The Commissioner of Income Tax-III vs Sinhgad Technical Education Society

These appeals by the Revenue challenge the orders passed by the Income Tax Appellate Tribunal, Pune Bench. The tribunal had before it Income Tax Appeal Nos. 114 to 117 of 2010 pertaining to the assessment years 2000-01 to 2003-04.

The assessee was in appeal. The assessee raised common grounds in all appeals and it was aggrieved by the orders of the Commissioner of Income Tax (Appeals)II, Pune. Since common questions pertaining to the same assessee and similar grounds were raised including the additional ground that the tribunal thought it fit to dispose of the appeals by the common order.

We are concerned here with the correctness of the tribunal''s view and rendered on the legality and validity of the notice under section 153C of the Income Tax Act, 1961.

Mr. Singh would submit that the discussion in the tribunal''s order on the additional grounds raises substantial question of law. We are unable to agree with him and for the following reasons :

The assessee before the tribunal is an Educational Institution registered under the Bombay Public Trust Act, 1950 and Societies Registration Act, 1860. It was also registered under section 12A(a) of the Income Tax Act, 1961 since the assessment year 1994-95. One Mr.M.N. Navale is the President of the assessee Educational Society. The search and seizure operation was carried out on 20.7.2005 and certain loose papers were seized, simultaneously the survey action was conducted on the Institute. However, on the basis of the loose papers Bundle A-2 found with and seized from Shri M.N. Navale, the Commissioner of Income Tax issued the show cause notice stating that he had reason to believe that the notings in the said loose papers are in respect of capitation fees and donations and, therefore, he proposed that the registration of the institution should be cancelled. Firstly, because the activities of the trust are not genuine and those are not being carried out in accordance with the object of the trust. It is common ground that the Commissioner of Income Tax cancelled the registration under section 12AA(3) of the Income Tax and this order of the Commissioner was set aside by the tribunal. In the present case we are not concerned with the above proceedings but the question of issuance of notice under section 153C of the Income Tax Act. The assessee may have responded to the notice and the Assessing Officer during the course of assessment proceedings called for special audit. The Special Auditor completed audit and there were objections raised to the manner in which the audit was conducted. The Assessing officer arrived at the conclusion that the assessee must be treated as Association of Persons and it would not be entitled to the claim of exemption under section 11 of the Income Tax Act. The Assessing Officer assessed the income at Rs. 2,46,13,935,/-This was computation made by the Special Auditor.

Aggrieved by this order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who partly allowed it. However, the assessee was not satisfied with the order of the Commissioner and challenged it in further appeal to the tribunal.

The tribunal allowed parties to raise an additional ground and reply to it, namely, about validity of notice under section 153C of the Act. After referring to the language of notice under section 153C as it stood then, the tribunal found that the satisfaction of the Assessing Officer ought to be in terms of this provision and particularly sub-section (1) thereof, therefore, should be satisfied that any money, bullion, jewellery or other valuable articles or thing or books of account or documents seized or requisitioned belong or belongs to person other than the person referred to in section 153A of the Act and that is how he can handover the same or seized documents to the Assessing Officer having jurisdiction. The tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co-relation document-wise with the assessment year in question. In other words, the tribunal concluded that the present matter indicates that the issue of notice could be on the basis that there is specific incriminating information in possession of the Assessing Officer. It is in these circumstances that the tribunal found and as indicated in paragraph 8 of the impugned order that the revenue''s assertion that the Assessing Officer is empowered under the statute to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted and therefore the satisfaction which is recorded in the satisfaction note is enough, is erroneous. Therefore, the notice cannot be upheld and such stand of the revenue cannot be accepted. The reasons, therefor are to be found in paragraph 9 and 10 of the impugned order. If certain items pertain to assessment year 2004-05 or thereafter then it cannot be assumed, that the documents seized or incriminating material giving information are specific and to all assessment years. The tribunal has found that they were concluded assessments. They could not have been disturbed. The documents in question are neither incriminating ones nor unaccounted transactions of the assessee. They also did not relate to the four assessment years. It is in these circumstances that the tribunal found that it will not be possible to uphold the stand of the revenue that overall approach in matters of concealment by the group assessee and all the discoveries of the search on Shri Navale and it concerns, will have to be taken into account while forming the satisfaction. The satisfaction note was very closely examined and the reasons assigned by the Assessing Officer were found to be silent about the assessment year in which specific incriminating information or unaccounted or undisclosed hidden information was discovered or seized by the revenue from the assessee. In the circumstances, the general satisfaction and as recorded in the note is not enough. The tribunal has found that with regard to cash and jewellery, the explanation of the assessee was that he had agricultural properties and derived agricultural income. That income was utilised to acquire jewellery that was belonging to him and his family. With regard to cash and stated to be recovered from the students for granting admissions, we do not find that any inquiries were made. There is absolutely nothing to indicate as to in which educational courses, the education is imparted and institution-wise. Whether the admissions are granted to the technical courses merit-wise or on the basis of marks obtained in XIIth standard HSC exam. If any fee structure is approved and cash component is therefore collected over and above the sanctioned fees are matters which ought to have been gone into and there cannot be a general or vague satisfaction as is relied upon.

It is in these circumstances that though Mr. Singh strenuously wanted to rely on the satisfaction note and particularly paragraph 4 thereof, we do not find that reading thereof can carry the case of the revenue any further. Rather it would contradict completely, the stand taken by the authorities. Mr. Navale HUF and Mr. Navale individually as the President of the assessee institute cannot be confused. If Mr. Navale has invested money in the Real Estate and which is not accounted that is his return of income which is reflected in the satisfaction note. If there is reference made to some loose papers found and seized from his residence indicating some "on money" receipt during the admission process then above co-relation and assessment year wise ought to have been established. In the circumstances we do not think that the tribunal''s order raises any substantial question of law.

Reliance on the judgment of the Division Bench of the High Court of Delhi reported in case of SSP Aviation Ltd. Vs. Deputy Commissioner of Income Tax, (2012) 252 CTR 291 : (2012) 346 ITR 177 : (2012) 207 TAXMAN 260 is misplaced. There, search was carried out in the case of "P" group of companies. It was found that the assessee before the Hon''ble Delhi High court had acquired certain development rights from "P" group of companies. Based thereon, the satisfaction was recorded by the Assessing Officer and he issued notice in terms of Section 153C. Thereupon the proceedings were initiated under section 153A and the assessee was directed to file returns for the six assessment years commencing from 2003-04 onwards. The assessee filed returns for those years but disclosed Nil taxable income. These returns were accepted by the Assessing Officer, however, in respect of the assessment year 2007-08 there was a significant difference in the pattern of assessment for this year also, the return was filed for Nil income but there were certain documents and which showed that there were transactions of sale of development rights and from which profits were generated and taxable for the assessment year 2007-08. Thus, the receipt of Rs. 44 crores as deposit in the previous year relevant to the assessment year 2008-09 and later on became subject matter of the writ petition before the Delhi High Court. That was challenging the validity of notice under section 153C read with section 153A. In dealing with such situation and the peculiar facts that the Delhi High Court upheld the satisfaction and the Delhi High Court found that the machinery provided under section 153C read with section 153A equally facilitates inquiry regarding existence of undisclosed income in the hands of a person other than searched person. The provisions have been referred to in details in dealing with a challenge to the legality and validity of the seizure and action founded thereon. We do not find anything in this judgment which would enable us to hold that the tribunal''s understanding of the said legal provision suffers from any error apparent on the face of the record. The Delhi High Court judgment, therefore, will not carry the case of the revenue any further.

We are of the opinion that the tribunal''s conclusion cannot be termed as perverse and given the abovenoted factual background. None of these appeals raises any substantial question of law. They are accordingly dismissed. No costs.