Dy. Commissioner of Income Tax (Exemption), Lucknow V. M/s The Prayag Dant Vigyan Anusandhan Sansthan,

ITA 265/LKW/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1133 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 20-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K SINGH; A K BAR
• Keywords: Business income; Depreciation; Charitable institution; Rule of consistency; Benefit of exemption; Capital expenditure
• Section: 32; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI. T.S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO. 265 & 266/LKW/2017 ASSESSMENT YEAR: 2012 - 13 & 2013 - 14 DCIT (EXEMPTIONS) LUCKNOW V. M/S THE PRAYAG DANT VIGYAN ANUSANDHAN SANSTHAN 14/20, TEJ BAHADUR SAPRU MARG CIVIL LINES, ALLAHABAD T AN /PAN : AAATP8185F (APP ELL ANT) (RESPONDENT) C.O. NOS. 15 & 16/LKW/2018 [IN ITA NO. 265 & 266/LKW/2017] ASSESSMENT YEAR: 2012 - 13 & 2013 - 14 M/S TH E PRAYAG DANT VIGYAN ANUSANDHAN SANSTHAN 14/20, TEJ BAHADUR SAPRU MARG CIVIL LINES, ALLAHABAD V. DCIT (EXEMPTIONS) LUCKNOW T AN /PAN : AAATP8185F ( CROSS - OBJECTOR ) (RESPONDENT) DEPARTMENT BY: SHRI A. K. BAR, CIT (DR) AND SHRI C. K. SINGH, D.R. ASSESSEE BY: SHRI ASHISH BANSAL, ADVOCATE DATE OF HEARING: 15 11 201 8 DATE OF PRONOUNCEMENT: 30 11 201 8 O R D E R PER T.S.KAPOOR , A .M : THESE ARE TWO APPEALS FILED BY THE REVENUE AGAINST THE ORDERS OF THE LD. CIT(A), ALLAHABAD DATED 14/12/2016 AND 15/12/2016 R ESPECTIVELY. ASSESSEE HAS ALSO FILED CROSS OBJECTIONS TO THESE APPEALS. ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 2 OF 16 2 . THESE APPEALS WERE HEARD TOGETHER AND INVOLVE SIMILAR ISSUES, THEREFORE, FOR THE SAKE OF CONVENIENCE, A COMMON AND CONSOLIDATED ORDER IS BEING PASSED. 3 . AT THE OUTSET, LD. D.R. SUBMITTE D THAT ASSESSEE HAD CLAIMED DEPRECIATION ON ADDITIONS TO FIXED ASSETS AND HAD CLAIMED THESE AS APPLICATION OF FUNDS FOR THE PURPOSE OF EXEMPTION UNDER SECTION 11 OF THE ACT AND SIMILARLY ASSESSEE HAD REPAID CERTAIN TERM LOANS WHICH WERE RAISED TO PURCHASE FIXED ASSETS AND HAD ALSO CLAIMED THESE AS APPLICATION OF FUNDS WHICH WAS CONTRARY TO THE LAW, AS THE ASSESSEE HAD ALREADY BEEN GRANTED BENEFIT OF EXEMPTION WHEN ASSESSEE ACQUIRED THESE FIXED ASSETS. 4 . AS REGARDS OTHER GROUNDS OF APPEAL, LD. D.R. SUBMITTED THAT ASSESSING OFFICER HAD DISALLOWED CERTAIN AMOUNTS WHICH WERE COMMISSION PAYMENT TO MIDDLEMAN TO ATTRACT NEW ADMISSION IN THE INSTITUTE AND WHICH THE LD. CIT(A) HAS WRONGLY ALLOWED. 5 . ARGUING IN APPEAL NO.266/LKW/2017, LD. D.R. STATED THAT LD. CIT(A) HAS WRONGLY ALLOWED BENEFIT UNDER SECTION 11 OF THE ACT IGNORING THE FACT THAT ACTIVITIES OF THE ASSESSEE WER E COMMERCIAL IN NATURE AND WERE NOT CHARITABLE ONE. 6 . LD. A.R. OF THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT CLAIM OF DEPRECIATION ON FIXED ASSETS IS A SEPARATE CLAIM WHICH THE ASSESSEE WAS ENTITLED AND, THEREFORE, HAD RIGHTLY CLAIMED THE SAME AND WAS RIGHTLY ALLOWED BY THE LD. CIT(A). IT WAS SUBMITTED THAT LD. CIT(A) WHILE ALLOWING THE CLAIM OF ASSESSEE HAS RELIED ON A NUMBER OF DECISIONS AND, THER EFORE, THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A). AS REGARDS CLAIM AGAINST REPAYMENT OF TERM LOAN S , IT WAS SUBMITTED THAT THIS ISSUE IS ALSO IN FAVOUR OF THE ASSESSEE AND LD. CIT(A) HAS RELIED ON A ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 3 OF 16 NUMBER OF CASE LAWS AND HE STRONGLY PLACED RELIANC E ON THE ORDER OF THE LD. CIT(A). 7 . ARGUING CROSS OBJECTION IN THE APPEALS, LD. A.R. OF THE ASSESSEE SUBMITTED THAT ONLY ISSUE RAISED IN CROSS OBJECTION IS ACTION OF LD. CIT(A) BY WHICH HE HAS RESTRICTED THE RELIEF TO 50% OF ADDITION MADE BY THE ASSESSING OF FICER. IT WAS SUBMITTED THAT ASSESSING OFFICER HAD WRONGLY MADE ADDITION HOLDING WRONGLY FEE PAID AS CAPITATION FEE. IN THIS RESPECT, LD. A.R. OF THE ASSESSEE TOOK US TO THE BREAKUP OF CHARGES WHICH THE ASSESSEE HAD CHARGED FROM ITS STUDENTS. LD. A.R. O F THE ASSESSEE SUBMITTED THAT NONE OF THE CHARGES AS REPRODUCED BY THE ASSESSING OFFICER AT PAGE 2 OF HIS ORDER INDICATES ANY AMOUNT OF CAPITATION FEE AND, THEREFORE, CASE LAW RELIED ON BY THE ASSESSING OFFICER IS NOT RELEVANT. 8 . THE LD. D.R., ON THE OTHER H AND, RELIED ON THE ORDERS OF THE LD. CIT(A) ON THIS ISSUE. 9 . WE HAVE HEARD THE RIVAL PARTIES AND GONE THROUGH THE MATERIAL PLACED ON RECORD. IN THE DEPARTMENTS APPEALS THERE ARE TWO ISSUES. ONE RELATES TO DELETION BY THE LD. CIT(A) ON ACCOUNT OF DISALLOWA NCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION ON FIXED ASSETS WHICH THE ASSESSEE HAD PURCHASED AND FOR WHICH ASSESSEE HAD ALREADY AVAILED BENEFIT UNDER SECTION 11 OF THE ACT. SECOND ISSUE RELATES TO REPAYMENT OF TERM LOAN WHICH HAS BEEN CLA IMED UNDER SECTION 11 OF THE ACT WHICH THE ASSESSING OFFICER HAD DENIED AS IN HIS OPINION ASSESSEE WAS GIVEN BENEFIT WHEN ASSETS WERE PURCHASED AND FURTHER CLAIM ON ACCOUNT OF REPAYMENT OF SUCH TERM LOAN WILL AMOUNT TO DOUBLE DEDUCTIONS. THESE TWO ISSUES HAVE ELABORATELY BEEN DISCUSSED BY LD. CIT(A) AND AFTER RELYING ON A NUMBER OF CASE LAWS LD. CIT(A) HAS ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 4 OF 16 ALLOWED RELIEF TO THE ASSESSEE. FOR THE SAKE OF CONVENIENCE, ISSUE OF DEPRECIATION AS DISCUSSED BY THE LD. CIT(A) ALONG WITH SUBMISSION OF ASSESSEE ARE REPRODUCED BELOW: - 5.01 THE ASSESSEE HAS DEBITED RS.1,34,88,135 TO THE INCOME AND EXPENDITURE ACCOUNT BY WAY OF DEPRECIATION ON VARIOUS FIXED ASSETS USED FOR CARRYING OUT THE ACTIVITIES OF THE SOCIETY DURING THE FY 2011 - 12. THIS HAS BEEN DONE ON SOUND CO MMERCIAL PRINCIPLES. 5.02 THE LD. A.O. HAS DISALLOWED THE CLAIM FOR DEPRECIATION ON THE FOLLOWING GROUNDS - (I) DEPRECIATION AMOUNTS TO DOUBLE DEDUCTION IN THE CASE OF ASSESSEE; AND (II) SECTION 32(1) PERMITS DEPRECIATION ONLY IN CASES WHERE INCOME IS TO BE COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS AND PROFESSION' WHEREAS ASSESSEE IS CLAIMING EXEMPTION OF ITS INCOME UNDER SECTION 11 AS CHARITABLE INSTITUTION. 5.03 THE FIRST GROUND OF DISALLOWANCE I.E. 'DEPRECIATION AMOUNTS TO DOUBLE DEDUCTI ON' IS FACTUALLY INCORRECT. THE FACT IS THAT IN EARLIER ASSESSMENT YEARS, THE ASSESSEE DID NOT MAKE ANY CLAIM IN RESPECT OF EXPENDITURE INCURRED ON ADDITIONS TO FIXED ASSETS AS 'APPLICATION OF INCOME'. 5.04 THE SECOND GROUND OF DISALLOWANCE IS LEGALLY INCO RRECT. THE DEPRECIATION IS CHARGED TO INCOME & EXPENDITURE A/C TO WORK OUT THE 'INCOME' OF THE SOCIETY ON SOUND COMMERCIAL PRINCIPLES. SUCH CLAIM IS NOT UNDER SECTION 32(1). THE DEPRECIATION IS AN ALLOWABLE DEDUCTION IN CASE OF CHARITABLE INSTITUTIONS AS H ELD IN THE FOLLOWING JUDGMENTS - (I) [2003] 264 ITR 110 (BOM) - CIT VS. INSTITUTE OF BANKING HELD AT PAGE - 113 - 114 ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 5 OF 16 (I) IT IS NOT CORRECT THAT SECTION 32 WAS THE ONLY SECTION GRANTING BENEFIT OF DEDUCTION OF DEPRECIATION. (II) SECTION 32 IS NOT APPLICA BLE TO CHARITABLE TRUSTS. ( II I) INCOME OF CHARITABLE TRUST IS REQUIRED TO BE COMPUTED U/S 11 ON COMMERCIAL PRINCIPLES AFTER PROVIDING FOR NORMAL DEPRECIATION AND DEDUCTION THEREOF FROM GROSS INCOME. (IV) DEPRECIATION IS TO BE ALLOWED EVEN IF FULL CAPITAL E XPENDITURE HAS BEEN ALLOWED AS APPLICATION OF INCOME IN THE YEAR OF ACQUISITION. (II) [2012] 349 ITR 559 (MP) - CIT VS. GUJRATISAMAJ (REGD) HELD AT PAGE 351 (I) DEPRECIATION IS NOTHING BUT DECREASE IN VALUE OF PROPERTY THROUGH WEAR, DETERIORATION OR OBSOLESCENCE AND ALLOWANCE IS MADE FOR THE PURPOSE IN BOOK KEEPING, ACCOUNTANCY ETC. (II) CHARITABLE TRUST IS ENTITLED FOR CLAIM OF DEPRECIATION ON THE ASSETS OWNED BY IT. ( II ) [2011] 330 ITR 16 (P&H) - CIT VS. MARKET COMMITTEE HELD AT PAGES 19 - 20 (I) IF DEPRECIATION IS NOT ALLOWED AS A NECESSARY DEDUCTION FOR COMPUTING THE INCOME OF A CHARITABLE INSTITUTION THEN THE CORPUS OF THE TRUST FOR DERIVING THE INCOME CANNOT BE PRESERVED. (II) AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNT OF A CHARITABLE INSTI TUTION IS TO BE DEDUCTED TO ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION TO CHARITABLE AND RELIGIOUS PURPOSES. ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 6 OF 16 ( II I) THERE IS NO DOUBLE DEDUCTION OF DEPRECIATION WHEN CAPITAL EXPENDITURE INCURRED FOR ACQUISITION OF THESE ASSETS HAS ALREADY BEEN ALLOWED A S - APPLICATION OF INCOME. (IV) JUDGMENT OF SC IN ESCORTS CASE [1993] 199 ITR 43, WHICH HAS BEEN RELIED UPON BY THE LD. A.O. IN THE IMPUGNED ASSESSMENT ORDER HAS BEEN DISTIN GUISHED AND HELD NOT APPLICABLE. (IV) [2014] 366 ITR 51 (CAL) - CIT VS. SILIG URI REGULATED MARKET COMMITTEE HELD AT PAGE 58 - (I) DEPRECIATION CLAIM IS TO BE ALLOWED IN THE COMPUTATION OF INCOME OF A CHARITABLE INSTITUTION. (II) BY COMPUTING THE INCOME IN A COMMERCIAL MANNER, THE OBJECT OF FEEDING THE PUBLIC CHARITY IS ACHIEVED. IT CANNOT BE DISPUTED THAT THE ASSETS USED FOR THE PURPOSE OF CHARITY DIMINISHES IN VALUE OVER THE TIME. THEREFORE PROVIDING FOR SUCH DIMINUTION IN VALUE WOULD KEEP THE CORPUS OF THE TRUST INTACT . 5.05 IT IS FURTHER SUBMITTED THAT CLAIM FOR DEPRECIATION WAS A LLO W ED IN ALL THE EARLIER ASSESSMENT YEARS. THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES IN THE CURRENT ASSESSMENT YEAR. HENCE, ON PRINCIPLE OF CONSISTENCY, THE EXPENDITURE IN QUESTION OUGHT TO HAVE BEEN ALLOWED AS HELD BY THE SC IN [19992] 193 ITR - 321 (SC) - RADHASOAMISATSANG V. CIT. AT PAGE 329 OF ITR, THE HON'BLE SC HAS OBSERVED AS UNDER - '............ STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME - TAX PROCEEDINGS. AGAIN EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 7 OF 16 THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NO T BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.' 5.06 IN VIEW OF ABOVE FACTS AND LEGAL POSITION, THE DISALLOWANCE/ ADDITION OF DEPRECIATION CLAIM OF RS. 1,34,88,135 IS ERRONEOUS IN LAW AND FACT AND LIABLE TO BE DELETED. 2. 3 DISCUSSION & DECISION: HAVING GONE THROUGH THE FINDING GIVEN BY - THE A.O. AND ALSO THE ELABORATE WRITTEN SUBMISSIONS AS MADE BY THE LD. A.R. OF THE APPELLANT, I AM OF THE CONSIDERED VIEW DEPRECIATION IN AN ALLOWABLE EXPENDITURE IN COMPUTING INCOME OF THE TRUST. TO THIS EFFECT, THERE ARE ENUMERABLE CASE LAWS IN FAVOUR OF THE ASSESSEE; SOME OF WHICH HAVE BEEN QUOTED BY THE LD. A.R. IN HIS WRITTEN SUBMISSIONS. THE LATEST DECISION BEING THAT OF THE HON'BLE KARNATAKA HIGH COURT WHICH WAS RENDERED AFTER THE INT RODUC TION OF SUB - SECTION 11(6) OF THE I . T. ACT. IN THE SAID DECISION, THE HON'BLE HIGH COURT HAS HELD THAT '[2016] 383ITR - 517 (KARN) DIRECTOR OF INCOME TAX(EXMP) V. ALAMEEN CHARITABLE FUND TRUST HELD AT PAGE 525 - 526,528 (I) ESCORTS LTD AND LISSI E MEDICAL INSTITUTIONS CASES ARE DISTINGUISHABLE. (II) DEPRECIATION IS ALLOWABLE. THERE IS NO QUESTION OF ANY DOUBLE DEDUCTION. ( III ) NEW SUBSECTION (6) INSERTED IN SECTION 11 IS PROSPECTIVE IN NATURE AND OPERATES WITH EFFECT FROM 1.4.2015.' 2.3 .2 IN VIEW OF PREPONDERANCE OF JUDICIAL PRONOUNCEMENTS IN FAVOUR OF THE ASSES SEE TRUST, THE DISA LLOWANCE OF DEPRECIATION OF ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 8 OF 16 RS. 1,34,88,135 / - CANNOT BE LEGA LLY UPHELD AND THE A.O. IS DIRECTED TO ALLOW THE DEPRECIATION SO CLAIMED. 10 . THE LD. CIT(A) HAS CATEGO RICALLY NOTED IN HIS ORDER THAT ASSESSEE HAD NOT CLAIMED EXEMPTION UNDER SECTION 11 WHEN THE ASSESSEE ORIGINALLY PURCHASED FIXED ASSETS. HE HAS FURTHER NOTED THAT DEPRECIATION WAS ALLOWED TO ASSESSEE IN EARLIER YEARS ALSO AND THERE WAS NO CHANGE IN FACTS AND CIRCUMSTANCES. HE HAS FURTHER RELIED ON A NUMBER OF CASE LAWS FOR THE PROPOSITION THAT DEPRECIATION IS AN ALLOWABLE EXPENSE. KEEPING IN VIEW ALL THESE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN HIS ORDER, THEREFORE, THE ISSUE OF DEPRECI ATION IS DECIDED IN FAVOUR OF THE ASSESSEE. 11 . THE OTHER ISSUE OF REPAYMENT OF LOANS HAS SIMILARLY BE DISCUSSED BY THE LD. CIT(A) AND HE HAS ALLOWED RELIEF TO THE ASSESSEE RELYING ON A NUMBER OF CASE LAWS. THE RELEVANT FINDINGS OF THE LD. CIT(A) ALONG WITH W RITTEN SUBMISSIONS OF ASSESSEE ARE REPRODUCED BELOW: - 8.00 REG. GROUND NO. 5: DISALLOWANCE OF REPAYM ENT OF LOANS AGGREGATING TO RS. 1 , 35 , 22 , 495 AS APPLICATION OF INCOME 8.01 THE ASSESSEE HAS TAKEN LOANS FROM PUNJAB NATIONAL BANK AND UNION BANK OF INDIA FOR PURCHASE / CONSTRUCTION OF FIXED ASSETS REQUIRED FOR THE ACTIVITIES OF THE SOCIETY. THESE LOANS WERE PARTLY REPAID DURING AY 2012 - 13. THE DETAILS OF THESE LOANS AND REPAYMENTS ARE GIVE BELOW S. NO. LENDER BANK LOAN A/C NOS. / PURPOSE OF LOAN YEA RS IN WHICH LOAN TAKEN/ UTILIZED AMOUNT OF LOAN (RS.) AMOUNT REPAID DURING THE AY. 2012 - 13 (RS.) ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 9 OF 16 1 PUNJAB NATIONA L BANK 0012009300101 401 FOR ACQUIRING FIXED ASSETS F.Y.2009 - 10 40,00,000 7,63,732 2 PUNJAB NATIONA L BANK 001200IC00800 278 FOR ACQU IRING FIXED ASSETS F.Y.2009 - 10 2,00,00,000 48,12,512 3 PUNJAB NATIONA L BANK 001200IC00800 357 FOR ACQUIRING FIXED ASSETS F.Y.2010 - 11 2,80,00,000 60,70,856 4 UNION BANK OF INDIA 3027063900000 12 FOR ACQUIRING FIXED ASSETS F.Y.2008 - 09 65,0 0,000 18,75,395 TOTAL 5,85,00,000 1,35,22,4 95 8.02 THE ABOVE REPAYMENTS OF LOANS AGGREGATING TO RS. 1,35,22,495 (AS SHOWN IN THE LAST COLUMN OF THE TABLE) HAVE BEEN CLAIMED BY THE /ASSESSES AS APPLICATION OF INCOME IN THE COMPUTATION OF INCOM E FILED WITH THE RETURN. 8.03 THE LD. A. O. HAS DISALLOWED THE ABOVE CLAIM ON THE FOLLOWING GROUNDS - '(I) THE TERM LOAN TAKEN BY THE ASSESSEE HAS NEVER BEEN SHOWN AS INCOME OF THE SOCIETY; HENCE, REPAYMENT OF SUCH LOAN CANNOT BE CLAIMED AS EXPENDITURE , (II) FURTHER, IT AMOUNTS TO DOUBLE DEDUCTION. THE EXPENDITURE INCURRED BY THE ASSESSEE FROM THE LOAN AMOUNT HAS ALREADY BEEN CLAIMED AS EXPENSES CLAIMED DURING THE RESPECTIVE YEARS. HENCE ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 10 OF 16 TO CLAIM THE REPAYMENT OF LOAN AS APPLICATION OF FUNDS AMOUN TS TO DOUBLE DEDUCTION AND IS AGAINST NORMAL ACCOUNTING PRINCIPLES WHICH IS NOT ALLOWABLE.' 8.04 THE FIRST GROUND OF DISALLOWANCE IS PATENTLY MISCONCEIVED AND INCORRECT. THE LOANS IN ISSUE, WHEN RECEIVED, WERE NOT INCOME OF THE SOCIETY ON ANY COMMERCIAL PR INCIPLES OR UNDER ANY PROVISIONS OF LAW. LOANS ARE LIABILITY AND NOT INCOME. ONLY THOSE RECEIPTS CAN BE INCLUDED IN 'INCOME' WHICH BECOME THE PROPERTY OF THE SOCIETY AND ARE NOT TO BE REPAID. HENCE THE ASSESSEE RIGHTLY DID NOT SHOW THE RECEIPT OF LOANS AS INCOME OF THE SOCIETY. 8.05 THE SECOND GROUND THAT THE 'CLAIM AMOUNTS TO DOUBLE DEDUCTION AS THE EXPENDITURE INCURRED BY THE ASSESSEE FROM THE LOAN AMOUNT HAS ALREADY BEEN CLAIMED AS EXPENSES DURING THE RESPECTIVE YEARS', IS FACTUALLY INCORRECT. THE ASSESS EE DID NOT CLAIM ANY DEDUCTION IN RESPECT OF FIXED ASSETS ACQUIRED OUT OF ABOVE LOANS IN ANY EARLIER YEARS. THIS FACT IS VERIFIABLE FROM THE EARLIER YEARS' INCOME TAX RETURNS AND ASSESSMENT ORDERS WHICH ARE PLACED IN THE PAPER BOOK. 8.06 SO FAR AS THE CURR ENT ASSESSMENT YEAR I.E. AY 2012 - 13 IN CONCERNED, THE CLAIM FOR ADDITIONS TO FIXED ASSETS IS RESTRICTED TO RS.1,66,72,312, BEING ASSETS FINANCED OUT OF CURRENT YEAR'S INCOME AND NOT OUT OF ANY LOANS. AS CAN BE SEEN FROM THE SCHEDULE OF DEPRECIATION FORMING PART OF THE AUDITED ACCOUNTS FOR THE FY 2011 - 12 (AY 2012 - 13), THE TOTAL ADDITIONS TO FIXED ASSETS DURING THE YEAR AMOUNTED TO RS. 5,38,58,691 WHEREAS THE DEDUCTION IS CLAIMED FOR RS.1,66,72,312 ONLY. FOR VERIFICATION OF ABOVE FACT, THE LD. A.O. ASKED THE A SSESSEE TO SUBMIT DETAILS OF SUCH PURCHASES AND COPIES OF PURCHASE BILLS. IN COMPLIANCE, THE ASSESSEE, VIDE REPLIES DATED 20.02.2015 AND 03.03.2015, SUBMITTED A STATEMENT SHOWING THE DETAILS OF ASSETS PURCHASED OUT OF CURRENT YEAR'S INCOME AS WELL AS COPIE S OF PURCHASE BILLS. COPIES OF AUDITED ACCOUNTS FOR FY 2011 - 12, ABOVE REPLIES AND ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 11 OF 16 STATEMENT OF PURCHASES OF FIXED ASSETS ARE PLACED IN THE PAPER BOOK. IT IS SUBMITTED THAT THE FACT THAT THE PURCHASES OF FIXED ASSETS TO THE EXTENT OF RS. 1,66,72,312 WERE MA DE OUT OF CURRENT YEAR'S INCOME IS NOT DISPUTED BY THE LD. A. O. 8.07 IT IS SUBMITTED THAT THE REPAYMENT OF LOANS TAKEN BY A CHARITABLE INSTITUTION IS TO BE REGARDED AS APPLICATION OF INCOME AS HELD IN THE FOLLOWING CASES - (I) [2009] 315ITR 237 (MAD) - DL (EXEMPTION) VS. GOVLNDUNAICKER ESTATE HELD AT PAGE 241 - (I) THERE IS NO PROVISION IN THE ACT, WHICH DISENTITLES THE ASSESSEE - TRUST FROM CLAIMING REPAYMENT OF LOAN AS APPLICATION OF INCOME. ESPECIALLY IN VIEW OF THE FACT THAT THE TRUST HAS TO AUGMENT ITS INCOME AND FOR THAT PURPOSE IT HAS PUT UP A CONSTRUCTION WITH BORROWED FUND. (II) IF RAISING OF LOAN DOES NOT STAND IN THE WAY OF ITS CHARITABLE ACTIVITIES, THE REPAYMENT THEREAFTER MUST BE TREATED AS APPLICATION OF INCOME. BY REPAYMENT OF THE LOAN, THE TR UST WIPED OUT ITS LIABILITY AND THE INCOME EARNED FROM THE PROPERTY WOULD BE AVAILABLE FOR BEING UTILIZED FOR CHARITABLE PURPOSES, (II) [2000] 242 ITR 703 (KAM) - CIT VS. JANMABHOOMI PRESS TRUST HELD AT PAGES 701 - 704 RELYING UPON THE EARLIER JUDGMENT OF THE SAME COURT, REPORTED IN [2000] 242 ITR 457 (KAM) - CIT VS. JANMABHOOMI PRESS TRUST, HELD THAT THE TRIBUNAL IS RIGHT IN HOLDING THAT REPAYMENT OF DEBT INCURRED BY THE ASSESSES FOR THE CONSTRUCTION OF THE COMMERCIAL BUILDING TAKEN UP BY THE ASSESSES F OR THE PURPOSE OF AUGMENTING US FUNDS, SHOULD BE TREATED AS 'APPLICATION' OF THE INCOME OF THE ASSESSEE - TRUST FOR CHARITABLE PURPOSES. ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 12 OF 16 8.08 IN VIEW OF ABOVE FACTS AND LEGAL POSITION, THE DISALLOWANCE/ ADDITION OF REPAYMENT OF LOANS AMOUNTING TO RS. 1,35,22 ,495 IS ERRONEOUS IN LAW AND FACT AND LIABLE TO BE DELETED.' 5.3. DECISION: THE IMPUGNED REPAYMENT IS THAT OF THE LOANS TAKEN BY THE APPELLANT TRUST FOR CARRYING OUT CONSTRUCTION WORK/ MAKING CAPITAL EXPENDITURE. I HAVE GONE THROUGH THE PAST FINANCIAL DETA ILS OF THE ASSESSEE TRUST AND I FIND THAT CAPITAL EXPENDITURE INCURRED WAS NEVER TREATED BY THE ASSESSEE TRUST AS AN APPLICATION OF INCOME IN THE YEAR(S) OF ACQUISITION OF THOSE ASSETS/ CAPITAL EXPENDITURE MADE. BUT ONLY WHEN THIS REPAYMENT (PART PAYMENT) WAS MADE TO THE BANK FOR THE LOANS TAKEN FOR CAPITAL EXPENDITURE, THIS PAYMENT WAS CLAIMED BY THE ASSESSEE AS AN APPLICATION OF FUND. THE CASE LAWS CITED BY THE ASSESSEE IN THIS REGARD, NAMELY [2009] 315ITR 237 (MAD) - DL (EXEMPTION) VS. GOVINDUNAICKER EST ATE AND [2000] 242 ITR 703 (KARN) - CIT VS. JANMABHOOMI PRESS TRUST ARE APT AND TO THE POINT WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT REPAYMENT OF LOAN BY THE ASSESSEE SHOULD BE TREATED AS AN APPLICATION OF FUND. RESPECTFULLY FOLLOWING THOSE DECISIONS, I HEREBY HOLD THAT THE REPAYMENT OF LOAN (TAKEN BY THE ASSESSEE FOR INCURRING OF CAPITAL EXPENDITURE) WILL BE TREATED AS AN APPLICATION OF FUND. THE A.O. IS DIRECTED TO ALLOW THE SAME. 12 . THE LD. CIT(A) HAS NOTED IN HIS ORDER THAT ASSESSEE HAD NOT CLAIMED A NY EXEMPTION WHEN IT PURCHASED FIXED ASSETS IN EARLIER YEARS. MOREOVER, F INDING TH IS ISSUE IN FAVOUR OF THE ASSESSEE COVERED BY VARIOUS DECISIONS OF VARIOUS COURTS RELIED ON BY THE LD. CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE LD. CIT(A) O N THIS ISSUE. 13 . AS REGARDS GROUND NO.1 IN ITA NO.266/LKW/2017, WE FIND THAT THE ASSESSING OFFICER HAD DISALLOWED THE BENEFIT OF SECTION 11 BY MAKING ADDITION OF WHOLE OF EXCESS OF INCOME OVER EXPENDITURE TREATING THE ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 13 OF 16 SAME AS BUSINESS INCOME AS IN HIS OPINION ASSESSEE HAD CHARGED FEE WHICH WAS BEYOND THE PRESCRIBED AMOUNT OF FEES DECIDED BY THE GOVERNMENT AUTHORITIES. HOWEVER, LD. CIT(A) ALLOWED RELIEF TO ASSESSEE BY HOLDING AS UNDER: - ON PERUSAL OF THE DETAILS FILED AND THOSE AVAILABLE ON RECORDS, IT IS SEE N THAT THE ASSESS.EE TRUST HAS BEEN CHARGING TUITION FEES AS PER THE NORMS SET BY THE UPTU. THE ASSESSEE TRUST HAS ALSO CHARGED ADDITIONAL FEES/CHARGES FOR SPECIFIC PURPOSES, LIKE EXAMINATIONS, LAB FEES ETC. THESE ARE NOT ILLEGAL RECEIPTS NOR HAS THE UPTU BARRED THE APPELLANT FORM THESE ADDITIONAL CHARGES, AS THE MONETARY CAP IS ONLY ON TUITION FEES. IN ANY CASE, SUCH ADDITIONAL RECEIPTS ARE DE - MINIMIS AND ARE COLLECTED FOR SPECIFIC PURPOSES. THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UNIKRISH NAN, JP & OTHERS WHICH HAS BEEN CITED BY THE A.O. IN HIS ORDER, DEALS WITH THE RECEIPT OF CAPITATION FEES. IN THIS CASE, ADMITTEDLY, THERE IS NO CAPITATION FEES, THUS, THE SAID DECISION OF THE HON'BLE SUPREME COURT IS NOT AT ALL APPLICABLE TO THE INSTANT C ASE. THESE FEES/ CHARGES, COLLECTED IN ADDITION TO THE TUITION FEES, WERE FULLY RECORDED AND ACCOUNTED FUNDS AND THESE HAVE BEEN SPENT FOR THE PURPOSES/ OBJECTS OF THE TRUST. EVEN ASSUMING THAT THE ASSESSEE TRUST HAD CHARGED SOME ADDITIONAL FEES/ CHARGES W HICH WAS IN VIOLATION OF THE UPTU NORMS, IT WAS FOR THE UPTU TO TAKE APPROPRIATE ACTION. THE A.O. CANNOT STEP INTO THE SHOES OF THE UPTU TO DETERMINE THE EXCESS AMOUNT, IF ANY, CHARGED. FURTHER, IT IS NOW A SETTLED LAW THAT 'EDUCATION' PER SE IS A CHARITAB LE ACTIVITY AND EVEN IF SOME SURPLUS IS EARNED BY THE TRUST WHILE IMPARTING EDUCATION, THE SAME CANNOT BE CONSIDERED AS A BUSINESS ACTIVITY AS LONG AS THE FUNDS OF THE TRUST ARE USED FOR THE PURPOSES/ OBJECTS OF THE TRUST. IN THIS VIEW OF THE MATTER, THE O BSERVATIONS OF THE A.O. THAT THE ASSESSEE WAS INDULGING IN A BUSINESS ACTIVITY IS NOT IN ACCORDANCE WITH THE SETTLED LAW AND, THEREFORE, IT HAS TO BE HELD THAT THE SURPLUS OF THE TRUST IS NOT TO ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 14 OF 16 BE TREATED AS BUSINESS INCOME. ACCORDINGLY, THIS ADDITION OF RS.3,65,41,344 / - IS HEREBY DELETED. 14 . FINDING NO INFIRMITY IN THE ORDER OF LD. CIT(A) ON THIS ISSUE ALSO, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 15 . NOW COMING TO THE LAST GROUND OF APPEAL AND CROSS OBJECTIONS FILED BY THE ASSES SEE, WE FIND THAT ONLY GRIEVANCE RAISED BY THE REVENUE AND ASSESSEE IS THE DELETION AND SUSTENANCE OF 50% OF DISALLOWANCE WHICH THE ASSESSING OFFICER HAD MADE OUT OF COUNSELING EXPENSES. WE FIND THAT LD. CIT(A) HAS ALLOWED PART RELIEF TO THE ASSESSEE BY H OLDING THAT THOUGH THE EXPENSES ARE ALLOWABLE EXPENDITURE, BUT SINCE ASSESSEE HAD INCURRED EXPENDITURE IN CASH, THEREFORE, HE SUSTAINED DISALLOWANCE TO THE EXTENT OF 50%, FINDINGS OF THE LD. CIT(A) AS CONTAINED IN PARA 3.3 ARE REPRODUCED BELOW: - HAVING GO NE THROUGH THE FINDINGS GIVEN BY THE A.O. AND ALSO THE WRITTEN SUBMISSION MADE BY THE LD. A.R., I HAD REQUESTED THE LD. A.R. TO FURNISH A LIST OF PERSONS TO WHOM THESE PAYMENTS WERE MADE. ONCE THE LIST WAS PROVIDED, I CHOSE TWO NAMES RANDOMLY AND ASKED THE LD. A.R. TO PRODUCE THEM FOR VERIFICATION. THE TWO NAMES SELECTED BY ME WERE (I) SRI VIVEK MISHRA AND (II) SRI SANDEEP KUMAR PANDEY. THEIR STATEMENTS WERE RECEDED BY ME WHICH HAVE BEEN PLACED ON RECORD. FROM THESE STATEMENTS, IT IS CLEAR THAT IT IS AN ACC EPTED PRACTICE AMONGST THE LESSER KNOWN ENGINEERING COLLEGE LIKE THE INSTANCE CASE THAT SUITABLE SERVICE CHARGES/ COMPENSATION IS BEING PAID BY THE COLLEGE AUTHORITIES TO DIFFERENT PERSONS WHO ARE COMMISSIONED TO MOTIVATE THE POTENTIAL STUDENTS OR THEIR PA RENTS FOR ADMISSION IN THIS COLLEGE. FROM THE STATEMENT SO RECORDED, THERE IS NO DOUBT THAT THE IMPUGNED PAYMENTS HAVE BEEN MADE FOR ADVANCEMENT OF TRUST OBJECTIVES I.E. TO GET ADEQUATE NUMBER OF STUDENTS FOR ADMISSION TO THE COURSES OFFERED BY THE ENGINEE RING COLLEGE RUN BY THE ASSESSEE ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 15 OF 16 TRUST; THUS, THE FINDING GIVEN BY THE A.O. THAT SUCH PAYMENTS ARE NOT CHARITABLE IN NATURE, IS NOT CORRECT. ACCORDINGLY, IT HAS TO BE HELD THAT, IN PRINCIPLE, THESE EXPENSES ARE ALLOWABLE EXPENDITURE INCURRED FOR THE PURPOS ES OF EDUCATION/ TRUST ACTIVITIES. HOWEVER, SINCE THE ENTIRE PAYMENT HAS BEEN MADE IN CASH, I HEREBY ALLOW ONLY 50'% OF THE SAID EXPENDITURE FOR WANT OF PROPER VERIFICATION. THE A.O. IS DIRECTED TO SUITABLY MODIFY THE ORDER. 16 . ABOVE FINDINGS OF THE LD. CIT( A) CLEARLY DEMONSTRATE THAT HE FOUND EXPENDITURE TO BE AN ALLOWABLE EXPENDITURE BUT HE JUST SUSTAINED THE DISALLOWANCE TO THE EXTENT OF 50% BY HOLDING THAT THE SAME WAS SUSTAINED FOR WANT OF PROPER VERIFICATION. OTHER THAN THIS OBJECTION, THERE IS NO OBJE CTION BY THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A). SIMPLE AD - HOC DISALLOWANCE IS NOT SUSTAINABLE IN THE EYES OF LAW AND THEREFORE LD. CIT(A) SHOULD HAVE ALLOWED FULL RELIEF TO THE ASSESSEE AND, THEREFORE , WE DIRECT THE ASSESSING OFFICER TO ALLOW FU LL CLAIM OF EXPENDITURE AND IN VIEW OF THAT CROSS OBJECTIONS FI LED BY THE ASSESSEE ARE ALLOWED, AND REVENUES APPEALS ON THIS ACCOUNT IS ALSO DISMISSED., 17 . IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED AND CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 / 11 / 201 8 . SD/ - SD/ - [PARTHA SARATHI CHAUDHURY] [ T.S. KAPOOR ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH NOVEMBER , 201 8 JJ: 1911 ITA NO.265 & 266/LKW/2017 & C.O. NOS. 15 & 16/LKW/2018 PAGE 16 OF 16 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR BY ORDER ASSISTANT REGISTRAR 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTAN T REGISTRAR FOR SIGNATURE ON THE ORDER 9. DATE OF DISPATCH OF THE ORDER