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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 ..... l, we are reproducing the grounds raised by the assessee in it's appeal for A.Y. 2007-08 as under :- "1. That the learned Assessing officer and the Commissioner of Income Tax (Appeals) has erred in law and on facts in denying exemption u/s 11 & 12 of the Income-tax Act, 1961. 2. That the learned Assessing officer and the Commissioner of Income Tax (Appeals) has erred in law and on facts in referring the matter to the Valuation Officer for determining the cost of construction of building and adopting the same without disposing the appellant's objection so raised. 3. That the learned Assessing Officer and the Commissioner of Income Tax (Appeals) 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.11) "Surplus as per income & expenditure account Rs.1,13,52,755/- ` Add: donation received as per Balance Sheet Rs. 48,74,000/- Total Rs.1,62,26,755/-" 6. The CIT(A) has confirmed the order of the Assessing Officer following his order for A.Y. 2005-06. The relevant finding of CIT(A) is reproduced as under :- (Page nos.22 23 & 24) "5.1 The, issue this year is same as that in the earlier year, i.e., A.Y. 2005-06. The assessee's submission is also same for both the years. So, the findings in this year are linked to the findings in A.Y. 2005-06; wherein similar issue for difference in valuation in property and invocation of Section 13 was 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 credenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , EVEN DURING APPEAL. The moot point is that even if some adjustments, here and there, are allowed; a glaring gap remains between the value of consideration, as declared by the assessee vis-à-vis that estimated by the DVO, even after giving some margins for rates adopted, or supervision etc. So, the AO was correct in detecting and establishing that this case is a glaring example of present day syndrom of trustees siphoning off the fund by inflating/overinvocing the cost of construction. 5.5 The AO is absolutely justified, also in holding that since all the expenditure was under the control of managing trustee Sri. Vipin Varshney, it can be concluded that he benefited from such siphoning off of trust fund, and, so there was a clear violation of provision of Section 13, to penalize such cases of 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.T. has decided the issue in favour of the assessee in the case of ITO v. Virendra Singh Memorial Shiksha Samiti [2010] 35 SOT 1 (URO). 11. The ld. Departmental Representative, on the other hand, relied upon the order of CIT(A) and submitted that the relevant provisions clearly cover the cases where income or property deemed to have been benefitted. Therefore, the CIT(A) and A.O. both have rightly taken a view that the Managing Trustee has deemed to be benefited by inflating cost of construction. As regards reference to D.V.O., the ld. Departmental Representative submitted that the assessee did not produce the books of account as in A.Y. 2006-07 it was stated that the books of account had been lost. He submitted that in the absence of books of account the A.O. has rightly taken the difference estimated by the D.V.O. in his report. 12. We have heard the ld. Representatives 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or any property of the trust or 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-section (3): Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) insofar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Explanation. - Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business.] [Explanation.- For the purposes of sub-clause (ii) of clause (c), in determining whether any part of the income or any property of any trust or institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of July, 1972, no regard shall be had to the amendments made to this section by section 7 [other than sub-clause (ii) of clause (a) thereof] of the Finance Act, 1972.] (2) Without prejudice to the generality of the [provisions of clause (c) and clause (d)] of subsection (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amely :- (a) the author of the trust or the founder of the institution; [(b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution upto the end of the relevant previous year exceeds [fifty thousand] rupees ;] (c) where such author, founder or person is a Hindu undivided family, a member of the family; [(cc) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, [member, trustee or manager] as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), [(c), (cc)] and (d) has substantial interest. (4) Notwithstanding anything contained in clause (c) of sub-section (1)[but without prejudice to the provisions contained in clause (d) of that sub- section, in a case where] the aggregate of the funds of the trust or institution invested in a concern in which any person referred to in sub-section (3) has a substantial intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.]. [Explanation 1.- For the purposes of sections 11, 12, 12A and this section, "trust" includes any other legal obligation and for the purposes of this section "relative", in relation to an individual, means- (i) spouse of the individual ; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual ; (iv) any lineal ascendant or descendant of the individual ; (v) any lineal ascendant or descendant of the spouse of the individual; (vi) spouse of a person referred to in sub-clause (ii), sub-clause (iii), sub-clause (iv)or sub-clause (v); (vii) any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.] Explanation 2.- A trust or institution created or established for the benefit of Scheduled Castes, Backward Classes, Scheduled Tribes or women and children shall not be deemed to be a trust or institution created or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the insertion of sub-section (4A) in section 11 this clause became redundant and was omitted and effect from the asst. yr. 1984-85; (c) (i) where the trust/institution is established after 1st April, 1962, any part of its income ensures for the benefit of specified persons [s. 13(1) (c) (i)]; (ii) if any party of the income or property of the trust/institution is used or applied directly or indirectly for the benefit of specified persons subject to the two provisos given under the sub-cl. (c) and also subject to the Explanation given under sub-cl. (d) [s.13(1)(c)(ii)]; Both these sub-clauses are also subject to sub-section (4) of section 13. (d) when the investment pattern of the trust/institution is not in accordance with that prescribed in section 11(5) or such pattern is in investments of the category prohibited in the sub cl. (d) of section 13(1), subject to the proviso to the same sub-cl. (d) read along with Explanation thereto of section 13. [Section 13(1)(d)]. Sub-section (2) of section 13 specifies certain situations whereunder the property o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred. That having not been done, he could not have disputed the genuineness of the expenditures. There was absolutely no material before the Assessing Officer to show that the Managing Trustee Shri Vipin Varshney in fact inflating the construction cost for his benefits. The Revenue has failed to bring on record any evidence in the form of Bill, Voucher or other records proving that the amount of purchase which has accounted for in the construction cost and money has been taken by the Managing Trustee or the goods purchased was used by the Managing Trustee for his personal benefit. There is no evidence that the income of the society was used or applied directly or indirectly for the benefit of Managing Trustee. It is not the case of the Revenue that the Managing Trustee benefited directly or indirectly as listed/provided in sub-section (2) of section 13 of the Act. The term 'benefit' exclude from its ambit a two way process. If the person in the prohibited category renders services and in lieu thereof a benefit is provided then the case does not fall in clause (ii) of section 13(1)(c) of the Act. The expenditure incurred on those interested persons would be a compensation for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves out an exception to the general exemption granted under sections 11 & 12 of the Act to income derived by trusts/charitable institutions. The onus lies on the Revenue to bring on record, cogent material/evidence to establish that the trust/charitable institution is hit by the provisions of section 13 of the Act. As discussed above, the A.O. has completely failed to bring any sort of evidence or material based on which it can be said that the Managing Trustee Shri Vipin Varshney benefited directly or indirectly to invoke section 13 of the Act. The Revenue failed to discharge burden in this regard. Therefore, under the circumstances and in absence of the material, the view of Revenue authorities cannot be up held. The Revenue is of the view that as per the provisions of section 13(1)(c)(ii) of the Act 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; (3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or re-assessment: Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A. Explanation. - In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]" 20. On reading of above sub-section (1) of section 142A we notice that a 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 section 69 to 69B or fair market value of any property provided in the section. As per section 69 if the investment was not recorded in the books of account and under section 69B under the circumstances where the A.O. was o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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