2015 (11) TMI 1636 - AT - Income Tax

Eligibility for benefit of income being exempt u/s 11 - AO s jurisdiction to make assessment u/s 153A - Held that - As in respect of non-abated assessments, the assessment u/s 153A has to be made on the basis of books of accounts or other documents not produced in the course of original assessment but found in the course of search and undisclosed income or undisclosed property is covered in the course of search. When the above exposition is viewed and the basis of AO s assessment as above is considered, we do not have any hesitation in holding that since the assessment year 2003-04 is a case of non-abated assessment, the AO s jurisdiction to make assessment u/s 153A without any reference to books of accounts or other documents etc. not produced in the course of original assessment but found in the course of search is not sustainable and is liable to be quashed and the same is quashed as such. Vehicles of the assessee trust were being used by the Trustees - Held that - the trustees were also having their personal cars has to be taken into account and it cannot be presumed that the trustees were keeping their personal cars idle and using the trust vehicles for personal purposes. Similarly a statement of one of the trustees that sometimes the cars are used for private purposes also cannot be taken as misuse of the trust vehicles for personal purposes. Both the trustees were using the vehicles are also senior and qualified Doctors and providing services to the trust. Hence their use of vehicles cannot be said to be for private purposes only on the basis of surmises and conjectures. From the above it is evident that the observations of the AO that there is misuse of vehicles of the trust for personal purposes of the trustees and hence the provisions of section 13(1)(c) are attracted is totally based on surmises and conjecture and the same is not at all sustainable. Renovation in the hospital building which has been done to benefit for the trustees who is owner of the building - Held that - The total area of the building is 18306 sq.ft. and the total expenditure under the block period is 6143699. In this regard assessee s contention is that rent paid for such property is ₹ 2.75 per sq.ft. and the asking rent for similarly located property is around 901 to 100/- per sq.ft.s The trust is occupying the property since 1992 and had to replace flooring due to extensive foot fall being a public hospital. That the property shall be used for a further period of 15 years by the trust. Considering from this angle, the quantum of expenditure on repair and renovation and the nature thereof it cannot be held that expenditure was not meant for the purposes of the trust but it was meant to give undue benefit to the owner trustee. Hence in our considered opinion this plank of AO s drawing adverse inference is also devoid of cogency. Wife of one of the trustees, is engaged in her personal practice from hospital premises - Held that - We find considerable cogency in the submission that Nandani Babhulkar is also providing services to the trust and in lieu thereof she is using their small space for private practice cannot be held to be providing undue benefit as is envisaged u/s 13(1)(c) of the I.T. Act for the trustees. Hence this plank of AO s action is found to be devoid of cogency. Statement obtained from one Accountant who had stated that he was also maintaining on tally package data of family members -Held that - In our considered opinion, making a generalised observation from the above statement that there is personal use of staff by the hospital trustees is a far fetched analysis by the AO. Assessee s counsel has submitted that the said Accountant Mr. Anil Mohale is a part time employee of the trust as also and salary has been paid to the said employee by the trustees which has also been shown in the accounts as Doctors. The personal accounts of Doctors/trustees have been accepted in the assessment framed u/s 143(3)/153A of the I.T. Act. Considered in this view, in our considered opinion, the said statement of the Accountant can be no stretch of imagination be taken to draw inference that there is personal use of staff of the hospital by the trustees within the meaning of section 13(1)(c) of the I.T. Act. Dr. Aruna Babhulkar and Dr. Nandani Babhulkar have received commission on sale of drugs - Held that - This commission has been paid by a medical store that runs from hospital. Since the medical store does not pay any rent to the assessee trust, this was an indirect benefit to the trustee and wife of one of the trustees. In this regard we find that it is the submission of the assessee that Shri Gupta, owner of the medical store in the premises of the trust, has made payment for services provided by the concerned persons on individual personal capacity and it has no nexus with the activity of the trust or any profit of the trust. Hence the payment of commission by the medical store cannot be said to be an indirect benefit to the trustees. Non explain the nature of the travelling expenses and how it was done for the purpose of the business - Held that - Genuineness of this expenditure has not been doubted. Necessity and nexus of expenditure has been said to be demonstrated by the fact that they were made for medical consultation, research activity and attending conferences. In this regard certificate of attendance of various firms out of India has also been placed in paper book. Thus we find that the AO has also made this observation of mis-use of travelling expenditure also on the basis of his surmises and conjecture. Hence there is no basis on which it can be held that there is any undue benefit to the trustees within the meaning of section 13(1)(c) of I.T. Act by way of personal travelling expenditure. Assessee trust has allowed Dr. Sudhir Babhulkar to pay salary to MBBS Doctors who are pursuing their post graduation at Sushrut Hospital - Held that - AO s observation is that the hospital should have paid the salary. By letting Doctor Sushrut Babhulkar to pay their salary in his individual account, the assessee trust has benefited the trustee in evading tax. We find that this is also a very far fetched observation and it is the AO s surmises and conjecture. How payment of salary by Sushrut Babhulkar can result in benefit to himself is beyond our comprehension. In our considered opinion, this plank of AO s observation is also devoid of cogency. Dr. Sudhir Babhulkar was occupying the top of the hospital premises in his personal capacity - Held that - We find that it is certainly true that hospitals provide their Doctors residential accommodation in the hospital premises so that they can be available to attend their patients. This cannot be said to be an undue advantage in the nature of personal benefit to the trustees. Moreover, this aspect is only relevant for assessment year 2003-04. We had already held in the initial part of our adjudication that assessment for the assessment year 2003-04 u/s 153A was without jurisdiction. There is no diversion in the activity of the trust which can show that the assessee has deviated from its main object which is to provide medical relief and promote medical education in the field of medicine. AO s observation that the assessee trust is not doing any charitable activity is not at all based upon any cogent material. Hence in our considered opinion, there is no basis for the AO to hold that the assessee should be denied benefit u/s 11 of the I.T. Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of the order passed under Section 153A read with Section 143(3) of the I.T. Act, 1961.
2. Eligibility for exemption under Section 11 of the I.T. Act, 1961.
3. Alleged violation of Section 13(1)(c) of the I.T. Act, 1961.
4. Additions sustained out of various expenses.
5. Assessment of interest under Section 234B of the I.T. Act, 1961.

Detailed Analysis:

1. Legality of the Order under Section 153A read with Section 143(3):
The assessee argued that the assessment was completed without any incriminating material found during the search, relying on the jurisdictional High Court decision in CIT vs. All Cargo Global Logistics Ltd. The Tribunal held that since the assessment year 2003-04 was a non-abated assessment and no incriminating material was found during the search, the assessment made under Section 153A was not sustainable and was quashed.

2. Eligibility for Exemption under Section 11:
The AO denied the exemption under Section 11, citing various reasons including personal use of trust vehicles by trustees, renovation of the hospital building, private practice of Dr. Nandani Babhulkar, personal use of staff, commission payments, and personal expenses of trustees. The Tribunal found that these observations were not based on any cogent evidence and were largely based on surmises and conjectures. The Tribunal held that the trust was eligible for exemption under Section 11 as the activities were charitable in nature, and the trust had valid registration under Section 12A and approval under Section 80G.

3. Alleged Violation of Section 13(1)(c):
- Personal Use of Vehicles: The Tribunal found no cogent evidence to support the AO's claim that the vehicles were used for personal purposes by the trustees.
- Renovation of Hospital Building: The Tribunal held that the expenditure on renovation was reasonable and necessary for the trust's activities and did not constitute personal benefit to the trustees.
- Private Practice of Dr. Nandani Babhulkar: The Tribunal accepted the assessee's submission that Dr. Nandani Babhulkar provided services to the trust without remuneration and used a small space for her practice, which did not constitute undue benefit.
- Personal Use of Staff: The Tribunal found the AO's observation based on a part-time accountant's statement to be far-fetched and not indicative of personal use of staff by the trustees.
- Commission Payments: The Tribunal accepted the assessee's explanation that the commission paid by the medical store was for services provided in a personal capacity and did not benefit the trust.
- Travelling Expenses: The Tribunal found the travelling expenses to be genuine and necessary for the trust's activities.
- Personal Expenses: The Tribunal found no cogent evidence to support the AO's claim of personal expenses being debited by the trust.

4. Additions Sustained Out of Various Expenses:
The Tribunal noted that the AO did not refer to any material found during the search to support the additions. The Tribunal held that these additions were not sustainable in a non-abated assessment under Section 153A and set aside the orders of the authorities below on all the additions.

5. Assessment of Interest under Section 234B:
The Tribunal did not specifically address the issue of interest under Section 234B in detail, but the overall decision to quash the assessment under Section 153A implies that the interest assessment would also not stand.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the assessment made under Section 153A and setting aside the orders of the authorities below on all the additions. The Tribunal held that the trust was eligible for exemption under Section 11 and found no violation of Section 13(1)(c).