of Rs. 28,51,52,356/-. Since 4 the claim of the assessee under section 10(23C) was not accepted, the income of the assessee is to be assessed in normal course with the status of Artificial juridical person. It was submitted that the figure of loss of Rs. 7,62,31,612/- which was after deduction of depreciation was taken by the Ld. CIT(E) from the final account which is only fees account and not consolidated Income & Expenditure account. It was submitted that this figure was calculated without taking into consideration, the interest receipt etc. and in the said calculation, the receipt have been shown only of Rs. 21,47,92,262/- whereas total receipt as per the consolidated Income & Expenditure account are Rs. 28,51,52,356/- and there is no dispute that the assessment is to be made taking into consideration the figure of Rs. 28,51,52,356/-. 10. It was submitted that during the revisionary proceedings, the assessee has submitted consolidated Income & Expenditure account where the loss of Rs. 7,39,66,112/- has been shown and for the purpose of assessment, its consolidated Income & Expenditure account is to be taken into consideration. It was accordingly submitted that the observation of the Ld. CIT(E) that figures in the financial accounts as well as in its ITR are not consistent and do not correlate or reconcile with one another is not correct and there is no basis or reason for setting aside the assessment order. 11. It was further submitted that in para 3.4 the Ld. CIT(E) has observed that it is likely that the assessee has employed various manipulated stratagems including non exclusion of depreciation. It was submitted that the said observation of the Ld. CIT(E) is without any valid reason. There is no manipulation in the accounts, depreciation is allowable in view of various judgments on the issue including the Apex Court judgment in the case of CIT Vs. Rajasthan and Gujarati Charitable Foundation. It was further submitted that Section 11(6) is not applicable as the assessee is not registered under section 12AA of the Act for the impugned assessment year nor any benefit of proviso to section 12A has been given to the assessee. Therefore there is no reason to cancel the assessment order on this ground. It was accordingly submitted that the appeal so filed by the assessee be allowed and the order passed by the Ld. CIT(E) may kindly be set aside. 12. Per contra, the CIT D/R supported the order and the findings of the Ld. CIT(E). Taking us through the findings of the Ld. CIT(E) which are contained in para 3.1 to 4.3 in 5 the impugned order, it was submitted that the figures in the financial statements as well as in the ITR are not consistent and do not correlate and reconcile with one another and thus does not depict the true accounts for the year under consideration. It was submitted that the assessee has clearly failed to reconcile the various amounts reported during the course of assessment and the revisionary proceedings and even during the course of present hearing, said reconciliation has not been done. It was accordingly, submitted that the real income of the assessee is to be determined and acted upon under the law and where the Ld. CIT(E) has set aside the matter to the file of the AO to make necessary verification in this regard, the order so passed by the Ld. CIT(E) should be sustained. It was further submitted that similar findings have been recorded regarding the building fund, capital grant received from the Government of Punjab and how the same has been treated in the books and treatment thereof for tax purposes needs to be thoroughly examined which has not been done by the AO. It was accordingly submitted that there is no infirminity in the order so passed by the ld CIT(E) and the same be sustained and the appeal of the assessee be dismissed. 13. We have heard the rival contentions and purused the material available on record. We find that the ld CIT(E) has examined the return of income, the financial statements, the submissions of the assessee and other material available on record and has held that the order so passed by the AO u/s 143(3) is erroneous in so far as prejudicial to the interest of the Revenue and the same has been set-aside to be passed a fresh in accordance with law keeping in view various observations made in the impugned order. 14. We have carefully gone through various observations and findings of the ld CIT(E) in the impugned order and find that the ld CIT(E) has held that the figures in the financial statements are not properly reported and doesn’t depict the true state of affairs of the activities undertaken by the assessee during the relevant period and the figures as per the financial statements don’t reconcile with the figures in the return of income furnished by the assessee for the impugned assessment year. The ld CIT(E) has given specific instances of different loss figures as per the financial statements and as per the return of income, the receipts in the building fund account which have not been reported as part of the total receipts, accounting for government grants and the 6 way transactions in the income and expenditure account and the transactions in the receipt and payment account are accounted for and how the real income needs to be determined and brought to tax and which the AO has failed to examine and verify resulting in passing of an order which is erroneous as well as prejudicial to the interest of Revenue in view of incorrect assumption of facts and incorrect application of law. 15. During the course of hearing, the ld AR has tried to reconcile various figures in the income and expenditure account and the consolidated income and expenditure account, however, during the course of hearing, we observed and brought to the notice of both the parties that we could clearly see the complexity in the way the figures are reported in different account statement and way they are finally consolidated and the matter thus need thorough examination and verification. 16. Further, on perusal of the assessment order and the show cause notice u/s 142(1) dated 3/12/2019, we find that the whole focus of the AO was to enquire about the exemption claimed by the assessee u/s 10(23C)(iiiab) and alternate claim of exemption u/s 11 and 12 of the Act. Nothing has been brought on record as to any enquiry or investigation which has been done by the AO during the course of assessment proceedings regarding reporting of transactions in the financial statements and reconciliation thereof with the return of income even though the case of the assessee was selected for complete scrutiny. Further, ld CIT(E) has also returned a similar finding that the assessee has not bothered to reconcile the various figures during the course of assessment proceedings as well as during the revisionary proceedings. The findings of the ld CIT(E) also find support from the statutory auditors of the assessee who in their report dated 14/07/2017 have stated that certain funds namely building fund security account, gold medal fund, misc. grant, grant-in-aid under SIPDA were not forming part of the balance sheet till last year and have been incorporated for the first time during the current year. It was therefore incumbent on part of the AO to verify as to how the transactions in the various funds are accounted for and reflected in the financial statements and the impact the same will have on the final results. Forget about any meaningful examination and investigation, nothing has been brought on record as to initiation of any enquiry by the AO. Therefore, where the transactions in the financial statements are not properly reported, there is lack of clarity in terms of treatment of 7 various receipts and expenditure and subsequent reporting of the transactions in the return of income are at variance and which are accepted by the AO without any verification, the order so passed is clearly erroneous in so far as prejudicial to the interest of the Revenue. Therefore, we upheld the findings of the ld CIT(E) where he has held that correct and real figure of excess or deficit, as the case may be, of income over expenditure to be arrived at by the AO for the purposes of proper assessment of income in the hands of the assessee and the assessment order has accordingly been set-aside for making fresh assessment as per law. 17. In view of the aforesaid, where we have upheld the findings of the ld CIT(E) in setting aside the assessment order to the file of the AO for passing a fresh assessment order as per law, we are not inclined to hinder the AO by passing any specific directions regarding allowability or otherwise of depreciation on the fixed assets in the hands of the assessee. The AO while passing the assessment order is free to decide the same as per law. 18. In the result, we upheld the order passed by the ld CIT(E) in exercise of his powers u/s 263 of the Act and the appeal filed by the assessee is hereby dismissed. Order pronounced in the open Court on 09/10/2023 Sd/- Sd/- आकाश दीप जैन िवᮓम ᳲसह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा᭟यᭃ / VICE PRESIDENT लेखा सद᭭य/ ACCOUNTANT MEMBER AG Date: 09/10/2023 आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to : 1. अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. आयकर आयुᲦ (अपील)/ The CIT(A) 5. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 6. गाडᭅ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar