2019 (9) TMI 1179 - AT - Income Tax

Revision u/s 263 - Exemption u/s 11 - Charitable purpose - educational institution - NRI Quota in admissions - assessment order being (a) erroneous; and (b) prejudicial to the interests of Revenue or not - allegation that, assessee had siphoned money from trust by booking bogus expenditure - diversion of money to the family members - violation of MCI Guidelines in admission of students - HELD THAT - We find that complete details pertaining to NRI quota were filed before the Assessing Officer and ld. PCIT which consists of FIRC, affidavit of parents, students and norms of MCI. We find the Assessing Officer has issued show cause notice dated 06.10.2016 pertinent to this issue. The assessee has replied vide letter dated 04.11.2016. AO has duly examined the issue and there is nothing on record regarding receipt of any unaccounted monies, and as per the MCI guidelines which allow the wards of the NRIs to be admitted under the NRI quota and keeping in view the fact, that anything prejudicial to the interest of Revenue has been brought by the ld. PCIT, we hereby hold that no action u/s 263 of the Act is called for on this ground. Payments for vehicles - two cars with the same registration No. HR09F0006 - as alleged that Sh. Tarsem Garg is maintaining three cars and questions its utility and also related the use of cars with the absence of driving license to Sh. Tarsem Garg - HELD THAT - We find that the imputation of the ld. PCIT is devoid of merit and sans any reason. It was matter on record that the vehicle was purchased by Sh. Tarsem Garg by obtaining loan in his personal name and the installments paid by Sh. Tarsem Garg are being reimbursed by the assessee trust at regular intervals. The ledger copy of ICICI Innova loan in the books of MMU have been produced before us wherein it can be observed, the cheques have been issued at regular intervals, the vehicle is taken in the block of fixed assets of the trust and depreciation is also charged. Having or not having driving licence and purchase of vehicle cannot be matter of revenue concern as long as no unaccounted income is determined or tax evasion is pointed out, which is absent in the order of the ld. PCIT. Hence, it cannot be said that Sh. Tarsem Garg in any way benefited by the trust in purchase of the vehicle in his own name. We hereby hold that the order u/s 263 of the Act cannot be upheld on this ground. Salary to Teachers - Perusal of the statement of the persons given before Investigation Wing and affidavits of other faculties now submitted for your perusal and verification, it is quite evident salary to the doctors are paid for their actual working with trust. It is surprised to note that the Doctors working in Mullana (Ambala) and Solan (H.P.) are declared as ghost faculty by PMC and Department only on the basis of fact that they are registered with Punjab Medical Council. It is also relevant to mention that both Medical College Mullana and Soan are subject to regular inspections by Medical Council of India, State Governments and Ministry of Health PCIT s directions were mainly based on the belief that the Doctors registered in one State cannot work in other State which is not a valid ground. On the records, we find that some Doctors have been employed and their subjects start from fourth year onwards and these Doctors pertained the duties of wards and regular hospital rounds. Hence, as per the statement recorded, though they have not taken classes indeed they have been attaining regular hospital work at Kumarhatti. The statement of the Doctors recorded cannot be read partially but has to be read fully and wholly so as to come to a conclusion which the ld. PCIT seems to have misdirected himself. The issues flagged by the ld. PCIT have already been examined by the Assessing Officer at length before conclusion of the assessment proceedings Assessee has replied to Assessing Officer about high deduction from gross salary to employees which pertains to the TDS deducted from salary. The doctors registered with the chapter of Punjab Medical Council are not barred from working in Haryana, Himachal Pradesh Hospitals maintained by the assessee trust. The genuineness of the doctors have been established, the complete details like PAN, Form 16, qualifications of the doctors, attendance of the doctors and their declaration the amounts received from the assessee trust by the doctors in their ITRs have all been submitted before the Revenue authorities. Considering all the facts, we hold that no case of the assessment order being erroneous so far as it is prejudicial the Revenue can be made on this ground. Other Benefits to trustees - On a concurrent reading of the questionnaire issued the Assessing Officer dated 06.10.2016 (page no. 159), reply of the assessee dated 05.12.2016 (page no. 239), statements of the driver, security guard and watchman, we find that the provisions of Section 263 of the Act and Explanation 2 of Section 263 of the Act are not applicable to this ground. Construction payment made to Sh. Tarsem Garg - PCIT held that the contractual payment made to Sh. Tarsem Garg cannot be allowed as the payments received from the trust have been withdrawn immediately and also for the reason that Sh. Tarsem Garg is not a regular contractor but Chancellor of the MM University - HELD THAT - Sh. Tarsem Garg has been registered Government contractor for about 20 years and the said contract was given by the assessee to Sh. Tarsem Garg for RR Masundry Work, Excavation work and Boulder Packing work. The work order has been perused and the profits earned thereof have been determined u/s 44AD of the Act. - no action u/s 263 of the Act is called for on this ground. Rent paid to trustees - The value of the perquisite was also added to the salary of Sh. RP Bajpayee and Form 16 reflects such addition. It was also a matter of record that the premises was led to ICICI Bank, later on, at a monthly rent of ₹ 69,000/-, hence, the arguments of the ld. DR that the rent paid was in excess of market rate cannot be held to be valid. Further, the rental premises leased from Ms. Santosh Garg were used as urban slum centres at Vikas Vihar, Ambala to MM Medical College. Under these circumstances, its futile to say that that the Assessing Officer has not inquired into the issue and hence the provisions of Explanation 2 to Section 263 of the Act are not applicable. Since, the premises found to have been let out as office cum guest house, residence of the Director General and urban slum centres, keeping in view, the fact that the rental income have been taxed duly, the perquisite value have been added to income of the occupant and also keeping in view that fact that District Immunization Officer has allotted Urban Slum Centre for the Vikas Vihar premises, we hereby hold that the order of the Assessing Officer is not erroneous so far as it is prejudicial to the interest of the Revenue on this ground. Interest paid to trustees - a sum of 40.68 crores was spend on the project under consideration out of which ₹ 18.98 crores were disbursal for the bank loan and the remaining as unsecured loans. Interest @ 18 to 24% is being charged if the loans are received from non-trustees. The rate of interest of 15% on a private loan cannot be said to be excessive compared to the bank term loan interest rate of 12.20% to 12.75%. The unsecured loans received from private individuals would certainly carry one or two per cent more than the bank rates - the interest received by the individuals has been duly offered to taxation. It has been also shown that the loans received have been used for the purpose of assessee trust for repayment of outstanding loan, adjustment against OD account, payment of outstanding dues, repayment of SBI term loan installment etc. Thus, it is proved that the loans have been taken from the trustees for meeting immediate purposes of the trust and meet up the impending financial requirements - PCIT observation that depositors have not furnished their personal balance sheet in their assessment is also not correct, since, is source of deposit in bank account of these individuals stands examined by the Assessing Officer during the assessment proceedings. Hence, the ld. PCIT conclusion that the trustees have been benefited by way of receipt of higher interest cannot hold good. Hence, no action u/s 263 of the Act is called for on this ground. Salary paid to Trustees - Sh. Tarsem Garg has been paid huge salaries which has given any undue advantage as he is a trustee of the assessee. Hence, keeping in view the facts and circumstances of the issue, we hold that no action u/s 263 of the Act on this ground Sum received by Santosh Hostel from the assessee trust - PCIT observation that completion certificate for the hostel building is a passive query which really do not effect the provisions of taxation and especially when the ld. PCIT himself has formed that the profits earned by the hostel are more than the market averages and the receipt on account of rent received from the students have duly offered to tax. As to the query regarding the increase of students from year to year it has been explained that owing to completion of more rooms, more number of students have been admitted to hostel and the rents received from them have duly offered to tax and hence, it cannot be held that the order of the Assessing Officer is erroneous or prejudicial to the interest of the Revenue. We also find that the conclusion of the ld. PCIT regarding the maintenance of account is not on correct fact as no amount was received by Santosh Hostel from the assessee trust, rather the fee was corrected directly by the Santosh Hostel from the students. The Santosh Hostel is found to be maintaining all the records and shown the rental receipts in their books of accounts and offered to tax. No discrepancy was found by the revenue with regard to the receipt of rent. Keeping in view, the entire factum of the events, we hold that no action u/s 263 of the Act is called for on this ground. Bogus Expenditure Mess Charges - Assessing Officer has well appreciated the evidence on record properly and also the ld. PCIT has not brought anything on record to prove siphoning of money from the trust by booking bogus expenditure in the form of mess charges and payments to contractors. Hence, no action u/s 263 of the Act is called for on this ground. Pledging of FDRs - benefit to Inderpal Garg - In the instant case, we find that the trustees have given personal guarantee for raising loans from the banks and also have mortgaged their residential property for the purpose. The loan received of ₹ 350,00,000/- against the pledging of FDRs has been repaid on 01.03.2016 and the OD account has been closed on 13.07.2016. The interest accrued on the FDRs of ₹ 82.96 lakhs has been duly received by the assessee trust itself and duly shown as income. Thus, no benefit was accrued to the trustee nor any loss was incurred by the assessee trust. The trustee could be deemed to have been benefited if any loss of interest to the trust in the rate of FDRs or any forfeiture of FDRs in default of the loan has taken place. None of these events has happened in this transaction. Hence, keeping in view, the provisions of Section 13(1)(c) and 13(1)(d) of the Act and read with Section 13(2)(b), 13(2)(c), we do not find any loss of revenue in this transaction. the enquiries conducted by the Assessing Officer from the banks which shows full application of mind on the part of the Assessing Officer , the allegation of the ld. PCIT, the reply of the AR and the arguments of the ld. DR, provisions of the Act in the judgments quoted above, we hereby hold that in the absence of any loss to the trust or benefit to the trustee or loss of revenue, the order of the ld. PCIT cannot be upheld on this ground. Taxing profits u/s 44AD - PCIT has not disputed the factum that the work has been executed. At the same time, the ld. PCIT has held that the Assessing Officer did not carry out any inquiry are raised any query in respect of construction receipts. The ld. PCIT observation was based on the suspicion that the assessee has not undertaken any contractual work it is against the facts on record. The ld. PCIT has not given any finding regarding what is the error in the order of the Assessing Officer and not even approximately quantified or mention any possible loss of revenue by conducting independent enquires. The judgments quoted by the ld. PCIT are perused and found to be not applicable to the facts of this case. PCIT s reliance on the judgment of CIT Vs Infosys Technologies Ltd. 2012 (1) TMI 76 - KARNATAKA HIGH COURT as held that provisions u/s 263 of the Act is intended to plug leakages to the revenue by the erroneous order passed by the lower authorities cannot be applicable and in the instant case as the ld. PCIT has not determined, proved any leakage to revenue on this issue of taxing profits u/s 44AD of the Act. The action of the ld. PCIT directing the Assessing Officer to call for the details and make necessary enquiries in respect of the alleged contractual receipts cannot be held to be legally valid, as the details regarding the contractual receipts and profit thereon stood examined in the assessment proceedings and also keeping in view the fact that the ld. PCIT has not brought anything on record about the erroneous nature of the assessment order or loss of revenue by the order of the Assessing Officer. Addition u/s 69A - Professional Receipts - PCIT observations that the assessee does not possess any professional qualification or specialization to receive the consultancy amount do not stand the test of appeal as the record shows that the assessee has acted as an intermediary, liaison person for obtaining funds to Nexgen and booking of flats for Ajanara Group. In all fairness, we hold that no specialized professional qualification is required for such an activity. The allegation of the ld. PCIT that the assessee has taken entries for creating fictitious source of income cannot hold good as the company paid the amount by paying 12.6% service tax, TDS as per the provision, the recipient assessee has paid tax at the maximum margin rate, has not claimed any deduction (except ₹ 917,872) in any assessment year. In the absence of any minor evidence brought in by the ld. PCIT/Revenue to prove that the payee companies are not in existence or of no financial capability or involved in providing of any accommodation entry or any investigation leading to credence that these companies are aiding in fictitious capitalization, and keeping in view, the entire gamut of activities and evidences mentioned in the preceding paras, we hereby decline to hold that the ld. PCIT is legally correct in holding that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of Revenue and hence, the order u/s 263 of the Act is not sustainable. Assessment of rental receipts - PCIT observation that the house is not a commercial premises and hence cannot be used for commercial purposes is also found to be incorrect as it was stated that the house was used as a liaison office by the tenant, Harish Gupta of Trishala group for promotion of sales. This fact can be gauged from the statement of Sh. Harish Gupta mentioned in the order u/s 263 of the Act. Any kind of loss of Revenue or non examination of the issue by the Assessing Officer before allowing the claims has not been brought out by the ld. PCIT which was discussed above. Hence, we hereby hold that the order u/s 263 of the Act cannot be upheld on this ground. PCIT in the order ultimately held that Annual Letting Value (ALV) of the property amounting to ₹ 880,000/- was required to be taxed under head income from other sources while holding that the rental income of ₹ 880,000/- shown in respect of the property let out to Trishala was found to be bogus does not stand on any legal principles for the simple reason as the provisions of Sections 22, 23 24 of the Act which cover the scheme of taxation under head house property. As the property in question is not a self occupied property as such the provision of Section 23(4) of the Act will apply to this property. As per the summarized provisions of Sections 22-23, Income of such property is chargeable to tax which is higher value of rent received or expected rent. Assuming, but not conceding that the property in question is not let out, even in such case its annual letting value will be subjected to tax under Sections 22-24. Such annual value being undisputedly ₹ 8,80,000/-, full deduction u/s 24(a) of the Act of ₹ 2,64,000/- and Section 24(b) of ₹ 42,25,000/- will be allowable and the resulting loss under head house property of ₹ 36,09,000/- will be fully eligible for set off from other heads of income. Thus, the action of ld. PCIT would be a revenue in neutral exercise. Assessment order cannot be said to be erroneous or prejudicial to the interest of the Revenue. Receipt on sale of share in property - HELD THAT - learned AR has been able to show that there was sufficient material produced on record during assessment proceedings which was adequate for the AO to have arrived at the conclusion that no additions were warranted on the said grounds. Therefore, clearly it was not the case where there was a lack of enquiry or examination by the AO. - Decided in favour of assessee

Summary

Issues Involved:

1. Revisionary powers under Section 263 of the Income Tax Act.
2. Alleged siphoning of money by booking bogus expenditures.
3. Alleged diversion of trust money to trustees and their relatives.
4. Compliance with Medical Council of India (MCI) guidelines.
5. Payments for vehicle purchases.
6. Salary payments to teachers.
7. Other benefits to trustees.
8. Construction payments.
9. Rent paid to trustees.
10. Interest paid to trustees.
11. Salary paid to trustees.
12. Use of Santosh Hostel funds.
13. Bogus expenditure on mess charges.
14. Pledging of Fixed Deposit Receipts (FDRs) for loans.

Detailed Analysis:

1. Revisionary Powers under Section 263 of the Income Tax Act:

The Principal Commissioner of Income Tax (PCIT) exercised revisionary powers under Section 263, alleging that the assessment orders were erroneous and prejudicial to the interests of the revenue. The PCIT claimed that the Assessing Officer (AO) did not conduct proper inquiries or verification, leading to potential revenue loss. However, it was found that the AO had made necessary inquiries, and the PCIT did not provide substantial evidence of any revenue leakage or erroneous assessment. As a result, the Tribunal held that the invocation of Section 263 was not justified.

2. Alleged Siphoning of Money by Booking Bogus Expenditures:

The PCIT alleged that the assessee siphoned money by booking bogus expenditures in the form of mess charges and payments to contractors. The Tribunal found that the AO had issued show cause notices and examined the details of mess expenses and contractor payments. The Tribunal concluded that the PCIT's allegations were based on suspicions and conjectures without concrete evidence. Therefore, the Tribunal held that the AO's assessment was not erroneous or prejudicial to the revenue.

3. Alleged Diversion of Trust Money to Trustees and Their Relatives:

The PCIT alleged that the assessee diverted trust money to trustees and their relatives through salaries, interest, and rent payments. The Tribunal found that the AO had examined these payments and found them to be reasonable and in line with the trust's activities. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

4. Compliance with Medical Council of India (MCI) Guidelines:

The PCIT alleged that the assessee trust violated MCI guidelines in admitting students under the NRI quota. The Tribunal found that the AO had examined the details of NRI admissions and found them to be in compliance with MCI guidelines. The Tribunal held that the PCIT's allegations were based on suspicions without concrete evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

5. Payments for Vehicle Purchases:

The PCIT alleged that vehicle purchases in the name of trustees were used to siphon funds from the trust. The Tribunal found that the AO had examined the vehicle purchases and found them to be used for trust purposes. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

6. Salary Payments to Teachers:

The PCIT alleged that the AO did not conduct proper inquiries regarding salary payments to teachers. The Tribunal found that the AO had issued show cause notices and examined the details of salary payments. The Tribunal held that the PCIT's allegations were based on suspicions without concrete evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

7. Other Benefits to Trustees:

The PCIT alleged that trustees obtained other benefits in the form of services of employees of the trust. The Tribunal found that the AO had examined these benefits and found them to be reasonable and in line with the trust's activities. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

8. Construction Payments:

The PCIT alleged that construction payments to Tarsem Garg were not properly examined by the AO. The Tribunal found that the AO had examined the construction payments and found them to be reasonable. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

9. Rent Paid to Trustees:

The PCIT alleged that rent payments to trustees were excessive and not properly examined by the AO. The Tribunal found that the AO had examined the rent payments and found them to be reasonable. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

10. Interest Paid to Trustees:

The PCIT alleged that interest payments to trustees were excessive and not properly examined by the AO. The Tribunal found that the AO had examined the interest payments and found them to be reasonable. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

11. Salary Paid to Trustees:

The PCIT alleged that salary payments to trustees were excessive and not properly examined by the AO. The Tribunal found that the AO had examined the salary payments and found them to be reasonable. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

12. Use of Santosh Hostel Funds:

The PCIT alleged that funds from Santosh Hostel were diverted to trustees and their relatives. The Tribunal found that the AO had examined the hostel funds and found them to be used for trust purposes. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

13. Bogus Expenditure on Mess Charges:

The PCIT alleged that mess charges were bogus and used to siphon funds from the trust. The Tribunal found that the AO had examined the mess charges and found them to be reasonable. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

14. Pledging of Fixed Deposit Receipts (FDRs) for Loans:

The PCIT alleged that FDRs were pledged to secure loans for personal use by trustees. The Tribunal found that the AO had examined the FDRs and found them to be used for trust purposes. The Tribunal held that the PCIT's allegations were not supported by evidence, and the AO's assessment was not erroneous or prejudicial to the revenue.

Conclusion:

The Tribunal concluded that the PCIT's invocation of revisionary powers under Section 263 was not justified in the absence of concrete evidence of any revenue leakage or erroneous assessment. The AO had conducted necessary inquiries and verifications, and the PCIT's allegations were based on suspicions and conjectures without substantial proof. Therefore, the Tribunal set aside the PCIT's orders under Section 263 for all the assessment years involved.