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2016 (1) TMI 681 - ITAT PUNE

2016 (1) TMI 681 - ITAT PUNE - TMI - Reopening of assessment - claim of exemption under section 10(23C)(vi)denied - eligibility for approval from the prescribed authority - Held that:- Upholding the order of CIT(A), we hold that the assessee is not entitled to the aforesaid deduction under section 10(23C)(vi) of the Act, in the absence of a approval being granted by the prescribed authority. We also uphold the order of Assessing Officer in treating the assessee as AOP instead of an institution s .....

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issing, the said receipts were held to be revenue receipts and not capital receipts as claimed by the assessee in its books of account. Accordingly, capital outlay contribution was treated as revenue receipts of the assessee.In view of the factual findings of the Assessing Officer in this regard and in the absence of approval being granted to the assessee under section 10(23C)(vi) of the Act, the capital outlay contribution is to be treated as revenue receipt in the hands of assessee, against wh .....

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due date prescribed under section 139(1) of the Act. The second objection of the CIT(A) was that it was not clear whether the assessee has claimed exemption under section 10(23C)(vi) of the Act in the respective years. In case the capital outlay has not been brought to tax and only the deficit has been assessed as loss, then where the assessee has claimed the said capital outlay to be exempt under section 10(23C)(vi) of the Act, the losses arising therefrom cannot be set off against the income .....

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of CIT(A)-I, Pune, dated 30.08.2013 relating to assessment years 2002-03, 2003-04, 2004-05 and 2007-08 against respective orders passed under section 143(3) r.w.s. 147 and 143(3) of the Income Tax Act, 1961 (in short the Act ). 2. All the appeals filed by the assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, reference is being made to the facts and issues in ITA No. 1913/PN/2013 to adjudicate the issues. 3. Th .....

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on facts in confirming the action of the learned AO in denying the benefit of exemption u/s 10(23C)(vi) of the ITA, 1961. The learned CIT(Appeals)-I, Pune ought to have appreciated that the very same issue was decided in favour of the appellant trust for the A.Y. 2005 -06 by the Hon'ble ITAT , Pune vide order dated 31-05-2011. 3. The learned CIT(Appeals) further erred in law and on facts in not appreciating the fact that the appellant has been submitting form 56D (for claiming exemption u/s .....

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(AOP) instead of an institution solely existing for imparting education. 5. Alternatively and without prejudice, the learned CIT(A) has erred in law and on facts in not granting benefit of set off of past years deficits (losses) against the taxable income of the appellant. 6. The appellant craves leave to add / modify / delete all or any of the grounds of appeal. 4. In the appeals relating to assessment years 2002-03, 2003-04 and 2004-05, the assessee has raised the ground of appeal No.1 against .....

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in assessment year 2002-03 and not in assessment years 2003-04 and 2004-05. 6. Briefly, in the facts of the case, the assessee for the year under consideration had furnished return of income at Rs.Nil. The Assessing Officer noted that the assessee had been claiming its income to be exempt under section 10(23C)(vi) of the Act. The assessee had filed an application seeking approval of the prescribed authority under section 10(23C)(vi) of the Act on 28.12.1999. The Chief Commissioner of Income-tax .....

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e in the proceedings relating to assessment year 2006-07 was that in case its surplus was to be treated as taxable, then it should be allowed to carry forward its losses of earlier years and the same should be set off against the income of the succeeding years. This plea of the assessee was not accepted for the reason that the assessment of the earlier years were completed on the assumption that the income of the assessee had arisen from non-taxable source and the same could not be set off again .....

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-) ₹ 33,60,746/-. In the said year, the assessee had received capital outlay contribution of ₹ 48,43,750/-, which was treated as capital receipts by the assessee. Since the said contribution part took the nature of revenue receipts, the Assessing Officer had recorded reasons for reopening the assessment since the same had to be brought to tax and the excessive losses allowed to the assessee had to be reduced. For assessment year 2002-03, where the assessment was sought to be reopened .....

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s for reopening the assessment which were forwarded by the Assessing Officer and on the basis of the same, the assessee requested to drop the proceedings initiated under section 148 of the Act. The claim of the assessee before the Assessing Officer was that the applications earlier to assessment year 2008-09 were pending for approval with the CCIT, Pune. The assessee had not made any default in submitting the requisite information / forms in the said respect. 7. The next plea of the assessee bef .....

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essee being not tenable. It was observed by the Assessing Officer that under the Income-tax Act, the deduction claimed under section 10(23C)(vi) of the Act was not automatic. The same was available only when the appropriate authority had given its approval. The Assessing Officer further observed that mere applying for the approval in Form No.56D could not tantamount to an approval being given under section 10(23C)(vi) of the Act, until such time, the assessee had to be mandatorily treated to be .....

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tal outlay contribution, wherein it was claimed that since the assessee trust was existing solely for the purpose of education, its assumption as to the eligibility of exemption under section 10(23C)(vi) of the Act was never incorrect and hence, that is why the capital outlay contribution was not treated as revenue receipts. The Assessing Officer held that in the absence of any approval under section 10(23C)(vi) of the Act, capital outlay contribution ought to be treated as receipts in the hands .....

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on the application moved by the assessee under section 10(23C) of the Act. The Assessing Officer held that where the exemption under section 10(23C)(vi) of the Act was not automatic and was only available to educational institutions approved by the prescribed authority, hence, the income of the assessee became chargeable to tax and was to be computed under the head Income from business or profession in accordance with the provisions of section 28 to 43D of the Act. For the year under considerati .....

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r since the funds coming in the capital outlay contribution were without any specific direction from the contributor, with regards to specific utilization thereof and the said amount was utilized to meet both the educational as well as other day-to-day needs, hence, the said capital outlay contribution was held to be neither in the nature of corpus fund nor contribution received with its specific direction to be part of corpus fund. The said contributions as per the Assessing Officer could not t .....

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ue receipts and not capital receipts as claimed by the assessee. Accordingly, sum of ₹ 48,43,750/- was brought to tax and in the absence of any approval under section 10(23C)(vi) of the Act, the income (surplus) was subject to tax under section 28 of the Act. The Assessing Officer further noted that figures of ₹ 80,67,000/- mentioned as capital outlay receipts was the progressive figure including that of earlier years, however, the receipts relating to the period under consideration .....

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was held to be not legally sustainable. Reliance in this regard was placed on the ratio laid down by the Hon ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC). The second contention of the assessee that the reasons recorded for the reopening of assessment appears to be in an exercise of application of mind to the same factual matrix, which was already considered by the Department was also rejected in view of the fact that the intimation, if any, under s .....

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ted that there was prima facie reasons to believe that the income had escaped assessment since the assessee had been claiming exemption under section 10(23C)(vi) of the Act without obtaining the necessary approval from the prescribed authority for availing the said exemption. Consequently, there were not only reasons for formation of belief that income had escaped assessment but also the reasons had rational connection or nexus with the material that had come to the notice of the Assessing Offic .....

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tice issued under section 148 of the Act for the year under consideration was both legal and valid and there was no infirmity or any illegality in reopening the assessment under section 147 of the Act. 9. Coming to the merits of the case, the CIT(A) noted that the first objection raised by the assessee was against the denial of exemption under section 10(23C)(vi) of the Act in respect of its income. The said exemption was denied to the assessee in the absence of necessary approval of the compete .....

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xed as Annexure - A to the appellate order. Another letter was written by the assessee dated 14.05.2012, which was replied by CCIT, Pune vide letter dated 01.10.2012, wherein also the plea of the assessee that the application in Form No.56D was filed for assessment year 2002-03 and 2007-08 was also rejected. The copy of the letter is annexed as Annexure - B to the appellate order. The CIT(A) held that where the Form No.56D filed by the assessee has been rejected by the CIT-V, Pune and CCIT, Pune .....

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tion filed in Form No.56D had not reached finality, is de void of merit. In the absence of any approval being granted by the prescribed authority, the CIT(A) upheld the order of Asses sing Officer in denying the exemption claimed under section 10(23C)(vi) of the Act. 10. The offshoot of the issue was the status of appellant taken as AOP by the Assessing Officer instead of an institution engaged in providing education. In view of the assessee having not filed the necessary approval from the presc .....

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hat the institution run by the assessee was un-aided and un-recognized and it did not get government grant for running academy. The CIT(A) observed that there was no merit in the claim of the assessee that the said receipts were donations since a donation has to be voluntary in nature, but when there is quid pro quo i.e. for admission in a course, it definitely losses the character of voluntary contribution and has to be treated as additional fees for obtaining admission in the institution. The .....

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of income filed from time to time and set off against the income of this year, was also rejected by the CIT(A) since the assessee failed to furnish the details of such brought forward losses of earlier years, where the income was claimed as exempt in the earlier years. The alternate plea raised by the assessee was thus, rejected. 12. The assessee is in appeal against the order of CIT(A). 13. The learned Authorized Representative for the assessee after taking us through the facts of the case poi .....

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aced at page 68 of Paper Book, along with requisite information in Form No.56D, Memorandum of Association / Trust Deed, Note on activities of the trust and the registration under the Societies Registration Act and BPT Act. The learned Authorize d Representative for the assessee further claimed that it had written a letter dated 11.03.2002 to the CIT, Akurdi, Pune in relation to its application moved under section 10(23C)(vi) of the Act that the approval for its institution had not been received, .....

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ation dated 28.12.1999. The assessee further vide letter dated 24.12.2002 addressed to the CIT pointed out that the application for exemption under section 10(23C)(vi) of the Act was initially filed on 11.03.2002 and renewed application dated 31.10.2002. A request was made for oral and written submissions to be filed before the CIT, copy of which is placed at page 98 of the Paper Book. The learned Authorized Representative for the assessee pointed out thereafter with regard to the notice issued .....

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s explained that as per the procedure laid down in the section, the Form No.56D was required to be filed with the CCIT s office through the CIT. However, till the end of year 2001, the said Form was required to be filed with the CBDT through CIT, the assessee thereafter referred to Form No.56D furnished from time to time i.e. 28.12.1999 filed in the office of CIT, Pune, on 03.03.2002 letter filed with the CIT s office in informing the change of address, on 24.12.2002 another letter filed with CI .....

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Rule 2CA(1) of Income-tax Rules, 1962, the said Form in Form No.56D had to be filed before the CIT. The learned Authorized Representative for the assessee further pointed out that the Tribunal in assessee s own case for the assessment year 2005-06 has granted the exemption under section 10(23C)(vi) of the Act and the ratio laid down by the Tribunal is squarely applicable. The learned Authorized Representative for the assessee further drew our attention to the Miscellaneous Application disposed o .....

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the Act. Reliance in this regard was placed on the ratio laid down by the full Bench decision of Hon ble Allahabad High Court in CIT Vs. Muzafar Nagar Development Authority in Income Tax Appeal No.348 of 2008, order dated 05.02.2015. It was further pointed out by the learned Departmental Representative for the Revenue that where the CIT had not exercised its power correctly, a remedy available to the assessee was by way of Writ before the jurisdictional High Court. Reference was made to the rel .....

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s own case was not good law. He further stated that rightly or wrongly, if the CIT does not grant approval, exemption could not be allowed to the assessee. Referring to the approval granted by the CIT in assessment year 2008-09, the learned Departmental Representative for the Revenue pointed out that the said approval was for future and for earlier years, there was no such order of CIT. With regard to the assessment, the learned Departmental Representative for the Revenue pointed out that the as .....

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an order of Assessing Officer under section 143(3) of the Act in granting exemption under section 10(23C) of the Act. The assessment was beyond four years and because of non-disclosure of true and complete facts by the assessee, reopening was valid. In respect of assessment year 2004-05, the learned Departmental Representative for the Revenue pointed out that the reopening of assessment was within four years and was as per law. In respect of claim of carry forward losses, the learned Departmenta .....

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IT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) and stated that where the assessee had made full disclosure, there was no merit in the reopening of the assessment. 16. We have heard the rival contentions and perused the record. The first issue raised in assessment years 2002-03, 2003-04 and 2004-05 is against the validity of reopening of the assessment under section 147 / 148 of the Act. In ITA No.1913/PN/2013, the assessee had furnished return of income declaring loss of ₹ 33,60,7 .....

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on 10(23C)(vi) of the Act was claimed by the assessee in the return of income, which was not allowable to the assessee in the absence of certificate issued by the CCIT, Pune recognizing the assessee under section 10(23C)(vi) of the Act. In view of no assessment being completed under section 143(3) of the Act, we find merit in the order of CIT(A) in holding that the reopening of assessment was valid, in view of the ratio laid down by the Hon ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brok .....

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ing provisions. Since the assessee had been claiming exemption under section 10(23C)(vi) of the Act without obtaining necessary approval from the prescribed authority for availing the exemption, we hold that there was prima facie reason to believe that the income had escaped assessment. Further, the reasons recorded by the Assessing Officer for reopening the assessment pursuant to assessment being completed in the hands of assessee relating to assessment year 2006-07, wherein it came to the know .....

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ssessment were attracted, we uphold the recording of reasons under section 147 of the Act and thereafter, issue of notice under section 148 of the Act as both legal and valid. 17. In respect of assessment years 2003-04 and 2004-05, the assessee had filed the return of income showing loss of ₹ 49,46,947/- and loss of ₹ 94,84,945/- respectively. The assessment in the hands of assessee was completed under section 143(3) of the Act by accepting loss. The re-assessment proceedings for ass .....

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nditions of the said provision i.e. in the absence of any approval from the prescribed authority exempting the institution, and the same had resulted in escapement of income in the hands of assessee and where the said error had occurred because of the conduct of assessee in making the wrong claim, we hold that the Assessing Officer was within his jurisdiction to record the reasons for reopening the assessment under section 147 of the Act and further, issue notice under section 148 of the Act. In .....

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uction under section 10(23C)(vi) of the Act without appropriate approval from the concerned authority and making disclosure that it had the requisite approval, cannot be held to be full and true disclosure made by the assessee. In view thereof, there is no merit in the reliance placed upon by the learned Authorized Representative for the assessee on CIT Vs. Kelvinator of India Ltd. (supra). Accordingly, we reject the ground of appeal No.1 raised by the assessee in assessment years 2002-03, 2003- .....

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rendered by the Tribunal in favour of the assessee for assessment year 2005-06 vide order dated 31.05.2011. The case of the assessee before us was that it had been submitting the Form No.56D for claiming the exemption under section 10(23C)(vi) of the Act from time to time before the CCIT, Pune through the office of CIT, Pune and where it had followed the procedure, even if no approval had been granted by the prescribed authority, the assessee was entitled to the claim of deduction under section .....

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CIT, Pune under section 10(23C)(vi) of the Act for any of the years. The first approval from CCIT, Pune was received by the assessee on 28.11.2008 from assessment year 2008-09 onwards. No approval was granted by the CCIT, Pune for any of the earlier years under section 10(23C)(vi) of the Act. However, the assessee from year to year, i n its return of income filed from assessment year 1999-2000 onwards had been claiming the exemption under section 10(23C)(vi) of the Act vis-a-vis in this regard, .....

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Act vis-a-vis was by way of petition before the CBDT Board on 28.12.1999 along with requisite documents, wherein Form No.56D was filed for assessment years 1999-2000 to 2001-02 i.e. in respect of all the years which are not appeal before us. The copy of the said application and documents are placed at pages 68 to 93 of the Paper Book. Thereafter, on 22.10.2002, the assessee filed Form No.56D along with the return of income for assessment year 2002-03, copy of the said Form No.56D is attached at .....

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along with renewal application was furnished. Another application for approval under section 10(23C)(vi) of the Act was filed before CIT-V, Akurdi, Pune for all the earlier years on 14.03.2006 , copy of which is placed at pages 101 to 104 of the Paper Book. The assessee did not receive any approval from the prescribed authority under section 10(23C)(vi) of the Act in any of the years. The CCIT, Pune vide order dated 28.11.2008 granted approval under section 10(23C)(vi) of the Act from assessment .....

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spects; The plea of the assessee in assessment year 2006-07 was that in case the surplus was to be treated as taxable, then it should be allowed to carry forward its losses of earlier years and the same should be set off against the income of succeeding year. The plea of the assessee was not accepted for the reason that the assessments of earlier years were completed on the assumption that the income of the assessee had arisen from non-taxable sources. Further, sums received by the assessee by w .....

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eficit of ₹ 33,60,746/-. Further, the assessee had received capital outlay contribution of ₹ 48,43,750/-, which was treated as capital receipts by the assessee. However, since the contributions part took the nature of revenue receipts, as per the Assessing Officer, the same needed to be brought to tax and the excessive losses allowed to the assessee need to be reduced. The claim of the assessee before the Assessing Officer was that it had applied for exemption in Form No.56D for vari .....

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only and they were not with the Assessing Officer. Hence, till approval was given by the CIT / CCIT, mere applying for approval in Form No.56D could not tantamount to approval under section 10(23C)(vi) of the Act and till such time, the assessee had to be mandatorily treated to be without approval. The objection of the assessee in this regard was thus, dismissed. 22. The CIT(A) upheld the order of Assessing Officer vis-a-vis claim of exemption under section 10(23C)(vi) of the Act and rejected th .....

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e CCIT, Pune. Hence, the said claim of the assessee was found to be devoid of merits and thus, rejected. 23. The first issue which needs adjudication in the present set of appeals is whether where the assessee had not received the approval from the prescribed authority under section 10(23C)(vi) of the Act, was the exemption under the Act available to the assessee in the respective years, where no such approval was granted. The plea of the assessee before us in this regard was that the said issue .....

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at the Miscellaneous Application filed by the Department against the order of Tribunal has also been dismissed by the Tribunal and consequently, the said proposition is to b e applied for the captioned assessment year to be adjudicated by us. 24. The learned Departmental Representative for the Revenue on the other hand, pointed out that the said ratio is not applicable, in view of the appeal filed by the Revenue before the Hon ble Bombay High Court being admitted against the order passed by the .....

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of 2008, order dated 05.02.2015. The questions of law raised before the full Bench were as under:- (i) Whether the non disposal of an application for registration, by granting or refusing registration, before the expiry of six months as provided under Section 12AA(2) of the Income Tax Act, 1961 would result in deemed grant of registration; and (ii) Whether the Division Bench judgment of this Court in the case of Society for the Promotion of Education, Adventure Sport & Conservation of Enviro .....

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ithin six months with an order in writing either allowing registration or refusing to grant it, then the same would not be deemed to have been allowed to the assessee. The Hon ble High Court noted that in the present case, Parliament has not legislated a consequence of a failure to decide an application within a period of six months. In the circumstances, we answer the questions referred to the Full Bench for reference in the following terms: (i) Non disposal of an application for registration, .....

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acts of the present case, where admittedly, the assessee had not received the approval from the prescribed authority under section 10(23C)(vi) of the Act, it could not be said that non-disposal of an application under section 10(23C)(vi) of the Act would result in deemed grant of approval to the assessee, enabling it to claim deduction under section 10(23C)(vi) of the Act. We are not going into the merits of various applications filed by the assessee either along with return of income and / or n .....

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n institution solely existing for imparting education. 27. The fall out of the denial of deduction under section 10(23C)(vi) of the Act is the taxability of receipts after adjustment of expenditure in the hands of the assessee. The Assessing Officer noted that the assessee was managing an international school by the name Mercedes Benz Education Academy at Hinjewade, Pune. In the return of income for assessment year 2002-03, the assessee had claimed deficit of ₹ 33,60,746/-. Further, the as .....

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fficer treated the said receipts as revenue receipts since the same was credited to capital outlay contribution funds and the contribution was for admission i.e. entry of the student into the school, it was not for continuation of the students in the school, which dependent upon entirely different set of conditions as laid down in the Rules and Regulations of the school. The assessee was charging ₹ 2 or ₹ 3 lakhs as may be applicable from each student at the time of admission to the .....

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o the capital outlay contribution were without any specific direction from the contributors with regard to specific utilization thereof and the said amount was used to meet the operational as well as other day-to-day needs for the purpose of running the academy, the Assessing Officer held that the same could neither be said to be a fund in the nature of corpus fund nor the contributions received with a specific direction to be part of corpus fund. Since the contributions were not voluntary, but .....

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were missing, the said receipts were held to be revenue receipts and not capital receipts as claimed by the assessee in its books of account. Accordingly, capital outlay contribution of ₹ 48,43,750/- was treated as revenue receipts of the assessee. 28. In view of the factual findings of the Assessing Officer in this regard and in the absence of approval being granted to the assessee under section 10(23C)(vi) of the Act, the capital outlay contribution is to be treated as revenue receipt in .....

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e as exempt under section 10(23C)(vi) of the Act. The assessee has furnished the deficit for the assessment years 1999-2000 to 2001-02. However, the perusal of the details furnished by the assessee does not clarify the objection raised by the CIT(A) whether the said returns of income were filed in time as the requirement of law is that the loss shall be allowed only if the return of income is filed within due date prescribed under section 139(1) of the Act. The second objection of the CIT(A) was .....

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