TMI Blog2021 (6) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... r which the assessee society had been formed and are not carrying on any other business/profession. Sarvshri Sanjay Sardana and Sandeep Sardana apart from working as Principals of the schools at Chandigarh and Panchkula respectively are also having additional assignment of Directors of all the schools. The remunerations paid to the specified persons were considered to be genuine in the preceding years however, for the first time, the disallowance was made by the A.O. for the year under consideration. The assessee society had been maintaining regular books of accounts which were duly audited and the returns of income had been filed on the basis of such books of accounts. The payments of salary to the specified persons were made through banking channel and the issue had been examined years to years since A.Y. 1997-98 U/s 143(3) of the Act till the A.Y. 2012-13. Copies of the assessment orders framed u/s 143(3) of the Act for those assessment years are placed of the assessee s compilation. It is relevant to point out that the different Assessing Officers, after proper examination, accepted the salary paid to the specified persons in the earlier years and the first time, the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee that the specified persons had shown the value of the rent as perquisites in their respective hands which has been accepted by the department has not been rebutted and that in earlier years also for the similar payments, no disallowance was made by the department. The payment of rent was not doubted and the A.O. did not bring any material on record to substantiate that the rent paid was excessive and the specified persons to whom accommodation was provided had shown the valuation of the said properties as perquisites in their respective hands. Therefore, the ld. CIT(A) rightly deleted the disallowance made by the A.O. particular when the rent paid for the same accommodation has been accepted in the preceding years - No valid ground to interfere with the findings given by the ld. CIT(A) on this issue. Disallowance on account of interest on unsecured loans paid to the specified persons - CIT-A deleted the addition - HELD THAT:- As assessee was paying interest at a higher rate than the interest paid to the specified persons and Members of the assessee society. In other words, the interest paid by the assessee society to its Members and specified persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. considered the expenses relating to the salary to the specified persons amounting to ₹ 1,09,12,261/- as non-genuine. However, the same were considered to be genuine while framing the assessment U/s 143(3) of the Act, so it was a change of opinion. Similar was the position with regard to the rent and the interest. Now the question arises as to whether the assessment can be reopened on the basis of change of opinion. A.O. accepted the claim of the assessee, not only in the earlier years but also in the later years and considered the expenses on account of salary, rent and interest paid to the specified persons as genuine. Moreover, the A.O. for the year under consideration did not bring any material on record to substantiate that the expenses incurred for the specified persons by the assessee were excessive in comparison to the expenses incurred by another comparable cases. A.O. not only asked the assessee to furnish the details relating to the payment made to the specified persons on account of salary, rent and interest but also examined those and thereafter framed the assessment U/s 143(3) of the Act, therefore, the issuance of the notice U/s 148 r.w.s. 147 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions which took similar view as in Sun Export Case. iii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in holding the high salary payments to the specified persons under section 13(3) as reasonable and justified when the payments to other nonspecified employees was much less. iv. That on the facts and circumstances of the case, the Ld. CIT(A)has erred in law in holding the salary payment to Sh. G.S.Sardana as justified when the payment made to him in contradiction to the rules of Memorandum because he was a member of the executive committee and had the responsibility of managing the educational institutions of the assessee and, as per the clear terms of the Memorandum, he could not charge any remuneration for this function and had to work in honorary capacity. v. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in holding the salary payment to Sh. Sanjay Sardana and Sh. Sandeep Sardana as justified when non- specified principals of other schools under the assessee society were getting much less salary for the same work and same post. vi. That on the facts and circumstances of the case, the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the earlier years and no such adverse view had been taken then completely ignoring that in the earlier assessments, the issues were not examined in detail and rather, material documents like lease deed, comparison of salaries with other employees, etc. was not asked/discussed. xi. That the appellant craves to leave, add or amend the grounds of appeal on or before the appeal heard and disposed off. 4. Vide ground no. i to v the grievance of the Department relates to the deletion of addition made by the A.O. on account of salary payment to the specified persons by invoking the provisions of Section 13(3) of the Income Tax Act, 1961 (hereinafter referred to as Act ). 5. Facts of the case in brief are that the assessee is registered as Society under the Society Registration Act (XXI of 1860) against the registration no. 45 dated 31/05/1969. The assessee is also registered under section 12AA of the Act with Ld. CIT, Patiala vide Registration dated 03/10/1994. The assessee filed the return of income on 30/09/2013 declaring Nil income. Later on, the case was picked up for scrutiny under CASS. 5.1. During the course of assessment proceedings, the A.O. noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... li became functional in the F. Y 2007-08. Other two schools as stated above were functional prior to the period 2006-07. Total receipts of the Society and the three schools for the last six years are as below: Financial year Society Chandigarh Panchkula Mohali Total 2006-2007 7972 17740320 28721188 2972 46472452 2007-2008 12199 19916472 33113211 28685160 81727042 2008-2009 65847 23496870 38474656 49234408 111271781 2009-2010 150084 26440280 43598375 70971463 141160202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also at National Level. Consolidated list of the awards appreciations received by Sh. Sanjay Sardana and also by Sh. Sandeep Sardana during the period 2002 to 2015 is enclosed for ready reference. Sh. Sanjay Sardana and Sh. Sandeep Sardana are Principals of Manav Mangal High Schools Sector 21 C Chandigarh and Manav Mangal School Sector 11 Panchkula respectively and were drawing the following salary from the respective schools Particulars of monthly salary Sanjay Sardana FY 2011-12 Sanjay Sardana FY 2012-13 Increase in salary over previous year In percentage terms Basic Pay 51850 53410 1560 3% Grade Pay 12000 12000 0 0 DA 28733 39246 10513 15% increase in DA Total 925 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the performance of the Directors of these schools which was considered in the Board's meeting in March 2012.1 have already enclosed a chart of receipts of the three schools and Society for seven years. It was the performance of the Society its schools and efforts made by the Chairman/Manager, two Directors and other dedicated members team including the related persons that increase in salaries as Principals of schools and salary as Directors of three Schools was considered. It may be noted that receipts of the Chandigarh school has increased from ₹ 2,98,57,196/-in FY 2010-11 to ₹ 3,74,85,335/- in 2011-12. Thus there was an increase in receipts of ₹ 76,28,139/- which was an increase of25.54% over the previous year. In respect of Panchkula School the receipt in FY 2010-11 was of ₹ 4,86,07,564/- which increased to ₹ 6,05,17,786/- during the FY2011-12. Thus there was an increase in receipts of ₹ 1,19,10,222/- which was an increase of 24.5% over the previous year. In respect of Mohali School, the receipts increased from 10,13,36,218/- in FY 2010- 11 to ₹ 12,75,69,625/-. The increase in receipts was of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he salary paid to members is not reasonable and undue benefit for these related persons. Assessee has failed to produce or submit any documentary evidences regarding the services provide by these persons. Only runs a charitable institution can not be a ground to pay the salary or other allowance to the members of the trust. 4.2 Assessee has submitted that increasing in the receipts of the society is very much higher compared to earlier years and that why assessee is increasing the salary of the members. This is not a valid ground for paying high salary to its members. If society receipts are increasing then there are various reasons not that members are doing excellent and they are eligible for high salary. The purpose of the society to run an educational institute and provide the better education to students, which is covered under charitable purposes u/s 2 (15) of I. T. Act. It is no where mentioned that against the charitable activities members of the society are eligible for the benefits of the society. Society is registered u/s 12 AA as charitable institution and the purpose is education only. This is not valid reason that when receipts of the society will increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,43,868 4. Sandeep Sardana S/o Shri Gian Singh Sardana, # 3085 Sector 21 D, Chandigarh Salary Rent Interest Salary Rent Interest Salary Rent Interest 22,42,52 4 1,10,000 5,33,559 27,88,15 7 1,23,50 0 3,94,780 39,23,86 6 1,29,500 3^8,200 5. Anjali Sardana D/o Shri R.K. Chhabra, # 3085 Sector 21 D, Chandigarh Salary Rent Interest Salary Rent Interest Salary Rent Interest 7,57,407 2,83,000 4,46,329 8,93,562 4,00,00 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16,27,668/- 56,23,211/- Rent Paid 12,15,000/- 14,76,000/- 17,00,072/- 43,91,072/- Total Payments 1,23,56,699/- 1,34,48,633/- 1,76,64,823/- 4,34,70,155/- Total receipts 17,99,89,339/- 22,65,47,770/- 25,22,04,277/- 65,87,41,386/- % of total receipts 6.86% 5.93% 7.0% 6.5% On perusal of the above chart, it is clear that members of the society are earning income from the society only and then invested the same for their personal capital and provide the unsecured loans to the society then get the interest income against the investments and then again invested the same into the society. The chart shows that numbers of the society have diverted 7% revenue from the total receipts of the trust in their hands in this A.Y. 2013-14. This trend is continuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,772 (26.02 %) 7. Sh. Ajay Manchanda 2,40,000 2,95,000 55,000 (22.91 %) 3,27,500 32,500 (11.01 %) 8. Smt. Arshi Manchanda 5,17,407 6,53,562 1,36,155 (26.31 %) 7,42,699 89,137 (13.63 %) Total 86,98,99 0/- 1,08,24, 358/- 21,25,368/- (24.44 %) 1,43,37,0 83/- 35,12,725/- (32.45 %) The above mentioned chart clearly shows that there is huge increasing into the salary from A.Y. 2011-12 to 2012-13 and 2012-13 to 2013-14. The percentage of increasing is between 40.73 % to 11.01 %, which can not be considered as reasonable payments. It is also mentioned that this % of increase is in case of members only not in case of other employees. 6. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted that salary paid had already been allowed vide order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 Years Mrs. Anjali Sardana [13(3)(d)] November 01, 1990 Vice-Principal M.Sc, M.Phil., B.Ed 29 Years Mrs. Monica Sardana [13(3)(d)] September 01, 1992 Vice-Principal B.Com, B.Ed 27 Years Mrs. Arshi Manchanda [13(3)(d)] July 01, 1989 Head Primary BSc. B.Ed, Course in Fundamentals of Electronic Data Processing and Programming 30 Years Mr. Ajay Manchanda [13(3)(d)] April 01, 1998 Transport Manager B.A 21 Years TRACK RECORD OF SALARY s. No. Name of the person Designation D0J AY 2012-13 AY 2013-14 AY 2014-15 AY 2015-16 AY 2016-17 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 NA. N.A. 2 Mrs. Kavita Malik Principal* December 01. 2014 N.A N.A N A 48844 53020 'First appointment as Principal Note: DA Slab of the above persons is the same as in the case of other teachers of all the schools under Manav Mangal Society TRACK RECORD OF SALARY AS DIRECTOR s. No. Name of the person Designation DOJ AY 2012-13 AY 2013- 14 AY 2014-15 AY 2015-16 AY 2016- 17 1 Mr. Sanjay Sardana Director Manav Mangal Group of Schools April 01. 1986 i 125000 200000 220000 280000 320000 2 Mr. Sandeep Sardana Director Manav Mangal Group of Schools ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10080 395 6.1 It was further submitted before the Ld. CIT(A) as under: 1. Assessee society is registered since 1969 and registered under section 11 and 12AA since 01.04.1993 and its objective is to provide education. 2. No incriminating material found during survey or post-survey, salary, staff number, no. of students, unvouched bills. 3. Assessment orders for FY 2012-13 and survey proceedings points are similar as nothing new could be found. 4. Increase in Receipts/Growth/Surplus: a) the increase in receipts is due to higher intake of students and a normal annual increase in fees; b) higher intake of students happens on opening a new school like smart school Mohali during 2007-08; c) the increase in receipts is due to the increase in demand for the High-tech quality education of our schools; d) the increase in fee is only 10% which is ever, less than the inflation at that time. 5. If surplus remains, there is nothing wrong and it would be entitled for exemption provided it exists solely for the purpose of education (Pine Grove International Charitable Trust: Page 39 and Queen's E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: i. There is addition on account of rent, which is paid by the society in respect of residential house, which is owned by Sarashri Sanjay Sardana and Sh. Sandeep Sardana, who are drawing salary as Principal and Director of the Society. The rent which is paid by the Society is being taken into consideration as perquisite in the hands of Sh. Sanjay Sardana and Sh. Sandeep Sardana in their income tax returns. ii. For the purpose of payment of rent, being paid for the last many years, there is report of the Govt. approved Valuer about the 'fair rent' and the Assessing Officer has not raised any issue on that. iii. The rent has been paid through normal banking channels and the Assessing Officer has not been able to dispute that what should be the 'fair rent' and no doubt has been raised in this regard. iv. In the earlier years, such payment of rent of the members of society has been accepted in the income tax assessments of the Society in the order passed u/s143(3)/143(1). 2. We wish to invite your kind attention to the latest judgement of Hon'ble Apex court in the case of CIT Vs. Bholaram Educational Society as reported in [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 2001-2002 - Whether where a surplus was made by educational institution which was ploughed back for educational purposes, said institution was to be held to be existed society for educational purpose and not for purpose of profit - Held, yes [Para 19] in favour of assessee/ matter remanded'. 5. While delivering the above said judgement, the Hon'ble Apex Court has approved the finding of the Hon'ble Punjab Haryana High Court in the case of 'Pineorove International Charitable v. Union of India T20101 327 ITR 73 P H-HC and St. Lawrence Educational Society (Regd.) Vs. CIT (2013) 353 ITR 320 6. The above said view has further been approved by the Jurisdictional High Court i.e. Punjab Haryana High Court in the case of CIT (Exemptions) Vs. Managing Committee, Arya High School, in which, it has been held that if the excess accumulation is applied for objects of the Society, then no adverse view/ can be taken for the registration of society. In our case also, there is no dispute that the funds have been utilized for raising infrastructure of the School and by which, the objects of the society i.e. providing education is taken care off. 7. We also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is post of Director and Principal 4. Mount Carmel School, Chandigarh 8-9 There is post of Founder Directors apart from Principal 5. Ajit Karam Singh International Public School, Chandigarh 10-13 There is post of Founder, Director and Principal 6. Saupin's School, There is post of Director and Principal 14-15 7. Yadvindra Public School, Mohali There is post of Director and Principal 16 8. St. Kabir Public School, Chandigarh There is post of Director. Chief Advisor and Principal 17-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor, even then, the salary would have to be paid but it was thought advisable to give Sh Sanjay Sardana and Sandeep Sardana additional duties as they were found to be dependable and responsible which required their lot of time and energy in order to achieve the objects of the Society. In view of the above said facts and circumstances and evidences of the comparable cases, our submissions may, please be accepted and oblige. 6. From the above said facts, it is very clear that starting from the school at residential premises by Sh. G.S. Sardana and Smt. Usha Sardana and due to the far sightedness and planning of both of them, coupled with the planning and execution by Sh. Sanjay Sardana and Sh. Sandeep Sardana in the later years, 'Manav Mangal Society' has built its own goodwill and reputation over the years in Chandigarh, Mohali, Panchkula and at Zirakpur and as on the date, the Society can boast of having 10080 children, 395 teachers in all the four schools put together. With this background, the following further issue-wise submissions may, please, be considered, which are in continuation of earlier submissions as made before your goodself's predecessors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28/29.09.2016 and even no adverse material was found during the course of such survey operations, which was carried out for about two days and further all the four persons namely Sarvashi Sanjay. Sandeep, Anjali Monika were present in the school and even the evidence of other related persons were furnished and these submissions are contained in our reply, dated May 23, 2017, page No. 12 to 14 and reply (in parad) Point No. Hi and no adverse comments have even been given by the Assessing Officer in this regard. iv. It is also worthwhile to mention here that in all the other schools, where the salary of ₹ 2 lacs or more to the Principal has been offered and they have experience of ₹ 10 years/7 years has been mentioned and, whereas, Sh. Sanjay Sardana and Sh. Sandeep Sardana are having experience of 33 years and 31 years respectively. Thus, in whatever way, we look whether by virtue of past history of the case or by comparable cases, there is a complete justification of salary. III. SALARY AS DIRECTOR TO SH. SANJAY SARDANA AND SH. SANDEEP SARDANA i. It is submitted that two schools were in existence one at Chandigarh and another at Panchkula and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Zirakpur' started operations in the year 2007 2016 respectively. iii. It is further submitted that this appointment of director in the school has never been a new phenomenon and, rather in the various schools, besides the post of Principal, there are posts of Vice Principal, Estate Manager and even there are different directors appointed for different fields, like Director Academic, Director Admin, Director Activities and Director HR, apart from other post like 'Estate Manager' for Managing and procuring supply of various furniture and fixture requirements or the Administrative Officers/ Managers for managing the administrative assignments and educational Advisors for curriculum designing etc. This is proved by the various documentary evidences, which are being furnished in the paper book and, therefore, in this case, if the Society had appointed other persons, then the salaries of those persons would have to be charged as expense in the expenditure account, at much higher rate, than in the present case, therefore, the Directors salary is fully justified, coupled with the fact that in the earlier years, the same has been allowed u/s 143(3) and the said salar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .] * Arranging supply of furniture and fixtures on demand/ as per need to all the schools. vi. It is further submitted that Shri G.S. Sardana has been 'Founder Chairman' along with Smt. Usha Sardana since 1968 and due to their hard efforts and planning, the Manav Mangal Society has attained goodwill and reputation in the field of education and still, they are actively associated with it and as such, the salary being paid to Sh. G.S. Sardana and Smt. Usha Sardana, being the founder members of the society, who have toiled hard over the years and, as such, the salary paid to them is fully justified. They are source of inspiration and guidance to the Principal/ Directors and of all the staff working in the four schools. It is further submitted that only Shri G.S. Sardana, is the 'Member' of the Society and they are rendering the services to the Society, for which they are receiving the salary on month to month basis as a normal employee. It is submitted that no extra benefit has been given to the related persons since, they have been found to be rendering services to the Society and, as such, the section 13(3) of the Act will not apply accordingly. We are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of surplus as made by the Assessing Officer is totally devoid of any valid reasons reliance is also being placed on the following judgements i. Director of Income Tax (Exemptions) Vs. Sheth Mafatial Gagal Bhai foundation Trust (2001) 249 ITR 533, Bombay High Court ii. CIT Vs. Fr. Mullers Chartiable Institutions (2014) 363 ITR 230, Karnataka High Court iii. The above said view is further fortified by the Circular No.387, dated 6th of July, 1999, in which,it has been held as under:- Therefore, under such circumstances, taxing of entire surplus as per income and expenditure account is not proper as these circulars are binding upon all the Officers of the department. In view of the above said facts and circumstances and case laws, the addition as made by the Assessing Officer may, please, be deleted and oblige. 1.1 Salary to Chairman and Directors 1.1.1. One of the members of the society, Sh. G.S. Sardana [M.A. (English) -Delhi University, M.A. (Hindi) - Punjab University] joined the society in April, 1968 (i.e. over 45 years of experience) and is currently serving as the Chairman for the society's 4 schools [located ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n % terms Manav Mangal High School Sector-21-C Chandigarh 41667 50000 8333 20% Manav Mangal School Sector 11 Panchkula 41666 50000 8334 20% Manva Mangal Smart School Mohali 4166 50000 8334 20% Manav Mangal Society Sector 21 Chandigarh (For opening of new school at Zirakpur) Total 125000 200000 Particulars of monthly Director salary per month Sandeep Sardana FY 2011-12 Sandeep Sardana FY 2012-13 Increase compared Last Year Increase in % terms Manav Mangal High School Sector 21-C, Chandigarh 41667 50000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rease of 3% in Basic pay and 15% in DA during the subject year as explained below: Particulars of monthly salary Sanjay Sardana FY 2011-12 Sanjay Sardana FY 2012-13 Increase in salary over previous year In percentage terms Basic Pay 51850 53410 1560 3% Grade Pay 12000 12000 0 0 DA 28733 39246 10513 15% increase in DA Total 92583 104656 12043 13% Particulars of monthly salary Sandeep Sardana FY 2011-12 Sandeep Sardana FY 2012-13 Increase in salary over previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. Patil Pratisthan vs. DCIT[2013] 154 TTJ 320 (Pune ITAT. 1.2.4 The Hyderabad Bench of the Hon'ble ITAT in the case of DDIT (Exemption) - Ill vs. Gideon's International in India [2016] 156 ITD 666 (Hyderabad) 1.2.5 The Jurisdictional Chandigarh Bench of the Hon'ble ITAT in the case of Young Scholars Educational vs. ITO [2011] 12 ITR 640 (Chandigarh) observed as follows 'Salary paid to the principal, a member of the society cannot be disallowed as the payment was made to the person having qualified degrees and diplomas and salary was reasonable. Further, since the salary was allowed in the assessment made under section 143(3) in earlier years, doctrine of consistency was applicable as facts were similar .. 1. Undue benefits to related persons 1.1 The Learned AO has alleged in the impugned assessment order that (i) There is undue benefit for related persons (ii) It is nowhere mentioned that against charitable activities members are eligible for benefits of the society. 1.2 Before advancing arguments against allegations of the Learned AO, it needs to be clarified that only Sh. GS Sardana is the Manager of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust is unreasonable. Further, the Learned AO is required to mention valid reasons in the assessment order to indicate that the salary paid to interested person is not commensurate with the responsibilities/ duties performed by him. 2.3 As discussed at Para 1.4 above, the interested persons are in receipt of salary, rent and interest income from the society in relation to requisite services being provided by the members and relatives . 4. Appellant has failed to provide documentary evidence for service provided 4.4.1 With respect to the above allegation of the Learned AO, your Honor's kind attention is requested to the show-cause response filed by the Appellant before the Learned AO vide submission dated February 15, 2016. (A copy of the response is enclosed as Part of the accompanying paper book for your Honor's kind reference) 4.1.2 Through the response, the Appellant had not only disclosed all the requisite data which formed the basis for the Learned AO's order but also attached the following evidence in support of the Appellant's claim (i) Copy of ITR of Directors for AY 2013-14. (ii) Copy of Rent Deed along with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Del) opined- 2.3 Further, the Hon'ble SC in CIT vs. Delhi Safe Deposits Co. Ltd. [1982] 133 ITR 756 (SC), gave a view that- 2.4 Taking in consideration the ratio laid down by the Hon ble SC, the appellant wishes to apply the same to its own case. The Learned AO, in the impugned order made reference to the fact that the Director/ Principal of the school was in receipt of a salary much higher than what was paid to any other teacher. 2.5 The Learned AO, by applying the above logic, has completely defied commercial prudence and the principles of equity in compensation. 2.6 Whereas the role of a teacher was limited to the teaching function assigned, the Directors were working beyond the regular call of duty for a teacher by not only managing and directing the strategy for 3 schools (as explained in the detailed submission) but were also overseeing the development of a 4th school. 2.7 The Learned AO, has completely ignored the fact that the administrative responsibility and liabilities on the Chairman and Director far exceed that of the teaching staff. It is a principle of natural justice to compare only like things which are capable of being compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y if the aggregate value of the receipts from the activities referred to therein is [twenty-five lakh rupees] or less in the previous year, it Is trite law that that the main intent of a Charitable Organisation is the sustenance of its main object, or 'charitable purpose' as Is defined under Section 2(15) of the Act, and any expense/expenditure pertaining to its main object and furtherance thereof is part and parcel of the non-profit activity. For this the Act provides a favorable tax treatment by way of provisions contained in Section 11 to Section 13, which provide for a tax exemption to such entities having their main object as any activity which falls under the definition of 'charitable purpose. If an entity, which has been granted an exemption, abuses the exemption for private benefit of its trustees, managers, directors, beneficiaries or related persons, Section 13 provides for an anti-abuse mechanism. The Section includes a mechanism to allow the authorities to withdraw and in some cases, cancel the exemption, in the event of abuse. With this intent to curb abuse, the legislature by way of Section 13(1)(c) of the Act includes, amongst other provisions, a provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in whole time management activities of Trust and as such remuneration paid to them could not be treated as 'excessive'. The reasonableness of payment of salary or allowance to a specified person should be considered from the point of view of the trust and should not be confined to criteria laid down in section 40A(2) of the Act, as the two provisions are not in pari materia. Qualifications, experience, status, and other traits of a specified person rendering services to the trust are relevant factors to determine the reasonableness of payment of salary or allowance and not merely the market value of the services rendered by him. Further, a specified person serves in two capacities first as a trustee, hence, specified person, as such, and secondly, as an employee when he receives, salary or allowance. The benefit normally given to an employee, when he receives salary or allowance, should not be treated as excessive. Interpretation of 'reasonableness' was illuminated in the matter of PNR Society for Relief Rehabilitation of Disabled Trust v. Dv. PIT (Exemption) (2014) 52 taxmann.com 362 (2015) 67 SOT 171 (Ahd. Trib.) (URO) wherein remuneration given to full-time sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he salary being paid to the Chairman was in respect of duties performed for policy planning, prescribing norms of fee and admission, faculty development, recruitment, construction of building etc and also in view of the fact that no incriminating material was found during the search that any excess salary was paid to the Chairman, the addition was deleted. The Hon'ble ITAT, Hyderabad Bench in the case of DDIT (Exemption)-III vs. Gideon's International in India [20161 158 UP 6SS (Hyderabad) made similar observations by holding that the AO has not mentioned any valid reason in the assessment order to indicate mat the salary paid to the Executive Director is not commensurate with the responsibilities/ duties performed by him. in the absence of material on record to indicate that the salary paid is unreasonable or excessive, ITAT did not see reason to make disallowance by the AO and to interfere with the order of the Learned CIT(A).Recently, the Hon'ble Apex court in the case of CIT Vs. Bholaram Educational Society as reported in (2019) 101 Taxmann.com 193, in which, the issue was exactly the same in, as much as, the educational society was being run by the HUF, whose Karta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mangal Schools being run by the Society. He has been entrusted with the task of overall supervision, management, policy making, strategy and planning for the society and is responsible for its legal matters. The society and the successful schools being run by it are the brain child of this person and it seems that due to his vision and leadership that the society is running such renowned schools. Ld. AR has rightly claimed that his experience and guidance for the last 45 years has resulted in the rise of strength of students from 100 to 10500 as on the date teachers from 8 to about 475 as on date, has totally been ignored by the Assessing Officer. It is totally unjust on the part of the Assessing Officer to disallow the salary being paid to the founders' of the society, with whose experience guidance and vision, Manav Mangal Society is at this position, which is envy of Assessing Officer 3s well. Similarly, Shri Sanjay Sardana and Shri Sandeep Sardana are the two directors of ah the schools being run by the Society and both these persons have over 25 years of experience. All these people who have been engaged by the society are highly qualified and are thus comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has failed to bring on record that appellant society has violated the guidelines of the CBSE. During survey proceedings one of the Coordinators of One Mohali Branch School Srnt. Tarun Bharadwaj has stated under oath that Salary is paid as per norms of AICTE [CBSE]. This was not rebutted by the AO. Even some of the parents like Mrs. Shama Shankar and Sh. Gurpreet Singh who visited the Mohali School during survey proceedings have not stated anything adverse about the quality of education or fee structure etc. DA Slab for the Chairman or Member Relatives or other staff members was on same footing i.e. @60% in AY 2013-14, @.75% in AY 2014-15, @87.5% in AY 2015-16 and @ 100% in AY 2016-17. The Annual increment is 3% of Basic Pay during AY 2012-13 DA of Staff was raised from 15% to 45% in order to introduce pay scale of Punjab 5th Pay Commission. However, Directors are getting consolidated remunerations from AY 2013-14. No incriminating material has been brought on record by the AO to establish unreasonableness of above Salary/DA Slab/Directors remunerations. The Chairman/Directors etc are not required to mark attendance. However, the appellant has submitted attendance register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated independently as follows. When Ms. Harjot Kaur was asked a question Q6. Is Mr. Ajay Manchanda works in the school? . She has answered that Yes, he comes to school in connection with some maintenance work, but we do not have any interaction with him.' Similarly when Ms. Kavita Malik, Principal of Manav Manga! Smart School, Mohali was put to a question like Q8, Is Sh, Ajay Manchanda or Ms. Arshi Manchanda is working in this school? . She also stated that Sh. Ajay Manchanda comes to the school sometimes for problems regarding transport and maintenance of generators and general maintenance. As far as I know. Ms, Arshi Manchanda is not working in this school, It is found from record that Ms. Arshi Manchanda is working in Manav Mangal High School, Chandigarh. The fact that Ms. Arshi Manchanda is on regular roils of Chandigarh Branch had been clarified by Sh. Sanjay Sardana during the course of recording his statement placed at Pages 21 22 of Paper Book II and he had explained the nature of duties as assigned to Ms. Arshi Manchanda, which is very much clear in answers to question Nos. 73 and 74 as follows. In a question No.73 put to Mr. Sanjay Sardana he stated that Ans. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the individual assessee. The statements of Sh. Devinder Singh, Sh.Harinder Pal Singh, Sh.Mohinder Singh, Sh.Vishal Raj Aggarwal no way establish that any cash has been transferred to the members or to these people or concerns and they had procured bogus commission income. No such document has been brought to my notice by the AO or Survey Report that establishes trail of transfer of cash clandestinely to the members of the society. Hence, if there is bogus commission raised by the members of the society, Ld.AO is free to initiate action against the members in their personal capacities as they have shown such commission income in their respective returns of income. These receipts shown by such individuals have no correlation to the appeal proceedings for the assessment year/years under reference. 5.2.8. Under these circumstances, the undisputed fact on record is that the schools of the assessee society are being successfully run and the revenues are consistently rising which Is evident from the fact that in FY 2006-07, the society was having total receipts of ₹ 4.64 Crores which has risen to ₹ 25.22 Crores in the FY 2012-13 and which means an increase of 542 70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s achieving a good growth rate, the same cannot be without the active and effective efforts of the members and management of the schools. The other grounds highlighted by the AO In his survey report that the society is allegedly running as a commercial institution for profit motive etc. are firstly not relevant to the issue under consideration as the criteria for application of disallowance under section 13(1)(c) is to judge the reasonableness of the payments made to the members of the society and secondly and more importantly, there is no finding of the AO that the society is not working towards the objects of education etc. as defined in its Memorandum and Rules and Regulations. No case of siphoning off of the funds of the Society by its members has been alleged or found by the AO and furthermore the registration being granted to the Society by the CIT u/s 12A of the Act is still valid. In fact, no incriminating document has been found during survey and post survey investigations, nor such document has been emphasized by the AO during appellate proceedings. It is apparent that the Society is duly complying with the conditions laid down u/s 11 of the Act and is working as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . * Further, it has made available the rent free accommodation to Sh. Sanjay Sardana and Sh. Sandeep Sardana, was also a perquisite to these specified persons, which has not been there for any other principals of the schools of the society. 8.1 The Ld. CIT DR further submitted that the documents available on the record itself speaks that the salary paid to the trustees and the specified persons was unreasonable with a motive to divert the funds of the society to the individual. It was stated that the ld. CIT(A) allowed the salary only on the basis of the educational qualifications of the specified persons but ignored this fact that the salary paid to the founder manager of the Trust Shri G.S. Sardana was expressly barred by the memorandum of society. 8.2 It was further submitted that the ld. CIT(A), though, had given credence to the educational qualifications but he had ignored the fact that the salary has to be paid as per the standards prescribed for private schools and that the CIT(A) has failed to consider the fact that the specified persons had been allowed perquisite in the form of rent free accommodation in posh sector of Chandigarh, apart from this exorbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7234 290 6 2012-13 3 7690 313 7 2013-14 3 7839 320 8 2014-15 3 7906 328 9 2015-16 3 7925 331 10 2016-17 3 7983 335 11 2017-18 4 8861 398 12 2018-19 4 9475 421 13 2019-20 4 9818 444 It was stated that from the aforesaid chart, it would be clear that over the years, due to sincere efforts of Sh. G.S. Sardana and Smt. Usha Sardana founders of the assessee society, a rare reputa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sh. G S Sardana April 01, 1968 Founder: Chairman M.A (English), M.A (Hindi) Retired After serving for approximately 50 years Mrs. Usha Sardana April 01, 1968 Founder: Staff Welfare Officer Hons.in Hindi (Prabhakar), Intermediate Examination in English from Panjab University Retired after serving for approximately 48 years Mr. Sanjay Sardana August 01, 1986 Principal: Manav Mangal high school, Chandigarh Director: manav mangal group of schools M.Sc (Gold Medalist), M.Phil., M.Ed 33 Years Mr. Sandeep Sardana October 14, 1988 Principal: Manav Mangal school, Panchkula Director: Manav Mangal group of schools B.E (Hons.), PGDCA (Gold Medalist) 31 Years Mrs. Anjali Sardana November 01,1990 Vice-Principal, Manav Mangal high school, Sector 21/C, Chandigarh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audited and the returns of income had been filed on the basis of such books of account, all the payments of salary to the specified persons and others had been made through normal banking channel year after year which had been accepted by the A.O. while framing the assessment since the assessment year 1997-98 to 2012-13 U/s 143(3) of the Act after examining the issue in detail. Reference was made to the page Nos. 178 to 277 of the assessee s paper book which are the copies of the assessment orders passed U/s 143(3) of the Act for the earlier years. It was stated that the issue had been examined threadbare year after year by the A.O. after raising specific queries with regard to justification of the salary to the specified persons, the salary had been allowed as claimed, year after year and that the case for the assessment year 2010-11 had earlier been framed U/s 143(3) of the Act after examining all the issues. It was stated that for the first time in the regular proceedings for the assessment year 2013-14, the A.O. had disallowed the payment of salary to the specified persons by mentioning in para 4.1 of the assessment order that the salary to the Members and specified persons was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been appointed which could be costlier and therefore, the ground raised by the department is wholly misconceived and against the facts of the case. It was contended that the ld. CIT(A) at page 28 of the impugned order had discussed about the reasonableness of the salary and other allowances and held that when a specified person serves in two capacities first as a member and secondly as an employee and he received salary alongwith allowances as an employee, the nominal benefit given to the employee as salary or allowance should not be treated as excessive. It was stated that none of the specified persons was member of the society, they were directors/employees in the schools run by the assessee society and therefore, merely the society had paid salary and rent there could not be any disallowance automatically particularly when there had been tremendous growth of number of students only due to continuous efforts made by the specified persons alongwith other teachers and that the schools have attained goodwill as well as reputation over the years which is evident from this fact that the strength of the students in schools had risen from 100 to 10500 which justified the payment of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78 279/Chd/2013 has not viewed this adversely. It was further submitted that in the case relied by the ld. CIT-DR i.e., Parivar Sewa Sansthan , the facts were different as in that case ex gratia payment was made to the specified persons whereas the payment had been made in the assessee s case against rendering the services, therefore, the case relied upon by the ld. CIT-DR is distinguishable on facts. Reliance was placed on the decision of ITAT Chandigarh bench dated 03/12/2020 in the case of Heritage Educational Society in ITA No. 1060 to 1071/Chd/2020, copy of the same was furnished which is placed on record. Reliance was also placed on the following case laws: (i) Anand Education Society Vs. Asstt. DIT(E) ITA No. 761/Del/2013 ITA No. 1005/Del/2013 (Delhi Trib) order dated 15/07/2016. (ii) CIT Vs Idicula Trust Society 104 DTR 0009 P H HC (iii) CIT Exemptions Vs CMR Jnanadhara Trust 55 taxmann.com 516 Kar-HC (iv) Young Scholars Educational Society Vs ITO 25 taxmann.com 422 Chd-Trib (v) Dr. D.Y. Patil Pratisthan Vs Dy.CIT 39 taxmann.com 138 ITAT Pune Bench (vi) CIT(Exempt) Vs Bholaram Educational Society 101 taxmann.com 193 (SC) (vii) Pi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , M.Phill and B.ED. She joined the assessee society on 01/11/1990 and worked as Vice Principal. She is having the experience of about 29 years. Similarly, Mrs. Monika Sardana joined the assessee society on 01/09/1992 having the degree of B.Com and B.ED. She is also working as Vice Principal of the school at Panchkula. She is having total experience of about 27 years. Smt. R.C. Manchanda is also having degree of BSc., B.ED and course of Fundamentals of Electronics Data Processing and Programming. She is working as Head of the Primary school at Chandigarh. She joined on July 01st 1989 having the total experience of about 30 years. Another specified person is Mr. Ajay Manchanda who joined on April, 1998 working as Transport Manager and having the degree of B.A. From the aforesaid details, it would be clear that all the specified persons are having the educational qualifications required for the job assigned to them and they are whole time employees of the assessee society for achieving the object of education for which the assessee society had been formed and are not carrying on any other business/profession. Sarvshri Sanjay Sardana and Sandeep Sardana apart from working as Principals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.Y. 2013-14 by assigning the reason that the salary paid to the specified persons was not reasonable and undue benefit was given to those related persons. However, no material is brought on record to substantiate that how and in what manner, the salary paid to the specified persons considering their qualifications and the duty assigned to them was not reasonable since no comparable case was brought on record by the A.O. In the present case, the A.O. did not doubt the services rendered and qualifications of the specified persons, he disallowed the salary by observing that it was not reasonable, however, nothing is brought on record to suggest how and in what manner, it was not reasonable or was excessive. 10.2 On a similar issue, the ITAT Chandigarh Bench B in the case of Young Scholars Educational Society Vs ITO (Supra) held as under: that the assessee contended that 'V was M.B.A. (Marketing) and he possessed requisite qualification in the field of advertisement. The Assessing Officer as well as the Commissioner (Appeals) failed to bring any cogent and credible evidence demonstrating non-genuineness of the payment in the face of submissions filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, therefore, the disallowance made by the A.O. was rightly deleted by the ld. CIT(A). 10.6 A similar issue has been decided by the ITAT Delhi Bench A , New Delhi in the case of Anand Education Society Vs Asstt.DIT(E) (supra) wherein it has been held as under: 25 In the present case, it is an admitted fact that the relatives of the trustees were appointed as Principal, Vice-Principal and Administrative Director. However, their appointments were not illegal as the same were done by following the proper procedure, an advertisement was published in the National Newspaper for the post of Principal and Vice-Principal. In response to the said advertisement, the applications were received from the eligible person and after a proper scrutiny, those persons who fulfilled the requisite qualification and having the experience, persons were called for an interview. The Selection Board who conducted the interview included, two nominees of the Education Department of the Government and selection was done on merit. The remuneration paid was in accordance with the pay scale fixed by the Directorate of Education for the similar post. It is not the case of the AO that the remuneratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices rendered by them, there is a substantial growth in the Trust and its activities, when the payments are made for such services rendered, it cannot be said that it contravenes section 13(l)(c). Consequently, there is no justification for denying the benefit under section 11. 10.9 In the present case also, as we have already pointed out in the former part of this order that the assessee trust was availing the services of the specified persons and there was substantial growth in the functioning and activities of the assessee society, therefore, it cannot be said that the payments made on account of salary to the specified persons contravene the provisions of Section 13(1)(c) of the Act, as such, the A.O. was not justified in making the disallowance and the ld. CIT(A) rightly deleted the same. We, therefore, considering the totality of the facts and the ratio laid down by the various Hon'ble High Courts as well as different Benches of the ITAT, as referred to above, are of the view that the ld. CIT(A) rightly deleted the disallowance made by the A.O. We do not see any valid ground to interfere with the findings given by the ld. CIT(A) on this issue. 11. The next iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailing market rent at the time of taking the premises on lease in the year 2010 2011 respectively. Rents otherwise in the market of such accommodation during the period under consideration was much higher. It is also not out of way to mention here that Sh. Sanjay Sardana Sh. Sandeep Sardana were using the part of the accommodation for official purposes also as they have to do a lot of work relating to the duties assigned to them as Directors of the four schools as the school premises are closed at 5.00 PM although the school timings are upto 2.30 PM only. Normally both these work upto 5.00PM in the respective schools and thereafter attend to management work of other schools, Society affairs and planning for future expansions are attended to at the offices they are maintaining at their residence which are provided to them by the School Administration. 12.1 It was further submitted as under: (a) It is submitted that H. No. 3084, Sector-2ID, Chandigarh, is owned by Director Sh. Sandeep Sardana and his wife Smt. Monica Sardana. This house is partially built. The school has taken this house on rent for providing rent free accommodation to him. This is per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it shows that these members have used their own property for their personal use and getting the rent against the same, which is not allowable u/s 13 (l)(c) r.w. 13(3) of I. T. Act, 1961. 13. Being aggrieved, the assessee carried the matter before the ld. CIT(A) and submitted as under: I. JUSTIFICATION OF RENT BEING PAID TO SH. SANJAY SARDANA/ SANDEEP SARDANA As regards for the payment of rent, the following are the brief facts and all such facts have been mentioned to the Assessing Officer during the course of assessment proceedings for A. Y. 2013-14. i. Sh. Sanjay Sardana, besides getting the salary was provided 'Rent Free Accommodation' and for providing the rent free accommodation, a lease agreement was entered into for the H. No. 3085, Sector-21-D @₹ 30000/- per month in the year 2001 with a stipulation that there would be 5% increase on the basis rent in every year and the said lease agreement was for five years. The house is owned by Sh. Sanjay Sardana and Mrs. Anjali Sardana. ii. This agreement was then renewed again in August 2006, for a further period of five years and the rent was agreed to the tune of ₹ 40000/- per m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sh. Sandeep Sardana and his wife, Smt. Monika Sardana, for which, the plot was purchased in September 1999 and, thereafter, a small portion was constructed there, consisting of two rooms, toilet and a pantry and for this house, the lease agreement was entered into on Aug 13, 2010 at a monthly rent of ₹ 20000/- for five years with increase of 5% every year of the basic rent. Such income has been duly disclosed by Sh. Sandeep Sardana and Smt Monika Sardana in their return of income and even Sh. Sandeep Sardana had disclosed perquisite value while filing his return of income each year. Even, we are filing documentary evidences, wherein various schools are allowing 'Rent Free Accommodation' to the Principals and, thus, it is a trade practice and not a new phenomenon. Such evidences are being enclosed in the paper book in case of some schools like Ishori International School: Chirawa, Bal Bharti Public School: GAndhar, S.B. Sharma World School: Jamnagar, Salwan Public School, Ghaziabad, Dunlod Public School: Lucknow, S.D. Jain Modern School, Surat, The Sirsa School: Sirsa, The Star Global School: Rohtak, Delhi Public School: Ferozepur: Surmount International School: Gorak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dverse was pointed out by the Assessing Officer concerned and thus, disallowance/ ignoring the past history of the case, the consistency has to be maintained and not to disregard the judgements of Hon'ble Supreme Court, Punjab and Haryana High Court and IT AT, Chandigarh Bench, Chandigarh. We rely upon the recent judgement in the case of Smt. Amarjit Kaur, which is the latest judgement on account of consistency wherein, the judgements of Hon'ble Apex Court in the case of Berger Paints and Leader Values have been followed. 13.1 The Ld. CIT(A) pointed out that there was a survey conducted U/s 133A of the Act on the business premises of the assessee society. The gist of survey report was given to the assessee for comments by the then CIT(A)which read as under: 6. Assessee is paying rent to their members against the premise letting out by the members to the assessee. And it is an interesting fact that in these premises the members are residing and they are owner of the same building against the same they are getting rent from the society. Reply of the assessee that it is requirement for the society and their directors/ members is not accepted. Because asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and it is a interesting fact that in these premises the members are residing and they are owner of the same building against the same they are getting rent from the society. Reply of the assessee that it is requirement for the society and their directors/ members, is not accepted. Because assessee is paying rent to the owners of the property in which owners of the property residing. During the assessment proceedings, it has found that trust is not providing this service to their any other employees, which shows discretion between other employees or directors of the society. It is beyond understand that why assessee is providing special treatment to their members. In the above facts, it shows that these members have used their own property for their personal use and getting the rent against the same, which is not allowable u/s 13(1)(c) r.w.s. 13(3) of I.T. Act, 1961. 13.2 In response, the assessee submitted that the A.O. disregarded the accepted past history of the case wherein all the assessments of earlier years on the same issue i.e; the payment of rent had been accepted year after year in the orders passed U/s 143(3) of the Act and that the payments had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y could have been hired on the lesser rent by the assessee society, therefore, the disallowance was rightly made by the A.O. and the ld. CIT(A) was not justified in deleting the disallowance made by the A.O. 16. In his rival submissions, the ld. Counsel for the assessee submitted that the valuation of the houses was not doubted by the A.O. and the accommodations provided to the specified persons were considered as perquisites in their individual hands which was added to their income and accepted by the department in their individual hand, therefore, there was no justification in making the disallowance. It was further submitted that a lease agreement was entered into by the assessee society with the owners of the premises, copies of which are placed at page Nos. 393 to 415 of the assessee s paper book. The rent on the basis of lease agreement was being paid regularly through banking channel which was shown by the owner in their respective returns and the specified persons had shown the value of the rent as perquisites in their hands and paid due taxes. It was further submitted that the Directors were also working from their residential premises and the A.O. had not raised any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not bring any material on record to substantiate that the rent paid was excessive and the specified persons to whom accommodation was provided had shown the valuation of the said properties as perquisites in their respective hands. Therefore, the ld. CIT(A) rightly deleted the disallowance made by the A.O. particular when the rent paid for the same accommodation has been accepted in the preceding years. We, therefore, considering the totality of the facts do not see any valid ground to interfere with the findings given by the ld. CIT(A) on this issue. 18. The next issue vide ground No. viii and ix relates to deletion of disallowance made by the A.O. on account of interest on unsecured loans paid to the specified persons. 19. Facts related to this issue in brief are that the A.O. asked the assessee to justify the payments made to the specified persons on account of interest. The assessee submitted as under: With regard to the Interest paid on loans raised from the persons covered under section 13(3) it is respectfully submitted that the same has been paid @12% per annum. The interest paid to these persons is at the same rate at which interest is being paid to ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gist of survey report was given to the assessee vide letter dated 21/03/2017 for comments by the then CIT(A). The relevant portion of the report read as under: 8. Assessee is also paying hugs interest to the chairman and their family members against the unsecured loan. During the survey and post survey proceedings it has found that there are huge amounts have received by these persons in their personal hands from the society and invested the same in properties. The details of unsecured loans are as under:- On perusal of the above, it is seen that there is huge increase in the unsecured loan from A.Y. 2013-14 to A.Y. 2016-17 and the sources are from the society only. The money has diverted through society to individuals and then individuals to individuals and against to the society. Against the same then these persons are getting interest income. 20.1 In response, the assessee submitted as under: 6. Regarding salary, rent and interest, which according to the Assessing Officer have gone back to the School in the form of loan is not correct observation, because of the following facts:- i) All the payments of salary, interest or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired major investments and for which, the requisite funds were required. viii) Even funds were arranged by the Society by taking heavy loans from the banks for which, the related persons have mortgaged their personal assets and also given personal sureties and with no outsider ready to lend money to the society, the related persons had to part their personal 'taxed income' in the Society, so that the aims and objects for rendering the quality education could be achieved. 7. Had the related persons not advanced the funds to be Society, no super structure which is existing now could be created and, as such, the very purpose of formation of society for rendering quality education would have been defeated. Against such advancement of amount, a nominal rate of interest of 12% is being charged by the persons and with no guarantee from the society. 8. We are submitting further the following facts which would prove beyond any doubt that there was requirement of funds to the society for achieving the objects of the Society and members and related persons have been extending loan to the society so that its growth does not get hampered at any stage due to financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCED TO THE SOCIETY It is evident from the above chart that ₹ 2,55 04,046/- has come to these persons from their own sources/ savings and not from salary/interest/rent paid b y the Society Against, a sum of ₹ 2,55,04,046/- received by these persons from thei r other sources/ savings, an amount of ₹ 2,04,50,000/- has been advanced to the society as unsecured loans. f) Investing money to earn interest is not the only option available. For lucrative return, one can invest in diversified mutual funds, debentures of companies, property, etc. Sale of property by Mrs. Anjali Sardana and Mrs. Monica Sardana during the financial year 2012-13 which gave them more than 30% return per annum after answering their income tax liability says it all (page 36 37 of Paper Book V) 9. Thus, from the above facts highlighting the requirement of funds which had to be provided to the society from the sources of the members/ related persons, as no outsider was willing to lend the funds to the society and the source from the bank had already been exhausted and, thus, it was left to the members of the society, only to provide the funds at a very reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and he disallowed the entire payment of interest on the presumption that the members of the society itself to gain interest income and he accordingly invoked the provisions of Section 13(1}(c) of the Act. During the course of appellate proceedings, the Ld. AR for the appellant reiterated the submissions as made before the AO. The appellant has further submitted that the AO has wrongly alleged that rotation of the funds received by the members from the society in the form of salary etc. is being done as unsecured loans to earn interest income whereas the fact of the matter is that these parties have made advances of their own funds to the society for the purpose of the needs of the society. It is a fact on record that two houses of Shh Sanjay Sardana and Shri Sandeep Sardana (both Directors) have in fact been given as collateral security with the Karnataka Bank for the purpose of raising loans for the society. THUS, the Directors have even risked their personal assets to address the needs of the society. It is also to be seen that these people could have easily fetched similar or higher returns exceeding 12% if they would have deployed their funds elsewhere. The Ld. AR of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are placed at pave Nos. 110 to 113 of the assessee s paper book. It was further stated that the bank imposes lot of limitations and conditions for granting secured loans and in the present case, the specified persons had not insisted that any security and all the interest was being paid through normal banking channel on which TDS had been deducted and the recipient had disclosed the same in their respective returns of income. It was stated that there was no rotation of funds received by the Members of the society in the form of salary but such funds had been advanced for the reason that the society needs funds to achieve its objects of education and even Sarvshri Sanjay Sardana and Sandeep Sardana had mortgaged their properties to the bank for raising loan. Reference was made to page Nos. 110 to 113 of the assessee s paper book. It was stated that the ld. CIT(A) had very rightly hold that if the funds were payable by the specified persons to some other entity, they could have earned more interest. Therefore, the arbitrary disallowance made by the A.O. was rightly deleted by the ld. CIT(A). 24. We have considered the submissions of both the parties and perused the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appellant AO has given the findings the activities of the society are for profit motive. Revenue income from various receipts is only basis of motive to maximize the profits/surplus These activities are for making huge profit, satisfies all the features of 'business' i.e. it involves reciprocal activity between two parties, large number of recurring transactions consideration and profit motive. In a view of the above, it is seen that the assessee has receipts arising out of activity in the nature of business or commerce and accordingly section 11 (4A) is applicable in this case. When there is no business activity other than imparting education by way of running four schools, then there is no question of invoking section 11 (4A) of the Act and to maintain separate books of accounts pertaining to income from the so called business. AO has no where pointed out any specific defects in the books of accounts of the appellant, nor did he reject the books of accounts of the appellant. Invoking provisions of proviso to section 2(15) is a farfetched assumption of the AO. Imparting education is itself a charitable activity u/s 2(15) of the Act. AO has to establish its premise on sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Zirakpur. The school in Shipra Estate, Zirakpur is operational now and is in its fourth year of working. About 2300 students are being imparted quality education in this region's First TechSmart Green School. Ld. AR has provided list of concession holders for the financial year 2013-14 at Chandigarh School-33 students, Panchkula School-49 students and Evening School having 188 Students placed at page no 14 to 17 of the Paper Book. AO has not rebutted these facts. 13.2.10. It is not the case of the AO that significant surplus funds are parked in the FDRs. Facts do not give credence to this premise. In AY 2011-12, the facts about FDRs is as follows: FDR (Chandigarh School)- ₹ 4.5/- Lakh. FDR (Panchkuia School)-₹ 5.72/- Lakh, and FDR (Mohali School)-₹ 1.32/- Lakh only, in the AY 2013-14, FDR (Chandigarh School)-₹ 45,000/-, FDR Society-₹ 4.75 Crore. in Assessment Year 2014-15, there is No FDR. !n AY 2015-16 2016-17, FDR (Mohali School)-₹ 5.21/- Lakh, FDR (Panchkula School)-₹ 7.55/- Lakh, and FDR (Chandigarh School)- ₹ 6.44 Lakh. No adverse inference can be drawn from these facts. 13.2.11. In the year under consideration, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a tax exemption to such entities having their main object as any activity which falls under the definition of 'charitable purpose', if an entity, which has been granted an exemption, abuses the exemption for private benefit of its trustees, managers, directors, beneficiaries or related persons, Section 13 provides for an anti-abuse mechanism. The Section includes a mechanism to allow the authorities to withdraw AND in some cases, cancel the exemption, in the event of abuse. 13.2.13. It is further rightly submitted by the appellant that the real cause of schools' growth ranging from 8 % to 43 % during the AY 2008-09 to AY 2016-17 is not being run on commercial grounds. The fact is that 'Mohali School factually started from financial year 2007-08 (AY-2008-09). Being a reputed name and the first Tech-smart school of the Region , it proved to be a great attraction for the parents. With the result that there was a substantial increase in the number of students for FY- 2007-08. With this substantial growth of students came the substantial increase of receipts. The growth is not because of any commercial activity, as alleged by AO but on account of popularity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 7925 331 10 2016-17 3 7983 335 11 2017-18 4 8861 398 12 2018-19 4 9475 421 13.2.14. It is undisputed facts that since the year of Society's establishment i.e. 1968, society schools growth had risen from less than 100 students to more than 9400 during AY 2018-19 which shows that a lot of dedication has gone into making it what it is today. The substantial growth of the society schools holds testimony to the fact that every bit of its surplus has been ploughed back to make it better and bigger institution with every passing day. The table at para 13.2.13 supra placed at Page No. 83 of Paper Book-X emphatically establishes the fact that the society is meeting its aims and objectives of giving quality education to students of the tricity. During AY 2007-08, Manav Mangal Society was managing two schools and having the strength of 4446 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit, (ii) that the predominant object test must be applied i.e. the purpose of education should not be submerged by a profit making motive, (iii) that A distinction must be drawn between the making of a surplus and an institution being canied on 'for profit' No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit, (iv) that if after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not ceased to be one existing solely for educational purposes. While delivering the above judgement, the various judgements have been analysed by the Hon'ble Supreme Court like (A) CIT v. Surat Art Silk Cloth Manufacturers' Assn. (1980) 121 ITR 1 wherein the Apex Court while construing the definition of 'charitable purpose1 in section 2(15) of the Income Tax Act has held: 'But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court approved the judgment of Hon'ble Punjab Haryana High Court and summed up its conclusion that it is obligatory on the part of the Chief Commissioner of Income Tax or the Director, which are the prescribed authorities, to comply with proviso thirteen. Accordingly, it has to be ascertained whether the educational institution has been applying its profit wholly and exclusively to the object for which the institution Is established. Merely because an institution has earned profit would not be deciding factor to conclude that the educational institution exists for profit It has to be borne in mind that merely because profits have resulted from the activity of imparting education would not result in change of character of the institution that it exists solely for educational purpose. The reference was made to the judgement of Hon'ble Punjab Haryana High Court followed by the Delhi High Court in the case of St. Lawrence Educational Society (Regd.) v. Commissioner of Income Tax Anr, (2011) 53 OTR (Del) 130. Also Tolani Education Society v. Deputy Director of income Tax (Exemptions) Ors. (2013) 351 ITR 184, the Bombay High Court has expressed a view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of various factors like increase in number of schools, students and staff/teachers which is due to establishing state of the art infrastructural facilities in order to Impart quality education in the tncity. Capital investment has direct nexus with quality education and increase in receipts leading to incidental surplus of funds. These funds have been invested to create more schools with better infrastructural facilities. Eventually, the so called surplus ends up with deficit over the years. Hence; AO has no case of violations of section 11(1) r.w.s. 2(15) of the Act. AO is directed to delete the addition of ₹ 7,51 68.672/-. The Grounds of Appeals Nos.2(vi) to (xiv) are allowed. 26. As regards to this issue, the ld. CIT-DR submitted that the assessee society was running various educational institution on commercial principle and earning profits from the same. The profit ratio (before capital investment) was ranging from 23% to 26% of the total receipts, this profit resulted into generation of surplus which was on account of substantial receipts through annual charges, computer, tuition fees, admission fees, quarterly fees apart from normal tuition fee which was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITAT for allowing the exemption U/s 11(1)(a) of the Act has been upheld, copy of which is placed at page Nos. 235 to 238 of the assessee s paper book. Against the said order, the department filed SLP before the Hon ble Supreme Court which was dismissed vide order dated 19/07/2010 copy of which is paced at page No. 239 of the assessee s compilation. It was accordingly, submitted that this issue has attained finality, therefore, there is no merit in the submissions made by the ld. CIT-DR. 28. We have considered the submissions of both the parties and perused the material available on record. In the present case, it is noticed that the issue relating to the exemption U/s 11 of the Act has been settled by the ITAT Chandigarh Bench for the A.Y. 2003-04 which was affirmed by the Hon ble Jurisdictional High Court and the SLP against the judgment of the Hon ble Jurisdictional High Court was dismissed by the Hon ble Apex Court, therefore, we do not see any merit in the arguments put forth by the ld. CIT-DR on the issue relating to exemption U/s 11 of the Act. 29. Ground No. xi is general in nature; therefore, it does not require any adjudication on our part. 30. In the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopening the case u/s 148. 2. That the Ld. CIT(A) has failed to appreciate the fact that the original assessment have been completed u/s 143(3) and there was no failure on the part of the assessee to disclose fully and truly all the material facts during the original assessment proceedings and, therefore, the reopening of the case u/s 148 after the expiry of the four years from the end of relevant assessment year is bad in law. 3. That the Ld. CIT(A) has failed to appreciate the fact that the original assessment had been framed after thorough application of mind by the Assessing Officer by calling for various details, particularly, with regard to and justification of salary, interest and rent paid to the related persons. 4. That the Ld. CIT(A) has failed to appreciate the fact that the Assessing Officer has taken a conscious decision on the facts and circumstances of the case and applied her mind on the issues relating to related persons, which is evident from the details as furnished during the course of original assessment proceedings and, therefore, finding of the CIT(A) in confirming the action of the Assessing Officer with regard to reopening of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,469/- 4. Sandeep Sardana, S/o Shri Gian Chaudhary, # 3085 Sector-21D, Chandigarh 13,68,840/- 6,42,011/- 20,10,851/- 5. Anjali Sardana D/o R.K. Chhabra, # 3085 Sector-21D, Chandigarh 4,67,088/- 2,71,000/- 4,65,0281- 12,03,116/- 6. Sanjay Sardana S/o Shri Gian Sardana, # 3085 Sector-21D, Chandigarh 13,68,840/- 2,71,000/- 5,64,135/- 22,03,975/- 7. Usha Sardana D/o Shri Satya Dev Chaudhary, # 3085 Sector-21D, Chandigarh 4,07,088/- 5,73,299/- 9,80,987/- 8. Gain singh Sardana S/o Sh. J.R. Sardana, Manav Magal high School, # 3085 Sector-21D, Chandigarh 11,70,000/- 7,43,058/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court judgement in case of M/s Lissie Medical Institution Vs CIT, Kochi and disallowance of ₹ 1,09,12,261/- u/s 13(l)(c) r.w. 13(3) of I.T. Act added into net income then the total surplus will be ₹ 5,78,32,518/- which is 40.96% of total income. These all facts show that assessee has failed to spend the profits on charitable activities and also failed to fulfill the conditions of section 11(1) and 11(2) r.w. 11(5), 13(l)(c) r.w. 13(3), 2(15) of I.T. Act. In the light of above facts discussion, you are hereby show caused as to why you exemptions u/s 12 AA may not be denied you assessed as AOP. The surplus of ₹ 2,91,56,426 is proposed to be taxed. Further you are show caused as to why the payment made to persons covered u/s 13(3) amounting to ₹ 10,912,261/- may not be disallowed and taxed u/s 13(l)(c) r.w. 13(3) of I. T. Act, 1961. Thus a total addition of ₹ 40068687/-(Surplus 29156426/- + Disallow u/s 12(l)(c) of ₹ 10912261/-) is proposed to be made in your case. 37.1 In response to the above, the assessee furnished written submissions and objections vide letter dt. 11/10/2017 which have been reproduced by the A.O. in para 5 at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some small disallowance of Vehicle expenses on estimate basis. (Pages 1 to 3). 3. That we had filed an appeal against the order of the Assessing Officer before the Worthy Commissioner of Income Tax (Appeals) and the Id, CIT (A) Gurgaon in appeal No.304/2/2015-16 for Asstt Year 2010*11, vide order dated 27.03.2017 has held that the claim of depreciation Is permissible for the purposes of utilization as claimed by us as per copy of the order being enclosed herewith (Pages 4 to 8). 4. The Assessing Officer has recorded the reasons u/s 148 as per copies of the reasons is being enclosed herewith. 5. At the outset it is our submission that the perusal of the reasons recorded indicates that the proceedings under Section 147 are completely without jurisdiction as there is no material indicated in the reasons recorded which could have furnished the basis for the formation of belief that there is an escapement of income. The existence of material for formation of belief that there is escapement of the income is the condition precedent for issuance of notice under Section 148 of the income Tax Act. That in the reasons recorded as supplied to us, there is a passing referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 437 (SC) v). S. Ganga Saran and Sons P. Ltd. Vs ITO [1981] 130 ITR 1(SC) vi). Sri Krishna P. Ltd. V. ITO [1996] 221 ITR 538 (SC). b). The Hon'ble Delhi High Court in the case of Director of Income Tax Vs. Rolls Royce Industrial Power India Ltd. has held as under: 8. That in case proceedings under Section 147 are initiated after expiry of four years from the Assessment Year which is subject to scrutiny assessment under Section 143(3} of the Income Tax Act, then the escapement of income should result from failure of the Assessee to disclose the material facts necessary for assessment. The reasons recorded do not allege any failure on the part of the assessee to disclose the expenditure incurred on salary, interest and rent. The original return for Assessment Year 2010-11 gives the total receipts and expenditure under venous heads wherein claim of salary, Interest, rent, capital expenditure and depreciation had been made. Copy of the same is enclosed for your reference as Pages 9 to 10 with the present objection. The notice U/s. 147 thus, is completely without jurisdiction In terms of the decisions of various courts detailed as under:- i) Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and not fulfilling conditions of section 11 (1) r.w. 2(15) of I.T. Act, Assessee has shown amount of ₹ 2,91,56,426/- as net income against the total income of ₹ 14,11,60,203/- which is 20 65% of total income which shows that assessee is earning huge profits and accumulated the same in banks and enjoying huge interest income. c) Lastly, it is also mentioned that when depreciation amount of ₹ 1.77.63,831/- as per Kerala High Court judgment in case of M/s Lissie Medical Institution VS CIT, Kochi and disallowance of ₹ 1,09,12,261/- u/s 13(1)(c) r.w. 13(3) of I.T. Act is added into net income, then the total surplus will be ₹ 5,78,32,518/- which is 40.96% of total income These all facts show that assessee has failed to spend the profits on charitable activities and also failed to fulfill the conditions of section 11(1) and 11(2) r.w. 11(5), 13(1)(C) r.w. 13(3), 2(15) of I.T. Act 11. It has been stated in the reasons, so recorded that from the perusal of income and expenditure account and finding of survey proceedings on 28-29 02.2016, this belief was formed by the Assessing Officer concerned after survey. This finding of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilization Evidence thereof Please also furnish copy of acknowledgement of submission of Form No. 10 to the AO with respect to each year and the copy of resolution passed for the above purpose for the last five years. Q.No.12 of the questionnaire dated 13.07.2012 given during scrutiny u/s 143(3) of the AY 2010-11. Please furnish following details for the year under assessment and three previous years: Sr. No. Total receipts/income as per income expenditure account Revenue expenditure during the year Capital expenditure during the year Total expenditure (3+4) % age of expenditure (5/2 x 100) 1. 2 3 4 5 6 Q.No.17 of the questionnaire dated 13.07.2012 given during scrutiny u/s 143(3) of the AY 2010-11 Please give details of any loan borrowed or repaid during the last 3 years Including the year under consideration. Copy of the questionnaire, dated1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lete details of the utilization of surplus by considering the capital expenditure. In our original Income tax return and further a detailed reply furnished in the scrutiny proceedings, we had in response to question No. 12, submitted the details of capital expenditure of ₹ 336.15 Lakhs {already enclosed as Page 10). This has completely been Ignored by the Assessing Officer at the time of recording the reasons and only surplus as per profit and loss account have been considered to the tune of ₹ 2,91,56,426/-. Thus wrong facts have been mentioned in the reasons, ignoring the details already on record, which have already been looked into and. thus, there was no tangible material found during the course of survey for resorting to reopening of the case u/s 148. Even otherwise, it may be stated that the same issue of capital expenditure was subject matter of appeal in Asstt. Year 2003-04 for the purposes of utilization and the Worthy GIT (A), Chandigarh had granted us the relief. The matter was carried to the Hon'ble ITAT. Chandigarh Bench, Chandigarh by the Department and the Hon'ble ITAT, in IT A No 266/ChoV2007 and MA. No. 84/Cnd/20lO for the Asstt Year 2003-04 dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (OSD) in ITA No. 1162/Chd/2012 Chandigarh Bench, {Pages 1-51, Relevant page 12-13 of judgment set) b) Gujarat Lease Financing Ltd. V/s Deputy Commissioner of Income Tax 360 ITR 496 GUJ-HC (Pages 52-57, relevant page 53 of judgment set) c) General Motors India Pvt. Ltd. V/s Deputy Commissioner of Income Tax 360 ITR 527 GUJ-HC (Pages 59-62, relevant page 59 of judgment set) d) Jashan Textile Mills (P) Ltd. V/s Deputy Commissioner of Income Tax 284 ITR 542 BOM-HC (Pages 63-67, relevant page 64 of judgment set) e) G N Shaw (Wine) (P) Ltd V/s Income Tax Officer 260 ITR 513 CAL-HC {Pages 68-71, relevant pages 68-69 of judgment set) f) Haryana Acrylic Manufacturing Co. V/s Commissioner of Income Tax 308 ITR 36 DEL-HC (Pages 72-78, relevant pages 72, 75 76 of judgment set) g) Sun Pharmaceutical industries Ltd, V/s Dy Commissioner of Income Tax 381 ITR 387 DEL-HC (Pages 79-82, relevant pages 79, 80 81 of judgment set) h) Mahavir Spinning MHIs Ltd. V/s Commissioner of Income Tax 270 ITR 290 P H-HC (Pages 83-87, Relevant page 83 84 of judgment set) i) Dull Chand Singhania V/s Assistant Commissioner of Income Tax 26$ ITR 192 (Pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same were duly disposed off by a speaking order passed by the A.O. He further observed that the A.O. had right to reopen a completed assessment in two situations, firstly, a completed assessment can be reopened either if there was omission of failure on the part of the assessee to disclose fully and truly all material and relevant facts and the A.O. must have in his possession before he issues notice some material on which he can reasonably form a belief that there has been escapement of income due to some failure or omission on the part of the assessee to disclose fully or truly all relevant material facts. In the second situation, the A.O. has right under Explanation-2 to sub-clause (c) of Section 147 of the Act which empowers the A.O. to reopen a completed assessment. He also observed that the A.O. can resort to reopening under clause (c) of Section 147 of the Act notwithstanding the fact that there was no omission or failure on the part of the assessee either to make a return or to disclose fully or truly all material facts but the A.O. in consequence of information in his possession subsequent to the first assessment has reason to believe that the income chargeable to tax h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord any explicit opinion on the aspect sought to be examined in reassessment, it must be presumed that those aspects were present in the mind of the A.O. and had been held in the favour of the assessee, could not be accepted and that the principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to the situation where the A.O. had applied his mind and taken a conscious decision on a particular matter in issue and it would have no application where the order of assessment did not address itself to the aspect which was the basis for reopening of the assessment. The reliance was placed on the following case laws: (i) Consolidated Phot Finvest Ltd. Vs Asst.CIT (2006) 151 taxman 41 (Delhi). (ii) Indo Aden Salt Mfg. Trading Co. (P) Ltd. Vs CIT (1996) 159 ITR 624 (SC) (iii) M/s Greater Mohali Area Development Authority Vs DCIT, Circle 6(1), Chandigarh, dated 27/04/2018 (2018) 93 taxmann.com 441 (P H). (iv) Sonia Gandhi Vs ACIT, Circle-52(1) order dated 10/09/2018 (2018) 97 taxmann.com 150 (Delhi). 38.4 According to the ld. CIT(A) what was necessary at the time of issuance of notice U/s 148 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosure. It was reiterated that the issue had specifically been enquired into by the A.O. by way of questionnaire which was replied in different years by the assessee, thus, it was merely a change of opinion which is not permitted by law. It was submitted that for the year under consideration, the original assessment had been framed U/s 143(3) of the Act vide order dated 26/02/2013, there was no failure on the part of the assessee to disclose full true particulars of income and that there was no tangible material on record to justify reopening of the assessment particularly when the same very issue had been examined during the course of original assessment proceedings as well as during the assessment proceedings of the earlier years, therefore, the reopening of the assessment was not justified after expiry of four years from the end of the assessment year under consideration. It was submitted that the original return for the year under consideration was filed within time alongwith computation of income (copy of which is placed at page Nos. 1 to 4 of the assessee s paper book-I) alongwith tax audit report wherein the particulars of payments made to the specified persons had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a complete application of mind by the A.O. on the issue which had been made the basis for reopening the proceedings U/s 148 of the Act. It was further stated that in the reasons recorded (copy of which is placed at page Nos. 120 to 122 of the assessee s paper book) it had been mentioned that perusal of record and then it had been mentioned about the survey proceedings on 28 29/09/2016 in the case of the assessee, without pointing out any adverse material found during the course of survey and no addition had been made on account of any issue found during the course of survey. Thus, it had wrongly been mentioned that the survey proceedings revealed about payment of salary, rent and interest to the specified persons, on the contrary earlier years assessment records bear testimony that the said issue pertaining to payment of salary, rent and interest was examined thoroughly by the then A.O. s particularly the office note given for the A.Y. 1998-99 copy of which is placed at page No. 194 of the assessee s paper book proved this fact. It was stated that the assessee filed detailed objections before the A.O. with regard to reopening of the case under section 148 of the Act, contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of survey was totally against the factual facts and circumstances of the case. A reference was made to the orders for different assessment years copies of which are placed at page No. 178 to 277 of the assessee s paper book. It was further stated that the facts of the case relied by the ld. CIT(A) i.e. the case of S. Narayanappa reported in 263 ITR 219 were not applicable to the facts of the assessee s case as there was no fresh material with the A.O. as was in the said case. It was further submitted that the findings of the ld. CIT(A) in para 5.1.4 are again misplaced since the formation of belief was void ab initio as there was no such tangible material on record and the issue relating to payment of salary, rent and interest was well within the knowledge of the A.O. during the course of original assessment proceedings for the year under consideration as well as of the earlier years. It was submitted that the observation of the ld. CIT(A) in para 5.1.6 are in favour of the assessee because in the present case, not only the books of account/records were produced but there was a specific query with regard to payment of salary, rent and interest and the A.O. had taken a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 16. Skyview Consultant Pvt. Ltd V/s ITO and Another, 423 ITR 645 (DLEHI) 17. Mitsubishi Electric Automotive India (P.) Ltd V/s Union of India, 377 ITR 266 (P H) 18. State Bank of Patiala V/s Commissioner of Income Tax, 375 ITR 109 (P H) 19. Commissioner of Income Tax V/s ITW India Ltd., 377 ITR 195 (P H) 20. Commissioner of Income Tax V/s Kelvinator of India Ltd, 320 ITR 561(SC) 21. Pr. Commissioner Of Income Tax V/s Meenakshi Overseas P Ltd 82 taxmann.com, 300(Del) 22. M/s Holy Faith International Pvt. Ltd V/s DCIT, ITA No.181/ASR./2017 (ASR) 23. M/s Indo Global Techno Trade Ltd V/s Income Tax Officer, ITA No 1616/CHD/2018 CHD-TRIB 24. Mahavir Spinning. Mills Ltd V/s Commissioner of Income Tax , 270 ITR 290 (P H) 25. Commissioner of Income Tax V/s Hindustan Zinc Ltd., 393 ITR 264 (RAJ) 26. PCIT V/s Baldev Singh Prop M/s Nankana Sahib Road Lines, ITA No. 283 of 2016 (O M) order dated. 12.02.2018 (P H) 27. Jivraj Tea Limited V/s Assistant Commissioner of Income Tax, 426 ITR 146 (GUJ) 28. Madurai Power Corporation Private Limited Vs. DCIT(2020) 428 ITR 117 (A.P) 41. In his rival submissions, the ld. CIT-DR strong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long with PAN of each trustee. Q6. Please furnish a note of the activities of your institution/trust. Whether there are any activities which are not as per trust deed. Q7. Please furnish copies of any resolution passed by the trust/institution in the year under consideration. Q8. Please give the details of surplus/deficit for the past five years and show as to how the accumulated surplus has been utilized in subsequent years. Please certify that the accumulated income has been utilized within the time period allowed for the same and for the purpose in accordance with the provisions of section 11 of the I. T. Act. Submit a chart thereof for the last five years as under:- Year of accumulation To be used up to Purpose Date of utilization Evidence thereof Please also furnish copy of acknowledgement of submission of Form No. 10 to the AO with respect to each year and the copy of resolution passed for the above purpose for the last five years Q9. Details of application or use of income or property for the benefit of persons referred to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for u/s 142(1) of the Income Tax Act, 1961 which should be furnished duly verified and as provided in Rule 14 of the Income Tax Rules and each page should be signed by the person authorized to sign the return. Notice u/s 142(1) is enclosed herewith and your case is fixed for hearing on 06.08.2012. Yours faithfully Sd/- (Kanika Aggarwal) Asstt. Commissioner of Income Tax Circle 3(1), Chandigarh. From the aforesaid reason, it would be clear that the A.O. vide question No. 9 specifically asked the assessee to furnish the details of payments made to the specified persons and vide question No. 12, the details were asked relating to the total receipts as well as the expenditures. The A.O. vide Q.No. 17also asked the details of loans borrowed or repaid, therefore, it is clear that the A.O. asked the assessee specific informations. 42.1 In response, the assessee furnished the reply and gave the details which are placed at page Nos. 50 to 52 of the assessee s paper book which read as under: From the aforesaid details, it would be clear the assessee furnished the details for the A.Y s 2008-09 to 2010-11, relating to salary, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee and made disallowance also for those expenses which in his view were personal in nature. The A.O. after framing the assessment U/s 143(3) of the Act, reopened the assessment by recording the following reasons: 42.4 From the aforesaid reasons recorded by the A.O., it is clear that the A.O. considered the expenses relating to the salary to the specified persons amounting to ₹ 1,09,12,261/- as non-genuine. However, the same were considered to be genuine while framing the assessment U/s 143(3) of the Act, so it was a change of opinion. Similar was the position with regard to the rent and the interest. Now the question arises as to whether the assessment can be reopened on the basis of change of opinion. 42.5 On the same issue, the Hon ble Apex Court in the case of NDTV Vs DCIT (supra) held that there being no failure on part of the assessee to disclose all material facts, notice issued to assessee after a period of four years was to be quashed and set aside. In the present case also, there was no new material which came to the knowledge of the A.O. after framing the original assessment U/s 143(3) of the Act, therefore, the reopening was not v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, that the Assessing Officer was not aware of the royalty and had not taken the royalty payment into consideration before passing the assessment order under section 143. Proceedings were initiated under section 154 before the issuance of a notice under sections 147 and 148 but the proceedings were dropped holding that it was a debatable issue. Therefore, the notice under sections 147 and 148 were clearly based only on a mere change of opinion which was not permissible. 42.9 In the present case also, the A.O. not only asked the assessee to furnish the details relating to the payment made to the specified persons on account of salary, rent and interest but also examined those and thereafter framed the assessment U/s 143(3) of the Act, therefore, the issuance of the notice U/s 148 r.w.s. 147 of the Act, on the basis of the same issue was a mere change of opinion which was not permissible. 42.10 Similarly, the Hon ble Jurisdictional High Court in the case of State Bank of Patiala Vs CIT (2015) 375 ITR 109 (P H) held as under: that the reasons for reopening the assessments which had already been concluded did not show that there was any failure on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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