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2018 (1) TMI 1233 - AT - Income TaxEntitled to exemption u/s 11 - Held that - Tribunal at Agra in the case of Shri Amol Chand Varshney Sewa Sansthan reported in (2013 (6) TMI 218 - ITAT AGRA) exemption u/s 11 cannot be denied on mere presumption. In the case on hand also, the AO has not brought out on record that the related concern has benefited during the relevant financial year. Another factor which needs consideration is that the construction agreement is alleged to have been executed on 15.03.2008 and the advance has been given on 31.03.2008 and the said advance has been returned over a period of two years thereafter and no disallowance or an addition has been made in the subsequent A.Ys towards the interest free advance. All these transactions have been carried out before the date of survey i.e. on 25.10.2008. Therefore, it cannot be said that this contention of the assessee is an afterthought. In view of these reasons, we agree with the findings of the CIT (A) that the assessee cannot be denied the exemption u/s 11 of the Act for the relevant A.Y. Exemption u/s 11 has been denied is the payment of salary to Shri T.V. Pranay Kumar - Held that - assessee had filed the proof that Mr. T.V. Pranay Kumar is registered as an Advocate and that he has rendered services to the Society in legal proceedings before the Hon ble High Court of Andhra Pradesh and before the Civil Courts at Secunderabad. We find that the CIT (A) has also observed that the AO has not disputed the reasonableness of the payment to Mr.T.V. Pranay Kumar or that it was in pursuance of the objects of the Society Trust. In the absence of any evidence to the contrary, we do not see any reason to interfere with the order of the CIT (A). Ground No.7 is accordingly rejected. In this view of the matter, we hold that the assessee cannot be denied the exemption u/s 11 of the Act for the relevant A.Y. Applicability of provisions of section 40(a)(ia) - Held that - IT (A) has accepted the contention of the assessee without any verification as to whether the said expenditure has been claimed by the assessee in the income and expenditure a/c. As rightly pointed out by the learned Counsel for the assessee and also held by the CIT (A), when the assessee is being assessed as a charitable institution, the provisions of section 40(a)(ia) of the Act are not applicable. In view of our finding above, that the assessee is entitled to the exemption u/s 11 of the Act, we do not see any reason to interfere with the order of the CIT (A) on this issue. Estimation of tuition fee received by the assessee on the basis of number of students studying in the school of the assessee - Held that - CIT(A) has correctly deleted the addition by observing that the Special Auditor has not pointed out any discrepancy in fee receipts and also that the AO has not accounted for concession fee in respect of children of teaching and non-teaching staff.
Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act. 2. Violation of Section 13(1)(c) of the Income Tax Act. 3. Authenticity and acceptability of the construction agreement dated 15.03.2008. 4. Disallowance under Section 40(a)(ia) of the Income Tax Act. 5. Addition on account of underreporting of tuition fees. 6. Payment to Sri T.V. Pranay Kumar and its implications under Section 13(1)(c). Detailed Analysis: Issue 1: Eligibility for Exemption under Section 11 of the Income Tax Act The Revenue contended that the assessee, a society registered under Section 12A, was not eligible for exemption under Section 11 due to violations of Section 13(1)(c). The assessee had declared 'Nil' income after claiming exemption under Section 11. The AO found that the assessee had given an interest-free advance of ?1.50 crores to M/s. Yashaswi Infrastructure Pvt. Ltd., a related party, which was seen as a benefit to the related party, thereby violating Section 13(1)(c). However, the Tribunal found that the advance was given on the last day of the financial year (31.03.2008) and was returned within two years. The Tribunal concluded that no benefit accrued to the related party during the relevant financial year, and thus, the provisions of Section 13(1)(c) were not attracted. Consequently, the assessee was entitled to exemption under Section 11 for the relevant assessment year. Issue 2: Violation of Section 13(1)(c) of the Income Tax Act The AO argued that the interest-free advance to M/s. Yashaswi Infrastructure Pvt. Ltd., where trustees had substantial interest, violated Section 13(1)(c). The Tribunal noted that the construction agreement did not specify essential details like the approved plan, number of floors, or quality of materials. Despite this, the Tribunal agreed with the CIT(A) that the advance was returned and no benefit was derived by the related party within the relevant financial year. Therefore, the Tribunal held that the provisions of Section 13(1)(c) were not violated. Issue 3: Authenticity and Acceptability of the Construction Agreement Dated 15.03.2008 The AO questioned the genuineness of the construction agreement, noting discrepancies like the date of stamp paper purchase and the absence of notarization dates. The Tribunal acknowledged these issues but emphasized that the advance was returned and no benefit was accrued during the relevant financial year. Thus, the Tribunal upheld the CIT(A)'s decision to accept the construction agreement and reject the AO's findings. Issue 4: Disallowance under Section 40(a)(ia) of the Income Tax Act The AO disallowed certain expenses under Section 40(a)(ia) due to non-deduction of TDS. The Tribunal agreed with the CIT(A) that when the assessee is assessed as a charitable institution, the provisions of Section 40(a)(ia) do not apply. The Tribunal found no reason to interfere with the CIT(A)'s order on this issue. Issue 5: Addition on Account of Underreporting of Tuition Fees The AO estimated a shortfall of ?15 lakhs in tuition fees based on the number of students and the fees charged. The CIT(A) deleted this addition, noting no discrepancies were pointed out by the Special Auditor and the AO did not account for concessions given to staff children. The Tribunal upheld the CIT(A)'s findings, as the Revenue could not provide evidence to the contrary. Issue 6: Payment to Sri T.V. Pranay Kumar and Its Implications under Section 13(1)(c) The AO contended that the salary payment to Sri T.V. Pranay Kumar, the Treasurer, attracted Section 13(1)(c) as it was excessive and lacked documentary evidence. The Tribunal found that the CIT(A) had verified Mr. Kumar's registration as an Advocate and his legal services to the society. The Tribunal agreed with the CIT(A) that the payment was reasonable and in pursuance of the society's objectives, thus not violating Section 13(1)(c). Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to grant the assessee exemption under Section 11 of the Income Tax Act for the relevant assessment year. The Tribunal found no violations of Section 13(1)(c) and accepted the explanations provided by the assessee regarding the construction agreement, salary payments, and tuition fee reporting.
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