Vidya Education Investments Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 6177/DEL/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5667 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH YADAV; MUKESH BANSAL
• Keywords: Business expenditure; Charitable institution; Additional evidence; Valuation report
• Section: 142(1); 12A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES D : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA.NO.6177/DEL./2014 ASSESSMENT YEAR 2010-2011 VIDYA EDUCATION INVESTMENTS PVT. LTD., 5C, FRIENDS COLONY (WEST), MAIN MATHURA ROAD, NEW DELHI 110 065. PAN AABCV9413E VS THE INCOME TAX OFFICER, WARD-17(3), NEW DELHI. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI PRAKASH YADAV, ADVOCATE & SHRI MUKESH BANSAL, C.A. FOR REVENUE : SHRI AMIT JAIN, SR. D.R. DATE OF HEARING : 28.05.2018 DATE OF PRONOUNCEMENT : 22.06.2018 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-19, NEW DELHI, DATED 30 .09.2013, FOR THE A.Y. 2010-2011. 2 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 3. LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NOS.2(C) AND (D) OF THE APPEAL. THE SAME ARE DISMISSED AS NOT PRESSED. 4. GROUND NO.1 IS AS UNDER : THE CIT(A) GROSSLY ERRED IN ENHANCING THE ALV OF T HE LET OUT PROPERTY AND IN THERE WITH THE INCOME BY RS.1,67,74,073/- AND FURTHER IN OMITTING TO GIVE RE LIEF AS SOUGHT FOR IN RESPECT OF SERVICE TAX. 5. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE- COMPANY HAS DERIVED RENTAL INCOME FROM THE SCHOOL B UILDING CONSTRUCTED AT VILLAGE SHILTANE, LONVALA FROM M/S. CATHEDRAL VIDYA SCHOOL IN WHICH ONE OF THE DIRECTOR IS ALSO T RUSTEE. DURING THE COURSE OF ASSESSMENT, IT WAS OBSERVED THAT ASSE SSEE- COMPANY HAS RECEIVED RENTAL INCOME OF RS.1.80 CRORE S, WHEREAS, THEY HAVE OFFERED RS.1,63,19,130/- AS RENTAL INCOME FOR THE YEAR. IN REPLY TO THE SPECIFIC QUERY RAISED BY THE A.O, ASSESSEE 3 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. HAS SUBMITTED THAT THE BALANCE AMOUNT OF RS.16,80,8 70/- PERTAINS TO SERVICE TAX WHICH WAS INCLUDED IN RENTA L INCOME. HOWEVER, AS PER THE COPY OF AGREEMENT FILED BY THE ASSESSEE COMPANY, NOTHING WAS MENTIONED ABOUT THE SERVICE TA X AND ITS LIABILITY. MOREOVER, ASSESSEE COMPANY IS NOT REGIST ERED WITH THE SERVICE TAX DEPARTMENT AND WITHOUT REGISTRATION, QU ESTION OF CHARGING OF SERVICE TAX AND ITS LIABILITY DOES NOT ARISE. ACCORDINGLY, NET RENTAL INCOME IS FURTHER INCREASED BY RS.11,76,609/- (BEING RS.16,80,870/- LESS 30%). THE A.O. ACCORDINGLY, MADE THE ADDITION OF RS.11,76,609/-. 6. THIS ADDITION WAS CHALLENGED BEFORE THE LD. CIT (A). THE WRITTEN SUBMISSIONS OF THE ASSESSEE IS REPRODUC ED IN THE APPELLATE ORDER IN WHICH IT WAS BRIEFLY EXPLAINED T HAT ASSESSEE- COMPANY WAS INCORPORATED ON 26.10.2004. MAIN OBJECT S AMONG OTHERS WERE - TO START, ESTABLISH, RUN, TAKEOVER, M ANAGE AND MAINTAIN SCHOOLS WITH THE OBJECT TO PROVIDE PRE-PRI MARY, PRIMARY, MIDDLE, SECONDARY, SENIOR SECONDARY AND HI GHER EDUCATION (TECHNICAL/NON-TECHNICAL). THE ASSESSEE-C OMPANY 4 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. PURCHASED 39 ACRES OF LAND IN VILLAGE SHILATNE, LON AVALA DISTRICT, PUNE, MAHARASHTRA TO SET-UP A SCHOOL IN T HE YEAR ENDED 31.03.2005. IT WAS THE INTENTION OF THE ASSESSEE TO SET-UP MORE EDUCATIONAL FACILITIES. THE ASSESSEE-COMPANY EXECUT ED A DEED OF CONVEYANCE IN FAVOUR OF CATHEDRAL SCHOOL WELFARE TRUST IN RESPECT OF SALE OF 26% UNDIVIDED SHARE , RIGHT, TIT LE AND INTEREST IN 10.14 ACRES OF THE ABOVE REFERRED LAND. THE LAND TOGETHER WITH BUILDINGS, FACILITIES AND AMENITIES WERE CONSTRUCTE D AND DEVELOPED BY THE OWNERS OF THE LAND I.E., ASSESSEE AND CATHEDRAL SCHOOL WELFARE FOUNDATION. THE SAID PROPERTY WITH F ACILITIES WAS LEASED VIDE LEASE DATED 14.06.2000 TO CATHEDRAL VID YA TRUST (CVT), A PUBLIC CHARITABLE TRUST WHICH IS ENGAGED IN PROVIDING EDUCATION AND RUNNING THE SCHOOLS. OTHER ASSETS OF THE VALUE OF RS.3.19 CRORES WERE ALSO IN USE BY CVT. THE LEASE C HARGES WERE RS.45 LAKHS AS PER QUARTER, W.E.F. 15.04.2009 TO 31 .12.2010. FOR THE YEAR ENDED 31.03.2010, TOTAL RENT RECEIVED WAS RS.1.80 CRORES. NO PROVISION WAS MADE IN THE ACCOUNTS FOR P ROPORTIONATE RENT PAYABLE TO CATHEDRAL SCHOOL WELFARE TRUST, JOI NT OWNER OF THE SCHOOL, LAND AND BUILDING. THE TOTAL LEASE MONE Y RECEIVED 5 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. LESS SERVICE TAX WAS DECLARED IN THE RETURN OF INCO ME UNDER THE HEAD PROPERTY INCOME. THE LIABILITY TO PAY SERVIC E TAX RESTED ON THE ASSESSEE FOR THE LEASE INCOME RECEIVED FROM CVT BECAUSE THE LEASE AGREEMENT WAS SILENT ON THE ISSUE PERTAIN ING TO SERVICE TAX. THE ASSESSEE WAS REGISTERED UNDER THE SERVICE TAX ACT ON 19.11.2010 AND AMOUNT OF SERVICE TAX OF RS.16,80,87 0/- WAS DEPOSITED IN THE APPROPRIATE AUTHORITY ON 17.02.201 1. 6.1. THE ASSESSEE FILED APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 46A WHICH ARE COPIES OF THE CHALLANS OF RS.16,80,870/- PERTAINING TO THE SERVIC E TAX AND COPY OF THE SERVICE TAX RETURNS FOR F.Y. 2009-2010 ALONG WITH TDS CHALLAN, IN RESPECT OF AUDIT FEE PAID. THE ASSE SSEE REQUESTED FOR ADMISSION OF THE ADDITIONAL EVIDENCE, ON WHICH, REPORT FROM THE A.O. WAS CALLED FOR. LD. CIT(A) ULT IMATELY ADMITTED THESE ADDITIONAL EVIDENCE UNDER RULE 46A. 7. THE LD. CIT(A) NOTED THE FACTS IN THE CASE OF A SSESSEE THAT ASSESSEE PURCHASED 39 ACRES OF LAND IN LONAVAL A IN 2005. SHRI VINEET NAYYAR OWNS 99% OF THE ASSESSEE-COMPANY AND 6 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. BALANCE 1% IS HELD BY HIS DAUGHTER MS. NAMRATA NAYY AR. 26% OF THE ABOVE LAND WAS SOLD TO CATHEDRAL SCHOOL WELF ARE TRUST. THE ASSESSEE AND CO-OWNER LEASED THE LAND AND BUILD ING CONSTRUCTED BY THEM TO CVT. SHRI VINEET NAYYAR IS S ETTLER OF CVT ALONG WITH HIS WIFE. THE ASSESSEE FILED COPY OF THE LEASE DEED BETWEEN THE ASSESSEE COMPANY AND CVT WHICH SHO WS THAT THE LEASE DEED IS ACTUALLY BETWEEN ASSESSEE AND CVT WHICH IS SIGNED BY SHRI VINEET NAYYAR ON BEHALF OF THE ASSES SEE COMPANY AND FOR THE LESSEE, LEASE RENT FIXED IS RS.15 LAKHS PER MONTH TO BE PAID TO ASSESSEE-COMPANY.. 7.1. THE ASSESSEE REITERATED THE SAME FACTS BEFORE THE LD. CIT(A). THE LD. CIT(A), NOTED THAT AS PER THE BALAN CE SHEET THE VALUE OF THE SCHOOL LAND IS RS.1.11 CRORES AND BUIL DING IS VALUED AT RS.42.36 CRORES AS ON 31.03.2010. THE ANNUAL LEA SE RENT IS SHOWN AT RS.1.8 CRORE ONLY WHICH IS VERY LOW CONSID ERING THE VALUE OF THE LAND AND BUILDING LEASED-OUT TO CVT. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE TO SUBSTANTIATE T HE ANNUAL LETTING VALUE SHOWN. THE ASSESSEE SUBMITTED THAT RE NT WAS 7 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. MUTUALLY AGREED BETWEEN THE ASSESSEE COMPANY AND TH E LESSEE CVT AT RS.15 LAKHS PER MONTH FOR 83,624 SQ. FT. OF BUILT-UP AREA @ APPROXIMATELY RS.17.95 SQ. FT. THE RENT IS F AIR RENT KEEPING IN VIEW THAT SCHOOL IS NEWLY SET-UP. 7.2. THE LD. CIT(A) DID NOT ACCEPT THE EXPLANATION OF ASSESSEE AND ASKED THE ASSESSEE TO EXPLAIN WHY ALV BE NOT COMPUTED AT 8% OF THE INVESTMENT AND INCOME ENHANCE D ACCORDINGLY. THE ASSESSEE EXPLAINED THAT AMOUNT SPE NT ON CONSTRUCTION OF THE PROPERTY IS A REMOTE CONSIDERAT ION FOR DETERMINING THE LETTING VALUE OF THE PROPERTY, WHER E THE PROPERTY IS LET OUT, AND IS SUPPORTED BY LEASE AGREEMENT. TH ERE IS NO COMPARATIVE CASE FOR RENTAL INCOME IN THE VICINITY OF THE SCHOOL, AS THE SAME IS LOCATED ON RURAL LAND. THE LAND USE WAS CHANGED FOR THE SCHOOL. THE ASSESSEE HAS FILED AN OPINION O F M/S. ATHARVA LAND DEVELOPERS OPERATING IN -LONAVALA IN SUPPORT T HAT RENT PAID IS REASONABLE. THE LD. CIT(A) DID NOT ACCEPT T HE CONTENTION OF ASSESSEE AND NOTED THAT THE ASSESSEE-COMPANY WIT H CO-OWNER AS WELL AS CVT ARE CONTROLLED BY SAME PERSONS. THE RENT IS VERY 8 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. LOW AS COMPARED TO INVESTMENT IN LAND AND CONSTRUCT ION OF THE SCHOOL. THE ASSESSEE FAILED TO SUBSTANTIATE ALV SHO WN. THE OPINION OF M/S. ATHARVA LAND DEVELOPER IS NOT QUALI FIED TO GIVE REPORT AND NO BASIS SHOWN FOR VALUE OF LAND. NO COM PARABLE INSTANCES HAVE BEEN FOUND. THE LD. CIT(A) ACCORDING LY, APPLIED 8% ON THE TOTAL INVESTMENT AND COMPUTED ANNUAL LETT ING VALUE AT RS.3,47,74,073/-. THE ASSESSEE HAS SHOWN ANNUAL LETTING VALUE AT RS.1.80 CRORES. THEREFORE, INCOME WAS ENHA NCED BY RS.1,67,74,073/-. LD. CIT(A), IN SUPPORT OF HIS FIN DINGS RELIED UPON DECISION IN THE CASE OF SMT. RADHA DEVI DALMIA VS. CIT (1980) 125 ITR 134 (ALL.), SAKARLAL BALABHA VS. ITO (1975) 100 ITR 97 (GUJ.) AND EMTICI ENGINEERING LTD. VS. ACIT (1997) 58 TTJ 27 (AHD.) BENCH. 8. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT A.O. WHILE PASSING THE ASSESSMENT ORDER ACCEPT ED THE ANNUAL LETTING VALUE DECLARED BY ASSESSEE, BUT, DIS ALLOWED THE SERVICE TAX. SECTION 23(1) PROVIDES MANNER OF COMPU TING THE 9 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. ANNUAL VALUE OF HOUSE PROPERTY. HE HAS SUBMITTED TH AT THERE ARE TWO METHODS TO BE KEPT IN MIND FOR JUDGING ANNU AL LETTING VALUE I.E., THE STANDARD RENT IF PROPERTY IS SUBJEC T TO RENT CONTROL ACT OR THE MUNICIPAL RATABLE VALUE FOR THE PURPOSE OF HOUSE TAX WOULD BE THE ANNUAL LETTING VALUE WHERE T HERE IS NO STANDARD RENT. THEREFORE, THE METHOD APPLIED BY THE LD. CIT(A) BY APPLYING 8% OF THE INVESTMENT IS HIGHLY IMPROPER AND NOT APPLICABLE TO THE INCOME TAX ACT. MERELY BECAUSE TH E FAMILY MEMBER OF SHRI VINEET NAYYAR CONTROLLED BOTH THE IN STITUTIONS BY HIMSELF IS NO GROUND TO REJECT THE FAIR RENTAL V ALUE SHOWN BY ASSESSEE. THE CHARITABLE TRUST CAN PAY TO THE TRUST EE RENT WHICH IS REASONABLE FOR SUCH SERVICES. THE PROPERTY WAS LET OUT TO EDUCATIONAL INSTITUTION WHICH MAY NOT BE USED FO R COMMERCIAL PURPOSE OR RESIDENTIAL PURPOSE. THEREFO RE, THE RENT WAS REASONABLE, WHICH WAS ALSO LESSER IN EARLIER YE AR AND ACCEPTED. THE LD. CIT(A) HAS NOT GIVEN ANY COMPARAB LE CASE WHILE FIXING THE ANNUAL LETTING VALUE OF THE PROPER TY. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON DECISI ON OF THE FULL BENCH OF THE DELHI HIGH COURT IN THE CASE OF C IT VS. MONI 10 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. KUMAR SUBBA (2011) 333 ITR 38 (DEL.) IN WHICH, IN P ARA-20 THE CONCLUSION OF THE HIGH COURT IS REPRODUCED AS UNDER : (I) ANNUAL LETTING VALUE WOULD BE THE SUM AT WHICH THE PROPERTY MAY BE REASONABLE LET OUT BY A WILLING LES SOR TO A WILLING LESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES. (II) AN INFLATED OR DEFLATED RENT BASED ON EXTRANEOUS CONSIDERATION MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS. (III) ACTUAL RENT RECEIVED, IN NORMAL CIRCUMSTANCES, WOULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED/DEFLATED BY REASON OF EXTRANEOUS CONSIDERATION. (IV) SUCH ANNUAL LETTING VALUE, HOWEVER, CANNOT EXCE ED THE STANDARD RENT AS PER THE RENT CONTROL LEGISLATION AP PLICABLE TO THE PROPERTY. (V) IF STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CONTROLLER, THEN IT IS THE DUTY OF THE AO TO DETERMINE THE STANDA RD RENT AS PER THE PROVISIONS OF RENT CONTROL ENACTMENT. (VI) THE STANDARD RENT IS THE UPPER LIMIT, IF THE FA IR RENT IS LESS THAN THE STANDARD RENT, THEN IT IS THE FAIR RENT WHI CH SHALL BE TAKEN AS ANNUAL LETTING VALUE AND NOT THE STANDAR D RENT. 11 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. 8.1. HE HAS ALSO RELIED UPON THE JUDGMENT OF THE B OMBAY HIGH COURT IN THE CASE OF CIT VS. TIP TOP TYPOGRAPH Y (2014) 368 ITR 330 (BOM.), IN WHICH IT WAS HELD AS UNDER : MUNICIPAL RATEABLE VALUE THOUGH NOT BINDING ON AO IS AN APPROVED METHOD FOR DETERMINING FAIR RENTAL VALUE AND IT IS ONLY WHEN AO IS CONVINCED THAT CASE BEFORE HIM IS SUSPICIOUS, DETERMINATION BY PARTIES IS DOUBTFUL THAT HE CAN RESORT TO ENQUIR E ABOUT THE PREVAILING RATE IN THE LOCALITY, AO CAN REJECT MUNICIPAL RATABLE VALUE. MERELY BECAUSE RENT HAS NOT BEEN FIXED UNDER THAT ACT DOES NOT MEAN THAT ANY OTHER DETERMINATION AND CONTRARY THERETO CAN BE MADE BY A.O. 8.2. HE HAS ALSO RELIED UPON THE ORDER OF ITAT, MU MBAI BENCH-C IN THE CASE OF CVT (LESSEE) VS. ITO (EXEMPT ION)-1(1), MUMBAI IN ITA.NO.4958/MUM./2015 FOR A.Y. 2011-2012 DATED 24.10.2017, IN WHICH THE A.O. DENIED EXEMPTION UNDE R SECTION 11 OF THE I.T. ACT BECAUSE RENT WAS PAID TO THE ASS ESSEE- COMPANY WHICH IS EXCLUDED UNDER SECTION 13(3) OF TH E I.T. ACT. THE A.O. DENIED THE EXEMPTION TO THE LESSEE BECAUSE THE LESSEE 12 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. WAS TRUST MAKING PAYMENT OF LEASE RENT TO COMPANY I N WHICH TRUSTEE OF THE ASSESSEE ARE DIRECTORS ARE MAJORITY SHAREHOLDER, WHICH VIOLATES SECTION 13 OF THE I.T. ACT. IT WAS A LSO NOTED THAT ASSESSEE FAILED TO SUBSTANTIATE THE REASONABLENESS OF THE PAYMENT OF RENT. ASSESSEE, HOWEVER, EXPLAINED THAT ASSESSEE- LESSEE PAID REASONABLE RENT AND THERE IS NO BASIS F OR THE A.O. TO ARRIVE AT DIFFERENT FINDINGS AND RELIED UPON ASSESS MENT ORDERS/ APPELLATE ORDER IN THE CASE OF ASSESSEE-LESSEE FOR PRECEDING ASSESSMENT YEARS. THE TRIBUNAL IN PARAS 5 TO 10 IN THE CASE OF CVT HELD AS UNDER : 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD . AR OF THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF AUT HORITIES BELOW. WE HAVE ALSO PERUSED THE MATERIAL AND THE TW O DECISION MAINLY RELIED BY LD AR FOR THE ASSESSEE BE FORE US. THE ASSESSEE-TRUST WAS REGISTERED ON 21.02.2008. TH E SETTLER OF TRUST IS VINEET NAYYAR. THE OTHER TRUSTE E IN THE TRUST IS REVA NAYYAR. THE ADDRESS OF BOTH THE TRUST EE IN THE TRUST-DEED ARE OF 5A, FRIENDS COLONY (W), MATHURA R OAD, DELHI-65. THE INITIAL CORPUS FUND OF RS. 1100/- WAS CONTRIBUTED BY SETTLER. THE NAME OF THE TRUST WAS G IVEN AS 'THE CATHEDRAL VIDYA TRUST'. THE REGISTERED OFFICE OF THE 13 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. TRUST IS MENTIONED AS 6, PURUSHOTTAMDAS THAKURDAS M ARG, FORT MUMBAI-400001. FURTHER, THE MEMBERSHIP OF THE TRUST WAS RESTRICTED TO MINIMUM ONE AND NOT MORE THAN THR EE. THERE IS FURTHER PROVISION IN THE TRUST-DEED THAT T HE TRUSTEE SHALL BE ENTITLED TO APPOINT THE ADDITIONAL TRUSTEE AS AND WHEN THEY DEEM FIT AS PER CLAUSE-6 OF TRUST-DEED. I T IS MENTIONED IN THE TRUST-DEED THAT TRUSTEE SHALL IMME DIATELY FORM A PRIVATE LIMITED COMPANY UNDER THE PROVISIONS OF COMPANIES ACT AND WILL APPOINT THE TRUST-COMPANY AS SOLE TRUSTEE OF THE TRUST. THE ASSESSEE TRUST GOT R EGISTRATION UNDER SECTION 12A OF THE ACT ON 31.03.2009. THE ASSESSEE HAS PLACED ON RECORD A COPY OF LEASE AGREEMENT WITH VIDYA EDUCATION INVESTMENT PVT. LTD. HAVING ITS REGISTERE D OFFICE AT 5C, OLD FRIENDS COLONY (W), MATHURA ROAD, NEW DE LHI- 65 DATED 14.06.2008. THE LEASE DEED WAS EXECUTED IN ITIALLY FOR NINE YEARS COMMENCED FROM 01.06.2008. THE LEASE -DEED IS SIGNED BY VINEET NAYYAR ON BEHALF OF LESSER AS W ELL AS LESSEE. DURING THE AY, THE ASSESSEE HAS PAID RENT O F RS. 2.75 CRORE TO LESSER I.E. M/S VIDYA EDUCATION INVES TMENT PVT. LTD. ON ACCOUNT OF ANNUAL RENT WHICH IS ONE OF THE SUBJECT MATTER OF IMPUGNED ASSESSMENT. 6. DURING THE ASSESSMENT PROCEEDING, THE AO ISSUED SHOW CAUSE NOTICE UNDER SECTION 142(1) SEEKING EXPLANATION FROM ASSESSEE WITH REGARD TO (I) THAT A SSESSEE 14 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. IS RUNNING A LAVISH INTERNATIONAL SCHOOL, CHARGING HEAVY FEES FROM THE STUDENTS ON COMMERCIAL LINES. THE ASS ESSEE IS CHARGING FEE OF RS.4,65,000/- P.A. FROM CLASS-IV TO CLASS- VIII, RS. 4,65,000/- FOR IGCSE* STUDENTS AND RS. 5, 65,000/- FROM I.B* (*NO DETAILS OF ABBREVIATIONS IS AVAILABL E IN RECORD). (II) NO CHARITABLE BENEFIT IS AVAILABLE TO POOR AND NEEDY STUDENTS AS A FEE WAIVER, OR SCHOLARSHIP ETC. THE A CTIVITIES OF INSTITUTION ARE NOT CHARITABLE AND COMMERCIAL IN NATURE. (III) THE ASSESSEE- TRUST HAS MADE THE PAYMENT OF R S. 2.75 CRORE TO M/S VIDYA EDUCATION PVT. LTD. WHICH IS AN EXCLUDED PERSON UNDER SECTION 13(3) OF THE ACT. THE ASSESSEE WAS ASKED TO JUSTIFY THE REASONABLENESS OF THE SAID PAY MENT IN TERM OF PROVISION OF SECTION 13(2) FAILING WHICH IT CAN BE PRESUMED THAT THIS JUST A TOOL FOR DIVERSION OF FUN D IN THE HAND OF EXCLUDED PERSON AND THEREFORE, EXEMPTION UNDER SECTION 11 SHALL BE DENIED AND INCOME SHALL BE ASSESSED DISALLOWING THE PAYMENT OF RS. 2.75 CRORE. THE ASSESSEE FILED ITS REPLY VIDE REPLY DATED 13.03.201 4. IN THE REPLY, THE ASSESSEE CONTENDED THAT THE ASSESSEE-TRU ST IS DULY REGISTERED UNDER SECTION 12A . AS PER THE TRUST- DEED, THE OBJECT OF TRUST IS TO PROMOTE EDUCATIONAL ACTIV ITIES BY SETTING UP AND RUNNING SCHOOL AND ALLIED CHARITABLE OBJECTS. THE ASSESSEE HAS BEEN PROMOTING EDUCATIONAL ACTIVIT IES SINCE INCEPTION, NO OTHER ACTIVITIES HAS BEEN CARRI ED BY THE ASSESSEE TILL DATE. DURING THE AY 2010-11, THE AO H AS ALSO 15 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. OBSERVED THAT THE OBJECT OF TRUST IS TO PROMOTE EDU CATIONAL ACTIVITIES BY SETTING UP AND RUNNING SCHOOL AND GRA NTED EXEMPTION UNDER SECTION 11 . FOR FEES STRUCTURE, THE ASSESSEE CONTENDED THAT THE SCHOOL WAS ESTABLISHED AND STARTED FROM 03.08.2008 AND IMPARTING EDUCATION FRO M STD. IV TO STD. XI AND DIPLOMA COURSES. THE ASSESSEE IS IMPARTING WORLD CLASS EDUCATION WITH STRONG INDIAN TRADITION AND VALUES WITH ADVANCE SCHOOL OF MODERN TECHNOLOGY. IN ORDER TO GET THE TEACHERS AND FACULT IES FOR IMPARTING GOOD EDUCATION, THE ASSESSEE IS REQUIRE T O PAY HIGH AMOUNT OF REMUNERATION TO TEACHERS OF THAT CAL IBRE. THERE WERE 300 STUDENTS AND 65 TEACHING STAFF AND ADMINISTRATIVE SUPPORT STAFF. THE SCHOOL IS NOT ADD ED BY THE GOVERNMENT SUPPORT AND ENTIRE EXPENDITURE IS INCURR ED FROM THE FEES THAT ARE CHARGED FROM THE STUDENTS. THE FE E STRUCTURE AS COMPARED TO THE OTHER INTERNATIONAL SC HOOL, THE FEE OF THE ASSESSEE IS ON LOWER SIDE. THE ASSESSEE SPECIFICALLY CONTENDED THAT NO PROFIT MOTIVE EMBEDD ED IN THE CHARGING OF FEES. FOR PAYMENT OF LEASE RENT AT THE RATE OF RS.25,00,000/- PER MONTH, THE ASSESSEE CONTENDED TH AT TRUST IS PAYING LEASE RENT TO VIDYA EDUCATION INVES TMENT PVT. LTD. FOR THE PLOT OF LAND MEASURING 16.93 ACRE . THE LEASE DEED WAS EXECUTED ON 01.06.2008 FOR A PERIOD OF NIN E YEARS. INITIALLY THE RENT WAS FIXED AT RS.5,00,000/ - PER MONTH WHICH WAS GRADUALLY INCREASED FROM TIME TO TI ME AND 16 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. AT PRESENT THE ASSESSEE MAKING PAYMENT OF RENT OF RS.25,00,000/- PER MONTH. THE ASSESSEE ALSO FILED A REPORT OF VALUER DATED 10.01.2014. THE ASSESSEE CONTENDED THAT AS PER THE VALUATION REPORT THE LEASE RENT OF THE L EASED LAND IS AROUND RS.32.31 LAKHS PER MONTH. THE ASSESSEE AL SO CONTENDED THAT FOR PRECEDING AY 2008-09, ASSESSEE-T RUST HAS NOT PAID THE LEASE RENT WHICH WAS WAIVED BY THE LESSER COMPANY BECAUSE OF FINANCIAL DIFFICULTIES FACED BY THE ASSESSEE. THE TOTAL COST OF THE LAND AND SCHOOL IS RS.43,46,75,917/- WHICH IS FUNDED BY VIDYA EDUCATIO N INVESTMENT PVT. LTD. (VEIPL). THE VEIPL HAS ALSO PR OVIDED FURNITURE AND FIXTURE, COMPUTER, BOOKS, OFFICE EQUI PMENT ETC. REQUIRED FOR SCHOOL AND FURTHER INCURRED A COST OF RS. 300 LAKHS. THUS, IN SUM AND SUBSTANCES THE ASSESSEE CLA IMED THAT THE PAYMENT OF LEASE RENT IS REASONABLE. THE C ONTENTION RAISED BY ASSESSEE IN ITS REPLY WAS NOT ACCEPTED BY AO. THE AO CONCLUDED THAT THE ASSESSEE IS CHARGING HUGE FEE FOR EDUCATIONAL ACTIVITY WHICH CANNOT BE CONSIDERED AND TREATED AS CHARITABLE. THERE IS NO CO- RELATION OF FEE CHARGED AND THE EXPENSES INCURRED. THE EXCESSIVE FEE IS CHA RGED TO GENERATE HUGE SURPLUS TO FUND THE LIABILITY OF RENT OF RS.2.75 CRORE TO A PRIVATE LIMITED COMPANY OWNED AND MANAGE D BY EXCLUDED PERSON. THE ASSESSEE URGED THE SIMILAR CON TENTION BEFORE LD. COMMISSIONER (APPEALS). THE LD CIT(A)CON FIRMED THE ORDER OF ASSESSING OFFICER HOLDING THAT DURING THE COURSE 17 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. OF SUBMISSION IT WAS DISCLOSED BY THE REPRESENTATIV E OF THE ASSESSEE THAT THEY ARE GIVING FREE EDUCATION TO ONE STUDENT, HOWEVER THE DETAILS OF THE STUDENT WAS NOT FURNISHE D. FOR CHARGING OF THE HIGH AMOUNT OF FEE THE LD COMMISSIO NER (APPEALS) CONCLUDED THAT NO AUTHENTIC DATA IS PROVI DED. FOR PAYMENT OF LEASE RENT TO THE EXCLUDED PERSON THE LD . CIT(A) CONCLUDED THAT NEITHER THE DECISION OF SUPREME COUR T IN CASE OF QUEEN'S EDUCATIONAL SOCIETY (319 ITR 160) R ELIED ON BEHALF OF ASSESSEE NOR THE ORDER OF CIT(A) FOR AY 2 010-11 IS HELPFUL TO THE ASSESSEE. THE DECISION IN QUEEN'S EDUCATIONAL SOCIETY RELATES TO SECTION 10(23C) , HOWEVER THE CASE OF THE ASSESSEE IS HIT BY SECTION 13 OF THE ACT. FURTHER, THE ISSUE IN AY 2010-11 MAY BE RELEVANT FOR THE CON DITIONS OF SECTION 13(2) (C), HOWEVER THE PROVISION OF SECTION 13(2)(G) ARE APPLICABLE IN THE YEAR UNDER CONSIDERATION. MOREOVER, THE PRINCIPLES OF RESJUDICATA ARE NOT APP LICABLE IN THE INCOME TAX PROCEEDINGS. 7. IN OUR VIEW, THE ONLY QUESTION FOR OUR CONSIDER ATION IS WHETHER THE PAYMENT OF RENT/ LEASE RENT PAID TO THE RELATED PARTY IS REASONABLE OR EXCESSIVE. THE EXEMPTION UNDER SECTION 11 CAN ONLY BE DENIED WHEN THE INCOME OF THE TRUST IS DIVERTED DURING THE PREVIOUS YEAR IN FAVOU R OF ANY PERSON REFERRED IN SECTION13(3). SECTION 13(2) (G) SPECIFICALLY PROVIDES THAT WHEN THE INCOME OF THE TRUST IS DIVER TED DURING 18 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. THE PREVIOUS YEAR IN FAVOUR OF ANY CONCERN AS PROVI DED UNDER SECTION 13(3)(E) THE ASSESSEE WOULD NOT BE ENTITLED FOR EXEMPTION IF THE RENT PAID IS UNREASONABLE ONE. 8. THE PERUSAL OF THE LEASE DEED REVEALS THAT INIT IALLY THE RENT WAS PAYABLE AT THE RATE OF RS. 5,00,000/- P.M. THE LEASE DEED WAS EXECUTED ON 01.06.2008. THE ASSESSEE HAS DEBITED THE RENT OF RS.2,75,00,000/- IN ITS P/L ACC OUNT. THUS, THE ASSESSEE CLAIMED THE PAYMENT OF RENT AT T HE RATE OF RS.25,00,000/- PER MONTH TO THE COMPANY OWNED AN D MANAGED BY THE TRUSTEES. THOUGH, THE ASSESSEE WITHI N FOUR YEARS FROM THE EXECUTION OF LEASE DEED INCREASED TH E RENT FROM RS. 5.00 LACKS TO RS.25.00 LACKS PER MONTH. TH ERE IS NO DISPUTE ABOUT THE STATUS OF TRUSTEE IN ASSESSEE TRUST AND THE DIRECTORS IN THE LESSER COMPANY. THE ASSESSEE H AS PLACED ON RECORD THE COPY OF VALUATION REPORT ABOUT THE RENTAL VALUE OF THE LEASED ASSET DATED 10.01.2014 A ND CERTIFIED THAT THIS DOCUMENT WAS FILED BEFORE LOWER AUTHORITIES. IN THE VALUATION REPORT THE MONTHLY RE NTAL VALUE IS ASSESSED AS RS. 32,31,367/-. THE AREA OF LEASED LAND IS IN THIS REPORT IS REFERRED ONLY 10 ACRE, HOWEVER IN THE REPLY BEFORE ASSESSING OFFICER THE AREA OF LAND WAS CLAIM ED AS 16.93 ACRE (PAGE 8 PARA II OF AO ORDER). THE ASSESS ING OFFICER HAS NOT GIVEN ANY FINDING ON THIS DOCUMENT. SIMILARLY, THE ASSESSING OFFICER HAS NOT BROUGHT AN Y 19 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. EVIDENCE ON RECORD ABOUT ANY VALUATION OF COMPARABL E PROPERTY. SIMILARLY, THE LD. COMMISSIONER (APPEALS) HAS NOT MADE ANY COMMENT ON THE VALUATION REPORT FURNISHED BY THE ASSESSEE. IN OUR VIEW THIS DOCUMENTARY EVIDENCE FUR NISHED BY ASSESSEE IS NOT CONTROVERTED BY ASSESSING OFFICE R BY BRINGING ANY INCRIMINATING EVIDENCE ON RECORD. THUS IN OUR VIEW IN ABSENCE OF ANY INCRIMINATING EVIDENCE THE P AYMENT OF RENT TO THE RELATED PARTY DURING THE YEAR UNDER CONSIDERATION IS REASONABLE ONE. 9. THE LD AR FOR THE ASSESSEE DURING THE COURSE OF HIS SUBMISSION FILED A COPY OF THE ORDER LF LD CIT(A)-9 NEW DELHI DATED 18.02.206, SHOWING THAT THE RENT PAID BY THE ASSESSEE WAS DULY SHOWN BY VIDYA EDUCATION INVESTME NT PVT LTD.(VEIPL) AND WAS ASSESSED BY THE REVENUE. TH E PERUSAL OF THIS ORDER REVEALS THAT VEIPL HAS SHOWN TO HAVE LET OUT THE LAND WITH SUPERSTRUCTURE TO THE ASSESSE E. VEIPL HAS OFFERED THE RENT RECEIVED FROM THE ASSESSEE TO TAX. IN OUR OPINION IN ABSENCE OF ANY MATERIAL THE RENT PAI D BY THE ASSESSEE TO THE RELATED PARTY DURING THE YEAR IS RE ASONABLE ONE. WITH THESE OBSERVATION THE GROUNDS OF APPEAL R AISED BY THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLO WED. 20 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. 8.3. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT SINCE THE RENT HAVE BEEN ACCEPTED IN THE CASE OF LESSEE AND THE TRIBUNAL DELETED THE ADDITION, THERE FORE, ENHANCEMENT MADE BY THE LD. CIT(A) IS WHOLLY UNJUST IFIED. 9. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORD ERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT NO MATERIA L IS PRODUCED IN SUPPORT OF ANNUAL LETTING VALUE CLAIMED BY THE ASSESSEE. HE HAS SUBMITTED THAT THE DECISION RELIED UPON BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE OPERATIVE WORDS IN SECTION 23(1)(A) ARE THE SUM, FOR WHICH, THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THESE WORDS PROVIDE A SPECIFIC DIRECTION TO THE REVENUE FOR DETERMINING T HE FAIR RENT. THE A.O. HAVING REGARD TO THE AFORESAID PROVISIONS IS EXPECTED TO MAKE AN ENQUIRY AS TO WHAT WOULD BE THE REASONAB LE RENT THAT THE PROPERTY UNDER REFERENCE MIGHT FETCH. IF T HE A.O. FINDS THAT ACTUAL RENT RECEIVED IS LESS THAN THE FAIR REN T/MARKET RENT 21 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. BECAUSE OF CERTAIN REASONS, THE A.O. CAN TAKE NECES SARY EXERCISE IN THAT BEHALF. HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. MONI KUMAR SUBBA (SUPRA), IN PARA-20 HAS GIVEN ITS CONCLUSION, REPRODUCED ABOVE, IN WHICH, IT WAS OBSERVED THAT WI LLINGNESS OF THE LESSOR AND LESSEE SHALL HAVE TO BE CONSIDERED A ND EXTRANEOUS CONSIDERATIONS SHOULD BE AVOIDED. SUCH A NNUAL LETTING VALUE, HOWEVER, CANNOT EXCEED THE STANDARD RENT AS PER RENT CONTROL LEGISLATION APPLICABLE TO THE PROPERTY . IF THE STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CONTRO LLER, THEN, IT IS THE DUTY OF THE A.O. TO DETERMINE THE STANDAR D RENT AS PER PROVISIONS OF RENT CONTROL ENACTMENT. THE STANDARD RENT IS UPPER LIMIT, IF THE FAIR RENT IS LESS THAN THE STAN DARD RENT, THEN, IT IS THE FAIR RENT WHICH SHALL BE TAKEN AS ANNUAL LETTING VALUE AND NOT THE STANDARD RENT. IN THE PRESENT CASE, THE ASSESSEE EXPLAINED ALL THE FACTS BEFORE A.O. WITH REGARD TO RENT RECEIVED AND THAT THE PROPERTY WAS LET OUT EARLIER AND IN TH E CASE OF LESSEE CVT, IT IS PLEADED BEFORE ITAT, MUMBAI BENCH THAT T HE RENT HAS BEEN GRADUALLY INCREASED FROM TIME TO TIME. THIS FA CT HAS NOT BEEN DISPUTED BY THE REVENUE DEPARTMENT. THEREFORE, THE A.O. 22 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. ACCEPTED THE CLAIM OF ASSESSEE OF RECEIVING FAIR AN D REASONABLE RENT OF RS.1.80 CRORES IN ASSESSMENT YEAR UNDER APP EAL. THE LD. CIT(A) WAS HOWEVER, INFLUENCED BY THE FACT THAT THE ASSESSEE- COMPANY AND THE LESSEE IS CONTROLLED BY SHRI VINEET NAYYAR AND HIS FAMILY MEMBERS AND INVESTMENT IN BUILDING. THER EFORE, HE HAS CONSIDERED THAT ASSESSEE HAS RECEIVED A LOW REN T. HOWEVER, IT IS AN EXTRANEOUS CONSIDERATION, WHICH HAS NO BEA RING ON THE ISSUE OF DETERMINATION OF ANNUAL LETTING VALUE OF T HE PROPERTY. THE LD. CIT(A) DID NOT UNDERTAKE ANY NECESSARY EXER CISE TO COMPUTE ANNUAL LETTING VALUE OF THE ASSESSEE AS PER ABOVE GUIDELINES. NO COMPARABLE CASE HAVE BEEN BROUGHT BY HIM ON RECORD. LD. CIT(A) SIMPLY REJECTED THE CLAIM OF THE ASSESSEE FOR APPLYING 8% OF THE TOTAL INVESTMENT TO COMPUTE ANNU AL LETTING VALUE. HE HAS NOT DETERMINED THE STANDARD RENT IN T HE CASE OF ASSESSEE AS PER RENT CONTROL LEGISLATION AND HAS AL SO NOT CONSIDERED EVEN MUNICIPAL VALUE DETERMINED BY THE MUNICIPALITY. THE LD. CIT(A) ALSO FAILED TO NOTE TH AT THE LESSEE WAS A CHARITABLE INSTITUTION PROVIDING EDUCATION TO THE STUDENTS. THEREFORE, IT COULD NOT BE COMPARED WITH COMMERCIAL 23 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. OR RESIDENTIAL OCCUPANCY OF DEMISED PROPERTY WHICH IS NOT INVOLVED IN CHARITABLE INSTITUTION. FOR COMMERCIAL AND RESIDENTIAL USER OF THE PROPERTY, THE RENT MAY BE H IGH AS COMPARED TO PROPERTY GIVEN ON RENT TO THE EDUCATION AL AND CHARITABLE INSTITUTIONS. THUS, THERE WERE NO BASIS FOR LD. CIT(A) TO ENHANCE THE ANNUAL LETTING VALUE OF THE PROPERTY IN QUESTION. WE MAY ALSO NOTE THAT IDENTICAL ISSUE WAS CONSIDERE D IN THE CASE OF LESSEE I.E., CVT BY ITAT, MUMBAI BENCH AND THE E NTIRE ADDITION MADE BY THE A.O. HAVE BEEN DELETED BY THE TRIBUNAL. THOUGH THIS CASE PERTAINS TO SUBSEQUENT A.Y. 2011-2 012, BUT THE FACT REMAINS THAT THE TRIBUNAL ACCEPTED THE CLA IM OF LESSEE OF FAIR RENT PAID BY THEM TO ASSESSEE. THE DEMISED PROPERTY WAS LET-OUT THOUGH AGREEMENT WHICH FOLLOW IN YEAR UNDER APPEAL. SO, FACTS ARE IDENTICAL. THE CLAIM OF ASSESSEE HAS BEEN SUPPORTED BY OPINION/REPORT OF M/S. ATHARVA LAND DEVELOPERS WHO HAVE DETERMINED FAIR RENT AGAINST WHICH LD. CIT(A) HAS N OT BROUGHT ANY REPORT OF EXPERT. SO, IT COULD NOT BE DISPUTED. IN THE CASE OF ASSESSEE AND LESSEE, THE RENT PAID IN EARLIER YEAR HAVE NOT BEEN DISPUTED BY THE REVENUE AUTHORITIES. CONSIDERING TH E TOTALITY OF 24 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. THE FACTS AND CIRCUMSTANCES AND IN THE LIGHT OF DEC ISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE AR E OF THE VIEW THAT THE LESSEE HAS PAID FAIR REASONABLE RENT TO THE ASSESSEE. THEREFORE, THERE WERE NO BASIS TO ENHANCE THE FAIR RENT PAID BY LESSEE TO THE ASSESSEE-COMPANY. WE, ACCORDI NGLY, SET ASIDE THE ORDERS OF THE LD. CIT(A) AND DELETE ENHAN CEMENT IN RENT MADE BY HIM OF RS.1,67,74,073/-. WE MAY ALSO N OTE THAT LD. CIT(A) WHILE ENHANCING RENTAL INCOME, DID NOT D ECIDE THE ISSUE OF SERVICE TAX PAID BY ASSESSEE. LD. CIT(A) A DMITTED THE ADDITIONAL EVIDENCES WHICH ARE SERVICE TAX PAID BY THE ASSESSEE THROUGH CHALLAN AND SERVICE TAX RETURNS FILED FOR A SSESSMENT YEAR UNDER APPEAL. IT WOULD SUPPORT THE EXPLANATION OF ASSESSEE THAT ASSESSEE PAID SERVICE TAX FOR ASSESSMENT YEAR UNDER APPEAL, OUT OF RENT RECEIVED FROM THE LESSEE BECAUS E THERE WERE NO MENTION OF THE SERVICE TAX IN THE RENT AGREEMENT . SINCE THE SERVICE TAX IS A LIABILITY UPON THE ASSESSEE-COMPAN Y WHICH HAVE BEEN DISCHARGED AS PER SERVICE TAX ACT, THEREFORE, IT IS AN ALLOWABLE DEDUCTION IN FAVOUR OF ASSESSEE, BECAUSE IN THE SERVICE TAX, ASSESSEE HAS NO RIGHT TO CLAIM IT AS A RENT. THE 25 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. AUTHORITIES BELOW WERE, THEREFORE, NOT JUSTIFIED IN MAKING ADDITION OF RS.16,80,870/-. THE ORDERS OF THE AUTHO RITIES BELOW TO THAT EXTENT ARE ALSO SET ASIDE AND THIS ADDITION IS ALSO DELETED. 11. IN THE RESULT, GROUND NO.1 OF APPEAL OF ASSESS EE IS ALLOWED. 12. ON GROUND NO.2(A), ASSESSEE CHALLENGED THE DISALLOWANCE OF INTEREST ON BORROWED FUNDS TO THE T UNE OF RS.1,10,23,009/-. 13. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I T WAS OBSERVED THAT ASSESSEE HAS CLAIMED INTEREST ON BORR OWED FUNDS OF RS.2,20,46,017/- AND CLAIMED DEDUCTION FROM RENT AL INCOME. AS PER BALANCE SHEET FILED BY THE ASSESSEE, IT WAS OBSERVED THAT THE LAND AND BUILDING HAS BEEN PARTIALLY PURCHASED FROM THE OWN FUNDS OF THE ASSESSEE-COMPANY LIKE SHARE CAPITA L, INTEREST, FREE UNSECURED LOANS FROM DIRECTORS AND PARTIALLY F ROM LOANS TAKEN FROM BANKS AND OTHER FINANCIAL INSTITUTIONS. THE INTEREST BEARING LOAN WERE ALSO USED TO PURCHASE OTHER ASSET S OF THE COMPANY OTHER THAN LAND AND BUILDING, ON WHICH, REN TAL INCOME 26 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. WAS DECLARED. IN THE ABSENCE OF ANY SPECIFIC BIFURC ATION OF FUNDS USED FOR LAND AND BUILDING AND OTHER ASSETS AND USE D FOR BUSINESS ACTIVITIES, 50% OF THE INTEREST CLAIMED BY THE ASSESSEE WERE DISALLOWED. THE A.O. ACCORDINGLY, MADE ADDITIO N OF RS.1,10,23,009/-. 14. THE ASSESSEE SUBMITTED BEFORE LD. CIT(A) THAT COST OF THE BORROWINGS, RS.13,28,499/- DURING THE PERIOD OF CONSTRUCTION OF SCHOOL, ASSETS UP-TO 31.07.2008 WER E CAPITALIZED. THE BORROWING COST AFTER 1 ST AUGUST, 2008, WAS CHARGED TO THE P & L A/C I.E., RS.95,17,940/- AS EN DED ON 31.03.2009 AND RS.2,20,46,017/- ENDED ON 31.03.2010 . THE ASSESSEE IN THE RETURN OF INCOME CLAIMED INTEREST P AID AND CLAIMED DEDUCTION UNDER THE HEAD HOUSE PROPERTY. THE ASSESSEE FURTHER SUBMITTED THAT DEDUCTION IS ALLOWA BLE AS THE BORROWINGS HAVE NEXUS WITH THE CONSTRUCTION OF THE PROPERTY. SINCE THE INTEREST IS CHARGED ON BORROWED CAPITAL U TILIZED FOR ACQUIRING AND CONSTRUCTING OF THE PROPERTY, THEREFO RE, IT IS AN ALLOWABLE DEDUCTION UNDER SECTION 24(B) OF THE I.T. ACT. THE 27 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. PROPORTION OF THE VALUE OF THE LAND AND BUILDING AS AGAINST THE OTHER ASSETS IS 93.15% AND NOT 50% AS COMPUTED BY T HE A.O. ALL THE BORROWINGS WERE USED FOR CONSTRUCTION OF AS SETS OF THE SCHOOL. THE SHARE CAPITAL, LOANS AND RESERVE AND SU RPLUS OF THE ASSESSEE ENDING 31.03.2010 ARE RS.17,31,22,801/-. T HE BALANCE SHEET OF THE ASSESSEE SHOWS TOTAL INVESTMEN T ON ASSETS AS ON 31.03.2010 AT RS.43,46,75,917/- WHEREAS, THE BORROWINGS AS ON 31.03.2010 WERE RS.25.13 CRORES ON LY. THIS CLEARLY SHOWS THAT ASSESSEE HAS SUBSTANTIALLY UTILI ZED ITS OWN FUNDS AMOUNTING APPROXIMATELY TO RS.18 CRORE AND TH E FUNDS OF THE CO-OWNER AMOUNTS TO RS.5.61 CRORE TO FINANCE TH E PURCHASE/ ACQUISITION OF THE SCHOOL ASSETS. ALL THE ASSETS CR EATED BY THE BORROWED FUNDS AND OWN FUNDS WERE IN RESPECT OF SCH OOL WHICH WAS LEASED TO CVT. THE BORROWED FUNDS WERE NOT UTIL IZED FOR OTHER ASSETS. THE LD. CIT(A), HOWEVER, DID NOT ACCE PT THE CONTENTION OF THE ASSESSEE AND NOTED THAT ASSESSEE HAS SHOWN SECURED LOAN OF RS.25.13 CRORE AND OTHERS. THE TOTA L FUNDS AVAILABLE TO THE ASSESSEE ARE RS.53.38 CRORE ARE AB OUT 47%, THEREFORE, 50% DISALLOWANCE WAS FOUND JUSTIFIED. IT WAS ALSO 28 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. NOTED THAT IT WAS FOR THE ASSESSEE TO SHOW THAT THE BORROWED FUNDS WERE ACTUALLY USED TOWARDS ASSETS YIELDING RE NTAL INCOME. THIS GROUND WAS DISMISSED. 15. LEARNED COUNSEL FOR THE ASSESSEE REITERATED TH E SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT ASSESSEE RAISED FUNDS FROM FOLLOWING INSTITUTI ONS FOR CONSTRUCTION OF SCHOOL BUILDING. (1) KOTAK MAHINDRA BANK OD LIMIT RS. 6 CRORES. (2) IDFC SECURED LOAN OF RS.8 CRORES ENDING 31.03 .2009 AND RS.6.5 CRORES ENDING 31.03.2010. (3) SECURED LOAN FROM IISL RS.25 CRORES. ON WHICH, ASSESSEE PAID INTEREST TO RS.2,20,46,017/-. 15.1. ASSESSEE HAS INVESTED TOTAL SUM OF RS.48,13,50,076/-, OUT OF WHICH, SUM OF RS.43,46,57 ,917/- RELATES TO SCHOOL LAND AND BUILDING. TOTAL BORROWIN GS AS ON 31.03.2010 WERE RS.25,13,58,904/- ONLY, ON WHICH, T HE ABOVE INTEREST HAVE BEEN PAID. THIS WOULD PROVE THAT WHOL E OF THE BORROWED FUNDS WERE UTILIZED FOR CONSTRUCTION OF SC HOOL 29 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. BUILDING, THEREFORE, THERE WERE NO JUSTIFICATION TO DISALLOW THE INTEREST. 16. ON THE OTHER HAND, LD. D.R. SUBMITTED THAT NO BIFURCATION IS GIVEN, THEREFORE, THE ADDITION IS JU STIFIED. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND D O NOT FIND ANY JUSTIFICATION TO SUSTAIN THE ADDITION. THE INTEREST PAID ON BORROWED FUNDS USED FOR THE ACQUISITION AND CONS TRUCTION OF THE PROPERTY IS AN ALLOWABLE DEDUCTION UNDER SECTIO N 24(B) OF THE I.T. ACT. THE AUTHORITIES BELOW HAVE DISALLOWED 50% OF THE INTEREST BECAUSE NO BIFURCATION OF THE FUNDS USED F OR LAND AND BUILDING AND OTHER ASSETS HAVE BEEN PROVIDED BY THE ASSESSEE. THE ASSESSEE HAS, HOWEVER, GIVEN COMPLETE DETAILS B EFORE THE LD. CIT(A) TO SHOW HOW MUCH OWN FUNDS ARE AVAILABLE TO ASSESSEE AND HOW MUCH AMOUNTS HAVE BEEN BORROWED FROM THE BA NK AND OTHER INSTITUTIONS. THE ASSESSEE CLAIMED THAT THE B ORROWINGS AS ON 31.03.2010 WERE ONLY RS.25,13,58,904/-, ON WHICH , ABOVE INTEREST HAVE BEEN PAID. THE ASSESSEE HAS INVESTED A SUM OF RS.43,46,57,917/- IN THE SCHOOL LAND AND BUILDING. THIS ITSELF 30 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. PROVES THAT ASSESSEE UTILIZED THE ENTIRE BORROWED F UNDS FOR CONSTRUCTION OF SCHOOL BUILDING. LEARNED COUNSEL FO R THE ASSESSEE ALSO REFERRED TO PAGE-10 OF THE SYNOPSIS T O SHOW BIFURCATION OF THE LAND AND BUILDING OF THE DEMISE PROPERTY AND OTHER ASSETS AND SUBMITTED THAT THE OTHER NET ADDIT ION ON OTHER ASSETS IN ASSESSMENT YEAR UNDER APPEAL IS ONLY RS.6 0,35,902/- WHICH IS NOT DISPUTED BY THE LD. CIT(A), BECAUSE, S UCH SCHEDULE-5 OF THE FIXED ASSETS WAS ALSO FILED BEFOR E AUTHORITIES BELOW. HE HAS, THEREFORE, RIGHTLY CONTENDED THAT TH E ENTIRE BORROWED FUNDS HAVE BEEN USED FOR THE PURPOSE OF AC QUISITION AND CONSTRUCTION OF THE SCHOOL BUILDING. SIMILAR DE DUCTION OF INTEREST CLAIMED IN EARLIER YEAR NOT DISPUTED BY AU THORITIES BELOW. THEREFORE, INTEREST IS ALLOWABLE. WE, ACCORD INGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELET E THE ADDITION. THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED. 18. ON GROUND NO.2(B), ASSESSEE CHALLENGED THE ADD ITION OF RS.2,75,750/- ON ACCOUNT OF PROFESSIONAL CHARGES PAID TO IDFC. THE ASSESSEE CLAIMED PROFESSIONAL CHARGES PAI D TO IDFC 31 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. FOR PROCESSING OF LOAN APPLICATION. THE ASSESSEE SU BMITTED THAT FUNDS RAISED WERE UTILIZED FOR CONSTRUCTION OF SCHO OL PROPERTY/ASSETS AND SAME IS ALLOWABLE AS EXPENDITUR E UNDER SECTION 37 OF THE I.T. ACT. THE A.O. DID NOT ACCEPT THE CONTENTION OF ASSESSEE BECAUSE THE ASSESSEE HAS ACCEPTED THAT THE EXPENSES INCURRED ARE RELATED TO BUILDING, ON WHICH , RENTAL INCOME HAS BEEN DECLARED. THEREFORE, IT WAS DISALLO WED AS BUSINESS EXPENDITURE. THE ASSESSEE HAS CLAIMED INTE REST AGAINST HOUSE PROPERTY. THE LD. CIT(A) CONFIRMED TH IS ADDITION BECAUSE ASSESSEE HAS NOT FILED ANY EVIDENCE TO SHOW THAT PROFESSIONAL CHARGES CLAIMED WERE TOWARDS LOAN WHIC H WAS ACTUALLY UTILIZED FOR ASSETS YIELDING RENTAL INCOME . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SERVICE FEES OR OTHER CHARGES FALLS IN THE DEFINITION OF INTEREST U NDER SECTION 2(28A) OF THE I.T. ACT. THEREFORE, IT IS AN ALLOWAB LE DEDUCTION UNDER SECTION 24(B) OF THE I.T. ACT. HOWEVER, IT IS A FACT THAT ASSESSEE HAS NOT FILED ANY EVIDENCE TO SHOW THAT PR OFESSIONAL CHARGES CLAIMED WERE TOWARDS LOAN WHICH WAS ACTUALL Y UTILIZED FOR ASSETS YIELDING RENTAL INCOME. THERE IS NO INFI RMITY IN THE 32 ITA.NO.6177/DEL./2014 VIDYA EDUCATION INVESTMENTS PVT. LTD., NEW DELHI. ORDERS OF THE AUTHORITIES BELOW. THIS GROUND OF APP EAL OF ASSESSEE IS DISMISSED. 19. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED 22 ND JUNE, 2018 VBP/- COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT D BENCH 6. GUARD FILE // BY ORDER // ASST. REGISTRAR : ITAT DELHI BENCHES : DELHI.