ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTION) CIRCLE-1, BENGALURU vs. COSMOPOLIS EDUCATIONAL TRUST, BENGALURU

Page 3 of 24 run by M/s CET for construction its school building and other development works. As the assessee has no money to repay, it requested M/s CET to convert the same into donation. M/s CET agreed to the assessee request and converted the outstanding balances into donation. Accordingly, the assessee transferred the outstanding liability on account of construction of building to the corpus/capital fund account.

Page 4 of 24 In the return filed for the year under consideration, the assessee has declared Nil income after claiming exemption under section 11 of the Act on account of following receipts: (i) Receipt from main object Rs. 4,16,56,385/- (ii) Interest income Rs. 2,38,786/- (iii) Corpus Donation Rs. 50,60,49,193/-

9.1 The assessee regarding inter trust fund of Rs. 20,22,96,029/- explained that in construction of school building, it incurred various expenses which was paid by the schools runs by M/s CET and the same .

Page 5 of 24 was representing liability but later on converted into donation by M/s CET. In support of the explanation the assessee again submitted confirmation letter from M/s CET.

9.2 The assessee explained that the during the year it received total fund of Rs. 66,27,07946/- from the following sources: - School Fee Rs. 4,16,56,385/- - Interest income Rs. 2,38,786/- - Corpus donation Rs. 41,85,16,746/- - Inter trust fund Rs. 20,22,96,029/- 9.3 Out of the above receipt an amount of Rs. 58,47,65,595/- applied towards the charitable object in the following manner: - Donation Rs. 17,10,00,000/- - Revenue Expenses Rs. 3,44,44,374/- - Capital Expenditure (building etc) Rs. 37,93,21,221/-

10.1 The AO further added the amount of inter trust fund of Rs. 20,22,96,029/ to the total income of the assessee. The AO held that the impugned amount was liability of the assessee which it was liable to pay. However, the impugned liability ceased to exist for the assessee after .

Page 6 of 24 mutual understanding. Therefore, cessation of liability cannot be treated as corpus donation. Accordingly, the AO enhanced the income of the assessee by the said amount.

Page 7 of 24 assessee, the claim as put forward by the appellant vide reply dated 24/12/2022 is rejected. The learned A.O. has also held there was no claim made in the ITR in respect of the said amount. Appellant has submitted that sum of Rs.20,22,96,029/- received from Cosmopolitan Education Trust is in the nature of corpus donations given with a specific direction, which also ought to be excluded from the income of the assessee in terms of section 11[1][d] of the Act. The aforesaid amounts were given by various schools for purpose of construction of the building and hence, the amount was due. Thus, the sum of Rs.20,22,96,029/- is a liability for expenditure incurred on capital account and therefore was credited towards the corpus fund in the financials of the assessee. This also indicates the nature of the said donation given by Cosmopolitan Education Trust. This ground of appeal is similar to 1st ground of appeal and in interest of natural justice this ground of the appellant is allowed for the AY 2021-22.

14.1 It was explained that the difference between the opening balance and closing balance of the corpus fund had been wrongly shown as a fresh donation, which led to confusion in the income tax return. However, reconciliations filed in the paper book clearly subsume these entries, and the closing balance of corpus as per accounts fully matches with the amounts shown in the financial statements. The assessee stressed that the error was only in presentation and not in substance, since the law is well-settled that real income must be computed on correct facts and not merely on book entries.

14.2 During the assessment proceedings, the AO treated the corpus donations as income. The assessee clarified that as per section 11(1)(d) of the Act, such corpus donations are exempt and cannot be considered as part of income. The learned CIT(A), after examining the confirmations and reconciliation statements, accepted the assessee’s submissions and deleted the additions.

14.3 The learned AR argued that the Revenue’s objections are misplaced. The reconciliations filed at various pages of the paper book, as well as confirmations from M/s Cosmopolitan Educational Trust, establish beyond doubt that the sums were corpus donations only. The assessee pointed out that the Revenue ignored later clarifications and continued to rely only on an erroneous initial statement. It was emphasized that the audited financials, reconciliation statements, and donor confirmations are consistent and support the assessee’s case.

14.4 In conclusion, the assessee submitted that since the donations of ₹41,85,16,746/- and ₹20,22,96,029/- are corpus in nature and have . been fully supported by evidence, no addition to income is warranted. The grounds raised by the Revenue are liable to be dismissed, and the order of the CIT(A) deserves to be upheld.

14.5 Besides the above, the ld. counsel for the assessee has filed additional synopsis dated 19 September 2025 along with the remand report of the ld. ACIT wherein it was agreed that the sum of ₹ 47,17,52,440.00 represents the corpus donation received from Cosmopolitan Education Trust. It was submitted by the ld. AR that during the course of hearing before the learned Commissioner of Income Tax (Appeals), the Assessing Officer had issued notices calling upon the assessee to produce supporting documents and details in relation to the claims made. In response, the assessee, through its authorised representatives, appeared before the Assessing Officer and furnished all the required documents and explanations. After detailed verification, the Assessing Officer submitted a remand report to the learned CIT(A), which has also been placed on record.

14.6 From the said remand report, it is evident that the Assessing Officer has accepted the contention of the assessee that the sum of ₹47,17,52,440/- received during the financial year 2020-21 represented a corpus donation from Cosmopolitan Education Trust. The breakup of the said amount consists of ₹41,85,16,746/- towards corpus fund donation and ₹5,32,35,694/- being the source of funds used for the takeover of Embassy Public School, totalling ₹47,17,52,440/-.

14.7 During the course of assessment, the Assessing Officer had earlier raised a query regarding the corpus donation shown in the income-tax . return amounting to ₹50,60,49,193/-. The assessee clarified that the figure in the return was entered inadvertently and that the actual corpus donation received during the year was ₹41,85,16,746/-. The Assessing Officer, in his remand report, verified and accepted this explanation. In view of this finding, there is no basis for the department to pursue any appeal on the issue of corpus fund donation.

14.8 Similarly, the amount of ₹5,32,35,694/- utilised for the takeover of Embassy Public School from Cosmopolitan Education Trust has been verified and accepted by the Assessing Officer as being sourced from corpus fund donations. Therefore, no appeal could be filed by the income-tax department on this issue, and the earlier addition made under section 69C of the Income-tax Act for unexplained expenditure no longer survives.

14.9 The assessee further places reliance on the judgment of the Hon’ble Karnataka High Court in the case of CIT v. D.M. Purnesh (ITA No. 346 of 2010 dated 17.02.2020), a copy of which has been enclosed. Based on the remand report and the appeal records, the position of various additions made in the assessment order is summarised as follows: (i) the corpus fund donation of ₹50,60,49,193/- has been accepted as corpus donation by the Assessing Officer; (ii) the addition towards inter-trust balance transfer of ₹20,22,96,029/- and disallowance of revenue expenditure of ₹3,44,44,734/- remain under appeal before the Tribunal; and (iii) the other additions under section 69C relating to donation paid, difference in revenue expenditure, and takeover of Embassy Public School have either been deleted by the ld. CIT(A) or accepted by the Assessing Officer.

14.10. Thus, the only issues now remaining before this Hon’ble Tribunal for consideration are (i) the inter-trust balance transfer of ₹20,22,96,029/- and (ii) the disallowance of revenue expenditure of ₹3,44,44,734/-. The assessee respectfully submits that both these issues have already been discussed in paragraphs 7 and 8 of the earlier synopsis. Accordingly, it is prayed that the additions made by the Assessing Officer may be deleted to advance substantial justice.

14.11. Without prejudice to the above contentions, the assessee further submits that even if the sum of ₹20,22,96,029/- is not treated as corpus donation, the resultant income would still be nil, as the Assessing Officer is bound to grant reduction for the application of income in excess of total receipts. The computation statement evidencing this position is enclosed. In view of the above facts and circumstances, the assessee prays that this Hon’ble Tribunal may be pleased to dismiss the appeal filed by the appellant-revenue and pass such other orders as may be deemed fit in the interest of justice.

15.1 On facts, it is clear that the figure of ₹50,60,49,193/- shown in the return was not the actual corpus donation received during the year . but represented the closing balance of the corpus fund less a nominal opening balance. The assessee has demonstrated, with reference to its audited financial statements, reconciliation statements, and confirmations, that the true corpus donation received during the year was ₹41,85,16,746/- from M/s Cosmopolitan Education Trust. The error in the ITR was purely clerical, arising from presentation of the closing balance instead of the actual receipts. We find merit in the submission that such inadvertent error cannot lead to denial of exemption when the underlying facts and supporting documents clearly show the correct position. It is a settled principle that real income is to be taxed, and mere book entries or mistakes in reporting of income cannot alter the true character of receipts.

15.2 As regards the sum of ₹20,22,96,029/-, the assessee has established that the same represented amounts initially paid by schools of M/s Cosmopolitan Education Trust for construction of the assessee’s school building, which were subsequently converted into corpus donations upon mutual agreement. Confirmation from the donor trust and reconciliation of accounts have been placed on record, and these were rightly accepted by the ld. CIT(A). We hold that such directed voluntary contributions, being towards the corpus of the assessee trust, fall squarely within section 11(1)(d) of the Act.

15.3 The apprehension of the AO that cessation of liability cannot be treated as corpus donation is misplaced. Once the donor trust itself resolved to treat the advances as corpus donations and confirmations to this effect were furnished, the character of the receipt stands determined. There is no dispute that the sums have been credited to the .

Page 13 of 24 corpus fund in the audited financials and applied for charitable purposes, primarily for construction of the school building.

15.4 We also note that the assessee has applied substantial funds towards its charitable objects, including capital expenditure on school infrastructure and donation to another educational trust. This clearly demonstrates that the assessee has acted in line with its stated objects and within the framework of law.

15.5 It is also pertinent to note that the learned ACIT (exemption) circle 1 of Bengaluru 1, in his remand report has already accepted the sum of ₹ 47,17,52,440.00 represents the corpus donation received from Cosmopolitan Education Trust. The relevant extract of the remand report is reproduced as under: REMAND REPORT IN THE CASE OF COSMOPOLIS EDUCATIONAL TRUST (AACTC5342H) FOR THE A.Y.2021-22: As directed, report is being submitted in the case of the above assessee for the A.Y.2021-22 as under: 2. In order to examine the claim of the assessee Cosmopolis Educational Trust, made in the additional evidence submitted before the Ld. CIT(A) for the A.Y.2021-22, a letter had been issued by this office on 02.05.2023 and 19.05.2023 requesting the assessee to produce the details and documents in support of the claim.

4. On verification of the details and documents submitted by the assessee, it is found that the claim of the assessee that during the F.Y. 2020-21 it had .

received Rs. 47,17,52,440/- as corpus donation from Cosmopolitan Education Trust is acceptable.

15.6 In these circumstances, we find no infirmity in the well-reasoned order of the learned CIT(A) deleting the additions. The assessee has furnished confirmations, reconciliations, and audited accounts which conclusively prove that the amounts of ₹41,85,16,746/- and ₹20,22,96,029/- are corpus donations and not taxable income. We, therefore, uphold the order of the learned CIT(A) and dismiss the ground of appeal raised by the Revenue.

16. The next issue raised by the Revenue is that the ld. CIT-A erred in deleting the disallowance of claim made by the assessee for the revenue expenditure of Rs. 3,44,44,374/- without calling for remand report.

17. The relevant facts are the assessee during the assessment proceedings was asked by the AO to furnish the supporting evidence with respect to the revenue expenditure of Rs. 3,44,44,374/- along with the nature of such expenses. The assessee in response submitted that the required documentary supporting evidence and detail of each and every expenses as per the required format cannot be provided due to high volume of transactions. The assessee explained that revenue expenditure broadly categorizes into establishment & administrative expenses and other expenses. The establishment and administrative expenses include expenses such as staff salary, staff benefit expenses, school building rent, school building repair and maintenance, vehicle running and maintenance etc. whereas other expenses include electricity . and water charges, printing and stationery, staff uniform etc. The assessee furnished an annexure explaining the nature of the expenses. The AO observed certain discrepancy in the detail provided by the assessee. As such the AO noted that in the return revenue expenditure claimed was at Rs. 3,44,44,374/- whereas the detail provided by the assessee shows expenditure of Rs. 6,70,90,883/- only. In the return, rent expense claimed at Rs. 78,79,350/- whereas in the submission same stand at Rs. 2,75,66,100/- only. Accordingly, the AO proposed to make disallowances of Rs. 6,70,90,883/- as unexplained expenses.

17.1 The assessee in response submitted that due to inadvertent reason annexure for revenue expenses for subsequent year being A.Y. 2022-23 was furnished instead of for the year under consideration. The assessee claimed the expenses for year under consideration stand at Rs. Rs. 3,44,44,374/- only.

17.2 The AO after considering the submission of the assessee held that the assessee failed to substantiate the claim of revenue of expenses of Rs. 3,44,44,374/- by providing supporting evidence such as vouchers, invoices, proof of payment of salary etc. Further the assessee has frequently altered the submission. Hence, the AO disallowed the same and added to the total income of the assessee as unexplained expenditure.

19.1 The learned CIT(A) after considering the facts in totality deleted the addition made by the AO by holding as under: On considering the reply of the AO and applicant, it is seen that the applicant has admitted the mistake in filing the return and has also revised the same and provided the relevant books. Vide reply filed on 24/12/2022, the assessee also submitted that it had filed Form – 10B on 15/02/2022 and a revised Form – 10B on 07/11/2022 and there were errors and inconsistent figures mentioned therein. Ultimately, the assessee needs to be assessed on correct income by application of the provisions contained in the Act and not based on any erroneous return / Form 10B filed in course of the assessment proceedings. In my considered view, therefore this ground of the appellant is allowed for the AY 2021-22.

22.1 The learned AR further argued that the assessee had already furnished extracts of the expenses placed at pages 50–64 of Paper book No.2 and sample copies of invoices at pages 65–124. It was emphasized that such expenses are necessary for the day-to-day functioning of schools, and it is not possible to run schools without incurring such costs. The ld. CIT(A) had rightly accepted the assessee’s explanation and deleted the addition, holding that the assessee should be assessed on its real income.

22.2 The learned AR also highlighted that in subsequent years, the department itself has accepted similar revenue expenditure. For example, in the assessment for AY 2022–23, the returned income was accepted under section 143(3) r.w.s. 144B, which fortifies that these expenses are routine and genuine. The ld. AR contended that once such . expenditure has been consistently allowed in earlier and later years, there is no justification to disallow it in the impugned year.

22.3 Lastly, the ld. AR opposed the Revenue’s suggestion to remand the matter back to the AO. It was argued that the assessee has already produced details of the expenditure which are tabulated at page 23 of the assessment order and furnished sample invoices in the paper book. Since the nature of expenses like salary, rent, and taxes is self-evident and unavoidable, sending the matter back would serve no purpose and only prolong the litigation. Therefore, the ld. AR urged the Tribunal to uphold the order of the ld. CIT(A) and dismiss the Revenue’s appeal.

CIT(A), who found that the assessment must proceed on correct figures. Therefore, we do not find any infirmity in this.

27. The next and last issue raised by the revenue is that the learned CIT(A) erred in deleting the addition made on account of unexplained expenditure for Rs. 5,32,25693/- without calling for remand report.

Page 22 of 24 satisfactorily explained. The said provisions have no application in the instant case since the consideration has been paid from out of the funds received from M/s. Cosmopolitan Education Trust.” On considering the reply of the AO and applicant it is seen that appellant has submitted the relevant details and the source for incurring the expenditure. As the basis of section 69C of I.T Act is the source of incurring the unexplained expenditure, the section does not have any implication in this case, the ground of appeal is allowed.

5. In the result, the appeal of the appellant is allowed.

69C of the Act on the ground that the assessee paid ₹5,32,35,693/- as consideration for acquiring Embassy Public School, which was not reflected as expenditure in its books and that no proper details were filed. On this basis, he treated the sum as unexplained expenditure and enhanced the assessee’s income.

34.1 On appeal, the ld. CIT(A) deleted the addition after verifying the explanation and supporting evidence furnished by the assessee. The assessee had clearly demonstrated that the consideration for acquiring Embassy Public School was not incurred from unexplained sources but was adjusted out of the funds received from M/s Cosmopolitan Education Trust. The books of account show that a larger amount of ₹47.17 crores was transferred by CET to the assessee which was duly credited. Out of this amount, ₹5.32 crores were paid back to CET towards acquisition of the educational institution, in terms of the agreement dated 04.02.2021. These transactions were routed through regular banking channels, properly accounted, and verifiable from the ledger accounts and consolidated financial statements. Thus, the source of the expenditure stood fully explained.

34.2 We are also conscious to the fact that the provision of section 69C of the Act applies only where the source of an expenditure is not explained or satisfactorily established. In the present case, the assessee has explained the source beyond doubt. The amount was neither claimed as application of income nor debited as revenue expenditure in the income and expenditure account. Rather, it was part of the acquisition of assets, duly reflected in the balance sheet and supported . by documentary evidence. Therefore, the very basis for invoking section 69C of the Act does not survive.

34.3 We also find merit in the contention of the assessee that remanding the matter back to the Assessing Officer is not necessary. All relevant facts, agreements, bank statements, and entries are already on record and have been examined. The ld. CIT(A) has rightly concluded that there is no case of unexplained expenditure. We see no infirmity in this conclusion.

34.4 Accordingly, we hold that the addition of ₹5,32,35,693/- made by the AO under section 69C of the Act is unsustainable in law and on facts. Therefore, we hereby uphold the finding of the learned CIT(A). Hence, the ground of appeal raised by the revenue is hereby dismissed.

35. In the result, the appeal filed by the Revenue is hereby dismissed.