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TMI Blog2015 (1) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounts of the assessee. He has therefore failed to follow the decision in Shashi Jain vs. I.T.O., 228 ITR 147 (Alld.). 3. The CIT (A) has erred on facts of this case, in holding that the assessee is entitled to exemption u/s 10(23C)(iiiad) of the I.T. Act. The Ld. CIT (A) has failed to appreciate the facts discussed by the A.O. that the assessee could not be considered as existing solely for educational purposes. Reliance is placed on following decisions a) CIT vs. Queens Educational Trust (2009) 319 ITR 160 (Uttarakhand) b) MCD vs. Childrens Book Trust (1992) 3 SCC 390 2. Apropos ground No.1, it is noticed that during the course of hearing, the Assessing Officer has noted that the assessee has shown receipt of Rs. 8.15 lakhs from Members as building fund. When the assessee was asked to furnish evidence with regard to the source of income of various Members along with copies of Revenue record, the assessee has filed evidence with regard to the contribution made by Shri. Shiv Ram Singh. For others, detailed evidence were not filed and in the absence of evidence, the Assessing Officer treated the receipts of Rs. 7.65 lakhs received from remaining six persons as unexplained ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Ram Suman 80,000/- Confirmation letter, Copy of Khasra and Khatauni 13. Shri Ram Sumiran 90,000/- Confirmation letter, Copy of Khasra and Khatauni 14. Shri Vinod Kumar 60,000/- Confirmation letter, Voters ID Card, Copy of Khasra and Khatauni 5(5)(i) I find from the details filed above that the persons have confirmed having given money as donation to the appellant-society. The donees have accepted giving the money and their confirmations filed establishes the identity, credit-worthiness and genuineness of the transactions. Moreover, the appellant is running a educational institution and its receipts are Rs. 39,80,576/-. The appellant is eligible for exemption under section 10(23c)(iiiad) of the Act. The decision of Hon'ble Delhi High Court in the case of DIT(Exemption) vs. Raunaq Education Foundation, 294 ITR 76 (Del.), laid down that - "The words "derived from" (or some other similar words) do not occur in section 10(22) of the Incometax Act, 1961, and, therefore, the word "Income" as occurring in section 10(22) cannot be given a restrictive meaning and must be given its natural meaning or the meaning ascribed to it in section 2(24). Hence, an assessee who is entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions on merits because it would be academic in nature. 5(6) Relying on the decisions cited supra, the addition of Rs. 7,65,000/- made by the AO under section 68 of the Act is deleted giving equivalent relief to the appellant. The grounds of appeal are allowed." 4. Aggrieved, the Revenue has preferred an appeal before the Tribunal with the submission that during the course of assessment proceedings, the Assessing Officer has afforded sufficient opportunity to produce the confirmation letters and the Revenue record in order to prove the creditworthiness of the contributors, but the assessee could not file the same. The additional evidence was filed before the ld. CIT(A) and the ld. CIT(A) has accepted the same without confronting the additional evidence to the Assessing Officer, therefore, there is a gross violation of the provisions of rule 46A of the Income-tax Rules. The ld. D.R. has further contended that in the interest of justice, the matter may be restored back to the Assessing Officer for re-adjudication of the issue. 5. The ld. counsel for the assessee has contended that before the Assessing Officer assessee has filed copies of Khatoni of some of the persons and sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer] except in the following circumstances, namely:- (a) Where the [Assessing Officer] has refused to admit evidence which ought to have been admitted ; or (b) Where the appellant was prevented by sufficient cause from producing the evidence which he was called to produce by the [Assessing Officer]; or (c) Where the appellant was prevented by sufficient cause from producing before the [Assessing Officer]; or (d) Where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (3) The [Dy. Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals) shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Officer] has been allowed a reasonable opportunity (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction was also objected by the assessee on different points i.e. (1) the DVO has adopted CPWD rates instead of UPPWD rates (2) valuation of plinth area rate basis (3) description of building (4) cost index (5) quality of construction, etc. The objections was sent to the Valuation Cell for their comments and after obtaining comments of the DVO, the Assessing Officer has outrightly rejected the objections of the assessee and accepted the valuation made by the Assessing Officer made addition of Rs. 53,91,660/- being the difference of cost of investment estimated by the Assessing Officer in the impugned assessment year at Rs. 62,47,575/- (-) actual investment shown by the assessee at Rs. 8,56,015/-. 11. Aggrieved, the assessee has preferred an appeal before the ld. CIT(A) with the submission that while estimating the cost of construction, the DVO has not taken into account the quality of construction and the locality in which construction was made. The written submissions were filed before the ld. CIT(A) which was extracted in his order in para 6(3). For the sake of reference, we extract the same as under:- due and sufficient opportunity was not afforded to the Appellant Socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early shows that the structure is not RCC but RB. While making the Report the Id. DVO has taken the cost of only two years i.e. A.Y.2009-10 of Rs. 8,56,015/- and in A.Y.2010-11 Rs. 19,47,037/- totaling Rs. 28,03,052/-. In these two years also the cost so disclosed by the assessee Society is Rs. 28,67,052/- due to non consideration of Rs. 64,000/- incurred on water pump etc. This fact was also brought to the knowledge of the Ld. AO during assessment proceedings and has been discussed by the Ld. AO in the assessment order at page 13 para 5.6. Despite this the Ld. AO in mechanical manner proceeded with the assessment without giving any benefit of this amount. During the course of assessment proceedings it was brought to the knowledge of the Ld. AO that three class rooms were sponsored by individuals in memory of their relatives. . The confirmation letters of these individuals is also attached herewith. The intention letter to construct these classes, their ID proof, Khasra and Khatauni to prove their source of income have all been attached to prove the same. Moreover the stones wherein the names of the donors as well as of the inauguration ceremony are being attached herewith. More ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 5.6 of the assessment order that cost of pump as disclosed in books of accounts of Rs. 64,000/- should be considered as part of the cost of construction. The AO rejected the claim of the assessee observing at paragraph 5.6 of the assessment order that since the valuation has been completed by the DVO no modification in the investment made by the assessee can be accepted at this stage. Further, the assessee also filed a letter dated 19.12.2011 in which the cost of construction recorded in books of accounts relevant to subsequent assessment years was claimed. The AO simply ignored the letter dated 19.12.2011 of the assessee without assigning any reasons for not accepting the cost of construction reported in books of accounts for subsequent years. The details are as under - Cost of construction as mentioned by the Assessing Officer : Rs. 28,03,052/- Cost of pump : Rs. 64,000/- Investment recorded in books of accounts for financial year 2010-2011 relevant to assessment year 2011-2012 : Rs. 36,74,303/- Investment recorded in books of accounts for financial year 2011-2012 relevant to assessment year 2012-2013 upto 30.09.2011 : Rs. 13,97,010/- Investment recorded in books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly not recorded in the books of accounts of the assessee as the amount was not spent by it though the construction got made by the three persons aforesaid is part of the building valued by the DVO. In view of above I find that the cost of construction of Rs. 7,34,000/- is to be reduced as the amount has been spent by the sponsors. 6(7)(i) The next claim which needs to be specifically examined goes into the very root of the estimation made by the DVO. Some of the objections raised by the assessee on the valuation report as reproduced by the AO in the assessment order are as under - * In the valuation report the DVO has valued the entire structure as RCC whereas the roofs of ground floor and first floor of the three storied building are RB (Reinforced Brick) and not RCC as claimed by the assessee. * In the valuation report the DVO has adopted cost index of 326.227 over 01.01.1992 rates whereas the rates of all materials do not vary in the same proportion and Marble Stone Flooring, Ceramic tile work etc. should be worked out on the basis of market rates prevailing at the time of construction and not by indexing over the Schedule of rates. * In the valuation report of the DVO cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms are without plaster and are RBC roofs. I am of the considered view that the report of the registered valuer does take into account the various factors such as cheaper labour in rural areas of Barabanki where the building is located, the differences in valuation of porch canopy roof treatment, aluminum work RCC projections and the main objection with regard to RBC roof as against valuation being done for RCC roof. The point that also needs to be considered is that both reports adopt CPWD rates for valuation. 6(7)(iv) A reference may be made to the decision of the Punjab & Haryana High Court in the case of Dina Nath v. CED [1970] 77 ITR 193 that the valuation report of the DVO was not binding. On referring to the decision I find in that case the valuation had been made by a registered valuer on behalf of the assessee and it was held that the report was both inaccurate and unreliable. In these circumstances, it was held that it could be rejected. Similarly, applying the ratio of the case to the facts of the present case, I find that me- DVO has committed certain errors in valuation and has not been able to deal with the objections on merit. On the contrary the DVO has merely rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has valued the cost of construction of the building at Rs. 2,04,58,237/- while the registered valuer after taking into account the specifications and structural objections estimated the cost of construction at Rs. 1,27,85,000/-. The average valuation as discussed by me in paragraphs above is Rs, 1,66,21,500/-. Now if the allowance of 45% is allowed for various factors as above, the cost of construction will be Rs. 83,10,750/-. As per the report of the DVO, the total estimated cost of Rs. 2,04,58,237/- has been allocated to the year under consideration in the same ratio as the cost of construction has been recorded in the books of accounts. The cost of construction recorded in the books of accounts for the year under consideration is Rs. S.56,015/- as compared to total cost of construction recorded in books of accounts at Rs. T9 80,745/- as discussed in paragraphs supra. The ratio of cost incurred to cost for the year under consideration is 10.73%. In the same ratio, the average cost of investment after allowing deductions as discussed above of Rs. 83,10,750/- as allocated to the year under consideration shall work out to Rs. 8,91,411/-. The difference in valuation as compared to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicate the objections raised by the assessee against the DVO's report. He has simply reproduced the objections raised by the assessee and comments made by the DVO. In one small para, he has made addition on account of unexplained investment in the building having relied upon the report of the DVO. For the sake of reference, we extract the observations of the Assessing Officer recorded in para 5.7 of his order:- "5.7 In view of the reply of the VO it is clear that investment of Rs. 8,56,015/- shown by the assesse is incorrect and he actually made investment of Rs. 62,47,675/-. Therefore difference of Rs. 53,91,660/- (62,47,675/- - 8,56,015/-) is made by assessee from other than charitable activities and is treated as unexplained investment u/s 69B of I.T. Act,1961 and added in the income of the assessee. Tax shall be charged at maximum marginal rate under the provision of section 167B of the IT. Act, 1961. On the basis of these findings, penalty proceedings u/s 271(1)(c) of the IT. Act, 1961 is initiated for furnishing inaccurate particulars of income and concealment of income. Addition : Rs. 53,91,660/-" 15. Whereas the ld. CIT(A) has examined each and every objections raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs Queens Educational Trust (2009) 319 ITR 160 wherein relying on the Apex Court judgment in the case of MCD Vs Childrens Book Trust (1992) 3 SCC 390 it has been held that no Exemption under section 10(23C) of the Act is eligible to educational institute if It earns huge profits and not receiving any government grant. The issue therefore needs examination in light of provisions of section 10(23c)(iiiad) of the Act which lay down as under - (Iliad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; or 7(5) In the impugned case the appellant is running an educational institution whose receipts are Rs. 39,80,576/- and there is surplus of only Rs. 39,153/-. There is no finding of the AO as regards any personal profits of the members of the society and the surplus of Rs. 39,153/- which is about 1% of the receipts cannot lead to a reasonable conclusion as to the institution being run for the purpose of profit. It is to be noted that the Bombay High Court in Vanita Vishram Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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