DCIT CENTRAL CIRCLE 7(2), MUMBAI, MUMBAI V. SML EDU-INFRA PRIVATE LIMITED, MUMBAI

ITA 6158/MUM/2025

AI Insights

The case revolves around an appeal by the Revenue against the decision of the CIT(A), which had deleted the addition made by the Assessing Officer on account of deemed rental income from a property owned by SML EDU-INFRA Private Limited. The property in question was used for establishing and running a pre-primary school, and the assessee argued that it was actively used for business purposes, thus exempting it from deemed rental income taxation under section 23 of the Income Tax Act. The Tribunal examined the usage of the property, the nature of income generated, and the financial statements provided by the assessee, ultimately agreeing with the CIT(A)'s decision.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 846029 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Mumbai
• Assessment Year: misc
• Appeal Filed On: 30-09-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRABHADRA S. MAHAJAN
• Assessee Lawyers: K GOPAL
• Keywords: Reassessment proceedings; Competent authority
• Section: 147; 148; 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.6158/Mum/2025 (Assessment Year :2015-16) DCIT Central Circle 7(2), Mumbai Vs. SML EDU-INFRA Private Limited 3/2, Filka Building Daftary Road Malad (E) Mumbai PAN/GIR No.AAACB1691D (Appellant) .. (Respondent) CO No.322/Mum/2025 (Arising out ITA No.6158/Mum/2025) (Assessment Year :2015-16) DCIT Central Circle 7(2), Mumbai Vs. SML EDU-INFRA Private Limited 3/2, Filka Building Daftary Road Malad (E) Mumbai PAN/GIR No.AAACB1691D (Appellant) .. (Respondent) Assessee by Shri K Gopal, Adv and Ms. Neha Paranjpe Revenue by Shri Virabhadra S. Mahajan Date of Hearing 24/03/2026 Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 2 Date of Pronouncement 26/03/2026 आदेश / O R D E R PER AMIT SHUKLA (J.M): This appeal has been preferred by the Revenue against the order dated 30.07.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, under section 250 of the Income Tax Act, 1961, for the assessment year 2015–16, whereby the learned first appellate authority has deleted the addition of Rs.2,03,61,277/- made by the Assessing Officer on account of deemed rental income computed under section 23(1) of the Act. The grievance of the Revenue, in substance, is that the learned CIT(A) has erred in holding that the property in question was used for the purposes of business and consequently erred in deleting the addition made on account of notional Annual Letting Value, despite the fact that no rental income had been offered during the year under consideration. 2. The facts, as borne out from the record, reveal that the assessee is engaged in the business of leasing infrastructure facilities to educational institutions and also in running its own educational institution. During the year under consideration, the assessee acquired an immovable property comprising land and building situated at Singena Agrahara, Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 3 Gottamaranahalli Village, Anekal Taluka, Bangalore, admeasuring approximately 5.2260 acres along with additional land and building admeasuring about 99,096 square feet, for a total consideration of Rs.72,71,88,480/-. It is the consistent stand of the assessee that the said property was not acquired as a passive investment but was immediately deployed as a business asset for establishing and running its own pre-primary school under the name “Ebenezer Beginnings”. 3. The assessee filed its return of income on 28.09.2016 declaring total income of Rs.1,02,639/-. Subsequently, the assessment was reopened under section 147 by issuance of notice under section 148 dated 30.03.2021 on the premise that income chargeable to tax had escaped assessment, primarily on account of acquisition of the aforesaid property and the reflection of an amount of Rs.21,68,000/- as trade receivable as on 31.03.2015 as against income of Rs.53,000/- offered in the return. 4. During the course of reassessment proceedings, the Assessing Officer observed that the assessee had shown the amount of Rs.21,68,000/- as trade receivable without recognizing the same as income in the Profit and Loss Account. It was further observed that although certain receipts such as canteen fee had been reflected, no income under the head “house property” had been offered in respect Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 4 of the said property. Proceeding on this premise, and without determining the fair annual letting value in terms of section 23, the Assessing Officer estimated the annual letting value at 8% of the total cost of the property amounting to Rs.72,71,88,480/-, which worked out to Rs.5,81,75,078/- per annum. Since the property was acquired in September, the deemed rental income for six months was computed at Rs.2,90,87,539/- and after allowing deduction under section 24, an addition of Rs.2,03,61,277/- was made. 5. The entire approach of the Assessing Officer was thus predicated on the assumption that the property was either lying vacant or was not used for business purposes during the year under consideration, thereby attracting the deeming provisions of section 23. 6. The assessee, on the other hand, furnished detailed submissions supported by documentary evidences to demonstrate that the property had been put to active business use. It was submitted that the assessee had commenced admission process for its pre-primary school during the year and had collected admission form fees of Rs.53,000/-, which was duly offered to tax. It was further explained that out of this amount, Rs.6,000/- was collected directly and Rs.47,000/- was collected by Abraham Memorial Education Trust (AMET) on behalf of the assessee and Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 5 reflected as receivable. With regard to the amount of Rs.21,68,000/-, it was explained that the same represented advance receipts for the subsequent academic year comprising various heads, namely canteen fees received in advance of Rs.63,334/-, nursery fees of Rs.6,60,666/-, preparatory fees of Rs.5,99,000/-, preparatory-II fees of Rs.3,24,000/-, pre-primary ID card fees of Rs.9,000/-, aggregating to Rs.16,56,000/-, along with refundable security deposit of Rs.4,65,000/- and admission form fees of Rs.47,000/-, and it was submitted that these receipts were duly accounted for and offered to tax in A.Y. 2016–17 in accordance with the matching principle. 7. The assessee further substantiated its claim by placing on record audited financial statements, ledger accounts of AMET, comparative balance sheet schedules, and extracts of Profit & Loss Accounts for the relevant as well as subsequent years, which clearly demonstrated that the amount of Rs.21,68,000/- was initially reflected under the head “Short Term Loans & Advances” and subsequently regrouped under the head “Trade Receivables”, thereby evidencing that there was merely a reclassification without any alteration in the intrinsic nature of the receipts; it was also brought on record that in A.Y. 2016–17, the income from school operations, including the very same receipts, had been duly recognized and accepted in scrutiny assessment under section 143(3) Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 6 vide order dated 17.12.2018, thereby establishing that the accounting treatment adopted by the assessee was in consonance with the matching principle and had attained finality at the hands of the Department; further reliance was placed on the Wealth Tax proceedings wherein the competent authority, while passing order under section 16(3) read with section 17 of the Wealth Tax Act, had categorically accepted the property as a commercial asset used for business purposes, thereby lending independent corroboration to the assessee’s claim that the property was not a passive or vacant asset but an integral part of its business apparatus. 8. The learned CIT(A), upon a detailed and comprehensive examination of the entire factual conspectus, documentary evidences, financial disclosures, and statutory provisions, has recorded a categorical finding that the assessee had in fact put the property to use for its business during the year under consideration by commencing admission process and carrying on activities incidental to running of its educational institution, and that the receipts reflected in the accounts were intrinsically linked to such business activity; the learned CIT(A) has further examined the detailed break-up of Rs.21,68,000/- and accepted the explanation that the same comprised advance receipts relatable to the subsequent academic year along with refundable deposits, and therefore could not be taxed in the year under consideration, Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 7 particularly when the same stood offered to tax in the subsequent year and accepted by the Department; the learned CIT(A) has also placed reliance on the Wealth Tax order wherein the property has been accepted as a commercial asset used for business purposes, and on a conjoint reading of sections 22 and 23 has held that once the property is used for business purposes, the charging provision itself is not attracted and consequently no Annual Letting Value can be computed. 9. Before us also, the learned representatives reiterated their respective stands. The learned Departmental Representative strongly relied upon the reasoning given by the Assessing Officer and submitted that since no rental income had been offered during the year under consideration, the Assessing Officer was justified in invoking the provisions of section 23 and computing the notional Annual Letting Value on the basis of the cost of the property. It was contended that the property had inherent capacity to earn income and therefore, even in the absence of actual letting, the same was liable to be brought to tax under the head “Income from house property”. Per contra, the learned counsel for the assessee drew our attention to the entire documentary material placed on record, including audited financial statements, tabulated break-up of receipts, comparative balance sheet schedules, and the order passed Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 8 under the Wealth Tax Act, to submit that the property had already been put to use for business purposes during the relevant previous year and therefore fell outside the ambit of section 22, rendering section 23 wholly inapplicable. 10. We have heard the rival submissions at considerable length, perused the orders of the authorities below, and carefully examined the entire material placed on record, including the detailed findings recorded by the learned CIT(A), the financial statements, and the evidentiary documents furnished by the assessee. The controversy, though projected by the Revenue as one of non-disclosure of rental income, in essence revolves around a far more foundational issue, namely, whether the property in question had been put to use for the purposes of the assessee’s business during the year under consideration so as to fall outside the ambit of section 22, or whether it remained a vacant or commercially idle asset so as to attract the deeming fiction embedded in section 23. 11. From a meticulous and holistic examination of the entire factual matrix, documentary evidences, audited financial statements, and the tabulated details furnished by the assessee, what clearly emerges is not merely a passive ownership of property, but its active, continuous, and integral deployment in the business operations of the assessee during Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 9 the year under consideration itself. The assessee has not only demonstrated commencement of its pre-primary school “Ebenezer Beginnings” from the said premises, but has also substantiated, through contemporaneous financial records, that the property had already entered the stream of its business activity during the relevant previous year. The audited Profit & Loss Account and Notes forming part of financial statements reveal that the assessee has recorded revenue streams comprising canteen fee income, admission form fee income, ID card fees, and other ancillary receipts, which are intrinsically linked to the operation of the school from the very premises in question. The extract of the Profit & Loss Account for the relevant period reflects “Other Income” including Form Fees EB and ID Card Fees aggregating to Rs.53,000/-, which has been duly offered to tax in A.Y. 2015– 16. This is not a case where the property remained commercially sterile or dormant; rather, it was functionally operational and generating business-linked receipts, thereby unmistakably demonstrating its use in furtherance of the assessee’s business. 12. More significantly, the detailed tabulation of receipts amounting to Rs.21,68,000/-, which has been the focal point of the Assessing Officer’s adverse inference, when examined in its proper factual and accounting context, completely demolishes the Revenue’s case. The said amount is not a Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 10 singular or homogeneous receipt, but a composite aggregation of multiple streams of advance receipts, namely canteen fees received in advance of Rs.63,334/-, nursery fees of Rs.6,60,666/-, preparatory fees of Rs.5,99,000/-, preparatory-II fees of Rs.3,24,000/-, pre-primary ID card fees of Rs.9,000/-, aggregating to Rs.16,56,000/-, along with refundable security deposit of Rs.4,65,000/- and admission form fees of Rs.47,000/-, culminating in the total figure of Rs.21,68,000/-. These figures are borne out from the contemporaneous books of account, balance sheet schedules, and audited financial disclosures, and are not in dispute. It has been specifically clarified, and not controverted by the Revenue, that these receipts were collected during the admission process for the academic year 2015–16 but pertained to services to be rendered in the subsequent financial year, and therefore, in accordance with the well- settled matching principle, the same were offered to tax in A.Y. 2016–17 when the corresponding educational services were actually rendered. 13. The Assessing Officer’s characterization of the said amount as mere “canteen fees receivable” is thus factually erroneous and demonstrably contrary to the record, as the tabulated break-up itself reveals that the receipts span across multiple heads of educational and ancillary services intrinsically connected with the business of running a school. Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 11 Further, the financial statements as on 31.03.2015 and 31.03.2016, when read conjointly, clearly indicate that the amount of Rs.21,68,000/- was initially reflected under the head “Short Term Loans & Advances” and subsequently regrouped under “Trade Receivables”, without any alteration in its intrinsic character. The comparative tabulation of balance sheet figures demonstrates that the total amount remained constant, thereby establishing that the exercise was merely one of classification and not indicative of any suppression, concealment, or non-recognition of income. This aspect assumes critical significance because the entire edifice of the Assessing Officer’s reasoning is predicated upon a fundamental misapprehension of this accounting treatment. 14. Even more telling is the fact that in the subsequent assessment year, i.e., A.Y. 2016–17, the very same receipts have been duly recognized as income from school operations and have been subjected to scrutiny assessment under section 143(3) vide order dated 17.12.2018, wherein the Department has accepted the same without any adverse inference. The audited financial statements for that year clearly reflect substantial income streams such as school fees income, canteen fees income and rental income, thereby demonstrating that the business of running the educational institution from the said premises had not only commenced but had scaled into full-fledged operations. Thus, the Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 12 continuity of receipts, their recognition in the subsequent year and their acceptance by the Department, together form a seamless and unimpeachable chain establishing the genuineness of the assessee’s claim and negating any allegation of income escaping assessment. 15. Furthermore, the Trade Receivables schedule as on 31.03.2016 reflects figures such as Academic Fees Receivable of Rs.40,20,169/-, Canteen Fees Receivable of Rs.73,334/-, and Rental Income Receivable of Rs.4,85,48,601/-, aggregating to Rs.5,26,42,104/-, as against the earlier figure of Rs.21,68,000/- as on 31.03.2015. This substantial and structured increase in receivables, coupled with the corresponding recognition of revenue in the subsequent year, clearly evidences that the property had transitioned into an income-generating business asset and was actively exploited for commercial purposes. The presence of such detailed, itemized and audited revenue streams is wholly inconsistent with the hypothesis canvassed by the Assessing Officer that the property was vacant or incapable of business use during the year under consideration. 16. In this factual backdrop, the conclusion becomes inescapable that the property was not merely capable of being used for business, but was in fact already embedded in the business operations of the assessee during the relevant Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 13 previous year, with tangible, recorded and audited income streams emanating therefrom. Once such factual position stands firmly established on the strength of contemporaneous records and financial data, the invocation of the deeming fiction under section 23 becomes wholly untenable. The statutory scheme under section 22 explicitly excludes properties used for the purposes of business from the ambit of income from house property and therefore, the very foundation for computing Annual Letting Value collapses. 17. The estimation of annual letting value by the Assessing Officer at 8% of the cost of the property, in the absence of any comparable instances or determination of fair rent as envisaged under section 23, is wholly arbitrary and devoid of any legal basis and therefore cannot be sustained. 18. In light of the foregoing detailed factual and legal analysis and having regard to the statutory framework governing sections 22 and 23, we find ourselves in complete agreement with the well-reasoned findings of the learned CIT(A), who has correctly appreciated both the factual substratum and the legal position. The addition of Rs.2,03,61,277/- made by the Assessing Officer under section 23 is thus unsustainable both on facts and in law and the same has been rightly deleted. Printed from counselvise.com ITA No. 6158/Mum/2025 & CO No.322/Mum/2025 SML EDU-INFRA Private Limited 14 19. Accordingly, the appeal filed by the Revenue stands dismissed. 20. Since we have dismissed the appeal of the Revenue, the issues raised in the cross objections challenging the validity u/s.147 have become purely academic therefore, they are left open. 21. In the result, appeal of the Revenue and Cross Objection of the assessee are dismissed. Order pronounced on 26th March, 2026. Sd/- (ARUN KHODPIA) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 26/03/2026 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "