THE ACIT,(E) CIRCLE-1, AHMEDABAD vs. RAI UNIVERSITY, AHMEDABAD

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद "यायपीठ आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण अहमदाबाद "यायपीठ अहमदाबाद "यायपीठ ‘बी’ अहमदाबाद। अहमदाबाद "यायपीठ अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD (through web-based video conferencing platform) ] ] BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER Assessment Years : 2014-15 Rai University, Asst. Commissioner of 398-400-401-403, Vs Income-Tax (E), Village : Saroda, Taluka : Dholka, Circle-1, Ahmedabad – 382260 Ahmedabad PAN : AABAR 4376 A Assessment Years : 2014-15 Asst. Commissioner of Rai University, Income-Tax (E), Vs Village : Saroda, Circle-1, Taluka : Dholka, Ahmedabad Ahmedabad – 382260 PAN : AABAR 4376 A अपीलाथ"/ (Appellant) "" यथ"/ (Respondent) Assessee by : Smt. Arti Shah, AR Revenue by : Shri C.S. Sharma, Sr. DR & Shri Anshu Prakas, CIT-DR सुनवाई क" तार"ख/Date of Hearing : 14/02/2022 घोषणा क" तार"ख /Date of Pronouncement: 22/02/2022 आदेश / O R D E R PER P.M. JAGTAP, VICE-PRESIDENT : These two appeals, one filed by the assessee being ITA No.386/Ahd/2019 and other filed by the Revenue being ITA No.553/Ahd/2019, are cross-appeals which are directed against the order of learned Commissioner of Income-Tax (Appeals)-4, Ahmedabad (“CIT(A)” in short) dated 23.01.2019. 2. The relevant facts of the case giving rise to these appeals are that the assessee is a Trust which is engaged in providing free education under ITA Nos. 386/Ahd/2019 & 553/Ahd/2019 Assessee : Rai University : AY : 2014-15 2

various programs to underprivileged girls from the State of Gujarat, with accommodation and meals to such students, as nominated by Government of Gujarat. It is registered under Section 12A of the Income-tax Act, 1961 (“the Act” in short). The return of income for the year under consideration was filed by the assessee on 29.09.2014 declaring negative income at Rs. (-) 4,05,44,803/-, after claiming exemption of Rs.15,89,27,308/- under Section 11 of the Act. In the Income and Expenditure Account filed along with the said return, expenditure of Rs.1,17,17,734/- and Rs.1,23,72,023/- was debited by the assessee on account of “Advertisement and Promotion Expenses” and “Travelling and Conveyance Expenses” respectively. During the course of assessment proceedings, the assessee was required by the Assessing Officer to furnish complete details of these expenses; and, from the perusal of the details so furnished by the assessee, the Assessing Officer noted that the following expenses were incurred on the foreign travel by Shri Vinay Rai, one of the principal donors and founders of the assessee-society. Date Description Amount 16.08.13 C/o Air Tickets booked from Delhi to New York to Delhi for 2,00,725/- Mr Vinay Rai against visit of Business purpose from 01.10.2013 to 09.10.2013 12.09.13 Amount of purchased 3000USD in cash and 10000 USD 8,28,736/- by Card @ Rs.63.70/- each for Mr. Vinay Rai towards Foreign, visit against to attend MIT Conference meeting as per Bill No.3996 Dt. 12.09.2013 of Cox & Kings Limited 24.10.13 C/o Purchased 5000 USD @ Rs.62.50/- per Dollar 3,12,755/- purchased towards foreign travelling charges of Mr. Vinay Rai as per Bill No. 3202417 dt.04. 10.2013 of Cox & Kings Limited 06.11.15 C/o Puchased 03 Nos. Apple iPhone for office use, snacks 2,59, 414/- for staff meeting, hotel stay charges, travelling charges & Taxi Hire charges for Mr. Vinay Rai as per Cr. Card statement dt 28. 10.2013 13.11.13 Amount of Air Tickets, Air tickets cancellation & Seat 5,305/- allocation charges of Mr. Vinay Rai, Dr. Harbeen Arora, Mr. Mounir Nartlho from Delhi-Ahmedabad- Delhi towards meeting with staff dt 28. 10.2013 cr. Card statement dt 03.11.2013 Total 16,06,935/-

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Sr. Bill description Description Amount No. Bill Issued to Bill Issued fay 1. Rai University, The Indian Being C /o Hotel Hire charges 4,65,100/- Space City, B-II/I, Hotels, Company against Assocham Ladies eagues MCIE Mathura Ltd Mumbai Women of the Decade Road, New Delhi Achievers’ Awards event 110044 scheduled on 02/01/2014. 2. Rai Foundation Specs Being C/o JBL Sound System B-II/I, MCIE Digital/ still/photographer/ digital 65,500/- Mathura Road, Near video etc hiring charges Badarpur Metro against Assocham Women's Station, New Delhi- Achievers event at Mumbai 110044 3. Rai University, B- Antraa (Dot) Being C/o 15 Nos. Momento 38,068/- II/I, MCIE Com of Rs.1760/- + 12.50% Tax Mathura Road; purchased for Assocham Ladies New Delhi-44 League event at Mumbai

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13 Vinay Rai AEPC Card No. Being C/o. purchased 03 No. 4,32,551/- 3769-161139- Handset, snacks, hotel 51001 stay charges, for Mr. Vinay Rai towards staff meeting & foreign Travelling as per credit -card statement dt. 28.10.2013 enclosed. 14. Assocham Shangri La’s Being C/o. hotel charges & snacks 2,48,039/- Ms Babta Pandita, Hotel charges against convocatikon program as per bill No.208948 Rs.208953 dt. 20.11.13 enclosed 15. Madam Richie PIONEERS Being amount of VVIP Gowns 7,675/- Gupta hiring charges towards Incahrge Gowns convocation program as per bill Rai Foundation no.5274 dt. 20.11.2013 enclosed. 16. Mr. Vinay The Oberoi, Being snacks charges for meeting 9,455/- (ND-172) New Delhi with staff members on dt. Rai University 09.12.2013 as per bill no. 10378415 dtd. 09.12.13 enclsoed 17. Babita Pandita, Mukesh Kukreja Being amt of expenses incurred by 18,288/- (Babita.Pandita@ babita Pandita towards assocham raifoundation.org.) ladies league Mumbai women at the decade achievers award event as per detailed enclosed. 18. Babita Pandita, Rai Hotel Sharanam Stay in hotel Sharanam two 2,136/- University person dated 31/02/2013 to 04/01/2014 purpose of assocham ladies league Mumbai event (Ms. Babita & Ms. Riche) 19. Rai University Lincia Jewel Event- Assocham ladies 11,000/- Rasario. Mahila league women of the decade Vikas Mandal achiever award ( bill for month of January/02/20H) 20. Rai University ANTRAA DOT Being C/o, 15 Nos. Memento of 32,063/- Corn Rs. 1700/- + 12.50% tax 2 Nos. Momento of Rs. 1500 + 12.50% Tax purchased for Assocham ladies league event of Mumbai as per bill no.0305 & 0307. Respectively dt 1 and 6th jan, 2014. 21. Mr. Vinay Rai AEPC Card Being Hotel Stay charges for Mr. 49,014/- No. 3769- Vinay Rai & Dr. Arora & 161 139-51001. other snacks charges for meeting as per credit card statement dt. 28/01/2014 attached. 22. Rai University ANTRAA DOT Being C/o. 18 nos. of momentos of 34,425/- Com Rs. 1700+ 12.50% Tax each purchased for Assocham functions at Hydrabad as per bill No. 0329 dt. 27/01/2014 enclosed.

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bills for arrangement of light and sound systems. In this regard, the explanation offered by the assessee that this expenditure was incurred towards Beti Bachao – Beti Padhao policy was not found acceptable by the Assessing Officer as the said policy, according to him, was not even in existence in the F.Y. 2013-14. The case of the assessee that less privileged girl students were awarded scholarships during this programme was also found not supported by any evidence by the Assessing Officer. He accordingly arrived at a conclusion that the assessee had incurred huge expenditure under the head “Advertisement and Promotion” and “Travelling and Conveyance” for the benefit of specified persons under Section 13(3) of the Act in violation of provisions of Section 13(1)(c) of the Act and consequently the benefit of Sections 11 and 12 of the Act was not available to the assessee-trust. He accordingly denied the claim of the assessee for exemption of Rs.15,89,27,308/- under Section 11 of the Act and also made a further addition of Rs.4,36,79,779/- on account of “addition to fixed asset” on the ground that the assessee could not furnish any documentary evidence to establish that the said assets acquired by utilizing the trust’s fund were for the advancement of its objects. Accordingly, the total income of the assessee was determined by the Assessing Officer at Rs.16,20,62,280/- in the assessment completed under Section 143(3) of the Act vide order dated 29.12.2016. 6. Against the order passed by the Assessing Officer under Section 143(3) of the Act, an appeal was preferred by the assessee before the learned CIT(A). During the course of appellate proceedings before the learned CIT(A), an alternative claim was made on behalf of the assessee for exemption under Section 10(23C)(vi) of the Act. In this regard, it was submitted on behalf of the assessee that, even though the assessment was finalized by the Assessing Officer disallowing its claim for exemption under Section 11 of the Act, an application for approval of exemption under ITA Nos. 386/Ahd/2019 & 553/Ahd/2019 Assessee : Rai University : AY : 2014-15 8

Section 10(23C)(vi) for AY 2014-15 onwards had already been filed by the assessee on 21.11.2013. It was submitted that, although the said application was initially rejected by an order dated 20.10.2014, a direction was given by the Hon’ble Gujarat High Court by an order dated 27.07.2015 to consider the same afresh. It was submitted that, again by order dated 16.10.2015 passed as per the direction of the Hon’ble Gujarat High Court, approval for exemption under Section 10(23C)(vi) was rejected by the CIT(Exemptions). An appeal was filed by the assessee against the said order before the ITAT and the ITAT vide order dated 23.03.2018 directed the learned CIT(Exemptions) to grant approval to the assessee-trust under Section 10(23C)(vi) of the Act. It was brought to the notice of the learned CIT(A) by the assessee that the approval for exemption under Section 10(23C)(vi) of the Act was accordingly granted by the learned CIT(Exemptions), Ahmedabad on 18.06.2018 for AY 2014-15 and onwards; and consequently it became entitled legally to get such exemption even for the year under consideration, i.e. AY 2014-15. It was contended on behalf of the assessee before the learned CIT(A) that its income for the year under consideration thus was required to be determined as per the provisions of Section 10(23C)(vi) of the Act and the assessment made by the Assessing Officer by applying the provisions of Sections 11 & 12 of the Act could not be sustained. Keeping in view this new claim alternatively made by the assessee for exemption under Section 10(23C)(vi) of the Act before him, the learned CIT(A) sought remand report from the Assessing Officer seeking his comments and contentions on the new claim made by the assessee. Accordingly, remand report was submitted by the Assessing Officer to the learned CIT(A); and, when the same was confronted by the learned CIT(A) to the assessee, the latter submitted its rejoinder thereon. After taking into consideration the submissions of the assessee, the remand report submitted by the Assessing Officer as well as the case-laws relied upon on by the assessee in support and the relevant record available before him, the ITA Nos. 386/Ahd/2019 & 553/Ahd/2019 Assessee : Rai University : AY : 2014-15 9

learned CIT(A) rendered his decision vide paragraph No.7 (including paras 7.1 to 7.3) which read as under:- 7. DECISION : I have carefully considered the assessment order and submission of appellant. Assessment has been finalized by AO under the provisions of sections 11 to 13, even though AO was fully aware that approval u/s.10(23C)(vi) for Asst. Year 2014-15 was pending at that point in time before the Hon'ble ITAT after the Hon'ble CIT(Exemptions) has again rejected the approval even after directions by Hon'ble High Court of Gujarat for fresh consideration. The AO has, accordingly, finalized the assessment and concluded that the expenditure amounting to Rs.16,06,935/- and Rs.21,39,354/- in relation to traveling by Shri Vinay Rai and Ms. Harbin Arora respectively, was definitely not for the benefit of the Appellant University and such expenditure is in nature of their personal benefit, and therefore, provisions of section 13(1)(c)(ii) are applicable in the case of the Appellant. Therefore, as per assessment order, Appellant was not entitled to benefit of deductions u/s.11 and deductions claimed by the Appellant of Rs.15,89,27,308/- for donations in nature of corpus and of Rs.4,36,79,779/- for addition in assets, were disallowed by the AO.

7.1 I have also noted that in view of the approval u/s. 10(23C)(vi) granted by the CIT(Exemptions) for Asst. Year 2014-15, the Appellant has-a point saying that provisions of section 13(1)(c) was not applicable to its case. The Appellant has also, in its submission dated 08.10.2018, dealt the remand report by the AO that; "Further, the claim u/s.10(23C)(vi) was reportedly not made by the assessee in the original ROI filed so the claim made now, is not made under a valid return of income, and hence, the same cannot be entertained now." In this regard, the AO has also stated that issue of exemption u/s.10(23C)(vi) was not the subject matter before the AO during the assessment proceedings. However, the Appellant has pointed out that the claim of approval u/s.10(23C)(vi) was pending before the Appellate Authorities during the intermittent period for decision. Further, the pendency of such approval for exemption u/s.10(23C)(vi) was also, within the knowledge of the AO as due note thereof is also available in the assessment order itself. The AO in para 6 of Remand Report has mentioned the relevant directions on the issue as under:

"6. Assessee during the remand proceedings claims that the rejection of the 10(23C)(vi) by the CIT-Exemption-was challenged before the Gujarat High Court who had directed Chief Commissioner of Income tax to consider the application afresh. The CIT(Exemption), Ahmedabad on the directions of Gujarat high Court and after giving opportunity to the assessee rejected the application for approval u/s1O(23C)(vi). Assessee preferred appeal before the ITAT against the said rejection and ITAT directed to grant u/s 10(23C)(vi).

ITA Nos. 386/Ahd/2019 & 553/Ahd/2019 Assessee : Rai University : AY : 2014-15 10 Accordingly, the CIT(Exemption), Ahmedabad vide order dated 18/6/2018 granted the approval u/s 10(23C)(vi) subject to the various conditions including that (a) the activities of the trust are genuine and are in accordance with its objectives as well as in conformity with the conditions subject to which it is approved, (b) this approval is applicable to income of the educational trust/institution run by it and shall not have any application to income from non-educational activity, (c) the trust shall apply its income or accumulate its income for application wholly and exclusively for the objects for which it is established and application of its income must be in accordance with third proviso to Sec 10(23C) of the Act and (d) the approval granted shall be subject to the provision of Proviso to Sec 143(3) and shall not be construed as a fetter on the powers of the Assessing Officer to examine the various issues of the case in any proceedings before the assessing officer.

Thus even though the approval is granted u/s 10(23C)(vi), it does not qualify for automatic exemptions u/s 11 and 12, Thus approval is granted subject to the conditions as discussions above. Moreover, the issue of 10(23C)(vi) was not the subject matter before the assessing officer during the assessment proceedings. Hence the AO had no occasion to examine the said issue. The AO in the assessment order observed facts regarding the disallowance of exemptions. The argument before the Ld. CIT(A) is that as the approval is now granted u/s 10(23C)(vi) , the exemptions may be given u/s 11 and 12."

The appellant is of the opinion that even if assuming that provisions of section 13 are applicable, disallowance could not be made for total denial of exemption u/s. 11 and alternatively, disallowance should be restricted to the extent of questioned expenditure involved and relied on the ratio of following judgments for proposition:

(i) CIT vs. Fr. Mullet's Charitable Institutions (SLP(C) No.22223 of 2014 filed by Dept. dismissed) [(2015) 371 ITR (St) 370) (SC)] (ii) CIT vs. Fr Mullers Charitable Institutions [(2014) 363 ITR 230 (Kar- HC) (iii)Director of Income tax vs. Working Women's Forum [(2015) 63 taxmann.com 324 (SC)] (iv)CIT vs. Working Womens Forum [(2014) 365 ITR 353 (Mad-HC)] (v)CIT vs. Karnataka Industrial Area Development Board (SLP No.4568/2015, order dated 11.11.2016 by the Hon’ble Supreme Court)

(vi) CIT vs. Karnataka Industrial Area Development Board (ITA No.557 of 2008, order dated 17.06.2014 by High Court of Karnataka)

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(vii)CIT vs. Orpat Charitable Trust [(2015) 230 Taxman 66 (Guj)] (viii) Shri Kamdar Education Trust vs. ITO [(2016) 243 Taxman 76 (Guj)]

Further, observation by the AO in the assessment order that such expenditure is not for the benefit of the Appellant, by implication indicates that the expenditure is not towards the objects of the-Appellant University. Therefore, in case of allowing benefit of exemption u/s. 10(23C)(vi), such expenditure cannot be held allowable as not incurred for the object of educational purpose of the Appellant.

7.2. The AO has stated that even though the approval is granted u/s. 10(23C)(vi), it does not an automatic exemption u/s.11 and 12; and moreover, issue of exemption u/s.10(23C)(vi) was not the subject matter before the AO during the assessment proceedings. With due consideration to the submissions made by the Appellant in respect of assessment finalized under the provisions of section 11 to 13 as well as in respect of claim for exemption u/s.10(23C)(vi) granted to the Appellant w.e.f. Asst, Year 2014- 15 onwards along with various judicial pronouncements by the Hon'ble Supreme Court as well as the High Courts relied upon by the Appellant. The issue is being looked into. Hon'ble Karnataka High Court in the case of Shankar Khandsari Sugar Mills Vs. CIT 193 ITR 669 (Kar.) has observed that "In the absence of any prejudice to the revenue, and the basis of the lax under the Act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the Income-tax Officer could have done, the appellate authority also could do." Hon'ble Bombay High Court in the case of Smt. Prabhavati S, Shah 231 ITR 1, (Bom.) has observed that "CIT(A) is empowered u/s.250(4) to make such further inquiry as he thinks fit and such power being quasi judicial power, it was incumbent on him to exercise the same if the facts and circumstances justify. It further held that if the first appellate authority failed to exercise his discretion judicially and arbitrarily refused to make inquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority. In other words, the message from the Bombay High Court is that if prima facie an information evidence is necessary to examine the claim of the assessee, the CIT(A) should consider the necessary evidence in exercise of power u/s. 250(4) even if the case of the assessee does not fall within the four corners of the circumstances enumerated in rule 46A(1)." In such circumstances, and as per ratio laid down at 187 ITR 688 (SC) in the case of Jute Corporation of India Ltd., I am constrained to admit the contention raised u/s.10(23C)(vi) with the limitation that the adverse findings by the AO while making earlier the assessment has to be considered as per directions contained in the order of CIT(Exemptions) u/s. 10(23C)(vi). There is a clarion call from the highest echelon of the government to create an environment friendly to doing of ITA Nos. 386/Ahd/2019 & 553/Ahd/2019 Assessee : Rai University : AY : 2014-15 12 business in this country. In the DO letter of Chairman No.FTS: 30311806/2016 dtd. 01.11.2016, the field formation has been directed "..,..... it is equally important to take steps to prevent avoidable dispute....”. As a sequel to this it is strongly felt that it is onerous duty on the part of both revenue as well as taxpayers to reduce litigation so as to strengthen justice delivery system and same is not possible if either of the parties go on overboard in overloading the judicial apparatus through avoidable litigations. Actually, the real income is to be .taxed. The apex Court in the case of CIT vs. British Paints India Ltd. has held, "it is duty of A.O, to correctly deduce the income, no principle of estoppels, A. O. is not bound by the method followed in earlier years."

7.3. In view of all the facts and ratio laid down in different case laws, it is decided that the Appellant's claim of entire income should be exempt under the provisions of section 10(23C)(vi) cannot be accepted though the claim is being adjudicated as per decision in para 15.2 above. Accordingly, the Appellant is held to be entitled to exemption u/s. 10(23C)(vi). However, expenditure of Rs.37,46,289/- (Rs. 16,06,935 + Rs.21,39,354) are held to be not for the purpose of educational activity of the Appellant, and therefore held not allowable. The AO is directed to issue revised demand notice accordingly.”

Ground taken by the assessee The Learned Commissioner of Income Tax (Appeals)-4, Ahmedabad has erred in law and on facts of the case in confirming the disallowance of Rs.37,46,289/- (Rs.16,06,935+Rs.21,39,354) as expenditure not for the purpose of educational activity of the appellant though the appellant was entitled to deduction of the same under the provisions of Section 10(23C)(vi) of the I.T. Act, 1961. Grounds taken by the Revenue

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him in the impugned order. He also sought comments from the Assessing Officer on this new alternative claim made by the assessee for exemption Section 10(23C)(vi) of the Act and after taking into consideration the comments of the Assessing Officer, submissions of the assessee and the entire material available on record, including the approval granted by the learned CIT(Exemptions), Ahmedabad to the assessee under Section 10(23C)(vi) of the Act, the learned CIT(A) allowed the alternative claim of the assessee for exemption under Section 10(23C)(vi) of the Act by passing a well discussed and well reasoned order; the relevant portion of which is already extracted hereinabove. We, therefore, find no infirmity in the order of the learned CIT(A) allowing the alternative claim of the assessee for exemption under Section 10(23C)(vi) of the Act and even the learned DR has not raised any material contention to rebut or controvert this position. The impugned order of the learned CIT(A) on this issue is, therefore, upheld and the appeal of the Revenue is dismissed.

confirming the disallowance of expenditure which was made by the Assessing Officer with reference to Section 13 of the Act. She has contended that what is relevant for Section 10(23C)(vi) of the Act is that the income should be applied fully and exclusively by the assessee-trust to the objects for which it is established. She has contended that the assessee is in a position to support and substantiate its case on evidence and the matter may be restored to the file of the Assessing Officer for allowing the assessee an opportunity to do so. Although the learned DR has contended that the expenditure in question was disallowed by the learned CIT(A) vide his impugned order after having found that the same was not incurred for the purpose of educational activity of the assessee, we find that no opportunity was specifically given to the assessee to establish its case on evidence as per clause (a) of third proviso to Section 10(23C)(vi) of the Act that the expenditure in question was incurred wholly and exclusively for the objects for which it is established in order to avail the benefit of exemption provided in Section 10(23C)(vi) of the Act. We, therefore, consider it fair and proper, and in the interest of justice, to restore this issue to the file of the Assessing Officer for deciding the same in accordance with law after giving the assessee an opportunity of being heard.

Order pronounced in the Court on 22nd February, 2022 at Ahmedabad. (SIDDHARTHA NAUTIYAL) VICE-PRESIDENT Ahmedabad, Dated 22/02/2022 *Bt

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आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant 2. ""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त ( अपील ) / The CIT(A)- 5. "वभागीय ""त"न"ध आयकर अपील"य अ"धकरण/DR,ITAT, Ahmedabad, , 6. गाड" फाईल /Guard file. आदेशानुसार/ BY ORDER,सहायक पंजीकार (Asstt.