Vikas Educatrional Society, Visakhapatnam V. THE ITO, WARD - 3(2), Visakhapatnam

ITA 385/VIZ/2014

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7693 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 09-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K SONOWAL
• Assessee Lawyers: K J D SRINIVAS
• Keywords: Depreciation; Business expenditure; Fair market value; Corroborative evidences; Capital expenditure; TDS; Set aside
• Section: 40(a)(ia); 250; 201

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER ./ I .T.A.NO. 38 5 /VIZ/201 4 & I.T.A.NO. 38 6 /VIZ/201 4 ( / ASSESSMENT YEAR : 20 09 - 1 0 AND 201 0 - 1 1 ) M/S VIKAS EDUCATIONAL SOCIETY D.NO.8 - 1 - 97/1/8, NINITAAS HIGH PEDAWALTAIR VISAKHAPATNAM [PAN : AAATV 3260F] VS. THE INCOME TAX OFFICER WARD - 3(2) VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI KJD SRINIVAS, AR / RESPONDENT BY : SHRI D.K.SONOWAL, CIT DR / DATE OF HEARING : 05.09 . 201 9 / DATE OF PRONOUNCEMENT : 30 .10 . 201 9 / O R D E R P ER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : THE ASSESSEE HAS FILED APPEAL S AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)], VISAKHAPATNAM IN ITA NO S . 490/11 - 12/ITO, WD. - 3(2)/VSP/2013 - 14 AND 387/13 - 14/ITO, WD - 3(2)/VSP/2013 - 14 DATED 28.03.2014 FOR THE A.Y 2009 - 10 & 2010 - 11. SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THESE APPEALS ARE 2 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM CLUBBED, HEARD TOGETHER AND A COMMON ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AS UNDER. 2. THE FACTS OF THE CASE ARE EXTRACTED FROM THE A.Y 2009 - 10 WHICH ARE COMMON FOR BOTH THE YEARS EXCEPT THE DISALLOWANCE OF THE RENT U/S 40(IA) OF THE A CT . T HE ASSESSEE HAS FILED THE RETURN OF INCOME FOR THE A.Y.2009 - 10 DECLARING TOTAL INCOME OF RS.( - )6,547 / - ON 06.10.2009. THE CASE WAS SELECTED FOR SCRUTINY AND TH E ASSESSING OFFICER (AO) COMPLETED THE ASSESSMENT ON TOTAL INCOME OF RS.8,33,70,977/ - FOR THE A.Y.2009 - 10 . THE AO MADE THE FOLLOWING AD DITIONS TO THE RETURNED INCOME FOR THE A.Y S .2009 - 10 AND 2010 - 11 : NATURE OF ADDITION A. Y 2009 - 10 A.Y. 2010 - 11 DISALLOWANCE OF RENT PAYABLE TO M/S VEIL U/S 40(A)(IA) 6,00,00,000 - DISALLOWANCE OF RENT PA ID TO M/S VEIL U/S 40A(2) 2,00,00,000 2,01,00,000 DISALLOWANCE OF MESS EXPENSES, MISC.EXPENSES, CREDIT CARD EXPENSES, MUNICIPAL TAXES, DONATION, GUEST HOUSE EXPENSES, BOARD EXPENSES, LIBRARY ETC. 33,77,524 DISALLOWANCE OF MESS EXPENSES, MUNICIPAL TAXES, DONATION, BOARD EXPENSES, RECRUITMENT EXPENSES, CAPITAL NATURE EXPENSES AND TRANSPORTATION CHARGES 74,71,547 3 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. AGAINST THE ORDER OF THE CIT(A), THE ASSESSEE FILED APPEAL BEFORE U S AND RAISED AS MANY AS 9 GROUNDS FOR THE A.Y.2009 - 10 WHICH READS AS UNDER : 01. THE ORDER PASSED BY THE A 0 IS ARBITRARY AND UNJUSTIFIABLE 02. THE AO IS NOT JUSTIFIED IN MAKING ADDITION OF RS.600 LA CS U/S 40A(IA) CONSIDERING THE PAYMENT MADE BY THE ASSESSEE AS RENT, IN FACT THE PAYMENT MADE WAS TOWARDS INFRASTRUCT URE CHARGES, DO NOT COME UNDER SEC 40A(IA), ALSO CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION IGNORING THE FACTS OF THE CASE HENCE, LIABLE TO BE DELETED IN THE HANDS OF THE ASSESSEE. 03. THE AO IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC.40A(2), AND MAKING ADDITION OF RS . 200 LACS , , ALSO CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION IGNORING THE FACTS OF THE CASE HENCE, LIABLE TO BE DELETED IN THE HANDS OF THE ASSESSEE. 04. THE ASSESSEE IS HAVING HUGE NUMBER OF STUDENTS, FACULTY AND OTHER MAN POWER, ENGAGED IN THE ORGANIZATION, KEEPING IN VIEW OF THIS, EXPENDITURE INCURRED TOWARDS MESS, WAS NOMINAL, THE AO IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS.2,35,870, ALSO CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.1,17,935, HENCE LIABLE TO BE DELETED IN THE HANDS OF THE ASSESSEE. 05. THE ASSESSEE COULD EXPLAIN, THE NATURE, NEED, SIZE OF ACTIVITY, EXTENT OF MISCELLANEOUS EXPENDITURE, THE AO IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS . 3,85,197, ALSO CIT(A) IS NOT JUSTIFIED I N CONFIRMING THE ADDITION OF RS.1,92,599, HENCE, LIABLE TO BE DEL E TED IN THE HANDS OF THE ASSESSEE. 06. EXPENDITURE INCURRED THROUGH DIRECTORS CREDIT CARD WAS EXPLAINED IN DETAIL, NEED FOR THE SA ME, PURPOSE OF THE SAME, THE AO 4 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS . 6,55,440, ALSO CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.3,93,264, HENCE LIABLE TO BE DELETED IN THE HANDS OF THE ASSESSEE. 07. MUNICIPAL TAX PAID TO THE GVMC OF RS.3,27,848 FOR THIS THE ASSESSEE COULD SUBMIT A DETAILED RESOLUTION, EXPLAINING REASONS THEREOF, THE COPY OF WHICH WAS ATTESTED BY THE AR OF THE ASSESSEE, WITH THIS PLEA, THE AO IS NOT JUSTIFIED IN MAKING AN ADDITION OF R S.3,27,848, ALSO CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION, HENCE LIABLE TO BE DELETED IN THE HANDS OF THE ASSESSEE. 08. THE AO IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS.88,473, UNDER GUEST ENTERTAINMENT EXPENDITURE, ALSO CIT(A) IS NOT JUSTIFI ED IN CONFIRMING THE ADDITION OF RS.44,236, LIABLE TO BE DELETED IN THE HANDS OF THE ASSESSEE. 09. IT WAS EXPLAINED IN DETAIL THAT THE USAGE OF LIBRARY BOOKS, NATURE OF LIBRARY BOOKS, ALSO, SUBMITTED THAT THEY WERE NOT BOUND BOOKS / TEXT BOOKS, HENCE ELIGI BLE TO BE DEBITED TO PROFIT & LOSS A/C, THE AO IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS . 6,53,533, ALSO CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION, HENCE LIABLE TO BE DELETED IN THE HANDS OF THE ASSESSEE. 5. GROUND NO.1 IS GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 6. GROUND NO.2 FOR THE A.Y.2009 - 10 IS RELATED TO THE ADDITION OF RS.600 .00 LAKHS MADE U/S 40A(IA) OF THE ACT. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS RUNNING EDUCATIONAL INSTITUTIONS AT VISAKHAPATNAM, TIRUPATHI AND HYDERABAD. THE SOCIETY IS HAVING ITS OFFICE AT ASILMETTA, 5 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM VISAKHAPATNAM. THE EDUCATIONAL INSTITUTIONS RUN BY THE SOCIETY AT VARIOUS PLACES A RE AS UNDER : VISAKHAPATNAM NALANDA TALENT SCHOOL SEETHAMMADHARA AIRPORT CAMPUS COLLEGE SHEELANAGAR MAHILA KALASALA NAD KOTHA ROAD HYDERABAD OAKRIDGE INTERNATIONAL SCHOOL KHAJAGUDA, NANAKRAM GUDA ROAD TIRUPATHI JUNIOR COLLEGE, K.C.ROAD 6.1. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 200 9 - 10, THE ASSESSEE HAS DEBITED THE SUM OF RS.6,00,00,000/ - TO THE PROFIT AND LOSS ACCOUNT (P&L ACCOUNT) AND PAID TO M/S PEOPLE COMBINE AVENUES LTD . [ FORMERLY M/S VIKAS EDUCATIONAL INSTITUTIONS (P) LTD. (IN SHORT VEIL) ]. ON 31.03.2009 AND THE PROVISION FOR TDS WAS MADE ON THE PAYMENT OF RS.6,00,00,000/ - BUT NOT REMITTED TO THE GOVERN M EN T ACCOUNT BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME. THE SAID TDS WAS DEDUCTED ON RENT AL PAYMENT AND PAID TO GOVERNMENT ACCOUNT ON 05.10.2009 AMOUNTING TO RS.1,35,96,000/ - AFTER THE DUE DATE FOR FILING THE RETURN OF INCOME I.E. 30.09.2009. SINCE THE PAYMENT WAS COVERED BY THE PROVISIONS OF SECTION 194I OF INCOME T AX A CT AND THE ASSESSEE FAILED TO RE MIT THE SAME TO THE GOVERNMENT ACCOUNT, THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE, AS TO WHY THE EXPENDITURE CLAIMED SHOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE 6 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM ACT FOR NON DEDUCTION OF TAX AT SOURCE. IN RESPONSE TO THE NOTICE ISSUED BY THE AO, T HE ASSESSEE CANVASSED BEFORE THE AO THAT THE PAYMENT WAS MADE TO M/S VIKAS EDUCATIONAL INSTITUTIONS LTD. , (VEIL) TOWARDS THE USE OF INFRASTRUCTURE FACILITIES AND NOT FOR THE RENT, HENCE ARGUED THAT THE PAYMENT MADE TO VEIL WAS NOT LIABLE FOR DEDUCTION OF T AX AT SOURCE. VEIL WAS TO RECEI VE NET INCOME OF RS. 600 LAKHS AND INSTEAD OF MAKING THE ADVANCE TAX PAYMENT THE TAX WAS DEDUCTED AT SOURCE. THE ASSESSEE ARGUED THAT T HERE WAS NO PROVISION IN THE INCOME TAX ACT , FOR DEDUCTION OF TDS ON INFRASTRUCTURE CHARGES AND FURTHER SUBMITTED THAT THE TDS PROVISIONS ARE VERY SPECIFIC AND IF THE NATURE OF PAYMENT / EXPENDITURE DO ES NOT COVER THE SAID PROVISIONS, NO TDS LIABILITY WOULD ARISE. THE ASSESSEE FURTHER EXPLAINED TO THE AO , THE DEFINITION OF INFRASTRUCTURE AND THE INFRASTRUCTURE FACILITIES PROVIDED BY VEIL TO THE ASSESSEE IN A NOTE AND THE SAME WAS REPRODUCED BY THE AO IN PAGE NO. 3 OF THE ASSESSME NT ORDER WHICH READS AS UNDER : 1 . THE TERM INFRASTRUCTURE DENOTES ALL/EVERY FACILITY WHETHER IDENTIFIED WITH A PARTICULAR NAME OR NOT, AVAILABLE AT A PLACE AT THE DISPOSAL OF THE USER OF THE FACILITY THIS INCLUDES, A. H UGE EXTENT OF BUILDING/FLOOR AREA AVAILABLE/OFFERED AT THE SATISFACTION OF THE AUTHORITIES ACCORDING PE RMISSION FOR PARTICULAR COURSE OF STUDY. B. PLAY GROUNDS INCLUDING SWIMMING POOLS FOR CONDUCTING SPORTS, GAMES AND OTHER EVENTS. 7 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM C . IN HOUSE MESS/CANTEEN FACILITIES BATH FOR THE STUDENTS AND THE STAFF AT ALL THE TIMES. D. BOOKS, PERIODICALS AND LIBRARY FOR USE OF BOTH STUDENTS, STAFF E . CONFIDENCE THAT WILL BE CREATED IN THE MINDS OF B O TH PARENTS, STUDENTS ) AUTHORITIES CONCERNED FROM WHOM THE INSTITUTION IS TO GET NECESSARY APPROVALS, PERMISSIONS, THAT THE GROUP IS HAVING HUGE BUILDINGS, CAMPUSES, TO CATER TO THE NEEDS OF THE STUDENTS. F. THAT THE ENTIRE FACILITIES ARE AT THE DISPOSAL OF THE STUDENTS OF THE VIKAS ED U CATIONAL SOCIETY ONLY. G . CONSTRUCTION OF BUILDINGS/CREATION OF FLOOR SPACE INCLUDING ARRANGEMENT OF FURNITURE, FIXTURES, PROVIDING COMPUTERS INCLUDING HARDWARE, SOFTWARE, STRIC TLY TO SUIT THE REQUIREMENTS OF STUDENTS OF THE VIKAS EDUCATIONAL SOCIETY. H . CONFIDENCE/ASSURANCE TO MEET THE FUTURE NEEDS OF THE SOCIETY TOWARDS ITS REQUIREMENTS, IN FACILITIES WITH RESPECT TO INCREASE IN THE STRENGTH OF THE STUDENTS VIS - A - VIS ADDITIONAL CO URSES TO BE OFFERED. I . FLEXIBILITY IN PAYMENT OF USER CHARGES, AT THE END OF THE FINANCIAL YEAR ALSO EXTENDING FINANCIAL SUPPORT BY INCURRING EXPENDITURE ON BEHALF OF THE V ES/INVESTMENT ON BEHALF OF THE VES 7. T HE AO EXAMINED THE EXPLANATION OF THE ASSESSEE AND FACTS OF THE CASE AND OBSERVED THAT THE ASSESSEE HAS MADE THE PAYMENT TOWARDS THE LAND, BUILDING AND OTHER ITEMS SPECIFIED IN THE DEFINITION OF 194I OF THE A CT AND VIEWED THAT IT IS SQ U ARELY COVERED BY THE DEFINITION OF RENT . THE AO F OUND FROM THE BALANCE SHEET AND DEPRECIATION STATEMENT THAT THE BLOCK OF ASSETS HELD BY VEIL AS ON 31.03.2009 WE RE AS UNDER : NATURE OF ASSET WDV AS ON 31.03.2009 (RS.) BUILDINGS 19,32,83,932 COMPUTERS & EQUIPMENT 17,23,301, 8 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM DUPLICATING MACHINE 12,97,943 EPABX 2,06,760 FAX MACHINE 13,587 GENERATORS 22,90,207 REFRIGERATORS 7,906 TELEVISIONS 23,455 WATER COOLERS 99,537 AIR CONDITIONERS 1,70,78,172 AUDIO EQUIPMENT 6,14,411 ELECTRICAL FITTINGS 71,53,476 FURNITURE 3,83,96,432 OTHER EQUIPMENT 29,08,345 7.1 FROM THE ABOVE DEPRECIATION STATEMENT , THE AO FOUND THAT THE ASSESSEE WAS GIVEN BUILDING, FURNITURE, AIR CON DITIONERS AND OTHER EQUIPMENT MENTIONED IN THE BLOCK OF ASSETS OF VEIL ON LEASE AND THE ASSESSEE IS USING THE SAID BUILDINGS AND OTHER ASSET S AND MAKING THE PAYMENT OF RENT, THUS, VIEWED THAT THE CHARGES PAID BY THE ASSESSEE FOR USE OF THE ABOVE ASSETS ARE NOTHING BUT THE RENT PAYMENT AND THE PROVISIONS OF SECTION 194I ARE CLEARL Y APPLICABLE. T HE AO FUR THER OBSERVED THAT , IN THE IMMEDI ATELY PRECEDING ASSES SMENT YEAR ALSO THE ASSESSEE PAID THE RENT OF RS.350 LAKHS AND DEDUCTED THE TDS AND REMITTED TO THE GOVERNMENT ACCOUNT ON 28.09.2008 BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME. IN THE IMPUGNED ASSESSM ENT YEAR , THOUGH THE ASSESSEE H AS DEDUCTED THE TDS, THE SAME WAS REMITTED TO G OVERNMENT ACCOUNT ON 05.10.2009 BEYOND 9 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM THE TIME LIMIT PROVIDED IN THE A CT, THUS , NOT COMPLIED WITH THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, HENCE, INVOKED THE PRO VISIONS OF SECTION 40(A)(IA) AND ACCORDINGLY MADE THE ADDITION OF RS.6,00,00,000/ - IN THE HANDS OF THE ASSESSEE U/S 40(A)(IA) OF THE ACT. 8. AGAINST THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND REITERATED THE SAME SUBMISSIONS WHICH WAS MADE BEFORE THE AO. BEFORE THE LD.CIT(A) ALSO, THE ASSESSEE CANVASSED THE ARGUMENT OF USING INFRASTRUCTURE FACILITIES , DISCUSSED IN THE ASSESSMENT ORDER AND ARGUED THAT THERE IS NO CASE FOR APPLICATION OF PROVISIONS OF TDS AND THE DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) OF THE ACT ARE UNCALLED FOR . THE ASSESSEE ARGUED THAT THE FACILITIES PROVIDED TO THE ASSESSEE CANNOT BE EQUATED WITH THE LEASE OF PREMISES OR STRUCTURE S AND CANNOT BE CHARACTERISED AS RENT. NOT BEING CONVINCED WITH THE EXPLAN ATION OF THE ASSESSEE, THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE AND CONFIRMED THE ADDITION MADE BY THE AO. 9. AGAINST THE ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US . DURING THE APPEAL HEARING, THE LD.AR ADVANCED THE SAME SUBMISSIONS WHICH W ERE MADE BEFORE THE AO AS WELL AS THE LD.CIT(A). THE LD.AR ARGUED 10 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM THAT THE COMPANY IS PROVIDING INFRASTRUCTURE FACILITIES (REPRODUCED IN THE ASSESSMENT ORDER ) SUCH AS HUGE EXTENT OF BUILDING, FLOOR AREA, PLAY GROUND, SWIMMING P OOLS FOR CONDUCTING SPORTS, GAMES AND OTHER EVENTS, IN HOUSE MESS / CANTEEN FACILITIES BOTH F OR THE STUDENTS AND THE STAFF ALL THE TIME, BOOKS, PERIODICALS AND LIBRARY FOR USE OF BOTH THE STUDENTS AND THE STAFF. THESE FACILITIES ARE OFFERED BY THE VEIL TO THE ASSESSEE AND THE SAME CANNOT BE EQUATED WITH THE LETTI NG OUT OF THE CONCRETE BUILDING AND STRUCTURES HENCE , ARGUED THAT THERE IS NO CASE FOR DEDUCTION OF TAX AT SOURCE AND THE SAME CANNOT BE TREATED AS RENT PAYMENT. HENCE, ARGUED THAT THERE IS NO CASE FOR APPLICATION OF 194I IN THE CASE OF THE ASSESSEE AND THE DISALLOWANCE U/S 40 (A)( IA ) IS NOT AP PLICABLE IN THE ASSESSEES CASE ACCORDINGLY REQUESTED TO SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE. 10. ON THE O THER HAND, THE LD.DR RELIED ON THE ORDERS OF THE LD. CIT(A) AND SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE LD.CIT(A) HAS DISCUSSED IN DETAIL IN HIS ORDER AS TO WHY THE PAYMENT REQUIRED TO BE TREATED AS RENT U/S 194I OF THE ACT. 11 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM THOUGH THE ASSESSEE STATED THAT THE ASSESSEE IS MAKING PAYMENT TOWARDS INFRASTRUCTURE FACILITIES, THE LD.CIT(A) HAS CONSIDERED THE PREMISES AND THE FACILITIES MADE AVAILABLE TO THE ASSESSEE AND HELD THAT SECTION 194I IS APPLICABLE IN THE INSTANT CASE. ACCORDINGLY, CONFIRMED THE DISALLOWANCE MADE BY THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT RELEVANT PART OF THE ORDER OF THE LD.CIT(A) FROM PARA 6.5 TO 6.7 WHICH READS AS UNDER : 6.5. I HAVE CONSIDERED THE SUBMISSIONS ARID DETAILS FILED. AT THE OUTSET, IT IS AN ADMITTED POSITION THAT THERE IS NO AGREEMENT BETWEEN THE ASSESSEE AND THE COMPANY VEIL REGARDING PROVISION OF CERTAIN FACILITIES/SERVICES. THERE IS NO WRITTEN AGREEMENT BETWEEN THE PA RTI ES TO UNDERSTAND WHAT ARE THE SERVICES REQUIRED T O BE PROVIDED BY VEIL FOR WHICH PAYMENT IS MADE BY THE ASSESSEE AND THE BASIS OF ARRIVING AT THE QUANTUM OF SUCH PAYMENT. THE INTER SE RIGHTS AND OBLIGATIONS BETWEEN THE PARTIES AND BASIS OF CONSIDERATION IS NOT KNOWN. IN THE ABSENCE OF SPECIFIC AGREEMENT AND DOCUMENTATION THE CLAIMS MADE REGARDING RENDERING OF / PROVISION OF INFRASTRUCTURE FACILITIES IS NOT VERIFIABLE. 6.6 . FROM A PERUSAL OF THE SUBMISSIONS MADE, IT CAN BE SEEN THAT INFRASTRUCTURE FACILITIES SAID TO BE PROVIDED RELATED TO PROVISION OF FLOOR SPACE, PLAYGROUNDS FACILITIES, CANTEEN FACILITIES, BOOKS AND PERIODICALS, TRANSPORT FACILITIES, FLEXIBILITY IN PAYMENT FACILITIES, BUILDINGS AND FLOOR SPACE TO SUIT THE REQUIREMENT OF ASSESSEE, E TC. FURTHER IT WAS ALSO CLAIMED THAT THE SOCIETY WAS PROVIDED WITH TECHNICAL KNOWHOW IN THE FORM OF AFFILIATION WITH VARIOUS UNIVERSITIES, RECRUITMENT OF EXCELLENT FACULTY, ADDITION TO NEW COURSES, CONTINUOUS GUIDANCE OF TOP EDUCATIONALISTS, CHILDREN PSYCH OLOGISTS, ETC. IN RELATION TO THE DISALLOWANCE MADE UNDER SECTION 40A(2), THE ASSESSEE HAD CLAIMED THE BASIS FOR THE PAYMENT I N THE FOLLOWING MANNER: TOTAL COSTS ESTIMATED (PER ANNUM) A.Y.2009 - 10 RS. IN LAKHS GACHIBOULI CAMPUS 472.50 AIRPORT CAMPUS, VIZAG 144.00 SPORTS FACILITIES 52.80 BUSES 360.00 TECHNICAL KNOW - HOW 200.00 TOTAL 1229.30 12 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM 6.7 . THUS, IT COULD BE SEEN THAT THE CLAIM FOR INFRASTRUCTURE CHARGES IS SAID TO BE PAID FOR SPACE (BUILDING WITH FACILITIES) AND CERTAIN TECHNICAL OR MANAGERIAL SERVICES AS ALREADY DISCUSSED, IT IS NOT VERIFIABLE WHAT ARE TECHNICAL SERVICES PROVIDED BY VEIL THE ASSESSEE HAS ALSO NOT DEMONSTRATED PROVISION OF SUCH TECHNICAL KNOW H OW WITH REFERENCE TO SPECIFIC DETAILS OR EVIDENCE NO INFORMATION WAS FURNISH ED AS TO WHAT WERE THE COLLABORATIONS TIED UP DURING THE RELEVANT YEAR, OR WHAT WERE THE NEW COURSES INTRODUCED, WHAT ARE THE FACULTY RECRUITMENT MADE DURING THE YEAR FOR WHICH THE IMPUGNED PAYMENT WAS TO BE MADE. THE FACTS APPARENT FROM THE VARIOUS DETAIL S FILED IS ,THAT - THE VEIL HAS PROVIDED BUILDING FLOOR SPACE ALONG WITH REQUISITE FURNITURE AND FITTING TO RUN EDUCATIONAL INSTITUTION TO THE ASSESSEE SOCIETY. THE SERVICE COMPONENT EMBEDDED IN SUCH PAYMENT HAS NOT BEEN DEMONSTRATED. IT IS EVIDENT THAT THE ASSESSEE HAS USED THE LAND, BUILDING AND FACILITIES OWNED BY THE COMPANY VEIL FOR WHICH PAYMENT HAS BEEN MADE, AND THEREFORE, APPARENTLY THE IMPUGNED PAYMENTS WOULD FALL WITHIN THE PURVIEW OF RENT UNDER SECTION 1941. IT WAS, HOWEVER, CONTENDED THAT A LESS OR WOULD NOT PROVIDE THESE MANY FACILITIES AND THEREFORE THE TRANSACTION CANNOT BE CHARACTERIZED AS ONE OF RENT. I AM UNABLE TO ACCEPT THIS ARGUMENT. THE DEFINITION OF 'RENT' UNDER SECTION 194 I IS QUITE WIDE TO INCLUDE PAYMENT BY WHATEVER NAME CALLED, UNDE R ANY LEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR USE OF LAND OR BUILDING OR MACHINERY / PLANT/EQUIPMENT/FURNITURE WHETHER OR NOT ANY OR ALL OF THE ABOVE ARE OWNED BY THE PAYEE. THEREFORE THE PREREQUISITE CONDITION TO INVOKE SECTION 194 I IS THAT THERE SHOULD BE USE OF THE SPACE (LAND OR BUILDING) WITH OR WITHOUT FACILITIES. IN THIS INSTANT CASE SUCH PREREQUISITE CONDITION IS FOUND TO BE FULFILLED. ANY ADDITIONAL SERVICES PROVIDED TO THE ASSESSEE WOULD NOT TAKE AWAY THE TRANSACTION FROM TH E PURVIEW OF SECTION 1941 AND WOULD NOT TOTALLY ALTER THE NATURE OF THE IMPUGNED TRANSACTION. FURTHER EVEN IF IT IS ASSUMED THAT THE ASSESSEE HAS PROVIDED OTHER TECHNICAL SERVICES IN RELATION TO INFRASTRUCTURE FACILITIES, IT COULD BE AT BEST BE TERMED AS ' FACILITATION MANAGEMENT SERVICES' AND WOULD FALL WITHIN THE PURVIEW OF 'TECHNICAL CONSULTANCY' OR 'FEE FOR TECHNI CAL SERVICES' UNDER SECTION 194J OF THE INCOME - TAX ACT, AND IN SUCH EVENT ALSO TAX WOULD BE REQUIRED TO BE DEDUCTED. THUS EVEN IN CASE OF PROVI SION OF SPACE ALONG WITH SERVICES IN A COMPOSITE MANNER, THERE WOULD BE LIABILITY TO DEDUCT TAX EITHER UNDER SECTION 194 I OR 194 J OF THE INCOME TAX A CT OR BOTH DEPENDING ON THE AMOUNT PAID FOR THEM. AS, SUCH A BREAK UP WAS N OT GIVEN, AND THE COMPOSITE NAT URE OF THE TRANSACTION WAS NOT DEMON STRATED AND AS IT IS QUIET EVIDENT THAT THE IMPUGNED TRANSACTION IS ONE WITHIN THE PURVIEW OF SECTION 194 I , I FIND THAT THE ASSESSING OFFICER IS JUSTIFIED IN HOLD ING THAT THERE I S VIOLATION OF SECTION 194 I AND HAS RIGHTL Y INVOKED THE PROVISIONS O F SECTION 40(A)(IA) OF THE INCOME - TAX ACT . ACCORDINGLY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED . T HIS GROUND OF APPEAL IS DISMISSED . 11 .1 . IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE VEIL HAS GIVEN ITS LAND AND BUILDINGS ALONG WITH INFRASTRUCTURE AVAILABLE TO THE ASSESSEE FOR ITS 13 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM USE AND RECEIVING THE RENT FROM THE ASSESSEE. THERE WAS NO WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE V E I L. VE I L IS COMPANY AND CLOSELY ASSOCIATED WITH THE AS SESSEE. SINCE THE ASSESSEE IS USING THE LAND AND BUILDING AS WELL AS THE OTHER FURNITURE AND FIXTURES AVAILABLE TO THE COMPA NY, THE LD.AR CONTENDED THAT IT IS USING INFRASTRUCTURE FACILITIES. HOWEVER, FACT REMAINS THAT THE COMPANY, VEIL HAS GIVEN IT S PREM ISES ALONG WITH THE FURNITURE AND MACHINERY , FITTINGS ETC AS AVAILABLE IN THE BALANCE SHEET TO THE ASSESSEE FOR IT S USE AND RECEIVING RENT MONTHLY/OR YEARLY FROM THE ASSESSEE. IN THE BOOKS OF A CCOUNTS OF PAYEE , THE RECEIPT WAS ACCOUNTED FOR UNDER THE HEAD RENT ACCOUNT. APART FROM THE RENT, THE COMPANY IS ALSO RECEIVING VARIOUS OTHER REVENUES FROM THE EDUCATIONAL INSTITUTIONS LOCATED AT VISAKHAPATNAM, HYDERABAD, TIRUPATHI ETC. IT IS UNDISPUTED FACT THAT THE VE I L IS THE OWNER OF THE LAND A ND BUILDING AND THE OTHER ITEMS OF ASSETS MENTIONED IN THE BALANCE SHEET AND GIVEN IT ON LEASE TO THE ASSESSEE . IN THE INSTANT CASE, AS OBSERVED FROM THE ORDER OF THE AO AND THE LD.CIT(A), BLOCK OF ASSETS SHOWN BY THE VEIL CONSISTS OF BUILDINGS, COMPUTERS, AIR CONDITIONERS, ELECTRICAL FITTINGS AND OTHER FURNITURE AND FITTINGS ETC. , WHICH SQUARELY FIT INTO THE DEFINITION OF RENT AS DEFINED IN THE 14 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM INCOME TAX ACT U/S 194I OF THE ACT. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT SECTION 194 I WHICH READS AS UNDER : RENT. 93 194 - I. ANY PERSON, NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHO IS RESPONSIBLE FOR PAYING TO 94 [A RESIDENT] ANY INCOME BY WAY OF RENT 95 , SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, 96 [DED UCT INCOME - TAX THEREON AT THE RATE OF 97 [ (A) TWO PER CENT FOR THE USE OF ANY MACHINERY OR PLANT OR EQUIPMENT; AND (B) TEN PER CENT FOR THE USE OF ANY LAND OR BUILDING (INCLUDING FACTORY BUILDING) OR LAND APPURTENANT TO A BUILDING (INCLUDING FACTORY BUILDING) OR FURNITURE OR FITTINGS: ] ] PROVIDED THAT NO DEDUCTION SHALL BE MADE UNDER THIS SECTION WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, THE AGGREGATE OF THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE AFORESAID PERSON TO THE ACCOUNT OF, OR TO, THE PAYEE, DOES NOT EXCEED ONE HUNDRED AND TWENTY THOUSAND RUPEES : 98 [ PROVIDED FURTHER THAT AN INDIVIDU AL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH INCOME BY WA Y OF RENT IS CREDITED OR PAID, SHALL BE LIABLE TO DEDUCT INCOME - TAX UNDER THIS SECTION.] EXPLANATION. FOR THE PURPOSES OF THIS SECTION, 99 [(I) RENT MEANS ANY PAYMENT, BY WHATEVER NAME CALLED, UNDER ANY LEASE, SUB - LEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE USE OF (EITHER SEPARATELY OR TOGETHER) ANY, (A) LAND; OR (B) BUILDING (INCLUDING FACTORY BUILDING); OR (C) LAND APPURTENANT TO A BUILDING (INCLUDING FACTORY BUILDING); OR (D) MACHINERY; OR (E) PLANT; OR (F) EQUIPMENT; OR (G) FURNITURE; OR (H) FITTINGS, WHETHER OR NOT ANY OR ALL OF THE ABOVE ARE OWNED BY THE PAYEE;] 15 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM (II) WHERE ANY INCOME IS CREDITED TO ANY ACC OUNT, WHETHER CALLED SUSPENSE ACCOUNT OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL A PPLY ACCORDINGLY.] 1 1 .2 . IN THE INSTANT CASE, THERE WAS NO AGREEMENT BETWEEN THE ASSESSEE AND THE COMPANY. THE FACT REMAINS THAT THE ASSESSEE IS USING THE BUILDINGS AND OTHER FURNI TURE AND FITTINGS AVAILABLE TO THE COMPANY AND THE COMPANY IS EARNING THE INCOME WHICH WAS ADMITTED IN THE FINANCIAL STATEMENTS AS RENTS . AS PER THE DEPRECIATION STATEMENT, THE WRITTEN DOWN VALUE OF THE BUILDINGS AS ON 31.03.2009 WAS RS.32 .00 CRORES AND OTHER ASSETS MENTIONED IN THE DEPRECIATION STATEMENT WAS AROUND RS. 8 .00 CRORES APPROXIMATELY. THUS, THE MAJOR PART OF THE PAYMENT WAS RELATED TO THE USE OF THE LAND AND BUILDING. SINCE THE ASSESSEE IS MAKING THE PAYMENT OF COMPOSITE RENT FOR THE PURPOSE OF USE OF THE LAND AND BUILDINGS AND OTHE R EQUIPMENT, THE PAYMENT MADE TO THE COMPANY IS SQUARELY COVERED BY THE DEFINITION OF 194I FOR THE PURPOSE OF RENT. IT IS OBSERVED FROM THE ASSESSMENT ORDER THAT IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSEE HAS MADE THE PAYMENT OF RS. 350 LAKHS TO THE COMPANY AND DEDUCTED THE TDS AND REMITTED TO GOVERNMENT ACCOUNT BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME . IN THE SUBSEQUENT ASSESSMENT Y E AR ALSO, THE ASSESSEE HAS DEDUCTED THE TDS AND MADE THE PAYMENT. FOR A QUERY FROM THE BENCH, 16 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM THE LD.AR SUB MITT ED THAT IN THE SUBSEQUENT YEARS , THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH THE COMPANY AND MAKING THE PAYMENT AS RENT AND DEDUCTING THE TDS. IN THE FINANCIAL STATEMENT OF THE VEIL, THE PAYMENT WAS CATEGORISED AS RENT AND THE ASSESSEE ALSO HAS D EDUCTED THE TDS DURING THE FINANCIAL YEAR, RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . IT IS OBSERVED FROM THE RECORDS THAT THE PAYEE ALSO NEVER OBJECTED FOR DEDUCTION OF TDS U/S 194I AND IN FACT CREDITED THE INCOME UNDER THE HEAD RENTS IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE ALSO FAILED TO DEMONSTRATE THAT THE PAYMENT WAS NOT IN THE NATURE OF RENT. ALL THE ABOVE FACTS CLEARLY ESTABLISH THAT THE PAYMENT MADE TO THE VEIL IS NOTHING BUT THE RENT AND ATTRACTS THE PROVISIONS OF TD S UNDER SECTI ON 194I OF THE ACT. HAVING DEDUCTED THE TDS, BUT NOT REMITTED TO THE GOVERNMENT ACCOUNT BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME, THE PROVISIONS OF SECTION 40(A)(IA) ATTRACTS. T HERE IS NO DISPUTE THAT THE ASSESSEE HAS DEDUCTED THE TAX AND THE PA YEE DID NOT DISPUTE THE DEDUCTION OF TAX . THUS, THE PAYMENT MADE TO THE VEIL IS NOTHING BUT THE RENT AND HAVING FAILED TO REMIT THE TDS TO GOVERNMENT ACCOUNT, THE PR OVISIONS OF SECTION 40(A)(IA) ARE SQUARELY APPLICABLE AND WE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) ACCORDINGLY, WE UP HOLD THE 17 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM ORDER OF THE LD.CIT(A) . THE APPEAL OF THE ASSESSEE ON THIS GROUND IS DISMISSED. 11.3. THIS EXPENDITURE OF RENT, DEBITED TO P&L ACCOUNT WHICH IS DISALLOWED U/S 40(A)(IA) IS ALLOWABLE IN THE YEAR IN WHICH THE TDS IS REMITTED TO GOVERNMENT ACCOUNT. IN THE INSTANT CASE THE ASSES SEE HAD REMITTED THE TDS ON 05.10. 2009. THEREFORE THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION IN THE F.Y.2009 - 10 RELEVANT A.Y.2010 - 11. ACCORDINGLY WE, DIRECT THE AO TO ALLOW TH E EXPENDITURE ON PAYMENT BASIS AFTER DUE VERIFICATION OF THE FACTS. 12 . GROUND NO.3 FOR THE A.Y.2009 - 10 IS RELATED TO THE DISALLOWANCE OF RS.2 .00 CRORES U/S 40A(2) OF THE ACT , WHICH WAS CONFIRMED BY THE LD.CIT(A). THIS ISSUE IS INVOLVED FOR THE A.Y.2010 - 11 ALSO. THE ASSESSEE IS A SOCIETY CARRYING ON THE ACTIVITY OF RUNNING THE EDUCATIONAL INSTITUTION S . DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE VIKA S EDUCATIONAL SOCIETY AND VEIL ARE CLOSELY RELATED CO NCERNS AND THE RELATION OF THE SOCIETY AND THE VIEL IS EXPLAINED BY THE AO IN PAGE NO. 5 OF THE ASSESSMENT ORDER AS UNDER : 18 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM ( A) VEIL (VIKAS EDUCATIONAL INSTITUTIONS LTD.) IS PART OF THE VES (VIKAS EDUCATIONAL SOCIETY) CAME INTO EXISTENCE, TO CREATE, OWN, OPERATE AND MANAGE THE NECESSARY INFRASTRUCTURE FOR THE PURPOSE OF VES. (B) BOTH VEIL AND VES ARE HOUSED IN THE SAME ACCOMMODATION IN ALL THESE CENTRES. (C) TO FACILITATE FLEXIBILITY IN BORROWING/RAISING OF THE FUNDS THROUGH TERM LOAN AND WORKING CAPITAL L O AN FROM NATIONALIZED BANKS AND FINANCIAL INSTITUTIONS FOR THE PURPOSE OF CREATING INFRASTRUCTURE, VES IS ACHIEVING A LL THESE OBJECTS THROUGH ITS BRANCH/DIVISION BY NAME VEIL (D) THE MANAGING COMMITTEE OF VES CONTROLS AFFAIRS OF THE VEIL HAVING PRESENCE I N THE BOARD O F D I RECTO R S OF VEIL. (E) FOR MOBILIZING/ RAISING FUNDS THROUGH TERM LOAN / WORKING CAPITAL ARRANGEMENTS FROM BANKS, B O TH VES & VEIL ARE PARTIES TO THE BANKS, EXECUTING COMMON DOCUMENTS, UNDERTAKING THE DEBT A N D REPAYMENT OF THE DEBT JOINTLY, BASED ON THE STRENGTH OF RECOGNITIONS IN THE HANDS OF VES, THE LOANS ARE EXTENDED TO VEIL, ENTIRE RECEIPTS ARE TAKEN INTO CONSIDERATION, BEFORE ARR I VI NG CREDIT DECISIONS BY THE BANKS. (F) BOTH STATE & CENTRAL GOVERNMENT AUTHORITIES, PUBLIC AT LARGE WHO ARE CONCERNED, IT IS VES CARRYING EDUCATIONAL ACTIVITY, IT IS THE RESPONSIBILITY OF VES TO PROVIDE NECESSARY FACILITIES AS COMMITTED TO STUDENTS, TO IMPART EDUCATION / DIFFUSION OF KNOWLEDGE. (G) FROM THE PUB L IC/STUDENTS POINT OF VIEW IT IS THE RECOGNIZED INSTITUTE AND HENCE, ACCORDING TO THEM THEY ARE GETTING ADMITTED IN VES, THEIR DESIRE/AIM/INTENTION OF PURSUING THE RECOGNISED COURSE WITH ALL FACILITIES THOSE ARE PART OF THE SAID CURRICULUM, THE SAME HAS BEEN FULFILLED BY VES WITHOUT INTERRUPTION, THEY ARE NOT CONCERNED IN WHOSE NAME THE INFRASTRUCTURE FACILITIES ARE PROVIDED AND THEREFORE, THE PRESENCE OF VEIL IS INSIGNIFICANT FROM THE POINT OF VIEW OF PUBLIC/STUDENTS 1 2 .1 . THE AO FOUND DURING THE IMPUGNED ASSESSMENT YEAR THAT THE ASSESSEE HAS MADE THE PAYMENT OF RS.6 .00 CRORES TO VEIL AGAINST THE PAYMENT OF RS.3.5 CRORES IN THE IMMEDIATELY PR ECEDING ASSESSMENT YEAR TOWARDS THE RENT FOR VISAKHAPATNAM PREMISES . THE AO WAS OF THE OPINION 19 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM THAT THERE I S NO JUSTIFICATION FOR PAYMENT OF RENT OF RS.6 .00 CRORES BY INCREASING RS. 250 LAKHS WHICH WORKS OUT TO 70% INCREASE WITHIN ONE YEAR, HENCE, THE AO CALLED FOR THE EXPLANATION FROM THE ASSESSEE AN D THE ASSESSEE JUSTIFIED THE PAYMENT STATIN G THAT DURING THE YEAR THERE WAS INCREASE IN THE FLOOR SPACE AT (I) OAKRIDGE INTERNATIONAL SCHOOL, HYDERABAD, BATCHUPALLI, (II) NSTL CAMPUS AT VISAKHAPATNAM (III) OAKRIDGE INTERNATIONAL SCHOOL AT VISAKHAPATNAM AND (IV) LAWSONS BAY COLONY ETC. THE LD.AR FURTHER SUBMITTED THAT THERE WAS INCREASE IN THE STUDENTS AND THE PAYMENT OF RENT WAS PAID AS PER THE FAIR MARKET VALUE AND THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE, HENCE SUPPORTED THE INCREASE IN RENT. THE AO CONSIDERED THE EXPLANATION O F THE ASSESSEE AND VERIFIED THE ADDITIONS MADE TO ASSETS TO THE VEIL AND FOUND THAT THERE WAS NOT MUCH INCREASE IN THE SPACE PROVIDED TO THE ASSESSEE. THE DETAILS OF THE INFORMATION EXTRACTED FROM THE BALANCE SHEET FOR F.Y. 2008 - 09 AND 2009 - 10 IN PAGE NO.9 IS AS UNDER : AS PER THE DEPRECIATION STATEMENT OF M/S VIKAS EDUCATIONAL INSTITUTIONS (P) LTD., THE ADDITIONS TO ASSETS DURING THE F.Y.2008 - 09 RELEVANT TO ASSESSMENT YEAR 2009 - 10 ARE AS FOLLOWS : NATURE OF ASSET ADDITIONS DURING THE F.Y.2008 - 09 BUILDINGS 67,14,792 (UPTO 30.09.2008) 5,71,83,793 (UPTO 31.03.2009) COMPUTERS & EQUIPMENT 14,88,758 DUPLICATING MACHINE 0 EPABX 58,000 FAX MACHINE 0 20 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM 1 2 .2 . THE AO FURTHER OBSERVED THAT THERE WERE NO ADDITIONS TO THE NSTL AND OAKRIDGE INTERNATIONAL SCHOOL CAMPUS A T VISAKHAPATNAM A S CLAIMED BY THE AS S E SSE E. THE AO FURTHER OBSERVED THAT THERE WAS INCREAS E IN BUILDINGS OF OAKRIDGE INTERNATIONAL SCHOOL, HYDERABAD AFTER 30.09.2008. THE AO FURTHER OBSERVED THAT THE ADDITIONAL FLOOR AREA RELATING TO DINING HALL, HOSTEL MESS ARE UTILISED BY THE COMPANY ITSELF AND ONLY THE FLOOR AREA RELATING TO THE CLASS ROOMS AND LIBRARY ARE USED BY THE ASSESSEE. THOUGH THERE WAS SUBSTANTIAL INCREASE IN THE ADDITIONS TO BUILDINGS AFTER 30.09.2008 I.E. IN THE MIDDLE OF FINANCIAL YEAR , BY THE TIME THE CLASSES W E RE ALREADY STAR TE D AND THERE WAS NO ADVANTAGE TO THE SOCIETY ON INCREASING THE ADDITIONAL FLOOR AREA. THERE WAS NO AGREEM ENT BETWEEN THE ASSESSEE SOCIETY AND THE COMPANY WITH REGARD TO THE ADDITIONAL SPACE MADE AVAILABLE TO THE ASSESSEE. T HE ASSESSEE HAS FURNISHED THE COPIES OF THE BOARD RE SOLUTIONS OF THE COMPANY DATED 28.02.2008 FOR INCREASE OF RENT GENERATORS 0 REFRIGERATORS 0 TELEVISIONS 0 WATER COOLERS 0 AIR CONDITIONERS 19,04,289 AUDIO EQUIPMENT 0 ELECTRICAL FITTINGS 14,84,000 FURNITURE 1,57,99,392 OTHER EQUIPMENT 10,276 21 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM FROM RS.350 LAKHS TO RS.600 LAKHS. THE AO DID NOT CONVINCE WITH THE EXPLANATION OFFERED BY THE ASSESSEE AND AS PER THE OBSERVATIONS MADE BY HIM FROM THE INFORMATION FURNISHED BY THE ASSESSEE , THE AO HELD THAT THE PAYMENT OF RS.4 .00 CRORES WA S REASONABLE AND HENCE DISALLOWED THE SUM OF RS.2 .00 CRORES U/S 40A(2) OF THE ACT AS EXCESS PAYMENT. 13 . AGAINST THE ORDER OF THE AO, THE ASSESSEE WENT O N APPEAL BEFORE THE CIT(A) AND ARGUED THAT THERE WAS SUBSTANTIAL INCREASE IN THE INFRASTRUCTURAL FACILITIES PROVIDED TO THE ASSESS EE BY THE COMPANY , WHICH NECESSITATED THE INCREASE IN PAYMENT OF RENT. THE LD.A.R SUBMITTED THAT T HERE WAS INCREASE IN THE FLO OR AREA, INCREASE IN NUMBER OF STUDENTS AND INCREASE IN THE OTHER INFRASTRUCTURE . THE ASSESSEE ALSO ARGUED THAT IT HAS CONSIDERED THE FAIR MARKET VALUE OF INFRASTRUCTURE CHARGES, LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE ETC. . BEFORE INCREASING THE PAYMENT TO THE VEIL. THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LD.CIT(A) IS REPRODUCED IN THE ORDER OF THE LD.CIT(A) IN PARA NO.7.3 WHICH READS AS UNDER : 7.3. THE ASSESSEE GAVE THE FOLLOWING EXPLANATION FOR THE INCREASE IN RENT: 'THE FOLLOWING ARE THE DETAILED REASONS THOSE WERE CONTRIBUTED/ INFLUENCED / FACTORS IN ENHANCING THE PAYMENT OF INFRASTRUCTURAL CHARGES FROM RS.350 LAKHS IN A . Y . 2008 - 09 TO RS.600 LAKHS IN THE A.Y.2009 - 10. 22 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM INCREASE IN AREA OF FLOOR SPACE : A. DURING THE A.Y. THERE WAS HU G E INCREASE IN FLOOR SPACE AT THE FOLLOWING CENTRES VIZ., OAKRIDGE INTERNATIONAL SCHOOL, HYDERAB A D - 75000 (APPROX) SF1 ADDITIONAL FLOOR AREA INCLUDING DINING HALT. OAKRIDGE INTERNATIONAL SCHOOL, BATCHUPA LL I CAMPUS - 20000 (APPROX.) SF1 NEWLY I NAUGURATED. NSTL CAMPUS AT VIS AKHAPATNAM - 26820 SFT (APPROX) IS BROUGHT TO 7 OPERATION, FULL CAMPUS IS IN OPERATIONS. OAKRIDGE INTERNATIONAL SCHOOL CAMPUS - VISKHAPATNAM - NEWLY COMMENCED OWN CAMPUS WITH AN AREA OF 30000 SIT (APPROX.) PARTLY COMPLETED THAT WAS PUT TO OPERATION. OAKRIDGE INTERNATIONAL SCHOOL CAMPUS - RE N TA L CAMPUS - LAWSONS BAY CO LO NY, VISAKHAPATNAM WHERE NURSERY TO P . P - 2 ARE IN OPERATION. B . INCREASE IN STUDENTS SINCE THERE WAS FLOOR SPACE AVAILABLE/ACCOMMODATION WITH ALL FEATURES AVAILABLE THE SAME WAS CONTRIBUTED TOWARDS INCREASING STRENGTH OF THE STUDENTS, WHICH IN TURN LED TO INCREASE IN ALL COSTS RELATED TO INFRASTRUCTURE FACILITIES PRO VIDED BY THE COMPANY TO THE ASSESSEE . NEED FOR AGREEMENT BETWEEN THE ASSESSEE AND THE COMPAN Y AND REASONS FOR NOT HAVING AGREEMENT . A . AT EVERY STAGE OF APPROVALS BEFORE THE GOVERNMENT AGENCIES IN THE HANDS OF THE ASSES S EE, WHEN ASKED/CALLED FOR HAVING SUPPORT OF THE INFRASTRUCTURE AVAILABLE, THE COMPANY WOULD ALSO SUBMITTING NECESSARY CONSENT LETTERS/ DOCUMENTARY EVIDENCE, AFFIDAVITS OR UNDERTAKINGS THAT THE ENTIRE INFRASTRUCTURE CREATED IN THE HANDS OF THE COMPANY WOULD BE AT THE EXCLUSIVE DISPOSAL OF THE SOCIETY, THEREFORE, THERE WAS NO INSISTENCE FOR THE AGREEMENT BETWEEN THESE TWO CONCERNS FROM ANY GOVT. DEPARTMENTS. B . NECESSARY RESOLUTIONS PASSED AT ASSESSEE SOCIETY AND THE COMPANY WOULD BE SUBMITTED WHENEVER CALLED FOR THE SAME, OUT OF THE PAST MORE THAN ONE AND HALF DECADE EXPERIENCE, THE RESOLUTIONS PASSED AT THESE BOTH SOCIETY AND COMPANY WERE ACCEPTED AND THERE WAS NO ISSUE ON THIS SCORE. C . BOTH THE SOCIETY AND COMPANY ARE CONTROLLED BY THE SAME MANAGEMENT, HENCE, THERE WAS NO INSISTENCE FOR AGREEMENT. D . UNLESS A GOVT. AGENCY INSIST FOR THE AGREEMENT, THERE WAS NO NEED FOR INTERNAL AGREEMENT BY INCURRING HUGE STAMP DUTY AND REGISTRATION FEES, THE SAME WOULD REDUCE THE PROFITS OF THE ORGANIZATION IN TURN REDUCE THE TAX PAYMENT. E . IN BOTH SOCIETY & COMPANY, THERE IS NO STAKE OF THE PUBLIC AND, HENCE, EVERY RUPEE SAVING IN EXPENDITURE IS THE ULTIM ATE MOTTO OF THE 23 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM MANAGEMENT. F . THE CHARGES THAT IS TO BE INCURRED BY THE ASSESSEE SOCIETY IS NOT A FIXED ONE, THE NATURE AND EXTENT OF THE FACULTIES TO BE AVAILED FROM THE COMPANY INCLUDES MANY ITEMS, AND HENCE EVEN IF AGREEMENT ENTERED INTO BETWEEN THESE TW O, IS LIKELY TO UNDERGO CHANGE EVERY YEAR OR IN THE MIDDLE OF THE YEAR, HENCE, ENTERING INTO A FIXED AGREEMENT WOULD DEFEAT THE PURPOSE FOR WHICH IT IS ENTERED. G . IN ANY CASE BASED ON THE NEED FOR INFRASTRUCTURE CHARGES, EXTENT OF USE, TIMELY AVA I LABILITY, PLACE OF AVAILABILITY ARE THE MAIN INGREDIENTS. FAIR MARKET VALUE OF THE INFRASTRUCTURE CHARGES A. IF THE FA IR MARKET VALUE OF THE INFRASTRUCTURE FACILITIES AVAILED BY THE SOCIETY ARE PUT TO TERMS AND CONDITIONS OF VALUATION THE TOTAL CHARGES PAYABLE BY THE ASSESSEE SOCIETY WOULD EXCEED MORE THAN R S .600 L AKHS WHAT WAS PAID DURING THE AY, AS IT WAS DIFFICULT T O GET ALL THE FACILITIES AT UNDER ONE ROOF, TO THE EXTENT OF SIZE, QUALITY, NEED OF THE HOUR AND TIMELY PRESENCE. 7. LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE: A. WITHOUT THE INFRASTRUCTURE SUPPORT FROM THE COMPANY TO THE ASSESSEE SOCIETY, THERE WAS NO SCOPE OF GETTING APPROVALS, PERMISSIONS, AFFILIATIONS FOR COMMENCING ANY COURSE / MAINTAINING CAMPUSES WOULD NOT BE THERE IN THE HANDS OF THE ASSESSEE SOCIETY, THEREFORE IT IS SUBMITTED THAT THERE WOULD NOT BE ANY BUSINESS IN THE ABSENCE OF INFRASTRUCTURE , IN THE HANDS OF THE ASSESSEE SOCIETY. B . IN NUTSHELL, THE APPROV ALS /PERM I SS I ONS/ AFFILIATIONS IN THE HANDS OF THE SOCIETY WOULD REMAIN ON PAPER WITHOUT CONVERTING THE SAME INTO REVENUE / TURNOVER AND, HENCE, THE INFRASTRUCTURE CHARGES INCURRED BY THE SOCIETY IS TOWARDS L EGITIMATE BUSINESS NEEDS OF THE ASSESSEE SOCIETY. 8. THE BENEFITS DERIVED / ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH GOODS, SERVICES OR FACILITIES: A. THE ASSESSEE SOCIETY WAS HAVING CONFIRMED / AGREED SOURCE OF MOBILIZING INFRASTRUCTURE. B . THE INFRASTRUCTURE FACILITIES AVAILABLE WERE AT THE EXCLUSIVE DISPOSAL OF THE ASSESSEE SOCIETY. C . THE PROVIDER OF THE INFRASTRUCTURE FACILITIES IS A REPUTED CORPORATE BODY WITH ORGANIZED SET UP WHICH IN - TURN BOOST THE IMAGE OF THE ASSESSEE SOCIETY TO GET THE NEC ESSARY APPROVALS, PERMISSION / AFFILIATIONS. D . WITH A CONFIDENCE THAT EVERY INCREASE IN NUMBER OF STUDENTS OR ADDITION OF FURTHER COURSES OR ADDITIONAL APPROVALS OR ADDITIONAL COURSES THE NEEDS FOR THE INFRASTRUCTURE WOULD BE MET ON TIME WITHOUT SCOUTING FOR THE SAME. E . IT WILL ENHANCE THE CONFIDENCE IN THE MINDS OF THE ASSESSEE SOCIETY WITH REGARD TO ITS FUTURE BUSINESS / PROSPECTS OF THE BUSINESS. F . TO CREATE OWN INFRASTRUCTURE INSTEAD OF AVAILING FROM THE COMPANY, THE ASSESSEE SOCIETY WAS REQUIRED TO MOBILIZE TERM LOANS AND WORKING CAPITA'S FROM BANKS / FINANCIAL INSTITUTIONS, HOWEVER, WITH O UT HAVING PAIN OF THESE RESPONSIBILITIES / BURDEN HIRING INFRASTRUCTURE WOULD WORK OUT VERY CHEAP COST/NOMINAL COST IN THE HANDS OF THE ASSESSEE SOCIETY. 24 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM IN VIEW OF THE ABOVE, IT IS AGAIN SUBMITTED / UNDERTAKEN THAT IS, A . JUST BECAUSE THE ASSESSEE SOCIETY AND THE COMPANY COME UNDER THE COMMON MANAGEMENT THE FAIR MARKET VALUE OF THE SERVICES WERE NOT OVER VALUED / OVER CHARGED. B . IN FACT, KEEPING IN VIEW OF THE SIZE, EXTENT, Q UALITY OF INFRASTRUCTURE AVAILABLE UNDER ONE COMMON ROOF ALSO FOR EXCLUSIVE USE WOULD YIELD BETTER REVENUE IF GIVEN TO OUTSIDERS OTHER THAN THE ASSESSEE SOCIETY. C . THE COMPANY WAS HAVING HUGE INDEBTEDNESS TO VARIOUS NATIONALIZED BANKS / FINANCIAL INSTITUTION S / NSFCS, IN ADDITION TO THIS ALL THE ASSETS INCLUDING MOVABLE, IMMOVABLE, WERE UNDER MORTGAGE WHEN COMPARED TO THE RISK, INTEREST BURDEN, OPPORTUNITY COST OF LENDING IF CONSIDERED THE INFRASTRUCTURE CHARGES RECEIVED FROM THE ASSESSEE SOCIETY WAS NOMINAL ONLY. D . THERE WAS NO ELEMENT OF PROFIT THAT WAS ACCRUE IN THE HANDS OF THE MEMBERS OF THE MANAGING COMMITTEE OF THE ASSESSEE SOCIETY NOR IN THE HANDS OF THE DIRECTORS OF THE COMPANY. E . THE INFRASTRUCTURE CHARGES RECEIVED IN THE HANDS OF THE COMPANY WAS OFFERED TO TAX' 1 3 .1 . THE LD.CIT(A) CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND FOUND THAT THERE WAS SUBSTANTIAL INCREASE IN PAYMENT OF RENT DURING THE YEAR FROM RS.3.5 CRORES TO RS.6 .00 CRORES AND OBSERVED THAT THE FLOOR SPACE WAS HIRED FROM VE I L ONLY FOR TWO CAMPUSES I.E. GACHIBOULI CAMPUS AT HYDERABAD AND AIRPORT CAMPUS AT VISAKHAPATNAM. IN RESPECT OF OTHER CAMPUSES, LEASE HAS BEEN TAKEN FROM THIRD PARTIES. OUT OF THE ABOVE TWO CAMPUS ES , THE LD.CIT(A) OBSERVED THAT THERE WAS ADDITION TO FIXED ASSET S IN RESPECT OF OAKRIDGE HYDERABAD CAMPUS TO THE TUNE OF RS.6,21,87,354/ - AND THERE WAS NO ADDITION TO FIXED ASSET IN RESPECT OF CAMPUS AT VISAKHAPATNAM. THUS, THE LD.CIT(A) OBSERVED THAT CLAIM OF ADDITIONAL FLOOR SPACE WAS PARTIALLY CORRECT TO THE E XTENT OF ADDITIONS MADE TO OAKRIDGE CAMPUS, HYDERABAD. THE LD.CIT(A) VERIFIED THE RENTAL VALUE AT GACHIBOULI CAMPUS 25 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM FROM THE INTERNET AND FOUND THAT THE RENT PAYABLE COULD BE ESTIMATED AT RS.49,50,000/ - TO HY DERABAD CAMPUS . IN RESPECT OF VISAKHAPATNAM CAM PUS, THERE WAS NO JUSTIFICATION FOR PAYMENT OF ADDITIONAL RENT , SINCE , THERE WAS NO ADDITI ONAL SPACE, LET OUT BY V E I L DURING THE YEAR. THUS, THE LD.CIT(A) TAKING INTO CONSIDERATION OF ALL THE FACTS CONSIDERED THAT THE PAYMENT OF RENT OF RS.4 .00 CRORES IS REASONABLE AND ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE AO. 1 4 . AGAINST THE ORDER OF THE LD.CIT(A), THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.AR REITERATED THE SUBMISSIONS MADE BEFORE THE AO /CIT(A) AND ARGUED THAT THE AO COMMITTED A MISTAKE BY MAKING THE DISALLOWANCE U/S 40A ( 2 ) OF THE ACT. REFERRING TO PAGE NO. 56 OF THE PAPER BOOK , HE SUBMITTED THAT THERE WAS INCREASE IN THE INFRASTRUCTURE FACILITIES OFFERED BY THE COMPANY FOR WHICH THE ASSESSEE IS MAKING THE PAYMENT OF RENT . HE ARG UED THAT IN THE CASE OF GACHIBOW LI CAMPUS, THE ASSESSEE HAS BEEN OFFERED 5 . 50 ACRES OF LAND WITH A CONSTRUCTED AREA OF 2 , 25 ,000 SQ.FT PROVIDING FACILITIES AT INTERNATIONAL STANDARD S AND ARGUED THAT THE AREA WOULD FETCH AROUND RS.50 / - PER SQ.FT PER MONTH AND THE RENTAL VALUE OF THE GACHIBOULI CAMPUS ALONE WORKS OUT 26 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM TO RS.675 LAKHS. THE LD.AR FURTHER SUBMITTED THAT SPORTS FACILITIES OFFERED, FLEET OF BUSES OFFERED BY THE COMPANY TO THE ASSESSEE AND TECHNICAL KNOW - HOW GIVE N TO THE ASSESSEE AND WORKED OUT THE RENTAL VALUE AT RS. 12.29 LAKHS AND SUBMITTED THAT AGAINST WHICH THE ASSESSEE PAID THE RENT OF RS.600 LAKHS WHICH IS STATED TO BE REASONABLE. THE LD.CIT(A) HAS EXTRACTED THE SUBMISSION OF THE ASSESSEE IN PARA NO.7.9 OF THE ORDER AND THE SAME WAS REITERATED BY THE LD.AR DURING THE APPEAL HEARING WHICH IS EXTRACTED FOR THE SAKE OF CONVENIENCE AS UNDER : 7.9 FURTHER TO THE ABOVE, THE AR OF THE APPELLANT ALSO MADE WRITTEN SUBMISSION VIDE LETTER DATED 17.06.2013 WHICH IS AS F OLLOWS : - WITH REFERENCE TO THE ABOVE, THE FOLLOWING ARE THE DETAILED WORKINGS ON THE COST OF INFRASTRUCTURE, SIZE OF INFRASTRUCTURE AND OTHER FACILITIES OFFERED TO THE ASSESSEE SOCIETY, VIZ., THAT THE DETAILED EXPLANATIONS AND THE NATURE AND SIZE OF INFRASTRUCTURE, O FFERED BY THE COMPANY TO THE ASSESSEE SOCIETY. GACHIBOULI CAMPUS : - SIZE OF THE LAND 5.50 ACRES (APPROX) EXTENT OF CONSTRUCTION 2,25,000 SQ.FT. NATURE OF CAMPUS CAMPUS OF INTERNATIONAL STANDARD IN EACH AND EVERY ASPECT, SUBJECT TO CLOSE SCRUTINY / WHO ARE CONCERNED FOR ACCORDING PERMISSION / AFFILIATION. SWIMMING POOL, OF INTERNATIONAL STANDARD ALONG WITH VERY WIDE PLAY GROUNDS, TO ACCOMMODATE, ALL TYPES OF GAMES AND SP ORTS, TO MEET THE INTERNATIONAL STANDARD REQUIREMENTS. STRATEGICALLY LOCATED IN VERY PRIME LOCATION LIKE, 27 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM GACHIBOULI, NEARBY REPUTED SCHOOLS AND COLLEGES, LANCO HILLS, 20 MINUTES DRIVE TO AIRPORT, INTERNATIONAL SCHOOL OF BUSINESS, HIGH - TECH CITY, THE GROWTH OF THE ENTIRE CITY IS FOCUSED TOWARDS THESE LOCATIONS, CULTURAL CENTERS, MAJOR HOTELS, CLOSE PROXIMITY TO BANJARA HILLS AND JUBILEE HILLS. VALUATION RS.35/ - PER SQ.FT / PER MONTH INCLUDING ENTIRE INFRASTRUCTURE FOR THE A.Y.2009 - 10 50% OF FLOOR AREA I.E. 1,12,500 SQ.FT X RS.35 X 12 MONTHS, COMES TO RS.472.5 LAKHS. AIRPORT CAMPUS : VISAKHAPATNAM : SIZE OF THE LAND 7260 SQ.YDS OF LAND LOCATED ADJACENT TO NH5, SHEELANAGAR, VISAKHAPATNAM (NEAR TO AIRPORT) EXTENT OF CONSTRUCTION 1,60,000 SQ.FT LOCATED AT PRIME PLACE, PROXIMITY TO BOTH COMMERCIAL AND RESIDENTIAL LOCATIONS, VERY CLOSE TO AIRPORT, WELL CONNECTED BY BUS FROM ALL THE LOCATIONS AND KNOWN AS PART OF THE MAIN CITY. NATURE OF FACILITIES THE CAMPUS IS HAVING ALL THE FACILITIES, THAT A STUDENT REQUIRES VALUATION 50% OF TOTAL CONSTRUCTED AREA INCLUDING ENTIRE INFRASTRUCTURE @RS.15.0 - 0 WHICH COMES TO RS.144 LAKHS SPORTS FACILITIES OTHER THAN PLAY GROUNDS, SWIMMING POOL THE COST OF SPORTS / GAMES ARTICLES MEANT FOR USE OF THE STUDENTS AT THESE LOCATIONS (BASED ON PAST EXPERIENCE) 2200 STUDENTS X RS.300 X 8 COMES TO RS.52.80 LAKHS BUSES: A FLEET OF 45 BUSES ARE PART OF THE INFRASTRUCTURE PROVIDED TO THE ASSESSEE SO CI ETY, THE MINIMUM RENTAL VALUE COMES TO I. E, DIESEL SHALL BE THE EXPENDITURE OF THE USER DRIVER SALARY SHALL ALSO BE THE EXPENDITURE OF THE USER W ITH THE ABOVE CONDITIONS, THE BUS IN THE MARKET WOULD F ETCH A RENT OF R S. 4000 PER DAY (IRRESPECTIVE OF AGE OF THE VEHICLE) AS IT CAN BE EASILY ASCERTAINED FROM THE MOTOR FIELD. 28 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM THE COST OF INFRASTRUCTURE UNDER THIS HEAD COMES TO RS . 4000 X 45 X 200 DAYS COMES TO RS . 360 LAKHS TECHNICAL KNOW - HOW: THE ASSESSEE SOCIETY IS INCORPORATE UNDER THE STATUTE, THE MANAGING COMMITTEE, ARE NOT PAID WITH ANY REMUNERATION / HONORARIUM FOR THE SERVICES RENDERED BY THEM, SCOUTING FOR CONTINUOUS DEVELOPMENT IN THE FIELD, UPDAT I ON OF THE INFRASTRUCTURE, ADDITION OF NEW COURSES, AFFILIATION FROM VARIOUS UNIVERSITIES, LOCATED IN OTHER PART OF THE WORLD, RESEARCH AND DEVELOPMENT, I NVENTING FOR RECRUITMENT OF EXCELLENT FACULTY FROM THE INTELLECTUALS, THOUGH THE VALUE OF THIS CANNOT BE MEASURED IN TERMS OF MONETARY VALUE, THIS IS VALUED AS RS 200 LAKHS PER ANNUM . CONTINUOUS GUIDANCE / DRIVE FOR FUTURE PROGRAMS / PLANS AS AN INBUILT SYSTEM. THE ASSESSEE SOCIETY IS BEING PROVIDED WITH GUIDANCE OF TOP EDUCATIONALISTS, CHILDREN PSYCHOLOGISTS, PERSONALITY DEVELOPMENT, THE COSTS WERE NOT ESTIMATED. WHENEVER THE ASSESSEE SOCIETY FINDS IT DIFFICULT, DUE TO NON RECEIPT OF ITS FEES, TO PAY THE ESTABLISHMENT COSTS, THE SAME SHALL BE ASSURED BY THE COMPANY, AS PART OF THE INFRASTRUCTURE FACI LI TY, HENCE, THERE WAS NO DEBT BURDEN TO THE ASSESSEE. THE INFRASTRUCTURE CHARGES OF RS.600 L AKHS PAID AT THE END OF THE FINANCIAL YEAR. THEREFORE, THERE WAS NO PRESSURE ON THE ASSESSEE SOCIETY. TOTAL COSTS ESTIMATED (PER ANNUM) A.Y.2009 - 10 (RS. IN LAKHS) GACHIBOULI CAMPUS RS.472.50 AIRPORT CAMPUS, VIZAG RS.144.00 SPORTS FACILITIES RS.52.80 BUSES RS.360.00 TECHNICAL KNOW - HOW RS.200.00 TOTAL RS.1229.00 A CCORDINGLY THE LD.AR ARGUED THAT THE PAYMENT MADE TO THE COMPANY IS REASONABLE AND REQUESTED TO SET ASIDE THE ORDER OF THE LD.CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. THE LD.AR RELIED ON THE VARIOUS DECISIONS TO SUPPORT HIS CASE. 29 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM 1 5 . ON THE OTHER HAN D, THE LD.DR ARGUED THAT THE PAYMENT WAS MADE TO RELATED PARTY AS SPECIFIED U/S 40A(2) OF THE ACT. THERE WAS NO CHANGE IN THE FLOOR SPACE OR INFRASTRUCTURE FACILITIES, THUS, THERE IS NO CASE FOR INTERFERING WITH THE ORDER OF THE LD.CIT(A) AND ACCORDINGLY REQUESTED TO CONFIRM THE ORDER OF THE LD.CIT(A). THE LD.DR FURTHER ARGUED THAT THE LD.CIT(A) HAS CONSIDERED ALL THE FACTS, HENCE NO INTERFERENCE IS CALLED FOR. 1 6 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE ARGUMENT MADE BY THE ASSESSEE WITH REGARD TO THE REASONS FOR INCREASE IN RENT PAYMENT WAS EXTRACTED IN THE EARLIER PARAGRAPHS OF THE ORDER. ACCORDING TO THE SUBMISSIONS MADE BY THE ASSESSEE, THE RE WAS ADDITION IN GACHIBOULI CAMPUS FOR WHICH THE MARKET VALUE OF RENT WORKS OUT TO RS.472.5 LAKHS , ALSO THERE WAS INCREASE IN VISAKHAPATNAM AIRPORT CAMPUS FOR WHICH THE MARKET VALUE WORKS OUT TO RS.144 LAKHS. THE ASSESSEE ALSO CLAIMED OTHER SPORTS FACIL ITIES, BUSES, TECHNICAL KNOW HOW ETC. AND CLAIMED THAT THE TOTAL MARKET RENTAL VALUE OF THE PROPERTY WAS AROUND RS.1229.30 LAKHS AGAINST WHICH THE PAYMENT OF RS.600 LAKHS ARGUED TO BE REASONABLE. THE LD.CIT(A) FOUND THE RENT WAS PAID FOR THE CAMPUSES AT V ISAKHAPATNAM I.E. NSTL CAMPUS, VMK CAMPUS, REDNAM GARDENS, THE 30 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM NALANDA TALENT SCHOOL, NAD CAMPUS, VES CAMPUS AT CBM COMPOUND AND OTHER PREMISES TAKEN FOR THE PU RPOSE OF GUEST HOUSE ETC.. AND THERE WAS NO INCREASE IN FLOOR SPACE ETC . OUT OF THE ABOVE CAMP USES , FLOOR SPACE WAS HIRED FROM VE I L ONLY FOR TWO CAMPUS ES I.E. GACHIBOULI CAMPUS AT HYDERABAD AND A IRPORT CAMPUS AT VISAKHAPATNAM. IN RESPECT OF OTHER CAMPUS ES , LEASE W AS TAKEN FROM THIRD PARTIES BUT NOT FROM VEIL . THE LD.CIT(A) FOUND THAT THERE WAS ADD ITION TO THE FIXED ASSETS TO THE EXTENT OF RS. 6.21 CRORES IN RESPECT OF OAKRIDGE HYDERABAD CAMPUS AND THERE IS NO OTHER ADDITIONAL SPACE HIRED BY THE COMPANY. ON VERIFICATION OF THE P&L ACCOUNT PLACED BEFORE US IN RESPECT OF VIKAS EDUCATIONAL SOCIETY INSTI TUTIONS LTD, THE RENT WAS RECEIVED ONLY FOR VISAKHAPATNAM CAMPUSES . THERE WAS NO MENTION OF RENT PAYMENT FOR HYDERABAD OAKRIDGE INTERNATIONAL CAMPUS, HYDERABAD OR GACHIBOULI CAMPUS. IN FACT THE REVENUE FROM OAKRIDGE INTERNATIONAL SCHOOL - 2, HYDERABAD WAS ONLY RS.1,78,619/ - WHICH SHOWS THAT ACTIVITY WAS NOT COMMENCED IN OAKRIDGE INTERNATIONAL SCHOOL - 2, HYDERABAD. IT APPEARED THAT THE LD.AR IS TRYING TO INCLUDE ALL OTHER FACILITIES AND A LL OTHER PREMISES TO SUBSTANTIATE THE INCREASE IN THE RENT. IT IS TO BE NOTED THAT THE ASSESSEE IS MAKING SEPARATE PAYMENT FOR VARIOUS OTHER CAMPUSES WHICH IS ACCOUNTED BY THE VEIL UNDER 31 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM THE HEAD INCOME FROM REVENUE. THERE IS NO WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE COMPANY. IN THE ABSENCE OF WRITTEN AGREEMENT, THE PURPOSE OF PAYMENT OF VARIOUS REVENUES AND THE EXPENSES C OULD NOT BE LINKED TO THE RENT. THOUGH THE ASSESSEE HAS CLAIMED TO HAVE MADE THE PAYMENT FOR OAKRIDGE HYDERABAD CAMPUS, THERE WAS NO SUCH MENTION IN THE P&L ACCOUNT OF THE COMPANY, VE I L WHICH IS ALSO STATED TO BE CLOSELY RELATED INSTITUTION TO THE ASSESSEE. THE ASSESSEE CLAIMED THAT BOTH THE VE I L AND THE ASSESSEE ARE TRAVELLING TOGETHER FOR A COMMON GOAL BY IMPARTING EDUCATION T O THE STUDENTS. IN THE INSTANT CASE, THERE WAS NO WRITTEN AGREEMENT TO SUBSTANTIATE THE CLAIM MADE BY THE LD.AR. UNLESS THERE IS AN AGREEMENT SPECIFYING EACH ACTIVITY SUCH AS FLOOR AREA GIVEN TO THE ASSESSEE DURING THE IMPUGNED YEAR UNDER CONSIDERATION A ND THE OTHER FACILITIES OFFERED IN THE EARLIER YEAR AND SUBSEQUENT YEARS, INCREASE REMAINED UNSUBSTANTIATED. THERE MUST BE TRANSPARENT AND BINDING AGREEMENT BETWEEN THE LESSOR AND THE LESSEE FOR THE PREMISES, FLOOR AREA , SERVICES LEASED OR PROVIDED , FO R ASCERTAINING THE RENTAL VALUE OF EACH OF THE SERVICE, FLOOR SPACE OR COST OF SERVICE ETC.. IN THE ABSENCE OF WRITTEN AGREEMENT , IT IS REMAIN ED UNDISCLOSED WHAT WAS THE FLOOR AREA OR THE SERVICES OFFERED TO THE ASSESSEE BY THE VEIL. SUCH RESPONSIBILITY W OULD BE MORE IN THE CASE OF 32 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM CLOSELY RELATED CONCERNS. GENERAL EXPLANATIONS AND PRESUMPTION DO NOT JUSTIFY THE PAYMENT OF RENT BY INCREASING 70% AT ONE STROKE WITHIN ONE YEAR . FURTHER THE LD.AR SUBMITTED THAT BOTH THE VEIL AND THE ASSESSEE ARE OPERATING FROM THE SAME PREMISES. THERE IS NO BIFURCATION OF THE PREMISES WITH CLEAR BOUNDARIES FOR EST I MATION OF THE RENTAL VALUE OF THE PREMISES OR THE INFRASTRUCTURE FACILITIES PROVID ED. THE LD.CIT(A) HAD CONSIDERED THE ISSUE WITH REGARD TO MARKET RENT OF GACHIBOULI CAMPUS WHICH WAS WORKED OUT TO RS.49.50 LAKHS @RS.22 PER SQ.FT. WHICH IS ALSO NOT SUPPORTED BY ANY DOCUMENT. IT IS NOT KNOWN THE BREAKUP OF REVENUE PAID TO VE I L TO THE EXTENT OF RS.11.17 CRORES IN RESPECT OF HYDERABAD OAKRIDGE SCHOOL DURING THE YEAR UNDER CONSIDERATION. THE ISSUE OF PAYMENT OF RENT REQUIRED TO BE VERIFIED IN THE LIGHT OF PAYMENT OF OTHER REVENUE OF RS.11.17 CRORES BY HYDERABAD AND RS.9.23 CRORES BY VISAKHAPATNAM CAMPUSES ALSO . PAYMENT OF OTHER REVENUE AND THE RENTS TO BE EXAMINED JOINTLY. THOUGH THE ASSESSEE CLAIMED TO HAVE PAID THE INCREASE IN VALUE OF RENT F O R OTHER FACILITIES SUCH AS SPORTS, BUSES, HI GHER SALARY, COST OF INFRASTRUCTURE ETC., THERE IS NO EVIDENCE IN THE FORM OF WRITTEN AGREEMENT TO SUPPORT THE SAME . IT IS ALSO NECESSARY TO FURNISH THE DETAILS OF COLLECTION OF SEPARATE CHARGES FOR BUS SERVICES, SPORTS FACILITIES FROM THE STUDENTS OR NOT ETC. IT IS UNDISPUTED FACT THAT VES IS A SOCIETY TO WHOM THE SOCIETIES ACT APPLIES, 33 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM WHEREAS VE I L IS A COMPANY TO WHOM THE COMPANIES ACT APPLIES. THE PROCEDURE FOR DRAWAL, USAGE OF MONEY ETC. ARE GOVERNED BY THE DIFFERENT ACTS I.E. SOCIETIES ACT AND THE COMPANIES ACT. THE GOVERNMENT PLACES CERTAIN RESTRICTIONS ON THE S OCIETIES, ESPECIALLY EDUCATIONA L SOCIETIES FOR USE OF FUNDS. SINCE BOTH THE INSTITUT IONS ARE INTER LINKED AND USAGE OF FUNDS ARE RESTRICTED BY BOTH THE ACTS DIFFERENTLY, IT IS NECESSARY TO ESTABLISH THE REASONABLENESS FOR INCREASE IN PAYMENT OF RENT TO THE COMPANY WITH PROPER DOCUMENTATION. THE ASSESSEE COULD NOT SUBSTANTIATE THE INCREA SE IN RENT WITH PROPER DOCUMENTATION. WE FIND FROM THE RECORDS THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y.2009 - 10 DECLARING LOSS OF RS.6457/ - AND ADMITTING INCOME OF RS. 4,65,336/ - FOR THE A.Y.2010 - 11. AT THE SAME TIME, VEIL EARNED THE PROFIT OF RS.9,44,94,871/ - FOR THE A.Y.2009 - 10 AND RS.7,70,55,982/ - FOR THE A.Y.2010 - 11 FROM THE PAYMENTS MADE BY VES. IT IS WORTHY TO NOTE THAT THE ASSESSEE HAS MADE THE PAYMENT OF RS.28.53 CRORE FOR THE A.Y.2009 - 10 AND RS.33.30 CRORES FOR THE A.Y.2010 - 11 TO V EIL, WHICH SHOWS THAT THE ASSESSEE IS EITHER INCURRING LOSSES OR DECLARING MEAGER INCOME, WHEREA S THE VEIL WHICH IS A COMPANY IS EARNING HUGE PROFITS. COMING TO VISAKHAPATNAM CAMPUS, VEIL HAS RECEIVED A SUM OF RS.9.23 CRORES UNDER THE REVENUE APART FROM T HE RENT OF RS.6,00,00,000/ - . THE AO 34 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM HAS NOT EXAMINED THE VARIOUS PAYMENTS MADE TO VEIL. THEREFORE, THE ENTIRE PAYMENT OF (RS.28.53 CRORES AS PER THE P&L ACCOUNT OF VEIL) HAS TO BE TAKEN INTO CONSIDERATION TO DETERMINE THE DISALLOWANCE U/S 40A(2) IN RESPEC T OF RENT PAYMENT. THE AO HAS TO EXAMINE ALL THE PAYMENTS MADE TO VEIL WITH THE NATURE AND PURPOSE OF PAYMENT AND THEN DECIDE WHETHER THE RENT PAYMENT MADE TO VEIL IS RELATED TO THE PREMISES OR FOR ANY OTHER INFRASTRUCTURE FACILITIES ALSO. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE NEEDS DETAILED VERIFICATION AT THE END OF THE AO IN THE LIGHT OF THE ABOVE DISCUSSION. THE ASSESSEE IS DIRECTED TO FURNISH THE DETAILS OF OTHER PAYMENTS MADE TO VEIL WITH NATURE AND PURPOSE AND THE DETAILED INV ENTORY OF ITEMS FOR WHICH THE ITEMS ARE LEASED TO THE ASSESSEE IN THE EARLIER YEAR AND THE YEAR UNDER CONSIDERATION WITH PROPER EVIDENCE. THE AO IS DIRECTED TO EXAMINE THE ENTIRE ISSUE AND COLLECT THE DETAILS OF VARIOUS PAYMENTS WITH NATURE AND PURPOSE AN D THE MARKET RATE OF RENTS AND NEED FOR INCREASE IN RENT AND DECIDE THE ISSUE AFRESH ON MERITS AFTER GIVING OPPORTUNITY TO THE ASSESSEE. 17. FOR THE A. Y.2010 - 11 THE ASSESSEE CLAIMED THE SUM OF RS.9,50,00,000/ - AS RENT IN RESPECT OF VISAKHAPATNAM CAMPUS PAID TO M/S 35 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM PEOPLE COMBINE AVENUES LTD. T HE ASSESSEE ALSO MADE TDS U/S 194I AND REMITTED THE SAME TO THE GOVERNMENT ACCOUNT. THE AO DISALLOWED THE SUM O F RS.201 LAKHS AS EXCESSIVE U/S 40A(2) OF THE ACT ON IDENTICAL FACTS OF THE EARLIER YEAR . ON APPEAL THE LD.CIT(A) CONFIRMED THE ADDITION AND THE ASSESSEE IS IN APPEAL BEFORE US. SINCE THE ISSUE IS ON IDENTICAL FACTS , W E REMIT THE MATTER BACK TO THE FILE OF THE AO FOR DECIDING THE ISSUE AFRESH ON MERITS AS PER THE DIRECTIONS GIVEN IN THE A.Y.2009 - 10. ACC ORDINGLY BOTH THE APPEALS FOR THE A.Y.2009 - 10 AND 2010 - 11 ARE SET ASIDE ON THE DI SALLOWANCE U/S 40A(2) FOR DENOVO CONSIDERATION OF THE AO. 17.1. THE ASSESSEE RELIED ON THE VARIOUS DECISIONS TO SUPPORT ITS ARGUMENT , NOT TO MAKE DIS ALLOWANCE U/S 40A(2) OF THE A CT. SINCE THE ISSUE IS REMITTED BACK TO THE FILE OF THE AO, THE ASSESSEE IS FREE TO RAISE ALL THE ISSUES BEFORE THE AO. ACCORDINGLY THE APPEAL OF THE ASSESSEE ON THE ISSUE OF DISALLOWANCE U/S 40A(2) IS ALLOWED FOR STATISTICAL PURPOSES. 18. GROUND NO.4 FOR THE A.Y.2009 - 10 IS RELATED TO THE DISALLOWANCE CONFIRMED BY THE LD.CIT(A) IN RESPECT OF MESS CHARGES OF RS.1,17,935/ - . DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND TH AT THE ASSESSEE HAS DEBITED THE S UM OF RS.11,79,349/ - TOWARDS MESS EX PENSES FOR WHICH THE 36 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM ASSESSEE CLAIMED TO HAVE INCURRED THE EXPENSES TOWARDS SNACKS / FOOD TO PARENTS / GUESTS / COUNSELORS IN THE SCHOOL / COLLEGE. HOWEVER, THE ASSESSEE FAILED TO SUBMIT THE DETAILS OF NUMBER OF STUDENTS, TEMPORARY STAFF, PARENTS OR GUESTS TAKEN LUNCH ETC. , THEREFORE, THE AO DISALLOWED 20% OF EXPENSES AND ADDED BACK TO THE RETURNED INCOME. 19. ON APPEAL, THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO THE 10% OF THE EXPENSES CLAIMED. THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO 10% AS DISCUS SED IN PARA NO.9.3. OF THE ORDER WHICH READS AS UNDER : 9 .3. THE AUTHORIZED REPRESENTATIVE REPRESENTED THAT SOME EXPENSES IN THE NATURE OF MESS EXPENSES ARE INCURRED BY THE SOCIETY, WHEN IT PROVIDES SNA CKS/FOOD TO PARENTS/GUESTS/COUNSELORS IN THE SCHOO L / CO LLE GE PREMISES. IT WAS ALSO ARGUED THAT THE AMOUNT OF SUCH EXPENSES CLAIMED IS VERY REASONABLE TAKING INTO ACCOUNT THE NUMBER OF STUDENTS AND STAFF OF THE INSTITUTION. I HAVE CON SIDERED THE SUBMISSIONS. IT IS AN ADMITTED POSITION THAT THE COMPANY VEI L MAINTAINS THE HOSTELS AND BEARS ALL MESS EXPENSES. IN THIS CONTEXT ASSESSING OFFICER HAD RAISED THIS ISSUE OF ALLOWANCE OF THIS EXPENDITURE. THE ASSESSEE HAD SUBMITTED THE SALARY EXPENSES OF EMPLOYEES, DURING THE ASSESSMENT PROCEEDINGS, WHICH THE ASSESSI NG OFFICER FELT SHOULD HAVE BEEN BORNE BY THE COMPANY IN THE NORMAL COURSE AT THE SAME TIME, SOME EXPENSES AS CLAIMED BY THE ASSESSEE IS ALSO POSSIBLE TO MEET EXPENSES FOR GUESTS/VISITORS, ETC IN THE CIRCUMSTANCES , I AM OF THE V IEW THAT IT WOULD BE REASONA BLE TO RESTRICT THE DIS A LIOWANCE TO 10% OF THE AMOUNT CLAIMED. ACCORDINGLY, ADDITION OF AN AMOUNT OF KS.1,17,935 / - IS CONFIRMED. THIS GROUND IS PARTLY ALLOWED. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. IT IS A FACT THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS CALLED FOR BY THE AO. IT IS MANDATORY OBLIGATION OF THE ASSESSEE TO FURNISH 37 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM THE REQUIRED DETAILS. HOWEVER, IT IS NOT RULED OUT THAT THE ASSESSEE ALSO HAS TO INCUR SUCH HOSPITALITY EXPENSES. CONSIDERING THE FACTS AND MERITS OF THE CASE, WE RESTRICT THE DISALLOWANCE TO 5% AGAINST DISALLOWANCE OF 10% CONFIRMED BY THE LD.CIT(A). ACCORDINGLY THE APPEAL OF T HE ASSESSEE ON THIS GROUND IS ALLOWED PARTLY. 21. F OR THE A.Y.2010 - 11 DISALLOWANCE OF MESS EXPENSES WERE RS.4,57,906/ - OUT OF THE TOTAL EXPENSES DEBITED TO P&L ACCOUNT AMOUNTING TO RS.22,89,532/ - . ON APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION OF 10% OF EXPENSES. FOR THE REASONS DISCUSSED IN THIS ORDER FOR THE A.Y.2009 - 10, WE CONSIDER THE DISALLOWANCE OF 5% IS REASONABLE. ACCORDINGLY, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 22. GROUND NO.5 FOR THE A.Y.2009 - 10 IS RELATED TO THE DISALLOWANCE OF MISC ELLANEOUS EXPENDITURE OF RS.3,85,197/ - , OUT OF THE TOTAL EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT OF RS.19,25,985 / - ON ESTIMATION BASIS, SINCE THE EXPENSES WE RE MOSTLY MADE OUT OF SELF MADE VOUCHERS. THE AO DISALLOWED 20% OF THE TOTAL MISCELLAN EOUS EXPENSES . 38 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM 23. THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO 10% WHICH WORKED OUT TO RS.1,92,598/ - AS PER DETAILED DISCUSSION MADE IN PARA NO.10.3 OF THE ORDER OF THE LD.CIT(A) WHICH READS AS UNDER : 10.3. IT COULD BE SEEN THAT THE ASSESSEE HAS DEBITED EXPENDITURE TO THE TUNE OF RS 19,25,935/ - TOWARDS MISCELLANEOUS EXPENSES IT WAS EXPLAINED THAT THESE EXPENSES ARE INCURRED TOWARDS STAFF WHO MOBILIZE BUSINESS FOR THE INSTITUTE AND ARE IN PUBLIC RELATIONS IT WAS ALSO CLAIMED THAT THE EXPENDITURE INCURRED WAS TOWARDS TA & DA. HOWEVER, THE ASSESSING OFFICER HAD NOTED THAT MOST OF THE VOUCHERS WERE SELF - MADE WHICH WAS NOT DISPUTED IN APPEAL. THE AUTHORIZED REPRESENTATIVE CONTENDED THAT ALL THESE EXPENSES ARE SCR UTINIZED BY INTERNAL AUDIT WING OF THE ASSESSEE. I HAVE CONSIDERED THE SUBMISSIONS MADE. THE TA & DA PARTICULARS COULD HAVE EXPLAINED WITH REFERENCE TO TICKETS PURCHASED AND OTHER SUPPORTING EVIDENCE. TAKING INTO ACCOUNT, THE NATURE OF EXPENSES, AND THE EX PLANATION OFFERED, I CONSIDER IT REASONABLE TO RESTRICT THE DISALLOWANCE TO 10% OF THE AMOUNT DEBITED. ACCORDINGLY, ADDITION TO THE TUNE OF RS.1,92,598/ - IS CONFIRMED. THIS GROUND IS PARTLY ALLOWED. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND IT IS A FACT THAT THE EXPENSES WE RE MADE WITH SELF MADE VOUCHERS AND THE SAME WAS NOT DISPUTED. THOUGH THE ASSESSEE CLAIMED THAT THE EXPENSES WERE RELATED TO TA/DA PUBLIC RELATIONS PERSONS, T HE ASSESSEE DID NOT FURNISH THE DETA ILS OF NAMES OF THE PERSONS TO WHOM THE TA/DA WAS PAID. SINCE THE ASSESSEE IS A SOCIETY AND CLAIMED TO BE NON PROFITABLE ORGANIZATION, IT IS NOT EXPECTED TO INCUR PUBLIC RELATIONS EXPENSES WHICH ARE NOT VERIFIABLE WITH THE DOCUMENTARY EVIDENCE. HOWEVER CONSIDERING THE ARGUMENTS MADE B Y THE LD.A.R, WE CONSIDER IT IS REASONABLE TO RESTRICT 39 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM THE DISALLOWANCE TO THE EXTENT OF 5%. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 25. GROUND NO.6 FOR THE A.Y. 2009 - 10 IS RELATED TO THE DISALLOWANCE OF CREDIT CARD EXPENSES ON ESTIMAT ION BASIS . THE ASSESSEE DEBITED THE SUM OF RS.4,17,105/ - AND RS.8,93,776/ - IN RESPECT OF OAKRIDGE - HYDERABAD AND VISAKHAPATNAM BRANCH ES RESPECTIVELY TOWARDS THE EXPENSES INCURRED THROUGH CREDIT CARDS. THOUGH THE ASSESSEE STATED THAT THERE WA S NO ELEMENT OF PERSONAL EXPENDITURE OF DIRECTO RS AND CLAIMED THAT THE ENTIRE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF SOCIETY, ON VERIFICATION OF THE DETAILS, THE AO FOUND FROM THE CREDIT CARD STATEMENT THAT THE EXPENDITURE WAS MOSTLY TOWARDS HOTEL BILLS, CLOTH SH OW ROOM BILLS, WHICH WAS IN THE NATURE OF PERSONAL EXPENDITURE. SINCE THE ASSESSEE FAILED TO SUBMIT THE DETAILS, THE AO DISALLOWED 50% OF THE EXPENSES AND ADDED BACK TO INCOME. 26. ON APPEAL, THE LD.CIT(A) RESTRICTED THE EXPENDITURE TO 30% OF THE TOTAL E XPENDITURE INCURRED . FOR THE SAKE OF CONVENIENCE, WE EXTRACT PARA NO. 1.3 IN PAGE NO.25 OF THE LD.CIT(A) ORDER WHICH READS AS UNDER : 1.3 . I HAVE CONSIDERED THE SUBMISSIONS MADE. THESE EXPENSES ARE ADMITTEDLY T HROUGH CREDIT CARDS AND ARE IN THE NATURE OF HOTEL BILLS, PURCHASE OF CLOTH, S HOWROOM BILLS AND OTHER RELATED ITEMS. IT WAS CONTENDED THAT THESE EXPENSES W ERE INCURRED WITH 40 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM REGARD TO AFFILIATION, PERMISSION / RECOGN ITI ON AND WAS CLAIMED TO BE PUBLIC RELATION EXPENDITURE. IT IS NOT IN DISPUTE THAT THE EXPENSES WERE TO WARDS HOTEL BILLS AND SHOW ROOM BILLS. IT IS POSSIBLE THAT THERE IS BUSINESS P URPOSE IN RESPECT OF HOTEL BILLS; BUT SUCH A VIEW CANNOT BE TAKEN IN RESPECT OF S HOWROO M BILLS WHICH DEFINITELY INVOLVE AN ELEMENT OF PERSONAL NATURE. TH EREF ORE, THE DISALLOWANCE AT 50% APPEARS TO BE ON THE HIGHER SIDE. HENCE THE AS SESSING OFFICER IS DIRECTED TO RESTRICT THE DISALLOWANCE TO 30% OF THE AMOUNT 'AIMED. ACCORDINGLY, ADDITION OF RS.3,93,264/ - IS CONFIRMED. THIS GROUND IS PARTLY ALLOWED. 2 7 . DURING THE APPEAL HEARING, THE LD.AR ARGUED THAT THE EXPENDITURE WAS WHOLLY LAID OUT FOR THE PURPOSE OF BUSINESS AND THE LD.DR SUPPORTED THE ORDER OF THE LD.CIT(A). 2 8 . WE HAVE HEARD RIVAL CONTENTIONS AND OBSERVED THAT THE EXPENSES WE RE MOSTLY FOR HOTEL BILLS AND PAYMENT FOR CLOTH SHOW ROOM BILLS. THE ASSESSEE FAILED TO SUBMIT THE DETAILS OF NAMES OF THE PERSONS FOR WHOM THE HOTEL BILLS WERE INCURRED AND THE RELATION BETWEEN THE ASSESSEE AND THE PERS ONS TO WHOM THE HOTEL BILLS WERE PAID. SIMILARLY, THE PURPOSE OF CLOTH PURCHASE AND UTILISAT I ON ETC. WAS ALSO NOT SUBSTANTIATED BY THE LD.AR. THEREFORE, WE HOLD THAT DISALLOWANCE OF 20% OF EXPENDITURE WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE RESTRICT THE DISALLOWANCE TO 20% OF THE EXPENDITURE. THE G ROUND OF THE ASSESSEE WAS PARTLY ALLOWED. 41 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM 2 9 . GROUND NO.7 FOR THE A.Y.2009 - 10 IS RELATED TO PAYMENT OF MUNICIPAL TAX. THE ASSESSEE MADE THE PAYMENT OF MUNICIPAL TAX TO GVMC IN RESPECT OF AIRPORT CAMPUS BUILDING IN VISAKHAPATNAM OWNED BY VEIL. IN THE AB SENCE OF AGREEM E N T AND PAYMENT OF HUGE RENT OF RS.6 .00 CRORES TO VEIL, THE AO VIEWED THAT THE PAYMENT OF MUNICIPAL TAXES ARE NOT ALLOWABLE DEDUCTION IN THE ABSENCE OF ANY SPECIFIC AGREEMENT TO THAT EFFECT , HENCE, DISALLOWED THE EXPENDITURE AND ADDED TO THE RETURNED INCOME. 30 . AGAINST THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO OBSERVING THAT IN THE ABSENCE OF ANY AGREEMENT, THE OWNER REQUIRED TO MAKE THE PAYMENT AS HELD IN P ARA NO.12.4, PAGE NO.26 OF THE CIT(A) ORDER, THE EXTRACT OF WHICH READS AS UNDER : 12.4. I HAVE CONSIDERED THE SUBMISSIONS MADE. THE PREMISES IS ADMITTEDLY NOT OWNED BY THE ASSESSEE AND THEREFORE, THE OBLIGATION TO PAY MUNICIPAL TAX IS NORMALLY ON THE OWN ER. MOREOVER, THE ASSESSEE PAYS RENT TO THE OWNER. IN THE ABSENCE OF AN AGREEMENT TO THE CONTRARY, NORMALLY THE OWNER IS REQUIRED TO BEAR THE TAX EXPENSES. THE ASSESSEE HAS NOT PROVED THE EXISTENCE OF ANY SUCH AGREEMENT OR ARRANGEMENT REQUIRING IT TO PAY T HE MUNICIPAL TAX. HENCE I AM OF THE VIEW THAT THE ASSESSING OFFICER IS JUSTIFIED IN MAKING THE DISALLOWANCE. ACCORDINGLY THE IMPUGNED ADDITION IS CONFIRMED. THIS GROUND IS DISMISSED. 3 1 . WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE MUNICIPAL TAXES ARE TO BE BORNE BY THE OWNER, BUT NOT BY THE 42 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM TENANT. IN THE INSTANT CASE, THE ASSESSEE HAS PAID THE RENT TO THE OWNER OF THE BUILDING AND THERE WA S NO SPECIFIC AGREEMENT BETWEEN THE ASSESSEE AND THE OWNER FOR PAYMENT OF MUNICI PAL TAXES IN ADDITION TO THE RENT. FURTHER THE AO HAS DISALLOWED THE SUM OF RS.2.00 CORES AS EXCESSIV E. THEREFORE, THE ISSUE OF PAY MENT OF RENT AND THE MUNICIPAL TAXES ARE INTERLINKED AND BOTH THE ISSUES TO BE CONSIDERED JOINTLY. SINCE, WE HAVE REMITTED THE ISSUE OF DISALLOWANCE U/S 40A(2) BACK TO THE FILE OF THE AO, WE DEEM IT FIT TO SEND THE ISSUE OF PAYMENT OF MUNICIPAL TAXES ALSO TO THE FILE OF THE AO AND DIRECT THE AO TO DECIDE THE ISSUE AFRESH ON MERITS. ACCORDINGLY, APPEAL OF THE ASSESSEE ON THE ISSUE OF PAYMENT OF MUNICIPAL TAXES IS ALLOWED FOR STATISTICAL PURPOSE . 3 2 . GROUND NO.4 FOR THE A.Y. 2010 - 11 IS RELATED TO MUNICIPAL TAXES PAID TO GVMC FOR A SUM OF RS.6,55,696/ - . FOR THE SAME REASONS D ISCUSSED IN 2009 - 10, WE REMIT THE MATTER BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION . 3 3 . GROUND NO.8 FOR THE A.Y.2009 - 10 IS RELATED TO THE ADDITION OF RS. 88,473/ - UNDER THE HEAD GUEST HOUSE ENTERTAINMENT EXPENDITURE. IN THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE CLAIMED THE GUEST HOUSE ENTERTAINMENT EXPENDITURE OF RS. 4,42,355/ - UNDER THE HEAD OFFICE 43 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM MAINTENANCE EXPENSES F OR VISAKHAPATNAM BRANCH. THE ASSESSEE EXPLAINED THAT THE GUEST HOUSE ACCOMMODATIONS ARE BEING MAINTAINED AT EVERY CAMPUS AND THE EXPEN SES TOWARDS THE OFFICIALS / AUTHORITIES VISITING CAMPUS BOTH WITHIN INDIA AND FROM OUTSIDE INDIA, PUBLIC RELATION OFFICERS, COUNSELS ETC. WERE DEBITED TO THE GUEST HOUSE EXPENDITURE. LD.AR SUBMITTED BEFORE THE AO THAT THE EXPENDITURE WAS WHOLLY AND EXCLUSI VELY LAID OUT FOR THE PURPOSE OF BUSINESS AND ACCORDINGLY REQUESTED TO ALLOW THE SAME AS BUSINESS EXPENDITURE. HOWEVER, THE AO FOUND THAT T HE ASSESSEE HAS NOT MAINTAINED THE PROPER BILLS, VOUCHERS AND THE DETAILS FOR THE EXPENSES, HENCE , DISALLOWED 20% OF THE EXPENSES AMOUNTING TO RS.88,473/ - . 3 4 . ON APPEAL, THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 10%. 3 5 . AGAINST THE ORDER OF THE LD.CIT(A), THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL PLACED BEFORE US. IT IS A FACT THAT THE ASSESSEE COULD NOT SUBMIT THE DETAILS SUCH AS NAME OF THE GUEST, DATE OF VISIT , RELATION OF THE GUESTS WITH THE COMPANY, PURPOSE OF VISIT, DATE WISE AND RELEVANT BILLS AND VOUCHERS FOR INCURRING THE EXPENDITURE . THEREFORE, THE LD.CIT(A) RESTRICTED THE 44 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM DISALLOWANCE TO 10% OF THE EXPENSES CLAIMED. TAKING INTO CONSIDERATION OF THE EXPLANATION OF THE LD.AR DURING THE APPEAL HEARING, WE FIND THAT THE DISALLOWANCE IS JUSTIFIED AND DO NOT FIND ANY REA SON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A), ACCORDINGLY WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE ON THIS GROUND. 3 6. GROUND NO.9 FOR THE A. Y .2009 - 10 IS RELATED TO CONFIRMING THE ADDITION OF RS.6,53,533/ - IN RESPECT OF LIBRARY BOOKS. THE AO MADE THE ADDITION RELATING TO LIBRARY BOOKS AS DISCUSSED IN PAGE NO.17 OF THE ASSESSMENT ORDER WHICH IS EXTRACTED AS UNDER : LIBRARY BOOKS: THE ASSESSEE CLAIMED EXPENDITURE OF RS.16,33,833 UNDER THE HEAD COLLEGE EXPENSES OF OAKRIDGE INTERNATIONAL SCHOOL, HYDERABAD BRANCH. THE ASSESSEE IS ASKED TO FURNISH THE DETAILS OF BOOKS PURCHASED FOR THE LIBRARY. THE ASSESSEE FURNISHED THE BILLS FOR PURCHASE OF BOOKS AND SUBM ITTED THAT THE THIS EXPENDITURE IS INCURRED TOWARDS COST OF JOURNALS, PERIODICALS, LITERATURE, BOOKS IN THE FORM OF CDS, QUESTIONS BANKS ETC. IT IS ALSO SUBMITTED THAT THE USAGE OF LIBRARY WAS OF SHORT TERM USE AND ELIGIBLE FOR 100% DEPRECIATION. BUT ON V ERIFICATION OF BILLS FURNISHED BY THE ASSESSEE IT IS NOTICED THAT THE BOOKS PURCHASED ARE MAINLY TEXTBOOKS, DICTIONARIES, MATHEMATICS FOR LB DIPLOMA, NOVELS ETC USEFUL FOR SEVERAL YEARS. THEREFORE, DEPRECIATION AS PER DEPRECIATION CHART IS ALLOWED AT THE R ATE OF 60% IS ALLOWED AND THE BALANCE AMOUNTING TO RS.6,53,533 IS DISALLOWED AND ADDED TO THE INCOME RETURNED. 3 7 . THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO OBSERVING THAT 100% DEPRECIATION IS ALLOWED IN THE CASE OF LENDING LIBRARIES. SINCE THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF LENDING LIBRARY, THE LD.CIT(A) HELD THAT AS PER RULES, THE ASSESSEE IS ENTITLED FOR DEPRECIATION OF 60%, 45 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM ACCORDINGLY CONFIRMED THE ORDER OF THE AO. AGAINST WHICH THE ASSESSEE FILED THE APPEAL . 3 8 . WE HAVE CONSI DERED THE RIVAL SUBMISSIONS . A S PER INCOME TAX R ULES AND THE DEPRECIATION SCHEDULE , T HE DEPRECIATION IS ALLOWABLE @100% IN THE BUSINESS OF RUNNING LENDING LIBRARIES. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE IS NOT RUNNING THE BUSINESS OF LENDING LIBRARY. THE ALLOWABLE D EPRECIATION IS ONLY 60% IN THE BUSINESS OTHER THAN LENDING LIBRARIES. THEREFORE , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. IDENTICAL ISSUE IS INVOLVED FOR THE ASSESSMENT YEAR 2010 - 11 ALSO. SINCE FACTS ARE IDENTICAL WE, UPHOLD THE ORDER OF THE L D .CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE ON DEPRECIATION OF LIBRARY BOOKS FOR THE A.Y.2009 - 10 AND 2010 - 11. A.Y. 2010 - 11 . 3 9 . GROUND NO.5 FOR THE A.Y. 2010 - 11 IS RELATED TO C HIEF MINISTERS RELIEF FUND. SINCE THE ISSUE IS REMITTED BACK TO THE FILE OF THE AO, THE LD.AR HAS NOT PRESSED THIS GROUND, HENCE THIS GROUND IS DISMISSED AS NOT PRESSED. 40 . GROUND NO.6 FOR THE A.Y.2010 - 11 IS RELATED TO THE RECRUITMENT EXPENSES. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE 46 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM ASSESSEE HAS WRONGLY CLAIMED THE EXPENDITURE RELATING TO M/S PEOPLE COMBINE GROUP TO THE TUNE OF RS.3,74,153/ - AND ADDED BACK TO THE INCOME. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION. 41 . WE HAVE HE ARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. AS OBSERVED FROM THE ORDER OF THE LD.CIT(A), THE ASSESSEE HAS WRONGLY CLAIMED THE EXPENSES PERTAINING TO M/S PEOPLE COMBINE GROUP . N O EVIDENCE ADDUCED BY THE LD.AR DURING THE APPEAL HEARING TO SUBSTANTIATE THAT THE EXPENSES ARE TO BE INCURRED IN THE HANDS OF THE ASSESSEE. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. 4 2 . GROUND NO.8 FOR THE A.Y.2010 - 11 IS RELATED TO MUSICAL INSTRUMENT EXPENSES OF RS.1,49,583/ - , W HICH WAS ADDED TO THE RETURN ED INCOME. THE AO FOUND THAT THE ASSESSEE HA D DEBITED THE SUM OF RS.1,75,980/ - TOWARDS PUR CHASE OF MUSICAL INSTRUMENTS, THE EXPENDITURE BEING CAPITAL IN NATURE, T HE AO ALLOWED THE DEPRECIATION @15% WHICH WORKS OUT TO RS.26,397/ - AND THE BALANCE AMOUNT OF RS.1,49,583/ - WAS DISALLOWED AND ADDED BACK TO THE INCOME. 47 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM 4 3 . ON APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO OBSERVING THAT THE ASSESSEE DID NOT ESTABLISH THAT THE INDIVIDUAL COST OF ITEMS WERE LESS THAN RS.5000, THEREFORE, CONFIRMED THE ACTION OF THE AO. 4 4 . DURING THE APPEAL HEARING, ALSO EXCEPT PLEADING FOR ALLOWING THE EXPENDITURE, THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT THE C OST OF EACH ITEM WA S LESS THAN RS.5000/ - . SINCE THE MUSICAL INSTRUMENTS ARE CAPITAL EXPENDITURE, AS PER THE R U L ES, THE DEPRECIATION IS ALLOWABLE @15% . HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. 42. IN THE R ESULT, APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2019 S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 30 .10.2019 L.RAMA, SPS 48 I.T.A. NO.385/VIZ/2014 AND 386/VIZ/2014, A.Y.2009 - 10 & 2010 - 11 M/S VIKAS EDUCATIONAL SOCIETY, VISAKHAPATNAM / COPY OF THE ORDER FORWARDED TO: - 1. / THE ASSESSEE - M/S VIKAS EDUCATIONAL SOCIETY, D.NO.8 - 1 - 97/1/8, NINITAAS HIGH, PEDAWALTAIR, VISAKHAPATNAM 2 . / THE REVENUE THE INCOME TAX OFFICER, WARD - 3(2), VISAKHAPATNAM 3. THE COMMISSIONER OF INCOME TAX - 1, VISAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX (APPEALS), VISAKHAPATNAM 5. , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM