DCIT Exemption , Bhopal V. Macro Education Society, Bhopal

ITA 16/Ind/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9294 (ITAT-INDORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 24-01-2121
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Benefit of exemption
• Section: 11; 143(3); 142(1); 12AA

Judgement Text

आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER VIRTUAL HEARING ITA No.16/Ind/2021 Assessment Year: 2014-15 Dy. CIT (E) Bhopal : Appellant V/s Macro Education Society Bhopal PAN No.AAAJM0583C : Respondent Appellant by Shri Amit Soni, Sr. DR Respondent by Shri S.S. Deshpande, AR Date of Hearing 07.01.2022 Date of Pronouncement 07.02.2022 O R D E R PER MANISH BORAD, A.M.: The above captioned appeal filed at the instance of the Revenue is directed against the order of Commissioner of Income Tax (Appeals) (in short CIT(A)-2 Bhopal dated 18.08.2020 which is Macro Education Society ITA No.16/Ind/2021 2 arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 16.12.2016 by DCIT(Exemption)-Bhopal. The Revenue has raised following grounds of appeal:- “Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.66,00,000/- the payment made to persons specified u/s 13(3) of the Income Tax Act 1961 and allowing the exemption under section 11 of the Act. 2. This appeal was filed on 25.01.2021 and Registry has informed that this appeal is time-barred by 79 days. Ld. Sr. DR submitted that due to current pandemic, the delay occurred which may be condoned in view of guidelines of Govt. of India and Hon’ble Supreme Court. On the other hand, Ld. Counsel for the assessee submitted that delay should not be condoned. We find that vide Gazette “CG-DL-E-29092020-222110 No.63 New Delhi, 29/2020 issued by Secretary to Govt. of India, it has been directed that in computing the period of limitation for any appeal, the period for 20.3.2020 till 31.12.2020 or 31.3.202, as the case may be, shall stand excluded. Further, the Hon’ble Supreme Court in Suo Motu Writ Petition (Civil) No.3 of 2020 dated 08.3.2021 has issued directions that in computing the period of limitation for any suit/appeal, the period for 15.3.2020 till 14.3.2021 shall stand Macro Education Society ITA No.16/Ind/2021 3 excluded. Considering the same, we condone the delay in filing the departmental appeal and admit the same for hearing. 3. Brief facts of the case as culled out from the records are that the assessee is a society carrying out educational activities such as running of schools. Assessee is registered u/s 12AA of the Act vide registration no.49/2003-04 dated 27.11.2003. Nil income was declared in the income tax return manually filed on 27.03.2015. Case selected through manual selection followed by serving of notices u/s 143(3) & 142(1) of the Act. Ld. AO observed that the assessee has claimed Rs.96 lacs as rent expenditure and the payment was made to specified person namely Mr. Nazam Jamal u/s 13(3) of the Act. Ld. AO asked the assessee to explain reasonableness of the rent. Submissions were filed to explain that Rs.96 lac is a reasonable rent. Ld. AO however was not satisfied and based on the finding of his predecessor for A.Y. 2012-13 observed that the reasonable rent is only Rs.30,00,000/- and the assessee has claimed excess expenditure of Rs.66,00,000/- and has benefited specified person u/s 13(3) of the Act. Ld. AO accordingly made the addition of Rs.66,00,000/- and further denied the benefit of exemption u/s 11 of the Act to the assessee thereby making addition of the income shown as per income of Macro Education Society ITA No.16/Ind/2021 4 expenditure account at Rs.2,07,58,585/- . Income assessed at Rs. 2,73,58,585/-. 4. Aggrieved assessee preferred an appeal before the ld. CIT(A) and succeeded. Now the revenue is in appeal before this Tribunal. Ld. DR vehemently argued supporting the order of Ld. Assessing Officer and also referred to paper book dated 03.01.2022 submitted by the Ld. AO. 5. Per contra Ld. counsel for the assessee vehemently argued supporting the finding of ld. CIT(A) and also relied on the submissions before Ld. CIT(A) and also a detailed paper book containing 61 pages filed on 03.11.2021. 6. We have heard rival contentions, perused the records placed before us. The revenue has challenged the finding of Ld. CIT(A) deleting the addition of Rs.66,00,000/- towards unreasonable rent alleged to be claimed by the assessee for the benefit of person specified u/s 13(3) of the Act and has also challenged the finding of Ld. CIT(A) allowing the benefit of exemption u/s 11 of the Act. 7. We notice that assessee society runs schools and it is registered u/s 12AA of the Act vide registration u/s 49/2003 dated 27.11.2003 and the same is in force. . In the impugned year Ld. AO has only discussed about the issue of reasonableness of rent Macro Education Society ITA No.16/Ind/2021 5 expenditure and while holding it to be unreasonable to some extent has also denied the benefit of exemption u/s 11 of the Act. Apart from the issue of unreasonableness rent there is no finding on record by the ld. AO which could indicate that the assessee society is not working for charitable objects, as were mentioned in the trust deed on the basis which registration u/s 12AA of the Act was granted. 8. We find that the assessee has claimed rent of Rs.96,00,000/- per annum whereas Ld. AO has estimated it at Rs.30,00,000/- per annum. We notice that Ld. CIT(A) has dealt with the issue of reasonable of rent as well as assessee’s eligibility to claim deduction u/s 11 of the Act observing as follows: I have gone through the remand report as well as submission in from of rejoinder to remand report of the appellant along with other facts available on record. The Ld. Assessing Officer has examined the issue of rent payment by Canara Bank, Neelbad at Rs. 10 per sq ft and Bank of Baroda, Neelbad at Rs. 8.33 per sq ft. The Ld. A.O. has estimated rent at Rs. 3,48,900/- per month (Rs. 41,86,700/- per annum). During remand report proceedings, the appellant had submitted rent estimation given by Government approved valuer. The Ld. A.O. has mentioned that valuer has applied rate of Halka No. 33 of Neelbad but the land of school premises is him Halka No. 178 to 186, Ncclbad. Therefore, land valuation made by the valuer by adopting rate of Halka No. 33 is not correct. But the above findings of the Ld. A.a. is not factually correct as the school premises has been constructed on the land of Khasra No. 176 to 186 which IS situated at Village Neelbad, Patwari Halka No. 33. Therefore, the registered valuer has adopted rate of Halka No.33 which is found in order. Further, the Ld. A.a. has estimated monthly rent at Rs. 3,48,900/- (Rs. 41,86,700/- per Macro Education Society ITA No.16/Ind/2021 6 annum) whereas his Inspector has estimated monthly rent at Rs. 3,45,158/ - stating that the school premises is situated 500 meters away from the main road of Neelbad where the Bank of Baroda and Canara Bank are situated. As enquired by the Inspector of the Ld. A.a., Canara Bank is paying rent @ Rs. 6 per sq. ft. and Bank of Baroda is paying rent @ Rs. 13.33 per sq. ft. I find that both the Ld. A.a. and his Inspector have arrived at different figures of reasonable rent of school premises. Estimation of reasonable rent has not been done on sound footings. The Ld. A.O. and his Inspector has considered constructed area of 46500 sq. ft. and open land while making estimation. But they have ignored that the area of 3,18,315 sq. ft. of open land consisting of swimming pool, basket ball ground, football ground, bus and car parking area etc. These amenities require specific construction. Considering these facts, monthly rent of Rs. 2.19 per sq. ft. appears to be reasonable. Further, the Ld. A.O. has followed Rule 3 of Schedule 3 of Wealth Tax Act to arrive at reasonable rent amount which is not proper. The reasonable rent should be decided on the prevailing market rate in nearby areas. The Ld. A.O. himself written that the school is situated five hundred meters away from Canara Bank and Bank of Baroda i.e. from main road. This distance is not very far from the main road. This should be treated as nearby areas. Canara Bank is paying Rs. 6 per sq. ft. per month and Bank of Baroda is paying Rs. 13.33 per sq. ft. per month. Whereas the appellant is paying Rs. 2.19 per sq. ft. per month which is much lower than the rent being paid by the Banks. Therefore, rent paid by the appellant on the above rate cannot be treated as unreasonable or excess or undue benefit to the specified persons ujs 13(3) of the Act. Further, no comparative cases j tangible evidence j material have been brought on record by the Ld. A.O. to treat the rent paid is in excess of fair rent prevailing in the area where school is situated. Considering the facts of the case and the case law relied upon by the appellant I find the rent paid by the appellant is very reasonable and not excessive in any manner. Therefore, the disallowance of Rs. 66 lakhs is deleted. Further, I find that Ld. A.O. has not granted any benefit ujs.l1 of the Act for the above violation of provisions of sec. 13(3) of the Act which is also not correct in view of the decision of Hon'ble ITAT, Indore in the case of Mis. Madhya Pradesh Madhyam (ITA No. 454jIndj2012, ITA No. 280jlndj2014, & ITA No. 692jIndj2013 order dated 19.07.2018). Hon'ble ITAT has held that small discrepancy in the accounts would not disentitle the assessee from claiming the exemption. While deciding the issues involved in the above case, Hon'ble ITAT has relied upon the various judgements particularly the decision of Hon'ble Madras High Court in the case of Working Women's Forum (2014) 365 ITR 353. Para 9 of the decision of Honble ITAT, Macro Education Society ITA No.16/Ind/2021 7 Indore is reproduced here under: "9. We have given our thoughtful consideration to the facts of the present case and the case laws relied upon by the parties. We find that the only basis for rejecting the claim of exemption by the authorities below is on the basis that some of the employees were found working at the residential accommodation of the Managing Director of the assessee society. In the light of the above judgments, we are of the view that the authorities below are not justified in disallowing the entire exemption. We, therefore, sustain the disallowance of exemption to the extent of sum of Rs. 2,80,020/- i.e. salary of the employees who stated to be working at Managing Director's House. Thus, ground No. 1 to 6 are partly allowed as indicated herein above." Accordingly, the Ld. A.D. is directed to allow exemption u/ s 11 of the Act and allow consequential benefits available under the Act. 9. From perusal of the above finding we find that the facts narrated by ld. CIT(A) in order to conclude that the disallowance of Rs.66,00,000/- of rent expenditure is uncalled for, remains uncontroverted by ld. DR by placing any contrary material on record. It is also not in dispute that assessee paid rent to Najam Jamal @ 2.19 per sq.ft. per months whereas in the nearby areas, Canara Bank is paying rent @ Rs.6 per sq.ft and Bank of Baroda is paying rent @ 13.33 per sq.ft and therefore the rent paid by the assessee is most reasonable and disallowance of Rs.66,00,000/- for excess claim of rent expenditure was uncalled for. Further since we have deleted the disallowance for rent expenditure and there is no other observation of the Ld. AO which could be a hurdle for the Macro Education Society ITA No.16/Ind/2021 8 assessee’s society to claim the benefit of exemption u/s 11 of the Act, as we find that it is carrying out educational activities by running schools and fulfilling the charitable purposes for which it is established and registration u/s 12AA of the Act was granted. Therefore, no interference is called for in the finding of Ld. CIT(A) deleting the disallowance for rent expenditure of Rs.66,00,000/- and also allowing the benefit of exemption u/s 11 of the Act for the income shown during the year at Rs. 2,07,58,585/-. Thus, the finding of Ld. CIT(A) stands confirmed and ground no.1 raised by the revenue is dismissed. 10. In the result, Revenue’s appeal ITANo.16/Ind/2021 is dismissed. The order pronounced as per Rule 34 of ITAT Rules, 1963 on 07.02.2022. Sd/- Sd/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER दनांक /Dated : 07.02.2022 Patel/Sr. PS Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By Order, Macro Education Society ITA No.16/Ind/2021 9 Asstt.Registrar, I.T.A.T., Indore