In the absence of new material facts, the principle of consistency

In the absence of new material facts, the principle of consistency applies and school’s surplus cannot be assessed separately when integrated into the parent board’s accounts.

Issue

Whether the surplus/income of a school can be separately assessed in its hands under Section 144 of the Income-tax Act, 1961, when it claims to be part of an overarching board (CDBE) whose accounts include the school’s income, and where the Revenue had accepted this position in previous assessment years without any change in facts.

Facts

Non-Filing of Return: The assessee, an educational institution/school, did not file its Income Tax Return (ITR) for the Assessment Year (AY) 2017-18.
Notice Under Section 142(1): Following information regarding cash deposits made during the demonetization period, the Assessing Officer (AO) issued a notice under Section 142(1) directing the assessee to file its return.
Claim of Entity Integration: The assessee submitted that it was an integral part of the Chhattisgarh Diocese Board of Education (CDBE) and that its financial transactions, including income and expenditure, were accounted for within CDBE’s overall financial statements.
Best Judgment Assessment (Section 144): The AO rejected the assessee’s claim citing a lack of supporting evidence and completed the assessment under Section 144, treating the surplus from the school’s income and expenditure account as taxable income in the assessee’s hands.
Failure to Verify: Neither the AO nor the Commissioner of Income-tax (Appeals) [CIT(A)] conducted a verification of whether the school’s income was indeed declared in CDBE’s audited accounts for the year under consideration.
Past Precedent: For AY 2015-16, the Revenue had previously accepted the assessee’s claim that it operated as a constituent unit of CDBE.

Decision

Rule of Consistency Applied: The Tribunal/Court held that since the Revenue had accepted the assessee’s status as part of CDBE in AY 2015-16, it could not arbitrarily alter its position for AY 2017-18 without showing any new material or change in factual circumstances.
Defective Assessment: The lower authorities erred by making a best judgment assessment without verifying whether the surplus was already reflected and assessed in the hands of CDBE.
Outcome: The addition made in the hands of the assessee school was set aside, and the issue was decided in favor of the assessee.

Key Takeaways

Principle of Consistency: While res judicata strictly does not apply to income tax proceedings on a year-to-year basis, the Revenue cannot change its established stand on a fundamental aspect unless there is a material change in facts or law.
Duty of Verification: Before making a best judgment assessment under Section 144 by rejecting an entity’s claim of integrated accounting, tax authorities are obligated to verify the parent entity’s financial statements.
Avoidance of Double Taxation: Income reflected and accounted for in the consolidated or main financial statements of a parent board cannot be taxed separately in the hands of a constituent unit without proving independent existence or unreported income.

IN THE ITAT RAIPUR BENCH ‘DB’

Burgess English Senior Secondary School

ITO

Partha Sarathi Chaudhury, Judicial Member
and DR. DIPAK P. RIPOTE, Accountant Member

IT Appeal No. 486 (RPR) of 2024
[Assessment year 2017-18]

JUNE 29, 2026

Sunil Kumar Agrawal, CA for the Appellant. CH. Rajeswara Reddy, Sr. DR for the Respondent.

ORDER

Partha Sarathi Chaudhury, Judicial Member. – This appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi, passed under section 250 of the Income Tax Act, 1961 (‘the Act’) for the Assessment Year (AY) 2017-18 on 17.09.2024 emanating from assessment order under section 144 of the Act dated 14.12.2019.

2. The assessee has raised following grounds of appeal:

“Gr.No.1: “On the facts & circumstances of the case and in law, assessment made u/s144 for AY17-18 dt.14-12-19 is invalid; appellant having no legal status/sanctity to be assessed under the IT Act; it is a school’ comes under the registered society i.e. “Chhattisgarh Diocese Board of Education, Raipur” having PAN-AACAC1876F. which is an “AOP” having ’16 schools’ along with the appellant and the said registered society having a legal status to be assessed under the IT Act for AY17-18 for the transactions made by the appellant, the said registered society is granted registration u/s10(23C)(vi) from the CIT (Exemption), Bhopal order dt.6-4-22 effective from AY22-23 & is filing ROI since AY22-23 claiming exemption u/s10(23C)(vi); impugned assessment is invalid and is liable to be quashed.”

Gr.No.2: “On the facts & circumstances of the case and in law, assessment made u/s144 for AY17-18 dt.14-12-19 is invalid; as the AO himself accepted the contention of the assessee in reassessment order passed u/s147 for AY15-16 dt.31-3-23 that it is part of the registered society i.e., “Chhattisgarh Diocese Board of Education” having PAN-AACAC1876F, which is an “AOP” liable to be assessed under the IT Act: impugned assessment is invalid and is liable to be quashed.”

Gr.No.3: “On the facts and circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs.64,31,628 by treating it as business income in the hands of the appellant, while, transaction of Rs.64,31,628 is included & part of transactions of the registered society i.e., “Chhattisgarh Diocese Board of Education, Raipur” having PAN-AACAC1876F, which is an “AOP” and the said registered society is liable to be assessed on its hands only; impugned assessment is invalid and addition made is unjustified thus, assessment is liable to be quashed & addition is liable to be deleted; relied on Ch. Atchaiah (1996) (SC).

Gr.No.4: “The appellant craves leave, to add, urge, alter, modify or withdraw any grounds before or at the time of hearing.”

3. In this case, the assessee, i.e. Burgess English Senior Secondary School, Raipur, had not filed Income Tax Return (‘ITR’) for AY 2017-18. The ITO, Ward-1(2), Bilaspur received an information that during the demonetization period, the assessee had made cash deposits. Therefore, the ITO had issued notice under section 142(1) of the Act on 11.12.2017 asking assessee to file ITR. Subsequently, the ITO issued various notices which are mentioned in the assessment order. During the assessment proceedings, the assessee had submitted that the assessee runs a school the amount mentioned in the notice pertains to the fees which was directly paid by the students in the bank account mentioned in the notice. Thus, the assessee i.e. Burgess English Senior Secondary School, Raipur claimed that they had not deposited any cash but it is students who had deposited the same. The assessee has also submitted that the assesse is a part of Chhattisgarh Diocese Board of Education, Raipur. The Chhattisgarh Diocese Board of Education, Raipur, runs 12 schools and the assessee, Burgess English Senior Secondary School is part of the same. This claim was made by the assessee before the Ld. Assessing Officer (‘AO’), however, the Ld. AO rejected the claim on the ground that no evidence has been filed and accordingly, made an addition of Rs.64,31,628/-, which was the surplus emanating from the Income and Expenditure Account submitted by the assessee. The assessee filed appeal before the Ld. CIT(A). The assessee repeated the submission, however, the Ld. CIT(A) confirmed the addition as the assessee has PAN No.AAABB0788Q whereas the Chhattisgarh Diocese Board of Education, Raipur, has PAN No.AACAC1876F, therefore, the Ld. CIT(A) has treated the assessee as independent entity and confirmed the addition. It was pleaded before the Ld. AO as well as, the Ld. CIT(A) that the income of the assessee has been reflected in the income shown by the Chhattisgarh Diocese Board of Education, Raipur in the ITR. Ld. AR claimed that the Audited Balance Sheet, Receipt and Payment and Income and Expenditure account of Chhattisgarh Diocese Board of Education, Raipur was filed before the Ld. AO and Ld. CIT(A), which is at page 69 and 70 of the paper book. Ld. AR submitted that the entire income has been shown by the Chhattisgarh Diocese Board of Education, Raipur, therefore, there was no requirement for taxing the same in the hands of the assessee.

4. Ld. AR further submitted that in the assessment order for AY 2015-16, the Ld. AO has accepted the assessee’s claim that it is a part of Chhattisgarh Diocese Board of Education, Raipur. Ld. AR submitted that the department cannot change its stand for AY 2017-18.

5. Ld. DR accepted the fact that for AY 2015-16 in the assessment order passed under section 147 of the Act, the Ld. AO had accepted the assessee’s claim that it is a part of Chhattisgarh Diocese Board of Education, Raipur. Ld.DR further submitted that the assessment order for AY 2015-16 is bad in law and therefore, Ld. Pr.CIT has initiated the proceedings under section 263 of the Act. However, he could not furnish any evidences to that effect.

6. In this case, the assessee has repeatedly submitted that it is part of Chhattisgarh Diocese Board of Education, Raipur. The assessee also filed a copy of the Income and Expenditure and Balance Sheet of the Chhattisgarh Diocese Board of Education, Raipur. However, neither Ld. AO nor Ld. CIT(A) had bothered to verify the claim of the assessee that assessee’s income has been shown in the Income and Expenditure account of Chhattisgarh Diocese Board of Education, Raipur. It is also observed that for AY 2015-16, the Ld. AO has accepted the assessee’s claim that the assessee is a part of Chhattisgarh Diocese Board of Education, Raipur. The Ld. Sr. DR failed to furnish any distinguishable evidence to that as had appeared for A.Y.2015-16. The Ld. Sr. DR was unable to bring out what were the different factual position for present assessment year which was not there for A.Y.2015-16. That in absence of any contradicting evidence, the Revenue authorities are bound by the principle of consistency as held by the Hon’ble Apex Court in the case of Radhasoami Satsang v. CIT 193 ITR 321 (SC). That in absence of any distinguishable facts and evidence in the case of the assessee for the present year and also for the fact that there is no findings by the Revenue authorities verifying the claim of the assessee that the assessee’s income had already shown in the income expenditure account of Chhattisgarh Diocese Board of Education, Raipur and also for the fact that for A.Y.2015-16, the A.O had accepted the assessee’s claim that the assessee is a part of Chhattisgarh Diocese Board of Education, Raipur, hence, following the dictate of the Hon’ble Apex Court (supra), the claim of the assessee stands allowed.

7. The principle of consistency dictates that Indian Revenue authorities must maintain the legal stand on identical factual situations across different tax periods to prevent arbitrary decision making while each assessment year represents separate legal proceedings and the rule of “Res-judicata” does not apply to taxation, the Revenue authorities cannot shift their stance wildly without material change in facts or law. The Hon’ble Apex Court in the case of Bharat Sanchar Nigam Ltd. (BSNL) v. UOI (2006) 3 SCC 1 has held that the Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position.

8. In the facts of the present case before us, no new fact or material change has been proved to justify any change of stand between the assessment year 2015-16 and A.Y.2017-18 i.e. the year under consideration. Further, in the case of Berger Paints India Ltd. v. CIT 266 ITR 99 (SC), the Hon’ble Apex Court established that if the Revenue accepts a specific legal position or interpretation in the case of one taxpayer, it cannot challenge the very same proposition in the case of another taxpayer without just cause. The Hon’ble Allahabad High Court in the case of Samsung India Electronics (P.) Ltd. v. State of U.P. (Allahabad)/[Writ Tax No.660 Of 2023] decided on March 12, 2024 explicitly held that “consistency is sacrosanct in taxation matters”. When the Department accepts a refund or deduction stand for multiple periods, suddenly cannot deny the same for a specific period if the underlying transactions are identical.

9. The legal rationale as emanating from these aforesaid decisions are that when the Revenue on certain factual matrix on the basis of which, it had decided in a particular manner for a particular assessment year, the onus to prove is on the Revenue itself to demonstrate distinguish shift in the facts for new assessment year so to take a different view. In the present case before us the Revenue had failed to bring out any difference in facts between A.Y.2015-16 and the relevant assessment year i.e. A.Y.2017-18.

10. That as per above terms, the appeal of the assessee is allowed.