2022 (3) TMI 1497 - HC - Income Tax

Revision u/s 263 - 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 and this was then treated as part of the Revenue and therefore the taxable income u/s 11 (1) - HELD THAT - CIT (E) simply stated that the impugned assessment order was erroneous and prejudicial in the interest of Revenue. 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. 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. 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.

Summary

Issues:
1. Delay in filing the appeal and condonation of the delay.
2. Appeal against the order of the Income Tax Appellate Tribunal (ITAT) allowing the Assessee's appeal for the assessment year 2017-18.
3. Setting aside of the order passed by the Commissioner of Income Tax (Exemptions) under Section 263 of the Income Tax Act, 1961.
4. Treatment of development fees collected by a Trust running an educational institution as part of revenue and calculation of taxable income.
5. Lack of consideration of Assessee's explanation by the Commissioner of Income Tax (Exemptions).
6. Discussion by the ITAT on the Assessee's explanation regarding application of funds and calculation of taxable income.
7. Conclusion of the ITAT regarding the sustainability of the Commissioner of Income Tax (Exemptions) order in law.

Analysis:
1. The High Court allowed the delay in filing the appeal and condoned the delay, stating the reasons for the same.
2. The appeal by the Revenue was against the ITAT's order allowing the Assessee's appeal for the assessment year 2017-18, which was set aside by the Tribunal.
3. The Tribunal set aside the order passed by the Commissioner of Income Tax (Exemptions) under Section 263 of the Income Tax Act, 1961, leading to the appeal.
4. The case involved the treatment of development fees collected by a Trust as part of revenue, impacting the calculation of taxable income under Section 11(1) of the Act.
5. The CIT (E) issued a show cause notice to the Assessee regarding the treatment of development fees, but failed to consider the Assessee's explanation adequately.
6. The ITAT discussed in detail the Assessee's explanation on the application of funds, highlighting errors in the CIT (E)'s calculation of taxable income and the failure to consider capital expenditure.
7. The High Court upheld the ITAT's decision, finding no error in concluding that the CIT (E)'s order was unsustainable in law, leading to the dismissal of the appeal with no substantial question of law arising.