ASSISTANT COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE-2(4), HYDERABAD vs. RAVI RISHI EDUCATIONAL SOCIETY, HYDERABAD

4. The Id. CIT (Appeals) has erred in holding the entire salary payable/paid of Rs. 4,10,43,006/- made towards objects of the society, even though the assessee could substantiate such salary expenditure only to the extent of Rs. 73,24,994/-.

6. The Id. CIT (Appeals) has erred in holding that Depreciation claimed at Rs. 2,11,03,552/-, was incurred towards the object of the society, even though the assessee could not produce evidence for the new assets added during the year and failed to prove that the assets were put to use towards the objects of society. to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 7. The Id. CIT (Appeals) has erred in stating that the assessee has applied 85% of its Gross Income for charitable purposes even though the assessee had failed to discharge the burden of establishing that the expenditure was wholly and exclusively utilized for the objectives of the society. 8. he Id. CIT (Appeals) has erred in not considering the fact that the assessee has not maintained separate books of accounts as per Section 11(4A) as the assessee is involved in regular purchase and selling of immovable properties.

9. The ld. CIT (Appeals) has erred in not considering the fact that the assessee has not proved the modes of investment of excess amounts as specified in Section 11(5).

5. Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) partly allowed the appeal of the assessee.

to 303/Hyd/2022 for A.Ys. 2013-14 to 2015-16 (Revenue’s appeals) 10. The facts and issues involved in these appeals are similar to facts and issues involved in . Hence, our findings in applies mutatis muntandis to these appeals also. Accordingly, these appeals of the revenue are also dismissed. to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 C.O. Nos.20 to 22/Hyd/2022 for A.Ys. 2013-14 to 2015-16 (Assessee’s C.Os.) 11. The facts and issues involved in these C.Os. are similar to facts and issues involved in C.O No.19/Hyd/2022. Hence, our findings in C.O. No.19/Hyd/2022 applies mutatis muntandis to these C.Os. also. Accordingly, these C.Os. of the assessee are also allowed. ITA No.304/Hyd/2022 for A.Y. 2016-17 (Revenue’s appeal) 12. At the outset, the Ld. DR submitted that the following issues are only involved out of their grounds of appeal : a) Availability of exemption u/s.11 of the Act to the assessee. b) Allowability of various expenditure as application of fund. c) Unaccounted credit of Rs.7.20 Crores.

13. With regards to the availability of exemption u/s.11 of the Act to the assessee, the objections of the Ld. DR are manifold. The Ld. DR submitted that, simply having Registration u/s.12AA/12AB of the Act is not sufficient to be eligible for exemption u/s.11 of the Act. He further submitted that, in order to avail the exemption u/s.11 of the Act, i)the assessee has to get its books of account audited in accordance with section 12A(1)(b) of the Act, ii) the assessee will have to maintain separate set of books in accordance with section 11(4A) of the Act, iii) the assessee has to keep its funds under the mode specified u/s.11(5) of the Act and iv) there should not be any violation of section 13 of the Act to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 on the part of the assessee. However, in the year under consideration, the assessee has violated all these conditions. 13.1 Further, inviting our attention to para nos.5 to 9.5 of order of Ld. AO, the Ld. DR submitted that, i) the assessee did not produce any books of account before the Ld. AO & failed to substantiate that 85% of the gross receipts have been utilized for objects of society, ii) the assessee has not accounted the sale proceeds received from WIIZ Realtors LLP, iii) the assessee is engaged in real estate business & has not kept separate books of account as per the mandate of section 11(4A) of the Act and iv) the assessee has diverted the fund of the society for personal use of the Trustee violating the condition of section 13 of the Act. Accordingly, the assessee has violated the various conditions, which deprive the assessee from the exemption of section 11 of the Act. As the assessee is not eligible for any exemption u/s.11 of the Act, as per the combined reading of section 2(24)(2A) and 12A(1) of the Act, all the receipts of the assessee are liable to be considered as income of the assessee. Accordingly, there is no infirmity in the order passed by the Ld. AO in treating the gross receipts of the assessee as total income. However, brushing aside all the findings of Ld. AO, Ld. CIT(A) has allowed exemption u/s.11 to the assessee. Hence the order of the Ld. CIT(A) is liable to be set aside. In their alternate argument, the Ld. DR prayed before the bench to remand back the issue to the file of Ld. AO for fresh verification. to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 14. Per contra, the Ld. AR submitted that, the assessee is having 6 colleges with 1181 students and to run those colleges, the assessee is having 199 staff members. As the assessee was running these colleges on rented premises, therefore, for shifting all their activities to their own premises, the assessee had purchased the land. Further, due to non-receipt of scholarship grants from government for some period, the society had to take loan from bank and in order to mitigate their financial crisis, subsequently, the assessee had to sold these lands. Therefore, the purchase and sale of the lands were made, looking into the needs and object of the society. The contention of the Ld. DR that, it has been done as a business activity with a profit motive has no legs to stand. As, the society had purchased as well as sold the land looking into the needs and object of the society and not as a business activity, the provision of section 11(4A) of the Act regarding maintenance of separate books are not applicable to the assessee. Hence no violation has been done by the assessee as far as the section 11(4A) of the Act is concerned. 14.1 The Ld. AR further submitted that, the allegation by the Ld. DR that the assessee has not regularly maintained the books of account and not produced the same before the Ld. AO, hence failed to substantiate that 85% of the gross receipts of the society had been utilized for the object of the society, is also not correct. The assessee had maintained and kept proper books of account as well as the corresponding bills / vouchers and also get the books of account audited for the year under consideration. In support of to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 their claim, the Ld. AR invited our attention to para nos.6.5.7 and 6.5.8 of the order of Ld. CIT(A), wherein the Ld. CIT(A) has given his findings that, the assessee has got the books of account audited and also has filed Form no.10B. Therefore, the Ld. AR prayed before the bench that the allegation of the Ld. DR that no books of account have been maintained and no audit has been get done, are liable to be rejected. 14.2 With regard to the allegation of the Ld. DR, that the assessee has not fully accounted the sale proceeds of the land received from WIIZ Realtors LLP, the Ld. AR submitted that, the issue has been dealt with by the Ld. CIT(A) at para no.8.3.1 of his order and the Ld. CIT(A) has deleted the addition made by the Ld. AO. However, the revenue has not filed any appeal before the ITAT against such findings of Ld. CIT(A). Therefore, the allegation of the Ld. DR in this regard is liable to be rejected. 14.3 As far as the allegation of the Ld. DR with regard to violation of section 13 is concerned, the Ld. AR submitted that, the Ld. DR / Ld. AO has only made a general allegation without making any specific instances of any violation. Further, with regards to transaction of payment/receipt with other associate societies, the Ld. AR submitted that, all such payments / receipts are in the nature of loan, which are for the achievement of the object of the society and has been recorded in the books of account. Accordingly, there is no contravention as far as section 13 of the Act is concerned. to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 14.4 Further, to strengthen their submission, the Ld. AR invited our attention to para no.6.5.3 of the order of Ld. CIT(A), wherein the Ld. CIT(A) has given the findings that, the Ld. AO had made a request to Ld. PCIT for cancellation of registration of assessee u/s.12AA of the Act and the Ld. PCIT did not cancel the registration of the assessee. Accordingly, the Ld. AR submitted that even the Ld. PCIT did not find any irregularity, so as to cancel the registration u/s.12AA of the Act of the assessee. Hence there is no doubt about the eligibility for claim of exemption u/s.11 of the Act by the assessee. Finally, the Ld. AR submitted that, the assessee is eligible for exemption u/s.11 of the Act and he prayed before the bench to allow the exemption u/s.11 of the Act to the assessee. 14.5 In their alternate argument, the Ld. AR submitted that, even if the assessee is not eligible for exemption u/s.11 of the Act, the Ld. AO cannot treat the entire gross receipts as income of the assessee. The Ld. AO had to allow the corresponding expenditure which has been incurred to earn the income. It is the settled principle of law that, only the net income of the assessee is to be taxed and not the gross receipts. Therefore, in their alternate argument, the Ld. AR prayed before the bench to allow the expenditure which has been incurred to earn the income and to tax only the net income of the assessee.

15.1 We have also gone through the provisions of section 11(5)(x) of the Act, where the statute has allowed the investment in immovable property as one of the specified mode of investment. Further, as submitted by the Ld. AR, the assessee is having 6 colleges with 199 staff and running their educational activity in rented premises. Therefore, with the intention of shifting their education activities to their own premises, they have purchased the land. There was no business motive or any intention to involve in any business of purchase / sale of land on the part of the assessee. Only due to scarcity of funds and to repay the bank loan, the assessee has sold the land. Considering the available facts before us, we found that section 11(5) of the Act allows the assessee to invest in immoveable property and nowhere under the law it has been mentioned that if the same is sold, it will to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 amounts to business activity. Further, there was genuine reason with the assessee behind the purchase of land i.e. to shift their educational activity to own premises. Therefore, in our considered opinion, if some profits has arisen to the assessee on sale of land, only for this sole reason, it cannot be held that the trust is involved in the business of purchase / sale of land. Hence, we hold that the trust is not involved in the business of purchase / sale of land and accordingly, the trust is not required to maintain any separate books of account as per the mandate of section 11(4A) of the Act. 15.2 Further, we do not find any merit in the argument of the Ld. DR that the assessee did not produce any books of account and hence, failed to substantiate that 85% of the gross receipts have been utilized for the object of the society. The Ld. CIT(A) has given his finding at para no. 6.5.7. and 6.5.8. of his order, that the assessee not only maintained the books of account but also has got the books audited. The Ld. CIT(A), after calling for the remand report from the Ld. AO has given such findings. Hence, the objection of the Ld. DR regarding non-production of books of account is rejected. 15.3 Further, it is the objection of the Ld. DR that, the assessee has not fully accounted the sale proceeds of the land received from WIIZ Realtors LLP. In this regards we found that, the Ld. AO had made an addition of Rs. 57 Lakhs on account of on money, which the Ld. CIT(A) at para no. 8.3 and 8.3.1 of his order has dealt with the issue to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 and has deleted the addition made by the Ld. AO. Further, the revenue has not filed any appeal before us against the said deletion by the Ld. CIT(A). Hence there is no question of raising any such objection that the asssessee has not accounted the alleged amount of Rs.57 lakhs. Accordingly, the objection of the Ld. DR on this count is also rejected. 15.4 As far as the objection of the Ld. DR with regard to violation of section 13 is concerned, except making a general allegation, no specific instances of such violation has been brought to our notice by the Ld. DR. However, with regard to the objection of Ld. DR, regarding the payment made by the assessee to other associate society, the Ld. AR submitted that, the same are payments / receipts in the nature of loan given / taken and the same has been done for the achievement of the object of the society, which has been recorded in the books of account and no disallowance with regard to these transaction has been made by the Ld. AO. Hence we do not find any merits on this objection of the Ld. DR. Accordingly, the objection of the Ld. DR with regard to violation of section 13 is also rejected. 15.5 In addition to our findings as above, we also found from para no.6.5.3 of the order of Ld. CIT(A) , wherein the Ld. CIT(A) has given the findings that, the Ld. AO had requested to Ld. PCIT for cancellation of registration of the assessee u/s. 12AA of the Act and the Ld. PCIT did not cancel the registration of the assessee. This facts further provide strength to the claim of the assessee towards eligibility to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 of exemption u/s. 11 of the Act that, even Ld. PCIT also did not find any irregularity so as to withdraw the registration of the assessee u/s. 12AA of the Act. Hence, in our considered opinion, the objection of the Ld. DR that the exemption u/s.11 of the Act should not be available to the assessee, has no legs to stand. 15.6 Accordingly, we dismiss the objections raised by the revenue qua this issue. 15.7 The alternate argument of the assesse is that, the net income can only be taxed after allowing the expenditure incurred to earn the income. As we have already dismissed the appeal of the revenue on this issue, the adjudication on alternate argument will be academic only. Therefore, we are not adjudicating on the alternate argument of the assessee.

to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 AO. Therefore, the argument of the Ld. DR, on an issue which is not emanating from the order of revenue authority is not sustainable under law and is liable to be dismissed. The Ld. AR further submitted that, the cases of other societies for the year under consideration has also been assessed by the same Ld. AO and in all those cases, the Ld. AO has accepted the receipt of loan by them as income and repayment of loan by them as application of income. Hence the same AO cannot take different view on same set of facts. Finally, the Ld. AR prayed before the bench to dismiss the claim of the revenue in this regard. 17.3 Finally, the Ld. AR submitted that, the objections raised by the revenue, regarding allowability of various expenditure as application of income, are liable to be dismissed.

18.3 On perusal of above, we found that, the Ld. CIT(A), after verifying the documents produced by the assessee has allowed the payment of interest to the bank. Further, as submitted by the Ld. AR, the assessee had taken the loan during the preceding years and has been regularly paying the interest on such loan. The payment of such interest has been allowed in earlier year also as application of income. No fresh to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 loan has been taken during the year under consideration. No contrary submission in this respect have been made from the revenue. Therefore, in our considered opinion, when no fresh loan has been taken during the year and the payment of interest has been allowed to the assessee in earlier years also, we do not find any reason to disallow the same in the year under consideration. Accordingly, we dismiss the objection of the revenue on this matter. 18.4 With regard to the objection of the DR regarding claim of depreciation on fixed assets, it was found that, the assessee has disallowed the depreciation in the computation of income (placed at page no.2 of the paper book), therefore, the Ld. DR did not press this issue. Accordingly, we dismiss the objection of the revenue qua this issue. 18.5 In the result, the issue of the Revenue related to “ allowability of various expenditure as application of fund” is dismissed.

19.1 The Ld. DR further inviting our attention to para no.7.3 of the order of Ld. CIT(A) submitted that, the assessee did not file any documents before the Ld. AO qua the addition made by the Ld. AO u/s.68 of the Act for Rs.7.20 Crores. However, the assessee filed the relevant documents before the Ld. CIT(A) for the first time and the Commissioner without calling for any remand report from the Ld. AO deleted the said addition. Therefore, the Ld. DR prayed before the bench to set aside the order of Ld. CIT(A). 19.2 Per contra, the Ld. AR relying on the order of Ld. CIT(A), submitted that, the Ld. CIT(A) deleted the addition subject to verification and satisfaction by Ld. AO. The Ld. AR further submitted that, the Ld. AO in his consequential order has already given the relief to the assessee. This means that, the Ld. AO after the direction of Ld. CIT(A) has verified the documents and found to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 the same in order. Hence, the contention of the Ld. DR that no opportunity given to the Ld. AO is not correct. Accordingly, the ground raised by the revenue is liable to be dismissed. 19.3 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the para no.7.3 of the order of Ld. CIT(A) reproduced as under : to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 19.4 On perusal of above, we found that, the Ld. CIT(A) after verifying the documents submitted by the assessee was convinced with the documents and deleted the addition. However, the Ld. CIT(A) was aware of the fact that the documents have not been verified by the Ld. AO, therefore, the Ld. CIT(A) has deleted the addition subject to the condition that the Ld. AO has to verify the documents before allowing the relief. As submitted by the Ld. AR, in consequential order, the Ld. AO after verifying all the documents has deleted the said addition. Therefore, finally the relief has been given to the assessee on the basis of satisfaction of the Ld. AO. Hence, in our considered opinion, the contention of the revenue that the relief has been given by the Ld. CIT(A) without providing any opportunity to the Ld. AO is not correct. Accordingly, we dismiss the ground of the revenue on this issue.

a) Availability of exemption u/s.11 of the Act to the assessee. b) Allowability of various expenditure as application of fund.

22. As far as the first issue of the revenue regarding “availability of exemption u/s.11 of the Act to the assessee” in is concerned, the facts of this case are identical to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 to the facts involved in ITA No.304/Hyd/2022, which we have decided against the revenue from para nos. 13 to 15.7 of this order. Hence our findings in ITA No.304/Hyd/2022 mutatis mutnadis apply to the first issue involved in ITA No.305/Hyd/2022. Accordingly, the objections raised by the revenue qua first issue in ITA No.305/Hyd/2022 are dismissed.

23. As far as the objections of the revenue towards expenditure on account of salary, interest to bank and depreciation under the second issue in are concerned, the facts of this case are identical to the objections raised by the revenue in ITA No.304/Hyd/2022, which we have decided against the revenue from para nos. 16 to 18.5 of this order. Hence our findings in ITA No.304/Hyd/2022 mutatis mutnadis apply here also. Accordingly, the objections of the revenue with regard to salary, interest to bank and depreciation under second issue in ITA No.305/Hyd/2022 are dismissed. 23.1 The other objection of the revenue under second issue is related to claim of advertisement expenses of Rs.19,97,440/- and guest faculty & honorarium expenses of Rs.33,44,400/-, which the assessee has claimed as application of income. The Ld. DR submitted that, the Ld. CIT(A) has mentioned in his order that, even without considering these expenses i.e. advertisement expenses and guest faculty & honorarium expenses, the assessee has already applied 85% of the gross receipts towards the object of the trust. Accordingly, the assessee is not obliged to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 to substantiate these expenditure with corresponding evidences. The Ld. DR further submitted that, the assessee is not at liberty to spend their surplus amount i.e. the amount available with the assessee over and above 85% of the gross receipts otherwise than on object of the society. The assessee is duty bound to keep the surplus fund under the mode specified u/s.11(5) of the Act or if the assessee has to spend the surplus amount, it has to spend the same towards the object of the trust only. As the assessee has failed to substantiate the claim of advertisement expenses of Rs.19,97,440/- and guest faculty & honorarium expenses of Rs.33,44,400/- with supporting vouchers/evidences, the trust has not followed the mandate of section 11 on this count also.

24. Per contra, the Ld. AR relied on the order of Ld. CIT(A).

a) Availability of exemption u/s.11 of the Act to the assessee. b) Allowability of various expenditure as application of fund. c) Addition of Rs.10,97,28,139/- made by the Ld. AO u/s.68 of the Act. d) Addition of Rs.2.50 Crores made by the Ld. AO. to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022

28. As far as the first issue of the revenue regarding “availability of exemption u/s.11 of the Act to the assessee” in ITA No.306/Hyd/2022 is concerned, the facts of this case are identical to the facts involved in ITA No.304/Hyd/2022, which we have decided against the revenue from para nos. 13 to 15.7 of this order. Hence, our findings in ITA No.304/Hyd/2022 mutatis mutandis apply to the first issue involved in ITA No.306/Hyd/2022. Accordingly, the objections of the revenue qua first issue in ITA No.306/Hyd/2022 are dismissed.

29. As far as the objection of the revenue related to expenditure on account of salary, interest to bank and depreciation under the second issue in is concerned, the facts of this case are identical to the objection of the revenue in ITA No.304/Hyd/2022, which we have decided against the revenue from para nos. 14 to 16.5 of this order. Hence, our findings in ITA No.304/Hyd/2022 mutatis mutnadis apply to the second issue involved in ITA No.306/Hyd/2022 related to expenditure on account of salary, interest to bank and depreciation. Accordingly, the objections of the revenue related to expenditure on account of salary, interest to bank and depreciation are dismissed. 29.1 The other objection of the revenue under second issue is related to claim of college maintenance expenditure of Rs.25,78,765/-, examination and remuneration expenditure of Rs.50,53,594/- and hostel maintenance expenditure of Rs.36,25,553/-, which the assessee has claimed as application of income. The Ld. DR submitted that, the to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 Ld. CIT(A) has mentioned in his order that, even without considering these expenses i.e. college maintenance, examination and remuneration expenditure and hostel maintenance expenditure, the assessee has already applied 85% of the gross receipts towards the object of the trust. Accordingly, the assessee is not obliged to substantiate these expenditure with corresponding evidences. The Ld. DR further submitted that, the assessee is not at liberty to spend their surplus amount i.e. the amount available with the assessee over and above 85% of the gross receipts, otherwise than on object of the society. The assessee is duty bound to keep the surplus fund under the mode specified u/s.11(5) of the Act or if the assessee has to spend the surplus amount, it has to spend the same towards the object of the trust only. As the assessee has failed to substantiate the claim of college maintenance expenditure of Rs.25,78,765/-, examination and remuneration expenditure of Rs.50,53,594/- and hostel maintenance expenditure of Rs.36,25,553/- with supporting vouchers/evidences, the trust has not followed the mandate of section 11 on this count also.

30. Per contra, the Ld. AR relied on the order of Ld. CIT(A).

Penalty provisions u/s.271AAC is initiated separately for unexplained credits. 33.1 The Ld. DR further submitted that, the assessee did not file any documents before the Ld. AO qua the addition made by the Ld. AO u/s.68 of the Act for Rs.10,97,28,138/-. However, the assessee filed the relevant documents before the Ld. CIT(A) for the first time and the Commissioner without calling for any remand report from the Ld. AO deleted the said addition. Therefore, the Ld. DR prayed before the bench to set aside the order of Ld. CIT(A).

by the revenue is liable to be dismissed.

35. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have also gone through para no.6.3.1 of the order of Ld. CIT(A) reproduced as under :

35.1 On perusal of above, we found that, the Ld. CIT(A) after verifying the documents submitted by the assessee was convinced with the documents and deleted the addition. However, the Ld. CIT(A) was aware of the fact that the documents have not been verified by the Ld. AO, therefore, the Ld. CIT(A) has deleted the addition subject to the condition that the Ld. AO has to verify the documents before allowing the relief. As submitted by the Ld. AR, in consequential order, the Ld. AO after verifying all the documents to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 has deleted the said addition. Therefore, finally the relief has been given to the assessee on the basis of satisfaction of the Ld. AO. Hence, in our considered opinion, the contention of the revenue that the relief has been given by the Ld. CIT(A) without providing any opportunity to the Ld. AO is not correct. Accordingly, we dismiss the objection of the revenue qua this issue.

38. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have also gone through para nos.7.3 and 7.3.1 of the order of Ld. CIT(A) reproduced as under :

38.1 On perusal of above, we found that, the Ld. CIT(A) after verifying the documents submitted by the assessee was convinced with the documents and deleted the addition. However, the Ld. CIT(A) was aware of the fact that the documents have not been to 306/Hyd/2022 & C.O. Nos.19 to 24/Hyd/2022 verified by the Ld. AO, therefore, the Ld. CIT(A) has deleted the addition subject to the condition that the Ld. AO has to verify the documents before allowing the relief. As submitted by the Ld. AR, in consequential order, the Ld. AO after verifying all the documents has deleted the said addition. Therefore, finally the relief has been given to the assessee on the basis of satisfaction of the Ld. AO. Hence, in our considered opinion, the contention of the revenue that the relief has been given by the Ld. CIT(A) without providing any opportunity to the Ld. AO is not correct. Accordingly, we dismiss the objection of the revenue qua this issue.