2015 (6) TMI 422 - AT - Income Tax

Exemption under S. 80G(5)(vi) refused - as per CIT(A) there is no correlation between the objects of the assessee trust and its working except construction of Gaushala, the other objects remained on paper - Held that - There is no legal provision that the assessee shall undertake all its objects, as mentioned in the trust deed, simultaneously. The first object of the assessee trust as detailed in clause (5) of the trust deed was construction of Gaushala and the CIT himself has admitted that the assessee trust has undertaken the activities with regard to the construction and maintenance of Gaushala. Thus the assessee may not undertake all of its objects as may be mentioned in the trust deed together, we are of the view that this reasoning of the learned CIT is liable to be rejected. Working of the trust was neither in accordance with the rules enumerated in the trust deed nor record has been kept - Held that - There is no legal requirement of passing of resolution by all the trustees for every occasion. The working of the trust may be undertaken by the office bearers of the trust. We are of the view that so far as the activities of the trust were in accordance with the objects of the trust and were genuinely charitable in nature, the assessee is entitled to the benefit of Section 80G of the Act. Books of account and vouchers maintained and produced were not reliable and did not disclose correct state of affairs - Held that - The assessee claim that it is factually incorrect that the final account submitted to the Department for the past many years did not disclose the correct state of affairs of the assessee is acceptable as the CIT could not point out a single entry or asset found outside the books of account of the assessee trust. We find that the CIT has pointed out some discrepancies in the accounts and the vouchers maintained and produced by the assessee. It is settled law that any discrepancy in the accounts or in the vouchers maintained by the assessee or in the application of funds of the trust could be examined by the Assessing Officer at the time of framing of the assessment. Trustees appointed because they belonged to a particular organization - Held that - We are of the view that it is the prerogative of the assessee trust to choose its trustees and the CIT could not interfere with the same and should not have exceeded his jurisdiction in commenting upon the desirability or otherwise in the appointment of the trustees. Funds were not properly utilized and all recorded purchases and expenses in the absence of vouchers seem to be incorrect, therefore, money seems to have siphoned off - Held that - There is no merit in this observation of the CIT and merely because some of the vouchers were not found complete, it could not be said that the activities of the assessee were not genuine or were not carried out in accordance with the objects of the assessee trust. It is not the case of the CIT that the assessee has undertaken some activity, which could be called not charitable in nature. Regarding the siphoning off the money, the same is a mere imagination on the part of the officer. We find that the assessee has filed a comparative chart of rates charged by M/s Jindal Mectec Private Limited for the work of constructing sheds in the assessee s Gaushala, comparing the same with the rates charged by them from others. We find that M/s Jindal Mectec Private Limited is a concern of Shri Pawan Kumar Jindal, a trustee of the assessee trust and the assessee has been able to provide the G.R. numbers along with truck numbers which have transported the material to the site of the assessee s Gaushala. The facts of this case do not suggest any siphoning off the funds for the benefit of any particular trustee or a group of trustees and, therefore, this reasoning of the learned CIT is devoid of any merit and, is accordingly rejected. The Department could not show that any one of the conditions for grant of benefit under Section 80G of the Act as detailed in the provision of Section 80G(5) read with Rule 11AA of the Income-tax Rules was not complied with or that the activities of the assessee were not genuinely charitable in nature. The CIT(Exemptions), Chandigarh (with whom jurisdiction is stated to lie) is directed to grant the benefit of Section 80G to the assessee trust and pass necessary order within fifteen days of receipt of the order of the Tribunal.- Decided in favour of assessee.

Summary

Issues Involved:
1. Refusal of approval for exemption under Section 80G(5)(vi) of the Income Tax Act, 1961.
2. Validity of the reasons given by the Commissioner of Income Tax (CIT) for rejecting the exemption.
3. Compliance with conditions for approval under Section 80G(5) of the Income Tax Act, 1961.
4. Opportunity to produce valuation report and cross-examine witnesses.
5. Utilization of funds and maintenance of books of accounts.

Detailed Analysis:

1. Refusal of Approval for Exemption under Section 80G(5)(vi):
The assessee's appeal was directed against the CIT, Hisar's order rejecting the application for the benefit of Section 80G of the Income-tax Act, 1961. The grounds of appeal included claims that the rejection was arbitrary, erroneous, unwarranted, and illegal.

2. Validity of Reasons Given by CIT for Rejecting the Exemption:
- Correlation Between Objects and Working: The CIT argued there was no correlation between the trust's objects and its activities, except for constructing a Gaushala. The Tribunal found this reasoning unsustainable, noting that the primary object was to serve cows, and it was not necessary for the trust to undertake all its objects simultaneously.

- Working in Accordance with Trust Deed: The CIT claimed the trust's working was not in accordance with its rules and records. The Tribunal held that day-to-day operations could be managed by office bearers and did not require resolutions for every action.

- Reliability of Books of Account and Vouchers: The CIT questioned the reliability of the books and vouchers. The Tribunal noted that discrepancies could be examined during assessment and cited multiple court decisions supporting this view.

- Appointment of Trustees: The CIT objected to trustees being appointed from a particular organization. The Tribunal stated it was the trust's prerogative to choose its trustees and the CIT should not interfere.

- Utilization of Funds: The CIT argued that funds were not properly utilized and expenses seemed incorrect. The Tribunal found no merit in this observation, noting that the trust provided a comparative chart showing favorable rates for construction work.

3. Compliance with Conditions for Approval under Section 80G(5):
The Tribunal found that the trust's objects were clearly charitable, with no discrimination on account of religion, caste, language, etc. The trust met all conditions under Section 80G(5) read with Rule 11AA. The Tribunal emphasized that the CIT should focus on whether the activities were genuinely charitable and in accordance with the trust's objects.

4. Opportunity to Produce Valuation Report and Cross-Examine Witnesses:
The Tribunal noted that the assessee was not given an opportunity to cross-examine M/s Bhim Sain Suresh Kumar, whose vouchers were questioned by the CIT. The Tribunal held that the assessee should have been given this opportunity, adhering to principles of natural justice.

5. Utilization of Funds and Maintenance of Books of Accounts:
The Tribunal found that the CIT's objections regarding the utilization of funds and maintenance of books were not substantiated. The trust provided evidence of favorable rates and discounts for construction work, and the CIT could not point out any assets or entries outside the books of account.

Conclusion:
The Tribunal concluded that the assessee trust complied with all conditions for the grant of exemption under Section 80G. The CIT's reasons for rejection were found to be without merit. The Tribunal directed the CIT(Exemptions), Chandigarh, to grant the benefit of Section 80G to the assessee trust within fifteen days of receiving the Tribunal's order. The appeal of the assessee was allowed, with the Tribunal making it clear that any discrepancies in expenses could be addressed during the assessment.