Director Of Income Tax (Exemption v. All India Personality Enhancement & Cultural Centre For Scholars Aipeccs Society

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 07.10.2015 + ITA 705/2008 DIRECTOR OF INCOME TAX (EXEMPTION) .....Appellant versus ALL INDIA PERSONALITY ENHANCEMENT & CULTURAL CENTRE FOR SCHOLARS AIPECCS SOCIETY ..... Respondent Advocates who appeared in this case:For the Appellant :Mr Kamal Sawhney, Senior Standing Counsel, Mr Raghvendra Singh, Junior Standing Counsel with Mr Shikhar Garg. For the Respondent :Mr Ajay Vohra, Senior Advocate with Ms Kavita Jha and Mr Vaibhav Kulkarni. AND + ITA 924/2009 DIRECTOR OF INCOME TAX (EXEMPTION) .....Appellant versus ALL INDIA PERSONALITY ENHANCEMENT & CULTURAL CENTRE FOR SCHOLARS ..... Respondent Advocates who appeared in this case: For the Appellant :Mr Kamal Sawhney, Senior Standing Counsel, Mr Raghvendra Singh, Junior Standing Counsel with Mr Shikhar Garg. For the Respondent :Mr Ajay Vohra, Senior Advocate with Ms Kavita Jha and Mr Vaibhav Kulkarni. + W.P.(C) 3797/2011 WITH ALL INDIA PERSONALITY ENHANCEMENT & CULTURAL CENTRE FOR SCHOLARS AIPECCS SOCIETY ..... Petitioner versus DIRECTOR GENERAL OF INCOME TAX (EXEMPTIONS) .....Respondent Advocates who appeared in this case: For the Petitioner :Mr Ajay Vohra, Senior Advocate with Ms Kavita Jha and Mr Vaibhav Kulkarni. For the Respondent :Mr Kamal Sawhney, Senior Standing Counsel, Mr Raghvendra Singh, Junior Standing Counsel with Mr Shikhar Garg. CORAM:DR. JUSTICE S.MURALIDHAR MR. JUSTICE VIBHU BAKHRU JUDGMENT VIBHU BAKHRU, J 1.The substratal controversy involved in the above captioned appeals and the writ petition, relates to the question whether the income of All India Personality Enhancement and Cultural Centre for Scholars AIPECCS Society (hereafter the ‘Assessee’) is exigible to tax under the Act. 2.The principal issue involved in the above mentioned appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961 (hereafter the ‘Act’), is whether the surplus reflected by the Assessee in its Books of Accounts maintained in the normal course could be taxed under the provisions of Chapter XIV-B of the Act; inasmuch as, it is contended that the same could not be considered as undisclosed income earned during the block period. Since the issues involved in the above captioned appeals and the writ petition are common and/or interlinked, the said matters were heard together. 3.ITA 705/2008 is an appeal preferred by the Revenue under Section 260A of the Act against an order dated 28[th] September, 2007 passed by the Income Tax Appellate Tribunal (hereafter the ‘Tribunal’)in IT(SS)A.No.300/Del/2001 whereby the Assessee’s appeal directed against the order dated 29[th] November, 2001 passed by the Commissioner of Income Tax (Appeals) [hereafter ‘CIT(A)’] in Appeal No. 60/2001-II, was allowed. 4.ITA 924/2009 is an appeal preferred by the Revenue under Section 260A of the Act impugning an order dated 6[th] June, 2008 passed by the Tribunal in IT(SS)A.No.36/Del/2008, allowing the appeal of the Assessee against an order dated 10[th] January, 2008 passed by CIT(A) upholding the levy of penalty imposed by the Assessing Officer (hereafter the ‘AO’)under Section 158BFA(2) of the Act. The said order was passed by the Tribunal as a consequence of the Assessee prevailing in its Appeal - IT(SS)A.No.300/Del/2001, before the Tribunal. 5.W.P.(C) 3797/2011 is a petition filed by the Assessee under Article 226/227 of the Constitution of India, inter alia, impugning an order dated 29[th] December, 2010 passed by the Director General of Income Tax (Exemption) [hereafter ‘DGIT(E)’] declining the petitioner’s application for approval under Section 10(23C)(vi) of the Act. The Assessee further prays that an appropriate writ order or direction be issued to DGIT(E) for the grant of approval under Section 10(23C)(vi) of the Act for the Assessment Years 1999-2000 and onwards. IT(SS)A.No.300/Del/2001, before the Tribunal. 5.W.P.(C) 3797/2011 is a petition filed by the Assessee under Article 226/227 of the Constitution of India, inter alia, impugning an order dated 29[th] December, 2010 passed by the Director General of Income Tax (Exemption) [hereafter ‘DGIT(E)’] declining the petitioner’s application for approval under Section 10(23C)(vi) of the Act. The Assessee further prays that an appropriate writ order or direction be issued to DGIT(E) for the grant of approval under Section 10(23C)(vi) of the Act for the Assessment Years 1999-2000 and onwards. 6.Briefly stated, the relevant facts necessary to address the issues involved in the above captioned matters are as under: 6.1The Assessee is a Society and was registered under the Societies Registration Act, 1860 on 26[th ]December, 1980. The aims and objects of the Assessee as specified in its memorandum of association read as under:- “a) To establish schools in India and provide good quality education to all without distinction of race or creed or caste or social status with a view to help the Government which is unable to cope with providing education to all. education to all without distinction of race or creed or caste or social status with a view to help the Government which is unable to cope with providing education to all. b) To organize special education for Gifted Children which does not exist in specific form anywhere in the country does not exist in specific form anywhere in the country and because of which, there is crisis of leadership in most walks of life. c) To arrange and provide for scholarship for education to meritorious children of limited means. meritorious children of limited means. d) To organize and conduct other activities, which further the cause of education, particularly at school level, and specifically for Gifted Children. the cause of education, particularly at school level, and specifically for Gifted Children. e) To promote progress, prosperity and welfare of the Gifted Children. Gifted Children. f) For the above purpose, the Society may raise funds by various means, acquire premises, buildings and other property on rent/lease, by way of gift/donation, by purchase, anywhere in India or abroad and all other things which it may consider in its opinion required for the furtherance of the above aims, objects and purposes. various means, acquire premises, buildings and other property on rent/lease, by way of gift/donation, by purchase, anywhere in India or abroad and all other things which it may consider in its opinion required for the furtherance of the above aims, objects and purposes. g) To do all other acts, as are incidental and conducive to the attainment of the above aims and objects.”the attainment of the above aims and objects.” 6.2The Assessee is managing and running the following schools for imparting education to children: S.No. Name of the School 1. C.S.K.M. Public School, Satbari Mehrauli, Delhi 2. C.S.K.M. Public School, Navrangpur, Gurgaon, Haryana. Haryana. 3. C.S.K.M. Public School, Riico Industrial Area, Bhiwadi, Alwar, Rajasthan. 6.3On 15[th]January, 1999 a search and seizure operation was conducted under Section 132 of the Act on the premises of the school run by the Assessee at Mehrauli. The warrant of authorization for the search was not issued in the name of the Assessee but in the name of “Col. Satsangi Kiran Memorial, AIPECCS Education Complex”. The residence of Col. Satsangi (the Chairman of the Assessee), the Manager and the Principal of the School were also searched. 6.4A survey under Section 132A of the Act was also carried out at the Accounts Department within the premises of the school. During the course of the survey, the Books of Accounts which were regularly maintained by the Assessee were inventorised, however, the same were not seized. Certain cash was also found at the residence of the Chairman of the Assessee. 6.3On 15[th]January, 1999 a search and seizure operation was conducted under Section 132 of the Act on the premises of the school run by the Assessee at Mehrauli. The warrant of authorization for the search was not issued in the name of the Assessee but in the name of “Col. Satsangi Kiran Memorial, AIPECCS Education Complex”. The residence of Col. Satsangi (the Chairman of the Assessee), the Manager and the Principal of the School were also searched. 6.4A survey under Section 132A of the Act was also carried out at the Accounts Department within the premises of the school. During the course of the survey, the Books of Accounts which were regularly maintained by the Assessee were inventorised, however, the same were not seized. Certain cash was also found at the residence of the Chairman of the Assessee. 6.5Thereafter, a notice under Section 158BC of the Act was issued on 22[nd ]December, 1999. In response to the aforesaid notice, the Assessee filed a return for the block period 1[st ]April, 1988 to 15[th] January, 1999 showing Nil income. In the note given below the computation of income, the Assessee claimed that its income was exempt under Section 10(22)/10(23C) of the Act. The Assessee claimed that it existed solely for the purpose of education and its receipts and payments were relatable to the said purpose only. 6.6The AO examined the Books of Accounts of the Assessee and found that the account of receipts of payments maintained by the Assessee reflected a surplus in several years falling within the block period 1[st ]April, 1988 to 15[th ]January, 1999. The Assessing Officer concluded that substantial surpluses in all years except Previous Years relating to the Assessment Years 1991-92 and 1992-93 indicated that the Assessee was functioning with the motive to earn profit. The AO held that the Assessee was indulging in non-educational activities and making speculative investments. The AO also noticed that the Assessee had made advances to its office bearers, which included the chairman and his family and, thus, concluded that the Assessee was not entitled to exemption under Section 10(22) of the Act. 6.7The AO proceeded to pass the assessment order dated 31[st ]January, 2001 assessing a sum of `12,80,66,147/-, being the surpluses as recorded in the books of the Assessee, as ‘undisclosed income’ during the block period. Separate penalty proceedings under Section 158BFA(2) of the Act and under Section 271(B) of the Act were also initiated. 6.8In the meantime, on 30[th] March, 1999, the Assessee filed an application in the prescribed form with DGIT(E) seeking approval under Section 10(23C)(vi) & (via) for the year 1998-99. 6.9Aggrieved by the assessment order dated 31[st] January, 2001, the Assessee preferred an appeal before CIT(A) urging several grounds. The Assessee claimed that the proceedings under Section 158BC of the Act were not maintainable. The Assessee contended that the surpluses reflected in the Books of Accounts could not be termed as undisclosed income under Chapter XIV-B and, therefore, the assessment order framed was unsustainable. The Assessee also challenged the validity of the search operations under Section 132 of the Act. According to the Assessee, a search under Section 132 of the Act could be authorized in respect of a person where the concerned Income Tax Authority had reason to believe that either of the conditions as specified under Section 132(1) of the Act were satisfied. It was urged that a warrant of authorization, which did not specify a person but only the premises to be searched was contrary to the provisions of Section 132 of the Act and, therefore, was illegal. The Assessee also argued that no search had been conducted on the Assessee and, therefore, an assessment under Section 158BC could not be framed. 6.10The CIT(A) passed an order dated 29[th] November, 2001 upholding the assessment order. However, the quantum of undisclosed income was reduced to `10,08,24,264/- as a consequence of allowance on account of depreciation. 6.10The CIT(A) passed an order dated 29[th] November, 2001 upholding the assessment order. However, the quantum of undisclosed income was reduced to `10,08,24,264/- as a consequence of allowance on account of depreciation. 7.Aggrieved by the order dated 29[th] November, 2001 passed by the CIT(A), the Assessee preferred an appeal before the Tribunal, which too was dismissed by an order dated 25[th] June, 2004. The Tribunal upheld the AO’s finding that the Assessee was not functioning solely for the purposes of education and, therefore, was not eligible for exemption under Section 10(22) of the Act. 8.Thereafter, the Assessee filed a miscellaneous application under Section 254(2) of the Act being MA No. 143/2005 dated 8[th ]October, 2004 which was registered with the Tribunal on 22[nd ]November, 2004. Subsequently MA No. 143/05 dated 27[th ]December, 2005 was moved by the Assessee in substitution/addition to the earlier application. This application was allowed. The Tribunal accepted that it had not considered certain grounds urged by the Assessee and by an order dated 4[th ]August, 2006, recalled its earlier order dated 25[th] June, 2004. 9.The Tribunal, thereafter, passed an order dated 28[th] September, 2007, which is impugned in ITA 705/2008, allowing the Assessee’s appeal principally on the ground that surpluses disclosed by the Assessee in the Books of Accounts maintained in the regular course could not be considered as ‘undisclosed income’ of the Assessee under Chapter XIV-B of the Act. The Tribunal further accepted the contention of the Assessee that it was not required to file its return as its income was exempt under Section 10(22) of the Act. The Tribunal, having allowed the appeal as aforesaid, did not decide the issue with respect to the validity of the search under Section 132 of the Act and the consequent initiation of proceedings under Chapter XIV-B of the Act. 10.In the meantime, the AO also passed an order dated 13[th ]January, 2005 imposing penalty under Section 158BFA(2) of the Act. The Assessee’s appeal against the said order was dismissed by the CIT(A) on 10[th] January, 2008. The Assessee preferred a second appeal before the Tribunal, which was allowed by an order dated 6[th ]June, 2008. The said order is the subject matter of appeal in ITA 924/2009. In the meantime, by an order dated 27[th ]March, 2002, the AO framed an assessment under Section 143(3) of the Act for the Assessment Year 1999-2000. The Assessee’s claim for exemption under Section 10(23C) of the Act was rejected by the AO following an earlier decision in relation to the block period. 11.The Assessee preferred an appeal against the assessment order dated 27[th] March, 2002 passed in respect of Assessment Year 1999-2000, which was partly allowed by CIT(A) on 10[th] July, 2003. The Assessee preferred a further appeal against the order dated 10[th ]July, 2003 to the Tribunal which was disposed of by an order dated 15[th] May, 2009. The Tribunal restored the assessment to the file of the AO for fresh adjudication after ascertaining the outcome of the petitioner’s application for approval under Section 10(23C) of the Act, which was at the material time pending before the prescribed authority. 12.On 29[th ]December, 2010, the petitioner’s application for grant of approval under Section 10(23C) of the Act was rejected. The Assessee has filed an application for rectification of the said order, which is stated to be pending. 13.The appeals (705/2008 and 924/2009) were, accordingly, heard on the following questions of law: A.Whether the Revenue is entitled to challenge the order dated 4[th]August, 2006 passed by the Tribunal in this appeal? B.If the answer to question (A) is in favour of the Revenue, whether on the facts of the present case, the Tribunal was correct in law in recalling its order dated 25[th] June, 2004? C.Whether, in the given facts and circumstances, an assessment under section 158BC could be made in respect of the income of Assessee as recorded in its books maintained in the regular course 13.The appeals (705/2008 and 924/2009) were, accordingly, heard on the following questions of law: A.Whether the Revenue is entitled to challenge the order dated 4[th]August, 2006 passed by the Tribunal in this appeal? B.If the answer to question (A) is in favour of the Revenue, whether on the facts of the present case, the Tribunal was correct in law in recalling its order dated 25[th] June, 2004? C.Whether, in the given facts and circumstances, an assessment under section 158BC could be made in respect of the income of Assessee as recorded in its books maintained in the regular course treating the same as ‘undisclosed income’? D.Whether the Tribunal was correct in law in holding that the Assessee was entitled to the benefit of exemption under Section 10(22) of the Act? E.Whether the Tribunal was correct in deleting the penalty imposed on the Assessee? 14.In addition, the parties were also heard on the question whether the order dated 29[th] December, 2010 passed by DGIT(E) - which is impugned in W.P.(C) 3797/2007 - rejecting the petitioner’s application for approval under section 10(23C) of the Act, was erroneous and unjustified? Submissions on behalf of the Revenue 15.At the outset, Mr Kamal Sawhney, learned Senior Standing counsel for the Revenue contended that the decision of the Tribunal to recall its earlier order dated 25[th] June, 2004 was patently erroneous. He pointed out that the only reason on account of which the Tribunal had recalled its earlier order dated 25[th] June, 2004 was non-consideration of certain grounds urged by the Assessee. He submitted that the said reason was patently erroneous as the grounds of appeal in question (i.e., Ground No. 6, 14.1, 14.2, 9, 10 & 17) had been specifically considered by the Tribunal in its order dated 25[th] June, 2004. He contended that the Tribunal had completely reheard the matter and had decided the appeal contrary to the earlier decision made on 25[th] June, 2004. 16.He referred to the decision of the Madras High Court in Vyline Glass Works Ltd. v. Assistant Commissioner of Wealth Tax: (2015) 371 ITR 355 (Mad.) in support of his contention that where a Tribunal renders a judgment without dealing with the specific factual situation, the same would be an irregularity of procedure and would not warrant a recall of the order. He submitted that, therefore, the Tribunal’s order dated 4[th] August, 2006 was erroneous and was liable to be set aside. 17.Mr Sawhney further submitted that the Tribunal’s order dated 4[th]August, 2006 recalling its earlier order dated 25[th] June, 2004 had not been challenged at the material time as an appeal against the said order was not maintainable under Section 260A of the Act. He, however, submitted that notwithstanding the fact that the Tribunal’s decision dated 4[th] August, 2006 had not been challenged at the material time, the Revenue could, nonetheless, challenge the same along with the final order. He referred to the Full Bench decision of this Court in Lachman Dass Bhatia v. Assistant Commissioner of Income Tax: ITA 724/2010, decided on 6[th] August, 2010 and drew the attention of this Court to paragraphs 21 to 24 of the said decision in support of his contention that where an order under Section 254(2) of the Act is passed recalling the earlier order and the main order under Section 254(1) is passed thereafter, both the said orders could be challenged in an appeal preferred against the later order under Section 254(1) of the Act. 18.It was next contended by Mr Sawhney that the Tribunal had erred in accepting the Assessee’s contention that the surpluses recorded in its books of accounts maintained in the normal course could not be considered as ‘undisclosed income’. He contended that since the Assessee had not filed Commissioner of Income Tax: ITA 724/2010, decided on 6[th] August, 2010 and drew the attention of this Court to paragraphs 21 to 24 of the said decision in support of his contention that where an order under Section 254(2) of the Act is passed recalling the earlier order and the main order under Section 254(1) is passed thereafter, both the said orders could be challenged in an appeal preferred against the later order under Section 254(1) of the Act. 18.It was next contended by Mr Sawhney that the Tribunal had erred in accepting the Assessee’s contention that the surpluses recorded in its books of accounts maintained in the normal course could not be considered as ‘undisclosed income’. He contended that since the Assessee had not filed its return of income, it was not open for the Assessee to urge that the surplus recorded in its books was disclosed. He contended that it was incumbent upon an Assessee claiming exemption under Section 10(22) of the Act to file its return of income if the same exceeded the maximum amount not chargeable to tax ignoring the provisions of Section 11 and 12 of the Act. 19.He submitted that it was not open for the Assessee to consider its income as not chargeable to tax under Section 10(22) of the Act and avoid filing a return of income. He argued, empathetically, that the question whether the Assessee’s income was not taxable by virtue of Section 10(22) of the Act would arise only when the Assessee disclosed the same by filing a return. He referred to the decision of the Bombay High Court in Directorof Income Tax v. Malad Jain Yuvak Mandal Medical Relief Centre: (2001) 250 ITR 488 (Bom.) in support of his contention that the Assessee was obliged to file its return even though it claimed its income was not chargeable to tax by virtue of Section 10(22) of the Act. 20.In addition to the non disclosure of surpluses recorded in the books, Mr Sawhney submitted that the unaccounted cash of `44 Lacs was found in the residence of Col. Satsangi and the same would warrant making an assessment under Chapter XIV-B of the Act. 21.Mr Sawhney also contested the Assessee’s claim that it was entitled to exemption under Section 10(22)/10(23C) of the Act. He argued that the Assessee had consistently generated surpluses after meeting its revenue and capital expenditure and this indicated that the pre-dominant object of the Assessee was not to impart education but to generate profits and the activity of running and managing educational institutions was carried on, pre-dominantly, with the object of generating profits. In addition, he referred to the findings recorded by the Tribunal in its order dated 25[th] June, 2004 where it was held that non-educational activities were being conducted by the Assessee which included sale and purchase of immovable properties; investment of `4,33,620/- made with BVR Plantations and `2 lacs investment made with Consortium Finance; uncontrolled utilisation of funds by the Chairman of the Assessee; purchase of farm by the daughter of the Chairman of the Assessee; and advances made to the wife of the Chairman of the Assessee. He submitted that the instances noted by the Tribunal clearly indicated that the Assessee was not carrying on its activities solely for the purposes of education but was also indulging in other commercial activities in addition to benefiting the Chairman of the Assessee and his family members. 22.Mr Sawhney referred to the following decisions in support of his contention that the Assessee was not eligible for claiming the benefit of Section 10(22) /10(23C) of the Act: (1) Aditanar Educational Institution v. ACIT: (1997) 224 ITR 310 (SC) (2) ACIT v. Surat Art Silk Cloth Manufactures Association: (1978) 121 ITR 1 (SC). (3) American Hotel & Lodging Association, Educational Institute v. CBDT: (2008) 301 ITR 86 (SC). (4) Vishvesvaraya Technological University v. ACIT: (2014) 362 ITR 279 (Karnataka). Submissions on behalf of the Assessee other commercial activities in addition to benefiting the Chairman of the Assessee and his family members. 22.Mr Sawhney referred to the following decisions in support of his contention that the Assessee was not eligible for claiming the benefit of Section 10(22) /10(23C) of the Act: (1) Aditanar Educational Institution v. ACIT: (1997) 224 ITR 310 (SC) (2) ACIT v. Surat Art Silk Cloth Manufactures Association: (1978) 121 ITR 1 (SC). (3) American Hotel & Lodging Association, Educational Institute v. CBDT: (2008) 301 ITR 86 (SC). (4) Vishvesvaraya Technological University v. ACIT: (2014) 362 ITR 279 (Karnataka). Submissions on behalf of the Assessee 23.Countering the arguments advanced on behalf of the Revenue, Mr Ajay Vohra, learned Senior Counsel appearing for the Assessee submitted that since Revenue had not challenged the order dated 4[th] August, 2006 passed by the Tribunal under Section 254(2) of the Act, it was not open for the Revenue to impugn the same in the present appeal. 24.Mr Vohra next contended that by virtue of Section 10(22) of the Act, the income of the Assessee was not chargeable to tax and, therefore, the Assessee was also not liable to file its return of income under Section 139 of the Act. 25.Mr Vohra pointed out that during the period in question, the Assessee was not claiming any benefit under Section 11 or 12 of the Act, which related to exempting income derived from property held wholly for charitable or religious purposes; but was claiming benefit of section 10(22) of the Act, which provided a specific exemption to certain educational institutions. Therefore, the provisions of Section 139(4A) of the Act, which required an Assessee claiming benefit under sections 11 and 12 of the Act to file a return if its income exceeded the maximum amount not chargeable to tax, was inapplicable. He also referred to Section 158BB(1)(c)(B) of the Act and contended that the entries recorded in the books of accounts and other documents maintained in the normal course on or before the date of search would not be assessed as undisclosed income if the income did not exceed the maximum amount not chargeable to tax. Mr Vohra relied upon the decision of this Court in L.R. Gupta v. Union of India: (1992) 194 ITR 32 (Delhi) in support of his contention that the surpluses as disclosed in the regular books of accounts could not be considered as undisclosed income only for the reason that the Assessee, claiming the same to be not chargeable to tax under the provisions of the Act, had not disclosed the same in its return. 26.Mr Vohra also pointed out that notice under Section 148 of the Act had been issued to the Assessee but the same had not been proceeded with. He submitted that the pre-condition for issuance of notice under Section 148 of the Act is a belief that the income of an Assessee had escaped assessment and as the AO had decided not pursue the matter under Section 147 and 148 of the Act, it was not open for the AO to claim that the surpluses generated by the Assessee were ‘undisclosed income’. Mr Vohra further emphasized that the question whether the Assessee was entitled to the benefit under Section 10(22) of the Act could not be a subject matter of determination in assessment for the block period under Section 158BC of the Act. 27.It was next urged by Mr Vohra that the Assessee had existed solely for educational purposes and not for the purpose of profit. He submitted 27.It was next urged by Mr Vohra that the Assessee had existed solely for educational purposes and not for the purpose of profit. He submitted that merely because the Assessee had generated surpluses in certain years, the same would not indicate that the Assessee was not existing solely for educational purposes. He referred to the decisions of the Supreme Court in Queens Educational Society v. CIT: (2015)] 372 (ITR) 699 (SC); Indian Chamber of Commerce v. CIT: (1975) 101 ITR 796 (SC); Aditanar Educational Institution v. CIT: (1997) 224 ITR 310 (SC) and Oxford University Press v. CIT: (2001) 247 ITR 658 (SC) in support of his contention that the pre-dominant purpose test must be used to determine whether the Assessee was existing only for educational purposes. He submitted that if the aforesaid test is applied, it would be apparent that the Assessee was existing solely for educational purposes and not for the purposes of profit. He further submitted that the institutions managed and run by the Assessee were affiliated to the Central Board of Secondary Education (CBSE) and as per the prevalent rules, affiliation could be granted only to non-profit institutions/societies. Mr Vohra also referred to the objects of the Assessee Society and also drew the attention of this Court to clause 21 and 22 of the Rules and Regulations of the Society, which provided that on dissolution of the society, its properties both movable and immovable would not be distributed amongst the members but would be given to another society having similar aims and objects. He urged that the objects of the society and the Rules and Regulations prohibited distribution of any surplus and, therefore, it could not be disputed that the Assessee existed only for the purposes of education and not for profit. 28.Insofar as the instances relating to the funds of the Assessee being made available to the Chairman and his family members were concerned, Mr Vohra submitted that the same were in the nature of advances to employees. He contended that the Chairman and his wife as well as other persons mentioned by the AO were also employees of the School/Assessee and were also given advances similar to other employees. Regarding the investments made by the Assessee in FDRs, BVR Plantation, Consortium Finance and other assets were concerned, Mr Vohra submitted that at the material time there was no restriction as to the investments that could be made by an educational institution claiming benefit under Section 10(22) and 10(23C) of the Act. He submitted that the restrictions to make investments other than in the form as specified under Section 11(5) of the Act were not applicable to institutions claiming exemption under Section 10(22) of the Act. Similar restrictions were imposed by proviso to Section 10(23C)(vi) of the Act by virtue of the Finance Act, 1998 w.e.f. 1[st] April, 1999; however, by virtue of the fifth Proviso to Section 10(23C)(vi) of the Act, exemption would not be denied to an Assessee if the investments were made prior to 1[st] June, 1998 and that the funds did not continue to remain so invested after 30[th] March, 2001. The effect of the aforesaid proviso was to grant the Assessees time till 30[th] March, 2001 to ensure that non-conforming investments were disinvested and funds were invested in conformity with Section 11(5) of the Act. 29.Mr Vohra submitted that all investments had been returned/liquidated by the Assessee prior to the specified date, except the investment in BVR Plantation Ltd., which was not recoverable as the said company was under liquidation. He contended that in the given circumstances the exemption under Section 10(22)/10(23C) of the Act could not be denied for the reason that the Assessee had invested its funds in real estate and other investments. 29.Mr Vohra submitted that all investments had been returned/liquidated by the Assessee prior to the specified date, except the investment in BVR Plantation Ltd., which was not recoverable as the said company was under liquidation. He contended that in the given circumstances the exemption under Section 10(22)/10(23C) of the Act could not be denied for the reason that the Assessee had invested its funds in real estate and other investments. 30.Mr Vohra also advanced contentions to assail the order dated 29[th]December, 2010 passed by the DGIT(E) rejecting the Assessee’s application for approval under section 10(23C) of the Act. He canvassed that the scope of examination for the purposes of granting (or refusing) approval under Section 10(23C)(vi) was limited to considering whether the objects and the nature of an Assessee fell within the scope of Section 10(23C)(vi) of the Act and whether the university or institution actually existed. Mr Vohra submitted that the approval contemplated under Section 10(23C)(vi) is to be granted at the beginning of the assessment year and, therefore, compliance of provisos to Section 10(23C), which also included the manner of utilization of funds by the Assessee, was outside the jurisdiction of DGIT(E). He referred to the decision of American Hotel & Lodging Association, Educational Institute vs. CBDT:(2008)301 ITR 86 (SC) in support of its contention. 31.In addition, it was submitted that the Assessee’s application for approval could not be rejected on account of failure on the part of the Assessee to furnish the audit report along with the application. Mr Vohra contended that prescribed form for making an application for approval under Section 10(23C)(vi), Form-56D, only required that the same be accompanied by audited accounts and it was not mandatory to enclose the audit report of the Chartered Accountant. Further, the Assessee had furnished the audit report when called upon to do so and, therefore, its application for approval under Section 10(23C)(vi) of the Act could not be rejected for the reason that it was not accompanied with an audit report. Reasoning and Conclusions Whether the Revenue can impugn the Tribunal’s order dated 4[th] August, 2006 32.The first and foremost issue that needs to be addressed is whether the Revenue can, in this appeal (i.e. ITA 705/2008), assail the order dated 4[th]August, 2006 passed by the Tribunal recalling its earlier order dated 25[th]June, 2004. 33.At the outset, it is relevant to note that the Assessee had, by way of an appeal (being ITA No.275/2005) filed in this court, impugned the order dated 25[th] May, 2004 passed by the Tribunal. The Assessee had also filed an application before the Tribunal under Section 254(2) of the Act for recall of the said order, in which the Assessee succeeded resulting in the order dated 4[th] August 2006; the same was also informed to this Court. On 6[th]November, 2013, in proceedings relating to the appeal filed by the Assessee i.e. ITA No. 275/2005, the counsel for the Revenue informed this court that the Revenue was likely to file an appeal against the Tribunal’s order of 4[th]August, 2006 and the hearing was adjourned. However, the Revenue neither filed any appeal against the order dated 4[th] August, 2006 nor filed any other proceedings to challenge the said order. In the circumstances, the Assessee’s appeal (ITA No. 275/2005) against an order dated 25[th] June, 2004 was disposed of by this Court on 13[th] February, 2014, as being infructuous. The only inescapable conclusion that can be drawn is that the Revenue had accepted the order dated 4[th] August, 2006 passed by the Tribunal and, thus, it would not be open for the Revenue to challenge the same in the present proceedings. The contention advanced by the Revenue that the Tribunal’s decision of 4[th] August 2006 could be challenged in this appeal (ITA 705/2008) filed against the Tribunal’s order of 28[th] September, 2007, is without merit. The reliance placed by the learned counsel for the Revenue on the decision of a Full Bench of this Court in Lachman Dass Bhatia(supra) is also entirely misplaced; the ratio of that decision is quite to the contrary. In that case, the Full bench of this Court had summarised its conclusionin the following words:- “23. In view of our foregoing analysis, we proceed to record our conclusions in seriatim: (i)An order passed under Section 254(2) recalling an order in entirety would not be amenable to appeal under Section 260A of the Act. order in entirety would not be amenable to appeal under Section 260A of the Act. (ii)An order rejecting the application under Section 254(2) is not appealable. 254(2) is not appealable. (iii)If an order is passed under Section 254(2) amending the order passed in appeal, the same can amending the order passed in appeal, the same can be assailed in further appeal on substantial question of law.” 34.The Court had further clarified that in cases where an appeal was not maintainable against an order under section 254(2) of the Act, the same could be challenged by way of a writ petition under Article 226 and 227 of the Constitution of India. 35.In the given circumstances, it was always open for the Revenue to challenge the Tribunal’s order dated 4[th] August, 2006 by filing an appeal on a substantial question of law, if it considered that the order dated 4[th]August, 2006 had partly amended the order dated 25[th] June, 2004. It was also open for the Revenue to challenge the said order by filing a writ petition as observed by the Full Bench of this Court in the aforementioned decision. However, the Revenue did neither. In the circumstances, it would not be open for the Revenue to assail the order dated 4[th] August, 2006 in the present appeals in the manner as is sought to be argued on behalf of the Revenue. –36.Accordingly, the first question question A, is answered in the negative; that is, against the Revenue and in favour of the Assessee. Consequently, there is no need to consider the second question. Whether block assessment under section 158BC could be made in respect of surpluses disclosed in the books maintained in the normal course. 37.The next question that needs to be addressed is whether, in the given facts, an assessment could be made by the AO under Section 158BC of the Act. It is not disputed that the AO would have jurisdiction to make an assessment under Section 158BC only if the search and seizure operations carried out by the income tax authorities revealed any ‘undisclosed income’. Admittedly, other than the surpluses as disclosed by the Assessee in the books maintained by it in the normal course of its activities, the AO has not made any addition or bought to tax any income in the hands of the Assessee. Thus, the point in issue is whether the surpluses as disclosed in the books of accounts could be considered as ‘undisclosed income’ of the Assessee. 38.Section 158B(b) defines undisclosed income as under:- “(b)“undisclosed income” includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property Assessee. 38.Section 158B(b) defines undisclosed income as under:- “(b)“undisclosed income” includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act [or any expense, deduction or allowance claimed under this Act which is found to be false.” 39.A plain reading of the definition of ‘undisclosed income’ as quoted above indicates that undisclosed income would include income based on the entries in the books of accounts, which has not been or would not have been disclosed for the purposes of the Act. The Assessee has been maintaining records in its normal course and there is no allegation that the said books had ever been asked for and not produced by the Assessee or that the Assessee was maintaining separate/parallel books of accounts with a view to conceal its receipts and payments. The Assessee has been operating its bank accounts in the normal course and there is no material, which would give rise to any apprehension that the Assessee would not have produced his books of accounts or disclosed the same if called upon to do so. Thus, a conclusion that the Assessee would not have disclosed the surpluses as recorded in its books cannot be drawn. The only aspect that remains to be considered is whether the surpluses recorded in the books could be considered as undisclosed income of the Assessee solely for the reason that the Assessee had not filed a return disclosing the same. 40.The expression ‘undisclosed income’ would connote assets or income, which the Assessee believes to be taxable and seeks to conceal the same from the Income Tax Authorities. The surpluses, which are recorded by the Assessee in its books maintained in the normal course and which according to the Assessee are not chargeable to tax cannot be assumed to be ‘undisclosed income’ only for the reason that a return of income surrendering the said surpluses to tax has not been filed; particularly, where the Assessee, for bona fide reason, subscribes to the view that he is not required to file his return of income. 41.At this stage, it is also necessary to mention that the AO had issued a notice under Section 148 of the Act to tax the income of the Assessee on the ground that it had escaped assessment. These proceedings were abandoned and not pursued by the AO. Clearly, the only inference that can be drawn is that either the AO was satisfied that the income of the Assessee had not escaped assessment and/or that the proceedings under Section 147/148 of the Act were not maintainable. It is also apparent that the AO was in knowledge of the activities carried on by the Assessee. 42.This Court in the case of L.R. Gupta (supra) had considered the ’expression ‘undisclosed income or property in the context of Section 132 41.At this stage, it is also necessary to mention that the AO had issued a notice under Section 148 of the Act to tax the income of the Assessee on the ground that it had escaped assessment. These proceedings were abandoned and not pursued by the AO. Clearly, the only inference that can be drawn is that either the AO was satisfied that the income of the Assessee had not escaped assessment and/or that the proceedings under Section 147/148 of the Act were not maintainable. It is also apparent that the AO was in knowledge of the activities carried on by the Assessee. 42.This Court in the case of L.R. Gupta (supra) had considered the ’expression ‘undisclosed income or property in the context of Section 132 of the Act. In that case, the Assessee had received compensation against acquisition of land in and around Delhi. The said amount had not been disclosed by the Assessee in its return because, according to the Assessee, the said amount was not taxable as an appeal had been filed against the quantum of compensation by the Union of India, which was pending consideration in the Court and another appeal had also been filed by the Gram Sabha and the owners of the property challenging the right of the Assessee to receive such compensation. However, the said compensation had been dealt with through normal banking channels and the Income Tax Authorities were aware of the same. Nonetheless, warrant of authorisation for search under section 132 of the Act in respect of the Assessee was issued and the fact that the compensation received by the Assessee had not been disclosed by the Assessee in its Income Tax Return or in his Wealth Tax Return was recorded as one of the reasons for issuing such authorization to conduct search and seizure operation in respect of the Assessee. This Court repelled the arguments that non-disclosure of receipt of compensation in the return filed by the Assessee could be considered as undisclosed income. The Court explained that non-disclosure of assets and funds, which the Assessee believed to be not chargeable to tax, in his returns would not render the same to be treated as undisclosed income; even if the Assessee’s opinion may be incorrect in law, but if the income tax department is aware of such income, the same could not be considered as undisclosed. The Court observed that the department would be justified in issuing notice under Section 148 of the Act but search and seizure operation on the basis that the Assessee was in possession of undisclosed income would not be warranted. The relevant extract of the said decision is quoted as under:- “32. Sub-clause (b) of Section 132(1) refers to cases where there is reason to believe that if any summons or notice, as specified in the said sub clause (a) has been issued or will be issued then that person will not produce or cause to be produced the books of accounts etc. In other words, the said provision refers to the belief which may be formed by the Appropriate Authority to the effect that the person concerned is not likely to voluntarily or even after notice produce documents before the Income Tax authorities. Where, for example, there is information that a person is hiding or likely to hide or destroy documents or books of accounts which are required or are relevant for the purposes of the Act then in such a case it can be said that unless and until search is conducted the said books of account or documents will not be recovered. The belief of the authority must be that the only way in which the Income Tax Department will be in a position to obtain books of accounts and documents from a person is by the conduct of a search and consequent seizure of the documents thereof. In our opinion some facts or circumstances must exit on the basis of which such a belief can be formed. For example, if the Department has information that a person has duplicate sets of account books or documents where havala transactions are recorded then the Department can legitimately come to the conclusion that if a notice is sent then that person is not likely to produce the said documents etc. Duplicate books of accounts and such like documents are maintained primarily for the reason that they are not to be produced before the Income Tax aut