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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI RAJESH KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “B”, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA No.174/Mum/2019 Assessment Year : 2014-15
B. P. Marine Academy, Dy. Commissioner of Income Tax Sai Pooja Chambers, Vs. (E)-1(1), 7th Floor, Sector-11, Mumbai C.B.D. Belapur, Navi Mumbai 400614 [PAN : AACCB7698A] (Appellant) (Respondent)
S.A. No.40/Mum/2019 [Arising out of ITA. No.174/Mum/2019 (A.Y: 2014-15)] B. P. Marine Academy, Dy. Commissioner of Income Tax Sai Pooja Chambers, (E)-1(1), 7th Floor, Sector-11, Mumbai Vs. C.B.D. Belapur, Navi Mumbai 400614 [PAN : AACCB7698A] (Applicant) (Respondent)
Appellant by : Shri Bhupendra Shah, AR Respondent by : Shri Manoj Kumar Singh, DR
Date of Hearing : 05-09-2019 Date of Pronouncement : 06-09-2019
आदश / O R D E R PER RAJESH KUMAR, AM: 1. The assessee has filed the present appeal against the order dated 24.09.2018 passed by the Commissioner of Income Tax (Appeals) -3, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2014-15.
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The assessee has raised the following grounds: - “1) In the facts and the circumstances of law, the Commissioner of Income Tax(A) rightly held in concluding that the activities undertaken by the Appellant satisfies the requirement of the term "education" but erred in mentioning that the same is subject to ground number 4 before the Commissioner of Income Tax(A) and now ground 3 before the Hon’ble ITAT. 2) In the facts and the circumstances of law, the Commissioner of Income Tax(A) erred in treating the advance fee received from the students amounting to Rs. 2,49,55,712/- out of total addition of Rs. 6, 46, 99, 342/– made by the Assessing Officer as revenue and added back to the total income of the Appellant without appreciating the fact that this is the regular method of accounting followed by the Appellant. 3) In the facts and the circumstances of law, the Commissioner of Income Tax(A) erred in confirming disallowance of Rs. 87,45,207/– for violation of provision under section 13(3) of the Act and denied exemption under section 11 of the Act even after holding that the Assessing Officer erred in holding that the rent paid to the persons specified was excessive in Para 7.4.1 of his Appellate Order. 4) In the facts and the circumstances of law, the Commissioner of Income Tax(A) erred in confirming denial of exemption under section 11 of the Act by holding that advance given to the director for petty cash expenses was hit by the restrictions u/s 13(3) to the extent of Rs. 11,57,000/- being advance given to company in which directors are common. 5) In the facts and the circumstances of law, the Commissioner of Income Tax(A) erred in confirming the denial of exemption under section 11 of the Act in respect of donation and contribution of Rs. 1,43,000/– and erred in not deciding deduction u/s 80G of the Act. 6) In the facts and the circumstances of law, the Commissioner of Income Tax (A) erred in confirming disallowance of Rs. 1,68,48,487/- by holding that the cost of Page2 acquisition of the fixed assets was not eligible for exemption u/s 11(1) as
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application of income and also erred in not deciding about the depreciation allowed by the Assessing Officers. 7) In the facts and the circumstances of law, the Commissioner of Income Tax (A) erred in not considering statutory allowance of Rs. 70,18,331/- @ 15% u/s 11(1) claimed by the Appellant in the return of income. 8) In the facts and the circumstances of law, the Commissioner of Income Tax(A) erred in confirming interest u/s 234A, B, C and D on the additions/disallowances confirmed by him. [B] Relief Prayed: The appellant therefore prays as follows, 1. To treat the Appellant as an educational society without any conditions, 2. To delete the addition of Rs. 2,49,55,712/- wrongly treated as revenue income instead of advance. 3. To allow the benefit of section 11 by holding that rent of Rs. 87,45,207/- is not excessive u/s 13(3). 4. To allow the benefit of section 11 by holding that advance of Rs. 11,57,000/- is not excessive u/s 13(3). 5. To allow the entire amount of Rs. 1,43,000/–as application of income instead of treating the same as donation u/s 80G. 6. To delete the disallowance of Rs. 1,68,48,487/- by holding that the cost of acquisition of the fixed assets was not eligible for exemption u/s 11(1) 7. To allow statutory allowance of Rs. 70,18,331/- @ 15% u/s 11(1) claimed by the Appellant in the return of income. 8. To delete the penalty levied u/s 271(1)(c) and interest charged u/s 234.”
The brief facts of the case are that the assessee filed its return of income on 29.09.2014 declaring taxable income to the tune of ₹. NIL for the A.Y.2014-15. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, Page3 the case was selected for scrutiny and the Assessment was completed by the Assessing
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Officer vide order dt. 30/12/2016 u/s 143(3) determining total income amounting to ₹. 14,64,92,740/-. 4. Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A) who partly allowed the appeal of the assessee. Therefore, the assessee is in appeal before us. 5. At the very outset, the Ld. Representative of the assessee has argued that the department has not filed any appeal against the order of the ld. CIT(A) and therefore, whichever grounds are partly or conditionally allowed stood allowed in the favour of the Assessee. The Ld. Representative of the Department has confirmed the said contention. We have heard the rival contentions and find that the whole issue is around disallowance of exemption u/s 11 of the Income Tax Act, 1961 (“The Act”) in respect of income earned by the Assessee. 6. Under this ground of appeal, the Authorized Representative of the Assessee pointed out that the Commissioner of Income Tax(A) rightly held in concluding that the activities undertaken by the Appellant satisfies the requirements of the term "education" but erred in mentioning that the same is subject to ground number 4 before the Commissioner of Income Tax(A) and now ground 3 before the Hon’ble Tribunal. 6.1. In this regard, the Ld. DR relied upon the order of the Assessing Officer and fairly conceded that the Department had not filed any appeal against ground no 1 allowed by the Ld. Commissioner of Income Tax (A). 6.2. We have heard the rival submissions and find that the Ld. CIT (A) has allowed this ground of appeal in para no 4.4.3 of the impugned Appellate Order passed by him. We also find that the Assessing Officer observed that the activities of the Assessee is business income u/s 2(15). On the other hand, the Ld. CIT (A) has allowed this ground by relying upon the decision in the case of Samudra Institute of Maritime Studies Trust [369 ITR 645(Bom)(2014)] which is exactly identical to the facts of the instant case before us. The Ld. CIT (A) has discussed the said judgment at length at para 4.4.1. of the impugned Appellate Order. We also find that the Ld. CIT (A) has also Page4 taken note of the case of Lokshikshan Trust [101 ITR 234(SC)] in which it was held that “the sense in which the word ‘education’ has been used in section 2(15) is the 4
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systematic instruction, schooling or training giving to the young in preparation for the walks of life. It also converts the old course of scholastic instruction which a person has received.” Moreover, the Assessee also relied upon the judgment in the case of Andhra Chamber of Commerce [130 ITR 184(SC)] in which the Appeal of the Revenue was dismissed by holding that the objects of the Chamber of Commerce was to promote and protect trade commerce and industries and therefore, falling under the definition of “Charitable” under other objects of public benefit. Similarly, the CIT (A) also relied upon judgment in the case of Queens Education Society [372 ITR 699(SC)] in which it was held that the correct tests which have been culled out in the Apex Court decisions as stated above, namely, Surat Art Silk Cloth Aditanar and American Hotel and Lodging, would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit.” Similarly, we also find that the Ld. CIT(A) examined the objects of the Assessee as filed at page no. 204 of the Paper book and at page no 13 to 14 of the impugned Appellate Order and also examined courses conducted with the approval of DG Shipping. Apart from this, the ld. CIT(A) also considered the decision of Saint Lawrence Education Society [53 DTR 130(Del)] and Surat Art Silk Cloth Manufacturers Association [121 ITR 1 (SC)] which supports the case of the Assessee before us. We also find that the Assessee obtained various registrations for carrying out educational activities from the Regional Director, Western Region, MCA as filed at page No 140 of paper book, certificate u/s 12AA issued by the DIT(E), Mumbai filed at page No 141 of Paper book, renewal certificate issued by DIT(E), Mumbai filed page No 142 of Paper book and certificate issued by DG, Shipping filed at page 143 to 145 of Paper book. The Assessee also relied upon C.B.D.T. circular no 11/2008 allowing exemption u/s 11 in case of Assessee claiming to be charitable and mutual organization which included educational institute u/s 2(15)(ii) filed at page no. 146 of Paper book. The ld. CIT (A) also observed that five courses conducted by the Assessee as well as list of courses on the website of DG Shipping which included courses offered by the Assessee. The Page5 ld. CIT(A) also observed from the copy of email returned by DG Shipping for course certification, certificate of continuous discharge. The Assessee also relied upon a copy 5
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of Seafarer’s Identity Documents Convention, 1958 filed at page no. 212 to 215 of the Paper book and decision of the DIT(E) national safety council at page no. 216 to 219 of Paper book). The ld AR also drew our attention to decision in the case of Shree Kamdar Education Trust foiled at page no 220 to 229 of the Paper book, Institute of Banking Personnel Selection [264 ITR 110(Bom)] and Viswesvaraya Technologial University [384 ITR 37 (SC)] in support of this ground. After considering the facts of the case in the light of various decisions , we are of the opinion that the activities of the Assessee are covered by last limb of Section 2(15) and are akin to the activities to Samudra Institute of Maritime Studies Trust [369 ITR 645(Bom)(2014)]. Not only that the notice for Cancellation u/s 12AA was dropped by the DIT(E) himself . Apart from this, we also find that similar exemption was granted by other Assessing Officer in A.Y. 2015-16 as filed at Pg. No 75 to 78 of the Paper book , 2016-17 filed at Pg. No 79 to 81 of the Paper book and 2010-11as filed at Pg. No 82 to 87 of the Paper book. We are therefore, of the opinion that the Ld. CIT(A) has correctly appreciated the facts and allowed this ground of appeal. We therefore, accordingly, uphold that activities undertaken by the Assessee satisfy the requirements of the term "education". Moreover, the ground no 4 before us is dealt with separately in the subsequent paragraphs. Accordingly, ground no 1 is hereby allowed in the favour of the Assessee and the AO is directed accordingly. 7. In the second ground of appeal , the Assessee pointed out that the CIT(A) was correct in deleting the advance fee received from the students amounting to Rs. 2,49,55,712/- out of total addition of Rs. 6,46,99,342/– made by the Assessing Officer as revenue and added back to the total income of the Assessee without appreciating the fact that this is the regular method of accounting followed by the Assessee. 7.1. In this regard, we find that the Assessing Officer treated the same incorrectly because of the matching concept. The DR supported the order of the Assessing Officer. On the other hand, the ld AR of the Assessee drew our attention to the fact that this ground was partly allowed by the ld. CIT(A). He vehemently contended that this system of Page6 accounting is regularly employed by the Assessee and accepted by the department in other years which was accepted by the revenue under scrutiny assessments as well. 6
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The ld. AR further argued that the principle of consistency ought to have been observed in the assessment proceedings. In this regard, he also relied upon the judgment in the case of Radha Swami Satsang (No. 1) [201 ITR 449 (Allahabad)] and Aroni Commercial Ltd. [393 ITR 673 (Bombay)] to contend that exemption granted u/s 11 and 12 in other years by accepting this method of accounting ought to be followed in the year under appeal as well. 7.2. We have carefully considered the rival submissions and find merit in the contentions of the Assessee that treating the fees as income only in the year in which the student completed the course was regularly followed by the Assessee over the years and accepted by the Assessing Officer in other years as well. Therefore, on the principle of consistency, this method ought to be accepted being tax neutral, particularly when the income of the Assessee is exempt u/s 11 and 12. Moreover, we also find strength in the arguments of the Assessee that fees of the students are refundable as was held in the case of BSB Vs A Rajappa & Ors SC 578 in case of deficiency in service to students. The seminal 1978 judgment by the Supreme Court (BSB Vs A Rajappa & Ors SC 578) established that education is an industry and students are customers. Many subsequent judgements have upheld this view. On an overall consideration of this decision coupled with the contentions of consistency and tax neutrality, we find that the ld. CITA) rightly accepted the accounting method followed by the Assessee. However, due to revised calculation there was unspent amount. There was no requirement of filing the prescribed form as per the computation and consistent method. Therefore, we find that this observation of the ld. CIT(A) at para no 5.4.9 of the impugned Appellate Order is erroneous and deserved to be deleted. As regards ground no 4 we have separately decided the issue in the subsequent paragraphs. Accordingly, ground no 2 is allowed in favour of the Assessee and the Assessing Officer is directed to accept the method of accounting regularly adopted by the Assessee. We also delete the observations of the ld. CIT(A) in para 5.4.9. in view of the ground no 2 being allowed in the favour of the Assessee. Accordingly, ground no 2 Page7 is allowed and AO id directed accordingly.
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In the third ground of appeal, the Assessee stated that the ld. CIT(A) erred in confirming disallowance of Rs. 87,45,207/– for violation of provision under section 13(3) of the Act and denied exemption under section 11 of the Act even after holding that the Assessing Officer erred in holding that the rent paid to the persons specified was excessive in Para 7.4.1 of his Appellate Order. 8.1. The AO has disallowed the rent while the DR supported the order of the Assessing Officer. In this regard, the Authorized Representative of the Assessee drew our attention to para no 7.4.1. of the impugned Appellate Order in which the ld. CIT(A) has discussed the issue of disallowance of rent at length and ultimately held the order of the AO to be wrong. 9. We have carefully perused the para no 7.4.1.of the impugned Appellate Order and find that the ld. CIT(A) held the same in the favour of Assessee. As regards, ground no 4 of appeal before us , we would like to state that the same is separately dealt in the subsequent paragraphs. Accordingly, ground no 3 is allowed and the observation of the ld CIT(A) at para no 7.4.4. of the impugned Appellate Order is deleted. In the result ground no 3 is ordered to be allowed and the AO is directed accordingly. 10. In the fourth ground of appeal , the Assessee has challenged that the ld. CIT(A) erred in confirming denial of exemption under section 11 of the Act by holding that advance given to the director for petty cash expenses was hit by the restrictions u/s 13(3) to the extent of Rs. 11,57,000/- being advance given to company in which directors are common. 10.1. In this regard we find that the Assessing Officer has treated the entire amount of Rs. 11,57,000/- as payment made to related parties and consequently disallowed the exemption u/s 11 and 12. The DR supported the case of the Assessing Officer as well as the ld. CIT(A). On the other hand, the ld. AR of the Assessee strongly contended that the ld. CIT(A) has overlooked the facts cited before him and confirmed the disallowance of exemption on the basis of payment made to the alleged related parties. The ld AR vehemently contended that (i)Rs. 20000 was given to BP Marine Academy and Research Page8 Centre which is also a section 25 company. Therefore, it is charitable and not hit by 13(3) of the Act(ii)Rs. 1022000/- paid to BP Marine Services Pvt. Ltd. which is also approved by 8
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DG shipping as qualified for recruitment and placement services of the students(iii)Rs. . 1,15,000/- are reimbursement to be recovered from the students towards counselling fees and advance to students. These are not relatives at all and (iv)Rs.. 1,00,000/- was never given to anybody”
10.1.We have carefully considered rival submissions and perused the records and find that the findings of the Assessing Officer and the ld. CIT(A) are not correct because the break up of the alleged amount of ₹. 11,57,000/- is as given above and does not partake the character of loans and advances to related parties. The first two amounts (Rs. 20,000 + Rs. 10,22,000) pertained to another trust which is also registered with the DG Shipping and is a section 25 company and therefore, charitable and not hit by section 13(3) of the Act. The last amount of Rs. 1,15,000/- represented reimbursement to be recovered from the students towards counseling fees. None of the students are related to the Assessee under appeal. We therefore, find merits in the argument of the ld AR that the consequential exemption u/s 11 and 12 is erroneously rejected by the Assessing Officer and wrongly confirmed by the ld. CIT(A). We therefore, direct the Assessing Officer to allow exemption u/s 11 and 12 of the Act. Moreover, ground no 1, 2 and 3 above also stood allowed in view of the assessee succeeding in ground no 4 because the Commissioner of Income Tax (A) had conditionally allowed ground no 1,2 and 3 in favour of the Assessee subject to ground no 4 . Since we have allowed ground no 4 fully, the condition imposed by the ld. CIT(A) in ground no 1,2 and 3 above stands automatically deleted. Ground no 4 is allowed in the favour of Assessee. 11. In ground no five the Assessee has challenged the order of ld CIT(A) in confirming the denial of exemption under section 11 of the Act in respect of donation and contribution of Rs. 1,43,000/– and erred in not deciding deduction u/s 80G of the Act. 11.1.In this regard, we find that the Assessing Officer applied section 80G of the Act because of denial of exemption u/s 11 of the Act. The DR supported the order of Page9 9
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the Assessing Officer. The ld. CIT(A) also denied the same because he had denied the exemption u/s 11 as discussed in ground no 4 above. 11.2.We have carefully considered the rival submissions and perused the materials on records and find that since ground no 4 is already allowed with ground nos 1, 2 and 3, this ground of appeal is only consequential and therefore, allowed in the favour of Assessee. The Assessing Officer is directed to allow the exemption u/s 11 instead of deduction u/s 80G in respect of contribution of ₹. 1,43,000/- made by the Assessee. In the result ground no 5 stands allowed in the favour of Assessee
In the sixth ground of appeal, the Assessee has challenged the order of CIT(A) in confirming disallowance of Rs. 1,68,48,487/- by holding that the cost of acquisition of the fixed assets was not eligible for exemption u/s 11(1) as application of income and also erred in not deciding about the depreciation allowed by the Assessing Officers.. 12.1.In this regard, we find that the Assessing Officer had allowed depreciation and disallowed cost of fixed assets from application of income which was confirmed by the ld CIT(A) because the exemption u/s 11(1) was denied by the AO. 12.2. We have considered rival submissions and find that this ground of appeal is also consequential to ground nos 1, 2, 3 and 4 which are allowed in the favour of the Assessee. The Assessing Officer is directed to allow the cost of acquisition amounting to Rs. 1,68,48,487/- towards fixed assets u/s 11 as per law instead of only depreciation. In the result, ground no 6 is allowed in favour of the Assessee. 13. In the ground no. 7 of appeal, the Assessee has challenged the order of the ld CIT(A) in not considering statutory allowance of Rs. 70,18,331/- @ 15% u/s 11(1) claimed by the Appellant in the return of income. 13.1.In this regard, we find that the Assessing Officer has disallowed statutory deduction of 15% on the additions made by him which was commented by the ld CIT(A). On the other hand, the Authorized Representative of the Assessee contended that since Page10 exemption u/s 11(1) was applicable to the Assessee, the same was consequential and automatic u/s 11(1). 1 0
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13.2.We have carefully considered the rival submissions and find that since the exemption u/s 11 is allowed in ground nos 1, 2, 3 and 4 above, this is only consequential and academic and therefore, does not require any adjudication and is infructuous. 14. In the ground no 8 of appeal, the Assessee has raised issue of initiation of penalty and charging of interest by the Assessing Officer u/s 234A, 234B, 234C and 234D. We find that the same is premature and accordingly does not require any adjudication. 14.1. In the result, ground no 8 is dismissed. 15. In the result, the appeal filed by the assessee is partly allowed. 16. Since we decided the appeal of the assessee on merits, the Stay Application filed by the assessee becomes infructuous and hence the same is dismissed.
Order pronounced in the open court on 06-09-2019
Sd/- Sd/- (SANDEEP GOSAIN) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मबई/Mumbai; �दनाक/Dated : 06/09/2019
Copy of the Order forwarded to :
अपीलाथी / The Appellant 2. ��यथी / The Respondent. 3. आयकर आय�(अपील) / The CIT(A)- 3 4. आयकर आय� / CIT 5. दवभागीय �दतदन�द, आयकर अपीलीय अ�दकरण, मबई / DR, ITAT, Mumbai Page11 6. गाफा�ईल / Guard file.
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स�यादपत �दत//True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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