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TMI Blog2013 (6) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 13(1)(c)(ii) it is deemed to benefit to the Managing Trustee as covered by the words 'directly and indirectly'. It is to note that the Revenue authorities have failed to distinguish difference between indirect benefits and presumption of benefits. Both are separate situations. Even in case of indirect benefit, there must be certain evidences, it can not be held on presumption basis that Managing Trustee was benefited by inflating construction cost. In the case under consideration, entire basis of the A.O. is on presumption and such presumption is not sustainable in law. A.O. referred the matter during the assessment proceedings to the D.V.O. under section 142A which is contrary to the law laid down in the case of Sargam Cinema v. CIT [2009 (10) TMI 569 - Supreme Court of India] wherein held that reference under section 142A cannot be made unless the books of account is not rejected. In the case under consideration AO referred the matter to DVO without rejecting books of account which is contrary to the law. Reference under section 142A can be made by the A.O. only under those circumstances for estimating the value of the investment referred in the sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has erred in law and on facts in treating that there was violation of provision of section 13(1)(c) read with section 13(3) of the Income-tax Act, 1961 without there being any nexus or material on record to substantiate the same. 4. That the learned Assessing officer and the Commissioner of Income Tax (Appeals) has erred in law and on facts in making addition of Rs.48,74,000/- on account of donations received for corpus of the society as assessee's income. 5. That the order passed by the authorities below is bad in law and against the facts of the case." 3. In one of the common grounds, i.e. ground no. 4, wherein the assessee has challenged additions of which details are given as under :- A.Y. 2007-08 Rs.48,74,000/- A.Y. 2006-07 Rs.71,69,500/- A.Y. 2008-09 Rs.9,84,762/- 4. The brief facts of the case are that the assessee society is running an educational school. During the assessment proceedings, the A.O noticed that the assessee has constructed a building. The matter was referred to the District Valuation Officer, Income Tax Department (D.V.O.) to estimate the actual investment in construction of building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as adjudicated by me as under :- " .5.1 The entire case of Assessing Officer and all the grounds of appeal of appellant revolve around denial of exemption to appellant u/s 11 12, on the ground of violation of provisions of Section 13. It is clear from the facts on record that books of accounts were never produced for verification. I agree with AO that the appellant's story of misplacement of books is too sloppy and suspicious to generate any credence. Books of accounts are treated to be not available and unreliable and rejected. 5.2 More importantly, had appellant been genuine and sincere in its approach and attitude, it should have fulfilled its premise of collecting duplicable, bills from various parties, within a month, i.e., by December, 2007 (as premise; please refer to assessment order page 14), and, even if viewed more leniently, latest by December, 2008 (time of one more year) when the assessment was finally completed!! So, viewed carefully; the appellant's long story of improper opportunity, is actually a farse; the AO is correct in pointing out that appellant never wanted to cooperate either with AO or DVO, and, naturally, had something to hide. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f financial fraud, and I find this case to be an appropriate one to be brought under the rigours of Section 13." 7. The ld. Authorised Representative submitted that there is no dispute about the fact that the assessee society is registered under section 12AA of the Act. The ld. Authorised Representative drew our attention to page no.34 of the assessee's Paper Book where a copy of registration granted under section 12AA of the Act w.e.f. 01.04.2003 dated 12.07.2004 has been placed. The ld. Authorised Representative submitted that as per the revised report of the D.V.O., the difference was also pointed out in A.Ys. 2009-10 2010-11 but in those assessment years the A.O. did no make any addition and returned figure has been accepted by the A.O. while making assessment under section 143(3) of the Act. The ld. Authorised Representative filed photocopies of Assessment Orders for the A.Ys. 2008-09 2009-10 this has been placed on record. The ld. Authorised Representative further submitted that in A.Y. 2005-06 there is a difference in cost of construction shown by the assessee and estimated by the D.V.O., but no action has been taken in this regard by the Revenue. The ld. Authorised Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tives of the parties and records perused. Some of the admitted facts of the case are that the assessee society is a registered society under section 12AA of the Act. The case of the Revenue is that the assessee has inflated construction cost of the building. The year wise differences in construction cost shown by the assessee and estimated as per D.V.O.'s report is reproduced from copy of revised report of D.V.O. filed in assessee's Paper Book as under :- (Page No.37) Financial Year COST OF CONSTRUCTION OF THE BUILDING AS Declared by the assessee (Rs.) Estimate by this office (Rs.) 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 11,34,79,803/- 11,71,00,416/- 11,91,55,538/- 49,75,649/- 19,36,420/- 25,26,136/- 72,41,350/- 91,86,343/- 1,02,88,403/- 26,12,919/- 10,40,245/- 13,57,040/- *Uptodate Expd. dt. 11.11.09 Total 5,91,73,962/- 3,17,86,300/- 13. The A.O. was of the view that the inflated amount has been siphoned by the Managing Trustee Shri Vipin Varshney. Therefore, the benefit of section 11 of the Act is not available to the assessee as the assessee has v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come or any property of the trust or institution for the benefit of any person referred to in sub-section (3) insofar as such use or application relates to any period before the 1st day of June, 1970. [(d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983, otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 ; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983 ; or [(iii) any shares in a company, other than (A) shares in a public sector company; (B) shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983:] Provided that nothing in this clause sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both ; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services ; (d) if the services of the trust or institution are made available to any person referred to in subsection (3) during the previous year without adequate remuneration or other compensation ; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern in which such person has a substantial interest. [(5)]** ** ** [(5) Notwithstanding anything contained in clause (d) of sub-section (1), where any assets being debentures issued by, or on behalf of, any company or corporation) are acquired by the trust or institution after the 28th day of February, 1983 but before the 25th day of July, 1991, the exemption under section 11 or section 12 shall not be denied in relation to any income other than the income arising to the trust or the institution from such assets, by reason only that the funds of the trust or the institution have been invested in such assets if such funds do not continue to remain so invested in such assets after the 31st day of March, 1992.] [(6)]** ** ** [(6) Notwithstanding anything contained in sub-section (1) or sub-section (2), but without prejudice to the provisions contained in sub-section (2) of section 12, in the case of a charitable or religious trust running an educational institution or a medical institution or a hospital, the exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income referred to in sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other persons referred to in sub-section (3); (ii) in the case of any other concern, if such person is entitled, or such person and one or more of the other persons referred to in sub-section (3) are entitled in the aggregate, at any time during the previous year, to not less than twenty per cent of the profits of such concern.]" 15. Section 13 makes an exception to the exemption granted under section 11 read with section 12 by way of exclusion from total income. Section 13(1) narrates the situations whereunder the benefit of exemption is not available under Section 11 read with section 12 whereas section 13(2), by way of a deeming provision, narrates certain situations under which the income or property will be deemed to have been used or applied for the benefit of specified persons so that exemption is to be denied under the provisions of section 13(1). 15.1 Briefly speaking as per section 13(1) in following cases the benefit of exemption under section 11 is barred:- (a) where the trust/institution is for private religious purposes and does not enure for the benefit of the public [s.13(1)(a)]; (b) where the trust/institution is created or established aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was a tool in the hands of HCL, where donations were being used for personal benefits. Accordingly, he denied the benefit of exemption under sections 11 and 12 of the Income Tax Act, 1961. The CIT(A) deleted the addition. The order of the CIT(A) has been confirmed by the ITAT. In the appeal filed by the Revenue before the High Court it was held that if the Assessing Officer doubted any particular donation, he could have summoned the office bearers of the organization which received that donation. That having not been done, he could not have disputed the genuineness of the donations. The court further held that there was absolutely no material before the Assessing Officer to show that the funds given to this NGOs/institution were used for personal benefit of HCL. Therefore, it cannot be said that the finding of fact recorded by the CIT(A) and Income Tax Appellate Tribunal upholding genuineness of the donation is perverse, calling for intervention by the court. It was further held that no contravention of section 13 of the Income Tax Act having been made out and the genuineness of the donations having been accepted by the Commissioner as well as by the Income Tax Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of construction shown in the books of account and estimated by the D.V.O. The A.O. has neither brought on record any evidence nor able to point out modus operandi how was the Managing Trustee directly or indirectly benefited out of the construction cost of building of the society. There is no need to mention that the registered society running educational programmes managed by Trustees. The day-to-day activities of the society are supposed to be administrated and controlled by the managing committee by holding various meetings and passing resolution etc. The building in which impugned investment stated to be made has been stated to be shown by the society in its books of account. Therefore, if any benefit is going that would be going to the society only and in those circumstances there is no violation of section 13 of the Act. The ld. Authorised Representative submitted that the building belonged to the society and not to the Managing Trustee. Any complaint lodged by the society against Managing Trustee, Shri Vipin Varshney in this regards that the cost of construction of the building has been inflated by Managing Trustee Shri Vipin Varshney for his benefit same is not on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on the basis of presumption cannot be upheld. 18. In A.Y. 2007-08 the A.O. referred the matter during the assessment proceedings to the D.V.O. under section 142A of the Act, which is contrary to the law laid down by the Apex Court in the case of Sargam Cinema v. CIT [2010] 328 ITR 513/[2011] , wherein it has been held that reference under section 142A cannot be made unless the books of account is not rejected. In the case under consideration for AY 2007-2008 the AO referred the matter to DVO without rejecting books of account which is contrary to the law laid down by the Apex Court in the case of Sargam Cinema (supra). 19. In A.Y. 2007-08 the A.O. has referred the matter to the D.V.O. under section 142A(1) of the Act. For ready reference, the relevant section 142A(1) is reproduced under :- "142A. (1) For the purposes of making an assessment or re-assessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or [section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 12 of the Act. Orders of authorities below are set aside and quashed. All additions are deleted. Benefits under section 11 and 12 are allowed. Therefore, the appeals filed by the assessee for Assessment Years 2006-07, 2007-08 2008-09 are allowed. 22. The Revenue has also filed appeal, A.Y. 2008-09, ITA No. 150/Agra/2012 23. The grounds raised by the Revenue in it's appeal are as under :- "(1) Whether under the facts and circumstances in the case the Ld. CIT(A) is correct in deleting the addition of Rs.76,91,076/- on account of capital expenditure made by AO treating the assessee in normal commercial manner, ignoring the fact that Ld. CIT (Appeals) himself denied the exemption u/s 11 12 of the Act to the assessee as per section 13C of the IT Act, 1961. (2) Appellant crave leave to amend, alter add, or modify any ground or grounds of appeal either before or at the time of hearing of case." 24. The brief facts of the case are that the A.O., while making assessment, made addition of Rs.76,91,076/- on account of capital expenditure because the A.O. has taken the basis and facts of total as per surplus shown in income and expenditure. The surplus shown in inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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