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Facts
The assessee, Navratan Vidha Mandir Shiksha Samiti, filed its return declaring Nil income under Section 11 of the Income Tax Act. The Assessing Officer (AO) made additions to the total income, disallowing certain exemptions. The CIT(A) partly allowed the appeal, deleting some additions and upholding others. The Department (Revenue) filed an appeal against the CIT(A)'s order.
Held
The Tribunal held that the development fees received by the assessee were capital receipts and should not be added to the gross receipts. The Tribunal also held that the advances made to staff and sister concerns did not violate Section 11(5) read with Section 13(1)(d) of the Act, as they were not investments or deposits. However, the Tribunal found that the disallowance of 20% of expenses was excessive and reduced it to 10%.
Key Issues
1. Whether development fees received by the assessee are capital receipts or revenue receipts. 2. Whether the advances made by the assessee to staff and sister concerns are violative of Section 11(5) read with Section 13(1)(d) of the Income Tax Act. 3. Whether the disallowance of expenses made by the AO and restricted by the CIT(A) is justified.
Sections Cited
11, 11(5), 13(1)(d), 145(3)
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Income Tax Appellate Tribunal, JAIPUR BENCHES, ‘’A” JAIPUR
Before: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 201/JP/2024
ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM The Department has filed an appeal against the order of the ld. CIT(A) dated 27-12-2023, National Faceless Appeal Centre, Delhi ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI [ hereinafter referred to as (NFAC/CIT(A) ] for the assessment year 2012- 13 and Assessee has also filed the Cross objection to the appeal so filed by the revenue against the same order of the ld. CIT(A).
2. The grounds of appeal raised by the respective parties are as under:-
1. - Department 1 Whether order passed by the Ld. CIT(A) is justified, ignoring the facts and circumstances of the present case and without applying the correct preposition of law."
Whether Ld. Commissioner (Appeals) is justified in treating receipts of development fund of Rs.2,27,78,950/- as capital receipts/corpus donation, earmarked as development fund by the assessee himself whereas the students or persons depositing the fee paid it as fee only, and nowhere has indicated that same is capital receipts/corpus donation."
3. Whether the Id. CIT(A) is justified in treating the receipts of development fund as capital/corpus receipts just on the basis of earmarking by the recipient trust, while as a matter of law it is the prerogative of donor/payer whether he want to pay for corpus or general 4. Whether Ld. CIT(A) is justified in holding advance of Rs.1,62,86,091/- given to other trust cannot be treated as investment or deposit. While assessee trust failed to kept excess fund in the mode prescribed u/s 11(5), which is the violation of section 13(1)(d) of the Income-tax Act.
5. Whether Id. CIT(A) is justified in allowing exemption u/s 11 of the Income-tax Act while misappropriation of the funds done by the assessee by utilizing them other than the mode prescribed u/s 11(5) of the Income- tax Act 6. Whether Id. CIT(A) is justified in reducing disallowance of 20% out of total application of Rs.3,03,53,582/- to extend of 10% on Rs.3,03,53,582/- ie Rs.30,35,358/- without any proper reason, though the Id. CIT(A) himself admitted that the AO has rightly rejected the books of accounts u/s 145(3) of the IT Act, 1961"
1. That the ld. CIT(A) has erred on facts and in law in upholding the action of AO in rejecting the books of accounts u/s 145(3) of the Act,1961.
2. That the ld. CIT(A) has erred on facts and in law in upholding the action of AO in confirming the disallowance of Rs.30,35,538/- being 10% of the amount of Rs. 3,03,53,582/- claimed as application of income.
First of all, we take up the appeal of the Department for adjudication in relation to the above mentioned grounds of appeal.
3.1 Apropos Ground No. 1 to 3 raised by the Department wherein the ld. CIT(A) has allowed the ground of appeal of the assessee holding that Rs.2,27,78,950/- on account of development fund is a capital receipt and would not be added to the gross receipts in the income and expenditure account. The exact narration as made by the ld. CIT(A) in his order is reproduced as under:-
‘’7 Ground No.1: This Ground has been raised against the action of the AO in beating The amount of Rs 2,27,78,950/--on account of development fund as a revenue receipt instead of a corpus donation or a capital receipt. 7.1 I have considered the assessment order and the submissions of the appellants, The basic premise of the AO has been that the receipt of development fees along with the tuition fans is not voluntary in nature since all the children have to pay this amount it is by way of a compulsory donation made by the children towards the school and does not qualify as a voluntary contribution. The school had collected this amount from all the children of the school The appellant on the other hand has stated that the money received by the school on account of the development fee, it utilized only for the purposes of the infrastructure Development and is thus treated as a capital receipt and taken directly ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI to the Balance Sheet. Further that the treatment of development fees has in the past been accepted by the AO in the assessment completed 143(3) as capital receipts in AY 10-11 and AY 11-12 The appellant has relied on numerous decisions in support of its contentions 7.2 I am inclined to agree with the view of the appellant on this issue. From the various decisions on the issue what emerges is that what is required to be seen is not the manner in which the money is collected but rather the manner in which the sums are utilized. The Coordinate Bench of the ITAT in the case of ACIT vs JSS Mahavidyapeetha in has stated that the litmus Test of charitable institutions is the application of the funds and not the colour of the contribution. It has stated that the question whether the donations were voluntary or not becomes relevant and what becomes relevant is the application of such conditions for the objectives of the trust which are admittedly charitable if the development fee is used for the purposes of creating infrastructure then the same would be treated as a capillal receipt 7.3 Applying the test of application to the facts of the present case it is seen that application of the development fees collected is as under:- F.Y. Development fees Addition to fixed assets received 2007-08 65,14,702 1,15,37,327 2008-09 1,11,20,120 1,62,58,346 2009-10 1,35,75,701 41,10,041 2010-11 1,23,49,760 52,66,074 2011-12 2,27,78,950 72,09,303 From the above it is seen that the development fees is being utilized in the creation of capital assets. The AO in the order has also not given any finding the funds collected by way of development fees were being used otherwise than for infrastructure development Furthermore in the earlier Assessments for AY 2010-11 and AY 2011-12, the treatment adopted by the appellant as a capital receipt has been accepted by the department. 7.4 The Hon Jurisdictional Jaipur Bench of the ITAT in the case of Global Institute Technology. Society dated 5.11.2018 has analysed the prevailing judicial opinion on the issue and ruled in favour of the assessee that the development charges are a capital receipt. The Hon'ble Tribunal has analysed the provisions of the orders of the Govt of Rajasthan wherein the institutions have been allowed to charge development fees and that this fees should be treated as a capital receipt to be utilized only for specific purposes such as purchase or replacement of infrastructure etc. The decision has been quoted ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI extensively in the submissions of the appellant. However the final finding of the Hon'ble Tribunal is reproduced here at the cost of repetition ‘’Having considered the facts and circumstances of the case as well as the decisions relied upon by the Id AR, we hold that the development fee received by the assessee from the students as per the guidelines fixing the fee structure by the State Government for the technical institutions and applying the other conditions as specified in the orders of the State Govt is capital in nature and not revenue. The decision as relied upon by the Id CIT-DR in the case of ACIT Vs. M/s Scholars Education Trust of India (supra) is based on different set of facts and it was not either pleaded or brought on record by the assessee in the said case that the development fee was to be used for specific purpose Hence, the Tribunal has given the finding based on the fact that the said fee was not part of the corpus fund of the assessee Trust Accordingly, we delete the addition made by the Assessing Officer on this account 7.5 Furthermore the Delhi Bench of the ITAT in a recent decision in the case of Maharishi Markandeshwar Trust dated 27.06.2022 has also held that the development fee if bang utilized for the purposes of infrastructure development is to be treated as a capital receipt The extract of the judgement is reproduced below ‘’15. Thus, we find primarily the tuition fee is meant to incurring revenue expenditure, the development fee is aimed at requirement of equipments and acquisition of capital assets. On the issue, whether the development fee is revenue in nature or capital in nature. Reliance is being placed on the orders of Coordinate Bench of Tribunal in the case of Global Institute of Technology vs. DCIT (Exemption) in ITA No. 1066/Jp/2018 dated 05.11.2018 wherein it was held as under:- "Addition of development receipt/fee treating the same as revenue receipt Held that The development fee received by the assessee from the students as per the guidelines fixing the fee structure by the State Government for the technical institutions and applying the other conditions as specified in the orders of the State Govt. is capital in nature and not revenue Accordingly, we delete the addition made by the Assessing Officer on this account"
The Co-ordinate Bench of ITAT in the case of ACIT vs. JSS Manavidyapeetha in held the view that litmus test of charitable institution is the application of funds and not the colour of the contributions it was held, "The AD based his conclusion on the presumption that the contribution to development fee was not a voluntary contribution the question whether the donations were voluntary or not becomes irrelevant and what becomes relevant is the application of such contributions for the objections of the trust which are admittedly ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI chantable. The application of such contributions for objects of the trust is not in dispute’’ 17 Further, the Co-ordinate Bench of ITAT Bangalore in the case of Sadvidya Educational Institution vs ACIT in ITA No 604/Bang/2011 held that Development Fees received from students as por Policy of Government for acquisition of Fixed Assets and utilized for acquisition of Capital Assets will fall within the definition of section 11 (1)(d).
18. With regard to the absence of specific direction as required by section 11(1)(d) the Courts have sought to clarify that a specific direction can be gathered from how the recipient has accounted for the contribution. 19. in the case of an educational institution which collected fees on account of building fund and treated as corpus, the Hon'ble Karnataka High Court in Bharatiya Samaknb Vidyapith Trust vs. CIT in of 2007 held that, since the assessee had specifically mentioned building fund on fee receipts and had later applied for the purpose of building it could be said that there was a specific direction under 11(1)(d) 20. Similar view has been taken by Hon'ble Karnataka High Court in the case of Si Ramakrishna Seva Ashrama, 357 ITR 731. In the said case, a trust registered u/s 12AA had collected contributions from the public which were accumulated in a Rural Project Fund and exemption claimed u/s 11 (1)(d). The AO denied exemption due to absence of written specific direction from donors. On appeal, the Court held that if the amounts received are held as capital and only applied for specific purposes then it can be said that there was a specific direction to treat it as corpus funds. The Court further held that the requirement is that the voluntary contributions have to be made with a specific direction. The law does not require that the said direction should be in writing. In the absence of the direction in writing the only way that one can find out whether there was a specific direction in to find out how the money so paid it is utilized. 21 In the instant case the Development Fee has been directly taken to corpus account as capital receipt u/s 11(1)(d) and has also invested in the fixed asset in the year 22. Ergo, we hold that the Development Fee is to be treated as corpus fund allowed to be taken as capital receipt.’’ 76 In view of the above discussion and relying on the above judgements, it is held that Rs 2,27,78,950/- on account of development fund is a capital receipt and would not be added to the Gross receipts in the Income and expenditure account. The Ground of Appeal is Allowed 3.2 During the course of hearing, the ld.DR supported the order of the AO and submitted that the AO is justified in treating the amount of Rs.2,27,78,950/- as revenue receipt. The narration as made by the AO in the assessment order is reproduced as under:-
‘’13. In view of the above discussion, the above fee amount of Rs.2,27,78,950/- collected by the assessee under the garb of Development Fund is included in the gross receipts of the assessee society treating the above amount as ‘’Revenue Receipts’ for the year under consideration.’’ Further the ld.DR relied upon the case laws to support his arguments in relations to the grounds of appeal raised hereinabove.
CIT vs Divine Light Mission 278 ITR 659 (Del.) 2. Surat City Gymkhiana vs DCIT 254 ITR 744 (Guj) 3. CIT vs Sir M. Visveswaraya Educational Trust 319 ITR 425((Karn) 4. Nachimuthu Industrial Association Vs. CIT 235 ITR 190 5. CIT vs VGP Foundation 262 ITR 187 (Mad.) 6. S.N. Namasivaym Chettiar vs CIT 38 ITR 579 (SC)
3.3 On the other hand, the ld.AR supported the order of the ld. CIT(A) and submitted that the ld.CIT(A) is justified in holding that while development fund is a capital receipt and it would not be added to the gross receipt in the Income & Expenditure Account of the assessee. Thus, the grounds raised by the department deserve to be deleted.
ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI 3.4 We have heard both the parties and perused the materials available on record. Brief facts of the case are that the assessee society is registered under Rajasthan Societies Registration Act 1958 w.e.f. 19.12.1973. It is also registered u/s 12AA of the Income tax Act w.e.f. 04.04.2007 . The sole object of the assessee is to impart education. In pursuance to its object, it is running a school in the name of “Central Academy School” at Jaipur. The assessee filed its return declaring Nil income on 28-09-2012 u/s 11 of the Act.
3.4.1 The AO observed that as per the balance sheet, the development fund as on 31.03.2012 is Rs.6,68,70,579/- and as on 31.03.2011 is Rs.4,40,91,629/- and thus there is an increase of Rs.2,27,78,950 /- in the year under consideration. Accordingly, the assessee was required to explain that why the development funds has not been included in the Gross receipts but taken directly to the balance sheet. Assessee filed the explanation which is reproduced at page 2 & 3 of the assessment order. The AO, however held that the development fund is received from the students as a part of the other fees and as such there is no discrimination & difference in the nature of development fund and other fees. It is an admitted fact that the development fund is received from the student against the services to be rendered. As such it is fees against ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI services and not voluntary offer from any person but a compulsion of student to pay development fund if he or she wants to study in the school. There is no option without development fund fees. The development fund is not received from the outside parties except students.
3.4.2 Accordingly, it is a part of the fees. Therefore, the AO held that the same can’t be classified as corpus donation or contribution as the same is not voluntary and is not for any specified purpose. Accordingly, he considered development receipt of Rs.2,27,78,950/- as revenue receipt and made addition for the same.
4.3.3 In first appeal, the Ld. CIT(A) after reproducing the submission of the assessee and the case laws relied upon at Page 3 to 13 of the order at Para 7.1 to 7.3 at Page 21-24 held that development fees is utilized in creation of capital asset. The co-ordinate bench of Jaipur Bench and various other Tribunals and High Courts have held that the development fees if utilized for the purpose of infrastructure development is to be treated as a capital receipt and accordingly the same was considered as a capital receipt not to be added to the gross receipts in the income and expenditure account.
ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI 3.4.4 Thus, in this case, the Bench observed that the issue involved in this ground is whether Development fees is a Corpus Donation i.e. capital receipt or revenue receipt. The word “income” and “corpus donation” appearing in sections 2(14)(iia), 11(1)(d) and 12 of Income tax Act is defined as under:-
Section 2(14)(iia) defines the word income in respect of charitable or religious trust as under : “Income includes voluntary contribution received by a trust created wholly or partly for religious or charitable purposes or by an institution established wholly or partly for such purposes etc.” Section 11(1)(d) defines corpus of the trust as under: “Subject to provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipts of the income – (d) Income in the form of voluntary contributions made with specific direction that they shall form part of the corpus of the Trust or institution.” Section 12 of IT Act while defining the term “income” from property held under the Trust has excluded from it, the contribution made with a specific direction that they shall form part of the corpus of the trust or institution.
It is noted that the Karnataka High Court, in the case of Director of IT (Exemption) Vs. Sri Ramakrishna SevaAshrama (2013) 357 ITR 731 by discussing the definition of “corpus” as per the dictionary meaning, has referred two decision of the Bombay High Court in the case of Trustees of KilachandDevchand Foundation Vs. CIT (1988) 172 ITR 382 and Rajasthan High Court decision in the case of Sukhdeo Charity Estate Vs. ITO (1991) 192 ITR 615 which dealt with the said voluntary contribution ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI made for a charitable purpose. The Bombay High Court held that for being eligible for exemption, the donations must be of capital nature that cannot be applied for charitable or religious purposes. It is the income thereof that must be so applied. The contribution made expressly to the capital or corpus of the Trust cannot be deemed to be the income derived from the property for the purpose of section 11 of IT Act and provisions of section 11 will not apply. It is to be noted that our Hon’ble Rajasthan High Court, in the aforesaid case, held that ultimately the intention of the donor and the donee is to be seen. If the intention of the donor is that the donation given is to be treated as capital receipt and the income thereof has to be applied for charitable purposes, then the said voluntary contribution is towards corpus of Trust. Similarly, after receiving the amount if the donee keeps it in deposit and only utilizes the income there from to carry on charitable activities, then also the said amount would amount to be contribution to the corpus of the Trust and the nomenclature in which the deposits are kept is of no relevance as long as the deposit are kept as capital and the income thereof is utilized for carrying on the charitable and religious activities of the Trust. After considering the legal position and the facts on records, the Karnataka High Court held that:-
ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI “The word ‘corpus’ is used in the context of the Income tax Act. We have to understand the same in the context of capital, opposed to expenditure. It is a capital of the assessee, a capital of an estate; capital of a Trust; a capital of an institution. Therefore, if any voluntary contribution is made with a specific direction, then it shall be treated as capital of the Trust for carrying of its charitable or religious activities. Then such an income falls under section 11(1)(d) of Income tax Act and not liable to tax. Therefore, it is not necessary that a voluntary contribution should be made with a specific direction to treat is a corpus. If the intention of the donor is to give that money to a Trust which they will keep it in Trust account in deposit and the income from the same is utilized for carrying on a particular activity, it satisfies the definition part of the corpus. The assessee would be entitled to the benefit of exemption from payment of tax levied”. Further Hon’ble Delhi High Court in the case of Director of Income tax (Exemption) Vs. National Association of Software & Services Companies (2012) 345 ITR 362 (Del) has defined the term “Corpus Donation” the one time admission fee paid by members who are aware that it could be spent by assessee only for acquiring capital asset is Corpus Donation, not taxable income. 3.4.5 Thus, in the present case, the development fund is received from the students apart from the tuition fees. The development fees are received with the clear understanding that it is to be utilized for creation of capital asset necessary for achieving the object of the society. Therefore, the development fees of Rs.2,27,78,950/- received during the year is directly credited to development fund account and not routed through the Income & Expenditure A/c. The development fund is used in creating construction of school building/creation of infrastructure. The year wise position of ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI development fees received and the addition made to the fixed assets is tabulated as under:- Development Addition to F.Y. fees received Fixed Assets 2007-08 65,14,702/- 1,15,37,323/- 2008-09 1,11,20,120/- 1,62,58,346/- 2009-10 1,35,75,701/- 41,10,041/- 2010-11 1,23,49,760/- 52,66,074/- 2011-12 2,27,78,950/- 72,09,303/- From the above table, it can be seen that the Development fees is utilized in creation of capital asset and therefore the same cannot be treated as revenue receipt. In earlier years also, such development fees is accepted by the AO in assessment completed u/s 143(3) as capital receipt for which the ld. AR of the assessee has submitted the Copy of assessment orders for AY 10-11 & AY 11-12 is at PB 46 49. 3.4.6 It is further noted that co-ordinate bench of Banglore in case of ACIT vs. JSS Mahavidhyapeetha in has stated that the litmus test of charitable institution is the application of funds and not the colour of the contribution. It has stated that the question whether the donations are voluntarily or not becomes irrelevant and what becomes relevant is the application of such contributions on the objects of the trust which are admittedly charitable. If the developer fees is used for the ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI purpose of creating infrastructure then the same would be treated as a capital receipt. We further take into consideration the decision of ITAT Jaipur bench in the case of Global Institute of Technology Society vs. DCIT(E) in order dt.05.11.2018 after relying on the decision of the Hon’ble Supreme Court in case of Modern Schools vs. Union of India at Page 23 held as under:-
Thus, the Hon'ble Supreme Court while considering the recommendation of Duggal Committee has held that the development fee could be levied at the rate not exceeding 10 to 15% of the total annual tuition fee. Further the said fee shall be treated as capital receipt and shall be collected only if school maintains a depreciation reserve fund. Hence, the development fee collected from the students can be used only for the specific purpose incurring capital expenditure. The Hon’ble Karnataka High Court in the case of CIT Vs. Children’s Education Society (supra) has considered this question in para 27 as under: “27. This addition relates to assessment year 2001 to 2003. This addition is under the head of Building Fund. The Assessing Authority treated the Building Fund as revenue receipt. According to the society even if the addition is considered as income, that sum being an income of the society they can claim for exemption under Section 10(23C) of the Act. Therefore the society sought for exemption. The Tribunal held that the Building Fund are received specifically towards the corpus of the assessee-society for being applied in the construction of the building, the receipt is capital in nature and therefore it is credited directly to the corpus fund. The grievance is, the Assessing Authority has considered the same as revenue receipt and has made addition. It is not in dispute that the assessee and the various educational institutions run by the assessee have received substantial donations. The amount so received from the Building Fund is not included in the income and expenditure account of the society. The amounts received are accounted under the Building Fund. Building is to be constructed only for the educational institution run by the society. The object of donation is charity in nature. Therefore the Tribunal granted the benefit of exemption.
Accordingly, it was held by the Hon'ble Supreme Court as well as the Hon'ble High Court that the building fund is a capital in nature and therefore is credited directly to the corpus fund and the same will not be included in the income and expenditure account of the Trust/Institution. Having considered the facts and circumstances of the case as well as the decisions relied upon by the ld AR, we hold that the development fee received by the assessee from the students as per ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI the guidelines fixing the fee structure by the State Government for the technical institutions and applying the other conditions as specified in the orders of the State Govt. is capital in nature and not revenue. The decision as relied upon by the ld CIT-DR in the case of ACIT Vs. M/s Scholars Education Trust of India (supra) is based on different set of facts and it was not either pleaded or brought on record by the assessee in the said case that the development fee was to be used for specific purpose. Hence, the Tribunal has given the finding based on the fact that the said fee was not part of the corpus fund of the assessee Trust. Accordingly, we delete the addition made by the Assessing Officer on this account.”
The co-ordinate bench of Delhi in the case of Maharishi Markandeshwar Trust Vs. ACIT in to 1972 for A.Y. 2009-10 to 2015-16 vide orderdt.27.06.2022 at Para 16 to 23 held as under:
16. Thus, we find primarily the tuition fee is meant to incurring revenue expenditure, the development fee is aimed at requirement of equipments and acquisition of capital assets. On the issue, whether the development fee is revenue in nature or capital in nature. Reliance is being placed on the orders of Coordinate Bench of Tribunal in the case of Global Institute of Technology vs. DCIT (Exemption) in dated 05.11 .2018 wherein it was held as under: “Addition of development receipt/fee treating the same as revenue receipt - Held that:- The development fee received by the assessee from the students as per the guidelines fixing the fee structure by the State Government for the technical institutions and applying the other conditions as specified in the orders of the State Govt., is capital in nature and not revenue . Accordingly, we delete the addition made by the Assessing Officer on this account.
The Co-ordinate Bench of ITAT in the case of ACIT vs. JSS Mahavidyapeetha in held the view that litmus test of charitable institution is the application of funds and not the colour of the contributions. It was held, “The AO based his conclusion on the presumption that the contribution to development fee was not a voluntary contribution the question whether the donations were voluntary or not becomes irrelevant and what becomes relevant is the application of such contributions for the objections of the trust which are admittedly charitable. The application of such contributions for objects of the trust is not in dispute.”
Further, the Co-ordinate Bench of ITAT Bangalore in the case of Sadvidya Educational Institution vs. ACIT in held that Development ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI Fees received from students as per Policy of Government for acquisition of Fixed Assets and utilized for acquisition of Capital Assets will fall within the definition of section 11 (1)(d).
With regard to the absence of specific direction as required by section 11(1)(d), the Courts have sought to clarify that a specific direction can be gathered from how the recipient has accounted for the contribution.
In the case of an educational institution which collected fees on account of building fund and treated as corpus, the Hon’ble Karnataka High Court in Bharatiya Samskriti Vidyapith Trust vs. CIT in of 2007 held that, “since the assessee had specifically mentioned building fund on fee receipts and had later applied for the purpose of building, it could be said that there was a specific direction under 11(1)(d).
Similar view has been taken by Hon’ble Karnataka High Court in the case of Sri Ramakrishna Seva Ashrama, 357 ITR 731. In the said case, a trust registered u/s 12AA had collected contributions from the public which were accumulated in a Rural Project Fund and exemption claimed u/s 11 (1)(d). The AO denied exemption due to absence of written specific direction from donors. On appeal, the Court held that if the amounts received are held as capital and only applied for specific purposes then it can be said that there was a specific direction to treat it as corpus funds. The Court further held that the requirement is that the voluntary contributions have to be made with a specific direction. The law does not require that the said direction should be in writing. In the absence of the direction in writing, the only way that one can find out whether there was a specific direction is to find out how the money so paid it is utilized.
In the instant case, the Development Fee has been directly taken to corpus account as capital receipt u/s 11(1)(d) and has also invested in the fixed asset in the year.
Ergo, we hold that the Development Fee is to be treated as corpus fund allowed to be taken as capital receipt.”
Hence, in view of the above facts, circumstances of the and the case laws discussed hereinabove, we concur with the findings of the ld. CIT(A) who has rightly held development fund is a capital receipt and would not be added to the gross receipt in the Income & Expenditure Account. Hence the ground Nos. 1 to 3 raised by the Department are dismissed.
ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI 4.1 Apropos Ground No. 4 & 5 of the Department, it is noticed that the ld. CIT(A) has allowed the Ground raised by the assesesse before him who while adjudicating upon the case of the assessee deleted the addition to the tune of Rs.1,63,58,091/- by observing as under:- ‘’8. Ground No 2: This ground has been raised against the action of the A.O that the advance of Rs. 1,62,86,091/- given to staff and sister concern amounts to the misappropriation of funds and hence is not eligible for exemption u/s 11 of the Act. 8.1 As per the facts of the case the amount of Rs 1,63,58,091 was appearing on the asset side of the balance sheet and represented loans and advances made by the appellant to it staff amounting to Rs 6.26,000/- and to other societies registered u/s 12AA amounting to Rs 1,57,35,091/-details of which are as under:- (i) This advance is given to the following Societies Particulars Amount Scholars Education Trust of India Scholars Education Trust of India 65,00,000/- Central Academy HiranMagari, Udaipur 10,00,000/- Central Academy, Delhi 36,71,721/- Central Academy Aashiyana, Lucknow 10,00,000/- Central Academy Sardarpura, Udaipur 9,88,370/- Central Academy Jhodpur Education Society Central Academy Banar, Jodhpur 25,00,000/- Total 1,57,35,091/- 8.2 The A.O held that there was a difference in the meaning of the word "investment deposit and loan/advance and that there is a thin line between the terms. It was for the assessee to prove whether it was an investment or a loan. The AO held that by making investments in modes other than those prescribed u/s 11(5) of the Act there was a violation of the provisions of section 13(1)(d). Hence as per the A.O this amounted to a misappropriation of funds and so he ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI added the amount of Rs 162.86,091 to the total income of the assessee and also denied the benefit of section 11 on this amount 8.3 The appellant has stated that these societies are also registered u/s 12AA and are existing for educational purposes and are also under the same management. To meet their financial requirements the assessee had given interest free advances to the societies. The same has been received back in the subsequent years. The appellant has contended that these amounts were in the nature of advances and were not investments. The appellant has relied on various decisions to state that providing loans to other societies having similar objectives did not violate the provisions of section 11(5) rws 13(1)(d) of the Act 8.4. I have perused the assessment order and the submissions of the appellant. I am unable to agree with the logic and rational adopted by the A.O. First and foremost there is a clear distinction between an investment or deposit and a loan or advance. In the case of an investment, there is a clear title to ownership of something i.e securities, immovable property financial instruments etc. The person making the investment becomes the owner of that property. Similarly a deposit is an amount given for securing a receipt of a service. In the case of a loan or an advance no such title in conferred on the person providing the loan or advance or no service is provided/received. Such loan or advance is temporary in nature and does not amount to a transfer of property in favour of the investor or does not secure a right to receive any service. In the present case at hand it is seen that the advances made to the staff of the school of Rs 6,26,000/- on no account can be considered as an investment. The staff are given advance on their salary which is deducted from the salary as it becomes due and hence is clear by way of an advance given to employees for which there is no bar on the same under the provisions of the Act. Now with regard to the advances-given to the other educational institutions of 1,57,35,091/- here again it is clear that they cannot be considered as investments or deposit as held by the A.O as they do not confer any title by way of property or secure any right to receive a service on the party who giving the loan or advance. Whether a loan is given on interest or without interest, it cannot be categorized as an investment which the AO has sought to do. Since neither the advance of salary to the Staff nor the loans or advances given to the other educational institutions qualify as Investments or deposits the question of their falling within the modes prescribed in section 11(5) of the Act do not arise and consequently the provisions of section 13(1)(d) are also not applicable. Now coming to the question of whether the appellant was justified in giving a loan to other educational institutions the AO has brought nothing on record to show that these amounts were given out of the borrowed or interest bearing funds of the appellant The AO has not recorded any finding that the sums of money were given interest free out of the borrowed funds on which interest is payable by the appellant. This is not the issue in the present case Regarding the propriety of giving non interest bearing loans to other institutions the fact is that all the institutions to whom the loans are given are also registered u/s 12AA and are within the control of the same management as the appellant ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI and hence it cannot be said that they are part of any tax avoidance mechanism or scheme by transferring tax exempt funds to non- tax exempt entities 8.5 In view of the above discussion and for the aforesaid reasons, the addition of Rs 1,63,58,0917-is deleted and the Ground of Appeal is Allowed.’’ 4.1.2 During the course of hearing the ld.DR supported the order of the AO and submitted that the ld. CIT(A) is not justified deleting the addition to the tune of Rs.1,63,58,091/- . The exact narration as made by the AO in his order is mentioned as under:-
‘’22. Thus the assesseeis fairly hit by Section 13(1)(d) read with section 11(5). Further, as discussed in previous para, the assessee has also ‘’misappropriated ‘’ its funds. As such, the assessee is not eligible for exemption u/s 11 of the Act. Accordingly, it is concluded that the assessee violated section 13(1)(d) read with section 11(5) and misappropriated its funds, the said amount of Rs.1,62,86,091/- is hereby added to the total income of the assessee and the assessee is denied exemption u/s 11 of the Act on the said amount.’’ 4.1.3 During the course of hearing, the ld. AR of the assessee supported the order of the ld CIT(A) and filed the following the written submission to counter the grounds raised by the Department.
‘’Submission:-
1. The dispute in this ground is whether on advance of Rs.1,62,86,091/- given by the assessee the provisions of section 11(5) applies and consequently section 13(1)(d) can be invoked. In this connection it would be relevant to submit that section 11(5) prescribes the forms and modes of investing or depositing the money referred to in clause(b) of sub-section (2) of section 11 of the Act. Sub-section (2) of the Act provides that where 85% of the income is not applied to charitable purposes but is accumulated or set apart then the money so accumulated or set apart has to be invested/deposited in the forms or the modes specified under sub-section (5) of the Act. In the present case assessee has not made any claim of accumulation or set apart of income u/s 11(2) of the Act and therefore question of investing or depositing the money in forms and modes specified u/s 11(5) do not arise and consequently ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI section 13(1)(d) is not applicable. Hence, the addition made by the A.O. is without appreciating the provisions of the Act.
2. Without prejudice to above it is submitted that the advance of Rs.1,62,86,091/- comprises of the following amounts:-
a. Advance to Societies Registered u/s 12A Rs. 1,57,35,091/- b. Advance to supplier/ contractor/old staff Rs.6,26,000/- Rs.1,62,86,091/- 3. The advance of Rs.1,57,35,091/- has been provided to the following societies registered u/s 12AA of the Act. Particulars Amount Scholars Education Trust of India Scholars Education Trust of India 65,00,000/- Central Academy HiranMagari, Udaipur 10,00,000/- Central Academy, Delhi 36,71,721/- Central Academy Aashiyana, Lucknow 10,00,000/- Central Academy Sardarpura, Udaipur 9,88,370/- Central Academy Jhodpur Education Society Central Academy Banar, Jodhpur 25,00,000/- Total 1,57,35,091/- The constitution of both the societies along with the registration granted u/s 12AA of the Act to these societies is at PB 51 to 60 & 61-74. Both the societies exists solely for the education. These societies are under the same management. To meet their financial requirement, assessee has given interest free advance to them. The same has been received back in the subsequent years. Thus it is not an investment or deposit of money as referred u/s 11(5) of the Act. In the following cases it is held that where a Society provides loans & advance to another society having similar objectives, then there is no violation of section 11(5) r.w.s. 13(1)(d). For this purpose reliance is placed on the following cases:- CIT vs. Maa Vaishnav Education Society (2013) 91 DTR 166 (MP) (PB 76-79) Assessee is registered society which provides education by running colleges.AO disallowed deductions u/s 11 and 12 on ground that there was violation of ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI provisions of Section 13 on account of interest free loans given to three societies.CIT(A) upheld findings of AO, However Tribunal held that two societies were registered u/s 12AA and were charitable societies engaged in providing education and similar loans were given by assessee society in year 2004-2005 and issue had been decided by Tribunal in favour of assessee. Third society though not registered u/s 12AA, but was charitable society with object of education. For application of section 13(3) read with section 13(2)(a) share in profit was required to be 20 percent but there was no such profit in society, thus section 13 was not violated. It was held that assessee society had merely given interest free loan to another society and Loan was neither investment nor deposit. Section 13(3) is not applicable in this case. Thus there was no violation of section 13 and Revenue’s appeal dismissed. Director of Income Tax (Exemp.) vs. Acme Educational Society (2010) 326 ITR 146 (HC) (80-85) Assessee society had given a loan of Rs.90,50,000 to another educational society whose president was brother of assessee society’s president. AO invoking provisions of s.13(1)(d) r/w s. 11(5) denied benefit of s. 11 to the assessee society. Delhi High Court held that Interest-free loan given by the assessee-society to another society having similar objects and registered under s. 12A does not violate s. 13(1)(d) r/w s. 11(5) as the said loan was neither an "investment" nor a "deposit" and fact that the loan was interest-free and had been subsequently returned is also significant. Kanpur Subhash Shiksha Samiti vs. DCIT (2011) 11 ITR 0023 (Trib.Lucknow) (PB 86-102) Assessee trust had given loans to another trust RLSS. AO alleged violation of the provisions of s. 13(1)(d) r/w s. 11(5), However it is noted that objects of RLSS were similar to the objects of assessee and therefore, the same cannot be said to be diversion of funds. Loan is neither an investment nor a deposit and as such the provisions of s. 13(1)(d) are not applicable to the facts of the assessee and accordingly the assessee has not violated the provisions of the said s. 13(1)(d). Even Tribunal in F.Y 2002-03 & A.Y 2006-07 held that temporary loan was given by the assessee to another society having similar objects and nothing was brought on record by the AO to show that the loan was out of the accumulated surplus of the year under consideration. Therefore, provision of section 13(1)(d) was not applicable. Hon’ble tribunal held that since tribunal in the past has taken a particular view, there is no justification to take a contrary view under similar sets of facts. Hence the CIT(A) was not justified in confirming the action of the AO for denying the exemption under s. 11 of the Act. Mac Public Charitable Trust vs. ITO 158 ITD 1022 (Chennai Trib.) (PB 103- 105)
ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI Assessee had shown under the head "Deposits" a sum of ` 18,25,000/- in the name of M/s SPK MAC Charitable Trust. Assessing Officer was of the opinion that this was not prescribed modes set under Section 11(5) of the Act. Though the assessee argued that the money was not deposited, but only interest-free loan was given to the said Trust, this was not accepted by the Assessing Officer. As per the A.O., money was lent by the assessee continuously to a party who was not paying any interest. The said party had not given any security also. Therefore, he denied exemption claimed by the assessee under Section 11 of the Act and completed the assessment. In its appeal before CIT(Appeals), argument of the assessee was that M/s SPK MAC Charitable Trust, to which loan was given, was also an organization having registration under Section 12AAof the Act and objects of both the organizations were similar. Reliance was also placed on the decision of Hon'ble Delhi High Court in the case of DIT (Exemption) v. Acme Educational Society (326 ITR 146). It was decided by Hon'ble Delhi High Court held that interest-free loan given by the assessee- society to another society, having similar objects and registered under Section 12AA of the Act, did not violate Section 13(1)(d) read with Section 11(5) of the Act, since such loans were neither investments nor deposits. No doubt, the assessee here had mentioned the amounts given to M/s SPK MAC Charitable Trust as "deposits" in its accounts, submission of the assessee that it was nothing but a loan given to the said Trust, for the purpose of its educational objects, has not been rebutted by the Revenue. Therefore it is held that CIT(Appeals) was justified in directing the A.O. to grant exemption claimed by the assessee under Sections 11 and 12 of the Act. Society Of Daughters Of Mary vs. ITO (Chennai Trib.) (PB 106-108) Assessee is an educational organization and registered under section 12AA of the IT Act. AO held that loans/deposits to sister concern violates section 13(1)(d) and 11(5) of the Act. The assessee explained that all the loans are interest-free loans and are given to educational institutions run by the society/trust belonging to its group. The purpose of the loan was purely for putting up building/infrastructure for educational institutions. It was neither a deposit nor an investment and therefore there was no infringement as contained in section 13(1)(d) read with section 11(5) of the Act and the assessee relied on the decision in the case of Director of Income-tax (Exemption) v. ACME Educational Society. The CIT(A) after considering the submissions of the assessee and also various case laws relied on by the assessee has observed that the assessee has given interest-free loans to sister concerns (M/s. Brotherhood Trust, M/s. The Daughters of Mary Immaculate & Collaborators Trust and M/s. Society for Education for Life) and would not be hit by the provisions of section 13(1)(d) read with section 11(5) of the Act. Hence the said loans were totally outside the purview and scope of section 13(1)(c) as well as 13(1)(d) of the Act and held that the assessee is eligible for exemption under section 11 of the Act. In the appeal filed by the Revenue before the Tribunal, the Hon’ble tribunal held that the AO denied the exemption u/s 11 by following the decision of the jurisdictional High ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI Court in the case of CIT v. V.G.P. Foundation. In that case the assessee trust had advanced a sum of Rs.53,950/- to its sister concern, a private limited company of which the trustees of the assessee were also Directors. This case has no application to the facts of the case. In the present case, the assessee as well as the sister concerns are registered u/s. Section 12A. The other decisions relied by the AO has no applicability to the facts of the case as the facts are different. In view of the above, it upheld the order passed by the learned CIT(A) by dismissing the appeal filed by the Revenue.
Advance of Rs.6,26,000/- has been given to following persons:- S.No Particulars Amount Remarks 1 Aman Singh 1,25,000/- 2 Anand Kalani 30,000/- Old staff 3 Kalyan Singh 21,000/- 4 Manisha 1,00,000/- Meharchandani 5 Pratibha 2,75,000/- Bhargava He is a contractor. Payment is made to him for construction of 6 Sudhir Meena 75,000/- building on which TDS deducted. Total 6,26,000/- These persons are not specified persons u/s 13(2) of the Act and the advance given is also not investment/deposits referred to u/s 11(5) and thus there is no violation of section 11(5) r.w.s. 13(1)(d) of the Act.
The decisions relied by the AO are not applicable to the facts of the case as discussed here under:- CIT V/s. Sri.M.Visveswaraya Educational Trust (Karn.) 319 ITR 425 In this case the loans/advances were given to its sister concern which is a Private limited Company, whereas in the present case the assessee has provided loans/advances to the societies registered u/s. 12AA having similar object as of the assessee and to the staff/contractor. Hence this decision is not applicable.
ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI Nachimuthu Industrial Association V/s. CIT235 ITR 190 (SC) In this case AO found that certain amount set apart as provision was not actually applied for charitable or religious purpose and therefore denied exemption u/s 11. Thus this is not a case of advance/loan to society. Accordingly this decision is not applicable. CIT V/s. V.G.P Foundation (262 ITR 187)(Mad) In this case payments were made to chairman, legal advisor, family members of chairman, etc. and purchases made for chairman's house including electricity bills of the house.Family members had been appointed to important posts. Property was also purchased in chairman's name out of trust funds. Thus, there was clear finding of AO in respect of misappropriation and mis-utilization of trust funds. Further, the documentary evidence would clearly go to show that the receipts which are in the name of the trust and donations collected amounts to profit motive and it cannot be the object or the purpose of running a charitable educational institution. This case is not applicable as in the present case advance has been given to the Societies having similar objects and the amount has also been received back. In view of the above, the order of CIT(A) be upheld by dismissing the grounds of the department. ‘’ 4.1.4 We have heard both the parties and perused the materials available on record. It is noted from the order of the AO who at Page 6 to 9 of the order observed that an amount of Rs.1,63,58,091/- is appearing as “Loan & Advances” in asset side of the Balance sheet. The above “loans & advances” have been given to the school staff at Rs.72,000/- and some individuals and society/schools at Rs.1,62,86,091/-. The assessee failed to prove that the said amount is Loans/advances and not investment/deposit and therefore the same is hit by section 13(1)(d) r.w.s 11(5). This amount is misappropriation of funds for which he relied on the decision of CIT V/s. Sri. M Visveswaraya Educational Trust (Karn.) 319 ITR 425, Nachimuthu ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI Industrial Association V/s. CIT(SC) 235 ITR 190 & CIT V/s. V.G.P Foundation (262 ITR 187)(Mad.). Accordingly, he made addition of Rs.1,62,86,091/- by denying exemption u/s 11 of the Act on this amount. In first appeal, the Ld. CIT(A) at Page 25 Para 8.4 held that out of Rs.1,62,86,091/- an amount of Rs.6,26,000/- is amount advanced to supplier/contractor/old staff which cannot be considered as an investment. The remaining amount of Rs.1,57,35,091/- is advance given to other educational institutions which cannot be considered as investment or deposit and thus the question of their falling within the modes prescribed u/s 11(5) do not arise and consequently provisions of section 13(1)(d) are also not applicable. Accordingly, the addition made by the AO was deleted. The Bench has take into consideration the submissions of both the parties and also noted the relevant observations as made by the ld.CIT(A) that the AO has not recorded any finding that the sums of money were given interest free out of the borrowed funds on which interest is payable by the appellant. This is not the issue in the present case Regarding the propriety of giving non interest bearing loans to other institutions the fact is that all the institutions to whom the loans are given are also registered u/s 12AA and are within the control of the same management as the appellant and hence it cannot be said that they are part of any tax avoidance mechanism ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI or scheme by transferring tax exempt funds to non- tax exempt entities. From this observation of the ld. CIT(A) and also the decisions mentioned hereinabove by the assessee, the Bench finds that there is no error in the order of the ld. CIT(A) and thus the Ground No. 4 & 5 of the Department are dismissed. 5.1 Now we take up the appeal of the Ground No.6 of the Department and CO of the assessee which is again mentioned as under:- Ground No.6 (Department) Whether Ld. CIT(A) is justified in reducing disallowance of 20% out of total application of Rs.3,03,53,582/- to extend of 10% on Rs.3,03,53,582/- i.e. Rs.30,35,358/- without any proper reason, though the Id. CIT(A) himself admitted that the AO has rightly rejected the books of accounts u/s 145(3) of the I.T. Act, 1961 Appellant craves the right to add, alter or amend any grounds of appeal before the Hon. ITAT in the interest of justice. CO of the assessee The Ld. CIT(A), NFAC has erred on facts and in law in upholding the action of AO in rejecting the books of accounts u/s 145(3) of IT Act, 1961. & The Ld. CIT(A), NFAC has erred on facts and in law in confirming the disallowance of Rs.30,35,358/-, being 10% of the amount of Rs.3,03,53,582/- claimed as application of income.
5.1.2 Brief facts of the case are that the AO at Para 23 of the order observed that despite the ample opportunity provided, the assessee has not produced books of accounts along with vouchers for expenses. He therefore applied section 145(3) of the Act and disallowed 20% of the expenses and thus reduced Rs.60,70,716/- from the application of income claimed by the assessee.
ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI 5.1.3 In first appeal, the Ld. CIT(A) at Para 9.4 Page 26,27 held that the disallowance of the 20% is excessive and accordingly reduced the disallowance to 10% and thus restricted the disallowance to Rs.30,35,358/-. The narration as made by the ld. CIT(A) is reproduced as under:- ‘’9.2 I have perused the assessment order and the submissions of the appellant. Under Income Tax provisions, the Assessing officer has a discretionary power to reject books of account as assessed by an assessee and complete his assessment by "Best Judgment Assessment" It is Assessing Officer's duty to determine the method of accounting regularly employed by an assessee and assess the income, profit and loss in accordance with such method of accounting Sub-section (3) of Section 143 empowers the Assessing Officer to make Best Judgment Assessment as provided under Section 144. There are three circumstances, which are - -If not satisfied with the correctness or completeness of accounts, -or If either cash or mercantile system has not been followed consistently - or If notified accounting standards have not been followed consistently As said above, the Assessing Officer has a discretionary power to reject books of account. The accounting method may be rejected by virtue of sub-Section (1) of Section 145. Further books of account itself by virtue of said sub-section, read with Section 144 or under sub- section (3) of Section 143, Instances of rejection of books of account- -Where entries in respect of certain transactions are altogether omitted or incorrect, etc -Where the accounts show an abnormally low rate of profit. -Where there is an inherent lacuna in the system of accounting the assessment completed after the rejection of books of account under Section 145 is not an assessment under Section 144 but is only an assessment under Section 143(3) which to be made in the manner provided in Section 144. 9.3 Thus in the present case, it is seen that the books of account were not produced before the A.O along with the bills and vouchers for expenses.
ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI Accordingly, the A.O was unable to verify the same. Hence there was reason for the A.O to exercise his discretion in rejecting the books u/s 145(3) of the Act 9.4 However it is seen that the disallowance of the expenses to the extent of 20 percent of the application of income is found to be excessive on account of the fact that in the earlier years and assessments no defect has been found with the books and also that the accounts have been duly audited. Accordingly, the disallowance is thus reduced to 10 percent of the expenses. The contentions raised by the appellant regarding certain expenses being paid in cheque and also discrepancy regarding the total expenses cannot be accepted as these were not subject to verification before the A.O and neither have the details and evidences been submitted in the instant appellant proceedings. Accordingly, the disallowance of 20% out of the Total expenses of Rs 30353582/- amounting to Rs 60.70.716 is reduced to 10% of the of the Total expenses of Rs 30353582/- amounting to Rs 30.35.358/- This amount is to be added to the Gross receipts for purposes of computing the exemption u/s 11(1)(a) of the Act. The Ground of Appeal is Allowed in Part.’’ 5.1.4 During the course of hearing, the ld. AR has filed following detailed written praying therein that the adhoc disallowance made by the AO at 20% and partly confirmed at 10% by the ld.CIT(A) is not justified and thus same may be deleted.
‘’Submission 1. It is submitted that assessee is maintaining day to day books of accounts at each school run by the assessee at different location. The accounts of the assessee are duly audited. There is no adverse qualification by the auditor in respect of expenses incurred by the assessee. The books of accounts and vouchers could not be produced before the AO as sufficient time was not provided in as much as the assessment proceedings were effectively taken up by the AO some time in Feb 2015 and the same were concluded on 29-03- 2015. However as desired by the AO the assessee has filed copy of ledger account of certain expenses i.e. festival/function expenses, staff welfare and student welfare expenses and building repair and maintenance expenses.
2. It may be noted that the expenses claimed by the assessee are duly audited & comparable with the expenditure incurred in earlier years as can be noted from the following table:-
Amount F.Y 2009- F.Y. 2010- F.Y. 2011- S.N. Particulars 2010 2011 2012 1 advertisement exp. 291817.00 810179.00 57121.00 2 audit fee 60000.00 90500.00 118860.00 3 building rent exp. 336000.00 369600.00 432000.00 4 bank charges 1951.00 1919.50 331.65 5 conveyance exp. 362421.00 603900.00 840313.00 6 depreciation charges 2896422.07 3095136.95 3798057.57 7 drawing & craft exp. 515632.00 685971.00 678011.00 8 education exp. 587609.00 640070.00 730717.00 9 education al tour & picnic 290150.00 755993.00 930590.00 10 electricity & water exp. 204332.00 207415.00 346705.00 11 E.S.I.employerscontribution 132012.00 177189.00 181118.00 12 P.F. employers contribution 228558.00 287923.00 278068.00 13 examination exp. 152432.00 415875.00 645506.00 14 ex-gratia 381058.00 422038.00 ….. 15 function & festival exp. 482913.00 913402.00 1186759.00 16 game & sports exp. 371170.00 513088.00 668451.00 17 horticulture expenses 9248.00 70455.00 ….. 18 house tax & city dev.tax 454943.00 ….. ….. 19 interest on bank overdraft 85440.00 34795.00 ….. 20 interest paid 1192452.00 ….. ….. 21 leave encashment exp. 57246.00 72572.00 73077.00 22 legal exp. 167821.00 166174.00 69368.00 23 laboratory exp. 104426.00 196287.00 415572.00 24 library exp. 396803.00 463246.00 481876.00 25 medical exp. 135539.00 281164.00 319250.00 26 miscellaneous exp. 64900.00 280152.00 305765.00 27 music exp. 313017.00 576849.00 554192.00 28 news & paper exp. 29407.00 40060.00 57748.00 29 office expenses 239537.00 456375.00 589856.00 30 accounting charges ….. 24000.00 24000.00 31 postage & telegrams 140751.00 53181.00 55452.00 32 P.F. administration charges ….. ….. 24326.00 33 printing & stationery exp. 491454.00 804379.00 977364.00 34 rep. & maintenance building 616524.00 971910.00 1077976.00 35 rep. & maintenance computer 420120.00 578907.00 359574.00 36 rep. & maintenance furniture 379000.00 688887.00 256750.00 37 rep.&maint.plant& machinery 126968.00 332859.00 152855.00 38 rep. & maintenance of vehicle 157047.00 285924.00 514699.00 39 salary expenses 3245301.00 4201660.00 4672562.00 40 social welfare expenses 670647.00 966300.00 1027426.00 41 Staff welfare expense 340748.00 464510.00 622552.00 ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI 42 student welfare expense 601738.00 802224.00 1064525.00 43 supervision charges ….. 72000.00 120000.00 44 teaching expenses 557093.00 673422.00 759936.00 45 telephone expenses 61539.00 49416.00 64501.00 46 travelling expenses ….. 280193.00 315650.00 47 uniform & liveries 135550.00 291180.00 313338.00 vehicle running & 48 maintenance 430619.00 784905.00 779539.00 TOTAL 18920355.07 24954185.45 26942337.22 Total Receipt 21266152 2866847 31374467 Ratio of expense on receipts 88.96% 87.04% 85.87% From the above it can be noted that the ratio of expenses to the receipt has declined to 85.87% as compared to 87.04% in A.Y. 2011-12 and 88.96% in A.Y. 2010-11. Further the above expenditure includes audit fee, building rent expenses, depreciation, electricity & water expenses, ESI & PF contribution, PF administration charges, salary expenses and supervision charges aggregating to Rs.99,71,696/- which is paid by cheque or otherwise not claimed by the assessee. After excluding this amount the expenditure claimed by the assessee is Rs.1,69,70,641/-. These expenses are otherwise reasonable considering the comparative expenses incurred in previous year which has been accepted by the AO in the earlier assessment orders framed u/s 143(3) of the Act. Hence, the adhoc disallowance of 20% made by the AO which was restricted to 10% by Ld. CIT(A) is not justified. Reliance in this connection is placed on the following cases:- ACIT Vs. Mohinder Kumar Jain (2017) 157 DTR 267 (Del.) (Trib.) AO having failed to bring any documentary evidence on record to establish any personal element in the business promotion expenses and vehicle running & maintenance expenses claimed by the assessee, ad hoc disallowance out of these expenses could not be sustained. Arthur & Anderson & Co. Vs. ACIT 2010-TIOL-416-ITAT-Mum In this case it was held that “the very concept of token disallowance is bad in law because such a disallowance is inherently based on surmise & conjectures and devoid of a legally sustainable foundation. It is a case where one accepts all the contentions but not the consequences flowing from accepting the same. This cannot meet our approval. No particular information has been called for by the AO nor has the AO pointed out any deficiency in the details furnished by the assessee. The AO has not given any justifiable reasons for making adhoc disallowances. The additions are without sound basis or reason. This cannot be permitted. The CIT(A) has also not judiciously dealt with the matter. No disallowance can be made just for the sake of disallowance. In view of lack of proper appreciation of the facts and lack of investigation and proper reasoning, the disallowance was deleted.
ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI In view of the above, the adhoc disallowance made by the AO and partly confirmed by the Ld. CIT(A) be directed to be deleted.
5.1.5 On the other hand, the ld. DR supported the order of the AO. 5.1.6 We have heard both the parties and perused the materials available on record. It is noticed that the AO during assessment proceedings noticed that the despite providing ample opportunities, the assessee failed to produce the books of accounts and vouchers for expense. He noted that the expense claimed by the assessee in the shape of income applied to charitable purpose during the year amounting to Rs.3,03,53,582/- are not open for verification and thus he applied the provisions of Section 145(3) and made 20% disallowance which comes to Rs.60,70,716/- being unverifiable expenses and thus made the addition in the hands of the assessee which in first appeal the ld. CIT(A) reduced the expenses to the extent of 10% and thus restrict addition at Rs.30,35,358/-. Before us, the ld. AR of the assessee has submitted the following details of expenses claimed by the assessee which are duly audited and comparable with the expenditure incurred in earlier years.
Amount F.Y 2009- F.Y. 2010- F.Y. 2011- S.N. Particulars 2010 2011 2012 1 advertisement exp. 291817.00 810179.00 57121.00 2 audit fee 60000.00 90500.00 118860.00 3 building rent exp. 336000.00 369600.00 432000.00 4 bank charges 1951.00 1919.50 331.65 5 conveyance exp. 362421.00 603900.00 840313.00 6 depreciation charges 2896422.07 3095136.95 3798057.57 7 drawing & craft exp. 515632.00 685971.00 678011.00 8 education exp. 587609.00 640070.00 730717.00 9 education al tour & picnic 290150.00 755993.00 930590.00 10 electricity & water exp. 204332.00 207415.00 346705.00 11 E.S.I.employerscontribution 132012.00 177189.00 181118.00 12 P.F. employers contribution 228558.00 287923.00 278068.00 13 examination exp. 152432.00 415875.00 645506.00 14 ex-gratia 381058.00 422038.00 ….. 15 function & festival exp. 482913.00 913402.00 1186759.00 16 game & sports exp. 371170.00 513088.00 668451.00 17 horticulture expenses 9248.00 70455.00 ….. 18 house tax & city dev.tax 454943.00 ….. ….. 19 interest on bank overdraft 85440.00 34795.00 ….. 20 interest paid 1192452.00 ….. ….. 21 leave encashment exp. 57246.00 72572.00 73077.00 22 legal exp. 167821.00 166174.00 69368.00 23 laboratory exp. 104426.00 196287.00 415572.00 24 library exp. 396803.00 463246.00 481876.00 25 medical exp. 135539.00 281164.00 319250.00 26 miscellaneous exp. 64900.00 280152.00 305765.00 27 music exp. 313017.00 576849.00 554192.00 28 news & paper exp. 29407.00 40060.00 57748.00 29 office expenses 239537.00 456375.00 589856.00 30 accounting charges ….. 24000.00 24000.00 31 postage & telegrams 140751.00 53181.00 55452.00 32 P.F. administration charges ….. ….. 24326.00 33 printing & stationery exp. 491454.00 804379.00 977364.00 34 rep. & maintenance building 616524.00 971910.00 1077976.00 35 rep. & maintenance computer 420120.00 578907.00 359574.00 36 rep. & maintenance furniture 379000.00 688887.00 256750.00 37 rep.&maint.plant& machinery 126968.00 332859.00 152855.00 38 rep. & maintenance of vehicle 157047.00 285924.00 514699.00 39 salary expenses 3245301.00 4201660.00 4672562.00 40 social welfare expenses 670647.00 966300.00 1027426.00 41 Staff welfare expense 340748.00 464510.00 622552.00 ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI 42 student welfare expense 601738.00 802224.00 1064525.00 43 supervision charges ….. 72000.00 120000.00 44 teaching expenses 557093.00 673422.00 759936.00 45 telephone expenses 61539.00 49416.00 64501.00 46 travelling expenses ….. 280193.00 315650.00 47 uniform & liveries 135550.00 291180.00 313338.00 vehicle running 48 &maintenance 430619.00 784905.00 779539.00 TOTAL 18920355.07 24954185.45 26942337.22 Total Receipt 21266152 2866847 31374467 Ratio of expense on receipts 88.96% 87.04% 85.87% From the above table we note that the ratio of expenses to the receipt has declined to 85.87% as compared to 87.04% in A.Y. 2011-12 and 88.96% in A.Y. 2010-11. Further the above expenditure includes audit fee, building rent expenses, depreciation, electricity & water expenses, ESI & PF contribution, PF administration charges, salary expenses and supervision charges aggregating to Rs.99,71,696/- which is paid by cheque or otherwise not claimed by the assessee. After excluding this amount the expenditure claimed by the assessee is Rs.1,69,70,641/-. These expenses are otherwise reasonable considering the comparative expenses incurred in previous year which has been accepted by the AO in the earlier assessment orders framed u/s 143(3) of the Act. Hence, the adhoc disallowance of 20% made by the AO which was restricted to 10% by Ld. CIT(A). Considering the totality of the facts and the discussions so made hereinabove along with the details of expenses as narrated in the table and ACIT (EXEMPTIONS), CIRCLE-JAIPUR VS NAVRATAN VIDHA MANDIR SHIKSHA SAMITI also the case laws cited by the ld. AR of the assessee, we do not concur with the findings of the ld.CIT(A). Thus Ground No. 1 & 2 of the C.O of the assessee are allowed and Ground No. 6 of the Revenue is dismissed. 6.0 In the result appeal filed by the Department is dismissed and the C.O of the assessee is allowed Order pronounced in the open court on 27 /09/2024.