Income Tax Appellate Tribunal - Hyderabad
Shadan Educational Society, Hyderabad vs Department Of Income Tax on 19 June, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
I.T.A Nos. 355 & 356/HYD/2014
Assessment Years: 2001-02 & 2003-04
Dy. Director of Income Tax Shadan Educational Society,
(Exemptions)-II, Vs Khairatabad,
HYDERABAD HYDERABAD
[PAN: AAETS8676E]
(Appellant) (Respondent)
For Revenue : Shri M. Ravindra Sai, DR
For Assessee : Shri Mohd. Afzal, AR
Date of Hearing : 15-06-2015
Date of Pronouncement : 19-06-2015
ORDER
PER B. RAMAKOTAIAH, A.M. :
These two Revenue appeals are for the Assessment Year (AY) 2001- 02 & 2003-04 against the common order of Commissioner of Income Tax (Appeals)-IV, Hyderabad dated 13-12-2013, allowing the assessee's appeal on the orders u/s. 154 of the Income Tax Act [Act].
2. Briefly stated, assessee is a society formed with the main objective of promoting education among Muslims in particular and other communities in general. Assessee was granted registration u/s. 12A w.e.f. 18-06-1985. Consequent to search and seizure operations on 27- 10-2006 and on the report of authorities that assessee has violated provisions of Section 13 of the Act, Ld. CIT(Central), Hyderabad has ITA Nos. 355 & 356/Hyd/2014 :- 2 -: Shadan Educational Society cancelled the registration u/s. 12AA(3) vide order dt. 06-11-2008. This matter was subject matter of appeal before the ITAT and ITAT in ITA No. 71/Hyd/2009 dt. 30-09-2009 noted that the registration granted u/s. 12A cannot be cancelled for violation of provisions of Section 13(1)(c) and 13(3) and therefore, 12AA(3) does not empower the CIT to cancel the registration. The order of the CIT was accordingly set aside. In the mean time, the Assessing Officer (AO) by his common order in various assessment years has listed out various so called violations of Section 13 and in the impugned years also came to the conclusion that registration u/s. 12 was cancelled, therefore assessee was not entitled for exemption u/s. 11 of the Act. He accordingly brought to tax the entire amount claimed as exemption by assessee in the impugned assessment years. He however, did not quantify the amount pertaining to violation of provisions of Section 13 in the order. Ld.CIT(A) on the appeals by assessee however, noted that ITAT has set aside the cancellation of registration and accordingly, assessee is eligible for exemption u/s. 11. Since the main reason for denying the deduction was the cancellation of registration, he directed the AO to implement the order of the ITAT, in his appellate order dt. 10-11-2009. Consequent to that, AO gave effect to the order of ITAT dt. 21-11-2012 holding that since the ITAT restored the registration u/s. 12A, assessee is eligible for exemption u/s. 11 of the Act. He determined the total income at NIL and granted exemption to assessee u/s. 11. However, the very same AO by a notice u/s. 154 dt. 27-03-2013 proposed that the above orders dt. 21-11-2012 were erroneously passed and proposed to modify the orders. Assessee objected to the rectifications proposed. AO however, rejected the assessee's objections and passed orders u/s. 154 on 25-04-2013 holding that assessee had violated the provisions of Section 13 and therefore not eligible for exemption u/s. 11. In the order u/s. 154, AO repeated the ITA Nos. 355 & 356/Hyd/2014 :- 3 -: Shadan Educational Society contentions of the AO u/s. 143(3) and brought to tax the same amount as was done u/s. 143(3).
3. Assessee contested before the Ld.CIT(A) holding that there were neither violations of Section 13 during the impugned assessment years nor the AO has quantified any amount for the so called violations listed out by him and further the matter was already decided by the CIT(A) in his appellate on the orders u/s. 143(3). Therefore, AO cannot modify the orders u/s. 154 after giving effect to the order of the ITAT allowing the exemptions to assessee. With reference to the so called violations of Section 13, assessee made detailed submissions which were recorded by the CIT(A) in para 2.9 and 2.10. Considering the assessee's detailed submissions and perusing the orders of ITAT and the predecessor CIT(A) on the issue, Ld.CIT(A) did not approve the modification orders by stating as under:
"5.1 I have considered the facts on record and the submissions of the AR. A perusal of the assessment order dated 31.12.2008 shows that while the Assessing Officer did discuss both the issues, viz use of the appellant's vehicles for the personal use of the Chairman in his family and the purchase of property using the appellant's funds in the name of the wife and son of the chairman, the concluding and operative part of the assessment order merely record the cancellation of registration as the reason for denial of exemption u/s. 11.
5.2 Indeed, this view also finds support in the order of the CIT(A) dated 10.11.2009, extracted above where the CIT(A) observed that the denial of exemption u/s. 11 actually emanated from the cancellation of registration u/s. 12AA(3). It is also noteworthy that the CIT(A) went on to observe that since ITAT, Hyderabad had already adjudicated the issue related to the exemption and since the Assessing Officer had to give effect to the order of the ITAT, no separate finding was required to be given in respect of the claim of exemption. In other words, the CIT(A) did not consider it fit to adjudicate on the issue of violation of Sec.13.
ITA Nos. 355 & 356/Hyd/2014
:- 4 -: Shadan Educational Society
5.3. The cancellation of registration was set aside by the ITAT. While giving effect to the ITAT's order, the Assessing Officer allowed exemption to the appellant u/s. 11, thereby accepting that there were no violations of Sec.13.
5.4 The question whether or not the appellant has violated Sec.13 is not a mistake apparent from record; it is a complex issue requiring detailed examination of facts and circumstances in the light of the legal provisions. Therefore, the Assessing Officer having impliedly held in his modification orders dated 21.11.2012 that the appellant had not violated Sec. 13, it cannot be said that this was a mistake apparent from record open to rectification u/s. 154".
4. Revenue is aggrieved and raised various grounds inter alia contending that Ld.CIT(A) was not justified in holding that the orders cannot be modified u/s. 154, whereas the AO was giving effect to the orders of ITAT/CIT(A) in the order u/s. 154.
5. Ld.CIT-DR explained the chronology of the events and referring to the orders of ITAT submitted that AO has not implemented the order of the ITAT in its correct perspective as he was supposed to examine the violations of Section 13 while granting exemption. While admitting that ITAT has cancelled the order of the CIT cancelling the registration, he referred to the order of the ITAT to submit that ITAT specifically observed that violation of provisions of Section 13 are to be examined by the AO while considering the exemption u/s. 11. He referred to the consequential order passed by the AO wherein on the presumption that registration was granted to assessee, entire amount was allowed without examining the violations u/s. 13. Therefore, AO was within his jurisdiction to modify the order to comply with the observations/directions of the ITAT. It was submitted that since AO has passed the order allowing the exemption without considering the violation of provisions of Section 13, AO was only following the directions ITA Nos. 355 & 356/Hyd/2014 :- 5 -: Shadan Educational Society of ITAT and modified the orders u/s 154. He justified the orders of the AO.
6. Ld. Counsel in reply, made two propositions. One that AO was correct in allowing the exemption in the consequential order as registration was restored to the assessee by the order of ITAT. He pointed out that AO did not quantify any of the so called violations nor rejected the assessee's contentions that there are no violations in the impugned assessment years. He also referred to the order of the CIT(A) to submit that the entire exemption was denied only on the basis of cancellation of registration, which was later restored by the ITAT. Therefore, there was no mistake apparent from record in the consequential orders passed by the AO. Second proposition is on the merits of the so called violations u/s. 13. It was submitted that nowhere in the statements recorded from the Managing trustee there was any personal usage of cars, which have been listed for these impugned assessment years. Assessee-society has indeed owned many cars which were used for the objects of the society and no vehicles were used for the personal benefit of the trustees. He referred to various statements recorded during the course of search and the context in which the questions were asked to submit that trustee was replying in the capacity of a Managing Trustee of assessee-society which the Revenue authorities interpreted to be that of an individual, therefore, misinterpreted the usage of cars to be of personal nature. With reference to the second allegation that properties were purchased in the name of two former members of the Managing Trustee, it was submitted that they are secretary and trustee of the assessee-society and the properties though held in their names were recorded in the Books of Accounts of assessee, invested out of the funds of assessee and subsequently, when these were sold, the capital gains were also offered in the returns of the assessee ITA Nos. 355 & 356/Hyd/2014 :- 6 -: Shadan Educational Society which was also accepted by the AO. In view of this, there are no violations of Section 13 and therefore, even on merits, orders cannot be modified under the provisions of Section 154 without examining the merits. Since the issues were already finalized by the order of CIT(A) in the quantum appeal, AO cannot restore the issues to the level of an order u/s. 143(3) in the guise of order under Section 154. He supported the orders of CIT(A).
7. We have considered the issues and examined the records. We are of the opinion that AO exceeded his powers u/s. 154 in restoring the order u/s. 143(3) which was also subject matter of appeal before the CIT(A) earlier. The powers of rectification u/s. 154 are restricted and as rightly pointed out by the CIT(A), issues which require detailed examination and analysis cannot be undertaken u/s. 154 of the Act. We are of the opinion that action of the AO in restoring the order of the AO u/s 143(3) which was also subject matter of appeal before the CIT(A) cannot be done. Moreover, as seen from the original assessment order u/s. 143(3), one violation which AO alleges is with reference to usage of cars. However, AO has not quantified the extent of amount spent on behalf of the personal usage of the trustees in the order. As seen from the statement also the context in which the statements were given do indicate that the trustee has stated that the cars were utilized for the objects of the society, more particularly for transporting the dignitaries of Medical Council of India and others to the premises of assessee- society ie. various colleges. In view of the clear statement of the Managing Trustee, we do not see any personal usage of the cars of the society. The fact that AO did not quantify any amount of personal use also indicate that the AO has raised this issue with out any evidence, so as to deny the exemption to the assessee.
ITA Nos. 355 & 356/Hyd/2014
:- 7 -: Shadan Educational Society
8. The next objection was with reference to purchase of properties in the name of family members of the Managing Trustee. There is no dispute with reference to the fact that the properties were purchased by assessee-society, held by it in the Books of Accounts and when ultimately sold the capital gains were also assessed in the assessee's hands. In the course of arguments it explained that the properties were held in the name of the individuals as the properties are purchased in the Jubilee Hills Co-operative Society for establishing schools/colleges for the objects of the society. Being a co-operative society, the Member's names were included rather than assessee's name and the fact that properties were shown in the Books of Accounts and funds were utilized from the society were also established before the authorities in earlier years. It is also on record that so called family members in whose name the properties were registered were also Secretary and Trustee of the society. It was also submitted that as the properties were proximate to the then Chief Minister's residential premises they could not obtain necessary permissions for establishing educational institutions and subsequently the properties were sold and the resultant capital gain was offered in the hands of the assessee. Considering these facts, we are of the opinion that there seems to be no violation of Section 13 in the impugned years. This fact was also established by the order of the CIT(A) dt. 10-11-2009, wherein Ld.CIT(A) has given a finding as under in para 4.1:
"04.1 I have gone through the issue and the submission of the appellant. I find that the denial of exemption u/s. 11 by the AO actually emanated from the cancellation of registration u/s. 12AA(3) by the CIT (Central), Hyderabad which was challenged by the appellant before ITAT. Since the AO was bound by the order passed by CIT (Central) cancelling the registration it was but natural that the claim of exemption u/s. 11 by the appellant was denied by the AO. I therefore find no infirmity in the order of the AO denying the exemption claimed by the appellant u/s. 11 of the I.T. Act at the time of passing the assessment order. As submitted by the appellant the Hon'ble ITAT Hyderabad A Bench has already ITA Nos. 355 & 356/Hyd/2014 :- 8 -: Shadan Educational Society adjudicated the issue relating exemption. Since the AO is to give effect to the order of the ITAT no separate finding is required to be given in respect of the claim of exemption. In other words, the first effective ground of appeal is dismissed".
9. In view of the above, if Revenue has any grievance on the issue, they should have preferred an appeal on the orders of the CIT(A), but the AO has no powers to restore the original assessment order u/s. 143(3) in the guise of modification u/s. 154, having allowed the exemption consequent to the orders of the ITAT. In view of this, we do not find any merit in the Revenue's appeals. Accordingly the grounds are rejected.
10. In the result, both the appeals of Revenue are dismissed.
Order pronounced in open Court on 19th June, 2015.
Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 19th June, 2015. TNMM Copy to :
1. Dy. Director of Income Tax-II(E) (I/c). 3rd Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
2. Shadan Educational Society, 6-2-978, Khairatabad, Hyderabad.
3. CIT(Appeals)-IV, Hyderabad.
4. The Director of Income Tax (Exemptions)-Hyderabad .
5. D.R. ITAT, Hyderabad.
6. Guard File.