Case Law Details
CIT (Exemptions) Vs Kalinga Institute of Industrial Technology (Orissa High Court)
On 12th January 2022, the CIT (E) issued a show cause notice (SCN) to the Assessee under Section 263 of the Act stating that a sum of Rs.1,11,54,33,001/- collected as development fees from its students had been directly carried to the balance sheet under the nomenclature “Development Fund’ instead of being routed through the income and expenditure account. This was then treated as part of the Revenue and therefore the taxable income under Section 11 (1) of the Act was taken to be Rs.51,97,46,092/-.
CIT (E) did not refer to the explanation offered by the Assessee in reply to the SCN. Nor had the CIT (E) undertaken an enquiry or made any calculation to indicate how the application of the fund towards capital expenditure had been accounted for.
The CIT (E) simply stated that the impugned assessment order was erroneous and prejudicial in the interest of Revenue.
The ITAT has in the impugned order discussed in detail the explanation offered by the Assessee regarding application of funds. Inter alia, it was noticed that CIT (E) had taken the total revenue earned, granted 15% accumulation, without considering the capital expenditure to the tune of Rs. 258 crores. As noted by the ITAT, if the said bill taken into account the taxable income would be a loss. It would have been observed the 15% accumulation granted to the Assessee. Further, even after treating the development fees of Rs. 111 crores as revenue income, the net figure would still be a loss.
HC held that no error has been committed by the ITAT in concluding that the order of the CIT (E) is unsustainable in law.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
I.A. No.34 of 2023
1. For the reasons stated, the I.A. is allowed. The delay in filing the appeal is condoned.
ITA No.38 of 2023
2. The present appeal by the Revenue is directed against an order dated 13th September 2022 passed by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench, Cuttack allowing the Assessee’s appeal ITA No.48/CTK/2022 for the assessment year (AY) 2017- 18.
3. By the impugned order, the Tribunal has set aside an order dated 14th March 2022 passed by the Commissioner of Income Tax (Exemptions) [CIT(E)], Hyderabad under Section 263 of the Income Tax Act, 1961 (Act).
4. The Assessee is a Trust running an educational institution. The original assessment for the aforementioned AY came to be concluded on 29th December 2019 under Section 143 (3) of the Act accepting the returned income.
5. On 12th January 2022, the CIT (E) issued a show cause notice (SCN) to the Assessee under Section 263 of the Act stating that a sum of Rs.1,11,54,33,001/- collected as development fees from its students had been directly carried to the balance sheet under the nomenclature “Development Fund’ instead of being routed through the income and expenditure account. This was then treated as part of the Revenue and therefore the taxable income under Section 11 (1) of the Act was taken to be Rs.51,97,46,092/-.
6. In replying to the above SCN, the Assessee gave a calculation after reducing the application of income on the revenue field in respect of capital expenditure. After doing so, as per the calculation of the Assessee, the result was a loss.
7. In the order dated 14th March 2022, the CIT (E) did not refer to the explanation offered by the Assessee in reply to the SCN. Nor had the CIT (E) undertaken an enquiry or made any calculation to indicate how the application of the fund towards capital expenditure had been accounted for.
8. The CIT (E) simply stated that the impugned assessment order was erroneous and prejudicial in the interest of Revenue.
9. The ITAT has in the impugned order discussed in detail the explanation offered by the Assessee regarding application of funds. Inter alia, it was noticed that CIT (E) had taken the total revenue earned, granted 15% accumulation, without considering the capital expenditure to the tune of Rs. 258 crores. As noted by the ITAT, if the said bill taken into account the taxable income would be a loss. It would have been observed the 15% accumulation granted to the Assessee. Further, even after treating the development fees of Rs. 111 crores as revenue income, the net figure would still be a loss.
10. As noted by the ITAT, if only the CIT (E) had undertaken an inquiry, he would have come to the above conclusion and there would have been no need to act to the taxable income of the Assessee.
11. The Court is satisfied that no error has been committed by the ITAT in concluding that the order of the CIT (E) is unsustainable in law. No substantial question of law arises. The appeal is dismissed.
