The DDIT (Exemp.), Ahmedabad V. Adarsh Foundation, Ahmedabad

ITA 1858/AHD/2013

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8876 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-09-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 28-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: L P JAIN
• Keywords: Depreciation; Charitable institution; Diversion of income; Reason to believe; Capital expenditure; Set aside
• Section: 12A; 12AA; 10B; 264; 32; 11

Judgement Text

DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 1 , C IN THE INCOME TAX APPELLATE TRIBUNAL, CBENCH, AHMEDABAD BEFORE SHRI O. P MEENA, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER . . /. I.T.A NO.1858/AHD/2013 / ASSESSMENT YEAR:2009-10 DEPUTY DIRECTOR OF INCOME TAX (EXEMPTION), AHMEDABAD VS. ADARSH FOUNDATION, C/O SAL HOSPITAL & MEDICAL INSTITUTION, OPP. DOORDARSHAN TOWER, DRIVE- IN-ROAD, THALTEJ, AHMEDABAD PAN:AAA TA2 111 J APPELLANT / RESPONDENT /ASSESSEE BY SHRI L. P. JAIN, SR. D.R. /REVENUE BY SHRI S. N. SOPARKAR, SR. ADVOCATE WITH PARIN SHAH / DATE OF HEARING: 19 .09.2019 /PRONOUNCEMENT ON 2 0 .09.2019 /O R D E R PER O. P. MEENA,AM: 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XXI, AHMEDABAD (IN SHORT THE CIT (A)) DATED 02.04.2013 FOR THE ASSESSMENT YEAR 2009 -10. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDE R:- I) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO GRANT EXEMPTION OF RS. 28,72,316/- TO THE ASSESSEE U/S. 11(1)(A) OF THE I.T. ACT, TREATING THE ACTIVITY OF THE TRUST TO BE IN THE INTEREST OF CHAR ITY. II) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE HAD NOT V IOLATED ANY OF THE CONDITIONS OF SEC. 13 OF THE I.T. ACT. DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 2 III) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN HOLDING THAT INCOMPLETE FORM 10B WAS NOT A GROUND FOR DISALLOWANCE. IV) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN HOLDING THAT THE A.O. SHOULD HAS CO NSIDERED THE ASSESSEES SUBMISSION THAT BROUGHT FORWARD LOSSES O F THE TRUST IS ALLOWED TO BE SET OFF AGAINST CURRENT YEARS SURPLU S, AND THAT THE SAME IS CONSIDERED AS APPLICATION OF INCOME OF THE TRUST AS PER THE JUDICIAL RULINGS OF HIGH COURTS OF GUJARAT, BOMBAY AND RAJAS THAN. V) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF DEPREC IATION OF RS. 1,27,63,514/- MADE BY THE ASSESSING OFFICER. VI) THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN IGNORING THE STAND OF THE REVENUE T HAT ALLOWANCE OF DEPRECIATION ON THE ASSETS, THE COST OF WHICH HAS A LREADY BEEN ALLOWED AS A DEDUCTION ON ACCOUNT OF APPLICATION OF INCOME, WOULD AMOUNT TO DOUBLE DEDUCTION IN VIEW OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ESCORTS LTD., 199 ITR 43. VII) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, DEDUCTION OF DEPRECIATION U/S. 32 WHICH FALLS UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS AND PROFESSION OF THE INCO ME TAX ACT, 1961, WOULD BE AVAILABLE TO A CHARITABLE TRUST WHOSE INCO ME IS OTHERWISE NOT ASSESSABLE UNDER THE ABOVE HEAD. VIII) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE UPHELD THE OR DER OF THE ASSESSING OFFICER. IX) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) MAY BE SET ASIDE AND THAT OF T HE ASSESSING OFFICER BE RESTORED. 3. GROUND NO. I TO III RELATES TO GRANTING EXEMPTION O F RS. 28,72,316/- BY HOLDING THAT THE ASSESSEE HAS NOT VIOLATED ANY OF T HE CONDITIONS OF SEC. 13 OF THE ACT AND ALSO HOLDING THAT INCOMPLETE FORM NO. 1 0B WAS NOT A GROUND FOR DISALLOWANCE. SINCE THESE GROUNDS OF APPEAL ARE IN TERLINKED HENCE, SAME ARE BEING CONSIDERED TOGETHER. 4. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSES SEE IS A TRUST PROVIDING HEALTHCARE FACILITIES AND IMPARTING MEDIC AL EDUCATION AND TRAINING DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 3 AND THE MAIN OBJECTS OF THE TRUST ARE TO SERVE THE PEOPLE OF INDIA AND WORK FOR THEIR BENEFITS BY PROVIDING MEDICAL CARE OF THE HIGHEST LEVEL. THE ASSESSEE TRUST WAS GRANTED REGISTRATION U/S. 12A FO R PROVIDING SUCH AFORESAID FACILITIES. THE AO NOTICED THAT THE ASSESSEE TRUST ENTERED INTO AN AGREEMENT WITH SAL CARE PVT. LTD. (SCPL) DATED 01.0 4.2008 WHICH VIOLATES THE BASIC PRINCIPLE OF CHARITY UPON WHICH THE ASSES SEE TRUST WAS GRANTED REGISTRATION U/S. 12A(A) OF THE ACT. THE AO FURTHE R OBSERVED THAT THE TRANSFER OF ALL MOVABLE ASSETS INCLUDING FIXED ASSE TS (WORTH RS. 3,44,74,281/-) THE CONTRACT ENTERS INTO BY (SAL HOS PITAL & MEDICAL INSTITUTE) SHMI, OF IPRS OF SAL HOSPITAL AND ALL LISTS AND PAR TICULARS OF SUPPLIERS, PATIENTS, PROFESSIONALS RECORDS AND ALL OTHER DOCUM ENTS RELATING TO THE BUSINESS MEDICAL AND OTHERWISE AND GOODWILL OF SAL HOSPITAL HAS APPEARED IN THE BALANCE SHEET OF SHMI OF 01.04.2008 TO SCPL IN THE GARB OF AN AGREEMENT, IS AGAINST THE BASIC PRINCIPLES OF CHARI TY. ACCORDING TO AO THE COMPANY IS ONE OF THE BUSINESS ENTITY OF SHAH ALLOY S LTD. GROUP ASSESSEE TRUST ALSO BELONG SHRI KARAN R SHAH, THE KEY MANAGE MENT PERSONNEL AND DIRECTOR OF SCPL IS THE SON OF SHRI RAJENDRA V SHAH , THE MANAGING TRUSTEE OF ADARSH FOUNDATION. THEREFORE, BY VIRTUE OF THIS FA CT THE SCPL IS COVERED UNDER THE DEFINITION OF PERSON AS PER PROVISIONS OF SEC. 13(3)(E) READ WITH EXPLANATION 1&3 OF THE ACT. THEREFORE, BY ENTERING INTO THE AGREEMENT FITH SCPL, THE ELIGIBILITY CONDITIONS FOR CLAIMING DEDUC TION U/S. 11 OF THE ACT, AS DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 4 LAID DOWN IN 13(1)(C)(II) AND 13(2)(B), 13(2)(D) AN D 13(2)(G) OF THE ACT HAVE VIOLATED. WHICH ARE SUBSTANTIATED AS BELOW:- THE TRUST HAS TRANSFERRED ALL ASSETS AND LIABILITIE S AS APPEARING IN THE BALANCE SHEET OF SHMI AS ON 01.04.2008 TO SCPL. THE LIABILITIES I NCLUDE UNSECURED LOANS FROM THE ASSESSEE TRUST WORTH RS. 19,57,39,819/-. BEFORE THE TRANSFER ON 01.04.2008, THE REFERRED LOAN WAS APPEARING AS ASSET IN THE BALANCE SHEET OF TRUST AND LIABILITY IN THE BALANCE SHEET OF SHMI, AND THE SHMI BEING A CONSTIT UENT OF THE ASSESSEE TRUST, THE LOAN ADVANCED WAS TREATED AS APPLICATION OF INCOME. BUT, AS SOON AS THE SHMI NO LONGER REMAINED AS A CONSTITUENT OF TRUST AND WAS T AKEN OVER BY A COMPANY (SCPL), THE SAID LOAN APPEARED AS LIABILITY IN THE BALANCE SHEET OF SCPL, AND SCPL BEING A COMPANY, THE SAID LOAN CAN NO LONGER BE CONSIDERED AS APPLICATION OF INCOME FOR THE PURPOSES OF ATTAINING OBJECTS OF THE TRUST. INSTEAD , IT IS TREATED AS PROPERTY OF TRUST USED TO SERVE THE BUSINESS INTERESTS (PROVIDE BENEF ITS) OF THE PERSON REFERRED IN SECTION 13(3) OF THE ACT. ON THE ALTERNATIVE, IT MAKES THE AGREEMENT AGAINST THE INTEREST OF THE TRUST AS THE ADDITIONAL ASSETS WORTH RS. 19,57,39,8 19/- HAVE BEEN TRANSFERRED TO THE SAID COMPANY. APART FROM THAT, THE TRUST HAS TRANSFERRED FIXED AS SETS WORTH RS. 4,70,15,328.95/- FROM THE BALANCE SHEET OF ADARSH FOUNDATION, OVER AND AB OVE THE FIXED ASSETS WORTH RS. 3,44,74,281/- TRANSFERRED FROM THE BALANCE SHEET OF SHMI TO SCPL. THEREFORE, THE QUANTUM TRANSFERRED IS EVEN BEYOND THE TERMS OF THE AGREEMENT AS PARA 3.1 OF THE AGREEMENT EMPOWERS TRANSFER OF MOVABLE ASSETS FROM THE BALANCE SHEET OF SHMI (AND NOT THE ADARSH FOUNDATION). THEREFORE, THE PROPERTY OF THE TRUST HAS BEEN APPLIED FOR THE BENEFIT OF SCPL, THE PERSON COVERED U/S 13(3) A S PER THE RELEVANT CLAUSES OF SUBSECTIONS 13(1) AND 13(2) QUOTED ABOVE. AS PER THE PROVISIONS OF THE REFERRED AGREEMENT, TH E SCPL WILL PAY MANAGEMENT FEES AMOUNTING TO RS. 1,00,00,000/- OR 40% OF PROFIT BEF ORE TAX (WHICHEVER IS HIGHER) IN LIEU OF TAKEOVER ANNUALLY TO THE TRUST. NO RATIONAL E HAS BEEN PROVIDED FOR ARRIVING AT SUCH A FIGURE. THE ASSESSEE FAILED TO FURNISH ANY R EASONABLE JUSTIFICATION WHATSOEVER IN HIS REPLY TO SHOW CAUSE NOTICE DATED 28.11.2011. (THE SAME HAS BEEN REBUTTED IN PARA 3.6, AND IS NOT DISCUSSED FOR THE SAKE OF REPE TITION). CONSIDERING THE FACT THAT THE COMPANY HAS EARNED PROFIT BEFORE TAXATION IN A.Y. 2 009-10 AND 2010-11 WORTH RS. 4,08,33,940/- AND RS.5,55,15,425/- RESPECTIVELY, TH E FORMULA ADOPTED IN THE AGREEMENT IS HIGHLY BIASED IN THE FAVOUR OF THE COM PANY. THE SERVICES OF THE TRUST HAVE BEEN PROVIDED TO THE COMPANY COVERED U/S 13(3) WITHOUT GETTING DUE CONSIDERATION (SECTIONS 13(1)(C)(II), 13(2)(B), 13( 2)(D) AND 13(2)(G) OF THE ACT). AS PER POINT NO.1,2,4,7 AND 8 OF ANNEXURE NO. II OF FORM 10B REPORT, THE ASSESSEE IS MANDATORILY REQUIRED TO MAKE BELOW MENTIONED DISCLO SURE IN THE REFERRED REPORT: WHETHER ANY LAND, BUILDING OR OTHER PROPERTY 42 OF THE TRUST OR INSTITUTION IS, OR CONTINUES TO BE, MADE AVAILABLE FOR THE USE OF ANY PERSON REFERRED TO IN SUB-SECTION (3) DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 5 WHETHER THE SERVICES OF THE TRUST OR INSTITUTION AR E MADE AVAILABLE TO ANY PERSON REFERRED TO IN SUB-SECTION (3) DURING THE PREVIOUS YEAR WITHOUT ADEQUATE REMUNERATION OR OTHER COMPENSATION. WHETHER ANY INCOME OR PROPERTY OF THE TRUST OR INST ITUTION IS DIVERTED DURING THE PREVIOUS YEAR IN FAVOUR OF ANY PERSON REFERRED TO I N SUB-SECTION (3).] WHETHER THE INCOME OR PROPERTY OF THE TRUST/INSTITU TION WAS USED OR APPLIED DURING THE PREVIOUS YEAR FOR THE BENEFIT OF ANY SUCH PERSO N IN ANY OTHER MANNER? CONSIDERING THE FACT THAT NO SUCH DISCLOSURE HAS BE EN MADE IN THE FORM 10B REPORT, THE ASSESSEE HAS VIOLATED THE PROCEDURAL ASPECT ALS O AND THE FORM 10B REPORT FILED BY THE ASSESSEE IS CONSIDERED TO BE INAPPROPRIATE AND IS REJECTED, MAKING HIM NOT ENTITLED FOR DEDUCTION U/S. 11 OF THE ACT. HENCE, DEDUCTION U/S. 11 OF THE ACT IS DISALLOWED ON THIS GROUND ALSO. 3.8 IN THE LIGHT OF ABOVE DISCUSSION, DEDUCTION U/S. 11 (1)(A) OF THE ACT WORTH RS. 28,72,316/- IS DISALLOWED AND ADDED TO THE INCOME O F THE ASSESSEE. THE ASSESSEE IS NOW TREATED AS AN AOP, AND INS INCOME IS COMPUTED A S PER THE NORMAL PROVISIONS OF THE ACT (SECTION 28-44). 5. BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE TH E LD. CIT(A). WHEREIN DETAIL SUBMISSIONS MADE BY THE ASSESSEE WHI CH HAS BEEN REPRODUCED AT PARA 4 TO 4.7 AND CONSIDERING THESE A BOVE FACTS THE LD. CIT(A) HAS GIVEN HIS FINDING AT PARA 4.9 TO PARA 7 OF HIS APPELLATE ORDER WHICH ARE REPRODUCED AS UNDER:- 4. THE A.O IN HIS ORDER HAS POINTED OUT VIA PARA 3 .1.2.2 THAT THE APPELLANT TRUST HAS ENTERED INTO THE FOLLOWING TRAN SACTIONS: '(A) TRANSFER OF ALL MOVABLE AND IMMOVABLE ASSETS ( EXCEPT LAND) FROM THE BALANCE SHEET OF SAL HOSPITAL AND MEDICAL INSTITUTE (HEREBY REFERRED TO AS SHMI) TO SAL CARE PRIVATE LIMITED (H EREBY REFERRED TO AS SCPL) AN ASSOCIATE CONCERN SET UP ON THE PRINCIP LES OF PROFIT MAXIMIZATION, OUT OF ACCUMULATED TAX FREE INCOME. I T INCLUDES TRANSFER OF FIXED ASSETS WORTH RS 3,44,74,281/- FRO M BALANCE SHEET OF SHMI TO SCPL. (B) OVER AND ABOVE TRANSFER OF FIXED ASSETS APPEARI NG IN THE BALANCE SHEET OF SHML AS ON 04.2008, THE TRUST HAS TRANSFERRED FIXED ASSETS WORTH RS. 470,15,328.95/- FROM THE BALANCE S HEET OF ADARSH FOUNDATION TO SCPL.(NOT COVERED IN TERMS OF AGREEME NT) DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 6 (C) WITHOUT ANY RATIONAL CONSIDERATION ALL BENEFITS OF CONTRACTS ENTERED INTO BY SHMI, IPRS OF SAL HOSPITAL AND ALL LISTS AND PARTICULARS OF SUPPLIERS, PATIENTS, PROFESSIONALS, RECORDS AND ALL OTHER DOCUMENTS RELATING TO THE BUSINESS, MEDICAL AND OTH ERWISE WERE HANDED OVER TO SCPL, WHICH AS PER THE AGREEMENT WIL L ENABLE IT EFFECTIVELY TO CARRY ON OPERATION AND MANAGEMENT OF BUSINESS OF SCPL. (D) SHML IS A PRESTIGIOUS MEDICAL INSTITUTION OF AH MEDABAD AND SCPL HAS BEEN ALLOWED TO USE THE NAME OF THE INSTIT UTION -SHML AND EVEN THE GOODWILL CREATED OVER THE YEARS OUT OF EXE MPT INCOME, AND THE COMPANY SCPL HAS NOT BEEN CHARGED FOR THE SAME. (E) ALL LIABILITIES OF ADARSH FOUNDATION WHICH INCL UDES LOANS, FUNDS AMOUNTING TO RS.19.57 CRORES HAVE BEEN TRANSFERRED TO SCPL. THUS, ON 01.04.2008; THE TRUST HAS ADVANCED LOANS TO A CO MPANY. SHML, NOT BEING PART OF THE TRUST ANY MORE, SUCH A HUGE QUANT UM OF FUNDS PROVIDED CANNOT BE CALLED APPLICATION OF INCOME OF THE TRUST FOR THE PURPOSE OF ATTAINING OBJECTIVES OF THE TRUST FOR WH ICH IT HAD BEEN GRANTED EXEMPTION U/S12AAOFTHEACT. (F) AS PER THE TERMS OF THE AGREEMENT MANAGEMENT FE ES OF RS. 1 CRORE /40% OF NET PROFIT HAVE BEEN RECEIVED BY THE TRUST FROM SCPL, AND NO RATIONALE HAS BEEN PROVIDED FOR THE SAME. (G) SHRI KORAN SHAH WHO IS THE DIRECTOR AND KEY MAN AGEMENT PERSONNEL OF SCPL WITH A MAJORITY SHARE HOLDING OF 66.12% IS THE SON OF SHRI RAJENDRA SHAH, MANAGING TRUSTEE OF ADARSH F OUNDATION. THUS THIS FALLS UNDER DEFINITION OF PERSON U/S 13(3) OF THE ACT' 4.2 FURTHER, AS PER PARA 3.7 OF HIS ORDER, THE AO H AS ALSO OBSERVED AS UNDER: 'THE REGISTRATION U/S 12A(A) OF THE ACT WAS GRANTED TO THE TRUST WITH A MANDATE THAT ALL THE INCOME EARNED BY THE TRUST W ILL BE APPLIED FOR THE OBJECTS OF THE TRUST (FOR WHICH IT HAS BEEN GRA NTED REGISTRATIONS). THE TRUST HAS BEEN CLAIMING DEDUCTION U/S 11 SINCE THEM, IS ACCUMULATING ASSETS WITH A LEGAL BINDING THAT ITS I NCOME WILL BE APPLIED FOR PURPOSE OF ATTAINING OBJECTIVES OF THE TRUST. BY ENTERING INTO THE SAID AGREEMENT WITH A CORPORATE (SCPL), TH E ASSESSEE HAS TRANSFERRED THE ASSETS (INCLUDING GOODWILL IPRS, PA TIENT DETAILS, LOANS AND ADVANCES RECEIVED IN THE NAME OF THE TRUST, ETC ) BEING CREATED /ACCUMULATED UNDER THE UMBRELLA OF SECTION 12A(A) O F THE ACT TO A COMPANY. THIS ACT OF THE TRUST, IF ALLOWED, WILL SE T A PRECEDENT FOR DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 7 OTHER INSTITUTIONS TO ACCUMULATE ASSETS AND GOODWIL L IN THE NAME OF THE TRUST FOR A NUMBER OF YEARS AND THEN TRANSFERRI NG THE SAME BY FLOATING A COMPANY TO EARN HUGE PROFITS. HENCE THE REFERRED AGREEMENT IS REJECTED PER SE.' 43. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT SUBMITTED AS UNDER: 'TO SAFEGUARD THE TRUST ACTIVITIES AND ITS ASSETS B ECAUSE OF HUGE LOSSES, THE TRUSTEES HAD TO TAKE A PRUDENT DECISION WHEREBY THE LIABILITIES CAN BE DISCHARGED, ADEQUATE INCOME ASSU RED FOR ITS OBJECTS AND AT THE SAME TIME, ITS BRAND IMAGE AND IMMOVABLE PROPERTIES REMAIN UNAFFECTED. THE TRUSTEES HAD ALSO TO CONSIDER THAT REPUTED DOCT ORS WHO CAN BE INVITED TO ITS INSTITUTIONS DO NOT LEAVE THE INSTIT UTIONS AND MORE SUCH DOCTORS CAN JOIN THE INSTITUTIONS WHICH WAS NOT POS SIBLE UNLESS THE INSTITUTIONS COULD BE RUN AND EXPANDED THROUGH SOME CORPORATE MANAGEMENT BY WHICH THE BENEFIT OF EXPERT MANAGEMEN T, THE ABLE PERSONNEL AND EFFECTIVE SKILLED MANAGEMENT COULD BE OBTAINED. IT WAS IN THESE CIRCUMSTANCES, THAT AN AGREEMENT WA S ENTERED INTO BETWEEN THE TRUST AND SAL CARE PVT. LTD UNDER WHICH THE TRUST WAS IMMENSELY BENEFITED BY RETAINING ITS IMMOVABLE PROP ERTIES AND AT THE SAME TIME, TRANSFERRING ITS HUGE LIABILITIES TO THE SAID COMPANY WHILE BEING ASSURED OF A MOST REASONABLE RETURN AND SHARE IN THE NET EARNING OF SAID HOSPITAL. MOST IMPORTANTLY, THE COS T OF MAJOR OUTGOING OF KESAR SAL MEDICAL COLLEGE (WHICH WAS AL WAYS IN DEFICIT AND WAS CONTINUING TO BE IN DEFICIT IN LATER YEARS) WAS AGREED TO BE REIMBURSED BY SAID SAL CARE PVT. LTD OVER AND ABOVE THE FIXED AMOUNT WITH PERCENTAGE SHARING IN THE EARNING FROM SAL HOS PITAL THESE VITAL AND CRUCIAL FACTS AND CIRCUMSTANCES WERE BROUGHT TO THE NOTICE OF THE ID AO. HOWEVER, THE ID AO MISERABLY FAILED TO APPRECIATE T HE DETAILED SUBMISSIONS AND EXPLANATION TO EACH AND EVERY POINT S AS FURNISHED TO HIM BY THE APPELLANT FROM TIME TO TIME AND MORE PAR TICULARLY, BY ITS LETTER DATED 08.12.2011. THE ID AO ERRED IN OBSERVI NG THAT TRUST HAS TRANSFERRED ASSETS TO SCPL WHICH IS NOT IN ACCORDAN CE WITH TERMS OF AGREEMENT. THE ID AO FAILED TO CORRECTLY READ AND A PPRECIATE THE TERMS OF AGREEMENT AS ALSO, THE ACCOUNTING TREATMEN T GIVEN IN THE BOOKS OF SCPL WHICH SUBSTANTIATED THAT ALONG WITH M OVABLE ASSETS, DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 8 LIABILITIES HAVE ALSO BEEN TRANSFERRED AND THE CONS IDERATION OF SUCH TRANSFER IS MARKET VALUE AND HENCE, THE ALLEGATION THAT NO RATIONALE IS GIVEN REGARDING CONSIDERATION IS PATENTLY WRONG AND IGNORED THE FACTUAL POSITION. THE ID AO HAS FAILED TO UNDERSTAN D THE ACCOUNTING AND THE FACTUAL ASPECTS OF THE ARRANGEMENT AS HE ON LY OBSERVES ABOUT TRANSFER OF MOVABLE ASSETS (WHICH IS AT THE FAIR VA LUE AS PER BOOKS ONLY) AS THE ID AO PUTS BLINKERS ON HIS EYES WHEN T HE FACT OF TRANSFER OF HUGE LIABILITIES OF THE TRUST AND ITS INSTITUTIO N IS VISIBLE AND WHEN THE ID AO AT PAGE 4 OF HIS ASSESSMENT ORDER REPRODU CED CLAUSE 3.3 OF THE AGREEMENT WHICH READS AS UNDER.: '3.3 SCPL WILL CORRESPONDINGLY TAKE OVER AND DISCHA RGE ALL THE LIABILITIES BOTH SECURED AS WELL AS UNSECURED OF SA L HOSPITAL (DIVISON OF ADARSH FOUNDATION) INCLUDING SECURED TERM LOANS, UNSECURED LOANS, TRADE CREDITORS AND OTHER CURRENT LIABILITIES AND P ROVISIONS OF WHATEVER NATURE AT THEIR RESPECTIVE BOOK VALUES AS APPEARING IN THE BOOKS OF ACCOUNTS AS OF 1ST APRIL, 2008 AS PER BALA NCE SHEET, ANNEXED HEREWITH AND FORMING PART OF THIS AGREEMENT. THE COPY OF AUDITED ACCOUNTS OF THE TRUST FOR F Y 2 007-08 RELEVANT TO ASST. YEAR 2008-09 ARE ATTACHED FROM WHICH IT WILL BE SEEN THAT THE APPELLANT TRUST HAD HUGE DEFICITS IN BOTH ITS INSTI TUTIONS AND HAD MADE NEGATIVE WORTH IN THE FINANCIAL YEAR 2007-08 D UE TO LOSSES FROM THE SHML (SAL HOSP1TAL& MEDICAL INSTITUTE) AND IN T HE KESAR SAL MEDICAL COLLEGE & RESEARCH INSTITUTE. (KSMC) THUS, THE FINANCIAL POSITION OF THE TRUST AND ITS I NSTITUTIONS WERE IN A VERY BAD SHAPE AND THE NET WORTH WAS NEGATIVE BY CR ORES OF RUPEES. THIS DARK SITUATION WAS PROMPTLY VISUALIZED AND THE TRUSTEES HAD TO TAKE A PRUDENT DECISION TO PROTECT THE PROPERTY OF THE TRUST AND TO ENSURE THAT WITHOUT LOSING THE VALUABLE IMMOVABLE P ROPERTY/ ASSETS OF THE TRUST, THE TRUST IS ENSURED OF A FAIR RETURN FOR USE OF ITS OTHER MOVABLE ASSETS AND ALSO AT THE SAME TIME, RELIEVED OF ITS LIABILITIES TO THE OUTSIDERS WHILE BEING ASSURED OF CONTINUING ITS KESAR SAL MEDICAL COLLEGE, THE EXPENSES FOR WHICH WERE BEING REIMBU RSED TO IT BY THE SAL CARE PVT LTD. THE TERMS OF AGREEMENT WITH SCPL CLEARLY POINT OUT THAT THERE IS ABSOLUTELY NO EXTRANEOUS CONSIDERATION AND A VERY F AIR AND ATTRACTIVE RETURN IS ENSURED TO THE TRUST BY THE CORPORATE ENT ITY WHICH BY ITS EFFICIENT MANAGEMENT AND ACUMEN COULD EARN GOOD RET URN AND CONSEQUENTLY, THE TRUST WOULD ALSO GET ADEQUATE SHA RE THEREIN WHILE DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 9 AT THE SAME TIME, BEING RELIEVED OF THE RESPONSIBIL ITIES OF DAY TO DAY CONDUCTING THE AFFAIRS OF THE SHMI INCLUDING PECUNI ARY LIABILITIES. BY ENTERING IN TO SUCH AN AGREEMENT, THE TRUST HAS SECURED MOST REASONABLE AND FAIR AMOUNT OF RECEIPTS AND ALSO ENS URED THAT THE EXPENSES OF KSMC ARE ALSO REIMBURSED SO THAT THE OB JECTS FOR WHICH THE TRUST IS ESTABLISHED ARE FULFILLED WITHOUT ANY HINDRANCES OR UNCERTAINTY. THE RECEIPT FOR THE YEAR UNDER APPEAL CLEARLY POINT OUT THAT IT WAS ONLY A WISE DECISION TAKEN BY THE TRUSTEES CONSIDER ING THE EVER INCREASING DEFICITS, FINANCIAL CRISIS AND SCENARIO OF ACUTE COMPETITION. AS STATED EARLIER FAILING TO TAKE SUCH A DECISION M IGHT HAVE FORCED THE TRUST TO SELL THE ENTIRE ACTIVITY AND ASSETS TO REC OUP SOME AMOUNT OF SUCH PAST DEFICITS. IT WAS UNDER THE CIRCUMSTANCES, PRIMARY DUTY OF THE TRUSTEES TO SAFE GUARD THE TRUST AND ITS ASSETS . YOUR HONOURS ATTENTION IS DRAWN SPECIFICALLY TO THE BALANCE SHEET OF THE TRUST AS ON 31.03.2008 WHICH SHOWS THAT THERE W AS HUGE OUTSTANDING LIABILITY OF SECURED LOANS PAYABLE TO V ARIOUS BANKS AMOUNTING TO OF RS. 179482722/- INCLUDING THE TERM LOAN OF RS. 52691584/- TAKEN FOR KSMC. THE TRUST WAS REQUIRED T O MAKE THE PAYMENT OF TERM LOAN INSTALLMENTS ON QUARTERLY BASI S AND INTEREST ON TERM LOAN ON MONTHLY BASIS TO VARIOUS BANKS WHIC H WAS A RECURRING AND BOTHERING BURDEN ON THE TRUST THE LIQ UIDITY CRUNCH FACED BY THE TRUST DUE TO ABOVE LIABILITIES WAS CLE ARLY A FACTOR WHICH WEIGHED IN THE MINDS OF THE TRUSTEE TO TAKE A WISE DECISION IN THE BEST INTEREST OF TRUST WHICH HAS BEEN TAKEN WHILE K EEPING THE VALUABLE IMMOVABLE PROPERTY OF THE TRUST UN EFFECTE D. ON ACCOUNT OF HEAVY DEFICIT AND LOSSES INCURRED AS ON 31.03.2008, IT WAS VERY DIFFICULT TO REPAY THE INSTALLMENTS TO BAN KS AND ALSO PAYMENT OF INTEREST EXPENSES ON MONTHLY BASIS. SINC E THE TRUST WAS NOT CAPABLE OF MAKING TIMELY REPAYMENT OF THE AMOUN T BORROWED FROM VARIOUS BANKS FOR THE PURPOSE OF ITS ESTABLISH MENTS/ INSTITUTIONS, ANY FURTHER DELAY WOULD HAVE RESULTED IN THE SUDDEN ENFORCEMENT OF REPAYMENT BY THE BANKS WHICH CERTAIN LY WOULD HAVE MADE THE TRUST A DEFAULTER AND ITS ACTIVITY WOULD H AVE COME TO STAND STILL. IN ADDITION TO THE ABOVE FINANCIAL CRISIS AND DEFIC ITS WHICH OCCURRED TO RUN THE AFORESAID INSTITUTIONS OF THE TRUST, THE RE WERE ALSO SIMILAR DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 10 OTHER CORPORATE HOSPITALS UPCOMING IN THE CITY WHIC H HAVE CREATED THE ACUTE COMPETITION FOR RUNNING THE MEDICAL AND H EALTHCARE ACTIVITIES AND THEREFORE, TO CONTINUE TO PROVIDE TH E BEST SERVICES AT ECONOMIC RATES AND WITH QUALITY OF SKILLED DOCTORS, A PROMPT DECISION TO A HAVE THE BENEFIT OF A CORPORATE ENTITY WHICH W OULD NOT ONLY UTILIZE ITS ACUMEN, SKILL AND ABILITY IN EXPANDING SUCH ACTIVITY BUT ALSO ,ADD TO THE BRAND SAL WAS ESSENTIAL SUCH A DECISION HAS ACTUALLY BENEFITED THE APPELLANT TRUST SINCE AFTER ALLOWING THE CORPORATE MANAGEMENT TO RUN THE INSTITUTION, MORE RENOWNED DO CTORS HAVE JOINED THE HOSPITAL AND THE IMAGE OF THE INSTITUTIO N OWNED BY THE TRUST HAS BEEN ACHIEVED GREATER HEIGHT. WE FURTHER SUBMIT THAT IN THE WRITTEN REPLY DATED 0 8.12.2011, THE APPELLANT TRUST HAS CLARIFIED THE MISUNDERSTANDING , MISCONSTRUCTION AND INCORRECT OBSERVATIONS OF THE ID AO POINT WISE ON ONE TO ONE BASIS WHICH IS REPRODUCED BY ID AO AT PAGE 27 TO32 OF THE ORDER. THE ID AO FAILED TO PROPERLY APPRECIATE THE SUBMISSIONS MORE PARTICULARLY, THE FACT THAT ALONG WITH MOVABLE ASSETS OF TRUST AND HO SPITAL HUGE LIABILITIES HAVE ALSO BEEN TAKEN OVER AND DISCHARGE D BY SAL CARE PVT LTD. THE ID AO ALSO FAILED TO APPRECIATE THAT CONSIDERIN G THE FACTUAL BACKGROUND NARRATED ABOVE, THE TRUST HAD MADE BEST USE OF ITS INSTITUTIONS WHILE RETAINING ITS OWNERSHIP AND ARRA NGEMENT WAS ON VERY FAIR TERMS. THE ID AO ALSO ERRED IN OBSERVING THAT LOAN FUNDS W ERE GIVEN BY TRUST WORTH RS. 19.57 CRORES. IN FACT THE TRUST HAS TRANS FERRED LIABILITY OF ITS INSTITUTIONS TO THE SAL CARE PVT LTD WHICH IS P ART AND PARCEL OF THE AGREEMENT HENCE THERE IS NO VIOLATION OF ANY PROVIS IONS OF S. 13 OR 12AA.' 4.4 IN ITS SUBMISSION DATED 17.07.2012, THE APPELLA NT TRUST HAD FURTHER SUBMITTED THE FOLLOWING: 'THAT THE ID AO HAS MISERABLY FAILED TO APPRECIATE THE FACTS OF THE APPELLANT'S CASE END THE CORRECT LEGAL POSITION WHI LE SIMPLY OBSERVING THAT THE PROVISIONS OF S. 13 (1)(C)(II), 13 (2)(B), 13(2)(D) , 13(2)(G) AND 13(3)(E) R.W. EXPLANATION 1 & 3 THEREOF ARE ATTRACT ED SO AS TO DENY THE LAWFUL CLAIM OF EXEMPTION UNDER S. 11 OF THE AC T. S. 13 (1)(C) (II) CAN APPLY ONLY IF ANY PART OF SUC H INCOME (I.E, INCOME DERIVED BY THE TRUST) OR ANT PROPERTY OF THE TRUST IS DURING THE DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 11 PREVIOUS YEAR USED OR APPLIED FOR THE BENEFIT OF AN Y PERSON REFERRED TO IN SUB-S. (3) OF S. 13. IN THE INSTANT CASE OF Y OUR APPELLANT, NO INCOME OF THE TRUST IS USED NOR ANY PROPERTY OF TRU ST IS USED FOR THE BENEFIT OF SPECIFIED PERSON HENCE S. 13(1)(C)(II) I S NOT APPLICABLE. IT HAS BEEN HELD BY JURISDICTIONAL TRIBUNAL IN THE CASE OF ADAHARSHILA EDUCATION AND CHARITABLE TRUST VS ACIT ITA NO: 1443 /AHD/ 2008 THAT WHERE THE PAYMENT TO AND FROM PERSONS SPECIFIED IS FOR COMMERCIAL CONSIDERATION, S 13 (1)(C)(II) CANNOT BE APPLIED. A COPY OF SAID DECISION IS ATTACHED HEREWITH EXHIBIT-A PAGE 1 TO S . 13(2)(B) CAN APPLY ONLY IF ANY LAND BUILDING OR OTHER PROPERTY O F THE TRUST IS MADE AVAILABLE FOR USE BY THE SPECIFIED PERSON DURING THE PREVIOUS YEAR WITHOUT CHARGING ADEQUATE RENT OR OTHER COMPENSATIO N. AS ALREADY EARLIER DEMONSTRATED IN OUR EARLIER SUBMISSIONS AND ALSO LOOKING TO THE FACTS AND FIGURES OF YEAR UNDER APPEAL THE TRUS T HAS CHARGED ADEQUATE COMPENSATION BY WAY OF MANAGEMENT CHARGES INCOME UNDER THE TERMS OF AGREEMENT COUPLE WITH HANDING OVER THE LIABILITIES OF SECURED/ UNSECURED LOANS AND INTEREST THEREON AS AL SO, HUGE AMOUNT OF EXPENSES PERTAINING TO KESAR SAL MEDICAL COLLEGE ARE BEING REIMBURSED TO THE TRUST OVER AND ABOVE THE AFORESAI D PAYMENTS. THUS S. 13(2)(B) IS NOT AT ALL APPLICABLE TO THE CASE OF THE APPELLANT. S. 13(2)(D) CAN APPLY ONLY IF ANY SERVICES OF THE T RUST ARE MADE AVAILABLE TO ANY SPECIFIED PERSON DURING THE PREVIO US YEAR WITHOUT ADEQUATE REMUNERATION OR OTHER COMPENSATION. THE AP PELLANT TRUST HAS NOT RENDERED OR PROVIDED ANY SUCH SERVICES TO T HE SPECIFIED PERSON AND HENCE THE QUESTION OF APPLYING S. 13 (2( D) DOES NOT ARISE. S. 13. (2)(G) CAN APPLY ONLY IS ANY INCOME OR PROPE RTY OF THE TRUST IS DIVERTED DURING THE PREVIOUS YEAR IN FAVOUR OF ANY SPECIFIED PERSON. SINCE THE TRUST HAS NOT DIVERTED ANY INCOME OR PROP ERTY IN FAVOUR OF ANY SPECIFIED PERSON, THIS PROVISION IS NOT APPLICA BLE. THE TRUST HAS ENTERED INTO THE AGREEMENT AND THAT TOO, AS STATED REPEATEDLY, ON COMMERCIAL TERMS FOR ADEQUATE COMPENSATION AND HENC E THERE IS NO QUESTION OF DIVERTING ANY INCOME. ON THE CONTRARY, THE DEFICIT OF THE TRUST IS GREATLY REDUCED ON ACCOUNT OF RECEIPT OF A GREED COMPENSATION AND AT THE SAME TIME, THE TRUST IS RELIEVED OF HUGE RECURRING LIABILITY OF INTEREST ON LOANS AS ALSO, REPAYMENT OF PRINCIPA L AMOUNTS OF SUCH LIABILITIES. HENCE THE PROVISIONS OF S. 13(2)(G) AR E NOT AT ALL APPLICABLE. DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 12 WE ARE ATTACHING HEREWITH THE AUDITED ACCOUNTS OF T HE TRUST FOR THE YEAR UNDER APPEAL VIDE EXHIBIT- B PAGE TO AS CAN BE SEEN FROM THE SAID ACCOUNTS, THE TRUST WHICH HAD DEFICIT (LOSS) O F RS.(-) 1,21,48,098/-FROM SAL HOSPITAL AND A FURTHER DEFICI T OF RS.(-) 3,45,76,402/- FROM KESAR SAL MEDICAL COLLEGE [TOTAL LING TO RS(-) 4,67,24,500/-] FOR THE YEAR ENDED ON 31.03.2008, DO ES NOT HAVE ANY SUCH DEFICITS FOR THE YEAR UNDER APPEAL IE. 31.03.2 009. INSTEAD, THE TRUST HAS SURPLUS OF RS.(+) 12,39,242/- FROM KESAR SAL MEDICAL COLLEGE (AS AGAINST HUGE DEFICIT OF(-) RS. 3,45,76T402/- AS STATED ABOVE IN EARLIER YEAR) THIS WAS MADE POSSIBLE ONLY BECAUSE A HUGE AMOUNT OF MORE THAN 2.15 CRORES WERE REIMBURSED BY THE SCPL I N RESPECT OF KESAR SAL MEDICAL COLLEGE EXPENSES WHICH IT DID UND ER THE TERMS OF AGREEMENT OVER AND ABOVE PAYMENT OF MANAGEMENT FEES OF RS.1,63,33,576/-. AS A RESULT, THE TRUST HAS, EVEN AFTER CARRYING OUT ITS OBJECTS, REDUCED ITS NEGATIVE WORTH FROM (-) RS . 4,72,89,758/- AS PER LAST YEAR'S BALANCE SHEET TO RS. 3,53,36,784/- ON ACCOUNT OF NET SURPLUS OF RS. 1,19,52,975/-. THIS SPEAKS VOLUME AB OUT THE PRUDENT AND WISE DECISION OF THE TRUSTEES AND THE COMMERCIA L ADEQUACY OF THE AGREED COMPENSATION. IT IS ALSO PERTINENT TO SUBMIT THAT SIMILAR SITUATI ON HAS CONTINUED EVEN IN SUBSEQUENT YEAR WHERE IN CONSIDERABLE EXPEN SES OF KESAR SAL MEDICAL COLLEGE HAVE BEEN REIMBURSED BY SCPL WHICH OTHERWISE WOULD HAVE TO BE BORNE BY THE TRUST AND TRUST WOULD HAVE ENDED UP WITH UNRECOVERABLE DEFICITS. WITH THE INCREASE IN T HE ACTIVITIES AND REVENUE OF SHML THANKS TO ITS CORPORATE MANAGEMENT AND ADMINISTRATION, THE TRUST HAS ALSO BENEFITED IN LAT ER YEAR IT IS ALSO SIGNIFICANT TO POINT OUT THAT THE ID AO HAS ACCEPTE D THE FACT ABOUT THE APPLICATION OF INCOME RECEIVED BY TRUST FOR THE PURPOSES OF THE TRUST AND GENUINENESS OF THE CHARITABLE ACTIVITIES DURING THE YEAR. AS REGARDS THE ALLEGATION (WITHOUT ANY JUSTIFICATIO N) THAT APPELLANT HAD NOT FURNISHED ANY RATIONAL OR MATHEMATICAL EXPL ANATION ABOUT ARRIVING AT THE FIGURE OF ONE CRORE/ 40% OF PROFIT FORMULA FOR THE PAYMENT OF MANAGEMENT FEES BY SCPL, AGAIN THE ID AO HAS FAILED TO LOOK TO THE ABOVE FACTUAL FIGURES AND HAS MISERABLY FAILED TO PUT HIMSELF IN THE PLACE OF THE TRUSTEES WHILE MAKING S UCH UNTENABLE ALLEGATION/ OBSERVATION. THE TRUSTEES BEING WELL-AW ARE OF THEIR AVOWED RESPONSIBILITIES HAD UNDER THE CIRCUMSTANCES T TAKEN A PRUDENT AND WISE DECISION WHICH HAS PROVED VERY MUC H RIGHT AND REWARDING FOR THE TRUST AND ITS ACTIVITIES. IT IS N OT UNDERSTOOD, HOW DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 13 THE ID AO HAS SHUT HIS EYES ON THE ABOVE VITAL ASPE CTS AND THE ACTUAL FIGURES WHICH WERE VERY MUCH BEFORE HIM. AGAIN, THE ID AO HAS ERRED IN OBSERVING THAT AMOUNT WORTH RS. 19.57 CRORES WERE ADVANCED BY TRUST TO A CORPORATE ENTITY . THE INCORRECT STAND OF THE ID AO HAS BEEN REPLIED/ EXPLAINED IN R EPLY DATED 08.12.2011 RELEVANT QUERY REPRODUCED BY ID AO AT PA RA 3.5 PAGE 30 OF HIS ASSESSMENT ORDER. AS A MATTER OF FACT, THE TRUS T HAS , IN ACCORDANCE WITH ITS OBJECTS, UTILIZED THE AMOUNT FO R THE PURPOSES OF SAL HOSPITAL ONE OF ITS INSTITUTIONS. AS NOT ONLY T HE MOVABLES BUT THE LIABILITIES OF SAID INSTITUTION IS TAKEN FOR DISCHA RGE BY SCPL, THE SAID AMOUNT OF CURRENT LIABILITY WAS ACCEPTED BY SCPL AS PAYABLE UNDER THE AGREEMENT THUS TRANSFER OF CURRENT LIABILITY OF THE INSTITUTION WAS EXPLAINED BUT NOT CORRECTLY UNDERSTOOD BY THE I D AO. THE PROVISIONS OF S. 13(2) AND 13(3) ARE THEREFORE NOT APPLICABLE' 4.5 FURTHER AS PER PARA 3.1.2.3, THE A.O HAS POINTE D OUT THAT AS PER POINT NO.1,2,4,7 AND 8 OF ANNEXURE NO. II OF FORM 1 0B REPORT, THE ASSESSEE IS MANDATORILY REQUIRED TO MAKE BELOW MENT IONED DISCLOSURES IN THE SAID REPORT, WHICH IT HAD FAILED TO DO: (A) WHETHER 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). (B) WHETHER THE SERVICES OF THE TRUST OR INSTITUTIO N ARE MADE AVAILABLE TO ANY PERSON REFERRED TO IN SUB-SECTION (3) DURING PREVIOUS YEAR WITHOUT ADEQUATE REMUNERATION OR COMPENSATION (C) WHETHER ANY INCOME OR PROPERTY OF THE TRUST OR INSTITUTION IS DIVERTED DURING THE PREVIOUS YEAR IN FAVOUR OF ANY PERSON REFERRED TO IN SUB-SECTION (3) (D) WHETHER ANY INCOME OR PROPERTY OF THE TRUST OR INSTITUTION WAS USED OR APPLIED DURING THE PREVIOUS YEAR FOR THE BE NEFIT OF ANY SUCH PERSON IN ANY OTHER MANNER? ACCORDINGLY, THIS HAS ALSO BECOME A GROUND FOR DISA LLOWANCE OF EXEMPTION U/S 11. 4.6 THE APPELLANT, IN THIS REGARD HAD SUBMITTE D THE FOLLOWING REPLY: DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 14 'AS REGARDS OBSERVATIONS ABOUT FORM NO. 1OB REPORT, IT IS SUBMITTED THAT AGAIN THE ID AO HAS FAILED TO APPRECIATE THE A BOVE FACTUAL POSITION AND INCORRECTLY OBSERVED THAT USE OF THE P ROPERTY OR SERVICES WERE MADE BY ANY INTERESTED PERSON SINCE THE AGREEM ENT IS ON ADEQUATE RETURN AND ON PRUDENT TERMS WHERE HUGE LIA BILITIES OF THE TRUST HAVE BEEN TRANSFERRED AND NOT ASSETS FOR USE WITHOUT ANY ADEQUATE CONSIDERATION.' 4.7 THE APPELLANT, FURTHER SUBMITTED AS UNDER: 'THE ID AO ALSO ERRED IN OBSERVING THAT LOANS AND A DVANCES OF RS. 5,43,57,980/-WERE REFLECTED IN BALANCE SHEET OF ADA RSH FOUNDATION IN FAVOUR OF SCPL. IN FACT THE SAID AMOUNT IS DEBITED FOR VARIOUS RECEIVABLE I.E. REIMBURSEMENT OF KESAR SAL COLLEGE AND MANAGEMENT CHARGES UNDER AGREEMENT' 4.8 BASED ON THE ABOVE OBSERVATIONS, THE ASSESSING OFFICER HAS WITHDRAWN THE EXEMPTION GRANTED U/S. 11. 4.9 I HAVE CONSIDERED THE ORDER OF THE AO AND THE S UBMISSION MADE IN THIS REGARD. THE AO HAS OBSERVED THAT THE APPELL ANT TRUST HAD INDULGED IN TO ACTIVITIES WHICH IS AGAINST THE PRIN CIPLES OF CHARITY AND AN AMOUNT OF RS. 5,43,57,980/- WAS SHOWN AS LOANS A ND ADVANCES IN THE BOOKS OF THE COMPANY WHICH WAS DUE TO TRUST AS ON 31ST MARCH,2009. IN MY OPINION, I FIND THE CONTENTION OF AO UNSUSTAINABLE AS ALONGWITH THE MOVABLE ASSETS ENTIRE LIABILITIES OF THE TRUST IS ALSO TRANSFERRED TO THE COMPANY. THE BASIC FACT OF ENTER ING IN TO AGREEMENT WITH THE COMPANY WAS TO SECURE TRUST'S IN TEREST AND NOT TO INDULGE IN THE LOSSES AND TO REIMBURSE THE EXPEN DITURE OF KESAR SAL HOSPITAL. THE AO'S CLAIM DOES NOT HOLD WELL BECAUSE THE PURPOSE OF AGREEMENT WITH SCPL WAS TO ENSURE THAT THE HOSPITAL IS MANAGED PROFESSIONALLY, AND IN DOING SO, THE PURPOSE OF CHA RITY IS NOT VIOLATED, AS A REPUTED HOSPITAL OF SUCH A HUGE SIZE REQUIRES PROFESSIONAL HANDLING. THE AO ERRED IN HOLDING THAT AGREEMENT WI TH SAL CARE PVT LTD WAS IN VIOLATION OF ANY PROVISION OF THE ACT AN D FURTHER THAT THERE WAS NO RATIONAL AND MATHEMATICAL EXPLANATION ABOUT THE FIGURE OF MANAGEMENT FEES THOUGH THE SAME WAS DETERMINED AT B EST AND FAIR MANNER FOR SURVIVAL OF THE LOSS MAKING CHARITABLE I NSTITUTION. THE APPELLANT DULY EXPLAINED THAT THIS AGREEMENT WAS NO T ENTERED INTO DERIVE PROFIT FROM TRANSFER OF MOVABLE ASSETS TO SC PL BUT TO COUNTER THE HUGE LOSSES INCURRED IN RUNNING TWO BIG HOSPITA LS. TO PROTECT ITS DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 15 POSITION AND ENSURE THAT SAL HOSPITAL'S WORKING WAS NOT AFFECTED, IT WAS PROVIDED IN THE AGREEMENT TO RECEIVE MANAGEMENT FEES FROM SCPL. THESE FEES ARE DETERMINED IN A FAIR MANNER, W HICH WAS DULY CLARIFIED BY THE APPELLANT. THIS IS BECAUSE THIS TR UST HAS HAD HUGE ACCUMULATED LOSSES AND THERE CAN BE NO GOODWILL IN CASE OF LOSSES, HENCE THE TRUST SHALL NOT EARN ANY UNDUE PROFITS. T HUS, THE ACTIVITY OF THE TRUST BEING CARRIED ON IN ACCORDANCE WITH IT S OBJECTS AND IN THE BEST INTEREST OF CHARITY, THE EXEMPTION UNDER S. 11 (1) (A) OUGHT TO HAVE BEEN ALLOWED AS CLAIMED. ACCORDINGLY, GROUND N OS. 1 & 2 ARE ALLOWED. 5. AS FAR AS PAYMENTS TO PERSONS MENTIONED IN SECTI ON 13, THE APPELLANT IN ITS SUBMISSION DATED 17.07.2012, HAS E XPLAINED ITS STAND REGARDING PAYMENTS TO THE SAME PARTIES. IN MY OPINI ON, THE APPELLANT HAS NOT VIOLATED ANY OF THE CONDITIONS OF SECTION 1 3 AND HAS MADE CORRECT INTERPRETATION OF THE SAME. THE APPELLANT H AS RIGHTLY STATED THAT THE SECTION 13 (1) (C) (II) CAN APPLY ONLY IF ANY PART OF THE CHARITABLE INCOME OF THE TRUST HAS BEEN USED OR APP LIED FOR THE BENEFIT OF THE SAID PERSONS DURING THE PREVIOUS YEA RS, BUT SINCE NO PORTION OF THE APPELLANT'S INCOME HAS BEEN APPLIED FOR THE SAID PERSONS, THE APPELLANT'S CASE FALLS OUTSIDE THE SCO PE OF THIS SECTION. FURTHER, IN THE QUESTION OF APPLICABILITY OF SECTIO N 13 (2) (B) IS CONCERNED, ITS APPLICABILITY IS SUBJECT TO RECEIPT OF ADEQUATE CONSIDERATION /COMPENSATION RECEIVED BY THE TRUST. THUS, THE PROVISIONS OF THIS SECTION CAN BE APPLIED, ONLY WHE N THE TRUST WOULD NOT HAVE CHARGED ANY RENT/COMPENSATION FOR USE OF I TS LAND, BUILDING OR OTHER PROPERTY BY SPECIFIED PERSONS. HOWEVER, AS EXPLAINED BY THE APPELLANT, THE TRUST IS IN RECEIPT OF INCOME BY WAY OF MANAGEMENT CHARGES FROM SCPL, AND ALSO ALL OF ITS LIABILITIES HAVE BEEN TAKEN OVER BY THE SAME. THIS, ACCORDING TO MY OPINION, IS A FA IR COMPENSATION AND NO UNDUE BENEFITS OF USE OF THE TRUST'S PROPERT Y HAVE BEEN TAKEN BY ANY OTHER, PERSON. 5.2 SIMILARLY, THE APPELLANT'S EXPLANATION FOR SECT ION 13(2)(D) AND 13(2)(G) REGARDING APPLICATION OF THE TRUST'S SERVI CES AND DIVERSION OF INCOME OF THE TRUST RESPECTIVELY ARE ALSO FOUND SAT ISFACTORY, AS THE AGREEMENT WITH SCPL IS FOR MONETARY TERMS, AND THE TRUST HAS BENEFITED GREATLY, AS DEFICIT OF THE TRUST HAS REDU CED TO A GREAT EXTENT I AM IN DISAGREEMENT WITH THE A.O'S CONTENTI ON, THAT THERE IS A VIOLATION OF THE CONDITIONS OF SECTION 13. ACCORDIN GLY, GROUND NO. 4 IS ALLOWED. DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 16 6. SO FAR AS DISALLOWANCE DUE TO ERRONEOUS PRESENTA TION OF FORM 10B REPORT, THE AO'S CONTENTION THAT THE REPORT AS PER FORM 10B IS INCORRECT, IS NOT A FAIR GROUND FOR DISALLOWANCE, A S THE APPELLANT WAS UNDER APPEAL TO CONTEST THAT, NONE OF THE FUNDS OR ASSETS OF THE TRUST ARE GIVEN TO PERSONS MENTIONED UNDER SUBSECTION (3) OF SECTION 13, AND AS THE APPELLANT HAD NO REASON TO BELIEVE THAT ANY TRANSFER OF FUNDS WAS MADE TO PERSONS U/S 13, NOTHING WAS MENTI ONED IN THE FORM 10B REPORT, AS SUCH. THUS LAM OF THE VIEW THAT THE AO'S GROUND THAT INCOMPLETE FORM 10B IS A GROUND FOR DISALLOWAN CE U/S 11 IS NOT TENABLE. GROUND NO. 5 IS THUS ALLOWED. 7. AS FAR AS ADVANCE AMOUNTING TO RS 5,43,571980/- IN FAVOUR OF SCPL APPEARING IN THE BALANCE SHEET OF THE TRUST, I AM O F THE VIEW THAT IT DOES NOT RESULT IN MISAPPLICATION OF INCOME FOR OBJ ECTIVES OTHER THAN THOSE FOR WHICH REGISTRATION AND ESTABLISHMENT OF T RUST U/S 12AA IS OBTAINED, AS THE SAME FORM PART OF REIMBURSEMENT OF VARIOUS EXPENSES OF KESAR SAL MEDICAL COLLEGE, WHICH HAS BE EN APPROPRIATELY EXPLAINED BY THE APPELLANT, HENCE THE AOS STAND IS OVERRULED. 6. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BE FORE THE TRIBUNAL. THE LD. SR. DR HAS TOOK AS PER THE ASSESSMENT ORDER AND FINDINGS OF THE AO. THE LD. SR. DR CONTENDED THAT AS PER AGREEMENT, THE SCPL WILL PAY MANAGEMENT FEES AMOUNTING TO RS. 1 CRORE OR 40% OF THE NET PROFIT BEFORE TAX (WHICH IS HIGHER) IN LIEU OF TAKEOVER OF THE TR UST. HOWEVER, THERE IS NO RATIONAL HAS BEEN PROVIDED FOR ARRIVING AT SUCH A F UNDING. THE ASSESSEE HAS FAILED TO FURNISH ANY REASONABLE JUSTIFICATION WHAT SOEVER. THEREFORE, THE AGREEMENT ENTERED INTO BY THE ASSESSEE VIOLATE THE PROVISIONS OF SEC. 13(3) OF THE ACT. IN VIEW OF THESE FACTS THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF DEDUCTION U/S. 11(1)(A ) OF THE ACT. 7. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E ASSESSEE TRUST WAS CONTINUED TO RUN THE KESAR SAL M EDICAL COLLEGE AND DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 17 RESEARCH INSTITUTE (KSMC) AS REFLECTED IN THE BALAN CE SHEET AS ON 31.03.2009 PLACED AT PAPER BOOK PAGE 20 AND THE ASSESSEE WAS R UNNING THE SAID COLLEGE. HOWEVER, WITH A VIEW TO CORPORATIZE THE HOSPITAL TH E MANAGEMENT OF THE CHARITABLE ACTIVITY WAS HANDED OVER TO SCPL WHICH A S PER THE AGREEMENT WILL ENABLE IT TO EFFECTIVELY CARRIED ON OPERATIONAL MAN AGEMENT OF BUSINESS OF SCPL. THE TRUST WAS RUNNING HUGE LOSS, THEREFORE T O SAFE-GUARD THE TRUSTS ACTIVITIES AND ITS ASSETS, THE ASSESSEE TRUST HAS T AKEN A PERTINENT DECISION WHEREBY ALL THE LIABILITIES CAN BE DISCHARGED ADEQU ATELY AND INCOME IS ASSURED FOR ITS OBJECTS AT THE SAME IT IS GRANTING IMAGE AND IMMOVABLE PROPERTY REMAINED UNAFFECTED. THE LD. COUNSEL REFE RRING PAGE 57 OF THE PAPER BOOK [WHICH IS AGREEMENT BETWEEN THE TRUST AN D SCPL] SUBMITTED THAT THE OBJECT OF THE TRANSFER TO SER HOSPITAL FOR OPERATIONAL MANAGEMENT ON MUTUALLY AGREEABLE TERMS. THE LD. COUNSEL REFERRED THE CLAUSE 2 OF THE AGREEMENT WHICH CLEARLY DEMONSTRATE THAT THE TRUST HAS GRANTED SCPL THE OPERATIONAL MANAGEMENT RIGHTS TO THE BUSINESS WITH EFFECT FROM THE TRANSFER DATE. FURTHER, IT WAS SUBMITTED THAT THE SCPL HAS TAKEN OVER ALL IMMOVABLE ASSETS NAMELY PLANT AND EQUIPMENTS MOVABLE MACHINER Y ELABORATED EQUIPMENTS ETC. ON THE BASIS OF VALUATION DONE BY T HE GOVERNMENT APPROVE VALUER OR BOOK VALUE WHICHEVER IS HIGHER. THE LD. COUNSEL SUBMITTED THAT THE GOVERNMENT VALUATION DONE AT HIGHER IT IS REFLE CTED AT PAGE 78 OF THE PAPER BOOK WHICH COMES TO 7.30 CRORE. THE LD. COUN SEL FURTHER REFERRED DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 18 THE PROFIT SHARING COMPOSITION CLAUSE 4.1 OF THE AG REEMENT BY WHICH IT WAS AGREED THAT THE TRUST SHALL BE PAID DURING THE TERM S OF AGREEMENT A SUM EQUIVALENT TO 40% OF THE PROFIT BEFORE TAX OR MINIM UM PROFIT OR COMPENSATION OF RS. 1 CRORE WHICHEVER IS HIGHER. T HE BASIS FOR CALCULATION OF 40% NET PROFIT FOR THE PURPOSE OF CLAUSE 4.1 OF THE AGREEMENT SHALL BE ANNUAL AUDITED ACCOUNTS OF SCPL. ACCORDINGLY, THE ASSESSEE HAS RECEIVED 1.63 CRORE DURING THE YEAR FROM SCPL AS MANAGEMENT FEES WHICH HAVE BEEN DULY REFLECTED AT PAPER BOOK PAGE 11 IN THE INCOME AND EXPENDITURE ACCOUNT OF THE TRUST. THE LD. COUNSEL FURTHER SUBM ITTED THAT THE AMOUNT OF RS. 5.43 CRORE WAS NOT LOAN AND ADVANCES BUT IT WAS THE REIMBURSEMENT OF EXPENSES. THEREFORE, RELYING UPON THE FINDING OF T HE CIT(A) THE LD. COUNSEL SUBMITTED THAT THE CIT(A) ELABORATELY DISCUSSED ALL ASPECTS AND GIVEN HIS FINDING IN ACCORDANCE WITH LAW AND SAME REQUIRED TO BE SUSTAINED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE GONE THROUGH THE FINDI NGS OF THE AO AS WELL AS CIT(A) PART OF WHICH ARE REPRODUCED ABOVE IN THIS P ART OF THE ORDER. WE FIND THAT THE CIT(A) HAS ARRIVED ON THE BASIC FACT THAT AGREEMENT WAS ENTERED WITH THE COMPANY WAS TO SECURE TRUST IS INT EREST AND NOR TO INDULGE IN THE LOSSES AND FOR THE PURPOSE OF REIMBURSE THE EXPENDITURE OF KESAR SAL HOSPITAL. THE OBJECT OF THE TRANSFER AGREEMENT WIT H SCPL WAS TO ENSURE THAT THE HOSPITAL IS MANAGED PROFESSIONAL, AND IN D OING SO THE PURPOSE OF DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 19 CHARITY IS NOT VIOLATED AS A REPUTED HOSPITAL OF SU CH HUGE SIZE REQUIRES PROFESSIONALLY HANDLING. WE ARE ALSO OBSERVED THAT THE AGREEMENT WAS NOT ENTERED INTO TO DERIVE PROFIT FROM TRANSFER OF MOVA BLE TO SCPL BUT TO COUNTER THE HUGE LOSSES INCURRED IN RUNNING TWO BIG HOSPITALS. THEREFORE, THE CIT(A) HAS CORRECTLY HELD THAT THE ACTIVITY OF THE TRUST TO CARRIED ON IN ACCORDANCE WITH ITS OBJECTS AND IN THE BEST INTERES T OF CHARITY, THEREFORE, THE EXEMPTION U/S. 11(1)(A) HAS RIGHTLY ALLOWED BY THE LD. CIT(A). SIMILARLY, THE CIT(A) HAS CLEARLY HELD THAT THE SEC. 13((1)(C) (II) CAN APPLY ONLY IF ANY PART OF THE CHARITABLE INCOME OF THE TRUST HAS BEEN USED OR APPLIED FOR THE BENEFITS OF THE SAID PERSONS DURING THE PREVIOUS YE AR. BUT, SINCE NO PORTION OF THE INCOME OF THE ASSESSEE HAS BEEN APPLIED FOR SAID PERSON, THEREFORE, THE CASE OF THE ASSESSEE FALLS OUTSIDE THE SCOPE OF THIS SECTION. FURTHER, THE TRUST IS IN RECEIPT OF INCOME BY WAY OF MANAGEMENT CHARGES FROM SCPL AND ALSO ALL OF ITS LIABILITIES HAVE BEEN TAKEN OVER BY THE SAME THEREFORE THERE IS A FACT THAT THERE IS NO UNDUE BENEFITS OF THE USE O F TRUST PROPERTY HAVE BEEN TAKEN BY ANY OTHER PERSONS. SIMILARLY, THERE IS NO DIVERSION OF INCOME OF THE TRUST AS PER EXPLANATION OF SEC. 13(2)(D) AND 13(2) (G) OF THE ACT AS THE TRUST HAS BEEN BENEFITTED GREATLY AND ITS DEFICIT OF TRUS T DULY REDUCED TO A GREAT EXTENT. WE ALSO OBSERVED THAT SOME ERRONEOUS PRESE NTATION OF FORM NO. 10B REPORT DOES NOT DISENTITLE THE TRUST FOR CLAIMI NG EXEMPTION U/S. 11 OF THE ACT. SIMILARLY, THE AMOUNT OF ADVANCE OF RS. 5 4,35,71,980/- IN FAVOUR OF DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 20 SCPL APPEARING IN THE BALANCE SHEET WAS NOT ADVANCE BUT THE REIMBURSEMENT OF THE EXPENSES. IN THE LIGHT OF THE AFORESAID FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THA T THE CIT(A) HAS ANALYZED THE FACTS CORRECTLY AND GIVEN A JUDICIOUS FINDING WHICH DOES NOT CALL FOR ANY INTERFERENCE FROM OUTSIDE. ACCORDINGL Y, THE SAME IS UPHELD. CONSEQUENTLY, GROUND NO. (I) TO (III) OF THE APPEAL OF THE REVENUE ARE THEREFORE DISMISSED. 9. GROUND NO. (IV) RELATES TO ALLOWANCE OF SET OFF BRO UGHT FORWARD LOSSES OF THE TRUST AGAINST THE CURRENT YEAR SURPLUS. 10. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED SET OF F AND CARRY FORWARD OF UNABSORBED LOSSES/DEFICIT PERTAINING TO A.Y. 2006-07 AND A.Y. 2008-09. THE INCOME FOR THE ABOVE ASSESSMENT YEARS HAS BEEN COMPUTED AS A TRUST REGISTERED U/S. 12A(A) OF THE ACT AND DEDUC TION U/S. 11 OF THE ACT AS DISCUSSED BY HIM IN GROUND NO. 1 TO 3 ABOVE. THERE FORE, THE CLAIM OF ASSESSEE FOR SET OFF BROUGHT FORWARD LOSSES OF A.Y. 2006-07 WORTH RS. 39,68,311/- AND A.Y. 2008-09 WORTH RS. 51,12,346/- WAS DISALLOWED AND ASSESSEE CARRY FORWARD OF LOSSES/DEFICIT OF A.Y. 20 08-09 WORTH RS. 3,70,60,272/- WAS ALSO DISALLOWED. 11. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER BEF ORE THE CIT(A). WHEREIN AFTER PLACING THE RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE FOLLOWING CASES CIT VS. SHREE PL OT SWETAMBER MURTIPUJAK DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 21 JAIN MANDAL 211 ITR 293 (GUJ) AND SIMILARLY ON FOLL OWING JUDGMENT CIT VS. SACRED HEART CHURCH 278 ITR 180 (GUJ) CLAIM THAT TH E ACTION OF THE AO WAS NOT IN ACCORDANCE WITH LAW. CONSIDERING THESE FACT S THE LD. CIT(A) HAS ALLOWED THE SAME BY OBSERVING AS UNDER:- 7.4 I HAVE CONSIDERED THE ORDER OF THE AO AND THE SUBMISSION MADE IN THIS REGARD. THE AO HAS NOT ALLOWED SET OFF OF BRO UGHT FORWARD DEFICITS AMOUNTING TO RS. 39,68,311/- PERTAINING TO A.Y. 200 6-07 AND RS. 51,12,346/- PERTAINING TO A.Y. 2008-09 AS CLAIMED T O THE EXTENT OF INCOME (TOTALLING TO RS. 90,80,657/-) AND BALANCE DEFICIT OF RS. 3,70,60,272/-. IN MY OPINION, AO HAS NOT INTERPRETED THE LAW CORRECTL Y. THE AO HAS NOT TAKEN COGNIZANCE OF THE LANGUAGE OF SECTION 11 WHIL E MAKING SUCH DISALLOWANCE. NOWHERE IS IT MENTIONED IN SECTION 1 1 THAT PREVIOUS YEARS/(S) BROUGHT FORWARD DEFICIT CANNOT BE SET OF F AGAINST CURRENT YEARS SURPLUS OF FUNDS. FURTHER, THE SECTION ALSO DOES N OT MAKE ANY SPECIFIC STATEMENTS THAT SETTING OFF OF PREVIOUS YEARS DEFIC IT AGAINST CURRENT YEARS SURPLUS IS NOT APPLICATION OF FUNDS FOR CHARITABLE PURPOSE. ALSO, THE APPELLANT IN THE SUBMISSION GIVEN BY HIM, HAS DULY MENTIONED THAT BROUGHT FORWARD LOSSES OF THE TRUST IS ALLOWED TO BE SET OF F AGAINST CURRENT YEARS SURPLUS, AND THAT THE SAME IS CONSIDERED AS APPLICA TION OF THE INCOME OF THE TRUST AS PER THE JUDICIAL RULINGS OF HIGH-COURT S OF GUJARAT, BOMBAY AND RAJASTHAN WHICH HAVE BEEN DULY PROVIDED, THE SAME H AVE NOT BEEN CONSIDERED BY THE A.O., WHICH IN MY VIEW ARE VALID SUBMISSIONS THAT OUGHT TO HAVE BEEN CONSIDERED. ACCORDINGLY, GROUND NOS. 6 AND 7 ARE ALLOWED. 8. AS FAR AS THE SUBMISSION OF BOOKS OF ACCOUNTS WH ICH WERE PREPARED AS THOSE OF A COMMERCIAL ENTITY, THE APPELLANT WAS UNDER APPEAL, AND I AM OF A VIEW THAT SINCE THE APPELLANT HAS A RIGHT OF A PPEAL TO PROVE ITS GENUINENESS AS A TRUST, NON-SUBMISSIONS OF ITS BOOK S PREPARED AS PER THE INDIAN ACCOUNTING STANDARDS AS DEMANDED BY THE AO I S JUSTIFIED. THUS, THE AO HAS NOT MADE A CORRECT INTERPRETATION OF SECTION 11 AND THERE ARE NO GROUNDS FOR DISALLOWANCE OF CARRIED FORWARD LOSSES. THUS, I AM OF THE VIEW THAT THE DEFICIT BROUGHT FORWARD FROM A.Y. 206-07 A ND 2008-09 SHOULD BE ALLOWED AS THE A.OS INTERPRETATION OF SECTION 11 D OES NOT SEEM TO BE VALID AND IS NOT TENABLE. 12. BEING AGGRIEVED THE REVENUE HAS FILED THIS APPEAL. THE LD. SR. DR RELIED ON THE ORDER OF THE AO. DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 22 13. PER CONTRA THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. THEREFORE, THE FINDINGS ARRIVED AT BY THE LD. CIT(A) ARE IN ACCORDANCE WITH LAW. LD. COUNSEL FURTHER SUBMITTED THAT THE ISSUE IS SETTLED BY THE HONBLE SUPREME COURT I N THE CASE CIT(E) NEW DELHI VS. SUBROS EDUCATIONAL SOCIETY IN CIVIL APPEA L NO(S). 5171/2016 DATED 16.04.2018. 14. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) H AS GIVEN DETAILED REASON FOR ALLOWING A SET OFF LOSSES AND CARRY FORWARD OF LOSSES ON THE BASIS OF RULINGS OF HONBLE JURISDICTIONAL HIGH COURT OF GUJ ARAT, BOMBAY AND RAJASTHAN. IN VIEW OF THESE FACTS, WE ARE OF THE C ONSIDERING OPINION THAT THE ISSUE IS COVERED IN FAVOUR ASSESSE. LD. COUNSE L FURTHER SUBMITTED THAT THE ISSUE IS SETTLED BY THE HONBLE SUPREME COURT I N THE CASE CIT(E) NEW DELHI VS. SUBROS EDUCATIONAL SOCIETY IN MISCELLANEO US APPLICATION NO. 941/2018 IN CIVIL APPEAL NO(S). 5171/2016 DATED 16. 04.2018. ACCORDINGLY, THE FINDINGS OF THE CIT(A) DOES NOT CALL ANY INTERF ERENCE FROM OUR SIDE AND ACCORDINGLY THE SAME IS UPHELD. THEREFORE, THIS GR OUND OF APPEAL IS DISMISSED. 15. GROUND NO. (V), (VI), (VII) & (VIII) RELATING TO DE LETING THE DISALLOWANCE OF DEPRECIATION OF RS. 1,27,63,514/-. DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 23 16. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS CLAIMED DEPRECIATION OF RS. 1,27,63,514/- IN THE INCOME AND EXPENDITURE ACCOUNT WHICH INCLUDE DEPRECIATION AMOUNTING TO RS. 9,15,53 1/- PERTAINING TO ADARSH FOUNDATION AND AMOUNT WORTH RS. 1,18,47,984/- PERTA INING TO KESAR SAL MEDICAL COLLEGE. THE ASSESSEE WAS SPECIFICALLY ASK ED TO FURNISH THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET AS PER THE INDIA N ACCOUNTING STANDARDS ,BUT THE ASSESSEE HAS FAILED TO DO SO. THE AO WAS ALSO OF THE VIEW THAT CAPITAL EXPENDITURE INCURRED ON FIXED ASSETS HAS BE EN ALLOWED AS EXPENDITURE IN EARLIER YEAR AS APPLICATION OF FUND AND ALLOWING OF DEPRECIATION AS FURTHER APPLICATION OF RECEIPT IN S UBSEQUENT YEAR WOULD APPARENTLY BE DOUBLE DEDUCTION WHICH WOULD BE APPAR ENTLY INCONSISTENT WITH THE ACCOUNTING PRINCIPLES. HENCE, THE AO DISA LLOWED THE ENTIRE CLAIM OF DEPRECIATION. 17. ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHERE IN IT WAS CONTENDED THAT THE INCOME OF THE TRUST WAS TO BE CO MPUTED A COMMERCIAL BASIS AND DEPRECIATION HAD TO BE ALLOWED WHILE COMP UTING INCOME. THE OBSERVATION OF THE AO THAT CAPITAL EXPENDITURE ON F IXED ASSET IS ALLOWED AS EXPENDITURE OF EARLIER YEARS IS FAR FROM CORRECT AS NO SUCH EXPENDITURE WAS CLAIMED OR ALLOWED AS APPLICATION OF INCOME AND IN FACT THE ASSETS ARE SHOWN ADD VALUE STATED IN THE BALANCE SHEET. IT WA S FURTHER SUBMITTED THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V S. SHETH MANILAL DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 24 RANCHHODDAS VISHRAM BHAVAN TRUST 198 ITR 598 (GUJ) HAS ALLOWED THE CLAIM OF DEPRECIATION OF TRUST. SIMILARLY IN FOLLOWING C ASES CIT VS. INSTITUTE OF BANKING PERSONNEL SELECTION 264 ITR 110 (BOM), CIT VS. RAIPUR PALLOTINE SOCIETY 180 ITR 579 (MP) AND CIT VS. MARKET COMMITT EE PIPLI 330 ITR 16 (P & H) THE CLAIM OF DEPRECIATION TRUST HAS BEEN HELD AS ALLOWABLE. 18. CONSIDERING THESE FACTS AND PLACING RELIANCE ON THE AFORESAID CASE LAWS AND FOLLOWING DECISION OF ITAT C BENCH, AHME DABAD DECISION IN THE CASE OF ADHARSHILA EDUCATION & CHARITABLE TRUST IN ITA NO. 1443/AHD/2008, A.Y. 2005-06 & 810/AHD/2009, A.Y. 2006-07, THE CIT( A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. 19. BEING AGGRIEVED THE REVENUE HAS FILED THIS APPEAL B EFORE US. THE LD. SR. DR HAS HEAVILY PLACED RELIANCE ON THE ORDER OF THE AO. 20. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). 21. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IS COV ERED AGAINST THE REVENUE, BUT THE DECISION OF THE ITAT C BENCH, AHMEDABAD I N THE CASE OF ADARSHILA EDUCATION & CHARITABLE TRUST(SUPRA), AND OTHER DECI SIONS OF HONBLE HIGH COURT RELIED BY THE LD. CIT(A) AND ALSO IN THE CASE OF SARDAR PATEL INSTITUTE OF PUBLIC ADMINISTRATION IN ITA NO. 1322/AHD/2011 F OR A.Y. 2008-09 AND THE RELEVANT PORTION OF THE ITAT IS AS UNDER:- DDIT (E) V. ADARSH FOUNDATION /I.T.A.NO. 1858/AHD/2 013/A.Y. 2009-10 PG 25 PARA 4..WE HAVE CONSIDERED FACTS AND CIRCUMSTANCE S OF THE CASE AND SUBMISSIONS MADE BY THE RESPECTIVE REPRESENTATIVES OF THE PARTIES. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM FOLLOWIN G THE JUDGMENT PASSED BY THE HONBLE SUPREME COURT IN THE CASE OF ESCORTS LTD. (SUPRA). WE FIND THE HONBLE HIGH COURT PUNJAB AND HARYANA HAS DISTI NGUISHED THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. TINY TOTS EDUCATION SOCIETY 330 ITR 21 (P&H) IN VIEW OF THE FACT THAT T HE ISSUE HAS ALREADY BEEN SETTLED BY THE HONBLE HIGH COURT OF PUNJAB AND HAR YANA RESPECTFULLY FOLLOWING THE RATIO LAID THEREIN WE HAD NO INFIRMIT Y INTO THE IMPUGNED ORDER OF THE LD. CIT(A). THEREFORE, THE PRESENT AP PEAL STANDS DISMISSED. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) . THEREFORE, THE PRESENT APPEAL STANDS DISMISSED. WE FIND NO INFIRMITY IN T HE ORDER OF THE LD. CIT(A). IN VIEW OF THE ABOVE, THE APPEAL OF THE RE VENUE IS DISMISSED. 22. IN VIEW OF THE ABOVE FACTS, RESPECTFULLY FOLLOWING THE VARIOUS DECISIONS OF HONBLE HIGH COURTS AND HONBLE GUJARAT HIGH COU RT AS RELIED UPON BY THE LD. CIT(A) AND CO-ORDINATE BENCH OF AHMEDABAD TRIBU NAL MENTIONED ABOVE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CI T(A). ACCORDINGLY, THIS GROUND NOS. (V) TO (VIII) ARE DISMISSED. 23. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. 24. THE ORDER PRONOUNCED IN THE OPEN COURT ON 20.09 .2019. SD/- SD/- (MADHUMITA ROY) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY AHMEDABAD: DATED: 20 TH SEPTEMBER, 2019 COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A) / ITAT (DR)/GUARD FILE OF ITAT. TANMAY, SR. PS BY ORDER ASSISTANT REGISTRAR, AHMEDABAD