ITO(EXMP), WD -2(1), DURGAPUR, DURGAPUR vs. M/S GURUKUL EDUCATION INSTITUTE, DURGAPUR

IN THE INCOME TAX APPELLATE TRIBUNAL “B”, BENCH KOLKATA

BEFORE SHRI P.M. JAGTAP, V.P & SHRI S. S. GODARA, JM आयकर अपीलसं./I.T.A No.1369/Kol/2016 ("नधा"रण वष" / Assessment Year: 2010-11) ITO (Exemptions), Ward-2(1), Vs. M/s. Gurukul Educational Institute Durgapur G.T. Road, Rajbandh, Durgapur-713212. "थायीलेखासं./जीआइआरसं./PAN/GIR No.: AAATG7615B (Appellant) .. (Respondent) Appellant by : Smt. Ranu Biswas, Sr. DR Respondent by : Shri Anikesh Banerjee, & Shri Anupam Kr. Dey, Advocate सुनवाई क" तार"ख/ Date of Hearing : 09/12/2019 घोषणा क" तार"ख/Date of Pronouncement : 14/02/2020 आदेश / O R D E R Per Shri S. S. Godara: This Revenue’s appeal for assessment year 2010-11 arises against the Commissioner of Income Tax (A)-Durgapur’s order dated 28.03.2016 passed in case No.90/CIT(A)/DGP/2013-14 involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file perused.

I.T.A No.1369/Kol/2016 M/s. Gurukul Educational Institute

than adequate u/s 13 of the Income Tax Act, 1961 by the A.O in absence of any material provided during assessment, but the same was accepted by Ld. CIT(A) during appellate proceedings. 2. That on the facts and circumstances of the case, the Ld. C.I.T (A) has erred in deciding the case on the basis of additional evidence accepted during the appeal without applying the provisions of Section 250(4) of the Income Tax Act, 1961 in contravention to Rule 46A of the Income Tax Rules, 1962. 3. That on the facts and circumstances of the case, Ld. C.I.T.(A) has erred in granting relief without examining violation of Section 13(1)(c) of the Income Tax Act, 1961 for providing interest free loan to a related party DIATM, closing balance of which remained at Rs.1,28,11,669/- at the end of the F.Y.”

“Decision (i) First Ground of Appeal: The AO has cited in his assessment order that the trust has expended an amount of Rs. 1,65,10,525/- under the head Advertisement & Publicity and question the necessity of such expenses and show caused the trust to treat it as business entity and thereby forfeiting the exemption u/s 11 of the said Act. During the appellate proceedings the appellant has made elaborate written submission and has filed a detailed computation of the income of the trust as per Section 11 of the said Act. The appellant in its said written submission states that "The Ld AO opined in his assessment order that the advertisement expenses as incurred by the assessee trust during the FY 2010-2011 as excessive and unreasonable which is totally baseless and void of any substance. The Ld. AO has made a show cause to the assessee trust on 28.02.2013 seeking I.T.A No.1369/Kol/2016 M/s. Gurukul Educational Institute

explanation to that effect and your assessee trust has duly submitted the clarification wherein the reasons for such advertisement is clearly spelled out and narrated. The fact is that the assessee trust was in need of advertisement for different reasons e.g. for students admission, for appointment of teachers and other staff, for promoting career opportunities for students, for better campus recruitment and for various other purposes which were solely related with the reasons of imparting education among the desired students. The magnitude of such Institutes needs advertisement throughout the year and these expenses were necessary for survival. On receiving such answer from the assessee trust, the Ld. AO rebuked and sarcastically remarked about the necessity of survival of a charitable trust which were quite outrageous and devoid of any logical argument. The right to survive is paramount irrespective of the fact that the organization is charitable or business oriented. Now the question arise whether such expenditure is hit by section 40A(2). It is a fact that the assessee trust expended advertisement expenses and majority of them with Media Division of Rahul Springs Private Limited (Trustees are in management of the said Company), but the emphasis should be given on examining the factual point that whether such expenditure is excessive or unreasonable with regard to the fair market value of the goods, services or facilities for which the payments were made. The assessee trust seeks quotation for advertisement from two advertising agencies who has given the rate of advertisement in Star Ananda and 24 Ghanta TV Channel, copies of which are being enclosed for your ready reference. We are also enclosing the quotation of R Plus TV Channel (Owned by media Division of Rahul Springs Private Limited) wherein it could be seen that the rate as quoted by the R Plus TV Channel is far more lower than that of the rate offered by the Star Ananda and 24 Ghanta TV Channel. We are also enclosing the copies of audited financial statement of Rahul Springs Private Limited for the Financial year 2009-2010 wherein it could be seen that the company has suffered huge losses during the said year. The Company has two divisions comprising of Spring Leaf Manufacturing Division and Media Division. The Segment wise financial statement is also being enclosed wherein it could be seen that huge losses occurred in Media Division which has overwhelmingly offset the profit arised from the manufacturing Division. We are also enclosing copies of some bills as raised by the Media Division of Rahul Springs Private Limited to the Gurukul Educational Institute during the said financial year which could substantiate the fact that the bills were heavily discounted as compared to that of the contemporary rates as prevailing at that time. These discounts were availed by the educational trust only because of the fact that the trustees were in the management of the Company and they have tried their utmost to offer the value of goods and services to the assessee Trust at a nominal prices which is well below the benchmark of the Industry. So question of benefitting the company by the assessee trust does not hold good, rather it was the case of the vice-versa where the assessee trust was benefitted in every possible manner by the related company. So the Ld AOs contention of excessive payment in advertisement expenses is biased and the purported order is arbitrary and illegal and devoid of any materials substance and need to be turned down as illogical conclusion." The appellant also submitted one calculation of computing the eligible utilization of the Trust during the said Asst Yr. which is also being reproduced here: I.T.A No.1369/Kol/2016 M/s. Gurukul Educational Institute

In the said computation the appellant stated that they have not considered the advertisement expenditure as utilization u/s 11(1) and without considering the same the appellant trust has complied the norms of utilizing the 85% of its income and its surplus as computed above is well below the limit as specified U/s 11(1)(a). During the hearing proceeding the AR of the Assessee Trust stated that the assessee trust was engaged in carrying out activity of imparting education in the name of three Institutes e.g (1) MANAGEMENT INSTITUTE OF DURGAPUR - imparting education in the discipline MBA(Full Time -2 years), MBA(Part time-3years) ,MCA(3Years) ,BCA(3 years) all affiliated under approval of AICTE; (2) DURGAPUR COLLEGE OF COMMERCE & SCIENCE - offering undergraduate courses in the stream of Micro Biology (3 Years), Bio Chemistry(2 Years), Bio technology (3 Years), Environment Science (3 Years), MSC Bio Chemistry (2years) affiliated and conferred under BURDWAN UNIVERSITY (3) DURGAPUR HIGHER SECONDARY SCHOOL OF COMMERCE AND SCIENCE – an independent Higher Secondary school in commerce and in science under the West Bengal Council of Higher Secondary Education, Govt. of West Bengal. The advertisement expenditures had been incurred for inviting applications from students for admission to the above-said courses, for appointment of teachers and other staff, for promoting career I.T.A No.1369/Kol/2016 M/s. Gurukul Educational Institute

opportunities for students, for better campus recruitment and for the enhancement of the brand name of the Institution. The Ld. AR of the assessee strongly pointed out that the fact of the Charitable Trust lead to the conclusion of that the activity carried out by the Trust is a charitable activity under section 2(15) of the Income Tax Act 1961 and no case for infringement of provision of Sections 11 and 12 was made out by the Assessing officer and it was only on the basis mere transactions, presumptions, conjecture and surmises that it was held that the assessee trust was doing business activity and thereby forfeited the exemption as claimed u/s 11 of the Income Tax Act 1961. I have gone through the findings of the AO in the assessment order as well as the submissions and the materials on records by the appellant. The expenditure of advertisement in question had been incurred for inviting applications from students for admission to the above said courses, for appointment of teachers and other staff, for promoting career opportunities for students, for better campus recruitment and for the enhancement of the brand name of the Institution. Though in the assessment order, the Assessing Officer observed that the expenditure indicated the commercial and non- charitable motive of the assessee. This observation formed the sole basis for the disallowance, without anything having been brought by the Assessing Officer on record as to how such expenditure was not in line with the aforesaid object of the assessee trust. It is also seen that in the assessment order the Assessing officer stated that the payment in respect of advertisement expenses is being disallowed, but while making the computation the same were not added back the with the surplus of the assessee trust. The A.O does not deny the genuinity of the expenditures but concluded it to be made on commercial line, ignoring the fact that the same were for the advertisement of course, appointment of teachers, and promoting career opportunity to the students for attainment of the objectives of the society which have not been controverted by the A.O. No additional income was brought to tax on this account. The observation of the aforesaid expenditure was only used for forfeiture of the exemption as granted U/s 11/12 of the Income Tax Act 1961. The A.O considered the expenses as genuine but only questioned its necessity and thereby used this as a parameter to forfeit the exemption u/s 11 enjoyed by the Trust and taxed the surplus of the Trust as per its Income & Expenditure A/c as its normal profit. The said decision of the AO was arbitrary and not backed by fact of the case. The appellant itself agreed that the said expenditures is not considered for utilization purpose u/s 11 and computed its allowable accumulation u/s 11(1)(a) without considering such expenditures as utilization. As such finding of the A.O has no merit. The Assessing officer's decision as spelled out in the assessment order, is without any basis and it is based on assumption and the facts that expenses are incurred for the purpose of attainment of the object of the trust has completely been overlooked. Therefore, as per my considered opinion the appellants action is as per objective of the trust and its first grounds of appeal is allowed in favour of appellant. The objection of the A.O does not sustain on the ground.”

see any such additional evidence either placed on record at the assessee’s behest or admitted by the CIT(A) much less in violation of Rule 46A of the Income Tax Rules. We make it clear that the CIT(A)’s corresponding discussion on the instant former issue runs from page(s) 2 to 12 in his lower appellate order and such an admission of additional evidence nowhere emerges from the case file. We therefore decline the Revenue’s first and foremost technical argument seeking to revive the Assessing Officer’s action disallowing assessee’s payment of Rs.1,65,69,859/- made to Rahul Springs Pvt. Ltd. (media division).

raising the impugned expenditure claim since incurred for the purpose of performing charitable activity of running educational institution(s). We thus affirm the CIT(A)’s foregoing findings under challenge deleting the impugned disallowance.

Order is pronounced in the open court on 14.02.2020. (P. M. Jagtap) (S. S. Godara) VICE-PRESIDENT JUDICIAL MEMBER कोलकाता /Kolkata; "दनांक/ Date:14/02/2020 RS I.T.A No.1369/Kol/2016 M/s. Gurukul Educational Institute

आदेशक"""त"ल"पअ"े"षत/Copy of the Order forwarded to : 1. The Appellant - ITO (Exemptions), Ward-2(1), Durgapur 2. The Respondent- M/s. Gurukul Educational Institute. आयकरआयु"त(अपील) / The CIT(A), Kolkata [sent through email] 3. आयकरआयु"त/ CIT 4. "वभागीय""त"न"ध, आयकरअपील"यअ"धकरण, कोलकाता/ DR, ITAT, Kolkata [sent 5. through email] गाड"फाईल / Guard file. 6. स"या"पत""तBy Order