ABHIVYAKTI KALA KENDRA,BHOPAL vs. THE ASSISTANT COMMISSIONER OF INCOME TAX -1 (2), BHOPAL

Per Paresh M Joshi, J.M.:

This is an Appeal filed by the Assessee under section 253 of

the income tax Act 1961,[ herein after referred to as the Act

for the sake of brevity] before this tribunal as & by way of a

second Appeal. The Assessee is aggrieved by the order

bearingNumber:-ITBA/NFAC/S/250/2024-25/1073679420(1)

dated 25.02.2025 passed by the Ld. CIT(A) u/s 250 of the

Act, which is herein after referred to as the “Impugned

order”. The Relevant Assessment year is 2008-09 and the corresponding previous year period is from 01.04.2007 to

31.03.2008.

2.1 That as and by way of an Assessment order made u/s

143(3) of the Act, the total income of the Assessee was

quantified at NIL. However the loss claimed was of

Rs. -40,28,561/- which was disallowed. The assessee society

was directed not to carry forward any loss from the AY

2008-09 as the total income assessed was at NIL. That the

aforesaid assessment order is dated 24.12.2010 which is

herein after referred to as “Impugned Assessment Order”.

2.2 The assessee is a society registered under MP

societies Act. The objectives of the society have been stated

to be to develop awareness & to bring out the inherent

quality/talent in the youth & children in the field of art

dance & music etc. The aim of the society is not profit

making/earning & that the same should be treated as a

charitable in the nature as profit is not a main object.

2.3 The assessee society is not registered u/s 12A of the

act.

2.4 It is recorded in the “Impugned Assessment Order” that

“further from the perusal of list for members of the assessee

society (as submitted) it is seen that all the members

belong to the same family/close friend/relative & it is

seen that the same is being run as business concern & by

No stretch of imagination, the activities of the assessee

society can be said to be charitable in nature.”

2.5 It is also recorded in the “Impugned Assessment Order”

that “in the Tax audit report the nature of business of

society is stated to be an educational institution which

is far from the truth. From the activity of the assessee

society in conducting workshops & regular classes are

clearly business oriented and not for a charity.”

2.6 In the “Impugned Assessment Order” the core findings

are as under which we now reproduce as under:-

“From the perusal of income and expenditure account for the year under consideration filed by the assessee society, it is seen that it has shown income of Rs.36,37,577/- against which it has shown huge and excessive expenditure of Rs.769,66,138/- thereby declaring deficit/ loss of Rs.40,28,561/-. Whereas upto FY ended on 31/03/2007 there was surplus in the balance sheet of Rs.73,411/-. Further the assessee society has shown Garba expenses of Rs.99,74,871/- as against Garba income of Rs.94,00,008/- Thus debiting excess expenditure of Rs.5,74,863/- in the income and expenditure account. It is not out of place to mention that huge advertisement expenses of Rs.43,22,036/- has been incurred by the assessee society which is said to be paid to business concern run by the member of assessee society. No proper explanation/ justification has been given by the assessee society with respect to huge advertisement expenses paid to group business concerns where members are directors/owners of majority share holding.

Further from the perusal of Garba expenses it is seen that payments have been made to Vikram Vinod Sikri of Rs.2,30,000/-, hotel expenses of Sikri Brotheres Rs.58,735/-, payment made to Javed Bhai of Rs.2,00,000/-, Garba expenses at Indore of Rs.1,00,000/-, Garba decoration expenses of Rs.2,00,000/-. Thus it is seen that most of the Garba expenses are in round figures in thousands leading to suspicion that these all the expenses are estimated and excessively booked to show huge loss/ deficit. Some of these expenses voucher are not completely verifiable and have not been explained to justify its incurrence vise a versa Garba income received.

In view of the above findings/ observations excess expenses incurred to the extent of the loss claim of Rs.40,28,561/- are disallowed and the assessee society total income is assessee at NIL. The assessee society shall not be able to carry forward any loss from AY. 2008-09 as the total income assesseed at NIL.

2.7 That the assessee being aggrieved by the aforesaid

“Impugned Assessment Order” prefers the first appeal

u/s 246A of the act before the Ld. CIT(A) who by the

“Impugned Order” has dismissed the first appeal of the

assessee on the grounds & reasons stated therein. The core grounds & reasons for the dismissal of the first appeal was

as under:-

“6.3 I have gone through the grounds of appeal, assessment order and the submissions of the appellant. Remand report submitted by the AO and the rejoinder of the appellant have also been perused. The appellant society is not registered u/s. 12A of the IT Act. The AO observed that the activities of the assessee society in conducting workshops and regular classes are clearly business oriented and not for a charity. Most of the expenditure debited to Income and Expenditure are advertisement expenses and garba expenses. It is clear from the nature of expenditure that the appellant is running the classes only for business purpose. In the remand report, the AO submitted that the appellant failed to justify various expenses. The AO arrived at the logical conclusion after thorough investigation and after providing sufficient opportunities to the assessee and after considering assessee's submissions.

6.4 The Assessing officer disallowed the excess expenses claimed by the appellant under the head 'Advertisement and the Garba Expenses. Advertisement and promotional expenses incurred by a company for its business purposes are applicable for deduction under section 37 of the IT Act. The appellant needs to substantiate the expenditure incurred.

6.5 The AO observed from the Income and Expenditure account that the appellant had incurred Rs.43,22,036 towards advertisement as against total receipts from all the activities at Rs.36,37,577. The appellant's submission on the advertisement is not convincing. The appellant failed to submit bills and vouchers for the said expenditure. The Appellant has also failed to establish that these advertisements fetched any new business in the subsequent years. Moreover, the advertisement expenses were paid to the business concern run by the members of the society. They are related party transactions though legal, can create conflict of interest. The transaction must be executed in a fair and transparent manner. In the interest of natural justice, the Assessing officer has given several opportunities of hearing to submit explanation/evidence in support of its claim. The appellant has not produced any verifiable documentary evidence in this regard. From the above facts, it is clearly established that the appellant has nothing to support its claim. In these circumstances, I am of the opinion that no interference is required in the assessment order. Therefore, the disallowance of expenditure made by the AO to the extent of loss claimed of Rs.40,28,561 is confirmed. Grounds No. 1 is dismissed.

2.8 That the assessee being aggrieved by the “Impugned

Order” has preferred the instant second appeal before this

Tribunal & has raised the following grounds of appeal in the

form no. 36 against the “Impugned Order” which are as

under:-

“1. That, the learned CIT(A) grossly erred, both on facts and in law, in upholding the assessment order passed by the ld. AO under s.143(3) of the Act determining the income of the appellant at Rs. Nil, as against the Returned Loss of Rs. 40,28,561/-, thereby making an addition of Rs.40,28,561/- in the appellant's income.

3.1 The hearing in the matter took place before this

Tribunal on 16.04.2026 when the Ld. AR for & on the behalf

of the Assessee appeared before us & interalia contended

that the “Impugned Order” is bad in law, illegal & not

Proper. It therefore deserves to be set aside. The Ld. AR has

placed on the record of this Tribunal brief summary of the

case consisting of 11 pages & a PB containing pages 1 to

243.

3.2 The Ld. AR at the out-set & threshold of his arguments

submitted that the assessee is a society registered under

MP societies act 1973 & invited our attention to the PB

page 65 in this regard which is a certificate of registration

dated 23.04.1999 issued by ML saxena assistant registrar of

societies Bhopal MP.

3.3 It was next contended that the assessee society is not

registered u/s 12A/12AA of the Income Tax Act 1961.

3.4 It was submitted that by laws of the assessee society is

placed on record which are from the pages 65-75 of the

paper book.

3.5 The Ld. AR then stated that the assessee society had

filed the return of income at loss. Our attention was invited

to page 62 of the PB which we reproduce as below:- 3.6 The Ld. AR basis page 62 emphasised that the ROI is of

loss. The income components of the “income & expenditure

account” for the year ended 31.03.2008 was emphasized by

stating that the course fee was Rs. 1,69,0335/-, the

workshop income was 14,26,829/-. On the expenditure side

emphasis was laid on the salaries of Rs. 13,80,777/-,

advertisment expenses were at Rs. 43,22,036/-. Rent & taxes were at Rs. 607758/-, the Garba expenses were Rs.

99,74,871/- were as the income was Rs. 94,00,008/-

3.7 The Ld. AR then readout page 1 & page 2 of the

“Impugned Order”.

3.8 The Ld. AR then interalia submitted that the findings &

conclusions in the “Impugned assessment Order” is a very

generic finding. The books of accounts of the assessee

society are audited one. The assessee society has not made

any profit. The object of the society is not profit motive.

Since last few years and currently the assessee society is

focussing mainly on Garba events mostly in the MP at

Bhopal, Jaipur, Indore & Jabalpur.

3.9 In so far the “Impugned Order” of the Ld. CIT(A) is

concerned the assessee society had filed the additional

evidence before the first appellate authority. The remand

report was filed by the Ld. AO. The Ld. AR then readout para

6.3,6.4,6.5 of the “Impugned Order” which we have already

reproduced above.

3.10 Books of accounts are not rejected by the Ld. AO

anywhere, contended the ld. AR emphatically.

3.11 The “Impugned Order” is too generic in nature & NO

specific allegations of related party transactions have been

successfully established basis any evidence. The PB now

filed was before the Ld. CIT(A) including the additional

evidence. Nothing adversarial of the serious nature has

come out with regard to loss claimed.

3.12 Our attention was invited to the PB page 80-81 wherein

bill wise details of the expenses debited to P/L account are

mentioned. Basis PB page 82 it was submitted that 75%

discount was offered too by the “Dainik Bhaskar”. There is

nothing wrong in it.

3.13 Our attention was invited to the PB page 173 & 174

which was rate card of the Bhaskar group [National rate

card] to draw a point that discounted rate were given to the

assessee but the price was sole consideration for the

advertisement. Nothing adversarial is brought on record by

lower authorities in this regard.

3.14 Our attention was too invited to the paper book page

180-196. On page 196 entry of Rs. 32,33,836/- was high

lighted & emphasised. Our attention was simultaneously invited to page 179 which was copy of ledger account of DB

corporation in books of the assessee for the period

01.04.2007 to 31.03.2008 showing that TDS was

deducted(sample copy).

3.14 In sum up the Ld. AR stated & submitted that the

“Impugned assessment Order” is a generic order. The

books of accounts of the assessee society have not been

rejected u/s 145(3) of the act. The Ld. CIT(A) in the

“Impugned Order” has not appreciated the invoices.

Payments were made through banking channels, TDS

payments were made. The assessee society moto is not

profit making.

3.15 Per contra the Ld. DR for & on the behalf of the revenue

submitted that it is not a case of the Ad hoc disallowance.

It is a clear cut case of excess expenses basis of which was

excess advertisement given to DB group [Dainik bhaskar

group]. The advertisement expenses were for throughout

the year. P/L A/C shows five lakhs Garba. The Ld. DR

finally stated that the revenue places reliance on the

“Impugned assessment Order” & the “Impugned Order” & that both the orders are correctly passed. The Ld. AR has

failed to demolish the same basis any cogent ground. Both

the orders of the lower authorities should be upheld. Hearing

was then concluded & closed.

4.1 We have to decide the legality, validity and proprietary of the

“impugned order” basis records of the case & the rival

submission canvassed before us.

4.2 We have carefully perused the records of the case and have

heard the submissions.

4.3 We basis records of the case & after hearing & further

upon examining the rival contentions of the Ld. AR & the Ld.

DR canvassed before us, are of the considered opinion that

the assessee society is duly registered under MP societies

registration act 1973. Page 65 of the PB is registration

certificate as proof thereof. The main object of the

assessee society basis page 69 of PB is mainly to develop the

interest of young boys & girls towards the various forms of

art’s like paintings, drawings, English speaking, dance, Music etc. In brief the assessee society has been formed for

developing various cultural, social, & educational activities

so as to develop awareness so as to bring out the inherent

qualities/talent of the youth & the children in the various

field of arts, dance, Music etc. The Bye laws are placed on

paper book & same were perused by us. We also observe &

note that the assessee society has not opted for registration

u/s 12A/12AA of the Act. In the ROI page 27 of PB gross

total income is NIL. Current year loss is of

Rs. -40,28,561/-. TDS is of Rs. 31161/-. Refund of

31,161/- is claimed. As per the computation of income page

28 net loss as per the “income & expenditure account” is

Rs. -40,28,561/-. Total income is Rs. -40,28,561/-. We

notice that in the “Impugned Assessment Order” it is held

that assessee society is being run as a “business concern”

however any core commercial activities with the profit

motive has not been pointed out by the Ld. AO. The

original founder members are family members/ close

friends/ relative does not per establishes any commercial

motive looking at the byelaws of the society. In so far as observation off Ld. AO in the “Impugned Assessment

Order” basis TAR is concerned we notice basis by laws that

the activities actually carried out through may partake the

character of business income in the commercial sense but

the nature of activities is carried out keeping in mind

the broad objects of the assessee society which is to tap

& develop young boys & girls in field of art, Music, dance,

martial arts, paintings, drawings, etc. It is basically a

motivational activities short of commercial activities

with no profit motive. The income as per the income

expenditure account is 36,37,577/- whereas the

correspondingly there is a huge expenditure of

Rs.76,96,138/- hence the loss of Rs. -40,28,561/- perse

does not mean why the expenditure is more than the

income looking at aims & objects of the assessee society.

The assessee society has inherent right to carry on

activities for motivational purpose as per the bye law &

the revenue cannot hold otherwise. It cannot question the

huge excessive expenditure in the absence of any material on

record with regards to the diversion of funds, related party transaction, where there is a mutuality of interest &

financial flow running between both the parties & with

intend to avoid payment of taxes. No such evidence or

deep nexus oriented material is on record to establish

mutuality of interest & illicit financial flow resulting in

wrongful gain to DB group & wrongful loss to the

assessee & in such a situation there is a loss to

exchequer. Mere finding of a loss vis-à-vis heavy excessive

expenditure is not sufficient to disallow actual loss incurred.

4.4 The Ld. AO in the “Impugned Assessment Order” has

observed that up to the financial year ended on 31.03.2007

there was a surplus of Rs. 73,411/- in the balance sheet,

but how that surplus of the FY ended 31.03.2007 is relevant

for the year under consideration is not spelt out expressly

basis any analysis of balance sheet ended 31.03.2007 of

the assessee society. No empirical analysis is done in this

regard too where by any inference logically could be drawn

for disallowance of loss.

4.5 The assessee society has shown “Garba” expenses of Rs.

99,74,871/- as against Garba income of Rs. 94,00,008/- thus there is debiting of excess expenditure of Rs.

5,74,863/- in the income & expenditure account. At this

stage Ld. AO observes that huge advertisement expenses of

Rs. 43, 22,036/- has been incurred by the assessee society

which is said to be paid to the business concern run by

members of the assessee society. No proper

explanation/justification has been given by the assessee

society with respect to the huge advertisement expenses paid

to group concerns where members are directors/owner of

majority shareholding. In this regard we hold that merely

because the payments have gone to the group concerns by

itself is not proof to disallow the loss. Further mere fact that

the assessee society founder members are directors/owner of

majority shareholding of group concerns to whom the

payments for advertisement have been effected ipso facto

dose not establish that excessive loss is shown or excess

expenditure are made in the absence of any tangible material

on the record establishing a close & direct nexus with regard

to deliberate tax avoidance with intent to evade taxes

legitimately due to exchequer. We hold that the assessee society is at full & complete liberty to arrange it’s affairs

in a manner as they deem fit & proper. The Ld. AO

cannot question the wisdom of the assessee society’s any

decisions including business or otherwise if the same

is/are within the four corners of the law. There is no

finding of subterfuge & anything contrary to the law. There

is no allegation &/ or finding that the arrangement between

the assessee society & the group concerns (DB group) are

make believe arrangements &/ or sham.

4.6 Yet another ground to deny loss of Rs. 40,28,561/- basis

excess expenses is that the garba expenses where amount

expended on vikram vinod sikri is Rs. 2,30,000/-, hotel

expenses of sikri brother’s at Rs. 58,735/- payment to javed

bhai of Rs. 2,00,000/-, garba expenses of Rs. 1 lakh at

Indore, the Garba decoration expenses of Rs.2 lakh are in

the round figures, leading to suspicion that these expenses

are estimated & excessively booked to show huge loss/deficit.

Some of these are not completely verifiable & explained to

justify its incurrence vis-à-vis garba income received. In this

regard we hold that these expenses have not been held to be bogus & not genuine. On the contrary these payments have

close & proximate connection with the garba events which is

one of the object of the assessee society to promote the new

& young boys & girls in the field of dance, & Music, so that

their talents are given a platform for performance so that

their inherent talent comes to the light & in the public

domain. The expanses are relatable to the objects of the

assessee society. These expenses are not prohibited by law

either. The expenditure is/are not in the nature of the

capital expenditure. Previous year “Surplus” is too small a

amount to draw an adverse inference for loss of Rs.

40,28,561/-. Previous year “surplus” does not mean profit

motive of assessee society it is simply a financial statement

of income & expenditure account nothing beyond that.

Balance sheet is not commercial in nature showing a

mercantile transaction or a transaction of services or any

other transaction showing a profile motive.

4.7 In so far as the “Impugned Order” is concerned in para

6.5 the Ld. CIT(A) basis AO report & “Impugned Assessment

Order” has observed that assessee’s had incurred Rs.

43,22,036/- towards advertisement as against total receipts

from all the activities at Rs. 36,37,577/-. The assessee

submission on the advertisement is not convincing. Assessee

failed to submit bills & vouchers for the said expenditure.

Assessee also failed to establish that these advertisement

Expenses fetched any new business in the subsequent years.

Moreover the advertisement expenses were paid to the

business concern run by the members of the society. They

are related party transactions though legal can create

conflict of interest. The transaction must be executed in a

fair & transparent manner. Despite opportunities by Ld. AO

assessee has failed to provide verifiable documentary

evidence in this regard. Loss of Rs. 40,28,561/- was

sustained by FAA. We after carefully perusing above para 6.5

are of the view that the Ld. AR is correct in making

submissions that orders are passed by the lower authorities

in a very generic manner. Merely observing assessee

submission on advertisement expenses are not convincing is

not sufficient exercise in law as department should state in

their respective quasi judicial orders that the advertisement expenses are bogus, sham & make believe arrangement with

material/evidences/documents, no such thing is on record

adverse to the assessee. The expenses have been held to be

excessive in ultimate analysis of things but have not been

expressly held to be a bogus one & not genuine. It is not

held to be not connected with aims & objects of the

assessee society. Expenses to repeat & reiterate are not

expressly prohibited by law nor are in the capital

expenditure. Mere meagre surplus in year ended 31.03.2007

is no ground to disallow loss incurred particularly so when

motive & object of assessee society is not for profit /gain or

rather make” a killing”. The assessee society’s aims & objects

are laudable one for the public good where by an opportunity

in granted to young generations to demonstrate their talents

in the various forms of arts enumerated above. Even the

name of “Abhivyakti” meaning expression /thought of

various from of arts in humans signify this aspect.

4.8 We hold that TAR was on record & no infirmities therein

are expressly pointed out by the lower authorities. Books of

accounts are not expressly rejected u/s 145(3).

4.9 In the final analysis we hold that as per the doctrine of

commercial expediency the tax authorities cannot question

the wisdom of assessee’s business decisions resulting into

genuine loss for lawful aims & objects particularly by

assessee society whose aims & objects are laudable. No

malafides are alleged against them. There activities in fact

have been held to be legal in the impugned order. We

simultaneously hold that the tax authorities can disallow the

loss only if it is bogus or not genuine, it is not related to

main objects & aims, it is prohibited by law, & the

expenditure is in the nature of capital expenditure. Even

going by rule of consistency the previous year surplus is

meagre amount. The transactions of expenses/excessive

expenses/expenditure have not been held to be a sham & a

make believe arrangements. It has not been held basis any

material on record that the transactions are done to give a

colour of authenticity to create a facade of legitimate

transaction. Hence we set aside the “Impugned Order” &

allow the appeal of the assessee.

5 Order

5.1 In the result – Appeal of the assessee is allowed.

Pronounced in open court on 30.04.2026.

Sd/- Sd/-

(BHAGIRATH MAL BIYANI) (PARESH M JOSHI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Indore Dated : 30/04/2026 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Senior Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

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