ACIT Vs Karnavati Medical And Educational Trust (ITAT Ahmedabad)
₹30 Crore Hostel Sale Duly Accounted For: ITAT Upholds Trust’s Section 11 Relief
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeal against relief granted to Karnavati Medical And Educational Trust concerning the sale of a hostel building and furniture for ₹30 crore. The Tribunal found that the consideration had been duly accounted for and included in income disclosed in the return. It also noted that the Assessing Officer had neither established a shortfall against fair market value nor disputed the application of income supporting the trust’s Section 11 claim.
The Revenue challenged deletion of an addition of ₹28,73,62,285 relating to an alleged violation of Section 13(1)(c)(ii) and a disallowance of ₹4,41,76,701 concerning accumulation under Section 11(1)(a) of the Income-tax Act, 1961.
AO questioned transfer to specified person
The assessee, a registered charitable trust, transferred a hostel building and furniture to United Eduplus Private Limited, which the Assessing Officer treated as a specified person under Section 13(3).
Although the trust stated that the consideration was ₹30 crore, the Assessing Officer noted that the amount did not appear in the profit and loss account. He consequently treated the transfer as having been made without consideration.
The Assessing Officer also proceeded on the understanding that the property had been sold at written down value and suggested that its fair market value might have been higher. He denied Section 11 relief in relation to the receipt and rejected the corresponding accumulation claim.
Trust sold building and furniture, not land
The trust explained that the underlying land belonged to United Eduplus Private Limited. The company had permitted the trust to use the land for constructing a hostel.
During the Covid period, the building remained vacant, and the trustees decided to sell the building and furniture to the landowner for ₹30 crore.
The trust stated that the consideration was recorded as a capital receipt in its balance sheet. It also explained that the sale price represented the actual cost incurred, rather than the written down value.
CIT(A) verified accounting and return disclosure
The CIT(A) found the Assessing Officer’s conclusion that no consideration had been received factually incorrect. The trust’s accounts reflected the ₹30 crore receipt.
The CIT(A) further noted that the amount had been included in income disclosed in the return, against which the trust claimed Section 11 relief after allowing for 15% accumulation. It accordingly deleted the disputed additions.
No fair market value shortfall established
The Tribunal upheld these findings and described the assessment as mechanical and lacking proper examination of the records.
It noted that the transaction covered only the building and furniture, while the purchaser already owned the land. The trust had explained that the assets were sold at actual cost.
The Assessing Officer had not determined the fair market value or quantified any difference between that value and the consideration. Instead, he proceeded to deny relief concerning the entire receipt without disputing the application of income.
On these facts, the Tribunal found no basis to conclude that the building had been transferred below fair market value.
Application of income supported accumulation claim
The Tribunal recorded that the trust had disclosed income of ₹1,87,87,39,302, application of ₹1,59,77,51,706 and accumulation of ₹28,09,87,596.
The Assessing Officer had denied accumulation of ₹4,41,76,701 without disputing the stated application of income. The Tribunal found the assessment’s approach internally inconsistent and accepted the CIT(A)’s conclusion that the ₹30 crore consideration had been included in the return and the corresponding application and accumulation dealt with in accordance with law.
Accordingly, the Tribunal upheld the CIT(A)’s order and dismissed the Revenue’s appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”), dated 30.03.2026 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2022-23.
2. The Revenue has taken following grounds in this appeal:
“1. Whether on the facts and in circumstances of the case, Ld.CIT(A), NFAC is justified in deleting the addition of Rs.28,73,62,285/- (Rs.30,00,14,921-Rs.1,26,52,636) on account of violation of provisions of Section u/s.13(1)(c)(ii) of t he Act for year under consideration .
2. Whether on the facts and in circumstances of the case, Ld.CIT(A), NFAC is justified in deleting the addition of Rs.4,41,76,701/- as account of accumulation u/s 11(1)(a) of the Act for year under consideration .”
3. The brief facts of the case are that the assessee is a registered Charitable Trust. The Assessing Officer (in short ‘the AO’) noticed that the assessee during the year has transferred hostel building to United Eduplus Pvt. Ltd., which was noted as specified person as provided u/s 13(3) of the Act. Though, the assessee claimed that the said building has been transferred for a consideration of Rs.30 Crores, however, the AO noted that the said amount was not included in the P&L account of the assessee. He, therefore, observed that the said building had been transferred by the assessee trust without any consideration. Further, the AO noted that the building was allegedly claimed to have been sold as per the Written Down Value (‘WDV’) of the property in the block of assets of the assessee trust. He observed that Fair Market Value (‘FMV’) of the property might have been higher than the WDV.
3.1 The assessee explained that the assessee has only sold the building and the furniture, whereas, the land belonged to the said United Eduplus Pvt. Ltd., itself. The said United Eduplus Pvt. Ltd. gave land to the assessee trust for use of the same by constructing the hostel building and the assessee, accordingly, constructed hostel building thereupon. However, during the Covid period, the building remained vacant and the trustees decided to sell the same and, accordingly, the building and furniture was sold to the said United Eduplus Pvt. Ltd. at Rs.30 Crores and the amount was duly credited into the account of the assessee trust as ‘capital receipt’ in the balance sheet. However, the AO rejected the aforesaid contention of the assessee and added the entire amount of Rs.30 Crores shown to have been received by the assessee as not eligible for deduction u/s 11 of the Act and added the same into the income of the assessee. He also denied the claim of accumulation of 15% on such income treating the same as bogus claim.
4. Being aggrieved by the said order, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) duly considering the contention of the assessee observed that the finding of the AO, that the assessee has not received any such amount of Rs.30 Crores from the said United Eduplus Pvt. Ltd., was factually incorrect. He noted from the accounts of the assessee that the said amount of Rs.30 Crores was duly credited into the account of the assessee. He further observed that the same was declared as ‘income of the assessee’ at the time of filing return of the income and the assessee, accordingly, claimed deduction u/s 11 of the Act in respect thereof, after claiming 15% accumulation. He, accordingly, deleted the additions, so, made by the AO.
5. We have heard the rival contentions and going through the record. We note that the assessment order has been passed by the AO in a mechanical manner without application of mind and without going through the records. The Ld. CIT(A) has categorically noted that the assessee has duly accounted for the amount of Rs.30 Crores received by the assessee from United Eduplus Pvt. Ltd. Further, the assessee has duly explained that the assessee has sold the building and furniture only to said United Eduplus Pvt. Ltd., whereas, the land beneath the building belonged to the United Eduplus Pvt. Ltd., itself. It is commonly known that the value of the land with the time increases and whereas, value of the super structure upon it goes on decreasing with the passage of time. The assessee has explained that it has sold as per the actual cost incurred by the assessee and not at WDV. Therefore, it cannot be said that the said building was sold at a lesser rate than the FMV of the property. Even, the AO has not mentioned as what was the FMV of the property and for what amount the property was sold at a lesser rate, instead, he goes on to add the entire amount of Rs.30 Crores received by the assessee. The AO, u/s13(1)(c)(ii) of the Act can disallow the deduction u/s 11 of the Act in respect of the application of income. However, the AO goes on to add the entire receipts of the assessee. He has neither disputed the application nor has calculated the differential amount between the property sold and the FMV. Moreover, so far as the quantum of accumulation is concerned, the assessee has claimed total application of income @ 85% of Rs.1,87,87,39,302/- which comes at Rs.1,59,77,51,706/- and claimed accumulation of Rs.28,09,87,596/-, out of which, the AO denied the accumulation of Rs.4,41,76,701/-. The AO, however, has not stated that the assessee has not made application of income of Rs.1,59,77,51,706/-. If we go by the calculation of the AO himself, the income of the assessee for the year under consideration has been claimed by the assessee will be taken by him at Rs.1,57,87,39,302/-, then, the total application of income more than actual income of the assessee and there will not be any question of claim or denial of accumulation to the assessee. The entire order of the AO is cryptic. On the other hand, the Ld. CIT(A), after duly considering the accounts of the assessee and deliberating thereupon, has held that the assessee had duly shown the consideration of Rs.30Crores in its accounts and which was added into the income of the assessee in the return of income, whereupon 15% accumulation was claimed in accordance with law after duly making application of 85% of such income, in accordance with law. We do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld. There is no merit in the appeal of the Revenue and the same is, accordingly, dismissed.
6. In the result, the appeal of the Revenue is dismissed.
This Order is pronounced on 15/10/2026
