2012 (12) TMI 321 - AT - Income Tax

Denial of exemption u/s 10(23C)(vi) - denial of claim was advancing of money to Total Diagnosis Private Limited - Held that - The amount given by assessee to M/s. Total Diagnosis Private Limited was not a loan but was advance in pursuance to agreement to purchase the office space - the amount paid by the assessee society to M/s. Total Diagnosis Private Limited was immediately used by Total Diagnosis Private Limited for purchase of land on which building was to be constructed. On verifying the original agreement and found that stamps for executing the agreement was issued by vendor on 27.3.2005 vide entry no. 4115. All these notes were at the back of the original stamp on which agreement was executed. We also found the rubber stamp of date of issue of stamp by office of District Treasury on 24th March, 2005. Thus, the genuineness of agreement entered by the assessee is not in doubt. It is clear that the amount given by the assessee was not in the nature of loan but was an advance for purchase of office space and when ultimately the Total Diagnosis Private Limited could not give office space due to sanction being not given by Bhopal Municipal Corporation for construction of 4th and 5th Floor, the amount was paid back to the assessee with interest of Rs. 69 lakhs, thus, the transaction was a commercial transaction, where an interest was charged. Thus, there was no loss of any revenue in the hands of assessee society, even when the building could not be handed over to the assessee. Thus no violation of provisions of Section 13 for the advance given to the Total Diagnosis Private Limited for purchase of office space as it is not an amount lent but was in the nature of advance given for purchase of office space and hence exemption u/s 11 & 12 cannot be denied. The excess of income over expenditure is exempt u/s 11 & 12 - in favour of assessee. Disallowance of travelling expenses - Held that - Trustees husband and wife both travelled to Delhi for necessary approval of AICTE . Minor daughter of Trustee aged 10 years had to be taken alongwith, because she could not be left alone only because the girl being the minor, she had to be taken along and could not be left alone, the expenditure incurred on travelling pertaining to such minor daughter cannot be declined. Furthermore, the amount is negligible and this cannot be treated as benefit to any persons, since these trips were wholly and exclusively for the purpose of society and not for personal purpose - merit in the action of CIT(A) in holding that assessee society has infringed provisions of Section 13 by giving advance to other societies - in favour of assessee. Assessing Officer is directed to recompute interest u/s 234D after giving appeal effect of this order.

Issues Involved:
1. Denial of exemption under Section 11 & 12 of the Income-tax Act, 1961.
2. Addition on account of interest-free advances to other societies.
3. Addition on account of interest-free advances to Total Diagnosis Private Limited.
4. Disallowance of traveling expenses.
5. Charging of interest under Section 234D.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 11 & 12:
The Assessing Officer (AO) denied the exemption under Section 11 & 12, citing that the assessee society had violated Section 13 by using its income/property for the benefit of closely connected persons. The CIT(A) upheld this denial, observing that the assessee had infringed the provisions of Section 13. However, the Tribunal found that the society was registered under Section 12AA and carried out charitable activities, qualifying for exemption under Sections 11 & 12. The Tribunal concluded that there was no violation of Section 13, as the advances to other societies were interest-free and in consonance with the object of the assessee society.

2. Addition on Account of Interest-free Advances to Other Societies:
The AO added notional interest on interest-free advances given to other societies, arguing that these advances violated Section 13. The CIT(A) deleted this addition, and the Tribunal upheld this decision, noting that the advances were to societies registered under Section 12A and were in line with the charitable objectives of the assessee. The Tribunal referenced its previous decisions in the assessee's own case for earlier assessment years, confirming that no disallowance was warranted, and the income was exempt under Sections 11 & 12.

3. Addition on Account of Interest-free Advances to Total Diagnosis Private Limited:
The AO treated the advance given to Total Diagnosis Private Limited as a loan and added notional interest, asserting a violation of Section 13(2)(a). The CIT(A) deleted the addition, recognizing the advance as a commercial transaction for purchasing office space, not a loan. The Tribunal confirmed this, noting that the advance was used immediately for purchasing land, and the agreement was genuine. The Tribunal found no violation of Section 13, as the transaction was commercial, with interest paid back to the assessee when the building could not be handed over.

4. Disallowance of Traveling Expenses:
The AO disallowed Rs. 13,283/- in traveling expenses, claiming it benefited persons mentioned in Section 13(3). The CIT(A) confirmed the disallowance of Rs. 11,575/-. The Tribunal found the travel was for society work, and the minor daughter of a trustee had to be taken along, as she could not be left alone. The Tribunal deemed the amount negligible and not a personal benefit, allowing the expense.

5. Charging of Interest under Section 234D:
The Tribunal found no merit in the ground regarding interest under Section 234D, considering it consequential. The AO was directed to recompute interest after giving effect to the Tribunal's order as per the Income-tax Act, 1961.

Conclusion:
The Tribunal allowed the appeal in part, confirming the exemption under Sections 11 & 12, deleting additions on account of interest-free advances, and allowing traveling expenses. The ground regarding interest under Section 234D was deemed consequential.

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