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TMI Blog2012 (3) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... d submits that use or application of income involves voluntary act on the part of trustee. In the present case, it is involuntary act whereby Shri Jignashu Patwa has misappropriated the funds during A.Y. 2001-2002 without the knowledge of trustees including his father Shri Piyushbhai Patwa and therefore Sec. 13(1)(c) is not applicable. [2] The learned CIT(A) has erred in not granting the deduction of expenditure of Rs. 2,74,78,502 incurred for the objects of the Trust and that the same is eligible for deduction under Sec. 11 and that the exemption under Sec. 11 is wrongly denied by applying Sec. 13(1)(c) in as much as the facts are misappreciated. [3] The learned CIT(A) has erred in confirming the addition of Rs. 19,77,634 being the interest recoverable from Shri Jignashu Patwa on the amount of Rs. 80,00,000 mis-appropriated by him in as much as the said interest is applied for objects of the trust. [4] The learned CIT(A) has erred in confirming the addition of Rs. 3,99,904/- being the amount misappropriated by Shri Pratap Rathwa in much as it is the capital of the Trust and that it is not applied for the benefit of any relative of a trust. [5] Even if it is presumed that sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature till its recovery. 2.3 The Assessing Officer found out that Shri Jignashu Patwa is the son of Shri Piyushbhai Patwa, who is a Trustee of the appellant Trust i.e. Muni Seva Ashram. Shri Jignashu Patwa's mother Smt. Jashkantaben Piyushbhai Patwa is also doing the proprietary business in the name of Jalaram Investment .Consultants handling the deposits and loans of the Trust. Shri Jignash Patwa's father is an Authorized Signaturee of the Trust. The Authorized Representative has submitted a letter before the Assessing Officer written by Shri Jignashu Patwa stating that this pledging of the deposits are done by Shri Patwa himself without the knowledge of the Trustees. However, the Assessing Officer concluded that the Trustees and the accountant are supposed to know the happenings of the Trust. He asked the Authorized Representative to submits if there is any resolution or minutes recorded by the Trust authorizing this transaction. The appellant failed to submit any such thing before the Assessing Officer. The Assessing Officer concluded that the Trustees and Secretaries are well aware of the incidents and are reluctant to furnish correct information, in order to safe-g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay any role, since the act was un-authorized Section 13(1)(c) cannot be invoked. The Authorized Representatives have also submitted a copy of F.I.R. before Police filed by Shri Rahul Niranjanbhai, the Area Manager in Gruh Finance Pvt. Ltd. regarding forgery of his signature by Shri Jignashu Patwa for the FDRs of the Trust. The appellant has also submitted in letter dated 28.11.2007 that the so-called fraud was committed in-the financial year 2000-2001 and this cannot affect assessment year 2004-05. The appellant has also argued that the Assessing Officer should have allowed them the expenditure of Rs. 12,43,38,739/-incurred during the year." 3 After considering the submissions made by the assessee, the learned CIT(A) has discussed the issue as under:- "4 I have considered the facts of the case, the findings of the Assessing Officer and the submissions made learned by Authorized Representatives. The exemption u/s. 11 has been rightly denied by the Assessing Officer to the appellant, because of the following reasons: 4.1 It is a fact that Shri Jignashu Patwa has misused the property / funds of the Trust for his personal gain. At the relevant time and up-to the assessment year 2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal before us. The learned counsel of the assessee reiterated the submissions made before the learned CIT(A). The learned DR, on the other hand, supported the order of the AO. 5 We have heard both the parties and perused the records. We find that there is no dispute about the fact that one Mr. Jignashu Patwa, an Insurance Agent-cum-Broker and Commission Agent who was doing business for the trust, misappropriated the funds of the trust by diverting Fixed Deposits of Rs. 80 lacs belonging to the Trust placed with Gruh Finance Limited. Mr. Jignashu Patwa pledged these fixed deposits with H.D.F.C. Bank by opening a new account. Mr. Jignashu Patwa happens to be the a son of Shri Piyushbhai Patwa who is a Trustee of the assesseetrust. The Revenue's case is that Mr. Jignashu Patwa being son of Shri Piyushbhai Patwa, who is a trustee of the assessee-trust, the action of the son was in the knowledge of the father and therefore, as per the provisions of section 13(1)(c) of the Act, if a religious / charitable trust is established after 31-03-1962 and any part of its income enures directly or indirectly for the benefit of any person specified in section 13(3), then the entire income of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Muni Seva Ashram. For this purpose Chairman and Secretary are authorized. HDFC was prepared to grant a loan. Therefore the proposal may please be approved. If it is necessary to obtain the permission from Charity Commissioner then the necessary application should be made. Resolution No.5: It was unanimously resolved to open the bank account with HDFC Bank, Alkapuri Branch. It was also resolved to authorize the President and Secretary to operate the said account. If necessary the SB account and FD account be also opened with the HDFC Bank. It was unanimously resolved to authorize president and secretary to complete all the formalities regarding the opening of account and raising the loan from HDFC Bank. It is clear from the above that the finding of the AO that Shri Piyushbhai Patwa - father was the authorized signatory of the Trust is factually wrong. We further find that no other evidence whatsoever has been placed on record to show that Shri Piyushbhai Patwa - father was in any way connected with the misappropriation of the funds of the Trust. We further find that when this misappropriation came to the knowledge of the assessee-trust, it made efforts to recover the money. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an addition of Rs. 1,03,77,538/-. This comprises of the fixed deposit used by Shri Patwa amounting to Rs. 80 lacs, deemed interest on the fixed deposit amounting to Rs. 19,77,634/- and defalcation of funds by Shri Pratap Rathwa amounting to Rs. 3,99,904/-. According to the learned CIT(A), the first amount i.e. Rs. 80 lacs is not an income of the Trust. It is an asset out of the investment block. The Trust was in the process of recovering this amount from Shri Patwa and it has been claimed by the Authorized Representative that later this amount has been recovered. In para-8 of his assessment order, the Assessing Officer has added this amount as income. Since this is neither receipt nor income and eventually the amount has been recovered, no such addition can be made. Therefore, the learned CIT(A) allowed the appeal on this ground and an addition of Rs. 80 lacs was deleted. The Revenue is not in appeal against this deletion of the addition. As far as interest of Rs. 19,77,634/- receivable from Shri Patwa is concerned, according to the learned CIT(A), this amount was income of the trust and liable to be taxed and confirmed the addition made by the AO. 8 Aggrieved by this order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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