2016 (11) TMI 251 - AT - Income Tax

Addition made on account of full value consideration enhanced by AO on sale of building on estimate basis - estimation is on the basis of the interim report of the Assistant District Valuation Officer - assessee trust - Held that - The value of the consideration declared by the assessee as full value consideration received in accrued cannot be substituted by the value estimated by the DVO. The assessee has submitted necessary evidence in the form of confirmation from the buyer as well as confirmation from the authorities of the assessee club. We also observed that no other material or evidence was found from the assessee, which could lead to prove that value received by the assessee was higher than what is declared in the return of income. Thus we delete the addition made by the Assessing Officer and sustained by the learned Commissioner of Income-tax (Appeals) on the issue in dispute. - Decided in favour of assessee Denial of exemption under section 11 - AO assessing the assessee club as AOP - AO has withdrawn the exemption on the ground that the assessee has sold the flat for the benefit of person referred to in subsection 3 of Section 13 and thus violated the provisions of section 13 - Held that - Though the property was purchased by the assessee, but it could not be registered in the name of the assessee and the seller gave a power-of-attorney in the name of Sh. Surender Sharma. Moreover, the Government of Delhi also refused to transfer the property in the name of the assessee, because, the property was restricted for specific use of factory and not for the office. In view of the restriction on the use of the property and lack of title in the favour of the assessee, the assessee was compelled to transfer the property to Sh. Surender Sharma in absence of any buyer as stated by Sh. Dinesh Chand Gupta, President of the club at the time of assessment proceeding. In his statement recorded on 18/02/2005 under section 131 of the Act, he stated the facts and circumstances under which the property was sold to Sh. Surender Sharma and justified that the property was sold at market value. Relevant part of the statement has already been reproduced by the Assessing Officer in the assessment order . In view of above circumstances, we find that there is no violation of provisions of section 13(2) (f) of the Act in the case of the assessee and accordingly the benefit of exemption under section 11 of the Act cannot be withdrawn. Thus the actions of the Assessing Officer in assessing the assessee club as AOP and withdrawing of exemption are held as incorrect and not according to the law - Decided in favour of assessee Disallowance @ 20% of expenditure incurred under the head cultural and sports expenses - Held that - We find that the Assessing Officer has not pointed out any specific vouchers or bill in respect of the expenses which were not found with assessee or not produced before him and he has made disallowance purely on ad hoc manner, which is not permitted by law. Disallowance has been made in ad hoc manner without any justified reasons, therefore the disallowance made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) is deleted. See State of Orissa Versus Maharaja Shri BP Singh Deo 1969 (12) TMI 2 - SUPREME Court wherein held that even in case of best judgment, the Assessing Officer does not have an arbitrary power and the assessment must be based on some relevant material - Decided in favour of assessee Disallowance of annual general meetings and members meeting - Held that - We find that the Assessing Officer has not pointed out any specific defects either in the vouchers or bills or in books of accounts in respect of the expenses claimed by the assessee. The Assessing Officer has not also given any reasoning how the part of expenses were personal in nature. In view of above, the disallowance made by the Assessing Officer in ad-hoc manner cannot be sustained.- Decided in favour of assessee Addition on account of membership fees - Held that - The membership and subscription amounts received by the applicant-trust/society from its members cannot be characterized as voluntary contribution within the meaning of the said expression under section 12 of the Incometax Act, 1961. The entire income of the trust is exempted under section 11 of the Income-tax Act, 1961. No justification in treating the receipt of subscription amounts from the members as voluntary contribution or a donation.See Trustees Of Shri Kot Hindu Stree Mandal Versus Commissioner Of Income-Tax 1993 (9) TMI 44 - BOMBAY High Court - Decided in favour of assessee

Issues Involved:

1. Reference to the Valuation Officer without basis.
2. Adoption of property value by the Assessing Officer.
3. Denial of exemption under Section 11.
4. Assessment in the status of Association of Persons (AOP).
5. Disallowance of 20% of total expenses.
6. Treatment of income from the sale of a flat.
7. Disallowance on account of seminar and conference expenses.
8. Treatment of membership fees as income.
9. Issuance of penalty notice and charging interest.

Issue-wise Detailed Analysis:

1. Reference to the Valuation Officer without basis:
The grounds No. 1, 2, and 6 were general in nature and not required to be adjudicated upon by the Tribunal.

2. Adoption of property value by the Assessing Officer:
The Assessing Officer estimated the full value consideration of a sold property at ?13,93,400/- instead of the declared ?2,30,000/-. The Tribunal found that the value of the consideration declared by the assessee could not be substituted by the value estimated by the District Valuation Officer (DVO). The Tribunal cited the precedent that the "full value of consideration" refers to the actual consideration received or accrued, not a notional or deemed value. The addition made by the Assessing Officer was deleted.

3. Denial of exemption under Section 11:
The Assessing Officer denied the exemption under Section 11, claiming the property was sold to an interested person, violating Section 13 of the Act. The Tribunal found no evidence that the property was sold for less than adequate consideration. It was observed that the property could not be registered in the name of the assessee due to governmental restrictions, leading to its sale under compelling circumstances. The Tribunal held that there was no violation of Section 13(2)(f) and restored the exemption under Section 11.

4. Assessment in the status of Association of Persons (AOP):
The Tribunal found that the actions of the Assessing Officer in assessing the assessee club as AOP and withdrawing the exemption were incorrect and not according to the law. The grounds related to this issue were allowed.

5. Disallowance of 20% of total expenses:
The Assessing Officer disallowed 20% of the total expenses incurred under cultural and sports activities, amounting to ?3,44,614/-. The Tribunal noted that the disallowance was made in an ad-hoc manner without pointing out specific defects in the vouchers or books of accounts. The disallowance was deleted as it was arbitrary and not based on justified reasons.

6. Treatment of income from the sale of a flat:
This issue was covered under the adoption of property value by the Assessing Officer, where the Tribunal deleted the addition made based on the estimated value.

7. Disallowance on account of seminar and conference expenses:
The Assessing Officer disallowed ?75,000/- out of ?2,32,946/- claimed for annual general meetings and members' meetings, stating they were unverifiable and personal in nature. The Tribunal found no specific defects pointed out by the Assessing Officer and deleted the disallowance, following the principle that arbitrary disallowances are not permitted.

8. Treatment of membership fees as income:
The Assessing Officer added the membership fee of ?1,55,000/- to the total income after denying the exemption. The Tribunal, restoring the exemption under Section 11, cited precedents that membership fees received by a trust eligible for exemption under Section 11 cannot be treated as voluntary contributions. The addition was deleted.

9. Issuance of penalty notice and charging interest:
The ground related to penalty notice and charging interest was either premature or consequential in nature and thus not adjudicated upon by the Tribunal.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal deleting the additions and disallowances made by the Assessing Officer and restoring the exemption under Section 11. The decision was pronounced on 19th October 2016.

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