M/S. BARROWS BLUE BELLS SCHOOL,BAHARAICH vs. THE I.T.O. (E), LUCKNOW

Because the fetters of filing the revised return and raising a fresh claim before the CIT(A) is not applicable, the authorities below have failed to appreciate the law and have arbitrarily held that the assessee is not eligible for exemption u/s. 10 of the Act, 1961.

2.5 In both the years, i.e. assessment years 2011-12 and 2014-15, the assessee preferred appeals before the ld. CIT(A) against the orders of the AO challenging the initiation of re- assessment proceedings as well as challenging the additions/disallowances on merits. However, in both the years, again the appeals of the assessee were dismissed by the ld. CIT(A).

2.6 Now, the assessee has approached this Tribunal challenging the dismissal of its appeals by the Ld. First Appellate Authority by raising the following grounds of appeal:

2.6.1 GROUNDS IN ASSESSMENT YEAR 2011-12:

1. Because the entire reassessment proceedings initiated u/s 147/143(3) of the Act is without jurisdiction, bad in law and be quashed. 02. Because there being neither reason to believe nor any satisfaction as contemplated u/s 147, nor there being any new material, the CIT(A) was not justified in upholding the initiation of the proceedings u/s 147 of the Act, the order passed by the CIT(A) be quashed.

7. Because the fetters of filing the revised return and raising a fresh claim before the CIT(A) is not applicable, the authorities below have failed to appreciate the law and have arbitrarily held that the assessee is not eligible for exemption u/s. 10 of the Act, 1961. 08. Because the CIT(A) has wrongly upheld the disallowance of depreciation amounting to Rs.5,40,871/-, disallowed by the AO, the order of the CIT(A) is contrary to facts, bad in law and the same be deleted. 2.6.2 GROUNDS IN ASSESSMENT YEAR 2014-15:

1. Because the entire reassessment proceedings initiated u/s 147/143(3) of the Act is without jurisdiction, bad in law and be quashed. 02. Because there being neither reason to believe nor any satisfaction as contemplated u/s 147, nor there being any new material, the CIT(A) was not justified in upholding the initiation of the proceedings u/s 147 of the Act, the order passed by the CIT(A) be quashed. 03. Because the assessee society being registered u/s. 12A of the Act 1961, and the return having being filed in time alongwith the audit report, Form No. 10 for accumulation having being filed during the assessment proceedings, the AO as well as the CIT(A) have failed to appreciate the facts and have arbitrary held that since Form No. 10 was not filed alongwith the original return filed, the surplus carried, the assessee society is not eligible for exemption u/s. 11 of the Act, such finding is contrary to the provisions of law and settled decisions, the exemption denied be allowed.

4. Because on a proper appraisal of the facts and circumstances of the case, it would be found that all the conditions as laid down having being fulfilled except for Form No. 10, which was filed during the course of the assessment proceedings, there was no reason for the AO as well as the CIT(A) to deny exemption to the assessee society u/s.11 as claimed, the exemption as claimed be allowed. 05. Because allowability even otherwise the gross receipts being less than Rs.1 crore and there being no dispute with respect to the objects or activities of the society, the authorities below were not justified in denying the exemption as claimed, the same be allowed. 06. Because there being no bar in the statute for claiming exemption both under section 11 and section 10 of the Act, hence the authorities were not justified in denying the exemption as claimed. 07. Because the fetters of filing the revised return and raising a fresh claim before the CIT(A) is not applicable, the authorities below have failed to appreciate the law and have arbitrarily held that the assessee is not eligible for exemption u/s. 10 of the Act, 1961. 08. Because the CIT(A) has wrongly upheld the addition of interest amounting to Rs.3,98,441/-, added by the AO, the order of the CIT(A) is contrary to facts, bad in law and the same be deleted.

were less than Rs.1 crore and, therefore, the assessee was entitled to benefit of exemption under section 10(23C)(iiiad) of the Act and, therefore, the reopening of assessment on the ground of accumulation of income by the AO was bad in law. It was submitted that the AO had wrongly assumed that the assessee’s case fell under the provisions of section 11(1)(a) of the Act. It was submitted that the assessee is an educational institution existing solely for imparting education and not for any other purposes of profit and, therefore, if the annual receipts were less than Rs.1 crore (prescribed limit as per Rule 2BC), then the income was exempt and the provisions of section 11(1)(a) of the Act regarding the application of 85% of the gross income to the objectives of the trust and accumulation of 15% of the gross income, would not apply. It was further submitted that the assessee had challenged the initiation of reassessment proceedings before the AO by filing objections to the same (placed at pages 7 to 9 of the paper book), but the same was rejected by the AO and the ld. CIT(A) had also upheld the initiation of reassessment proceedings.

3.1 It was further submitted that, however, during the course of reassessment proceedings, the assessee had also submitted Form-10 before the AO, which also was in accordance with law, inasmuch as, the Hon'ble Apex Court has held in the case of CIT vs. Nagpur Hotel Owners Association [2001] 247 ITR 201 (SC), that Form-10 could be furnished by the assessee upto the stage of completion of assessment. It was further submitted that subsequently, duly taking note of this judgment of the Hon'ble Apex Court, i.e., CIT vs. Nagpur Hotel Owners Association (supra), the Hon'ble Delhi High Court in the case of Association of Corporation & Apex Societies of Handlooms vs. ADIT [2013] 30 taxmann.com 22 (Delhi), went on to hold that the assessee could file Form-10 even during the course of reassessment proceedings. The Ld. A.R. submitted that, therefore, the assessee should be allowed the benefit of accumulation of income by virtue of having filed Form-10 during the course of re-assessment proceedings and as a result the benefit of accumulation of income and deduction of depreciation will become available to the assessee.

3.2 With reference to assessment year 2011-12 in the Ld. A.R. submitted that in this year also, assessee’s case was reopened in terms of section 147 of the Act, but in this year also, assessee’s gross receipts were below Rs.1 crore. It was submitted that the gross receipts were at Rs.99,23,022/- and, therefore, in this year also, the assessee was entitled to benefit of exemption under section 10(23C)(iiiad) of the Act. It was submitted that in this year also, the assessee had objected to the reopening, but the objections were not accepted by the AO and the challenge to reassessment proceedings was also dismissed by the ld. CIT(A). It was further submitted that just because the assessee-society had a surplus (excess of income over expenditure) at Rs.32,44,090/-, it could not be concluded that the assessee was existing for the purpose of profit, inasmuch as, even the Hon'ble Apex Court had held, in the case of M/s Queens Educational Society vs. CIT reported in 2015 (8) SCC 47, that a distinction must be drawn between the making of a surplus and an institution being run for profit. It was submitted that the Hon'ble Apex Court had held that if after meeting expenditure, a surplus arises incidentally, it will not cease to be one existing solely for educational purposes. It was further submitted that in this year, prescribed Form in Form-10 and the Audit Report in Form-10B was filed during the course of reassessment proceedings and, therefore, the judgment of the Hon'ble Delhi High Court in the case of Association of Corporation & Apex Societies of Handlooms vs. ADIT (supra) would also apply in this assessment year as well.

3.3 With respect to assessment year 2014-15, the Ld. A.R. submitted that in this year, the reassessment proceedings were initiated on the ground that Form-10 had not been filed by the assessee, which was a fact contrary to the record. Our attention was drawn to page 27 of the paper book, wherein, a copy of Form-10 received by the Office of the AO on 18.07.2014 had been placed. It was submitted that while objecting to the reassessment proceedings, this fact was duly brought to the notice of the AO, but the same was not accepted by the AO. It was submitted that, therefore, in this year, the reason specified for reopening of the case was itself without any basis and, hence, reassessment proceedings itself need to be quashed.

3.4 The Ld. A.R. also drew our attention to order of the ITAT Lucknow Bench in assessee’s own case for assessment year 2013-14 in wherein, the Department had challenged the order of the ld. CIT(A) in allowing assessee the benefit of accumulation of income even though Form-10 was filed only before the ld. CIT(A). It was submitted that the facts in this year, i.e., 2013-14 were also somewhat similar to the three assessment years under appeal now and while dismissing the Department’s appeal, the ITAT had held that the ld. CIT(A) had rightly held that since Form-10 and Form-10B were duly submitted before him, the accumulation of income under section 11 of the Act was to be allowed and the additions were to be deleted. The Ld. A.R. submitted that the ITAT Lucknow Bench also went on to hold that the assessee was also entitled to benefit of depreciation in assessment year 2013-14.

4.0 In response to the arguments of the Ld. A.R., the Ld. Sr. D.R. submitted that the reason for upholding the validity of reassessment proceedings has been rightly dealt with in the impugned orders by the ld. CIT(A) and he placed reliance on the same.

4.1 With respect to assessment years 2010-11 and 2011-12, on merits, the Ld. Sr. D.R. submitted that the Department had rightfully disallowed the benefit of accumulation, because Form-10 and Form-10B were filed only at the time of re-assessment proceedings which, if accepted, would defeat the very basic purpose of the provision.

4.2 Specifically with respect to assessment year 2014-15, the Ld. Sr. D.R. pointed out that in this year, the amount to be accumulated had been left blank in ITR Form and, therefore, in the absence of amount having been properly filled in, the benefit of accumulation cannot be allowed. It was further submitted that in this assessment year, i.e., 2014-15, the assessee had also provided interest-free unsecured loan to a Trustee/employee of the assessee-society and the same was in violation of the provisions of section 13(3) of the Act and, therefore, this fact was sufficient to hold that the assessee was not entitled to benefit of section 11 of the Act regarding accumulation of income, irrespective of Form-10 having already been filed.

5.0 In rejoinder, the Ld. A.R. submitted that leaving the amount blank in ITR Form was only a technical error whereas Form-10 had been duly filed and, therefore, the benefit of accumulation of income would have to be allowed. With respect to violation of the provisions of section 13(3) of the Act, the Ld. A.R. submitted that even though interest-free unsecured loan had been provided, no personal benefit was involved and disallowance, if any, has to be confined only to the interest portion.

6.0 We have heard the rival submissions and have also perused the material on record. The facts in this case are beyond dispute that in assessment years 2010-11 and 2011-12, the Form-10 was filed during the course of reassessment proceedings. In these two assessment years, the AO did not give cognizance to the Forms so filed before him and did not allow the benefit of accumulation of income. However, it is seen that this issue is squarely covered in favour of the assessee by the judgment of the Hon'ble Delhi High Court in the case of Association of Corporation & Apex Societies of Handlooms vs. ADIT (supra), wherein, while referring to the judgment of the Hon'ble Apex Court in the case of CIT vs. Nagpur Hotel Owners Association (supra), the Hon'ble Delhi High Court observed in paragraph 6 of the judgment as under:

“6. ……………….. However, we have to keep in mind the fact that while reopening of an assessment cannot be asked for by the assessee on the ground that he had not furnished the Form-10 during the original assessment proceedings, this does not mean that when the revenue re-opens the assessment by invoking Section 147 of the said Act, the assessee would be remediless and would be barred from furnishing Form-10 during those assessment proceedings. Consequently, insofar as the second question is concerned and with regard to the appeal Nos. 524/2012, 525/2012 and 526/2012, the same has to be answered in favour of the assessee/appellant and against the revenue.” 6.1 It is also worthwhile to mention here that in assessee’s own case for assessment year 2013-14, the assessee had filed Form-10 before the ld. CIT(A) during the course of First Appellate proceedings and the ld. CIT(A) had allowed assessee’s appeal by allowing the benefit of accumulation and on appeal of the Department before the Tribunal, the Tribunal had dismissed Department’s appeal in 31.08.2016.

6.2 In the present appeals before us in assessment year 2010-11 and 2011-12, it is not in dispute that Form-10 was furnished before the AO during the course of reassessment proceedings and, therefore, since the Ld. Sr. D.R. for the Revenue could not bring to our notice any judicial precedent contrary to the above said judgment of the Hon'ble Delhi High Court, respectfully following the same, we hold that the assessee is entitled to the benefit of accumulation of income by virtue of having filed Form-10 during the course of reassessment proceedings. Accordingly, ground Nos.3, 4 and 7 in assessment year 2010-11 stand allowed.

6.3 On the same facts and reasoning, ground Nos. 3, 4, 6 and 7 in assessment year 2011-12 also stand allowed.

6.4 As far as assessment year 2014-15 is concerned, it is evident from the record that Form-10 was filed on 18.07.2014 before the AO prior to issuance of notice for the purpose of reassessment. It is true that the assessee did not fill in the amount to be accumulated or set apart for specified purposes in Column 9(vi) of the Return of Income filed. All the same, it is also undisputed that the assessee did file Form-10 specifying the amount prior to commencement of reassessment proceedings and, therefore, we agree with the submission of the Ld. A.R. that this might just have been a technical error while filling in the income tax return Form. Under such circumstances, we are of the considered view that the assessee’s claim for benefit of accumulation of income cannot be denied, especially when Form- 10 has been filed by the assessee, which specifically mentions the amount which is being sought to be accumulated or set apart for the purpose of applying the same for specified purposes.

Apart from this, it is seen that in assessment year 2014-15, the AO had also invoked the provisions of section 13(2) and 13(3) of the Act, as the assessee had advanced an amount of Rs.3.40 lakhs to Mrs Juhi Lima, who was a specified person in terms of section 13(3) of the Act in assessment year 2013-14 and an amount of Rs.1,89,500/- was outstanding/due from her as on 31st March, 2014. The AO has mentioned it in his remand report dated 22.09.2020 for assessment year 2014-15 submitted before the ld. CIT(A) that the assessee could not produce the original papers of purchase deed dated 16.11.2018 against which the said loan was granted. In view of this observation of the AO, we are of the considered view that the assessee should demonstrate before the AO as to why the provisions of section 13(2) and 13(3) of the Act are not attracted in assessment year 2014-15. Accordingly, in assessment year 2014-15, the AO is directed to give an opportunity to the assessee to establish with evidence as to how provisions of section 13(2) and 13(3) of the Act are not attracted and if satisfied, the AO is directed to allow benefit of accumulation. Accordingly, we allow ground Nos. 3, 4, 6 & 7 in assessee’s appeal for assessment year 2014-15 for statistical purposes.

6.5 Coming to the issue of disallowance of depreciation by the AO in all the three assessment years under appeal, we note that this issue is also covered in favour of the assessee by the order of Lucknow Bench of the Tribunal in assessee’s own case for assessment year 2013-14 in wherein at paragraphs 7 & 8 of the aforesaid order, the Co-ordinate Bench of the Tribunal held as under:

“7. The other grounds relate to disallowance of depreciation claimed by the assessee. In this regard, reliance was placed upon by the assessee on the order of CIT (Appeals). I have carefully examined the order of CIT(Appeals) and I find that the CIT(Appeals) has adjudicated the issue in the light of various judicial pronouncements of different High Courts, besides the order of the Tribunal Lucknow Bench. For the sake of reference, the relevant observations of the CIT(Appeals) is as under: "6. The AO held that the appellant has claimed 100% deduction towards capital expenditure at time of acquiring capital assets, therefore, the claim of double deduction on account of depreciation of Rs.8,13,513/- was disallowed. 6.1 The Hon'ble Bombay High Court has rejected the reference application of the Income Tax Department in the case of CIT vs. Framjee Cawasjee Institute (1993) 109 CTR 463, holding that the answer to the question whether depreciation was allowable to a charitable Trust was self- evident, even if the capital value of the assets on which depreciation was claimed had been allowed as a deduction under section 11 as an application of income for religious or charitable purposes. Once again in CIT vs.

Institute of Banking Personnel Selection (IBPS)264 ITR 110, the Hon'ble Bombay High Court held that depreciation should be allowed even on assets, the cost of which had been allowed as exempt under section 11 in the preceding years. The Hon'ble Bombay High Court also held that depreciation should be allowed even on assets received on transfer from another charitable Trust on which no cost was borne by the assessee Trust. Other Hon'ble High Courts which have also taken the view that depreciation is deductible are the Hon'ble Karnataka High Court in the case of CIT Vs. Society of the Sisters of St. Anne(1984) 146 ITR 28 and the Hon'ble Madhya Pradesh High Court in the case of CIT Vs. Raipur Pallottine Society (1989) 180 ITR 579. In CIT Vs. Seth Manilal Ranchhoddas Vishram Bhavan Trust(1992) 105 CTR (Guj.) 303 it was held that depreciation should be allowed while computing such income under section 11(i) (a). The Contention of the appellant is further supported by the following judgments. A. DIT Vs. Vishwa Jagriti Mission (2014) 47 Taxman 56 (Delhi HC) wherein it was held that claim of depreciation should be allowed as per principle related to commercial accounting when computing business income. B. CIT Vs. The Society of Sister of St. Anne. (Karnataka HC). C. Hon'ble ITAT Lucknow B Bench in the case of ACIT Vs. Saraswati Gyan Mandi Siksha Sansthan (2014) 50

Taxman held that depreciation is allowable even on assets whose entire cost has been allowed as deduction by way of exemption u/s 11. Depreciation is the exhaustion of effective life of a fixed asset owing its 'use' or obsolescence. It is computed as that part of the cost of asset which will not be recovered when the asset is put to use. At the end of the effective life the asset ceases to earn revenue. Depreciation is nothing but decrease in value of property through wear deterioration or obsolescence. If Depreciation is not allowed as necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income (Held by Karnataka HC in CIT Vs. Society of sister of St. Anne). The various judgement cited above, especially judgement of Hon'ble Delhi HC in DIT Vs. Vishwa Jagrati Mission(2014) and the Judgment of Hon'ble ITAT Lucknow B bench in case of ACIT Vs. Saraswati Gyan Mandir Siksha sansthan (2014) support the case of the appellant because it was held in these judgements that income of the appellant trust has to be computed on commercial accountancy principles after allowing the claim of depreciation. It was held that depreciation is allowable even on assets whose entire cost has been allowed as deduction by way of exemption u/s 11 of I.T. Act. The decision of Hon'ble Jurisdictional ITAT and Hon'ble Delhi High Court are in favour of appellant.

6.2 In view of the above cited facts and decisions of Hon'ble High Courts and Hon'ble Jurisdictional ITAT, the claim of depreciation of Rs. 8,13,573/- is hereby allowed. The ground of appeal

No.4 is hereby allowed."

8. Aggrieved, the Revenue is in appeal before the Tribunal, but he could not point out any specific defect in the order of CIT(Appeals). Having carefully examined the order of CIT(Appeals), I find that the CIT(Appeals) has decided the Issue in the light of judgments of various High Courts in which it has been held that depreciation is exhaustion of effective life of a fixed asset owing to its 'use' or obsolescence. It is computed as part of the cost of asset which will not be recovered when the asset is put to use. Even the Hon'ble Bombay High Court has held that depreciation should be allowed even on assets received on transfer on which no cost was borne by the assessee trust. In the light of various judicial pronouncements, I am of the view that the CIT(Appeals) has properly adjudicated the issue and no interference is called for. Accordingly, I confirm the order of the CIT (Appeals).” 6.6 Accordingly, in view of the above order of the Tribunal in assessee’s own case and also in view of the fact that the Department could not bring on record any judgment to the contrary, ground No.8 in assessment years 2010-11 and 2011-12 and 2014-15 stands allowed. We would like to mention here that all these three assessment years are prior to the date 01.04.2015 from which date the amendment to section 11(6) of the Act took effect prohibiting allowance of separate deduction of depreciation and, therefore, we are allowing the benefit of deduction of depreciation in all the three years under appeal.

6.7 Apart from above grounds, which have been adjudicated by us, the assessee has also challenged initiation of reassessment proceedings, vide ground Nos. 1 & 2 in all the three assessment years. Since we have already allowed the benefit of accumulation of income to the assessee in all the three assessment years under appeal before us, these grounds have become academic in nature and do not require adjudication by us. Accordingly, the same are being dismissed as having become academic in nature.

6.8 Apart from this, the assessee has also raised ground No.5 in all the three assessment years, wherein, it has been stated that since the gross receipts were less than Rs.1 crore and there were no dispute with respect to the objects or activities of the society, the authorities below were not justified in denying the exemption as claimed by the assessee. This ground in all the three assessment years under appeal before us is also rendered academic since we have already allowed assessee the benefit of accumulation of income in terms of our observations and order in the preceding paragraphs. Accordingly, ground No.5 in all the three assessment years is dismissed as having become academic.

6.9 In view of our observations, findings and directions regarding allowability of benefit of accumulation of income to the assessee with respect to accumulation of funds in all the three assessment years under appeal, as well as our adjudication regarding the assessee to be allowed the benefit of claim of depreciation, the AO is directed to allow accumulation of income in assessment years 2010-11 and 2011-12 and allow deductibility of depreciation in assessment years 2010-11, 2011- 12 and 2014-15 and give an opportunity to the assessee in assessment year 2014-15 to give effect to our directions in paragraph 6.4 above regarding applicability or otherwise of provisions of section 13(2) and 13(3) of the Act and resultant allowability of accumulation of income.

Order pronounced in the open Court on 30/06/2025.