M/s Bhadra Education Trust, Davangere V. CIT, Davangere

ITA 607/BANG/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9243 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 06-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SHREEHARI KULSA
• Keywords: Opportunity of being heard; Principle of natural justice; Assessment record
• Section: 143(3); 147; 263

Judgement Text

ITA.607/BANG/2014 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.607/BANG/2014 (ASSESSMENT YEAR : 2010-11) M/S. BHADRA EDUCATION TRUST, NO.4120/1M 10 TH CROSS, SIDDAVEERAPPA LAYOUT, DAVANGERE .. ASSESSEE PAN : AABTB4465H V. COMMISSIONER OF INCOME TAX, DAVANGERE .. RESPONDENT ASSESSEE BY : SHRI. SHREEHARI KULSA, CA REVENUE BY : SHRI. SANJAY KUMAR, CIT - III HEARD ON : 27.09.2016 PRONOUNCED ON : 23.11.2016 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE CIT, DAVANGERE ,DT.12.03.2014 , U/S.263 OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2010-11. 02. THE FACTS IN BRIEF ARE THAT THE ASSESSEE CARR YING ON ITS CHARITABLE ACTIVITIES IN THE FIELD OF EDUCATION, FILED ITS RETURN FOR THE ASSESSMENT YEAR 2010-2011 ON 06/07/2010 DECLARING T OTAL INCOME AS NIL. THE ASSESSMENT WAS MADE UNDER SECTION 143(3) ON 27/0/2013, BY ACCEPTING THE INCOME AS NIL AS DECLARED. ITA.607/BANG/2014 PAGE - 2 03. SUBSEQUENTLY, THE COMMISSIONER OF INCOME TAX (C IT), DAVANGERE, ISSUED A NOTICE U/S 263 DATED 19/11/2013 STATING, INTER ALIA, AS UNDER : 'ON VERIFICATION OF THE ASSESSMENT RECORDS, IT IS N OTICED THAT YOU HAVE GIVEN A LEASE ADVANCE OF RS. 10,00,00 0/- FOR AN ACCOMMODATION OF 1785 SQ. FT. APART FROM THIS, Y OU ARE PAYING A RENT OF RS. 10,000/- PER MONTH. EVEN IF 10 MONTHS RENT IS CONSIDERED AS RENTAL ADVANCE, WHICH IS USUA LLY PAID IN ALL SIMILAR CASES, ASSESSEE COULD NOT HAVE PAID MOR E THAN RS. 1,00,000/- AS ADVANCE. ON GOING THROUGH THE RENTAL AGREEMENT IT IS NOTICED THAT THE LESSOR (FIRST PART Y) SRI S.R. GIRISH IS ONE OF THE AUTHORS OF THE TRUST. HENCE, T HERE IS A VIOLATION OF THE PROVISIONS OF SECTION 13(3). IN VIEW OF THE INTEREST AT 12% PER ANNUM IS REQUIRE D TO BE CHARGES ON THE EXCESS PAYMENT OF ADVANCE OF RS. 9,00,000/- WHICH WORKS OUT TO RS. 1,08,000/- AND BR OUGHT TO TAX. THE AO FAILED TO EXAMINE THIS ISSUE. FAILURE O N THE PART OF THE AO TO EXAMINE THE ABOVE ISSUE HAS RENDERED T HE ASSESSMENT ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE'. 04. AFTER EXAMINING THE MATERIAL AND HEARING TH E ASSESSEE ETC, THE CIT, INTER ALIA, HELD THAT IN SO FAR AS THE AO FAILED TO EXAMINE THIS ASPECT, THE ASSESSMENT ORDER MADE ON 27.03.2013 BY THE INCOME O FFICER , WARD-1, DAVANGERE IS ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF REVENUE. ACCORDINGLY, HE SET ASIDE THE ASSESSMENT TO BE REDO NE IN ACCORDANCE WITH LAW. AGGRIEVED BY THAT ORDER, THE ASSESSEE FILED TH IS APPEAL WITH THE FOLLOWING GROUNDS OF APPEAL : ITA.607/BANG/2014 PAGE - 3 ITA.607/BANG/2014 PAGE - 4 ITA.607/BANG/2014 PAGE - 5 05. THE AR SUBMITTED THAT THE ISSUES IN HAND CAN BE ADDRESSED ON TWO COUNTS, VIZ (I) WANT OF JURISDICTION, IE WHEN TWO VIEWS ARE POSSIBLE, THEN THE VIEW TAKEN BY THE AO HAS TO BE CONSIDERED AND (II) ON MERITS. THE AR SUBMITTED THAT THE APPELLANTS AUTHORIZED REPRESENT ATIVE APPEARED BEFORE THE LEARNED ASSESSING OFFICER AND SUBMITTED DOCUMENTS, BOOKS, RECORDS AND OTHER INFORMATION CALLED FOR FROM TIME TO TIME. THE LEARNED ASSESSING OFFICER AFTER CONSIDERING THE DETAILS PRO DUCED BY THE APPELLANTS AUTHORIZED REPRESENTATIVE VIZ., BOOKS, RECORDS AND OTHER DOCUMENTS PASSED THE ORDER UNDER SECTION 143(3) , O N 27/0/2013, BY ITA.607/BANG/2014 PAGE - 6 ACCEPTING THE INCOME AS NIL AS DECLARED BY THE APPE LLANT IN THE RETURN. THERE WAS NO LACK OF INQUIRY OR INADEQUATE INQUIRY BY THE LEARNED ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDE R. THE ASSESSMENT ORDER IS NOT ERRONEOUS NOR PREJUDICIAL TO THE INTER ESTS OF REVENUE AS THE AO HAS PASSED IT AFTER PROPER ENQUIRY AND APPLICAT ION OF MIND. THE CIT CAN ASSUME JURISDICTION U/S 263 ONLY WHEN THE ASSES SMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. THE RENT ADVANCE PAID AT RS.10,00,000/- IS MORE THAN GENERALLY ACCEP TED NORMS WHICH WILL BE 10 MONTHS RENT AS ADVANCE, THE ORDER OF AS SESSMENT CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTERE STS OF REVENUE . THE AR ALSO RELIED ON THE DECISIONS OF CIT V AMIT CORPO RATION (2012) 21 TAXMANN.COM 64 (GUJ), CIT V SUN BEAM AUTO LTD 322 I TR 167 DELHI, CIT V GABRIEL INDIA LTD 203ITR 108 (MUMB) , CIT V V IKAS POLYMERS 194 TAXMAN 57 DELHI , MALABAR INDUSTRIAL CO LTD V C IT SC ETC. ON MERITS, THE AR SUBMITTED THAT THIS IS THE FIRST YEA R OF COMMENCEMENT OF COLLEGE OF THEIR TRUST. INITIALLY, THEY WISHED TO RUN THE PRE-UNIVERSITY AND DEGREE COLLEGE IN THE OUTSKIRTS OF CITY. AS IT IS NEW COLLEGE, IF THEY START IN OUTSKIRTS , IT WAS DIFFICULT TO GET GOOD F ACULTIES AS WELL AS STUDENTS. TO OVERCOME THE PROBLEM OF ADMISSION OF STUDENTS, F INALLY THEY DECIDED TO RUN THE COLLEGE IN THE EXTENSION AREA. GETTING P ERMISSION TO RUN COLLEGE IN EXTENSION AREA WAS DIFFICULT AND IT WAS DIFFICULT TO GET STUDENTS IN THE OUTSKIRTS AREA AND HENCE FINALLY THEY STARTE D FUNCTIONING IN SIDDAVEERAPPA LAYOUT, DAVANGERE. THE ASSESSEE HAS T AKEN THIS PREMISE ON RENT FROM SRI S R GIRISH, ONE OF THE AUTHORS OF THE TRUST. IT HAD AN ITA.607/BANG/2014 PAGE - 7 INTENTION TO TAKE THE COMPLETE BUILDING HAVING CELL AR, GROUND, FIRST AND SECOND FLOORS FOR RUNNING AND MAINTAINING THE C OLLEGE. HENCE, LEASE ADVANCE OF RS.10 LAKHS WAS PAID. HOWEVER, DUR ING THE YEAR THE ASSESSEE HAD OCCUPIED THE GROUND FLOOR ADMEASURING 1785 SQ FT AND PAID A MONTHLY RENT OF RS.10,000/-ONLY. IN THE SUB SEQUENT YEAR FOR ACQUIRING AND USING THE ADDITIONAL FLOORS VIZ FIRST AND SECOND FLOORS , THE ASSESSEE HAS PAID A MONTHLY RENT OF RS.30,00 0/- (TDS IS MADE ACCORDINGLY) WITHOUT PAYING ANY FURTHER LEASE DEPOS IT. THE ADVANCE ESTIMATE MADE BY THE CIT AT 10 TIMES OF THE RENT A T RS.1,00,000/- MAY BE APPLICABLE TO RESIDENTIAL USAGES. IN FACT, IT IS VE RY DIFFICULT TO GET BUILDING TO RUN COLLEGES AS IT DISTURBS THE RESIDENTS OF THAT A REA. NORMAL WAY OF ESTIMATION OF ADVANCE IS NOT APPLICABLE TO NON-RESI DENTIAL USAGES. THE AREA PROVIDED BY THE LAND LORD IS AROUND 6000 SFT N OW FOR THE SAME RENT ADVANCE. WHATEVER RENT ADVANCE PAID IS THAT OF PREV AILING PRACTICE FOR NON-RESIDENTIAL USAGE. THE AR PLEADED THAT BY ITS LETTER DT 10.12.2013 IT SUBMITTED THE ABOVE FACTS TO THE CIT . IN SPI TE OF IT , THE CIT REJECTED ITS PLEA AND SET ASIDE THE ASSESSMENT ORDER TO BE REDONE IN ACCORDANCE WITH LAW. FURTHER, THE AR PLEADED THAT ALTHOUGH THE CIT PROPOSED IN THE SHOW CAUSE NOTICE TO CHARGE INTEREST @ 12% P.A ON T HE EXCESS LEASE DEPOSIT OF RS.9,00,000/, IN THE ORDER PASSED U/S 263 HE DI D NOT DO IT BUT SIMPLY SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE AO TO REDO IN ACCORDANCE WITH LAW. THE AR PLEADED THAT IS ALSO NOT IN ACCORD ANCE WITH LAW AND HENCE PLEADED TO SET ASIDE THE ORDER OF THE CIT. ITA.607/BANG/2014 PAGE - 8 06. PER CONTRA, THE DR SUBMITTED THAT THE AO SENT A PROPOSAL U/S 263 TO THE CIT. THE CIT DULY EXAMINED THE RECORD AND FO UND THAT THE AO HAS NOT PROPERLY EXAMINED THE IMPUGNED ASPECT AND HENCE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE. FROM THE RENTAL AGREEMENT DT 29.03.2009, IT WAS FOUND THAT THE DEPOSIT OF RS.10 LAKHS WAS NON-R EFUNDABLE. WHEN THIS WAS BROUGHT TO THE ASSESSEES NOTICE BY THE CI T , THE ASSESSEE FILED A LETTER DT 10.3.2014 FROM SHRI S R GIRISH T O THE EFFECT THAT BY OVERSIGHT THERE IS NON MENTION OF REFUND OF REN T ADVANCE AND SHRI S R GIRISH HAS TAKEN REFUNDABLE ADVANCE OF RS.10 LA KHS ONLY. THEREAFTER ONLY , THE ASSESSEE FURNISHED COPIES OF SUBSEQUENT AGREEMENTS . THEREFORE, THE CIT RIGHTLY HELD THAT SUBSEQUENT AGREEMENT CAN NOT FORM BASIS FOR DECI DING ISSUES FOR A Y 2010-11. THE ASSESSING OFFICER FAILED TO EXAMIN E THE RENTAL AGREEMENT PROPERLY AND FAILED TO NOTICE THAT THE AM OUNT OF RS.10 LAKHS GIVEN AS ADVANCE AS PER THE AGREEMENT DATED 2 9.03.2009 (ENCLOSED AS ANNEXURE-1) IS NON-REFUNDABLE IN NATUR E. THIS IS IN VIOLATION OF THE PROVISIONS OF SECTION 13(1)( C) AN D NON EXAMINATION OF THIS ASPECT RENDERS THE ASSESSMENT E RRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. IN SO FAR AS THE AO FAILED TO EXAMINE THIS ASPECT, THE ASSESSMENT ORDER MADE ON 27.03.2013 BY THE INCOME OFFICER, WAR D-1, DAVANGERE IS ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF REVENUE. ACCORDINGLY, THE ASSESSMENT IS SET ASIDE T O BE REDONE IN ACCORDANCE WITH LAW. FOR DOING THE ABOVE, THE AO SHALL AFFORD REASONABLE OPPORTUNITY OF BEING HEARING TO THE ASSESSEE BEFORE COMING TO ANY CONCLUSION . 6.1 FROM THE ABOVE FACTS, THE DR SUBMITTED THAT IT IS CLEAR THAT THE AO HAS NOT EXAMINED THE IMPUGNED ISSUE AS IT SHOULD HAVE BEEN AND HENCE ITA.607/BANG/2014 PAGE - 9 HIS ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INT ERESTS OF REVENUE AS HELD BY THE CIT. WITH REGARD TO THE ASSESSEES SUBMIS SION THAT THE CIT HAS NOT FOLLOWED HIS PROPOSAL TO CHARGE INTEREST @ 12% P.A ON THE EXCESS LEASE DEPOSIT OF RS.9,00,000/- ETC , THE DR POINTED OUT PARA 10 OF THE JUDGMENT IN THE CASE OF CIT, MUMBAI V AMITABH BACHCHAN 384 ITR 200, (2016) 69 TAXMANN.COM 170 SC, (RELEVANT PORTION ON LY IS EXTRACTED AS UNDER) : 10. REVERTING TO THE SPECIFIC PROVISIONS OF SECTIO N 263 OF THE ACT WHAT HAS TO BE SEEN IS THAT A SATISFACTION THAT AN ORDER PASSED BY THE AUTHORITY UNDER THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE IS THE B ASIC PRE- CONDITION FOR EXERCISE OF JURISDICTION UNDER SECTIO N 263 OF THE ACT. BOTH ARE TWIN CONDITIONS THAT HAVE TO BE CONJO INTLY PRESENT. ONCE SUCH SATISFACTION IS REACHED, JURISDI CTION TO EXERCISE THE POWER WOULD BE AVAILABLE SUBJECT TO OB SERVANCE OF THE PRINCIPLES OF NATURAL JUSTICE WHICH IS IMPLI CIT IN THE REQUIREMENT CAST BY THE SECTION TO GIVE THE ASSESSE E AN OPPORTUNITY OF BEING HEARD. IT IS IN THE CONTEXT OF THE ABOVE POSITION THAT THIS COURT HAS REPEATEDLY HELD THAT U NLIKE THE POWER OF REOPENING AN ASSESSMENT UNDER SECTION 147 OF THE ACT, THE POWER OF REVISION UNDER SECTION 263 IS NOT CONT INGENT ON THE GIVING OF A NOTICE TO SHOW CAUSE. IN FACT, SECT ION 263 HAS BEEN UNDERSTOOD NOT TO REQUIRE ANY SPECIFIC SHOW CA USE NOTICE TO BE SERVED ON THE ASSESSEE. RATHER, WHAT IS REQUI RED UNDER THE SAID PROVISION IS AN OPPORTUNITY OF HEARI NG TO THE ASSESSEE . AND SUBMITTED THAT IT MEETS THE ASSESSEES CONTENTION. THE DR A LSO INVITED OUR ATTENTION TO PARA 24, 26 ETC OF THE JUD GMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V IN FOSYS TECHNOLOGIES LTD 17 TAXMANN.COM 203 (KAR), FOR BREVITY SAKE PARA 24, 2 6 ALONE ARE EXTRACTED AS AN UNDER : ITA.607/BANG/2014 PAGE - 10 24. IN THE PRESENT SITUATION, THE COMMISSIONER HAVI NG ONLY DIRECTED THE ASSESSING AUTHORITY TO COMPUTE IT OR R E-COMPUTE IT AND MAKE IT EXPLICIT AS TO THE ENTITLEMENT OF THE A SSESSEE, AN ORDER OF THIS NATURE, IN FACT, COULD NOT HAVE BEEN CONTENDED AS DETRIMENTAL TO THE INTEREST OF THE ASSESSEE, AS IT WAS ALWAYS OPEN TO THE ASSESSEE TO JUSTIFY THE CLAIM IN TERMS OF TH E DOUBLE TAXATION AVOIDANCE AGREEMENTS. IN A SITUATION OF TH IS NATURE, WE ARE ALSO OF THE OPINION THAT IT WAS NOT A CASE WHIC H WARRANTED INTERFERENCE BY THE TRIBUNAL, MORE SO FOR SETTING A SIDE THE ORDER OF THE COMMISSIONER AND FOR ENSURING THAT THE ORDER PA SSED BY THE ASSESSING AUTHORITY WAS LEFT IN TACT. 26. WE ARE ALSO NOT IN A POSITION TO ACCEPT THE SUB MISSION THAT, THE MATERIALS HAD BEEN PLACED BEFORE THE ASSESSING AUTHORITY AND THEREFORE THERE SHOULD BE A CONCLUSION THAT THE AUT HORITY HAS APPLIED HIS MIND TO THE SAME AND THERE WAS NO QUEST ION OF THE COMMISSIONER INTERFERING BY TAKING A DIFFERENT VIEW ETC. AND SUBMITTED THAT WHEN THE AO HAS NOT EXAMINED TH E IMPUGNED ISSUE AND DID NOT RECORD A FINDING IN HIS ORDER, HIS ORDER C LEARLY FALLS WITHIN THE SCOPE OF SECTION 263 OF THE ACT . IN PURSUANCE OF S 263, WHEN THE CIT PASSED AN ORDER DIRECTING THE AO TO REDO THE ASSESSMENT IN ACCORDANCE WITH LAW AND BEFORE COMING TO ANY CONCLUSION TO AFFORD A REASON ABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE ETC, SUCH AN ORDER COULD NOT HAVE BEEN CONTENDED AS DETRIMENTAL TO THE INTEREST OF THE ASSESSEE, AS IT WAS ALWAYS OPEN TO IT TO JUSTIFY ITS CLAIM AS HELD BY THE HONBLE JURISDICT IONAL HIGH COURT, SUPRA. 07. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUG H THE RELEVANT ORDERS AND MATERIALS. WE FIND MERIT IN THE CONTENTIONS OF THE DR AND HENCE DISMISS THE ASSESSEES APPEAL. ITA.607/BANG/2014 PAGE - 11 08. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD DAY OF NOVEMBER, 2016. SD/- SD/- (VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR