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TMI Blog2018 (1) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... s been denied is the payment of salary to Shri T.V. Pranay Kumar - Held that:- assessee had filed the proof that Mr. T.V. Pranay Kumar is registered as an Advocate and that he has rendered services to the Society in legal proceedings before the Hon'ble High Court of Andhra Pradesh and before the Civil Courts at Secunderabad. We find that the CIT (A) has also observed that the AO has not disputed the reasonableness of the payment to Mr.T.V. Pranay Kumar or that it was in pursuance of the objects of the Society Trust. In the absence of any evidence to the contrary, we do not see any reason to interfere with the order of the CIT (A). Ground No.7 is accordingly rejected. In this view of the matter, we hold that the assessee cannot be denied the exemption u/s 11 of the Act for the relevant A.Y. Applicability of provisions of section 40(a)(ia) - Held that:- IT (A) has accepted the contention of the assessee without any verification as to whether the said expenditure has been claimed by the assessee in the income and expenditure a/c. As rightly pointed out by the learned Counsel for the assessee and also held by the CIT (A), when the assessee is being assessed as a charitable instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made on account of under reporting of tuition fee in the assessment, when the addition was made on the basis of the number of students in the case of the society and the fee being charged from each student and the income reported under that head by the assessee society. 7. The Ld. CIT(A) erred in holding that there is no violation of sec. 13(1)(c) and the payments made to Sri T.V.Pranay Kumar, Treasurer of the society, is not excessive for the services rendered by him, without appreciating the fact that the AO has made elaborative discussion in that regard, establishing as to how provision of Sec. 13(1)(c) is attracted in the case from such payment made to that person . 2. Brief facts of the case are that the assessee is a society registered u/s 12A of the Act. It is running a school under the name Delhi Public School . It filed its return of income for the A.Y 2008-09 on 25.09.2008 declaring Nil income after claiming exemption u/s 11 of the Act. The return was initially accepted u/s 143(1) of the Act and subsequently selected for scrutiny by issuance of notices u/s 143(2) and 142(1) of the Act. In response to the said notices, the AR of the assessee appeared fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement was executed on 15.03.2008. iv) The terms of the agreement are totally in favour of the Contractor and does not give any details about the number of floors, the quality of material to be used for interior works of the school to be constructed and there was no mention of the date before which the construction should be completed. v) The assessee society did not have any permission from the Municipal authorities for construction of the school building. Even for the formation of the approach road to the building, there are no specifications as to the length width of the road, quality of the material to be used etc. vi) The termination clauses are also in favour of the Contractor and the assessee has not invoked any of these clauses to cancel the agreement, even though the Contractor did not fulfil any of the conditions of the contract. 6. The assessee has claimed that it has received back the advance of ₹ 1.50 crores from the Contractor in the subsequent years but did not offer any explanation/reason for the contractor returning the amount after a lapse of two years. The assessee, by itself, was carrying on the work of construction and therefore, it was withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS. He therefore, made the disallowance u/s 40(a)(ia) and the consequential addition of ₹ 7,03,645 under this head. 10. Further, as per the income and expenditure a/c ending on 31.03.2008, he observed that the assessee declared Term Tuition Fee to the tune of ₹ 3,99,68,660. However, he found that there was a shortfall of ₹ 15.00 lakhs, found from the analysis of invoices, cash bank balances and fee account. He accordingly made the disallowance and the consequential addition. 11. Aggrieved, the assessee preferred an appeal to the CIT (A), who deleted the additions and also held that the assessee is entitled to exemption u/s 11 of the Act. Aggrieved by the relief granted by the CIT (A), the Revenue is in appeal before us. 12. The learned DR, strongly supported the orders of the AO and submitted that the assessee has violated the provisions of exemption by making interest free advances to its related concern which has benefitted the said concern and hence is sufficient cause to deny the exemption u/s 11 of the Act. 13. The learned Counsel for the assessee, on the other hand, reiterated the submissions made before the authorities below and further subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. But, in our opinion, the CIT (A) has failed to consider that the assessee has constructed the building by itself during the relevant previous year and also in the subsequent years. Therefore, we are in agreement with the findings of the AO that the assessee has not invoked the clauses of the agreement to cancel the contract, even though it had the knowledge that M/s. Yashaswi Infrastructure Pvt. Ltd was not fulfilling the conditions of the contract nor was going to execute the contract. However, we find strength in the argument of the learned Counsel for the assessee that the advance was given on the last day of the relevant financial year i.e. 31.03.2008 and therefore, no benefit has accrued to the said company for the relevant financial year and hence the provisions of section 13(1)(c) are not attracted. The registration u/s 12A allow the assessee to make the claim of exemption u/s 11 of the Act while the allowability of claim is to be considered by the AO year to year. Therefore, the first and foremost condition to invoke section 13(1)(c) is that the assessee should have used or applied the income of the assessee directly or indirectly for the benefit of any person referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the contrary, we do not see any reason to interfere with the order of the CIT (A). Ground No.7 is accordingly rejected. In this view of the matter, we hold that the assessee cannot be denied the exemption u/s 11 of the Act for the relevant A.Y. 17. As regards Ground No.5, it was submitted by the assessee before the CIT (A) that the assessee has not claimed such expenditure in its books of account but in fact has capitalized the same. Further, it is also submitted that when the assessee s income is being computed u/s 11 of the Act, the provisions of section 40(a)(ia) of the Act cannot be invoked. The CIT (A) has accepted the contention of the assessee without any verification as to whether the said expenditure has been claimed by the assessee in the income and expenditure a/c. As rightly pointed out by the learned Counsel for the assessee and also held by the CIT (A), when the assessee is being assessed as a charitable institution, the provisions of section 40(a)(ia) of the Act are not applicable. In view of our finding above, that the assessee is entitled to the exemption u/s 11 of the Act, we do not see any reason to interfere with the order of the CIT (A) on this issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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