Income Tax Appellate Tribunal - Jodhpur
Ito, Ward (Exemption), Jodhpur vs Rajasthan Vikas Sansthan , Jodhpur on 26 September, 2024
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ITA No.77& 78/Jodh/2024
A Y : 2016-17& 2017-18
ITO, Exemption, Jodhpur
Versus
Rajasthan Vikas Sansthan, Jodhpur
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE SHRI PRASHANT MAHARISHI, AM
AND
SHRI YOGESH KUMAR U.S., JM
ITA No. 77/JODH/2024 A.Y.2016-17
ITA No. 78/JODH/2024 A.Y.2017-18
Income Tax Officer, Rajasthan Vikas
Ward (Exemption), Sansthan,
Jodhpur Vs. Teesra Prahar Bhawan,
1 s t A Road,
Sardarpura
Jodhpur
(Appellant) (Respondent)
PAN AAATR3975P
Assessee by Shri P.C. Parwal, CA
[through Hybrid Mode]
Revenue by Shri O.P. Meena, CIT(DR),
[through Hybrid Mode]
Date of hearing 23rdSeptember, 2024
Date of pronouncement 26th September, 2024
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ITA No.77& 78/Jodh/2024
A Y : 2016-17& 2017-18
ITO, Exemption, Jodhpur
Versus
Rajasthan Vikas Sansthan, Jodhpur
ORDER
PER PRASHANT MAHARISHI, AM:
1. ITA Nos.77 & 78/Jodh/2024 are filed by the Income Tax Officer (ITO), Exemption (the learned AO) for Assessment Years (A.Y.) 2016-17 & 2017-18 against the appellate order passed by the National Faceless Appeal Centre (NFAC), Delhi dated 15.12.2023 wherein appeal filed the assessee against the assessment orders passed under Section (u/s.) 143(3) of the Income Tax Act, 1961 (hereinafter called the 'Act') by ITO-Exemption Circle, Jodhpur dated 22.08.2019 and 23.12.2019 respectively, were allowed partly.
2. Therefore, the learned Assessing Officer is aggrieved and preferred both these appeals on similar grounds.
3. The grounds for Assessment Year 2016-17 are as under:
"1. Grounds of Appeal in the case of M/s Rajasthan Vikas Sansthan(AAATR3975P) for the A.Y. 2016-17 against the order of Ld. CIT(A)(NFAC) dated 15.12.2023 issued vide DIN & order no. ITBA/NFAC/S/250/2023- 24/1058801967(1):
(a) "Whether order passed by the Ld. CIT(A) is justified, ignoring the facts and circumstances of the present case and without applying the correct preposition of law".
(b) Whether the Id. CIT(A) was justified in holding that there is no violation of section 13, while facts of the case shows clear violation by various means like making loans & advances to related parties, thus, applying income and assets of assessee trust for benefit of trustees.
(c) Whether Id. CIT(A) was justified in holding non applicability of section 13 of Income-Tax Act for Page | 3 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur loans/advances given another trust while both the trust has common trustees?"
(d) Whether ld. CIT(A) is justified in allowing exemption u/s 11 of the Income-tax Act while assessee trust violated provision of section 13(1)(c) of the Income-
tax Act by giving interest free loans, advances and security deposits to persons covered u/s 13(3) of the Income- tax Act".
(e) Whether ld. CIT(A) is justified in allowing exemption u/s 11 of the Income-tax Act while assessee trust violated provision of section 13(1)(d) of the Income- tax Act by diverting the funds of the trust which otherwise to be kept under the specified the modes of investment as laid down u/s 11(5) of the Income- tax Act?"
(f) Whether ld., CIT(A) is justified in deletion of addition of Rs.88,24,447/- on account of notional interest."
(g) Whether ld. CIT(A) is justified in allowing capital expenditure of Rs.6,21,40,314/-while exemption under section 11 to assessee was denied due to violation of provisions of section 13(1)(c) & section 13(1)(d) of the Income-tax Act?".
(h) Appellant craves the right to add, alter or amend any grounds of appeal before the Hon. ITAT in the interest of justice."
4. It is not in dispute that facts in case of the assessee for both the years are identical. Therefore, similar documents were advanced by both the parties and both these appeals are disposed of by this common order.
5. The facts as culled out from the record of A.Y. 2016-17, it shows that i. The assessee trust is a charitable society registered under Rajasthan Society Registration Act, 1958 w.e.f. 23.07.1999. The assessee is also registered Page | 4 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur u/s. 12AA of the Act as per registration dated 08.01.2022.
ii. This trust was also notified u/s. 10(23C)(vi) of the Act vide Notification dated 06.09.2011. iii. Assessee filed its return of income on 30.09.2016 declaring total income at Rs. NIL.
iv. Therefore, the assessee field its return of income claiming exemption u/s. 10(23C)(vi) of the Act. v. The case of the assessee was selected for scrutiny and notice u/s. 143(2) of the Act was also issued on 04.09.2018. Several details were called for which were furnished by the assessee and the assessment order was passed.
6. Meanwhile learned CIT, Jodhpur as per order dated 01.07.2019 withdrawn the approval granted to the assessee u/s. 10(23C)(vi) of the Act w.e.f. A.Y. 2007-08. Therefore, at the time of passing of the assessment order by the learned Assessing Officer, the assessee was not having any approval u/s. 10(23C)(vi) of the Act.
7. Therefore, as the trust was registered u/s. 12AA of the Act, the assessee was entitled to benefit of Sections 11, 12 and 13 of the Act.
8. The learned Assessing Officer found that:-
i. assessee has advanced receipt a sum of Rs.3,35,00,000/- to M/s Samarth Vivdhlaxi Seva Trust, the Assessing Officer was of the view that this is an advance in violation of Provisions of Section 11(5) and section 13 of the Act because of common Page | 5 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur trustees and accordingly he charged interest on the same @ 12% per annum and made the addition. The learned AO rejected the explanation of the assessee that advance is given to the Trust which is also having the object of the education executing the Memorandum of Understanding. The Assessing Officer noted that there are common trustees and therefore provisions of section 13 (3) (cc) are also covered in the definition of and, therefore, there is violation of Provisions of Section 13(1)(c) and 13(1)(d) of the Act, He further held that even the provisions of Section 13(3)(e) is also violated.it was the claim of the learned assessing officer that in the trust to whom the loans are given, the trustees of the assessee trust are also the trustees of that trust. Therefore, according to the provisions of section 13 (1) © (ii) if part of such income or any property of the trust or institution is used or applied directly or indirectly for the benefit of any person referred to in subsection 3, then the trust loses exemptions to that extent.
ii. It was also found that the assessee has made security deposit of Rs.3.35 crores to the trustee, namely, Smt. Asha Vyas and Mr. Manish Vyas for obtaining property on rent wherein the annual lease rent payable by the assessee was Rs.18.00 lacs. According to him, the trustees have been given benefit by violating the provisions of Section Page | 6 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur 13(1)(c) and 13(2)(c) of the Act for diversion of the fund, the Assessing Officer made an addition on notional interest of Rs.36,60,000/- being 12% of Rs.3,05,00,000/-. It was further stated that the explanation of the assessee that there is no benefit to the trustee is not acceptable.
iii. The Assessing Officer further noted that the assessee has given advanced of Rs.94,95,061/- to Mr. Manish Vyas and Rs.42,000/- to Smt. Asha Vyas which is in violation of Provisions of Section 13(1)(c) of the Act. The AO was of the view that assessee trust is losing interest of Rs.11,44,447/- being 12% of the interest on the above advance and , therefore, he made an addition of the above sum.
iv. He also made certain other adjustments to the total income and determined the total income at Rs.11,57,07,997/- and taxed it at the maximum marginal rate at Rs.87,64,447/-.
9. The assessment order was passed on 22.08.2019 u/s.
143(3) of the Act.
10. The assessee challenged the assessment before the learned CIT(A). At the time of appeal before the learned CIT(A), the coordinate Bench vide order dated 26.05.2020 in ITA No. 255/Jodh/2019 restores recognition/ approval of exemption u/s. 10(23C)(vi) of the Act. As the denial of exemption was also on the similar counts based on which the addition is made in the assessment order and similar reason, the learned CIT(A) followed the reasoning given by the Page | 7 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur Coordinate Bench in is above order, allowed the appeal of the assessee.
11. He deleted all the addition as the Coordinate bench has given a finding that the advances given to the trust, security deposit given the trustees and loans also given does not violate the provisions of Section 13 of the Act as the market rate of the services etc. are quite higher than what is charged by the trustee. Thus, the learned CIT(A) following the decision of the Coordinate Bench allowed the appeal of the assessee.
12. Now the learned Assessing Officer is aggrieved with the appellate order and has preferred the appeal before us.
13. The learned Departmental Representative (DR) vehemently supported the order of the learned Assessing Officer and submitted that assessee has violated the provisions of section 13 of the income tax act wherein the funds are diverted for the benefit of the trustees and the associates concerns of the trustee.
14. The Learned A.R. filed a paper book containing 218 pages and also submitted a written note. The contention of the learned A.R. is that.
i. in ITA No. 255/Jodh/2019 dated 26.05.2020 at Page Nos. 99 to 122 of the paper book wherein the exemption and registration granted to the assessee u/s. 10(23C)(vi) of the Act was challenged and by that order the Coordinate Bench agreed that the assessee has not Page | 8 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur violated the third proviso and 14th proviso u/s. 10(23C)(vi) of the Act.
ii. He further referred to Paragraph 17 of that order wherein the issue of security deposit paid to the trustee of Rs.3,05,00,000/- was held to be neither unreasonable nor excessive nor in violation of third and 14th proviso to Section 10(23C) of the Act.
iii. With respect to the advance given to M/s Samarth Vivdhlaxi Seva Trust, the assessee submitted that it is also an educational trust registered u/s. 12AA of the Act, the advances were given as per terms and condition of Memorandum of Understanding and further though Mr. Manish Vyas and Smt. Asha Vyas are common trustees, there is no violation of the provisions of Section 13 of the Act. He submits that by giving advance to the trust there is no benefit to the trustees of the assessee trust. It was further stated that even while withdrawing the registration u/s. 12AA(3) of the Act, the learned CIT-Exemption did not consider it as a violation.
iv. With respect to advance/imprest, it was submitted that the Coordinate Bench has given a detailed reasoning in para 8 of the order. He further submitted that advances given to Shri Page | 9 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur Manish Vyas is based on object of the trust as imprest.
v. similarly, is advance given to Smt. Asha Vyas is also against the rent of property as an advance. Therefore, same could not have been added.
vi. With respect to the notional interest charged in the hands of the assessee, he submitted that such addition cannot be made in the hands of the trust.
15. In rejoinder, the learned departmental representative submitted that the issue of exemption under section 10 (23C) and section 12 AA of the act has been challenged before the honourable High Court and are pending.
16. We have carefully considered the rival contentions and have perused the orders of the learned lower authorities. The facts clearly shows that assessee was granted registration with approval u/s. 10(23C)(vi) of the Act. This recognition was withdrawn by the learned CIT-Exemption, Jaipur vide order dated 01.07.2019 for the reason that the assessee has diverted the funds of the trust and thereby violated third and 14th proviso to Section 10(23C)(vi) of the Act.
17. The assessee is also granted registration u/s. 12AA of the Act which was also withdrawn and cancelled vide order dated 03.01.2020. The cancelation of approval u/s. 10(23C)(vi) of the Act was challenged by the assessee before the Coordinate Bench in ITA No. 255/Jodh/2019. It was decided on 26.05.2020 wherein the Coordinate Bench Page | 10 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur held that the withdrawal of approval granted to the assessee u/s. 10(23C)(vi) of the Act is not tenable both on the facts and in law. Meanwhile the assessee also challenged the cancellation of registration u/s. 12AA (3) of the Act on 03.01.2020 in ITA No. 44/Jodh/2020 which was decided by the Coordinate Bench on 01.02.2021 and it was held that assessee is entitled to registration u/s. 12AA of the Act and cancellation of such registration is not tenable in facts and circumstances of the case. The assessee, therefore, benefit of Section 10(23C)(vi) and Section 12AA of the Act was once again restored to the assessee by the above orders of the Coordinate bench.
18. We find that for assessment year 2016 - 17 the order of the assessment was passed on 22/8/2019 for assessment year 2016 - 17 and on 23/12/2019 for assessment year 2017 - 18 wherein the order of the coordinate bench in restoring the registration under section 12 AA of the act was passed on 3/1/2020 and the order of the coordinate bench in granting recognition under section 10 (23C) was passed on 26/05/2020 and therefore, these orders of the coordinate benches were not available before the assessing officer at the time of passing the assessment order. The order of the learned CIT - A was passed on 15/12/2023 and therefore the learned CIT - A had the benefit of these two appellate orders passed by the coordinate bench.
19. In view of above facts, the issues before us are required to the decided.
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20. The first issue i.e., required to be decided is whether the advance given to M/s Samarth Vivdhlaxi Seva Trust of Rs.3.35 crores is in violation of provisions of Sections 11 to 13 of the Act or not. The facts shows that trust is educational trust registered u/s. 12AA of the Act since 04.04.2008 . The assessee entered into Memorandum of Understanding (MoU) on 12.03.2014 that the above trust for provisions of technical and financial assistance in the form of interest free loan of Rs.5.00 crores for development of infrastructure facility which would be returned to the assessee society after the development or 10 years whichever is earlier. In terms of that the assessee has given the advance of Rs.3.35 crores to that trust. The Assessing Officer has observed that Shri Manish Vyas and Smt. Asha Vyas are common trustee in both the society and, therefore, there is violation of provisions of Section 13(3)(cc) and (e), of the Act two. According to the assessee merely because of the common trustee, no benefit accrues to the trustee and further when both the trust have no profit motive, advance given by the assessee to the above trust does not violate the provisions of the law. The learned CIT(A) dealt with issue in paragraph 5.1.3 and held that the above transactions does not violate the provisions of Section 11(5) and Section 13(1)(d) of the Act relying on the decision of the Director of Income Tax (Exemption) vs. Acme Educational Society, 326 ITR 146 and The Director of Income Tax (Exemption) vs. Alarippu, 244 ITR 358. He was also of the view that assessee learned CIT(Exemption) is Page | 12 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur order u/s. 12AA(3) of the Act has not this ground as one of the grounds of violate of provisions of Section 13(1)(c) of the Act, the order of the learned Assessing Officer is not sustainable.
21. We have carefully considered the decision of the Hon'ble Delhi High Court in the case of Director of Income Tax (Exemption) vs. Acme Educational Society (supra) wherein it has been held that where the advances of temporary interest free loan is given by one society to another society having similar objects and having the relative of the trustee as the trustee does not amount to an investment or deposit attracting the provisions of Section 13(1)(d) of the Act. In that decision, the decision of the of Hon'ble Delhi High Court in the case of Keshav Charitable was followed. The facts wherein were that where the money is given to another Institute for similar objects that amount given cannot be treated as investment or deposit u/s. 13(1)(d) of the Act and Section 11(5) of the Act. Therefore, so far as the issue of Section 11(5) of the Act and Section 13(1)(d) of the Act is concerned with respect to the investment with M/s Samarth Vivdhlaxi Seva Trust and his wife Smt. Asha Vyas are also trustee and, therefore, the provisions of Section 13(3)(e) of the Act are impacted. According to Section 13(3)(e) will apply only if there is right to 20% of the profit of such concerned. As both the trusts are existing or not for profit, even the provisions of Section 13(3)(e), 13 (3) (cc) of the Act are not hit and, therefore, for this reason also it cannot be said that by giving the advance to that trust there Page | 13 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur is a direct or indirect benefit to the trustee of assessee trust. Accordingly, we do not find that the provisions of the income tax act are violated when the assessee has given an advance to another trust having the common object and also registered under section 12 AA of the act though having the common trustees. Even otherwise, if there is a violation of section 13 of the trust if the loan is given to another trust, an addition of Rs.40,20,000/- on account of notional interest @ 12 % per annum only Rs.3.35 crores advance to the above trust, could not have been made. In fact, if assessee is found to be in violation of Rs.3.35 crores then assessee trust is charged to tax at maximum marginal rate at Rs.3.35 crores and not only on 12% of such income. Therefore, also we do not find any infirmity in the order of the learned CIT(A) in deleting the addition of Rs.40,20,000/-.
22. The second objection of the learned Assessing Officer that assessee has paid a security deposit of Rs.3,05,00,000/- lacs to Mr. Manish Vyas of Rs.2,70,00,000/- and ₹ 60 lakhs to Smt. Asha Vyas. Mr. Manish Vyas has rented a plot of land at Teesra Prahar Bhawan, Sardarpura, Jodhpur admeasuring 305.55 square yard which was purchased by him in 1990. Thereafter the construction was carried out of 1625 sq. ft. As per the lease agreement dated 14.06.2013 between assessee trust and Mr. Manish Vyas rent of Rs.18.00 lacs per annum was decided subject to security deposit of Rs.270.00 lacs to Mr. Manish Vyas. It is also stated that the above property owned by Mr. Manish Vyas Page | 14 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur was mortgaged to the Bank as a collateral security against the loan obtained by the assessee from Canara Bank. As per facts stated in Para 17 of the order of the Coordinate bench in ITA No. 255/Jodh/2019 states that the market value of the property on 12.08.2017 was determined at Rs.5,45,00,000/-. The Bench noted that the yield of rent is only 3.3% and it also considered that similar type of commercial property the rent is renting from Rs.32 to 35 per sq. ft. which is approximately 58.30 lacs to Rs.68.25 lacs. Therefore, the Coordinate Bench while considering the above facts held that the security deposit paid by the assessee is neither unreasonable nor excessive nor in violation of provisions of Section 10(23C) of the Act.
23. Before the assessing officer, the assessee has reiterated the same facts the assessee has also submitted the copy of sanction letter issued by the Canara Bank motivating the property and copy of the mortgage deed where the assessee trust obtained the loan on the property of the owner of the property. The valuation report as on 31/3/2016 was also submitted wherein the market value of the property was substantiated at ₹ 5.45 crores. For the comparable rent the assessee looked into the magicbricks.com and referred to the comparable rates of rent of the similar properties. This is stated at page number 16 - 17 of the order of the learned AO.
24. The learned AO also gave a comparable when the trust itself has given its own land at the Jodhpur on a nominal rent of ₹ 180,000 per annum to Rajasthan because company in which Page | 15 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur money Shri Hassan same at a severe Saab both the trustees the value of the land is per the valuation report submitted by the assessee is ₹ 26.23 crores. It was also stated that this assessee trust has not given any security deposit on such a huge value of land given to another trust or nominal rent. Therefore, the claim of the assessing officer is that when the comparable property is taken on rent, the amount of security deposit given by the assessee to the trustees is diverse and of course-in of the funds of the trust for the benefit of the trustees.
25. Findings of the Coordinate Bench bind us judicially unless the facts are found to be different.
26. However, in this case we found that the facts with the coordinate bench was not available about the comparable rate stated by the assessing officer which are pertaining to the assessee only. The comparable case stated by the assessee at page number 18 of the paper book shows that the assessee trust itself has given its own land situated at Jhalamand, Jodhpur, on a nominal rent of only ₹ 1 80,000 per annum/- to Rajasthan because company in which Mr.Manish Vyas and his wife are the trustees. The assessee himself has not taken any security deposit. This fact was not available before the coordinate bench and therefore in view of these new facts, we do not find that in the circumstances the order of the coordinate bench binds us. Naturally the internal comparable is sounderthan the extract of website like magicbricks.com. Even in that website extract it was not clear whether the security deposit was given or not.
Page | 16 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur Therefore when the internal comparable is our available where the assessee him itself is entered into a transaction with the third-party without payment of security deposit and in turn assessee pay security deposit to the trustees, it seems that this fact has been not been brought before the coordinate bench, therefore in view of distinguishing facts and inquiry of the ld. AO from the books of accounts assessee, the above decision of the coordinate bench is distinguishable. Coordinate bench recorded this transaction in paragraph number 16 of the order while deciding the issue that whether the renting out of the property by the assessee to another trust whether trustees are interested is violative of the provisions of section 13 or not and coordinate bench held that it is not so. However, while comparing the property taken by the assessee on rent, the decision of the coordinate benches is silent.
27. The agreement entered into by the assessee with RajasthanVikas Sansthan is available in paper book at page number 80 - 87, which does not speak about any security deposit for renting of the area of plot and made 24,481.29 m² and the leases granted up to 31st of March 2032 at a meagre rent of ₹ 180,000 for financial year i.e., ₹ 15,000 per month.
28. There is no reference of the comparable instances cited by the learned assessing officer in the assessment order in the order of the learned CIT - A also. Therefore, the comparable instance cited by the learned assessing officer were neither into by the learned CIT - A not brought to the attention of Page | 17 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur the coordinate bench by either deciding the provisions of section 10 (23C) or section 12AA of the act. There is no argument from the side of the assessee on the comparable cited by the learned AO.
29. In view of the above facts, we restore back this issue to the file of the learned assessing officer with a direction to the assessee to put a comparable case before the assessing officer wherein similar kind of property, such a huge security deposit is paid, and rent is comparable. For the purpose of deciding the benefit one has to compare the Apple with the Apple and not oranges with the Apple. Against this the learned assessing officer has categorically cited a comparable instance of the property having four times more value than the impugned property at substantially lower and without deposit. The learned assessing officer, on submission of such details by the assessee of comparable instance, then decide the issue afresh whether there is any benefit to the trustees or not. If, no benefit is found to be accruing to the trustees on comparable of similar instance, the denial of exemption to the assessee is not permissible. If, benefit accrued to the trustee by giving such a huge deposit in the form of security deposit, then on the amount of security deposit, the tax at the maximum marginal rate is required to be charged.
30. Similar is the fact of deposit which has been decide by the Coordinate bench in paragraph 19 of that order wherein it is mentioned that Smt. Asha Vyas owned residential plot No. Page | 18 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur 45, Pal Road, Jodhpur admeasuring 200 sq. yard acquired by her on 05.09.2011 and has constructed 297 sq. ft. which was given on rent to the assessee on 14.06.2013 on annual rent of Rs.2.40 lacs subject to payment of security of Rs.60.00 lacs. The coordinate Bench held that market value of such property is Rs.1.31 crores and yield of rent is merely 1.82%. The Coordinate Bench also recorded an opinion that annual rent of such property is Rs.3.5 lacs to Rs.4.25 lacs and, therefore, the amount of advance given to trustee is not excessive. This issue is identical to the amount of security deposit given of Rs. 2.70 crores to Mr. Manish Vyas . Therefore, for the similar direction we also restore this issue back to the file of the learned assessing officer with similar direction to the assessee.
31. The third issue is with respect to advance given by the assessee trust of Rs.94,95,061/- to Mr. Manish Vyas and Rs.42,000/- Smt. Asha Vyas. The Assessing Officer held that amount of advance given is clear cut violation of Section 13(1)(c) of the Act, and, therefore, he imputed 12% thereon charged with interest income to the maximum marginal rate.
32. The learned CIT(A) vide paragraph no. 5.2.1 of the order has deleted the addition. It was submitted before us that assessee trust is agreed to provide an interest free imprest loan of Rs.1.00 crores to Mr. Manish Vyas from time to time to be utilized for the object of the trust as Mr. Manish Vyas has already mortgaged his commercial property with the Bank. On 01.07.2013 Mr. Vyas has credited balance of Page | 19 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur Rs.40,13,000/- but thereafter the advances were given to this trustee which has resulted into debit balance of Rs.94,95,061/- as on 31.03.2016. It is claimed before us it was subsequently liquidated and as on 31.03.2019 there is credit balance of Rs.31,408/-the claim of the assessee is that it is not a case of diversion of fund but is a case of money advance for the object of the trust. It is claimed that in ITA No. 255/Jodh/2019 the above issue has been considered and held that the above advance given to Mr. Manish Vyas is not violative of Section 10(23C)(vi) or Section 11 and 12 of the Act.
33. We have carefully considered the above arguments finds that the finding of the Coordinate Bench in Paragraph No. 8 . On reading of the order passed by the coordinate bench, we find that the following facts which are extracted in the subsequent paragraphs were not brought to the notice of the bench. In view of the distinguishing facts, the decision relied upon by the assessee does not apply. We proceed to give over reasons in subsequent paragraphs.
34. On careful consideration of the decision of the coordinate bench we find that assessee has placed before us at page number 94 - 98 of the paper books the Ledger account of ceremonies from the books of the assessee. This Ledger account is extracted as under:-
Page | 20 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur Page | 21 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur Page | 22 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur Page | 23 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur Page | 24 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur
35. On careful perusal of the Ledger account, it is apparent that the credit to the account of Mr. Manish we is of rent as well as transfer of balances from other branches. For the Page | 25 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur assessment year ending on 31/3/2016 the total debit to the account of the trustee is 1,73,04,000 and credit is only 78,08,939 leaving the debit balance of ₹ 9,495,061.53. For financial year 2016 - 17 the total debit to the account of the trustees is ₹ 15,358,896 whereas the credit is only ₹ 3,922,710 resulting into debit balance of ₹ 14,036,186/-. From 1/4/ 2017 to 31/3/2018 the total debit to the account of the trustees ₹ 18,730,108 and whereas the credit is only 36,25,617 leaving the debit balance as on 31/3/2018 is ₹ 15,104,438/- for financial year 2018 - 19 the total debit to the account of the trustees 2,09,52,123 and debit to the account of the trustee is also 2,09,52,123 resulting into the credit balance of a meagre sum of ₹ 33 408/-. Immediately on 1/4/2019 there is a huge debit given to the account of the trustee of ₹ 10,124,700/-. For financial year 2019 - 20 the total debit transaction in the account of the trustees ₹ 16,034,700 and credit of ₹ 12,291,015/-. Surprisingly on 31/3/2020 there is a credit entry in the Ledger of the assessee by the name of Vijay Laxmi Mathur of ₹ 10,124,700 which was the opening entry passed on 1/4/2019 of debit to the account of the trustee. This similar amount of the reverse entry of debit and credit in the Ledger account of the trustee clearly proves that the account is not an imprest account.
36. Further on the perusal of the Ledger account it is clear that the assessee received the sum from the trustee and also pays the money to the trustee. Therefore, it is the transaction of giving and taking money from the trustee.
Page | 26 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur
37. If we failed to consider that such a transaction entered into by the assessee with the trustees of the trust is not a benefit to the trustee, what else could be the definition of the benefit provided under the provisions of section 13 of the act.
38. By no stretch of imagination, the above transaction entered into by the assessee with Mr. Manish Vyas , trustee of the assessee trust can be considered as an imprest account.
39. The provisions of section 13 (1) (c) of the act clearly provides that if the benefit is given of any part of income or property of the trust directly or indirectly as a benefit to the trustees, the assessee loses an exemption and such amount diverted to the trustees account is not considered as an application of the income and such diverted income is chargeable to tax in the hands of the trust at the maximum marginal rate.
40. We do not approve the method of addition made by the learned assessing officer of interest on the above sum. The learned assessing officer has not understood the provisions of the act. The interest is not to be imputed and then to be taxed in the hence of the assessee, the impugned amount itself is to be charged as income of the assessee trust not utilized for the object of the trust but for the direct benefit of the trustees.
41. Similar is finding given to Mr. Asha Vyas of Rs.42,000/- it is stated by the assessee that it is adjusted against next month and, therefore, it is not the case of the diversion of the fund. We find the fact of this advance is identical, and Page | 27 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur also requires similar tax treatment as in case of advance by the trust to Mr. Manish Vyas.
42. In view of the above facts, we restore this issue back to the file of the learned assessing officer to consider that amount paid by the assessee as a loan to Mr. Manish Vyas and Mrs.Asha Vyas is a direct benefit to the trustees of the trust which is in clear-cut violation of the provisions of section 13 (1) (c) of the act. However as only opening and closing balances are considered by the assessing officer, the peak amount of loan for each year is required to be considered for the purpose of taxation at the maximum marginal rate in the hence of the assessee trust, assessee is directed to place before the learned assessing officer complete Ledger account with balances traced out after each accounting entry in that Ledger for working out the peak. Because of the reason that the assessee has not given us the Ledger with balances, this issue needs to be restored back. The learned assessing officer after examination decide the issue in accordance with the above directions.
43. In view of the above facts, we give our decision on each of the ground as under:-
44. ground number 1 (a) is general in nature and does not require any adjudication hence dismissed.
45. Ground number 1 (b) we are of the view that the learned CIT - A is not justified in holding that there is no violation of the provisions of section 13 because according to us security deposit paid to the trustees, loans given to the trustees clearly in violation of the provisions of section 13 of Page | 28 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur the act. As we give as we have given a specific direction on this issue, this ground of appeal is partly allowed.
46. Ground number 1 (C) has already been decided in favour of the assessee holding that if the loan is given to another trust having the common trustee, there is no violation of the provisions of section 13 of the act unless it is proved that the benefit is given to the trustees of the trust. Here the assessing officer has failed to show that how the benefit has been derived by the trustees of the assessee trust, this ground of appeal is dismissed.
47. Ground number 1 (d) we hold that as the assessee is eligible for exemption under section 11 of the act, only the respective amount which violate the provisions of the law, is required to be taxed in the hence of the assessee at maximum marginal rate but assessee does not lose exemption under section 11, 12 on other issues as it is holding valid registration and recognition under section 10 (23C) and section 12AA of the act. Therefore, this ground is partly allowed.
48. Ground number 1 (e) is already decided as per ground number 1 (d) of the act holding that the assessee trust if has applied any income which is in violation of the provisions of section 11, 12 and 13, taxes required to be charged in the hence of the assessee on such income only at maximum marginal rate and on the balance sum the assessee is entitled for relief under those sections.
49. Ground number 1 (f) is dismissed as the learned assessing officer has computed the interest on the amount utilized by Page | 29 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur the assessee trust in violation of the provisions of section 13, which is deleted by the learned CIT - A, because such addition is not supported by law. In fact, whatever is the amount utilized by the assessee in violation of the provisions of section 13 is required to be charged to tax in the hands of the assessee trust at the maximum marginal rate. The learned assessing officer has not acted in accordance with the provisions of the income tax act. We also like to note that when the assessment of the assessee trust is made at the total taxable income of ₹ 115,707,997/- how the taxes computed applying the maximum marginal rate at ₹ 8,764,447/-. This clearly shows that the learned assessing officer has failed to understand the provisions applicable to the trust.
50. Ground number 1 (g) is with respect to allowing the capital expenditure of ₹ 62,140,304 to the assessee. We find that the learned assessing officer is not correct in not granting benefit of this capital expenditure to the assessee because if the capital expenditure is utilized for the object of the trust, the assessee trust is entitled to such deduction. Accordingly, this ground of appeal is dismissed.
51. In the result appeal of the learned assessing officer for assessment year 2016 - 17 is partly allowed.
52. The appeal of the learned assessing officer for assessment year 2017 - 18 is on identical grounds, therefore, we hold that the decision rendered for assessment year 2016 - 17 applies to the appeal of assessment year 2017 - 18.
Page | 30 ITA No.77& 78/Jodh/2024 A Y : 2016-17& 2017-18 ITO, Exemption, Jodhpur Versus Rajasthan Vikas Sansthan, Jodhpur Accordingly appeal of the learned assessing officer for assessment year 2017 - 18 is also partly allowed.
(Order pronounced in the open court on 26/09/2024) Sd/- Sd/-
(YOGESH KUMAR US) (PRASHANT MAHARISHI) (JUDIC IAL MEMBER) (ACCOUNTANT MEMBER) Jodhpur, Dated: 26.09.2024 Aks/-
Copy of the Order forwarded to :
The Appellant, The Respondent, The CIT, The DR ITAT & Guard File BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Jodhpur