2021 (12) TMI 369 - HC - Income Tax

Exemption u/s.11 of the Act r.w.s. 13(1)(c) - Claims for exemption/deduction in the Assessment Order - HELD THAT - A bare look at even the very documents now filed by the assessee discloses that the payment/advance in favour of M/s. VUS Timbers is anterior to any of the steps now relied on by the assessee. This circumstance is sufficient to belie the entire explanation offered by the assessee in this behalf. The admitted circumstances are that advances have been made in favour of the Managing Trustee s wife. The explanation offered is for the purchase of wood for proposed construction of a medical college. The purchasing of wood is for the medical college to be established by the assessee/Educational Trust. Each one of the above reasons looked at independently, in the background of material placed on record by the assessee, this Court is of the view that the findings recorded by the Tribunal confirming the findings of facts recorded by the authorities under the Act are available conclusions, and do not warrant interference of this Court. Nothing more is needed except to record that the findings of fact recorded are tenable from available circumstances and there is no substantial question involved warranting interference of this Court. Hence, the questions are answered in favour of the Revenue and against the assessee. Addition u/s 40(a)(ia) - non-compliance with the requirement of deduction of TDS - HELD THAT - The statutory obligation of the assessee to conform to the requirement of Section 40(a)(ia) of the Act is not in dispute. The fact that no TDS was effected while making the payment of ₹ 21,27,846/- in favour of one Varghese Innocent towards consideration for contract works is also not in dispute. The explanation, in the understanding of this Court, does not deal with any of the relevant aspects of law or fact for independently examining the question to find out whether the findings recorded by the orders referred to above warrant interference. The assessee failed to demonstrate how the above finding warrants interference of this Court, particularly by referring to the substantial questions framed in this behalf. The questions are not substantial questions of law, and the adjudication is in accordance with the requirements of law and circumstances presented by the very return filed by the assessee. The questions are answered, hence, in favour of the Revenue and against the assessee. Levy of interest u/s 234A and 234B - HELD THAT - The non-compliance with statutory requirements and inviting one or the other consequence thereof is not disputed. The discretion is rightly exercised by the Assessing Officer for levying interest on the tax determined in this behalf. Since the other questions are answered in favour of the Revenue and against the assessee, these questions follow suit and are answered, accordingly, in favour of the Revenue and against the assessee All the findings of the Tribunal are confirmed. The order of the Tribunal is in accordance with law and no exception could be taken and questions answered accordingly. Income Tax Appeal is dismissed

Summary

Issues Involved:
1. Justification of the Appellate Tribunal in dismissing the appeal and rejecting claims for exemption/deduction.
2. Addition of ?72,45,000/- and estimating interest as diversion of Trust funds violating Section 13(1)(c).
3. Estimation and addition of ?13,04,700/- as income of the Trust.
4. Disallowance of ?21,27,846/- for non-compliance with TDS requirements under Section 40(a)(ia).
5. Disallowance of labour charges expenses of ?5,40,390/-.
6. Levy of interest under Sections 234A and 234B.
7. Overall legality and sustainability of the Appellate Tribunal's order.

Detailed Analysis:

1. Justification of the Appellate Tribunal in Dismissing the Appeal:
The Tribunal dismissed the appeal by rejecting all claims for exemption and deduction in the assessment order. The assessee, an Educational Trust registered under Section 12AA, claimed that its income was exempt. However, the Tribunal upheld the findings of the Assessing Officer and CIT (Appeals) that the assessee failed to establish the bona fides of its transactions, particularly the advance of ?72,45,000/- to M/s. VUS Timbers, a proprietary concern of the Managing Trustee's wife, which was not for the Trust's purposes.

2. Addition of ?72,45,000/- and Estimating Interest:
The Tribunal confirmed the addition of ?72,45,000/- as income, citing violation of Section 13(1)(c). The assessee claimed this amount was an advance for purchasing wood for a proposed medical college. However, the Tribunal found that the payment was made before any steps were taken towards establishing the college, thus indicating a diversion of funds for personal benefit. The Tribunal also upheld the notional interest addition at 18%, as the Trust was paying interest on borrowings.

3. Estimation and Addition of ?13,04,700/- as Income:
The Tribunal found that the assessee's explanation for the advance payment was unconvincing and unsupported by material evidence. The Tribunal held that the advance was diverted for personal benefit, justifying the addition of ?13,04,700/- as income at the maximum marginal rate.

4. Disallowance of ?21,27,846/- for Non-Compliance with TDS:
The Tribunal upheld the disallowance of ?21,27,846/- paid to Varghese Innocent for contract work due to non-compliance with Section 40(a)(ia), which mandates TDS deduction. The assessee failed to demonstrate compliance, leading to the disallowance being confirmed.

5. Disallowance of Labour Charges Expenses of ?5,40,390/-:
The Tribunal confirmed the disallowance of labour charges expenses due to non-compliance with statutory provisions. The assessee did not provide sufficient evidence to counter the findings of the Assessing Officer and CIT (Appeals).

6. Levy of Interest under Sections 234A and 234B:
The Tribunal upheld the levy of interest under Sections 234A and 234B, as the assessee's non-compliance with statutory requirements justified the interest charges. The Tribunal found no grounds to interfere with the Assessing Officer's discretion in this matter.

7. Overall Legality and Sustainability of the Appellate Tribunal's Order:
The Tribunal's order was found to be in accordance with law, with no substantial questions of law warranting interference. The findings of fact were based on available evidence, and the Tribunal's conclusions were tenable. The appeal was dismissed, and all questions were answered in favor of the Revenue and against the assessee.

Conclusion:
The High Court confirmed the Tribunal's findings, holding that the assessee failed to provide convincing evidence for its claims and that the transactions in question violated statutory provisions. The appeal was dismissed, with no order as to costs.