The High Court (HC) of Orissa while upholding the order passed by Income Tax Appellate Tribunal ( ITAT ) held that the total Revenue Earned calculated without considering the capital expenditure is not valid.
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.
Kalinga Institute of Industrial, the Assessee is a Trust running an educational institution that submitted the return of Income which was concluded on 29th December 2019 under Section 143 (3) of the Income Tax Act, 1961.
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/-.
The Assessee replied by giving a calculation after reducing the application of income on the revenue field in respect of capital expenditure, which results in a loss. The CIT (E) simply stated that the impugned assessment order was erroneous and prejudicial in the interest of Revenue.
It was evident that CIT (E) had taken the total revenue earned, and granted 15% accumulation, without considering the capital expenditure to the tune of Rs. 258 crores. The ITAT noted that if the said bill considered the taxable income would be a loss. It would have been observed the 15% accumulation was granted to the Assessee.
Justice M S Raman observed that even after treating the development fees of Rs. 111 crores as revenue income, the net figure would still be a loss. Further viewed that 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 on the taxable income of the Assessee. The Court upheld the order of the ITAT and dismissed the appeal.
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