Guru Nanak Dev Khalsa Girls College Vs DCIT (ITAT Amritsar)
Summary: The Income Tax Appellate Tribunal, Amritsar, considered an appeal by a society operating Guru Nanak Dev Khalsa Girls College, Bathinda, against the confirmation of a penalty of Rs. 42,000 under Section 271B of the Income-tax Act, 1961, for Assessment Year 2011-12. The Assessing Officer had treated the college’s receipts as business receipts and held that the society was required to obtain an audit under Section 44AB. The assessee maintained that it conducted educational activities rather than business, claimed exemption under Section 10(23C)(iiiad), and was under a bona fide belief that tax audit provisions did not apply. The CIT(A) had upheld the penalty because supporting documents establishing eligibility for the exemption had not been furnished.
The Tribunal first condoned a delay of 39 days in filing the appeal, accepting the explanation that the assessee’s counsel had not communicated the appellate order. On merits, it examined the society’s affiliation-related indemnity bond and the college’s income and expenditure account, noting that the receipts mainly comprised student fees for educational courses. The Tribunal considered these activities prima facie educational rather than commercial. It relied on its earlier decision in Sant Baba Rangi Ram Charitable Trust v. ITO, which addressed the application of Section 44AB to a charitable institution and the relevance of a bona fide belief when considering penalty.
Applying that precedent, the Tribunal accepted that the assessee society believed it was not carrying on business or commercial activities and therefore did not consider Section 44AB applicable. It held that the penalty under Section 271B was not leviable in the circumstances, deleted the penalty of Rs. 42,000, and allowed the appeal. The source extract does not provide the principal appeal number, the assessee’s formal cause-title name, the coram, or the date of the Tribunal’s order; these details have therefore not been supplied as verified case metadata.
Cases Discussed
- Sant Baba Rangi Ram Charitable Trust v. ITO, Hoshiarpur — ITA No. 185/Asr/2012, dated 26.07.2012 — Earlier Amritsar Bench ruling applied on tax audit penalty for charitable activities.
- ACIT v. India Magnum Fund — 81 ITD 295 (Mumbai) — Cited in the reproduced precedent concerning exempt income and Section 44AB.
- Hindustan Steel Ltd. v. State of Orissa — 83 ITR 26 (SC) — Cited in the reproduced precedent on penalty.
- ITO v. Nanak Singh Guliani — 171 CTR 195 (MP) — Cited in the reproduced precedent.
- CIT v. Abhyeshwar — 153 CTR 372 (MP) — Cited in the reproduced precedent.
- CIT v. Tea King — (2000) 158 CTR 413 (Guj) — Cited in the reproduced precedent.
- R. Wadiwala & Co. v. ACIT — (2001) 72 TTJ (Ahd) 34 — Cited in the reproduced precedent.
FULL TEXT OF THE ORDER OF ITAT AMRITSAR
This appeal is filed by the assessee feeling aggrieved by the order of Ld. CIT(A)-1, Amritsar dated 26.07.2019 for Assessment Year 2011-12.
2. Registry has iniformed that this appeal is time barred of 39 days. Condonation application along with an affidavit is placed on record which states that the delay occurred because the counsel of the assessee did not intimate the passing of the impugned order. Ld. DR opposed to the condonation. We however in the larger inteterst of justice are satisfied with the reasonable cause stated in the affidavit requesting for condonation of delay, and accordingly condone the delay of 39 days and admit this appeal for adjudication on merit.
3. The assessee has raised the following grounds of appeal:
“1. That the Ld. CIT(A), Bathinda erred on facts and law in confirming the penalty imposed by the AO at Rs.42,000/- u/s 271B of the IT Act, 1961 without considering the contentions of the assessee raised during the course of appellate proceedings.
2. That the Ld. CIT(A), Bathinda erred on facts and law in confirming the penalty imposed by the AO at Rs. 42,000/- u/s 271B of the IT Act, 1961 despite the fact that the income of the assessee is exempt u/s 10(23) (C)(iiiad) of the Act as the assessee is running an educational institution solely for educational purposes and not for profit and the assessee was not required to get its books of account audited as provided u/s 44AB of the Act.
3. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or diposed off.”
4. Brief facts of the case are that the assessee is a society running a college under the name of M/s Guru Nanak Dev Khalsa Girls College, Bathinda. On the basis of external information, the Ld. AO came across the receipt and payment account of the said college and revealed that the receipts for the financial year 2010-11 were Rs.97,40,457/-. Notice u/s 148 of the Act was issued. Subsequently the return of income in ITR-7 was filed by the assessee declaring a loss of Rs.5,40,545/-. Gross receipt as per income & expenditure at Rs.83,58,158/- and were shown under the head income from other sources. It is claimed by the assessee that it is an educational institution running under the main institution namely Khalsa Diwan Shree Guru Singh Sabha (Regd.). While concluding the assessment, Ld. AO allowed the expenditure of Rs.88,93,703/- against the gross receipts of Rs.83,05,493/- but did not allow carry forward of loss of Rs.5,40,545/- as return was filed belated u/s 139(3) of the Act. Further Ld. AO held the gross receipt of Rs.8358158/- as business receipts and the assessee was required to get its account audited u/s 44AB of the Act and since the assessee has failed to do so penalty proceedings u/s 271B of the Act were initiated by the Ld. AO. Subsequently vide order dated 27.02.2019 penalty of Rs. 42,000/- was levied at the rate of 0.5 per cent of the alleged gross business receipts.
5. The assessee challenged the levy of penalty u/s 271B before Ld. CIT(A) but failed to succeed as Ld. CIT(A) confirmed the view taken by the Ld. Assessing Officer as the assessee failed to furnish necessary documents to prove that it is covered u/s 10(23C)(iiiad) of the Act.
6. Aggrieved the assessee is now in appeal before this Tribunal raising three grounds of appeal of which ground no. 1 and 2 relates to levey of penalty u/s 271B and ground no. 3 is general in nature.
7. Ld. Counsel for the assessee referring to the paper book dated 01.12.21 containing 30 pages and paper book dated 20.11.2019 containing 17 pages further stated that the assessee society is engaged in imparting education through a college run by the society. The assessee also filed a indemnity bond with the Punjabi University for affiliation of course stating clearly therein that his college is being run by a society in the name of Guru Nanak Dev Khalsa College. Alleged gross receipts are purely from educational activity. No income has been shown under the head business and the profession. Income has been shown as income from other sources. Assessee was under a bonafide belief that since it is not carrying out any business activities, it was not required to get its books of accounts audited u/s 44AB of the Act. Reliance was placed on various decision including the decision of Amritsar Bench of ITAT in the case of M/s Sant Baba Rangi Ram Charitable Trust v. ITO Hoshiarpur ITA No. 185/Asr/2012 dated 26.07.2012.
8. Per contra, Ld. Departmental Representative vehemently argued and supporting the order of both the lower authorities.
9. We have heard the rival contention and perused the record placed before us. Penalty levied u/s 271B of the Act is in challenge before us which has been levied for not getting the books of account audited u/s 44AB of the Act. We note that the assessee is a college run by a society namely Khalsa Diwan Education & Welfare Society, Bathinda. It is also stated that an indemnity bond was filed by the society with the Punjabi University, Patiala for getting affiliation of course in the college run by the society. Also on perusal of the income and expenditure account of Guru Nanak Dev Khalsa Girls College placed at page 18 of the paper book dated 01.12.2021 we find that the gross receipts mainly includes the fees received from college students for various educational courses imparted by the college. Prima facie the particulars of income and expenditure account looks to be from the activity not in the nature of any business or commerce and purely looks of an educational institutions. This fact asserts the submission made by the Ld. Counsel for the assessee that the society was under a bonafide belief that since it is an education institute, its income was exempt u/s 10(23C)(iiad) of the Act and as it was not carrying out any business activity, it was not required to get its books of account audited u/s 44AB of the Act. We find that under similar set of facts and circumstances, this Tribunal in the case of Sant Baba Rangi Ram Charitable Trust, Hoshiarpur (supra) has held as follows:
“6. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that the assessee had got its accounts audited as provided under section 12A(b) of the Act and report in Form No. 10B duly signed and audited by the auditors’ had been filed alongwith return of income. The objection of the AO was that the assessee was required to get its accounts audited u/s 44AB of the Act since the assessee was carrying out business of hospital. The only dispute before us is that whether the assessee was doing a business when the assessee had been claiming exemption u/s 11A of the Act, being a charitable institution, which has been allowed and is not under dispute, in such situation, whether penalty u/s 271B of the Act can be levied.
6.1. In this regard, we are convinced with the submissions of the Ld. AR that u/s 44AB of the Act audit of accounts of certain persons who were carrying business or profession and whose total sales, turnover or gross receipts, exceeds Rs.40 lakhs have to get their accounts audited by an accountant before the specified date as prescribed. That no tax shall be levied or collected except by authority of law. The legal basis for levy of income tax is given in section 4 of the Act, which is in respect of the total income defined under section 2(45) of the Act, which is computed as per section 5 of the Act, in the manner laid down in the Act. Chapter IV of the Act provides for “computation of total income” and section 44AB is only one of the sections enacted under Chapter IV-D dealing with computation of profits and gains of business or profession. Section 44AB becomes operative when there is computation of profits and gains of business or profession as a part of total income, whereas the income of the assessee trust is admittedly wholly exempt u/s 11 of the Act, which is part of Chapter III of the Act. And heading of Chapter III is “incomes which do not form part of the total income”. Therefore, the assessee is covered under Chapter III and no provisions of Chapter IV can be made applicable in the present case. Hence, provisions of section 44AB cannot be made applicable. The reliance made by the Ld. counsel for the assessee in the case of ACIT vs. India Magnum Fund reported in 81 ITD 295 (Mumbai), where it has been held that income of the assessee was exempt from tax under section 10(23D). However, section 44AB becomes operative when there is computation of profits and gains of business or profession as a part of total income. The assessee being a mutual fund, the income was exempt under section 10(23D). Hence, the assessee was not liable to obtain any audit report within the meaning of section 44AB of the Act. Therefore, cancellation of penalty under section 271B was justified. We, therefore, are convinced with the arguments of the ld. counsel for the assessee before the Ld. CIT(A) and before us that the income of the assessee trust is wholly exempt under section 11 of the Act, which is part of Chapter III of the Act and therefore, provisions of Chapter IV cannot be made applicable and, therefore, the provisions of section 44AB of the Act cannot be applied in the present facts and circumstances of the case. Therefore, the AO is not justified in levying penalty on the assessee. The order of the Ld. CIT(A) is accordingly reversed.
6.2. The arguments of the assessee before the ld. CIT(A) and before us are also taken into consideration. The assessee under bonafide belief that the provisions of section 44AB are not attracted and therefore, in the facts and circumstances of the present case, no penalty can be imposed when the assessee had acted deliberately. The reliance has been placed on the following case laws:
i) Hindustan Steel Ltd. vs. State of Orissa 83 ITR 26(SC)
ii) ITO vs. Nanak Singh Guliani 171 CTR 195 (MP)
iii) CIT vs. Abhyeshwar 153 CTR 372 (MP)
iv) CIT vs. Tea King (2000) 158 CTR 413 (Guj)
v) R. Wadiwala & Co. vs. ACIT (2001) 72 TTJ (Ahd) 34
6.3. In the facts and the circumstances of the case, the AO is not justified in levying the penalty u/s 271B of the Act and he is directed to cancel the penalty so levied and accordingly, the order of the Ld. CIT(A) is reversed. Thus, all the grounds of appeal of the assessee are allowed.”
10. On perusal of the above findings of the Tribunal and observing that the issues are almost similar, we are of the view that the finding of this Tribunal in the case of Sant Baba Rangi Ram Charitable Trust, Hoshiarpur (supra) is squarely applicable on the isuses raised in the instant appeal so much so that the assessee society is also running an educational institution and was under the bonafide belief that since it is not carrying out any business or commercial activity, provisions of section 44AB of the Act are not attracted. We are of the considered view that in the instant case penalty u/s 271B of the Act was not leviable and we accordingly delete the penalty of 42,000/- levied u/s 271B of the Act. Accordingly all the effective grounds raised in the instant appeal are allowed.
11. In the result, appeal of the assesse is allowed.
