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TMI Blog2025 (1) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... ainty and finality are essential in litigation, including tax matters. An earlier decision on the same issue cannot be revisited unless it is found to be arbitrary or perverse. If such a decision was made after due inquiry, with all material facts considered, and no fresh facts are available in subsequent assessments, the Revenue cannot disturb a settled issue in subsequent proceedings. See Radhasoami Satsang v. CIT [ 1991 (11) TMI 2 - SUPREME COURT ] In each of these assessment years, the assessee made payments to specified persons as defined under Section 13(1)(c) of the Act, on a similar basis, which were accepted by the Revenue without any adverse remarks. Revenue should not take a divergent position from the one adopted in the earlier assessment year. It is also noteworthy that the learned Departmental Representative (DR), during the hearing, did not point out any material differences between the facts of the present case and those of the earlier assessment years. No infirmity in the order of the learned CIT(A) - Decided against revenue. - Shri George George K, Vice President And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri Narendra Kumar Jain, Advocate For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alleged error by the learned CIT(A) in granting the benefit of exemption under Section 11 of the Act, despite disregarding payments made to specified persons, which are claimed to be in violation of Section 13(1)(c) of the Act. 5. Briefly stated, the facts of the case are that the assessee, a trust, engaged in educational activities, holds a valid registration certificate under Section 12A of the Act, granted vide order dated 23/05/1996. The assessee filed its return of income, declaring NIL income after claiming exemption under Section 11 of the Act. Subsequently, the case was selected for scrutiny under CASS due to payments made to persons specified under Section 13(3) of the Act. The details of such payments are as follows: Party Name AY 2017-18 M/s Edufice Education Services Pvt Ltd ( Edufice ) 4,78,72,968 M/s CMR Education Consultancy Services (CECS) 5,40,04,850 M/s Jaista Developers Constructions (P) Ltd (JDCPL) 5,60,91,232 6. The Assessing Officer (AO), after examining the terms and conditions governing the transactions between the assessee and the specified persons, made certain observations, which are detailed as under: 1) The trust was reimbursing all expenditures inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,60,53,373/- only. 7.1 Besides the above, the AO observed that the activities of the trust were extending to the benefit of trustee s relatives and the companies in which the trustees were interested. Therefore, the activities of the trust are against the principles of charity. The AO further treated the assessee as the AOP and denied the benefit of exemption claimed by the assessee under section 11 and 12 of the Act. The AO in doing so has referred to various case laws which are reproduced in the assessment order. As such, the income of the assessee was determined based on commercial principles at Rs. 57,98,86,745.00 only. 8. The aggrieved assessee filed an appeal before the learned CIT(A)/NFAC. After considering the facts in entirety, the learned CIT(A)/NFAC allowed the appeal, holding that the entire benefit under Section 11 of the Act cannot be withdrawn solely on the grounds of a violation of Section 13(1)(c) of the Act. Instead, such withdrawal should be limited to the extent of excessive payments made to the specified entities. Furthermore, the learned CIT(A) deleted the addition/disallowance made by the Assessing Officer (AO), concluding that the payments made to the specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of persons referred to in section 13(3), in situations listed under clauses (a) to (h) thereof. Thus, the provisions of section 13(2) are northing but extension of the provisions of section 13(i)(c) 11;3(1)(d) of the Act. In the present context, the provisions of sections 13(1)(c), 13(l Xd) and 13(2) of the Act, are tote perused. Statutory Provision : sections 13(1)(c) of the Act is reproduced as follows: 13, Section 11 not to apply in certain cases, (1) Nothing contained in section I F or section 12 shall operate so as to exclude from the total Income of the previous year of the person in receipt thereof (c) in the case of a trust for char/table or religious purposes or a charitable or religious institution, any income thereof - (i) if such trust or institution has boon created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution whenever created or established) is durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3J for any period during the previous year without either adequate security or adequate interest or both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in subsection (3), for any period during the previous year without charging adequate rent or other compensation: (c) if any amount is paid by way of salami, allowance or otherwise during the previous year to any person referred to in sub-section (3,) out of the resources of the trust or institution for services rendered by that person to such test or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation,. (e) if any share, security or other property is purchased by or an behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to therein, tax shall be charged on so much of the relevant income, as is not exempt under section 11 or 12, as if the relevant income not so exempt were the income of an association of persons (AOP). It clearly implies that only that part of the relevant income which is not exempt under section 11 or section 12 is brought to tax, as the income of an AOP and the balance of income of the charitable trust / institution, will remain exempt. Further, as per the proviso to section 164(2), where the whole or any part of the relevant income is not exempt Under section 11 or section 12, by virtue of the provisions of section 13(l)(c) or section 13(l)(d), tax shall be charged an Vie. relevant income or part of relevant Income, at the maximum marginal rate. In view of the afore td proviso to section 164(2) the Courts have held that in case of violation of the conditions under section 13(1)(c) or 13(1)(d) of the Act, only the relevant income or part of such relevant income is liable to be taxed at maximum marginal rate. It is also held that the violation of section 13(1)(c) or 13(1)(d) does not result in denial of exemption under section 11, in respect of the total income of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice Educational Services (P) Ltd consists of experts who research, review and then curate a learning experience for each grade, for each learning area in the schooling system and that the company researches latest research based teach hg techniques, assessments, contemporary books, techniques and teaching tools that would augment the learning experience while the company also structures learning experiences that challenge the students and thereby harbor a quest for mastery According to the appellant, attention is paid to each and every student and performance of each student is evaluated with an intention to formulate a curriculum which could be each student oriented. Further, the appellants case is that the students are trained in conceptual understanding and are equipped with various skills and so, it is in the interest of the appellant that, the services rendered by M/s. Edufice Educational Services (P) Ltd are exclusive to the benefit of the appellant for the reason that, if the company provides the same services to different schools, it would he detrimental to the interest of the appellant, it is submitted by the appellant that, the company M/s, Edufice Educational Services (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate for any business of any turnover. The arm's length price that can be used as a comparison to benchmark the profits needs to be computed by analyzing the profit margins of similar/identical businesses having more or less matching turnovers and operating in the some geographical area. Such a computation of arms length price is not done by the AO as he had adopted the profit rate mentioned in section 44AD of the IT Act as a bench mark. The AO had not gone into the services offered by M/s. Edufice Educational Services Pvt. Ltd nor any comparables operating in the same line of business are identified by the AG to benchmark the profit margin in order to hold that appellant's profit margin is abnormal. Even after taking a cue from section 44AD of the IT Act, the AO had further scaled it down stating that in the case under consideration the turnover is substantial and therefore, a reasonable profit percentage would be 5%, since, higher the turnover, the lower would be the profit margin. The AO's stand suffers contending that intellectual input should command a higher price and the AO had ignored this aspect completely. Considering the activities of the service provider, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical or arithmetic. The AO had not made cut a case to justify his arm's length price, least of it, he had not brought on record any comparable cases to substantiate the profit rate arrived at by him, Hence, it can be said that the arm's length price computed by the AO stands unsubstantiated and uncorroborated. In such a circumstance, the bench mark adopted by the AO on estimated basis cannot be taken into consideration for holding that the appellant-assessee had conferred unreasonable and excessive benefit on the specified person M/s. Edufice Educational Services Pvt, Ltd ufs.13(3). XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (ii) CMR Education and Consultancy Services The assessment order is perused with care along with the submissions made by the appellant. It is the contention of the appellant that the company MIS CMR Education and Consultancy services The firm provides Value Addition Courses, English language courses, Computer skills, International Programmes, seminars on various, subjects, Fashion Designing, Web hosting and also Air Hostess Training for which the firm has entered into an agreement with the appellant that, the appellant has to payl % ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged In any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE) and this is applicable to the assessees mentioned therein the section whose income is computed on presumptive basis at the rate of 8% of the turnover or gross receipts of the eligible business for the year t the same time, a person may voluntarily disclose his business income at more than 8% of turnover or gross receipt and the said provision does not preclude an assessee from disclosing higher income, This is to say that the profit rate mentioned in the said provision is not a maximum permissible rate nor it can be used to bench mark profit rate for any business of any turnover. The arm's length price that can be used as a comparison to benchmark the profits needs to be computed by analyzing the profit margins of similar/identical businesses having more or less matching turnovers and operating in the same geographical area. Such a computation of arm's length price is not done by the AQ as he had adopted the profit rate mentioned in section 44AD of the IT Act as a bench mark. The AO had not gone into the services offered by M/s Education and Consultancy s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained if the owner supervises there could be 10% savings on the cost of construction. In the present case the owner is not supervisor and hence the margin of 10% available to the owner would also be to the benefit of the contractor who himself supervises the construction activity.. Hence, in the absence of the owner supervising the construction activity, the margin of the contractor could be upto 1 %.The company M/s Jaista Developers Construction (P) Ltd has +declared a margin of 17.63% which is well within the margins prevalent in, the market. We submit that, there no case, the Assessing Officer to hold that, the net margin of the specified person M/s Jaista Developers Constructions (P) Ltd is excessive and 'therefore a portion of the payment made is to be disallowed. M/s Jaista DevelopersConstructions (P) Ltd is independently assessed to tax and has paid taxes at 3 being the tax payable by a company. There is no tax planning involved with an intention to evade tax. Had the company declared profit of less than8% and saved on taxes, there would not have been a case for the Assessing Officer to hold that, the payments made are excessive and therefore require disallowance in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther does not have any basis either technical or arithmetic.. The AO had not made out a case to justify his arm. s length price, least of it. he had not brought on record any comparable cases to substantiate the profit rate arrived at by him. Hence, it can be said that the arms length price computed by the AC stands unsubstantiated and uncorroborated. In such a circumstance, the bench mark adopted by the AO on estimated basis cannot be taken into consideration for holding that the appellant-assessee had conferred unreasonable and excessive benefit on the specified person M/s Jaista Developers and Constructions Private Limited u/s. 13(3). It is also significant to note that burden of proof lies on the AO to prove that the provisions of section 13 apply in a case. Section 13 starts with a non-obstante clause and hence by virtue of the said provisions, exception to the exemption provided by section 11. is carved out and an assessee is denied the benefit of exemption under section 11 of the Act, in a case adhere there is violation of the provisions of section 13 of the Act. It is also relevant to state here that a person who makes a positive statement is required to establish the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 13 of the IT Act. 9. Being aggrieved by the order of the learned CIT(A)/NFAC, the revenue is in appeal before us. 10. The learned DR before us submitted that the assessee the activities of the assessee are commercial in nature which is evident from the payment made by the trust to the companies in which the trustees are interested. As such the trustees are the family members of the trust and drawing handsome salary from the trust. Besides, the trustees are also holding interest in the companies to which the payment is being made by the trust and in turn the trustees are again drawing salary from such companies. Furthermore, these companies also paying taxes on the maximum marginal rate which is the diversion of funds of the trust and against the violation of the provisions of section 13(1)(c) of the Act. 11. On the other hand, the learned Authorized Representative (AR) before us submitted a paper book, spanning pages 1 to 165, a compilation of case laws from pages 166 to 205, and written submissions from pages 1 to 7, all of which are on record. Among other contentions, the learned AR submitted that the revenue has framed scrutiny assessments under section 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettled issue in subsequent proceedings. 13.1 In this regard, the Hon ble Supreme Court, in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321, has observed as follows: . . . . strictly speaking, res judicata does not apply to income-tax proceedings. Again each assessment year being a unit, what is decided in one year may not apply to the following year but where a fundamental aspect permitting through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year. 13.2 Similarly, the Hon ble Supreme Court has directed to adopt the principles of consistency in the case of CIT versus Excel Industries Ltd reported in 358 ITR 295 wherein it was held as under: 28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there is no reason for us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear. It is also noteworthy that the learned Departmental Representative (DR), during the hearing, did not point out any material differences between the facts of the present case and those of the earlier assessment years. Therefore, in view of the above, we find no infirmity in the order of the learned CIT(A) and, consequently, we decline to interfere with his findings. Accordingly, the ground of appeal raised by the Revenue is hereby dismissed. 13.6 In the result, the appeal filed by the revenue is hereby dismissed. Coming to the ITA Nos. 291-292/Bang/2024 for the AYs 2018- 19 and 2021-22 14. At the outset, we note that the issues raised by the Revenue in the captioned grounds of appeal are identical to those raised by the Revenue in the immediately preceding ground of appeal in ITA No. 290/Bang/2024. Accordingly, the findings rendered in ITA No. 290/Bang/2024 in this order shall apply equally to the issues raised in the captioned appeals. As outlined in paragraph No. 13 of this order, we have resolved the issue against the Revenue and in favor of the assessee. Both the learned Departmental Representative (DR) and the Authorized Representative (AR) have agreed that the findings in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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