Income Tax Appellate Tribunal - Panji
St.Mary'S Educational Society., ... vs The Dcit,, Kakinada on 6 October, 2017
IT(SS)A Nos.2&3/Vizag/2014
St. Mary's Educational Society, Kakinada
आयकर अपील य अ धकरण, वशाखापटणम पीठ, वशाखापटणम
IN THE INCOME TAX APPELLATE TRIBUNAL,
VISAKHAPATNAM BENCH, VISAKHAPATNAM
ी वी. दग
ु ाराव, या यक सद य एवं
ी ड.एस. सु दर "संह, लेखा सद य के सम%
BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER &
SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.(SS)A.No.2/Vizag/2014
( नधारण वष / Assessment Year: 1890-90 to 29.1.1999)
St. Mary's Educational Society DCIT, Circle-1,
Kakinada Kakinada
[PAN No.AAAAS5688P]
(अपीलाथ' / Appellant) (()याथ' / Respondent)
आयकर अपील सं./I.T.(SS)A.No.3/Vizag/2014
( नधारण वष / Assessment Year: 1890-90 to 29.1.1999)
DCIT, Circle-1, St. Mary's Educational
Kakinada Society
Kakinada
(अपीलाथ' / Appellant) (()याथ' / Respondent)
अपीलाथ क ओर से / Appellant by : Shri G.V.N. Hari, AR
याथ क ओर से / Respondent by : Shri V. Madhuvani, DR
सुनवाई क तार ख / Date of hearing : 14.09.2017
घोषणा क तार ख / Date of Pronouncement : 06.10.2017
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IT(SS)A Nos.2&3/Vizag/2014
St. Mary's Educational Society, Kakinada
आदे श / O R D E R
PER D.S. SUNDER SINGH, Accountant Member:
These cross appeals filed by the assessee as well as the revenue are directed against the order of the Commissioner of Income Tax (Appeals), {CIT(A)}, Visakhapatnam vide ITA No.0257/2012- 13/ACIT,C-1/KKD/2013-14 dated 28.3.2014 for the assessment year 1989-90 to 29.1.1999.
2. Ground no.2 is related to the validity of issue of notice u/s 158 BD of the Income Tax Act, (hereinafter called as 'the Act') in the assessee's case. The assessee is educational society in the name and style of "Saint Mary's Educational Society" registered with Registrar of Cooperative Societies and the educational institutions are being operated in the name and style of "Saint Mary's College of Education" and "Saint Mary's Model High School". A search u/s 132 of the Act was carried out on 29.1.1999 in the premises of "Saint Mary's College Education" as well as the residential premises of members of the society including Sri K. Raj Kumar, member of the society. During the search and seizure operations certain incriminating material was found and seized indicating the undisclosed income. The assessee also did not file the application in Form No.10A for registration u/s 12A and also the return 2 IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada of income till the date of search. The assessing officer ('AO' in short) had issued the notice u/s 158BC of the Act to "Saint Mary's College of Education" on 25.5.1999, one of the arms of the society. In response the notice issued u/s 158BC, the assessee filed the return of income for the block period in the name of "Saint Mary's Educational Society" on 02.08.1999 and the assessment order u/s 143(3) r.w.s. 158BC of the Act was passed on 30.01.2001 in the name of "Saint Mary's College of Education" and assessed the income for the block period at Rs.99,86,408/-. The assessee went on appeal before the CIT(A) objecting the assessment made in the name of "Saint Mary's College of Education" instead of "Saint Mary's Educational Society", since Saint Mary's College of Education is one of the institutions run by the Society, which is not a separate legal entity. Saint Mary's Educational Society being the society running the educational institution. The CIT(A), Rajahmundry had passed an order on 20.12.2001 holding that the assessing officer is not justified in making the assessment in the hands of the college without taking the cognizance of the existence of the society. For the sake of clarity and convenience, we extract the relevant para No. 7 and 7.1 of the Ld. CIT(A)'s order in the case of Saint Mary's College of Education.
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IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada "7. With regard to the assessment made in the hands of the appellant, it may be seen that the appellant is only one of the wings of the Society, namely, St. Mary's Educational Society which is the only legal entity by virtue of its being registered under the provisions of Societies Registration Act, 1860. While completing the assessment, the Assessing Officer has disregarded the fact of existence of the Society and considered the appellant college as a separate and identifiable entity for the purpose of taxation and completed the assessment accordingly in the hands of the college. Since St. Mary's Educational Society is having 3 wings as stated above, if at all any assessment is to be done, it should have been on the legal entity alone along with its branches and wings as a whole and not as branches and wings separately. It is seen that while filing the Return in Form No.2B for the block period, the fact that the appellant college is being run under the ownership and management of the Society has been clearly brought out for the information of the Assessing Officer. Further, the following evidences were produced for my perusal in support of the above contentions:-
(a) Memorandum of Association of the Society duly registered under the Societies Registration Act, wherein clause No.3 thereof speaks of the objectives and aims thereof which include the establishment of schools, colleges and training institutions for the purpose of imparting and promotion of education.
(b) Order dated 5.3.1984 of the Secretary of Government of Andhra Pradesh, Dept. of Education, addressed to St. Mary's Educational Society, granting permission to open B.Ed., College in the name of St. Mary's College of Education, at Kakinada.
(c) Certificate of recognition of Minority Educational Institution dated 7.9.1995 issued by Commissioner & Director of School Education, Dept. of Education, Government of Andhra Pradesh.
7.1 From the above documentary evidences, it is very clear that the appellant college is nothing but a wing/extension of St. Mary's Educational Society. It is pleaded that all the above documentary evidences were produced before the Assessing Officer as well, however, the same were not considered by the Assessing Officer and the A.O., has treated the appellant college as a AOP. As could be seen from the documentary evidences listed above, which were perused by me, it is very clear that the appellant college is only an extension of the Society and does not have a separate legal entity distinct from the Society. Therefore, in my opinion, the Assessing Officer is not justified in making the assessment in the hands of the appellant college without taking cognizance of the existence of the Society."
3. Aggrieved by the order of the Ld. CIT(A), the assessee went on appeal before the Income Tax Appellate Tribunal(ITAT) and the Hon'ble 4 IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada ITAT in its appeal no.23/Vizag/2002 dated 19.06.2009 annulled the assessment passed by the A.O. and confirmed the order of the Ld.CIT(A). For ready reference, we extract the relevant paragraph of the assessment order.
"5. We have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on records. From a careful perusal of statement of Mr K Raj Kumar recorded by the search party during the course of search or thereafter which are available at page 214 to 228, we find that it was brought to the notice of the search party at the first instance that the assessee i.e., St Mary's College of education is a wing of St Mary's Educational Society duly registered under the Societies Registration Act. It was also deposed before the search party that the affairs of the assessee were managed and looked after by the aforesaid society. These facts were repeatedly brought to the notice of the AG. Copy of the Memorandum of Association of the Society was also filed before the AG and the search party in support of these contentions. Despite of all these facts, the notice u/s 158BC was issued in the name of the assessee i.e., St Mary's College of Education. Though the notice was issued in the name of the assessee i.e., St Mary's College of Education but the block return was filed by the St. Mary's Educational Society, declaring a nil return on the ground that the entire receipts/income of the society is exempted from Income Tax Act u/s 10(22) of the IT Act. Along with the return, a letter was filed before the AO stating therein the objects of the society and the details of the institutions. It has been repeatedly told to the AO that the assessee i.e., St. Mary College of Education has no legal independent entity and it is a society which runs all its wings including the assessee but the AO was adamant to frame the assessment in the hands of the assessee i.e., St Mary's College of Education after treating it to be AOP. Since the assessee is not a legal entity and is merely a wing of the society, who has got exemption u/s 10(22) of the Act, no asst. can be framed in the hands of the wings or a branch of the society. We therefore, find ourselves are in agreement with the order of the CIT(A) who has rightly held that the assessment in the hands of the assessee cannot be framed. Accordingly, the block assessment in the hands of the assessee deserves to be annulled. We therefore, confirm the order of the CIT(A) annulling the assessment. Since the assessment has been annulled, we find no justification to deal with the issues on merit as no specific arguments were advanced by both the parties."5
IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada
4. Subsequently, the A.O. has issued the notice u/s 158BD of the Act in the name of the assessee society on 15.11.2010 u/s 158BD of the Act, which is challenged by the assessee in this appeal. The assessment was completed u/s 158BA r.w.s. 158BD of the Act for the block period from 1989-90 to 29.1.1999 by order dated 20.11.2012 on total income of Rs.1,24,79,510/-.
5. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and challenged the validity of issue of notice u/s 158BD of the Act after 11 ½ years from the date of the search. The CIT(A) has upheld the notice observing that there is no mandatory time limit fixed for issue of notice u/s 158 BD of the Act. For the sake of convenience and clarity we extract the relevant paragraph of the Ld. CIT(A) as under:
"5.3 I have considered the submissions made. I find that the AO has discussed the background for issue of notice u/s 158BD in the impugned assessment order as under:
Issue of notice u/s.158BD:
A search and seizure operation was undertaken on 29.01.1999 in the premises of M/s. St.. Mary's college of Education and in the residential premises of the members of the society, during the course of which cash of Rs.5,76,050/- seized and also a disclosure u/s.132(4) of Rs.50 lakhs was given by the member Sri K. Rajkumar in the hands of the society. The block assessments in the hands of Sri K. Rajkumar and M/s. St. Mary's College of Education were completed separately. However, the assessee-society filed the return of income admitting NIL income and claimed exemption u/s. 10(22)/10(23C) of the Act on 02.08.1999. Since no warrant u/s. 132 was issued in the name of the assessee-society, as per the 6 IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada provisions of section 158BD, the assessee society falls under the category of "any other person", where the assessing officer is satisfied that any undisclosed income belongs to any person, other than the person in respect of whom search was made u/s. 132 or whose books of account or other documents or any assets were requisitioned u/s,132A, then the books of account, other documents or any assets seized or requisitioned shall be handed over to the assessing officer having jurisdiction over such other person and that AO shall proceed against such other person and the provisions of this chapter shall apply accordingly. There is no time limit prescribed for any proceedings being initiated under the provisions of section 158BD of the Act. As such, the notice u/s.158BD has rightly issued in the assessee's case, which is valid as per law. As such, the notice u/s.158BD has rightly issued in the assessee's case which is valid as per law. The case laws relied upon by the assessee are distinguishable from the facts and circumstances of the assessee's case.
5.4 I find that the initial proceedings were initiated u/s.158BC in the case of St. Mary's College of Education under the impression it was an AOP. The block assessment order passed pursuant thereto has been annulled both by the CIT(A) and ITAT. Thereafter the impugned proceedings have been initiated against the assessee society u/s.158BD of the I.T. Act. It has to be seen whether the proceedings initiated against the assessment society under section 158BD is in accordance with the provisions of the Act. The proceedings u/s.158BD can be invoked if the materials seized during the search operation show undisclosed income relating to 'any other person' other than the person in respect of whom search was made u/s.132 of the I.T. Act. As the search warrant is not in the name of the assessee-society, (which was not in dispute), the assessee-society would fall in the category of 'any other person'.
Certain incriminating materials have been seized relating to the assessee-society during the search and in relation thereto certain disclosure has been made u/s.132(4) of the I.T.Act. Thus the conditions stipulated in section 158BD is satisfied. 5.5 The AR argued that the notice u/s 158BC and 158BD has been issued on the same person and is not permissible. I am not able to agree to this contention. The notice u/s 158BC was issued to St. Mary's College of Education and not to the assessee i.e. St. Mary's Educational Society. It is for this reason that the assessment made on St. Mary's College of Education in the status of AOP was annulled. It was held that the St. Mary's College of Education, though a wing of the society is not the same entity as the assessee society. In view of such a legal position upheld by the Hon'ble ITAT the argument raised by the AR is not tenable and is 7 IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada liable for rejected.
5.6 The AR also argued that the satisfaction recorded for issue of notice u/s.158BD was done after the completion of block assessment and as a result the impugned assessment has to be declared invalid. It was also contended that the notice u/s.158BD was issued beyond reasonable time. I have considered the submissions made. It could be seen that the AO had framed the assessment u/s.158BC and assessed the undisclosed income in the hands of the St. Mary's college of Education and such a course of action was held to be legally untenable by the Hon'ble ITAT Visakhapatnam Bench. Till such decision rendered by the Hon'ble ITAT, there was no existing cause for the AO to issue notice against the society separately u/s.158BD. As a result of the order of the Hon'ble ITAT annulling the block assessment order passed in the name of St. Mary's College of Education, there was sufficient cause existing with the AO to proceed u/s.158BD to issue notice to the assessee-society. Such a notice has been issued within reasonable time of the passing of the order of the Hon'ble ITAT. Further, a careful and plain reading of section 158BD would show that there is no mandate or time limit fixed for issue of notice u/s.158BD/ No condition has been stipulated u/s.158BD that such notice has to be issued before completion of assessment u/s.158BC. The Hon'ble Supreme Court in the case of Calcutta Knit Wears Ltd has held that the plain meaning contained in section 158BD should be adopted. In view of the above discussion, I do not find any merit in the contentions raised by the AR. The notice issued u/s.158BD is held to be valid."
6. Aggrieved by the order of the Ld. CIT(A), assessee is in appeal before the Tribunal. Appearing for the assessee, the Ld. A.R. argued that in this case the search was conducted on 29.01.1999 and the notice u/s 158BD of the Act was issued on 15.11.2010 i.e. after the 11 ½ years of conducting the search and the issue of notice is not valid in this case. The Ld. A.R. further argued that even if it is presumed that the proceedings u/s 158BC of the Act were completed after the pronouncement of the order of the ITAT, the assessing officer has taken 8 IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada more than 1 year 4 months time for issue of notice and the time taken by the A.O. is unreasonable and beyond the permissible limit for issue of notice u/s 158BD of the Act. By any means, the notice u/s 158BD of the Act is time barred by limitation. Ld. A.R. relied on the Hon'ble orders of the High Court of Delhi in the case of CIT Vs. Bharat Bhushan Jain and others reported in 138 DTR (Del) 97 and argued that satisfaction recorded more than a year after completion of assessment of the searched person is considered to be not contemporaneous for the assessment proceedings and argued that notice issued in the assessee's case is beyond the time limit mentioned in the Income Tax and required to be quashed.
7. On the other hand, the Ld. D.R. relied on the orders of the lower authorities.
8. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. In this case, search u/s 132 of the Act was carried out on 29.01.1999 and the assessments were framed in the name of Saint Mary's College of Education, which were annulled by the appellate authorities by an order dated 19.06.1999 of ITAT, Visakhapatnam. The A.O. issued notice the u/s 158BD of the Act in the case of the assessee on 15.10.2010 i.e. after 11 years 9 months. As per the provisions of section 158BFA of the Act, 9 IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada the time limit for completion of block assessments was 2 years in the case of 158BC of the Act from the end of the month in which the last authorization for search u/s 132 of the Act was executed and in the case of 158BD of the Act., 2 years from the end of the month in which the notice u/s 158BD of the Act was issued. For ready reference, we reproduce section 158BE of the Act which places time limit for completion of block assessment as under:
"Time limit for completion of block assessment.
158BE [(1) The order under section 158BC shall be passed--
(a) within one year from the end of the month in which the last of the authorizations for search under section 132 or for requisition under section 132A, as the case may be was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997:
(b) within two years from the end of the month in which the last of the authorizations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.
(2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be--
a) one year from the end of the month in which the notice under the Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997; and
b) two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.]"10
IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada
9. As per section 158BE of the Act, the assessment in the case of 158BD of the Act should be completed within 2 years from the end of the month in which the notice under the chapter was served on the assessee.
10. In this case, the assessments u/s 158BC of the Act was completed i.e. searched persons on 30.01.2001 and the A.O. had issued the notice u/s 158BD of the Act on 15.10.2010 after 9 years 9 months of completion of assessments u/s 158BC. Hon'ble Punjab and Haryana High court [2012] 20 taxmann.com 575 (Punjab & Haryana) held that notice under section 158 BD necessarily has to be initiated before completion of the Block assessments. For ready reference we reproduce relevant part of the Hon'ble High court order as under:
7. Section 158BE of the Act prescribes the time limit for framing of assessments under sections 158BC and 158BD of the Act. The Assessing Officer of the person against whom action under section 132 or 132A of the Act has been taken, is the Assessing Officer who initiates the proceedings under section 158BD of the Act by recording satisfaction that any undisclosed income belongs to such other person so as to take action under section 158BD of the Act against that person. The Act nowhere specifically prescribes any time limit or limitation for initiation of proceedings under section 158BD of the Act or for recording of satisfaction before taking action under that provision. The plain and reasonable construction that can be placed on the aforesaid provision would be that the recording of satisfaction for taking action against any other person under section 158BD of the Act has to be between initiation of proceedings under section 158BC and before completion of block assessment under section 158BC of the Act in the case of the person searched. It would, thus, means that the action contemplated under section 158BD of the Act against a third party to a search, is necessarily to be during the course of block assessment proceedings under section 158BC of the searched person. It cannot be after the conclusion of the same as there is no occasion for an Assessing Officer to examine the seized material or documents of the searched person when the block assessment proceedings have concluded and no other proceedings are pending before him. If any other time limit is read in the provisions/statute, it shall lead to anomaly and would be arbitrary and unreasonable. It could not be read in the provision that where block assessment under section 158BC of the Act in the case of an assessee against 11 IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada whom action under section 132 or 132A of the Act had been carried out is finalized, the Revenue can take action at any time in the absence of any specific limitation prescribed in the statute. A construction which leads to such an anomaly should be avoided.
Applying the decision of Hon'ble High Court of Punjab & Haryana in the case law cited the A.O. should have issued the notice u/s 158BD of the Act before 30.1.2001 and completed the block assessment u/s 158BD of the Act before 31.01.2003 as per the time limit provided u/s 158BE of the Act. By any reasoning the issue of notice after 9 years and 9 months of completion of assessments of searched party considered to be unreasonable and cannot be considered to be contemporaneous to the assessment proceedings. Even after pronouncement of the order by the Hon'ble ITAT, Visakhapatnam, the notice u/s 158BD of the Act was issued after 1 year 4 months. Hon'ble Delhi High Court in Bharat Bhushan Jain and other (supra) held that recording of satisfaction after more than 1 year a cannot be considered to be contemporaneous to assessment proceedings. For ready reference, we extract the relevant paragraph of the Hon'ble Delhi High Court as under:
"6. Having regard to the intent of the Supreme Court in Para 44 of the Calcutta Knitwears (supra), where it was indicated that the Revenue has to be vigilant in issuing notice to the third party under s. 158BD, immediately after the completion of assessment of the searched person this Court is of the opinion that a delay ranging between 10 months and 1 ½ years cannot be considered contemporaneous to assessment proceedings. We are of the opinion that notices were not issued in conformity with the requirements of s. 158BD and were unduly delayed. The appeals of the Revenue accordingly fail and are dismissed."12
IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada
11. In this case the Notice under section 158 BD was issued after 9 years and 9 months of completion of Block assessment in the case of searched person. Even if the time limit is considered after the rendering the decision of the Hon'ble ITAT the AO took more than 1 year four months from the date of the order of the tribunal. However the time limit has to be considered not from the date of the orders passed by the ITAT, but time limit starts from block assessment orders passed by the AO in the case of searched person. Hence the facts of the assessee's case is squarely covered by the order of the Delhi High Court, as well as the decision of Hon'ble High court of Punjab and Haryana cited (Supra ). The ld. DR did not bring any other order/ judgement to controvert the decision cited. Therefore we hold that notice issued u/s 158BD is beyond the time limit prescribed under the act and the same cannot be valid. Accordingly we quash the notice issued u/s 158BD of the Act and annul the assessment made u/s 158BD, and allow the appeal of the assessee.
Since we have quashed the notice u/s 158BD of the Act, we consider it is not necessary to adjudicate the other grounds raised in the appeal of the assessee. Accordingly, the appeal of the assessee is allowed.
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IT(SS)A Nos.2&3/Vizag/2014 St. Mary's Educational Society, Kakinada IT SS(A) 3/Vizag/2014:
12. This is an appeal filed by the revenue on merits. In assessee's appeal, we have quashed the notice u/s 158BD of the Act holding that the notice is not valid and annulled the assessment made u/s 158BD. Therefore, we do not consider it necessary to adjudicate on merits and accordingly dismiss the appeal of the revenue.
13. In the result, the appeal filed by the assessee in IT(SS)A No.2/Vizag/2014 is allowed and the appeal filed by the revenue in IT(SS) No.3/Vizag/2014 is dismissed.
The above order was pronounced in the open court on 6th Oct'17.
Sd/- Sd/-
(वी. दग
ु ाराव) ( ड.एस. सु दर "संह)
(V. DURGA RAO) (D.S. SUNDER SINGH)
या यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam:
'दनांक /Dated : 06.10.2017 VG/SPS आदे श क त)ल#प अ*े#षत/Copy of the order forwarded to:-
1. अपीलाथ / The Appellant - St. Mary's Educational Society, D.No.1-36, Sarpavaram Junction, Kakinada
2. याथ / The Respondent - The DCIT, Circle-1, Kakinada
3. आयकर आय+ ु त / CIT, Rajahmundry
4. आयकर आय+ ु त / The Principal CIT-2, Visakhapatnam
5. आयकर आय+ ु त (अपील) / The CIT (A), Visakhapatnam
6. #वभागीय त न.ध, आय कर अपील य अ.धकरण, #वशाखापटणम / DR, ITAT, Visakhapatnam
7. गाड फ़ाईल / Guard file आदे शानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM 14