Income Tax Appellate Tribunal - Amritsar
Saint Kabir Educational Trust, , ... vs Department Of Income Tax on 7 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No.346(Asr)/2011
Assessment year:2007-08
PAN:AAFTS8183H
Asstt. Commr. of Income-tax, Vs. M/s. Saint Kabir Educational Trust,
Cir.II, Bathinda. Fazilka.
(Appellant) (Respondent)
C.O.No.17(Asr)/2011
(Arising out of ITA No.346(As)/2011)
Assessment year: 2007-08
M/s. Saint Kabir Educational Trust, Vs. Asstt. Commr. of Income-tax,
Fazilka. Cir.II, Bathinda.
(Appellant) (Respondent)
Department By:Sh. Tarsem Lal, DR
Respondent By:Sh. A.K. Periwal, CA
Date of hearing :07/03/2012
Date of pronouncement: 13/03/2012
ORDER
PERBENCH;
This appeal of the Revenue and C.O. by the assessee arise from the order of the CIT(A), Bathinda, dated 10.02.2011 for the assessment year 2007-08.
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2. The Revenue has raised following grounds of appeal:
"1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in restricting the disallowance to Rs.50,000/- as against Rs.18,67,526/- made by the A.O. under the head salary, without appreciating the fact of the case that the assessee failed to produce the persons to whom salaries were paid during the year under consideration and also that some of the persons denied to have received any salary from the assessee;
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in restricting the disallowance to Rs.20,000/- as against Rs.4,00,000/- made by the A.O. under the head P&L disallowances and disallowance out of activity fund and development fund for want of proper verification, without appreciating the facts of the case that the assessee failed to produce complete vouchers during assessment proceeding'
3. Appellant craves to add or amend any grounds of appeal before the appeal is heard and disposed of."
3. The assessee in its C.O. has raised following grounds:
1. That retaining disallowances of Rs.50000/- out of salary account and Rs.20000/- out of various expenses like repair, traveling, staff welfare and legal expenses etc. Debited in profit & loss account are not only excessive but without any basis and merely on estimated basis and guess work.
2. That ld. CIT(A) Bhatinda have deleted the adhoc additions made by A.O. out of salary account after appreciation of facts, evidence, assessment records & according to law as well as circumstances of case.
3. That learned CIT(A) Bhatinda have also deleted the adhoc additions made by the A.O. out of various expenses debited to profit & loss account and out of various fund expenses after appreciation of facts and verifying the same from assessment records.
4. It is therefore prayed that out cross-objections may kindly be considered and the order passed by ld. CIT(A) 3 Bhatinda regading additions retaining of Rs.50000/- out of salary account and Rs.20000/- out of various expenses may also be deleted."
4. The facts of the present case as emanating from the assessment order are as under:
"In this case a survey u/s 133A was conducted on 13.12.2006. Since it was a case of survey it falls in the category of compulsory scrutiny and therefore, case has taken into scrutiny.
1. However, the assessee failed to file the return on or before due date. Therefore, assessee was issued notice u/s 142(1) dated 11.06.2008 to file the return to which he did not comply stating that college is being closed from 09.06.2008 16.06.2008 and Accountant is on leave. As such penalty notice u/s 271F was issued on 23.06.2008. The assessee even did not bother to comply with penalty notice and penalty of Rs.5000/- u/s 271F was imposed on 27.08.2008. However, the assessee even then did not bother to file the return. In the circumstances assessee was again requested vide letter dated 02.09.2008 to submit the return. Assessee sought adjournment on the excuse of sickness of Accountant. Finally on 11,11,2008, the assessee was issued notice to show cause as to why prosecution proceedings should not be initiated u/s 276CC of the Act for failure to file the return. The assessee again came forward with difference excuses and in his reply dated 25.11.2008 he stated that he is facing hardship on account of damage of data of Hard Disk.
In the circumstances request was made to the C.I.T.Bathinda for provisional attachment of the bank account of the assessee and after receiving the permission on order u/s 281B was made on 22.12.2008. The assessee attended the proceedings through his counsel Sh. Anand Periwal, CA on 12.01.2009 and offered bank guarantee of Rs.10,00,000/-.Therefore, bank account was released on the basis of guarantee furnished by the assessee.
With all these efforts and pressure put on the assessee he finally filed the return of income on 31.03.2009 i.e. late by 20 months after the due date. The obvious inference was that assessee was manipulating his affairs and avoiding to furnish information so that no useful enquiry could be made in his case. The attitude of the 4 assessee reveals that society is not existing for charitable purposes but for purpose to earn the profits.
It will not be out of place to mention here that assesse had also applied to the CIT, Bathinda for grant of registration u/s 12AA and after considering the facts of the case no registration was granted by the CIT, Bathinda.implying that Institute is not a Charitable Institute. The assessee has again applied for grant of registration u/s 10(23C) of the Chief Commissioner of Income-tax, Amritsar and the society has not so far been approved by the Chief Commissioner of Income Tax for registration u/s 10(23C)(vi) again implying that the Institute does not exist for solely education purposes.
In the circumstances assessment of the society is made in the status of AOP like an ordinary business entity and not as a charitable Institute. Vide letter dated 14.07.2009, the assessee was requested for furnishing information alongwith complete details of corpus fund with nameand address of the contributors in the corpus fund standing at Rs.31,81,489/-. The assessee has so far not furnished the complete information of corpus fund. Similarly, he was also required to give details of construction of Institute building. Again complete details were not furnished and only first floor of the building were stated as constructed in the last years and reference of the same was made to the Valuation Officer, who has valued the property at Rs.36,05,484/- against declared value of Rs.33,37,961/-.
2. The assessee was also issued notice on 12.11.2009 to explain for the following along with other information:
a. To produce Sh. Inderjeet Singh, Sh. Gurlabh Singh, Sh.
J.S.Sidhu and Sh. Sukhwinder Singh,the member of the society that they could be examined for the affairs of the society.It was also informed that entries standing in their names would be treated as personal payments and not for Charitable purposes.
b. Details of Charity done with evidence of same during the last 3 years.
c. Year wise construction details and source of contribution of the members.
d. Details of payment made to the promoter/trustee for the last 3 years.
e. Complete details of the receipts.
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f. Relationship of the members among themselves.
The assessee did not produce any member of the society for examination and therefore, the purpose of making payments to these persons is not proved for charity and payment made to these persons is to be disallowed as they are the persons only interested in the income of the society for their purposes. Income is being taken away in the name of salary, TA/DA etc. Assessee has not disclosed the relationship of the members of the society. However, from details of address and father/husband name it is explicit that following three groups are the partners carrying the business of running education Institute.
Joginder Singh Sidhu S/o S.Puran Singh Group-1 Sukhwinder Singh S/ J.S. Sidhu Baljit Kaur W/o J.S. Sidhu.
Gurparkash S/o Inderjit Singh Group-2 Inderjit Singh S/o Harbans Singh Mrs. Devinder Kaur W/o Inderjit Singh Sukhraj Singh S/o Balwant Singh Group-3 Gurlabh Singh S/o Balwant Singh S.Balwant Singh
3. During the course of proceedings no factual contribution of any member for the cause of society was noticed. Obviously this is the business concern of the three families and therefore, assessment is being made as AOP consisting the members of the society.
4. During the course of assessment proceedings, the assessee was asked to produce the persons for verification to whom salary of Rs.56,02,579/- has been paid.The assessee failed to produce even a single person on the excuse that most of these persons have left the Institute since long back. The address of these persons were obtained from the assessee and letters were written by the undersigned to persons who have been claimed as left the Institute. Only two replies came from Sh. Anup Sukhija, Abohar and other from Smt. Rajini D/o Sh. Roshan Lal Abohar were received. Their statement is as under:6
1. Sh. Anoop Sukhija R/o Abohar That I am not Income-tax assessee as I am preparing the paper of PHD.
That I was never an employee of Saint Kabir Polytechnic, Fazilka neither I had received any salary from the said institute.
2. Rajini R/o Abohar I was selected for the post of lecturer in chemistry in the above said college in 2002 but I did not join the same.
I have not served the college for any period.
I have not received any salary from the above said college in any financial year.
It implies that the salary payment is being inflated so as to pass this salary to the interested persons. Both these persons have denied their salary as per their letter dated 29.12.2009. Since time is very short on account of assessee's non co-operation to complete the proceedings and as he wasted time of about 20 months in furnishing the return and consequently related information. Therefore, at this stage, it is difficult to confront the letters to the assessee. However, these will be sent with order of assessment.
Further letter written to Sunita Dhamija and Sh. Sunil Sharma as per address furnished by the assessee were received back undelivered implying thereby that either these persons do not exist or the assessee has furnished wrong or incomplete address.
5. From the above it is clear that in the return
1. That salary shown in the return is not correct.
2. Income of the society is passing to interested persons on the guise of salary and other payments.
3. Assessee has avoided to produced the members of the society despite specific requirement so that their examination be made connected with affairs of society.
4. Assessee has not shown receipts of Rs.20,18,360/- which are in the name of various funds. When the complete and expenses account requires complete receipt and expenditure in the case of education society and it does not matter whether the receipt is of revenue or capital nature.
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5. Assessee has not produced any of the employee for verification.
6. Complete bills/vouchers are not available.
7. Moreover salary statement for the month of April,06, appears to have signed by one person or in respect of salary of Gurlabh Singh, Gurdarshan Singh and Lakhbir Kaur, the member of their relatives.
8. Moreover, salary of members of society is very much on the higher side as apparent from the details of salary paid (Non-teaching staff) is appear from the salary of staff details furnished by the assessee. The salary of the interested person is in the range of Rs.10,000/--15,000/- per month whereas other persons/lecturers being not given even half of the salary.
In view of above book version of the assessee is not accepted and assessment is made as under in the status of AOP.
6. Above discussion shows that the salary debited to P & L account is exaggerated and cannot be admitted as such it will not be out of place to mention here that in the return of income, the assessee has shown tuition fee of Rs.73,29,030/- out of which salary payment is shown at Rs.5602579/- i.e. at 76.5% of the total tuition fee received. This is very difficult proposition worth of credit and therefore, salary claim of the assessee is not proved by the assessee or exaggerated salary is being paid to members or their relatives.
7. In the income and expenditure account assessee has shown only receipts of Rs.73,29,030/- and after debiting various expenses excess of income over expenditureis shown at Rs.1,24,775/-. In fact,assessee has received much more payments and have been not shown in the return of income. These receipts under the name of funds are Rs.20,18,360/- but these have not been shown in the account.
Examination of vouchers produced by the assessee shows that the members of the society are being paid salary, traveling expenses etc. as per following details whereas salary of other lecturers are in the range of Rs.5000/- to 10,000/- per month:-
i) Sh.Joginder Singh @ 15,000/- per month
ii) Inderjeet Singh @ 12,000/- to 15,000 per month
iii) Davinder Kaur @15,000/- per month
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iv) Gurparkash Singh @ 5500 to 6500/- per month
Further most of the expenses on traveling are in the names of these persons given even Educational tour expenses of R.38,500/- and Rs.17,450/- are also in the names of these persons. Similarly Audio/Video expenses of Rs.15,000/- are in the name of the member of the society. Clearly it is an indication of passing the funds of the society to the members in the shape of salary, traveling/DA. Educational tour expenses. Audio/Video expenses etc. Thus in fact society is existing for the benefits of the promoters/members and objects is to earn profits and therefore, question of any benefit u/s 10(23C)(iiiad) does not arise. In view of above, discussion out of salary shown at Rs.5602579/-. I have already disallowed to the extent of 1/3rd keeping in view the fact that the salary is being paid to the members on their relatives and also the fact that salary remained unverified. The disallowance comes to R.18,67,526/-.
9. The expenses building repair, traveling expenses, misc.expenses, legal expenses, staff welfare are partly supported by internal vouchers or vouchers having no complete address or payments are in the name of member of the society. None of the member of the society presented themselves for examination. Therefore, salary and other expenses which are partly supported by original bills are unverifiable. Already disallowance of salary has been made as per discussion above. Out of other expenses a disallowance of Rs.1,00,000/- is made for unverifiable nature of expenses. Further expenses debited to various activity and development are also through the members and also supported by internal vouchers in part, therefore, out of fund expenses an amount of Rs.3,00,000/- is disallowed. Total disallowance works to Rs.4,00,000/-."
5. The Ld. CIT(A) for the reasons mentioned in its order restricted the disallowance on account of salary at Rs.50,000/-, on account various expenses at Rs.20,000/-.
6. The Ld. DR, Sh. Tarsem Lal, heavily relied upon the order of the Assessing Officer and argued that the assessee in the impugned year was not 9 Charitable Institution and was not enjoying any exemption under section 10(23C(vi) and was denied registration u/s 12AA of the Act. The Trust is being managed by three Groups of the persons as mentioned at page 2 of his order, as a private concern and the collections/receipts/income of the Trust is being used for the benefit and purpose of the said members of the groups as mentioned hereinabove. As regards the salary payment, which is 76.5% of the total tuition fee receipt, is exaggerated claim of the salary for the reasons that at the given addresses, the employees were not found available and the assessee did not produce even single person to whom salary has been paid. Therefore, salary claim remained unverifiable. So much to say as per reply of the assessee, few persons left the assessee to whom letters were sent by the A.O. Only two replies came from two persons, who had denied of being employees of the assessee-turst, as per details available at page 2 & 3 of his order. Letters from two persons were received back as undelivered. It is not a case of just two persons who have denied or being employee of the said trust or have denied of having received any salary from the assessee-trust and it is not a case of non-service of notice which have been received back undelivered, but salaries claimed remained unverifiable. Therefore, the AO was justified in assessing the assessee as an AOP and disallowing the salary which is minimum most at 1/3rd of the claim made. The AO has taken into 10 consideration, the circumstances and facts of the assessee-trust and that is why 1/3rd salary only has been disallowed. Moreover, the members of the group are being paid excessive salary of Rs.12,000/- to Rs.25,000/- per month, as stated by the AO in AO's order.
6.1. As regards building repair, traveling expenses, misc. expenses, legal expenses, staff welfare expenses, they are partly supported by internal vouchers or vouchers having no complete address or payments are in the name of member of the society. None of the member of the society was presented for examination. Further various activities and development expenses are only through these members and supported only by internal vouchers. Therefore, these expenses remained unverifiable and the AO has rightly disallowed Rs.4,00,000/- on this account. The Ld. DR , accordingly prayed to confirm the order of the Assessing Officer. He further argued that the ld. CIT(A) has without any reason or without any documentary evidence had restricted disallowance of Rs.50,000/- on salary account and Rs.20,000/- on expenses account.
6.2. The Ld. Counsel for the assessee, Sh. A.K. Periwal, CA, on the other hand, relied upon the order of the ITAT, Amritsar Bench, in assessee's own case, passed in ITA No.488(Asr)/2009, dated 31st March, 2010, with regard to the Registration u/s 12AA of the Act and supported the order of the 11 CIT(A) for deleting the addition and prayed to delete the addition on account of salary for which the assessee had submitted an affidavit of the employee that he had received salary of Rs.14,000/- and with regard to other expenses, only Rs.2500/- could be disallowed.
7. We have heard the rival contentions and facts of the case. There was a survey under section 133A of the Act on the assessee on 13.12.2006. The assessee was issued notice under section 142(1) on 11.06.2008 to file the return of income. The assessee did not file the same inspite of attachment of the bank under section 281B on 22.12.2008, which was released on giving the bank guarantee. Ultimately, the assessee filed the return of income on 31st March, 2009 i.e. late by about 20 months after the due date. The assessee was not granted registration u/s 12AA of the Act and the assessee had applied for the registration u/s 10(23C)(vi) of the Act, which was not granted till the date of the assessment. The assessee did not furnish the details of the corpus fund amounting to Rs.31,81,489/- and also did not produce the details of the construction of the building. The assessee did not produce the details of the relationship of the members in particular Sh. Inderjit Singh, Sh. Gulabh Singh, Sh. J.S. Sidhu and Sh. Sukhwinder. Ultimately, from the details available with regard to the address and father/husband's name, it was presumed by the A.O. that the assessee is 12 carrying on the business of running Education Institution by three groups, as mentioned in the assessment order.
7.1. As regards the salary confirmation claimed at Rs.56,02,579/-, letters were sent at the addresses given by the assesse and no confirmation have been received by the A.O. except in two cases i.e. Sh. Anoop Sukhija and Rajini, who had denied of even being employees of the assessee Institute. Two letters were received as undelivered. Members of the society are being paid salary between Rs.5500/- to 15000/- per month and also the various traveling and other expenses for which no supporting evidences were produced except the internal vouchers.
7.2. It was argued before the ld. CIT(A) and even before us by the ld. counsel appearing for the assessee that the assessee filed the return on 31st March, 2009 and it was for the first time on 21.12.2009, the assessee was asked to produce the employees when the assessment was being time barred on 31st March, 2009 and the A.O. finalized the assessment on 30.12.2009. The replies received from the two employees were never confronted to the assessee. It was argued that none of the salary is paid to the relative of the members of the trustees, except the full time office bearers. After hearing the parties, we are of the view that the Ld. CIT(A) has decided the appeal inspite of the fact, the assessee has not co-operated in the assessment proceedings 13 and has not filed most of the details before the A.O. Notices on the employees at the given addresses for verification of salary remained unserved. In case of two employees, as mentioned hereinabove, have denied of having been even employed with the assessee and only in two cases, the notices received back as undelivered. In fact, the whole salary remained unverified. Similarly, in the absence of supporting evidence of the expenses with regard to building repair, traveling expenses, misc. expenses, legal expenses etc., the ld. CIT(A) has decided the issue. It will be in the interest of justice, if the matter is restored to the file of the A.O. to decide the issue denovo. Similarly, as argued before the Ld. CIT(A) that all the details of the employees as well as of the expenses were made available before the ld. CIT(A), but the same were not available before the A.O. Therefore, in the interest of justice as mentioned hereinabove, the matter is restored to the file of the A.O. who will decide the appeal denovo but by providing adequate opportunity of being heard to the assessee. Thus, all the grounds of appeal of the Revenue are allowed for statistical purposes.
8. Now, we take up C.O.17(Asr)/2011 for the assessment year 2007-08 filed by the assessee. Since we have restored the grounds of appeal of the 14 Revenue to the file of the A.O., the C.O. filed by the assessee is also restored to the file of the A.O. with the direction to decide the same afresh, after affording reasonable opportunity of being heard to the assessee.
9. In the result, both the appeal of the Revenue as well as C.O. of the assessee are allowed for statistical purposes.
Order pronounced in the open court on 13th March, 2012.
Sd/- Sd/-
(H.S. SIDHU) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 13th March , 2012
/SKR/
Copy of the order is forwarded to :
1. The Assessee:M/s. Saint Kabir Educational Trust, Fazilka.
2. The ACIT, Cir-II, Bathinda.
3. The CIT(A), Bathinda.
4. The CIT, Bathinda.
5. The SR DR True copy By Order (Assistant Registrar) Income Tax Appellate Tribunal Amritsar Bench : Amritsar.