TMI Blog2004 (6) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under s. 147 was initiated for asst. yrs. 1996-97 to 1999-2000. In response thereto, the appellant filed returns of income for all the four years claiming exemption of its income under s. 10(22) of the Act. Returns were scrutinized, notice under ss. 142(1) and 143(2) were issued, enquiries with reference to survey report on record were made and assessment completed at NIL income after accepting the claim of exemption under s. 10(22) of the Act. 3. The learned CIT after giving show-cause notice to the appellant and after examination of record, was of the view that the assessment orders are erroneous insofar as it is prejudicial to the interest of Revenue. She, therefore, cancelled the assessment for all the four years with a direction to frame fresh assessment in accordance with provisions of law, in the backdrop of observations/allegations as under: "(i) The assessee had maintained hand-written books of account as well as computerised accounts. The AO failed to examine the difference between the two and enquire the difference, if any and also on issues raised at the time of taking statement of Shri Sanjay Parashar. (ii) There is no reference in the order to any queries r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings to show that the AO failed to make deep investigation into the facts nor did he verify the facts of inflation of expenses by the appellant. Diversion of income to the benefit of members was prima facie available on record and as such the exemption under s. 10(22) could not have been granted. In the written submissions dt. 29th Jan., 2004 and also on 28th April, 2004 and placing reliance thereon, it was pointed out that the AO collected various information and those information were considered simply by raising questions to the assessee and thus failed to make necessary enquiries on the important aspects as were noticed during the course of survey under s. 133A of the Act. The AO was not only an adjudicator but also an investigator and he having failed to carry out investigations, the order has to be termed as erroneous insofar as it is prejudicial to the interests of Revenue. Reference was made to the following judgments : 1. CIT vs. Emery Stone Mfg. Co. (1995) 126 CTR (Raj) 345 : (1995) 213 ITR 843 (Raj) 2. Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) 3. Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to achieve its main objects. The profits which accrued to it as an incidence of carrying out of its main objects resulted in creation of assets of the appellant-society and not of any of the members personally or individually. Essentially the appellant is entitled to exemption under s. 10(22) of the Act. This is what exactly the AO has done in the assessment so framed for all the years under consideration before us. The findings have not been found wrong or perverse on facts or in law by the learned CIT. 8. The perusal of his orders, the order-sheet entries placed on record in assessee s paper book pp. 78 to 86 and assessee s replies to the queries raised reveal that it is not a case where after carrying out a survey upon the assessee by Investigating Wing of the IT Department, the report which they furnished to the AO was kept on racks by him but he is found to have carried out enquiry on each and every issue raised in that report and thereafter after due application of mind on various aspects as well as proper utilisation of funds for the purpose of the main objects of the society and being satisfied, he proceeded to allow exemption under s. 10(22) of the Act and assessing at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Gee Vee Enterprises vs. Addl. CIT. In Emery Stone the facts were totally different. There was a firm belonging to four brothers. Three of them retired and family member of only one remained. The firm was reconstituted and the fixed assets were revalued at a higher figure and, depreciation was claimed at the higher value. The IAC allowed the depreciation at a higher figure without calling for any explanation in the matter, and did not pay any heed to the provisions of Expln. 3 to s. 43(1) of the Act. No query was raised at all. In fact depreciation was allowed on value of land also. Thus there was a clear case of non-application of mind and as such the order was termed as erroneous insofar as prejudicial to the interest of Revenue. Such a situation did not exist in the present case before us. There is no misapplication or ignorance of the provision of law. The desired enquiries have been made by the AO. The conclusion based on the enquiries has to be that of AO and not of learned CIT and it is an established principle and the section does not visualise substitution of the judgment of the CIT for that of the AO. This case therefore does not help the Revenue. 11. The second case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y applied the provision of ss. 68 and 145 of the Act. The CIT did not realise that the appellant is an assessee whose income is exempt under s. 10(22) of the Act and consequently these provisions will have no effect on taxability of income and shall cause no prejudice to Revenue. Here the purpose of assessment is totally different unlike the assessment of a normal assessee. It is not a case of computation of taxable income but on the contrary is a case to grant exemption from taxation. The AO has to see the objects of the trust and the activities carried out by the assessee and whether the same satisfies the conditions for grant of exemption. Again it is not necessary that the view which the AO has taken on the matter should have matched with that of the CIT. The satisfaction arrived at the time of assessment has to be that of the AO. Therefore, viewing from this aspect also there was nothing wrong in the assessment order for all these years which was completed after reaching satisfaction in accordance with law. 14. Now we proceed to examine the allegations and the objections taken by the learned CIT who enjoys a superior position in the IT Department and expected to know various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal position with reference to the various judicial pronouncements speak volumes about the appropriate necessary enquiries made by the AO. It was not necessary for him to make all that as part of the assessment order what was being revealed by the Departmental file on record. This could not therefore be termed as a lapse on the part of the AO so as to hold the order as erroneous. 16. Issue Nos. 3 and 5 relate to diversions of funds for the personal use of properties/family members of Parashar s family. Assessee s paper book pp. 48 to 54 reveals the broad position as under: (Amounts in lakhs) 1997 1998 1999 2000 Income 53.63 137.49 180.71 207.92 Expenditure 50.76 64.08 79.38 110.45 Surplus 2.87 73.41 101.33 97.47 The survey party has totalled up payment of Rs. 14.5 lakhs only to the Parashar family in a total period of four years. Neither the learned Departmental Representative nor the learned CIT, Jaipur, gave detail of any such payment in her order. She has also not pointed out in any of the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y difficulty in determination of total income of the assessee. The learned CIT did not find shortage of cash on any of the day even after examining all the books of account herself. The learned CIT also did not point or find that the assets owned or built by the various members of the Parashar family have been generated by diversion of funds of society. Even a single instance has not been given to support the allegation in her order. The AO formed an opinion on the genuineness of the claim of such expenditure incurred for the objects of the society on the basis of the evidence in the shape of vouchers produced before him. Looking into the magnitude of the receipts vis-a-vis the payment for services taken, the view taken by the AO upon examination of accounts and facts did not lead to a view that there was a diversion of funds for personal benefit of Parashar family. The view entertained by the AO to accept the claim of the assessee was thus a reasonable and possible view. The learned CIT did not show as to what different view was possible on the basis of glaring facts brought on record by the AO. Whatever may be the facts but one thing is certain that neither the survey team nor th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use any prejudice to Revenue. The learned CIT was unable to show as to how this leads to the order of the AO as erroneous and prejudicial to the interest of Revenue which are to be read in conjunction. The allegation that there is also a failure on the part of AO for making a reference to valuation officer for elucidation of cost, we find that the learned CIT after examination of books of account, survey material and other record was not able to bring even a single instance to show that there has been any inflation of expenditure incurred towards cost of construction or that these are not supported by genuine vouchers. In fact the assessee himself requested the AO to take an opinion from an independent valuer before taking any adverse view against the appellant. On appreciation of facts if the AO was satisfied about the correctness and completeness of the claim and did not find any power vested in him for elucidation of cost by making reference to DVO, no error can be said to have been committed by him. The learned CIT herself did not refer to any of the provisions where the AO had powers to make any reference for elucidation of cost of construction. The very purpose that would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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