Income Tax Appellate Tribunal - Delhi
Dav College Trust And Management ... vs Department Of Income Tax on 6 October, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "B" NEW DELHI)
BEFORE SHRI RAJPAL YADAV AND SHRI R.C. SHARMA
I.T.A. Nos.51 and 52/Del/2009
Assessment Years: 2003-04 & 2004-05
Dayanand Anglo Vedic College Trust Vs. Deputy CIT,
And Management Society, Trust Circle-II,
Chitra Gupta Road, Pahar Ganj, New Delhi
New Delhi.
(Appellant) (Respondent)
I.T.A. Nos. 90 & 91/Del/09
Assessment Years: 2003-04 & 2004-05
Deputy Director of Income-tax (E), Vs. DAV College Trust and
Inv. Cir.-II, Management Society,
New Delhi. Chitra Gupta Road,
Paharganj, New Delhi.
(Appellant) (Respondent)
Assessee by: Shri Karan Khanna, Adv.
Department by: Shri Stephen George, CIT(DR)
2 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05
ORDER
PER RAJPAL YADAV: JUDICIAL MEMBER These are four appeals filed by the assessee and revenue against the separate orders of learned CIT(Appeals) dated 06.10.2008 passed for assessment years 2003-04 and 2004-05 under section 143(3)/253(2) of the Income-tax Act, 1961.
2. First we take the appeals filed by the Department in asstt. year 2003-04, however any ground of appeal taken by respective parties in asstt. year 2004-05, found to be interconnected or common with grounds of this asstt. year then we will take them together. Ground No. 1 & 2 taken by the revenue in both the asstt. Years are verbatim saying. For the facility of reference we are producing the grounds taken in asstt. year 2003-04 which read as under :-
"(i) Whether on the facts and in the circumstances of the case, the Learned CIT(Appeals) was justified in granting exemption u/s. 11 & 12 when several instances of application of income for non-charitable purposes were noted by the Assessing Officer in the assessee's order and Hon'ble ITAT in their order dated 26.04.2006 in ITA Nos.3145, 3146 & 3147 of 2005 for A.Y. 1999-2000, 2000-2001 & 2001-2002 had observed that there is diversion of fund for non-
charitable purposes and income of the assessee is being utilized for benefit of persons specified in section 13(3) of the IT Act.
3 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05
(ii) Whether on the facts and in the circumstances of the case, the Learned CIT(Appeals) ought to have directed that the income of assessee should be computed as required for charitable purposes and not as per Chapter-IV of I.T. Act as required for commercial purposes.
3. The brief facts of the case are that assessee has filed its return of income in asstt. year 2003-04 on 31st March, 2004 declaring NIL income at (-)801942997. Similarly for asstt. year 2004-05 it has filed the return on 1st November, 2004 declaring NIL income. The computation of income was revised by the assessee at Rs. (-) 576827235/- and subsequently revised at Rs. (-) 597274978/- in asstt. year 2003-04. In asstt. year 2004-05 also, the assessee has revised the computation of income at Rs. (-) 562594527/-. Since in these grounds of appeal the dispute is whether assessee has diverted its income in any manner or used the income in any manner contrary to section 11 and payments have been made to the persons covered u/s 13(3) of the Act which would disentitle it to claim the exemption. Therefore before adverting to the specific reasoning assigned by the AO and considered by the Ld. CIT(A) we deem it necessary to take note of the brief background of the assessee as considered by the Ld. CIT(A). The assessee, DAV College Trust and Management Society is a society set up way back in 1886 with the sole object to provide education to the children of the country. 4 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05 According to the assessee during the last 50 years it has set up more than 600 institutions comprising of schools, college, technical institutions, vedic research centers, Dental and Ayurvedic College and nursing colleges. It was submitted before the AO that there has been no change in the aims and objects of the society for which it has been constituted to carry on its activities in the field of education as in the past. The assessee has been allowed exemption u/s 10 (22), 10 (23C)
(vi) of the Income Tax Act. These sections interalia provides that in computing the total income of a previous year of any person, any income received on behalf of university or other educational institution existing solely for educational purposes and not for the purpose of profit shall not be included. According to the assessee section 10 (22) and 10 (23C) (vi) stipulates the same condition except the change brought out by introduction of section 10(23C)(vi) of the Income Tax Act w.e.f. 1.4.1999 which contemplates that such exemption could only be allowed to the institution if such institution is approved by the authority. There is no dispute that assessee has been allowed exemption under these sections. It has also been allowed registration u/s 12A of the Act for these asstt. years. The assessee has been maintaining proper books of accounts. These books of accounts were audited by qualified chartered accountant as required u/s 288 of the Income Tax Act. 5 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05
4. The AO during the course of asstt. proceeding felt that assessee is not cooperative and its books of accounts are not complete. Therefore he made a reference for special audit u/s 142 A(2) of the Act. The special auditor has given the audit report. On an analysis of the accounts submitted by the assessee and the audit report AO arrived at a conclusion that there are various discrepancies in the accounts maintained by the assessee. On the strength of special audit report he pointed out irregularities in the accounts of assessee in paragraph 10 of the asstt. order. The first irregularity pointed out by the AO is that fixed asset register was not properly maintained at Hqs. of the Trust. According to the AO the special auditor has pointed out that fixed assets purchased by the office of DAVCMC has been charged to income and expenditure accounts in the year and even the assets purchased on account of DAV Institute of Education is charged to income and expenditure account. On specific inquiries about the location and records of the assets of the DAV Institute of education, no record is produced by the assessee. Similarly he pointed out the irregularities in the details of money charged by the professional colleges run by this organization and details of students admitted against paid seats (NRI /Management quota). The assessee has not included the balance sheet of closed institution and auditor could not verify the latest status. On the 6 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 basis of these defects the AO while making quantum additions on these issues has observed that assessee will not be entitled exemption u/s 11 of the Act.
5. The Ld. CIT(A) has dealt the issue of the addition of all item independently in the impugned order and then held that exemption is available to the assessee except few additions which were not treated to be covered for the exemption of 11 of the Act.
6. The Ld. Counsel for the assessee at the very outset submitted that assessee trust has a history of 120 years. It has more thatn 600 institutions throughout the country and has survived its status from the last more than one century. The trust has contributed enormously in the educational field in the country and has provided education which is the requirement of our country even today. The AO has pointed out that certain inaccuracies and infirmities in the books of accounts maintained by the trust. Such infirmities may due to the reason that trust is being running only by educationalists, either retired Principals, professors etc. The AO has not rejected the books of accounts of the assessee. He has nowhere pointed out that the trust has deviated from its path and an objective for which it was set up. He further pointed out that the AO himself admitted in the asstt. order that assessee has produced books and documents relating to 434 branches out of 440 schools. It has 7 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 produced the audit report to 395 institutions which were perused by the special auditor. According to the AO assessee should have prepared balance sheet of schools/institutions as per mercantile system of accounts. The assessee has been following regularly the receipt and payment method of accounting. On the direction of special auditor as well as of the AO the assessee has requisitioned balance sheets, income and expenditure account from all the institutions as per mercantile system of accounting alongwith certificates showing head wise income and expenditure as per mercantile system of accounting. He also pointed out that special audit report was submitted to AO on 4th September, 2006. The questionnaire was called on 22nd September 2006 and assessee was given 5 days time to explain these questions and submit the details.
7. The Ld. Counsel for the assessee further submitted that a similar situation arose in asstt. years 1999-2000, 2000-01 and 2001-02. The AO has rejected the book result. He has appointed special auditor and made several additions to the surplus shown by the assessee in the income and expenditure accounts. The dispute traveled up to the Tribunal in ITA No. 3145 - 3147/D/2005. Tribunal has set aside the issue to the file of AO for fresh adjudication vide order dated 28th April, 2006. The AO in pursuance of the Tribunal's order passed the fresh asstt. Order on 8 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 17.12.2008 in these astt. Years. He has accepted the book result. He has accepted the reconciliation submitted by the assessee and determined the taxable income at NIL. The assessee has placed on record all these orders on pages No. 15-44 of the paper book. Ld. Counsel for the assessee drew our attention towards the observation of AO in asstt. Year 2001-02 available at page 43 of the paper book which read as under :-
"The activities of the assessee society are charitable in nature and within the meaning of Section 2(15) of the Income Tax Act, 1961. There is no violation of provision of Section 11 and 13 of the I.T. Act, 1961, as such exemption is allowed to the assessee u/s 11 of the Income Tax Act, 1961."
8. The Ld. Counsel for the assessee further pointed out that on the basis of observations made by the AO in the original asst. orders passed in 1999-2000 and 2001-02. Director of Income Tax Exemption sought to withdraw the registration granted to the assessee u/s 12A of the Act. He has issued a show cause notice on 4th September, 2008. Copies of these notice have been placed on record. The reasons assigned in this notice were similar to the one considered by the AO while passing asstt. order in these asstt. years u/s 143(3). The Ld. Director of Income Tax Exemption made a reference to the order of the ITAT in these asstt. years. However on explanation of the assessee the proceeding initiated 9 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 for cancellation of the registration has been dropped vide order dated 16th July, 2009. He pointed out that there is no disparity on facts as far as the fulfillment of objects of the society are concerned. The peripheral defects pointed out by the AO is in the original asstt. Proceedings in asstt. year 1999-2000, 2001-02 were on account of certain deficiency in reconciliation. These have been explained by the assessee and no dispute has been raised by the AO inspite of special audit report. The assessment in asstt. year 2005-06 and 2006-07 have also been completed on 28th December, 2007 and 19.12.2008. In these years also AO has accepted the accounts of assessee and determined the taxable income at NIL. The assessee has placed on record copies of these orders on pages No. 45-52 of the paper book.
9. The Ld. DR on the other hand unable to controvert the facts pointed out by the assessee. However he relied upon the order of the AO. He could not dispute that AO in asstt. Year 1999-2000 upto 2001-02 has determined the income of assessee at NIL. Similarly he could not deny the fact that proceeding initiated for cancellation of registration u/s 12A (3) of the Income Tax At by the Director Income Tax Exemption has been dropped.
10. We have duly considered the rival contention and gone through the record carefully. In asstt. Year 1999-2000 and 2001-02 Tribunal for 10 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 illustration purposes has outlined certain discrepancies pointed out by the special auditor and considered by the AO for rejecting the books of accounts. These illustrations referred at page 2 and 3 of the order read as under :-
i) The bank accounts were not properly reconciled and fixed asset registers of various units were not properly maintained.
ii) The accounts of DAV School Shreshtha Vihar showed purchase of one IBM computer from M/s. Compusoft India, which was found to be non existent. The IBM had confirmed that they did not have any such dealer/distributor. The accounts also showed purchase of computer from M/s. Snarc Computer which was also not found in existence on the addresses given. These concerns were also related to the husband and the son of the ex principal.
iii) Expenses totaling Rs.1384602 pertaining to various schools were not vouched.
iv) The Maruti Van purchased for Rs.2.85 lacs was not found physically.
v) In case of DAV Pushpanjali Enclave, money running into lacs was shown to have been spent for development of school but was not supported by any documentary evidence.
vi) In case of DAV Hansraj Model School, Rs.346686/- was shown to have been paid to daily workers but no attendance register/record of workers were maintained.
vii) The figures of only 383 out of 393 schools were furnished with special auditor. The balance sheet/statement of remaining schools could not be furnished.11 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05
viii) In assessment year 1999-2000 lease charges in respect of 11 vehicles amounting to Rs.2086222 were claimed twice as e4xpenditure.
ix) Money withdrawn from the bank not accounted properly indicating siphoning of funds.
x) Liabilities amounting to Rs.3395568 explained as amount due to contractor for the period prior to 1997-98 remained unclaimed.
xi) In relation to function expenses, no proper evidence produced in respect of expenditure of Rs.2.16 crores shown under the head 'other expenses'.
xii) Appropriation of capital expenditure filed in case of DAV CMC but no details of such expenses were filed from year to year.
11. Inspite of these illustrations the Tribunal deem it fit to set aside the issue to the file of AO for fresh adjudication, because Tribunal felt that discrepancy pointed out by the special auditor could be for lack of reconciliation of different accounts. In the fresh proceeding AO was satisfied on all these issues except one or two. He determined the taxable income of the assessee at NIL. He also observed that activities of the assessee are genuine and charitable in nature. He did not find any violation of section 11 and 13 as observed by us from asttt. Order of 01-
02. Taking into consideration the stand of AO in the fresh asstt. proceeding coupled with the proceeding dropped in respect of cancellation of registration u/s 12A and the subsequent asstt. orders passed u/s 143(3) in asstt. year 2005-06, 2006-07 wherein AO has not 12 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 disputed such type of issues and determined the taxable income at NIL we are of the opinion that assessee has not been deviated from its object of providing education. There may be small discrepancy in the accounts which is possible one, because of management of 600 institution but that would not be sufficient to say that it is not a charitable society, working for the public at large. We will be dealing with each additions made by the AO while taking up the grounds of appeal raised by the revenue. In the present grounds we are required just to evaluate the status of assessee i.e whether its activities are genuine and its objects are for charitable purpose. After looking into the history of the development in set aside assessment in asstt. year 1999-2000 to 2001-02 and subsequent assessments in 05-06 etc. We are satisfied that income of the assessee deserve to be assessed as required to be computed for charitable purpose.
12. Ground No. 3 in asstt. Year 2003-04. In this ground the grievance of revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 23179869/-. The brief facts of the case are that during the course of asstt. Proceeding Ld. AO found that assessee has been maintaining accounts of different institutions i.e. current account for day to day transaction, loan account for funds given by the assessee to the 13 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 institution for long term purposes on interest 3) capital deposit fund which represent the funds deposited by the institution with DAV CMC on interest. The Special Auditor while examining these accounts and the impact of outcome from these accounts on income, expenditure and utilisation of funds has observed that the balance in current account always differs with the institution on account of various reasons. The Special Auditor also stated that a sum of Rs. 23179868/- is available in the accounts without any detail. When the observation of Special Auditor contained at pages No. 10 - 19 were confronted to the assessee by the AO then it was contended by the assessee that statement of Special Auditor is not correct. The assessee has provided a statement of balance with different schools, exhibiting debit balance on Rs. 37077442/- and credit balance at Rs. 13897573/-. According to the assessee net balance of Rs. 23179868/- was available as on F.Y.1989-
90. When the explanation of assessee was confronted to the Special Auditor they point out that no such details were provided during the process of audit. The AO did not except the contention of assessee and observed that these balances are not forming part of reconciliation with the school's current account which indicate that the amount remained accounted in the books of DAV Schools financial year 1989-90 while these balances stand unaccounted in the respective alleged branches. 14 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05 The AO has observed that income / benefit there from remained unaccounted in the absence of confirmation he treated this balance as unexplained cash credit in the books of the assessee.
13. Before Ld. CIT(A) it was contended by the assessee that DAV College Managing Committee (Hqs.) maintained current accounts for every school/institution in subsidiary ledger besides maintaining the general ledger, the school/ institution maintain one bank account which is operated by the Principal and another separate bank account in the name of DAV College Managing Committee is opened at the respective station which is operated by accounts section / public school cell of DAV College Managing Committee and intimation is sent to DAV College Managing Committee. These accounts are reconciled after the closer of the year with respect to the deposits or withdrawal of the previous year. Non reconciliation of accounts is due to the fact that entries in the current account loan account and capital account are entered by one institution in one account and other institution in some other accounts, leading to non reconciliation balances one with the other or with the DAV College Managing Committee which in fact has no impact on income / expenses or utilisation of funds except interest income not considered by DAV College Managing Committee as there 15 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 can be no income from self. It was also pointed out that all the institutions are part of the parent body. These are old outstanding balances. There is no transaction in this account during the current year. The assessee has refuted the observation of Special Auditor that Accounts Section (Hqs.) holds balance without any details, details of the institutions were submitted to Special Auditor by the account of DAV main section. They returned the same after going through the details. These details were again submitted to the AO as per assesee's letter dated 25.10.2006. It was contended before the Ld. CIT(A) that the alleged debit balance does not relate to any particular individual institution. This is a difference of credit and debit balance of current account.
14. Ld. CIT(A) has gone through the contentions of assessee. He considered the background of the assessee being a society running education institution for the last more than 120 years. He observed that assessee has demonstrated on the record that in asstt. Year 1989-90 it has divided its composite accounts into two heads i.e accounts section and public school cell. It has submitted the details of debit and credit entries of the institution wherein the debit balance of composite account came to Rs. 2379868/-. The Ld. CIT(A) on verification of these details 16 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 recorded a finding that this amount does not relate to any particular institution. This is a difference of credit and debit balance of current account. According to the Ld. CIT(A) the old balances of un-reconciled current account of institutions which were continuing from earlier years has been erroneously treated as non application of funds for charitable purposes. Accordingly Ld. CIT(A) has deleted the addition.
15. Ld. DR relied upon the order of AO whereas Ld. Counsel for the assessee relied upon the order of Ld. CIT(A).
16. We have gone through the record. To our mind the addition made by the AO is the result of the approach he adopted while appreciating the accounts of assessee. There is no concrete discrepancy pointed out from the account which can lead unaccounted balances. He treated the special audit report as a gospel truth without giving any heed to the explanation offered by the assessee, if we look the asstt. Order background of asstt. Order passed in asstt. Year 1999-2000 to 2001-02 and the subsequent orders made in asstt. Year 2005-06 and 2006-07 vis a vis the finding of the Ld. CIT(A) then the scale would tilt in favour of the findings recorded by the Ld. CIT(A) . The assessee has demonstrated the alleged reason for the discrepancy or non reconciliation of the account. According to it it has bifurcated its composite accounts into two 17 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 heads in the year 1989-90. There are large number of institutions which have made different entries in the current account, loan account and capital account. This has resulted the alleged debit balance only on papers. The AO has treated it as unexplained cash credit on the ground that confirmation has not been filed. Whereas according to the assessee this debit balance of the composite account is continuing from the last many years and does not relate to this asstt. Year. Thus taking into consideration the finding of the Ld. CIT(A) we do not see any reason to interfere in it. Ground No. 3 is rejected.
17. Ground No. 4. In this ground of appeal grievance of revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 21495771/-. The AO while making the addition has made following observations:-
"The Auditor vide said annexure has stated that Rs. 2,14,95,771/- may be treated as income on account of payment to DAV CMC by debiting to Income & Expenditure A/c Rs. 65,00,000/- & Rs. 7,00,000/-. Donation received on account of weaker section Rs. 21,23,500/- and other donation shown as advance donation in the Balance Sheet of Rs. 11,16,400/- and Rs. 13,29,000/- and other small amount were wrongly debited to Income & Expenditure A/c or non-refundable liabilities without details. This amount of Rs. 2,14,95,771/- is being treated as non-application of money for charitable purposes."
18. Before Ld. CIT(A) the assessee has submitted that the AO did not afford any opportunity to explain the nature of these amounts, before treating these debit amounts and refundable liabilities as income of the 18 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 assessee. The assessee has filed details in annexure 5 which was placed in the paper book. The Ld. CIT(A) has gone through the explanation of the assessee contained in annexure 5 to the paper book. According to the Ld. CIT(A) each of entries referred t in the special audit report has been duly explained by the assessee and therefore he deleted the addition.
19. With the assistance of Ld. Representative we have gone through the asst. order as well the order of the Ld. CIT(A). From the perusal of finding of AO it is not discernable what type of explanation assessee failed to offer. According to the Ld. CIT(A) assessee has submitted its explanation in annexure 5 appended to the paper book filed before the first Appellate Authority. These details explained the nature of entries as well as the amounts. It is the appeal of revenue. It should have filed the paper book containing the objection of the auditor as well as the explanation of assessee. The revenue wants that Tribunal should reverse the finding of the Ld. CIT(A) but in our opinion it failed to bring any material on record which can persuade us to reverse the finding of the Ld. CIT(A). The Ld. First Appellate Authority is on the higher pedestrial in the hierarchy of tax administration. On the basis of explanation given by the assessee he was satisfied that no addition deserves to be made then such a view could he dispelled at our end if it 19 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 is demonstrated on the record that such view is not possible or contrary to the facts and circumstances. From the brief finding of the AO we are not convinced how addition can be made in respect of this amount. Therefore we do not see any reason to interfere in the finding of the Ld. CIT(A). Ground No. 4 is rejected.
20. Ground No. 5 :- Ground No. 5 is interconnected with ground No. 1 in the case of assessee. We take both these grounds together. The grievance of the revenue in its is ground is Ld. CIT(A) has erred in deleting the addition of Rs. 54010430/- whereas the grievance of assessee in its ground is that Ld. CIT(A) has erred in sustaining the addition of Rs. 22633700/-.
21. The brief facts of the case are that assessee has a publication division where it used to publish school books, note books etc. The books and magazines published by the assessee are meant for sales in its schools. They are not be sold in the market. In other words the items published in its publication division are meant for the consumption of the students studying in the institutions managed by the assessee. According to the AO the Special Auditor had noticed a debit balance of Rs. 76644130/- recoverable by publication division on 31st March, 20003 from different institutions, on account of books supplied. According to the 20 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 AO it is an income utilized for non chargeable purpose hence deserves to be added. Accordingly he made an addition of Rs. 76644130/-.
22. Before Ld. CIT(A) it was contended that publication division dispatched the books from the month of December to 31st March of financial year for the next session and at times extends to April also. These books remain unsold on 31st March of the Financial Year. These books are sent to the Regional Director and Schools on consignment basis but on sale of books the payments are remitted to the publication division and are duly accounted for in the accounts books of publication division. According to the assessee the difference is mainly due to sale of magazines etc. which were accounted at the time of making payments by some schools to the Regional Director. The Special Auditor has asked for the details of the schools to whom the books were supplied but the payment was received during the current year. The assessee has submitted that as per details there were only few schools from which all the payments against the sale of books were remitted to publication division in the next financial year. It was also contended by the assessee that there is not a single instance of any receipt not accounted for in the publication division. The assessee has submitted the reconciliation statement.
21 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05
23. The Ld. CIT (A) has gone through the contentions raised by the assessee and was satisfied with reconciliation of Rs. 54010435/-. He deleted the above to this extent. As far as the remaining amount is concerned Ld. CIT(A) is of the opinion that assessee failed to give reconciliation / confirmation about this amount and he confirmed the addition.
24. With the assistance of Ld. Representative we have gone through the record carefully. The books and magazines published by the publication division were for the consumption of assesee's own institutions and not for sale to general public. It is not earning profit from this activity. Even if some incidental profit as accrued to the assessee in this division then all these activities are meant for furthering the cause of education. We fail to understand how this item should not be construed as income applied for charitable purpose or for the object of imparting education. The department has not placed anything on the record which can persuade us to dispute the finding of fact recorded by the Ld. CIT(A) to the extent of reconciliation of Rs. 5,40,10,435/- is concerned. As far as the addition confirmed by the Ld. CIT (A) and impugned by the assessee in its appeal is concerned we remit this matter to the file of AO to look into, with an angle, how it could not be construed as utilization for the purpose of education. It is not the case of assessee or of the AO that 22 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 it is generating profit from the activity of publication. Ld. AO shall decide the aspect whether it amounts to the application of income for the purpose of education or not. The ground of appeal raised by revenue is thus rejected and the ground of appeal raised by the assessee is allowed for statistical purposes.
25. Ground No. 6 :- In this ground grievance of the revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 3626573/- and Rs. 1754828/-. The AO while making this addition has made following observation in para 19 of the asstt. order :-
"The Auditor has provided vide annexure-9 reconciliation of Bank A/c . As per the reconciliation provided up to the 30th August, 2006, that the balance of unforeseen debit remained Rs. 36,26,573/- and difference in reconciliation Rs. 17,54,828/-, the same is added to the income of the assessee. The unforeseen debit indicate that the withdrawals are made from the Bank A/c which were not properly accounted for inspite of all opportunities the said amount remained unexplained . It was also noticed that the deposits of the assessee also were not responded and confirmed in the Bank Statement. These amounts unresponded are as under :-
Public Schools Cells as on 31.3.2006 Rs. 13,84,944/-
Account Section Part-A Rs. 3,14,86,844/-
Account Section Part-B Rs. 10,56,86,355/-
The management has not offered any explanation for these differences and difference in the Bank A/c leads to the doubt of siphoning off the money of the trust. It is also pointed out that the Spl. Auditor had considered the status of Bank reconciliation as on 30.08.2006 in respect to entry related to 31.3.2003."23 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05
26. Before Ld. CIT(A) it was contended by the assessee that observation of the AO that assessee failed to submit any explanation on this issue are factually incorrect. The assessee has submitted reconciliation in respect of the bank account pertaining to the current account. According to the assessee there was no difference as in these statements pertaining to the current account. The alleged unreconciled amount of Rs. 3626573/- and Rs. 1754828/- pertains to old entries and no addition is called for in the year under consideration. The assessee has also produced reconciliation statement in respect of bank debit for Rs. 881471.19. The Ld. CIT(A) has examined the list attached as Annexure 6 to the paper book and arrived at a conclusion that the alleged unreconciled amount of Rs. 3626573/- and Rs. 1754828/- pertains to earlier years. Ld. CIT(A) also observed that addition relating to these entries is pending before ITAT. Hence it is not sustainable in the present asstt. year.
27. The Ld. Counsel for the assessee relied upon the finding of the Ld. CIT(A) whereas Ld. DR relied upon the order of AO. The issues in earlier year have been set aside by the ITAT and the AO did not make any addition in the earlier year. He has determined the income of the assessee in asstt. years 1999-2000 upto 2001-02 at NIL. From the 24 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 finding of the AO it is not discernable whether these un-reconciled debit entries relate to this asstt. Year or they are pertaining to other year. At the time of hearing no details were pointed out to us which can demonstrate that these amounts relatable to the present asstt. Year. Therefore we do not see any reason to interfere in the order of Ld. CIT(A) on this issue and ground No. 6 is rejected.
28. Ground No. 7 :- In this ground the grievance of revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 2157954/-.
29. The brief facts of the case are that the assessee has been running a school namely Kabirmath Seewan School in a rented premises. It has been paying rent of Rs. 8000/- per month which was to be increased 10% after every three years. The School had paid a sum of Rs. 2151974/- to Mr. Kapur Chand Prasad owner of land for constructing new class rooms which were required by the assessee. The advance was to be adjusted against the lease rent. The AO treated such advance as non application of funds for chargeable purposes. The advance was given for raising construction of new class rooms and it was to be adjusted against lease rent required to be paid by the assessee. It indicate that amounts were spent for fulfilling the object of education. Ld. CIT(A) has considered this aspect while deleting the addition and we do 25 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 not see any reason to interfere in this finding. This ground of appeal is rejected.
30. Ground No. 8 in this ground of appeal the grievance of revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 49097954/-. The AO while making this addition has made following observation in para 21 of the order :-
"The Spl. Auditor has pointed out that sum schools/institutions had directly credited Building Fund Development or other fund to balance sheet without routing through Income & Expenditure A/c whereas all other schools had routed through Income & Expenditure A/c which is appearing in the income. Thus the amount of Rs. 4,90,47,002/- can not be treated as used for charitable purposes."
31. On due consideration of this finding of AO in the light of observation made by. Ld. CIT(A) we fail to appreciate how one time payment receipt from the students for specific purpose i.e building fund to be utilised for the construction of building and being utilised for the same purpose for that school only, can be considered as non utilisation for charitable purpose, simply because this capital receipt has been transferred to the balance sheet without routing through income and expenditure account. The amount was received from the students towards building funds. It was used for the purpose of the construction of building. Nothing was pointed in assessment order or at the time of 26 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 argument to dispute the fact that it was used for construction of building. Hence it indicate that it was used fro charitable purpose and not for any other purpose. The AO has not highlighted any circumstance in the finding extracted supra which can indicate its non utilisation for charitable purpose. This ground of appeal is rejected.
32. Ground No. 9 Ground No. 9 taken by the revenue in asstt. Year 2003-04 is interconnected with the ground No. 2 raised by the assessee in asstt. Year 2003-04 and the solitary ground of appeal raised by the assessee in asstt. Year 2004-05. In these grounds of appeal the issue relates to allowability / disallowability of gratuity amounts debited by the assessee in the books of accounts.
33. The brief facts of the case are that in asstt. Year 2003-04 AO has found that assessee has debited a sum of RS. 81851627/- . income and expenditure account on account of gratuity fund, leave encashment and EDLI. Similarly in asstt. Year 2004-05 a similar amount has been debited. The Special Auditor has reported that some of schools have debited a sum of Rs. 1,15,16,286/- relating to earlier years and the said amount was already forming part of a liability in DAV CMC balance sheet. The AO on the basis of Special Auditor report made an addition of Rs. 9,33,67,913/- in asstt. Year 2003-04 by treating this amount as non 27 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 application of fund during the year for charitable purpose. In asstt year 2004-05 he made an addition of Rs. 8,18,51,627/-.
34. On appeal Ld. CIT(A) has deleted the addition of Rs. 1,15,16,286/- on the ground that this much of amount was actually paid by the assessee to employees. In respect to other amount i.e. Rs. 8,18,51,627/- he confirmed the addition on the ground that it was only a provision made by the assessee which is not allowable in view of section 36 (1)(iv), 40 A(7) and section 43B of the Act.
35. The assessee is impugning the confirmation of addition at Rs. 8,18,51,627/- in asstt. Year 2003-04, 2004-05 and revenue is impugning the deletion of Rs. 1,15,16,286/- in asst. Year 2003-04.
36. With the assistance of Ld. Representative we have gone through the record carefully. According to the assessee gratuity is a known ascertained liability for each year in terms of provision of payment of gratuity act. This is a statutory and known liability which has to be discharged by the trust on the retirement or resignation of the employee. Each year's liability is ascertained at the cumulative level and put into a reserve gratuity fund and the amount so collected from the institution to meet this obligation is at once invested in Govt. securities and approved bonds. This was also pleaded by the assessee that this amount was not 28 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 kept in cash except to the amount disbursable immediately during the year. The emphasis of the assessee is that it is not a mere book entry and thus it should not be construed as a provision account of un ascertained and unknown liability but it should be construed reserve for a known statutory liability. According to section 36 (1)(vi) any sum paid by an assessee as an employer by way of contribution towards an approved gratuity fund created by him for exclusive benefit of his employees under the approved trust is allowable deduction. The provision made on a scientific and actuarial basis for payment of future gratuity has been allowable under the general principles. Section 40A (7) has been inserted by Finance Act 1975 which put an embargo on allowance of a deduction in respect of a mere provision made by an employer in their books of accounts for payment to their employees on their retirement or on termination. But if any provision is made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund for the purpose of payment of any gratuity , then that has become payable during the previous year and such provision will continue to be eligible for deduction. This section 40A(7) supersedes the general principle as regard the liability for gratuity. The gratuity in the case of assessee can be allowed either on actual payment as per 43B of the Act or if the 29 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 alleged provision was contributed towards an approved gratuity fund. The alleged provision cannot be allowed to the assessee in view of restriction put by section 40A(7) of the Act because there is no approved gratuity fund manned by the assessee. The Ld. CIT(A) has already taken cognigance of the amount actually paid by the assessee while deduction of Rs. 1,15,16,286/-. This payment is an allowable expense within the meaning of section 43B which has been made applicable wef 1.4.1984. Thus taking into consideration section 40A (7) assessee cannot claim the deduction of amount which has been made as a provision for payment of gratuity fund etc. Taking into consideration the detailed finding of Ld. CIT's on this issue . The ground of appeal raised by the assessee in both the asstt. Years are rejected. Similarly Ld. CIT(A) has allowed the deduction of actual payment of gratuity which is being impugned by the revenue. In view of the above discussion this ground of revenue's part is also rejected.
37. Ground No. 10 In this ground grievance of the revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 86,87,238/-. The brief facts of the case are that AO on the strength of observation made by the Special Auditor has observed that assessee failed to reconcile the amount of Rs. 86,87,328/- available in the loan account. According to 30 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 the AO assessee has given loan to its institution. It could not reconcile the loan shown in the books vis a vis the confirmation given by such institution. The AO was of the opinion that management is taking adhoc decision in respect of such amount and therefore it has committed a default within the meaning of section 13 of the Income Tax Act.
38. On appeal before Ld. CIT (A) it was contended by the assessee that these entries are very old entries. They were outstanding in the books of DAV CMC. Keeping in view the long back outstanding entries the management has rectified these entries after treating these amount as grant to its own institution. The sanction was granted by the General Secretary. The list of institution with address and copies of the General Secretary's permission were submitted to the AO. It was also contended that there is no violation of provision of section 13 of the Act. The Ld. CIT(A) after taking into consideration the explanation of assessee deleted the addition.
39. With the assistance of Ld. Representative we have gone through the record carefully. The AO had just made a reference of the observation of Ld. Special Auditor. He has nowhere pointed out as to how assessee has violated section 13 in respect of treating the outstanding loan as grant to its own institution. Section 13 (1)(c) of the 31 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 Act provide that where a part of the income of a charitable or religious institution is used or applied directly or indirectly for the benefit of settler, founder and certain other specified persons then such part would not be considered as application of money for charitable purpose. The assessee has granted loan to its own institution. When the institution failed to repay the loan the assessee has treated it as a grant to those institutions. It is not the case of AO that any benefit was extended either to the settler founder or any other specified persons. The list of institution along with copy of the Secretary's approval for treating such loan as a grant was supplied to the AO. Ld. CIT(A) has deleted the addition after considering all these aspects. We do not see any reason to interfere in the order of the Ld. CIT(A) on this issue. This ground of appeal is rejected.
40. Ground No. 11 :- in this ground of appeal grievance of the revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 79,89,834/-. The brief facts of the case are that during the course of asstt. Proceeding on the basis of Special Auditor's report Ld. AO has observed that assessee failed to reconcile the capital fund account. He found a debit entry of Rs. 79,89,834/-. In the capital fund account and 32 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 accordingly he made the addition of this debit entry because assessee failed to explain the entry.
41. Before Ld. CIT (A) it was contended by the assessee that it has been maintaining capital fund account of all the institutions and schools as per the details capital fund of public school in the accounts books was existing at Rs. 57,67,187.37 as on 31st March, 1991. It rose upto 210,38,900.50 as on 31st March 1994 and continued at this very figure upto 31st March 2000. In F.Y 2000-01 an amount of Rs. 59,90,497.92 was debited to the public school cell. After reducing this amount there was a credit balance of RS. 1,50,48,602.68 as on 31st March, 2001. An interest of Rs. 27,39,251.95 was credited to this account and thus the amount was increased to Rs. 1,77,87,654.63 in the capital fund of public school. This aspect was considered by the Special Auditor during the course of special audit for asstt. year 1999-2000 to 2001-02. The AO has made the addition of the total amount in asstt. Year 1999-2000. This issue was set aside by the ITAT. The AO has made the addition of Rs. 79,89,834/- in this year also.
42. On an analysis of all these facts Ld. CIT(A) has deleted the addition on the ground that this addition has been made in earlier year 33 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 and law does not permit the addition to be made twice in respect of all the same amount.
43. We have duly considered the rival contention and gone through the record. From perusal of asstt. Order passed in asstt. Year 1999- 2000 in pursuance of the ITAT's direction we do not find any such addition made by the AO. He has made an addition of Rs. 9866835/- which is in respect of building fund and development fund taken directly to the balance sheet. The second addition is made of Rs. 2433600/-. This amount is in respect of capital fund. Again it was taken directly to the balance sheet therefore this has been added by the AO. On perusal of the asstt. Order dated 17.12.2008 in asstt. year 1999-2000 where AO has not made addition on account of debit entries out of capital fund. We are of the opinion that this issue is required to be examined at the level of AO. The capital fund account pertains to earlier years. Additions were made in asstt. Year 1999-2000 those have been set aside by the ITAT and in the second round no addition has been made. Ld. AO shall consider all these aspects and then readjudciate this issue. This ground of appeal is allowed for statistical purposes.
44. Ground No. 12 the grievance of assessee in this ground is that Ld. CIT(A) has erred in deleting the addition of Rs. 18,95,363/-. The addition 34 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 was made by the AO on the ground that assessee has written off this much of amount and failed to submit details of persons from whom amount was recoverable. He was of the opinion that sanction to written off these amounts given by the General Secretary was also not submitted. The Ld. CIT(A) has deleted the addition on the ground that these were old balances and outstanding in the accounts books of the society. The recipients were institutions to whom loans were advanced by the society. The approval of General Secretary was granted before writing off these outstanding amount. LD. cIT(A) did not see any reasons how these amounts can be considered of non application of funds for the charitable purpose. The amounts were given to the assessee's own institution. On due consideration of the finding of Ld. CIT(A) we do not see any reason to interfere in his order.
45. Ground No. 13 In this ground of appeal grievance of the revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 51,19,518/-. The Special auditor has found recoverable outstanding of Rs. 2,31,79,868/- and Rs. 1,94,82,783/- from assessee's own institution in the current amount and loan account . According to the AO an interest @ 12% ought to have been shown on these outstanding amounts. The AO is of 35 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 the opinion that assessee ought to have charged interest and shown it in the income.
46. Dissatisfied with the action of AO assessee carried the matter in appeal before the Ld. CIT(A). It contended that there is no misuse of trust money. The AO was not justified in considering the expected market rate of return/interest @ 12% p.a. as taxable income on the net amount of current account and loan account outstanding against assessee's own institution. The society cannot be deemed to have income from interest which had not been received or was not receivable. Ld. CIT(A) deleted the addition by observing that assessee cannot be expected to earn interest income from its own institution.
47. With the assistance of Ld. Representative we have gone through the record carefully. The addition was made by the AO on the ground that assessee should have shown interest income on the outstanding loans as well as amounts available in the current account given to its own institution. In our opinion if we accept the logic of AO then it will amount to earn interest income from self. The institutions are dependant upon the Head office. It used to extend grant for running those institutions. Therefore the logic applied by the AO is not applicable in the present case. Ld. CIT(A) has rightly considered this aspect and deleted 36 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 the addition. We do not see any reason to interfere in his order. This ground of appeal is rejected.
48. Ground No. 14 :- In this ground of appeal the grievance of revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 16,33,417/- The assessee had an inter unit balances. AO has observed that assessee could have shown interest income on the outstanding inter unit balances. The Special Auditor has pointed out a long list of inter unit differences totalling to Rs. 13611809/-. The AO has observed that interest on this inter unit difference of amounts was to be shown as income. He therefore worked out an interest income of Rs. 1633417/-.
49. Ld. CIT(A) has deleted the addition on the ground that he has gone through the observation of Special Auditor as well as list of all such differences. There is no adverse impact on the income of society except pointing out that no interest factor was considered. Ld. CIT(A) has deleted the addition.
50. On due considered of the facts and circumstances we are of the opinion that Ld. CIT(A) has rightly pointed out that there is no adverse impact on the income of Society because if in one unit there is a debit then in other unit there will be a credit. These are the certain differences in the balance of the amount. On taking into consideration all these 37 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 balances at the level of head office they will set off each other and there would be no impact on the income of the assessee. This aspect has been considered by the AO also and he only made the addition in respect of interest ought to have shown in the concerned unit on the credit balance with the other unit. The Ld. CIT(A) has deleted that inter unit are not suppose to charge interest from each other. The Ld. CIT(A) has rightly appreciated this aspect. Assessee has already demonstrated that it is not supposed to charge interest from self. AO failed to appreciate the true nature of these transactions keeping in view the background of assessee, hence this ground of appeal is rejected.
51. Ground 15 :- In this ground of appeal the grievance of revenue is that Ld. CIT(A) has erred in deleting addition of Rs. 5208555/-. The brief facts of the case are DAV CMC (Hq.) has shown grant to Dayanand Foundation Fund of Rs. 8078555/- Dayanand Foundation Fund has shown grant from the Hq. at Rs. 2870000/-. The difference of Rs. 5208555/- has been treated as income of the assessee on the ground that it was not utilised for charitable purpose.
52. Ld. CIT(A) has deleted this addition on the ground that Special Auditor himself has reported that there is no adverse impact on income and expenditure in the balance sheet except a difference of Rs.20,000/-. 38 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05 The Ld. CIT(A) further observed that Dayanand Foundation Fund is one of the unit of Society. The funds transferred to one unit cannot be said to be utilised for non charitable purpose. Similarly once the Head office has granted an amount as a grant of to one its unit it has to be treated as utilisation of the fund for charitable purpose. In any case it cannot be treated as unutilised amount which give rise to an income.
53. We have duly considered the contentions of Ld. Representative and perused the record carefully. The Special Auditor himself has reported that there is no adverse impact on income and expenditure account of the assessee. The head office has granted a grant to one of its unit which has duly been recognised. Thus it cannot be treated as un utilised amount and cannot give rise to an income. The grant was dully approved by the appropriate authority. Therefore Ld. CIT(A) has rightly deleted the addition.
54. Ground No. 16 In this ground of appeal the grievance of revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 345,000/- and Rs. 50,000/-. The AO has made following observations while making these additions:-
17(i) A further comment of the Auditor regarding expenses of Rs. 50,000/- also confirm that the money of Publication is used for non-charitable purposes.39 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05 A) Mr. K.K. Budhiraja Rs. 50,000/-
Narration of explanation Attached with the voucher read as under:-
"A sum of Rs. 50000/- may be paid in the name of Mr. K.K. Budhiraja, towards miscellaneous expenses to be incurred. This may be treated as a bill. The above amount may be released against the amount received from publication department for the above, a sum of Rs. 100000/- has been received from the publication Department."
Signed by :
General Secretary, Director (Admin), Administrative Officer The above observation goes to prove that there is a serious lapse regarding accounting of Publication Division and its utilisation of funds for the achievement of the objectives of the trust. This being done by the specified persons, the same is taxable u/s 13(3) of the Income Tax Act, 1961.
23. Establishment Expenses Rs. 3,45,000/-
The Special Auditor has pointed out that no details were provided to for the said amount of expense. It was stated that this amount was wrongly debited and has been rectified in financial year 2005-
06. Hence, admitted by the assessee for taxation during this year.
(Addition: Rs. 3,45,000/-)
55. Before Ld. CIT(A) it was contended by the assessee that it never agreed for taxation of establishment expenses. It was contended by the assessee that these expenses are duly supported by vouchers and other correspondence. There is no justification to make the impugned addition. Ld. CIT(A) has deleted the addition on the ground that assessee has 40 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 filed supporting vouchers, bills and correspondence in support of these expenses.
56. Ld. Counsel for the assessee relied upon the order of Ld. CIT(A) whereas Ld. DR relied upon the order of AO. On due consideration the finding of AO we are of the opinion that he has made the addition only on the observation of Special Auditor and did not consider the contention of assessee that expenses are duly supported by the bills and vouchers. Ld. CIT(A) has accepted this contention of assessee. It is not brought to our notice, how these expenses were not incurred for advancements of the objectives of the society. Therefore we do not see any reason to interfere in the finding of Ld. CIT(A).
57. Ground No. 17 In this ground of appeal grievance of revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 1044300/-. This addition was made by the AO on the strength of observation made by the Special Auditor. According to the observations of the auditor certain FDRs are accounted for at two places one by DAV CMC and others by respective institutions. Due to some communication gap, inter unit entries are passed by the other institutions but in case of FDRs of Dayanand Foundation Fund at Rs. 1044300/-, they are accounted for at 41 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 two places without inter unit entry. The AO has made an addition of Rs. 1044300/-.
58. Dissatisfied with the action of AO assessee carried the matter in appeal before the Ld. CIT(A). It was contended that accounts section of Dayanand Foundation Fund are maintained by the DAV CMC (main section). All the FDRs were procured by the concerned person of main accounts branch of DAV CMC that is why due to oversight FDRs were recorded in the books of main accounts and also in the branch account and the same entries of FDRs was also in the books of Dayanand Foundation Fund. According to the assessee this was done due to oversight. On realising the facts the entries of the FDRs have been reversed in the books of main amount during the year 2003-04. This aspect was explained to the special auditor as per letter dated 27th July, 2006. The Ld. CIT(A) has deleted the addition on the ground that society has not claimed any application of income on this account. The amount has not been claimed as applied for charitable purpose. The mistakes in the entries have been rectified. On due consideration of the facts and circumstances we are of the opinion that there was a mistake occurred in the accounts due to human error. It was brought to the notice of assessee which was rectified. The assessee has not claimed utilisation 42 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 of this amount twice for charitable purpose. Thus AO is not justified to say that exemption will not be available on this amount. Ld. CIT(A) has rightly deleted the addition and we do not see any reason to interfere in his order.
59. Ground No. 18 In this ground of appeal the grievance of the revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 1.76 lacs. The AO has made following observation while making this addition :-
24. The Special Auditor has pointed out that the DAV CMC (HQ.) had claimed an amount of Rs. 1,73,586/- under the head DAVCMC Bhawan was written off during the year which remained unexplained during the assessment proceedings as well. In the absence of any detail and evidence, this amount is assessed to tax as misused fund covered u/s 13 of the Income Tax Act, 1961.
All the abovementioned additions & inferences had to be drawn in the absence of complete information with evidences to be filed by the assessee for proper verification after Special audit in the case. It is pertinent to mention here that the assessee was specifically communicated vide my questionnaire dated 26.9.06 that "Since the matter is barred by the limitation within 60 days of 142(2A) report, any explanation/evidence not filed shall be treated as deemed violation and unexplained and unverified under the Income Tax Act, 1961. In such circumstances, provisions of the trusts and exemption u/s. 11 and 12 of the Income Tax Act, 1961 shall be denied without repeated opportunities. No adjournment shall be given without sufficiently reasonable cause, as all these discrepancies have already been made known to your organisation well in advance."
43 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05
60. Dissatisfied with this addition assessee carried the matter in appeal before the Ld. CIT(A) it was contended that a sum of Rs. 1085772/- were appearing in the name of DAV Bhawan in the books of accounts of DAV CMC whereas there was separate account of DAV Bhawan showing to Rs. 112186/- which were adjusted against the income of the same head . According to the assessee there was no requirement of resolution of DAV CMC for adjustment of one head account lying in two heads separately in the books of society. After the adjustment the excess amount of Rs. 173586/- was taken into account as income of the society. All these facts were explained to the Special Auditor and the AO. It failed to understand how the AO has observed that this amount has been misused and it is covered u/s 13 of the Income Tax Act. Ld. CIT(A) has gone into this contention of the assessee and observed that this is an accounting adjustment which is correctly done by the society. There is no need for resolution to be passed by the society for such routine accounting adjustment.
61. On due consideration of the finding of Ld. CIT(A) vis a vis the finding of the AO extracted supra we are of the opinion that AO has not made out how Section 13 is applicable on this amount. Section 13 (1) (c) 44 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 is applicable if it is established on the record that the funds have been used or applied directly indirectly for the benefit of settler, founder and certain other specified persons. No such thing has been mentioned by the AO. Assessee has already accounted the excess over the expenditure as its income which will be taken into consideration while computing the application of income for the purpose of charitable purpose. There is no need to make a separate addition and brand it as non application for charitable purpose u/s 13 of the Act. This ground of appeal is rejected.
62. Now we take appeal of revenue i.e ITA No. 91/D/09 in asstt. Year 2004-05.
63. Ground No. 1 & 2 have already been taken by us while disposing off ground No. 1 and 2 of revenue's appeal in asstt. Year 2003-04.
64. Ground No. 3 :- In this ground of appeal the grievance of revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 512219860/-. On the strength of Special Auditor's observation AO has made this addition and his find in para 2 on page 2 of the asstt. Order read as under :-
"2. Difference in Opening Capital :-45 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05 It is seen from the audited balance sheet that the opening capital is Rs. 3939862477 whereas the closing capital as on 31.3.2003 was Rs. 3427642617 which can be seen from the revised audited balance sheet filed along with the special audit report of assessment year 2003-04. The assessee has not filed any reconciliation / explanation of such difference, as in the past assessments.
It is observed that certain funds or income is directly credited to Capital Fund account. Thus the amount of Rs. 512219860/- is added to income of the assessee, not includible in utilization of funds for charitable purpose."
65. Before Ld. CIT(A) it was contended by the assessee that AO failed to appreciate the true affairs. He has taken the opening balance as on 1st April, 2002 to Rs. 3427642617/- instead of closing balance as on 31st March, 2003 which was Rs. 394,32,53,063/-. The assessee has filed copy of the schedule before the Ld. CIT(A) and submitted that capital difference of these balances is Rs. 33,90,586/- and not Rs. 512219816/- as construed by the AO. It was also submitted that in fact there is no difference in the opening and closing balance. The difference in the capital fund has arisen due to closure of 8 institutions during the year and starting of 6 new institutions. The details of all the institutions were also submitted before the AO as well as before the Ld. CIT(A).
66. Ld. CIT(A) has gone through this contention of the assessee and held that actual difference is of Rs. 3390586/-. He further observed that 46 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 this difference is due to closing of 8 schools and opening of 6 new schools. Ld. CIT(A) did not see any reason to sustain the addition of Rs. 512219860/- made by the AO.
67. Ld. DR relied upon the order of AO whereas Ld. Counsel for the assessee relied upon the order of Ld. CIT(A). On due consideration of the facts and circumstances we are of the view that it is the appeal at the instance of revenue. The revenue did not file any paper book disputing the finding of fact recorded by the Ld. CIT(A). On perusal of the Ld. CIT(A)'s order we do not see any reason, how the actual difference worked out by the assessee at Rs. 33,90,586/- has been explained. The Ld. CIT (A) has just make a mention that it is because of closure of 8 schools and opening of 6 new schools. There is no finding demonstrating the reconciliation of this difference in the accounts. Therefore we set aside this issue to the file of AO to verify the difference of Rs. 3390586/- only. The AO shall also examine whether this amount is tobe considered towards application of income for charitable purpose. This ground of appeal is partly allowed.
68. Ground No. 4 : In this ground of appeal the grievance of revenue is that Ld. CIT(A) has deleted addition of Rs. 1,50,00,000/-. The facts leading to this addition are that AO has observed that the 47 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 debtors for F.Y. 2002-03 appearing in publication division were not correspondingly appearing in schools as creditor and in absence of proper verification of debtor addition was made in astt. Year 2003-04. He also observed that part of the balance is confirmed by the schools representative who are selling the books to the students but not fully reconciled. On the estimate basis. AO has made addition of Rs. 150 lacs in this asstt. Year also.
70. On appeal Ld. CIT(A) deleted the addition.
71. With the assistance of Ld. Representative we have gone through the record carefully. We have dealt with this issue in asstt. Year 2003-04 while dealing with the ground of appeal No. 1 raised by the assessee and ground No. 5 raised by the revenue. In asstt. Year 2003-04 Ld. AO has made an addition of rs. 76644130/-, and being amounts recoverable by publication division from different schools on supply of books and magazines. The Ld. CIT(A) has deleted the addition of Rs. 5,40,10,430/- in asstt. Year 2003-04 on the ground that assessee has reconciled the outstanding amounts in the books of institutions / schools as well as in the publication division. In this year AO has made the addition simply on the ground that in the books of assessee, those who were shown as debtor were not showing the assessee as in their accounts. He made 48 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 an estimated addition of Rs. 1.50 crore on the ground that this much benefit must have been given to those institutions. In 2003-04 we have held that published material was not meant for sale. It was for the consumption for asessee's own institution. Supply of books and study material is a step in furtherance of object of education. The assessee used to give grants to its institutions and schools. Thus supply of material can be at the most one of such grant etc. for achievement of the object of education. It cannot be said that the supply of study material was to be construed as a benefit to any specified person or to the settler / founder of the trust. The AO has not given any specific reason for estimating this income in the astt. Order. Ld. CIT(A) has rightly deleted the addition. We do not see any reason to interfere in his order.
72. Ground No. 5 In this ground of appeal grievance of the revenue is Ld. CIT(A) has erred in deleting the addition of Rs. 21 crore. The finding of the AO while making this addition represent as under :-
"1.Bank Account :-
The assessee filed Bank Reconciliation Statement in three parts.
(a)Public School Cell : Indicate the difference relates to earlier year which has been explained and relates to A.Y. 2003-04.
(b)Account section Group A :- The assessee filed detailed reconciliation & copy of Bank Statements of different account.49 ITA Nos.51,52, 90,91/Del/09
Asstt. years 2003-04 & 2004-05
(c)Account section - Group B :- The Assessee has filed only a socalled Bank Reconciliation Statement, without any details/clarification of differences in the Bank Statement. It was noticed that there was unexplained debit in Bank account in assessment year 2003-04. From the reconciliation statement, it is noticed that there is an amount of Rs. 11.73 crores under the head "Our deposit not shown by the bank". This amount was never reconciled even after the special audit in the case for the A.Y. 2003-04. It appears the assessee is not willing to come clean & clear on account of reconciliation of Bank account - Group B. The explanations as filed in respect of bank account of group A does not commensurate with Group B filed during the current year reconciliation. Therefore, in absence of proper details/clarifications, I estimate the amount of Rs. 2 crore which does not qualify for appropriation in this year and is, therefore, disallowed."
73. Ld. CIT(A) has deleted the addition on the grounds that deposits made at the end of the F.Y. might have not been credited by the bank in the same F.Y. and therefore such deposits remain uncredited in the books of bank. Assessee has shown such deposits in his bank reconciliation as the deposits not shown by the bank. The Ld. CIT(A) further observed that assessee has made gross receipt of Rs. 402 crore and the amount which did not tally figure to figure is only 0.44% of the total gross receipt and that too of 450 institutions.
74. On due consideration of the above facts and circumstances we do not find any error in the order of Ld. CIT(A). the explanation of the assessee is that it has made deposit of Rs. 402 crores in the bank on different dates. There is some reconciliation discrepancy in respect of Rs. 11.703 crore which according to the assessee it has shown as 50 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 deposits in the banks whereas bank has not considered it upto to the end of F.Y. which might have been taken in the next F.Y. But it cannot be said that this amount has been taken out from the books of assessee or applied for non charitable purposes. In view of the above this ground of appeal is rejected.
75. Ground No. 6 In this ground of appeal revenue is impugning the addition of Rs. 5119518/- The AO has made this addition on an estimate basis. He has observe that there was discrepancy in the debit balance of the institutions in asstt. Year 2003-04. According to the AO assessee should have charged interest from the institution on the advances given to them. He estimated an interest income of Rs. 5119518/- in asstt. Year 2003-04 and made the addition. The Ld. CIT(A) has deleted that addition and we have rejected the ground of appeal bearing No. 13 raised by the revenue in that asstt. year. In the present year on the basis of past history AO presumed interest income of Rs. 5719518/- also. Keeping in view our finding on ground No. 13 in asstt. Year 2003-04 we do not find any merit in this ground of appeal and it is rejected.
76. Ground No. 7 : In this ground of appeal grievance of revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 10 lacs. The brief facts for making this addition are that AO has noticed that certain 51 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 institutions were closed during the year 2002-03. He estimated the value of assets in those institutions at Rs. 10 lacs and observed that this management failed to account for those assets. Hence he made an addition of Rs. 10 lacs u/s 13 of the Act.
77. Ld. CIT(A) has deleted the addition on the ground that one of the institutions closed was DAV Academy Kanina. This institution was having assets like bus, car, computer etc. All these assets were duly accounted and retained by this institution. A new institution in the name of DAV College of Engineering and Technology Kanina had commenced from this premises. All these assets have been taken away by this college. On account of these reconciliation Ld. CIT(A) has deleted the addition. On due consideration of the order of Ld. CIT(A) as well as AO we are of the opinion that AO did not make any investigation of facts or considered the explanation of assessee. He simply proceeded on the strength of Special Auditor's report and did not bother to look into other aspects. The department is unable to point out any circumstance which can persuade us to take different opinion then the one taken by the Ld. CIT(A) . This ground of appeal is rejected.
78. In the result we summarise the result as under :-
ITA No. 51 appeal of the assessee is partly allowed 52 ITA Nos.51,52, 90,91/Del/09 Asstt. years 2003-04 & 2004-05 ITA No. 52 appeal of the assessee is dismissed ITA Nos. 90 and 91 appeal of the revenue are partly allowed The order is pronounced in the open court on 26.4.2010.
[R.C.SHARMA] [RAJPAL YADAV]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Veena
Dated:
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY By Order,
Deputy Registrar,
ITAT