INCOME TAX OFFICER (EXEMTION), INDORE vs M/S RISHIRAJ SINGH MEMORIAL EDUCATION AND WELFARE SOCIETY, INDORE

Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI

For Appellant: Shri Pankaj Shah and Shri Soumya Bumb, ARs

For Respondent: Ms. Simran Bhullar, CIT DR, Shri Pankaj Shah and Shri Soumya Bumb, ARs

Hearing: 05.10.2023Pronounced: 24.11.2023

Feeling aggrieved by appeal-orders dated 24.07.2017 & 10.08.2017, both passed by learned Commissioner of Income-Tax (Appeals)-I, Bhopal [“Ld. CIT(A)”], which in turn arise out of respective assessment-orders dated 28.03.2014, 16.03.2015 & 26.12.2016, passed by learned ACIT/DCIT-2(1), Bhopal [“Ld. AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Years [“AY”] 2011-12, 2012-13 & A.Y.2014-15, the Revenue has filed these appeals. The facts and issues of all these appeals are identical, hence they were heard together and are being decided by this common order. Page 1 of 19

Rishiraj Singh Memorial Education and Welfare Society, Indore to 698/Ind/2017 A.Ys. 2011-12, 2012-13 & 2014-15

The assessee is a society registered by Registrar of Societies, engaged in running educational institutions. It was also registered u/s 12A of Income-tax Act, 1961 by Income-tax Department on 27.09.2004 vide Registration No. 21/2004-05 w.e.f. 01.04.2004. Although its registration u/s 12A was subsequently cancelled by order dated 23.04.2014 of Commissioner of Income-tax, Bhopal but the said order was challenged by assessee before ITAT, Indore Bench in appeal No. ITA No. 386/Ind/2014. The said appeal was decided by ITAT vide order dated 17.05.2016 wherein the aforesaid order dated 23.04.2014 of Commissioner of Income-tax, Bhopal was quashed and registration u/s 12A was restored back from the original date of granting. Thus, the assessee continues to hold the registration u/s 12A from Income-tax Department.

The assessee filed returns of AY 2011-12, 2012-13 and 2014-15, involved in present appeals, declaring total income at Rs. Nil after claiming exemption u/s 11 of the Act. Those returns were subjected to scrutiny assessments wherein the AO made additions by denying exemption u/s 11. Being aggrieved, the assessee went in first-appeal to CIT(A) and succeeded. Now, the revenue has come in these appeals assailing the orders of CIT(A).

The revenue has raised following grounds in these appeals: – AY 2011-12: (1) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition on account of surplus as per audited Income & Expenditure a/c Rs. 3,12,08,910/- made by the AO and allowing the benefits of exemption u/s 11 of the Income-tax Act, 1961 to the assessee especially when excessive payments were made/ benefits were provided to the interested parties u/s 13(3) of the Act and the trust was being run on the commercial lines by sharing of receipts with the interested parties? I.T.A.No. 697/Ind/2017 – AY 2012-13: (1) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition on account of surplus as per audited Income & Expenditure a/c Rs. 3,27,43,730/- made by the AO

Rishiraj Singh Memorial Education and Welfare Society, Indore to 698/Ind/2017 A.Ys. 2011-12, 2012-13 & 2014-15 and allowing the benefits of exemption u/s 11 of the Income-tax Act, 1961 to the assessee especially when excessive payments were made/ benefits were provided to the interested parties u/s 13(3) of the Act and the trust was being run on the commercial lines by sharing of receipts with the interested parties? I.T.A. No. 698/Ind/2017 – AY 2014-15: (1) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition on account of surplus as per audited Income & Expenditure a/c Rs. 2,23,54,720/- made by the AO and allowing the benefits of exemption u/s 11 of the Income-tax Act, 1961 to the assessee especially when excessive payments were made/ benefits were provided to the interested parties u/s 13(3) of the Act and the trust was being run on the commercial lines by sharing of receipts with the interested parties? 5. Learned Representatives of both sides made vehement contentions and arguments at length. We have heard them peacefully and considered the material held on record.

During hearing, it emerges that a search u/s 132 was conducted upon assessee on 23.07.2009 and in pursuance thereof, the assessments were framed/re-framed u/s 153A read with section 143(3) for AY 2004-05 to 2010-11. During search proceeding, various documents and material were found on the basis of which the authorities observed certain adverse features in the working of assessee-society. Accordingly, the AO denied charitable status to society and disallowed exemption u/s 11 while framing assessments of those years. Thereafter, while conducing scrutiny- assessments of subsequent AYs 2011-12, 2012-13 and 2014-15 as are involved in present appeals, the AO carried the same tune and disallowed exemption u/s 11. Precisely stated, the AO denied exemption on the footing of following adverse features:

Rishiraj Singh Memorial Education and Welfare Society, Indore to 698/Ind/2017 A.Ys. 2011-12, 2012-13 & 2014-15 (i) Agreements were found during search suggesting that the surplus of assessee was being shared by various entities and the rights in the society were being purchased and sold by parties. Thus, the assessee- society runs educational institutions as business-entity for the purpose of earning and sharing profits and not as a charitable entity.

(ii) Interest-free advances have been given to various entities under the same management in violation of section 13(1)(c)(ii) r.w.s. 13(2)(a) r.w.s. 13(3).

(iii) Vehicles of society were being used by members of society for their personal purposes in violation of section 13(1)(c)(ii) r.w.s. 13(2)(b) r.w.s. 13(3).

(iv) Assessee-society was generating huge surplus from its activities, as inferred by AO from analysis of financial statements of assessee, which proves that it was operating like a business venture on commercial lines in the guise of charitable activities.

During first-appeal, Ld. CIT(A), however, reversed the action of AO and allowed exemption to assessee. For an immediate reference, we extract below the relevant portion of order of CIT(A):

Rishiraj Singh Memorial Education and Welfare Society, Indore to 698/Ind/2017 A.Ys. 2011-12, 2012-13 & 2014-15

Rishiraj Singh Memorial Education and Welfare Society, Indore to 698/Ind/2017 A.Ys. 2011-12, 2012-13 & 2014-15 8. Learned Representatives of both sides made a participative analysis of the order of CIT(A), as extracted above, and agreed that the CIT(A) has followed the findings/conclusions/views taken by ITAT in assessee’s own cases in earlier years. It is further agreed that all of issues raised by Ld. AO for denial of exemption u/s 11 in current years are exactly same as had been resolved by ITAT in those earlier years in assessee’s favour. In short, the CIT(A) has allowed exemption to assessee by following earlier orders of ITAT in assessee’s own case. Faced with this situation, we hardly need to delve into those issues which are settled by ITAT; we must straightaway dismiss these appeals of revenue as a matter of consistency.

However, during the course of pleadings by parties, we found that one of the issues raised by AO for denial of exemption to assessee is such that the assessee-society has given interest-free loans to following entities in violation of section 13(1)(c)(ii) r.w.s. 13(2)(a) r.w.s. 13(3):

AY 2011-12:

S.No. Name of the society Amount outstanding as on 31.03.2011 1. Chouksey Yadav Pichhra Varg Education & 25,00,000/- Welfare Society 2. Dattatreya Enterprises 25,55,091/- 3. Guru Govind Singh Education Welfare Society 35,00,000/- 4. Rishiraj Memorial Education and Welfare Society 3,36,84,278/- H K Kalchuri Education Society 2,00,00,000/

Rishiraj Singh Memorial Education and Welfare Society, Indore to 698/Ind/2017 A.Ys. 2011-12, 2012-13 & 2014-15

Shivam Builders 5,00,000/- 6. CGS Dental College (Run by Guru Govind Singh 11,416/- Education Welfare Society) 7. J.K. Hospital & Research Centre (Run by H.K. 64,00,000/- Kalchuri Education Trust) 8. LNCT, Indore (run by H.K. Kalchuri Education 2,87,89,156/- Trust) 9. State Academy of Technology (run by Chouksey 75,00,000/- Yadav Pichhra Varg Education & Welfare Society)

AY 2012-13:

S.No. Name of the society Amount (as on 31.03.2012) 1. Chouksey Yadav Pichhra Varg Education & 25,00,000/- Welfare Society 2. Rishiraj Singh Memorial & Welfare Society 3,36,84,278/- 3. Guru Govind Singh Education Welfare Society 35,00,000/- 4. LNCT, Gwalior run by Late Shri C.L. Chouksey 3,92,00,000/- Shri Nathu Singh Yadav Smiriti Education & Welfare Society 5. H.K. Kalchuri Education Society 2,74,03,000/- AY 2014-15:

S.No. Name of the society Amount (as on 31.03.2014) 1. Guru G.S. Education Welfare Society 35,00,000/- 2. Rishiraj Singh Memorial & Welfare Society 3,36,84,278/- 3. H.K. Kalchuri Education Trust 2,74,03,000/- 4. LNAT, Gwalior 3,92,00,000/- 5. Rishiraj College of Pharmacy 8,70,000/-

Rishiraj Singh Memorial Education and Welfare Society, Indore to 698/Ind/2017 A.Ys. 2011-12, 2012-13 & 2014-15

6. Rishiraj Institute of Technology 4,67,77,359/- On perusal of Page No. 16 of the order of CIT(A) qua this issue, it was noticed that the CIT(A) has referred to the following decision of ITAT in assessee’s cases in earlier years and freed the assessee from the violation of section 13:

“There is no bar in advancing interest-free advances to such charitable trust/societies registered u/s 12A as per the decision of Hon’ble MP High Court in the case of CIT Vs. RKDF Education Society in dated 01.08.2013”.

[Emphasis supplied] When we examined authenticity of this observation of CIT(A) from the details of interest-free loans given by assessee, as noted above, it appeared from a cursory look itself that the some of the entities to whom loans had been given by assessee were not societies/trusts, much less registered u/s 12A.

When we countered learned AR for assessee qua the nature of those entities, Ld. AR sought time to submit details. On next hearing, Ld. AR submitted Ledger A/c of two parties, namely (i) M/s Dattatre Enterprises and (ii) M/s Shivam Builders, and admitted that they were not societies/trusts. Ld. AR, however, claimed that the amounts to those two parties were given in earlier years and not during years under consideration, therefore the provisions of section 13 are not violated. We were, however, not impressed by such argument of Ld. AR because the provision of section 13(2)(a) clearly prescribes “if any part of income or property of the trust or institution is, or continues to be, lent to any person …”, then it is a violation of section 13. The Rishiraj Singh Memorial Education and Welfare Society, Indore to 698/Ind/2017 A.Ys. 2011-12, 2012-13 & 2014-15 assessee’s case could very well fall within the words “continues to be” carefully mentioned by Parliament and hence there would be a violation of section 13. The Ld. AR, however, advanced another reasoning also to get out of section 13 i.e. the amounts were given to those entities for running hostels, which is a part of assessee’s objective. This point raised by Ld. AR is a newer point and it has not been tested at lower-level. In any case, the assessee’s submission is for two entities only but there are many other entities in the details of loans given by assessee and we are not sure whether they were really trusts/societies or not and even if they were trusts/societies, they were registered u/s 12A or not as accepted by Ld. CIT(A). Ld. DR forcefully submitted that these aspects have remained unverified at lower level and even the CIT(A) has wrongly given favourable verdict without having any material in this regard. That means, there is a serious fallacy in the order of CIT(A) qua this issue. Therefore, there is a strong need to make a detailed probe into each item of loans so as to ascertain the nature of entities to whom loans were given and the purposes of those loans in order to arrive at a correct conclusion as to whether or not the assessee was entitled to the benefit of decision of Hon’ble M.P. High Court in CIT Vs. RKDF Education Society (supra). As the AO did not have any opportunity to carry out such an exercise at initial stage, it must be done by AO himself. Therefore, in such a situation, we feel it appropriate to remit these appeals back to AO who shall conduct necessary verification and take a final decision. Needless to mention that the AO shall give proper

Rishiraj Singh Memorial Education and Welfare Society, Indore to 698/Ind/2017 A.Ys. 2011-12, 2012-13 & 2014-15 opportunities to assessee to make explanations in this regard and only thereafter, he shall pass order afresh.

10.

Resultantly, all these appeals are allowed for statistical purposes.

Order pronounced in the open court on 24.11.2023.

INCOME TAX OFFICER (EXEMTION), INDORE vs. M/S RISHIRAJ SINGH MEMORIAL EDUCATION AND WELFARE SOCIETY, INDORE