ITO (Exemption) Vs Innovative Welfare and Educational Society (ITAT Delhi)
Facts- The Assessee had filed its ROI on dated 31.03.2006 by declaring Nil income which was processed and resulting into passing of the assessment order u/s 143(3) of the Act on dated 21-09-2007. Later on it came to the knowledge of the AO that the Assessee has re-audited its books of account on dated 22.09.2011 from AY 2005-06 onwards but the Assessee has never submitted the same to the revenue department till the time in-consistencies were recorded, therefore it was observed by the AO that the books of account are in the form of history and cannot be revised any time in the future as they are to be accepted by the Annual General Body meeting by all members and therefore become final documents on record . The AO on finding difficult to verify the claims of the Assessee and to determine the income and its application, made reference u/s 142(2A) of the Act on dated 13.12.2011 for taking service of 3rd neutral party/auditor in the form of Special Auditor for checking the veracity of the original viz-a-viz re-audited accounts of the Assessee.
Subsequently, the case of the Assessee was reopened u/s 147/148 of the Act on dated 27.03.2012 and thereafter by issuing notice u/s 143(2) on dated 01.05.2012 on various points, the reply from the Assessee was sought and after considering the reply filed by the Assessee it was held by the AO that the Assessee was supposed to file return u/s 147(1)/ 148 of the Act up to 27.04.2012 i.e. within 30 days from the date of the issuing notice u/s 148 of the Act, but the Assessee has filed its revised return on 12.10.2012 even after the normal limitation time period of 30.09.2012 for filing of any return, thus the return was accepted but treated as non-est for being submitted after due time limit and later returned to the Assessee.
The AO while comparing the original audited and re-audited account found some difference in amounts and also observed that the Assessee has not shown its expenses in the books of account. Some expenses and its clear circulation of funds between two societies in the form of unsecured loan and repayment which resulted into difference between loan amount of Assessee society and patronage welfare and educational society. Further the original bills and vouchers were not presented by the Assessee and the expenses claimed of Rs. 3,84,50,457/- by the Assessee is not supported by original bills and vouchers for verification.
Ultimately, the AO vide Assessment order dated 28-03-2013 passed u/s 143(3) of the Act, made the additions of Rs. 38450457/- (3,55,71,267 + 28,79,190) on account of difference between original and revised balance sheet and Rs. 15 lakhs on account of cash withdrawn and also held that the activities of the society are not in accordance with its objects and accordingly, the Assessee society is not entitled for the claim of exemption u/s 11 of the Act and accordingly it is denied. A proposal for withdrawal of registration u/s 12AA has been moved separately to DIT(Exemptions) as the organization can no longer be regarded as a charitable organization within the meaning of provision of section 2(15).
The Assessee being aggrieved challenged the assessment order before the Ld. Commissioner, who vide impugned order partly sustained the same, by allowing the appeal of the Assessee partly. Being aggrieved the assessee preferred this appeal.
Conclusion- The ld. Commissioner found the enclosed copy of the notice dated 30.07.2008 is nothing but unsigned copy of notice u/s 142(1) only. Even the unsigned copy of the notice u/s 143(2) of the Act does not find place neither as enclosure of the AO‟s letter nor anywhere in the assessment record. Ultimately, the Ld. Commissioner held that statutory requirement of section 143(2) has not been complied with and consequently, assessment finalized on the basis of subsequent notice dated 143(2) dated 12.08.2009 which is barred by limitation and held to be null and void.
We find that the Ld. Commissioner thoroughly considered the factual positions of the case and even examined the assessment record and also called for the comments of the AO and thereafter only came to the conclusion, on which we are having concurrence that no notice u/s 143(2) was served upon the Assessee within the statutory period prescribed in the Act and notice u/s 143(2) issued on dated 12.08.2009 is time barred and no assessment can be made on such notice and consequently the Assessment order held to be null and void and deserves to be annulled.
Non-issuance of the notice u/s 143(2) is not a procedural irregularity and therefore the same cannot be cured u/s 292 BB of the Act. Consequently the assessment framed against the Assessee without issuing notice u/s 143(2) of the Act is unsustainable and liable to be quashed being void-abinitio
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The instant Appeals i.e. ITA No. 166/Del/2014 by the Revenue Department and ITA Nos. 7598 and 7599/Del/201 by the Assessee , have been preferred against the orders dated 24.01.2014 and 05.09.2018 impugned herein, respectively passed for the Assessment Years 2007-08 and 2005-06 and 2006-07 by the Ld. CIT(A)-40and CIT(A)-XI, New Delhi (in short Ld. Commissioner) u/s 250 of the Income Tax Act 1961 (in short „the Act’).
2. As all these appeals related to the Assessee and more or less involved similar facts and issues, therefore for the sake of brevity, we are disposing off by this composite order.
3. First we will decide the appeals filed by the Assessee. Facts and issues involved in ITA Nos. 7598/Del/2018 and 7599/Del/2018 are exactly similar and therefore for the sake of brevity, we will refer the facts and issues involved in ITA No. 7598/Del/2018 and result of the same shall also be applicable to ITA No. 7599/Del/2018.
ITA No. 7598/Del/2018
4. Brief facts of the case for adjudication of the issues involved in the instant appeal are that the Assessee had filed its return of income on dated 31.03.2006 by declaring „Nil’ income which was processed and resulting into passing of the assessment order u/s 143(3) of the Act on dated 21-09-2007. Later on it came to the knowledge of the AO that the Assessee has re-audited its books of account on dated 22.09.2011 from Assessment Year 2005-06 onwards but the Assessee has never submitted the same to the revenue department till the time in-consistencies were recorded, therefore it was observed by the AO that the books of account are in the form of history and cannot be revised any time in the future as they are to be accepted by the AnnualGeneral Body meeting by all members and therefore become final documents on record . The AO on finding difficult to verify the claims of the Assessee and to determine the income and its application, made reference u/s 142(2A) of the Act on dated 13.12.2011for taking service of 3rd neutral party/auditor in the form of Special Auditor for checking the veracity of the original viz-a-viz re-audited accounts of the Assessee.
4.1 Subsequently, the case of the Assessee was reopened u/s 147/148 of the Act on dated 27.03.2012 and thereafter by issuing show cause notice u/s 143(2) on dated 01.05.2012 on various points, the reply from the Assessee was sought and after considering the reply filed by the Assessee it was held by the AO that the Assessee was supposed to file return u/s 147(1)/ 148 of the Act up to 27.04.2012 i.e. within 30 days from the date of the issuing notice u/s 148 of the Act, but the Assessee has filed its revised return on 12.10.2012 even after the normal limitation time period of 30.09.2012 for filing of any return, thus the return was accepted but treated as non-est for being submitted after due time limit and later returned to the Assessee.
4.2 The AO while comparing the original audited and re-audited account found some difference in amounts and also observed that the Assessee has not shown its expenses in the books of account. Some expenses and its clear circulation of funds between two societies in the form of unsecured loan and repayment which resulted into difference between loan amount of Assessee society and patronage welfare and educational society. Further the original bills and vouchers were not presented by the Assessee and the expenses claimed ofRs. 38450457/- by the Assessee is not supported by original bills and vouchers for verification.
4.3 Ultimately,the AO vide Assessment order dated 28-03-2013 passed u/s 143(3) of the Act, made the additions of Rs. 38450457/- (3,55,71,267 + 28,79,190) on account of difference between original and revised balance sheet andRs. 15 lakhs on account of cash withdrawn and also held“that the activities of the society are not in accordance with its objects and accordingly, the Assessee society is not entitled for the claim of exemption u/s 11 of the Act and accordingly it is denied. A proposal for withdrawal of registration u/s 12AA has been moved separately to DIT(Exemptions) as the organization can no longer be regarded as a charitable organization within the meaning of provision of section 2(15).“
For brevity and ready reference, the concluding part of the Assessment order is reproduced herein below:
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The explanation given by the assessee is not tenable, as no reason for not correctly maintaining the books of accounts have been given by the assessee. The Patronage Welfare Society and the assessee society have three common trustees u/s- 13(3) of the Act. There is continuous transaction of funds between the Patronage Society and assessee society throughout the year which is clear violation of S-11(5). No explanation for tire transfer of funds between the Patronage Society and assessee society has been given. The balance sheet on 31.03.05 of the Patronage Society show’s that the specified person u/s 13(3) of the assessee society has given unsecured loan to it during the year. There is clear circulation of funds between the two societies in form of unsecured and repayment. This is clear violation of S-13(1)(d) r.w.s S13(3) r.w.s S-11 (5) of the Income Tax Act, 1961. The loan given to patronage society during the year is being added to the total income.
3. Huge Cash unexplained Cash withdrawal :-
The assessee in the submission dated 06.12.12 has stated that there was cash withdrawal from the bank account of Rs. 10,00,000/-(Rs. 5,00,000/- on 27.09.2004 and Rs. 5,00,000/- on 01.10.2004) which was wrongly treated as payment for land. There was again as cash withdrawal of Rs. 5,00,000/- dated 01/01,2005 from the Bank account which was again wrongly treated as payment for land. The total amount is Rs. 15,00,000/-.
It is clear evident from the above facts that the assessee is in the habit of withdrawing cash from the bank without properly accounting for it in the Books of Accounts. The purpose for withdrawal was not stated in any of the replies filed by the assessee. This fact has been stated by the Special Auditor in the Special Audit Report as well. Therefore, the unaccounted cash withdrawal is being added to your total income for the year.
4. Original bills and Vouchers not presented and Poor maintenance of Books Of Accounts:- The expense claimed of Rs. 3,84,50,457/- by the assessee is not supported by original bills and vouchers for verification. These expenses have not been accounted for in the books of accounts and no valid explanation for incorrect recording of accounts have been given by the assessee. The assessee has claimed that the original bills and voucher are with the bank for the taking the term loan from Central bank of India, but his claim has also not been supported by any letter or explanation from the Bank authorities. In absence of documentary’ evidence for the expense incurred and not reflected in the original Audited accounts arc being added to the total income of the assessee.
5. Therefore, from the activities of the assesseevis-a-vis its objects, it is held that the activities of the Society are not run, in accordance with its objects and accordingly, the assessee Society is not entitled for the claim of exemption u/s 11 of the I.T. Act and accordingly it is denied. A proposal for withdrawal of registration u/s 12AA has been moved separately to D1T (Exemptions) as the organization can no longer be regarded as a charitable organization within the provision of Section 2(15). The assessee has concealed facts from the AO during the first assessment proceedings and furnished incorrect information as well. In view of clear violation of Sec-13(l)(d) r.w.s 13(30 r.w.s 11(5) of Act, 1961, exemption u/s 11 and 12 are denied to the assessee.
6. Hence, the income of the assessee in taxed as per rates applicable to an AOP, as its claim of exemption for being a charitable institution is denied due to reasons already discussed above. ‘No fixed asset schedule has been attached by the assesseealongwith the original return of income, therefore, no claim on depreciation can be given for the A.Y. 2005-06 and nor has the assessee claimed for it in the original Income and Expenditure A/c. Assessee has failed to provide the Revised audited accounts of the financial year 2004-05 i.e. A.Y, 2005-06, in place of it, the Assessee has submitted the Audited a/c financial year 2006-07.
Computation of income:-
