9911796707
TMI Blog2013 (2) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... O 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 make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 and 12. The Legislature, in its own wisdom, has taken special care for introducing section 13 to punish persons, who enjoy this special status so that in case there are certain violations of provisions, which are enumerated in section 13, the assessee will not be entitled to the benefit of sections 11 to 12. The assessee, therefore, has to adhere strictly to the scheme of the Act relating to the assessment of the Trust and any deviation made has to be viewed very seriously. The AO noted that the assessee, in the instant case, is a habitual offender and is freely committing acts which are specifically mentioned under section 13. Therefore, even otherwise, assessee's income has to be computed without applying the provisions of sections 11 and 12 as the case of the assessee is hit by section 13. The AO discussed the violation of provisions of section 13 which are as under: I. EXPENSES INCURRED OTHER THAN FOR THE OBJECTS OF THE TRUST: 3.1 On perusal of annexure XII at page no. 96 of the audit report under section 142(2A), the AO noticed that expenses incurred not on the objects of the Trust to the extent of Rs.52,40,819/- were debited by the assessee to the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report that besides the advertisement and donation expenses expenses are also made with regard to payments to Mahendra Holidays for the trustees. The AO further noted that assessee has incurred the following expenses through credit card : Year Date Head of expenditure Amount Rs. Remark 2005-06 19-05-2005 Office miscellaneous expenses 9000.00 Credit card expenses 3.3 The AO came to the conclusion that these expenses are incurred for the personal benefit of the trustees and are not in any way connected with the objects of the Trust. Further, the expenses not incurred on the objects of the Trust as per annexure XII of the audit report also contain bank interest on the money used by D Y Patil Education Society. According to the AO it cannot be considered to be incurred for the objects of the Trust. Therefore, he disallowed the expenses to the tune of Rs.52,40,819/- incurred not on the objects of the Trust as per annexure XII of the audit report. 3.4 The AO further noted that without prejudice to the cancellation of registration under section 12AA(3) of the Income-tax Act, 1961, vide CIT(C) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to question no. 5 it was specifically stated by him that flat no. G1 and G2 was exclusively used by Shri D Y Patil whenever he comes to Pune. He extracted the English translation of the relevant portion of the statement which is as under: Q.5 Who lives in flat no. G1, G2 and F8? Ans. In F8 the care taker, driver, cleaner and guest live whereas, in G1 and G2, Shri D Y Patil, who comes once or twice in a month lives. 3.7 The AO therefore came to the conclusion that the contention of the assessee that flat no. G1, G2 and F8 are used for the guests is not tenable and, therefore, rejected the same and concluded that these flats are used for the personal benefit of the trustee, Shri D Y Patil and not for the objects of the Trust. 3.8 The AO requested the assessee to furnish details of maintenance expenses of these flats including salary to the servants. As per the assessee, the maintenance charges of the flats are Rs.1,59,676/- for the year under consideration. He therefore made addition of Rs.1,59,676/- to the total income of the assessee being the expenses not spent for the objects of the Trust. Without prejudice to the cancellation of registration und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Shri Rajshree Kakade, who has been paid Rs.3,25,000/- during the year, assessee has stated that she has played major role in setting of IACST (C-DAC) centre in Kolhapur. However, how she has played that role and what were the duties basically assigned to her has not been mentioned at all. After financial year 2002-03 he started working for the Trust. It all shows that the payments are made to the trustees as per their needs and their sweet will and are for their personal benefits. iii) Assessee has purposely kept mum on the telephone charges on the payments made to the trustees and their relatives by the Kolhapur Division. iv) Even the Auditor in its under section 142(2A) has marked the payments in Annexure IX as "Expenditure incurred for the benefit of the persons specified under section 13(1)(3)". This shows that even the Auditor is satisfied that payments are for the personal benefits of the trustees and their relatives. 3.10. The AO therefore came to the conclusion that the payments are being made to the trustees and their relatives arbitrarily, payments have no authorization and are totally unreasonable and excessive and for the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. How it was used, why it was used and what purpose did it serve, is known only to the assessee. He therefore came to the conclusion that the Mercedes car has been used for personal purposes of the trustees and not for the purpose of the Trust. Besides disallowing the depreciation on the car which comes to Rs.2,13,259/- the AO disallowed the expenditure and held that this is a serious violation of section 13(1)(c). V. DONATIONS RECEIVED FOR ADMISSIONS : 3.13 The AO noted that during the course of search, certain documents were seized, which showed that assessee was in a habit of collecting donations for the admission to various courses. He referred to the assessment order for assessment year 2005-06, where it has been discussed in detail as to how concrete evidences of receiving donations by the assessee were found during the course of search at the premises of Shri R S Yadav, who is one of the brokers through whom admissions to various institutions were made. It has been discussed in the said order as to how this money which has been received as donation is being siphoned off by the trustees and their relatives for their personal benefits. He therefore came to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act, 1961 or its registration is valid. He observed that since the registration under section 12 A is withdrawn in the case of the assessee and since even otherwise also the assessee is not eligible for benefits of sections 11 and 12 as the case of the assessee is hit by section 13, therefore, there is no question of treating the donation receipts as exempt. According to the AO, the computation of income considering the provisions of sections 11 and 12 can give the benefits of exemption of corpus donation or application of income for the objects of the Trust. However, once the benefit of section 12A is withdrawn, income has to be computed by applying normal accounting principles and normal provisions of the Income-tax Act and what assessee has stated has no meaning. He observed that the various decisions cited by the assessee would have been relevant had the Trust been assessed with exemption under section 12A. Since the assessee Trust is not so assessed, therefore, he held that the decisions cited are not relevant at this juncture. Accordingly the AO by applying the normal accounting principles and provisions of the Income-tax Act, 1961 treated all these receipts in the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settled law, has decided whether the expenditure is capital or not. Further, during assessment proceedings also, assessee could furnish no evidence, as such, as to why certain expenditures, which have been treated by the auditors as capital expenditure, should be treated as revenue expenditure. Therefore, assessee's contention in this regard is rejected. However, for assessment year 2005-06, assessee's contention that certain amounts were already transferred in the books of accounts to capital expenditure, is acceptable and accordingly appropriate changes in the depreciation allowable under the Act is made for assessment year 2005-06. Therefore, in view of the above discussion, capital expenditure of Rs.95,49,642/- debited to the profit and loss account of the assessee is hereby disallowed and added back to the assessee's income for the year under consideration. VIII. PAYMENT OF PROVIDENT FUND : 3.17 The AO noted from annexure IV at page no. 54 of the audit report under section 142(2A) that payment of Employees' Provident Fund not paid within the due date to the extent of Rs.21,55,881/- were debited by the assessee to the profit and loss account. Similarly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o way, payment of penalty/ fine can be considered as for the objects of the Trust and, therefore, cannot be allowed even then also. The AO accordingly added back the penalty/fine paid amounting to Rs.1,24,860/ - to the total income of the assessee. X. PRIOR PERIOD EXPENSES : 3.20 The AO noted from annexure VII at page no. 68 of the audit report under section 142(2A) that prior period expenses to the extent of Rs.13,43,097/- were debited by the assessee in the profit and loss account. The AO asked the assessee to explain as to why the same should not be disallowed and added back to its income for the year under consideration. In response to the same the assessee replied as under : These are all the payments for the bills pertaining to the last two months of the earlier financial year and which have been received in the current financial year. Hence, they are not prior period expenses in true sense of the term. As the bills are received during the year, the corresponding liabilities have arisen in this year. Although we submit that, the items treated in the Audit Report as prior period items, in law, are not prior period item as the bills of most of the items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that assessee s own funds are much more than the funds advanced to sister concern. He also deleted an amount of Rs. 38,37,221/- being remuneration paid to relatives of the trustees by holding that nothing has been brought on record by the AO to show that market value of the services/jobs was less than the payments made to them. The learned CIT(A) further allowed development fee of Rs.5,37,83,688/- as capital receipt and deleted the addition of Rs.1,59,676/- being maintenance of flat at Gulmohar Society by holding that the assessee trust has not violated the provisions of section 13(1)(c) of the I.T. Act. He also deleted the addition made by the AO being delayed deposit of employees contribution to PF. However, he confirmed the rest of the additions made by the AO and held that the Assessee Trust is not entitled to exemption u/s.11 since it has violated provisions of section 11 to 13 of the I.T. Act. 6. Aggrieved with such part relief by the CIT(A) the assessee as well as the revenue are in appeal before us by taking the following grounds : Grounds by Assessee : 1. The learned CIT(A) erred in not appreciating that the asst. u/s.143(3) passed by the learned AO was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of the trust and there was no evidence that the said car was being used for the benefit of the trustees and hence, the appellant has not violated the provisions of section 13(1)(c). 6. The learned CIT(A) further erred in holding that the following expenses were not allowable as a deduction while computing the income of the appellant because the appellant had violated the provisions of section 13(1)(c) : Sr.No. Particulars Amount (Rs.) 1 Advertisement expenses 10,33,402.00 2 Expenditure on Mercedez Car 2,13,259.00 6.1 The learned CIT(A) failed to appreciate that the above expenses were incurred for the objects of the trust and hence, the same ought to have been allowed while computing the income of the appellant. 7. The learned CIT(A) erred in holding that part of the development fee amounting to Rs. 57,44,467/- collected by the appellant from the students as per the circulars issued by the Govt. was a revenue receipt chargeable to tax. 7.1 The learned CIT(A) failed to appreciate that the entire development fee collected by the assessee from the students as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of sec. 13(1)(d) of the IT. Act, 1961. (ii) Without prejudice, CIT(A) erred in not appreciating the fact that D.Y. Patil Education Society is an interested person as per section 13(3) of the Act and therefore, advancing interest free loan of Rs.11,42,81,113/- by the assessee to D.Y. Patil Education Society is violation of provisions of sec. 13(1)(c) of the I.T. Act, 1961. (iii) CIT(A) erred in not appreciating the fact that even in case wrong provision is invoked, mentioning wrong section, ie. Section 13(1)(d) instead of 13(1)(c), is not fatal and it is merely a procedural lapse as held by many judicial authorities including Hon ble Madras High Court in the case of R.P Kundaswamy Others Vs. CIT (49 ITR 344). 02 Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing 50% of the advertisement expenses as expenditure towards objects of the Trust, when the expenses were infact for the image building of the founder Trustee and not for the objects of the Trust, thus squarely in violation of provisions of section 13(1)(c). 03. (i) Whether on the facts and in the circumstances of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the income chargeable to tax. 07. (i) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in holding that employees contribution which was not deposited within due date under that Act is allowable as expenditure when the same was rightly disallowed by the Assessing Officer. (ii) Whether the decision of Ld. CIT(A) ignoring the clear distinction between employee s contribution to ESI, PF and Pension Fund and employer s contribution is bad in law? (iii) Whether the decision of Ld. CIT(A) ignoring the provisions of section 2(24)(x) r.w.s. 36(1)(va) as per which employee s contribution to ESI, PF and Pension Fund is deductible only if payment is made before the due date as prescribed in the respective Act, Rule, Order or Notification governing such funds is erroneous and contrary to provisions of Income tax Act, 1961? (iv) Whether the decision of ITAT ignoring the fact that the amendment to section 43B is applicable only to employer s contribution and not to employee s contribution is bad in law? (v) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore the assessee has violated provisions of sections of section 13(1)(c). He submitted that in appeal the CIT(A) held that although the advertisements have resulted in some amount of image building of the trustees the same too certainly resulted in image building of the various institutions run by the trustees which is evident from the space occupied by the names, highlights and achievement of the various institutions in the advertisements. He accordingly gave 50% relief. The learned counsel for the assessee submitted that the advertisement expenses were incurred for the purpose of image building of the trust by highlighting the achievements of the various institutions run by the trust. Referring to some of the sample copies of advertisements issued by the trust placed at Paper Book Page Nos. 238 to 242 he submitted that these were incurred for the purpose of image building of the trust by highlighting the achievements of the various institutes run by the trust. He submitted that the advertisements issued on the occasion of birthdays of the trustees was just incidental but the main purpose was to advertise the various institutes run by the trust. Therefore, it did not result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, there is no personal benefit to the trustees. 13. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case the AO disallowed the entire amount of advertisement expenses on the ground that such expenses incurred on the occasion of birthdays of the trustees benefitted the image building of the trustees and not of the trust. The learned CIT(A) restricted such disallowance to 50% of the expenses on the ground that such advertisement expenses have resulted in some amount of image building of the trustees as well as image building of the various institutes run by the assessee trust. It is the submission of the learned counsel for the assessee that advertisement expenses were incurred for the purpose of image building of the trust by highlighting the achievements of the various institutes and that such expenses were allowed in the past. We find some force in the above arguments made by the learned counsel for the assessee. There is no dispute to the fact that advertisements were publis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of expenditure on Mercedez car by holding the same to be in violation of section 13(1)(c) of the I.T. Act. 15. The learned counsel for the assessee submitted that the assessee trust had acquired the Mercedez car for the purpose of the trust and incurred expenditure on repairs and has debited such expenses and depreciation to the Income and Expenditure account. He submitted that various VIP guests keep visiting the trust and therefore the assessee had purchased the Mercedez car. He submitted that the AO has simply rejected the claim of the assessee without any contrary evidence and therefore he has not discharged the burden cast on him u/s.13 of the I.T. Act. He submitted that the gross receipts of the assessee trust for the impugned assessment year was more than 75 crores and the assessee Trust is one of the leading educational institution in the country. Therefore, by purchasing the Mercedez car for the use of the VVIP guests such as the President and the Prime Minister of India, the Chief Minister and the Governor of the State, Judges of the Supreme Court and various High Courts cannot result into any violation of provisions of section 13(1)(c) of the I.T. Act. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case the AO disallowed the expenditure incurred on the Mercedez car and depreciation there on holding the same to be personal benefit to the trustees and therefore there is violation of provisions of section 13(1)(c) of the I.T. Act. The learned CIT(A) upheld the above proposition of the AO. It is the submission of the learned counsel for the assessee that the car is being used for the VVIP guests and that similar expenditure has been allowed in the past by the AO. We find from the copy of the assessment order for A.Y. 2001-02 that no such disallowance has been made by the AO on account of expenditure and depreciation on the Mercedez car which was purchased during F.Y. 2000-01 relevant to A.Y. 2001-02. We find merit in the submission of the learned counsel for the assessee that only because of the brand name of the Mercedez car the AO has problem whereas he has no problem on account of expenditure incurred by the assessee for various other cars owned by the trust. In our opinion, when the AO has allowed the expenditure on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that D.Y.Patil Education Society is a charitable trust which is also engaged in Educational activity. Since the above trust was in need of funds the assessee trust had given interest free loan to the said trust. Referring to the provisions of section 11(5) he submitted that it provides various modes of investing or depositing of money. He submitted that the loan given by the assessee trust to D.Y.Patil Education society is neither an investment nor a deposit, therefore, granting of such loan is outside the purview of section 11(5). Further the loan given was in order to promote the charitable objects of the trust and therefore it was not in the nature of an investment but an application of money. For the above proposition the learned counsel for the assessee relied on the following decisions : i. National Engg. Coordination Committee vs. ACIT 43 ITD 612 (Pune) ii. DIT Vs. ACME Educational Society 326 ITR 146 (Delhi High Court) iii. Kanpur Subhash Shiksha Samiti Vs. DCIT 11 ITR 23 (Lucknow) iv. Alarippu 244 ITR 358 (Delhi High Court) v. Sarladevi Sarabhai Trust 172 ITR 698 (Gujarat High Court) He accordingly submitted that the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 244 ITR 358. In the judgment in 244 ITR 358 Hon ble Delhi High Court pointed out that the words Investment , Deposit and Loan have different meaning. Relevant portion of the judgment is reproduced below:- The expressions used in both the provisions quoted above, are investment and 'deposit'. The former expression means to layout money in business with a view to obtain an income or profit. Deposit, on the other hand, means that which is placed anywhere, as in any one's hands for safe-keeping, something entrusted to the care of another. These two expressions have been used in a cognate sense and have to be understood as such. In order to constitute an investment the amount laid down should be capable of any result of any income, return or profit to the investor and in every case of investment, the intention and positive act on the part of the investor should be to earn such income, returns, profit in order to constitute an investment, the monies shall be laid out in such a manner as to acquire some species of property which would bring in an income to the investor. A loan, on the other hand, is granting temporary use of money, or temporary accommodation. The words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 13(1)(d) by the appellant by giving loan to D.Y. Patil Education Society. The point raised by the AO in respect of loan given by the appellant to D.Y. Patil Education Society vide letter dt.6/10/2008 is treated as decided accordingly. 22. We find the Hon ble Delhi High Court in the case of DIT Vs. ACME Educational Society reported in 326 ITR 146 has observed as under : 10. Having heard both the parties at length, we are of the view that the issue that arises for consideration in the present case is whether advancing of an interest-free temporary loan by one society to another society having similar objects is an "investment" or a "deposit" and whether the assessee-society had violated the provisions of s. 13(1)(d)r/w s. 11(5) of Act, 1961 ? 11. Secs. 11(5) and 13(1)(d) of the Act, 1961 are reproduced hereinbelow : "1 1. Income from property held for charitable or religious purposes ........ .. (5) The forms and modes of investing or depositing the money referred to in cl. (b) of subs. (2) shall be the following, namely : (i) investment in savings certificates as defined in cl. (c) of s. 2 of the Government Savings Certificates Act, 1959 (46 of 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing longterm finance for construction or purchase of houses in India for residential purposes and which is (eligible for deduction wider) cl. (viii) of sub-s. (1) of s. 36; (ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing longterm finance for urban infrastructure in India. Explanation : For the purposes of this clause,- (a) long-term finance means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; (b) public company shall have the meaning assigned to it in s. 3 of the Companies Act, 1956 (1 of 1956); (c) urban infrastructure means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport; (x) investment in immovable property. Explanation : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd deposit does not cover transaction of loan which can be more appropriately described as directed bailment. The essence of deposit is that there must be a liability to return it to the party by whom or on whose behalf has been made on fulfilment of certain conditions. In the commercial sense, the term is used to indicate the aforesaid transaction as deposit of money for employment, in business, deposits for value to initiate security for deposit of title deeds, similar documents as security for loan, deposit of money bills in a bank in the ordinary course of business of current account and deposits of a sum at interest at a fixed deposit in a bank." 13. In Baidya Nath Plastic Industries (P) Ltd. Ors. vs. K.L. Anand, ITO (1998) 146 CTR (Del) 421 : (1998) 230 ITR 522 (Del) a learned Single Judge of this Court pointed out that the distinction between "loan" and "deposit" is that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement, while in the case of the latter it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he forms or modes prescribed under s. 11(5). The question that arose is, whether the money advanced to ACIL is part of the money "applied". The question of its investment under s. 11(5) will not arise. It is therefore, necessary first to see what is the amount that was "applied". Both the Asstt. CIT and the CIT and the CIT(A) have equated the word "applied" to "spend". The CIT(A) in para 32 of his order states that the amount advanced to ACIL cannot be considered as an application of the assessee s income. He states that the amounts have not gone out irretrievably and, therefore, it cannot be considered as an expenditure and hence there is no application of money. This approach of the CIT(A) regarding the application of income is erroneous and not keeping with the decided cases cited by the assessee s representative and even the Board s circular No. 100 dt. 29th Jan., 1973. If the interpretation of the CIT was correct then the Board s instructions to consider the loans, scholarships granted by the educational trusts as application of income would become erroneous and contrary to law. 62. As per the settled legal position, which has been laid down in numerous decisions, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made by the NECC were for ulterior motive. We therefore, hold that the amounts advanced to ACIL constituted monies applied by the NECC to its charitable object and activities. Further the minutes of NABARD meeting wherein the said proposal to carry out the market operations was discussed and contains considerable light on the matter which makes it clear that by establishing ACIL and by carrying on regular operations the interest of poultry industries as a whole would be correctly protected. We also agree with the assessee s submissions, which were very fairly accepted by the learned Departmental Representative, that the provisions of s. 11(5) r/w s. 13(1)(d) have no application at all whereas monies or income of the trust have already been applied to the charitable objects of the trust. Consequently, the mischief of s. 13(1)(d) is not attracted to the present case for that reason alone. It was also contended by the assessee s representative that in any event the amounts advanced by NECC to ACIL are neither investments nor deposits as these two terms signify the lending the monies for the purposes of earning income or return in some form such as by way of interest, dividends, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o does not arise. Incidentally, we may observe that the Asstt. CIT was not justified in applying the maximum marginal rate to the gross receipts. Even though exemption under s. 11 was not available, it does not mean that the income of the assessee-trust became equal to that of gross receipts. The income of the assessee in that case should have been computed in a commercial sense, i.e., after allowing all the expenses that were laid out for the purposes of activities. If the entire activity of the assessee was business income then the Asstt. CIT should have applied the maximum rate to the business income separately computed by him and not to the gross receipts. These observations are only incidental and they would arise only if there was any justification for applying the maximum rate at all. 66. For the reasons given above, we hold that the assessee was entitled to claim exemption under s. 11 for all the years under appeals. We, therefore, set aside the order of the CIT Pune under s. 263 for the asst. yrs. 1984-85 and 1985-86 and of the CIT(A) for the asst. yrs. 1984-85 to 1988-89 and those of the Asstt. CIT for the asst. yrs. 1984-85 to 1988-89. We direct the Asstt. CIT to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter hearing both the sides, we find the AO on the basis of the special audit report held that assessee trust has incurred expenditure on account of interest on loan used by Dr. D.Y. Patil Education Society which is not incurred on the objects of the trust. According to the AO the assessee had advanced funds to Dr. D.Y. Patil Education Society without charging any interest and therefore the interest paid by the assessee to the bank cannot be allowed as a deduction. In appeal the learned CIT(A) deleted such disallowance made by the AO by holding as under : 21.4 I have considered the facts of the case and the submissions of the appellant. The appellant in the course of appellate proceedings has submitted a chart giving details of the own funds and the amount advanced to Dr. D.Y. Patil Education Society. As per the chart, the appellant had own funds amounting to Rs.54.34 Crs. while the amount advanced to Dr. D.Y. Patil Education Society was Rs.11.18 Crs. In my opinion, since there is no nexus of the funds advanced with the loan funds of the appellant, the case of the appellant is covered by Hon ble Bombay H.C. decision in the case of CIT Vs. Reliance Utilities Power Ltd. [313 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the remand report that instead of disallowance of the total salary paid to all trustees and their relatives only the unreasonable payment should be disallowed. He submitted that the learned CIT(A) after considering the additional evidences produced before him and after obtaining the remand report from the AO deleted the disallowance made by the AO. He further submitted that nothing has been brought on record by the AO to prove excessiveness of the payments made to the various persons as compared to the market value of the services rendered by them and therefore the disallowance made is not justified. 34. The learned counsel for the assessee further submitted that similar payments have been made in past years by the assessee trust which was accepted by the AO and no objections were raised. For this proposition, he referred to the assessment order for A.Y. 2000-01 to 2002-03 placed at Paper Book Page Nos. 293 to 307. He submitted that although principles of resjudicata do not apply to Income Tax proceedings, however, rule of consistency would apply. For this proposition he relied on the following two decisions : i. H.A. Shah Co. Vs. CIT EPT 30 ITR 618 (Bombay) ii. Rad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, she gave very general remark in respect of Smt.Bhagyashree Patil and Smt.Rajashree Kakade to the effect that no details of duties performed by them were available. However, a careful consideration of the material available on record reveals that the AO did not bring anything on record to prove the fact that market value of the services rendered /jobs done by these persons was less than the payment made to them. As stated above, the appellant discharged its onus in respect of proving reasonableness of payment made to these persons. Under the circumstances, onus was on the AO to prove the fact that market value of these services/jobs were less than the amount paid to these persons. However, nothing to prove the fact that market value of the services rendered/jobs done by the persons specified in sec.4OA(2)(b)/13(3) was brought on record. Under the circumstances, the action of the AO in disallowing the whole amount of remuneration/consultancy charges paid to all persons specified in section 40A(2)(b)/ 13(3) of I.T. Act was not at all justified. Reliance of the AO on the report of the auditor u/s.142(2A) to prove the fact that the payments were for the personal benefit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the AO who made the assessment had expressed her opinion only about Smt.Bhagyashree Patil and Smt.Rajashree Kakade. According to him, the AO who made the assessment had categorically held that payments made to these two ladies were disproportionate and excessive as compared to the services rendered by them. As stated above, the AO has not brought on record any material to prove that market value of the services rendered/jobs done by the persons specified in sec.40A(2)(b)/13(3) was less than the payments made to them. Under the circumstances, the statement of the AO in the remand report to the effect that the AO who made the assessments has categorically proved that the payments made to Smt.Bhagyashree Patil and Smt.Kakade were disproportionate / excessive is not correct. The issue relating to authorization of payments to these persons has been discussed in the preceding paragraphs. 24.14 Under the circumstances, the AO during the course of remand proceedings did not bring any material to prove the fact that excessive / disproportionate payments were made to these persons. In fact, he is of the view that there is no specific yardstic to determine whether a payment is exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate for the services rendered. This view has been held recently by Hon ble ITAT Lucknow in the case of ITO Vs. Virendra Singh Memorial Shiksha Samiti reported in (2009) 18 DTR 502. The relevant portion of the judgment is reproduced below:- 17. In this regard, we refer to s. 13 as under "13. (I) Nothing contained in s. 11 or s. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-................ (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-s. (3) : (2) Without prejudice to the generality of the provisions of cl. (c) and cl. (d) of sub-s. (I), the income or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be said to have been given to the persons of prohibited category, if they in return do nothing but only enjoy the fruits of the trust/society and take away the funds/income of the society for their personal benefit or discharging personal obligation, but where persons of prohibited category render services to the society and in turn, get some remuneration, salary and allowances etc. as a member then provisions of sub-s. (2) would be applicable and not of sub-s. (1) and for applying the provisions of sub-s. (2) of s. 13, it has to be shown by the Revenue that amount paid to the persons of prohibited category was in excess of what may be reasonably paid for such services. In other words, the AO has to collect material to show that payment to the persons of prohibited category was unreasonable as compared to the market rates for the services rendered. In the present case, there is no material on record firstly to show that alleged inflated expenditure has gone to the persons of prohibited category, therefore, the case of the Revenue made out on the basis of s. 13(1) cannot be upheld. The question of invoking s. 13(2) in the present case also does not arise because s. 13(2) coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned CIT(A) deleting the disallowance made by the AO u/s.40(A)(2)(b) of the I.T. Act. Since the disallowance has been deleted by us, therefore, we hold that there is no violation of provisions of section 13(1)(c) of the I.T. Act. Accordingly, the grounds raised by the revenue are dismissed. 38. In Grounds of appeal No.5 the revenue has challenged the order of the CIT(A) in deleting the disallowance of Rs. 24,693/- made by the AO on account of Telephone and Mobile expenses incurred by the assessee trust. 39. After hearing both sides we find the AO has discussed this issue at Para Nos. 21 to 24 of the assessment order. According to the AO the assessee has not offered any explanation regarding the payment of Telephone and Mobile expenses of some of the trustees. The AO also referred to the report of the Special Auditor wherein it has been mentioned that such expenditure incurred is for the benefit of the persons specified u/s.13(1)(3) of the I.T. Act. The AO therefore disallowed such payments by holding that the assessee had violated the provisions of section 13(1)(c) of the Act. In appeal the learned CIT(A) deleted the addition on the ground that the assessee had duly e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of telephone expenses was not for the benefit of any trustees but were reimbursement of expenses. The relevant portion of the submission dt.30/06/2008 of the appellant, which was received in the office of the AO during assessment proceedings on 1/7/2008 is as under :- Query No. 6 : . . . . . . The Auditor s report points that apart from remuneration, items like Travelling expenses and telephone expenses incurred on the trustees. It is submitted that, both the payments are not for the benefit of any trustee but are the reimbursement of expenses, (sometimes direct payment by us) incurred by them for the purposes of the Trust. Therefore, the statement of the AO that the appellant purposely kept mum on telephone charges is not correct. The AO did not bring on record anything to controvert the statement of the appellant that the payment on account of telephone expenses was, in fact, reimbursement of expenses incurred for the purposes of trust. Therefore, I find merit in the contention of the appellant that the A.O. has simply disallowed the expenditure without pointing out any specific violation committed by the appellant trust. The appellant has also plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance only on surmises or estimate for the possible personal use of telephone by the chairman. Simply because the calls are frequent between Singapore and Trivandrum, it cannot be assumed that they are not relatable to the work of the trust. As the assessee admittedly has a centre in Trivandrum and the governing council members are staying in Singapore, it is quite possible that the directions of the governing council members were sought or that they gave instructions to their office at Trivandrum. In respect of the disallowance, of telephone expenses at the office, the CIT (A) reduced the disallowance, but confirmed a portion, again only on surmises. Considering the serious consequences that could flow, like the denial of exemption under s. 11, disallowance for personal user by trustees cannot be countenanced, unless proved. There is no such proof in respect of the disallowances in the present case. We accordingly delete the disallowance of Rs.13,475 out of telephone expenses. Accordingly, in view of the above decision, I hold that in the absence of concrete evidence brought on record by the A.O. to indicate that the assessee has given benefit to the concerned persons, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was offered to the assessee in this regard. The learned counsel for the assessee further submitted that Dr. D.Y. Patil frequently visits Pune for the work of the assessee trust and he stays at the guest house as he does not own any residence at Pune. Further, the said flats are also used as guest house of the trust for its guests including some professors until they arrange their own accommodation. He submitted that the premises are also used for the official meetings of the trust as the main office of the trust is at Pimpri which is far away from the city. All the above facts have been confirmed by the Shri P. D. Patil who is the trustee looking after the administrative matters of the assessee trust and his confirmation has been placed at Page no. 244 of the paper-book. He accordingly stated that it cannot be said that the above flats were used for the exclusive benefit of the trustee Dr. D. Y. Patil. Referring to the affidavit of Sri Sadashiv Bapu Patil (placed at Page No.243 of the Paper Book) the learned counsel for the assessee submitted that he has clarified that the said flats were also used by other guests along with its use by Dr. D.Y. Patil. 44. The learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l but also by other guests. It is the submission of the learned counsel for the assessee that the statement recorded from the caretaker Sri Sadashiv Bapu Patil was not given to the assessee and the assessee was not afforded an opportunity to cross examine Sri Sadashiv Bapu Patil. It is also the submission of the learned counsel for the assessee that affidavits of certain other professors who stayed at the guest house were furnished who have confirmed that they have stayed in the guest house. Therefore, it cannot be said that such guest house is exclusively used by Dr. D.Y. Patil. It is also the submission of the learned counsel for the assessee that no salary has been paid to Dr. D.Y. Patil and if he would have stayed in any hotel the expenditure would have been much more than the expenditure incurred on account of maintenance of the flats used as guest houses. Further there is nothing adverse in the remand report given by the AO. It is also the submission of the learned counsel for the assessee that similar expenses were allowed in the past and no disallowance was made in the preceding year. We find merit in the above submissions of the learned counsel for the assessee. From the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assts., the teamed A.O. has relied upon the statements of a few persons. In respect of A.Y. 2005-06, the learned A.O. has made an addition of Rs.50,85,000/- on the ground that the assessee had received the said amount from Shri R. S. Yadav. For giving admissions to certain students. From para. 62- 66 of the order for A.Y. 2005-06, the learned A.O. has. referred to the facts and has also relied upon the evidence found with Shri R. S. Yadav in the search proceedings conducted on him. The learned A.O. has also relied upon the order of learned CIT cancelling the registration u/s 12A. The assessee had requested the learned CIT in the context of cancellation of registration u/s 12A and also the learned A.O. during the asst. proceedings for an opportunity to cross examine Shri R. S. Yadav. The learned CIT in his order cancelling the registration has stated that no useful purpose would be served by allowing cross examination of Shri R. S Yadav to the assessee. The relevant pars has been reproduced by the learned A.O. on page 29 30 of the asst. order for A.Y. 2005-06. The A.O. following the order of CIT (C) did not grant any opportunity to cross examine Shri R. S. Yadav and made an additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d A.O. had relied upon a statement of Shri Ram Sevak Sukla while Making the addition. H.C. held that the learned A.O. ought to have given an opportunity to the assessee to cross examine Shri Sukla before making an addition. Further, Supreme Court in the case of C. Vasantlal Co. [45 IT R 206] has held that the learned A.O. can collect material to facilitate the asst. However, if he desires to use the material so collected, the assessee must be informed of the material collected and should be given an opportunity of explaining it. Similar view has been taken in the following decisions a. Banal Strips P Ltd. [99 ITD 177 (Del)] b. Asst. CIT v/s. Mahesh T Patodia [79 ITD 40 (Pune)] 5] In view of above decisions that the learned A.O. was duty bound to give an opportunity to the assessee before relying on the statements of Shri Yadav and Shri S. B. Patil. The contention of the A.O. and the CIT (C) that no useful purpose would be served by granting an opportunity to cross examination is without any merit and against the principles laid down by the Supreme Court and high Courts. 22.9 The above note was sent to the AO for his comments. He was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional evidence furnished by the appellant. 4. At Flag BB of the annexed volume, there is a list of items of evidence which according to the appellant were with the AO but were not considered, this evident from the fact that there is no mention of such evidence in the relevant portion of the assessment order. The appellant has requested that the evidence which is with the Department and which appears not to have been considered should be considered while taking a decision in appeal. Cross reference to the documents including set and page number of the paper book is given in the list at Flag BB. 5. You are requested to kindly study the above evidence and offer your comments as to whether any such evidence influences the decision taken in the assessment on the relevant issue, in any significant manner. At the same time, you may also confirm whether such evidence was on record at the time of assessment. 6. The paper books filed by the appellant in I0 volumes are enclosed It is requested that the report on the above issues may kindly be sent expeditiously. If there is any further issue you would like to bring to my notice, the same may kindly be incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the A.O. in her assessment order but even by the Commissioner of Income tax (Central) Pune, while deciding the issue in respect of registration u/s. 12 AA of the I.T.Act. It is further submitted that the right of cross-examination is not an absolute right. (Nath International sales Vs UOI AIR(Del) 295), the right of hearing does not necessarily include right of cross examination (State of J K Vs. Bakshi Gulam Mohammad AIR I 96 7 SC 122). 26. Not only that, it is humbly submitted that CIT(A)'s powers are coterminous with that of Assessing Officer. He holds a good enough jurisdictions over the issue and therefore, the CIT (A) may call these persons at his office and may afford an opportunity to the assessee subject to granting an opportunity to the A.O. to cross verify the witnesses. 22.11 The issue relating to the statement of Shri R.S. Yadav has been dealt with in the appeal order of the relevant assessment year. 22.12 As far as issue relating to the statement of Shri Sadashiv Patil, caretaker of the guest house is concerned, a careful perusal of the remand report of the AO reveals that he has relied mainly on the discussion of the AO in the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.3 of the Jammu and Kashmir Commission of Inquiry Act 1962 setting up a Commission to inquire into the wealth, acquired by the first respondent and certain specified members of his family during his period of office, the Commission was also to inquire whether in acquiring this wealth there was any abuse of his official position by the first respondent or the said relatives. The Commissioner so appointed held certain sittings between February 1965 and August 1965 in which the first respondent took part. In September 1965 he filed a writ petition before the High Court of Jammu and Kashmir and the High Court, allowing the said petition, set aside the Notification instituting the inquiry and quashed the proceedings of the Commission. The State appealed to the Supreme Court. Hon'ble Supreme Court, among other things, examined the issue relating to cross-examination of the persons who gave affidavits against first respondent. This issue was examined with reference to the relevant Act i.e. Jammu and Kashmir Commission of Inquiry Act. After examination of the issue, Hon'ble Court was of the view that right of cross-examination must depend upon circumstances of each case and also on the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng inquired into should be given a hearing. Bakshi Ghulam Mohammad was certainly given that It was said that the right to the hearing included a right to cross-examine. We are unable to agree that is so. The right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being inquired into. This Court has held in Nagendra Nath Bora v. Commissioner of Hills Division and Appeals, Assam(1) that "the rules of natural justice vary with the varying constitution of statutory bodies and the rules prescribed by the Act under which they function; and the question whether or not any rules of natural justice had been contravened, should be decided not under any preconceived notions, but in the light of the statutory rules and provisions." We have to remember that we are dealing with a statute which permits a Commission of Inquiry to be set up for fact-finding purposes. The report of the Commission has no force proportion vigorous. This aspect of the matter is important in deciding the rules of natural justice reasonably applicable in the proceedings of the Commission of Inquiry under the Act. Then we find that s. 10 to which we have e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nied having issued such test certificate. The authorities of Indian Railways black listed the supplier and its sister concern on the basis of, among others, production of the fake certificate from the alleged manufacturer. Before Delhi High Court, two sets of report of the Inspector of DLW were produced. One set was produced by the petitioner i.e. M/s. Nath International Sales. Other set was produced by the respondent i.e. Union of India represented by DLW, Indian Railways. These two sets of Inspector's report were not exactly identical. Hon'ble Delhi High Court considered these facts and was of the view that the petitioner i.e. M/s.Nath International Sales had full knowledge that the original manufacturer had been taken over by other concern and at the relevant time, neither valves of the required make (the product which was to be supplied to DLW) were the manufactured nor were marketted under the trade name which was to be supplied to DLW. On the basis of these vital pieces of evidence, namely, denial of the manufacturer concern / concern which took over the manufacturer concern and two sets of Inspector's report containing, among others, test certificate of the manufacturer, Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the caretaker to the appellant. Supreme Court in the case of Kishinchand Chellaram [125 ITR 713] has held that if any statement of a third party is to be used against the assesses, an opportunity should be given to him to cross examine the third party before any inference can be drawn from the statement. On page 720, Hon'ble Supreme Court has held that it is true that the proceedings under the Income Tax Law are not governed by strict rules of evidence and therefore, it may be said that even without calling the manager of the bank to prove this letter, it could be taken into account as evidence. But before the I.T. Authorities could rely upon it, they were bound to produce it before the appellant so that the appellant could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him . Similarly, in the case of CIT v. Eastern Commercial Enterprises [210 ITR 103 (Cal)], Hon ble H.C. held that the assessee must be given an opportunity to cross examine the witness. In this case, the AO had relied upon a statement of Shri Ram Sevak Sukla while making the addition. H.C. held that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 15 days. Sec. 133A(3)(iii) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Sec. 133A however, enables the IT authority only to record any statement of any person which may be useful, but does not authorize for taking any sworn in statement. On the other hand, we find that such a power to examine a person on oath is specifically conferred on the authorised officer only under s. 132(4) of the IT Act in the course of any search or seizure. Thus, the IT Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas s. 133A does not empower any ITO to examine any person on oath. Thus, in contra-distinction to the power under s. 133A, s. 132(4) of the IT Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement recorded under s. 133A of the IT Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any swo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant was not in the possession of the statement on the basis of which the AO was to make this addition. Under the circumstances, I am satisfied that 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. He has also stated that payment of salary to the guest house staff does not result in violation of section 13(1)(c) of I.T. Act. He has also recommended a reasonable relief on account of disallowance of guest house expenses as he accepts the fact that the appellant was maintaining a guest house. 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 Shri D.Y. Patil, trustee, exclusively. This conclusion was arrived at, substantively, on the basis of the statement of the caretaker of the guest ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are accordingly dismissed. 47. In Grounds of appeal No.7 the revenue has challenged the order of the CIT(A) in holding that Employee s Contribution which was not deposited within due date under the Act or deposited before the due date of filing of the return is an allowable expenditure. 48. After hearing both the sides, we find the AO disallowed an amount of Rs.21,55,881.50 being late payment of Employee s Provident Fund and ESI since they were not deposited before the statutory dates prescribed under the P.F and ESI Act. In appeal the 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. We find various Benches of the Tribunal are 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. We therefore find no infirmity in the order of the CIT(A) on this issue. Accordingly, the grounds raised by the revenue on this issue are dismissed. 49. So far as the other grounds by the assessee and the revenue are concerned, we find those additions/disallowances were made since benefit of deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
