Case Law Details
DCIT (Exemptions) Vs Sri Saraswathi Educational Society (ITAT Visakhapatnam)
Without calling for Remand Report by the CIT(A), the Order of the CIT(A) is not valid – held by Vizag ITAT in the case of Deputy Commissioner of Income Tax (Exe) Vs. Keshava Reddy Educational Society (ITA No.96, 95, & 283 / Viz / 2018) dated 30.04.2014
The facts of the case are that the assessee is a Society filed its return of income claiming exemption U/s. 11 of the Act. The case was subsequently selected for scrutiny. During the course of scrutiny proceedings, the assessee has not responded to the notices issued by the assessing officer. Finally, the assessing officer issued the show cause notice to the assessee as to why the assessment cannot be completed ex-parte u/s.144 of the Act. In response, the assessee filed a letter stating that the promoter Sri N. Kesava Reddy is in Police custody because of unforeseen contingencies and not available for the last six months. Considering the fact that the assessee is not able to furnish the information called for and also not provided the books of account before the Ld. AO, the Ld.AO passed the assessment order ex-parte u/s. 144 of the Act by disallowing the exemption claimed by the assessee U/s. 11 of the Act. Further, the Ld. AO also disallowed the expenditure to the extent of 10% claimed by the assessee on estimation basis and added to the total income of the assessee. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) by relying on the decision of the Apex Court in the case of Brij Bhushan Lal Paraduman Kumar vs. CIT [1978] 115 ITR 524 (SC) and other judicial pronouncements, allowed the appeal of the assessee without calling for the remand report. On appeal by the revenue before the Hon’ble ITAT, Vizag it has held that the Ld. CIT(A) has grossly erred in not calling for the remand report from the Ld. AO by following the Rule prescribed under Rule-46A of the Income Tax Rules, 1962 and also following the procedure laid down U/s. 250 of the Act while disposing of the appeals. Under these circumstances, we deem it fit to remit the matter back to the file of the Ld. CIT(A). Accordingly, we hereby remit the matter back to the Ld. CIT(A) with a direction to call for a remand report from the Ld. AO on the books of account of the assessee / records / bills / vouchers submitted by the assessee and decide the case de-novo and in accordance with law by passing a speaking order as per the provisions of the Act.
On behalf of the Income Tax Department, Dr. Aparna Villuri Sr.AR appeared and on behalf of the assessee CA. Chandramouleswara Rao appeared.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
The captioned appeals (ITAs) are filed by the Revenue against the respective orders of the Ld. Commissioner of Income Tax (Appeals), Kurnool arising out of the orders passed U/s. 144 and 144(3) of the Income Tax Act, 1961 [the Act] for various AYs. As well, the assesses have also raised Cross Objections. Since the issues raised by the Revenue in their respective appeals for different AYs are identical in nature, all the captioned appeals of the Revenue and the Cross Objections of the assesses are clubbed, heard together and disposed of in this consolidated order for the sake of convenience. Firstly, we shall take up ITA No. 87/Viz/2018 (AY 2013-14) as a lead appeal.
2. This appeal filed by the Revenue is against the order of the Ld. Commissioner of Income Tax (Appeals), Kurnool in ITA No. CIT(A)/KNL/0081/2016-17, dated 24/01/2018 arising out of the order passed U/s. 144 of the Income Tax Act, 1961 [the Act] for the AY 2013-14.
3. Briefly stated the facts of the case are that the assessee is a Society filed its return of income for the AY 2013-14 on 29/09/2013 disclosing an income of Rs. NIL after claiming exemption U/s. 11 of the Act. The case was subsequently selected for scrutiny and a notice U/s. 143(2) of the Act was issued to the assessee on various dates. Further, notice U/s. 143(2) was issued to the assessee intimating the change in jurisdiction also. As there was no response, a letter to the assessee was issued on 06/1/2016 calling for certain information along with summons U/s. 131 of the Act. Due to time barring nature of assessment, a final show cause notice was issued to the assessee on 9/3/2016 along with a notice U/s. 142(1) of the Act proposing to complete the assessment ex-parte U/s. 144 of the Act. In response, the assessee filed a letter on 16/03/2016 stating that the promoter Sri N. Kesava Reddy is in Police custody because of unforeseen contingencies and not available for the last six months. Considering the fact that the assessee is not able to furnish the information called for and also not provided the books of account before the Ld. AO, the Ld.AO passed the assessment order ex-parte u/s. 144 of the Act by disallowing the exemption claimed by the assessee U/s. 11 of the Act. Further, the Ld. AO also disallowed the expenditure to the extent of 10% claimed by the assessee on estimation basis and added to the total income of the assessee. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A).
4. On appeal, the Ld. CIT(A) by relying on the decision of the Apex Court in the case of Brij Bhushan Lal Paraduman Kumar vs. CIT [1978] 115 ITR 524 (SC) and other judicial pronouncements, allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds of appeal:
“1. The order of the Ld. CIT(A) is erroneous both on facts and in law.
2. The order of the Ld. CIT(A) is erroneous as CIT(A) has erroneously relied on the decision of the Hon’ble Supreme Court in the case of CST vs. H.M. Esufali H.M. Abdulali (SC) 90 ITR 271 (SC) which is not applicable in this case as the decision of Hon’ble SC is on the Sales Tax Act which does not have provision for best judgment assessment whereas Income Tax Act has section 144.
3. On the facts and circumstances of the case, CIT(A) has erred in deciding that best judgment assessment is not valid when as per section 144 the only condition to invoke 144 assessee’s failure to comply with all the terms of a notice issued U/s. 142(1) and the assessee has not complied notice U/s. 142(1) and hence assessment U/s. 144 is valid.
4. The Ld. CIT(A) erred in considering the submission of the assessee, that the society is not able to produce the books of accounts and other information as required by the AO during the course of assessment due to key member of the assessee-society viz., Sri N. Keshava Reddy, who is secretary and Correspondent and also Chief Executive of the assessee-society, who is also in-charge of day to day administration and also in-charge of maintenance of accounts and records was arrested in his individual capacity on 9/9/2015 and was imprisoned due to a cheating case filed against him.
5. If answer to the above Ground No.2 is yes, then Ld. CIT(A) is erred in not considering the fact that the society is not a single man entity and it can be run by the other members of the association also. What prevents the other members of the society from submitting the books of account and other documents called for by the AO.
6. CIT(A) erred in allowing exemption U/s. 11 to the assessee-society inspite of the fact that Shri N. Keshava Reddy (who is a key member of the society as stated by the assessee itself) was arrested in his individual capacity on 9/9/2015 and imprisoned due to a cheating case filed against him by the parents of the students of the school run by the society, with regard to issue of collecting deposits, in lieu of fee and not refunding the same.
7. CIT(A) ought to have appreciated the action of the AO in not allowing the exemption U/s. 11 to the assessee society. The AO considered the exact issue that the receipts in the form of deposits collected from the students of the school, run by the asessee society was by pledging the name of the society. Further, such receipts were not properly in the books of accounts of the assessee-society.
8. The Ld. CIT(A) erred in considering the exemption of Rs. 76,88,322/- U/s. 11 to the assessee society, simply basing on the imprisonment of one of the members of the society, without calling for a remand report from the AO under Rule 46A & without even verifying the books of accounts by himself.
9. CIT(A) erred in directing the AO to allow exemption U/s. 11 without considering the fact that Sri Nagi Reddy Keshava Reddy, who is a key member of the society had fraudulent and dishonest intentions and collected crores of rupees towards school fees by promising that the amount would be refunded after completion of education, by giving misleading advertisements about their Keshava Reddy Schools / Institutions of the society with false promises and bogus schemes.
10. The Ld. CIT(A) ought to have considered that basic principle of the Societies Registration Act, that the society is not a single member unit and activities should be carried on by the respective office bearers from time to time. In general, as per the Societies Registration Act under which the society was registered, if there is an exigency the powers will automatically be delegated to other member for convenience with the approval of Executive Committee or General Body whatsoever.
11. The Ld. CIT(A) erred in allowing the exemption U/s. 11 to the assessee society inspite of the fact that if one member was imprisoned then the powers of such member were not delegated to any other and such failure of the society clearly indicated that the society has not fulfilled the basic conditions for claiming exemption U/s. 11 of the Act.
12. CIT(A) erred in deleting the addition of Rs. 57,09,143/- made by the AO towards disallowance of 10% of the expenditure claimed inspite of the fact that the assessee failed to furnish the requisite information compelling the AO to take recourse to a reasonable estimate by disallowance of expenditure U/s. 144 of the Act in framing the Best Judgment Assessment.
13. The CIT (A) ought to have considered the judgment in the case of Tara Singh vs. ITO 81 com 293 (Punjab & Haryana) wherein the validity of best judgment assessment and estimation of income was upheld when the assessee failed to respond to the notices given by the Department and the books of accounts and supporting evidence was not produced.
14. Any other ground that may be urged at the time of hearing.”
5. We shall first proceed to adjudicate the Ground No.8 before we take up the other grounds for adjudication as the outcome of this ground will have bearing on the other grounds.
6. At the outset, with respect to Ground No.8, the contention of the Ld. Departmental Representative [DR] is that it is ex-parte before the Ld. AO where the assessee has not provided any documents as required by the Ld. AO to form an opinion. The Ld. DR further submitted that on appeal, the Ld. CIT(A), without going into the merits of the case or without remanding the matter back to the file of the Ld. AO calling for a remand report, arbitrarily concluded that the Ld. AO has merely estimated the income of the assessee which is evidenced by an audit report. Therefore, the Ld. DR pleaded that one more opportunity may be provided to the Ld.AO to examine the books of accounts of the assessee.
7. Per contra, the Ld. Authorized Representative [AR] submitted that the reason for non-furnishing of the documents were explained before the Ld.AO and the Ld. AO has also recorded the same in his order. Further, the Ld. AR also vehemently objected to the disallowance based on estimation as it is not valid in law. The Ld. AR fully supported the order of the Ld. CIT(A).
8. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. It is an admitted fact that the assessee could not produce copies of bills, vouchers along with books of account before the Ld. AO during the scrutiny assessment. It was the contention of the Ld. AR that Sri N. Keshava Reddy, who is the Secretary and Chief Executive of the assessee-society, was imprisoned and therefore the relevant documents could not be provided before the Ld. AO. We find merit in the argument of the Ld. DR that the books of account were not available before the Ld. AO which was also not considered by the Ld. CIT(A). On perusal of the order of the Ld CIT(A), we are of the considered opinion that the Ld. CIT(A) ought to have called for a remand report from the Ld. AO when the Ld. AO has stated that assessee has neither produced any documents nor books of account during the assessment proceedings. We have also noted from the orders of the Ld. Revenue Authorities that the assessee has failed to produce any books of account before the Ld. AO but has filed various submissions before the Ld. CIT(A). In that situation, the Ld. CIT(A) is duty bound to call for a remand report from the Ld. AO on the submissions made by the assessee. At this juncture, it is pertinent to mention the relevant provision to be adhered to by the Ld. CIT(A) U/s. 250 of the Act as under:
“Sec. 250(4) The [Joint Commissioner (Appeals) or the] Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the [Joint Commissioner (Appeals) or the] Commissioner (Appeals).
…….”
In our considered opinion the Ld. CIT(A) has grossly erred in not calling for the remand report from the Ld. AO by following the Rule prescribed under Rule-46A of the Income Tax Rules, 1962 and also following the procedure laid down U/s. 250 of the Act while disposing of the appeals. Under these circumstances, we deem it fit to remit the matter back to the file of the Ld. CIT(A). Accordingly, we hereby remit the matter back to the Ld. CIT(A) with a direction to call for a remand report from the Ld. AO on the books of account of the assessee / records / bills / vouchers submitted by the assessee and decide the case de-novo and in accordance with law by passing a speaking order as per the provisions of the Act. Needless to mention that the assessee may be provided one more opportunity of being heard as per the principles of natural justice. Further, we also direct the assessee to produce the relevant material before the Ld. Revenue Authorities, if any, in order to dispose of the case effectively. It is ordered accordingly. Thus,
Ground No.8 is raised by the Revenue is allowed for statistical purposes.
9. With respect to other grounds raised by the Revenue, while adjudicating the core issue involved in the Ground No.8, we have set aside the order of the Ld. CIT(A) in toto and remitted the matter back to the file of the Ld. CIT(A). Therefore, the adjudication of other grounds raised by the Revenue becomes merely an academic exercise. Accordingly, the other grounds raised by the Revenue in its appeal for the AY 2013-14 are dispose of.
10. In the result, appeal filed by the Revenue is allowed for statistical purposes as mentioned herein above.
C.O. No. 80/Viz/2019 (AY 2013-14)
(By assessee)
11. This Cross Objection is filed by the assessee wherein the assessee has raised the following grounds of Cross Objections:
“1. The appellate order of the Ld. CIT(A) is made correctly based on the facts and circumstances of the case and in law.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) is completely justified in ordering that the assessment U/s. 144 of the Act is unsustainable in law as the AO has accepted the results of the books of account. The Ld. AO has clearly failed to appreciate that the respondent assessee was prevented in submitted the bills and vouchers as the Police have seized the premises and books of account of the appellant.
3. The appellate order of the Ld. CIT(A) is completely justified as far as the grant of exemptions U/s. 11 in view of the fact that the Ld. AO could not state any specific instance with evidence that the assessee has contravened the provisions of the Act particularly the provisions of section 13(1)(c) of the Act.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) is completely justified in deleting the adhoc disallowance of expenditure at 10% as such disallowance of expenditure on adhoc basis has no basis. Adhoc disallowance unsupported by reasons and basis is unjustified under law.
5. Any other ground or grounds of cross objections that may be urged during the hearing of the case.
12. With respect to the Cross Objection No. 80/Viz/2019 filed by the assessee, the assessee has raised the grounds which are in support of the decision of the Ld. CIT(A). Therefore, considering our decision while disposing of the Revenue’s appeal (ITA No. 87/Viz/2018) wherein we have set-aside the decision of the Ld. CIT(A) and remitted the matter back to the file of the Ld. CIT(A), the adjudication of the grounds raised by the assessee in its cross objection becomes merely an academic exercise. Thus, the Cross Objection raised by the assessee is disposed of accordingly.
13. With respect to the other captioned appeals filed by the Revenue, wherein the Revenue has raised the similar grounds of appeal with that of the grounds raised in its appeal ITA No. 87/Viz/2018 for the AY 2013-14 which is adjudicated in the aforesaid paragraphs of this order, our decision given on the Revenue’s appeal (ITA No. 87/Viz/2018 for the AY 2013-14) mutatis mutandis applies to all the other captioned appeals of the Revenue also. Accordingly, all the captioned Revenue’s appeals are allowed for statistical purposes.
14. With respect to all the captioned cross objections raised by the assessee, the assessee has raised similar grounds of Cross Objections with that of the grounds raised in C.O.No.80/Viz/2019 (AY 2013-14), which is adjudicated in the aforesaid paragraphs of this order. Since all the grounds of cross objections raised by the assessee for various assessment years are in support of the Ld. CIT(A)’s decision and by virtue of our decision to set-aside the order of the Ld. CIT(A) and remitted the matter back to the file of the Ld. CIT(A) for de-novo consideration, the adjudication of the Cross Objections becomes academic.
15. Ex-consequenti, all the appeals filed by the Revenue are allowed for statistical purposes and the Cross Objections raised by the assessee are disposed of as indicated herein above.
Pronounced in the open Court on 30th April, 2024.
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