REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.11080 OF 2017 (ARISING OUT OF SLP (C) NO. 25257 OF 2015) COMMISSIONER OF INCOME TAX-III, PUNE .....APPELLANT(S) VERSUS SINHGAD TECHNICAL EDUCATION SOCIETY .....RESPONDENT(S) WITH CIVIL APPEAL NO.11081 OF 2017 (ARISING OUT OF SLP (C) NO. 25258 OF 2015) CIVIL APPEAL NO.11082 OF 2017 (ARISING OUT OF SLP (C) NO. 27323 OF 2015) CIVIL APPEAL NO. 11083 OF 2017 (ARISING OUT OF SLP (C) NO. 30278 OF 2015) JUDGMENT Signature Not Verified A.K. SIKRI, J. Digitally signed by ASHWANI KUMAR Date: 2017.08.29 17:14:18 IST Reason: Leave granted. 2 2) All these four appeals are filed by Commissioner of Income Tax-III, Pune (hereinafter referred to as Revenue), wherein respondent is also same (hereinafter referred to as assessee ). Even issue that arises for consideration is identical in all these appeals. Reason for filing four appeals is that dispute pertains to four Assessment Years, i.e. 2000-01, 2001-02, 2002-03 and 2003-04. In fact, for this very reason High Court has decided issue by common judgment dated March 25, 2015, correctness whereof is challenged by Revenue in these appeals. Thus, we propose to club all these appeals and proceed to decide by singular judgment. 3) issue pertains to validity of proceedings which were initiated by Assessing Officer (for short, AO ) under Section 153C of Income Tax Act, 1961 (hereinafter referred to as Act ). It may be mentioned here itself that assessee is educational institution registered under Bombay Public Trusts Act, 1950 and Societies Registration Act, 1860. It also got itself registered under Section 12AA of Act since Assessment Year 1994-95. Because of said registration under Section 12AA of Act, Sections 11 and 12 of Act apply to assessee as per which income earned by assessee from property held for charitable or religious purposes (Section 11) and income from contributions are exempt from taxation under certain 3 circumstances. 4) It so happened that search and seizure operation was carried out under Section 132 of Act on one Mr. M.N. Navale, President of assessee Society, and his wife on July 20, 2005 from where certain documents were seized. On basis of these documents, which according to Revenue contained notings of cash entries pertaining to capitation fees received by various institutions run by assessee, notice under Section 153C of Act was issued on April 18, 2007. It is that notice which is quashed by Income Tax Appellate Tribunal (ITAT) and order of ITAT has been upheld by High Court by impugned judgment. 5) With glimpse of issue involved and background in which same has arisen, we now proceed to state facts in little detail so as to get clarity of matter. 6) As mentioned above, search was conducted on Mr. M.N. Navale and his wife on July 20, 2005. It is not in dispute that he is one of trustees of assessee Society. This search was conducted under Section 132 of Act. As per Revenue, certain incriminating documents were recovered which showed that assessee was taking capitation fee from students. These documents also allegedly reveal that activities of trust were not genuine and were not being 4 carried out in accordance with trust deed. For these reasons, assessee was treated as Association of Person (AOP). Having regard to complexity involved in accounts and changes to be effected on account of change in status of assessee to that of AOP, special audit under Section 142(2A) of Act was conducted. On basis of special audit report, taxable incomes for Assessment Years 1999-2000 to 2006-07 had been worked out. 7) Since documents were recovered from Mr. Navale and sought to be used against assessee, for undertaking this exercise it is imperative that Satisfaction Note is recorded by AO of person searched for use of those documents against third person (assessee herein), which is pre-condition for initiation of proceeding under Section 153C of Act. This Satisfaction Note was recorded on April 18, 2007. In this Note, after discussing documents which were recovered and seized in search carried out on Mr. Navale, AO recorded his satisfaction to effect that assessee trust cannot be considered as genuine trust; it was receiving extra money over and above fee fixed by competent authority; it was not adhering to object of providing education to masses and managing trustees were using assessee s trust for their own benefits. Thus, notice under Section 153C of Act was issued for Assessment Years 2000-01 to 2005-06. Notice was also issued under Section 143(2) for 5 Assessment Year 2006-07. 8) On receipt of said notice, assessee filed its revised return for Assessment Year 2006-07 and in respect of other Assessment Years, it stuck to its original returns. Thereafter, registration of trust was cancelled under Section 12AA(3) of Act on October 09, 2007 and assessee was treated as AOP. Special audit was ordered, as mentioned above, and after receipt of Special Audit Report, assessment order was passed by AO on August 07, 2008 for Assessment Years 1999-2000 to 2006-07. Assessment Year 1999-2000 was covered under Section 147 of Act, Assessment Year 2006-07 was covered under Section 143(3) of Act and Assessment Years 2000-01 to 2005-06 were covered under Section 153C read with Section 143(3) of Act. AO assessed income of assessee in sum of Rs.3,54,46,432/-. concluding portion of assessment order reads as follows: 16. In view of totality of facts and circumstances, discussed as above, under Part and Part B of order, following conclusions are reached. (i) assessee STES charged donations while granting admissions. (ii) As registration of Trust is cancelled on grounds that activities of Trust are not genuine and also are not being carried out in accordance with Trust Deed, assessee STES will have to be assessed as AOP. 6 (iii) Regardless of cancellation of registration, benefits of sections 11 & 12 are denied in view of applicability of section 13(1)(c) on account of cash and jewellery seized, siphoning/diversion of money, creation of assets much more in value than nominal incomes returned and known sources of income, payment of rent in excess of reasonable rent and other benefits. (iv) In view of complexity involved in accounts and changes to be effected on account of change in status of assessee to that of AOP , special audit u/s. 142(2A) has been conducted and net taxable incomes, for A.Yrs. 1999-2000 to 2006-07, have been worked out on basis of recast accounts and taxed in this order. (v) There is total failure on part of assessee to explain seized material, evidencing collection of donations/capitation fee. (vi) relevance and correctness of seized material is clearly established. (vii) undisclosed income, on account of donations collected, for A.Y. 2006-07, has been worked out and taxed in this order. (viii) Seized material clearly shows collection of donations/capitation fee on one hand and expenditure/outgoings on other hand. (ix) Instances of siphoning and diversion of amounts, out of receipts on account of donations/capitation fee, are evident from seized material. (x) Number of assets of Principal trustee/related persons have been found/seized as against nominal incomes returned and known sources of income. assets/benefits derived are possible only because of receipts on account of donations/capitation fee. (xi) theory of bigger HUF and obtaining of decree from Court is effort only to escape rigours of laws relating to taxation. said decree of Hon. Court has been obtained by misrepresentation and suppression of facts. same is not accepted by department and appropriate course of action is 7 contemplated. (xii) Siphoning of money, diversion of amounts, creation of assets, all out of receipts on account of donations, and payment of rent which is not reasonable attract provisions of Section 13(1)(c). These are benefits derived by persons referred to in Section 13(3). Subject to above, total income and tax for A.Y. under consideration is computed, as below: Total Income as returned Rs. Nil B Additions I. Revised Income computed as per discussion in Paras 7 & 8 Rs.3,54,46,432/- C Total Income Assessed Rs.3,54,46,432/- D Total Income Assessed Rs.3,54,46,430/- 9) assessee filed appeal thereagainst, which was partially allowed by Commissioner of Income Tax (Appeals) {CIT(A)}. He, however, upheld order AO, holding that assessee was not eligible for exemption under Section 11 of Act and, therefore, donations received were rightly treated as income. Against aforesaid part of order, which was against assessee, it preferred further appeal to ITAT. In appeal before ITAT, assessee raised additional ground questioning validity of notice under Section 153C of Act on ground that satisfaction was not properly recorded and also that notice under Section 153C was time barred in respect of Assessment Years 2000-01 to 2003-04. ITAT allowed assessee to raise additional ground and decided same in favour of assessee thereby quashing notice in respect of aforesaid 8 Assessment Years. Challenging this order, Revenue filed appeals before High Court. However, High Court has dismissed these appeals, as mentioned above. 10) Mr. Ranjit Kumar, learned Solicitor General appearing for Revenue, took us through Satisfaction Note recorded by AO discussing material which had been found against assessee on basis of which assessee was not found to be genuine trust and was indulging in profiteering, benefits whereof were reaped by trustees of assessee. He also referred to discussion contained in order passed by AO and particularly conclusions arrived at by AO wherein it was inter alia concluded that assessee charged donations while granting admissions, which were reasons for denying benefits under Sections 11 and 12 of Act and that assessment was made keeping in view Special Audit Report. 11) Coming to issue pertaining to validity of notice under Section 153C of Act, submission of learned Solicitor General was that ITAT committed gross error in allowing this additional ground ignoring material fact that assessee had not objected to jurisdiction under Sections 153C or 147 of Act at any stage in course of assessment proceedings which were duly recorded by AO in his order. It was argued that ITAT did not discuss merits of 9 case at all and quashed entire proceedings by discussing legality and validity of notice under Section 153C of Act only. He further pointed out that even High Court dismissed appeal of Revenue on same very ground. 12) learned Solicitor General also referred to judgment dated March 29, 2012 of Delhi High Court in case of SSP Aviation Limited v. Deputy Commissioner of Income Tax, (2012) 20 taxmann.com 214 (Delhi), as well as judgment dated December 24, 2012 of Gujarat High Court in case of Kamleshbhai Dharamshibhai Patel v. Commissioner of Income Tax-III, (2013) 31 taxmann.com 50 (Gujarat), wherein contrary view is taken by these two High Courts. 13) Mr. Jehangir D. Mistri, learned senior counsel appearing for assessee, countered aforesaid submissions. He argued that Tribunal was right in permitting assessee to raise issue regarding validity of notice under Section 153C of Act when it was ex facie found that such notice was time barred and, therefore, it was jurisdictional ground which could be raised by assessee. Coming to merits of that ground, learned senior counsel submitted that Satisfaction Note dated April 18, 2007 is ex facie recorded/prepared by AO in his capacity as AO of assessee society and does not 10 set out date on which books of accounts or documents or assets seized etc. from person searched were handed over/dealt with in capacity of AO of assessee society, but this cannot be earlier than April 18, 2007, i.e. date when Satisfaction Note was prepared. Since Assessment Order pursuant thereto can be passed under Section 153A(1) of Act for period of six Assessment Years, immediately preceding Assessment Year relevant to Previous Year in which books of accounts or documents or assets were received by AO of assessee, he argued that no notice could have been issued for Assessment Years prior to 2002-03. Therefore, notice for Assessment Years 2000-01 and 2001-02 was clearly time barred. In respect of Assessment Years 2002-03 and 2003-04, submission of Mr. Mistri was that one of jurisdictional conditions precedent to issue of notice under Section 153C is that money, bullion, jewellery or other valuable article or thing or any books of accounts or documents must be seized or requisitioned. In present case, nothing was seized relating to any of Assessment Years in question and hence notice under Section 153C and assessment under Section 153A, read with Section 153C, pursuant thereto are invalid. 14) We have bestowed our due consideration to respective submissions of counsel for parties. 11 15) At outset, it needs to be highlighted that assessment order passed by AO on August 7, 2008 covered eight Assessment Years i.e. Assessment Year 1999-2000 to Assessment Year 2006-07. As noted above, insofar as Assessment Year 1999-2000 is concerned, same was covered under Section 147 of Act which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of Act is concerned, it was in respect of Assessment Years 2000-01 to 2005-06. Out of that, present appeals relate to four Assessment Years, namely, 2000-01 to 2003-04 covered by notice under Section 153C of Act. There is specific purpose in taking note of this aspect which would be stated by us in concluding paragraphs of judgment. 16) In these appeals, qua aforesaid four Assessment Years, assessment is quashed by ITAT (which order is upheld by High Court) on sole ground that notice under Section 153C of Act was legally unsustainable. events recorded above further disclose that issue pertaining to validity of notice under Section 153C of Act was raised for first time before Tribunal and Tribunal permitted assessee to raise this additional ground and while dealing 12 with same on merits, accepted contention of assessee. 17) First objection of learned Solicitor General was that it was improper on part of ITAT to allow this ground to be raised, when assessee had not objected to jurisdiction under Section 153C of Act before AO. Therefore, in first instance, it needs to be determined as to whether ITAT was right in permitting assessee to raise this ground for first time before it, as additional ground. 18) ITAT permitted this additional ground by giving reason that it was jurisdictional issue taken up on basis of facts already on record and, therefore, could be raised. In this behalf, it was noted by ITAT that as per provisions of Section 153C of Act, incriminating material which was seized had to pertain to Assessment Years in question and it is undisputed fact that documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of Act is essential for assessment under that provision, it becomes jurisdictional fact. We find this reasoning to be logical and valid, having regard to provisions of Section 153C of Act. Para 9 of order of ITAT reveals that ITAT had scanned through Satisfaction Note and material which was disclosed therein was culled out and it showed that same belongs to Assessment Year 2004-05 or 13 thereafter. After taking note of material in para 9 of order, position that emerges therefrom is discussed in para 10. It was specifically recorded that counsel for Department could not point out to contrary. It is for this reason High Court has also given its imprimatur to aforesaid approach of Tribunal. That apart, learned senior counsel appearing for respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. 19) We, thus, find that ITAT rightly permitted this additional ground to be raised and correctly dealt with same ground on merits as well. Order of High Court affirming this view of Tribunal is, therefore, without any blemish. Before us, it was argued by respondent that notice in respect of Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy. 20) Insofar as judgment of Gujarat High Court relied upon by learned Solicitor General is concerned, we find that High Court in that case has categorically held that it is essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to person other than person referred to in Section 14 153A of Act. This proposition of law laid down by High Court is correct, which is stated by Bombay High Court in impugned judgment as well. judgment of Gujarat High Court in said case went in favour of Revenue when it was found on facts that documents seized, in fact, pertain to third party, i.e. assessee, and, therefore, said condition precedent for taking action under Section 153C of Act had been satisfied. 21) Likewise, Delhi High Court also decided case on altogether different facts which will have no bearing once matter is examined in aforesaid hue on facts of this case. Bombay High Court has rightly distinguished said judgment as not applicable giving following reasons: 8. Reliance on judgment of Division Bench of High Court of Delhi reported in case of SSP Aviation Ltd. Vs. Deputy Commissioner of Income Tax (2012) 346 ITR 177 is misplaced. There, search was carried out in case of P group of companies. It was found that assessee before Hon ble Delhi High Court had acquired certain development rights from P group of companies. Based thereon, satisfaction was recorded by Assessing Officer and he issued notice in terms of Section 153C. Thereupon proceedings were initiated under section 153A and assessee was directed to file returns for six assessment years commencing from 2003-04 onwards. assessees filed returns for those years but disclosed Nil taxable income. These returns were accepted by Assessing Officer, however, in respect of assessment year 2007-08 there was significant difference in pattern of assessment for this year also, return was filed for Nil 15 income but there were certain documents and which showed that there were transactions of sale of development rights and from which profits were generated and taxable for assessment year 2007-08. Thus, receipt of Rs.44 crores as deposit in previous year relevant to assessment year 2008-09 and later on became subject matter of writ petition before Delhi High Court. That was challenging validity of notice under section 153C read with section 153A. In dealing with such situation and peculiar facts that Delhi High Court upheld satisfaction and Delhi High Court found that machinery provided under section 153C read with section 153A equally facilitates inquiry regarding existence of undisclosed income in hands of person other than searched person. provisions have been referred to in details in dealing with challenge to legality and validity of seizure and action founded thereon. We do not find anything in this judgment which would enable us to hold that tribunal s understanding of said legal provision suffers from any error apparent on face of record. Delhi High Court judgment, therefore, will not carry case of revenue any further. We, thus, do not find any merit in these appeals. 22) We now advert to implication of fact which has been emphasised in para 15. As pointed out in said para, assessment order passed by AO covers eight Assessment Years. Assessment done in six Assessment Years is under Section 153C of Act. Assessment order is set aside only in respect of four such Assessment Years that too on technical ground, noted above. This objection pertaining to four Assessment Years in question does not relate to other two Assessment Years, namely, 2004-05 and 2005-06. Likewise, this decision has no bearing in respect of assessment done qua Assessment Year 1999-2000 as well as Assessment Year 2006-07. 16 necessary consequence would be that insofar as conclusions of AO in his assessment order regarding activities of trust not being genuine and not carried out in accordance with trust deed or cancellation of registration, denial of benefits of Sections 11 and 12 etc. are concerned, same would not be affected by this judgment. It is, thus, clarified that this Court has not dealt with matter on merits insofar as incriminating material found against assessee or Mr. Navale is concerned. Pithily put, this Court has not given any clean chit to assessee insofar as finding of AO to effect that assessee had been indulging in profiteering and collecting capitation fee is concerned. Whatever other repercussions are there, based on these findings, they can follow. This Court was not informed and, therefore, unaware of any challenge to assessment order in respect of other four Assessment Years and outcome thereof. Wherever any such proceedings are pending, same would be considered without being affected by outcome of these proceedings. 23) appeals are dismissed with aforesaid observations. ..............J. (A.K. SIKRI) ............J. 17 (ASHOK BHUSHAN) NEW DELHI; AUGUST 29, 2017. 18 ITEM NO.1501 COURT NO.6 SECTION IX (FOR JUDGMENT) SUPREME COURT OF INDIA RECORD OF PROCEEDINGS Petition(s) for Special Leave to Appeal (C) No(s). 25257/2015 (Arising out of impugned final judgment and order dated 25-03-2015 in ITA No. 1178/2013 passed by High Court Of Judicature At Bombay) COMMISSIONER OF INCOME TAX-III, Petitioner(s) PUNE VERSUS SINGHAD TECHNICAL EDUCATION SOCIETY Respondent(s) (HEARD BY HONBLE A.K. SIKRI AND HONBLE ASHOK BHUSHAN, JJ.) WITH SLP(C) No. 25258/2015 (IX) SLP(C) No. 27323/2015 (IX) SLP(C) No. 30278/2015 (IX) Date : 29-08-2017 These petitions were called on for pronouncement of judgment today. For Petitioner(s) Ms. Anil Katiyar, AOR For Respondent(s) Mr. Rustom B. Hathikhanawala, AOR Hon'ble Mr. Justice A.K. Sikri pronounced judgment of Bench comprising His Lordship and Hon'ble Mr. Justice Ashok Bhushan. Leave granted. appeals are dismissed in terms of signed reportable judgment. Pending application(s), if any, stands disposed of accordingly. (Ashwani Thakur) (MADHU NARULA) COURT MASTER COURT MASTER (Signed reportable judgment is placed on file) Commissioner of Income-tax-III, Pune v. Sinhgad Technical Education Society