Income Tax Appellate Tribunal - Hyderabad
M/S Prathima Educational Society,, ... vs Assessee on 9 January, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER
AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No.724/Hyd/14 : Assessment year 2004-05
ITA No.725/Hyd/14 : Assessment year 2005-06
ITA No.726/Hyd/14 : Assessment year 2006-07
ITA No.727/Hyd/14 : Assessment year 2007-08
ITA No.728/Hyd/14 : Assessment year 2008-09
ITA No.729/Hyd/14 : Assessment year 2009-10
ITA No.730/Hyd/14 : Assessment year 2010-11
M/s. Prathima Educational V/s. Dy. Commissioner of Income-tax
Society, Hyderabad Central Circle 1, Hyderabad
(PAN - AAATP 3833 E )
(Appellant) (Respondent)
Appellant by : Shri K.C. Devadas
Respondent by : Shri D.Sudhakar Rao, DR
Date of Hearing 29.12.2014
Date of Pronouncement 09.01.2015
ORDER
Per Bench :
These seven appeals filed by the assessee are directed against a common order dated 26.3.2o014 passed by the learned Commissioner of Income-tax Central Circle 1, Hyderabad under S.263 revising the re-assessments made by the Assessing Officer under S.143(3) read with S.153A of the Act for the assessment years 2004-05 to 2010-11.2 ITA No.724 to 730/Hyd/2014
M/s. Prathima Educational Society, Hyderabad
2. The assessee in the present case is an educational society, which is running a medical college and hospital. A search and seizure action under S.132 of the Act was conducted in the case of the assessee society as well as its trustees and other related persons on 10.9.2009. Subsequently, notices under S.153A of the Act were issued by the Assessing Officer on 13.7.2010 for the years under consideration in response to which returns were filed by the assessee society on 11.1.2011. In the assessments completed under S.143(3) read with S.153A of the Act vide orders dated 30.12.2014, the total income of the assessee for the years under consideration was determined by the Assessing Officer as under-
S.No. A.Y. Income returned Income assessed Returned u/s.153A 1 2004-05 (-)18,26,68,815 (-) 5,80,59,501 2 2005-06 (-)5,59,67,152 (-) 2,38,62,471 3 2006-07 (-)7,09,71,311 4,42,66,317 4 2007-08 (- )4,55,14,612 2,90,17,942 5 2008-09 (-)2,42,49,506 5,10,20,887 6 2009-10 (-)1,53,67,242 8,07,88,658 7 2010-11 NIL 8,83,71,660
3. Records of the above assessments made in the case of the assessee subsequently came to be examined by the learned Commissioner and on such examination, he found that there were following errors in the assessments made by the Assessing Officer under S.143(3) read with S.53A, which were prejudicial to the interests of the Revenue-
3 ITA No.724 to 730/Hyd/2014M/s. Prathima Educational Society, Hyderabad ".....
(a) Claiming of Depreciation on Hospital Equipment Sl. No. A.Y. Depreciation allowed on Hospital Equipment 1 2004-05 1,41,01,785 2 2005-06 1,41,01,785 3 2006-07 91,84,861 4 2007-08 91,84,861 5 2008-09 78,50,432 6 2009-10 69,91,979 7 2010-11 49,21,447 The assessee grouped all the hospital equipment into one group and claimed depreciation @40%. As per depreciation schedule only certain life saving medical equipment viz., MRI, Surgical Lasers etc. were only eligible @ 40% depreciation. The Assessing Officer had not obtained complete details of equipment and not segregated items which are allowable / not allowable at applicable rate.
(b) Unsecured loans (in Rupees) As seen from schedule-2 unsecured loans of the Balance Sheet, following are the unsecured loans introduced during the year which are given below. The AO while completing the scrutiny assessment has not called for the confirmation of the balances with reference to lenders from whom unsecured loans were obtained.
S. A.Y. M/s. Pact Sri M/s. Pratima
No Securities & B.Srinivasa Estates Ltd. &
Fin. Services Rao Net X Cell Ltd.
Ltd.
1 2004-05 1,02,76,822 1,14,89,581
2 2005-06 2,81,82,597
3 2006-07 1,12,11,163
4 2007-08 1,67,11,403
5 2009-10 1,28,80,000 92,15,777
4 ITA No.724 to 730/Hyd/2014
M/s. Prathima Educational Society,
Hyderabad
(c) CORPUS RECEIPTS
As seen from the Balance sheet, during the assessment years, following are the amounts received towards corpus fund.
The AO while completing the assessment has rejected the claim u/s. 10(23)(C)(vi)/11. Hence, the AO should have brought the corpus fund to tax-net.
S.No A.Y. Corpus Receipts
1 2006-07 4,00,66,991
2 2007-08 2,42,40,388
3 2008-09 3,89,75,045
4 2009-10 4,51,38,800
5 2010-11 2,07,10,623
(d) DEPRECIATION ON FURNITURE:
As seen from the Balance sheet, during the assessment years depreciation on furniture was claimed @ 15 % as against the eligible rate of 10%. The AO should have disallowed the excess depreciation claimed which are given below:
Sl. No. A.Y. Excess
Depreciation
allowed
1 2006-07 8,47,429
2 2008-09 14,13,486
3 2009-10 15,42,614
4 2010-11 11,29,089
(e) Under assessment of income:
For the Asst. Year 2010-11, the AO erred in arriving excess of income over expenditure as per Income & Expenditure account to the tune of Rs.7,90,43,030/-. "
4. The learned Commissioner of Income-tax therefore issued a show cause notice to the assessee pointing out the above errors and seeking its explanation as to why the orders passed by the Assessing Officer under S.143(3) read with S.153A for the years under consideration should not be revised by exercising his 5 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad power under S.263. In response to the said notice, the following submissions were made by the assessee in writing-
"With reference to the above we submit the following lines for your consideration and necessary action.
1) Our Society was initially registered as public charitable entity under section 12AA on 04.10.2000. Later, on 26.03.2008, the Society was also granted exemption under section 10(23C} of Income tax Act, 1961.
2) Subsequent to search action conducted on 10-09-2009 on the offices of Society and residence of the Chairman of the Society, the above two registrations were rescinded.
3) The Society challenged the rescinding orders of Hon. Director General of income tax in Hon. High Court of Andhra Pradesh. The Hon'ble High Court suspended the orders of Hon'ble DGIT till further orders. Copies of Orders of the Hon'ble High Court are enclosed.
4) The 12AA registration cancellation orders passed by your goodselves were challenged before the Hon'ble Income tax Appellate Tribunal, Hyderabad. The Hon'ble Tribunal, after hearing both sides, has restored the 12AA registration vide their orders dated 08.11.2013. Copy of the said Order is enclosed.
5) As things were standing as above, quantum appeals have come up for hearing before the Hon'ble Commissioner of Income tax (Appeals). After hearing the assessee society and taking into consideration the orders of Hon. ITAT, Madam Commissioner has deleted the most vexed additions, like, alleged collection of capitation fee, etc. It is worth noting here that these additions were the basis for rescinding of recognition under section 10(23C) and cancellation of registration under section 12AA.
6) The brief back ground for claiming the depreciation for income tax Rules and plea not to tax corpus donation is as follows:
a) Before the assessment proceedings under section 153A were conducted, as submitted earlier, the Hon'ble DGIT has already rescinded the grant of exemption given under 6 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad section 10(23C) of the Act. Based on rescinding orders of the Hon'ble DGIT that were available on hand, the then learned AO proposed to decline not only the benefits of section 10(23C) of the Act but also of section 11 of the Act, meaning thereby that the learned AO intended to tax the assessee as an ordinary AOP. While doing so the learned AO has ignored the detailed submissions made by the assessee society in this regard. During the course of assessment proceedings the assessee put forth the following legitimate claims which are as per the provisions of the Act :
It was requested that:
i. To permit the society to claim depreciation on various assets as per Income Tax Rules. The request was a natural and legitimate corollary of the proposed action. of AD to treat the assessee as an ordinary ADP as per the provisions of the Act. Hitherto, the Society was claiming depreciation at rates that were different from the rates prescribed under income tax rules. The learned AD, after examining the Society's claim, had kindly accepted the plea and asked the Society to prepare and submit a detailed depreciation statement as per Income tax Rules.
ii. To consider the corpus donations received by the Society (which were claimed as capital receipts at the time of filing the original returns considering the 12AA/10(23C) Registrations on hand) as capital receipts which are non-taxable. For this purpose extracts from the book of Sri Rakmnnam and others in their book "LAW AND PROCEDURE ON CHARITABLE TRUSTS AND RELIGIOUS INSTITUTIONS" TENTH REVISED EDITION, was produced where in the learned authors have opined that corpus donations received by the charitable entities, whether registered or not under the provisions of the Income tax Act, 1961, are exempt from tax (a copy of the said extract is enclosed to this letter for the ready reference of your qoodselves): The learned AD after considering our submissions had kindly accepted this plea as well and did not bring these amounts to tax.7 ITA No.724 to 730/Hyd/2014
M/s. Prathima Educational Society, Hyderabad
7) Having submitted a brief back ground for the claim of depreciation as Income tax Rules and non taxability of corpus donations, we submit hereunder our detailed submissions as why corpus donations should not be taxed. A detailed reading of the relevant provisions of the Act as applicable to charitable trusts (section 11, 12 and 13 ) read with the definition of voluntary contributions as appearing in section would reveal the following:
a) Section 2(24) (iii) refers to the income of a trust or charitable income by way of voluntary contribution as income chargeable to tax. Here there is mention of voluntary contribution by way of corpus donation.
b) Section 12 deems the voluntary contribution as taxable and subjects such contributions to the provisions of section 11 and 13. This excludes voluntary contribution by way of corpus donation from the ambit of the section.
c) Section 11 while listing out the receipts of the trust subject to tax specifically excludes voluntary contribution by way of corpus donation from the ambit of income under the said section.
d) Section 13 also does not cover corpus donations which are specifically excluded by the provisions of section 12 and 11(1)(d). This section specifically lists out the infringements which would result in withdrawal of exemption.
e) Thus for all purposes voluntary contribution by way of corpus donation does not come within the definition of income or within the ambit of section 11,12 and 13. The only requirement is that it should be received by a trust or institution from a donor with a specific direction that the same would constitute the corpus. It is not material whether the trust is registered under IT Act or not or registration under section 12AA or 10(23)(vi) has been cancelled or not. It is submitted that when the registration granted is cancelled, the same would not automatically lead to taxation of corpus donation.8 ITA No.724 to 730/Hyd/2014
M/s. Prathima Educational Society, Hyderabad
f) Without prejudice to above, it is submitted that the registration under section12AA has been restored by the ITAT. Therefore, on account of non-registration-also corpus donation cannot be taxed. At this juncture, the issue that invites the attention is whether these beneficial sections viz., sections 11 and 10(23C) operate by supplementing each other or mutually exclude the other? It is submitted that if registration is subsisting by one of the sections, the assessee is entitled to all the benefits available under the Act. For this purpose support was drawn from the decisions of Jurisdictional Hon'ble High Court and the Hon'ble ITAT, wherein it was categorically held that both these provisions are not mutually exclusive and an assessee can possess either of the registrations and can still claim exemption for the income. Reliance is placed on the following decisions:
i) CIT v Riding Club 64 CTR 118(AP)
ii) ADIT v. Ravi Rishi Educational Society, Hyd 1289/Hyd/2010
iii) ADIT v National Inst of Tourism ITA No 1203/Hyd/2010 dt11-03-2011
g) There are a large number of decisions wherein the jurisdictional ITAT has consistently held the view that the provisions of section 12AA can be independently applied to grant benefit of exemption under section 11 irrespective of whether there is exemption under section 10(23C) or not. In the light of this, there is no question of treating corpus donation as taxable
8) With regard to minor errors that were noticed in the claim of depreciation is concerned, as submitted in the earlier paragraphs, the claim for depreciation as per the provisions of Income tax Act was permitted in the last moment of completion of assessment. The assessee had to, within a short span of time, has to recompute the depreciation amount by categorizing them under various blocks and number of days the assets were put 9 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad to use in the initial year of purchase. In this process few errors have crept in the computation and the same has occurred on bath ways i.e., on some assets higher deprecation was claimed and in case of some others, a lower rate was claimed. The details have been worked out and the same enclosed to this letter for your ready reference.
9) So far as confirmations for the loan credits are concerned, they have been submitted during the course of hearing itself. However, we have filed one more set of those confirmations on 18.02.2014 in your office vide our letter dated 18.02.2014.
10)It is further submitted all the aspects relating to corpus donations were placed before Assessing officer who after due application of mind has excluded the same from the ambit of total income. The present proposal by the CIT would amount to a change of opinion. Law is well settled that an issue which is subjected to two interpretations - one held by the AO and the other held by the revising authority, such an order is not erroneous. As Hon'ble CIT is well aware of, an order to come under the provisions of 263, the same should be erroneous and prejudicial to the interest of revenue. Cumulative satisfaction of both the conditions is a requirement under law. Satisfaction of the twin conditions is mandatory requirement under law to revise the assessment. In this regard the assessee places reliance on the following decisions.
a) In the case of STATE OF KERALA V/s. KM CHERIA ABDULLA AND CO 1965 16 STC 875, the scope of revisional jurisdiction came up for consideration by the Apex Court. It was held that the revisional prerogative conferred by the statue has to be essentially subject to the scheme of the Act so much so that the revising authority is not equipped with the dominion to re-launch enquiries at large so as to the trench upon the powers which has been exclusively reserved by the Act for another authority. In the above order of the Apex Court, it was held that an erroneous order cannot be equated with a wrong order as understood in the common parlance and an order of assessment passed within the limits of jurisdiction of the assessing authority even if considered wrong by the revisional authority would not attract the invocation of suo motu powers of 10 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad revision. The court observed as under:
"The revisional authority for various good reasons may be inclined to view on assessment order from a negative stand point. The revisional authority, may likewise disagree with the views of the primary authority in interpretation of law imposing a liability or extent or quantum thereof. It may disagree with primary authority with regard to the determination of the amount of tax to be paid. It may disagree with primary authority on matters relating to deductions allowable under the statue. All such Litigations as aforesaid may render the order of the primary authority wrong or erroneous as commonly sunder stood. Such situations however, would not be facets of an erroneous decision in so far the meanings of the said expression as appearing in section 36 of the Act are concerned".
The revisional powers conferred under Madras General state tax Act are pari material with the powers conferred under section 263 of IT Act. Therefore, the above principles decided in the context of the said act are equally applicable to a case of revision under IT Act.
ii) In the case of CIT v Gabriel India Ltd Taxman 71 Taxman 585 Bombay, it was held that if an ITO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of. the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The endorsement in the assessment order shows application of mind after examination of books.
iii) In the case of CIT v Goyal Private family Specific Trust 1988, 171 ITR 698 701-202 Alld, it was held that the order of the Assessing officer may be brief and cryptic 11 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad but that by itself is not sufficient reason to brand the assessment order as erroneous and prejudicial to the interest of revenue. Writing of an order may be a requirement but non fulfilling of the same, cannot be said to be erroneous and prejudicial to the interest of revenue. When the Assessing officer has completed the assessment after verification of books and other factual and legal issues, there is no room for invoking the jurisdiction under section 263.
iv) The error envisaged under section 263 is not one which depends upon the possibility or probability of an issue. It should either be an error of fact or law. CIT v Trustees of Anupan Charitable Trust 167 ITR 129 Raj. The show cause notice does not point to any specific lapse that in the order passed by the Assessing officer. No objective material has been brought on record to support the finding.
v) In the case of Appollo Consulting Services Corporation v.DIT(international taxation)2012,54 SOT 82 Mum, it was held that while accepting the contention of the assessee, it is not necessary that the Assessing Officer must pass a lengthy order for justifying the acceptance of the contention which are otherwise acceptable in view of documents and evidences furnished before him. In such a situation, when Commissioner is holding the order as erroneous and prejudicial to the interest of revenue, he must give reasons for his conclusion that assessment order which has been passed, even though in a cryptic manner, was erroneous in law and on facts and is also prejudicial to. the interest of revenue. It is humbly requested that in such background the order passed by the assessing officer should not be subject matter of revision.
vi) It is submitted that the assessee cannot be faulted if the assessment order is a cryptic one and the issue had been decided without discussing it in detail. The assessee does not have control over the way an order is drafted by the AO. In case of CIT v. Honda Siel Power Products Ltd 235 ITR 336/330 ITR 547 (Del) it was held that after having applied his mind on the issue, the Assessing officer has passed the order.
vii) It cannot be held that lack of deeper enquiry would call for a revisional proceeding. ITO V D G Housing Project Ltd. 2012, 343 ITR 329 Delhi. It is submitted that where an assessment has been completed after enquiry, verification and application of mind, the 12 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad Commissioner cannot assume prejudice in the absence of positive error and prejudice.
viii) In Sirpur Paper Mills Ltd. v. ITO [1978J 114 ITR 404 (AP), it has been held that the department cannot be permitted to begin litigation fresh because of new views they entertain on facts or new versions which they present as to what should be the inference or the proper inference either on the facts disclosed or on the weight of the circumstances. [Para 18).
Assessee case stands in a better footing. In the case of the assessee, the observations are in general terms without any cogent reasons and therefore the same would not call for any revisional proceedings.
Therefore, in the light of above detailed submissions, we request your goodselves to drop further proceedings in this regard and oblige, for which kind action we shall be highly grateful. "
5. After taking into consideration, the above submissions made by the assessee as well as the material available on record, the learned Commissioner of Income-tax was of the opinion that the assessments made under S.143(3) read with S.153A were completed by the Assessing Officer in the case of the assessee without making proper and adequate enquiries on the issues pointed out by him. He held that the failure of the Assessing Officer to make such enquiries before allowing the corresponding claims of the assessee, made the assessments completed under S.143(3) read with S.153A erroneous as well as prejudicial to the interests of the Revenue. Accordingly, relying on the various judicial pronouncements discussed in his impugned order, the learned Commissioner set aside the assessments made by the Assessing Officer under S.143(3) read with S.153A for all the years under consideration, by exercising his powers under S.263 with a direction to the Assessing Officer to complete the same afresh, after examining all the issues pointed out by him and after making detailed enquiries and investigations relating to the said issues. He 13 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad also directed the Assessing Officer to take into consideration the submissions made by the assessee during the course of revision proceedings for deciding the relevant issues on merits, while making the fresh assessments. Aggrieved by the order of the learned Commissioner passed under S.263, assessee has preferred these appeals before the Tribunal.
6. The learned counsel for the assessee, at the outset, submitted that the assessments under S.143(3) read with S.153A for all the years under consideration were completed by the Assessing Officer, after making necessary enquiries and there were thus no errors in the orders passed by the Assessing Officer as alleged by the learned Commissioner, in his impugned order passed under S.263. As regards the higher depreciation on hospital equipment and furniture allegedly allowed by the Assessing Officer, he submitted that depreciation schedule giving all the relevant details relating to the claim of the assessee for depreciation on various assets as per the Income-tax Rules was submitted by the assessee during the course of assessment proceedings before the Assessing Officer, and after examining and verifying the same, the claim of the assessee for depreciation was allowed by the Assessing Officer. He submitted that depreciation at higher rate of 40%, no doubt, was allowable only in respect of certain items and although the Assessing Officer did not call for the relevant details of hospital equipment in order to ascertain and verify the exact items on which higher rate of depreciation of 50% was allowable to the assessee, this by itself would not make the assessments made by the Assessing Officer on this issue to be erroneous and prejudicial to the interests of the Revenue. In support of this contention, he relied on the decision of the Hon'ble Bombay High Court in the case of CIT V/s. Nagri Mills Co. Ltd. (33 ITR 681) and that of Hon'ble 14 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad Supreme Court in the case of CIT V/s. Excel Industries Ltd. (350 ITR 295), wherein it was held that when the rate of tax remains the same in the relevant year as well as in the subsequent assessment years, the dispute raised by the revenue is entirely academic or at best may have a minor tax effect. He contended that the allowability of depreciation either in the year under consideration or in the subsequent year thus has hardly any tax effect and any error in allowing higher depreciation in one year cannot be said to be prejudicial to the interests of revenue, especially when the rate of tax remains the same. He also submitted that while giving effect to the appellate order passed by the learned Commissioner of Income-tax for all the years under consideration, the Assessing Officer has finally allowed the depreciation as per the books and not as per the Income-tax Rules, and the error allegedly pointed out by the learned Commissioner in the orders of the Assessing Officer in allowing higher depreciation has not caused any prejudice to the interests of the Revenue.
7. As regards the error allegedly pointed out by the learned Commissioner in the orders of the Assessing Officer accepting the claim of the assessee of having obtained unsecured loans from three different parties without obtaining their confirmations, the learned counsel for the assessee reiterated before us that such confirmations were filed by the assessee during the course of assessment proceedings. He, however, agreed that there is no evidence available with the assessee to support and substantiate its claim.
8. As regards the error allegedly pointed out by the learned Commissioner in the orders of the Assessing Officer in not bringing to tax the corpus receipts in the hands of the assessee, 15 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad even after rejecting its claim under S.10(23C)(vi)/S.11 of the Act, the learned counsel for the assessee submitted that although the registration sought under S.12AA of the Act was originally denied to the assessee, the same was ultimately granted by the Tribunal vide its order dated 8.11.2013. He submitted that this further development was brought to the notice of the learned Commissioner by the assessee during the course of revision proceedings, but he totally overlooked the same. Relying on the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT V/s Andhra Pradesh Riding Club(168 ITR 393), he contended that if an assessee is otherwise entitled to exemption under law or under any other relevant provision of the Act, like S.11, the corpus donation cannot be brought to tax in the hands of the assessee. He also pointed out that the decision of the Tribunal, granting the assessee registration under S.12A has been subsequently upheld by the Hon'ble Andhra Pradesh High Court by its judgment dated 30th July,2014.
9. In support of his contention that the adjustments made by the Assessing Officer under S.143(3) read with S.153A for all the years under consideration are not erroneous as alleged by the learned Commissioner, the learned counsel for the assessee relied inter alia on the decision of the Hon'ble Delhi High Court in the case of CIT V/s. Anil Kumar Sharma (335 ITR 83), wherein it was held that there is a difference between lack of enquiry and inadequate enquiry. He also cited another decision of the Hon'ble Delhi High Court in the case of CIT V/s. Hindustan Marketing and Advertising Co. Ltd. (341 ITR 180), wherein it was held that revision under S.263 was not permissible on the ground that the enquiry by the Assessing Officer should have been more detailed. He also cited the decision of Hon'ble Bombay High Court in the case 16 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad of CIT V/s. Gabriel India Ltd. (282 ITR 108), wherein it was held that the decision of the Assessing Officer should not be held erroneous simply because in his order, he did not make any elaborate discussion. Reliance is also placed by the learned counsel for the assessee on the decision of the Hon'ble Madras High Court in the case of CIT V/s. Smt. D.Oormilamma (230 ITR 695), wherein the order passed by the Commissioner under S.263 setting aside the order of the Assessing Officer for lack of application of mind, was held to be unsustainable.
10. The Learned Departmental Representative on the other hand, strongly supported the impugned order passed by the learned Commissioner under S.263. He contended that the orders passed by the Assessing Officer under S.143(3) read with S.153A for all the years under consideration clearly suffered from specific errors, as pointed out by the learned Commissioner of Income-tax. He submitted that only specific items of hospital equipment are eligible for depreciation at higher rate of 40%, but the Assessing Officer allowed depreciation at higher rate of 40% on the entire block of hospital equipment of the assessee without verifying the relevant details to ascertain exactly the items eligible for higher depreciation at 40%. He submitted that similarly, depreciation at higher rate of 15% was allowed by the Assessing Officer on furniture as against the admissible rate of 10%, and there was thus obvious error in the orders of the Assessing Officer, which was clearly prejudicial to the interests of the revenue. He contended that the case-laws cited by the learned counsel for the assessee in support of his contentions on these issues are not applicable in the present case, as the same were rendered in altogether different context. He also submitted that the confirmations from the concerned creditors were not obtained by the Assessing Officer during the course of assessment 17 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad proceedings and the unsecured loans reflected in the Balance Sheet of the assessee thus were accepted by the Assessing Officer without making proper and adequate enquiries, as rightly held by the learned Commissioner, making the orders of the Assessing Officer erroneous as well as prejudicial to the interests of the Revenue. As regards the issue of taxability of corpus donations, raised by the learned Commissioner in his impugned order, the learned Departmental Representative simply relied on the order of the learned Commissioner passed under S.263 in support of the Revenue's case, without making any further submissions. He, however, contended that the learned Commissioner in his impugned order has not decided any of the issues raised by him on merits, and has simply directed the Assessing Officer to complete the assessments afresh after making proper and adequate enquiries on the issues pointed out by him, which the Assessing Officer had clearly failed to do. He contended that the assessee thus is free to raise all his contentions on merits before the Assessing Officer during the course of fresh assessment proceedings and even the learned Commissioner in his impugned order has directed the Assessing Officer to consider the submissions of the assessee, while deciding the relevant issues on merits. The Learned Departmental Representative contended that there is thus no infirmity in the impugned order of the learned Commissioner passed under S.263 and urged that the same may be upheld.
11. We have considered the rival submission and also perused the relevant material available on record. It is observed that depreciation at higher rate of 15% was allowed by the assessing Officer on the furniture in the assessments completed under S.143(3) read with S.153A of the Act for assessment years 2006-07 and from 2008-09 to 2010-11 as against the applicable 18 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad rate of 10% as per the relevant Income Tax Rules and the relevant orders of the Assessing Officer thus were clearly erroneous on this issue. Similarly, for assessment years 2004-05 to 2010-11, depreciation at higher rate of 40% was allowable only on certain items of hospital equipment, as provided in the relevant rules, but the claim of the assessee for higher depreciation at 40% was allowed by the Assessing Officer on the entire block of hospital equipment, without verifying the details of the hospital equipment in order to find out the exact items on which such higher depreciation at 40% was allowable. As agreed by the learned counsel for the assessee at the time of hearing before us, the relevant details of the hospital equipment were not even called for by the Assessing Officer during the course of assessment proceedings. The claim of the assessee for higher depreciation at 40% on the entire block of hospital equipment thus was allowed by the Assessing Officer without making proper and adequate enquiry, as warranted in the facts and circumstances of the case and in our opinion, the orders passed by the Assessing Officer allowing the claim of the assessee for higher depreciation at 40% on the entire block of hospital equipment for assessment years 2004-05 to 2010- 11 were thus erroneous on this issue.
12. At the time of hearing before us, learned counsel for the assessee has relied on the decision of Hon'ble Bombay High Court in the case of CIT V/s. Nagri Mills Co. Ltd. (supra) and that of the Hon'ble Supreme Court in the case of Excel Industries (supra), to contend that the allowability of depreciation in one year or the other has hardly any tax effect, especially when the rate of tax remains the same and any error in allowing higher depreciation in one year which is otherwise allowable in subsequent year/s, does not cause any prejudice to the interests of the Revenue. We are 19 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad unable to accept this contention of the learned counsel for the assessee. It is observed that the decisions of Hon'ble Bombay High Court in the case of Nagri Mills Co. Ltd. (supra) as well as the Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra) were rendered in altogether different contexts and not in the context of the provisions of S.263 which empower the learned Commissioner to revise the assessments made by the Assessing Officer, which are erroneous and prejudicial to the interests of the Revenue.
13. In the case of Nagri Mills Co. Ltd. (supra), there was a dispute in regard to the bonus payable to the workers for the year 1951, and the matter was referred to conciliation. The Conciliation Board gave its award in June, 1952 and the bonus was actually distributed in December, 1952. The assessee company maintaining accounts on mercantile basis, claimed the deduction on account of bonus in the assessment year 1952-53, relevant to accounting year 1951. The Income Tax Department however, took a view that the deduction on account of bonus was allowable in assessment year 1953-54 relevant to accounting year 1952. When the matter reached the Hon'ble Bombay High Court, it was observed by The Lordships that the question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different. It was observed that in the case of a company, where tax is attracted at a uniform rate, the issue as to whether deduction in respect of bonus was granted in assessment year 1952-53 or 1953-54 should be a matter of no consequence to the Department and one should have thought that the department would not fritter away its energies in fighting matters of this kind. It is interesting to note that even after recording these observations, the Hon'ble Bombay High Court 20 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad finally decided the issue on merits holding that the deduction on account of bonus was allowable in the assessment year 1952-53.
14. In the case of Excel Industries Ltd. (supra), the issue before the Hon'ble Supreme Court was whether the benefit of an entitlement to make duty free import of raw materials obtained by the assessee through Advance Licences and Duty Entitlement Pass Book issued against export obligations is income in the year in which the exports are made or in the year in which the duty free imports are made. In this context, it was noted by the Hon'ble Supreme Court that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licences and duty entitlement pass book and paid tax thereon. It was held by the Hon'ble Supreme Court that it was not as if the Revenue has been deprived of any tax, and with the rate of tax remaining the same in the relevant assessment year as well as the subsequent year, the dispute raised by the Revenue was entirely academic or at best might have a minor tax effect. It was held that there was thus no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless but also that it may not have added anything much to the public coffer. The context in which the decisions of the Hon'ble High Court in the case of Nagri Mills Co. Ltd. (supra) and of the Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra), were rendered thus was entirely different and the issues involved in those cases having been finally decided on merits, we are of the view that the observations made therein which have been relied upon by the learned counsel for the assessee cannot be applied to decide the issue involved in the present case which is in the context of the provisions of S.263.
21 ITA No.724 to 730/Hyd/2014M/s. Prathima Educational Society, Hyderabad
15. The learned counsel for the assessee has also submitted that the Assessing Officer while giving effect to the appellate order of the learned CIT(A) has finally allowed depreciation as per the books and not as per the Income-tax Rules for all the years under consideration and therefore, the errors allegedly pointed out by the learned Commissioner in the orders of the Assessing Officer in allowing higher depreciation cannot be said to have caused any prejudice to the interests of the Revenue. In this regard, it is observed that the orders giving effect to the orders of the learned CIT(A) for all the years under consideration have been passed by the Assessing Officer only after the impugned order under S.263 came to be passed by the learned Commissioner and based on this subsequent development, it cannot be said that the order passed by the learned Commissioner under S.263 earlier is not sustainable on the ground that the errors pointed out by the Commissioner do not cause any prejudice to the interests of the Revenue, as a result of subsequent development. Moreover, if at all the depreciation has been finally allowed in the case of the assessee as per the books and not as per Income-tax Rules, there will be no impact of the errors pointed out by the learned Commissioner in relation to higher depreciation allowed in the original assessments as per the Income-tax Rules, as the Assessing Officer, is finally required to pass fresh orders of assessment, which are in consonance with the orders passed by him giving effect to the appellate order of the learned CIT(A). We therefore, find no merit in the contentions raised by the learned counsel for the assessee in this regard, and reject the same accordingly.
16. It is also observed that the substantial unsecured loans taken by the assessee in the assessment years 2004-05 to 2007- 08 and 2009-10, were accepted by the Assessing Officer without 22 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad even obtaining their confirmations. Although it was submitted on behalf of the assessee before the learned Commissioner as well as before us that such confirmations were filed during the course of assessment proceedings, no evidence whatsoever has been produced to prove the same. In our opinion, the claim of the assessee for unsecured loans thus was accepted by the Assessing Officer without making proper and adequate enquiry as warranted in the facts and circumstances of the case, and the orders passed by the Assessing Officer were clearly erroneous as well as prejudicial to the interests of the Revenue on this issue, as rightly held by the learned Commissioner requiring revision under S.263.
17. As regards the error pointed out by the learned Commissioner in the orders of the Assessing Officer for assessment year 2006-07 to 2010-11 in not bringing to tax the corpus receipts in the hands of the assessee, after having rejected the its claim under S.10(23C)(6)/11, it is observed that although the registration sought under S.12A was originally denied to the assessee, the same was subsequently granted by the Tribunal vide its order dated 8.11.2013. The said order of the Tribunal granting registration under S.12A to the assessee was not only available when the impugned order under S.263 came to be passed by the learned Commissioner, but the same was specifically brought to the notice of the learned Commissioner by the assessee during the course of revision proceedings. In this regard, the learned counsel for the assessee has relied on the decision of the Hon'ble Andhra Pradesh High Court in the case of Andhra Pradesh Riding Club (supra), wherein it was held that if the assessee is otherwise entitled to exemption under any relevant provision of the Act, like S.11, the corpus donation cannot be brought to tax in the hands of the assessee. He has also pointed out that the decision of the Tribunal 23 ITA No.724 to 730/Hyd/2014 M/s. Prathima Educational Society, Hyderabad granting registration under S.12A to the assessee has been subsequently upheld by the Hon'ble Andhra Pradesh by its judgment dated 30th July, 2014. Keeping in view these submissions made by the learned counsel for the assessee, we are of the view that the learned Commissioner was not justified in holding the orders of the Assessing Officer in not bringing to tax the corpus receipts in the hands of the assessee as erroneous by ignoring the decision of the Tribunal forming part of the records before him, whereby registration under S.12A was duly granted to the assessee. Even the Learned Departmental Representative at the time of hearing before us, has not been able to raise any material contention on this issue and has simply relied on the impugned order of the learned Commissioner in support of the Revenue's case.
18. For the reasons given above, we uphold the impugned order of the learned Commissioner holding the orders of the Assessing Officer passed under S.143(3) read with S.153A of the Act for the years under consideration, to be erroneous and prejudicial to the interests of the Revenue on the issues of allowing higher depreciation on furniture as well as on the issue of allowing claim of the assessee for higher depreciation on hospital equipment and for unsecured loans without making proper and adequate enquiries. We however, set aside the impugned order of the learned Commissioner on the issue of corpus receipts by holding that he was not justified in treating the orders of the Assessing Officer in not bringing to tax the corpus receipts in the hands of the assessee as erroneous and prejudicial to the interests of the Revenue.
24 ITA No.724 to 730/Hyd/2014M/s. Prathima Educational Society, Hyderabad
19. In the result, appeals of the assessee for assessment years 2006-07 to 2010-11 are partly allowed, whereas the appeals of the assessee for assessment years 2004-05 and 2005-06 are dismissed.
Order pronounced in the court on 9th January, 2015 Sd/- Sd/-
(Asha Vijayaraghavan) (P.M.Jagtap)
Judicial Member Accountant Member
Dt/- 9th January, 2015
1
Copy forwarded to:
1. M/s. Prathima Educational Society, Pratima house, Plot No.213, Road No.1, Film Nagar, Hyderabad
2. Dy. Commissioner of Income-tax Central Circle 1, Hyderabad
3. Commissioner of Income-tax Central I, Hyderabad
4. Departmental Representative, ITAT, Hyderabad B.V.S