The ACIT,Patan Circle, Patan V. Sarva Vidhalaya Kelvani Mandal,

ITA 3417/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9103 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-09-2009
• Assessment Year: 1999-2000
• Appeal Filed On: 15-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL; SSH B S GEHLOT
• Keywords: Depreciation; Capital expenditure
• Section: 143(3); 143(1); 147; 148; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI T.K. SHARMA, JUDICIAL MEMBER & SHRI N.S.SAINI, ACCOUNTANT MEMBER ITA NOS. 3417/AHD/2008 & 1535/AHD/2009 ASSESSMENT YEARS : 1999-2000 & 2006-07 ACIT, PATAN CIRCLE, VS SARVA VIDHALAYA KELVANI M ANDAL, PATAN KADI, DIST. MEHSANA PAN NO./GIR NO. AAATS7703C & C.O. NO. 313/AHD/2008 (IN ITA NOS. 3417/AHD/2008) ASSESSMENT YEAR :1999-2000 SARVA VIDHALAYA KELVANI MANDAL, VS ACIT PATAN CIR CLE, KADI, DIST. MEHSANA PATAN PAN NO./GIR NO. AAATS7703C (APPELLANT) (RESPONDENT) APPELLANT BY : S/SH B.S.GEHLOT & A.K. K HANDELWAL RESPONDENT BY : SH RAJESH C.SHAH ORDER PER T.K.SHARMA, J.M. THESE CROSS APPEALS FOR THE ASSESSMENT YEAR 1999-20 00 AND APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006-07 WERE HEA RD TOGETHER ON THE SAME DAY AND ARGUED BY THE COMMON REPRESENTATIVES, THEREFORE, THESE ARE BEING DECIDED BY THE COMMON ORDER FOR THE SAKE OF C ONVENIENCE. 2 2. THE ONLY GROUND RAISED BY THE REVENUE IN ITS APP EAL FOR THE ASSESSMENT YEAR 1999-2000 IS AS UNDER:- THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN ALLOWING AND TREATING EXEMPTION U/S 11 FOR THE RENTAL RECEIPT OF RS. 67,20,483/- WHICH WAS TRE ATED NOTIONAL INCOME TO THE ASSESSEE BY ASSESSING OFFICER. 3. THE ONLY GROUND RAISED BY THE REVENUE FOR THE AS SESSMENT YEAR 2006- 07 IS AS UNDER:- THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 3,06,85,61 4/- MADE BY THE ASSESSING OFFICER. 4. THE FACTS IN BRIEF ARE THAT FOR THE ASSESSMENT Y EAR 1999-2000, THE ASSESSEE FILED ORIGINAL RETURN OF INCOME ON 25.10. 99 SHOWING NET DEFICIT OF RS. 2,56,45,568/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(1) COMPUTED AFTER GIVING EFFECT TO THE NOTIONAL RENT INCOME OF RS. 6,48,0483/- AND NOTIONAL EXPENDITURE OF RS. 6,48,0483/-. THEREA FTER, THE ASSESSING OFFICER ISSUED A NOTICE U/S 148 OF THE ACT AND FRAM ED THE ASSESSMENT U/S 143(3) R.W.S. 148 ON 24.12.07 WHEREIN HE COMPUTED T HE TOTAL INCOME OF THE ASSESSEE AT RS. 67,20,483/-. TOTAL INCOME AS PER RETURN OF INCOME RS. NIL ADDITION AS DISCUSSED ABOVE RS. 67,20,483/- TOTAL INCOME RS. 67,20,483/- 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL AND BE FORE THE LEARNED CIT(A) WHEREIN IT WAS CONTENDED THAT REOPENING OF A SSESSMENT IS BAD IN LAW. ON MERIT, IT WAS CONTENDED THAT THE ASSESSEE TRUST OWNS VARIOUS BUILDINGS WHICH ARE USED FOR THE PURPOSES OF RUNNING SCHOOLS, COLLEGES AND HOSTELS ETC. WHICH ARE COVERED BY THE OBJECTS OF THE ASSESSEE TR UST. FOR SUCH USE, THE 3 RESPECTIVE SCHOOLS, COLLEGES AND TRAINING CENTERS U SED TO PAY NOTIONAL RENT OF RS. 64,80,483/-. IT WAS FURTHER STATED THAT ASSESS EE HAD RENTED OUT ONLY ONE BUILDING TO AN OUTSIDE TRUST AT AN YEARLY INCOME OF RS. 2,40,000/- WHICH REPRESENTED ONLY RENTAL INCOME. SOME OF THESE SCHO OLS AND COLLEGES ARE ENTITLED TO RECEIVE GRANT FROM THE GOVERNMENT WHILE OTHER ARE NOT. AS PER RULES, THE GOVERNMENT IS ALLOWING SOME PORTION OF R ENT (EVEN IF A NOTIONAL RENT PAID TO THE TRUST) BY WAY OF GRANT. THEREFORE, THIS PROCEDURE OF RECORDING IN THE BOOKS OF ACCOUNT WAS ADOPTED. FURTHER, IT WAS CONT ENDED THAT THIS NOTIONAL RENT OF RS. 6,48,0483/- BE EXCLUDED FROM THE HOUSE PROPERLY AS WELL AS TOTAL EXPENDITURE FOR THE PURPOSE OF OBJECTIVES OF THE TR UST WHICH IS QUITE IN ORDER. THIS POSITION WAS ACCEPTED BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2005-06 VIDE HIS ORDER U/S 143(3) DATED 24.12.2007. IT WAS FURTHER SUBMITTED THAT AS PER RETURN FILED IN RESPONSE TO NOTICE U/S 148, NET DEFICIT WAS RS.3,99,73,688/- OWING TO THE CLAIM OF THE PERMISSI BLE ACCUMULATION OF RS.1,70,85,632/- @ 25% OF THE INCOME OF THE TRUST IN THE RETURN. DESPITE THIS, THE ASSESSING OFFICER WHILE COMPUTING THE TOTAL INC OME HAS TAKEN THE TOTAL INCOME AS PER RETURN OF INCOME AS NIL AND ADDED THE ENTIRE ACTUAL RENTAL INCOME OF RS. 2,40,000/- AND NOTIONAL INCOME OF RS . 6,48,0483/- WHICH IS ARBITRARY UNJUSTIFIED, INCORRECT AND WITHOUT APPLIC ATION OF MIND. IT WAS SUBMITTED THAT IF THE ASSESSING OFFICER WANTED TO T AX THE NOTIONAL RENTAL INCOME WHILE NOT ALLOWING THE NOTIONAL RENTAL AS EX PENDITURE, THE SAME SHOULD HAVE BEEN DEDUCTED FROM THE NET DEFICIT AS PER THE RETURN FILED BY THE AS ON 17.4.2006, WHICH WOULD NOT HAVE RESULTED IN TAXABLE INCOME. 6. AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN PARA 3.4 IN THE IMPUGNED ORDER, THE LEARNED CIT(A) TOOK A VIEW THAT NET DEFICIT RESULT OF THE 4 ASSESSEES WORKING COMES TO DEFICIT OF RS. 6,83,42, 530/-. SINCE, BY WITHDRAWING THE ENTRY PERTAINING TO INTRA- GROUP RE NTAL TRANSACTIONS, THE INCOME OVER EXPENDITURE IS STILL GOING TO BE IN DEFICIT, C LEARLY NO INCOME CAN BE ATTRIBUTED TO THE ASSESSEE AS PER PROVISIONS OF SEC TIONS 11 & 12 OF THE ACT IN THE IMPUGNED ORDER IN PARA 3.4.1, THE LEARNED CIT( A) ALSO HELD THAT SECTION 11 IS NOT APPLICABLE WITH RESPECT TO AMOUNT RS. RS. 67,20,483/- AS THESE ARE INTRA-GROUP TRANSACTIONS AND NEITHER ANY MONEY HAS COME NOR ANY MONEY HAS GONE OUT FOR THE ASSESSING OFFICER TO APPLY SECTION 11. AGGRIEVED BY THIS, REVENUE IS IN APPEAL. 7. THE FACTS RELEVANT TO ASSESSMENT YEAR 2006-07 AR E THAT IN THAT YEAR ALSO ASSESSING OFFICER IGNORING THE NET DEFICIT OF RS.7,84,24,870/- AND SEPARATELY TAXED NOTIONAL RENT OF RS.3,06,85,614/-. ON APPEAL IN THE IMPUGNED ORDER DATED 29.7.2008, THE LEARNED CIT(A) FOLLOWING THE ORDER FOR ASSESSMENT YEAR 1999-2000, DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE AND DELETED THE ADDITION OF DELETION OF RS. 3,06,85,614/-. AGGRIEV ED BY THE VIEW TAKEN BY THE LEARNED CIT(A) IN THIS YEAR ALSO, THE REVENUE IS IN APPEAL BEFORE US. 8. AT THE TIME OF HEARING ON BEHALF OF THE REVENUE SHRI B.S.GEHLOT ALONGWITH SHRI A.K.KHANDELWAL APPEARING AND RELYING ON THE REASONING GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER CO NTENDED THAT ASSESSEES TRUST IS NOT PAYING ANY RENT WHEREAS IN ORDER TO GE T GRANT FROM GOVERNMENT, THE ASSESSEE IS SHOWING NOTIONAL RENT. THUS, IN FACT T HE ASSESSEE HAS ACTUALLY RECEIVED RS. 67,20,483/- AS GRANT-IN-AID WHICH IS R EFLECTED IN THE BOOKS OF ACCOUNT. THESE RECEIPTS ARE NOT NOTIONAL RECEIPTS. THE SAME IS TAXABLE AND ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 11 OF TH E INCOME TAX ACT ON THE 5 RECEIPT OF RS. 67,20,483/- BECAUSE NO RENT IS PAID BY THE ASSESSEE. SIMILARLY, IN THE ASSESSMENT YEAR 2006-07, THE AMOUNT OF GRANT IN AID IS RS.3,06,85,614/-. IN THE IMPUGNED ORDER LEARNED C IT(A) ERRED IN HOLDING THAT THE SAME IS NOT TAXABLE. 9. ON THE OTHER HAND, SHRI RAJESH C. SHAH COUNSEL OF THE ASSESSEE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. THE COUNSEL OF THE ASSESSEE SUBMITTED THAT AS PER RULES, THE ASSESSEE IS ENTITL ED TO GRANT IN AID FROM GOVERNMENT AS PER THE RULES. THE ASSESSEE BEING A C HARITABLE TRUST, IS ALSO PERMITTED TO ACCUMULATE TO THE EXTENT OF 25% IN BOT H THE ASSESSMENT YEARS, THE ASSESSING OFFICER COMPLETELY IGNORED THE NET DE FICIT AFTER TAKING INTO ACCOUNT THE NET DEFICIT, THERE IS NO POSITIVE INCOM E IN ANY OF THE ASSESSMENT YEAR. IN VIEW OF THIS, THE VIEW TAKEN BY THE LEARN ED CIT(A) IS UPHELD. 10. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW THE REASONING GIV EN BY THE LEARNED CIT(A) FOR DELETING THE ADDITION IN THE ASSESSMENT YEAR 19 99-2000 IS AS UNDER:- 3.3 READING THE ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER WHILE GIVING A FINDING THAT THE R ENT RECEIVED BY THE APPELLANT-TRUST FROM HIS CONSTITUEN T COLLEGES IS NOT ITS INCOME, WENT ON TO SHOW CAUSE T HE APPELLANT AS TO WHY EXEMPTION U/S 11 OF THE I.T. AC T BE NOT WITHDRAWN WITH RESPECT TO THE RECEIPT OF RS. 67,20, 483/-. CERTAIN ROUNDABOUT AND RATHER INCOHERENT ARGUMENTS LIKE THE APPELLANT TAKING GRANT FROM THE GOVERNMENT FOR THE RENT RECEIVED AND SHOWING IT IN THE EYES OF THE PUBLIC A S AN EXPENDITURE AND THE MISUSE OF STUDENTS TUITION RECE IPTS, ETC. WERE MADE OUT HIS CASE. THERE UPON HE HAS PROCEEDED TO ADDITION OF DELETION THE SUM OF RS. 67,20,483/- TO THE NIL INCOME DECLARED BY THE APP ELLANT. 3.4 THE MATTER HAS BEEN GIVEN DUE CONSIDERATION. I THINK IT IS PATENTLY CLEAR THAT THE ASSESSING OFFIC ER HAS NOT 6 GIVEN PROPER TREATMENT TO THE SUBJECT. THE ISSUE IN FACT WAS THAT FOR WHATEVER REASONS THE APPELLANT HAS SHOWING NOTIONAL RENTAL RECEIPTS FROM ITS CONSTITUENTS COLL EGES, SCHOOLS, HOSTELS, ETC. AS INCOME AND IS SUBSEQUENTL Y SHOWING THAT AS ITS APPLICATION ALSO. ALSO IN THE P ROCESS, IT HAD BEEN TAKEN ADVANTAGE OF THE STATUTORY DEDUCTION OF 25% U/S 24. ALSO, IT WILL HAVE BETTER MARGIN OF ACCUMULATION U/S 18(1)(A), IN CASE THE TOTAL RECEIP TS/INCOME IS INFLATED WHATEVER BE THE SITUATION IN THE ORIGIN AL RETURN. IN THE FACTS PRESENTED BEFORE ME, IT IS CLEAR THAT IN THE COMPUTATION FILED ALONGWITH RETURN FILED IN RESPONS E TO NOTICE U/S 148, THE APPELLANT HAS NOT CLAIMED ANY S TATUTORY DEDUCTION ON THE INTRA GROUP RENTAL ENTRIES AND SU CH A DEDUCTION HAS BEEN CLAIMED ONLY ON THE SUM OF RS.2,40,000/- WHICH IS RENTAL RECEIPT FROM AN OUTSI DE PARTY. THE ASSESSING OFFICER HAS INCIDENTALLY NOT BOTHERED TO COMMENT ON THE ISSUE TO THAT WHETHER THESE ARE ALLO WABLE OR NOT. THIS IS DEBATABLE. REGARDING THE APPLIC ATION OF INCOME, EXCLUDING THESE INTRA-GROUP RENTAL ENTRIES, THE TOTAL INCOME HAS BEEN PUT AT RS. 9,99,44,189/-. IF WE D O NOT ALLOW STATUTORY ALLOWANCES U/S 24, ANOTHER RS. 60,0 00/- SHALL BE ADDED AGAINST WHICH THE APPLICATION OF INC OME FOR THE OBJECTS OF THE TRUST, CAPITAL EXPENDITURE AND DEPRECIATION HAS BEEN WORKED OUT AT RS. 9,12,30,586 /-. FURTHER, THE APPELLANT HAS TAKEN THE DONATION RECEI VED TO THE CORPUS FUND AS PER PROVISIONS OF SECTION 11(1)( D) AMOUNTING TOR RS. 3,16,01,569/-. THE ASSESSING OF FICER HAS NOT COMMENTED ON THIS ASPECT, THOUGH IN THE ASSESSMENT ORDER PASSED FOR 2005-06, THE ADDL. CIT WHO FRAMED THE ASSESSMENT HAVE NOT TREATED AS COVERED U /S 11(1)(D). THEREFORE, ASSUMING THE MOST ADVERSE SIT UATION AGAINST THE APPELLANT, THE INCOME OF TRUST WOULD BE RS. 10,00,04,189/- OUT OF WHICH RS. 9,12,30,336/- HAS B EEN SHOWN AND ACCEPTED AS PROPER APPLICATION. THE BALAN CE INCOME OVER APPLICATION COMES TO RS. 87,73,603/- W HICH IS MUCH LESS THAN 25% ACCUMULATION. THE NET RESULT OF THE APPELLANTS WORKING COMES TO RS.87,73,603/- WHICH I S MUCH LESS THAN 25% ACCUMULATION. THE NET RESULT OF THE APPELLANTS WORKING COMES TO DEFICIT OF RS. 3,99,73 ,688/-, IN CASE THE PERMITTED ACCUMULATION IS TAKEN AS 25% OF RS. 6,83,42,530/-. CLEARLY, THERE IS NOT MUCH QUALITAT IVE CHANGE IN THE WORKING OF THE APPLICATION OF THE APP ELLANTS INCOME FOR THE OBJECTS OF THE TRUST EVEN IF SOME OF THE DEBATABLE POINTS, WHICH THE ASSESSING OFFICER HAS F AILED TO CONSIDER, ARE DECIDED AGAINST THE APPELLANT. THERE FORE, SINCE, BY WITHDRAWING THE ENTRIES PERTAINING TO INT RA-GROUP RENTAL TRANSACTION, THE INCOME OVER EXPENDITURE IS STILL GOING TO BE IN DEFICIT, CLEARLY NO IMAGE CAN BE ATT RIBUTED TO THE APPELLANT AS PER PROVISIONS OF SECTION 11 & 12. 7 11. IN THE ASSESSMENT YEAR 2006-07, THE LEARNED CIT (A) HAS MERELY FOLLOWED HIS ORDER FOR THE ASSESSMENT YEAR 1999-200 0 AND DELETED THE ADDITION OF RS. 3,06,85,614/-. IT IS PERTINENT TO NOTE THAT LEARNED CIT(A) IS LEGALLY AND FACTUALLY CORRECT IN TAKING INTO CONSID ERATION THE NET DEFICIT. THEREFORE, EVEN IF GRANT RECEIVED FROM GOVERNMENT I N RESPECT OF RENT BE TAKEN INTO CONSIDERATION, THERE WILL BE NET DEFICIT. THI S IS NOT DISPUTED BY LEARNED DR. IN VIEW OF THIS MATTER, WE ARE OF THE OPINION THAT LEARNED CIT(A) HAS GIVEN COGENT REASON FOR DELETING THE ADDITION IN BO TH THE ASSESSMENT YEARS, WE, THEREFORE, DECLINE TO INTERFERE. 12. THE ONLY GROUND RAISED BY THE ASSESSEE IN ITS A PPEAL FOR THE ASSESSMENT YEAR 2004-05 IS THAT ASSESSMENT FRAMED B Y ASSESSING OFFICER U/S 143(3) READ WITH SECTION 147 IS BAD IN LAW BECA USE NOTICE U/S 148 WAS ISSUED ON 31.3.2006 AND IT WAS SERVED PERSONALLY UP ON THE ASSESSEE ON 7.5.2006. THIS GROUND OF APPEAL WAS NOT PRESSED BY THE LEARNED COUNSEL OF THE ASSESSEE, IN CASE THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 1999-2000 IS DISMISSED. SINCE THE APPEAL OF THE RE VENUE IS DISMISSED (SUPRA), THIS GROUND OF APPEAL IS ALSO DISMISSED B EING NOT PRESSED. 13. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1999-2000 ARE DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.9.2009 SD/- SD/- (N.S.SAINI) (T.K.SHARMA) ACCOUNTNT MEMBER JUDICIAL MEMBER DATED: 11 TH SEPT 2009 RKK 8 COPY FORWARDED TO :- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A) CONCERNED. 4. THE CIT CONCERNED 5. DR CONCERNED 6. GUARD FILE BY ORDER TRUE COPY DY./ASSTT. REGISTRAR, ITAT, AHMEDABAD.