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TMI Blog2015 (10) TMI 2232X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case and in law, the Ld. C/T(A) erred in holding that the reopening the assessment was bad in law on the ground that the A O has not dealt with the objections to reopening, raised by the assessee, when the defects are curable and not fatal to the re-assessment. 3. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to allow exemption u/s 10(23C)(iii ab) of the Act, without appreciating the fact that the assessee is neither wholly nor substantially financed by the Government in view of the Explanation to subsection (1) of section 14 of the Comptroller and Auditor Generals (Duties, Powers and Conditions of Service) Act, 1971 as the total Government grant during the year is less than 75% of the total expenditure of the assessee. 4. The Appellant prays that the order of the Commissioner of Income-Tax (Appeals) I, Mumbai be set aside and that of the Assessing Officer be restored. 5. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 2. The assessee is an educational institution existing for the purpose of education and substantially financed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraphs 10 to 19 as under: "10. We have heard the arguments and have perused the orders of the Revenue authorities. We find that the AO undertook reassessment proceedings under section 148 on 19.03.2010 on an assessment framed under section 143(3), i.e. much after the expiry of four years, which expired on 31.03.2008. To correctly reopen the proceedings under section 148 on a regular assessment, attention has to be paid, that the founding issue has not been dealt with in the regular assessment. If, the issue has been dealt with by the AO in regular assessment then the only basis for reopening can be that the AO must have evidence, to prove that the material fact was not made available to the AO. In the present set of circumstances, there was no material fact, which was not available with the AO in the regular assessment proceedings, or which had not been dealt with by the AO in those proceedings. In our opinion, the ratio in the case of CIT vs. Kelvinator of India, reported in 320 ITR 561 (SC) will squarely apply on the issue at hand. The Hon'ble Supreme Court in the judgment at page 564 held, "However, one needs to give schematic interpretation to the words "reason to bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power". 13. These judgments, along with other cited judgments, when taken into consideration, will only lead to one conclusion that the AO erred in initiating the reassessment proceedings. 14. Examining the issue from the other angle, i.e. whether, in the given set of circumstances, the AO was correct in initiating reassessment proceedings, after the expiry of four years. The fact is, that because the regular assessment under section 143(3) had been framed on the assessee, the AO had the legislative leverage of another two years, i.e. a total of six years. This extended period of two further years is subject to the conditions laid down in the first proviso to section 147, which reads as under: Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;] (d) where a person is found to have any asset (including financial interest in any entity) located outside India." 16. In the instant case, assessment under section 143(3) was framed on 28.02.2006. The AO, therefore, could issue the notice under section 148 only upto 31.03.2008, as per the provisions of section 149(1)(a). But the notice, having being received after 31.03.2008, in the present set of circumstances, becomes void. The learned A.R. had placed reliance on the following decisions: * Calcutta Discount Co. Ltd. vs. ITO :41 ITR 191 (SC) * Hindustan Lever Ltd. vs. R.B. Wadkar:268 ITR 339 (Bom HC) * Hindustan Petroleum Corporation Ltd. vs. DCIT :192 Taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question as to whether a deduction under section 80IB(10) was validly granted since the only question that falls for consideration is whether a case is made out for reopening of the assessment under the powers conferred by section 148. For the reasons aforementioned, we are of the view that recourse to the provisions of section 148 read with section 147 cannot be sustained". 17. It may be seen that the jurisdictional High Court at Bombay has very categorically concluded that notice was illegal. 18. In the instant case, as mentioned earlier, in the assessment framed u/s 143(3), the issue of 10(23C)(iiiab) had been gone into and the AO, only initiated the reassessment proceedings, because he had taken a divergent view on the allowability of exemption. Since the issue was discussed in regular assessment proceedings and the AO did not stumble upon any evidence/material, which was not placed before him, the initiation cannot be sustained. In any case, the initiation cannot survive, because even the basis of initiation has been deleted by us in ITA No.4394/Mum/2011. 18. Going into the facts and circumstances of the case and relying on each of catena of decisions, as mentioned abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would mean, "grant or loan is not less than 75% of the total expenditure". For importing the legislative meaning from another legislation, it becomes imperative that not only the meaning of the entire section is read and understood as a whole, but due cognizance be given to the meaning. The AO, through referred to section 14(1) only, but when we read the entire section, along with sub sections (2) & (3), what we gather from reading of the entire section, is that sub-section (3) allows the audit for a further period of two years, meaning thereby, that in case the assessee or any person, who had availed government grant and is required to have its accounts audited by CAG in the first year and in subsequent year or years the financial assistance falls below the stipulated 75%, CAG will still continue to conduct the audit. If the strict interpretation of the AO's order is to be considered, then the moment financial assistance from the Government goes below 75%, the Society or any person, is out of the parameters of CAG. 17. According to us, this could never have been the intention of the CAG. We cannot subscribe to the observation of the AO, when he defines the expression, "substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al" in the Act, what is to be seen is what is the total receipts and from what source. In what context we have to find out whether the grant of 36.42% of total receipts constitutes substantial by the Government. Para 6 - Viewed from that angle, after excluding fees received from the students, when we look at the amount received by way of donation from others, when compared to the amount granted by the Government, the grant of 36.42% of the total revenue do constitute substantial financial aid from the Government and thus the institution assessee is entitled to the benefit of the aforesaid provision. It is pertinent to note that the said appeal is in which the above observation had been made was dismissed by the Karnataka High Court at the stage of admission itself i.e. the High court did not find any substantial question of law in the matter. This decision was followed by the Karnataka High court in CIT vs. Indian Institute of Management (ITA no. 529 of 2008) reported in 196 Taxman 276. 21. We find that in the case of National Education Society, the Court accepted 36.42% to the substantial finance which entitles the assessee to the benefit of the provisions of section 10(23 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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