PER O. P. MEENA,AM:

1. This appeal by the Revenue is directed against the order of learned Commissioner of Income tax (Appeals)-XXI, Ahmedabad (in short the CIT (A)) dated 02.04.2013 for the Assessment Year 2009-10.

2. Grounds of appeal raised by the Revenue are as under:- i) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in directing the Assessing Officer to grant exemption of Rs. 28,72,316/- to the assessee u/s. 11(1)(a) of the I.T. Act, treating the activity of the trust to be in the interest of charity. ii) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in holding that the assessee had not violated any of the conditions of Sec. 13 of the I.T. Act. DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 2 iii) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in holding that incomplete Form 10B was not a ground for disallowance. iv) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in holding that the A.O. should has considered the assessees submission that brought forward losses of the trust is allowed to be set off against current years surplus, and that the same is considered as application of income of the trust as per the judicial rulings of High Courts of Gujarat, Bombay and Rajasthan. v) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in deleting the disallowance of depreciation of Rs. 1,27,63,514/- made by the Assessing Officer. vi) The Ld. Commissioner of Income-Tax (Appeals) has erred in law and on facts in ignoring the stand of the Revenue that allowance of depreciation on the assets, the cost of which has already been allowed as a deduction on account of application of income, would amount to double deduction in view of the decision of the Honble Supreme Court in the case of Escorts Ltd., 199 ITR 43 . vii) Whether, on the facts and in the circumstances of the case, deduction of depreciation u/s. 32 which falls under the head Profit and Gains from business and profession of the Income Tax Act, 1961, would be available to a charitable trust whose income is otherwise not assessable under the above head. viii) On the facts and circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals) ought to have upheld the order of the Assessing Officer. ix) It is, therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals) may be set aside and that of the Assessing Officer be restored.

3. Ground No. I to iii relates to granting exemption of Rs. 28,72,316/- by holding that the assessee has not violated any of the conditions of Sec. 13 of the and also holding that incomplete Form No. 10B was not a ground for disallowance. Since these grounds of appeal are interlinked hence, same are being considered together.

4. Briefly stated facts of the case are that the assessee is a trust providing healthcare facilities and imparting medical education and training DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 3 and the main objects of the trust are to serve the people of India and work for their benefits by providing medical care of the highest level. The assessee trust was granted registration u/s. 12A for providing such aforesaid facilities. The AO noticed that the assessee trust entered into an agreement with Sal Care Pvt. Ltd. (SCPL) dated 01.04.2008 which violates the basic principle of charity upon which the assessee trust was granted registration u/s. 12A(a) of the. The AO further observed that the transfer of all movable assets including fixed assets (worth Rs. 3,44,74,281/-) the contract enters into by (Sal Hospital & Medical Institute) SHMI, of IPRs of SAL Hospital and all lists and particulars of suppliers, patients, professionals records and all other documents relating to the Business medical and otherwise and goodwill of SAL Hospital has appeared in the balance sheet of SHMI of 01.04.2008 to SCPL in the garb of an agreement, is against the basic principles of charity. According to AO the company is one of the business entity of Shah Alloys Ltd. group assessee trust also belong Shri Karan R Shah, the key management personnel and director of SCPL is the son of Shri Rajendra V Shah, the managing trustee of Adarsh Foundation. Therefore, by virtue of this fact the SCPL is covered under the definition of person as per provisions of Sec. 13(3)(e) read with Explanation 1&3 of the. Therefore, by entering into the agreement fith SCPL, the eligibility conditions for claiming deduction u/s. 11 of the, as DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 4 laid down in 13(1)(c)(ii) and 13(2)(b), 13(2)(d) and 13(2)(g) of the have violated. Which are substantiated as below:-

The trust has transferred all assets and liabilities as appearing in the balance sheet of SHMI as on 01.04.2008 to SCPL. The liabilities include unsecured loans from the assessee trust worth Rs. 19,57,39,819/-. Before the transfer on 01.04.2008, the referred loan was appearing as asset in the balance sheet of trust and liability in the balance sheet of SHMI, and the SHMI being a constituent of the assessee trust, the loan advanced was treated as application of income. But, as soon as the SHMI no longer remained as a constituent of trust and was taken over by a company (SCPL), the said loan appeared as liability in the balance sheet of SCPL, and SCPL being a company, the said loan can no longer be considered as application of income for the purposes of attaining objects of the trust. Instead, it is treated as property of trust used to serve the business interests (provide benefits) of the person referred in section 13(3) of the. On the alternative, it makes the agreement against the interest of the trust as the additional assets worth Rs. 19,57,39,819/- have been transferred to the said company.
Apart from that, the trust has transferred fixed assets worth Rs. 4,70,15,328.95/- from the balance sheet of Adarsh Foundation, over and above the fixed assets worth Rs. 3,44,74,281/- transferred from the balance sheet of SHMI to SCPL. Therefore, the quantum transferred is even beyond the terms of the agreement as para 3.1 of the agreement empowers transfer of movable assets from the balance sheet of SHMI (and not the Adarsh Foundation). Therefore, the property of the trust has been applied for the benefit of SCPL, the person covered u/s 13(3) as per the relevant clauses of subsections 13(1) and 13(2) quoted above.
As per the provisions of the referred agreement, the SCPL will pay management fees amounting to Rs. 1,00,00,000/- or 40% of profit before tax (whichever is higher) in lieu of takeover annually to the trust. No rationale has been provided for arriving at such a figure. The assessee failed to furnish any reasonable justification whatsoever in his reply to show cause notice dated 28.11.2011.(The same has been rebutted in para 3.6, and is not discussed for the sake of repetition). Considering the fact that the company has earned Profit before taxation in A.Y. 2009-10 and 2010-11 worth Rs. 4,08,33,940/- and Rs.5,55,15,425/- respectively, the formula adopted in the agreement is highly biased in the favour of the company. The services of the trust have been provided to the company covered u/s 13(3)without getting due consideration (sections 13(1)(c)(ii), 13(2)(b), 13(2)(d) and 13(2)(g) of the).
As per point no.1,2,4,7 and 8 of annexure no. II of Form 10B report, the assessee is mandatorily required to make below mentioned disclosure in the referred report:  Whether any land, building or other property 42 of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3) DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 5  Whether 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.  Whether any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3).]  Whether the income or property of the trust/institution was used or applied during the previous year for the benefit of any such person in any other manner  Considering the fact that no such disclosure has been made in the Form 10B report, the assessee has violated the procedural aspect also and the Form 10B report filed by the assessee is considered to be inappropriate and is rejected, making him not entitled for deduction u/s. 11 of the. Hence, deduction u/s. 11 of the is disallowed on this ground also.

3.8 In the light of above discussion, deduction u/s. 11(1)(a) of the worth Rs. 28,72,316/- is disallowed and added to the income of the assessee. The assessee is now treated as an AOP, and ins income is computed as per the normal provisions of the (section 28-44).

5. Being aggrieved the assessee filed appeal before the Ld. CIT(A). Wherein detail submissions made by the assessee which has been reproduced at Para 4 to 4.7 and considering these above facts the Ld. CIT(A) has given his finding at Para 4.9 to Para 7 of his appellate order which are reproduced as under:-

4. The A.O in his order has pointed out via para 3.1.2.2 that the appellant trust has entered into the following transactions: "(a) Transfer of all movable and immovable assets (except land) from the balance sheet of Sal Hospital and Medical Institute (hereby referred to as SHMI) to Sal Care Private Limited (hereby referred to as SCPL) an associate concern set up on the principles of profit maximization, out of accumulated tax free income. It includes transfer of fixed assets worth Rs 3,44,74,281/- from balance sheet of SHMI to SCPL. (b) Over and above transfer of fixed assets appearing in the balance sheet of SHMl as on 04.2008, the trust has transferred Fixed Assets worth Rs. 470,15,328.95/- from the Balance Sheet of Adarsh Foundation to SCPL.(Not covered in terms of agreement) DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 6 (c) Without any rational consideration all benefits of contracts entered into by SHMI, IPRs of SAL Hospital and all lists and particulars of suppliers, patients, professionals, records and all other documents relating to the Business, medical and otherwise were handed over to SCPL, which as per the agreement will enable it effectively to carry on Operation and Management of Business of SCPL. (d) SHMl is a prestigious medical institution of Ahmedabad and SCPL has been allowed to use the name of the institution -SHMl and even the goodwill created over the years out of exempt income, and the company SCPL has not been charged for the same. (e) All liabilities of Adarsh Foundation which includes loans, funds amounting to Rs.19.57 Crores have been transferred to SCPL. Thus, on 01.04.2008; the trust has advanced loans to a company. SHMl, not being part of the trust any more, such a huge quantum of funds provided cannot be called application of income of the trust for the purpose of attaining objectives of the trust for which it had been granted exemption u/s12AAoftheAct. (f) As per the terms of the agreement management fees of Rs. 1 Crore /40% of net profit have been received by the trust from SCPL, and no rationale has been provided for the same. (g) Shri Koran Shah who is the director and key management personnel of SCPL with a majority share holding OF 66.12% is the son of Shri Rajendra shah, Managing Trustee of Adarsh Foundation. Thus this falls under definition of person u/s 13(3) of the"

4.2 Further, as per Para 3.7 of his order, the AO has also observed as under: "The registration u/s 12A(a) of the was granted to the trust with a mandate that all the income earned by the trust will be applied for the objects of the trust (for which it has been granted registrations). The trust has been claiming deduction u/s 11 since them, is accumulating assets with a legal binding that its income will be applied for purpose of attaining objectives of the trust. By entering into the said agreement with a corporate (SCPL), the assessee has transferred the assets (including goodwill IPRs, patient details, loans and advances received in the name of the trust, etc) being created /accumulated under the umbrella of section 12A(a) of theto a company. This act of the trust, if allowed, will set a precedent for DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 7 other institutions to accumulate assets and goodwill in the name of the trust for a number of years and then transferring the same by floating a company to earn huge profits. Hence the referred agreement is rejected per se."

43. During the course of appellate proceedings, the appellant submitted as under: "To safeguard the trust activities and its assets because of huge losses, the trustees had to take a prudent decision whereby the liabilities can be discharged, adequate income assured for its objects and at the same time, its brand image and immovable properties remain unaffected. The trustees had also to consider that reputed Doctors who can be invited to its institutions do not leave the institutions and more such Doctors can join the institutions which was not possible unless the institutions could be run and expanded through some corporate management by which the benefit of expert management, the able personnel and effective skilled management could be obtained. It was in these circumstances, that an agreement was entered into between the trust and SAL Care Pvt. Ltd under which the trust was immensely benefited by retaining its immovable properties and at the same time, transferring its huge liabilities to the said company while being assured of a most reasonable return and share in the net earning of said Hospital. Most importantly, the cost of major outgoing of Kesar Sal Medical College (which was always in deficit and was continuing to be in deficit in later years) was agreed to be reimbursed by said Sal Care Pvt. Ltd over and above the fixed amount with percentage sharing in the earning from Sal Hospital These vital and crucial facts and circumstances were brought to the notice of the Id AO. However, the Id AO miserably failed to appreciate the detailed submissions and explanation to each and every points as furnished to him by the appellant from time to time and more particularly, by its letter dated 08.12.2011. The Id AO erred in observing that trust has transferred assets to SCPL which is not in accordance with terms of agreement. The Id AO failed to correctly read and appreciate the terms of agreement as also, the accounting treatment given in the books of SCPL which substantiated that along with movable assets, DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 8 liabilities have also been transferred and the consideration of such transfer is market value and hence, the allegation that no rationale is given regarding consideration is patently wrong and ignored the factual position. The Id AO has failed to understand the accounting and the factual aspects of the arrangement as he only observes about transfer of movable assets (Which is at the fair value as per books only) as the Id AO puts blinkers on his eyes when the fact of transfer of huge liabilities of the trust and its institution is visible and when the Id AO at page 4 of his assessment order reproduced clause 3.3 of the agreement which reads as under.: "3.3 SCPL will correspondingly take over and discharge all the liabilities both secured as well as unsecured of SAL Hospital (Divison of Adarsh Foundation) including secured term loans, unsecured loans, trade creditors and other current liabilities and provisions of whatever nature at their respective Book Values as appearing in the books of accounts as of 1st April, 2008 as per balance sheet, annexed herewith and forming part of this agreement. The copy of audited accounts of the trust for F Y 2007-08 relevant to Asst. Year 2008-09 are attached from which it will be seen that the appellant trust had huge deficits in both its institutions and had made negative worth in the Financial Year 2007-08 due to losses from the SHMl (SAL HOSP1TAL& MEDICAL INSTITUTE) and in the KESAR SAL MEDICAL COLLEGE & RESEARCH INSTITUTE. (KSMC) Thus, the financial position of the trust and its institutions were in a very bad shape and the net worth was negative by crores of rupees. This dark situation was promptly visualized and the trustees had to take a prudent decision to protect the property of the trust and to ensure that without losing the valuable immovable property/ assets of the trust, the trust is ensured of a fair return for use of its other movable assets and also at the same time, relieved of its liabilities to the outsiders while being assured of continuing its Kesar Sal Medical College, the expenses for which were being reimbursed to it by the Sal care Pvt Ltd. The terms of agreement with SCPL clearly point out that there is absolutely no extraneous consideration and a very fair and attractive return is ensured to the trust by the corporate entity which by its efficient management and acumen could earn good return and consequently, the trust would also get adequate share therein while DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 9 at the same time, being relieved of the responsibilities of day to day conducting the affairs of the SHMI including pecuniary liabilities. By entering in to such an agreement, the trust has secured most reasonable and fair amount of receipts and also ensured that the expenses of KSMC are also reimbursed so that the objects for which the trust is established are fulfilled without any hindrances or uncertainty. The receipt for the year under appeal clearly point out that it was only a wise decision taken by the trustees considering the ever increasing deficits, financial crisis and scenario of acute competition. As stated earlier failing to take such a decision might have forced the trust to sell the entire activity and assets to recoup some amount of such past deficits. It was under the circumstances, primary duty of the trustees to safe guard the trust and its assets. Your honours attention is drawn specifically to the Balance sheet of the Trust as on 31.03.2008 which shows that there was huge outstanding liability of Secured loans payable to various Banks amounting to of Rs. 179482722/- including the Term Loan of Rs. 52691584/- taken for KSMC. The Trust was required to make the payment of Term Loan Installments on Quarterly basis and Interest on Term Loan on Monthly basis to various banks which was a recurring and bothering burden on the trust The liquidity crunch faced by the trust due to above liabilities was clearly a factor which weighed in the minds of the trustee to take a wise decision in the best interest of trust which has been taken while keeping the valuable immovable property of the trust un effected. On account of heavy deficit and losses incurred as on 31.03.2008, it was very difficult to repay the Installments to Banks and also payment of interest expenses on monthly basis. Since the Trust was not capable of making timely repayment of the amount borrowed from various banks for the purpose of its establishments/ institutions, any further delay would have resulted in the sudden enforcement of repayment by the Banks which certainly would have made the trust a defaulter and its activity would have come to stand still. In addition to the above financial crisis and deficits which occurred to run the aforesaid institutions of the trust, there were also similar DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 10 other corporate Hospitals upcoming in the city which have created the acute competition for running the medical and Healthcare activities and therefore, to continue to provide the best services at economic rates and with quality of skilled doctors, a prompt decision to a have the benefit of a corporate entity which would not only utilize its acumen, skill and ability in expanding such activity but also ,add to the brand SAL was essential Such a decision has actually benefited the appellant trust since after allowing the Corporate management to run the institution, more renowned Doctors have joined the Hospital and the image of the institution owned by the trust has been achieved greater height. We further submit that in the written reply dated 08.12.2011, the appellant trust has clarified the misunderstanding , misconstruction and incorrect observations of the Id AO point wise on one to one basis which is reproduced by Id AO at page 27 to32 of the order. The Id AO failed to properly appreciate the submissions more particularly, the fact that along with movable assets of trust and hospital huge liabilities have also been taken over and discharged by Sal care Pvt Ltd. The Id AO also failed to appreciate that considering the factual background narrated above, the trust had made best use of its institutions while retaining its ownership and arrangement was on very fair terms. The Id AO also erred in observing that loan funds were given by trust worth Rs. 19.57 crores. In fact the trust has transferred liability of its institutions to the Sal care Pvt Ltd which is part and parcel of the agreement Hence there is no violation of any provisions of s. 13 or 12AA."

4.4 In its submission dated 17.07.2012, the appellant trust had further submitted the following: "That the Id AO has miserably failed to appreciate the facts of the appellants case end the correct legal position while simply observing that the provisions of s. 13 (1)(c)(ii), 13 (2)(b), 13(2)(d) , 13(2)(g) and 13(3)(e) r.w. explanation 1 & 3 thereof are attracted so as to deny the lawful claim of exemption under s. 11 of the. S. 13 (1)(c) (ii) can apply only if any part of such income (i.e, income derived by the trust) or ant property of the trust is during the DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 11 previous year used or applied for the benefit of any person referred to in sub-s. (3) of s. 13. In the instant case of your appellant, no income of the trust is used nor any property of trust is used for the benefit of specified person hence s. 13(1)(c)(ii) is not applicable. It has been held by jurisdictional Tribunal in the case of Adaharshila Education and Charitable Trust vs ACIT ITA No: 1443/Ahd/ 2008 that where the payment to and from persons specified is for commercial consideration, s 13 (1)(c)(ii) cannot be applied. A copy of said decision is attached herewith Exhibit-A page 1 to s. 13(2)(b) can apply only if any land building or other property of the trust is made available for use by the specified person during the previous year without charging adequate rent or other compensation. As already earlier demonstrated in our earlier submissions and also looking to the facts and figures of year under appeal the trust has charged adequate compensation by way of management charges income under the terms of agreement couple with handing over the liabilities of secured/ unsecured loans and interest thereon as also, huge amount of expenses pertaining to Kesar Sal Medical College are being reimbursed to the trust over and above the aforesaid payments. Thus s. 13(2)(b) is not at all applicable to the case of the appellant. S. 13(2)(d) can apply only if any services of the trust are made available to any specified person during the previous year without adequate remuneration or other compensation. The appellant trust has not rendered or provided any such services to the specified person and hence the question of applying s. 13 (2(d) does not arise. S. 13. (2)(g) can apply only is any income or property of the trust is diverted during the previous year in favour of any specified person. Since the trust has not diverted any income or property in favour of any specified person, this provision is not applicable. The trust has entered into the agreement and that too, as stated repeatedly, on commercial terms for adequate compensation and hence there is no question of diverting any income. On the contrary, the deficit of the trust is greatly reduced on account of receipt of agreed compensation and at the same time, the trust is relieved of huge recurring liability of interest on loans as also, repayment of principal amounts of such liabilities. Hence the provisions of s. 13(2)(g) are not at all applicable. DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 12 We are attaching herewith the audited accounts of the trust for the year under appeal vide Exhibit- B page to As can be seen from the said accounts, the trust which had deficit (loss) of Rs.(-) 1,21,48,098/-from SAL Hospital and a further deficit of Rs.(-) 3,45,76,402/- from Kesar Sal Medical College [totalling to Rs(-) 4,67,24,500/-] for the year ended on 31.03.2008, does not have any such deficits for the year under appeal ie. 31.03.2009. Instead, the trust has surplus of Rs.(+) 12,39,242/- from Kesar Sal Medical College (as against huge deficit of(-) Rs. 3,45,76t402/- as stated above in earlier year) This was made possible only because a huge amount of more than 2.15 crores were reimbursed by the SCPL in respect of Kesar Sal Medical College expenses which it did under the terms of agreement over and above payment of management fees of Rs.1,63,33,576/-. As a result, the trust has, even after carrying out its objects, reduced its negative worth from (-) Rs. 4,72,89,758/- as per last years balance sheet to Rs. 3,53,36,784/- on account of net surplus of Rs. 1,19,52,975/-. This speaks volume about the prudent and wise decision of the trustees and the commercial adequacy of the agreed compensation. It is also pertinent to submit that similar situation has continued even in subsequent year where in considerable expenses of Kesar Sal Medical College have been reimbursed by SCPL which otherwise would have to be borne by the trust and trust would have ended up with unrecoverable deficits. With the increase in the activities and revenue of SHMl thanks to its corporate management and administration, the trust has also benefited in later year It is also significant to point out that the Id AO has accepted the fact about the application of income received by trust for the purposes of the trust and genuineness of the charitable activities during the year. As regards the allegation (Without any justification) that appellant had not furnished any rational or mathematical explanation about arriving at the figure of one crore/ 40% of profit formula for the payment of management fees by SCPL, again the Id AO has failed to look to the above factual figures and has miserably failed to put himself in the place of the trustees while making such untenable allegation/ observation. The trustees being well-aware of their avowed responsibilities had under the circumstances t taken a prudent and wise decision which has proved very much right and rewarding for the trust and its activities. It is not understood, how DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 13 the Id AO has shut his eyes on the above vital aspects and the actual figures which were very much before him. Again, the Id AO has erred in observing that amount worth Rs. 19.57 crores were advanced by trust to a corporate entity. The incorrect stand of the Id AO has been replied/ explained in reply dated

08.12.2011 relevant query reproduced by Id AO at Para 3.5 page 30 of his assessment order. As a matter of fact, the trust has , in accordance with its objects, utilized the amount for the purposes of SAL Hospital one of its institutions. As not only the movables but the liabilities of said institution is taken for discharge by SCPL, the said amount of current liability was accepted by SCPL as payable under the agreement Thus transfer of current liability of the institution was explained but not correctly understood by the Id AO. The provisions of s. 13(2) and 13(3) are therefore not applicable"

4.5 Further as per para 3.1.2.3, the A.O has pointed out that as per point no.1,2,4,7 and 8 of annexure no. II of form 10B report, the assessee is mandatorily required to make below mentioned disclosures in the said report, which it had failed to do: (A) Whether 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 sub-section (3). (B) Whether the services of the trust or institution are made available to any person referred to in sub-section (3) during previous year without adequate remuneration or compensation (C) Whether any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3) (D) Whether any income or property of the trust or institution was used or applied during the previous year for the benefit of any such person in any other manner Accordingly, this has also become a ground for disallowance of exemption u/s 11.

4.6 The appellant, in this regard had submitted the following reply: DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 14 "As regards observations about Form No. 1OB report, it is submitted that again the Id AO has failed to appreciate the above factual position and incorrectly observed that use of the property or services were made by any interested person since the agreement is on adequate return and on prudent terms where huge liabilities of the trust have been transferred and not assets for use without any adequate consideration."

4.7 The appellant, further submitted as under: "The Id AO also erred in observing that loans and advances of Rs. 5,43,57,980/-were reflected in Balance sheet of Adarsh Foundation in favour of SCPL. In fact the said amount is debited for various receivable i.e. reimbursement of Kesar Sal College and Management charges under agreement"

4.8 Based on the above observations, the Assessing Officer has withdrawn the exemption granted u/s. 11.

4.9 I have considered the order of the AO and the submission made in this regard. The AO has observed that the appellant trust had indulged in to activities which is against the principles of charity and an amount of Rs. 5,43,57,980/- was shown as Loans and advances in the books of the Company which was due to trust as on 31st March,2009. In my opinion, I find the contention of AO unsustainable as alongwith the movable assets entire liabilities of the trust is also transferred to the Company. The basic fact of entering in to agreement with the Company was to secure trusts interest and not to indulge in the losses and to reimburse the expenditure of Kesar Sal Hospital. The AOs claim does not hold well because the purpose of agreement with SCPL was to ensure that the hospital is managed professionally, and in doing so, the purpose of charity is not violated, as a reputed hospital of such a huge size requires professional handling. The AO erred in holding that agreement with SAL Care Pvt Ltd was in violation of any provision of the and further that there was no rational and mathematical explanation about the figure of management fees though the same was determined at best and fair manner for survival of the loss making charitable institution. The appellant duly explained that this agreement was not entered into derive profit from transfer of movable assets to SCPL but to counter the huge losses incurred in running two big hospitals. To protect its DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 15 position and ensure that SAL hospitals working was not affected, it was provided in the agreement to receive management fees from SCPL. These fees are determined in a fair manner, which was duly clarified by the appellant. This is because this Trust has had huge accumulated losses and there can be no goodwill in case of losses, hence the Trust shall not earn any undue profits. Thus, the activity of the trust being carried on in accordance with its objects and in the best interest of charity, the exemption under s. 11 (1) (a) ought to have been allowed as claimed. Accordingly, ground Nos. 1 & 2 are allowed.

5. As far as payments to persons mentioned in section 13, the appellant in its submission dated 17.07.2012, has explained its stand regarding payments to the same parties. In my opinion, the appellant has not violated any of the conditions of section 13 and has made correct interpretation of the same. The appellant has rightly stated that the section 13 (1) (c) (ii) can apply only if any part of the charitable income of the trust has been used or applied for the benefit of the said persons during the previous years, but since no portion of the appellants income has been applied for the said persons, the appellants case falls outside the scope of this section. Further, in the question of applicability of section 13 (2) (b) is concerned, its applicability is subject to receipt of adequate consideration /compensation received by the trust. Thus, the provisions of this section can be applied, only when the trust would not have charged any rent/compensation for use of its land, building or other property by specified persons. However, as explained by the appellant, the trust is in receipt of income by way of management charges from SCPL, and also all of its liabilities have been taken over by the same. This, according to my opinion, is a fair compensation and no undue benefits of use of the trusts property have been taken by any other, person.

5.2 Similarly, the appellants explanation for section 13(2)(d) and 13(2)(g) regarding application of the trusts services and diversion of income of the trust respectively are also found satisfactory, as the agreement with SCPL is for monetary terms, and the trust has benefited greatly, as deficit of the trust has reduced to a great extent I am in disagreement with the A.Os contention, that there is a violation of the conditions of Section 13. Accordingly, ground No. 4 is allowed. DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 16

6. So far as disallowance due to erroneous presentation of Form 10B report, the AOS Contention that the report as per form 10B is incorrect, is not a fair ground for disallowance, as the appellant was under appeal to contest that, none of the funds or assets of the trust are given to persons mentioned under subsection (3) of section 13, and as the appellant had no reason to believe that any transfer of funds was made to persons u/s 13, nothing was mentioned in the form 10B report, as such. Thus lam of the view that the AOs ground that incomplete form 10B is a ground for disallowance u/s 11 is not tenable. Ground No. 5 is thus allowed.

7. As far as advance amounting to Rs 5,43,571980/- in favour of SCPL appearing in the balance sheet of the trust, I am of the view that it does not result in misapplication of income for objectives other than those for which registration and establishment of trust u/s 12AA is obtained, as the same form part of reimbursement of various expenses of Kesar Sal Medical College, which has been appropriately explained by the appellant, hence the AOs stand is overruled.

6. Being, aggrieved the assessee filed this appeal before the Tribunal. The Ld. Sr. DR has took as per the assessment order and findings of the AO. The Ld. Sr. DR contended that as per agreement, the SCPL will pay management fees amounting to Rs. 1 crore or 40% of the net profit before tax (which is higher) in lieu of takeover of the trust. However, there is no rational has been provided for arriving at such a funding. The assessee has failed to furnish any reasonable justification whatsoever. Therefore, the agreement entered into by the assessee violate the provisions of Sec. 13(3) of the. In view of these facts the Ld. CIT(A) was not justified in deleting the disallowance of deduction u/s. 11(1)(a) of the.

7. Per contra, the ld. Counsel for the assessee submitted that the assessee trust was continued to run the Kesar Sal Medical College and DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 17 Research Institute (KSMC) as reflected in the balance sheet as on 31.03.2009 placed at Paper Book Page 20 and the assessee was running the said college. However, with a view to corporatize the hospital the management of the charitable activity was handed over to SCPL which as per the agreement will enable it to effectively carried on operational management of business of SCPL. The trust was running huge loss, therefore to safe-guard the trusts activities and its assets, the assessee trust has taken a pertinent decision whereby all the liabilities can be discharged adequately and income is assured for its objects at the same it is granting image and immovable property remained unaffected. The Ld. Counsel referring Page 57 of the Paper book [which is agreement between the trust and SCPL] submitted that the object of the transfer to SER Hospital for operational management on mutually agreeable terms. The Ld. Counsel referred the Clause 2 of the agreement which clearly demonstrate that the trust has granted SCPL the operational management rights to the business with effect from the transfer date. Further, it was submitted that the SCPL has taken over all immovable assets namely plant and equipments movable machinery elaborated equipments etc. on the basis of valuation done by the Government approve valuer or book value whichever is higher. The Ld. Counsel submitted that the Government valuation done at higher it is reflected at Page 78 of the Paper Book which comes to 7.30 crore. The Ld. Counsel further referred DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 18 the profit sharing composition Clause 4.1 of the agreement by which it was agreed that the trust shall be paid during the terms of agreement a sum equivalent to 40% of the profit before tax or minimum profit or compensation of Rs. 1 crore whichever is higher. The basis for calculation of 40% net profit for the purpose of Clause 4.1 of the agreement shall be annual audited accounts of SCPL. Accordingly, the assessee has received

1.63 crore during the year from SCPL as management fees which have been duly reflected at Paper Book Page 11 in the Income and Expenditure account of the trust. The Ld. Counsel further submitted that the amount of Rs. 5.43 crore was not loan and advances but it was the reimbursement of expenses. Therefore, relying upon the finding of the CIT(A) the Ld. Counsel submitted that the CIT(A) elaborately discussed all aspects and given his finding in accordance with law and same required to be sustained.

8. We have heard the rival submissions and perused the relevant material on record. We have gone through the findings of the AO as well as CIT(A) part of which are reproduced above in this part of the order. We find that the CIT(A) has arrived on the basic fact that agreement was entered with the company was to secure trust is interest and nor to indulge in the losses and for the purpose of reimburse the expenditure of Kesar Sal Hospital. The object of the transfer agreement with SCPL was to ensure that the hospital is managed professional, and in doing so the purpose of DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 19 charity is not violated as a reputed hospital of such huge size requires professionally handling. We are also observed that the agreement was not entered into to derive profit from transfer of movable to SCPL but to counter the huge losses incurred in running two big hospitals. Therefore, the CIT(A) has correctly held that the activity of the trust to carried on in accordance with its objects and in the best interest of charity, therefore, the exemption u/s. 11(1)(a) has rightly allowed by the Ld. CIT(A). Similarly, the CIT(A) has clearly held that the Sec. 13((1)(c)(ii) can apply only if any part of the charitable income of the trust has been used or applied for the benefits of the said persons during the previous year. But, since no portion of the income of the assessee has been applied for said person, therefore, the case of the assessee falls outside the scope of this section. Further, the trust is in receipt of income by way of management charges from SCPL and also all of its liabilities have been taken over by the same therefore there is a fact that there is no undue benefits of the use of trust property have been taken by any other persons. Similarly, there is no diversion of income of the trust as per Explanation of Sec. 13(2)(d) and 13(2)(g) of the as the trust has been benefitted greatly and its deficit of trust duly reduced to a great extent. We also observed that some erroneous presentation of Form No. 10B report does not disentitle the trust for claiming exemption u/s. 11 of the. Similarly, the amount of advance of Rs. 54,35,71,980/- in favour of DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 20 SCPL appearing in the balance sheet was not advance but the reimbursement of the expenses. In the light of the aforesaid facts and circumstances, we are of the considered opinion that the CIT(A) has analyzed the facts correctly and given a judicious finding which does not call for any interference from outside. Accordingly, the same is upheld. Consequently, Ground No. (i) to (iii) of the appeal of the Revenue are therefore dismissed.

9. Ground No. (iv) relates to allowance of set off brought forward losses of the trust against the current year surplus.

10. The AO noticed that the assessee has claimed set off and carry forward of unabsorbed losses/deficit pertaining to A.Y. 2006-07 and A.Y. 2008-09. The income for the above assessment years has been computed as a trust registered u/s. 12A(a) of the and deduction u/s. 11 of the as discussed by him in Ground No. 1 to 3 above. Therefore, the claim of assessee for set off brought forward losses of A.Y. 2006-07 worth Rs. 39,68,311/- and A.Y. 2008-09 worth Rs. 51,12,346/- was disallowed and assessee carry forward of losses/deficit of A.Y. 2008-09 worth Rs. 3,70,60,272/- was also disallowed.

11. Being aggrieved the assessee carried the matter before the CIT(A). Wherein after placing the reliance on the decision of Honble Jurisdictional High Court in the following cases CIT vs. Shree Plot Swetamber Murtipujak DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 21 Jain Mandal 211 ITR 293 (Guj) and similarly on following judgment CIT vs. Sacred Heart Church 278 ITR 180 (Guj) claim that the action of the AO was not in accordance with law. Considering these facts the Ld. CIT(A) has allowed the same by observing as under:-

7.4 I have considered the order of the AO and the submission made in this regard. The AO has not allowed set off of brought forward deficits amounting to Rs. 39,68,311/- pertaining to A.Y. 2006-07 and Rs. 51,12,346/- pertaining to A.Y. 2008-09 as claimed to the extent of income (Totalling to Rs. 90,80,657/-) and balance deficit of Rs. 3,70,60,272/-. In my opinion, AO has not interpreted the law correctly. The AO has not taken cognizance of the language of section 11 while making such disallowance. Nowhere is it mentioned in section 11 that previous years/(s) brought forward deficit cannot be set off against current years surplus of funds. Further, the section also does not make any specific statements that setting off of previous years deficit against current years surplus is not application of funds for charitable purpose. Also, the appellant in the submission given by him, has duly mentioned that brought forward losses of the trust is allowed to be set off against current years surplus, and that the same is considered as application of the income of the trust as per the judicial rulings of high-courts of Gujarat, Bombay and Rajasthan which have been duly provided, the same have not been considered by the A.O., which in my view are valid submissions that ought to have been considered. Accordingly, ground nos. 6 and 7 are allowed.

8. As far as the submission of books of accounts which were prepared as those of a commercial entity, the appellant was under appeal, and I am of a view that since the appellant has a right of appeal to prove its genuineness as a Trust, non-submissions of its books prepared as per the Indian Accounting Standards as demanded by the AO is justified. Thus, the AO has not made a correct interpretation of section 11 and there are no grounds for disallowance of carried forward losses. Thus, I am of the view that the deficit brought forward from A.Y. 206-07 and 2008-09 should be allowed as the A.Os interpretation of Section 11 does not seem to be valid and is not tenable.

12. Being aggrieved the Revenue has filed this appeal. The Ld. Sr. DR relied on the order of the AO. DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 22

13. Per contra the Ld. Counsel for the assessee submitted that the issue is covered in favour of the assessee. Therefore, the findings arrived at by the Ld. CIT(A) are in accordance with law. Ld. Counsel further submitted that the issue is settled by the Honble Supreme Court in the case CIT(E) New Delhi vs. Subros Educational Society in Civil Appeal No(s). 5171/2016 dated 16.04.2018.

14. We have heard the rival submission and perused the material available on record. We find that the Ld. CIT(A) has given detailed reason for allowing a set off losses and carry forward of losses on the basis of rulings of Honble Jurisdictional High Court of Gujarat, Bombay and Rajasthan. In view of these facts, we are of the considering opinion that the issue is covered in favour assesse. Ld. Counsel further submitted that the issue is settled by the Honble Supreme Court in the case CIT(E) New Delhi vs. Subros Educational Society in Miscellaneous Application No. 941/2018 in Civil Appeal No(s). 5171/2016 dated 16.04.2018. Accordingly, the findings of the CIT(A) does not call any interference from our side and accordingly the same is upheld. Therefore, this ground of appeal is dismissed.

15. Ground No. (v), (vi), (vii) & (viii) relating to deleting the disallowance of depreciation of Rs. 1,27,63,514/-. DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 23

16. The brief facts of the case are that the assessee has claimed depreciation of Rs. 1,27,63,514/- in the income and expenditure account which include depreciation amounting to Rs. 9,15,531/- pertaining to Adarsh Foundation and amount worth Rs. 1,18,47,984/- pertaining to Kesar SAL Medical College. The assessee was specifically asked to furnish the profit and loss account and balance sheet as per the Indian Accounting Standards ,but the assessee has failed to do so. The AO was also of the view that capital expenditure incurred on fixed assets has been allowed as expenditure in earlier year as application of fund and allowing of depreciation as further application of receipt in subsequent year would apparently be double deduction which would be apparently inconsistent with the accounting principles. Hence, the AO disallowed the entire claim of depreciation.

17. Assessee carried the matter before the CIT(A) wherein it was contended that the income of the trust was to be computed a commercial basis and depreciation had to be allowed while computing income. The observation of the AO that capital expenditure on fixed asset is allowed as expenditure of earlier years is far from correct as no such expenditure was claimed or allowed as application of income and in fact the assets are shown add value stated in the balance sheet. It was further submitted that the Honble Gujarat High Court in the case of CIT vs. Sheth Manilal DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 24 Ranchhoddas Vishram Bhavan Trust 198 ITR 598 (Guj) has allowed the claim of depreciation of trust. Similarly in following cases CIT vs. Institute of Banking Personnel Selection 264 ITR 110 (Bom), CIT vs. Raipur Pallotine Society 180 ITR 579 (MP) and CIT vs. Market Committee Pipli 330 ITR 16 (P & H) the claim of depreciation trust has been held as allowable.

18. Considering these facts and placing reliance on the aforesaid case laws and following decision of ITAT C Bench, Ahmedabad decision in the case of Adharshila Education & Charitable Trust in ITA No. 1443/Ahd/2008, A.Y. 2005-06 & 810/Ahd/2009, A.Y. 2006-07, the CIT(A) has allowed the claim of the assessee.

19. Being aggrieved the Revenue has filed this appeal before us. The Ld. Sr. DR has heavily placed reliance on the order of the AO.

20. On the other hand, the Ld. Counsel for the assessee supported the order of the Ld. CIT(A).

21. We have heard the rival submission and perused the material available on record. We find that the issue is covered against the Revenue, but the decision of theAT C Bench, Ahmedabad in the case of Adarshila Education & Charitable Trust(supra), and other decisions of Honble High Court relied by the Ld. CIT(A) and also in the case of Sardar Patel Institute of Public Administration in ITA No. 1322/Ahd/2011 for A.Y. 2008-09 and the relevant portion of theAT is as under:- DDIT (E) v. Adarsh Foundation /I.T.A.No. 1858/AHD/2013/A.Y. 2009-10 Pg 25

Para 4..We have considered facts and circumstances of the case and submissions made by the respective Representatives of the parties. The Assessing Officer has disallowed the claim following the judgment passed by the Honble Supreme Court in the case of Escorts Ltd. (supra). We find the Honble High Court Punjab and Haryana has distinguished the judgment of the Honble Supreme Court in the case of CIT vs. Tiny Tots Education Society 330 ITR 21 (P&H) in view of the fact that the issue has already been settled by the Honble High Court of Punjab and Haryana respectfully following the ratio laid therein we had no infirmity into the impugned order of the Ld. CIT(A). Therefore, the present appeal stands dismissed. We find no infirmity in the order of the Ld. CIT(A). Therefore, the present appeal stands dismissed. We find no infirmity in the order of the Ld. CIT(A). In view of the above, the appeal of the Revenue is dismissed.

22. In view of the above facts, respectfully following the various decisions of Honble High Courts and Honble Gujarat High Court as relied upon by the Ld. CIT(A) and Co-ordinate Bench of Ahmedabad Tribunal mentioned above. We do not find any infirmity in the order of Ld. CIT(A). Accordingly, this Ground Nos. (v) to (viii) are dismissed.

23. In the result, the appeal of the Revenue is dismissed.

24. The order pronounced in the open Court on 20.09.2019. Sd/- Sd/- (MADHUMITA ROY) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY Ahmedabad: Dated: 20 th September, 2019 Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. TANMAY, Sr. PS By order Assistant Registrar, Ahmedabad