9911796707
TMI Blog2013 (2) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-2005 in the case of Dr. D.Y. Patil Group. The assessee being one of this group was covered under survey action u/s.133A of the Income Tax Act, 1961. On the basis of the documents seized/impounded during the course of search/survey and the enquiries conducted later on, it was concluded by the CIT(C), Pune vide his order dt. 30-11-2007 that activities of the Trust are neither genuine nor are being carried out in accordance with the objects of the Trust. The CIT(C), Pune therefore for the various reasons mentioned in his order cancelled the registration of the assessee u/s.12AA(3) of the Income Tax Act, 1961. 3. Without prejudice to the order of cancellation of the registration u/s.12AA(3) the AO noted that even otherwise also the 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. The AO discussed provisions of section 13 and observed that the Income-tax Act bestows special privilege on the assessee if it is a Trust, which is recognized by the provisions of the Income-tax Act under section 12A. For enjoying the privilege under section 12A, the assessee has to adhere strictly to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; C) The donations given by the trust are only to the charitable institutions. It is submitted that all these trusts are in the field of spreading aadhyatmik, philosophical and Yoga studies etc. It is from that angle, the trust has considered it proper to give donations to these trusts as the above activities also form part of educational activities. In view of above, we submit that the donations given to the various trusts are on objects of the trust. 3.2 However, the AO was not satisfied with the explanation given by the assessee. According to him as per provisions of section 37(1) for allowability of any expense, it should be incurred wholly and exclusively for the purpose of the business. He observed from the details so mentioned in annexure XII of the audit report, that advertisement expenses are incurred on the birthdays of the trustees. These advertisement expenses on birthdays of trustees are for the purpose of image building of the trustees and their personal benefit and in no way can be considered for being incurred for the objects of the Trust. The same is nowhere mentioned in the objects of the Trust Deed. As regards donation expenses, he n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as claimed by the assessee and in fact it is being used only by Dr. D Y Patil when he comes to Pune. However, the expenses are being borne by the assessee Trust. The AO therefore asked the assessee to explain as to why provisions of section 13(1)(c) should not be applied to its case and why the expenses should not be disallowed. In response, assessee vide its letter dated 05/07/2008 submitted as under: Flat no. 8 is being used by the caretakers and servants of the trust. Flat No. G-1 and G-2 are being used as a guest house for the valued guests and dignitaries. And also used by the new recruits for their temporary stay till they make their long-term arrangements. Please note that, Flat No. G-1 and G-2 have a common kitchen. The dinner set is kept in kitchen. Please note that, above flats are not utilized by Dr. D Y Patil. These flats are also used for the meeting purpose of the institutions run by our trust. So we hereby submit that these flats are exclusively used for the object of the trust. So we pray that, the provision of section 13(1)(c) should not be applied in our case. 3.6 However, the AO was not satisfied wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 13(1)(c) should not be applied to its case for the assessment year under consideration without prejudice to cancellation of registration under section l2AA(3) of the Income-tax Act, 1961. In response, assessee vide letter dated 30/06/2008 submitted the justification of remuneration/telephone charges/car charges/ electricity charges paid to the trustees and their relatives on the basis of their educational qualification and experience. However, the AO rejected the contention of the assessee for the following reasons : i) Assessee, despite being specifically asked to furnish minutes book of the meeting of the Board of Directors, has failed to furnish the same. The minutes book should have been instantly available if those have been maintained. ii) That the assessee is paying unreasonable money to the trustees and their relatives is also evident from the so called justification furnished by the assessee. For e.g. in case of Smt. Bhagyashree Patil, though she is just a B.A., she has been given high remuneration, in lacs, for the year under consideration, the payment is Rs 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 3.11 The AO noted that during the course of search it was noticed that assessee has purchased a Mercedes car by taking a loan of Rs.27 lakhs. During the course of assessment proceedings on being questioned by the AO it was stated by the assessee that the car is exclusively used for the purpose of VIP guests of the Trust and thus, expenditure is made for the objects of the Trust. The figures given by the assessee during the course of the assessment proceedings are as under: F.Y. Rs. 2000-01 69721.94 2001-02 142502.94 2002-03 163774.17 2003-04 281146.62 2004-05 254942.50 3.12 The AO specifically asked the assessee to explain as to how the above expenses incurred on maintenance of the Mercedes car are for objects of the Trust and not for the personal benefits of the trustees. He noted that the CIT(C) Pune, in his order of cancellation of registration under section l2AA(3) has remarked that mere look at the figures would show that car is not being used for the purpose of VIP guests but is being used for the personal purposes of the trustees. Further, despite being asked to give details of the personal cars owned by the trustees and the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fund or any other fund as revenue receipts in income and expenditure account. He noted that the total receipts including donations to the extent of Rs.9,25,22,312/- were required to be credited to the income and expenditure account of the assessee for the year under consideration. The AO asked the assessee to explain as to why the same should not be considered as assessee's income for the year under consideration. The assessee submitted details explaining why the same should not be treated as income. However, the AO rejected the explanation of the assessee on the ground that whether the money is received in the form of fee or in the form of donation, it is practically the same thing. Instead of crediting the same to the fee account, assessee has named it as 'development fee'. According to the AO just by changing the name of the money received, the donations cannot be treated as capital receipts and these have to be treated as revenue receipts only. He noted that Shri Sanjay D. Patil, trustee of the Trust in his statement recorded on 20/07/2005 during the course of search action has confirmed that the amounts transferred to the building funds are accepted from the students against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee vide letter dated 30/06/2008 submitted its explanation. However, the AO rejected the contention of the assessee by holding as under : "The contention of the assessee is not acceptable fully. First the assessee stated in its submission dated 08/06/2008 that as the capital expenditure should also be considered as application of income for the purpose of section 11 of the Act, therefore, all the capital expenditure debited to income and expenditure account be allowed to the assessee. In this regard, it is reiterated that registration of the assessee under section 12A has been withdrawn and so its income has to be computed by applying the normal provisions of the Income-tax Act, 1961 under Chapter IV. An analysis of section 37(1) of the Income-tax Act, 1961 shows that any expenditure not being in the nature of capital expenditure wholly and exclusively used for the purpose of business or profession shall be allowed in computing the income chargeable under the heads 'Profits and gains of business or profession'. Thus, the phraseology of section 37(1) expressively excludes the allowability of capital expenditure even though wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty/fine paid to the extent of Rs.1,24,860/- was debited by the assessee to the profit and loss account. The AO asked the assessee to explain as to why the same should not be disallowed as per provisions of section 37(1) of the Income-tax Act, 1961. In response to the same, the assessee vide letter dated 05/07/2008 submitted inter alia as under: In this context, it is submitted that we are a charitable trust and therefore, such payments should not be considered for any disallowance. We request your honour to consider that we .are entitle to the benefit under section 11 and therefore, the provisions of sub-chapter D of chapter IV as regards business income should not be made applicable to us. What is important is, whether we have applied the income for the object of the trust or in the course of activities carried out for the purposes/objects of the of the trust. So the expenditure by way of penalties/fines should please be allowed us as application of the income in view of the aforesaid discussion. 3.19 However, the AO rejected the above explanation of the assessee on the ground that assessee's registration under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e system of accounting, since mixed system of accounting is not at all recognized by the Act. He came to this conclusion on the ground that some of the expenses are provided in the books even when no payment is made for those expenditures. According to the AO once the method of accounting is decided as mercantile, assessee has to provide all the expenses either on the basis of actual bills or on estimated basis. He therefore rejected the contention of the assessee that the bills were received late and, therefore, they accrued in the year in which bills are received. According to the AO the date of bill is relevant and if the date pertains to the earlier year, then expense cannot be said to accrue in the current year. He noted that auditors have clearly specified the dates of bills of earlier year, hence, the said expenses are accrued in the prior period and, therefore, disallowable. The AO accordingly disallowed prior period expenses of Rs.13,43,097/- and added back the same to assessee's income. 4. The AO made further addition of Rs.67040.80 u/s.40A(3) of the Income Tax Act. Similarly he disallowed an amount of Rs.78,10,710.50 being revenue expenses not supported by vouchers. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad not given an opportunity of hearing to the assessee as required under proviso to section 142(2A) and consequently, the asst. order passed is barred by limitation. 2.1. The learned CIT(A) further failed to appreciate that the reference to special auditor was invalid in law and therefore, the asst. order passed was time barred. 3. The learned CIT(A) erred in holding that the appellant trust was not entitled to the exemption u/s.11 as it had violated the provisions of sections 11 to 13 and consequently, the income of the appellant was taxable under the normal provisions of the Act. 4. The learned CIT(A) ought to have granted exemption u/s.11 to the appellant trust since the registration u/s.12A was restored by Hon'ble ITAT, Pune and therefore, the appellant was entitled to claim exemption u/s.11. 5. The learned CIT(A) erred in holding that the appellant trust had violated the provisions of section 13(1)(c) on account of the following payments made by it : Sr.No. Particulars Amount (Rs.) 1 Advertisement expenses 10,33,402.00 2 Expenditure on Mercedez car 2,13,259.00 5.1 The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e received towards the corpus of the trust and hence, the same were exempt from tax. 9. The learned CIT(A) erred in disallowing revenue expenditure of Rs.37,19,654/- on the ground that the said expenses were not supported by proper evidences. 9.1 The learned CIT(A) failed to appreciate that the disallowance of such expenses was not warranted since most of the expenses were paid by cheque and incurred for the objects of the trust, 10. The learned CIT(A) erred in confirming the disallowance of depreciation on the capital expenditure of Rs.13,44,428/- on the ground that the said capital expenses were not supported by proper evidences. 10.1 The learned CIT(A) failed to appreciate that the disallowance of depreciation in respect of such capital expenses was not warranted since most of the capital expenses were paid by cheque and therefore, the depreciation ought to have been allowed. 11. The learned CIT(A) erred in confirming the following disallowances without appreciating that since the assessee was entitled to claim exemption u/s.11, such disallowances were not warranted while computin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's own funds and borrowed funds are part of common pool of funds and assessee's own funds are not in liquid form and are infact locked as investment in building, furniture, working capital etc., (ii) CIT(A) failed to appreciate the fact that had the assessee not advanced interest free loans to sister concern, there would have been no need to borrow funds from financial institutions to that extent and accordingly no need to pay interest to that extent. 04. (i) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing remuneration paid to relatives of Trustees to the tune of Rs.38,37,221/- holding that nothing has been brought on record to show that market value of the services/jobs was less than the payments made to them when the payments were squarely covered u/s.40A(2)(b). (ii) CIT(A) erred in not appreciating the fact that the accounts were subject to special audit u/s.142(2A). (iii) Without prejudice to the above, Ld. CIT(A) has erred in not exercising his plenary powers wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law the Ld. CIT(A) was justified in ignoring the decision of Special Bench of Kolkata in the case of JCIT Vs. ITC Lt., reported at 112 ITD 57. 08. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing maintenance expenses of flats at Gulmohar Society when the said flats were used exclusively by the founder of the Trust violating the provisions of Sec.13(1)(c) of the Act. 09. The Appellant prays that the order of the Ld. CIT(A) be vacated and that of the AOs order may be restored. 10. The appellant craves leave to add, alter, amend, modify any of the above grounds raised, any other grounds at the time of proceedings before the Hon'ble Tribunal which may be granted." 7. The learned counsel for the assessee did not press Grounds of appeal Nos. 1 to 2.1 for which the learned DR has no objection. Accordingly Grounds of appeal Nos. 1 to 2.1 are dismissed as not pressed. 8. Grounds of appeal Nos. 3 &4 by the assessee relates to the order of the CIT(A) in holding that assessee trust was not entitled to exemption u/s.11 since it has violated the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise the various institutes run by the trust. Therefore, it did not result into any benefit for the trustees and therefore the provisions of section 13(1)(c) were not attracted. 10.1 Referring to the copy of the asst. orders for A.Y. 2000-01 to A.Y. 2002-03 placed at Paper Book Page. Nos.293 to 307 he submitted that similar expenditure claimed by the assessee trust in the preceeding years were accepted by the department and no objections were raised. He submitted that although principles of resjudicata do not apply to Income Tax Proceedings, however, the rule of consistency prevails over the doctrine of res-judicata where the facts and circumstances of the case are identical. For this proposition, he relied on the following decisions: i. H.A. Shah & Co. Vs. CIT & EPT 30 ITR 618 (Bombay) ii. Radhasoami Satsang Vs. CIT 193 ITR 321 (SC) He accordingly submitted that the entire advertisement expenses has to be treated as incurred for the objects of the trust and it be held that the assessee has not violated the provisions of section 13(1)(c) of the Income Tax Act. 11. The learned DR on the other hand heavily relied on the order of the AO. He su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the assessee. There is no dispute to the fact that advertisements were published in various newspapers on the occasion of the birthdays of the trustees highlighting the achievements of the various institutes run by the trust. In the present day, when there are hundreds of institutions imparting education in various fields, it is very difficult for the common man to find out which is the best institution. It is only when he comes to know of the persons behind running of the educational institutions that the confidence level of the layman increases. Therefore, in our opinion, highlighting the achievements of the institutions run by the trust along with the names of the trustees on their birthday cannot be said to be image building of the trustees. Rather it indirectly helps the various institutes run by the trust in getting more number of students. Further, the submission of the learned counsel for the assessee that similar expenses were allowed in the past, therefore, no adverse view should be taken for the impugned assessment year also finds some force in it. The Hon'ble Supreme Court in the case of Radhasoami Satsang Vs. CIT reported in 193 ITR 321 has observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various High Courts cannot result into any violation of provisions of section 13(1)(c) of the I.T. Act. He submitted that the trust is not paying any salary to Dr. D.Y. Patil. Therefore, assuming but not admitting that the said car was used by Dr. D.Y. Patil who is the founder of the trust and because of whose efforts the trust has achieved tremendous success it cannot be said that providing the car to him for official purpose is a benefit to him. He submitted that the AO allowed the expenditure of various other cars owned by the trust but has simply disallowed the expenditure and depreciation on the Mercedez car on the ground that it has benefitted the Trustees u/s.13(1)(c) which has been upheld by the learned CIT(A). According to the learned counsel for the assessee for invoking the provisions of section 13(1)(c) the AO has to concretely demonstrate that the benefit has been actually conferred to the trustees. Merely because the assessee trust has not submitted the list of personal cars owned by the trustees the AO cannot hold that Mercedez car used by the trustees are for their personal benefit and is violation of provisions u/s.13(1)(c). He submitted that similar expenditure cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by the assessee for various other cars owned by the trust. In our opinion, 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 we find no justification on the part of the AO and CIT(A) to hold that there is violation of provisions of section 13(1)(c) of the I.T. Act. In this view of the matter, we set-aside the order of the CIT(A) and direct the AO to allow the expenditure claimed by the assessee and hold that there is no violation of provisions of section 13(1)(c) of the I.T. Act. 18. In Grounds of appeal No.1 the revenue has challenged the order of the CIT(A) in holding that advancing interest free loan of Rs.11,42,81,113/- by the assessee trust to D.Y. Patil Education Society, a related concern, does not attract provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w) 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 at all violated the provisions of section 13(1)(d) of the Act. 21. 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. There is no dispute to the fact that the assessee trust had advanced interest free loan of Rs.11,42,81,113/- to another charitable trust D.Y.Patil Education Society. It is the case of the revenue that by advancing such interest free loan to D.Y.Patil Education Society the assessee trust has invested the funds in modes other than those specified u/s.11(5) of the I.T. Act and therefore there was violation of provisions of section 13(1)(d) of the I.T. Act. It is the case of the assessee that it has given the interest free loan to another trust also engaged in Educational activity and that granting of such loan is outside the purview of provisions of section 11(5). It is also the submission of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investment', "deposit" and 'loan' are certainly different. Sec. 11 (5) refers to pattern 'of investment by the appellant Sec. 11(5) was introduced by the Finance Act, 1983, w.e.fi 1st April, 1983, i.e., for and from asst. yr. 1983-84. It prescribes the forms and modes of investing and depositing money referred to in s. 11(2)(b). Subsequently, new forms and modes have been added. Sec. 13(1)(d) as amended by the Finance Act, 1983, provides that the income of any charitable or religious trust or institution will not be entitled to exemption under ss. 11 and 12, it certain conditions stipulated therein are not complied with. The word 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 ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). Explanation : In this clause, 'scheduled bank' means the SBI constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under s. 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under s. 3 of the Banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce' 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 : 'Immovable property' does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth; (xi) deposits with the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964); (xii) any other form or mode of investment or deposit as may be prescribed." 12. This Court in the case of Director of IT (Exemption) vs. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 14.'A Division Bench of this Court in case of Director of IT vs. Pariwar Sewa Sansthan (2002) 254 ITR 268 (Del) has held that no question of law arises from the order of Tribunal holding that there was no violation of provision s. 13(1)(d) of Act, 1961 where loan had been given by one society to another society having similar objects. 15. Keeping in view the aforesaid exposition of law, we are of the opinion that interestfree loan of Rs. 90,50,000 given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered 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 clear that any amount which is laid out by the charitable trust or institution for achieving its charitable object constitutes an application of income to charitable purposes irrespective of whether the amount in question has been laid out irretrievably or whether the amount continued to belong to the charitable trust or the institution or it is recoverable by it. Consequently if the charitable trust lends and advances money for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations 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, rents or capital gains. In the present case, the monies have been advanced to ACIL on interest-free basis and not with the object of earning any income or return therefrom but only in order to further the basic object of NECC. Further in our opinion, the decision of the Andhra Pradesh High Court in the case of Polisetty Somasundaram Charities is of no application. In that case, it was held that the term "investment" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 compute the income of the assessee after allowing the exemption. 67. In the result, the appellant succeeds and all the appeals are allowed." 24. We find the Lucknow Bench of the Tribunal in the case of Kanpur Subhash Shiksha Samiti Vs. DCIT reported in 11 ITR 23 has observed that granting of a loan to another society with similar objects is neither an investment nor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore 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 ITR 340 (Bom.)]. In this case, Hon'ble H.C. has held that if the appellant has own funds much higher than the amount advanced to the sister concerns, the disallowance of interest is not justified. Accordingly, in view of the said decision, I hereby hold that the interest disallowed of Rs.22,91,016/- is not justified. Therefore, this ground of appeal is allowed." 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Radhasoami Satsang Vs. CIT 193 ITR 321 (SC) 35. The learned counsel for the assessee also relied on the decision of Chandigarh Bench of the Tribunal in the case of Young Scholars Educational Society vs. ITO vide ITA no. 1456/CHD/2010 wherein it has been held that the onus to prove the excessiveness of the salary/ remuneration paid to the specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 the trustees as stated in para 22(iv) is also not correct. In fact, the auditor gave a categorical statement that in the absence of relevant information excessiveness I unreasonableness of such expenses cannot be determined. This statement of the auditor has been given at Sr.No.9(a) of statement of particulars which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, 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 excessive or not. He is also of the view that arm's length payment can be made to these persons. He also pointed out that the AO made the addition saying that these are the persons classified u/s.13(3). He has further stated that there is no ban in the Income-tax Act on payment to such persons by a trust provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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 the property of the trust or institution or any part of such income or propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices and in lieu thereof a benefit is provided then the case does not fall in cl. (ii) of s. 13(1)(c). The expenditure incurred on those interested persons would be a compensation for such services. A benefit 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 person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustive order passed by the learned 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), we do not find any infirmity in the order 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments made to the trustees and their relatives. However, a closer look at the assessment proceedings reveals that the appellant during the course of assessment proceedings, itself, clarified that, among others, payment on account 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets or incurring of expenditure. Such onus has not been discharged in respect of the disallowance of the travelling expenses." 19. Similar is the position with regard to the disallowance of Rs.13,4 75/- out of telephone expenses ............ .. Again it is not the case of the Revenue that the expenditure is not vouched. They have made the impugned disallowance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the AO be upheld. 43. The learned counsel for the assessee on the other hand submitted that on the basis of the remand report obtained from the AO and the affidavit of the caretaker Sri Sadashiv Bapu Patil the learned CIT(A) has deleted the addition. He submitted that the learned CIT(A) has categorically given the finding that the statement of Sri Sadashiv Bapu Patil was recorded at the back of the assessee and no opportunity of cross examination 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the AO disallowed the maintenance expenses of flats at Gulmohar Society on the ground that those flats are exclusively used by Dr.D.Y. Patil and therefore there is violation of provisions of section 13(1)(c) of the I.T. Act. We find the learned CIT(A) had given a categorical finding that the said flats are not exclusively used by Dr. D.Y. Patil 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n at its back could not be used without giving an opportunity to crossexamine. It gave one note during appellate proceeding. In its note, it vehemently argued that certain statement recorded of certain person in the course of assessment proceeding were used to its disadvantage without giving an opportunity to it to examine the statement and exercise its right to cross-examine the person who made the statement. The relevant portion of the note is as under : 1] The learned A.O. has completed the assts. for A.Y. 2000-01 to A.Y. 2006-07. While making the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee so that the assessee 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". 4] 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 learned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 items of evidence which were not submitted before the AO at the time of assessment. The evidence is therefore in the nature of additional evidence. The list of 15 items is at Flag AA of the volume titled 'Index'. The evidence appears to be relevant in taking a decision on the issues in appeal. It is stated by the appellant that the evidence could not be produced before the AO due to non availability of documents at the time of assessment due to paucity of time and other reasons. The written submission and paper book in 10 volumes is enclosed. The additional evidence is present in different volumes. The set number and the page number of the documents are mentioned in the list at F lag AA of the annexed volume. 3.1 You are requested to kindly examine the additional evidence submitted by the appellant and submit your comments on the admissibility on the same along with reasons. You are also requested to kindly offer your comments on the additional 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Patil, caretaker of the guest house are utilized while finalizing the assessment. A copy of statement of Shri R.S.Yadav was made available to the assessee. This is evident from the assessee's own submission on Statements of Shri Yadav filed before the A.O. vide letter dated 11.07.2008. At this time the assessee has never asked for cross examination of Shri Yadav. Now the assessee cannot ask for such cross examination. The ethos underlying the Principles of natural justice make it sufficiently clear that once an adequate and reasonable notice is given, it is for the assessee to avail of that opportunity; when for no good reason, opportunity is not taken, the assessee cannot complain that principles of natural justice are violated (Vineet Enterprises v/s State of Andhra Pradesh (1996) 101 STC 426 (AP)). 25. Similarly a copy of statement of Shri Sadashiv Bapu Patil, caretaker of the Guest house is now made available to the assessee. As such direction in respect of furnishing the document to the assessee is complied. In respect of affording opportunity to cross verify the persons mentioned above it is submitted that this issue has been dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO on the observation of Hon'ble Supreme Court to the effect that right of hearing does not necessarily include right of cross-examination in the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad, (1967 AIR 122) is misplaced. The AO misunderstood, misinterpreted and misquoted this observation of the Hon'ble Supreme Court. The above observation was made by the Supreme Court with reference to the right of cross-examination of the persons who had sworn affidavit supporting allegation against petitioner under Jammu & Kashmir Commission of Inquiry Act. This observation was given by Hon'ble Court in the particular set of facts and circumstances of that case. Facts and circumstances of the appellant's case are entirely different. In fact, the ratio of judgment given by the Hon'ble Court in the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad, (1967 AIR 122) supports crossexamination of the caretaker in the appellant's case. In the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad, (supra), the first respondent became a member of the Council of Ministers of the State of Jammu and Kashmir in 1947 and was the Prime Minister of the State from 1953 to January 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed after considering facts and circumstances of the case. However, in this case, Hon'ble Supreme Court upheld that when evidence is given viva-voce against the person, he (the person against whom such evidence in the form of viva-voce has been given) must have the opportunity to hear it and to put the witness question in cross-examination. The relevant portion of the judgment is reproduced below:- The next point is as to the right of cross-examination. This claim was first based on the rules of natural justice. It was said that these rules require that Bakshi Ghulam Mohammad should have been given a right to cross-examine all those persons who had sworn affidavits supporting the allegations against him. We are not aware of any such rule of natural justice. No authority has been cited in support of it. Our attention was drawn to Meenglas Tea Estates v. Their Workmen(1), but there all that was said was that when evidence is given viva voce against a person be must have the opportunity to hear it and to put the witnesses questions in cross-examination. That is not our case. Furthermore, in Meenglas Tea Estate case(I) the Court was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.12.2 Reliance of the AO of the judgment of Hon'ble Delhi High Court in the case of Nath International Sales and Anr. Vs. Union of India and Ors.(AIR 1992 Delhi 295) is also misplaced. In this case, Hon'ble Delhi High Court relied on the decision of Supreme Court in the State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad and came to the conclusion that in the facts of that case, cross-examination was not required. Hon'ble Delhi High Court gave this decision in the particular set of facts and circumstances in that case. In fact, facts of that particular case (Nath International Sales and Anr. Vs. Union of India and Ors.) did not require opportunity of cross-examination. The case was in relation to the black listing of one of the suppliers of Diesel Locomotive Works (DLW), Indian Railways, Varanasi namely Nath International Sales and its sister concern. Black listing was done because the supplier furnished a test certificate from the manufacturer which was bogus as the manufacturer concern was not in existence. The manufacturer concern already stood taken over by some other concern who was not manufacturing the brand of the product in respect of whom the test ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust depend upon the circumstances of each case. As already observed, there is no difference in both the reports on the crucial point of filing of TRW's works test certificate, which is sufficient to support respondents action. Therefore, cross-examination in the above mentioned case was not allowed as it was not required in the facts and circumstances of the case because the petitioner was found to be pursuing its case on the basis of a certificate which, after inquiry from the relevant party, was found to be fake. Under these set of circumstances, cross-examination of the person before whom the certificate was produced, would have not served any purpose. However, in this case also, Hon'ble Court followed decision of Hon'ble Supreme Court in the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad. This case has been discussed in detail in the preceding paragraph. In fact, as stated in the preceding paragraph, the ratio of this judgment gives opportunity of cross-examination of the caretaker to the appellant. 22.13 In view of the discussion in the preceding paragraphs, I am of the considered view that the AO was not right in holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Kerala High Court in the case of Paul Mathews & Sons Vs. CIT 263 ITR 101. In this case, Hon'ble Court held that sec.133A(3)(m) 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 authorise for taking any sworn in statement. 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) 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 is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has the evidentiary value as contemplated under law. The relevant portion of the judgment is reproduced below :- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e evidentiary value. Under the circumstances, the AO's action in respect of disallowance of the guest house expenses cannot be upheld. 22.16 During the course of appellate proceedings, the appellant has submitted, among other things, affidavit of the caretaker of the guest house and affidavit of certain other persons. The affidavit of the caretaker is a clarification that the flat Nos.G1 and G2 were being used by other guests (other than Shri D.Y. Patil) also. Affidavit of Shri P.D. Patil was also in this respect as well as to add that this particular portion (flat Nos.G1 and G2) was used for official purposes also. Affidavits from other persons were in respect of their stay in the guest house. These evidences were sent to the AO for their admissibility or otherwise. The AO gave a general statement quoting provisions of Rule 46A of I.T. Rules. The AO also stated that the appellant was never restricted from submission of evidences / documents etc. On the contrary, it was given sufficient opportunity during the course of assessment proceedings, to justify its return of income by submitting necessary detail in support of its claim. However, a careful persual of mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O to cross-verify the witnesses. Intention of the AO in making this submission is not understandable. It is not the CIT(A) who recorded statement of the caretaker at the back of the appellant and used the same against it. It was the AO who conducted the inquiry and recorded statement of the caretaker at the back of the appellant and used the same against it, without disclosing details of the material gathered, without confronting them with the appellant , without giving any opportunity to the appellant for its comments/rebuttal and without giving any opportunity of cross-verification/examination in violation to the established law of the land . It is the AO who, even after a specific opportunity was given to him to give opportunity of cross-examination to the appellant during remand proceedings, did not give the same to the appellant .Under the circumstances, submission of the AO to CIT(A) to give opportunity of cross-examination to the appellant by calling the witness whose statement was used by him without giving proper opportunity of cross-examination, in violation to the law of land, in his office [in the office of CIT(A)], and granting opportunity to the AO to cross-verify the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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