While entertaining the appeal of the National Law University, Delhi (NLUD), the Delhi bench of Income tax Appellate Tribunal (ITAT) of quashed the penalty order passed under Section 271B of the Income Tax Act, 1961 by the Assessing Officer (AO) and Commissioner of Income Tax (Appeals)[CIT(A)].
An appeal was filed by the National Law University of Delhi against the order of the Commissioner of Income Tax(Appeals), National Faceless Appeal Centre (NFAC) arised out of an appeal before it against the penalty order passed by the AO of Rs. 1,50,000 imposed under the Section 271B of the Income Tax Act.
The assessee Delhi NLU filed return of income for the assessment year 2018-19 declaring a total income at Rs. Nil. The assessee has claimed exemption under Section 10(23C)(iiiab)of the Income Tax Act for Rs. 28,69,49,640 in its return of income for the year under consideration.
The case was assigned for faceless assessment. Notice under Section 143(2) of the Income Tax Act was issued and the case was taken up for scrutiny. However the AO was not not satisfied with the claim of exemption for the purpose of Section 10(23C)(iiiab) read with rules 2BBB.
The AO noted that after carefully reading the return of revenue for the year in question, it was discovered that the assessed university received a total of Rs. 28,69,49,640, of which only Rs. 12,00,00,000 was received as grants or subsidies. As a result, the ratio of grants to total receipts is just 42.45%, falling short of the 50% threshold required by Section 10(23C)(iiiab) read in conjunction with Rule 2BBB to be deemed significantly sponsored by the government.
The AO observed that the NLU has not audited its account as per Section 12(b)(1) of the Income Tax Act despite the fact that its total income as computed under the Act without giving effect to the provisions of Section 12 of the Income Tax Act exceeds the maximum amount which is not chargeable to Income Tax in F.Y. 2017-18. Therefore, directed that penalty proceedings under Section 271B of the Income Tax Act be initiated.
The object of the university as specified in section 4 of the University Act, the powers and function of the NLU defined under the Section 5 of University Act grossly indicate that the University is not engaged in any ‘business’ as understood for the purpose of the Act. It exists solely for educational purposes. It is not established for the purpose of profit.
The bench of Anil Chaturvedi (Accountant Member) and Anubhav Sharma (Judicial Member) observed that to justify invoking the mandate of Section 44AB of the Income Tax Act, it was necessary to see if the NLU can be said to be engaged in Business as defined under Section Section 2(13) of the Income Tax Act.
Additionally, both the penalty order and the assessment order of the AO specifically mentioned that assessee is a local authority. Once, the Revenue accepted the assessee to be local authority then certainly it cannot be considered to be one engaged in ‘business’ or to be earning profit.
The ITAT bench observed that the AO had taken shelter of Proviso to section 44AB of the Income Tax Act and assumed as the NLU has not got the accounts audited for the purpose of Section 12A(1)(b) of the Income Tax Act and this was a violation of Section 44AB of the Income Tax Act.
While allowing the appeal of the NLU, Delhi, the ITAT bench, the Income Tax Authorities have fallen in grave error on facts and law while invoking the penalty provisions.
The assessee NLU, Delhi was represented by R.S.Ahuja, CA and Kirti Sankratyayan, Senior Department Representative attended for the Revenue Department.
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