DCIT Vs Sri Chaitanya Educational Committee (ITAT Hyderabad)
ITAT Hyderabad held that adhoc disallowance under section 40A(2)(a) of the Income Tax Act merely on the basis of suspicion and surmises without adequate evidence not sustainable in law. Accordingly, order of CIT(A) upheld and appeal of revenue dismissed.
Facts- Sri Chaitanya Educational Committee is registered under the Societies Registration Act and registered with Register of Societies, Machilipatnam, Krishna District in the year 1987 with the predominant object of establishing, running, aiding educational institutions and hostel for them.
During the course of assessment proceedings, AO noticed that, the appellant-society had entered into a “Service Agreement” with M/s. Sri Kalyana Chakravarti Memorial Educational Trust [SKCMET] for operation, management and administration of the colleges/institutions vide agreement dated 31.03.2011.
M/s. SKCMET has sub-contracted the work of operation, management and administration of colleges to two companies viz., M/s. Varsity Education Management Pvt. Limited and M/s. Junior Varsity Education Management Pvt. Limited. These two companies are owned by Smt. B. Sushmasree and Smt. B. Suma daughters of Sri Dr. B. Satyanarayana and Smt. Dr. B. Jhansi Lakshmi Bai who are the Founders/Authors of the appellant-society.
The appellant-society had entered into service contract agreement with the above two companies owned by the related parties as defined u/sec.13(3) of the Act and observed that, since the service contract payments were made to companies owned by the related parties, the provisions of sec.13(1)(c) r.w.s.13(3) of the Act are applicable.
