TMI Blog2018 (6) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... ely existing for educational purpose and the Government has financed it requires verification by conducting detailed enquiry and this can not be done by mere stating adjustments u/s 143(1) of the Act, which, thus, can be done only by way of scrutiny assessment. We, therefore, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of M/s. Bharat Oman Refineries Limited, Mumbai vs. ITO, Bhopal [2015 (1) TMI 100 - MADHYA PRADESH HIGH COURT] hold that the issue being debatable, authorities below ought to have made the detailed scrutiny as provided u/s 143(3) of the Act - decided in favour of assessee. - I.T.A. No. 324 And 325/Ind/2018 - - - Dated:- 29-5-2018 - SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER For The Appellant : Shri Sumit Nema, Sr. Adv. Shri Gagan Tiwari, Adv. For The Respondent : Shri Lal Chand, CIT ORDER PER KUL BHARAT, J.M. : Both these appeals pertaining to assessment years 2014-15 2015-16 are directed against the order of CIT(A)-2, Bhopal, dated 28.02.2018. Both the appeals were taken up together since the identical grounds have been raised in both the years, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of claim of exemption made u/s 10(23C )(iiiad) of the Income-tax Act, 1961. Aggrieved by this, the assessee preferred an appeal before the Ld. CIT(A), who after considering the various judicial pronouncements in respect of the proposition of granting opportunity to the assessee sustained the disallowance of exemption as made by the Processing Unit of the Revenue. The assessee being further aggrieved is in appeal before this Tribunal. 4. Grounds No. 1 to 5 are against rejecting the claim of exemption and making the adjustment u/s 143(1) of the Act. 5. Learned Senior Counsel of the assessee, Shri Sumit Nema, vehemently argued that the action of the authorities below is contrary to the settled principles of law and the judgment of the Hon'ble Jurisdictional High Court rendered in the case of M/s. Bharat Oman Refineries Limited, Mumbai vs. ITO, Bhopal in I.T.A.No. 16/2001 (M.P.). The Learned Counsel submitted that the assessee University is incorporated under the Rajeev Gandhi Proudyogiki Vishwavidyalaya Adhiniyam, 1998, and the chapter V of the Adhiniyam deals with finances of the university. He further contended that section 35 of the Adhiniyam provides for establishm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e particularly, in the case of M/s. Bharat Oman Refineries Limited, Mumbai vs. ITO, Bhopal in I.T.A.No. 16/2001 (M.P.). The Ld. Counsel for the assessee also placed reliance on the decision of Hon'ble Bombay High Court in the case of M/s. Bajaj Auto Finance Limited vs. CIT, Pune, ITR No. 25/2000. The Ld. Counsel for the assessee also placed reliance on the judgement of Hon'ble Delhi High Court in the case of Easter Industries Limited, vs. Union of India, (2013) 30 Taxmann 318 (Del). Further reliance was placed on the decision of the Tribunal in the case of ACIT vs. M/s. Som Distilleries Breweries Limited, Bhopal, I.T.A.No. 248/Ind/2012 ( I.T.A.T. Indore ). The Ld. Counsel for the assessee also placed reliance on the judgment of the Hon'ble Karnataka High Court in the case of Director of Income Tax (Exemption vs. Dhamaprakasha Rajakarya Praskta B.M. Sreenivasaiah Educational Trust,(2015) 59 Taxman 33 ( Karnataka ). The Ld. Counsel for the assessee also placed reliance on the decision of Tribunal in the case of Ganapathy Educational Trust vs. ACIT (Exemption ), (2013 37 Taxman 285 ( Chennai Trib). The Ld. Counsel for the assessee submitted that had the Ld. CIT(A) consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed by CIT(A), ITAT and HC. While dealing with the issue of allowability of exemption under relevant section, Hon'ble Apex Court has beautifully analysed and adjudicated one of the twin conditions, which is found common in all the three sub sections, 10(23C)(iiiab),(iiiad)and vi. The question dealt with by the Hon'ble court was whether the university or education institution was existing solely for educational purpose and not for the purposes of profit. This issue has been found discussed elaborately in the case Queen's Educational Society by Hon'ble Apex Court. As many as five principles have been laid down at para 11 of said decision: 11. Thus, the law common to section 10(23c)(iii ad) and (vi) may be summed up as follows: 1. Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. 2. The predominant object test must be applied- the purpose of education should not be submerged by a profit making motive. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucational bodies. In view of above discussion, the societies, Educational institutions, have necessarily to pass through following six (6) tests. 1. Activity of Educational Society should be primarily for educating people. In this process, if it makes surplus, it will not render the institution ineligible for exemption. 2. Predominant object of educating people should not be taken over by profit making notice. 3. There is a difference between making a surplus and running the institution for 'profit'. The former should not be mistook for later. 4. If the surplus arises incidentally after meeting the expenditure, it will not cease to be one existing solely for educational purpose. 5. In overall view, the object is the 'profit' or 'education' to the people. 6. Whether the surplus or balance is applied wholly and exclusively to the objects for which the applicant is established. The object, being Education as explained in the case of Queen's Education Society. 4. In view of settled principles as laid down on the basis of various supreme Court decisions, the instant appellant i.e. Rajiv Gan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding demand was positively and reasonably considered by the Assessing Officer and after payment of 10% of the outstanding demand only, the assessee was granted stay of balance 90% of the outstanding demand by passing a speaking order till disposal of the first appeal before the ld. CIT(A) despite the instructions of the Board for payment of 20% of outstanding demand. 5.2 Subsequently, the CIT (A) has passed a detailed speaking order u/s 250(6) of the Act on 28.02.2018 for AY 2014-15 and AY 2015-16 and upheld the intimations issued to the assessee disallowing the exemption u/s 10 of the Act relying upon the specific facts of the case and the judicial decisions in this regard. Since, the demand was confirmed by the ld. CIT(A), the whole outstanding demand was payable/recoverable from the assessee as per the provisions of the I.T. Act and Instructions of the Board. Thus, a letter dated 06.03.2018 was served to the assessee for depositing of the outstanding demand. However, instead of paying the confirmed demand, the assessee has again filed stay application u/s 220(6) of the Act on 09.03.2018 and 12.03.2018 before the Assessing Officer. All these applications for stay have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the amount of income shown in the return itself it is clear that the receipts/income was much more than the prescribed limit. Thus the claim of exemption u/s 10(23C)(iiiad) was an incorrect claim, which was apparent from the information regarding the amount of income in the return itself. As such the return was correctly processed as per the provisions of section 143(1) of the Act. The ld. CIT(A) has also elaborately discussed this issue in his order and discussed relevant judicial pronouncements in this regard. The assessee now has claimed that it had claimed the exemption u/s 10(23C)(iiiab) of the Act, but it is factually incorrect. If such claim was to be made, it was to be made in the row number 16 not in 15 of the part B-TI of the return of income. The assessee itself admitted before the AO and the CIT(A) that it had claimed exemption u/s 10(23C)(iiiad) of the Act. Without any prejudice to the above, even for claiming any exemption u/s 10(23C)(iiiab) of the Act, any University has to be substantially financed by the Government meaning thereby it shall receive substantial grants from the Govt. However, from the row number 5 of Part B-TI of return and Schedule VC of the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 12804.11 3566.27 5538.91 9105.18 9237.84 72.15 3698.93 28.89 2012-13 12550.12 3838.48 6662.05 10500.53 8711.64 69.41 2049.59 16.33 2013-14 16796.96 3931.18 5427.46 9358.64 12865.78 76.60 7438.32 44.28 2014-15 15887.16 4194.5 1171.97 5366.47 11692.66 73.60 10520.69 66.22 2015-16 16306.23 4046.41 263.84 4310.25 12259.82 75.18 11995.98 73.57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act of the assessee has also been examined. Considering the facts and circumstances of the case, the assessee is not found eligible for any exemption u/s 10 of the Act. As discussed in preceding Paras, the assessee in the return of income had claimed exemption u/s 10 of the Act in row number 15 of part B-TI of the return of income. The assessee before the Assessing Officer and the CIT(A) had admitted that the exemption was claimed u/s 10(23C)(iiiad) of the Act in the return of income. However, the assessee is not eligible for exemption u/s 10(23C)(iiiad) of the Act as the gross receipts of the assessee are exceeding prescribed limit of Rs. One Crore. In fact, the receipts are much more than the limit prescribed and by no stretch of imagination, it can be covered u/s 10(23C)(iiiad) of the Act. 9.2 The appellant is not eligible for exemption u/s 10(23C)(vi) of the Act as the assessee is not approved u/s 10(23C)(vi) of the Act which is a prerequisite for claiming exemption u/s 10(23C)(vi) of the I. T. Act. As regards the claim of exemption u/s 10(23C)(iiiab) at this stage, which was neither claimed in the return of income nor before the ld. CIT(A), at the outset suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government for the purposes of clause (23C) of section 10. 2BBB. For the purposes of sub-clauses (iiiab) and (iiiac) of clause (23C) of section 10, any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds fifty per cent of the total receipts including any voluntary contributions, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year. 9.6 In view of the above, it is evident that exemption under this particular section [10(23c)(iiiab)] is only available if the government grant is more than 50% of the total receipts of that previous year. In the instant case, admittedly no grants have been received by the assessee during the previous years. Thus, it is abundantly clear that the applicant is not entitled for claiming exemption u/s 10(23C)(iiiab) of the I.T. Act. w.e.f. 1.4.2015 i.e. AY 2015-16. It is also pertinent to mention here that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and substantially financed by the Government' should only include grant received from the Government to meet the direct expenses of the University such as expenses incurred towards salary, infrastructure and for the purpose of other development activities of the University. The same order of the Hon ble Court has further confirmed this decision in the order in review reported in [2016] 389 ITR 10 (SC) . 9.8 In addition to the above facts and position of law, it is also evident from the accounts produced by the assessee itself and the table given in preceding para, that huge surplus is being generated by the assessee over the years which is being accumulated as reserves and not expended/applied by the assessee institution for its objects. The same table is reproduced below, which clearly show that the University exists for profit only. The profits generated have been invested in FDRs to earn interest income instead of applying the same for charitable purposes. Even despite of consistent generation of profits compared to the related expenses, there is no effort seen to reduce the fees from the students. Thus, the assessee is also existing for the purposes of profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same time it is accumulating the profits and not expending/applying the same for its objects. Thus, the assessee is not ploughing back the surplus generated for educational purposes. Hence, it is clear that it is existing for profit. In almost identical facts and circumstances, the Hon ble Tribunal, Chandigarh Bench in I.K. Gujral Punjab Technical University Vs. CIT(E), Chandigarh vide its recent order dated 23/02/2018 in ITA No. 910/Chd/2017 has held that any University established by the Government is to be treated as existing for profit not for education if it has accumulated huge surpluses and earning interest income on the same instead of expending the same for the educational purposes. In the above referred case also, the assessee was a Technical University established by State Government. The assessee was not filing return of income and no audited balance sheet was filed. That Applicant- University had also been claiming itself to be covered under the provisions of section10(23C)(iiiab) of the Income-tax Act, 1961. The facts of the instant case are squarely applicable as the assessee has accumulated huge surpluses of almost one thousand crores of rupees over the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven to the assessee of such adjustments either in writing or in electronic mode : Provided further that the response received from the assessee, if any, shall be considere4d before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made . ( b) the tax ( and interest), if any, shall be computed on the basis of the total income computed under clause (a); ( c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax (and interest , if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII any tax paid on self-assessment and any amount paid otherwise by way of tax (or interest) ( d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and ( e) the amount of ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocessing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2) : Provided that the provisions of this sub-section shall not apply to any return furnished for the assessment year commencing on or after the 1st day of April, 2017] 9. Further, as per Section 143(2), where the return has been furnished u/s 139, or in response to a notice under sub-section (1) of section 142, the AO or the prescribed income-tax authority as the case may be, if, considers it necessary to expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the AO or to produce, or cause to be produced before the AO any evidence on which the assessee may rely in support of the return. Provided that no notice under this sub-section shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is filed, as the Section 143(3) states that [on the day specified in the notice issued under] subsection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der :- 10. The issue that arises for our consideration is whether an adjustment by intimation u/s 143(1)(a) of the Act can be made where the issue which arises for consideration is a debatable issue. In the present facts, the computation of total income submitted along with return indicates that claim for bad debt s has been made by relying upon the decision of Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra). 11. However, the Assessing Officer ignored the note made by the applicant in its computation of return, indicating that the basis of claim for bad debts is the decision in Gujarat High Court in Vithaldas H.Dhanjibhai Bardanwala (surpa). In the above case, even a provision debited to the profit and loss account was allowed as bad debts, where corresponding credit entries are posted in the bad debts reserve account. It held that is was not necessary to post credit entries in the ledger account of the concerned parties. It was on the basis of the aforesaid decision of the Gujarat High Court that the claim in respect of the provision for bad debts was made by the applicant assessee. Once, reliance is placed upon a decision of a Court and / o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot is debatable. Further, the above claim for deductions as made by the applicant was by following the decision of the Gujarat High Court in Vithaldas H.Dhanjibhai Bardanwala (Supra). Thus, a debatable issue. Therefore, the same could not have been disallowed by way of an intimation under section 143(1)(a) of the Act. 14. We are conscious of the fact that Section 36(1)(vii) of the Act was amended by the Finance act, 2001 by insertion of Explanation to Section 36(1)(vii) of the Act w.e.f. Ist April, 1989. We are also conscious of the fact that while disposing of a Reference under Section 256(1) of the Act, the question proposed for our opinion shall be answered taking into account the subsequent amendment to the law with retrospective effect, as they are clarificatory in nature. 15. In the aforesaid background, we find that the insertion done by Explanation to Section 36(1)(vii) of the Act (w.e.f. 1989) would arise for consideration while answering the proposed question in respect of Assessment Year 1993-94. The above amendment by addition of Explanation to Section 36(1) (vii) of the Act was a subject matter of consideration by the Supreme Court in Vijaya Bank (supra). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution existing solely for educational purposes and not for the purpose of profit and which is wholly or substantially financed by the Government. It is not in dispute that the assessee University is established by the Government of Madhya Pradesh. Nothing is on record suggesting that the assessee is not existing for educational purposes. The issue whether contention of the assessee that it is solely existing for educational purpose and the Government has financed it requires verification by conducting detailed enquiry and this can be done by mere stating adjustments u/s 143(1) of the Act, which, thus, can be done only by way of scrutiny assessment. We, therefore, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of M/s. Bharat Oman Refineries Limited, Mumbai vs. ITO, Bhopal in I.T.A.No. 16/2001 (M.P.), hold that the issue being debatable, authorities below ought to have made the detailed scrutiny as provided u/s 143(3) of the Act. Accordingly, the ground nos. 1 to 5 of the assessee s appeal are allowed. However, it is made clear that the Revenue would be at liberty to make scrutiny assessment as per law. 14. Since we have allowed ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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