2013 (2) TMI 482 - AT - Income Tax

Registration u/s.12AA(3) cancelled - activities of the Trust are neither genuine nor are being carried out in accordance with the objects of the Trust - Non filing of return of income u/s 139 - survey action u/s.133A - assessee is engaged in the business of running of educational institutions - as per AO assessee is required to be assessed like any other assessee and is not entitled to the benefit of section 11 and 12 because it is hit by section 13 - Relief given by the CIT(A) by holding that 50% of the Advertisement expenses as expenditure towards objects of the Trust - Held that - Considering the fact that similar expenses were allowed in the past no part of the advertisement expenses should have been disallowed especially when there is no dispute about the genuineness of such expenditure. Therefore there is no violation of provisions of section 13(1)(c) of the I.T. Act - in favour of assessee. Disallowance of expenditure on Mercedez car and depreciation there on by holding the same to be in violation of section 13(1)(c) - Held that - When the AO has allowed the expenditure on account of various other cars owned by the trust therefore merely because the assessee has purchased the Mercedez car to be used by the VVIP guests the AO should not have disallowed the expenditure and depreciation on such motor car especially when the AO in the past has not disallowed any expenditure on the Mercedez car owned by the trust. Therefore in view of rule of consistency and in absence of any adverse material before the AO to take a contrary view no justification on the part of the AO and CIT(A) to hold that there is violation of provisions of section 13(1)(c) - in favour of assessee. Advancing interest free loan by the assessee trust to D.Y. Patil Education Society a related concern - whether will attract provisions of section 13(1)(d) - Held that - As decided in the case of Alarippu 2000 (5) TMI 30 - DELHI HIGH COURT that a loan given by one charitable trust to another with similar object cannot be treated as an investment but an application of income. The words investment deposit and loan have different meanings. Also see Sarladevi Sarabhai Trust 1988 (3) TMI 53 - GUJARAT HIGH COURT wherein held that if the trust makes an investment in the course of attaining its objectives that investment is an application of income and it cannot be considered to be violative of section 13(1)(d) r.w.s.11(5) - in favour of assessee. Disallowance of remuneration paid to relatives of the trustees - CIT(A) deleted the addition - Held that - Nowhere in the assessment order the AO has brought on record how much should have been the reasonable remuneration to the trustees and their relatives and what is the amount paid by similarly placed organisations to their employees. The submission of assessee that in the past also such type of payments were made and it was accepted by the department in scrutiny assessments for A.Y. 2000-01 to 2002-03 and no disallowance has been made could not be controverted by the DR. Under these circumstances order passed by the CIT(A) giving reasons for such deletion and in absence of any contrary material brought to our notice against the findings given by the CIT(A) no infirmity in the order found deleting the disallowance made by the AO u/s.40(A)(2)(b) of the I.T. Act - no violation of provisions of section 13(1)(c) proved - in favour of assessee. Disallowance of Telephone and Mobile expenses - CIT(A) deleted the addition - Held that - No such disallowance was made in the scrutiny assessments for A.Ys. 2000-01 to 2002-03 and in absence of any contrary material brought no infirmity in the order of the CIT(A) deleting the disallowance on account of Telephone and Mobile expenses - in favour of assessee. Disallowance of maintenance expenses of flats at Gulmohar Society exclusively used by the founder of the trust violating the provisions of section 13(1)(c) - Held that - AO did not give any notice to the appellant of his intention to disallow guest house expenses substantively on the basis of the statement of the caretaker during the course of assessment proceedings and therefore the appellant did not have any occasion or opportunity to file any evidence in support of its claim of guest house expenses. In fact the appellant was not in the possession of the statement on the basis of which the AO was to make this addition. Under the circumstances the appellant was prevented by sufficient cause from producing these evidences before the A0 during the course of assessment proceeding and therefore admit them. These affidavits were sent to the AO for his comments on their impact on the assessment of the appellant. The AO has not given any specific comment on these affidavits. He has simply stated that these affidavits represent afterthought. It is an undisputed fact that disallowance of guest house expenses was made because of the fact that AO came to the conclusion that one particular portion of the guest house (flat Nos.G1 and G2) was used by trustee exclusively. This conclusion was arrived at substantively on the basis of the statement of the caretaker of the guest house but as discussed above disallowance of guest house expenses cannot be made on the basis of statement of the caretaker on which reliance was placed by the AO - this disallowance of guest house expenses was not justified and is therefore directed to be deleted - in favour of assessee. Employee s Contribution - whether not deposited within due date under the Act or deposited before the due date of filing of the return is an allowable expenditure - Held that - CIT(A) relying on various decisions directed the AO to delete the disallowance wherein the payments are made prior to the due date of filing of the return taking the consistent view that Employee s Contribution to P.F. & ESIC if paid before the due date of filing of the return is an allowable deduction - in favour of assessee.

Summary

Issues Involved:

1. Cancellation of registration under Section 12AA(3) of the Income Tax Act.
2. Assessment of the trust's income under normal provisions due to violations under Section 13.
3. Disallowance of expenses not incurred for the objects of the trust.
4. Maintenance expenses of flats allegedly used for personal benefit.
5. Payments to specified persons under Section 40A(2)(b).
6. Expenses on a Mercedes car.
7. Donations received for admissions.
8. Treatment of trust/corpus fund as revenue receipts.
9. Disallowance of capital expenditure.
10. Disallowance of late payment of provident fund.
11. Disallowance of penalty/fine paid.
12. Disallowance of prior period expenses.
13. Additional disallowances and additions by the AO.

Issue-wise Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3):
The CIT(C), Pune, canceled the trust's registration under Section 12AA(3) due to activities not being genuine or in accordance with the trust's objects. The Tribunal restored the registration, thus allowing the trust to claim exemption under Section 11.

2. Assessment of Trust's Income under Normal Provisions:
The AO assessed the trust's income under normal provisions, citing violations under Section 13, which disallow benefits under Sections 11 and 12 if certain conditions are violated.

3. Disallowance of Expenses Not Incurred for Objects of the Trust:
The AO disallowed expenses totaling Rs. 52,40,819/- as they were not incurred for the trust's objects, including advertisement expenses on trustees' birthdays and donations to non-eligible institutions. The Tribunal found that the advertisement expenses were for image building of the trust and not personal benefit, thus allowing the expenses.

4. Maintenance Expenses of Flats Allegedly Used for Personal Benefit:
The AO disallowed maintenance expenses of flats used by Dr. D.Y. Patil, citing personal benefit. The Tribunal found no exclusive use by Dr. D.Y. Patil and allowed the expenses, noting that the flats were used for official purposes and other guests.

5. Payments to Specified Persons under Section 40A(2)(b):
The AO disallowed Rs. 40,41,914/- paid to trustees and their relatives, considering them excessive and for personal benefit. The Tribunal found no evidence of excessiveness and allowed the payments, noting that similar payments were allowed in past assessments.

6. Expenses on a Mercedes Car:
The AO disallowed expenses on a Mercedes car, citing personal benefit to trustees. The Tribunal allowed the expenses, noting that the car was used for VVIP guests and similar expenses were allowed in past assessments.

7. Donations Received for Admissions:
The AO concluded that donations received for admissions were diverted for personal benefits of trustees. The Tribunal did not specifically address this issue in detail in the provided judgment.

8. Treatment of Trust/Corpus Fund as Revenue Receipts:
The AO treated corpus donations as revenue receipts due to the cancellation of registration under Section 12AA. The Tribunal, restoring the registration, allowed the trust to treat these as capital receipts.

9. Disallowance of Capital Expenditure:
The AO disallowed Rs. 95,49,642/- as capital expenditure not allowable under normal provisions. The Tribunal allowed the expenditure, noting that the trust's registration under Section 12A was restored, thus eligible for exemption under Section 11.

10. Disallowance of Late Payment of Provident Fund:
The AO disallowed Rs. 21,55,881/- for late payment of provident fund. The Tribunal allowed the expenses, noting that payments made before the due date of filing the return are allowable.

11. Disallowance of Penalty/Fine Paid:
The AO disallowed Rs. 1,24,860/- paid as penalty/fine, citing it as non-deductible under Section 37(1). The Tribunal upheld the disallowance, agreeing with the AO's reasoning.

12. Disallowance of Prior Period Expenses:
The AO disallowed Rs. 13,43,097/- as prior period expenses. The Tribunal upheld the disallowance, agreeing with the AO's reasoning.

13. Additional Disallowances and Additions by the AO:
The AO made further additions totaling Rs. 20,68,28,820/-. The Tribunal provided partial relief, deleting certain disallowances and upholding others based on detailed examination of each issue.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, restoring the trust's registration under Section 12A and allowing various expenses and exemptions under Section 11. The appeal filed by the revenue was dismissed.