2025 (7) TMI 1811 - AT - Income Tax

ITAT Rules Against Income Enhancement and Penalty Under Section 271(1)(c) in Educational Receipts Case

Mahavira Pupil Educational Society, Lochan & Co. (Chartered Accountant) Versus JCIT, RANGE-1, NOIDA

The ITAT Delhi reversed the CIT(A)'s enhancement of income by disallowing the addition of gross receipts from educational activities as a new head of ... Exemption u/s 11 - Addition of gross receipts derived from educational activities - enhancement of assessed income by CIT(A) - HELD THAT:- We find no reason to sustain the CIT(A)’s action. This is for the precise reason that such an exercise of adding the entire receipts amounts to an altogether a new head of income as against the assessment findings disallowing/restricting the assessee’s exemption claim, already forming subject of adjudication; and, therefore, not sustainable as per CIT vs. Shapoorji Pallonji Mistry [1962 (2) TMI 12 - SUPREME COURT] CIT vs. Sardari lal & Co. [2001 (9) TMI 1130 - DELHI HIGH COURT] and CIT vs. Union Tyres [1999 (9) TMI 81 - DELHI HIGH COURT] adjudicating the very issue in assessee’s favour and against the department. The Revenue forgoing case law(s) admittedly does not deal with the issue of adding an altogether new head of income and the same stands distinguished therefore. We accordingly accept the assessee’s above extracted substantive grounds nos. 1 to 5 in very terms to reverse the CIT(A) impugned enhancement action. Treating its depreciation claim as an instance of double deduction for the sole reason that it had included a very sum for the purpose of application of income as well -Legislature has specifically inserted sub-section (6) to section 11 vide Finance Act, 2014 w.e.f. 1.4.2015 that such a depreciation is no more admissible, once the corresponding arguments of the fixed assets forms part of application u/s. 11 of the Act. Case law CIT vs. Rajasthan and Gujarat Charitable Foundation Poona [2017 (12) TMI 1067 - SUPREME COURT] has settled the very issue in assessee’s favour and against the department for the prior period to the above statutory amendment. We thus see no merit in the Revenue’s contentions supporting the impugned depreciation disallowance which stands deleted therefore. Treating development, library fund receipts involving specific directions from the donation/contributions as revenue items involving varying sums as liable to be assessed. He could not pin-point any such specific directions of the assessee’s contributors so as to satisfy the statutory contention u/s.11(1)(d) of the Act. We thus uphold both the lower authorities’ action disallowing it corpus and specific do nation claim to reject all these remaining grounds 7 to 11 in very terms. Penalty u/s 271(1)(c) - So far as the assessee’s section 11(1)(d) corpus and other donation claims are concerned, altogether the same have been upheld; but, at the same time case CIT vs. Reliance Petro Products [2010 (3) TMI 80 - SUPREME COURT] has already settled the issue against the department that it is not each and every quantum disallowance/addition which would automatically attract the penalty proceedings herein i.e. 271(1)(c) of the Act. We accordingly see no reason to sustain both the learned lower authorities’ respective findings holding the assessee to have concealed and furnished inaccurate particulars of its taxable income; as the case may be, u/s. 271(1)(c) of the Act in very terms. ISSUES: Whether the appellate authority erred in issuing notice under section 251(2) of the Income Tax Act.Whether the enhancement of assessed income by including gross receipts and donations as taxable income without allowing deductions under sections 11 and 12 of the Act was justified.Whether income of educational institutions should be exempted under section 10(23C) only or also under sections 11 and 12 of the Act.Whether fees and other charges from students constitute income from property held under trust and are eligible for exemption under section 11.Whether the cost of education can be recovered by educational institutions from students by way of fees and adjusted against expenditure.Whether depreciation claimed under section 32(1)(ii) is allowable when the same amount is applied under section 11, or amounts to double deduction.Whether development receipts collected for specific purposes are revenue receipts taxable under section 11(1)(d) or capital receipts exempt from tax.Whether library fund receipts collected for specific purposes are revenue receipts taxable under section 11(1)(d) or capital receipts exempt from tax.Whether donations received are eligible for exemption under section 11(1)(d) and whether denial violates the provisions of the Act.Whether the Assessing Officer is obliged under CBDT Circular No. 14 of 1995 to assist the taxpayer in claiming and securing relief and not take advantage of the assessee's ignorance.Whether penalty under section 271(1)(c) is justified for alleged concealment or furnishing inaccurate particulars of income where disallowances are upheld. RULINGS / HOLDINGS: The issuance of notice under section 251(2) was not upheld; the enhancement of income by treating entire receipts as income from other sources under section 56(1) was unsustainable as it amounted to introducing an altogether new head of income contrary to settled precedents.The enhancement of assessed income by including gross receipts and donations without allowing deductions under sections 11 and 12 was reversed, as such enhancement was not permissible in appellate proceedings.The income of educational institutions is not limited to exemption under section 10(23C) alone; sections 11 and 12 provisions also apply, and denial of such benefit was erroneous.Fees and other charges from students can be income from property held under trust and thus eligible for exemption under section 11; denial thereof was incorrect.The cost of education can be recovered by educational institutions from students by way of fees and adjusted against expenditure; the contrary finding was erroneous.Depreciation claim of Rs. 38,62,562/- is allowable under section 32(1)(ii) and does not amount to double deduction where the corresponding amount is applied under section 11, in line with the Supreme Court's ruling prior to the Finance Act, 2014 amendment.Development receipts collected for specific purposes are not taxable as revenue receipts under section 11(1)(d) absent specific directions from donors; however, in this case, no such directions were established, and disallowance was upheld.Library fund receipts similarly were held to be revenue receipts taxable under section 11(1)(d) due to lack of specific donor directions; disallowance was upheld.Donations amounting to Rs. 2,73,000/- were not eligible for exemption under section 11(1)(d) as held by the authorities; this finding was upheld.The Assessing Officer's duty to assist the taxpayer as per CBDT Circular No. 14 of 1995 was noted but did not affect the substantive findings on exemption claims.Penalty under section 271(1)(c) was not sustained as it is not attracted merely by every quantum disallowance or addition; concealment or furnishing inaccurate particulars was not established. RATIONALE: The Court applied the statutory provisions of the Income Tax Act, 1961, particularly sections 10(23C), 11, 12, 32(1)(ii), 56(1), 251(2), 271(1)(c), and relevant CBDT circulars.Precedents relied upon include Supreme Court decisions in CIT vs. Shapoorji Pallonji Mistry, CIT vs. Sardari Lal & Co., CIT vs. Union Tyres, and CIT vs. Rajasthan and Gujarat Charitable Foundation Poona, which clarify the impermissibility of introducing new heads of income in appellate proceedings and the allowability of depreciation claims when corresponding application is made under section 11.The Court distinguished Revenue's cited cases as not addressing the issue of adding an altogether new head of income in appellate proceedings, thereby rejecting the enhancement.The Finance Act, 2014 amendment introducing sub-section (6) to section 11 was acknowledged as prospective; prior to that, depreciation was allowable even when the amount was applied under section 11.The Court emphasized the necessity for specific directions from donors to classify receipts as corpus or specific donations exempt under section 11(1)(d), and in absence of such directions, receipts are treated as revenue and taxable.The penalty provisions under section 271(1)(c) require proof of concealment or furnishing inaccurate particulars, and mere disallowance of claims does not suffice, following the Supreme Court's ruling in CIT vs. Reliance Petro Products.