DCIT, C-1 (EXEMPTIONS), CHANDIGARH V. THE INSTITUTION OF CIVIL ENGINEERS SOCIETY, LUDHIANA

ITA 52/CHANDI/2023

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the decision of the Commissioner of Income Tax (Appeals) which had reversed the disallowances made by the Assessing Officer on payments made to two consultancy firms and on vehicle expenses claimed by the Institution of Civil Engineers Society for the assessment year 2017-18. The Revenue contended that these payments provided undue benefits to specified persons under Section 13(3) of the Income Tax Act, and that the vehicle expenses were for personal use. The CIT(A) found that the payments were for genuine services at market rates and that the vehicles were used for trust purposes, not personal use. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315957 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: Young Scholars Educational Society Vs ITO, M/s Heritage Educational Society, Chandigarh Vs DCIT, Circle-1 (Exemption) Chandigarh, ITO Vs. M/s Shirdee Charitable Trust, Manav Mangal Society Vs. DCIT, Circle-1 (Exemptions), Chandigarh, CIT Vs Indicula Trust Society, Tuv India Pvt. Ltd. Vs.DCIT, Sh. Kailas Chand Aggrawal Vs DCIT, The Cancer Aid Research Foundation Byculla Municipal School Building Vs Director of Income Tax (Exemp)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Set aside; Depreciation; TDS; Charitable institution
• Section: 143(3); 142(1); 12AA; 12A; 12

Judgement Text

"आयकर अपील य अ धकरण,च\u0010डीगढ़ \u0014यायपीठ,च\u0010डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘’ CHANDIGARH BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकरअपीलसं./ ITA No. 52/CHD/2023 नधा\u0011रणवष\u0011 / Assessment Year: 2017-18 The DCIT, Circle – 1 (Exemptions), Chandigarh. Vs The Institution of Civil Engineers Society, Bindra Complex, Model Town, Ludhiana. \u0016थायीलेखासं./PAN NO: AABAT4612M अपीलाथ\u001a/Appellant \u001b यथ\u001a/Respondent Assessee by : Shri Sudhir Sehgal, Advocate Revenue by : Smt. Kusum Bansal, CIT DR Date of Hearing : 17.03.2025 Date of Pronouncement : 14.05.2025 HYBRID HEARING ORDER PER RAJPAL YADAV, VP The Revenue is in appeal before the Tribunal against the order of the ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 16.12.2022 passed for assessment year 2017-18. 2. The grounds of appeal taken by the Revenue read as under : i) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding the surplus of income and expenditure account of the assessee for the A.Y. 2017-18 exemptu/s 11 and 12, even though the AO has proved that income of the society has ITA No.52/CHD/2023 A.Y.2017-18 2 been used to provide benefit \"directly or indirectly-\" to any person referred to in section 13(3) i.e. specified persons ignoring the detailed findings given by the Assessing Officer in the Assessment order? ii. Whether on the (acts and in the circumstances of the case, the Ld. CIT(A) has erred in holding the payment to the specified persons Smt. Kalpana Thakur (Prop. Global Education Consultants) under section 13(3) as reasonable and justified by noting that the MOU can be equally valid even if done on an unregistered document? iii) Whether on the facts and in the circumstances of the case, the Ld. C]T(A) has erred in holding the payment to M/s Shubhdeep Consultants under section 13(3) as reasonable and justified by noting that the MOU can be equally valid even if done on an unregistered document? iv. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the complete expenses on luxury vehicles by stating that the AO has been unable to bring forth any evidence as to the personal use of the said vehicles by the Trustees or the functionaries of the appellant trust? v. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the Institution of Civil Engineers Indiaand the Institution of Civil Engineers Society is not the same entity and their activities of the institution of Civil Engineers Society are genuinely charitable ? vi) Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in holding that no undue benefit had been given to the specified persons by purchasing a house at B-101, Lagoon Residential Apartment, Ambience Island, NH-08, Gurgaon for Rs. 2,15,90,000/- using the funds of the assessee stating that these allegations have not led to any additions or disallowance and there is no need to discuss this issue, whereas it is a ground for proving non-charitable object of the assessee? vii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding the order of the Assessing Officer not right because the assessee had been running for the past many years and various assessments u/s 143(3) had been made for the earlier years and nosuch adverse view had been taken then completely ignoring that in the earlier assessments, the issues were not examined in detail and rather, material documents like lease deed, comparison of salaries with other employees, etc. was not asked/discussed? viii) That the appellant craves leave to add, delete or amend any grounds of appeal. ITA No.52/CHD/2023 A.Y.2017-18 3 3. Though the Revenue has taken about 8 grounds of appeal, but its grievances could be two fold as made out by the AO in the assessment order. Rest of the pleadings in the grounds are peripheral arguments in support of these two fold of grievances. 4. The first fold of grievance is whether disallowance of payments made to Global Educational Consultants (Proprietary firm of Smt. Kalpana Thakur) W/o Shri Sagar Singh Thakur, Secretary of the assessee Trust and to Shri Shubhdeep Consultants deserves to be confirmed or not. The second fold of grievance is whether 50% expenses out of vehicle expenses deserve to be disallowed or not. 5. The brief facts of the case are that assessee is a Society registered under the Societies Registration Act, 1860 since the year 2005. It was granted registration for the purpose of Income Tax Act under Section 12A by the Commissioner of Income Tax (Exemptions) w.e.f. 04.03.2009. The ld. AO had a confusion with regard to two societies having similar names, namely, ‘ICE’ and ‘ICES’. ‘ICE’ is ‘Institution of Civil Engineers’. It is an ‘AOP’ came into existence in 2003 by a ITA No.52/CHD/2023 A.Y.2017-18 4 Group of Educationalists. Its PAN number with the Income Tax Department is different than the assessee society. The Institution of Civil Engineers is similar to the Institution of Chartered Accountants of India for regulating the profession of Chartered Accountants. ‘ICE’itself has been allotted a PAN No.AABAT8591M. The assessee Society is ‘ICES’ (The Institute of Civil Engineers Society) and its PAN is AABAT4612M. The assessee Society takes care of the education and examination area with regard to Certificate and Diploma Course pertaining to Architectural and Civil Engineering. The activities of assessee Society (ICES) are defined in a manner that the revenue is generated from students’ fee. It conducts two examinations every year which are in the month of June and December. The revenue earned by the ICES (AOP) is used for various students related activities in the form of enrollment, pre and post examination activities documentations. It also promotes research in the field of Civil and Architectural Engineering in India. It is engaged in promoting business of educational awareness to a large section of Society. It has been running two State Government approved Industrial Training ITA No.52/CHD/2023 A.Y.2017-18 5 Institutes (ITI) in the city of Abohar and Fazilka. It has filed its return of income under Section 139(4) of the Income Tax Act declaring ‘nil’ income. 5.1 The case of the assessee was selected for scrutiny assessment and notices under Section 143(2) and 142(1) were issued and served upon the assessee. 5.2 The ld. AO has analyzed the activities of the assessee and found that assessee has extended the undue benefit to two individuals, who fellwithin the ambit of ‘individuals’ contained in sub-section (3) to Section 13. Hence, payments given to these two individuals namely, Kalpana Thakur and Shubhdeep have been disallowed. Similarly, he further found that assessee Society has purchased luxury vehicles, therefore, he disallowed 50% of Vehicles Expenses and determined the taxable income of the assessee. The computation made by the AO on conclusion of the assessment order read as under : Gross income Rs. 9,00,37,169/- Less expenditure (including depreciation) Rs. 6,35,92,364/- Net surplus as per Income & Expenditure account Rs. 2,64,44,805/- Disallowance of payment made to Global Educational Consultants Rs. 1,37,80,000/- Disallowance of payment made to Shubhdeep Consultants Rs. 2,57,67,8001- Disallowance of personal vehicle expenses Rs. 11,21,084/- Taxable Income Rs. 6,71,13,689/- ITA No.52/CHD/2023 A.Y.2017-18 6 Assessed at Rs.6,71,13,689/-. Issue requisite documents. Charge interest as applicable. Penalty u/s 270Aof the Act is initiated for under-reporting of income as a consequence of misreporting as per clause 9(a), 9(c), 9(d) in view of the discussion above. GARIMA SHARMA EXEMPTIONS CIRCLE , CHD 5.3 A perusal of the above computation would reveal that assessee has gross receipts of more than Rs. 9 Crore. It has incurred expenses of Rs.6.35 Cr on its activities. The assessee has worked out net surplus of Rs.2.64 Cr. The AO, thereafter, made disallowance of payments made to Global Education Consultants and Shubhdeep Consultants. He further made disallowance of Vehicle Expenses on account of personal user. In this way, she has determined income of the assessee at Rs.6,71,13,689/-. 6. Dissatisfied with the disallowance, assessee carried the matter in appeal before the CIT(A). The ld. CIT(A) has examined the issue lucidly in a very detailed order running into 88 pages, but CIT(A) has deleted all the three disallowances made by the AO. 7. The Revenue is aggrieved with the order of the CIT(A). ITA No.52/CHD/2023 A.Y.2017-18 7 8. The ld. CIT DR relied upon the order of the AO and submitted that the AO has demonstrated as to how payments have been made to two concerns of the individuals in violation to Section 13(1)(c) read with Section 13(3) of the Income Tax Act. Similarly, she as pointed out that there was no occasion for the assessee Society to purchase a Mercedes Car for the user of its charitable objective. Therefore, ld. AO has rightly disallowed Vehicle Expenses to the extent of 50%. 8.1 The ld. Counsel for the assessee, on the other hand submitted that assessee has filed detailed written submissions which has been reproduced by the ld. First Appellate Authority from page No. 5 to 53. He basically relied upon these submissions. He further submitted that ld. First Appellate Authority has made reference to a large number of authoritative judgements noticed at page No. 74 to 88 of the impugned order. He also placed on record copies of the judgements in following cases : 1. Young Scholars Educational Society Vs ITO 25 taxmann.com 422 (Chandigarh-Trib.). 2. M/s Heritage Educational Society, Chandigarh Vs DCIT, Circle-1 (Exemption) Chandigarh in ITA No. 1068 to 1071/Chd/2019. 3. Judgement of ITAT, Amritsar Bench, Amritsar in the case of ITO Vs. M/s Shirdee Charitable Trust in ITA No.408/Asr/2021 4. Manav Mangal Society Vs. DCIT, Circle-1 (Exemptions), Chandigarh (2021) 76 I.T.Rep. 97 (ITAT) Chandigarh. ITA No.52/CHD/2023 A.Y.2017-18 8 5. CIT Vs Indicula Trust Society (2014) 45 taxmann.com 158 6. Judgment of Hon'ble ITAT Mumbai Bench in the case of Tuv India Pvt. Ltd. Vs.DCIT in 110Taxmann.com 175 7. Judgment of Hon'ble ITAT Raipur Bench in the case of Sh. Kailas Chand Aggrawal Vs DCIT in ITA No.275/RPR/2016. 8. Judgment of Hon'ble ITAT Mumbai Bench in the case of The Cancer Aid Research Foundation Byculla Municipal School Building Vs Director of Income Tax (Exemp) in ITA No. 1782/Mum/2014. 8.2 Apart from the above, ld. Counsel for the assessee pointed out that the AO has passed an assessment order in assessment year 2022-23 on 24.03.2024. He has taken note of the facts of assessment year 2017-18. He observed that in assessment year 2017-18, payments made to Global Educational Consultants have been disallowed. These payments were termed in contravention to Section 13(2)(c) read with Section 13(3) of the Income Tax Act, but, inspite of taking note of the activities of the assessee, he did not made any addition.The assessment order passed in A.Y. 2022-23 under Section 143(3) is running into 17 pages, where ld. AO has taken note of the assessee's activities and thereafter accepted them as genuine. According to the ld. Counsel for the assessee, there is no change in the activities. Right from its inception, it has been enjoying the benefit of registration under Section 12A.There was no doubt qua the charitable nature of its activities.The only doubt which has ITA No.52/CHD/2023 A.Y.2017-18 9 been raised by the AO in the present assessment year i.e. 2017-18 is that certain payment were made in contravention to Section 13(1)(c) read with Section 13(3) of the Income Tax Act, 1961. He apprised us both these provisions and submitted that ld. CIT(A) has rightly deleted the disallowances. 9. We have duly considered the rival contentions and gone through the record carefully. There is no dispute that assessee is a charitable institution. It has been enjoying registration under Section 12A of the Income Tax Act. The income of a charitable Institution has to be determined as per Section 11 of the Income Tax Act. A perusal of this Section would reveal that this Section has been amended from time to time, but the basicstructure of this Section remains as it is. It provides that income derived from property held under Trust, wholly for charitable or religious purpose, to the extent to which such income is applied to such purpose 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 ITA No.52/CHD/2023 A.Y.2017-18 10 set apart is not in excess of 15% of the income from such Society. In other words, sub-clause (a) of Section 11 would contemplate that income of a charitable society/Trust derived from the property held under it would be applied on its charitable objectives to the extent of 85%. If that has been achieved by the Institution, then such income would not be included in the total income of the previous year of the Society. For example, if a Society enjoying registration under Section 12AA has earned Rs.100/- and applied Rs.85/- on its objectives, then its income would be determined at ‘Nil’. This Section, thereafter, deals with different situations, namely, if such income was not applied during the Accounting Year but set-forth for application in future years, then mode of accumulation, where to deposit it, and how to inform the AO is being provided. 9.1 A perusal of the assessment order would indicate that AO has not disputed about the application of its income or about the activities of the assessee Society. His objections are that under Section 13(1)(c) read with Section 13(3), it has been provided that if some amount is being given to the ITA No.52/CHD/2023 A.Y.2017-18 11 persons mentioned in the list of persons of Section 13(3), then such undue benefit will not be admissible to the assessee for application to the extent of 85% on its objectives. This has to be excluded and brought to the tax. 9.2 The sole issue before us about first fold of grievance is whether AO has established that amounts paid to Global Educational Consultants and Shubhdeep Consultants are hit by Section 13(1)(c) read with Section 13(3) of the Income Tax Act. In order to address this issue, it is incumbent upon us to take note of Section 13(1)(c) read with Section 13(3). The relevant part of these clauses read as under : “13.(1) Nothing contained in Section 11 or Section 12 shall operate so as toexclude from the total income of the previous year of the person in receipt thereof— (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof— 1. if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or 2. if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied,directly or indirectly for the benefit of any person referred to in sub-section (3) Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in subsection (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : ITA No.52/CHD/2023 A.Y.2017-18 12 Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970;\" Section 13(1)(c) of the Act speaks of non-exclusion of \"any income\" u/s 11 and 12 from the total income if \"any part of such income\" has been used to provide benefit \"directly or indirectly\" to any person referred to in section 13(3). A plain reading of the section would show that the provisions are intended to eliminate any possibility of the funds of the Trust enjoying exemption u/s 11 and 12, being used for the benefit of any specified person. Once there is a violation of the aforesaid provisions, the provisions of section 11 and 12 shall not operate so as to exclude \"any income\" of thetrust from the total income of the previous year, whereby the total income of the assessee either by voluntary contribution or income derived from its property or any surplus income earned during the discharge of charitable activity would be income in normal course and shall be chargeable to tax. 6.5.4 Section 13(3) gives out the list of all specified persons with regard to a Trust the payment to whom leads to rejection of exemption u/s 11 and 12. The same is reproduced as below:- (3) The persons referred to in clause (c) of sub-section (1) andsub-section (2) are the following, namely:— (a) the author of the trust or the 'founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, 4[that is to say, any person whose total contribution up to the end of the relevant previous year exceeds [fifty] thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; 6[(cc) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, [member, trustee or manager] as aforesaid; ITA No.52/CHD/2023 A.Y.2017-18 13 (e) any concern in which any of the persons referred to in clauses (a), (b), (c) [cc)] and (d) has a substantial interest. x x x (2) Without prejudice to the generality of the provisions of clause (c) 98[and clause (d)] of sub-section (1), the income or the property\" of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),— (a) if any part of the income or property\" of the trust or institution is, or continues to be, lent\" to any person referred to in sub-section (3) for any period during the previous year without either adequate security\" or adequate interest or both; (b) if any land, building or other property\" of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; 9.3 A perusal of Section 13(1)(c) would indicate that if any benefit has been provided directly or indirectly to the persons mentioned under Section 13(3), then such benefit would be excluded from the alleged total income computed for the purpose of giving benefit of Section 11. In other words, for example, if an assessee has gross income of Rs.100/-, it is supposed to apply Rs.85/- on its charitable activities. But the assessee has extended benefit directly or indirectly to the extent of Rs.20/-to the persons mentioned ITA No.52/CHD/2023 A.Y.2017-18 14 in the list under Section 13(3), then this Rs.20/- will not be granted exemption under Section 11. In other words, out of Rs.85/-, Rs.20/- will be excluded and will be brought to tax. 9.4 A perusal of sub-clause (2) of Section 13 would contemplate that disallowance for the purpose of Section 13(1)(c) read with Section 13(3) would be worked out if services or goods have been availed by the Society over and above the market rates qua those services/value of the goods. For example, a service can be availed for Rs.100/- in an independent market but the Society has availed such a service from the persons mentioned at (a) to (e) of sub- section (3 ) of Section 13 at Rs.120/-, then this Rs.20/- is in excess to the market rate. It is not to be allowed as exemption to the assessee Society under Section 11 of the Income Tax Act. This Rs.20/- is to be disallowed and brought to tax. 9.5 The AO has disallowed the payments made to Global Educational Consultants and Shubhdeep Consultants. He was of the view that Global Educational Consultants is the concern of Mrs. Kalpana Thakur who is wife of the Secretary ITA No.52/CHD/2023 A.Y.2017-18 15 of the Society. Similarly, M/s Shubhdeep Consultants also falls in the ambit of the list of persons available under Section 13(3) of the Income Tax Act. First Appellate Authority has recorded a finding that AO failed to demonstrate the fulfillment of conditions provided under Section 13(2). In other words, he has not demonstrated as to how charges made by these two individuals are in excess to the market rate of their services. The ld. First Appellate Authority has made a detailed analysis on this issue and we deem it appropriate to take note of this finding, which reads as under : 6.5.5 The appellant has put forward the argument that the payments to GEC are at prevailing market rates. It has stated that the services were indeed received for which payments were done. In support of this'argument, it has submitted the Memorandum of Understanding signed with GEC and also the qualification of the proprietor of GEC Mrs Kalpana Thakur (Solanki in the certificate). The appellant has submitted the copy of the said Memorandum of Understanding with the concern GEC. It is seen that the MOU is effective since April 1, 2014. The relevant portions of the MoU is as below: - Memorandum of Understanding The Institution of Civil Engineers Society, Career House, Bindra Complex, Model Town, Ludhiana & Global Educational Consultants #3036, Gurdev Nagar, Ludhiana -141001 ITA No.52/CHD/2023 A.Y.2017-18 16 Global Educational Consultants have been appointed as authorized consultants of The - of Civil Engineers Society to provide their expertise in the evaluation of the Test Booklets & OMR sheets of the candidates of The Institution of Civil Engineers Society. They have been authorized to take up the evaluation work from the Summer 2014 Examination The signatories referred to as The Institution of Civil Engineers Society, as the Institution and the Global Educational Consultants as the Consultants have agreed herewith to execute this 'Memorandum of Understanding consisting of the following clauses with signatures of the said designated authorities. The Memorandum of Understanding will come into force with effect from 1 April, 2014. Role & Responsibilities of the Global Educational Consultants 1. The Consultants will take up the evaluation work of the Test Booklets & OMR sheets of The Institution of Civil Engineers Society as assigned from time to time w.e.f. Summer 2014 Examination. 2. The Consultants will ensure that the evaluation of the Test Booklets & OMR sheets is carried out by qualified and experienced evaluators of the subject concerned. 3. The Consultants will complete the evaluation work within the dates fixed by The Institution of Civil Engineers Society. 4. The Consultants will supply the list of faculty consisting of qualified & experienced persons meeting the requirements of The Institution of Civil Engineers Society for evaluation work. 5. The Consultants will ensure that the evaluation work is taken up as per the requirements of The Institution of Civil Engineers Society including arithmetic checking of the marks and carrying them over to the table on the first page. 6. The Consultants will also prepare the award lists of the candidates, paper wise and course wise & roll number wise. 7. The Consultants will also check all cases of re checking of Test Booklets & OMR sheets and submit a report about the position of each Test Booklet & OMR sheet. 8. The Consultants will maintain complete confidentiality of the work and shall not sub let the same to any outside agency. 9. The Consultants will work in co-ordination with The Institution of Civil EngineersSociety to achieve the target for which they have been appointed. 10.The Consultants will handover the evaluated Test Booklets & OMR sheets to ICE Society paper-wise, course-wise & roll number wise. Role & Responsibilities of Institution of Civil Engineers Society ITA No.52/CHD/2023 A.Y.2017-18 17 1. The Institution of Civil Engineers Society will make available the Test Booklets & OMR Sheets Paper wise and course wise to the Consultants. 2. The Consultants will also be supplied the Award Lists -Roll No. wise and Course wise for completion & submission of the samealongwith the result of the OMR Sheets. 3. The Institution of Civil Engineers Society will pay Rs.800/- per candidate and the Consultants will raise their claim accordingly. 4. The appointment of Global Educational Consultants as Consultants of The Institution of Civil Engineers Society will be for a period of 5 years which may be renewed with modifications, if required, after the expiry as agreed to by both the parties. 5. The legal jurisdiction for any dispute between the parties shall be Ludhiana Courts. This Memorandum of Understanding is signed today, the 1 April, 2014. On perusal of the MOU it appears to contain all the functions necessary for the Evaluation work related to the exams. It discusses work related to Test Booklets, and OMR Sheets, evaluation by qualified evaluators, of the subject concerned. The supply of list of faculty necessary, arithmetic checking of marks, reporting of each test booklet, maintaining complete confidentiality, etc are agreed upon. It is seen to have enlisted all the works with regard to evaluation of test booklets. 6.5.6 The returns and balance sheet of GEC provided for A.Y.15-16, 16-17 and 17-18 shows that the concern has been doing this job as claimed, since earlier than the period under consideration. It has disclosed the income received from the appellant and has paid taxes on the same. There appears to be no doubt about the outsourced work being done for the appellant. The auditors report shows that the appellant has been categorized under SERVICE SECTOR and sub group CONSULTANCY. The GEC is seen to have deducted TDS on its expenses to contractors and salaries paid which appear proportionate to the amounts received from the appellant. 6.5.7 The specific payment of loan to Sagar Sing from GEC as claimed by the AO is also seen. The Appellant has claimed that both GEC and Mr Sagar Singh (Member of society), are independent tax paying entities. The GEC has been claimed to maintain independent books of accounts which were duely audited by an auditor as per law. The appellant claims that it has reemphasized that it has received services from GEC only for which it has paid as per prevailing market rate. It is seen that the two things cannot be connected especially when there is no evidence that the payment made is in excess of market rates. This fact about loan to the member of appellant on the issue in absence of any evidence of the payments to GEC by the appellant in excess of prevailing market rate. The primary concern of the section 13(1 )(c) to come into play is the fact about the expenses being excessive or outright non genuine. 6.5.8 The appellant has relied upon following judicial decisions with regard to section 13(1)(c): ITA No.52/CHD/2023 A.Y.2017-18 18 1. Young Scholars Educational Society vs Income Tax Officer 120121 25 taxmann.com 422 (Chandigarh - Trib.) where it is held that: Considering the qualification of those being paid by the Trust the remuneration cannot be said to be excessive and hence does not violate section 13(1)(c). 1. Judgment of the Jurisdictional Bench of Chandigarh ITAT in the case of M/S Heritage Educational Society, Chandigarh vs The DCIT, Circle-I (Exemption), Chandigarh in ITA No. 1069 to 1071/Chd/2019, wherein the salaries remuneration paid to the specified persons were allowed by the Hon'ble Bench of the ITAT. However, your goodselfs kind attention is invited towards the said judgment wherein the facts of the case were very much weak as compared to the facts of our assessee. In the said judgment, firstly the remuneration were paid to the Trustees, secondly, the Trustees were not that qualified and thirdly the scope of the work of the said persons were not clearly defined. However, in our case the facts are very much different and more favourable as in our case, the specified persons are not the trustees but the relatives of the Trustees, secondly, the said persons were very much qualified and even the most. qualified Doctors in the whole Hospital and thirdly, their scope of work has been clearly defined, which has also been explained above. Therefore, as per the above judgment of the Jurisdictional Bench also the addition made in the case of the assessee may kindly be deleted. 1. Hon'ble Hyderabad Tribunal in the case of Deputy Director of Income-tax (Exemption)-lll, Hyderabad vs Gideons International in India [2016] 65 taxmann.com 95 (Hyderabad - Trib.) has held that: \"Section 13, read with section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Denial of exemption (Sub-section (l)(c)) - Assessment year 2011- 12 - Assessee-society claimed exemption under section 11 - Assessing Officer concluded that quantum jump in payment of salary to its executive director in assessment year under, appeal being unreasonable was in violation of section 13(1)(c) and, therefore, he denied exemption under section 11 However, there was failure by Assessing Officer to bring any material facts on record order to indicate that salary paid was unreasonable or excessive Whether, no violation of provisions of section 13(1)(c) could be alleged and, consequently, exemption under section 11 could not be denied - Held, yes [Para 81 [In favour of assessee\" Thus appellant has put forward that the payments needs to be excessive to prevailing market rate to be coming under the restrictions of section 13(1 )(c). Therefore the disallowance of the expenses does not withstand the test of unreasonableness. 6.5.9 Another objection by the AO is that the agreement between GEC and the appellant was on an unregistered document printed on a simple paper rather than on stamp paper. The normal business transactions in practice are made on a registered document is a common parlance. However that does not preclude the parties from entering into an agreement on a simple paper which can be unregistered. The appellant has rightly pointed The Income Tax Act, 1961 or The Indian Contract Act, 1872 do not mandate the existence of a registered document ITA No.52/CHD/2023 A.Y.2017-18 19 as evidence of an agreement. Therefore it is held that the MoU can be equally valid even if done on an unregistered document. Therefore the disallowance of expenses by the appellant at Rs. 1,37,80,000 is hereby directed to be deleted. Thus this ground of appeal of the appellant is allowed. 6.7.1 Ground No. 10 - Disallowance of payment to M/s. Shubhdeep Consultants (at Rs. 2,57,67,800/-. The said ground of appeal relevant to the addition of Rs.2,57,67,800 is reproduced as below:- \"That the Ld. Assessing Officer has also erred in disallowing the payments of Rs. 2,57,67,800/- to M/S Shubhdeep Consultants alleged as in-genuine payments as per para - 6.5 of the order of Assessing Officer, as against the genuine payments made for the services availed by the assessee based on the MOU executed between the two and thus making a disallowance of Rs. 2,57,67,800/-.\" The relevant portion of the assessment order from page no para which led to the addition of Rs.2,57,67,800 is reproduced as below:- \"6.3 Further, from the ITR of Shubhdeep Consultants also it is seen that it has earned receipts only from ICE India, ICE Society and Balaji Studies Consultants Pvt. Ltd. (company of the President of the society). While the assessee has claimed that Shubhdeep Consultants has provided services for \"Examination confidential work\" to it, however, from the Income & Expenditure account of Shubhdeep Consultants for the year ending 31.03.2017, it is seen that it has further made contractual payments under the following heads:- • Student Events Programme • Education Business Promotion Charges • Education Promotion Charges for Students • Education Seminar charges • Education Seminar for Business Promotion • Seminar Charges for Student Promotion • Seminar for Education Business 1. 1. There is no expense claimed by Shubhdeep Consultants in the nature of Examination confidential work. Moreover, it is seen that the name of the assessee is not appearing as a debtor in the books of Shubhdeep Consultants and only the names of ICE India and Balaji Studies Consultants Pvt. Ltd. are appearing. The amount which is appearing as outstanding in the books of the assessee against the name of Shubhdeep Consultants is appearing as \"Accrued Interest on Swap\" as a current asset in the books of Shubhdeep Consultants. Apparently, no such service as \"Examination confidential work\" has been done by Shubhdeep Consultants for the assessee. 2. Moreover, the assessee has not submitted ledger account of Shubhdeep Consultants as claimed by it. Also, as proof of agreement with Shubhdeep ITA No.52/CHD/2023 A.Y.2017-18 20 Consultants, the assessee has provided an unregistered and unsigned simple printed document which cannot be considered as a valid agreement. Accordingly, the assessee has failed to prove the genuineness of transactions with Shubhdeep Consultants and the expenses incurred on examination confidential work amounting to Rs. 2,57,67,800/- which are claimed to be due to Shubhdeep Consultants are disallowed.\" The AO observed that the Shubhdeep Consultants- proprietary firm of Mr Yogesh Bajpai- has received Rs.2,57,67,800/- from the appellant service for \"Examination confidential work\". The AO however observed from the Income and Expenditure Account of Shubhdeep Consultants (SC-for short) that it has in turn paid to others under different heads. This appeared to be discordant to the AO. The AO felt it strange that there was no name of the appellant as a debtor in the books of SC. The AO noted that the only instance where the appellants name appears is as \"Accrued Interest on Swap\" as a current asset in the books of Shubhdeep Consultants. The AO alleged that the appellant did not submit the ledger account of SC. Further the AO found that the agreement of the appellant with the SC was also on a simple paper and unregistered. Thus the AO held the that no such service as \"Examination confidential work\" was done by Shubhdeep Consultants for the appellant. The appellant has filed detailed counter to this allegation. The appellant claims that :- i.That the SC was paid for exam related services like paper setting, video conferencing, observers, flying squads, squad member, deployment of security, printing of OMR sheets, scanning, and tabulation of results etc. 2. That the services were as per the MoU dated 08.03.2015 signed by the appellant with the SC. 3. That as per the MoU these services were being obtained from SC since 2015 and were accepted by the revenue during assessment for A.Y.2016-17 . 4. That the balance sheet and the profit of loss account for A.Y.2016-17 and A.Y.2017-18 reveal the SC to be an independent taxpayer. 6.7.2 The observation of the AO and the explanation filed by the appellant are perused. It is seen that the only reason of the disallowance was that the SC received service payment for a service under one name of \"Examination Confidential work\" and the SC paid out for different heads. The disallowance is seen to be made merely because the names of heads of expenditure are different than that for receipt. However it has to be accepted that both the Heads are related to Exams. A disallowance of Rs.2,57,67,800/- needs to be on more sound evidence. The said payment to SC for A.Y.2016-17 has been verified by the AO without any adverse finding. The AO in the period under consideration has been unable to bring any evidence to prove that the expenses were non genuine. The recipient of the services ICE India -AOP- has not alleged any wrong doing or lack of service. Plus the services enlisted to be rendered by the SC appear to come under the head of confidentiality. The word is apt as certain amount of secrecy is a must while handling examinationpapers, especially to avoid allegation of wrong ITA No.52/CHD/2023 A.Y.2017-18 21 doing in evaluation of marks scored or even ensuring that no unfair means are adopted by the students during exams, filed any complaint. 6.7.3 The perusal of the returns of income and the balance sheet and profit and loss account of SC for AY 2016-17 and 2017-18 shows that the concern SC is into consultancy and in service sector. It has been filing its income tax return and its books are getting audited as pert the rules in this regard. For the A.Y.2017-18 it has shown a gross receipt of Rs.8,56,47,351/-. The computation of income enclosed with the return of income shows a receipt from the appellant -TAN- at Rs.2,57,67,800/-with a TDS credit of Rs.2,57,078/- claimed in the return out of a total TDS credit of 10,16,475/-. It should be noted that the receipt from appellant is only Rs.2.57 cr whereas that from Balaji Studies Consultants Pvt Ltd 64,81,750/- Institution of Mechanical Engineers (India) is Rs.2,45,27,904/- and ICE India 2,03,42,000/-.Apparently all are related to Exams and Students. This can be assumed to be the reason for the expenses under different heads like Students Events Programme, Education Business Promotion Charges, Education Seminar Charges, Education Seminar of Business Promotion, Seminar Charges for Student Promotion, Seminar for Education Business. Since the SC-Shubhdeep Consultant - is not only serving the appellant but also others in the field of Education there may have been a difference in nomenclature of expenses. 6.7.4 The above discussion goes to show that mere difference in nomenclature of heads of expenses in the books of the contractor cannot be the reason for disallowance. Further the objection by the AO about the agreement by the appellant with the SC being an unregistered document makes no difference. The Indian Contract Act does not invalidate any agreement because it is not unregistered. Therefore the absence of any unregistered agreement between the appellant and the vendor-SC- cannot lead to disallowance of expenses to such vendor. Therefore the disallowance of Rs. 2,57,67,800/- is hereby directed to be deleted. This ground of appeal raised by the appellant is hereby allowed. 9.6 It is pertinent to note that assessee has been conducting various examinations. Those responsibilities are being discharged by Global Educational Consultants and Shubhdeep Consultants. The AO failed to note that assessee has received gross receipts of more than Rs.9 Cr, what for these receipts have been received by the assessee. It has to fulfill the requirements of the payers by performing its duties. ITA No.52/CHD/2023 A.Y.2017-18 22 It has outsourced those activities to these two concerns. The AO nowhere brought on the record that how market rate is lower than the charges paid to these two concerns for taking exams and test-checking the question papers etc. The ld. First Appellate Authority has discussed these details lucidly and after going through the order of the CIT(A), we do not find any error in it on the first fold of grievance. The CIT(A) has rightly held that AO had been failed to bring any material on the record that the services rendered by these two consultants could be it a lower rate than the one paid by the Society. To our mind, AO has totally failed to comprehend the objectivities of the assessee and also the nature of functions performed by it. The ld. CIT(A) has rightly deleted the disallowance. 10. As far as the second fold of grievance is concerned, we find that assessee Society has three cars, namely i10, Fortuner, Mercedes. All these three cars were used for the purpose of all the activities of the Society. It has to bring senior level IIT professionals for its various projects of formulating question papers, developing tools to conduct ITA No.52/CHD/2023 A.Y.2017-18 23 those exams effectively and for that purpose, it was required to use the vehicles. The vehicles were acquired long back. It was not disputed while granting benefit of application of funds towards their acquisition, but now AO is disputing for their running expenses. The ld. CIT(A) has considered this issue elaborately and the finding of the ld. CIT(A) reads as under : “As seen above the AO has disallowed the expenses on luxury vehicles owned by the appellant only because of personal use and that the vehicles were luxury vehicles. The appellants explanation that the same were used for Trust work and objectives was refused. However the AP has not given specific evidence to prove that the vehicles were being used for personal purposes. In absence of the such an evident it becomes difficult to sustain the disallowance as seen from the various case laws in this regard. The appellant argued as below to emphasize that the disallowance is incorrect. :- 1.AII the vehicles were purchased in the name of the appellant Trust and disclosed under the Asset schedule. 2. The use of the vehicles for the Trust was submitted during the assessment to the AO as directed vehicle for the purpose of the society. 3. No reason or evidence was given by the AO to counter the disallowance made. 4. It was submitted that the Fortuner met with an accident which was the reason to purchase Mercedes Benz and that too when the appellant got the opportunity to hoist an international event. 5. Mention of purchase of such luxury vehicles by ICE India -an associate concern- has no bearing on the appellant's vehicle use and should not have led to disallowance of expenses on vehicles. 1. Further the appellant has relied upon the following case laws toemphasize that the disallowance is incorrect. :- 2. The Hon'ble Amritsar Bench of IT AT in the case of ITO vs. M/S Shirdee Charitable Trust in ITA No. 408/Asr/2012 vide order dated 28/11/2014 \"In the absence of anything on record that such cars were actually used by the Chairman or trustees of the trust for their personal purpose, no addition on account of use of car and its depreciation etc. can be made and it cannot be said ITA No.52/CHD/2023 A.Y.2017-18 24 that there is violation of section 13(1)(c)(i) & (ii) read with section 13(2)(c) & 13(3)(c) of the Act. \" Hon'ble Mumbai Bench in the case of The Cancer Aid Research Foundation Byculla Municipal School Building vs Director of Income Tax (Exemp) in ITA No. 1782/Mum/2014 vide order dated 16.07.2014 wherein it has been held as under: \"There is no bar in buying such cars except that the use should for the purpose of Trust. In the said case the car is question was a luxurious car i.e. BMW. \" Even otherwise, if the vehicle is used by the members/ employees of the society for the purpose of meeting the objectives of the society, the depreciation on the same is an allowable expenditure. Reliance in this case is based on the judgment of the Hon'ble Chandigarh Bench in the case of DCIT vs. Indo Soviet Friendship College of Pharmacy in ITA No. 478 479/Chd/2013 vide order dated 28/09/2015 wherein it has been held as under: \"7. We have considered rival submissions. The Id. CIT(Appeals) noted that there is no dispute that Shri Anoop Garg, Chairman is solely engaged in running the institution. The accounts of the assessee trust have been audited and nothing incriminating as regards the personal use of vehicles nor details regarding payment of salary was found in the course of search. The case made out by the Assessing Officer was that there is no requirement to maintain luxury cars. The Id. CIT(Appea{s), considering these facts found that the Chairman did not have his own vehicle. The Id. CIT(Appeals) relied upon decision of the Delhi High Court in the case of Moti Bagh Mutual Aid Education 298 ITR 190 in which it was held that, \"Even if there are minor contradictions or deviations in the accounts of assessee, that by itself cannot substantiate the allegation that assessee does not exist solely for educational purposes or that it exist partly for profit motive. \" The Id. CIT(A) noted that providing of car, whatever be the model, to the Chairman, who devoted full time to the trust, cannot be said to be unreasonable. It was also noted that depreciation is a statutory allowance, therefore, disallowance should not be made. The Id. CIT(Appeals), accordingly, set aside the order of the Assessing Officer and deleted the additions. The Assessing Officer has not brought any material on record as to how he has given his finding that the cars have been purchased for the benefit of the Chairman. The Assessing Officer was also not justified in holding that the assessee trust has no requirement to maintain luxury car. The expenses should be considered from the point of view of the assessee and not for the point of view of the Assessing Officer. In the absence of any material brought on record against the assessee, the order of the Assessing Officer could not be sustained. Further, it is not in dispute that Shri Anoop Garg, Chairnian is looking after the activities of the assessee trust whole time and has to visit various Government Departments in connection with the activities of the assessee trust. No incriminating material was found during the course of search if the Chairman has used the cars for personal purposes. Therefore, it appears that addition has been made wholly on adhoc basis which could not be sustained in law. The findings of the Assessing Officer have no basis what-so-ever, therefore, Id. CIT(Appeals) was justified in deleting the addition. Further, for proving the allegations under section 13(2)(c) of the Act, Assessing Officer should bring some evidence on record as to what should be ITA No.52/CHD/2023 A.Y.2017-18 25 the reasonable amount which should be paid for the services rendered by the Chairman. However, Assessing Officer has not brought anything on record as to how he has calculated the reasonable amount to be paid on the aforesaid issues. Therefore, we do not find any error in the order of the Id. CIT(Appeals). This ground of appeal of revenue is accordingly dismissed. 6.7.7 The appellant explained that it has been conducting yeoman service in the field of education. This includes being a member of ACECC (Asian Civil Engineering Coordinating Council) which consists of members from 14 countries with meeting held in various countries twice a year. The luxury vehicles were claimed to be used to for ferrying the senior faculty which consists of various Professors and Head of Departments of NT's in the country from time to time for meetings and official work. These vehicles are also used for foreign delegates who came to visit and meet in the above meetings whenever the meetings are held in Delhi. 6.7.8 The appellant relied upon various decision to convey that disallowances cannot be made arbitrarily and merely on the basis of suspicion especially when the assessee has submitted all details of expenses as held in the judgments below:- 1. The Hon'ble Mumbai Bench of ITAT in the case of TUV India Pvt. Ltd. vs DCIT in IT A No. 6628/Mum/2017 has held as under: 2.The judgment of Hon'ble Raipur Bench of ITAT in the case of Sh. Kailas ChandAggrawal vs DCIT in IT A No. 275/RPR/2016 has held as under: 3.judgment of the Hon'ble Supreme Court in the case of Umacharan Shaw Bros.v. CIT (1959) [1959] 37 ITR 271 (SC) held that suspicion however strong, cannottake the place of evidence. 4. Hon'ble Supreme Court way back in the case of Lai Chand Bhagat Ambit-a Ram v. CIT [1959] 37 ITR 288 (SC) Considering the above arguments of the appellant as well as the legal position explained the disallowance of expenses on vehicles is difficult to be sustained. Thisis especially since the appellant has submitted all the details of the vehicles as well as the vehicle use. Further the AO has been unable to bring forth any evidence as to the personal use of the said vehicles by the Trustees or the functionaries of the appellant Trust. Therefore the disallowance of vehicles expenses at Rs. 11,21,084/-is hereby directed to be deleted. The ground of appeal raised by the appellant is allowed.” 11. The ld. CIT(A) has examined the issue in right perspective and deleted the disallowance. We do notfind any error in the finding of the CIT(A). The CIT(A) has followed ITA No.52/CHD/2023 A.Y.2017-18 26 authoritative pronouncements on this issue from various High Courts discussed above as well as of ITAT orders. We do not find any merit in this appeal of the Revenue. 12. In the result, appeal of the Revenue is dismissed. Order pronounced on 14.05.2025. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE PRESIDENT “Poonam” आदेशक\u0006\u0007ितिलिपअ ेिषत/ Copy of the order forwarded to : 1. अपीलाथ\u0012/ The Appellant 2. \u0007\u0013यथ\u0012/ The Respondent 3. आयकरआयु\u0017/ CIT 4. िवभागीय\u0007ितिनिध, आयकरअपीलीयआिधकरण, च डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड!फाईल/ Guard File आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar "