B P MARINE ACADEMY, MUMBAI V. DY CIT (E) 1(1), MUMBAI

ITA 174/MUM/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0380 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 14-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Rule of consistency; Application of stay; Cost of acquisition
• Section: 271(1)(c); 143(3); 80G; 12AA; 143(1); 201; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE SHRI S ANDEEP GOSAIN , JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 174 /MUM/201 9 ASSESSMENT YEAR : 201 4 - 1 5 B. P. MARINE ACADEMY, SAI POOJA CHAMBER S , 7 TH FLOOR, SECTOR - 11, C.B.D. BELAPUR, NAVI MUMBAI 400614 [PAN : AACCB7698A ] VS. DY . COMMISSIONER OF INCOME TAX (E) - 1(1) , MUMBAI (APPELLANT) (RESPONDENT) S.A. NO. 40 /M UM /2019 [ARISING OUT OF ITA. NO.1 74 /MUM/2019 (A.Y: 201 4 - 1 5 )] B. P. MARINE ACADEMY, SAI POOJA CHAMBERS, 7 TH FLOOR, SECTOR - 11, C.B.D. BELAPUR, NAVI MUMBAI 400614 [PAN : AACCB7698A ] VS. DY. COMMISSIONER OF INCOME TAX (E) - 1(1), MUMBAI (APPLICANT) (RESPONDENT) APPELLANT BY : SHRI BHUPENDRA SHAH , AR RESPONDENT BY : SHRI MAN O J KUMAR S INGH , DR DATE OF HEARING : 05 - 09 - 2019 DATE OF PRONOUNCEMENT : 06 - 09 - 2019 / O R D E R PER RAJESH KUMAR, AM : 1 . THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 24.0 9 .2018 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 3, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y.2014 - 15. 2 2 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 2 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1) IN THE FACTS AND THE CIRCUMSTANCES OF LAW, TH E COMMISSIONER OF INCOME TAX(A) RIGHTLY HELD IN CONCLUDING THAT THE ACTIVITIES UNDERTAKEN BY THE APPELLANT SATISFIES THE REQUIREMENT OF THE TERM 'EDUCATION' BUT ERRED IN MENT IONING THAT THE SAME IS SUBJECT TO GROUND NUMBER 4 BEFORE THE COMMISSIONER OF INCOME TAX(A) AND NOW GROUND 3 BEFORE THE H ONBLE ITAT. 2) IN THE FACTS AND THE CIRCUMSTANCES OF LAW, THE COMMISSIONER OF INCOME TAX(A) ERRED IN TREATING THE ADVANCE FEE RECEIVED FROM THE STUDENTS AMOUNTING TO RS. 2,49,55,712/ - OUT OF TOTAL ADDITION OF RS. 6, 46, 99, 342/ MADE BY THE ASSESSING OFFICER AS REVENUE AND ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT WITHOUT APPRECIATING THE FACT THAT THIS IS THE REGULAR METHOD OF AC COUNTING FOLLOWED BY THE APPELLANT. 3) IN THE FACTS AND THE CIRCUMSTANCES OF LAW, THE COMMISSIONER OF INCOME TAX(A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 87,45,207/ FOR VIOLATION OF PROVISION UNDER SECTION 13(3) OF THE ACT AND DENIED EXEMPTION UNDER SEC TION 11 OF THE ACT EVEN AFTER HOLDING THAT THE ASSESSING OFFICER ERRED IN HOLDING THAT THE RENT PAID TO THE PERSONS SPECIFIED WAS EXCESSIVE IN PARA 7.4.1 OF HIS APPELLATE ORDER. 4) IN THE FACTS AND THE CIRCUMSTANCES OF LAW, THE COMMISSIONER OF INCOME TAX( A) ERRED IN CONFIRMING DENIAL OF EXEMPTION UNDER SECTION 11 OF THE ACT BY HOLDING THAT ADVANCE GIVEN TO THE DIRECTOR FOR PETTY CASH EXPENSES WAS HIT BY THE RESTRICTIONS U/S 13(3) TO THE EXTENT OF RS. 11,57,000/ - BEING ADVANCE GIVEN TO COMPANY IN WHICH DIRE CTORS ARE COMMON. 5) IN THE FACTS AND THE CIRCUMSTANCES OF LAW, THE COMMISSIONER OF INCOME TAX(A) ERRED IN CONFIRMING THE DENIAL OF EXEMPTION UNDER SECTION 11 OF THE ACT IN RESPECT OF DONATION AND CONTRIBUTION OF RS. 1,43,000/ AND ERRED IN NOT DECIDING DE DUCTION U/S 80G OF THE ACT. 6) IN THE FACTS AND THE CIRCUMSTANCES OF LAW, THE COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 1,68,48,487/ - BY HOLDING THAT THE COST OF ACQUISITION OF THE FIXED ASSETS WAS NOT ELIGIBLE FOR EXEMPTION U/S 11(1) AS 3 3 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 3 APPLICATION OF INCOM E AND ALSO ERRED IN NOT DECIDING ABOUT THE DEPRECIATION ALLOWED BY THE ASSESSING OFFICERS. 7) IN THE FACTS AND THE CIRCUMSTANCES OF LAW, THE COMMISSIONER OF INCOME TAX (A) ERRED IN NOT CONSIDERING STATUTORY ALLOWANCE OF RS. 70,18,331/ - @ 15% U/S 11(1) CL AIMED BY THE APPELLANT IN THE RETURN OF INCOME. 8) IN THE FACTS AND THE CIRCUMSTANCES OF LAW, THE COMMISSIONER OF INCOME TAX(A) ERRED IN CONFIRMING INTEREST U/S 234A, B, C AND D ON THE ADDITIONS/DISALLOWANCES CONFIRMED BY HIM. [B] RELIEF PRAYED: THE APPEL LANT THEREFORE PRAYS AS FOLLOWS, 1. TO TREAT THE APPELLANT AS AN EDUCATIONAL SOCIETY WITHOUT ANY CONDITIONS, 2. TO DELETE THE ADDITION OF RS. 2,49,55,712/ - WRONGLY TREATED AS REVENUE INCOME INSTEAD OF ADVANCE. 3. TO ALLOW THE BENEFIT OF SECTION 11 BY HOLDING THAT RENT OF RS. 87,45,207/ - IS NOT EXCESSIVE U/S 13(3). 4. TO ALLOW THE BENEFIT OF SECTION 11 BY HOLDING THAT ADVANCE OF RS. 11,57,000/ - IS NOT EXCESSIVE U/S 13(3). 5. TO ALLOW THE ENTIRE AMOUNT OF RS. 1,43,000/ AS APPLICATION OF INCOME INSTEAD OF TREATING THE SAME AS DONATION U/S 80G. 6. TO DELETE THE DISALLOWANCE OF RS. 1,68,48,487/ - BY HOLDING THAT THE COST OF ACQUISITION OF THE FIXED ASSETS WAS NOT ELIGIBLE FOR EXEMPTION U/S 11(1) 7. TO ALLOW STATUTORY ALLOWANCE OF RS. 70,18,331/ - @ 15% U/S 11 (1) CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME. 8. TO DELETE THE PENALTY LEVIED U/S 271(1)(C) AND INTEREST CHARGED U/S 234. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.09.2014 DECLARING TAXABLE INCOME TO THE TUNE OF . NIL FOR THE A.Y.2014 - 15. THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED BY THE ASSESSING 4 4 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 4 OFFICER VIDE ORDER DT . 30/12/2016 U/S 143(3) DETERMINING TOTAL INCOME AMOUNTING TO . 14,64,92,740/ - . 4 . A GGRIEVED BY THE ASSESSMENT ORDER , THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. T HEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US. 5 . AT THE VERY OUTSET, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS A RGUED THAT THE DEPARTMENT HAS NOT FILED ANY APPEAL AGAINST THE ORDER OF THE LD. CIT(A) AND THEREFORE, WHICHEVER GROUNDS ARE PARTLY OR CONDITIONALLY ALLOWED ST OOD ALLOWED IN THE FAVOUR OF THE ASSESSEE . TH E LD. REPRESENTATIVE OF THE DEPARTMENT HAS CONFIRMED THE SAID CONTENTION. WE HAVE HEARD THE RIVAL CONTENTIONS AND FIND THAT THE WHOLE ISSUE IS AROUND DISALLOWANCE OF EXEMPTION U/S 11 OF THE INCOME TAX ACT, 1961 (THE ACT) IN RESPECT OF INCOME EARNED BY THE ASSESSEE. 6 . UNDER THIS GROUND OF APPEAL, THE AUTHORIZED REPRESENTATIVE OF THE AS SESSEE POINTED OUT THAT THE COMMISSIONER OF INCOME TAX(A) RIGHTLY HELD IN CONCLUDING THAT THE ACTIVITIES UNDERTAKEN BY THE APPELLANT SATISFIES THE REQUIREMENT S OF THE TERM 'EDUCATION' BUT ERRED IN MENTIONING THAT THE SAME IS SUBJECT TO GROUND NUMBER 4 BEFORE THE COMMISSIONER OF INCOME TAX(A) AND NOW GROUND 3 BEFORE THE H ONBLE TRIBUNAL . 6 . 1 . IN THIS REGARD, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND FAIRLY CONCEDED THAT THE DEPARTMENT HAD NOT FILED ANY APPEAL AGAINST GROUND NO 1 ALLOWED BY THE LD. COMMISSIONER OF INCOME TAX (A) . 6 . 2 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND FIND THAT THE LD. C IT (A) HAS ALLOWED THIS GROUND OF APPEAL IN PARA NO 4.4.3 OF THE IMPUGNED APPELLATE ORDER PASSED BY HIM. WE ALSO FIND THAT THE ASSESSING OFFICER OBSERVED THAT THE ACTIVITIES OF THE ASSESSEE IS BUSINESS INCOME U/S 2(15) . ON THE OTHER HAND, THE LD. C IT (A) HAS ALLOWED THIS GROUND BY RELYING UPON THE DECISION IN THE CASE OF SAMUDRA INSTITUTE OF MARITIME STUDIES TRUST [369 ITR 645(BOM)(2014)] WHICH IS EXACTLY IDENTICAL TO THE FACTS OF THE INSTANT CASE BEFORE US . THE LD. C IT (A) HAS DISCUSSED THE SAID JU DGMENT AT LENGTH AT PARA 4.4.1. OF THE IMPUGNED APPELLATE ORDER. WE ALSO FIND THAT THE LD. C IT (A) HAS ALSO TAKEN NOTE OF THE CASE OF LOKSHIKSHAN TRUST [ 101 ITR 234(SC) ] IN WHICH IT WAS HELD THAT THE SENSE IN WHICH THE WORD EDUCATION HAS BEEN USED IN SECTION 2(15) IS THE 5 5 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 5 SYSTEMATIC INSTRUCTION, SCHOOLING OR TRAINING GIVING TO THE YOUNG IN PREPARATION FOR THE WALKS OF LIFE. IT ALSO CONVERTS THE OLD COURSE OF SCHOLASTIC INSTRUCTION WHICH A PERSON HAS RECEIVED. MOREOVER, THE ASSESSEE AL SO RELIED UPON THE JUDGMENT IN THE CASE OF ANDHRA CHAMBER OF COMMERCE [ 130 ITR 184 (SC) ] IN WHICH THE APPEAL OF THE REVENUE WAS DISMISSED BY HOLDING THAT THE OBJECTS OF THE CHAMBER OF COMMERCE WAS TO PROMOTE AND PROTECT TRADE COMMERCE AND INDUSTRIES AND THE REFORE, FALLING UNDER THE DEFINITION OF CHARITABLE UNDER OTHER OBJECTS OF PUBLIC BENEFIT . SIMILARLY, THE C IT (A) ALSO RELIED UPON JUDGMENT IN THE CASE OF QUEENS EDUCATION SOCIETY [372 ITR 699(SC)] IN WHICH IT WAS HELD THAT THE CORRECT TESTS WHICH HAVE BEEN CULLED OUT IN THE APEX COURT DECISIONS AS STATED ABOVE, NAMELY, SURAT ART SILK CLOTH ADITANAR AND AMERICAN HOTEL AND LODGING, WOULD ALL APPLY TO DETERMINE WHETHER AN EDUCATIONAL INSTITUTION EXI STS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. SIMILARLY, WE ALSO FIND THAT THE LD. C IT (A) EXAMINED THE OBJECTS OF THE ASSESSEE AS FILED AT PAGE NO. 204 OF THE PAPER BOOK AND AT PAGE NO 13 TO 14 OF THE IMPUGNED APPELLATE ORDER AND A LSO EXAMINED COURSES CONDUCTED WITH THE APPROVAL OF DG SHIPPING. APART FROM THIS, THE LD. C IT (A) ALSO CONSIDERED THE DECISION OF SAINT LAWRENCE EDUCATION SOCIETY [53 DTR 130(DEL)] AND SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [121 ITR 1 (SC)] WHICH SUPPORTS THE CASE OF THE ASSESSEE BEFORE US. WE ALSO FIND THAT THE ASSESSEE OBTAINED VARIOUS REGISTRATIONS FOR CARRYING OUT EDUCATIONAL ACTIVITIES FROM THE REGIONAL DIRECTOR, WESTERN REGION, MCA AS FILED AT PAGE NO 140 OF PAPER BOOK , CERTIFICATE U/S 12AA ISSUED BY THE DIT(E), MUMBAI FILED AT PAGE NO 141 OF PAPER BOOK , RENEWAL CERTIFICATE ISSUED BY DIT(E), MUMBAI FILED PAGE NO 142 OF PAPER BOOK AND CERTIFICATE ISSUED BY DG, SHIPPING FILED AT PAGE 143 TO 145 OF PAPER BOOK . THE ASSESSEE ALSO RELIED UPON C.B.D.T. CIRCULAR NO 11/2008 ALLOWING EXEMPTION U/S 11 IN CASE OF ASSESSEE CLAIMING TO BE CHARITABLE AND MUTUAL ORGANIZATION WHICH INCLUDE D EDUCATIONAL INSTITUTE U/S 2(15)(II) FILED AT PAGE NO. 146 OF PAPER BOOK . THE LD. CIT (A) ALSO OBSERVED THAT FIVE COURSES CONDUCTED BY THE ASSESSEE AS WELL AS LIST OF COURSE S ON THE WEBSITE OF DG SHIPPING WHICH INCLUDED COURSES OFFERED BY THE ASSESSEE . THE LD. CIT(A) ALSO OBSERVED FROM THE COPY OF EMAIL RETURNED BY DG SHIPPING FOR COURSE CERTIFICATION, CERTIFICATE OF CONTINUOUS DISCHARGE . THE ASSESSEE ALSO RELIED UPON A COPY 6 6 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 6 OF SEAFARERS IDENTITY DOCUMENTS CONVENTION, 1958 FILED AT PAGE NO. 21 2 TO 21 5 OF THE PAPER BOOK AND DECISION OF THE DIT(E) N ATIONAL SAFETY COUNCIL AT PAGE NO. 216 TO 219 OF PAPER BOOK ) . THE LD AR ALSO DREW OUR ATTENTION TO DECISION IN THE CASE OF SHREE KAMDAR EDUCATION TRUST FOILED AT PAGE NO 220 TO 229 OF THE PAPER BOOK, INSTITUTE OF BANKING PERSONNEL SELECTION [264 ITR 110 (BOM)] AND VISWES V ARAYA TECHNOLOGIAL UNIVERSITY [384 ITR 37 (SC)] IN SUPPORT OF THIS GROUND. AFTER CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF VARIOUS DECISIONS , WE ARE OF THE OPINION THAT THE ACTIVITIES OF THE ASSESSEE ARE C OVERED BY LAST LIMB OF SECTION 2(15) AND ARE AKIN TO THE A CTIVITIES TO SAMUDRA INSTITUTE OF MARITIME STUDIES TRUST [369 ITR 645(BOM)(2014)] . NOT ONLY THAT THE N OTICE FOR CANCELLATION U/S 12AA WAS DROPPED BY THE DIT(E) HIMSELF . APART FROM THIS, WE ALSO FIND THAT SIMILAR EXEMPTIO N WAS GRANTED BY OTHER AS SESSING OFFICER IN A.Y. 2015 - 16 AS FILED AT PG. NO 75 TO 78 OF THE PAPER BOOK , 2016 - 17 FILED AT PG. NO 79 TO 81 OF THE PAPER BOOK AND 2010 - 11 AS FILED AT PG. NO 82 TO 87 OF THE PAPER BOOK . WE ARE THEREFORE, OF THE OPINION THAT THE LD. C IT (A) HAS CORRECTLY APPRECIATED THE FACTS AN D ALLOWED THIS GROUND OF APPEAL. WE THEREFORE, ACCORDINGLY, UPHOLD THAT ACTIVITIES UNDERTAKEN BY THE ASSESSEE SATISF Y THE REQUIREMENT S OF THE TERM 'EDUCATION'. MOREOVER, THE GROUND NO 4 BEFORE US IS DEALT WI TH SEPARATELY IN THE SUBSEQUENT PARAGRAPHS. ACCORDINGLY, GROUND NO 1 IS HEREBY ALLOWED IN THE FAVOUR OF THE ASSESSEE AND THE AO IS DIRECTED ACCORDINGLY . 7 . IN THE SECOND GROUND OF APPEAL , THE ASSESSEE POINTED OUT THAT THE C IT(A) WAS CORRECT IN DELETING THE ADVANCE FEE RECEIVED FROM THE STUDENTS AMOUNTING TO RS. 2,49,55,712/ - OUT OF TOTAL ADDITION OF RS. 6,46,99,342/ MADE BY THE ASSESSING OFFICER AS REVENUE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT THIS IS THE REGU LAR METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE . 7 . 1 . IN THIS REGARD, WE FIND THAT THE ASSESSING OFFICER TREATED THE SAME INCORRECTLY BECAUSE OF THE MATCHING CONCEPT. THE DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD AR OF THE ASSESSEE DREW OUR ATTENTION TO THE FACT THAT THIS GROUND WAS PARTLY ALLOWED BY THE LD. C IT (A) . HE VEHEMENTLY CONTENDED THAT THIS SYSTEM OF ACCOUNTING IS REGULARLY EMPLOYED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT IN OTHER YEARS WHICH WAS ACC EPTED BY THE REVENUE UNDER SCRUTINY ASSESSMENT S AS WELL. 7 7 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 7 THE LD. AR FURTHER ARGUED THAT THE PRINCIPLE OF CONSISTENCY OUGHT TO HAVE BEEN OBSERVED IN THE ASSESSMENT PROCEEDINGS. IN THIS REGARD, HE ALSO RELIED UPON THE JUDGMENT IN THE CASE OF RADHA SWAMI SATSANG (NO. 1) [201 ITR 449 (ALLAHABAD)] AND ARONI COMMERCIAL LTD. [393 ITR 673 (BOMBAY)] TO CONTEND THAT EXEMPTION GRANTED U/S 11 AND 12 IN OTHER YEARS BY ACCEPTING THIS METHOD OF ACCOUNTING OUGHT TO BE FOLLOWED I N THE YEAR UNDER APPEAL AS WELL . 7 . 2 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND FIND MERIT IN THE CONTENTION S OF THE ASSESSEE THAT TREATING THE FEES AS INCOME ONLY IN THE YEAR IN WHICH THE STUDENT COMPLETE D THE COURSE WAS REGULARLY FOLLOWED BY THE ASSESSEE OVER THE YEARS AND ACCEPTED BY THE ASSESSING OFFICER IN OTHER YEARS AS WELL. THEREFORE, ON THE PRINCIPLE OF CONSISTENCY, THIS METHOD OUGHT TO BE ACCEPTED BEING TAX NEUTRAL, PARTICULARLY WHEN THE INCOME OF THE ASSESSEE IS EXEMPT U/S 11 AND 12. MOREOVER, WE ALSO FIND STRENGTH IN THE ARGU MENT S OF THE ASSESSEE THAT FEES OF THE STUDENTS ARE REFUNDABLE AS WAS HELD IN THE CASE OF BSB VS A RAJAPPA & ORS SC 578 IN CASE OF DEFICIENCY IN SERVICE TO STUDENTS . THE SEMINAL 1978 JUDGMENT BY THE SUPREME COURT (BSB VS A RAJAPPA & ORS SC 578) ESTABLISH ED THAT EDUCATION IS AN INDUSTRY AND STUDENTS ARE CUSTOMERS. MANY SUBSEQUENT JUDGEMENTS HAVE UPHELD THIS VIEW. ON AN OVERALL CONSIDERATION OF THIS DECISION COUPLED WITH THE CONTENTION S OF CONSISTENCY AND TAX NEUTRALITY, WE FIND THAT THE LD. CIT A) RIGHTLY ACCEPTED THE ACCOUNTING METHOD FOLLOWED BY THE ASSESSEE. HOWEVER, D UE TO REVISED CALCULATION THERE WAS UNSPENT AMOUNT. T HERE WAS NO REQUIREMENT OF FILING THE PRESCRIBED FORM AS PER THE COMPUTATION AND CONSISTENT METHOD. THEREFORE, WE FIND THAT THIS OBSERV ATION OF THE LD. CIT(A) AT PARA NO 5.4.9 OF THE IMPUGNED APPELLATE ORDER IS ERRONEOUS AND DESERVE D TO BE DELETED. AS REGARDS GROUND NO 4 WE HAVE SEPARATELY DECIDED THE ISSU E IN THE SUBSEQUENT PARAGRAPHS . ACCORDINGLY, GROUND NO 2 IS ALLOWED IN FAVOUR OF THE ASSESSEE AND THE ASSESSING OFFICER IS DIRECTED TO ACCEPT THE METHOD OF ACCOUNTING REGULARLY ADOPTED BY THE ASSESSEE. WE ALSO DELETE THE OBSERVATIONS OF THE LD. CIT(A) IN PARA 5.4.9. IN VIEW OF THE GROUND NO 2 BEING ALLOWED IN THE FAVOUR OF THE ASSESSEE. A CCORDINGLY, GROUND NO 2 IS ALLOWED AND AO ID DIRECTED ACCORDINGLY . 8 8 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 8 8 . IN THE THIRD GROUND OF APPEAL, THE ASSESSEE STATED THAT THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 87,45,207/ FOR VIOLATION OF PROVISION UNDER SECTION 13(3) OF THE ACT AND DENIED EXEMPTION UNDER SECTION 11 OF THE ACT EVEN AFTER HOLDING THAT THE ASSESSING OFFICER ERRED IN HOLDING THAT THE RENT PAID TO THE PERSONS SPECIFIED WAS EXCESSIVE IN PARA 7.4.1 OF HIS APPELLATE ORDER. 8 . 1 . THE AO HAS DISALLOWED THE RENT WHILE T HE DR SUPPORT ED THE ORDER OF THE ASSESSING OFFICER. IN THIS REGARD, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE DREW OUR ATTENTION TO PARA NO 7.4.1. OF THE IMPUGNED APPELLATE ORDER IN WHICH THE LD. CIT(A) HAS DISCUSSED THE ISSUE OF DISALLOWANCE OF RENT AT LENGTH AND ULTIMATELY HELD THE ORDER OF THE AO TO BE WRONG. 9 . WE HAVE CAREFULLY PERUSED THE PARA NO 7.4.1.OF THE IMPUGNED APPELLATE ORDER AND FIND THAT THE LD. CIT(A) HEL D THE SAME IN THE FAVOUR OF ASSESSEE. AS REGARDS, GROUND NO 4 OF APPEAL BEFORE US , WE WOULD LIKE T O STATE THAT THE SAME IS SEPARATELY DEALT IN THE SUBSEQUENT PARAGRAPHS. ACCORDINGLY, GROUND NO 3 IS ALLOWED AND THE OBSERVATION OF THE LD CIT(A) AT PARA NO 7.4.4. OF THE IMPUGNED APPELLATE ORDER IS DELETED . IN THE RESULT GROUND NO 3 IS ORDERED TO BE ALLO WED AND THE AO IS DIRECTED ACCORDINGLY. 10 . IN THE FOURTH GROUND OF APPEAL , THE ASSESSEE HAS CHALLENGED THAT THE LD. CIT(A) ERRED IN CONFIRMING DENIAL OF EXEMPTION UNDER SECTION 11 OF THE ACT BY HOLDING THAT ADVANCE GIVEN TO THE DIRECTOR FOR PETTY CASH EXPENSES WAS HIT BY THE RESTRICTIONS U/S 13(3) TO THE EXTENT OF RS. 11,57,000/ - BEING ADVANCE GIVEN TO COMPANY IN WHICH DIRECT ORS ARE COMMON. 10.1. IN THIS REGARD WE FIND THAT THE ASSESSING OFFICER HAS TREAT ED THE ENTIRE AMOUNT OF RS. 11,57,000/ - AS PAYMENT MADE TO RELATED PARTIES AND CONSEQUENTLY DISALLOWED THE EXEMPTION U/S 11 AND 12 . THE DR SUPPORTED THE CASE OF THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) . ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE STRONGLY CONTENDED THAT THE LD. C IT(A) HAS OVERLOOKED THE FACTS CITED BEFORE HIM AND CONFIRMED THE DISALLOWANCE OF EXEMPTION ON THE BASIS OF PAYMENT MADE TO THE ALLEGED RELA TED PARTIES . THE LD AR VEHEMENTLY CONTENDED THAT (I)R S. 20000 WAS GIVEN TO BP MARINE ACADEMY AND RESEARCH CENTRE WHICH IS ALSO A SECTION 25 COMPANY. THEREFORE, IT IS CHARITABLE AND NOT HIT BY 13(3) OF THE ACT(II) RS. 1022000/ - PAID TO BP MARINE SERVICES PVT. LTD. WHICH IS ALSO APPROVED BY 9 9 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 9 DG SHIPPING AS QUALIFIED FOR RECRUITMENT AND PLACEMENT SERVICES OF THE STUDENTS (III)RS. . 1,15,000/ - ARE REIMBURSEMENT TO BE RECOVERED FROM THE STUDENTS TOWARDS COUNSELLING FEES AND ADVANCE TO STUDENTS. THESE ARE NOT RELATIVES AT ALL AND (IV)RS. . 1,00,000/ - WAS NEVER GIVEN TO ANYBODY 10 . 1 . WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE RECORDS AND FIND THAT THE FINDINGS OF THE ASSESSING OFFICER AND THE LD. CIT(A) ARE NO T CORRECT BECAUSE THE BREAK UP OF THE ALLEGED AMOUNT OF . 11,57,000/ - IS AS GIVEN ABOVE AND DOES NOT PARTAKE THE CHARACTER OF LOANS AND ADVANCES TO RELATED PARTIES. THE FIRST T WO AMOUNTS ( RS . 20,000 + RS . 10,22,000) PERTAIN ED TO ANOTHER TRUST WHICH IS ALSO REGISTERED WITH THE DG SHIPPING AND IS A SECTION 25 COMPANY AND THEREFORE, CHARITABLE AND NOT HIT BY SECTION 13(3) OF THE ACT . THE LAST AMOUNT OF RS . 1,15,000/ - REPRESENTED REIMBURSEMENT TO BE RECOVERED FROM THE STUDENTS TOW ARDS COUNSELING FEES. NONE OF THE STUDENTS ARE RELATED TO THE ASSESSEE UNDER APPEAL. WE THEREFORE, FIND MERITS IN THE ARGUMENT OF THE LD AR THAT THE CONSEQUENTIAL EXEMPTION U/S 11 AND 12 IS ERRONEOUSLY REJECTED BY THE ASSESSING OFFICER AND WRONGLY CONFIR MED BY THE LD. CIT(A) . WE THEREFORE, DIRECT THE ASSESSING OFFICER TO ALLOW EXEMPTION U/S 11 AND 12 OF THE ACT . MOREOVER, GRO UND NO 1, 2 AND 3 ABOVE ALSO STOO D ALLOWED IN VIEW OF THE A SSESSEE SUCCEEDING IN GROUND NO 4 BECAUSE THE COMMISSIONER OF INCOME TAX (A) HAD CONDITIONALLY ALLOWED GROUND NO 1,2 AND 3 IN FAVOUR OF THE ASSESSEE SUBJECT TO GROUND NO 4 . SINCE WE HAVE ALLOWED GROUND NO 4 FULLY, THE CONDITION IMPOSED BY THE LD. CIT(A) IN GROUND NO 1,2 AND 3 ABOVE STANDS AUTOMATICALLY DELETED. GROUND NO 4 IS ALLOWED IN THE FAVOUR OF ASSESSEE. 11 . IN GROUND NO FIVE THE ASSESSEE HAS CHALLENGED THE ORDER OF LD CIT(A) IN CONFIRMING THE DENIAL OF EXEMPTION UNDER SECTION 11 OF THE ACT IN RESPECT OF DONATION AND CONTRIBUTION OF RS. 1,43,000/ AND ERRED IN NOT DECIDING DEDUCTION U/S 80G OF THE ACT . 11 . 1 . IN THIS REGARD, WE FIND THAT THE ASSESSING OFFICER APPLIED SECTION 80G OF THE ACT BECAUSE OF DENIAL OF EXEMPTION U/S 11 OF THE ACT . THE DR SUPPORTED THE ORDER OF 1 0 10 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 10 THE ASSESSING OFFICER. THE LD. CIT(A) ALSO DENIED THE SAME BECAUSE HE HAD DENIED THE EXEMPTION U/S 11 AS DISCUSSED IN GROUND NO 4 ABOVE. 11 . 2 . WE HAVE CAREFULLY CONSIDERE D THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORDS AND FIND THAT SINCE GROUND NO 4 IS ALREADY ALLOWED WITH GROUND NOS 1, 2 AND 3, THIS GROUND OF APPEAL IS ONLY CONSEQUENTIAL AND THEREFORE, ALLOWED IN THE FAVOUR OF ASSESSEE . THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE EXEMPTION U/S 11 INSTEAD OF DEDUCTION U/S 80G IN RESPECT OF CONTRIBUTION OF . 1,43,000/ - MADE BY THE ASSESSEE. IN THE RESULT GROUND NO 5 STANDS ALLOWED IN THE FAVOUR OF ASSESSEE 12 . IN THE SIXTH GROUND OF APPEAL, THE ASSESSEE HAS CHALLENGED THE ORDER OF CIT(A) IN CONFIRMING DISALLOWANCE OF RS. 1,68,48,487/ - BY HOLDING THAT THE COST OF ACQUISITION OF THE FIXED ASSETS WAS NOT ELIGIBLE FOR EXEMPTION U/S 11(1) AS APPLICATION OF INCOME AND ALSO ERRED IN NOT DECIDING ABOUT THE DEPRECIATI ON ALLOWED BY THE ASSESSING OFFICERS.. 12 . 1 . IN THIS REGARD, WE FIND THAT THE ASSESSING OFFICER HAD ALLOWED DEPRECIATION AND DISALLOWED COST OF FIXED ASSETS FROM APPLICATION OF INCOME WHICH WAS CONFIRMED BY THE LD CIT(A) BECAUSE THE EXEMPTION U/S 11(1) WAS DENI ED BY THE AO . 12 . 2 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND FIND THAT THIS GROUND OF APPEAL IS ALSO CONSEQUENTIAL TO GROUND NOS 1, 2, 3 AND 4 WHICH ARE ALLOWED IN THE FAVOUR OF THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE COST OF ACQUISITION AMOUNTING TO RS. 1,68,48,487/ - TOWARDS FIXED ASSETS U/S 11 AS PER LAW INSTEAD OF ONLY DEPRECIATION . IN THE RESULT, GROUND NO 6 IS ALLOWED IN FAVOUR OF THE ASSESSEE. 13 . IN THE GROUND NO. 7 OF APPEAL, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD CIT(A) IN NOT CONSIDERING STATUTORY ALLOWANCE OF RS. 70,18,331/ - @ 15% U/S 11(1) CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME. 13 . 1 . IN THIS REGARD, WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED STATUTORY DEDUCTION OF 15% ON THE ADDITIONS MADE BY HIM WHICH WAS COMMENT ED BY THE LD CIT(A). ON THE OTHER HAND, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT SINCE EXEMPTION U/S 11(1) WAS APPLICABLE TO THE ASSESSEE, THE SAME WAS CONSEQUENTIAL AND AUTOMATIC U/S 11(1) . 1 1 11 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 11 13 . 2 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND FIND THAT SINCE THE EXEMPTION U/S 11 IS ALLOWED IN GROUND NOS 1, 2, 3 AND 4 ABOVE, THIS IS ONLY CONSEQUENTIAL AND ACADEMIC AND THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION AND IS INFRUCTUOUS. 14 . IN THE GROUND NO 8 OF APPEAL, THE ASSESSE E HAS RAISED ISSUE OF INITIATION OF PENALTY AND CHARGING OF INTEREST BY THE ASSESSING OFFICER U/S 234A, 234B, 234C AND 234D . WE FIND THAT THE SAME IS PREMATURE AND ACCORDINGLY DOES NOT REQUIRE ANY ADJUDICATION . 14 . 1 . IN THE RESULT, GROUND NO 8 IS DISMISSED. 15 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . 16 . SINCE WE DECIDE D THE APPEAL OF THE ASSESSEE ON MERITS, THE STAY APPLICATION FILED BY THE ASSESSEE BECOMES INFRUCTUOUS AND HENCE THE SAME IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 - 09 - 2019 SD/ - SD/ - (SANDEEP GOSAIN) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER / MUMBAI; / DATED : 06 / 09 /2019 COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 3 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. 1 2 12 ITA NO.174/MUM/2019 SA NO.40/MUM/2019 AY.2014 - 15 PAGE 12 //TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.