PURCUASE OF ‘AUDI’ CAR FOR A TRUST - EXPENDITURE ALLOWABLE?

[Mr. M. GOVINDARAJAN]

In MANOHAR EDUCATION SOCIETY VERSUS ITO (E) , WARD, ROHTAK. - 2023 (3) TMI 410 - ITAT DELHI the assessee is a trust.  The assessee filed return of income declaring income of NIL on 15.10.2016.  The said return was processed by the Department.  Thereafter, the case was selected for scrutiny assessment for the reason large claim of exemption under section 10 (23C) of the Act.   The assessee purchased an Audi car of the old model.  The said car was replaced by a new one and the same has been utilized.  The Assessing Officer on his assessment made addition of Rs.38,01,582/- under section 13 of the Act by holding that purchase of Audi car was not for education purpose but was for personal use of trustees.

The assessee, being aggrieved against the order of Assessing Officer filed an appeal before the Commissioner of Income Tax (Appeals).  The Commissioner of Income Tax (Appeals), Rohtak, confirmed the addition and dismissed the appeal of the assessee on 20.06.2019.

Against the order of Commissioner of Income Tax (Appeals) the assessee filed an appeal before the Income Tax Appellate Tribunal (‘ITAT’ for short).    The appellant submitted the following before the ITAT-

• The order passed by the Commissioner of Income Tax (Appeals) under section 250(6) is bad in law and contrary to the facts and submission on record.
• The Commissioner of Income Tax (Appeals) has erred in law as well as on fact the rejection of use of Audi Car.
•  Further the applying of Section 13(3) is also quite arbitrary and unjustified as none of the employee are in relation of the Trustee, Members or board of the society who used the car. The said car is purely used for education and charitable purposes.
• The Commissioner of Income Tax (Appeals)  has erred in holding that log book is not maintained ignoring that log book only necessary where is same is on hire purposes. Further the copies of resolution for the purposes of purchase and its use were furnished which are on record.
• The additions of Rs. 1318132/- treating taxable under section  164(2) of the Act sustained by the Commissioner of Income Tax (Appeals)  ignoring that the vehicle maintenance and fuel expenses are duly considered by the Assessing Officer and also replacement of this very car by old Audi Car.
• The appellant assessee craves the right to amend, delete and add any ground of appeal before and at the time of hearing the appeal.

The Revenue strongly relied upon the orders of authorities below and submitted that there is no infirmity into the orders passed by the authorities below.  The Revenue submitted that the assessee society applied its funds on purchase of luxury car i.e. Audi Car for the benefit of trustees only. The Revenue further submitted that the authorities below have given categorized finding in this regard.

At the time of hearing the appellant has not appeared.  More than one opportunity was granted to the appellant.  On the hearing date 02.02.2023 also the appellant did not attend.  The notices issued to the appellant were returned back undelivered.  Since the appellant has not given correct address the same could not be served.  Therefore the ITAT decided the matter in the absence of the appellant and with the available material on record.

The ITAT perused the material available on record.   It also perused the letter dated 25.01.2023 of the appellant.  In that letter the appellant submitted the following-

• The old 5 seated car was exchanged by 8 seated Audi Car. The said car is not used by trustee. No violation of section 2(15) read with section 13(3) was made in any way. Further in hearing before the appellate authority it was explained it is not a luxury car. It was used by Principal, Administrator and teacher for long journey to Chandigarh Educational Board and Delhi CBSE Office means for educational purposes.
• In the order of Commissioner of Income Tax (Appeal) nothing has been mentioned about personal use moreover the depreciation, salary and other maintenance expenses are fully allowed none of expenses are disallowed out of said expenses.  Therefore the appellant prayed to delete the addition.
• The version of Assessing Officer and the Commissioner of Income Tax (Appeals) is that no log book is maintained.
• The Log book is only maintained when the vehicle is for hire purposes. In the appellate case the car is not put on hire at any time. The order is quite silent about the same.
• The expenses incurred are purely for educational purposes. 
• Regarding assessment order under section  143(3) dated 22.2.2018 passed by Income Tax Officer (Exemption) ward,  Rohtak, the submissions regarding purchase of car, log book and explanation of section 10(23c)(iiiad) were duly furnished in details with depreciation chart expenses details i.e. salary of driver and maintenance expenses.
• But the Income Tax Officer (Exemption) ward rejected the reply filed by the appellant and passed the order at assessed income of Rs. 1318130/- by treating the use of car not for education purposes.
• The Income Tax Officer (Exemption) held in his order that the purchase of Luxury Car and its use for educational purposes only, is not justified in view of the fact that the assessee society has not maintained Log Book and thus, failed to substantiate its claim that the vehicle was used for educational purpose only.  As such, this amount cannot be treated as the ‘Application of Income' for charitable purpose.  In the absence of Log Book, it is not ascertainable as to the distance covered by Car and the purpose for which Audi car was used having regard to the attainment of aims and objectives of the assessee society.
• Therefore the Income Tax Officer (Exemption held that the Audi Car had not been used for charitable purposes so as to include it within the purview of section 2(15) of the I.T Act rather is deemed to have been used or applied for the benefit of the person referred to in sub section 3 of section 13 of the Act.
• Before Commissioner of Income Tax (Appeals) all the facts and submissions were explained but passed the order in favor of revenue.

The ITAT considered the above facts submitted by the appellant.  The ITAT was of the view that the expenditure would be allowable if it relates to running of school.   The ITAT observed that the Assessing Officer has not brought any material to rebut the claim of the assessee that the vehicle was being used for principal and staff of school. Merely because the vehicle happens to be luxury car should not be reason to make disallowance when in earlier years, claim of assessee was accepted. The ITAT therefore directed the Assessing Officer to delete the disallowances.    The ITAT allowed the appeal filed by the appellant.