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TMI Blog2014 (7) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2003 at 11.30 a.m. - The chronology and timing of the events support the case of the AO that there was no genuine process of selection/interview and it was all manipulation made by the assessee society and the scholarship was granted to Mr. Adheesh Bhagat at the sole discretion of the Vice President / President who intentionally avoided to appear before the Assessing Officer for fear of interrogation. It may be considered to be a good basis for considering the eligibility of applicant but when the application along with the enclosures cannot reach to the managing committee of the assessee society and the scholarship committee in time i.e. by 17th May, 2003 and it is not shown as to how Mr. Adheesh Bhagat was contacted for attending the interview and how he reached Kanpur for attending interview, all these material cannot justify his selection because these material cannot be available before the selection committee along with this fact that the candidate Mr. Adheesh Bhagat cannot be available for interview on 17 th May 2003 in the chronology of events discussed above - the impossibility of interview of Mr. Adheesh Bhagat by the selection committee, as claimed in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that CIT(A) has not addressed all the objections of the Assessing Officer and therefore, the order of CIT(A) should be reversed and that of the Assessing Officer should be restored. 4. As against this, Learned A.R. of the assessee supported the order of CIT(A). He also submitted that this issue is squarely covered in favour of the assessee by the Tribunal decision in assessee's own case for assessment year 2005-06 in I.T.A. No.423/Lkw/2009 dated 30/10/2009, copy of which is available on page No. 31 to 48 of the paper book. In particular, he drawn our attention to Para 12 of the Tribunal order as appearing on page No. 48 of the paper book. 5. We have considered the rival submissions, perused the material available on record and gone through the orders of the authorities below and the Tribunal decision cited by Learned A.R. of the assessee. First of all, we would like to reproduce the relevant Para No. 12 of the Tribunal decision, available on page No. 48 of the paper book, which is as under: 12. In the instant case also the facts and situations in the earlier and the year under consideration is the same and the department had accepted the claim in the earlier year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts before the Tribunal. We find that the addition was made by the Assessing Officer by making various objections as per Para 7 of the assessment order in assessment year 2004-05 and for the sake of ready reference, this Para No. 7 of the assessment order for assessment year 2004- 05 is reproduced below: 7. On perusal of submissions made by the assessee, it is noticed that :- (i) That the President or Vice President has not produced as desired. (ii) The assessee has not given criteria fixed for selection of candidates for grant of scholarship for studying in Foreign Country. (iii) The assessee has not produced original records in support of receipt of application and its processing done by the society. (iv) The copy of application of 4 candidates submitted by the assessee has not been initialed and marked to any persons for processing. (v) The application of 3 candidates other than the application of Shri Adheesh Bhagat were sent by his father and no documents whatsoever enclosed with these applications. (vi) There is no evidence whatsoever interview letters were issued to the 4 candidates who reside at distant places such as Kolkota, New Delhi, Kanpur. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency in selecting and expending funds of the society to the extent of over ₹ 66 lakhs on one candidate has been considered. (xi) In order to examine the financial status of Mr. Adheesh Bhagat and his parents, a notice u/s 133(6) dated 27.11.2007 was issued to his father Shri Ashok V. Bhagat as under :- To Shri Ashok V. Bhagat, 20, Paul Mansion, 6,Bishop Lefroy Road, Kolkotta-700020 Sub: Furnishing of information U/s 133(6) of the I.T.Act, 1961-Reg. During the course of scrutiny of the case of Seth Anandram Jaipuria Education Society, Seth Anandram Jaipuria School, 7-Cantonment, Kanpur for the assessment year 2005-06, it has come to my notice that the society has given the scholarship to your son Mr. Adheesh Bhagat who has been attending the course- Computer Science Engineering 4 years under graduate in the University of California at Los Angeles as under:- Year Amount 2003-04 14,20,643/- 2004-05 17,60,489/- 2005-06 17,66,435/- In this regard, you are required to furnish the following in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k accounts also. Thus, on perusal of the above details it is very much evident that Mr. Adheesh Bhagat and his parents belonged to a very high status of society and therefore, grant of scholarship to Adheesh Bhagat cannot be said to be made for charitable purposes. It has certainly been made for some other consideration but since the President avoided to appear in person, further probe could not be carried out. (xii) Even though the society intends to make payment of scholarship of over ₹ 66 lakhs, no advertisement or public notice were made and the 4 applications were received on the basis of their personal knowledge which shows that the whole affairs was manipulated by the management Committee. 7. In view of this, it is held that the payment of scholarship to Shri Adheesh Bhagat is not considered to have been made for charitable purposes and therefore, the amount paid for such scholarship is considered to have been made at the discretion of the Management Committee of the society for their own benefit. Therefore, the payments made to such society is disallowed and it is considered to be the income of the society for the personal benefit of its members and such amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttedly, as submitted before me also and noted in para-10(g) above, Shri Adheesh Bhagat is not related to society or its members in any manner, making him specified person . There is no suspicion on the transactions of the society also that is to say the fees has been duly paid towards the same person and directly to the educational institution in USA. There is no color in the trail of transaction. Therefore, nothing further can be interpreted to disallow the same under computation provision of Chapter-III (Section 11, 12 13 of the I.T. Act). The facts of the case show that amounts paid as scholarship have been utilised towards education of deserving candidate and same is well covered under the objective clauses of the society. If there is any shortcoming in the process of selection of deserving candidate by way of trivial procedural lapses, this in itself does not change the nature of application of income towards charitable purpose which is factually verified and accepted by AO as such. Under the circumstances, the addition made by AO is directed to be deleted and ground no. 2 of appeal is allowed. 5.5 From the above Para of the order of CIT(A), it is seen that he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sole discretion of the Vice President / President who intentionally avoided to appear before the Assessing Officer for fear of interrogation. This vital objection of the Assessing Officer is as per clause (vii) of Para 7 of the assessment order reproduced above. We have also seen that even this vital objection of the Assessing Officer has not been controverted by CIT(A) in his order in the present year or in assessment year 2005-06. Considering all these facts, we are of the considered opinion that in the facts of the present case, it cannot be said that granting of scholarship to Mr. Adheesh Bhagat was after carrying out genuine process of selection/interview. Apart from this, we also find that no material has been brought on record to show that any advertisement was made by the assessee society for inviting applications for such scholarship. In the application of Mr. Adheesh Bhagat appearing on page No. 15 of the paper book also, there is no mention as to how he came to know about the assessee society and its programme for granting scholarship for studying abroad. We also find that in the said application, it is stated by Mr. Adheesh Bhagat that he has appeared in ICSE examinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and allowed as deduction on account of capital expenditure, tantamount double deduction. 2. That the Ld. Commissioner of Income tax (Appeals)-II, Kanpur has erred in Saw and on facts in deleting the addition of ₹ 17,66,435/- made by the Assessing Officer on account of expenditure incurred on account of Scholarship paid to one Mr. Adheesh Bhagat, as it cannot be said to have been paid for charitable purposes. 3. That the order of the Ld. Commissioner of Income tax (Appeals)-II, Kanpur dated 30.03.2011 needs to be quashed and the order passed by the Assessing Officer dated 24.10.2008 be restored. 4. That the appellant craves leave to modify any of the grounds of appeal mentioned above and/or to add any fresh grounds as and when it is required to do so. 8. It was agreed by both the sides that the issue raised by the Revenue as per ground No. 2 is identical to the issue raised by Revenue in assessment year 200405 and hence, this issue can be decided on similar lines. In assessment year 2004-05, we have decided this issue in favour of the Revenue and accordingly, in this year also, ground No. 2 of the Revenue is allowed. 9. Regarding ground No. 1, Learned D.R. of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reference No. 36 of 1994 (xi) CIT vs. Bheruka Public Welfare Trust [1999] 240 ITR 513 (xii) Dy.Director of Income Tax (Exemption) vs. M/s G.K.R. Charities [2013] 32 Taxman 208 (Bombay) (xiii) Dy. Director of Income-tax-11(1), Mumbai vs. G.K.R. Charities [I.T.A. No.8210?Mum/2010] (xiv) ITO (exemption) vs. Sardar Public Charitable Trust [I.T.A. No.285 286/Ahd/2913] (xv) Director of Income-tax (Exemption) vs. Framjee Cawasjee Institute [1993] 109 CTR (Bom) 463 5. We have considered the rival submissions. We find that the case of the Revenue is that as per the judgment of Hon'ble Apex Court rendered in the case of Escorts Ltd. Vs Union of India (supra), double deduction is not allowable and as per Revenue, since exemption is allowed to the assessee in respect of investment in capital assets u/s 11 by holding that the same is application of income for charitable purposes, allowing depreciation on those assets amounts to double deduction. In our considered opinion, the stand of the Revenue is not correct because allowing exemption u/s 11 is not equal to allowing deduction. Allowing exemption means that the income is not liable to tax but the income remains the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction because it is held that by way of granting exemption u/s 11(1), no deduction is granted because the income is not reduced and only the income is held to be exempt and the deduction is only granted by way of depreciation when assets are used. 11.3 For one more reason, this judgment of Hon'ble Kerala High Court is not applicable in the present case. It is observed by Hon'ble Kerala High Court that all the charitable institutions will be generating unaccounted income equal to the depreciation amount claimed on year to year basis which is nothing but black money. We fail to understand as to how granting of depreciation will generate unaccounted income because by way of granting depreciation, no income is resulting and there is no increase in cash flow. The income is reduced to one side of the Balance Sheet and the asset is reduced on the other side and this cannot result into generation of any income outside the books of account. Hence, for this reason also, this judgment of Hon'ble Kerala High Court is not applicable particularly when there are so many judgments of various High Courts, which are in favour of the assessee. We, therefore, do not find any reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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