Income Tax Appellate Tribunal - Pune
Dr. D.Y. Patil Pratishtan,, Kolhapur vs Department Of Income Tax on 5 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
Before Shri Shailendra Kumar Yadav Judicial Member
and Shri R.K. Panda Accountant Member
ITA No. 253/PN/2012
(Assessment Year 2007-08)
DCIT, Central Circle, Kolhapur .. Appellant
Vs.
Dr. D.Y. Patil Pratishtan,
212/E, Tarabai Park,
Kolhapur .. Respondent
PAN No.AAATD 5311R
Appellant by : Shri S.K. Singh
Respondent by : Shri Nikhil Pathak
Date of Hearing : 05-06-2013
Date of Pronouncement : 25-06-2013
ORDER
PER R.K. PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 31-10-2011 of the CIT(A) Central, Pune relating to Assessment Year 2007-08.
2. Grounds of appeal No. 1 and 2 by the Revenue reads as under :
"1. Whether on the facts & in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing exemption u/s.1l of the I.T. Act to the assessee ignoring the fact that activities of the assessee are not genuine and are not being carried out in accordance with the objects of the trust.
2. Whether on the facts & in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing exemption u/ s 1l of the I.T. Act to the assessee inspite of the fact registration u/s.!2A was cancelled by the CIT. Further ITAT's order restoring the registration u/s.12A is challenged by the Revenue before the Hon'ble Bombay High Court."
2.1 After hearing both the sides we find the assessee Dr. D.Y. Patil Pratishtan was founded through a deed of trust on 27-12-1990 vide 2 Registration No.E-1175 under Bombay Public Trust Act 1950. The assessee is engaged in running Educational institutions and has obtained the certificate of Registration u/s.12A from Commissioner of Income Tax on 15-11-1991 vide Registration No. D-/93/63/85/1991-92. From A.Y. 2000-01 onwards the exemption has been denied to the trust on various grounds including cancellation of registration by CIT Central u/s.12AA(3) and for indulgence in illegal activities and violation of provisions of section 13(1)(c). Following the orders in the case of the trust for earlier years the AO denied exemption u/s.11 of the I.T. Act on the following grounds :
(1) The registration u/s.12A of the assessee was cancelled by learned CIT Central and therefore, the exemption cannot be allowed. (2) The assessee trust has generated substantial surplus and hence, it is not imparting education and therefore, the exemption u/s.11 is being denied.
(3) The assessee trust has violated the provisions of section 13(1)(c) and therefore, the exemption has been disallowed.
2.2 In appeal the Ld. CIT(A) following various decisions and observing that the denial u/s.12A by the CIT has been restored by the Tribunal held that the AO was not justified in denying the exemption u/s.11.
2.3 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
2.4 We have heard the rival arguments made by both the sides. We find the Tribunal in assessee's own case vide ITA No.182/PN/2008 order dated 28-11-2008 has restored the registration granted to the assessee u/s.12A.
Similarly, the Tribunal in assessee's own case for A.Y. 2006-07 in ITA No.1592/PN/2011 order dated 14-12-2012 has held that the assessee is entitled to benefit of section 11 of the I.T. Act and there is no violation of the 3 provisions of section 13(1)(c) or 13(1)(d). Merely because the Revenue has not accepted the decision of the Tribunal and has filed an appeal before the Hon'ble High Court the same in our opinion cannot be a ground to take a different view in absence of any adverse order against the order of the Tribunal by the Hon'ble High Court. Since the registration u/s.12A cancelled by the CIT has been restored by the Tribunal vide order dated 28- 11-2008 and since in the immediately preceding assessment year the claim of exemption u/s.11 allowed by the CIT(A) has been upheld by the Tribunal, therefore, in absence of any contrary material brought to our notice we find no infirmity in the order of the Ld. CIT(A) allowing exemption u/s.11 of the I.T. Act. Accordingly, the grounds of appeal No. 1 and 2 by the Revenue are dismissed.
3. Ground of appeal No.3 by the Revenue reads as under :
"3. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing maintenance expenses of flats at Gulmohar society when the said flats were used exclusively by the founder of the Trust violating the provisions of Sec. 13(1)(c) of the Act."
3.1 After hearing both the sides we find the Assessing Officer following his order for the preceding assessment year disallowed an amount of Rs.74,632/- on account of maintenance of flat at Gulmohar Society on the ground that the same was exclusively used by the founder of the trust in violation of the provisions of section 13(1)(c) of the I.T. Act. In appeal the Ld. CIT(A) allowed the claim of the assessee holding that the expenditure on the Guest House was incurred for objects of the trust and there is no violation of the provisions of section 13(1)(c) of the I.T. Act. The relevant observations of the Ld. CIT(A) reads as under :
4"8.5 I have considered the facts of the case and the submissions of the appellant. Similar issue had come in appeal for the earlier years including the appeal for A.Y. 2006-07. The AO disallowed these expenditures and also held that the appellant had violated provisions of section 13(1)(c). However, in the appellate proceedings for these years including the appeal order for A.Y. 2006-07 (Para 22 to 22.17 of the appeal order) it was found that the stand of the AO was not correct and, therefore, appellant's appeals were allowed on this issue and it has been held that the entire expenditure on the guest house was incurred for the objects of the trust and no violation has been committed u/s.13(1)(c). As the facts for A.Y. 2007-08 are substantively identical with the facts of earlier years, decision on this issue in the appeal order of earlier years including A.Y. 2006-07 is equally applicable for A.Y. 2007-08. Accordingly, I hold that the entire expenditure on the guest house was incurred for the objects of the trust and no violation has been committed u/s.13(1)(c). Therefore, this ground of appeal is allowed".
3.2 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
3.3 After hearing both the sides we find identical issue had come up before the Tribunal in assessee's own case vide ITA No.1612/PN/2011 filed by the Revenue. The ground raised by the Revenue was dismissed by the Tribunal by holding as under :
"45. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO disallowed the maintenance expenses of flats at Gulmohar Society on the ground that those flats are exclusively used by Dr.D.Y. Patil and therefore there is violation of provisions of section 13(1)(c) of the I.T. Act. We find the learned CIT(A) had given a categorical finding that the said flats are not exclusively used by Dr. D.Y. Patil but also by other guests. It is the submission of the learned counsel for the assessee that the statement recorded from the caretaker Sri Sadashiv Bapu Patil was not given to the assessee and the assessee was not afforded an opportunity to cross examine Sri Sadashiv Bapu Patil. It is also the submission of the learned counsel for the assessee that affidavits of certain other professors who stayed at the guest house were furnished who have confirmed that they have stayed in the guest house. Therefore, it cannot be said that such guest house is exclusively used by Dr. D.Y. Patil. It is also the submission of the learned counsel for the assessee that no salary has been paid to Dr. D.Y. Patil and if he would have stayed in any hotel the expenditure would have been much more than the expenditure incurred on account of maintenance of the flats used as guest houses. Further there is nothing adverse in the remand report given by the AO. It is also the submission of the learned counsel for the assessee that similar expenses were allowed in the past and no disallowance was made in the preceding year. We find merit in the above submissions of the learned counsel for the assessee. From the copy of the assessment orders for A.Ys. 2000-01 to 2002-03 we find no such disallowance has been made. Therefore, in view of the rule of consistency alone no disallowance should have been made on account of maintenance of flats. We also find merit in the submission of the learned counsel for the assessee that Dr. D.Y. Patil has not 5 been given any salary and if he would have stayed in any hotel the expenditure would have been much more than the expenditure incurred on account of maintenance of the guest houses.
45.1 We find that the learned CIT(A) while deleting the disallowance has exhaustively discussed the issues at Para 22.8 to 22.17 of his order which reads as under :
"22.8. I have considered the facts of the case, the submissions made by the appellant, remand report of the AO, rejoinder of the appellant thereon and other material available on record. The AO, while making this addition, has placed heavy reliance on the statement of the caretaker of the guest house. Perusal of the assessment proceedings reveals that the only query made in respect of guest house was relating to the details of the expenses incurred thereon. The AO did not disclose her intention to make disallowance of the expenses incurred on the maintenance of guest house on the basis of the statement of the caretaker. Nor did she give the statement of caretaker of the guest house to the appellant for its comments / rebuttal etc. In fact, the appellant was not told anything about this statement during the course of assessment proceedings. The appellant came to know about the contents of the statement of the caretaker only after assessment order was passed. After it received the assessment order, the appellant objected to the use of the statement of the caretaker which was taken at its back. It contended that the statement taken at its back could not be used without giving an opportunity to cross-examine. It gave one note during appellate proceeding. In its note, it vehemently argued that certain statement recorded of certain person in the course of assessment proceeding were used to its disadvantage without giving an opportunity to it to examine the statement and exercise its right to cross-examine the person who made the statement. The relevant portion of the note is as under :
1] The learned A.O. has completed the assts. for A.Y. 2000-01 to A.Y. 2006-07. While making the assts., the teamed A.O. has relied upon the statements of a few persons. In respect of A.Y. 2005-06, the learned A.O. has made an addition of Rs.50,85,000/- on the ground that the assessee had received the said amount from Shri R. S. Yadav. For giving admissions to certain students. From para. 62-66 of the order for A.Y. 2005-06, the learned A.O. has. referred to the facts and has also relied upon the evidence found with Shri R. S. Yadav in the search proceedings conducted on him. The learned A.O. has also relied upon the order of learned CIT cancelling the registration u/s 12A. The assessee had requested the learned CIT in the context of cancellation of registration u/s 12A and also the learned A.O. during the asst. proceedings for an opportunity to cross examine Shri R. S. Yadav. The learned CIT in his order cancelling the registration has stated that no useful purpose would be served by allowing cross examination of Shri R. S Yadav to the assessee. The relevant pars has been reproduced by the learned A.O. on page 29 & 30 of the asst. order for A.Y. 2005-06. The A.O. following the order of CIT (C) did not grant any opportunity to cross examine Shri R. S. Yadav and made an addition of Rs.50,85, 000/-.6
2] Secondly, for A.Y. 2001-02 to A.Y. 2006-07, the learned A.O. has disallowed the expenses incurred on the guest house of the assessee society at Gulmohar Hsg. Soc., Pune. The learned A.O. has stated that the expenditure resulted in benefit to the trustees. While making the disallowance, the learned A.O. recorded the statement of Shri. Sadashiv Bapu Patil, caretaker of the guest house. She has reproduced the relevant portion of his statement on page 14 of the order for A.Y. 2001-02. Thus, the learned A.O. has relied upon the statement of Shri S. B. Patil while making the disallowance. They assessee submits that the learned A.O. did not even give the copy of the statement of Shri S. B. Patil to the assessee. It is submitted that this disallowance has been made without giving any opportunity to the assessee society to cross examine Shri S. B. Patil.
3] In view of the above, it is clear that the A.O. has relied upon the statements of third parties and also the evidence found with' them while making the addition. However, she did not give any opportunity to the assessee to cross examine Shri Yadav or Shri Patil before making the addition. It is submitted that this action on the part of the learned A.O. in not granting cross examination is not justified. Supreme Court in the case of Kishinchand Chellaram [125 ITR 713] has held that if any statement of a third party is to be used against the assesses, an opportunity should be given to the assessee to cross examine the third party before any inference can be drawn from the statement. On page 720, Hon'ble Supreme Court has held that "it is true that the proceedings under the Income Tax Law are not governed by strict rules of evidence and therefore, it may be said that even without calling the manager of the bank to prove this letter, it could be taken into account as evidence. But before the I.T. Authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him".
4] Similarly, in the case of CIT v. Eastern Commercial Enterprises [210 IT R 103 (Cal) ], Hon'ble H.C. held that the assessee must be given an opportunity to cross examine the witness. In this case, the learned A.O. had relied upon a statement of Shri Ram Sevak Sukla while Making the addition. H.C. held that the learned A.O. ought to have given an opportunity to the assessee to cross examine Shri Sukla before making an addition. Further, Supreme Court in the case of C. Vasantlal & Co. [45 IT R 206] has held that the learned A.O. can collect material to facilitate the asst. However, if he desires to use the material so collected, the assessee must be informed of the material collected and should be given an opportunity of explaining it. Similar view has been taken in the following decisions -
7a. Banal Strips P Ltd. [99 IT D I 77 (Del) ] b. Asst. CIT v/s. Mahesh T Patodia [79 ITD 40 (Pune)] 5] In view of above decisions that the learned A.O. was duty bound to give an opportunity to the assessee before relying on the statements of Shri Yadav and Shri S. B. Patil. The contention of the A.O. and the CIT (C) that no useful purpose would be served by granting an opportunity to cross examination is without any merit and against the principles laid down by the Supreme Court and high Courts.
22.9 The above note was sent to the AO for his comments. He was also requested by the then CIT(A) to consider the request of the appellant, furnish the document and allow the appellant to cross-examine the person. The AO was also requested to give reasons in case he was of the view that request of the appellant cannot be granted to. Relevant portion of the letter of the then CIT(A) is reproduced below :-
The above appeals are being heard In the course of hearing of the above appeals, the appellant has vehemently argued that certain statement recorded of certain persons in the course of assessment proceedings have been used to the disadvantage of the appellant without giving an opportunity to the appellant to examine the statement and exercise its right to cross examine the persons who have made the statements. The appellant has submitted a detailed note pointing out such instances where evidences relied upon by the AO was not furnished to the appellant. The note is enclosed at annexure-A to this letter.
2. You are requested to consider the request of the appellant and furnish the documents to the appellant and as well as allow the appellant to cross examine the persons. The action taken by you may kindly be reported to this office. In the event, you are of the view that the request of the appellant cannot be granted, the reasons for the same may kindly be included in the report.
3. In the course of appellate proceedings, the appellant has submitted 15 items of evidence which were not submitted before the AO at the time of assessment. The evidence is therefore in the nature of additional evidence. The list of 15 items is at Flag AA of the volume titled 'Index'. The evidence appears to be relevant in taking a decision on the issues in appeal. It is stated by the appellant that the evidence could not be produced before the AO due to non availability of documents at the time of assessment due to paucity of time and other reasons. The written submission and paper book in 10 volumes is enclosed. The additional evidence is present in different volumes. The set number and the page number of the documents are mentioned in the list at F lag AA of the annexed volume.
3.1 You are requested to kindly examine the additional evidence submitted by the appellant and submit your comments on the admissibility on the same along with reasons. You are also requested to kindly offer your comments on the additional evidence furnished by the appellant.8
4. At Flag BB of the annexed volume, there is a list of items of evidence which according to the appellant were with the AO but were not considered, this evident from the fact that there is no mention of such evidence in the relevant portion of the assessment order. The appellant has requested that the evidence which is with the Department and which appears not to have been considered should be considered while taking a decision in appeal. Cross reference to the documents including set and page number of the paper book is given in the list at Flag BB.
5. You are requested to kindly study the above evidence and offer your comments as to whether any such evidence influences the decision taken in the assessment on the relevant issue, in any significant manner. At the same time, you may also confirm whether such evidence was on record at the time of assessment.
6. The paper books filed by the appellant in I0 volumes are enclosed It is requested that the report on the above issues may kindly be sent expeditiously. If there is any further issue you would like to bring to my notice, the same may kindly be incorporated in your report.
22.10 The AO did not give opportunity to the appellant to cross-examine caretaker of the guest house, on the basis of whose statement, addition in respect of disallowance of guest house expenses was made. However, he gave copy of the statement of the caretaker to the appellant. In his report, he stated that the issue relating to cross-examination has been dealt with not only by the AO in her assessment order but even by CIT(Central), Pune while deciding the issue in respect of registration u/s.12AA of l.T. Act. He also stated that right of cross-examination is not an absolute right. The relevant portion of the report of the AO is reproduced below :-
C) Kind reference is invited to Para I and 2 of your office letter dated
17. 03.2009 wherein it is directed to consider the request of the appellant and furnish the documents to the appellant and as well as allow the appellant to cross examine the persons whose statement recorded and have been utilized while finalizing the assessment.
24. In this regard it is submitted that statements of two persons namely (1) Shri R.S.Yadav, a broker between the assessee trust and aspiring students and (2) Shri Sadashiv Bapu Patil, caretaker of the guest house are utilized while finalizing the assessment. A copy of statement of Shri R.S.Yadav was made available to the assessee. This is evident from the assessee's own submission on Statements of Shri Yadav filed before the A.O. vide letter dated 11.07.2008. At this time the assessee has never asked for cross examination of Shri Yadav. Now the assessee cannot ask for such cross examination. The ethos underlying the Principles of natural justice make it sufficiently clear that once an adequate and reasonable notice is given, it is for the assessee to avail of that opportunity; when for no good reason, opportunity is not taken, the assessee cannot complain that principles of natural justice are violated (Vineet Enterprises v/s State of Andhra Pradesh (I996) 101 ST C 426 (AP)).
925. Similarly a copy of statement of Shri Sadashiv Bapu Patil, caretaker of the Guest house is now made available to the assessee. As such direction in respect of furnishing the document to the assessee is complied. In respect of affording opportunity to cross verify the persons mentioned above it is submitted that this issue has been dealt with not only by the A.O. in her assessment order but even by the Commissioner of Income tax (Central) Pune, while deciding the issue in respect of registration u/s. 12 AA of the I.T.Act. It is further submitted that the right of cross-examination is not an absolute right. (Nath International sales Vs UOI AIR(Del) 295), the right of hearing does not necessarily include right of cross examination (State of J & K Vs. Bakshi Gulam Mohammad AIR I 96 7 SC I22).
26. Not only that, it is humbly submitted that CIT(A)'s powers are coterminous with that of Assessing Officer. He holds a good enough jurisdictions over the issue and therefore, the CIT (A) may call these persons at his office and may afford an opportunity to the assessee subject to granting an opportunity to the A.O. to cross verify the witnesses.
22.11 The issue relating to the statement of Shri R.S. Yadav has been dealt with in the appeal order of the relevant assessment year.
22.12 As far as issue relating to the statement of Shri Sadashiv Patil, caretaker of the guest house is concerned, a careful perusal of the remand report of the AO reveals that he has relied mainly on the discussion of the AO in the assessment order and of the CIT(Central) while deciding the issue in respect of registration u/s.12AA of the I.T. Act. However, he has not brought on record the discussion of the AO and CIT(Central) where they specifically dealt with the issue relating to cross-examination of Shri Sadashiv Bapu Patil, caretaker of the guest house. In fact, while discussing the issue relating to disallowance of guest house expenses, the AO has not discussed the issue relating to cross-examination of caretaker of the guest house at all, nor any reference of any such discussion of CIT(Central) was made. Under the circumstances, the statement of the A0 that the issue relating to cross- examination of Shri Sadashiv Bapu Patil, caretaker has been discussed by the AO in the assessment order and by the CIT (Central) while deciding the issue of registration u/s.12AA of l.T. Act is not correct. Reliance of the AO on the case laws of Nath International Sales Vs. UOI (AIR (Del) 295) and State of J & K Vs.Bakshi Gulam Mohammad (AIR 1967 SC 122) is, as discussed in para 20.11.2 and 20.11.1, also not correct.
22.12.1 Reliance of the AO on the observation of Hon'ble Supreme Court to the effect that right of hearing does not necessarily include right of cross-examination in the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad, (1967 AIR 122) is misplaced. The AO misunderstood, misinterpreted and misquoted this observation of the Hon'ble Supreme Court. The above observation was made by the Supreme Court with reference to the right of cross-examination of the persons who had sworn affidavit supporting allegation against petitioner under Jammu & Kashmir Commission of Inquiry Act. This observation was given by Hon'ble Court in the particular set of facts and circumstances of that case. Facts and circumstances of the appellant's case are entirely different. In fact, the ratio of judgment given by the Hon'ble Court in the case of State of Jammu & Kashmir Vs. Bakshi 10 Ghulam Mohammad, (1967 AIR 122) supports cross-examination of the caretaker in the appellant's case. In the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad, (supra), the first respondent became a member of the Council of Ministers of the State of Jammu and Kashmir in 1947 and was the Prime Minister of the State from 1953 to January 1963, when he resigned. Thereafter a Notification was issued by the State Government under s.3 of the Jammu and Kashmir Commission of Inquiry Act 1962 setting up a Commission to inquire into the wealth, acquired by the first respondent and certain specified members of his family during his period of office, the Commission was also to inquire whether in acquiring this wealth there was any abuse of his official position by the first respondent or the said relatives. The Commissioner so appointed held certain sittings between February 1965 and August 1965 in which the first respondent took part. In September 1965 he filed a writ petition before the High Court of Jammu and Kashmir and the High Court, allowing the said petition, set aside the Notification instituting the inquiry and quashed the proceedings of the Commission. The State appealed to the Supreme Court. Hon'ble Supreme Court, among other things, examined the issue relating to cross-examination of the persons who gave affidavits against first respondent. This issue was examined with reference to the relevant Act i.e. Jammu and Kashmir Commission of Inquiry Act. After examination of the issue, Hon'ble Court was of the view that right of cross-examination must depend upon circumstances of each case and also on the relevant statute. In Jammu and Kashmir Commission of Inquiry Act, right to cross-examination has been assured in respect of witnesses called to depose against the person demanding the right. However, there is no such provision in respect of the person who gave affidavit against the person demanding such rights. Therefore, this judgment ensures, in unambiguous terms, right of cross-examination against the witness who has deposed against the person. The case of the appellant falls under this category. The AO while making disallowance in respect of guest house expenses, relied, substantially, on the statement of the caretaker. Under the circumstances, in view of the ratio pronounced by the Hon'ble Court in the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad (supra), cross-examination of caretaker should have been allowed by the AO as he relied on his statement and used the same against the appellant. It is not the case of the AO that caretaker filed an affidavit against the appellant. Even in the case where affidavits are filed, cross- examination of the person giving the affidavits may be allowed after considering facts and circumstances of the case. However, in this case, Hon'ble Supreme Court upheld that when evidence is given viva-voce against the person, he (the person against whom such evidence in the form of viva- voce has been given) must have the opportunity to hear it and to put the witness question in cross-examination. The relevant portion of the judgment is reproduced below:-
The next point is as to the right of cross-examination. This claim was first based on the rules of natural justice. It was said that these rules require that Bakshi Ghulam Mohammad should have been given a right to cross- examine all those persons who had sworn affidavits supporting the allegations against him. We are not aware of any such rule of natural justice. No authority has been cited in support of it. Our attention was drawn to Meenglas Tea Estates v. Their Workmen(l), but there all that was said was that when evidence is given viva voce against a person be must have the 11 opportunity to hear it and to put the witnesses questions in cross- examination. That is not our case. Furthermore, in Meenglas Tea Estate case(I) the Court was not dealing With a fact finding body as we are. Rules of natural justice require that a party against whom an allegation is being inquired into should be given a hearing. Bakshi Ghulam Mohammad was certainly given that It was said that the right to the hearing included a right to cross-examine. We are unable to agree that is so. The right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being inquired into. This Court has held in Nagendra Nath Bora v. Commissioner of Hills Division and Appeals, Assam(1) that "the rules of natural justice vary with the varying constitution of statutory bodies and the rules prescribed by the Act under which they function; and the question whether or not any rules of natural justice had been contravened, should be decided not under any preconceived notions, but in the light of the statutory rules and provisions." We have to remember that we are dealing with a statute which permits a Commission of Inquiry to be set up for fact-finding purposes. The report of the Commission has no force proportion vigorous. This aspect of the matter is important in deciding the rules of natural justice reasonably applicable in the proceedings of the Commission of Inquiry under the Act. 'Then we find that s. 10 to which we have earlier referred, gives a right to be heard but only a restricted right of cross-examination. The latter right is confined only to the witnesses called to depose against the person demanding the right. So the Act did not contemplate a right of hearing to include a right to cross-examine. It will be natural to think that the statute did not intend that in other cases a party appearing before the Commission should have any further right of cross- examination. We, therefore. Think that no case has been made out by Bakshi Ghulam Mohammad that the rules of natural justice require that lie should have a right to cross- examine all, the persons who had sworn affidavits supporting the allegations made against him.
In view of the ratio laid down by the Hon'ble Supreme Court in the above mentioned case to the effect that when evidence is given viva-voce against the person, he must have the opportunity to hear and to cross-examine the person giving such evidence, the AO's contention that cross-examination of the caretaker was not required is not correct.
24.12.2 Reliance of the AO of the judgment of Hon'ble Delhi High Court in the case of Nath International Sales and Anr. Vs. Union of India and Ors.(AIR 1992 Delhi 295) is also misplaced. In this case, Hon'ble Delhi High Court relied on the decision of Supreme Court in the State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad and came to the conclusion that in the facts of that case, cross-examination was not required. Hon'ble Delhi High Court gave this decision in the particular set of facts and circumstances in that case. In fact, facts of that particular case (Nath International Sales and Anr. Vs. Union of India and Ors.) did not require opportunity of cross-
examination. The case was in relation to the black listing of one of the suppliers of Diesel Locomotive Works (DLW), Indian Railways, Varanasi namely Nath International Sales and its sister concern. Black listing was done because the supplier furnished a test certificate from the manufacturer which was bogus as the manufacturer concern was not in existence. The manufacturer concern already stood taken over by some other concern who was not manufacturing the brand of the product in respect of whom the test certificate was submitted by the supplier before the Inspector of DLW. The 12 manufacturer concern / the concern which took over the manufacturer concern denied having issued such test certificate. The authorities of Indian Railways black listed the supplier and its sister concern on the basis of, among others, production of the fake certificate from the alleged manufacturer. Before Delhi High Court, two sets of report of the Inspector of DLW were produced. One set was produced by the petitioner i.e. M/s. Nath International Sales. Other set was produced by the respondent i.e. Union of India represented by DLW, Indian Railways. These two sets of Inspector's report were not exactly identical. Hon'ble Delhi High Court considered these facts and was of the view that the petitioner i.e. M/s.Nath International Sales had full knowledge that the original manufacturer had been taken over by other concern and at the relevant time, neither valves of the required make (the product which was to be supplied to DLW) were the manufactured nor were marketted under the trade name which was to be supplied to DLW. On the basis of these vital pieces of evidence, namely, denial of the manufacturer concern / concern which took over the manufacturer concern and two sets of Inspector's report containing, among others, test certificate of the manufacturer, Hon'ble Court strongly suspected the motive of the petitioner and rejected its contentions. Advocate of the petitioner demanded opportunity to cross-examine the inspector to elicit the truth as to which of the two reports is genuine. On this demand, Hon'ble Court held that there is no difference in both the reports on the crucial point of filing of TRW's work test certificate and, therefore, in the circumstances of this case, cross- examination is not required. Relevant portion of the judgment is reproduced below :-
(24) Lastly, it is urged by Mr.Jaitly that the principles of natural justice demand that an opportunity should be given to the petitioners to cross-examine Mr.S.A. Khan, DLW's Inspector, to elicit the truth as to which of the two inspection reports is genuine. We do not feel persuaded to do so. As is observed by the Supreme Court in State of J&K and others Vs. Bakshi Gulam Mohammad & Anr.., a right of hearing does not include a right to cross-examine and the right to cross-examine must depend upon the circumstances of each case. As already observed, there is no difference in both the reports on the crucial point of filing of TRW's works test certificate, which is sufficient to support respondents action.
Therefore, cross-examination in the above mentioned case was not allowed as it was not required in the facts and circumstances of the case because the petitioner was found to be pursuing its case on the basis of a certificate which, after inquiry from the relevant party, was found to be fake. Under these set of circumstances, cross-examination of the person before whom the certificate was produced, would have not served any purpose. However, in this case also, Hon'ble Court followed decision of Hon'ble Supreme Court in the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad. This case has been discussed in detail in the preceding paragraph. In fact, as stated in the preceding paragraph, the ratio of this judgment gives opportunity of cross-examination of the caretaker to the appellant.
22.13 In view of the discussion in the preceding paragraphs, l am of the considered view that the AO was not right in holding that cross-examination was not to be given in this case. I am in agreement with the submission of the appellant that in view of various judicial rulings, the AO was duty bound to 13 give opportunity of cross- examination of the caretaker to the appellant. Supreme Court in the case of Kishinchand Chellaram [125 ITR 713] has held that if any statement of a third party is to be used against the assesses, an opportunity should be given to him to cross examine the third party before any inference can be drawn from the statement. On page 720, Hon'ble Supreme Court has held that "it is true that the proceedings under the Income Tax Law are not governed by strict rules of evidence and therefore, it may be said that even without calling the manager of the bank to prove this letter, it could be taken into account as evidence. But before the I.T. Authorities could rely upon it, they were bound to produce it before the appellant so that the appellant could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him . Similarly, in the case of CIT v. Eastern Commercial Enterprises [210 ITR 103 (Cal)], Hon'ble H.C. held that the assessee must be given an opportunity to cross examine the witness. In this case, the AO had relied upon a statement of Shri Ram Sevak Sukla while making the addition. H.C. held that the AO ought to have given an opportunity to the appellant to cross examine Shri Sukla before making an addition. Further, Supreme Court in the case of C. Vasantlal & Co. [45 ITR 206] has held that the AO can collect material to facilitate the asst. However, if he desires to use the material so collected, the appellant must be informed of the material collected and should be given an opportunity of explaining it. Similar view has been taken in the following decisions -
a.Banal Strips P Ltd. [99 ITD 177 (Del)] b. Asst. CIT v/s. Mahesh T Patodia [79 ITD 40 (Pune)] In view of above decisions, the A.O. was duty bound to give an opportunity to the appellant before relying on the statement of Shri S. B. Patil.
22.14 It may not be out of place to mention that the statement recorded under survey, on itself, has no evidentiary value. This view was held by Hon'ble Kerala High Court in the case of Paul Mathews & Sons Vs. CIT 263 ITR 101. In this case, Hon'ble Court held that sec.133A(3)(m) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Sec. 133A however, enables the IT authority only to record any statement of any person which may be useful, but does not authorise for taking any sworn in statement. The IT Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas s.133A does not empower any ITO to examine any person on oath. Thus, in contra distinction to the power under s.133A, s.132(4) enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement recorded under s.133A is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has the evidentiary value as contemplated under law. The relevant portion of the judgment is reproduced below :-
11. The provision also enables the IT authority to impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him, provided the authority records his reasons for doing so and also shall not retain the books of account for a period not exceeding 15 days. Sec. 133A(3)(iii) enables the 14 authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Sec. 133A however, enables the IT authority only to record any statement of any person which may be useful, but does not authorize for taking any sworn in statement. On the other hand, we find that such a power to examine a person on oath is specifically conferred on the authorised officer only under s. 132(4) of the IT Act in the course of any search or seizure.
Thus, the IT Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas s. 133A does not empower any ITO to examine any person on oath. Thus, in contra-distinction to the power under s. 133A, s. 132(4) of the IT Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement recorded under s. 133A of the IT Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn in statement which alone has the evidentiary value as contemplated under law. Therefore, there is much force in the argument of the learned counsel for the appellant that the statement, elicited during the survey operation has no evidentiary value and the ITO was well aware of this.
In making disallowance out of guest house expenses, the AO, substantively, relied on the statement of the caretaker which, according to above judgment, did not have any evidentiary value.
22.15 In view of the discussion in the preceding paragraphs, it is obvious that the AO made disallowance of guest house expenses on the basis of the statement which was recorded at its back and in respect of which no opportunity was given to the appellant for cross- examination. This statement, on its own, did not have evidentiary value. Under the circumstances, the AO's action in respect of disallowance of the guest house expenses cannot be upheld.
22.16 During the course of appellate proceedings, the appellant has submitted, among other things, affidavit of the caretaker of the guest house and affidavit of certain other persons. The affidavit of the caretaker is a clarification that the flat Nos.G1 and G2 were being used by other guests (other than Shri D.Y. Patil) also. Affidavit of Shri P.D. Patil was also in this respect as well as to add that this particular portion (flat Nos.G1 and G2) was used for official purposes also. Affidavits from other persons were in respect of their stay in the guest house. These evidences were sent to the AO for their admissibility or otherwise. The AO gave a general statement quoting provisions of Rule 46A of I.T. Rules. The AO also stated that the appellant was never restricted from submission of evidences / documents etc. On the contrary, it was given sufficient opportunity during the course of assessment proceedings, to justify its return of income by submitting necessary detail in support of its claim. However, a careful perusal of material available on record reveals that the AO did not give any notice to the appellant of his intention to disallow guest house expenses, substantively, on the basis of the statement of the caretaker, during the course of assessment 15 proceedings, and, therefore, the appellant did not have any occasion or opportunity to file any evidence in support of its claim of guest house expenses. In fact, the appellant was not in the possession of the statement on the basis of which the AO was to make this addition. Under the circumstances, I am satisfied that the appellant was prevented by sufficient cause from producing these evidences before the A0 during the course of assessment proceeding and therefore, admit them. These affidavits were sent to the AO for his comments on their impact on the assessment of the appellant. The AO has not given any specific comment on these affidavits. He has simply stated that these affidavits represent afterthought. He has also stated that payment of salary to the guest house staff does not result in violation of section 13(1)(c) of I.T. Act. He has also recommended a reasonable relief on account of disallowance of guest house expenses as he accepts the fact that the appellant was maintaining a guest house. It is an undisputed fact that disallowance of guest house expenses was made because of the fact that AO came to the conclusion that one particular portion of the guest house (flat Nos.G1 and G2) was used by Shri D.Y. Patil, trustee, exclusively. This conclusion was arrived at, substantively, on the basis of the statement of the caretaker of the guest house. As discussed in preceding paragraphs, disallowance of guest house expenses cannot be made on the basis of statement of the caretaker on which reliance was placed by the AO. Under the circumstances, this disallowance of guest house expenses was not justified and is, therefore, directed to be deleted. I further hold that no personal benefit has accrued to any person on account of these expenses. Therefore, the above mentioned grounds of appeal are allowed.
22.17 The AO in his remand report has pointed out that the powers of CIT(A) are co-terminus with those of the AO. Therefore, he submitted that CIT(A) may call these persons (including Shri Sadashiv Bapu Patil) in his office and may afford opportunity to the appellant subject to granting an opportunity to the AO to cross-verify the witnesses. Intention of the AO in making this submission is not understandable. It is not the CIT(A) who recorded statement of the caretaker at the back of the appellant and used the same against it. It was the AO who conducted the inquiry and recorded statement of the caretaker at the back of the appellant and used the same against it, without disclosing details of the material gathered, without confronting them with the appellant , without giving any opportunity to the appellant for its comments/rebuttal and without giving any opportunity of cross-verification/examination in violation to the established law of the land . It is the AO who, even after a specific opportunity was given to him to give opportunity of cross-examination to the appellant during remand proceedings, did not give the same to the appellant .Under the circumstances, submission of the AO to CIT(A) to give opportunity of cross-examination to the appellant by calling the witness whose statement was used by him without giving proper opportunity of cross-examination, in violation to the law of land, in his office [in the office of CIT(A)], and granting opportunity to the AO to cross-verify the witness, being absurd, unwarranted and uncalled for, is rejected."
1646. Considering the totality of the facts of the case, considering the detailed order passed by the learned CIT(A) on this issue and in absence of any contrary material brought to our notice by the learned DR against the order of the learned CIT(A) we find no infirmity in the same and accordingly uphold the same. The grounds raised by the Revenue are accordingly dismissed."
3.4 Respectfully following the decision of the Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice we uphold the order of the Ld. CIT(A) on this issue and the ground by the Revenue is dismissed.
4. Grounds of appeal No.4 (i) and (ii) by the Revenue read as under ;
"4. (i) Whether on the facts & in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing remuneration paid to relatives of Trustees to the tune of Rs.50,67,850/- holding that nothing has been brought on record to show that market value of the services/jobs was less than the payments made to them when the payments were squarely covered u/s.40A(2)(b).
(ii) Without prejudice to the above, Ld CIT(A) has erred in not exercising his plenary powers which are conterminous with that of Assessing Officer as per the ratio laid down by CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225, 229 (SC)."
4.1 After hearing both the sides we find the AO disallowed an amount of Rs.50,67,850/- on the ground that the payments made to the persons specified u/s.40A(2)(b) r.w.s.13(1)/13(3) and are in violation of provisions of section 13(1)(c). In appeal the Ld. CIT(A) allowed the claim of the assessee by following his order for A.Y. 2006-07. The relevant observation of the Ld. CIT(A) at Para 9.7 of the order read as under :
17"9.7 I have considered the facts of the case and the submissions of the appellant. Similar issue had come in appeal for the earlier years including the appeal for A.Y. 2006-07. The AO disallowed these expenditures and also held that the appellant had violated provisions of section 13(1)(c). However, in the appellate proceedings for these years including the appeal order for A.Y. 2006-07 (Para 24 to 24.16 of the appeal order) it was found that the stand of the AO was not correct and, therefore, expenditure on account of remuneration to trustees and their relatives was incurred for the objects of the trust and no violation has been committed u/s.13(1)(c). As the facts for A.Y. 2007-08 are substantively identical with the facts of earlier years, decision on this issue in the appeal order of earlier years including A.Y. 2006-07 is equally applicable for A.Y. 2007-08. Accordingly, I hold that the entire expenditure on account of remuneration to the trustees and their relatives was incurred for the objects of the trust and no violation has been committed u/s.13(1)(c). Therefore, this ground of appeal is allowed".
4.2 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
4.3 After hearing both sides, we find similar issue had come up before the Tribunal in assessee's own case and the Tribunal in ITA No.1612/PN/2011 filed by the Revenue vide order dt. 14-12-2012 has dismissed the ground raised by the Revenue by holding as under :
"36. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions relied on by the learned counsel for the assessee before us. We find the AO disallowed the remuneration paid to the trustees amounting to Rs. 38,37,221/- on the ground that such payment was unreasonable considering their experience and qualification and therefore the money has not been utilised for the objects of the trust for which the provisions of section 13(1)(c) are attracted. We find the learned CIT(A) very exhaustively analysed the facts and held that such disallowance made by the AO was unjustified and uncalled for. The relevant observation of the learned CIT(A) at Para 24.11 to 24.16 of the order reads as under :
"24.11 From the justification narrated in the preceding paragraphs, it is obvious that the appellant, during the course of assessment proceedings, itself, gave detailed justification in respect of, among other things, remuneration/consultancy charges paid to the persons specified u/s.40A(2)(b) I 13(3) of I.T. Act. In its justification, the appellant specifically pointed out the nature of services / jobs rendered by these persons and has contended that payments made to them were reasonable. Under the circumstances, the appellant discharged its onus to prove reasonableness of the payments made to the persons specified u/s.4OA(2)(b)/ 13(3) of I.T. Act. The AO contended that the payments were totally unreasonable, excessive and for the personal benefit of trustees. As stated above, the AO drew this 18 inference as the appellant failed to furnish minutes books of the meeting of Board of Directors. In pursuance of this failure on the part of the appellant, she concluded that payments to these persons were without any authorization. As stated above, she gave very general remark in respect of Smt.Bhagyashree Patil and Smt.Rajashree Kakade to the effect that no details of duties performed by them were available. However, a careful consideration of the material available on record reveals that the AO did not bring anything on record to prove the fact that market value of the services rendered /jobs done by these persons was less than the payment made to them. As stated above, the appellant discharged its onus in respect of proving reasonableness of payment made to these persons. Under the circumstances, onus was on the AO to prove the fact that market value of these services/jobs were less than the amount paid to these persons. However, nothing to prove the fact that market value of the services rendered/jobs done by the persons specified in sec.4OA(2)(b)/13(3) was brought on record. Under the circumstances, the action of the AO in disallowing the whole amount of remuneration/consultancy charges paid to all persons specified in section 40A(2)(b)/ 13(3) of I.T. Act was not at all justified.
Reliance of the AO on the report of the auditor u/s.142(2A) to prove the fact that the payments were for the personal benefit of the trustees as stated in para 22(iv) is also not correct. In fact, the auditor gave a categorical statement that in the absence of relevant information excessiveness I unreasonableness of such expenses cannot be determined. This statement of the auditor has been given at Sr.No.9(a) of statement of particulars which is reproduced below :-
9. Details of amounts not deductible under section 40A a. Particulars of payment which appear Refer Annexure IX (Forming part to be excessive or unreasonable in of Additional Report) specifying terms of section 40A (2)(a). payments made to persons referred u/s.40A (2)(b). In the absence of relevant information excessiveness / unreasonableness of such expenses cannot be determined.
24.12 As far as the specific compliance relating to the number of visits Smt. Bhagyashree Patil paid to the school and relating the major role played by Smt. Rajashree Kakade in the setting up of IACST (C-DAC) Centre at Kolhapur is concerned, there is nothing on record to show that such specific queries were made by the AO in the assessment proceedings and the appellant did not make compliance to these specific queries. Under the circumstances, disallowance of the whole amount of remuneration to the trustees and their relatives on the basis of, among other things, non- furnishing of details of the number of visits Smt.Bhagyashree Patil made to the school and the role played by Smt.Rajashree Kakade in the setting up of IACST (C-DAC) Centre at Kolhapur was not proper.19
24.13 Even during remand proceedings, the AO has not brought on record anything to prove the fact that the market value of the services rendered I jobs done by these persons were less than the payments made to them. He has not given any specific comments in respect of the authorization of the payments to these persons by various minutes of meetings of trustees. He has pointed out that salary payment has been made to Smt.Rajashree Kakade and Smt.Supriya P.C. Patil since A.Y.2000-01. No resolution passed by the trust was either filed at the time assessment proceedings or at the time of current proceedings. He further observed that justification of salary payment specifically to Smt.Rajashree Kakade and Smt.Supriya P.C.Patil was never given to the satisfaction of the assessing officer during assessment proceedings. He further stated that the AO who made the assessment had expressed her opinion only about Smt.Bhagyashree Patil and Smt.Rajashree Kakade. According to him, the AO who made the assessment had categorically held that payments made to these two ladies were disproportionate and excessive as compared to the services rendered by them. As stated above, the AO has not brought on record any material to prove that market value of the services rendered/jobs done by the persons specified in sec.40A(2)(b)/13(3) was less than the payments made to them. Under the circumstances, the statement of the AO in the remand report to the effect that the AO who made the assessments has categorically proved that the payments made to Smt.Bhagyashree Patil and Smt.Kakade were disproportionate / excessive is not correct. The issue relating to authorization of payments to these persons has been discussed in the preceding paragraphs 24.14 Under the circumstances, the AO during the course of remand proceedings did not bring any material to prove the fact that excessive / disproportionate payments were made to these persons. In fact, he is of the view that there is no specific yardstick to determine whether a payment is excessive or not. He is also of the view that arm's length payment can be made to these persons. He also pointed out that the AO made the addition saying that these are the persons classified u/s.13(3). He has further stated that there is no ban in the Income-tax Act on payment to such persons by a trust provided the payment is reasonable and proportionate to the services rendered by them. In other words, if the payment is at "arm's length then the Income-tax Act does not treat this as a violation. The AO has not given any categorical finding as to how the payment made to these persons is excessive and how it constitutes violation u/s 13(l )(c).The appellant has now provided details of the educational qualifications of the persons and the duties and roles played by them. At the outset, it can't be commented as to whether the payment is excessive or not as there is no specific yardstick to determine the same. The persons seem to possess reasonable qualifications and experience. However, whether the payment of salaries is commensurate with the qualification and experience is a subjective matter. The AO has not opined on the same. The decision on the same may be taken on merits as deemed fit. If held as unreasonable; this will indeed constitute a violation u/s 13(1)(c). However it is opined that total disallowance of salary to all trustees and their relatives is not proper. Only unreasonable salary paid to other persons will have to be disallowed.20
As discussed above, nothing has been brought on record either during assessment proceeding or during remand proceeding to prove that the payments made to the persons specified u/s.4OA(2)(b)/13(3) were excessive or disproportionate in comparison to the market value of the services rendered/jobs done by these persons. Under the circumstances, no disallowance on account of excessive/disproportionate/unreasonable payment to these persons can be made. Therefore, the disallowance on account of remuneration / consultancy charges paid to trustees/their relatives is directed to be deleted.
24.15 The AO's contention that provisions of sec.13(1)(c) apply to the appellant's case is also not correct and is against judicial rulings on the subject. In various judicial rulings, it has been held that AO has to collect material to show that the payment to the persons specified in sec.13(3) is unreasonable compared to the market rate for the services rendered. This view has been held recently by Hon'ble ITAT Lucknow in the case of ITO Vs. Virendra Singh Memorial Shiksha Samiti reported in (2009) 18 DTR 502. The relevant portion of the judgment is reproduced below:-
I 7. In this regard, we refer to s. 13 as under "13. (I) Nothing contained in s. 11 or s. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-................
(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof-
(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or
(ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-s. (3) :
(2) Without prejudice to the generality of the provisions of cl. (c) and cl. (d) of sub-s. (I), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-s. (3),--.................
(c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-s. (3 ) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services;.................21
(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-s. (3):...................
(3) The persons referred to in cl. (c) of sub-s. (1) and sub-s. (2) are the following, namely:
(a) the author of the trust or the founder of the institution;
(b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution upto the end of the relevant previous year exceeds fifty thousand rupees;
(c) where such author, founder or person is an H UF, a member of the family/; (cc) any trustee of the trust or manager (by whatever name called) of the institution;
(d) any relative of any such author, founder, person, (member, trustee or manager) as aforesaid;
(e) any concern in which any of the persons referred to in cls. (a), (b),
(c), (cc) and (d) has a substantial interest."
I8. Let us examine whether case of the Revenue falls under cl. (2) of s. 13(1)(c) or under s. I3 (2). It is not disputed that the person referred to in sub-s. (3) is the founder member of the trust. The condition mentioned in s. 13(1)(c) (ii) is that income of the trust should be used or applied directly or indirectly for the benefit of any person falling in the prohibited category. Benefit here would mean some ex gratis expenditure without any contribution by such person to the society. The term 'benefit' exclude from its ambit a two way process. If the person in the prohibited category renders services and in lieu thereof a benefit is provided then the case does not fall in cl. (ii) of s. 13(1)(c). The expenditure incurred on those interested persons would be a compensation for such services. A benefit would be said to have been given to the persons of prohibited category, if they in return do nothing but only enjoy the fruits of the trust/society and take away the funds/income of the society for their personal benefit or discharging personal obligation, but where persons of prohibited category render services to the society and in turn, get some remuneration, salary and allowances etc. as a member then provisions of sub-s. (2) would be applicable and not of sub-s. (1) and for applying the provisions of sub-s. (2) of s. 13, it has to be shown by the Revenue that amount paid to the persons of prohibited category was in excess of what may be reasonably paid for such services. In other words, the AO has to collect material to show that payment to the persons of prohibited category was unreasonable as compared to the market rates for the services rendered. In the present case, there is no material on record firstly to show that alleged inflated expenditure has gone to the persons of prohibited category, therefore, the case of the Revenue made out on the basis of s. 13(1) cannot be upheld. The question of invoking s. 13(2) in the present case also does not arise because s. 13(2) could be invoked only when there is a claim of expenses in the form of salary/allowances or perquisites to the persons of prohibited category for some services rendered. The AO has not made out a 22 case on these premises. Thus, neither s. 13(1) nor s. 13(2) is applicable on the facts of the present case.
24.16 The AO in her order has stated that the payments to these persons were not authorized by the minutes of the meeting of Board of Directors. As discussed in the preceding paragraphs, the AO was prevented by sufficient cause from production of minutes of meeting of trustees in which payments to various persons were authorized. In the cases where payments were not authorized by minutes of the meeting of trustees, they were authorized by the persons competent to authorize them. In any case, the issue to be examined here is whether the market value of the services rendered / jobs done was less than the payments made to the respective persons. As discussed above, nothing has been brought on record to show that market value of these services / jobs were less than the payments made in respect of them. Under the circumstances, I am of the considered view that disallowance on account of remuneration / consultancy charges to trustees and their relatives amounting to Rs.38,37,221/- cannot be made. Therefore, part of these grounds of appeal relating to the payments to the trustees and their relatives on account of salary and consultancy charges are allowed".
37. The learned DR could not controvert the findings given by the learned CIT(A). Further we find nowhere in the assessment order the AO has brought on record how much should have been the reasonable remuneration to the trustees and their relatives and what is the amount paid by similarly placed organisations to their employees. The submission of the learned counsel for the assessee that in the past also such type of payments were made and it was accepted by the department in scrutiny assessments for A.Y. 2000-01 to 2002-03 (placed at Paper Book Page Nos. 293 to 307) and no disallowance has been made could not be controverted by the learned DR. Under these circumstances and in view of the exhaustive order passed by the learned CIT(A) giving reasons for such deletion and in absence of any contrary material brought to our notice against the findings given by the CIT(A), we do not find any infirmity in the order of the learned CIT(A) deleting the disallowance made by the AO u/s.40(A)(2)(b) of the I.T. Act. Since the disallowance has been deleted by us, therefore, we hold that there is no violation of provisions of section 13(1)(c) of the I.T. Act. Accordingly, the grounds raised by the revenue are dismissed."
4.4 Respectfully following the decision of the Coordinate Bench of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice we uphold the order of the Ld. CIT(A) on this issue and the grounds by the Revenue are dismissed.
5. Grounds of appeal No.5(i) and (ii) by the Revenue read as under :
"5. (i) Whether on the facts & in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing entire expenditure of Rs.2,15,692/- claimed by the assessee on account of 23 telephone and mobile expenses paid to the Trustees at the residence of the Trustees without considering the personal use of telephones and mobiles and without appreciating that no evidence was produced before the AO and were covered u/s.40A(2)(b).
(ii) Without prejudice to the above, Ld. CIT(A) has erred in not exercising his plenary powers which are conterminous with that of AO as per the ratio laid down by CIT Vs. Kanpur Coal Syndicate (1964) 53 ITR 225, 229 (SC).
5.1 After hearing both the sides we find the Assessing Officer disallowed an amount of Rs.2,15,692/- claimed by the assessee on account of Telephone and Mobile expenses paid to the trustees on the ground that no evidence was produced before him to substantiate that the same was not for the purpose of the trustees and that there is an element of personal use of Telephones and Mobiles by the trustees. Therefore, there is violation of provisions of section 13(1)(c) of the I.T. Act.
5.2 In appeal the Ld. CIT(A) deleted the addition by holding as under:
"11.7 I have considered the facts of the case and the submissions of the appellant. As regards, mobile phone expenditure, similar expenditure was incurred in the earlier years and the AO has disallowed the same. This issue has been discussed in detail in the appeal order of earlier year including the appeal for A.Y. 2006-07 wherein it has been held that this expenditure was incurred for the objects of the trust and no violation of section 13(1)(c) was committed by the appellant. The decision was given, among other things, on the ground that no specific instance of use of these expenses for personal purpose was brought on record. Facts of this year are substantively identical with that of earlier years including A.Y. 2006-07. Therefore, the decision in the appeal order for earlier years is equally applicable for this year as no specific instance of these expenses incurred for personal purposes of the person mentioned in section 13(3) of I.T. Act has been brought on record. Accordingly, I hold that the mobile phone expenditure of Rs.2,15,692/- is allowable as a deduction and further, no violation has been committed by the appellant u/s.13(1)(c)".
5.2.1 We find similar issue had come up before the Tribunal in assessee's own case and the Tribunal dismissed the ground raised by the Revenue in ITA No.1612/PN/2011 order dated 14-12-2012 for A.Y. 2006-07 by holding as under :
2439. After hearing both sides we find the AO has discussed this issue at Para Nos. 21 to 24 of the assessment order. According to the AO the assessee has not offered any explanation regarding the payment of Telephone and Mobile expenses of some of the trustees. The AO also referred to the report of the Special Auditor wherein it has been mentioned that such expenditure incurred is for the benefit of the persons specified u/s.13(1)(3) of the I.T. Act. The AO therefore disallowed such payments by holding that the assessee had violated the provisions of section 13(1)(c) of the Act. In appeal the learned CIT(A) deleted the addition on the ground that the assessee had duly explained the justification of the Telephone and Mobile charges of the trustees incurred by the trust during the assessment proceedings itself. He further held that the AO had not brought any concrete evidence on record to prove that the said expenses resulted in a benefit to the concerned persons and therefore there is no violation of provisions of section 13(1)(c) of the I.T. Act.
40. It is the submission of the learned DR that since the assessee had not offered any explanation regarding such payments during the assessment proceedings, therefore, expenses incurred for the trustees is a violation of the provisions of section 3(1)(c) of the I.T. Act. It is the submission of the learned counsel for the assessee that the trustees whose telephone and mobile expenses are borne by the assessee trust are the key persons of the trust and because of their whole-hearted efforts the trust had grown remarkably.
Further, similar expenses were allowed in the past and there was no disallowance on this account. We find merit in the above arguments by the learned counsel for the assessee. From the copy of the assessment order for A.Y. 2000-01 to 2002-03 placed at Paper Book Page Nos. 293 to 307 we find no such disallowance has been made by the AO in the scrutiny assessments on account of Telephone and Mobile expenses incurred by the trust for the trustees. We find that the learned CIT(A) while deleting the disallowance has discussed the issue at Para 26.4 of his order which reads as under :
"46.4 I have considered the submissions of the appellant. There is no doubt that the appellant trust has incurred telephone/ mobile expenses of the trustees. The appellant has argued that the trustees are working for the trust and it is in the interest of the trust that telephone / mobile are provided to the trustees. Payments in respect of telephone I mobile are basically reimbursement of the expenses incurred for the purposes of the trust. The AO disallowed these expenses and considered them resulting into personal benefit to the trustees mainly on account of the fact that, according to him, the appellant purposely kept mum on the telephone charge on the payments made to the trustees and their relatives. However, a closer look at the assessment proceedings reveals that the appellant during the course of assessment proceedings, itself, clarified that, among others, payment on account of telephone expenses was not for the benefit of any trustees but were reimbursement of expenses. The relevant portion of the submission dt.30/06/2008 of the appellant, which was received in the office of the AO during assessment proceedings on 1/7/2008 is as under :-
Query No. 6 : . . . . . .
The Auditor's report points that apart from remuneration, items like Travelling expenses and telephone expenses incurred on the trustees. It is submitted that, both the payments are not for the benefit of any trustee but 25 are the reimbursement of expenses, (sometimes direct payment by us) incurred by them for the purposes of the Trust.
Therefore, the statement of the AO that the appellant purposely kept mum on telephone charges is not correct. The AO did not bring on record anything to controvert the statement of the appellant that the payment on account of telephone expenses was, in fact, reimbursement of expenses incurred for the purposes of trust. Therefore, I find merit in the contention of the appellant that the A.O. has simply disallowed the expenditure without pointing out any specific violation committed by the appellant trust. The appellant has also placed reliance on the decision of ITAT Cochin in the case of George Educational, Medical and Charitable Trust wherein it has been stated that for invoking the provisions of section 13(1)(c), onus is on the department to prove that the appellant has committed any violation. Hon'ble ITAT in the case of George Educational, Medical and Charitable Trust (80 ITD 619 [Coch]) has held that in the case of a charitable trust, disallowance of expenditure for personal use if made, has serious consequences by way of attracting the provisions of section 13(1)(c) or higher rate of tax u/s.164(2). For invoking these sections, onus is on the department to prove personal element in the Context of use of assets or incurring of expenditure. Relevant portion of the judgment is reproduced below :-
"18 ........ ..
It may be observed that the genuineness of the expenditure is not doubted. It is not as though the expenditure is not doubted. It is not as though the expenditure is unvouched. The claim of the assessee is that the governing council members, inclusive of the chairman, were normally residing outside India. The work of the trust took them to different places like Palghat, Trivandrum, Mavelikara, etc. There are also sufficient withdrawals from the NRE account of the chairman to explain his personal visits. We see no reason for the above disallowances. The disallowances aggregating to Rs. 44, 048/- is deleted In this context we may mention that in the computation of business income, normally certain disallowances are made for probable personal use of assets / expenditure on the ground that there is no sufficient evidence by way of log book, etc. However, in the case of a charitable trust, such disallowances for personal use if made have serious consequences by way of attracting the provisions of s.13(1)(c) or higher rate of tax under s.164(2) of the II Act. For invoking these sections, we are of the view that the onus is on the Department to prove personal use in the context of use of assets or incurring of expenditure. Such onus has not been discharged in respect of the disallowance of the travelling expenses."
19. Similar is the position with regard to the disallowance of Rs.13,4 75/- out of telephone expenses ............ ..
Again it is not the case of the Revenue that the expenditure is not vouched. They have made the impugned disallowance only on surmises or estimate for the possible personal use of telephone by the chairman. Simply because the calls are frequent between Singapore and Trivandrum, it cannot be assumed that they are not relatable to the work of the trust. As the assessee admittedly has a centre in Trivandrum and the governing council members are staying in Singapore, it is quite possible that the directions of the governing council members were sought or that they gave instructions to their office at Trivandrum. In respect of the disallowance, of telephone 26 expenses at the office, the CIT (A) reduced the disallowance, but confirmed a portion, again only on surmises. Considering the serious consequences that could flow, like the denial of exemption under s. 11, disallowance for personal user by trustees cannot be countenanced, unless proved. There is no such proof in respect of the disallowances in the present case. We accordingly delete the disallowance of Rs. 13,475 out of telephone expenses.
Accordingly, in view of the above decision, I hold that in the absence of concrete evidence brought on record by the A.O. to indicate that the assessee has given benefit to the concerned persons, there is no violation of section 13(1)(c). Further, the disallowance made by the A.O. is also deleted. Accordingly, this ground of appeal is allowed."
41. The learned DR could not controvert the above findings given by the learned CIT(A). In view of the detailed discussion by the learned CIT(A) and considering the fact that no such disallowance was made in the scrutiny assessments for A.Ys. 2000-01 to 2002-03 and in absence of any contrary material brought to our notice we find no infirmity in the order of the learned CIT(A) deleting the disallowance on account of Telephone and Mobile expenses. Accordingly, the order of the CIT(A) on this issue is upheld and the grounds raised by the revenue are dismissed. Since the expenses are allowed as for the objects of the Trust, there is no violation of provisions of section 13(1)(c) of the I.T. Act."
5.3 Respectfully following the decision of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice we uphold the order of the Ld. CIT(A) on this issue and the grounds raised by the Revenue are dismissed.
6. Grounds of appeal No.6 by the Revenue reads as under :
"6. Whether on the facts & in the circumstances of the case and in law the Ld. CIT(A) was justified in holding that employees contribution which was not deposited within due date under that Act is allowable as expenditure subject to exemption u/s.11 is available to assessee when the same was rightly disallowed by the AO".
6.1 After hearing both the sides we find the AO disallowed an amount of Rs.11,35,788/- on account of late payment of Employee's P.F. In appeal the Ld. CIT(A) held that since the assessee is entitled to exemption u/s.11, therefore such disallowance is not warranted.
According to him, since the income is exempt there is no question of 27 making this disallowance. Further, the amount has to be considered for computing the income of the trust u/s.11 because the income is not to be computed on commercial principles and the provisions of section 28 to 43 are not applicable. He, however, held that in case the exemption u/s.11 is subsequently rejected then this disallowance made by the AO is justified.
6.2 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
6.3 We have considered the rival arguments made by both the sides.
In our opinion, the order of the CIT(A) is justified. Once the assessee is entitled to exemption u/s.11 then in that case in our opinion no such disallowance is warranted. This view of ours is in conformity with the order of the Tribunal in assessee's own case vide ITA No.1592/PN/2011 & ITA No.1612/PN/2011 order dated 14-12-2012 for A.Y. 2006-07.
Ground raised by the Revenue is therefore dismissed.
7. Grounds of appeal No.7 by the Revenue reads as under :
"7. Whether on the facts & in the circumstances of the case and in law the Ld. CIT(A) was justified in holding development fee of Rs.6,26,38,496/- as capital receipt ignoring the fact that the same was to be treated as income in view of cancellation of registration u/s.12A and also in view of violation of section 13(1)(c) which automatically rendered the income chargeable to tax.
7.1 After hearing both the sides we find the Assessing Officer taxed the Development fee of Rs.6,26,38,496/- collected from the students as per circular issued by the Government. In appeal the Ld. CIT(A) held that since the assessee is entitled to claim exemption u/s.11 as it has been allowed registration u/s.12A and since there is no instance of violation of any condition laid down u/s.11 to sec.13, therefore, exemption u/s.11 has 28 to be allowed. Once the exemption is allowed then the entire development fee collected has to be considered as income of the assessee for determining the amount to be applied by the assessee for charitable purposes. He held that the development fee collected from the students is not towards the corpus of the trust and therefore the amount is not exempted u/s.11(1)(d).
7.2 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
7.3 We have considered the rival arguments made by both the sides.
We find similar ground had been taken by the Revenue in ITA No.1612/PN/2012 for A.Y. 2006-07. The Tribunal dismissed the ground raised by the Revenue holding that such additions/disallowance were made since benefit of deduction u/s.11 was denied to the assessee.
However, once it is held that there is no violation of provisions of section 13(1)(d) and 13(1)(c) of the I.T. Act on any of the issues and since the Tribunal has already restored the registration u/s.12A of the I.T. Act, therefore, the assessee is entitled to benefit u/s.11 of the I.T. Act. Therefore, the ground being consequential in nature become academic and therefore does not require any adjudication. Since in the instant case the registration u/s.12A of the I.T. Act has been restored and since there is no violation of any of the condition laid down u/s.11 to 13 of the I.T. Act, therefore, the entire development fee collected by the trust has to be considered as income of the assessee for determining the amount to be applied by the assessee for charitable purposes. In this 29 view of the matter we uphold the order of the Ld. CIT(A) and the ground raised by the Revenue is dismissed.
8. In the result, the appeal filed by the Revenue is dismissed.
Pronounced in the open court on this the 25th day of June 2013 Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune Dated: 25th June 2013
Satish
Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A) Central, Pune
4 CIT Central, Pune
5. The D.R, "B" Pune Bench
6. Guard File
By order
// True Copy //
Senior Private Secretary
ITAT, Pune Benches, Pune