Coaching Institutes do not run for all months and also students also awarded free coaching- ITAT deleted addition to income – ITAT
In a recent judgment, ITAT Patna has deleted addition made to the income of coaching institute observing that there are certain months when coaching classes are not running and also when certain students are also awarded free coaching
ABCAUS Case Law Citation:
ABCAUS 4114 (2024) (06) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition made by the Assessing Officer (AO) estimating income from receipts from tuitions.
The appellant assessee was an individual and was running a coaching institute. A survey action was carried out u/s 133A of the Act on the coaching. At the time of survey, a fees register was also found and seized. Subsequently, the assessee filed income tax return for the relevant Assessment Year.
Thereafter return was selected for compulsory scrutiny and notice u/s 143(2) of the Act was issued followed by notice u/s 142(1) of the Act along with questionnaire but on various dates of hearing which mainly fell during the Covid period, there was no compliance.
The Assessing Officer proceeded with ex-parte assessment u/s 144 of the Act. The AO observed that during the survey proceedings, cash of approx. Rs. one lakh was found at the coaching Institute but no books of accounts were found nor was any cash book produced during the assessment proceedings.
The AO made an addition for unexplained cash in hand. With regard to tuition fees income, he examined the declared gross receipts and expenses claimed and the resultant net profit. However, the Assessing Officer took the basis of number of students enrolled during the month of November which was approx. 3000 and accordingly extrapolated the quantum of fees for the whole year and calculated the gross receipt and for arriving at this figure, the AO took the tuition fee @ Rs. 800/- per student per month and Rs.500/- as admission fees. The Assessing Officer, however, gave the deduction of expenses claimed in the audit report and also gave deduction of the net profit offered by the assessee in the income and expenditure account and the remaining amount was added in the hands of the assessee.
Aggrieved the assessee preferred appeal before the CIT(A) wherein the assessee filed the detailed written submission giving reference to the fees collection register and also filed details of all expenses incurred during the year. It was also submitted that the books of account were duly audited and that the actual turnover of the assessee was much lower.
It was stated that the figure on actual turnover had been calculated on the basis of fees register regularly maintained and also stated that, the students are not consistent for the whole year and the Assessing Officer was not justified in only taking the basis of students fees register for the month of November.
It was also submitted that some of the students are given free coaching also and some are charged Nil/subsidized rates. It was also submitted that the working period of coaching centre is 7 to 8 months but the Assessing Officer had taken 12 months and also that as per the Government norms, 25% students are given free of cost of coaching.
The CIT(A) concluded the appellate proceedings by coming to a conclusion that Assessing Officer had erred in estimating net profit @ 61.27% of the gross receipts and the same should be restricted to 30%. However, the CIT(A) did not accept the assessee’s contentions of the gross receipt and confirmed the gross turnover figure and after calculating the profit @ 30% gave part relief to the assessee and sustained the addition partly.
The Tribunal observed that the assessee had furnished the tax audit report along with the return showing his gross receipts. The Assessing Officer had not doubted the claim of the expenses of. However, the assessee did not comply to the notice of hearing issued u/s 142(1) of the Act and the Assessing Officer estimated the gross receipts.
The Tribunal noted that for arriving at gross receipts, the Assessing Officer took the basis of number of students enrolled during the month of November and applying this number for 12 months and taking basis of monthly tuition fees of Rs. 800/- per month and admission fees of Rs. 500/-, alleged gross receipts were calculated.
It was further noted that the assessee, who was getting the books of accounts regularly audited and was issued notice of hearing. During this period, country was passing through Covid pandemic and there were lot of restrictions for the movement of general public. It clearly indicates that the assessee was not provided fair opportunity of being heard.
Further the Tribunal noted that the Assessing Officer had taken the basis of students enrolled for the month of November and applied it on pro-rata basis for the rest of the year. For calculating the figure of total gross receipts, the Assessing Officer had ignored the facts that the students are not evenly registered for each month. There are certain months when coaching classes are not running and also when certain students are also awarded free coaching.
Accordingly, the Tribunal restored the issues raised on merits/quantum addition to the file of the Assessing Officer for carrying out de-novo assessment and should consider all the details which are to be filed by the assessee and survey records and then decide in accordance with law.
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