TaxTMI 
TaxTMI 
2026 (2) TMI 799
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.... Commerce (VCACS) d. Vishvakarma University 3. The trust also runs Marathi & English Medium schools since 1982 up to higher secondary schools. It filed its return of income on 15.02.2021 declaring total income at Nil. The return was processed u/s 143(1) of the Act by the CPC, Bangalore. Subsequently the case was selected for limited scrutiny through CASS for the reason "Trust executing contracts, providing professional services, earning commission income or rent (verification as per proviso to section 2(15) or any other section) / Large payment of salary, rent, interest, etc made to specified persons". Statutory notice u/s 143(2) of the Act was issued and served on the assessee. Notices u/s 142(1) of the Act were issued from time to time through Faceless assessment scheme in response to which the assessee filed the requisite details. The Assessing Officer completed the assessment on 20.09.2022 determining the total income of the assessee at Nil. 4. Subsequently the Ld. CIT(Exemption), Pune perused the assessment order and submissions of the assessee made from time to time and observed that the order passed by the Assessing Officer u/s 143(3) for assessment year 2020-....
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....on of the assessee, it is observed that the trust has made substantial payments to trustees/ entities in which the trustees have a significant interest. As seen from the form 10B, the assessee has made the following payments to specified persons as defined in sec. 13(3) of the Income-tax Act, 1961: S. No. Specified person Amount Nature 1 Mrs. Trupti B Agarwal 36.63.000 Salary 2 Bharat R Agarwal 1,44,18,000 Administrative work 3 M/s Investronaut 1,18,57,000 Providing advt. & promotion facilities. 4 Vishwakarma Global Edu Services P. Ltd. 27,90,77,256 Subscription to online learning platform 5 Roott Square Stationery & Uniforms LLP 1.04,32,443 Purchase of stationery 6 Agrabh HR services LLP 78,02,477 For supplying admin and house- keeping staff Further observations with respect to the payments to specified persons are as under: (i) In addition to the receipts of Rs. 36,63,000/- by way of salary as mentioned above, Mrs. Trupti B Agarwal is a partner in M/s Roott Square Stationery & Uniforms LLP with 90% share. (ii) Similarly, in addition to the receipts of Rs. 1,44,18,000/- a....
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....1 without conducting inquiries into the admissibility of the claim. 7. Failure on the part of the Assessing Officer in examining the above issues (as discussed in preceding Paras 3 to 6) while considering and allowing the assessee's claim of deduction u/s 11 of the Income-tax Act, 1961 has rendered the assessment order dated 20.09.2022 erroneous in so far as it is prejudicial to the interest of the revenue. 8. In view of the above, the order dt. 20.09.2022 passed by the Assessing Officer (FAO) u/s 143(3) for the A.Y 2020-21, thus appears to be erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the Income-tax Act, 1961 and is proposed to be reviewed. Accordingly, your case is fixed for hearing on 28.02.2025 at 11.30 a.m. in my office. It is also requested to furnish your submission, if any, through ITBA module or email ([email protected]) by this date which shall be taken into account while finalizing the proceedings. Necessary documentary evidences, wherever required, may also be submitted. Please note that in the event of failure to comply with the notice, it shall be presumed that you have nothing to say in....
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....It was further submitted that since 2021, the assessee has discontinued services of VGSPL and switched to Educational Tantra Software Consulting Services, a non-related party, to which higher charges per student per month are paid. (e) In respect of M/s Roott Square, another related concern it was submitted that the said concern supplies stationery to many educational institutions including the assessee. However, the stationery is procured by the said party from outside vendors. (f) As regards M/s Agrabodh, another related concern, the assessee stated that the said party extends HR & Admin staff services to assessee trust and the profit margin of the said party is about 10% which is reasonable and as such, amount charged to the assessee is also fair. 6. The assessee also furnished a chart showing the percentage of revenue of specified parties from the transactions with the assessee trust, profit percentage and no. of employees of such concerns the details of which are as under: Name of related party Revenue share from transactions with the assessee Profit % No. of employees Investronaut 100% 7.53% 13 VGSPL 88.87% 30.51% 35 ....
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.... trust. He noted that this company was incorporated on 05.12.2013 and despite being in existence for more than seven years, it has failed to establish any business transactions with entities other than the assessee trust. This lack of independent commercial activity according to the Ld. CIT(Exemption) was not set up as a genuine business enterprise but rather as a medium to channel trust funds for the benefit of specified persons in contravention of provisions of Section 13(1)(c). According to him, the nature of these transactions raises concerns regarding financial propriety as they indicate a structured arrangement to divert funds of charitable organization for private gain. He referred to the decision of Hon'ble Gujarat High Court in the case of N. N. Desai Charitable Trust v. CIT reported in [(2000) 246 ITR 452 (Guj] wherein the Hon'ble High Court has held that when the transactions between a charitable trust and its related concerns are excessive and lack commercial prudence, the trust forfeits exemption under Section 11. He further noted that in the case of M/s Agrabh also 100% of the revenue is received from the assessee only. Since the Assessing Officer in the instant c....
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.... order, erred in law and on facts in observing that, most of the revenue of these entities is from assessee trust and, "margins earned by these four entitles are excessive". Appellant contends that, facts are besides these observations. 5. Learned CIT(E), Pune erred in law and on facts in holding on one hand that order of learned AO is "erroneous" for lack of adequate enquiry, and on the other hand, not carrying out the stipulated enquiry himself. Appellant contends that learned CIT(E), before disturbing the order of learned AO, ought to have carried out the enquiries and concluded matters himself. 6. Appellant contends that, learned CIT(E), at the most, ought to have disturbed alleged excessive payments to the specified persons, and ought not to have disturbed entire transaction with the specified persons. Appellant contends that, disallowance of "Application of income" ought to be confined to alleged excessive/violative portion of the payments to specified persons. 7. Appellant craves leave to add/modify/delete/amend all/ any of the grounds of appeal. 12. The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(E) in assuming jur....
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....made to the specified persons. d) Need of the service for fulfillment of the object of trust. e) Educational qualification and experience of the specified persons with concrete documentary proof. * In case a query is not applicable, kindly specify the same in your reply. 16. Referring to the second notice issued u/s 142(1) of the Act dated 01.12.2021, he drew the attention of the Bench to clause 8 of the said notice where the Assessing Officer has again asked the assessee to provide the details of payments made to the specified persons as referred in section 13(3) of the Act. 17. Referring to the reply given by the assessee dated 08.12.2021, copy of which is placed at pages 20 to 33 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the details where the assessee has given elaborate details on this issue as per the query raised by the Assessing Officer. 18. Referring to the notice issued u/s 142(1) of the Act dated 04.01.2022, copy of which is placed at pages 54 to 57 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to clause 5 of the said notice where the Assessing Officer ha....
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....city of donors and to decide about genuineness of gift afresh, was not sustainable. 24. Referring to the decision of Hon'ble Bombay High Court in the case of CIT vs. Shreepati Holdings & Amp Finance Pvt. Ltd. vide ITA No.1879 of 2013, order dated 05.10.2015, he submitted that the Hon'ble High Court in the said decision has held that inadequate enquiry by itself would not justify invoking the jurisdiction u/s 263 of the Act unless the order is erroneous. 25. Referring to the decision of Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar Sharma reported in 335 ITR 83 (Del), he submitted that the Hon'ble High Court in the said decision has held that where it was discernible from record that the Assessing Officer had applied his mind to the issue in question, Commissioner could not invoke section 263 merely because he had different opinion. 26. Referring to the decision of Hon'ble Bombay High Court in the case of CIT vs. Audyogik Shikshan Mandal reported in (2019) 101 taxmann.com 247 (Bom), he submitted that the Hon'ble High Court in the said decision has held that where funds of assessee-trust were utilized for purchase of car in name of its trustee, there was violati....
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....cer providing confirmations of the specified persons, bank statements, their ITR copies, etc from time to time. He submitted that even before the Ld. CIT(Exemption) also a detailed reply was filed on 28.02.2025 followed by a supplementary submission dated 17.03.2025 wherein each of the observations made in the notice u/s 263 of the Act was specifically addressed. The reasons for availing the services from the specified persons were also explained in detail. Further, detailed factual and benchmarking analysis was furnished to rebut the allegation that related entities, particularly Vishwakarma Global Education Services Pvt Ltd and Root Square earned excessive profits. Despite reproducing parts of the assessee's submissions in the impugned order, the Ld. CIT(Exemption) failed to examine, rebut or controvert the same with any cogent reasoning or independent verification. He accordingly submitted that such summary rejection and non-consideration of material submissions vitiates the order passed u/s 263 of the Act and renders the assumption of revisionary jurisdiction unsustainable in law. 31. The Ld. Counsel for the assessee in his yet another plank of argument submitted that mere p....
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....e instant case has not carried out any independent verification, instead he has merely remanded the matter back to the file of the Assessing Officer for re-examination. Such an approach is contrary to law as section 263 does not permit roving or fishing enquiries or remand for fresh verification without establishing error. 35. He accordingly submitted that the order of the Ld. CIT(Exemption) invoking jurisdiction is not in accordance with law and therefore the same be quashed. 36. The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(Exemption) setting aside the order to the file of the Assessing Officer with a direction to re-frame the assessment as per the provisions of law, after considering proper facts, submissions of the assessee and also after necessary verification. 37. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(Exemption) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case completed the assessment u/s 143(3) r.w.s. 144B of the Act on 20.09.2022 accepting the Nil ret....
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....3 of the Act. Further, since the entire income of the assessee trust is exempt, therefore, it does not amount to any prejudice to the interest of the Revenue. It is the submission of the Ld. Counsel for the assessee that for invoking the provisions of section 263 of the Act, the twin conditions namely the order is erroneous and the order is prejudicial to the interest of the Revenue must be fulfilled. However, in the instant case since none of the conditions are satisfied, therefore, the order passed by the Ld. CIT(E) u/s 263 of the Act by setting aside the same to the file of the Assessing Officer for fresh examination is not in accordance with law and therefore the same is liable to be quashed. 39. We find some force in the above arguments of the Ld. Counsel for the assessee. As reproduced in the preceding paragraphs, the Assessing Officer vide notice u/s 142(1) dated 15.11.2021, copy of which is placed at pages 14 to 16 of the paper book at clause 8 of the notice has asked the assessee to furnish the following details: 8. With respect to the payments made to the specified persons during the year under consideration as referred in section 13(3) of the Income-tax Act, ....
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....dl./ Joint/Deputy/ACIT, National e-Asst. Centre, Delhi at para 8 of the submission has given the details of payments made to the specified persons which are as under: 8) Details of Payment made to Specified person u/s.13(3) of the ITA: A. Payment to Mrs. Trupti B Agarwal The assessee trust has paid an amount of Rs. 36,63,000/- to Mrs. Trupti Agarwal. It is to be noted that Mrs Trupti Bharat Agarwal holds a post graduate degree in Management i.e. MBA (copy of Qualification certificate enclosed (Annex-H). Her day to day role in Management is crucial due to the changing governance and regulatory concerns and encompasses many duties and responsibilities which includes but not limited to Monitoring / mentoring and Co-ordination of academic, administrative, commercial and financial functioning of "Vishwakarma Schools". Further, it is to be noted that Mrs. Agarwal is also actively engaged in the infrastructure development of the trust which includes various colleges and schools. Infrastructure development includes construction of new campuses, development and maintenance of existing campuses and buildings. The various functions performed by her at a glance are a....
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....assessee trust. The assesses submits that Mr. Bharat Agarwal is a qualified Mechanical Engineer & MBA (Finance) (copy of mark sheet is enclosed (Annex-H). He has also worked for a short span with Tata Motors Ltd. Pimpri to gain experience .. He has also under taken training from Harvard Business School in Management program. He is handling the various affairs of the assessee trust for more than 15 years. Mr. Agarwal is the main person who is driving the various institutes of the assessee to new heights. The various duties and responsibilities which includes but not limited to Monitoring / mentoring and Co-ordination of academic, administrative, commercial and financial functioning of "Vishwakarma Educational Group" (VIT, VIIT, VU, VCACS and other Institutions run by the Trust) : 1. Responsible for strategic planning and expansion of entire Vishwakarma Educational Group 2. Responsible for developing and approving the Institute's goals and objectives, and establishing policies related to programs and all types of services like student/ staff / employment/ research . 3. Monitor the progress & direction of various Institutions run by the....
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.... life on campus and in general 16. Interacting with the staff / faculty / students in order to develop good moral values and overall personality development. C. Payment to Vishwakarma Global Education Services P Ltd (VGESPL) 1) The assessee has made payment to VGESPL for subscription to the online learning platform of the said entity. It is to be noted that the online learning platform of VGESPL provides various benefits in the form of online admission process, online examination, learning, administrative and onsite support. Further, it also provides online learning modules using which institutes can deliver interactive courses to the students and promote interactive learning environment. The said platform also provides inbuilt notification and messaging system which enables the users to communicate effectively with the staff, teachers and administration of the college. 2) It is to be noted that VGESPL was charging Rs. 1100/- per month per user for providing E subscription for its online learning platform for the period from April to June, 2019. Subsequently, w.e.f. 1st July, 2019, VGESPL has started charging Rs. 1150/- per month per user for the....
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....digital era, the assessee is required to advertise its courses on various social media plat forms. Investronaut is responsible for designing and content writing the advertisements which are required to be published through social media plat forms. Further, they also publish advertisements of the various schools and colleges in the newspapers. Investronaut is also responsible for putting up various hoardings wherein the details of the colleges, schools and the various courses are given. For providing all these services, the assessee trust has paid an amount of Rs. 1,18,57,000/- to Investronaut. It is submitted that considering the services rendered, the payment made to the said entity is reasonable. Sample copies of the invoice raised on the above two entities are enclosed herewith as (Annex-K). E. Payment to Roott Square Stationery & Uniforms LLP 1) The assessee has further made payment to Root Square LLP for providing stationery material. As clarified earlier, the assessee has around various schools and colleges. Now, while running such huge institute, there is lot of requirements of registers and stationery material. It is also to be noted that if proper control....
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....h HR Services to provide support staff as per the requirement of various schools and colleges. The salary of the staff provided is borne by M/s. Agrabh HR Services. Since there are number of schools and colleges, there is substantial requirement of the admin and support staff. Further, there is lot of attrition amongst such support staff. Accordingly, it is very difficult for the trust to manage admin and support staff. Thus, we have appointed Agrabh HR Services to provide us a staff. In case, any person resigns, appointment of a new person is taken care by Agrabh. Further, it is for Agrabh to fix their roles and responsibilities and also to decide on their remuneration. Thus, by appointing Agrabh, the assessee is able to focus on the teaching staff and reduces the time spent of the assessee in such non value addition activity. It is also to be noted that by appointing Agrabh, the assessee does not have bother about gratuity, and other future statutory liabilities of such staff. It is also to be noted that these staff members not being in the direct employment of the institutes are not required to be employed permanently and their services can be terminated anytime as they are not ....
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....icer in the instant case has passed the assessment order after a detailed scrutiny with multiple pointed queries on the very same payments to the specified persons. Further, the assessee has also filed detailed replies on account of the payment made to the specified persons. Therefore, in our opinion, it is neither a case of lack of enquiry or no enquiry. 45. We find the Ld. CIT(E) while passing the order has overlooked the various details filed by the assessee giving the details of payments made to specified persons. Even before the Ld. CIT(E) also we find the assessee has explained the reasons for availing the services from the specified persons. In our opinion, mere payments to the specified persons does not attract the disallowance u/s 13 especially when the Ld. CIT(E) in the instant case has not established that the payment made to the specified persons is excessive or unreasonable having regard to the fair market value. He has not identified any excessive portion nor quantified unreasonable benefit nor compared the payments to market rates. In absence of such findings, invocation of provisions of section 13 and consequently 263 proceedings, in our opinion, is legally unten....
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....Assessing Officer to enquire into the source of source for the purpose of the present facts. This is a case where a view has been taken by the Assessing Officer on enquiry. Even if this view, in the opinion of the CIT is not correct, it would not permit him to exercise power under Section 263 of the Act. In fact, the Apex Court in Amitabh Bachchan (supra) has observed that there can be no doubt that where the view taken by the Assessing Officer is a possible view, interference under Section 263 of the Act, is not permissible." 48. We find the Hon'ble Bombay High Court in the case of CIT vs. Shreepati Holdings & Amp Finance Pvt. Ltd. (supra) has held that inadequate enquiry by itself would not justify invoking the jurisdiction u/s 263 of the Act unless the order is erroneous. The relevant observations of Hon'ble High Court read as under: "7. Moreover the CIT in exercise of powers under Section 263 of the Act directed the Assessing Officer to redetermine the rebate allowable under Section 88E of the Act after holding that the same needs more careful examination on the part of the Assessing Officer. This itself indication of the fact that this is not the case of lack of en....
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.... the Assessing Officer. The Tribunal, therefore, allowed the appeal of the assessee and quashed the order of the Commissioner passed under Section 263 of the said Act. 6. In Commissioner of Income Tax vs. M/s Sunbeam Auto Ltd: ITA No.1399/2006 decided on 11th September, 2009, it was observed that: "As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as Revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his ....
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....ments of the Hon'ble Supreme Court reported in (2000) 243 ITR 83 (MALABAR INDUSTRIAL CO. LIMITED v/s COMMISSIONER OF INCOME TAX) and another judgment reported in (1957) 31 ITR 872 (DAWJEE DADABHOY AND CO. v/s S.P.JAIN AND ANOTHER). The Division Bench of this Court in ITA No.30/2006 in Paragraph 16 has held as under: 16. As is clear from the wording in Section 263, the Commissioner gets the jurisdiction to revise any proceedings under this Act, if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue. Therefore, it is clear that he cannot exercise the power of revision solely on the ground that the order passed is erroneous. He gets jurisdiction only if such erroneous order is prejudicial to the interest of the Revenue. Prejudicial to the Revenue means, lawful revenue due to the State has not been realized or cannot be realized. In other words, by the order of the Assessing Authority if the lawful revenue to the State has not been realized or cannot be realized, as the said order is prejudicial to the interest of the Revenue and also erroneous, he gets jurisdiction to interfe....
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....also well-settled principle that provisions of Section 263 of the Act would not be invoked merely to correct a mistake or error committed by the AO unless it has caused prejudice to the interest of the Revenue. If an order is based on incorrect assumption of facts or on incorrect application of law or without applying the principle of natural justice and without application of mind, it would be treated as erroneous. Likewise, the expression "prejudicial to the interest of the Revenue" is of wide import and is not confined to loss of tax. If due to an erroneous order of the AO the Revenue is losing tax lawfully payable by a person, it would be certainly prejudicial to the interest of the Revenue. At the same time, as held in Malabar Industrial Co. Ltd. vs. Commissioner of Income-Tax (supra) where two views are possible and the AO has taken one view with which the Commissioner does not agree, that cannot be treated as erroneous order prejudicial to the interest of the Revenue. It has to be shown that the order of the AO was not in accordance with law, to term it as erroneous. It is also the principle of law, now well accepted, that an order passed by the AO cannot be set asi....
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....ply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 9. This principle was reiterated in Commissioner of Income-Tax v. Seshasayee Paper and Boards Ltd., 242 ITR 490 in the following manner:- "It is no doubt true that for making a valid order under section 263 of the Act, it is essential for the ....
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.... the rate of Rs. 1,800 per square yard was in respect of commercial property. The Commissioner himself has referred to two different rates fixed by the D.D.A. in respect of industrial land and commercial land. This clearly shows that the rate of the commercial land is not necessarily the same as the rate of an industrial plot of land. Furthermore, the rate for an industrial plot is lower than that of the land for commercial use. What is more striking is that the two Governmental authorities, viz., the Ministry of Works and Housing and the D.D.A., have given rates for land which are at great variance with each other. Whereas the rate for commercial land has been fixed at Rs. 1,800 per square yard by the Ministry of Works and Housing, the D.D.A., on the other hand, has fixed the value for the said land between Rs. 287 and Rs. 315 per square metre. This itself shows divergence in the opinion of the authorities with regard to the valuation of land. In the absence of specific instances of purchase and sale, it is obvious that certain amount of guess work is involved in determining the price of the land." 11. To the same effect is the judgment in the case of J.P. Srivastava and ....
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....o consider the said facts, the Commissioner does not take the said order to its logical conclusion which was the prime duty of the Commissioner in order to justify exercise of power under Section 263 of the Act. There is not even a whisper that the order is erroneous. Even if we infer that non-consideration of the issues pointed out by the Commissioner would amount to an erroneous order, it is not stated as to how this order is prejudicial to the interest of the Revenue. The penultimate paragraphs of the orders, at best, contain the observations that the AO was satisfied with making flimsy additions which were deleted by the CIT(A). This is stated in the following terms:- "7. In the instant case, the Assessing Officer was satisfied with making a flimsy addition disallowing the claim of Rs. 17,38,106/- debited under the head, "selling and distributing expenses", and after further holding that the deduction under section 80HHC of Rs. 32,25,486/- was unwarranted. These additions were not sustained at the appellate stage by the CIT (Appeals), who accepted the plea of the assessee "The Director being out of the country and the matter having not been properly attended to at the ....
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....eceipt may follow in due course. The mere claim to income without any enforceable right cannot be regarded as an accrued income for the purpose of Income-Tax Act. The Tribunal referred to the following judgments in support:- i) In CIT Vs. Finance (P) Ltd. 124 ITR 619(P&H High Court), held as under: "Income-tax is levied on income whether the accounts are maintained on mercantile system or on cash basis. If income does not result at all, there cannot be levy of tax. Even if an entry of hypothetical income is made in the books of accounts, where the income does not result at all as there is neither accrual nor receipt of income, no tax can be levied. Even in mercantile system of accountancy an assessee could forge the whole or part of a debt, which was irrecoverable, and the same could not be added to the income of the assessee". Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. vs. CIT (SC) 225 ITR 706, held that "income-tax is a levy on income. No doubt, the Income-Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is t....