Young Indian Vs ACIT (ITAT Delhi)
The appellant’s contention has been that, firstly, since it has surrendered its registration u/s 12A and 12AA vide letter dated 21.03.2016, therefore, it was no longer an entity that required exemption u/s 11 and consequently DIT (E) or ACIT (E) did not had jurisdiction at the time of issuance of notice u/s 148 on 10.01.2017. Secondly, once the assessee had raised the objection before the AO regarding its jurisdiction then it was incumbent upon the AO to refer the matter to higher authorities for determining the correct jurisdiction. However, we are unable to subscribe to the contention raised by the ld. Senior Counsel for the appellant before us for the reason that, it is an undisputed fact that after granting of registration u/s 12A/12AA by the ld. DIT (E) vide certificate & order dated 09.05.2011, thereafter the assessee has been regularly filing its return with Directorate of Exemption including the AY 2011-12. Upto the stage of issuance of notice u/s 148 on 10.01.2017, ld. CIT (E) had not passed any order cancelling the registration which was granted to the appellant u/s 12AA and withdrawing the exemption u/s 11 though from AY 2011-12 onwards. Since grant of registration till the cancellation of registration, the jurisdiction of the AO lies with Exemption circle, therefore, at the time of issuance of notice u/s 148 the jurisdiction was with Exemption circle. The registration has been cancelled even for the assessments relevant for those assessment years for which it had claimed exemption. The assessment for AY 2011-12 has been reopened in the period when statutorily the appellant was holding certificate of registration u/s 12A/12AA. Once company has been recognized as a charitable institution by grant of registration u/s 12A, then such registration can be cancelled only by an authority under the law and not by voluntary act of the assessee. The act of suo motto surrender of registration is neither permissible under the law nor is dependent upon the voluntary act of the assessee. Even if the assessee had filed letter surrendering its registration, it has no consequence till competent authority acts upon it and accepts the surrender letter and passes the order of cancellation. The order of cancellation of registration is a statutory order which is based on the foundation of certain facts coming on record during the breach of conditions for which registration was granted and such a breach cannot be reckoned from voluntary surrender of registration. The entire process has to be followed in accordance with the statute. Merely because the assessee had filed a letter on 21.03.2016 surrendering its registration u/s 12A or giving its benefit of section 11, does not mean that from the date of the letter, the jurisdiction of the AO automatically got changed. As stated above, at the time of issuance of notice u/s 148, the ACIT or DCIT, Circle Exemption, New Delhi had the valid jurisdiction not only to initiate the proceedings u/s 148 but also pass the assessment order.
Insofar as the contention raised by the appellant that, since the assessee had challenged jurisdiction, it was incumbent upon the AO to refer it to the higher authorities in terms of section 124(4). Such a contention is not tenable on the present facts for the reason that the jurisdiction over the assessee lied with the AO, Exemption Circle by virtue of provisions contained u/s 120 of the Act, because here it is a case of jurisdiction assumed by granting registration by the Income-tax Department on the application filed by the assessee which falls within the definition of “class of assessee and class of cases” as defined under clauses (c) & (d) of sub-section (3) of section 120. The appellant ostensibly falls into a specific category of cases and it is not open for the assessee on its own remove itself from specific category of cases and then contend that it should have been assessed by different Assessing Officer. The matter of jurisdiction is not by the choice of the assessee albeit it depends upon the specific provisions contained in sections 120 & 124. Thus, we do not find any merits in the contention raised in ground no.1 that Assessing Officer did not had jurisdiction either to issue notice or pass assessment order and the same is thus dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The aforesaid appeal has been filed by the above-named appellant/assessee against the impugned order dated 06.12.2018, passed by the ld. CIT (Appeals)-40, Delhi for the quantum of assessment passed under section 143 (3)/147 of the Income-tax Act, 1961 (for short ‘the Act’) for the assessment year 2011-12.
2. Assessee has challenged the impugned order as well as the assessment order by taking the following grounds of appeal :
“GROUND NO.1: ORDER PASSED WIHTOUT JURISDICTION
1. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) – 40, New Delhi [“the CIT(A)”] erred in holding that the Asst. Commissioner of Income Tax (E), Circle 1 (1) (“the AO”) had requisite jurisdiction over the Appellant and that the order passed by him u/s. 143(3) r.w.s. 147 was valid.
2. On the facts and in the circumstances of the case, after the Appellant surrendered its registration u/s. 12A/12AA of the Act, the AO did not have the jurisdiction to assess the Appellant.
3. The Appellant prays that the order passed by the AO be held to be illegal as lacking the jurisdiction for the same under the Act.
WITHOUT PREJUDICE TO GROUND NO.1
GROUND NO. II: REOPENING OF ASSESSMENT BAD IN LAW
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the re-opening of the assessment u/s. 147 of the Act.
2. The Appellant prays that the re-assessment u/s 147 be held to be void ab initio and/or otherwise bad-in-Iaw.
WITHOUT PREJUDICE TO GROUND NO. I & II
GROUND NO. III: THE ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the principles of natural justice were not violated during the reassessment proceedings.
2. The Appellant prays that the order be held as illegal having been passed in contravention of the principles of natural justice which are applicable to all the income-tax proceedings and mandate that the assessee be given a fair opportunity of hearing before making any addition/disallowance.
WITHOUT PREJUDICE TO GROUNDS NO. I, II AND III
GROUND NO. IV: NON ADMISSION OF ADDITIONAL EVIDENCES FILED BY THE APPELLANT
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not admitting the additional evidences filed by the Appellant during the appellate proceedings and thereby, not considering the said additional evidences while passing the Appellate Order.
2. The Appellant prays that it be held that the additional evidence filed by the Appellant were admissible and the Ld. CIT (A) ought to have considered the same while passing the Appellate order.
WITHOUT PREJUDICE TO GROUNDS NO. I, II, III and IV GROUND NO. V: TAXING THE PURPORTED FAIR MARKET VALUE (UFMV”) OF THE IMMOVABLE PROPERTIES, OWNED BY THE ASSOCATED JOURNAL LIMITED (UAJL”), U/S. SECTION 28(iv) OF THE ACT:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of taxing u/s. 28(iv) of the Act the purported Fair market Value (‘FMV’) of the immovable properties owned by Associated Journal Limited (‘AJL’) in the hands of the Appellant allegedly as a benefit or perquisite arising in the course of the business of the Appellant.
2. The Appellant prays that the addition of Rs.413,40,55,980/-u/s. 28(iv) of the purported FMV of the immovable properties of AJL be deleted.
3. Without prejudice to the above, even if section 28(iv) of the Act is held to be correctly invoked, even in that case, the Appellant prays that in absence of any method prescribed under the Act to compute the value of the purported benefit or perquisite for the purpose of section 28(iv) the same ought to be computed in accordance with the method prescribed under Rule 11UA.
WITHOUT PREJUDICE TO GROUNDS NO. I TO V
GROUND NO. VI: IGNORING PROVISIONS OF SECTION 56(2)(viia) THAT SPECIFICALLY DEAL WITH RECEIPT OF SHARES
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the AO was right in overlooking the specific provisions of section 56(2)(viia), which are applicable to receipt of shares of a company in which public are not substantially interested (‘closely held companies’).
2. She erred in disregarding that when the anti-abuse provisions of section 56(2)(viia) and rules framed thereunder have been made applicable only to closely held companies by the Legislature, the Appellant, which is a company in which public are substantially interested, cannot be treated worse than such closely held companies, by indirectly invoking provisions of section 28(iv).
3. The Appellant prays that it be held that as there is a specific section 56(2)(viia) that governs the taxation of receipts of shares of a company, the AO could not have invoked Section 28(iv) of the Act in respect of such transaction.
WITHOUT PREJUDICE TO GROUNDS NO. I TO VI
GROUND NO. VII: REFERENCE TO THE DEPARTMENTAL VALUATION OFFICER (“DVO”) BEYOND THE SCOPE OF SECTION 142A OF THE ACT:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of making reference to the Departmental Valuation Officer (‘OVO’) u/s. 142A of the Act for the purported determination of the FMV of the immovable properties owned by AJL.
2. The Appellant prays that the said reference and consequential determination of the purported FMV be held to be illegal.
WITHOUT PREJUDICE TO GROUNDS NO. I TO VII
GROUND NO. VIII: COMPUTING THE PURPORTED FMV BEYOND THE VALUE COMPUTED BY THE DVO:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO in adopting Rs. 132,94,44,4801- as the purported FMV of the land at Bandra (East) Mumbai, ignoring the value of Rs.30,08,82,0001- computed by the DVO.
2. The Appellant prays that the AO has no power to adopt the FMV of the said Bandra (East) property at a value that is beyond the value determined by the DVO.
WITHOUT PREJUDICE TO GROUNDS NO. I TO VIII
GROUND NO. IX: VALUES COMPUTED BY THE DVOs ARE ERRONEOUS AND CANNOT BE RELIED ON:
1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the methods adopted by the various DVOs/AO, while valuing the immovable properties of AJL are not riddled with any inconsistencies and errors and, therefore, valid.
2. The Appellant prays that the valuations of the immovable properties of AJL determined by the DVOs/AO be struck down as being incorrect and in violation of the principles of valuation.
WITHOUT PREJUDICE TO GROUNDS NO. I, II, III AND IV
GROUND NO. X: ADDITION OF RS. 1,00,00,000/- RECEIVED FROM DOTEX MERCHANDISE PVT. LTD. AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of treating the loan of Rs.1,00,00,000/- received from Dotex Merchandise Pvt. Ltd. (“Dotex”) as unexplained cash credit and taxing the same u/s. 68.
2. The Appellant prays that the addition of Rs.1,00,00,000/-towards purported unexplained cash credit be deleted.
WITHOUT PREJUDICE TO GROUNDS NO. I, II III AND IV
GROUND NO. XI: DISALLOWANCE OF INTEREST OF RS.1,72,603/- PAID ON LOAN TAKEN FROM DOTEX
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of disallowing interest expense of Rs.1,72,603/- paid on the loan taken from Dotex by treating it as interest on unexplained advance taken.
2. The Appellant prays that the interest expense of Rs.1,72,603/- incurred on the loan taken from Dotex be allowed as a deduction.
WITHOUT PREJUDICE TO GROUNDS NO. I, II III AND IV
GROUND NO. XII: TREATMENT OF THE TRANSACTION OF ASSIGNMENT OF LOAN BY AJL TO THE APPELLANT AS A FRAUDULENT TRANSACTION
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the assignment of loan taken by AJL from the All India Congress Committee (“AICC”) to the Appellant as a fraudulent transaction of purchase of a nonexistent loan.
2. The Appellant prays that the assignment of loan by AJL to the Appellant carried out be held to be a genuine transaction.
WITHOUT PREJUDICE TO GROUNDS NO. I, II, III AND IV
GROUND NO.XIII : DISALLOWANCE OF RS.50,00,000/- PAID FOR ASSIGNMENT OF LOAN FROM AJL AS AN EXPENSE INCURRED TOWARDS THE OBJECTS
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of not granting deduction of Rs.50,00,000/- paid by the Appellant for assignment of the loan from AJL as an expense incurred on the objects of the Appellant on the ground that the Appellant had paid the said amount to purchase a non-existent loan.
2. The Appellant prays that the said payment of Rs.50,00,000/- be treated as an expense incurred on the objects of the Appellant.
WITHOUT PREJUDICE TO GROUNDS NO. I, II, III AND IV
GROUND NO. XIV: ADDITION OF RS.1,00,000/- AS AN UNEXPLAINED EXPENDITURE UIS 69C OF THE ACT TOWARDS RAISING OF THE LOAN FROM DOTEX
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of making a notional addition of Rs.1,00,000/- towards the purported commission paid to take the so-called accommodation entry from Dotex.
2. The Appellant prays that the addition of Rs.1,00,000/-made towards purported commission paid by the Appellant be deleted.
WITHOUT PREJUDICE TO GROUNDS NO. I TO XIV
GROUND NO. XV: DENYING EXEMPTION UIS 11 TO THE ASSESSED INCOME
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of not granting exemption u/s. 11 of the Act to the total assessed income.
2. The Appellant prays that the AO be directed to allow exemption u/s 11 of the Act to income assessed under the Act.
WITHOUT PREJUDICE TO GROUNDS NO. I, II, III AND IV
GROUND NO. XVI: LEVY OF INTEREST OF RS.111,49,93,917/- UIS 234B OF THE ACT
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO of charging interest u/s. 234B of the Act.
2. The Appellant prays that in the facts and in the circumstances of the case, such interest was not chargeable.
3. Before we deal with the various issues and contentions raised in the grounds of appeal by the assessee as well as the contentions of the Revenue, it would be relevant to discuss the relevant background of the case of the controversy involved in this appeal in brief.
BACKGROUND OF THE CASE
4. The appellant, Young Indian (YI), was incorporated and registered as a company on 23.11.2010 when licence was granted u/s 25 of the Companies Act, 1956. As per the Memorandum of Association dated 14.10.2010, it was subscribed by two Directors, namely, Suman Dubey having 550 equity shares and Satyan Gangaram Pitroda (Sam Pitroda) with 550 equity shares. Appellant company was incorporated with authorized capital of 5000 shares of Rs.100 each valued at Rs.5,00,000/- and the paid-up capital was 1100 shares of Rs.100/- each of Rs.1,10,000/-. The main object of the appellant company was as under :-
“(1) To inculcate in the mind of India’s youth commitment to the ideal of a democratic and secular society for its entire populace without any distinction as to religion, caste or creed and to awaken India’s youth to participate in activities that may promote the foregoing objective in any manner whatsoever including, without limitation, participating in all democratic activities through open and transparent electoral process, so as to conform to the ideals of the founding fathers of India, Mahatma Gandhi and Pandit ji, Jawahar Lal Nehru.
(2) No object of the company will be carried out without obtaining prior approval/no objection certificate from the concern competent authority wherever required and/or prescribed.”
5. Immediately after its incorporation, both the Directors transferred the shares to Mr. Oscar Fernandes, Mrs. Sonia Gandhi, Shri Rahul Gandhi and Shri Moti Lal Vohra. Later on, Shri Rahul Gandhi was appointed as Director of Young Indian to acquire 1900 shares. The assessee company disclosed the list of shareholders and directors of Young Indian during the relevant assessment year as under :-
