ANTHAYYA EDUCATION FOUNDATION TRUST,MUMBAI vs. ITO EXEMPTION 1-(1), MUMBAI

3. Briefly stated fact of the case are that the assessee trust was engaged in carrying out educational activities by way of running schools and colleges. The assessee trust was registered under Bombay Public Trust Act, as well as u/s 12A of the Income-Tax Act, 1961 (in short the ‘Act’). For year under consideration, the assessee filed its return of income on 07.03.2018 declaring taxable income at Rs. NIL. The return of Anthayya Education Foundation Trust 3 & 5004/MUM/2024 income was filed after the due date prescribed under the ‘Act’ therefore, the Assessing Officer(AO) considered the said return of income as belated. Subsequently, for verifying the financials mentioned in the belated return, the AO issued statutory notices, but those notices were not complied by the assessee and therefore, the AO after verification of the facts available on record, allowed the claim of expenditure of Rs.1,78,97,163/- against gross receipt of Rs. 4,68,70,198/- and denied the remaining claims of assessee including claim of set off excess expenditure incurred in earlier year, administrative expenses and investment in capital assets. On further appeal, the assessee filed additional evidence before the Ld. CIT(A). The Ld. CIT(A) was required to follow the procedure prescribed under the Rule 46A of Income-Tax Rule,1962 [in short ‘the rule’] and call for a remand report from the Assessing Officer including objection for admission of additional evidence. However, said procedure was not followed by Ld. CIT(A). The Ld. CIT(A) himself examined the additional evidences and observed that the assessee had only filed sample rent agreement and sample invoices for expenses incurred. The Ld. CIT(A) pointed out further defects in the sample invoices for expenses filed by the assessee and upheld the addition observing as under:

“6. FINDINGS & DECISION I have gone through the assessment order and grounds of appeal

. The Ld. AO has carried out addition on account of disallowance of Anthayya Education Foundation Trust 4 & 5004/MUM/2024 multiple expenses. Aggrieved by the said assessment order, the appellant has filed appeal which is adjudicated as under: Ground 1,2 and 3 During the year under consideration, appellant had filed Return of Income on 07.03.2018 declaring taxable income as Nil. The said return of income is filed after the due date of filing income tax return pertaining to AY 2016-17. During the assessment proceedings the Ld.AO said belated return and in order to verify the correctness of appellant's total income the Ld.AO issued various notices but the same are not complied by the appellant. Therefore the Ld.AO disallowed certain expenditures and assessed the income accordingly. During the appellate proceedings the appellant mentioned that it failed to furnished the requisite details, as called for in the notice u/s 142(1) 42(1) of the Act. Thus it filed additional evidences in form of following documents

1. Income tax return of the year under question

2. Sample rent agreement.

3. Sample invoices of expenses incurred. The appellant has not filed any cogent reason why these documents were not furnished before the assessing officer. However in light of principle of natural justice the additional evidence of the appellant are admitted and being evaluated for the purpose of adjudication of impugned appeal. During the year under consideration the income and expenditure of the appellant stood as under:

Particular Note Amount Total Revenue During the 4,68,70,198.00 Year Total Expenditure claimed during the year Admin. Expenses & 1 62,14,269.00 Expenditure relating to property Expenses on the object of 2 1,78,97,163.00 the Trust Excess Expenditure of 2 1,78,82,696.00 current year carried forward Investment in Capital 3 7,87,551.00 Assets

Anthayya Education Foundation Trust 5 & 5004/MUM/2024

During the assessment proceedings, the Ld. AO had allowed only expenses pertaining to current year i.e. Rs.1,78,97,163/- but the Ld. AO disallowed rest of expenses for want of supporting documentation. During the year under consideration, the appellant filed sample invoices and claimed that the expenses are allowable. The appellant also contested that the expense pertaining to previous year which are excessive, are also allowable in the current year. Further, the appellant also contested that the capital expenses are also allowed to be reduced from computation of excess of income. The contention of appellant are considered but not found to be acceptable. The appellant has filed sample copies of invoices pertaining to expenses claimed by the appellant and the same are being evaluated from genuineness perspective. The observations against said sample nature of expenses are provided below: The below invoice mentions that amount is not paid but the appellant has file the invoice stating these amounts are paid but the appellant has not filed proof that the said expenses are actually paid.

The below mentioned invoice of Chetna Book Depot sed in favor of Bombay Cambridge School where as the school operated by the appellant trust as per above invoice is G. S. Shetty International

Anthayya Education Foundation Trust 6 & 5004/MUM/2024

School. Therefore, the invoice is found not blonging to appellant's School.

The below mentioned telephone bill is raised in the name of Bombay Institute for Deaf and Mutes and the address is different than appellant's address mentioned in Form 35.

Salary register extract filed by the appellant is showing that one individual has signed as RECEIVER of salary against all employee. Therefore, the credibility of these payments is doubtful.

Anthayya Education Foundation Trust 7 & 5004/MUM/2024

Further, the appellant has merely filed copy of sample invoices against expenditure of last year. There are no invoices being filed pertaining to capital expenditure during the year under consideration. Moreover, the appellant has no filed basic documentation to substantiate genuineness of the expenses these documents such as ledger extracts for sake of completeness of expenses to match with the amounts mentioned by the appellant in above table. Further, the Anthayya Education Foundation Trust 8 & 5004/MUM/2024 appellant has not filed copy of bank statements/ cash book to prove that the said expenses are actually paid. Without which the genuineness of the appellant's contention can not be accepted. Accordingly, the Ground 1,2 and 3 of the appeal are disposed on merits and based on information/documents available on records. Ground 4 and 5 These are general grounds of appeal and thus no adjudication is warranted.” 3.1 Aggrieved, the assessee is in appeal before the Income-tax Appellate Tribunal (in short the Tribunal) by way of raising grounds as reproduced above.

Anthayya Education Foundation Trust 10 & 5004/MUM/2024 were sought by the assessee to be adduced before the Ld. CIT(A). The Ld. CIT(A), while admitting such additional evidences, did not adhere to the mandatory procedure prescribed under Rule 46A of Rules. Furthermore, having taken note of certain deficiencies/anomalies in the said evidences, the Ld. CIT(A) proceeded to disallow the claim of the assessee without providing opportunity to explain the same.

6.1 In our considered opinion, firstly, the Ld. CIT(A) was duty- bound to comply with the procedural safeguards enshrined under Rule 46A before taking cognizance of the additional evidence. Upon receipt of such evidences, in terms of rule 46A of ‘Rules’, it was incumbent upon the Ld. CIT(A) to forward the same to the Ld. AO for his comments, both on the admissibility as well as the merits of the said material. Secondly, while the Ld. CIT(A) recorded certain defects or anomalies in the additional evidences, no opportunity was granted to the assessee to furnish any explanation. Before us, the learned counsel for the assessee has made certain submissions in an attempt to clarify the objections raised by the Ld. CIT(A). But, it is noted that only sample invoices and rent agreements had been placed on record in additional evidences, and comprehensive supporting material, including vouchers and books of account substantiating the claim under Section 11 of the Act, had not been filed.

Anthayya Education Foundation Trust 11 & 5004/MUM/2024 6.2 In view of the foregoing and having regard to the facts and circumstances of the case, as also in the interest of substantial justice, we deem it appropriate to set aside the impugned order passed by the Ld. CIT(A) on this issue. The matter is accordingly remanded to the file of the Ld. CIT(A) for adjudication afresh in accordance with law after following due procedure laid down in Rule 46A of Rules. The assessee is directed to produce all relevant documentary evidence, including vouchers and books of account, in support of its claim before the ld CIT(A) as additional evidences. The Ld. CIT(A) shall ensure that both parties are granted a reasonable opportunity of being heard before the matter is finally adjudicated.

6.3 In the result, Ground Nos. 1 to 3 raised by the assessee in the present appeal are allowed for statistical purposes.

Appeal for AY 2010-11

1. On the given facts, circumstances and judicial pronouncements Ld. CIT-(Appeals) erred in denying the exemption u/s 11 to the assessee even though there are no defects pointed out by the Ld. AO on the activities carried out by the assessee. Such denial of exemption considering the fact that the activities carried out by the assessee are as per the objects of the trust is against the principles of Natural Justice and is bad in law and liable to be quashed. 2 On the given facts, circumstances and judicial pronouncement, Ld. CIT (Appeals) erred in confirming the action of Ld. AO of applying the provisions of Section 13(3) on account of deposits paid to trustee for use of premises and thereby withdrawing the benefit

Anthayya Education Foundation Trust 12 & 5004/MUM/2024 under section 11. Such withdrawal of benefit under Section 11 is bad in law and in facts and is liable to be allowed. 3 Without prejudice to the above, On the given facts, circumstances and judicial pronouncement, Ld. CIT-(Appeals) erred in confirming the action of Ld. AO of denying entire exemption under section 11 instead of the Transaction which is alleged to be covered by section 13. Such denial of entire benefit under Section 11 is bad in law and in facts and denial if any should be restricted to transaction as hit by provisions of section 13. 4 Without Prejudice to the above, On given facts, circumstances and judicial pronouncements Ld. CIT-(Appeals) erred in denying benefit of section 11 on the addition made to Building Fund. Such denial of benefit on account of addition made to Building Fund is bad in law and liable to be allowed. 5 Without prejudice to the above, On given facts, circumstances and judicial pronouncements Ld. CIT-(Appeals) erred in denying the claim of depreciation as application, even though the capital expenditure incurred was not claimed as application. Such denial of claim of depreciation is bad in law and liable to be quashed. 6 The appellant craves leave to add, amend, alter or delete all or any of the previously mentioned grounds of appeal.”

8. Before us, the Ld. counsel for the assessee also filed an additional ground which is reproduced as under:

1. The application is hereby made requesting for the admission of following Ground which is as under. "On the given facts, circumstances and judicial pronouncements; Ld. Assessing Officer has erred in completing the assessment without valid issue of notice u/s 143(2). Such assessment order without valid issue of notice u/s 143(2) is bad in law and liable to be quashed." 8.1 The additional ground being purely legal in nature and goes to the root of the matter, same was admitted for adjudication after hearing both the parties.

Anthayya Education Foundation Trust 13 & 5004/MUM/2024 8.2 Before us the Ld. counsel for the assessee submitted that no notice u/s 143(2) of the Act was issued in the case of the assessee and therefore the assessment completed u/s 143(3) is liable to be quashed. On the other hand, the Ld. DR submitted that Ld.AO in the impugned assessment order has duly mentioned that return of income filed by the assessee was selected for compulsory scrutiny and notice u/s 143(2) of the Act was issued on 27.09.2011 which was duly served. In view of this clear finding there was no reason for suspicion notice that u/s 143(2) of the Act was not issued. He submitted that onus was on the Ld. counsel for the assessee to explain how the notice u/s143(2) of the Act was not issued. In response, the ld. counsel for the assessee referred to the reply dated 10.03.2025 received from the Income-tax Department under ‘Right to Information Act, 2005. 8.3 We have heard rival submissions of the parties. The issue in dispute is whether no notice was issued u/s 143(2) of the Act for selecting the case under scrutiny. On perusal of records, we note that the assessee duly attended the assessment proceedings and no objection was taken before the AO regarding either issue or service of said notice. Further, the AO has clearly recorded in the assessment order that notice u/s 143(2) of the Act was issued and duly served upon the assessee. Further, no objection was raised on this issue before

Anthayya Education Foundation Trust 14 & 5004/MUM/2024 the Ld. CIT(A). The assessee has presumed that no notice was issued only on the basis of RTI reply by the Income-tax Department. We find that in said reply the assessing officer has merely mentioned that assessment record for the year under consideration was not traceable being matter more than 10 years old. No other information regarding non issue of the notice u/s 143 of the Act has been provided in the said reply. Relevant part of the reply is reproduced as under:-

“The applicant Anthayya Education Foundation Trust has filed an application dated 26.02.2025 under Right to Information Act, 2005, which was received in this office on 27.02.2025. The applicant has sought the following information from this office:- 1) Copies of all notices issued by the Income Tax Department that is notice under section 143(3) and 142(1) of the Income Tax Act, 1961 in relation to the scrutiny assessments for A.Y.2010-11 & Α.Υ. 2016-17 for the case pertaining to Anthayya Education Foundation Trust with PAN: AABTA2813L.

2) Copies of all responses, submission and replies filed by the assessee and the Income Tax Department in connection with the above referenced case. I have gone through the application of the applicant carefully and after due verification it is stated that the required details for A.Y.2016-17 has been sent to the email shubham.shah@incorpadvisory.in on 10.03.2025. Further it is stated that the case records for A.Y.2010-11 is not traccable as the case records pertaining to A.Y.2010-11 is more than 10 years old. In view of the above the application referred is hereby disposed off.”

Anthayya Education Foundation Trust 15 & 5004/MUM/2024 8.4 In our opinion said reply has no basis to presume that no notice u/s 143(2) of the Act was issued. The contention of the assessee are purely imaginary and on the basis of the presumption and surmises without any evidence that no notice u/s 143(2) of the Act was issued and accordingly, we reject the contention of the ld. counsel for the assessee. The additional ground raised by the assessee is accordingly dismissed.

9. The facts in brief qua the regular grounds raised are that the assessee filed its return of income on 03.01.2011 declaring total income at Rs. NIL. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the ‘Act’ were issued and complied with. During the course of scrutiny proceeding, the Assessing Officer observed that assessee trust gave advance/deposit to two trustees, namely Shri. Sukesh S. Shetty and Rakesh S. Shetty amounting to Rs. 2,09,427/- and 2,40,276/- respectively. According to the Assessing officer, those two persons being in the category of specified persons as provided in section 13(3) of the Act , part of income has been applied for the benefit of specified persons, therefore, the assessee a violated provisions of Sec. 13(1)(c) of the Act. The Assessing officer referred to the Sec. 13(1)(c) of the Act and withdrawn the entire exemption claim u/s 11 of the Act. The relevant findings of the assessing officer are reproduced as under:

Anthayya Education Foundation Trust 16 & 5004/MUM/2024 “10. In view of the above discussion and considering the fact that the payment of Rs.4,23,703/- has been made by the trustees, it is held that the income of the assessee trust to the extent of Rs.4,23,703/-is applied for the benefit of those persons specified in section 13(3) and that the assessee trust shall forfeit the exclusion under section 11. Since there is clear violation of provision of section 13(3) r.w.s. 13(1)(c) of the Act, the addition to the building fund of Rs.1,40,00,000/- is also not allowed.

“6.6 The contention of appellant is considered but not found to be acceptable because the provision of section 13 clearly states that provision of section 11 and 12 shall not operate when the conditions specified in section 13 are satisfied. 6.7 The provision of section 13 are reproduced under Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- …….. ……..

Anthayya Education Foundation Trust 17 & 5004/MUM/2024

(c) states that in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i)if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or Indirectly for the benefit of any person referred to in sub-section (3) 6.8 On perusal of provision of section 13 it is very clear that provision of section 11 and 12 shall not operate if the conditions of section13 are encountered. 6.9 In view of the above I am of the considerate opinion that the addition carried out by Ld.AO is appropriate and the alternative contentions raised by the appellant that the portion of income which is not utilized towards the objective of the trust shall be disallowed, is also not found to be acceptable. The said treatment is from 01.04.2023 and there not applicable to the assessment year under consideration. 6.10 Accordingly ground 3 and 5 of the appeal are disposed on merits and based on information/documents available on records.” 9.2. Before us the Ld. counsel for the assessee submitted that during the year under consideration the assessee used certain premises of the trustees for education use and for which no rent was charged and only interest free deposits were given. He submitted that deposits were made in the course of the carrying of the charitable activities of education and not for the personal benefit of the trustee. Ld. Counsel submitted that said deposit has also not been considered as application of the funds and has been treated as advance liability. Accordingly, he submitted that there is no violation of provisions of section 13(1)(c) of the Anthayya Education Foundation Trust 18 & 5004/MUM/2024 Act. Further, without prejudice, he submitted that disallowance u/s 11 of Act be restricted to the extent to the benefit which has been obtained by the specified persons. Ld. counsel relied on the decision of the Hon’ble Bombay High Court in the case of the Audyogika Shikshan Mandal reported in [2019] 101 taxmann.com 247(Bombay).

9.3 On the other hand, Ld. DR submitted that amendment to the section 13(1)(c) of the Act has been made w.e.f. A.Y. 23-24, to exclude only part of income applied towards specified person and prior to that entire deduction u/s 11 was liable to be disallowed. Accordingly, the order of ld CIT(A) might be upheld.

9.4 We have heard the learned counsel for the parties and have carefully perused the material placed on record. The learned counsel for the assessee has, in the course of submissions, advanced an alternative plea to the effect that even assuming that the amounts extended to the trustees are not to be treated as application of income, and are instead construed as having conferred benefit upon specified persons, the consequences flowing from such violation under Section 13(1)(c) or Section 13(2) of the Act must be appropriately determined. The specific issue arising for our adjudication in the present context is whether, upon violation of the provisions of Section 13(1)(c) or Section 13(2) of the Act, the entire exemption under Section 11 stands forfeited, or whether such denial ought to be restricted only to the quantum of income

Anthayya Education Foundation Trust 19 & 5004/MUM/2024 that has been applied or utilised for the benefit of the specified person referred to in Section 13(3) of the Act. For ready reference, the relevant part of section 13(1)(c ) of the Act is reproduced as under:

“Section 13(1)(c) in The Income Tax Act, 1961 13. (1) Nothing contained in section 11 "[or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- (a) ……. (b) ……. (bb) ……. (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i)if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii)if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3): [such part of income as referred to in sub-clauses (i) and (ii)]” 9.5 Further, the section 13(2) has deemed that in certain circumstances prescribed, income is applied or used for the benefit of the specified person.

9.6 In section 13(1)(c) of the Act reproduced above the last part of sentence reads as “such part of income as referred to in sub clause(i) and (ii)”, has been inserted w.e.f. 1/4/2023. So,

Anthayya Education Foundation Trust 20 & 5004/MUM/2024 undisputedly from AY 2023-24, the disallowance with reference to section 13(1)(c) or 13(2) has to be restricted to the amount of income applied or used toward benefit to specified person. But for the period prior to that the Hon’ble Jurisdiction High Court in the case Audyogika Shikshan Mandal(supra)has held as under:

“7.We find that the impugned order of the Tribunal has placed reliance upon the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra), after having noted that the the decision of the Supreme Court in Bharat Diamond Bourse (supra) does not very clearly specify whether it is only the income diverted as loans to a person specified under Section 13 of the Act, which was denied the benefit of Section 11 of the Act or the entire income was denied the benefit of exemption under Sect ion 11 of the Act. We have closely read the decision of the Apex Court in Bharat Diamond Bourse (supra) and it does not extend the benefit of Section 11 of the Act to the Trust. However, it is not clear whether it is only to the extent of income diverted or the entire income. This, for the reason that the dispute between the parties therein was not as arising in this case. The basic dispute in the above case was-whether the objects of the Trust were charitable and whether the person to whom the loan was given was a person covered by Section 13 of the Act. The decision of the Karnartaka High Court in Fr. Mullers Charitable Institutions (supra), dealt with the very issue herein viz. the denial of exemption of entire income under Section 11 of the Act, or is the denial restricted only to the quantum of diverted funds. This, as it is hit by Section 13 of the Act. The Court held that the benefit of Section 11 of the Act will not be available only in respect of the diverted income. The above decision of Karnataka High Court was the basis for the view in the impugned order of the Tribunal. Moreover, we note that the order of Karnataka High Court in case of Fr. Mullers Charitable Institutions (supra) inter alia, places reliance upon the decision of this Court in DIT(Exemption) v. Sheth Mafelal Gagalbahai Foundation Trust [2001] 114 Taxman 19/249 ITR 533 (Bom.) and the Delhi High Court the case of IT (Exemption) v. Agrim Charan Foundation [2002] 253 ITR 3 ITR 593/[2001] 119 Taxman 569. 1119 Taxman 569. Moreover, on a plain reading of Sections 11 and 13 of the Act, it is clear that the legislature did not contemplate the denial the benefit of Section 11 of the Act to the entire income of the Trust. If the interpretation sought to be Anthayya Education Foundation Trust 21 & 5004/MUM/2024 advanced by the Revenue is accepted, it would lead to grave injustice as any mistake minor and/or misdemnour involving a small amount takes place by the Trust, the consequence would be denial of the benefit of exemption to the entire income otherwise admittedly used for charitable purposes. It is pointed out to us that the decision of the Karnataka High Court in Fr. Mullers Charitable Institutions (supra) was carried by the Revenue to the Supreme Court and its SLP was dismissed on 19th September, 2014 Fr. Mullers Charitable Institutions (supra).” 9.7 The Hon’ble High Court has clearly held that in case of violation u/s 13 of the Act, denial of exemption u/s 11 should be restricted to the quantum of the funds diverted to the person specified u/s 13(3) of the Act.

9.8 In view of the foregoing, and respectfully following the binding precedent laid down by the Hon’ble jurisdictional High Court(supra), we are of the considered opinion that the disallowance under Section 11 of the Act ought to be restricted only to the amount diverted or applied in violation of Section 13(1)(c) or 13(2), as the case may be. Accordingly, we deem it appropriate to restore the issue to the file of the Learned Assessing Officer with a direction to re-examine the matter in light of the observations made hereinabove, and to restrict the disallowance under Section 11 of the Act strictly to the quantum of income diverted to, or applied for the benefit of, the specified persons referred to under Section 13(3) of the Act. Needless to state, the assessee shall be afforded a reasonable opportunity of being heard in the course of the proceedings.

Anthayya Education Foundation Trust 22 & 5004/MUM/2024 9.9 The grounds of appeal of assessee are accordingly allowed for statistical purpose

Order pronounced in the open Court on 09/05/2025.