TMI Blog2013 (5) TMI 943X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. This method of valuation is incorrect and unacceptable. In these circumstances the value of building estimated by the AO and the addition on a/c of Investment construction from undisclosed sources to be restored. 2. The CIT(A) has failed to appreciate that the so called anonymous donation of ₹ 75 Lakhs received during the year is nothing else but capitation fees received under another name, in the ease of Vodithala Education Society vs Addl. DIT (Exemption) II, Hyderabad 20 SOT 353 (Hyd.) it was held that if an assessee charged capitation fees, it was a case of sale of education by the assessee to earn profit and it could not be considered to be a charitable organization u/s 2(15) of the I.T. Act. Hence exemption u/s 11 is not available to the assessee. 3. The CIT(A) has failed to appreciate that since the assessee is not a charitable organisation as per section 2(15) of the I.T. Act exemption u/s 11 was not available to it, and the entire surplus of ₹ 63,78,176 was taxable. 4. The CIT(A) has failed to appreciate that anonymous donations are separately taxable u/s 115 BBC read with section 13(7) of the I.T. Act 1961 and therefore the surp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) 2002-03 52,04,088 55,70,700 2003-04 39,49,078 42,27,250 2004-05 88,58,225 41,30,000 2005-06 92,62,880 99,15,350 2006-07 1,34,12,860 1,43,57,700 2007-08 1,74,48,051 1,86,77,100 2008-09 2,76,61,171 2,96,09,650 2009-10 1,60,65,050 1,71,96,700 2010-11 45,45,080 48,66,050 Total 10,14,07,253 10,85,50,500/- 5. A copy of the DVO s report was supplied to the assessee for his comments and in response thereto it was contended on behalf of the assessee that difference in investment as shown by the assessee in its books of account and investment in construction estimated by the DVO was ₹ 12,29,049 which is 6.58% of the cost of construction shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer may require the Valuation Officer to make an estimate of such value and report the same to him. The aforesaid provisions of section 142A of the Act enable the Assessing Officer to require a Valuation Officer to estimate the value of any investment referred to in section 69 of the Act or as the case may be, section 69B of the Act. Since the required books of accounts not produced the AO rightly came to the conclusion and has correctly recorded his finding on his nonsatisfaction of correctness and completeness of the books of accounts under section 143(3) of the Act in so far as the investment in cost of construction of college building is concerned. The AO has therefore rightly rejected the books of accounts under section 145(3) of the Act and is justified in making the reference to the D.V.O. under section 142A of the Act. The contention of the appellant that specific defects were not pointed out while rejecting the books of accounts carries no force. The ground of appeal number 2.3 fails and is rejected. 6.7.1 As regards the addition of ₹ 4,14,19,828/- made by the AO is concerned, I find that the addition for the difference in the cost of construction was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amila Agarwal: (2004) 88 TTJ Luck 913. Similar findings were confirmed by Hon'ble MP High Court in the case of CIT Vs. Abesson Hotels (P) Ltd. (2004)191 CTR (MP) 263 when it was laid down that a difference of 10% is not unusual and unreasonable. In view of the discussion above, I do not find any justification in the addition of ₹ 4,14,19,828/- made by the AO on the basis of his own estimation rather than on the estimation of the DVO. Even if the difference worked out by the DVO is considered then also the difference in less than 10% which is to be ignored in view of the decisions cited supra. The addition of ₹ 4,14,19,829/- made by the Assessing Officer under section 69B of the Act is directed to be deleted. The appellant gets consequential relief of ₹ 4,14,19,828/-. The grounds of appeal are allowed. 6. During the course of hearing of the appeal, the ld. CIT (DR) has placed heavy reliance upon the assessment order. However, no specific defect in the order of the ld. CIT(A) has been pointed out by him. 7. The ld. counsel for the assessee, on the other hand, has contended that since the ld. CIT(A) has examined the issue in the light of the DVO s re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are included in the total income of the assessee by virtue of provisions of section 13(7) of the Act and are to be taxed at special rate provided in section 115BBC of the Act. The ld. CIT(A) has observed that once computation of income is made under section 11 of the Act, the utilization towards charitable activities has to be to the extent of 85% of the receipt. The anonymous donation taxed under section 115BBC of the Act by virtue of they being included in total income of the assessee under section 13(7) of the Act are to be considered for the purpose of utilization for charitable activities as per section 11(1)(a) of the Act. It is also undisputed fact that the assessee is registered under section 12A of the Act and once the assessee has been recognized as a charitable institution under section 12A of the Act, its income has to be computed as per sections 11 to 13 of the Act and there is no dispute that the assessee has utilized its funds for construction of the building in order to achieve its object for imparting education. The Assessing Officer has nowhere alleged that the said college building was used for the purpose other than educational activities. The assessee himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce:- 10.4.1 I have examined the facts and circumstances of the case. I have perused the findings of the AO in the assessment order and submissions made by the appellant. It is well settled law that once the appellant has been granted registration under section 12AA of the Act by the Commissioner of Income Tax, the income has to be computed in accordance with the provisions of section 11 of the Act. The reason to deny the exemption under section 11 of the Act given by the Assessing Officer that the expenditure incurred in the construction of college building is a profit making activity and is not charitable in nature is not justified as the profit making is not a criteria for denial of exemption any more under section 11 of the Act. It has been held by the Andhra Pradesh High Court in the case of Governing Body of Rangaraya Medical College v. ITO [1979] 117 ITR 284, 287 that where no finding was recorded that any surplus arising from the operations of the Institution was distributed by way of profit to any individuals, the assessee-trust, the sole object of which was managing and maintaining the medical college, was an educational institution without any motive of private or pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessing Officer by adopting a stand that the Trust or Institution is not fulfilling conditions for applicability of sections 11 12 of the Act. 10.4.3 The excess of income over expenditure as computed by the Assessing officer in the assessment order is ₹ 63,68,176/- which is about 11% of the total receipts. The said surplus computed by the AO is below the statutory limit of 15%. There is no justifiable finding in the assessment order which leads to denial of exemption under section 11 of the Act. On the contrary in view of the decisions cited supra, the appellant is eligible for exemption under section 11 of the Act on the strength of registration granted to it under section 12A of the Act. Therefore, the appellant has to be treated as exempt in view of section 11(1)(a) of the Act. The AO is directed to recompute the income under section 11 of the Act. As an abundant precaution, it is imperative to mention here that the amount of ₹ 75,00,000/- offered by the appellant as additional amount for taxation is included in total income of the appellant under section 13(7) of the Act and taxed at prescribed rate under section 115BBC of the Act. However, this amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made in different assessment years. The main ground in all these appeals relates to the validity of reopening of assessment under section 147 of the Act. Since the issue relating to this ground goes to the root of the case, we are of the view that it should be adjudicated at threshold. 16. The facts in this regard borne out from the record are that the Assessing Officer has reopened the assessment by invoking the provisions of section 147 of the Act having relied upon the DVO s report, against which appeal was filed before the ld. CIT(A) with the preliminary objection that provisions of section 147 of the Act empowers the Assessing Officer to reopen the assessment if he has reason to believe that any income chargeable to tax has escaped assessment. The process of formation of belief has to be independent application of mind by the Assessing Officer. Where an assessment has been completed, the reopening of assessment solely on the basis of a report of DVO will amount to change of opinion and will be based on the application of mind by the DVO rather than the Assessing Officer as envisaged in the provisions of section 147 of the Act. The ld. CIT(A) examined this issue in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtmental Valuation Officer cannot be a basis because the Valuation cannot be an arithmetical appreciation of the materials used for the construction nor the expenses incurred by the assessee in that regard, as variations are bound to be there. 6(6)(iv) On a similar issue the Hon'ble Jurisdictional High Court in the case of Fusion Electronics Pvt. Ltd. Vs. Income Tax Department in writ petition No. 11055 (MB) of 2009 order dated 1.12.2009, observed as under:- From the record, it appears that the assessee has constructed a factory which was completed within three years. On the basis of the D.V.O.'s Report, which was sought during the previous assessment year, the Assessing Officer has made the addition in the earlier assessment year but the same were deleted by the C.I.T.(A). However, during the assessment year under consideration, impugned notice for reopening the assessment was issued along with the reasons which were solely based on the D.V.O.'s Report. In the light of above settled legal position, we set aside the impugned notice issued by the Department under section 148 of the I. T. Act as the same was issued solely based on the D.V.O.'s Report. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als before the Tribunal with the submission that the Assessing Officer has recorded reasons before reopening the assessment under section 147 of the Act. Since the Assessing Officer has sufficient material to form a belief that the income chargeable to tax has escaped assessment, the action of the Assessing Officer to reopen the assessment under section 147 of the Act cannot be questioned. 18. Having heard the rival submissions and from a careful perusal of record, we find that undisputedly reopening of assessment was done by invoking the provisions of section 147 of the Act after recording reasons on the basis of the DVO s report. Since the reasons were recorded on the basis of the DVO s report and the Assessing Officer has not formed his own belief that the income chargeable to tax has escaped assessment, the reopening is not valid in the light of various judicial pronouncements referred to by the ld. CIT(A) in his order. The ld. CIT(A) has examined this issue in the light of various judicial pronouncements in the right perspective and since we do not find any infirmity therein, we confirm his order. Since the assessment is annulled, we find no justification to adjudicate the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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