M/S MEHTA INSTITUTE OF EDUCATION ,LUDHIANA vs. INCOME TAX OFFICER WARD (EXEMPTION), JALANDHAR

Per Dr. M. L. Meena, AM:

This appeal has been filed by the assessee against the order dated

01.09.2018 passed by the ld. Commissioner of Income Tax (Appeals)-4, Ludhiana [hereinafter referred to as “the CIT(A)”] in respect of Assessment Year 2013-14.

2 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO 2. The assessee has raised the following grounds of appeal:

“1. That on the facts and the circumstances of the case, the order is Learned CIT(A) is bad in law.

the Tribunal could not file within the specific time due to office staff lapse.

He requested that there was an unintentional short delay of eight days in

filing the appeal, may kindly be condoned. The relevant para of the

application requesting for condonation of delay duly supported with the

affidavit of the President of the Assesse Society is reproduced as under:

3 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO “It is very humbly submitted that the order of CIT(A) received by the President of the Society, was handed over to the then staff dealing with the Income Tax assessments for onward filing of appeal before the Hon’ble ITAT, Amritsar Bench, Amritsar. The said staff forgot to get the appeal prepared from the counsel and the order was kept by the staff in the file only. It was only in the last week of December 2018, that the President of the Society enquired from the staff about the status of filing the appeal before the Hon’ble ITAT and only then with great efforts, that order of CIT(A) was traced on 2nd of January 2019 and then immediately, appeal fee was deposited on the same day i.e. on 2nd of January 2019 and, accordingly, the appeal was filed by the appellant before the Hon'ble Bench on 07.01.2019.

It is submitted that there is delay of 8 days which is highly regretted and though, it was not deliberate and it was only on account of above said fact that there was delay in filing the appeal. It is, therefore, very humbly requested that the delay of 8 days may please, be condoned. Affidavit of the President of the Society is being enclosed herewith for your kind reference. Reliance is being placed on the judgment of Hon'ble ITAT in the case of M/s Gurfateh Films and Sippy Grewal Productions (P) Ltd., in ITA No. 92/Asr/2020, wherein, it was held that the assessee does not gain anything for not filing appeal in time and it is, only on account of the above said lapse of the Accounting staff that there has been delay of 8 days, which may, please, be condoned and oblige.”

3.1 The learned DR has no objection for the request of the assesse.

Accordingly, the short delay of 8 days in filing appeal is hereby condoned

and the appeal is allowed to be heard on merit.

income on 30.09.2013 declaring total income of Rs. Nil after claiming

exemption u/s 10(23C) (iii) (ad) of the I.T. Act, 1961. During the course of

4 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO assessment proceedings, the assessing officer noticed that out of total

gross receipts of Rs. 13082797/- received by the assessee, Rs. 12763926/-

were applied on revenue expenditure and Rs. 6441776/- on capital

expenditure on account of addition in new assets. It was further noticed that

there was addition in assets of live-stock horses amounting to Rs.

2100000/-. Accordingly, the AO asked the assessee to file the details, of

name and address in respect of 9 sellers of horses in order to establish the

genuineness of expenditure to this extent. The AO being not satisfied with

the explanation of the assesse on the expenditure so incurred during the

assessment proceedings in respect of purchases of horses, completed the

assessment u/s 143(3) of the I.T. Act, 1961 after making a disallowance of

Rs. 2150000/-.

under:

“5. I have carefully considered the submission of the appellant, assessment order and material placed on record. During the assessment proceedings, the AO noticed that there is an addition in Assets of the assessee society during the year under consideration on account of purchase of nine live Stock- Horses amounting to Rs. 21, 50 000/-. The assessing officer asked to furnish the names and addresses of the sellers of the above said Horses. The assessee society filed names and addresses of the persons from whom the above nine Horses were purchased along with the amounts paid to them and dates on which such amounts were paid to them. Further, the AO noticed that the addresses of all the above sellers were vague and incomplete and that the appellant society was not able to explain the genuineness of the expenditure on the purchase of above

5 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO nine horses and the justification of application of income keeping in view the nature of educational activities. During appeal proceedings, the assessee has filed application dated 26.12.2017 for admitting additional evidence Under Rule 46A of Income Tax Rules considering the submissions of the assessee, additional evidence is admitted. The assessee has filed following documents as additional evidence:-

(i) Affidavits of 4 persons who claim that horses were sold by them to the assessee out of 9 persons from whom, assessee has claimed to purchase horses. There is discrepancy in name and affidavit of Sh. Arvinder Singh and Sh. Binder Singh as noted in the remand report of the assessing officer. No letter of confirmation or any other supporting evidence in support of expenditure incurred on purchase of horses has been filed. During appeal proceedings also, the assessee was allowed opportunity to produce the sellers of the horses, but till date the assessee has failed to produce any of the sellers or to file any other corroborating evidence even the date of payment is not mentioned which was paid in cash by the assessee. Thus, the assessee has failed to substantiate the expenditure spent on purchase of horses.

(ii) The assessee has filed affidavits of two employees to say that they work as helpers for horse training. No affidavit or details of trainers for horse training have been brought on record.

(iii) Copies of certificates issued to the students of the institute of the assessee have been filed to show that the students participated in horse race of Independence Day celebrating in 2017. These certificates pertain to subsequent year 2017 whereas the year under consideration in assessment year 2013-14.

(iv) Copy of Audited Financial statement of the assessee society for F.Y. 2013-14 showing the horse feed expenses of Rs. 64,301/-. Since, the year under consideration in assessment year 2013-14 pertaining to F.Y 2012-13, the financial results of a subsequent year are irrelevant.

During appeal proceedings, the assessee further filed affidavits of the parents and affidavit of Mrs. Dimple Mehta without any specific request and basis

6 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO for admitting these additional evidences. Therefore, all these documents cannot be considered for deciding the appeal of the assessee.

During appeal proceedings, the Ld. Counsel has argued that the assessee society has applied more than 85% of the funds received during the year. Even if the amount spent on purchase of horses is excluded, even then, the assessee has complied with the mandatory requirements of utilizing the funds. Therefore, no disallowance is called for. The plea of the Ld. Counsel has been considered. There is no issue regarding utilization of the funds received during the year. Only disallowance of Rs. 21,50,000/- has been made in the case by the assessing officer, since the assessee has failed to substantiate the cash purchase of horses. Therefore, the assessing officer held that amount of Rs. 21,50,000/- was not spent for educational purposes. During appeal proceedings, the Ld. Counsel of the assessee has argued that horse riding in one of the activities which is part of education. It is not denied that horse riding is an activity which is part of sports and educational activities but the assessee has failed to substantiate its claim of expenditure in cash totalling Rs. 21,50,000/- on purchases of horses during the relevant Financial Year. Therefore, grounds of appeal No. 1 to 3 are dismissed.”

society is engaged in imparting horse riding activity as an ‘Educational and

sports activities’ which are undisputedly a part of education curriculum of

the appellant society. The counsel argued that Worthy Commissioner of

Income Tax (Appeals) has erred in upholding the action of the Assessing

Officer in confirming the addition of Rs. 21,50,000/- made by him based on

suspicion, conjectures and in arbitrary manner by treating the aforesaid

expenditure on the purchase of Horses as Sham transaction and that the

Worthy Commissioner of Income Tax(Appeals) has erred in upholding in

addition of the Assessing Officer even when the Assessee has furnished

7 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO the documents relating to the genuineness of the transaction during the

course of Appellate proceedings. He has filed a written synopsis to support

its contentions. Relevant part reads as under:

8 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO part of the agriculture property owned by Mrs. Dimple Mehta, one of the trustees of Mehta Gurukul Public School, adjoining to the area of the School is also used to arrange the maximum agriculture produce for feeding the horses owned by the appellant school.

9 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO from the trainer and few of the said photographs of the students and staff of the appellant school are attached as under:

10 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO

11 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO Thus, on account of Independence Day Programme, the certificates issued by a senior government officer to the students are compatible with the finding of the worthy CIT(A) that it is an essential part of Educational curriculum, therefore, the disallowance is uncalled for.

“Subject to the 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 receipt of the income—

(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;”

From the perusal of the above it is clear that since the purpose behind purchase of horses is directly related to the ‘educational activities’ carried on by the assessee as

12 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO accepted by the worthy CIT(A) in the last para on page no.15 of his order, it is incorrect to say that the said transaction of purchase of horses is a sham transaction and the fact that such suppliers of horses could not be traced cannot lead to the fact that these are sham transactions. We have already explained the reasons of suppliers being not traceable as above. Further, the said expenditure has been debited in the regular books of accounts of the appellant society which have been accepted.

“During appeal proceedings, the Ld. Counsel has argued that the assessee society has applied more than 85% of the funds received during the year. Even if the amount spent on purchase of horses is excluded, even then, the assessee has complied with the mandatory requirements of utilising the funds. Therefore, no disallowance is called for. The plea of the Ld. Counsel has been considered. There is no issue regarding utilisation of funds received during the year.”

Therefore, even if the disallowance of expenditure is made by the AO, then also the same would not be taxable in the hands of the appellant society.

‘Even otherwise if an addition has been made in the case of charitable trust the same would be treated as application for charitable purpose. Since the registration u/s 12A of the Act of the appellant trust is restored by Hon'ble I.T.A.T. and as already discussed above that the appellant is eligible for exemption u/s 11 of I.T.

13 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO Act. Accordingly, since the income of the appellant is exempt, the addition made on account of disallowance from expenses will also amount to application of Income and will have no sanctity.’

However, in our case, registration u/s 12A of the Act is intact; it means it is still applicable. Therefore, when registration u/s 12A of the Act is there and the application of income is more than 85 % of the total receipts, then the disallowance of expenses as stated would not amount to non-application of income and hence, the Ld. CIT(A) has wrongly confirmed the addition. This is because of the fact that no tax would be chargeable since, the application of receipts is more than 85% of the gross receipts.

Therefore, the addition made by the AO, by treating the same as personal expense, deserves to be deleted.”

contended that it is the purchase of horses disputed and not the activity of

the assesse society. purchase of nine live Stock- Horses amounting to Rs.

21, 50 000/-. Although, the assessee society filed names and addresses of

the persons from whom the above nine Horses were purchased, however,

the addresses of all the above sellers were vague and incomplete to varify

the genuineness of the expenditure on the purchase of above nine horses

and the justification of application of income keeping in view the nature of

educational activities. He contended that even after admitting the additional

filed during appeal proceedings, vide application dated 26.12.2017 for

Under Rule 46A of Income Tax Rules, the assesse failed to justify the

14 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO expenditure claimed on the purchase of the above 9 horses. He prayed that

the addition be sustained.

assessment order, impugned order and material placed on record.

Admittedly, there is an addition in Assets of the assessee society, on

account of purchase of nine Horses amounting to Rs. 21, 50 000/- during

the year under consideration. The AO asked the assesse to furnish the

names and addresses of the sellers of the above said Horses. The AO

noticed that the addresses of all the above sellers were vague and

incomplete to verify the genuineness of the expenditure on the purchase of

above nine horses to justify the application of income keeping in view the

nature of educational activities.

persons out of 9 persons from who claimed to have sold the horses to the

assessee, and assessee has claimed to purchase horses. There was

discrepancy in name and affidavit of Sh. Arvinder Singh and Sh. Binder

Singh as noted in the remand report of the assessing officer. No letter of

confirmation or any other supporting evidence in support of expenditure

incurred on purchase of horses has been filed. The Ld. CIT (A) has allowed

the assesse an opportunity to produce the sellers of the horses, the

15 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO assessee has failed to produce any of the sellers or to file any other

corroborating evidence even the date of payment was not mentioned which

was paid in cash by the assessee. Thus, the assessee has failed to

substantiate the expenditure spent on purchase of horses. The CIT(A)

further observed that the assessee has filed affidavits of two employees to

say that they work as helpers for horse training, however, no affidavit or

details of trainers for horse training have been brought on record; that

Copies of certificates issued to the students of the institute of the assessee

have been filed to show that the students participated in horse race of

Independence Day celebrating in 2017 which pertain to subsequent year

2017 whereas the year under consideration in assessment year 2013-14;

that even the Copy of Audited Financial statement of the assessee society

for F.Y. 2013-14 showing the horse feed expenses of Rs. 64,301/-. In our

view the CIT(A) the Ld CIT(A) was right in observing that since, the year

under consideration is assessment year 2013-14 pertaining to F.Y 2012-13,

the financial results of a subsequent year are irrelevant.

affidavits of the parents and affidavit of Mrs. Dimple Mehta without any as

an additional evidence which have not been considered by the CIT(A) for

deciding the appeal of the assessee. The argument of the counsel that if

16 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO the purchase of horses would not have been genuine, then the school

might not be able to provide horse riding education to its students and the

certificates issued by Mr. Paramjit Singh (PCS/ADM), a government officer,

would not have been possible during horse march on 15th August without

mentioning the relevant year, is irrelevant as held by the LD. CIT(A). The

contention of the Ld AR that the activity of the assesse society is not

doubted, shows that the students know the skills of riding horses and it has

been possible only due to horse riding education provided by the appellant

school to its students duly supported with the photographs of the students

submitted confirms the genuineness of purchase of horses by the appellant

school need to be substantiated with corroborative documentary evidences

pertaining to year under consideration. The evidences furnished by the

assesse society being pertaining to subsequent year are of no help to it.

We are not inclined to agree with the ld. AR contention that the finding of

the worthy CIT(A) that the appellant society has failed to substantiate its

claim of expenditure and also holding that horse riding is a part of

educational activity is contradictory and that while passing the order, he

has ignored the evidence of Independence day Programme as stated

above.

17 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO 11. We have considered the alternative plea of the counsel that the

assessee society has applied more than 85% of the funds received during

the year and thereby even if the amount spent on purchase of horses is

excluded, even then, the assessee has complied with the mandatory

requirements of utilizing the funds and therefore, no disallowance is called

for. Since, there was no issue regarding utilization of the funds received

during the year. The only issue is regarding disallowance of

unexplained/unverifiable expenditure of Rs. 21,50,000/- on account of

horse purchases made by the assessing officer, which the assessee has

failed to substantiate. Accordingly, the CIT(A) confirmed the finding of the

AO that amount of Rs. 21,50,000/- was not spent for educational purposes.

Before us, the Ld. Counsel of the assessee has argued that horse riding in

one of the activities which is part of education. It is not denied that horse

riding is an activity which is part of sports and educational activities but the

assessee has failed to substantiate its claim of expenditure in cash totaling

Rs. 21,50,000/- on purchases of horses during the relevant Financial Year

before the authorities below. Accordingly, the alternative plea of the

counsel for the assesse is rejected.

considered view, that the assesse society should be given an opportunity to

18 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO substantiate its claim of expenditure of Rs. 21,50,000/- on purchase of

horses with the support of material evidence relevant for the year under

consideration in view of principles of natural justice as some of the

affidavits were being not considered as an additional evidence by the Ld.

CIT(A). Accordingly, we consider it deem fit to restore back the matter to

the Ld. CIT(A) to decide afresh with the direction to pass a speaking order

after considering the written submission and evidences filed on record

before him during the appellate proceedings, and to be filed in fresh

proceedings after granting sufficient opportunity of being heard to the

assessee. No doubt, the assessee shall cooperate in the fresh

proceedings.

purpose.

Order pronounced in the open court on 15.11.2022

Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr/PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned

19 ITA No. 26/Asr/2019 Mehta Institute of Education v. ITO (5) The Sr. DR, I.T.A.T