SUKANTI EDUCATIONAL AND CHARITABLE TRUST,SONEPUR vs. ITO,EXEMPTION WARD, SAMBALPUR

Brief facts of the case are that the assessee had filed the return of income showing total income of ₹ ‘NIL’ and the case was selected for limited scrutiny under Computer Assisted Scrutiny Selection (in short 'CASS'). The assessee could not submit any document through e- proceeding as was required vide notice u/s 142(1) of the Act issued and the total income was computed at ₹ 2,52,02,720/-. Although no details have been given for the computation of income; however, a perusal of the computation sheet shows that a sum of ₹ 2,49,42,716/- has been added under the head ‘income from other sources’ and another sum of ₹ 2,60,000/- has been added on account of voluntary contributions and I.T.A. No.: 51/CTK/2025 Assessment Year: 2016-17 Sukanti Educational and Charitable Trust. the total income is thus worked out at ₹ 2,52,02,716/- which has been rounded off to ₹ 2,52,02,720/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) in which one of the grounds of appeal taken was that the expenses of ₹ 2,38,55,184/- are to be allowed as deduction u/s 57 of the Act from the gross receipts of ₹ 2,52,02,716/- which had not been allowed. It was submitted with the written submission filed that the assessee is running three educational institutions in different streams and in the impugned assessment year, the total gross income from all the institutions amounted to ₹2,52,02,716/- and the total expenditure incurred for earning of this income amounted to ₹2,38,55,184/- leaving a surplus of ₹13,47,532/-. The assessee is neither registered u/s 12A nor approved u/s 10(23C) of the Act, therefore, the assessee had filed the return of income as an AOP discharging the tax liability on the surplus of ₹ 13,47,532/-. The case of the assessee was selected for scrutiny and the notice u/s 143(2) of the Act was served in response to which the assessee appeared and explained the details filed. Thereafter, a notice u/s 142(1) of the Act was sent through email of which the assessee was not aware of and could not comply to the said notice. Thereafter, the Ld. AO passed the assessment order u/s 144 of the Act by taxing the gross receipts of ₹ 2,52,02,716/- as income of the assessee. It is stated that as per the provisions of section 57 of the Act, the expenses incurred for earning of the income is allowable while computing the taxable income. It was also submitted before the Ld. CIT(A) that in the case of the assessee, the gross receipts of Sukanti International School and Sukanti +3 Degree College are below Rs. one Crore and therefore, the income of these institutions are exempted and it was prayed to allow the exemption u/s 10(23C)(iiiad) of the Act. The assessee filed a detailed submission along I.T.A. No.: 51/CTK/2025 Assessment Year: 2016-17 Sukanti Educational and Charitable Trust. with additional evidence in support of the relief claimed which was forwarded by the Ld. CIT(A) to the Ld. AO to submit the remand report. It was submitted by the Ld. AO in the remand report that the reason for selection was "Form 10B/10BB not filed" and accordingly notices u/s 143(2) and 142(1) of the Act were issued and as the assessee did not submit any documents called for, the assessment was completed u/s 144 of the Act based on the documents available on record. The order was passed u/s 144 of the IT. Act, 1961 on 18.12.2018 assessing the total income at ₹ 2,52,02,720/-. As regards the error of law in treating the entire receipts of ₹ 2,52,02,720/- as the income of the assessee, in view of the fact that the expenses incurred for earning of income of ₹ 2,52,02,720/- are allowable u/s 57 of the Act, since the assessee did not file the audit report in form 10B/10BB and also did not comply with any of the notices during the assessment proceedings hence, the Ld. JAO has rightly disallowed the expenses claimed by the assessee. The Ld. CIT(A) dismissed the appeal of the assessee by holding as under:

Aggrieved with the order of the Ld. CIT(A) the assessee has filed the appeal before the Tribunal. I.T.A. No.: 51/CTK/2025 Assessment Year: 2016-17 Sukanti Educational and Charitable Trust.

Rival contentions were heard and the submissions made and the paper book filed have been examined. In the paper book filed before us, the assessee has given a brief history of the case as under: “The appellant is a Trust running of educational activities and registered under the Indian Trust Act. The assessee is neither registered u/s 12A/12AA of the Income Tax Act, 1961 (Herein after referred as the Act) nor u/s 10(23C) of the Act. Therefore, while filing the return of income the assessee itself treated as AO and filed the return of income by discharging the tax liability as per the Act. For the Asst. Year 2016-17 it had filed its return of income u/s 139 of the Act by disclosing the total income of 13,47,530. The case of the appellant was selected for scrutiny under CASS and notice u/s 143(2) was issued to which the appellant appeared and explained the return of income. Thereafter from time-to-time notices u/s 142(1) were issued through e- proceeding. Since the password of the e-proceeding was with the A/R, the appellant could not submit any documents and even he was not aware of the notices issued. However, due to noncompliance on the part of the appellant, the Ld. Assessing Officer passed the assessment order u/s 144 by considering the gross receipts as total income of the Act. But as per the provisions of the Act, the income is to be computed after allowing of expenditures Incurred for earning of the income. Therefore, the action of the Ld. Assessing Officer is wrong. On being aggrieved with the assessment order, the assessee preferred the appeal before the Ld. CIT (Appeals) on the following grounds; ➢ Since the assessee is neither registered u/s 12A/12AA nor u/s 10(23C), it is an AOP and its income is to be computed by allowing of expenditure incurred for earning of income, but the Ld. AO taxed the gross receipts without allowing of any expenditure. This action of the Ld. AO is wrong and the expenditure incurred for earning of income is to be allowed as deduction. In the similar facts, the Ld. AO passed the rectification order u/s 154 for the Asst. Year 2017-18, 2018-19 & 2019-20 by allowing the expenditure, hence in the impugned assessment year also the expenditures are to be allowed while computing the taxable income. ➢ The assessee runs three educational institutions, i.e. (1) Sukanti International School, (2) Sukanti Academy & (3) Sukanti +3 Degree college which are separately approved by the appropriate authorities. As per the norms of the approving authorities, the assessee has to maintain separate set of accounts and infrastructure like laboratory, I.T.A. No.: 51/CTK/2025 Assessment Year: 2016-17 Sukanti Educational and Charitable Trust. library, staffs etc. As per the norms, the assessee maintains separate set of books of account which are duly audited by the auditor. After finalization of audit of different institutions, the accounts are consolidated and the income tax return is filed on the basis of consolidated financial statement of the assessee. The individual gross receipts of Sukanti International School & Sukanti +3 Degree college are below one Crore rupees. Therefore, the income of these two institutions is exempted as per the provisions of section 10(23C)(iiiad) of the Act. The Ld. CIT (Appeals) dismissed the appeal of the assessee holding that, the assessee did not comply in the remand proceeding, nor furnished form no. 10B/10BB. During the appellate proceeding, no bills or vouchers were submitted and the accounts so furnished as sketchy not substantiated with any evidence viz-a-viz the source of receipts/details of expenditure.”

The copy of Trust deed, the rectification order for AYs 2017-18, 2018-19 and 2019-20 and the consolidated audited accounts of Sukanti Education and Charitable Trust and Sukanti Academy of plus Two Self- Financing Junior College for and Sukanti +3 Degree college and Sukanti International School for FY 2015-16 have been filed and the assessee has relied upon the cases of Manas Sewa Samiti Vs. Addl. CIT, (2021) 439 ITR 79 (All.) and CIT vs. Children's Education Society (2013) 92 DTR (Kar) 158 in support of the relief claimed, which are placed in the paper book from pages 70 to 100 of the paper book.

We have considered the submissions made and the decision in the case of Manas Sewa Samiti (supra) in which it is held as under: “■ The benefit granted under section 10(23C)(iiiad) is only with reference to an activity of running a University or other educational institution, existing solely for educational purposes. By virtue of section 10(23C)(iiiad) such receipts are excluded from the income received by the 'person', who may have run such University or other educational institution. [Para 11] ■ Thus, the benefit has been granted with respect to receipts arising from a specified activity. The benefit is not conditioned or restricted to the person who may have established or may have run such activity or who may have been in receipt of such receipts. [Para 12] I.T.A. No.: 51/CTK/2025 Assessment Year: 2016-17 Sukanti Educational and Charitable Trust. ■ Though, obviously, the issue whether that benefit is available or not would arise only in the course of assessment proceedings of a person/assessee, who may have engaged in such activity, at the same time, it is not the intent of the Act to look at the aggregate income or receipt of such person for the purpose of granting the benefit under section 10(23C)(iiiad). [Para 13] ■ It is the receipt of each individual University or other educational institution that would be looked at to determine whether the receipt would qualify for the benefit conferred under section 10(23C)(iiiad), read with rule 2BC. [Para 14] ■ The reasoning adopted by the Assessing Authority as affirmed by the Appellate Authority and the Tribunal, wholly erroneous in law. As noted above, the benefit of section 10(23C)(iiiad) being activity centric, the limit of Rs. 1 crore prescribed thereunder had to be seen only with reference to the fee and other receipts of the eligible activity/institution. Admittedly, those were below Rs. 1 crore. In the facts of the instant case, the eligibility condition prescribed by law was wholly met by the assessee. [Para 21] ■ The Assessing Authority to disallow the benefit, on account of excess of income over expenditure of the institution having been carried to the society, is extraneous to the issue involved in the instant case. [Para 22] ■ The institution did not exist on its own and was run by the society could never be a valid consideration to disallow that benefit. It is clearly not contemplated under the Act. Here, it may be further noted that according to the Assessing Authority itself, there were two accounts maintained. One for the institution and the other for the society. After the income and expenditure account of the institution had been made, its excess of income over expenditure were carried to the account of society for taxation and other purposes. That did not and it could not lead to the inference that the receipts of the society were also the receipts of the institution. That reasoning is based on no material or evidence on record. [Para 23] ■ Legally, it is only a figment of imagination. Even in the computation of the income, the Assessing Authority has recognized the difference between the two receipts being 'surplus as per income/expenditure account of college'. It was taken at Rs. 38.54 lakhs and, 'surplus as per income/expenditure accounts of society' of the society which was taken at Rs. 47.62 lakhs. [Para 24] ■ Once that difference of the receipts was acknowledged by the Assessing Authority, there was absolutely no other material existing to treat the donations received by the society to be receipts of the institution. [Para 25] I.T.A. No.: 51/CTK/2025 Assessment Year: 2016-17 Sukanti Educational and Charitable Trust. ■ Similarly, the further reasoning offered by the Appellate Authority to affirm the order of the Assessing Authority is wholly erroneous and contrary to law. Merely because the assessee-society was the person running the institution, it did not cause any legal effect of depriving the benefit of section 10(23C)(iiiad) which was activity specific and had nothing to do with the other income of the same assessee. [Para 26] ■ To complete the discussion, the Tribunal has also erred in looking at provisions of section 12AA and the fact that the donations received by the society may not have been received with any specific instructions. It is not relevant in the facts of the instant case. It is so because here the assessee had only claimed the benefit of section 10(23C)(iiiad) with respect to the receipts of the institution, information management and technology and it had not claimed any benefit with respect to the donations received by the society. [Para 27] ■ The question of law is answered in the negative, i.e., in favour of the assessee and against the revenue. There would be no clubbing of the receipts of the institution with the other income of the society, for the purpose of considering the benefit of section 10(23C)(iiiad). [Para 28]”

The assessee itself had shown the surplus as income as it was neither registered u/s 12AA nor u/s 10(23C) of the Act. Further, the receipt from each of the three institutions is claimed to be below the limit specified u/s 10(23C)(iiiad) of the Act and as per the decision of the Hon'ble Allahabad High Court in the case of Manas Sewa Samiti (supra) each individual University or other educational institution receipt has to be looked at to determine whether the receipt would qualify for the benefit conferred u/s 10(23C)(iiiad) of the Act read with Rule 2BC of the Income Tax Rules, 1962. Since the Ld. CIT(A) did not consider the evidence filed and treated the accounts furnished for the first time before the appellate authority as very sketchy, not substantiated with any evidence viz-a-viz the source of receipts/details of expenditure, therefore, the appeal was dismissed. However, even if the exemption u/s 10(23C)(iiiad) of the Act was not allowable, the entire receipts being deposited in the bank account could not have been added I.T.A. No.: 51/CTK/2025 Assessment Year: 2016-17 Sukanti Educational and Charitable Trust. to the income of the assessee and only the surplus after allowing all the expenditure for earning the income had to be treated as income. The assessee has filed evidence in support of the claim that only the net surplus was to be subjected to tax as in AYs 2017-18, 2018-19 and 2019-20 rectification orders have been passed and the excess of income over expenditure shown at ₹ 15,52,451/-, ₹ 21,65,032/- and ₹ 23,62,808/-, respectively has been subjected to tax in each of these assessment years and the gross receipts have not been subjected to tax and the entire expenditure has been treated as a revenue expenditure. Even though res judicata does not apply to the income tax proceeding, however, the rule of consistency applies and therefore, for the impugned assessment year as well the surplus only had to be subjected to tax as has been done in the AYs from 2017-18 to 2019-20. Since the evidence now filed in the paper book from Sl. No. 5 to 8 was not filed before the Ld. AO, the Ld. DR argued that the certificate that all the above papers form part of the records filed before the lower authorities or/are extracts from the books of account records produced before them or/are copy of the orders is false and it was also argued that the same have to be filed with an application for admission under the ITAT Rules.

The Ld. AR pointed out at page 7 para 6 of the order of the Ld. CIT(A) that under Rule 46A of the I.T. Rules, 1962, these documents were forwarded to the Ld. AO for examination and comments. However, the same have not been admitted. It was submitted that the assessee was not claiming exemption u/s 11 of the Act but was claiming exemption u/s 10(23C)(iiiad) of the Act and even if the same is not allowable, only the excess of receipts of income and expenditure can be subjected to tax. I.T.A. No.: 51/CTK/2025 Assessment Year: 2016-17 Sukanti Educational and Charitable Trust.

We have considered the submission made. The assessee has filed unaudited annual financial statement for the year ended 31.03.2017. Since these documents were not filed before the Ld. AO, the orders of the Ld. CIT(A) as well as the Ld. AO are hereby set aside and the matter is remitted to the Ld. AO to frame the assessment de novo after granting an opportunity of being heard to the assessee and after considering the evidence filed by the assessee in support of the claim of expenditure incurred for earning the income and only the excess of income over expenditure should be subjected to tax as has been done in AYs 2017- 18, 2018-19 and 2019-20 vide orders passed by the Ld. AO himself in the rectification proceedings.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 12th June, 2025. [Duvvuru RL Reddy] [Rakesh Mishra] Vice President (KZ) Accountant Member Dated: 12.06.2025 Bidhan (P.S.) I.T.A. No.: 51/CTK/2025 Assessment Year: 2016-17 Sukanti Educational and Charitable Trust. Copy of the order forwarded to:

CIT(A)-NFAC, Delhi.

CIT-

CIT(DR), Cuttack Bench, Cuttack.

Guard File. //// By order