DCIT, EXEMPTION CIRCLE, GHAZIABAD vs. BHAGWATI EDUCATIONAL SOCIETY, GHAZIABAD

Date of hearing 05.10.2021 Date of pronouncement 14.10.2021 ORDER PER O.P. KANT, AM:

This appeal by the Revenue is directed against order dated 30/03/2017 passed by the learned Commissioner of Income-tax (Appeals)- Muzaffanagar [in short ‘the Ld. CIT(A)’] for assessment year 2010-11, raising following grounds:

2. Briefly stated facts of the case, as culled out from the order of the lower authorities, are that the assessee is a charitable society registered under the Societies Registration Act, 1860 with effect from 24/10/2005. The assessee society has been granted registration under section 12AA of the Income-tax Act, 1961 (in short ‘the Act’) by the order dated 30/01/2006 of the concerned Commissioner of Income Tax. The main objects of the society include, managing schools, college and institution for education. The assessee society has set up a college for education in the field of engineering in the name of Bhagwati Institute of Engineering and Science in village Masuri, Gaziabad (Uttar Pradesh). The assessee filed return of income for the year under consideration on 05/10/2010 declaring nil income. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Act were issued and complied with. In assessment order completed on 28/03/2013 under section 143(3) of the Act, the Assessing Officer made certain additions and assessed total income at ₹ 1,75,21,234/-. The assessee filed appeal before the Ld. CIT(A), who allowed the appeal in favour of the assessee and deleted all the additions, which were made by the Assessing Officer. Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal before the Tribunal, raising the grounds as reproduced above.

3. Before us, the parties appeared through videoconferencing facility and filed paper-book through email. 4. The ground No. 1 of the appeal relates to disallowance of depreciation, amounting to be Rs. 76,96,372/-. 4.1 The brief facts qua the issue in dispute are that the assessee claimed depreciation of ₹ 76,96,372/- as application of income in terms of section 11 of the Act, whereas according to the Assessing Officer, investment in fixed assets has already been considered for the purpose of the application of income in the year of investment and, therefore, further allowing depreciation will amount to double deduction in respect of the fixed asset. Accordingly, he disallowed the claim of the assessee of depreciation, relying on the various decisions cited in the assessment order. The Ld. CIT(A), however, has observed that assessee has not claimed any amount for the investment made in the fixed assets as application of the income and, therefore, claim of depreciation is not amounting to double deduction. The learned CIT(A) relied on the decision of the Hon’ble Delhi High Court in the case of Director of Income Tax Vs. Indraprastha Cancer Society in and 464/2014, dated 18.11.2014. The relevant finding of the Ld. CIT(A) is reproduced as under:

“19. The facts of the case, submissions made by the appellant and remand report of the AO have been considered. The appellant has claimed depreciation of Rs.76,96,372/-. The AO has disallowed the same being double deduction. The AR has stated that it has claimed depreciation of Rs.10231372/- in the Income & Expenditure Statement and it is not clear from where the AO has taken the figure of amount of disallowance. The appellant has relied upon the decision of the Hon’ble Delhi High Court in the case of DIT Vs. Indraprastha Cancer Society. On going through the facts on the above issue it is noted that the appellant has shown deficit of Rs.25142579/-, Rs.7967356/-, Rs.414868/- for the year ending on31-03- 2010, 31-03-2009 and 31-03-2008 in the Income & Expenditure Statements after claiming depreciation. There was no Income & Expenditure Statement before this period. Thus the appellant has not claimed any amount as application of income for the investments made in the fixed assets and thus there is no claim of double deduction in this case. The case of the appellant is covered by the ratio of the Hon’ble Delhi High Court in the case of Indraprastha Cancer Society (supra). Similar view has been expressed by the Hon’ble ITAT, Delhi in the case of Bhardwaj Welfare Trust (ITA No.1979, 2564/Del/2013) dated 13- 02-2015, Arihant Charitable Hospital Trust, Ghaziabad (ITA No.5019/Del/2015) dated 17-11-2015. Respectfully following the above referred decisions, the AO is directed to allow claim of depreciation. Ground of appeal No.5 is allowed.”

4.2 Before us, the learned Departmental Representative relied on the order of the Assessing Officer and vehemently argued that allowing depreciation will amount to double deduction in respect of the fixed assets. 4.3 On the contrary, the Learned Counsel of the assessee relied on the order of the Learned CIT(A) and submitted that fixed assets have been purchased out of the loans from the banks and other parties and it has never claimed application of the income for charitable purposes at the time of purchase of the assets and only depreciation has been claimed, which could be verified from the audited balance sheet and income and expenditure account.

He submitted that the assessee has been consistently following this method, which has been approved by the Department even in the scrutiny assessment of earlier years. The assessee submitted that depreciation has not been claimed under section 32 of the Act, and it has been claimed as application of the income only. 4.4 We have heard rival submission of the parties on the issue dispute. The claim of the assessee of depreciation is allowable in view of the two reasons. Firstly, the Ld. CIT(A) has given a factual finding that assessee has not claimed investment in fixed asset as application of the income in the year of purchase of fixed assets. The Learned CIT(DR) has not brought anything on record which could controvert the finding of the Ld. CIT(A), despite the impugned order which has been passed by the Ld. CIT(A) on 30/03/2017. The Learned Counsel of the assessee has also referred to audited balance sheets and income and expenditure accounts of earlier years and submitted that investment in fixed assets was not claimed as application of the income in the year of investment. This fact has also not been controverted by the Learned Departmental Representative. In the circumstances, the assessee has claimed depreciation for the first time as application of the income and, therefore, claim of double deduction of the Assessing Officer is baseless and without any evidences, hence not justified. Secondly, Hon’ble Supreme Court in the case of CIT Vs. Rajasthan and Gujarati Charitable Foundation, Poona, (Civil Appeal No.7186 of 2014, order dated 13.12.2017) has held that ‘even if the entire expenditure incurred for acquisition of a capital asset is treated as application of income for charitable purposes u/s 11(1)(a) of the Act, the assessee is also entitled to depreciation u/s 32. The argument that the grant of depreciation amounts to giving double benefit to the assessee is not acceptable. S. 11(6) which bars depreciation on expenditure applied for charitable purposes is prospective and applies only from AY 2015-16. 4.5 Thus, in view of the Hon’ble Supreme Court, even if investment in capital asset has been claimed as application of the income, the assessee is entitled for depreciation as application of the income in subsequent years, prior to insertion of section 11(6) of the Act with effect from assessment year 2015-16. The instant case being of assessment year 2010-11, the assessee is eligible for depreciation as application of the income irrespective of the fact whether investment in fixed assets was claimed as application of the income or not. 4.6 Accordingly, we uphold the finding of the Ld. CIT(A) on the issue in dispute and dismiss the ground no. 1 of appeal of the Revenue. The ground No. 2 of the appeal relates to addition of ₹ 5. 1,69,00,000/- on account of anonymous donation under section 68 of the Act, which has been deleted by the learned CIT(A). 5.1 Brief facts qua the issue in dispute are that assessee received donation of ₹ 2,04,02,000/- towards corpus fund and on being asked by the Assessing Officer filed complete details of donation showing name and address of the donor, permanent account No., donation amount, mode of donation, date of donation along with copies of the confirmation letter, copies of Income Tax Return, copies of Permanent Account Number etc.

The Assessing Officer issued notice under section 133(6) of the Act in first week of March, 2013, to few donors for verification. According to the Assessing Officer, in some cases notices were returned unserved with the postal remark “left” and in other cases those notices were served but no compliance was made or incomplete compliance was made. According to the assessee, it was confronted as a result of service of notices under section 133(6) on 22/03/2013 and compliance was sought by 25/03/2013. It is the contention of the assessee that it could not comply in view of too short and insufficient time given for compliance. The Assessing Officer made detailed discussion in respect of parties and treated the donation from following parties as anonymous: Name of Doner Donation Amount Rs. Ms. Saroj Kansal 2,50,000.00 Ms. Veenu Kansal 2,00,000.00 Mr. Atul Kansal 3,50,000.00 M/s VAG Exports Pvt. Ltd. 1,00,00,000.00 Hydrocarbons Education and 50,00,000.00 Research Society Maa Saraswati Gyan Mandir Education Society 11,00,000.00 Total 1,69,00,000.00 5.2 Before the Ld. CIT(A), the assessee filed complete details in respect of above parties. The Ld. CIT(A) forwarded all those details to the Assessing Officer and after obtaining remand report from the Assessing Officer and rejoinder from the assessee, he deleted the disallowance observing as under: “………..The AO in the remand report vide letter No.2944 dated 20- 03-2017 has stated that she has gone through and verified the evidences filed by the appellant for corpus donation of Rs. 1.69 crore as above. She has not made any adverse comments on the genuineness of the evidences furnished by the appellant in support of the corpus donation. It is provided u/s 115BBC of the Act that anonymous donations means any voluntary contribution in respect of which record having identity (name & address of the donor along with other particulars as prescribed) has .not been maintained. In this case, on the factual matrix it is noted that the appellant has maintained complete record giving identity of the donors (name & address) along with, particulars of the corpus donations' received - amount, date, mode of payment.^ Under the facts it is noted that the provision of section 115 BBC of i " the Act are not attracted in this case. The facts, of this case are covered by the ratio of case laws relied by the AR (supra). Accordingly, in view the discussion made as above, it is held that the AO was not justified in making addition of Rs. 1.69 crore u/s 115BBC of the Act and the same is hereby deleted. Ground of appeal No. 1 is allowed. Ground .of appeal No.8 is not separately adjudicated as ground of appeal No. 1 has already been allowed in favour of the appellant.”

5.3 Before us, the Learned Department Representative relied on the finding of the Learned Assessing Officer and submitted that during enquiry under section 133(6), the parties could not be traced. He submitted that in the remand report, the Assessing Officer has verified the paperwork, however, this fact that parties could not be traced at their addresses during enquiry under section 133(6) of the Act, cannot be ignored. 5.4 The Learned Counsel of the assessee, on the other hand, submitted that assessee has maintained a complete record of identity indicating name and address of the persons making the donation and such complete details were furnished before the Assessing Officer during assessment proceeding and therefore provision of section 115BBC in the case of donation of ₹ 1,69,00,000/- received by the assessee are not attracted. The learned Counsel of the assessee relied on the decisions of the Tribunal in the case of DCIT, Exemption, Ghaziabad Vs Jai Maa Savitri Education Society in Sunder Deep Education Society Vs ACIT in ITA No. 2428/Del/2011. In view of the decisions, the Learned Counsel for the assessee submitted that only requirement under section 115BBC(3) of the Act is maintenance of name and address of the donor, which the assessee has complied and therefore donation cannot be held anonymous invoking section 115BBC of the Act. 5.5 We have heard rival submission of the parties and perused relevant material on record. We find that Assessing Officer has found the donation in dispute of ₹ 1,69,00,000/- as anonymous observing that donor companies are only paper companies. The assessee filed complete details in respect of those donors before the Learned CIT(A), who forwarded those details to the Assessing Officer for verification and the Assessing Officer did not dispute genuineness of the documents. The remand report sent by the Assessing Officer has been reproduced by the Ld. CIT(A) in para 10 on page 49 of the impugned order. We are of the opinion that in the remand proceeding, the Assessing Officer has accepted the documents to support the identity of the donor. In such circumstances, the very same Assessing Officer is not justified in litigating the issue before the Tribunal. Further, we find that Tribunal in the case of Jai Maa Savitri Education Society (supra) observed that all the donations initially flagged by the Assessing Officer as “anonymous donations” had been duly verified by way of confirmation, PAN, copies of the ITR, copy of bank statement of donor by the Assessing Officer as well as Ld. CIT(A), and therefore the Tribunal declined to interfere in the finding of the Learned CIT(A) rejecting claim of anonymous donation of the Assessing Officer. Similarly, in the case of Sunder Deep Education Society (supra), the Tribunal held that section 115 BBC, which assesses “anonymous donation” does not apply if the assessee has maintained a record of the identity indicating the name and address of the person making the contribution. In the instant case also, the assessee has maintained name and address and other details, which have been made available to the Assessing Officer. In such circumstances, following the decision of the Tribunal (supra) mentioned above and the finding of the Assessing Officer in remand proceeding, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same. The ground No. 2 of the appeal of the Revenue is accordingly dismissed. The ground No. 3 of the appeal relates to addition of ₹ 6. 2,21,250/- on account of transport activities. 6.1 The assessee was asked to furnish details of logbook etc. in respect of the bus expenses of ₹ 7, 37, 500/- and in view failure of the assessee in submitting the required details, the Assessing Officer allowed 30% of the bus expenses amounting to ₹ 2,21,250/-. The learned CIT(A) deleted the disallowance observing as under: “From the facts of the case it is noted that the AO has made the above disallowance without any basis and without bringing any specific finding on record. Ever after making disallowance, there is loss from running of buses. Under the facts it is held that the AO was not justified in making disallowance at Rs.2,21,250/-. The same is hereby deleted. Ground of appeal No. 4 is allowed.”

6.3 Before us, the Learned DR relied on the order of the Learned Assessing Officer, whereas the Learned Counsel of the assessee relied on the order of the Ld. CIT(A). The learned Counsel further submitted that buses were exclusively used for charitable activity of the assessee. He further submitted that bus expenses incurred are more than the receipt from bus services and even after disallowance of 30% of expenses, remaining bus expenses of ₹ 5,16,250/- are more than the total bus fare received of ₹ 3,95,100/- and, thus, there will be net loss from the bus operation and no net income. 6.4 We have heard rival submission of the parties and perused the material on record. We find that the Assessing Officer has made disallowance purely on estimate and on ad-hoc basis without pointing out any specific defects in vouchers of expenses maintained by the assessee, which is not permitted in law. Accordingly, we uphold the finding of the Ld. CIT(A) on the issue in dispute and dismiss the ground No. 3 of the appeal of the Revenue. The ground No.4 of the appeal relates to addition of ₹ 7. 3,99,984/- made by the Assessing Officer on account of surplus from hostel activity, which has been deleted by the Learned CIT(A). 7.1 The facts in brief qua the issue in dispute are that Assessing Officer has made addition of ₹ 3,99,984/- as surplus from hostel activity under section 11(4A) of the Act and in view of no separate books of account maintained by the assessee for hostel activity. On the other hand, the Authorized Representative of the assessee submitted before the Ld. CIT(A) that the assessee was maintaining hostel facility for the college student studying with the assessee, which is mandatory requirement under Rules and Regulation of AICTE (i.e. regulatory authority for technical education). The learned Authorized Representative also submitted that separate books of account were maintained for hostel receipt and expenses and, therefore, Learned Assessing Officer was not justified in working surplus of ₹ 3,99,984/- and making addition for the same. The Ld. CIT(A) deleted the addition observing as under:

“On consideration of facts of the case it is noted that the AO on page no. 10 of the assessment order has mentioned that it is mandatory to maintain hostel facility as per the rules framed by AICTE. In the audited financial statement as on 31.03.2010 in respect of hostel activity, it is noted that there is loss of Rs. 1152879/-. The AO has only considered some of the direct expenditure without considering other indirect expenditure in the assessment order. It is noted from the facts of the case that running of hostel facility is incidental to the providing education by the appellant and separate books of account are being maintained in this respect. Under the facts it is held that the AO was not justified to bring to tax amount of Rs.3,99,984/- u/s 11(4A) of the Act. Even otherwise there is no income from the hostel activity. The same is hereby deleted. Grounds of appeal Nol.2 & 3 are allowed.”

7.2 Before us, the learned DR relied on the order of the Assessing Officer. 7.3 On the contrary, the learned Counsel of the assessee submitted that during the year under consideration, the assessee received a total sum of ₹ 22,76,000/- towards hostel fee and incurred direct expenses such as hostel rent, hostel expenses, mess expenses as well as various common expenses such as electricity, generator, housekeeping, depreciation on building /mess equipment/furniture/electricfittings/generator/water cooler etc, the maintenance, and other expenses. The learned Counsel submitted that the assessee is maintaining separate books of account in respect of hostel receipts and common expenses have been apportioned at the end of the year. It is the submission of the learned Counsel that the Assessing Officer while computing surplus from hostel, has considered only direct expenses such as rent, mess expenses and completely ignored the common expenses incurred. The learned Counsel submitted that statutory norms prescribed by the AICTE for approval of college, running and maintenance of the hostel and mess facility is intertwined with the educational activity. He submitted that without hostel facility, the college will not be approved. According to him, the hostel facility was exclusively meant for the purpose of the student studying in the college run by the assessee and it was not for outside person or students. 7.4 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee submitted that it has maintained separate books of account as required under the provisions of the Act and further the hostel facilities maintained for the students of the college belonging to the assessee society and the facility is not been extended to any student not studying in the college by the assessee. In such circumstances, the hostel activity has been maintained as part of the education activity. Further, after apportioning the common expenses, there is no surplus from hostel activity. The Learned DR could not controvert above submission of the learned Counsel of the assessee. In such circumstances, we do not find any error in the order of the learned CIT(A) and accordingly uphold the same. The ground No. 4 of the appeal of the Revenue is dismissed.