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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘A’, LUCKNOW
Before: SHRI A. D. JAIN & SHRI T. S. KAPOOR
PER T. S. KAPOOR, A.M.
This is an appeal filed by the Revenue against the order of learned CIT(A), dated 30/05/2017 pertaining to assessment year 2013-2014. In this appeal the Revenue has raised the following grounds of appeal:
“1. Learned Commissioner of Income Tax (A) has erred in law and facts by allowing the benefit of section 11 thereby deleting the addition of surplus of Rs.2,28,47,433/- ignoring the fact that the assessee charged Rs.57,75,900/- in the form of Book Bank Fees, Dress Charges Examination Fee and Miscellaneous Fees beyond the prescribed amount of fees as decided by the Govt. Authorities, which clearly indicates that the objects of the assessee are not charitable.
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Ld. Commissioner of Income Tax (A) has erred in law and facts in deleting the addition/disallowance of Rs.28,80,000/- ignoring the fact that the assessee could not substantiate it's claim with documentary evidences and also could not prove the genuineness of transactions and credit worthiness of the people who have donated. Further the judgment of the jurisdictional High Court in the case of CIT Ghaziabad Vs. Uttaranchal Welfare Society is related to non- corpus donations.
Ld. Commissioner of Income Tax (A) has erred in law and facts by deleting the addition of Rs.2,11,95,398/- ignoring the fact that the assessee trust did not furnish the respective bank pass books, copies of acknowledgements of income tax returns to prove the genuineness of the transactions and credit worthiness of the parties who have given unsecured loans and also the assessee trust did not furnish the postal addresses of the concerned parties to enable A.O. to enquire about the details of transactions.
Ld. Commissioner of Income Tax (A) has erred in law and facts by deleting the addition/disallowance made by the AO on account of help to poor students amounting to Rs.58,22,900/- out of addition of Rs.62,61,862/-.
Ld. Commissioner of Income Tax (A) has erred in law and facts by deleting the addition/disallowance made by the AO amounting to Rs.3,69,940/- violating the provisions of section 40(a) of the I.T. Act, 1961.”
At the outset, Learned D. R. invited our attention to the assessment order wherein the Assessing Officer had noted that the assessee had received huge amount of Rs.57,75,900/- in the form of fees and other charges which income is a capitation fees and therefore, the Assessing Officer relying on the order of Hon'ble Supreme Court in the case of Unni Krishanan J.P. & Others vs. State of Andhra Pradesh & Others had rightly treated the activities of the assessee as commercial and therefore, rightly held the total income declared by the assessee as income from business. It
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was argued that learned CIT(A) has not appreciated the facts of the case and has wrongly allowed relief to the assessee.
2.1 Arguing ground No. 2 Learned D. R. submitted that the assessee had made additions to the corpus fund to the tune of Rs.28,80,000/- and assessee was show caused to furnish evidences proving the genuineness of the transactions and creditworthiness of the persons who had given the donation and in the absence of the assessee having filed bank pass-book and copies of acknowledgement of income tax return of the donor, the Assessing Officer had rightly made the addition as unexplained cash credit u/s 68 of the Act and which learned CIT(A) has wrongly allowed.
2.2 Arguing ground No. 3 Learned D. R. submitted that assessee had received various amounts from various persons and on an explanation sought by the Assessing Officer regarding genuineness of transactions and creditworthiness of the persons, the assessee had failed to prove the same and therefore, the Assessing Officer had rightly made addition u/s 68 and which the learned CIT(A) has wrongly allowed.
2.3 Arguing ground No. 4 Learned D. R. submitted that assessee had debited an amount of Rs.62,61,703/- under the head help to poor students and Assessing Officer had observed that most of the entries were journal entries and in the case of cash payment the evidence could not be verified as in some cases the names of the students were not mentioned and therefore, the Assessing Officer had rightly made the addition of Rs.62,61,703/- and learned CIT(A) has wrongly allowed relief to the assessee to the extent of Rs.58,22,900/-.
2.4 Arguing last ground of appeal, Learned D. R. submitted that assessee had violated the provisions of section 40(a)(ia) of the Act as the assessee
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had not deducted TDS on payments made to K. Lounge Tailors and therefore, Assessing Officer had rightly made the disallowance which the learned CIT(A) has wrongly allowed.
Learned A. R., on the other hand, submitted that the extra amount received by the assessee from the students in the form of book bank fees, dress charges, examination fee and misc. fees were not part of the tuition fee as these were specific charges which the assessee had received on the specific request of the students. As regards dress charges, Learned A. R. submitted that the students of the institution belong to various adjoining villages of the area and on their request only the dress were made for them and accordingly they were charged for the dress charges. Learned A. R. in this respect invited our attention to page 171 of the paper book where the dress expenses incurred by the assessee were placed. Learned A. R. submitted that these dress expenses were incurred by the assessee against the receipt of dress charges and therefore, the assessee cannot be said to have profited from the above activities. As regards the examination fee, the Learned A. R. submitted that this fees were for specific purpose and was not part of tuition fees and therefore, the reliance placed by the Assessing Officer on the order of Hon'ble Supreme Court is not applicable to the facts and circumstances of the present case. It was submitted that the order of fee fixation committee, placed at pages 48 to 53 of the paper book, is relevant for determining the tuition fee to be charged as per the guideline which depended upon the number of students, infrastructure facilities, audited income and expenditure account and balance sheet of the institution. Learned A. R. invited our attention to an order of Hon'ble Lucknow Bench of the Tribunal in I.T.A. No.265 and 266/Lkw/2017 in the case of Prayag Dant Vigyan Anusandhan Sansthan wherein under similar facts and circumstances the Hon'ble Tribunal had allowed relief to the
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assessee. Our attention was also invited to detailed findings of learned CIT(A) where he has dealt with the entire issue. Therefore, it was prayed that ground No. 1 of the appeal may be dismissed.
3.1 Arguing ground No. 2 regarding addition of Rs.28,80,000/- u/s 68 of the Act, Learned A. R. submitted that during assessment proceedings all the details of the donors along with their address and PAN were submitted to the Assessing Officer and in this respect our attention was invited to pages 81 & 82 of the paper book where the details of names, PAN, address were placed. It was submitted that the requirement of the Assessing Officer to produce bank passbook, copies of acknowledgement of income tax return along with the computation of income was not justified as the assessee had received donations of small amounts and major of the donations were of Rs.10,000/- which is apparent from the list of donors placed at pages 81 & 82 of the paper book. It was further submitted that the complete address alongwith PAN of the donors was also furnished and therefore, the learned CIT(A) has rightly deleted the addition.
3.2 Arguing ground No. 3 for the addition of Rs.2,11,95,398/- u/s 68 of the Act, Learned A. R. submitted that the assessee had received unsecured loans from five persons which were already depositors with the assessee as is apparent from the copy of accounts of these depositors placed at pages 98 to 145 of the paper book. Our specific attention was invited to page No. 99 where copy of account of Avinash Kumar Agarwal was placed and wherein the opening balance was mentioned at Rs.9,00,000/-. Our attention was also invited to page No. 106 of the paper book where copy of account of Naresh Kumar Agarwal was placed wherein also there was opening balance. Our further attention was invited to page No. 129 of the paper book where copy of account of Ikrar Ahmad Contractor was placed
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where again the opening balance was there. It was submitted that in the earlier year there was no such addition made on account of these receipts as these were genuine unsecured loans raised by the assessee and the funds were received through cheques. It was submitted that all these details were submitted in the preceding year also and Assessing Officer had not made any addition and in this respect invited our attention to copy of assessment orders placed at pages 63 to 80 of the paper book. Learned A. R. submitted that during assessment proceedings all the documents including bank account and PAN of depositors were furnished. Our specific attention was invited to the account of Ikrar Ahmad Contractor where the amount was Rs.85,55,826/-. It was submitted that the opening balance in this account was Rs.1,00,29,220/- and in fact during the year under consideration the loan amount has reduced.
3.3 Coming to ground No. 4 regarding expenditure incurred by the assessee under the head help to poor students, Learned A. R. submitted that for poor students the assessee used to pass on part of fees received from them into their accounts and entry was used to be made through journal entry and in this respect our attention was invited to ledger account of help to poor students placed at paper book pages 162 to 170. It was submitted that for cash payments, the learned CIT(A) did not allow relief to the assessee whereas in the case of cheque payments and journal entry payments, the learned CIT(A) has allowed relief to the assessee.
3.4 Coming to last ground of appeal, Learned A. R. submitted that for dress charges incurred on behalf of the assessee, the assessee had engaged a tailor to whom stitching charges were paid and our attention was invited to page No. 172 of the paper book where copy of account of K. Lounge Tailors was placed. It was submitted that learned CIT(A) has rightly deleted
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the disallowance. It was further argued that without prejudice even if this disallowance is made the taxable income of the assessee being exempt u/s 11 will not have any revenue effect.
We have heard the rival parties and have gone through the material placed on record. We find that Assessing Officer disallowed the claim of the assessee u/s 11 of the Act by holding that the assessee had received book bank fees, dress charges, examination fee and misc. fees amounting to Rs.57,75,900/- which was in the form of capitation fee. However, we find that these charges were charged to the students as the assessee had provided extra facilities like providing dress to the students. The examination fee charged by the assessee was deposited with the UPTU who is engaged in conducting exams. The learned CIT(A) has held that in the earlier years under similar circumstances the Assessing Officer had not made any addition. The assessee, before learned CIT(A), has also filed fee fixation committee letter. It was further submitted to him that the charges were charged for additional facilities which included WIFI system. The findings of learned CIT(A) in this respect are quite relevant which is reproduced below:
“5.3 I have examined the appellant contention and found that it has force. The appellant argue that in earlier years the AO had granted exemption u/s 11. There was no change of activities in the current year to warrant such addition. The appellant had been getting the benefit of section 11 since AY 2010-11 and 2012-13 and the AO had granted them on similar activities. There was no new fact or situations that were brought in record to deny the benefit of section 11 to the appellant in the current year. Nor has the AO established the fact of profiteering directly or indirectly by the appellant. Perhaps it was not necessary on his part to do so since during that point in time the registration u/s 12AA as a charitable organisation was not available to the assessee. Therefore the
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decision of the AO may have been coloured due to this fact. Even then, rejection of benefit of section 11 should have been done only after proper examination.
5.4 In the instant case the AO has not, actually established 'profit motive' put of the fees collected by the appellant trust. He has not even examined whether the activities of the institution was solely to generate profit or whether the facilities provided on demand was for the benefit of the students or not. Therefore the amount cannot be regarded as profit and be treated as such. Thus th6 treatment of the surplus over expenditure of Rs.2,28,47,433/- as income from business is wrong and liable to be jettisoned. The appellant gets relief to this extent.”
4.1 The above findings of learned CIT(A) are quite exhaustive and moreover the Hon'ble Tribunal, under similar circumstances in the case of DCIT vs. Prayag Dant Vigyan Anusandhan Sansthan, vide order dated 30/11/2018 has held the extra charges, charged from the students as not a capitation fees and has allowed relief to the assessee by holding as under:
“13. As regards ground No.1 in ITA No.266/LKW/2017, we find that the Assessing Officer had disallowed the benefit of section 11 by making addition of whole of excess of income over expenditure treating the same as business income as in his opinion assessee had charged fee which was beyond the prescribed amount of fees decided by the Government authorities. However, ld. CIT(A) allowed relief to assessee by holding as under:- “On perusal of the details filed and those available on records, it is seen that the assess.ee trust has been charging tuition fees as per the norms set by the UPTU. The assessee trust has also charged additional fees/charges for specific purposes, like examinations, lab fees etc. These are not illegal receipts nor has the UPTU barred the appellant form these additional charges, as the monetary cap is only on tuition fees. In any case, such additional receipts are de- minimis and are collected for specific purposes. The decision of the Hon'ble Supreme Court in the case of Unikrishnan, JP
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& Others which has been cited by the A.O. in his order, deals with the receipt of Capitation Fees. In this case, admittedly, there is no capitation fees, thus, the said decision of the Hon'ble Supreme Court is not at all applicable to the instant case. These fees/ charges, collected in addition to the tuition fees, were fully recorded and accounted funds and these have been spent for the purposes/ objects of the trust. Even assuming that the assessee trust had charged some additional fees/ charges which was in violation of the UPTU norms, it was for the UPTU to take appropriate action. The A.O. cannot step into the shoes of the UPTU to determine the excess amount, if any, charged. Further, it is now a settled law that "Education" per se is a charitable activity and even if some surplus is earned by the trust while imparting education, the same cannot be considered as a business activity as long as the funds of the trust are used for the purposes/ objects of the trust. In this view of the matter, the observations of the A.O. that the assessee was indulging in a business activity is not in accordance with the settled law and, therefore, it has to be held that the surplus of the trust is not to be treated as business income. Accordingly, this addition of Rs.3,65,41,344/- is hereby deleted.”
4.2 In view of the above facts and circumstances and following the judicial precedent, ground No. 1 of the appeal of the Revenue stands dismissed.
Now coming to ground No. 2 regarding deletion of addition of Rs.28,80,000/-, we find that the Assessing Officer has made this addition by holding that the assessee had not produced copy of income tax return and bank statement of the donors. However, we find that the assessee had furnished complete list of donors including the names, addresses and PAN numbers of the donors, a copy of which is placed at pages 81 & 82 of the paper book. The list, as noted above, demonstrates that most of the donors have given amounts of Rs.10,000/- and the list contains the names, addresses and also the mode of payment as to whether cheque or cash.
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Similarly, we find that the assessee on its own had added back the amount of Rs.28,80,000/- in its income which is evident from the copy of computation sheet placed at page 55 of the paper book and after inclusion of such amount in the income the assessee has applied the same for the charitable purposes which is also apparent from page 55 of the paper book. The learned CIT(A) has categorically mentioned this fact in his order. Therefore, we do not find any infirmity in the findings of learned CIT(A). In view of the above, ground No. 2 also stands dismissed.
Now coming to ground No. 3 regarding addition on account of unsecured loans, we find that Assessing Officer had made this addition on account of unsecured loans from five persons, detailed as under:
Mr Avnish Kumar, Najibabad Rs.40,00,000 2. Mr Naresh Kumar Rs.40,00,000 3. Mr Ikrar Ahmad, Najibabad Rs.85,55,826 4. Mr Nitin Gupta, Mumbai Rs.26,34,572 5. Shri Ganga Khandsari Udyog Rs.20,05,000
6.1 The Assessing Officer wanted the assessee to provide copy of acknowledgement of income tax return, computation of income and other documentary evidence to prove the genuineness of transactions and creditworthiness of the parties. The Assessing Officer noted that assessee had not provided these details and therefore, he made addition u/s 68 of the Act. Before us, Learned A. R. invited our attention to the copy of account of Avnish Kumar, Naresh Kumar, Nitin Gupta, Ikrar Ahmand and Shree Ganga Khandsari Udyog. From the copy of accounts of Avnish Kumar, placed at page 99 of the paper book, we find that there was an opening balance of Rs.9,00,000/- and Rs.40,00,000/- was received during the year. Similarly, in the case of Naresh Kumar, the opening balance of Rs.10,48,000/- was there and Rs.40,00,000/- was received during the year.
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Similar is the position with respect to Ikrar Ahmad wherein the opening balance was to the tune of Rs.1,00,29,220/-. Learned A. R. had also invited our attention to the copy of bank statements and copy of ITRs which were filed before the authorities below to prove the genuineness of creditworthiness of the unsecured loan holders. It was further argued that out of five unsecured loan holders, in the case of the three account holders there were opening balances and for which the Assessing Officer had not made any addition. The detailed submissions were made to learned CIT(A) regarding these depositors which the learned CIT(A) has noted in his order at pages 19 to 21. The learned CIT(A) in his findings has held that one of the depositor Avnish Kumar was the Trustee and Chairman of the society and similarly Naresh Kumar another depositor was Trustee. The learned CIT(A) has further held that Avnish Kumar was partner in Shree Ganga Khandwari Udyog which had advanced Rs.20,00,000/-. The findings of learned CIT(A) in this respect are contained in para 8.1, which for the sake of convenience are reproduced below:
“8.1 It is seen that the AO has made a number of allegations with regard to the details he had required which were not furnished before him such as postal address, proof of identity, ITR, copy etc. I have gone thus the submission of the appellant. It will not be out of place here to mention that Mr. Avnish Kumar was the trustee, and chairman of the society who used to appear before the AO. How is that the AO was not convinced about his identity and added the amount given by him to the trust as loan, as unverifiable? Similarly Sri Naresh Kumar was also a trustee. His copy of a/c, ITR, bank a/c and statement of trust was on record and also furnished during the appellate proceedings. Mr Avnish Kumar Agrawal was a partner of Sree Ganga Khandsari Udyog which advanced Rs.20,05,000/- as loan to the trust. The A.O. seemed to have ignored these facts.
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These documents must have been available to the AO also as these are bank and IT records and are handmade. It is not understood as to how and why the AO could completely disregard such evidences. There was no application of mind, enthusiasm to prove found in his order. He made the addition mechanically without any evidence to support his order. Similarly Mr Ikrar Ahmad and Sri Nitih Gupta, Mumbai had given the loan to the trust by cheques having sufficient balance in their accounts. Interests were also paid to them. The appellant has relied on the following case laws:
[2013] 38 taxmann.com 239 Section 68 of the Income-tax Act, 1961 - Cash (Allahabad)/218 taxman 157, HIGH credit [Burden of proof], -Loan was advanced COURT OF ALLAHABAD and repaid through account payee cheques - Commissioner of Income-tax -1 PAN number of offenders were furnished - vs. Kapoor Chandl Mangesh Lenders had sufficient funds in their bank Chand. Copy of the same is at accounts and cash was not deposited on date page__75 ___of the case law preceding to or at time when cheques were index. issued by lenders - Whether no addition under section 68 was called for- Held, yes [para 5] in favour of the assessee. 2. [2015] 54 taxmann.com 75/229 Section 68: of the Income-tax Act, 1961 - Cash Taxman 532 credits (Onus of proof) -Assessment 'year 2002- Commissioner of Income-tax, 03 --Whether where in respect of credit entries, Central, Kanpur v. Anurag Agarwal, assesses established identity of creditors by Copy of the same is at page 76-77 bringing on record their PAN and complete of the case laws index. addresses and moreover transaction was made through proper banking channel, impugned addition made u/s 68 was to be set aside- Held', yes [Para. 7] [In favour of assessee] 3. [2015] 54 taxmann.com 216/230 Section 68 of the Income-tax Act, 1961 - Cash Taxman 165 (Allahabad) credits (Loan) -Assessment year 2009-10 - HIGH COURT OF ALLAHABAD In Whether where appellate authorities after the case of Commissioner of considering balance sheet of lender as well as Income-tax, Meerut, v. Avant confirmatory certificates in respect of Grade Carpets Ltd. Copy of the advances given to assessee, deleted addition same is at page 78-79 of the case made by Assessing Officer under-section 68, law index. order so passed did not give rise to any substantial question of law - Held, yes [Para 6] [In favour of assessee]
6.2 The above findings of learned CIT(A) are quite exhaustive and we do not find any infirmity. In view of the above, ground No. 3 also stands dismissed.
Now coming to ground No. 4 regarding relief given by learned CIT(A) for help to poor students, we find that assessee has incurred an expenditure of Rs.62,61,703/- on account of help to poor students, the detail of which is
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placed at pages 162 to 170 of the paper book. The expenses booked under this head are on account of journal entries which shows that the amounts were credited to the students the names of which is also mentioned in the ledger account. The learned CIT(A) confirmed the addition to the extent of Rs.4,38,803/- and has allowed relief for the remaining amount by holding as under:
“9.1 I have personally examined the ledger account where in an expense of Rs.62,61,703/- have been shown as help to poor students. Most of the entries are journal entries and the students have been credited with certain amounts such as tuition fees, examination fees, misc/internet fees etc. Each one of them have the details of name, father's name and the course name etc. The total amount was Rs.58,22,900/-. Since these are journal entries and the students who were poor, were credited with various fees without bringing evidences to the contrary, the AO should not have disallowed the expenses. However, there were certain payments in cash to various other students on several dates amounting to a total of Rs.4,38,803/- This amount were paid in cash of different persons as prize money, some of them were not the student of the institute when a competition need in the institute. Obviously there is no way to examine this expenditure whether they had actually been incurred or not. I therefore confirm the addition made on this ground. The appellant gets relief to the extent of the balance amount.”
7.1 The above findings of learned CIT(A) are quite exhaustive and are based upon the facts and circumstances of the case therefore, we do not find any reason to interfere with the findings of learned CIT(A). Accordingly, ground No. 4 is dismissed.
Now coming to last ground regarding addition made u/s 40(a)(ia) of the Act, we find that learned CIT(A) has held that section 40(a)(ia) is not applicable as the income of the assessee was not taxable under the head business or profession. The findings of learned CIT(A) are correct as the
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assessee is entitled to exemption u/s 11 and provision of section 40(a)(ia) are applicable only under the head business and profession appearing in Chapter-IV of the Act. We further find that even if disallowance is upheld the addition will result into enhanced income which again will be exempt u/s 11 of the Act. Therefore, we do not find any infirmity in the findings of learned CIT(A). Ground No. 5 is also dismissed.
In the result, the appeal of the Revenue stands dismissed.
(Order pronounced in the open court on 26/04/2019)
Sd/. Sd/. ( A. D. JAIN ) ( T. S. KAPOOR ) Vice President Accountant Member
Dated:26/04/2019 *Singh
Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Assistant Registrar