Deputy Commissioner of Income-tax, (Exemption),Circle, Pune V. Maharastra Academy of Engineering and Educational research, Pune

ITA 788/PUN/2019

AI Insights

The case involves the Deputy Commissioner of Income Tax (Exemptions), Pune as the appellant and the Maharashtra Academy of Engineering and Educational Research as the respondent. The core issue was the denial of exemption under section 11 of the Income Tax Act by the Assessing Officer (AO), which was contested in the CIT(A) and subsequently appealed by the Revenue to the Tribunal. The CIT(A) had deleted the additions made by the AO, which included profit from re-casted income and expenditure, provision for gratuity, and disallowance related to the World Peace Centre, totaling Rs.5,27,97,753. The Tribunal's decision relied heavily on its previous rulings in similar cases involving the same assessee, where it was established that the assessee was entitled to the exemption under section 11, barring specific violations of section 13(1)(c) concerning certain financial transactions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132936 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-02-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 19-05-2019
• Other Referred Cases: ITA Nos.921 to 923/PUN/2012, ITA No. 1669/PN/2007, ITA No.1840/PN/2014, ITA Nos. 2401 & 2402/PUN/2012, ITA No.80/PUN/2014, ITA No.922/PUN/2012
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Benefit of exemption
• Section: 11; 12A; 12AA; 13; 153; 22; 10(23C)

Judgement Text

आयकर अपीलीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.788/PUN/2019 धििाारण वर्ा / Assessment Year : 2011-12 Dy. Commissioner of Income Tax (Exemptions), Circle – Pune ......अपीलार्थी / Appellant बिाम / V/s. Maharashtra Academy of Engineering and Educational Research, S. No. 124, Paud Road, Kothrud, Pune – 411038 PAN : AAAAM1206F ......प्रत्यर्थी / Respondent Assessee by : Shri Nikhil S. Pathak Revenue by : Shri Ramnath P. Murkunde सुनवाई की तारीख / Date of Hearing : 06-02-2023 घोषणा की तारीख / Date of Pronouncement : 09-02-2023 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : This appeal by the Revenue against the order dated 12-03-2019 passed by the Commissioner of Income Tax (Appeals)-10, Pune [‘CIT(A)’] for assessment year 2011-12. 2. Brief facts relating to the case are that the assessee is a trust and engaged in running of Academy of Engineering and Educational Research. The assessee filed return of income declaring a total income at Rs. Nil. 2 ITA No.788/PUN/2019, A.Y. 2011-12 Under scrutiny, the AO made additions on account of profit as per re- casted income and expenditure, provision for gratuity u/s. 40A(7)(b) and disallowance on account of world peach centre totaling to Rs.5,27,97,753/- . Further, the AO denied exemption u/s. 11 of the Act. The CIT(A) deleted the said additions by placing reliance on the orders of this Tribunal in assessee’s own case for earlier years inter alia making direction to AO on one issue. Aggrieved by the order of CIT(A), the Revenue is before us. 3. Ground No. 1 raised by the Revenue is general in nature, hence, requires no adjudication. 4. Ground No. 2 raised by the Revenue challenging the action of CIT(A) in allowing exemption u/s. 11 of the Act. 5. We note that the issue relating to profit as per re-casted income and expenditure account discussed by the CIT(A) in his order at page 14 in para 5.3.3 of the impugned order. For better understanding, the relevant portion of the same is reproduced as under for better understanding : “5.3.3 As regards the appellant's claim of exemption u/s. 11 of the Act and further the AO's denial of such exemption for the violation of section 13 of the Act as raised in ground nos. 3 & 4, I find that the Hon'ble ITAT in the appellate order in ITA Nos.921 to 923/PUN/2012 for A.Ys. 2005-06 & 2007- 08 dated 16/05/2017, held in para 18 of the said order as below :- "18. We have heard the rival contentions and perused the record. The Tribunal had elaborately considered the issue of claim of exemption under section 11 of the Act, wherein the assessee had violated the provisions of section 13(1)(c) of the Act and also holding that the activity of assessee was commercial activity with profit motive and it does not exclusively exists for charity and hence, not eligible for exemption under section 1(23C)/11 of the Act. The Tribunal took note of the fact that in earlier appeal vide ITA No. 1669/PN/2007, order dated 09.09.2009, the Tribunal had restored the registration which was withdrawn under section 12AA(3) of the Act vide paras 138 and 139 at pages 82 to 84 of the order. The Tribunal had held that since the registration cancelled earlier was restored by the Tribunal (supra), therefore, the assessee was held to be entitled to claim exemption under section 11 of the Act subject to the fulfillment of other 3 ITA No.788/PUN/2019, A.Y. 2011-12 conditions. Thereafter, the Tribunal noted the alternate plea of the Revenue authorities that- the assessee was not entitled to the exemption under section 11 of the Act on the ground that the activity of assessee was commercial activity with profit motive and it does not exist solely for charity for which, it was not eligible for exemption under section 10(23C)/11 of the Act. The Tribunal held that in the absence of any approval under section 10(23C)(vi) of the Act, the assessee was not entitled to the exemption under section 10(23C) of the Act. However, the other claim of assessee that whether the assessee was eligible for exemption or not under section 11 of the Act, for accepting donations and whether the activities of assessee trust is commercial activity with profit motive and whether it existed solely for charity or not; was deliberated vide paras 140 onwards at page 84 of the order and it was held that the assessee was a charitable trust running various educational institutions. The allegation of the Revenue against the assessee was that it was collecting capitation fees in the garb of education and was running the institute with profit motive. However, where neither before the Assessing Officer nor any of the persons who have stated before the Department that they have given donation for getting admissions, had complained to the Government or appropriate authority, for any such violation under the Maharashtra Educational Institutions (Prohibition of Capitation Fees) Act, 1987 and no evidence had been brought on record that any student had denied admission for not giving donation. Therefore, merely because, some of donors had stated that they have given donations for admission, which had been retracted later on, the same as per the Tribunal, would not dis-entitle the assessee trust from getting exemption, which is existing solely for educational purpose. The Tribunal also gave a finding from various details filed by the assessee that if the capital expenditure and the depreciation thereon was considered as an application, then the assessee had deficit in each year under appeal and it could not be said that the trust was working solely for the profit. The Tribunal thereafter also held that even if the assessee trust had accepted donation from the students, it would not mean that the assessee trust existed for profit making activity and not for the purpose of education. Where the donations had been entered in the books of account and where it was not the case of Revenue that such donations have been siphoned by the trustee or the relatives, relying on the ratio laid down by the Tribunal in the case of Deccan Educational Society in ITA No.1840/PN/2014, order dated 13.07.2015, the Tribunal held that the similar issue is to be applied while deciding eligibility under section 11 and 12A of the Act. The relevant findings of the Tribunal are from para 147 at pages 88 to 107, which are being referred to and not being reproduced for the sake of brevity. 19. The last issue considered by the Tribunal was denial of exemption under section 11 of the Act for violation of provisions of section 13(1)(c) of the Act. The Tribunal vide paras 148 to 151 at pages 107 to' 112 held that there cannot be wholesale denial of exemption under section 11 of the Act for violation of pro visions of section 13(1)(c) of the Act and the income which is subject matter of violation only, could be brought to tax. Thereafter" the Tribunal vide para 153 onwards considered various violations contemplated under section 13(1)(c) of the Act and allowed exemption under section 11 of the Act subject to the condition that no such exemption would be given in respect of disallowance made for violating the provisions of section 13(1)(c) of the Act. Following the same parity of reasoning, ground a appeal No.4 raised by the assessee is partly allowed.” 4 ITA No.788/PUN/2019, A.Y. 2011-12 6. We note that the CIT(A) rendered relief to the assessee by placing reliance on the order of this Tribunal in assessee’s own case for earlier years. We find no order contrary to the view recorded by the Tribunal. Therefore, we find no infirmity in the order of CIT(A) and it is justified. Thus, ground No. 2 raised by the Revenue is dismissed. 7. Ground No. 3 raised by the Revenue challenging the action of CIT(A) in giving direction to the AO on account of verification to foreign tour expenses. 8. We find the relevant part at para 5.3.4 of the impugned order and for ready reference it is reproduced here-in-below : “5.3.4 The issues as emerging out of assessment order is that the AO vide para 5.2 and onwards contended that Registration u/s. 12AA is prerequisite for exemption u/s. 11 of the Act if such registration is not there, the exemption is automatically denied. The AO also contended that even if registration is granted during the course of assessment' but the AO detects violations of section 13 or section 11 of the Act, he is empowered to deny the exemption u j s. 11 of the Act. The AO thereafter found that most of the foreign tour expenses had been incurred for the World Peace Centre activities and such objectives were not approved as charitable object and informed to the CIT-II, Pune who was the granting authority of registration u/s. 12A of the Act and, therefore, the expenditure was of the nature of personal expenditure of the trustees/their family members and hence there was violation of section 13 of the Act. Accordingly, the AO denied the appellant the benefit of exemption u/s. 11 of the Act. The AO also contended that interest free loan of Rs. 18,00,000/- was given to Shri Rahul Karad and though the principal amount was recovered, the interest there from was yet to be recovered in this year and hence there was clear violation of section 13(2)(a) r.w.s. 13(2)(c) of the Act. The AO also observed that the assessee trust subsequently had amended the trust deed on its own and included three more objects, one of which is the object no.13 vide Resolution dated 20/07/1997 pertaining to the cause of World Peace & Harmony, which has already been quoted above. However, no intimation was given to the CIT / Department regarding such amendment in object clauses. The appellant had incurred an amount of Rs.5,25,000/- for the said World Peace Activities, when clause no.13 as amended had no educational purpose. The AD, accordingly, had contended that the assessee had not only violated the provisions of section 12AA(1) but also section 10(23C)(vi) of the Act. The AD, therefore, had denied the exemptions under both the sections as claimed by the appellant. As already stated above I find that the Hon'ble ITAT Pune, in appellant's own case had decided the issue of granting exemption u/s. 11 of the Act in favour of the appellant, thereby granting benefit of exemption in the respective order(s) passed by the Hon'ble ITAT as mentioned above, subject however of denying the benefit of exemption u/s. 11 of the Act due to violation of the provisions of section 13(1)(c) of the Act in respect of amount 5 ITA No.788/PUN/2019, A.Y. 2011-12 advanced as loan to one of the interested person u/s. 133) of the Act viz. Shri Rahul V Karad. It was decided that only the interest income from the said investment was liable to the tax considering the violation of section 13(2}(a) r.w.s. 13(I)(c) of the Act and rest of the amount of income / receipts were eligible for exemption u s. 11 of the Act. I have already quoted paras 18 & 19 from the decision of the ITAT for A.Y. 2005-06 to 2007 -08 passed on 16/05/2017. I further find that in the Appellate order in ITA Nos. 2401 & 2402/PUN/2012 for A.Y. 2008-09 & 2009-10 and also in ITA No.80/PUN/2014 for. A.Y. 2010-11, all dated 23/05/2017, the Hon'ble ITAT Pune vide para 8 of the order held as below:- 8. The issue in grounds of appeal No.3, 4, 5 and 8 raised by the assessee are inter-linked i.e. against the claim of exemption under section 11 of the Act. The Tribunal in the earlier year (supra) has elaborately considered the issue and held the assessee entitled to the exemption under section 11 of the Act but has denied the said deduction on the income assessed in the hands of assessee on account of violation of section 13(1)(c) of the Act. The Tribunal further in assessee's own case in ITA No.922/PUN/2012, relating to assessment year 2006-07, order dated 16.05.2017 has also decided the issue and held the assessee to be entitled to claim exemption under section 11 of the Act except on the income assessed in the hands of assessee on account of violation of section 13(1)(c) of the Act. Accordingly, we hold so". 5.3.5 As regards the expenditure incurred towards foreign tour expenses, the Hon'ble Tribunal in para 12 to 15 of the said order held as below :- "12. We have heard the rival contentions and perused the record. The Tribunal in assessment year 2003-04 has laid down that there could not be wholesale denial of exemption under section 11 of the Act, where the assessee has fulfilled all the other conditions and has been approved as a charitable trust under section 12 of the Act. However, the additions made on account of violation of section 13(1)(c) r.w.s. 13(3) of the Act are to be brought to tax and no exemption under section 11 of the Act is to be allowed on such disallowance. In the year under consideration, the first expenditure which was considered was the expenditure on foreign travelling expenses of the assessee, his wife and other employees. First of all, we take the foreign travel expenses of spouse of the employee, admittedly, has no business connection with the assessee, except the relation with the Managing Director of the trust. Admittedly, the said foreign travel expenditure which has been incurred on the wife of Managing Director is not to be allowed as deduction. 13. Now, coming to balance expenditure i.e. expenditure incurred on foreign travel of Managing Director and other employees. The assessee had booked two expenses i.e. one on account Of travel to Honoi for Robocon. event and the second on account of Paris for UNESCO conference. Vis-a-vis first expenditure for Robocon event, the Executive Director had visited along with other heads of departments and professors and students to attend an exhibition of Robotics. The said being in the line of business carried on by the assessee, the same is to be allowed as deduction in the hands of assessee i. e. the expenditure incurred on persons other than trustees or their relatives. In respect of expenditure incurred on the Executive Director of assessee trust, the same is hit by the provisions of section 13(1)(c) of the Act and accordingly, the same is not to be allowed as deduction as the expenditure is incurred on related party as mentioned in section 13(3) of the Act. We have already held that the foreign travel 6 ITA No.788/PUN/2019, A.Y. 2011-12 expenses of wife of Executive Director are also to be disallowed. Similarly, expenditure incurred for Mrs. Vidya Joshi wife of Shri Prakash Joshi who was the head of Department being not for the purpose of business is also disallowed. 14. The other expenditure booked by the assessee is with regard to travelling expenses to Paris for attending UNESCO conference. The assessee claims that its chairman Shri V.D. Karad was the president of UNESCO Chair and had to attend the 34th General Conference of UNESCO for the period 16- 24, October, 2007. The conference was also attended by another employee of the assessee trust Mrs. Suchitra Nagare and the total expenditure debited was Rs.7,03,328/-. The learned Authorized Representative for the assessee referred to the invitation to be part of UNESCO Chair. The perusal of the said invitation reflects that the cost of trip had to be borne by the Government of India. The learned Authorized Representative for the assessee in this regard was asked to explain as to why why the cost of travelling expenditure was incurred and debited for the year under consideration. In r~ply thereto, the assessee furnished letter dated 20.12.2007, wherein the assessee had made a request for reimbursement of expenses of Rs.1,63,370/ - towards the said trip but no such payment has been received from the Government in this regard. In the totality of the above said facts and circumstances, where the invitation was from the Government to attend the conference of UNESCO, then the expenditure as is eligible to him merits to be allowed in the hands of assessee i.e. to the extent ofRs.1,63,370/-. Further, the expenditure incurred on Mrs. Suchitra Nagare who is the employee as well as the Executive Director Incharge of Medical College also, merits to be allowed. The balance expenditure is to be disallowed in the hands of assessee being in violation of provisions of section 13(l)(c) r.w.s. 13(3) of the Act. Accordingly, we hold so. The Assessing Officer is directed to verify the claim of assessee in this regard and allow the same accordingly. Accordingly, the ground of appeal raised by the assessee in respect of foreign travel expenses is partly allowed. 15. Another expenditure which has been referred to by the CIT(A) is the interest due on the loan to Mr. Rahul Karad. We have already decided this issue against the assessee by our decision in appeals relating to assessment years 2006-07 to 2008-09. However, the Assessing Officer is directed to verify whether any such disallowance was made in the hands of assessee in the instant assessment year and if so, then same is upheld.” 9. In the light of the above, we find no infirmity in the order of CIT(A) and it is justified. Thus, ground No. 3 raised by the Revenue is dismissed. 10. Ground No. 4 raised by the Revenue challenging the action of CIT(A) in giving relief on account of expenditure incurred on world peace centre. 7 ITA No.788/PUN/2019, A.Y. 2011-12 11. We find the relevant portion of in para 6.1 at page 22 of the impugned order. We note that the CIT(A) primarily relied on the order of this Tribunal in assessee’s own case for A.Ys. 2008-09, 2009-10 and 2010- 11. There is no order contrary to the view of this Tribunal in this regard brought on record by the Revenue. Therefore, we find no infirmity in the order of CIT(A) and it is justified. Thus, ground No. 4 raised by the Revenue is dismissed. 12. In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 09 th February, 2023. Sd/- Sd/- (R.S. Syal) (S.S. Viswanethra Ravi) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; दिनाांक / Dated : 09 th February, 2023. रदव आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(A)-10, Pune 4. The CIT(Exemptions), Pune 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गार्ड फ़ाइल / Guard File. //सत्यादपत प्रदत// True Copy// आिेशानुसार / BY ORDER, वररष्ठ दनजी सदचव / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune