SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, Jaipur V. ITO (EXEMPTION), Alwar

ITA 462/JPR/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9663 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 01-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA JHA CIT DHK
• Assessee Lawyers: O P AGARWAL CAS
• Keywords: Set aside
• Section: 271(1)(c)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH B, JAIPUR JH JES'K LH- 'KEKZ] YS[KK LNL; ,O A H JH FOT; IKY JKWO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA-@ ITA NO. 462/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15. M/S. SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, PATAN AHIR, BIBIRANI, KOTKASIM, ALWAR. CUKE VS. THE INCOME TAX OFFICER (EXEMPTION) ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AADAS 1061 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL & SHRI O.P. AGARWAL (CAS) JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJENDRA JHA (ADDL. CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 24.04.2019. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 20/06/2019. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 23 RD MARCH, 2017 OF LD. CIT (A), ALWAR FOR THE ASSESSMENT YEAR 2014-15. THE ASSESSEE SOCIETY FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSI DERATION ON 5 TH SEPTEMBER, 2014 DECLARING TOTAL INCOME AT NIL AFTER CLAIMING DEDUCT ION/EXEMPTION UNDER SECTION 10(23C)(IIIAD) OF THE IT ACT. THE AO WHILE COMPLET ING THE ASSESSMENT, DISALLOWED THE CLAIM OF EXEMPTION UNDER SECTION 10(23C)(IIIAD) ON THE GROUND THAT THE OBJECTS OF THE ASSESSEE SOCIETY ARE NOT ESTABLISHED THAT TH E ASSESSEE INSTITUTION EXISTS SOLELY FOR EDUCATION PURPOSES. THE AO ALSO MADE DISALLOWAN CE @ 10% OF THE EXPENDITURE. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILE D APPEAL BEFORE THE LD. CIT (A) 2 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. BUT COULD NOT SUCCEED. CHALLENGING THE ORDERS OF TH E AUTHORITIES BELOW, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT (A) HAS GROSSLY ERRED IN CONFIRMING THE ACTION OF LD. A O OF WITHDRAWING THE EXEMPTION CLAIMED U/S 10(23C)(IIIAD ) ARBITRARILY. 1.1. THAT, THE LD. CIT (A) HAS FURTHER ERRED IN HOLDING THAT THE APPELLANT SAMITI WAS NOT EXISTED SOLELY FOR EDUCATI ONAL PURPOSE WITHOUT APPRECIATING THE NATURE OF ACTIVITY CARRIED ON BY IT, THUS THE ACTION OF LD. CIT (A) IN WITHDRAWING THE EXEMPT ION U/S 10(23C)(IIIAD) DESERVES TO BE HOLD BAD IN LAW AND C ONSEQUENTLY ASSESSEE BE ALLOWED THE EXEMPTION SO CLAIMED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT (A) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF RS. 7,00,010/- OUT OF EXPENSES CLAIMED ARBITRARILY THUS THE SAME D ESERVES TO BE DELETED. 2.1. THAT THE LD. CIT (A) HAS FURTHER ERRED IN IGNO RING THE FACT THAT LD. AO IN BODY OF ORDER HAS DISALLOWED A SUM OF RS. 3,33,242/- BEING 10% OF TOTAL EXPENSES CLAIMED HOWEVER, MADE T HE DISALLOWANCE OF RS. 7,00,010/- IN COMPUTATION OF IN COME WHICH FACT HAS NOT BEEN CONSIDERED BY LD. CIT (A) WHILE C ONFIRMING THE DISALLOWANCE OF RS. 7,00,010/-. 3. THAT THE APPELLANT CRAVES THE RIGHT TO ADD, DELE TE, AMEND OR ABANDON THE GROUND OF THIS APPEAL AT THE TIME OR BE FORE THE ACTUAL HEARING OF THE CASE. GROUND NO. 1 TO 1.1 IS REGARDING DISALLOWANCE OF CL AIM OF EXEMPTION UNDER SECTION 10(23C)(IIIAD) OF THE IT ACT. 2. THE ASSESSEE SOCIETY CLAIMED AS AN EDUCATIONAL I NSTITUTION AND IMPARTING EDUCATION BY RUNNING SCHOOL AND COLLEGE IN THE NAME OF SHARMA MODERN SENIOR SECONDARY SCHOOL AND SHARMA MODERN MAHILA COLLEGE R ESPECTIVELY. THE AO HAS CONSIDERED THE OBJECTS OF THE ASSESSEE SOCIETY AND FOUND THAT THE ASSESSEE DOES NOT EXISTS SOLELY FOR EDUCATION PURPOSES AS THERE ARE V ARIOUS OTHER OBJECTS WHICH HAVE NO 3 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. CONNECTION WITH IMPARTING THE EDUCATION. THUS THE AO DISALLOWED THE CLAIM OF EXEMPTION UNDER SECTION 10(23C)(IIIAD) OF THE ACT. THE LD. CIT (A) HAS CONCURRED WITH THE VIEW OF THE AO. 3. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT THE ASSESSEE SOCIETY RUNNING SCHOOL AND COLLEGE AND GROSS RECEIPT FROM B OTH THE INSTITUTIONS DURING THE YEAR UNDER CONSIDERATION WAS RS. 70,00,107/-. OUT O F SUCH GROSS RECEIPT, A SUM OF RS. 46,44,841/- WAS APPLIED FOR THE PURPOSE OF INST ITUTION IN THE SHAPE OF EXPENDITURES INCURRED FOR RUNNING SCHOOL AND COLLEG E AND THE SURPLUS AMOUNT OF RS. 23,55,266/- WAS CLAIMED AS EXEMPT UNDER SECTION 10( 23C)(IIIAD) OF THE ACT. THE LD. A/R HAS SUBMITTED THAT THE ENTIRE GROSS RECEIPT OF THE ASSESSEE SOCIETY IS FROM RUNNING OF EDUCATIONAL INSTITUTION AND, THEREFORE, THE ASSESSEE IS WHOLLY AND EXCLUSIVELY EARNING INCOME FROM THE ACTIVITY OF IMP ARTING EDUCATION. THUS THE LD. A/R HAS CONTENDED THAT WHEN THE ASSESSEE HAS CARRIED OU T THE ONLY ACTIVITY OF IMPARTING EDUCATION AND RUNNING THE SCHOOL AND COLLEGE, THEN THE OTHER OBJECTS IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE CONTAININ G THE OBJECTS OF THE SOCIETY ARE IRRELEVANT FOR THE PURPOSE OF EXEMPTION UNDER SECTI ON 10(23C)(IIIAD) OF THE ACT. HE HAS FURTHER SUBMITTED THAT BECAUSE THE TRUST DEED O F THE ASSESSEE SHOWED THE OBJECTS OTHER THAN EDUCATION, IT CANNOT BE SAID THA T IT DOES NOT EXISTS SOLELY FOR THE PURPOSE OF EDUCATION. IN SUPPORT OF HIS CONTENTION , HE HAS RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF GEETANJA LI EDUCATION SOCIETY VS. ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTIONS), 223 TAXMAN 167 (KAR.) AS WELL AS THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF VANITA VISH RAM TRUST VS. CHIEF COMMISSIONER OF INCOME TAX, 327 ITR 121 (BOM.) AND SUBMITTED THAT SO FAR AS THE ASSESSEE CONDUCTING EDUCATIONAL ACTIVITY ONLY DURIN G THE YEAR UNDER CONSIDERATION, 4 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. THE MERE FACT THAT CERTAIN OTHER OBJECTS WERE MENTI ONED IN THE TRUST DEED WOULD NOT ENTITLE THE ASSESSEE FOR CLAIMING EXEMPTION UNDER S ECTION 10(23C)(IIIAD) OF THE ACT. THE LD. A/R HAS ALSO RELIED UPON THE DECISION OF HO NBLE KERALA HIGH COURT IN CASE OF BRAHMIN EDUCATION SOCIETY VS. ACIT, 227 ITR 317 (KE RALA). 4. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T IT IS A PRE-CONDITION FOR CLAIMING THE EXEMPTION UNDER SECTION 10(23C)(IIIAD) THAT THE INSTITUTION EXISTS SOLELY FOR EDUCATION PURPOSES AND NOT FOR THE PURPOSE OF P ROFIT. IN THE OBJECT CLAUSES OF THE ASSESSEES TRUST DEED, THERE ARE NUMBER OF OTHE R OBJECTS OTHER THAN EDUCATION AND, THEREFORE, THE EXISTENCE OF THE ASSESSEE SOCIE TY IS NOT SOLELY FOR EDUCATION PURPOSES. HE HAS RELIED UPON THE ORDERS OF THE AUTH ORITIES BELOW AND SUBMITTED THAT THE AO HAS RELIED UPON VARIOUS DECISIONS ON THIS IS SUE AND, THEREFORE, THE VIEW TAKEN BY THE AO IS BASED ON THE VARIOUS PRECEDENTS. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE AO HAS REPRODUCED THE OBJECTS OF THE AS SESSEE SOCIETY IN THE ASSESSMENT ORDER IN PARA 5.1 AS UNDER :- 1- FK{K.K LALFKK RDUHDH IZFK{K.K DSUNZ [KQYOKUK] FTLESA JKSTXKJ LECU/KH DKSLZ TSLS FQVJ BYSDVHFK;U] BYSDVKSFUDL] VHOH JS FM;KS EKHFU'V VUZJ] MHTY ESDSFUD] OSYMJ] ISAVU] JSFQTSJSKU] ,;JDUMHKUJ] DF VAX] VSYFJAX] IYECJ] EKSCKBZY FJIS;J] DEI;WVJ] LKWQVOS;J O GKMZOS;J VKFN LHKH IZDKJ DS RDUHDH LACA/KH DKSLZ PYKUKA 2- XZKEH.K O 'KGJH {KS= ESA FK{KK DK IZPKJ IZLKJ D JUK ,OA FK{K.K LALFKKU [KKSYUKA 3- CPPKSA DKS UOKSN; LDWY O LSFUD LDWY DS FY, RS;KJ DJUKA 4- LEKT DH CQJKBZ;KSA] CK/KKVKSA VKSJ XJHCKSA DKS L EKIR DJUK RFKK YKSXKSA ESA 'KQ}RK VKSJ VPNH THU DH NKK;S YKUKA 5 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. 5- NK=KSA DH IGWAWP ESA RDUHDH FK[KK DK LCLS VPNK LRJ MIYC/K DJKUS DS FY;S VKS|KSFXD IZFK{K.KA LALFKKU] O;KOLKF;D] ,DSMFED] ESFMDY] RDUHDH LALFKK; S VKSJ IZCU/KU DH FK{KK LFKKFIR O O;OLFKK DJUKA 6- DEI;WVJ FOKKU TSLS FOFHKUU FK{KKVKSA DH O;OLFKK VKSA DS FY, IZFK{K.K LALFKKVKSA ,OA FK{KKVKS DH LFKKIUK DJUKA 7- JKSTXKJKSA DS FY, LE; LE; IJ DSEI YXKUK RFKK MUG SA JKSTXKJ DS FY, RDUHDH FK{KK IZNKU DJUKA 8- HKKJRH; TURK VKSJ FONSKKSA ESA IXZKE DQFVJ M|KS XKSA DK FU;KSTU DS OH VKBZ LH@ DS OH VKBZ IH DS EK/;E LS CSJKSTXKJ UKSTOKUKSA DS F Y, FUNSZKU VKSJ IZFK{K.K DSUNZ LFKKFIR DJ RKFD MUESA LOKOYECJ DH {KERK VKSJ VIUH DQKYRK DS VUQLKJ LDKJKRED DK;Z DJUKA 9- LEKT ESA O;KIR DQJHFR;KSA DKS NWJ DJUS GSRQ TKX: DRK YKUS DK IZ;KL DJUK LEKT ESA VKIL ESA LKSGNZ O CU/KQRO DH HKKOUK ISNK D JUS GSRQ IZ;KJ DJUKA 10- VUKFKY;KSA] O`}KJEKSA] VOL;DX`G] FO/KOK] IFJR;K DRK] XZKEKSA F;KKHY EFGYK X`GKSA DK PYKUK] ,ML JKSFX;KSA IJ FOKS'K /;KU NSUKA 11- XZKEH.K {KS=KSA ESA I;KZOJ.K LQ/KKJ IZNQ'K.K LS CPUS DS FY, O`{KKJKSI.K DJUK ,OA D`F'K DH UBZ RDUHDH DH TKUDKJH NSUK O D`F'K HKWFE DKS MIT K CUKUS GSRQ UBZ RDUHD DK IZFK{K.K NSUKA 12- XZKEH.K {KS=KSA ESA I'KQVKSA DS J[K&J[KKO ULY L Q/KKJ I'KQ VKGKJ RFKK I'KQVKSA DH CHEKJH O MUDS FUNKU DS LACA/K ESA D`'KDSKA DKS TKUD KJH NSUK O I'KQ/KU LS LACAF/KR FOFHKUU IZDKJ DS IKBEKSA DK LAPKYU DJ I'K Q/KU DH O`F} DJUKA 13- LALFKK ESA UFLAZX O ESFMDY DKWYST FMXZH DKWYST CH ,M DKYSTU ,LVHLH DKYST D`F'KHKWFE O CATJ HKWFE DKS DUOJV DJKDJ CUKDJ LAPKYU DJUKA 14- E:FKY DKS JKSDUS DS FY, O`{KKJKSI.K] TY LAJ{K.K ] TY XZG.K O'KKZ TY LAJ{K.K DJUK O LALK/KUKSA GSRQ HKWFR ; DJUK HKOU DK;KZY;KS A DK FUEKZ.K O LAPKYU DJUKA 15- LALFKK DS M}S;KSA DH IWFRZ DS FY, HKWFE O LALK /KUKSA DH [KJHNJ RFKK HKOU] DK;KZY; DSUNZ VKFN FUEKZ.K DS FY, LALFKK VIUH PY O VPY LEIFR DKS N`F'V 6 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. CU/KD DJ JK'VH;D`R CSADKSA] IATHD`R CSADKSA RFKK V U; FOR LALFKKVKSA LS _.K IZKIR DJ LDSXHA IZKIR JKFK DS PQDRK GKSUS IJ LALFKK DH L EIFR LQJF{KR DCTS TH TKOSXHA THUS IT IS CLEAR THAT OBJECT NOS. 1 TO 7 ARE RELATI NG TO THE ACTIVITY OF IMPARTING EDUCATION AND THE OBJECT NOS. 8 TO 15 ARE IN RESPEC T OF OTHER CHARITABLE ACTIVITIES NOT RELATED TO EDUCATION. BASED ON THESE MULTIPLE OBJE CTS OF THE ASSESSEE SOCIETY, THE AO HELD THAT THE ASSESSEE SOCIETY DOES NOT EXISTS S OLELY FOR EDUCATION PURPOSES AND CONSEQUENTLY DENIED THE CLAIM OF EXEMPTION UNDER SE CTION 10(23C)(IIIAD) OF THE IT ACT. AS REGARDS THE DECISIONS RELIED UPON BY THE A O, THERE IS NO QUARREL THAT THE CLAIM OF EXEMPTION UNDER SECTION 10(23C)(IIIAD) CAN BE ALLOWED ONLY WHEN THE INSTITUTION EXISTS SOLELY FOR EDUCATION PURPOSES AN D NOT FOR ANY OTHER ACTIVITY OR PURPOSE AND MORE SO NOT FOR PURPOSES OF PROFIT. EV EN IF WE LOOK INTO ALL THE OBJECTS OF THE ASSESSEE INSTITUTION, NONE OF THE OBJECTS IS FALLING IN THE CATEGORY OF OBJECT OF PROFIT AS ALL THE OBJECTS ARE CHARITABLE IN NATURE. HOWEVER, THE REQUIREMENT FOR ALLOWING THE EXEMPTION UNDER SECTION 10(23C)(IIIAD) IS THE INSTITUTION MUST BE AN EDUCATIONAL INSTITUTION AND EXISTS SOLELY FOR EDUCA TION PURPOSES. EVEN IN CASE OF AN INSTITUTION EXISTS FOR EDUCATION PURPOSES BUT WITH THE MOTIVE OF PROFIT, THEN THE CLAIM OF EXEMPTION UNDER SECTION 10(23C)(IIIAD) IS NOT AL LOWABLE BEING NOT SATISFYING THE SECOND CONDITION BEING NOT FOR PURPOSES OF PROFIT. IN THE CASE IN HAND, THE AO HAS NOT FOUND OR HELD THAT THE ASSESSEE IS EXISTS FOR T HE PURPOSE OF PROFIT, BUT SINCE SOME OF THE OBJECTS OF THE ASSESSEE ARE OF NON EDUC ATION PURPOSES, THEREFORE, THE CLAIM WAS DISALLOWED. ON THIS POINT, THE DECISION IN CASE OF GEETANJALI EDUCATION SOCIETY VS. ACIT (SUPRA) IS RELEVANT AND THE HONBL E KARNATAKA HIGH COURT IN PARA 13 HAS OBSERVED AS UNDER :- 7 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. 13. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE SOCIETY HAS BEEN CONDUCTING THE PRIMARY AND SECONDARY SCHOOL IN THE STATE OF KARNATAKA SINCE 2002. NOR IS THERE ANY DISPUTE BEFORE US THAT SAVE AND EXCEPT FOR CONDUCTING SCHOOL, THE SOCIETY HAS CARRIED ON ANY OTHER ACTIVI TIES SINCE THEN. WITHOUT EXPRESSING ANY OPINION WHETHER THE OBJECT, AS REFLE CTED IN CLAUSES 3(B) AND 3(H) OF THE MEMORANDUM OF ASSOCIATION, ARE RELATED TO EDUCATION, IT IS CLEAR THAT SAVE AND EXCEPT EDUCATIONAL ACTIVITY THE ASSES SEE DID NOT/DO NOT CARRY ON ANY OTHER ACTIVITY IS THE FACT, WHICH IS NOT IN DIS PUTE. IN OTHER WORDS, THOUGH THE ACTIVITIES AS REFLECTED IN CLAUSES 3(B) AND 3(H ), MAY CONSTITUTE THE PURPOSE, OTHER THAN THE EDUCATIONAL PURPOSE, BUT, D URING THE RELEVANT ASSESSMENT YEAR, IT IS NOT THE CASE OF THE REVENUE NOR IS THERE ANY MATERIAL TO SHOW, THAT THE SOCIETY WAS RUNNING ANY ACTIVITIES O THER THAN THE EDUCATIONAL ACTIVITY. IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THAT THE VIEW TAKEN BY THE TRIBUNAL IS NOT CORRECT AND DESER VES TO BE SET ASIDE. THERE ARE ADEQUATE SAFEGUARDS THAT IF THE ACTIVITIES OTHE R THAN EDUCATIONAL ACTIVITIES ARE UNDERTAKEN BY THE SOCIETY, EXEMPTION GRANTED CA N BE WITHDRAWN. MERELY, BECAUSE THERE EXISTS OBJECT, WHICH IS NOT RELATED T O EDUCATIONAL ACTIVITIES, IN OUR OPINION, IS NOT SUFFICIENT TO DENY THE EXEMPTIO N/BENEFIT OF SECTION 10(23C)(IIIAD) OF THE ACT. IN SHORT, IN THE ABSENCE OF ANY ALLEGATION OR MATERIAL AGAINST THE SOCIETY SHOWING THAT THEY ARE INVOLVED IN ANY OTHER ACTIVITIES THAN THE EDUCATIONAL ACTIVITIES, IN OUR OPINION, IT CANNOT BE DENIED EXEMPTION UNDER SECTION 10(23C)(IIIAD). IN THE CIRC UMSTANCES, WE ANSWER BOTH THE SUBSTANTIAL QUESTIONS OF LAW IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THUS THE HONBLE HIGH COURT HAS HELD THAT IF THE SO CIETY HAS CARRIED ONLY ACTIVITY OF RUNNING EDUCATIONAL INSTITUTION THEN EVEN IF THERE ARE OTHER OBJECTS IN THE MEMORANDUM OF ASSOCIATION, THE BENEFIT OF SECTION 1 0(23C)(IIIAD) CANNOT BE DENIED. THEREFORE, IN THE ABSENCE OF ANY OTHER ACTIVITY CAR RIED OUT BY THE ASSESSEE OTHER THAN EDUCATIONAL ACTIVITY, THE EXEMPTION UNDER SECT ION 10(23C)(IIIAD) CANNOT BE DENIED. SIMILARLY, THE HONBLE BOMBAY HIGH COURT I N CASE OF VANITA VISHRAM TRUST VS. CHIEF COMMISSIONER OF INCOME TAX (SUPRA) HAS HE LD IN PARA 11 AS UNDER :- 8 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. 11. THE FACT THAT THE TRUST EXISTS SOLELY FOR EDUCATIO NAL PURPOSES IS EVIDENCED FROM THE ASSESSMENT ORDERS FOR ASSESSMENT YEARS 2000-01 AND 2006-07, COPIES OF WHICH FORM A PART OF THE RECORD BEFORE THE COURT. BOTH THESE ORDERS WHICH HAVE BEEN MADE UNDER SECTION 143 (3) OF THE ACT, CONTAIN A STATEMENT TO THE EFFECT THAT THE ASSESSEE IS RUNN ING SCHOOLS WITH GUJARATI AND ENGLISH AS MEDIA OF INSTRUCTION AT THE PRIMARY AND SECONDARY STAGE AND THAT THE ASSESSEE ALSO CONDUCTS A COLLEGE FOR GIRLS WITH THE SOLE INTENT OF IMPARTING EDUCATION. THE RECORD OF THESE PROCEEDING S ALSO CONTAINS A JUDGMENT OF A DIVISION BENCH OF THIS COURT DATED 29 -6-2005 IN A REFERENCE UNDER SECTION 256(1) TO WHICH THE PETITIONER WAS TH E APPLICANT. THE ISSUE BEFORE THE COURT IN THE REFERENCE WAS WHETHER THE A SSESSEE WAS ENTITLED TO EXEMPTION UNDER SECTION 10(22) ON INTEREST EARNED O N SURPLUS FUNDS OF THE SCHOOL RUN BY THE TRUST FOR ASSESSMENT YEARS 1979-8 0 AND 1980-81. THE DIVISION BENCH OBSERVED THAT MERELY BECAUSE A CERTA IN SURPLUS AROSE FROM THE OPERATIONS OF THE TRUST, IT COULD NOT BE HELD THAT THE INSTITUTION WAS RUN FOR THE PURPOSE OF PROFIT, SO LONG AS NO PERSON OR INDI VIDUAL WAS ENTITLED TO ANY PORTION OF THE PROFIT AND THE PROFIT WAS UTILIZED F OR THE PURPOSE OF PROMOTING THE OBJECTS OF THE INSTITUTION. THE INCOME OF THE T RUST WAS, THEREFORE, HELD TO BE EXEMPT UNDER SECTION 10(22). THE DIVISION BENCH FOLLOWED THE DECISION OF THE SUPREME COURT IN ADITANAR EDUCATIONAL INSTITUTI ON V. ADDL. CIT [1997] 224 ITR 310 AND NOTED AS A PRINCIPLE OF LAW THAT IF AFTER MEET ING THE EXPENDITURE, A SURPLUS RESULTS INCIDENTALLY FROM AN ACTIVITY LAW FULLY CARRIED ON BY THE EDUCATIONAL INSTITUTION, THE INSTITUTION WOULD NOT CEASE TO BE ONE WHICH IS EXISTING SOLELY FOR EDUCATIONAL PURPOSES SINCE THE OBJECT IS NOT TO MAKE PROFIT. THE DIVISION BENCH ALSO OBSERVED THAT IF THE TRUST EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND CONDUCTS AN EDUCATIONAL INSTITUTION, T HE FACT THAT IT HAD OTHER OBJECTS WOULD NOT DISENTITLE IT TO THE EXEMPTION SO LONG AS THE ACTIVITY CARRIED OUT BY IT IN THAT ASSESSMENT YEAR WAS THAT OF RUNNI NG AN EDUCATIONAL INSTITUTION AND NOT FOR PROFIT. THE COURT OBSERVED THAT THE ASSESSEE HAD EXISTED ONLY FOR EDUCATIONAL PURPOSES WHICH CONSIST ED OF RUNNING EDUCATIONAL INSTITUTION AND NOT FOR EARNING PROFITS. THE OBSERV ATIONS OF THE DIVISION BENCH WHICH HAVE BEEN MADE IN THE CONTEXT OF SECTION 10(2 2) WOULD FURNISH A COGENT ANSWER TO BOTH THE ISSUES ON WHICH THE APPLI CATIONS FOR APPROVAL WERE REJECTED BY THE FIRST RESPONDENT. FIRSTLY, THOUGH T HE MEMORANDUM OF 9 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. ASSOCIATION CONTAINS VARIED OBJECTS, SO LONG AS THE RECORD DEMONSTRATES THAT THE ASSESSEE ONLY CONDUCTS EDUCATIONAL INSTITUTIONS , IT MUST BE REGARDED AS EXISTING SOLELY FOR THE PURPOSE OF EDUCATION. NO OT HER ACTIVITY IS CARRIED ON. SECONDLY, THE FACT THAT A SURPLUS MAY INCIDENTALLY ARISE FROM THE ACTIVITIES OF THE TRUST, AFTER MEETING THE EXPENDITURE INCURRED F OR CONDUCTING EDUCATIONAL ACTIVITIES WOULD NOT DISENTITLE THE TRUST OF THE BE NEFIT OF THE PROVISIONS OF SECTION 10(23C). IN THE CASE IN HAND, THOUGH THE ASSESSEE HAS CLAIME D THAT THE ENTIRE GROSS RECEIPT IS EARNED FROM THE ACTIVITY OF RUNNING THE SCHOOL AND COLLEGE AND NO OTHER ACTIVITY HAS BEEN CARRIED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, HOWEVER, NEITHER THE AO NOR THE LD. CIT (A) HAS EXAMINED THIS FACT D UE TO THE REASON THAT THE CLAIM OF EXEMPTION UNDER SECTION 10(23C)(IIIAD) WAS DENIED A T THRESHOLD BY CONSIDERING THE OBJECTS OF THE ASSESSEE AND WITHOUT GOING INTO THE ACTIVITY ACTUALLY CARRIED OUT BY THE ASSESSEE. HENCE IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE FIND THAT THE MATTER REQUIRES A PROPER VERIFICATION AND RECONSIDERATION AT THE LEVEL OF THE AO ON THE POINT WHETHER THE ASSESSEE HAS CARRIED OUT ONLY EDUCATION AL ACTIVITY DURING THE YEAR UNDER CONSIDERATION OR ANY OTHER ACTIVITY WAS ALSO CARRIE D OUT BY THE ASSESSEE. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE RECORD OF THE AO FOR VERIFICATION AND RE- ADJUDICATION OF THE SAME IN THE LIGHT OF ABOVE OBSE RVATIONS MADE IN THE DECISIONS, AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSES SEE. GROUND NO. 2 AND 2.1 IS REGARDING DISALLOWANCE OF E XPENDITURE OF RS. 7,00,010/-. 6. THE LD. A/R HAS SUBMITTED THAT IN THE ASSESSMENT ORDER THE AO HAS MADE A DISALLOWANCE OF 10% OF THE EXPENDITURE WHICH COMES TO RS. 3,33,242/-. HOWEVER, 10 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. WHILE COMPUTING THE INCOME, THE AO HAS MADE A DISAL LOWANCE OF RS. 7,00,010/- WHICH IS CONTRARY TO THE FINDING OF THE AO. 7. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED THA T THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNT TO SUPPORT THE CLAIM OF E XPENDITURE. THEREFORE, THE AO HAS MADE THE DISALLOWANCE OF THE SAID EXPENDITURE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CARE FUL PERUSAL OF RECORD, WE NOTE THAT THE AO OBSERVED THAT THE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNT AND ALSO NOT COMPLIED WITH THE NOTICES ISSUED. ACCO RDINGLY, THE AO MADE DISALLOWANCE @ 10% OF THE EXPENDITURE. HOWEVER, IN THE COMPUTATION OF INCOME THE AO HAS ADDED ON ACCOUNT OF DISALLOWANCE OF EXPE NDITURE A HIGHER AMOUNT THAN THE AMOUNT COMPUTED BEING 10%. THE RELEVANT PART OF THE ASSESSMENT ORDER IN PARA 10 & 11 ARE AS UNDER :- 10. BOOKS OF ACCOUNTS: VIDE LETTER DATED 31.08.2016, THE ASSESSEE WAS REQU ESTED TO PRODUCE BOOKS OF ACCOUNTS ON 14.09.2016 BUT NO COMP LIANCE WAS MADE THOUGH WRITTEN REPLY WAS FILED ON 14.09.20 16. THEREFORE ONE MORE OPPORTUNITY WAS PROVIDED VIDE LE TTER NO. 1141, DATED 26.09.2016 BUT THIS TIME ALSO NO COMPLI ANCE WAS MADE BY THE DUE DATE I.E. 04.10.2016. CONSIDERING THE ABOVE FACTS AND NON VERIFICATION OF EXPENSES CLAIMED BY THE ASSESSEE, I FOUND IT FIT AND APPROPR IATE TO DISALLOW 10% OF THE EXPENSES CLAIMED RESULTING IN A DDITION OF RS. 3,33,242/- TO THE INCOME OF THE ASSESSEE. 11 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T. ACT A RE INITIATED SEPARATELY FOR CONCEALMENT AND FURNISHING INACCURAT E PARTICULAR OF INCOME. 11. SUBJECT TO ABOVE, THE TOTAL INCOME OF THE ASSES SEE IS COMPUTED AS UNDER :- SURPLUS AS PER P & L ACCOUNT RS. 23,55,266/- ADD: DISSALLOWANCE OUT OF EXPENSES CLAIMED RS. 7,00,010/- TOTAL INCOME RS. 30,55,276/- ROUNDED OFF RS. 30,55,270/- IT IS MANIFEST FROM THE FINDING OF THE AO THAT WHIL E DISCUSSING THE ISSUE, THE AO MADE 10% DISALLOWANCE WHICH COMES TO RS. 3,33,242/- WHEREAS IN THE COMPUTATION OF INCOME, THE AO HAS TAKEN THE AMOUNT OF RS. 7,00, 010/- AND THERE IS NO DISCUSSION ABOUT THE SAID AMOUNT. ACCORDINGLY, IT APPEARS THAT THIS AMOUNT OF RS. 7,00,010/- IS NOT BASED UPON ANY DECISION OF THE AO, RATHER IT IS CONTRARY TO THE FINDING AND DISCUSSION OF THE AO ON THIS ISSUE. HENCE, WE REST RICT THIS DISALLOWANCE TO 10% BEING RS. 3,33,242/-. WE MAY CLARIFY THAT SINCE TH E ISSUE IS CONSEQUENTIAL TO THE DENIAL OF EXEMPTION UNDER SECTION 10(23C)(IIIAD), A CCORDINGLY THIS DISALLOWANCE OF 10% IS SUBJECT TO OUT-COME OF THE FIRST ISSUE SET A SIDE TO THE RECORD OF THE AO. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 20/06/20 19. SD/- SD/- ( JES'K LH- 'KEKZ ) ( FOT; IKY JKWO (RAMESH C. SHARMA ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 20/06/2019. DAS/ 12 ITA NO. 462/JP/2017 SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S. SHARMA MODERN PUBLIC SCHOOL SHIKSHA SAMITI, ALWAR. 2. THE RESPONDENT THE ITO (EXEMPTIONS), ALWAR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 462/JP/2017) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR