Income Tax Appellate Tribunal - Delhi
Dlf Qutab Enclave Complex Educational ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'B' NEW DELHI)
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND SHRI B.C. MEENA, ACCOUNTANT MEMBER
I.T.A. Nos.2868 to 2871/Del/2011
Assessment years: 2005-06 to 2008-09
DLF Qutab Enclave Complex Vs. Income Tax Officer
Educational Charitable Trust, (E), Trust Ward-III,
DLF Centre, (9th Floor), Sansad New Delhi
Marg, New Delhi
PAN No.AAATD 0852 D
(Appellant) (Respondent)
Appellant by : S/Shri Pradeep Dinodia,
R.K. Kapoor & S.K. Sharma
CAs.
Respondent by : Shri Krishna, CIT-DR
ORDER
PER BENCH:
The present four appeals are directed at the instance of assessee against the common order of learned CIT(A) dated 31.03.2011 passed for assessment years 2005-06 to 2008-
09. the common issues are involved in all the years, therefore, we heard them together and deem it appropriate to dispose off them by this common order. The grounds of appeal taken by the assessee in all the four years are not in consonance with Rule 8 of ITAT Rles, they are descriptive and argumentative in nature. The substantial grounds of 2 appeal relates to reopening of assessment by issuance of notice u/s 148 and denial of benefit u/s 11 & 12 of the I.T. Act. In other grounds, the assessee has pleaded that after reopening of assessment and observing that DIT(E) has cancelled the registration u/s 12A of the I.T. Act, the assessee will not be entitled for exemption u/s 11 and 12 of the Income-tax Act and, therefore, income under various heads has been assessed in the hand of the assessee. While taking note of the grievance of the assessee, we are not specifically referring the quantum of addition in each assessment year, because after hearing the assessee, we find that reopening of assessment is not sustainable for the reasons, which we are going to discuss.
2. The first common issue in all the assessment years relate to reopening of assessment by issuance of notice u/s 148 of the Income-tax Act. The facts in all the assessment years are common on all vital points, therefore, for the facility of reference we are taking up the fact from assessment year 2005-06.
2.1 The brief facts are that assessee has filed its return of income on 31.10.2005 declaring total income nil. The assessee has submitted audit report in Form No.10B and balance sheet along with income and expenditure account, with the return. The return was accepted u/s 143(1) on 25th 3 July, 2006. The Assessing Officer has observed that he received an information being order No. DIT(E)/09/u/s 12A/1169 dated 31.12.2009 passed by the Director of Income-tax (Exemption) Delhi whereby the registration granted to the assessee u/s 12A of the Income-tax Act, 1961 was cancelled w.e.f. assessment year 2005-06. According to the Assessing Officer assessee was found to be engaged in the business of commercial ventures. Its activities are not of charitable in nature as provided in section 2(15) of the Income-tax Act. On the basis of the order of learned DIT(E), he recorded the reasons and issued notice u/s 148 on 25th January, 2010. The reasons recorded in assessment year 2005-06 are similar with the reasons in other assessment years. The notice u/s 148 has been issued simultaneously except the variation in the date of return filed by the assessee, there is no other variation on the facts. The reasons recorded in assessment year 2005-06 read as under:-
"Reasons recorded u/s 147 of the Income-tax Act, 1961 In this case, I.T. Return for the assessment year 2005-06 was filed by the assessee on 31.10.2005 at Nil. Income after claiming the benefit of exemption of income as per the provisions contained in Sec. 11 & 12 of the Income-tax Act, 1961. The said return was processed u/s 143(1) on 25.02.2006 at nil income.4
2. This office is now in receipt of order No.DIT(E)/2009/u/s 12A/1169 dt. 31.12.2009 passed by Director of Income Tax (Exemption), /Delhi, whereby assessee's registration u/s 12A of the Income-tax Act, 1961 stands cancelled w.e.f. assessment year 2005-06. The crux of the said order dated 31.12.2009 reads as under:
"5.1In sum and substance, the assessee has been engaged in the business of constructing and letting out the property and also investing the amount in shopping malls. The assessee has purported to be involved in charitable activities but in real sense they are involved in business activities and earning huge profits years after year. The modus operandi used by the assessee to acquire the land from the authorities earmarked for educational institution on concessional rates and further leasing out these properties to earn profits and also exempting the income u/s 11 & 12 and also the society formed by the trust is also claiming exemption u/s 11 &
12. In this way, the assessee's trust is not only minting money but also avoiding the tax by designing nefarious activities.
...............................................
5.4The provisions of section 12AA stipulate the following conditions for registration u/s 12AA of the Income-tax Act, 1961:-
i) The objects of the trust should be
of charitable in nature.
ii) The activities of the trust should be
genuine.
5
Since the assessee has been engaged in the business and commercial activities and are not engaged in charitable activity as defined under the provisions of section 2(15) of the Income-tax Act, 1961, it is, therefore, held that registration granted to the assessee is required to be cancelled as the activities of the assessee are not charitable.
In conclusion it is held that the assessee is not entitled the exemption u/s 11 as its activities are no longer charitable from assessment year 2005-06 onwards.
Therefore, registration granted u/s 12A is cancelled with effect from assessment year 2005-06."
3. It is apparent that in the absence of registration available u/s 12A, the assessee is not entitled to benefit of exemption of income u/s 11 & 12 of the act for the assessment year 2005-06. Further, activities of the assessee do not conform to charitable activities u/s 2(15) after going through the accounts for the period ended on 31.03.2005 and also the order dated 31.12.2009 passed by the DIT(E), Delhi. With the result, gross income shown at `2,27,13,338/- as per I & E account or any other income for the financial year 2004-05 would be subject to tax in accordance with the relevant provisions contained under the Income-tax Act, 1961.
4. Keeping in view the above facts, I have reasons to believe that income chargeable to tax has escaped assessment in this case for the assessment year 2005-06. Hence, I am satisfied for issuance of notice u/s 148 in assessment year 2005-06."
6Sd/-
(Ashok Katyal) Dated : 25/01/2010 Income Tax Officer (E) Trust Ward-III, Delhi-92"
2.2 On receipt of notice u/s 148 assessee has filed objection which according to the finding of learned CIT(A), learned Assessing Officer has decided vide letter dated 19.11.2010.
2.3 Dissatisfied with the reopening of assessment assessee carried the matter in appeal before CIT(A). It had contended that order of DIT(E) dated 31.12.2009 has been challenged in appeal before ITAT, vide I.T.A. No.839/D/2010, upto and until the appeal of the assessee is being not decided by the Tribunal, learned Assessing Officer ought to have not reopened the assessment. It was contended that registration u/s 12A was granted to the assessee on 27.12.1988. Its income was determined after giving benefit of section 11 & 12 of the Income-tax Act. Some of the issues were traveled upto the Tribunal in assessment year 1994-95 and 2002-03. The benefit of sections 11 & 12 was granted to the assessee by the learned CIT(A) in assessment year 1994-95 and order of the CIT(A) was upheld by the Tribunal. Learned First Appellate Authority has gone through the contentions of the assessee. He observed that once registration u/s 12A has been cancelled by the DIT(E), it is 7 sufficient information for the Assessing Officer to form an opinion that income chargeable to tax has escaped assessment and assessment deserves to be reopened. Therefore, Assessing Officer has rightly treated the order of DIT(E) as a sufficient information and has rightly issued notice u/s 148.
2.4 Learned counsel for the assessee while impugning the orders of revenue authorities, submitted that Tribunal has allowed its appeal and restore the registration granted u/s 12A of the Income-tax Act. The moment registration granted in 1988 got revived, the every information possessed by the Assessing Officer enabling him to form an opinion that income chargeable to tax has escaped within the meaning of section 147 of the Income-tax Act would extinguished. Learned counsel for the assessee took us through the reasons recorded by the Assessing Officer and pointed out that he has simply made reference to the order of DIT(E), rather he has produced that order in the reasons. The moment that order stands set aside by the Tribunal, these observations would automatically extinguished and there would not be any information in the possession of the Assessing Officer which can enable him to believe that any income chargeable to tax has escaped assessment and reopening of the assessment would not be sustainable. He placed on record copy of the Tribunal's order dated 8th July, 2011 passed in I.T.A. No.839/D/2010 along with I.T.A. 8 No.247/D/09. On the other hand, learned DR relied upon the order of CIT(A). He pointed out that assessee is engaged in non charitable activities which are akin to commercial activities. Therefore, it is not entitled for the benefit u/ss 11 and 12. The learned DIT(E) has rightly cancelled the registration u/s 12A and Assessing Officer has rightly reopened the assessment. He further contended that learned CIT(A) has made reference to the decision of Hon'ble Karnataka High Court in the case of CIT Vs. M/s Ananda Social and Educational Trust reported in (2011) TIOL 60. Learned counsel for the assessee in rebuttal submitted that decision of Hon'ble Karnataka High Court is altogether on different facts. He placed on record copy of the order of High Court's decision. He pointed out that in that case assessee filed an application for registration u/s 12A. In the application assessee sought condonation of delay for the period 10.01.1980 to 01.04.2001. Hon'ble High Court found that a similar application was filed by the assessee on 9th January, 2002 which was rejected and dispute traveled upto the Hon'ble High Court. The assessee filed a fresh application on 21st September, 2006 in which it again claimed condonation of delay in this application. In that background Hon'ble High Court has remitted the matter back to the Tribunal and directed the Tribunal to consider the issue afresh because earlier application moved by the 9 assessee was rejected for this very period. The facts of this case are not similar to that of the assessee.
2.5 We have duly considered the rival contention and gone through the record carefully. Section 147 of the Income-tax Act provides that if Assessing Officer has reason to believe that any income chargeable to tax has escaped for in assessment year, he may, subject to the provisions of sections 148 to 153, assess or re-assess such income and also any other income chargeable to tax which has escaped assessment and which came to his notice subsequently in the course of the proceeding u/s 147 or recomputed the loss or the depreciation allowance or any other allowance as the case may be, for the assessment year is concerned. A plain reading of section 147 would make it clear that Assessing Officer should have reasons to believe, meaning thereby he should have some information which enable him to believe that income chargeable to tax has escaped. In the present case, he received the order of DIT(E) which was used as an information for forming the belief that income chargeable to tax has escaped. We have extracted the reasons recorded by him which enabled him to form the belief that income chargeable to tax has escaped. Now this order of the DIT(E) has been set aside by the Tribunal vide its order dated 28th July, 2011, the finding of the Tribunal read as under:-10
REGISTRATION U/S 12AA(a) The assessee was granted registration u/s 12A on 27.12.1988. It appears that the ld. DIT(E), Delhi, passed an order under section 80G(5) on 30.06.2001, in which the approval under the said provision was not extended in the case of the assessee on the ground that it is engaged in the business of constructing and letting out properties for earning rental income and, therefore, it was not carrying out any charitable purpose. In view thereof, a notice was issued u/s 12AA(3) on 26.11.2008 requesting the assessee to explain as to why the registration earlier granted on 27.12.1988 may not be cancelled. After hearing the assessee, the registration was cancelled on the grounds that -(i) the assessee is really involved in business activities in which huge surplus is realized from year to year, the details of which have been furnished on page no. 9 in paragraph no. 4.4; and (ii) it has not carried out any charitable activity nor there is any intention to carry out charitable activity as the surplus realized from renting buildings to educational institutions was not applied for any educational purpose. The assessee has challenged this order by taking following grounds:-
1.1 "That on the facts and in the circumstances of the case and contrary to the provisions of law and against the past history of the case, the ld. Director of Income-tax (Exemptions) has erred in holding that the appellant is engaged in the business of commercial activities and not in charitable activities thereby has erred in cancelling the registration u/s 12A of the Income-tax Act, 1961 with effect from assessment year 2005-06.
1.2 That on the facts and in the circumstances of the case and contrary to the provisions of law and against the past history of the case, the ld. Director of Income-tax (Exemptions) has erred in holding that the trusts activities do not fall within the purview of section 2(15) of the Income-tax Act, 1961.
1.3 That the ld. Director of Income-tax (Exemptions) has grossly erred in holding that letting out of school buildings to educational institutions at highly concessional rent does not constitute a charitable activity, which is against the settled propositions in assessee's own case.11
1.4 That the cancellation of registration u/s 12A of the Income-tax Act, based on rejection of application u/s 80G of the Income-tax Act, is bad in law.
1.5 That the order passed by Director of Income-tax (Exemptions) is based on erroneous interpretation of law and unwarranted inferences of facts and is prayed to be declared null and void."
2. The only submission taken up by the ld. counsel before us is that the machinery provided for cancellation of registration under sub-section (3) of section 12AA, as it existed on the date of passing the impugned order, did not provide for cancellation of registration granted under sec.
12A although it provided for cancellation of registration granted under clause (b) of sub-section (1) of this section. In other words, the argument is that the order is beyond the competence of the Director of Income-tax (E). For this purpose, reliance has been placed on the decision of Hon'ble Delhi High Court in the case of Director of Income-tax (Exemptions) Vs. Mool Chand Khairati Ram Trust in ITA No. 54/2011 dated 04.04.2011, a copy of which has been placed before us. The question before the Hon'ble Court was-whether the ITAT was right in holding that the registration granted u/s 12A on 4.12.1974 to the assessee could be cancelled/withdrawn by the authorities u/s 12AA(3) of the Act? The Hon'ble Court considered the provisions contained in sections 12A and 12AA and came to the conclusion that the power to cancel the registration once granted was only confined to the registration granted under clause (b) of sub-section (1) of section 12AA till 1st June, 2010. Of course, now with effect from 1st June, 2010, the power vests with the Commissioner even to cancel the registration granted under any of the clauses of sub-section (1) of section 12A. In that view of the interpretation, the Hon'ble Court was of the considered view that there was no power vested with the Commissioner to cancel or withdraw the registration granted to the assessee under section 12A(a) in the year 1974.
2.1 In reply, the ld. DR submitted that the Director of Income-tax (E) has inherent power to cancel/withdraw registration earlier granted u/s 12A(a).
122.2 We have considered the facts of the case and submissions made before us. The Hon'ble Delhi High Court, which is the jurisdictional High Court in this case, has specifically held that power to cancel registration granted u/s 12A(a) is vested in the Commissioner/Director with effect from 1st June, 2010 only. This power is granted by amendment in the provision made by Finance Act, 2010, with effect from 01.06.2010. Grant of this power shows that such power was not earlier vested in the Director of Income-tax (E) as inherent power. Nonetheless, such an argument was not taken before the Hon'ble High Court, but it becomes clear from the facts that such power was vested specifically in him with effect from 01.06.2010. Therefore, we are of the view that the ld. DIT(Exemptions) was not competent to pass the order of cancellation of registration on 31.12.2009, i.e., before 1st June, 2010.
2.6 In view of this order, the information possessed by the Assessing Officer would extinguish. Meaning thereby there is no information available to the Assessing Officer which can enable him to form the belief that income chargeable to tax has escaped assessment. The Assessing Officer has not referred any independent material. He has simply extracted the order of DIT(E). Therefore, the reopening of assessment is not sustainable. We allow this ground of appeal in all the four assessment years and quash the reassessment orders.
2.7 As far as the additions on merit are concerned, those additions have been made because benefit of section 12A was not available to the assessee. Now, the Tribunal has restored the registration granted u/s 12A. If, on further 13 appeal, reopening of the assessments are to be held proper then also these issues in our understanding would be decided afresh in the light of the registration available to the assessee u/s 12A. Therefore, we do not see any reason to embark upon the justification of the additions or otherwise. These grounds in a way become redundant, in view of our finding on the issue of reopening of assessment.
3. In view of the above discussion, all the appeals of the assessee are allowed.
This order was pronounced in the open court on 26.08.2011.
Sd/- sd/- ( B.C. MEENA ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dt. 26.08.2011. NS Copy forwarded to:-
1. DLF Qutab Enclave Complex Educational Charitable Trust, DLF Centre, (9th Floor), Sansad Marg, New Delhi.
2. Income Tax Officer (E), Trust Ward III, New Delhi.
3. The CIT
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy.
By Order (ITAT, New Delhi).
14Date of hearing 16.08.2011 Date of Dictation 23.08.2011 Date of order signed by the 26.08.2011 Hon'ble" Member. Date of order Sent to the 26.08.2011 concerned Bench