DCIT(EXEMPTION), CIRCLE-1(1), DELHI vs. KARMANYA EDUCATION FOUNDATION, DELHI
Income Tax Appellate Tribunal, DELHI BENCHES: C : NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI AVDHESH KUMAR MISHRAAssessment Year: 2017-18
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the Revenue against the order dated
24.05.2024 of the Commissioner of Income-tax (Appeals), NFAC, Delhi
(hereinafter referred to as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.CIT(A), Delhi-40/10496/2019-20 arising out of the appeal before it against the order dated 29.12.2019 passed u/s 143(3) of the 2
Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the DCIT, Circle
Exempt 1(1), Delhi (hereinafter referred to as the Ld. AO).
The grounds of appeal taken by the Revenue read as under:- “1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) for the AY 2017-18 has erred in deleting the addition of Rs.3,30,82,692/- (25% of Rs.11,90,73,294/-+ Rs.1 ,32,57,474/-) on account of payment made to related parties by treating the payments was made as per fair market value. The Ld. CIT(A) has not take into consideration that the payments have been made by the assessee company to its Holding Company without following any qualitative screening process to select the most suitable vendor, which could provide the assessee company, the same quality services and that too at extremely competitive rates.
Therefore, the payment of amounts paid to specified person of the assessee company cannot be treated as reasonable and hence the provision of section 13(1 )(c) are clearly attracted in the case of the assessee.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) for the AY 2017-18 has erred in deleting the addition of Rs.21,79,000/- by stating that Due to the violation of Section 13, the assessee cannot be denied the benefit of Sections 11 and 12. Since the benefit u/s 11, 12 and 13 of the Act has been denied the contribution received by the assessee is part of its income.
On the facts and in the circumstances of the case and in law, the Ld.C1T(A) has erred in deleting the addition of Rs. 40,80,000/- in respect of royalty. The royalties paid by the foundation to its holding company along with its nominees, who holds the entire share capital of the assessee company, that these payments do not reflect genuine transactions but rather a means to transfer/divert application income within related entities which is clear violation of Section 13(3) of the Act.
O n the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.25,28,757/- on account of Corporate guarantee. It will be worth mentioning here that the subsidiary company has not charged any amount towards the Corporate Guarantee extended by it which raises significant questions about the transaction's adherence to arm's length principles and its financial prudence. 5. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of 1,51,13,775/- in respect of depreciation claimed by the assessee. It may be noted here that the Ld. CIT(A) has observed that he had claimed cost of asset as application of 3
fund during A.Y. 2017-18 and depreciation was not claimed as an application of fund. Further, on perusal of audit report it was found that the assessee has claimed depreciation amounting to Rs. 1,51,13,775/- and no definitive documents have been provided by the assessee to indicate whether the depreciation claimed pertains to the current year or earlier years. In view of this if the capital expenditure in respect of assessee has already been allowed as application of income in previous years then the claim of depreciation cannot be allowed, If the depreciation is allowed, the assessee shall have the double benefit of both application and depreciation.
The appellant may be permitted to add, alter or amend any of the foregoing ground in appeal.”
The assessee company was incorporated on 24.03.2005 with an object of establishing and running educational and research institutions and to take over and administer the Colors Foundation, a Trust registered with Sub-