JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY,JAIPUR vs. CIRCLE (EXEMPTION), JAIPUR, JAIPUR

“..it is to submit that the Ld. CIT(A), NFAC has passed the order on 22.12.2023. The appeal was to be filed on or before 19.02.2024. However, for the reasons mentioned in the affidavit, the appeal could not be filed in time and there is a delay of 14 days. Since the above delay of 14 days is due to a reasonable cause, we request you to kindly condone the delay and admit the appeal for hearing.

3 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR 3.2 To this effect, the ld. AR of the assessee has filed an affidavit deposing the facts for such delay of 14 days and the relevant narration as made therein are as under:-

‘’3. That ld. CIT(A) passed the appellate orer on 22-12-2023 dismissing the appeal but this order did not come to our notice as at present there was no regular staff and the students studying in the college have substantially reduced. The order came to the notice only when our Authorised Representative CA Mukesh Goyal browsed the income tax portal on 26-02-2024 to know about the fate of appeal for which submission were e-filed on 20-02-2023 but after filing of submission of submission no notice was received. 4. That accordingly the appeal is now filed with request to condone the delay of 15 days which is for the reasons stated above though from the date of knowledge of order there is no delay.’’

3.3 During the course of hearing, the ld. DR objected to such delay of 14 days and submitted that the Court may decide the issue as deem fit and proper in the case.

3.4 After hearing both the parties and perusing the materials available on record, the Bench noted that the reasons as substantiated by the ld. AR in his application for condonation of delay and in the affidavit of the assessee has merit which indicates the sufficient cause for such delay. Hence, in this view of the matter, the delay of 14 days is condoned.

4 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR 4.1 Apropos Ground No. 1 of the assessee, brief facts of the case are the assessee society is registered under Rajasthan Public Trust Act,1958 w.e.f. 07.09.1999 (PB 22) with the main objective of imparting education (PB 23-29). It is registered u/s 12A of the Income tax Act,1961 w.e.f. 01.04.2002 (PB 30). The assessee is running a technical educational college having branches of M-Tech & B-Tech in the name and style of Kautilya Institute of Technology & Engineering. It filed the return declaring NIL income on 29.10.2017 after claiming exemption u/s 11 of the Act (PB 32-35). The audit report in Form 10B (PB 36-40) and the audited financial statements (PB 41-49) both dt.23.10.2017 were also filed. The AO at Page 7 of the assessment order observed that assessee has made payment to specified persons covered u/s 13(3) of the Act which is not justifiable. Funds of the trust are diverted for the benefit of trustees. Accordingly provisions of section 13(1)(c) r.w.s. 13(2)(g) of the Act was invoked, exemption u/s 11 was denied and thus surplus as per income & expenditure account of Rs.75,01,881/- was charged to tax.

4.2 In first appeal, the ld. CIT(A) at Page 13-17 upheld the order of the AO in taxing the surplus by not allowing exemption u/s 11 by relying on five decisions mentioned therein.

5 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR 4.3 During the course of hearing, the ld. AR of the filed the following written submissions praying therein to allow exemption u/s 11 on the surplus declared by the assessee. It may be noted that the ld. AR has mentioned the following case laws in support of his case

Submission:- 1. The issue involved in this ground is that if there is a violation of section 13(1)(c)r.w.s 13(2)(g) of the Act, whether the exemption u/s 11 is to be denied in toto or whether the only relevant part of the income is charged to be tax u/s 11 of the Act in view of section 164(2) of the Act. 2. It may be noted that lower authorities have denied the exemption u/s 11 of the Act on account of alleged unreasonable payments of scholarship, consultancy charges, rent, salary and donations to the persons covered u/s 13(3), thereby violating section 13(1)(c)r.w.s. 13(1)(g) of the Act. It is submitted that the payment made to the aforesaid persons are reasonable as explained in subsequent grounds. Thus when there is no violation of section 13(1)(c) of the Act, the denial of exemption u/s 11 is uncalled for.

“Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub- section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate”. 4. From the plain reading of this proviso, it is evident that where the whole or any part of the relevant income is not exempt u/s 11 or 12 because of the provisions of the section 13(1)(c) or 13(1)(d), tax is chargeable on the relevant income or part of the relevant income at the maximum marginal rate (MMR). Therefore, in case there is violation of sec.13, the entire income of the trust is not liable to tax at MMR but only the relevant part of the income which violates sec.13 attracts the MMR. In the present case, even if it is

6 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR held that there is violation of sec.13, then only the amount of benefit given to the person specified u/s 13(3) out of the income of the trust is chargeable to tax at MMR. Hence, the action of the lower authorities in taxing the surplus at maximum marginal rate without considering the provisions of section 11 & 12 is bad in law. The above principal of law is settled by the following decisions:-

DCIT Vs. Working Women’s Forum (2015) 235 Taxman 516 (SC) Assessee was a trust registered under section 12AA and was providing employment to poor women, assisting weaker sections of the society for personal development, maintaining destitute homes, rehabilitation of victim of national calamities, etc. It invested a sum of Rs. 20,000 in the share of MIOT Hospitals Ltd. AO denied the exemption u/s 11 and 12 on ground that since section 13(1)(d) recognizes investment only in specified assets, failure to invest in such specified business would disentitle the assessee for exemption. CIT(A) allowed the assessee's appeals that the entirety of the income of the assessee could not be denied of exemption. On appeal, referring to the decision of the Bombay High Court in DIT(Exemptions) v. Sheth Mafatlal Gagalbhai Foundation Trust, the Tribunal rejected the Revenue's appeals. High Court held that in DIT (Exemptions) v. Sheth Mafatlal GagalbhaiFoundation Trust, it was held by Bombay High Court that violation of section 11(5),read with section 13(1)(d) by the assessee would result in the maximum marginal rate of tax only on the dividend income on shares, which was not the recognized mode of investment and that the assessee would not be vested with marginal rate of tax on the entire income. Therefore, the income other than dividend income had to be taxed only to the extent to which the violation was found by the AO. Respectfully following the said decision, High Court confirmed the order of the Tribunal and dismissed the revenue’s appeal. Special leave petition filed against impugned order was dismissed. CIT Vs. Fr. Mullers Charitable Institutions (2014) 227 Taxman 369 (SC) High Court by impugned order held that in case of charitable trust, it is only income from investment or deposit which had been made in violation of section 11(5) that was liable to be taxed and that violation u/s 13(1)(d) does not tantamount to denial of exemption u/s 11 on total income of assessee trust. Special leave petition filed against impugned order was to be dismissed. CIT Vs. Fr. Mullers Charitable Institutions (2014) 363 ITR 230 (Kar.) (HC) In this case the facts as narrated in para 8 of the order reads as under:- “The records clearly disclose that the respondent- assessee is administering number of institutions and it had obtained exemption under section 11 and 12 of the Act. The

7 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR assessee filed Nil return of income for the aforesaid assessment years. On the basis of the tax evasion petition, an enquiry was conducted and during the course of assessment proceedings, the Assessing Officer noticed that the respondent-trust advanced a sum of Rs. 30,00,000/- during the assessment year 2000-01 and advanced another sum of Rs.50,00,000/- during the assessment year 2001-02 to M/s. JanamadhyamaPrakashana Limited, which was running a Kannada daily known as "Janavahini. In the balance sheet of the respondent-trust, the said amounts were mentioned under the head known as "loans and advances". The Charitable Institution, advancing loan amount to M/s.JanamadhyamaPrakashana Limited and obtaining exemption in payment of income tax is in violation of Section 11(5) of the Act. As per Section 13(1)(a), income of the trust shall not be entitled for exemption under sections 11and 12 of the Act. Accordingly, the Assessing Officer assessed the advance made to M/s. JanamadhyamaPrakashana Limited for tax. Being aggrieved by the said assessment order, the respondent assessee preferred an appeal before the Commissioner of Income Tax. The Commissioner of Income Tax, after verification of the records of the Assessing Officer found that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Accordingly, he initiated the proceedings under section 263 of the Act. The Commissioner was of the opinion that in view of violation of Section 11(5), the entire income of the respondent-trust ought to have been assessed and they are not entitled for any exemption under Sections 11 and 12 of the Act and revised the order passed by the Assessing Officer. The said order was questioned before the Tribunal. The Tribunal allowed the appeals and set aside the order passed by the Commissioner of Income Tax under section 263 of the Act. Being aggrieved by the said order, the revenue preferred these two appeals”. On these facts the Hon’ble High Court in para 11 held as under:- “With regard to second and third substantial questions of law are concerned, reading of section 13(l)(d) of the Act makes it clear that it is only the income from such investment or deposit which has been made in violation of Section 11 (5) of the Act that is liable to be taxed and that violation under section 13(l)(d) does not tantamount to denial of exemption under section 11 on the total income of the assessee. An identical question came before the Bombay High Court in the case reported in (2001) 249 ITR 533 (Bom) (supra). The question before the Bombay High Court is "Whether violation of Section 11(5) r/w Section 13(l)(d) by the assessee-trust attracts maximum marginal rate of tax on the entire income of the Trust? The Bombay High Court held that in case of contravention of Section 13(l)(d), maximum marginal rate of tax under section 164(2), proviso is applicable only to that part of income of the trust which has forfeited exemption and not the entire income. Relevant paragraph reads as under:

8 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR Sec. 164(2) refers to the relevant income which is derived from property held under trust wholly for charitable or religious purposes. If such income consists of severable portions, exempt as well as taxable, the portion which is exempt is to be left out and the portion which is not exempt is charged to tax as if it is the income of an AOP. Therefore, a proviso was inserted by the Finance Act, 1984 w.e.f 1st April 1985, under which in cases where the whole or any part of the relevant income is not exempt under s. 11 or s. 12 because of the contravention of s.13 (l)(d), the tax shall be charged on such income or part thereof, as the case may be, at the maximum marginal rate. In other words, only the non-exempt income portion would fail in the net of tax as if it was the income of an AOP. The phrase ‘relevant income or part of the relevant income’ in the proviso is required to be read in contradistinction to the phrase ‘whole income’ under s.161(1A). This is only by way of comparison. Under s. 161(1A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the legislature has clearly indicated its mind in the proviso to s. 164(2) when it categorically refers to forfeiture of exemption for breach of s,13(l)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has for forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax. This interpretation is also supported by Circular No.387, dt. 6th July, 1984. Vide the said Circular, it has been laid down in para 28,6 that where a trust contravenes s,13(l)(d), the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provision and not to the entire income. There is a vital difference between eligibility for exemption and withdrawal of exemption/forfeiture of exemption for contravention of the provisions of law. These two concepts are different. They have different consequences. In the circumstances, there is merit in the contention of the assessee that in the present case the maximum marginal rate of tax will apply only to the divided income from shares held in contravention of s. 13(1)(a) and not to the entire income. Therefore, income other than dividend income shall be taxed at normal rate of taxation under the Act. A similar view has been taken by the Delhi High Court in a judgment reported in (2002) 253 ITR 593 (Supra).Reading of the proviso to Section 142 is very clear that the legislature has clearlycontemplated that in a case, where the whole or part of the relevant income is not exempted under Section 11 by virtue of violation of Section 13(1)(d) of the Act, tax shall be levied on the relevant income or a part of the relevant income at the maximum marginal rate. The said analogy is applicable to the facts of the present case”. CIT Vs. Orpat Charitable Trust (2015) 230 Taxman 66 (Guj.) (HC)

9 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR Assessee filed it return of income for different assessment years. AOs examined the case of assessee and denied exemption to assessee on respective amounts in connection with deposits made by it in contravention of sec.11(5) read with sec.13(1). CIT(A) directed AO to restrict disallowance of exemption u/s11 in respect of deposits in contravention of sec.11(5) r.w.s. 13(1)(d) as against denial of exemption on entire income by AO. ITAT upheld the order of CIT(A) and held that exemption could be denied only to extent of investment contravening provisions of s. 11(5)and not entire amount. Held, CIT(A) very clearly observed that provisions of section 11(1)(a) are very clear and provide that income derived from property held under trust should not be included in income to extent it was applied for charitable or religious purposes(expenses incurred during the year) or accumulated/set apart to be applied for that purpose in future out of 75% to which restriction u/s 11(5) applied. ITAThad relied upon its own decision on similar issue rendered in ITA No. 644 to646/Rjt/2003 dated 22.12.2003. High Court in complete agreement with reasoning adopted by CIT (A) as well as Tribunal. In case of Fr. Mullers Charitable Institutions, Karnataka High Court held that sec.13(1)(d) clears that it wasonly the income from such investment or deposit which had been made in violation of s.11(5) that was liable to be taxed and violation u/s 13(1)(d) does not result in denial of exemption u/s 11 to total income of assessee. Where whole or part of relevant income was not exempted u/s 11 by virtue of violation of sec.13(1)(d),tax should be levied on relevant income or part of relevant income at maximum marginal rate. Revenue's appeal dismissed.

DCIT Vs. Mahatma Gandhi Charitable Society for Education & Research ITA No.359/JP/19 order dt.23.01.2020 (Jaipur) (Trib.) Hon’ble ITAT in Para 3.4.1 held as under:-

“3.4.1 Similarly, we are also of the view that the even if it is held that assessee has violated the provisions of section 13 of the Act, even then the exemption u/s 11 or 12 of the Act cannot be denied nor the surplus as such can be charged to tax at Maximum Marginal Rate. Even otherwise, the provision of Section 164 specifically deals with the charge of tax where the shares of the beneficiary is unknown. Section 164(2) deals with charge of tax on the income of the trust which is derived by it from the property held wholly for charitable or religious purposes. From the plain reading of this proviso, it is evident that where the whole or any part of the relevant income is not exempt u/s 11 or 12 because of the provisions of the Section 13(1)(c) or 13(1)(d) then tax is chargeable on the relevant income or part of the relevant income at the maximum marginal rate (MMR). Thus in that eventuality, even in case there is violation of Sec 13, the entire income of the

10 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR trust is not liable to be taxed at MMR but only the relevant part of the income which violates sec. 13 attracts the MMR. We also found support from the decision in the case of DCIT vs Working Women’s Form (2015) 235 Taxman 516 and CIT vs Fr. Mullers Charitable Institutions (2014) 227 Taxman 369 (SC). No new facts or circumstances have been brought before us in order to controvert or rebut the findings so recorded by the ld. CIT(A). Therefore, we find no reason to interfere in the order of the Ld. CIT(A). Hence, the ground Nos. 1 and 2 of the Revenue are dismissed.”

Global Institute of Technology Society Vs. DCIT (E) ITA No. 1066/JP/2018order dt.05.11.2018(Jaipur) (Trib.) The Hon’ble ITAT held that even if any part of the income or property which is found to be used or applied for the benefit of the persons specified to in sub-section (3) of Section 13 of the Act, the benefit of sections 11 and 12 is not available only to that extent and the claim of the assessee cannot be denied in toto. Accordingly we hold that the denial of exemption to the assessee u/s 11 and 12 of the Act is not justified except to the extent where the specific part of the income or property is found to be used or applied for the benefit of specified persons.

M/s Rajkala Charitable Trust Vs. ACIT ITA No.140/JP/15 order dt.28.04.2016 (Jaipur) (Trib.) In this case it was held that where there is violation of section 13, the entire income of the trust is not chargeable to tax at maximum marginal rate and it is only that income which has violated section 13 which shall suffer maximum marginal rate as per proviso to section 164(2) of the Act. Further, the appellant has submitted that the amount of Rs.20,00,000/- with interest of Rs.2,16,000/- i.e. Rs.22,16,000/- was received back by the trust and the interest income of Rs.2,16,000/- was offered in the return for AY 2012-13 and there is no income generated on amount of Rs.20 lacs advanced to M/s Rajakala Industries Limited during the year. There is nothing on record to controvert the said submissions of the appellant. Thus, there is no income during the year which can be brought to tax at maximum marginal rate in the hands of the trust in a scenario where it is held that there is violation of provisions of section 13. In view of the same, we don’t think it would be relevant to examine whether the appellant trust has violated the provisions of section 13 of the Act as the same has become infructious in the facts and circumstances of the present case. The AO is accordingly, directed to allow exemption to the appellant trust u/s 11 and the addition made by the AO and confirmed by CIT(A) is hereby deleted.

11 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR

M/s SantokbaDurlabhJi Trust Fund Vs. ITO ITA No.169/JP/2012 order dt.05.11.2024(Jaipur) (Trib.) Where there is a violation of section 13(1)(c) or 13(1)(d), entire income can’t be charged to tax at Maximum Marginal rate but only that part of the income which is in violation of section 13 can be charged to tax. In this case, assessee has made investment in shares which was in violation of section 13(1)(d). The AO therefore taxed the entire income of the trust at Maximum Marginal rate. In these facts it was held that as per the scheme of the Act, first the trust income is to be worked out, thereafter, benefit of provision of section 11 & 12 are to be applied. Remainder income is than to be treated with the regular provisions of the Act and resulted income i.e. taxable income is subject to maximum marginal rates. Applying this scheme of the IT Act to assessee’s case, the non beneficial income is in the form of dividend income from shares which is exempt u/s 10(34). This being so, in the result there remains no tax liability on the trust and therefore the addition made was deleted.

4.4 On the other hand, the ld. DR supported the order of the ld.CIT(A).

4.5 We have heard both the parties and perused the materials available on record. We note that the lower authorities have not allowed exemption u/s 11 of the

12 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR Act on the surplus declared by the assessee for the reason that there is violation of Section 13(1)© of the Act r.w.s. 13(2)(g) of the Act on account of payment made to specified person u/s 13(3) of the Act. However, the lower authorities have not considered the proviso to Section 164(2) of the Act which provides that if the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate. Therefore, the exemption u/s 11 on the surplus declared by the assessee cannot be denied as held by various decisions (supra). However, since we are setting aside the Ground No. 2 & 3 which relate to the benefit provided to persons specified u/s 13(3) of the Act, this issue is also set aside to decide allowability of exemption u/s 11 on the surplus declared by the assessee in light of proviso to Section 164 (2) of the Act and the Court decision referred above. Thus Ground No. 1 is restored to file of the AO to decide it afresh by providing opportunity of hearing to the assessee.

5.1 In Ground No. 2, the assessee is aggrieved that the Ld. CIT(A), NFAC has erred on facts and in law in confirming the disallowance of Rs.28,51,300/- by holding that the following amount paid to persons specified u/s 13(3) is unreasonable and unjustifiable:- (a) scholarship paid for higher education to SmritiBafna of Rs.80,000/- and NeelamBaid of Rs.1,21,300/- (b) consultancy

13 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR charges paid to Ritu Singh of Rs.5,00,000/- (c) salary paid to SauravKarnawat of Rs.5,90,000/- (d) rent paid to VikasGolecha of Rs.3,60,000/- and Jatindera Kumar HUF of Rs.12,00,000/-.

5.2 Brief facts of the case are that the AO considered the scholarship, rent, consultancy charges and rent paid to persons specified u/s 13(1)(c)as diversion of income u/s 13(2)(g) of the Act and thereby disallowed the same. The reasons given by the AO is as under:-

(a) Scholarship paid to SmritiBafna – Rs.80,000/- and to NeelamBaid – Rs.1,21,300/- No evidence was bought on recordto prove that they are meritorious students and why they were chosen for scholarship. It is a case of favoritism. (b) Salary paid to SauravKawant – Rs.5,90,000/- No details about his qualification and evidence to support that he actually worked for the society was filed. Hence, expenditure is treated as not incurred for the benefit of the assessee. (c) Consultancy charges paid to Ritu Singh - Rs.5,00,000/- No details were filed regarding her field of specialization. As per the return of income her address is of Delhi and she is one of the managing trustee of “AmmaChandravati Educational & Charitable Trust, Delhi”. No evidence to support that she actually worked for the assessee has been filed. Thus it is a diversion of funds/income of the assessee. (d) Rent payment made to Jatindera Kumar HUF – Rs.12,00,000/- He was paid rent for a flat at Faridabad measuring 1,790 sq. ft. Assessee has claimed that office is required to co-ordinate students and facilitate placements is mischievous as in the present era of Internet/ E-mail/ Whatsapp continuous presence at different place is not required. No evidence is filed as to who use to stay in the flat and how it benefitted the assessee. Further rent payment appears to be excessive considering the size of the flat. (e) Rent payment made to VikasGolecha– Rs.3,60,000/-

14 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR The claim of the assessee that office is required to co-ordinate students and facilitates placements is mischievous as in the present era of Internet/ E-mail/ Whatsapp continuous presence at different place is not required. No evidence is filed as to who use to stay in the flat and how it benefitted the assessee. 5.3 In first appeal, the Ld. CIT(A), NFAC held that assessee has not disputed the fact that scholarship paid to the persons is covered u/s 13(3) of the Act. The payment of salary to SauravKawant is not commensurate with his qualifications. Assessee has not stated as to what consultancy was given by Ritu Singh to the assessee. In respect of rent payment assessee has not given information as to how it is used and by whom. The rent paid is of residential flat in which use of an office is least likely. There is no proper rent agreement. Accordingly he confirmed the addition made by the AO. 5.4 During the course of hearing the ld. AR has filed the following written submission praying there to delete disallowance confirmed by the ld. CIT(A)

‘’Submission:- 1. Scholarship paid to SmritiBafna&NeelamBaid (a) The assessee is regularly giving scholarship to the students for studies/ higher studies from last number of years who have applied for and are approved by the college committee. The details of the same for the last three years and for the year under consideration (PB 70-71)is as under:- AY No. of students to Amount of Scholarship to the whom scholarship is Scholarship persons covered provided u/s 13(3) 2014-15 48 Rs.69,93,744/- Rs.59,56,244/- 2015-16 25 Rs.24,93,800/- Rs.3,86,116/- 2016-17 26 Rs.50,82,345/- Rs.2,81,960/- 2017-18 28 Rs.26,38,650/- Rs.2,01,300/-

15 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR (b) The lower authorities have nowhere stated that payment made is unreasonable or not disputed that amount is not paid. SmritiBafna&NeelamBaidare studying in the field of designing from National Institute of Designing. On the basis of their study records, management decided to allow scholarship to them for higher education. In AY 2013-14 to 2015-16 & in AY 2018-19 scholarships paid to persons covered u/s 13(3) is allowed. Only because scholarship is paid to persons covered u/s 13(3) cannot be a ground to disallow the same. Hence, the disallowance confirmed by the CIT(A) be deleted. 2. Salary paid to SauravKawant Sh. SauravKawant is a commerce graduate. He is in full-time employment of the assessee since 1st April, 2013 when his salary was Rs.4,80,000/- per annum. He takes care of day- to-day administrative work and mess and health administrative work of the college and any other work as may be assigned to him. The college is having 1,491 students and 158 teaching & non-teaching staff. AO has not disputed that SauravKawant is not in employment or not providing services to the assesse.The salary paid to him at Rs.5,90,000/- is otherwise very reasonable. The Ld. CIT(A) without any basis observed that work done by him is not commensurate with his qualifications ignoring the fact that for day-to-day mess and other administrative work qualification is not a relevant factor to decide meager salary of Rs.5,90,000/- paid to him. Hence, the disallowance confirmed by the CIT(A) be deleted. 3. Consultancy charges paid to Ritu Singh Smt. Ritu Singh is M.Sc, PhD having vast experience in education field. The assessee has taken consultancy cum assistance for various compliances to be made from time to time. She visits the college as required and also gives lectures to the students and teachers. Hence only because she receives salary of Rs.1,25,000/- from Rajasthan College of Engineering for Women or she is trustee in a trust at Delhi or filing return of income at Delhi cannot be a ground to disallow the consultancy charges paid to her. The Ld. CIT(A) incorrectly held that assessee has not stated that what consultancy has been given by her whereas it has been specifically mentioned that her consultancy cum assistance is taken for various compliances required from time to time with reference to affiliation with AIEEE apart from the lectures she gives to the students/ teachers. She has included such consultancy in her return of income (PB 72-74) and had paid tax on the same. Hence, the disallowance confirmed by the Ld. CIT(A) be deleted. 4. Rent payment made to Jatindera Kumar HUF The assessee has taken on rent a house at 3A,123,NIT, Faridabad in the year 2007 and paying the rent since then. In support of the same rent letter was filed. The rent paid is inclusive of electricity charges and maintenance charges. This property is used by the assessee as administrative office for co-ordination with AIEEE office and for facilitating the admissions of new entrants in the college and for placements of the students in the industrial units of state of Haryana. The observation of Ld. CIT(A) about no proper rent

16 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR agreement on non-judicial stamp paper is irrelevant. Also there is no restriction that a residential house cannot be used as office. Hence, the disallowance confirmed by the Ld. CIT(A) be deleted. 5. Rent payment made to VikasGolecha The assessee has taken on rent a flat at C-408,Shripal Residency, Surat in the year 2007 and paying the rent since then. In support of the same rent letter was filed. This property is used by the assessee as administrative office for facilitating the admissions of new entrants to the college. The observation of Ld. CIT(A) about no proper rent agreement on non-judicial stamp paper is irrelevant. Also there is no restriction that a flat in a multi- storey residential building cannot be used as office. Hence, the disallowance confirmed by the Ld.CIT(A) be deleted.’’ On the other hand, the ld DR supported the order of the ld. CIT(A) 5.5 5.6 We have heard both the parties and perused the materials available on record. In this case, we find that the AO made disallowance for the reason that evidences / details in respect of payment made to specified persons were not given as required by him but before us the assessee has filed the detailed explanation alongwith necessary evidences. Therefore, in the interest of justice, we set aside the issue to the file of the AO to decide it afresh after considering the written submission of the assessee as raised hereinabove after allowing opportunity of being heard to the assessee. Thus Ground No. 2 of the assessee is allowed for statistical purposes. 6.1 In Ground No. 3, the assessee is aggrieved that the Ld. CIT(A), NFAC has erred on facts and in law in confirming the disallowance of donation of Rs.40,00,000/- paid to AmmaChandrawati Educational & Charitable Trust on the ground that exemption u/s 11 is denied.

17 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR 6.2 Brief facts of the case are that during the year assessee paid donation of Rs.40,00,000/- to AmmaChandrawati Educational & Charitable Trust. It is a trust registered u/s 12AA of the Act w.e.f. 17.11.2006 (PB 69). It is regularly filing its return of income. Copy of return and financial statements of the trust is at PB 58- 68. It is noted that the AO at Page 7 of the assessment order held that donation paid to other trust is not allowable since exemption u/s 11 is denied. In first appeal, the Ld. CIT(A) at Page 18 Para 11.2 of its order held that 6.3 assessee has not given the details as to why the donation has been made, whether object of this trust is same as that of assessee trust and since exemption u/s 11 has been denied, this payment cannot be considered as application. Accordingly he upheld the disallowance made by the AO. 6.4 During the course of hearing, the ld. AR of the assessee has filed the following written submission with the prayer to delete the disallowance confirmed by the ld. CIT(A) Submission:- 1. At the outset it is submitted that as explained supra in Ground No.1, even if section 13(1)(c) r.w.s. 13(2)(g) is held applicable, the assessee cannot be denied exemption u/s 11 of the Act. Therefore the disallowance of donation is uncalled for.

18 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR 6.5 On the other hand, the ld. DR supported the order of the ld CIT(A). 6.6 We have heard both the parties and perused the materials available on record. In this case it is noted that donation of Rs.40 lacs is paid to AmmaChandrawati Educational & Charitable Trust which is registered u/s 12AA of the Act and the copy of the return and financial statement of the trust was filed before us. The lower authorities have not specified as to which section of the Act this disallowance can be made whereas according to the assessee the object of this trust is to impart education which is same as the object of the assessee. Considering all these facts, we deem it appropriate to set aside this issue to the file of the AO to decide it afresh considering the evidences and written submission filed before us. The AO is directed to provide opportunity of being heard to the assessee. Thus Ground No.3 of the assessee is allowed for statistical purposes. 7.1 The Ground No. 4 of the assessee is alternate claim of the assessee that in case exemption u/s 11 is denied then he be allowed the depreciation on the fixed assets to work out the income . To this effect, the assesssee filed the following The submission filed before us.

Facts& Submission:- 1. The assessee in the return of income (PB 33-34) has claimed application of income towards capital account at Rs.8,40,614/- and repayment of loan on capital account at Rs.53,82,891/- totaling to Rs.62,31,505/-. The AO in computing the total income has not allowed the same for the reason that exemption u/s 11 is denied to the assessee.

19 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR 2. It is submitted that AO started the computation of total income with income as per Income & Expenditure account at Rs.75,01,881/- (PB 42). This is without the claim of depreciation of Rs.1,96,37,112/-. Thus when the AO has not allowed the application of income towards the capital account by denying exemption u/s 11 of the Act, he ought to have allowed depreciation. Even the depreciation on the addition made during the year works out at Rs.60,13,003/- as per the calculation placed at Page 19 of CIT(A) order. Hence, depreciation to this extent is allowable to the assessee.

7.2 After hearing both the parties and perusing the materials available on record, since we have restored the Ground No. 1 to the file of the AO, therefore, this issue is also restored back to the file of the AO to decide it afresh in light of the decision taken in Ground No. 1. Thus the Ground No. 4 of the assessee is allowed for statistical purposes.

8.0 Before parting, we may make it clear that our decision to restore the matter back to the file of the AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by AO independently in accordance with law.

20 ITA NO. 261/JP/2024 JAIPUR ENGINEERING COLLEGE JAIPUR RAJASTHAN SOCIETY VS CIT, CIRCLE (EXEMPTION), JAIPUR 9.0 In the result, the appeal of the assessee is allowed for statistical purposes

Order pronounced in the open court on 05 /08/2024.

Sd/- Sd/- ¼jkBkSM+ deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 05 /08/2024 */mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू The Appellant- Jaipur engineering College Jaipur Rajasthan society, Jaipur. 1. 2. izR;FkhZ@ The Respondent- CIT, Circle (Exemption), Jaipur. 3. vk;dj vk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File ITA No. 261/JPR/2024) vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेजज. त्महपेजतंत