The court reinforced that lease payments to related parties must comply with income tax provisions, confirming consistent applications of pricing structures across assessment years.

ORDER

Per Prashant Maharishi, Vice President

1. These two appeals are filed by ACIT (Exemptions), Circle 1, Bengaluru against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] for AYs 2020-21 & 2021- 22 dated 15.5.2024 & 16.5.2024 respectively wherein the appeals filed by the assessee against the assessment orders were allowed. Therefore, revenue is aggrieved and preferred both these appeals.

2. As the facts of the case are identical in both the years, the grounds of appeal for AY 2020-21 are as under:-

“1. The Order of Ld.CIT(A) is opposed to facts and circumstances of the case;

2. The Ld.CIT(A) has erred in observing that during the F.Y.2019- 20, the assessee had paid lease rent of Rs.9,51,36,000/- only to Eduspark International Pvt. Ltd. which was a related person u/s.13(3) of the Income Tax Act, 1961 while in Form No.10B filed for the A.Y.2020-21, it was mentioned that the assessee had paid lease rent of Rs.11,22,60,480/- and Security Deposit of Rs.8,37,92,000/- to Eduspark International Pvt. Ltd. under the category 'application or use of income or property' for the benefit of persons referred to in section 13(3) of the Income Tax Act, 1961 ;

3. The Ld.CIT(A) has erred in observing that there was no diversion of funds by the assessee trust to the trustee, Mr Rustom Kerawala. The AO has clearly brought out in the Assessment Order that Eduspark International Pvt. Ltd is the related person wherein the trustee, Mr Rustom Kerawala was holding 99.99% of the shares and acting as a Director of the Company and Mr Rustom Kerawalla had drawn huge sum of money as remuneration, which was about 20% of the total employee benefit expense of the company during the F.Y.2019-20. It was rightly held that the trust was diverting trust money to the company Eduspark International Pvt. Ltd and from company, it was diverted in the form of remuneration to the trustee, Mr Rustom Kerawala for his benefit in terms of Sections 13(2)© and 13(2)(g) of the Income Tax Act, 1961 ;

4. The Ld.CIT(A) has erred in ignoring the crucial fact which was brought on record by the AO that while EIPL had given fixed amount of refundable interest-free security deposits to the actual owners of the properties at the time of lease agreement, on the other hand, the assessee had designed a pattern where the assessee trust would increase the refundable interest free security deposit payable to the company almost every year without any basis and that there was an excess of Rs.1,31,53,869/- in security deposit paid by the assessee to EIPL.

5. The Ld.CIT(A) has erred in rejecting the AO's conclusion that the assessee had paid excess rent to EIPL on the basis that the AO had taken the fair market rent of commercial properties, whereas, in the Assessment Order, the AO had compared the lease rent rates of similar properties prevailing in the locality and came to the conclusion that the assessee was clearly paying much higher lease rent to the school premises than even the lease rent applicable to commercial properties in that area during the period and in the Assessment Order, the AO had taken the fair market rent of a residential property also into consideration while determining the fair market rent;

6. The Ld.CIT(A) has erred in holding that the valuation report submitted by the assessee cannot be rejected by ignoring the observation of the AO that the valuation report submitted by the assessee was 'defective' on the ground that the valuation report of the assessee was based on inspection done in March 2017 and as such, the valuation was not strictly comparable with the valuation of fair market rent for A.Y.2020-21 and that the method of valuation adopted in the