R K EDUCATIONAL INSTITUTION ,MANDYA vs. COMMISSIONER OF INCOME TAX(EXEMPTION), BANGALORE

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ITA 2741/BANG/2025Status: DisposedITAT Bangalore15 June 2026AY 2025-267 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found merit in the assessee's argument that the cash system of accounting led to date mismatches in vouchers and ledger entries. It restored the issue to the AO for fresh adjudication.

What were the facts?

The assessee, an educational institution, claimed various expenses but lacked proper documentation and had discrepancies in its accounting. The Assessing Officer disallowed these expenses, and the CIT(A) upheld the disallowance.

What were the issues?

Whether the disallowance of expenses due to discrepancies in accounting documents, particularly in a cash-based system, was justified. Whether the rejection of a registration application under Section 12AB warrants a fresh adjudication.

Which sections of the Income-tax Act were involved?

Section 250,Section 12A,Section 80G,Section 10(23C),Section 57,Section 12AB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

For Appellant: Shri R Chandrashekhar, Advocate
For Respondent: Shri N.S Shashidhara, CIT (DR)
Hearing: 04.06.2026Pronounced: 15.06.2026

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER

ITA No. 2740 & 2741/Bang/2025 Assessment Year: 2018-19 & 2025-26 RK Educational Institution Represented Vs. The Income Tax Officer, by its Secretary, Ward – 1 & TPS, Chandrakala P, Mandya. 16 K Honnalagere, Maddur Taluk, B.O K Honnalagere, Mandya District – 571 433. PAN – AAAAK 9273 E APPELLANT RESPONDENT Assessee by : Shri R Chandrashekhar, Advocate Revenue by : Shri N.S Shashidhara, CIT (DR) Date of hearing : 04.06.2026 Date of Pronouncement : 15.06.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The appeals filed by the assessee pertains to Assessment Years (A.Ys.) 2018-19 and 2025-26 and are directed against the order passed by the learned Commissioner of Income Tax (Appeals) [hereafter referred to as the 'learned CIT(A)'] under section 250 of the Income Tax Act, 1961 (hereafter referred to as 'the Act'), dated 08/09/2025 and 23/09/2025.

ITA No.2740 & 2741/Bang/2025 Page 2 of 7 ITA No. 2740/Bang/2025 (Assessment Year 2018-19)

The only issue raised by the assessee is that the learned CIT(A) erred in confirming the order of the AO by sustaining the disallowance of various expenses amounting to Rs. 75,02,702 for want of proper documents.

2.

The necessary facts are that the assessee is a trust engaged in operating educational institutions. However, the assessee was not registered under section 12A / 80G / 10(23C) of the Act. The assessee filed its return of income as an Association of Persons (AOP), declaring a gross income amounting to Rs. 2,63,08,486 and claiming expenditure under section 57 of the Act amounting to Rs. 3,09,22,072, consequently declaring a net loss of Rs. 46,13,586 only. However, during the assessment proceedings, the AO found that there was a mismatch in the supporting documents vis-à-vis the ledgers maintained for the expenses. Therefore, the AO made a disallowance of the expenses which were not properly supported by corroborative material, as detailed below: 1. Building Construction Expenses – Rs. 22,51,417.00 2. Vehicle Maintenance – Rs. 30,68,797.37 3. Hostel Expenses – Rs. 13,81,493.00 4. Uniform Expenses – Rs. 7,36,995.00 5. Purchase of CCTV – Rs. 64,000.00

3.

Aggrieved, the assessee preferred an appeal before the learned CIT(A). The assessee submitted that it had been maintaining its books of accounts on a cash basis, whereas the bills issued by the parties did not

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ITA No.2740 & 2741/Bang/2025 Page 3 of 7 match the dates of entries recorded in the ledger. As per the assessee, all the expenses claimed in the Income and Expenditure Account were duly supported by proper vouchers and bills. However, the learned CIT(A) disagreed with the contention of the assessee and confirmed the order of the AO by observing as under: “7. Ground No. 1: This ground is raised against the disallowance of expenditure on account of Building Construction Expenses of Rs. 22,51,417.00, Vehicle Maintenance of Rs. 30,68,797.37, Hostel Expenses of Rs. 13,81,493.00, Uniform Expenses of Rs. 7,36,995.00 and Purchase of CCTV of Rs. 64,000.00, totalling Rs. 75,02,702.00, even though the appellant had provided bills and vouchers, photographs of the building for having constructed the building along with a third-party engineer's certificate for having constructed the building and also submitted that the majority of the expenditure was incurred through banks. 7.1 I have carefully considered the grounds of appeal, the written submissions of the appellant, and the assessment order passed by the Assessing Officer. The facts of the case are that the appellant, an educational institution operating under the name "Koutilya Vidya Samsthe Changedas R.K. Educational Institution," filed its return of income for A.Y. 2018-19 declaring NIL income. The return was processed under section 143(1) and subsequently selected for limited scrutiny to examine the issue of "Deductions from Income from Other Sources." 7.2 During the assessment proceedings, the appellant was asked to furnish details and documentary evidence in support of various expenditure claims made in the Income and Expenditure Account. On scrutiny of the books of account, bills, vouchers, and ledger extracts submitted by the appellant, the Assessing Officer observed significant discrepancies, including non-sequential vouchers, use of non-existent dates, duplicate entries, missing or unaccounted transactions, and a lack of corroborating evidence in respect of multiple heads of expenditure. As a result, the AO disallowed various expenses aggregating to Rs. 75,02,702 and computed the total taxable income of the assessee at Rs. 28,89,120. 7.3 The appellant, in its submissions, has stated that the institution is situated in a remote rural area where expert accounting assistance is not readily available. It is also explained that the institution follows the cash basis of accounting and, due to operational constraints, the bill dates and voucher dates often do not match. It is contended that these technical discrepancies should not lead to a blanket disallowance of genuine expenses, especially when most payments were made through banking channels and the institution had provided third-party

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ITA No.2740 & 2741/Bang/2025 Page 4 of 7 confirmations such as engineer's certificates and building photographs in support of the claims. 7.4 While the practical difficulties faced by the institution in maintaining standard accounting practices in a remote location are acknowledged, the fact remains that the appellant, even during the appellate proceedings, has not been able to furnish adequate and reliable documentation to satisfactorily reconcile the discrepancies highlighted by the Assessing Officer. The inability to produce verifiable and consistent evidence in respect of substantial expenses claimed indicates a failure to discharge the onus of proof under the Income-tax Act. The explanation that the institution maintains accounts on a cash basis does not absolve the assessee from maintaining proper supporting documentation for verification purposes, especially when claiming significant deductions from income. 7.5 In view of the above facts and circumstances, I find no infirmity in the action of the Assessing Officer in disallowing the expenses under the heads 'Building Construction', 'Vehicle Maintenance', 'Hostel Expenses', 'Furniture & Fixtures', 'Uniform Expenses', and 'CCTV Purchase'. The disallowance of Rs. 75,02,702 and the consequent assessment of income at Rs. 28,89,120 under section 143(3) read with section 144B are, therefore, upheld.”

4.

Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. The learned AR before us filed a paper book running from pages 1 to 77 containing the ledgers of different expenses along with supporting vouchers and bills. The learned AR submitted that all the expenses claimed in the books of account are supported by vouchers/bills. However, the learned AR fairly admitted that the assessee is maintaining a cash system of accounting, meaning thereby that transactions are recorded in the books only upon payment, whereas the supporting bills may bear a different date. He argued that this mismatch cannot be a ground for doubting the genuineness of the expenses claimed by the assessee. The learned AR further submitted that all the documents have not been verified by the AO in the correct perspective and, therefore, prayed to restore the issue to the file of the AO for fresh adjudication as per the provisions of law.

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ITA No.2740 & 2741/Bang/2025 Page 5 of 7

5.

On the other hand, the learned DR did not raise any serious objection to restoring the matter to the file of the AO for fresh adjudication as per the provisions of law.

6.

We have heard both parties and perused the materials on record. From the preceding discussion, we note that the claims made by the assessee were held to be not genuine as there was a mismatch between the dates on which the transactions were recorded in the books of account vis-à-vis the dates of the vouchers/bills. We find force in the argument of the learned counsel that the mismatch arose merely on the reasoning that the assessee was following the cash system of accounting. We also find that this fact, i.e., the cash system of accounting, was brought to the notice of the learned AO under the same reasoning. But the same was not taken note by the AO. Therefore, in our considered view, the dispute on hand needs to be re-examined at the level of the AO. Therefore, in the interest of justice and fair play, we set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. Hence, this ground of appeal of the assessee is hereby allowed for statistical purposes.

ITA No. 2741/Bang/2025 (Assessment Year 2025-26)

7.

At the outset, we note that the registration application filed by the assessee under section 12AB of the Act was rejected by the learned CIT(E) for want of supporting documents. At the time of hearing, the learned AR prayed before us to set aside the issue to the file of the learned

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ITA No.2740 & 2741/Bang/2025 Page 6 of 7 CIT(E) for fresh adjudication as per the provisions of law and further undertook the responsibility of making the necessary compliances.

8.

On the other hand, the learned DR raised no objection to restoring the matter to the file of the learned CIT(E) for fresh adjudication as per the provisions of law.

9.

We have heard both parties and perused the materials on record. From the preceding discussion, we note that the learned CIT(E) rejected the application for registration under section 12AB of the Act on the grounds of diversion of funds to another trust, non-availability of the registration certificate under section 12AB of the other trust, and multiple cash transactions in the bank account which were not suitably explained. However, considering the undertaking given by the learned AR for furnishing all the necessary documents, we are inclined to restore the issue to the file of the learned CIT(E) for fresh adjudication as per the provisions of law.

10.

It is needless to mention that the assessee shall cooperate during the proceedings and furnish all the necessary documents and also avoid unwarranted adjournments. Hence, the ground of appeal filed by the assessee is hereby allowed for statistical purposes.

11.

In the result, the appeal of the assessee is hereby allowed for statistical purposes.

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ITA No.2740 & 2741/Bang/2025 Page 7 of 7 12. In the combine result, both the appeals of the assessee are hereby allowed for statistical purposes.

Order pronounced in court on 15th day of June, 2026

Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 15th June, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore

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