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Income Tax Appellate Tribunal, DELHI “B” BENCH: NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by the revenue against the order of Ld. Commissioner of Income Tax (Appeal)-26, New Delhi [“Ld. CIT(A)”] dated 30.11.2023 in Appeal No. 10361/2016-17 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of the assessment order dated 26.12.2016 passed u/s 143(3) of the Act pertaining to Assessment Year 2014-15.
Brief facts of the case are that assessee is a trust incorporated through trust deed dated 03.09.2008 having main object is to establish and run a school. An Application for registration u/s 12A DCIT Vs GDG Educational Trust was filed before CIT, Faridabad who rejected the same for the reason that school run by the assessee trust being commercial in nature and thus it is a non-charitable activity. Against the said order an appeal was filed before the ITAT, New Delhi wherein the matter was referred back to the CIT, Faridabad for deciding it a fresh and the same was pending when the assessment proceedings for the year under appeal were taken up by the AO. Therefore, the AO proceeded to complete the assessment as if no registration is available with the assessee u/s 12A of the Act. The return of income was filed on 29.11.2014 showing Loss of Rs.4,84,80,506/-. Notice u/s 143(2) of Income Tax Act was issued on 28.08.2015. Thereafter, considering the submission made by the assessee, assessment order was passed at an income of Rs. 11,31,37,743/- by making various disallowances out of the expenses claimed by the assessee.
Against this order, an appeal was filed before the Ld. CIT(A) who after considering the submission, had allowed substantial relief to the assessee.
Aggrieved by the said order, the revenue is in appeal before the Tribunal wherein following grounds of appeal are taken by the revenue:-
1. Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 14,79,28,500/- made by AO on account of disallowance of rent expenses paid without any registered documents.
2. Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 46,71,183/- made by AO on account of disallowance of professional charges found non genuine in the absence of production of proper bills and vouchers for the same.
3. Whether on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,32,74,094/- made by AO on account disallowance of royalty charges paid to sister concern ignoring the fact that the same was paid in the name of service charges but claimed as Royalty charges. 4. (a) Whether the Order of the Ld. CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.
Ground of appeal No.1 raised by the Revenue is with respect to 5. the deletion of disallowance of INR 14,79,28,500/- by Ld. CIT(A) which was made by AO towards the rent paid by the assessee.
6. Before us, Ld.CIT DR for the Revenue submits that no evidence was filed with respect to the payment of rent as copy of Rent Deed which is not registered. Moreover, the assessee was not engaged in charitable activities of imparting education and running the school on commercial basis where it has taken affiliation from Lancaster University, UK. It is further submitted by ld. CIT DR that the assessee has failed to justify the payment of rent to the connected person and, therefore, the payment of this substantial amount of rent has rightly been disallowed by the AO which orders deserves to upheld and the disallowance be restored.
7. On the other hand, Ld.AR for the assessee submits that since the assessee was not registered u/s 12A of the Act and once its activities are not charitable and the receipt are assessed as business receipts, the expenditure claimed against such receipts deserves to DCIT Vs GDG Educational Trust be allowed as revenue expenditure. He further submits that assessee paid rent in immediately proceedings two years which has not been doubted in the assessment completed u/s 143(3) of the Act. Therefore, following the principle of consistency, Ld. CIT(A) has deleted the same. He, therefore, prayed for confirmation of the deletion of the disallowance made by Ld. CIT(A).
8. Heard the contentions of both the parties and perused the material available on record. Ld.CIT(A) while deleting the disallowance in para 5.3 made following observations:-
5.3 “I have considered the submissions of the appellant and facts of the case. The assessing officer has made addition of Rs. 14,79,28,500/- on account of disallowance of rent paid to sister concern. The appellant contented that the rent has been paid on the basis of written rent agreement entered in the earlier years. There is no requirement under the law that rent agreement has to be registered. The appellant has made the payments through banking channel after deduction of TDS as per the applicable rate. The rent has been paid wholly and exclusively for the purpose of its main activities i.e., educational activities from which the appellant has earned substantial income and which have been offered for taxation. The payee has shown the rental as their income. The assessee has made a supplementary submission stating that it is neither registered u/s 11/12 of the Act nor it is claiming any benefit u/s 11/12 of the Act. The assessee company is filing its return like a normal business entity in the status of AOP. Further, from the facts of the case it has been gathered that the rent paid in the F.Y. 2013-14 is the same that was paid during the F.Y. 2012-13. The appellant has also submitted that in the earlier years the rent expenses as per the same terms of agreement paid were allowed by the AO. The appellant has furnished ledger of the rent paid for the year under consideration and for the preceding two years. The rent has been paid on the basis of written agreement done with both the parties. It has been found that the appellant is regularly paying rent. Further, the payments of rent have been made through banking DCIT Vs GDG Educational Trust channel and TDS has also been deducted. The payee has also shown the same as their rental income. Thus, in accordance with Doctrine of Consistency, deduction of rent expenses should have been allowed to the assessee as has been allowed to it in earlier years as there is no change in the facts and circumstances during the year pointed out by the assessing officer. The Hon'ble Supreme Court in case of CIT v. Excel Industries Ltd. (2013) 358 ITR 295 has held that it was not appropriate to allow reconsideration of an issue for a subsequent assessment year if the same "fundamental aspect" permeates in different assessment years. In view of the above, considering the fact that the same amount of rent payment was accepted by the AO in the previous assessment year, the disallowance of rent expenses of Rs. 14,79,28,500/- made by the assessing officer in the subsequent year cannot be sustained as the facts remain the same and therefore, the same is directed to be deleted. Accordingly, this ground of appeal raised by the appellant is allowed.”
9. Before us, Ld.CIT DR for the Revenue simply reiterated what was observed by the AO while making disallowance. It is seen that the AO has not doubted the reasonableness of the amount paid and solely for the reason that the assessee was doing charitable activity thus payment of rent to this magnitude was doubted. The ld. CIT DR filed to controvert the findings given by the Ld.CIT(A) who deleted the disallowance on various counts. It is further seen that Ld.CIT(A) observed that the rent was paid in preceding assessment years, where the same was accepted as revenue expenditure by the Revenue in the orders passed u/s 143(3) of the Act, copies of the said orders are placed before us. It is also seen that the rent agreement which was doubted by the AO in the present year was the same agreement based on which rent was paid and claimed in preceding years. This being so, we find no infirmity in the order of Ld. CIT(A) who had rightly deleted the same by following the principle of consistency and DCIT Vs GDG Educational Trust the judgement of Hon’ble Supreme Court in the case of CIT vs Excel Industries Ltd. [2013] 358 ITR 295 (SC). In view of the above discussion and following the decision of Hon’ble Supreme Court, Ground of appeal No.1 raised by the Revenue is dismissed.
Ground of appeal No.2 raised by the Revenue is with respect to the deletion of disallowance of professional charges of INR 46,71,183/- made by the AO.
11. Before us, Ld. CIT DR for the Revenue argued that these expenses were incurred by the assessee which are in the nature of non-charitable. Ld.CIT DR further submits that Ld.CIT(A) has allowed the same by admitting the additional evidences in the shape of bills and vouchers however, these documents were not filed by the assessee before the AO, which fact is evident from the assessment order itself, therefore, the matter may be sent back to the file of AO for verification of facts.
12. On the other hand, Ld.AR for the assessee supports the order of Ld.CIT(A) and submits that before ethe AO books of accounts were produced for examination who examined the same however, made the disallowance by not appreciating the true nature of expenses. He therefore, prayed that Ld. CIT(A) has rightly deleted the additions made by the AO and requested for the confirmation of the said orders.
Heard both the parties and perused the material available on record. From the perusal of the assessment order, it is seen that DCIT Vs GDG Educational Trust assessee failed to file any details with respect to these expenses and the reason stated was due to winter vacations staff was not available. Before ld. CIT(A) assessee had filed the bills and other details like TDS etc. made on such payments and the nature of services for which the payments were made. As the same were not produced before the AO nor was any opportunity provided by ld. CIT(A) to the AO for his comments before reaching to the conclusion about the genuineness of these expenses. In view of these facts and in the interest of justice, we set aside the matter to the file of AO for examination of the details filed by the assessee and to decide the issue in accordance with law. The assessee is directed to participate file all the relevant details before the AO in remand proceedings. With these directions the ground of appeal No. 2 taken by the revenue is partly allowed for statistical purposes.
Ground of appeal No.3 raised by the Revenue is with respect to the addition of INR 1,32,74,094/- made on account of royalty charges paid to sister concern.
15. Before us, Ld. CIT DR for the Revenue submits that royalty charges were paid to G.D. Goenka Pvt. Ltd. however, from the details, it could be seen that the title “G.D.Goenka” is not the sole ownership of the said company but one Shri Anjani Kumar is the sole owner, Since the assessee had paid this amount of royalty to M/s G.D. Goenka Pvt. Ltd. and the bill submits is with respect to the service charges and not for the royalty payment, therefore, the AO concluded that payment of royalty is not genuine. Ld.CIT Dr further submits DCIT Vs GDG Educational Trust that M/s. Lancaster University, UK has charged Royalty annually of £ 01 for use of name of Lancaster University which is a worldwide renowned institution as against which for the use of title “G.D. Goenka”, assessee had paid such a huge amount of royalty to the sister concern which is not reasonable. Looking to these facts it is prayed by Ld. CIT DR that disallowance so deleted by Ld.CIT(A) deserves to be restored.
16. On the other hand, Ld.AR for the assessee supports the order of Ld.CIT(A) and submits that assessee is not registered u/s 12A of the Act and file the return of income as normal business entity in the status of AOP. He submits that Shri Anjani Kumar Goenka is the owner of trade mark “G.D.Goenka” and granted license rights to M/s G.D. Goenka Pvt. Ltd. for which an agreement was executed between the parties, copy of the same was submitted before Ld. CIT(A). The assessee also submitted MOU with M/s G.D. Goenka Pvt. Ltd. for use of the brand-name i.e. “G.D. Goenka”. He, therefore, prayed for the confirmation of the order of Ld.CIT(A) who after considering these facts, has deleted this addition.
Heard the contentions of both the parties and perused the material available on record. Form the perusal of the assessment order, it is seen that Ld.CIT(A) has referred the agreement between Shri Anjani Kumar Goenka and G.D.Goenka Pvt. Ltd. with respect to the use of title trade-mark “G.D.Goenka” in terms of licensing rights. Further, Ld. CIT(A) has referred MOU between the assessee and G.D. Goenka Pvt. Ltd. for use of the brand name. Form the perusal of the DCIT Vs GDG Educational Trust order of AO, it is seen that these details were not field before the AO with whom only invoices were submitted based on which AO concluded that the Royalty was paid to the company however, the title was with some other person. Moreover, no doubts were raised before Ld. CIT(A) on the issue of reasonableness of payment of royalty. In view of these facts and in our considered opinion, this issue needs re-consideration on the part of the AO who was deprived of making comments on the agreements filed by the assessee before Ld.CIT(A). In view of these facts, we set aside the order of Ld.CIT(A) on this issue and remand the issue to the file of the AO for making necessary verification of the agreements as claimed and further the reasonableness of the payment and decide the issue in accordance with law. With these directions, Ground of appeal No.3 raised by the Revenue is partly allowed for statistical purposes.