2021 (8) TMI 453 - AT - Income Tax

Assessment u/s 153A - benefit of exemption u/s 11 - Bogus purchases - HELD THAT - All the relevant ingredients necessary to prove the purchases are genuine has been filed by the assessee. Weighing slips are also annexed in the paper book along with other documents. Certificate from Architect and contractor supporting the purchase of CTD bars have been filed. The facts that the building has been constructed is not in dispute as there is an approved plan of building by Nagar Nigam Bhopal. Complete quantitative details along with bills and bank statement is on record. We note that total 841910.76 kg CTD bars were used for the construction of building, out of which around 73% of the CTD bars were purchased from these two parties. Since the construction has been done is on record and has not been objected or adversely commented in any manner by both the lower authorities and it is an established fact that construction of the building cannot be done without iron and steel which is crucial and major components of construction cost, the alleged disallowance seems to be made merely on assumption basis as there is no direct evidence to show that any such disallowance was even called for. On merits the assessee deserve to succeed as the documents filed before lower authorities and before us, are sufficient enough to demonstrate that the alleged purchase from M/s. Prateek Enterprises and M/s Saluja Enterprises are genuine and CTD bars purchased through bills issued by both these concerns have been utilized in the construction of the building of the society. Thus, Ld. AO was not justified in making addition - Finding of Ld. CIT(A) is set aside and the grounds raised by the assessee for A.Ys. 2006-07, 2007-08 2008-09 challenging this issue of bogus purchase are allowed. Assessement u/s 153A - As regards the legal issue raised by the assessee that no addition was called for since no incriminating material relating to the alleged bogus purchase was found during the search u/s 132 of the Act at assessee premises, additions made only on the basis of 3rd party information and opportunity of cross examination was not provided, we observe that this is an admitted fact that the Ld. AO doubted the genuineness of the purchase of CTD bars from M/s Prateek Enterprises M/s. Saluja Enterprises on the basis of the investigation carried out by the investigation wing independently and the information was forwarded to the Ld. AO. No incriminating material has been referred by the ld. AO during the assessment proceedings which was found during the course of search. Assessment year 2006-07 2007-08 are non-abated assessment since the time limit of issuance of notice u/s 143(2) of the Act expired before the date of conduct of search. For such non-abated assessment additions could be made only if incriminating material is found during search proceedings as held by Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . Thus, in view of the judgment of Delhi High Court in the case of Kabul Chawla (supra) the addition for A.Y.2006-07 2007-08 deserves to be deleted. Denial of natural justice - We find that the assessee was not provided any opportunity to cross examine these two parties which certainly defies the principles of nature justice as the information of the 3rd party has been used against the assessee. The decision of Coordinate Bench Mumbai in the case of ACIT vs. Tristar Jewellery Export Pvt. Ltd 2015 (12) TMI 1366 - ITAT MUMBAI supports this view that the assessee should be provided an opportunity of cross examination, if addition in its hands is based on 3rd party information. Unexplained payment - Documents filed by the assessee towards incurring construction expenses during the year and the bills issued by Mr. Anees khan has not been claimed to be bogus by the revenue authorities except for the payment of ₹ 17 lac. The alleged sum has been paid through banking channel and tax has been deducted at source. CIT(A) ought to have appreciated the transaction between Anees Khan and assessee society in entirety. We, are thus satisfied with the transactions between assessee society and Mr. Anees Khan contractor and are of the considered view that alleged sum of ₹ 17,00,000/- is part of the construction cost incurred during the year and has been rightly disclosed under the head of construction expenses in the audited books. The inference drawn by both lower authorities alleging that this sum of ₹ 17 lac is not incurred for the objects of the society has no merits. Thus, the finding of Ld. CIT(A) is set aside and ground no.1 (1.1 to 1.4) raised by the assessee for A.Y. 2009- 10 is allowed. Addition for the alleged benefit given to M/s. Siddharth Kapoor Infrastructure Pvt. Ltd. (in short SKIPL) in violation of section 13(1)(c) - HELD THAT - As the alleged sum is not a payment to SKIPL but actually it is in the nature of loan by assessee society to the other group society AESS which is running education institution and is registered u/s 12AA of the Act and the same being not in the nature of investment and deposit is not hit by the provision of section 13(3) of the Act and thus no addition/disallowance of the said sum was called for by the Ld. AO. We, thus, set aside the finding of Ld. CIT(A) and delete the addition and allow ground no.2 (2.1 to 2.4) raised by the assessee. Encashment of FDR - It is clear from the audit report that the part of the proceeds of FDRs has been given as loan to HTPL and interest has been charged thereon and it is also an established fact that the HTPL is providing services of giving school buses to the assessee society. The remaining portion of the FDR encashment is given to M/s Ayushmati Education Society and this fact is proved with the necessary ledger account and financial statements placed on record in the paper book. We also note that Ld. AO made addition for notional interest on the sum advanced to HTPL - We are also of the view that Ld. CIT(A) has rightly deleted both these additions on observing that there was no unsecured loan given to HTPL during A.Y. 2009-10 and for the advance/loans given during A.Y. 2010-11. Assessee society has already charged interest which is duly reflected in the books of account. Though Ld. CIT(A) has rightly deleted both these additions but revenue has not challenged this issue of addition of notional interest before us. Exemption u/s 11 denied - If there is some mis-utilization or mismanagement of the income/fund of the charitable society, the exemption u/s 11 of the Act cannot be denied to the assessee trust on the remaining income. Thus, it is clearly established that only the relevant income falling within the mischief u/s 13(1)(c)/13(1)(d) will lose the benefit of exemption under section 11 of the Act and the balance of the total income of the trust will remain eligible for the benefit of exemption under section 11 of the Act . Accordingly this common issue raised by the Revenue for A.Y. 2009-10 2010-11 against the benefit of exemption u/s 11 of the Act allowed by the ld. CIT(A) is dismissed. Relevant grounds raised pertaining to this issue in the three assessment years stands dismissed. Denial of benefits of Section 10 (23C) (vi) - We find that in the instant case the Ld. Assessing officer without giving intimation or recommendation to the Central Government or the prescribed authority to withdraw the order under Section 10 (23C) (vi) of the Act issued to Appellant, has directly denied the benefits of Section 10 (23C) (vi) of the Act in the assessment proceeding, and this finding of Ld. AO is in contravention to 1st Proviso to Section 143 (3) of the Act. CIT (Appeals) failed to appreciate that the income of Appellant society for the year under consideration was exempt u/s 10 (23C) (vi) of the Income tax Act, 1961 and the appellant had specifically mentioned the factum of availability of such exemption in its return of income and has also made submission before the Ld assessing officer regarding exemption u/s 10(23C)(vi). Thus, Ld CIT (A) and LD AO failed to take into consideration that after giving effect to exemption under Provisions of section 10(23C)(vi) there cannot be any income of the appellant trust which can be charged to tax. In view of exemption been already granted u/ s 10(23C)(vi) there can't be any income of the appellant trust which is liable to tax even ignoring the Provisions of section 11 of the Act. Therefore, even if the benefits of section 11 is denied than too there can be no income of the appellant trust on which tax can be collected from it in view of the provisions of section 10(23C)(vi) of the Act considering the approval granted to the appellant trust. Therefore, after giving effect to exemption under provisions of section 10(23C)(vi) there cannot be any income of the appellant trust which can be charged to tax as the total income of the Appellant society is exempted and hence the addition of ₹ 1,99,21,499/ sustained by the Ld CIT (A) is uncalled for and the same is set aside. Common ground no.1 raised by the assessee for A.Y. 2009-10 2010-11 is allowed.

Summary

Issues Involved:

1. Addition of ?15,00,000 as unexplained expenditure for A.Y. 2004-05.
2. Addition for alleged bogus purchases from M/s Prateek Enterprises and M/s Saluja Enterprises for A.Ys. 2006-07, 2007-08, and 2008-09.
3. Addition of ?17,00,000 for alleged unexplained payment to Shri S.D. Tomar for A.Y. 2009-10.
4. Addition of ?36,08,666 for alleged benefit given to M/s Siddharth Kapoor Infrastructure Pvt. Ltd. (SKIPL) for A.Y. 2009-10.
5. Denial of exemption u/s 11 of the Act for various years.
6. Denial of exemption u/s 10(23C)(vi) for A.Y. 2009-10 and subsequent years.
7. Addition of notional interest on the amount advanced to Homebound Travel Pvt. Ltd. (HTPL) for A.Ys. 2009-10 and 2010-11.
8. Disallowance of depreciation expenses at ?7,71,146 for A.Ys. 2008-09 to 2010-11.
9. Allowance of deduction for capital expenditure as application of income for A.Ys. 2008-09 to 2010-11.

Detailed Analysis:

1. Addition of ?15,00,000 as unexplained expenditure for A.Y. 2004-05:
The tribunal found that the alleged transaction was through the banking channel and accounted for in the books. The addition was based on a paper seized from a third party and not from the assessee's premises. Since the assessment for A.Y. 2004-05 was non-abated and no incriminating material was found during the search, the addition was beyond the scope of Section 153A. The tribunal deleted the addition.

2. Addition for alleged bogus purchases from M/s Prateek Enterprises and M/s Saluja Enterprises for A.Ys. 2006-07, 2007-08, and 2008-09:
The tribunal noted that the assessee had provided detailed documentation, including ledger accounts, bank statements, purchase bills, and certificates from contractors and architects. The tribunal found that the purchases were genuine and used in the construction of the building. The addition was based on third-party information without providing an opportunity for cross-examination, violating principles of natural justice. The tribunal deleted the additions for all three years.

3. Addition of ?17,00,000 for alleged unexplained payment to Shri S.D. Tomar for A.Y. 2009-10:
The tribunal found that the payment was made to a contractor for construction work, duly recorded in the books, and tax was deducted at source. The tribunal held that the payment was for the society's objects and deleted the addition.

4. Addition of ?36,08,666 for alleged benefit given to M/s Siddharth Kapoor Infrastructure Pvt. Ltd. (SKIPL) for A.Y. 2009-10:
The tribunal found that the payment was a loan to Ayushmati Educational Society (AESS) for land development, which was used for sports activities for students. The transaction was not an investment or deposit and thus not hit by Section 13(3). The tribunal deleted the addition.

5. Denial of exemption u/s 11 of the Act for various years:
The tribunal noted that the denial of exemption was based on certain additions and disallowances, which were deleted. The tribunal held that only the income violating Section 13 should be taxed at the maximum marginal rate, not the entire income. The tribunal confirmed the benefit of exemption u/s 11 for the remaining income.

6. Denial of exemption u/s 10(23C)(vi) for A.Y. 2009-10 and subsequent years:
The tribunal found that the denial was without following the procedure prescribed in the proviso to Section 143(3). The tribunal noted that the assessee was granted approval u/s 10(23C)(vi) and the activities were solely for educational purposes. The tribunal held that the assessee could claim exemption under both Sections 10(23C)(vi) and 11 simultaneously before the amendment by Finance Act 2020. The tribunal allowed the exemption u/s 10(23C)(vi).

7. Addition of notional interest on the amount advanced to Homebound Travel Pvt. Ltd. (HTPL) for A.Ys. 2009-10 and 2010-11:
The tribunal found that interest was charged on the amount advanced to HTPL and recorded in the books. The tribunal deleted the notional interest addition.

8. Disallowance of depreciation expenses at ?7,71,146 for A.Ys. 2008-09 to 2010-11:
The tribunal found no incriminating material for the alleged bogus assets. The disallowance was based on non-abated assessments, and no addition could be made without incriminating material. The tribunal deleted the disallowance.

9. Allowance of deduction for capital expenditure as application of income for A.Ys. 2008-09 to 2010-11:
The tribunal noted that the assessee was eligible for exemption u/s 11, and the capital expenditure was for the society's objects. The tribunal confirmed the allowance of deduction for capital expenditure.

Conclusion:
The tribunal allowed the assessee's appeals for A.Ys. 2004-05, 2006-07 to 2009-10, and 2009-10 to 2010-11, and dismissed the revenue's appeals for A.Ys. 2008-09 to 2010-11 and 2009-10 to 2010-11.