Income Tax Appellate Tribunal - Jaipur
Deputy Commissioner Of Income Tax (E), ... vs M/S Shri Ramdoot Prasad Sewa Samiti ... on 27 January, 2020
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCH 'B', JAIPUR
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Before : Shri Vijay Pal Rao, JM & Shri Vikram Singh Yadav, AM
vk;dj vihy la-@ITA No. 1146/JP/2018
fu/kZkj.k o"kZ@Assessment Year : 2012-13
The DCIT (E) cuke M/s. Shri Ramdoot Prasad Sewa Samiti
Circle Vs. Trust, V/P:Ghata Mehandipur Balaji
Jaipur Tehsil: Todhabhim, Distt. Karauli
LFkk;h ys[kk la-@thvkbZvkj la-@P AN/GIR No.: AAETS 6843 H
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Smt. Runi Paul, JCIT- DR
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal, CA
lquokbZ dh rkjh[k@ Date of Hearing : 28/11/2019
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 27/01/2020
vkns'k@ ORDER
PER VIJAY PAL RAO, JM
This appeal by the Revenue is directed against the order of ld. CIT(A) -1, Jodhpur dated 20-07-2018 for the Assessment Year 2012-13. The Revenue has raised the following grounds.
''1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in allowing exemption u/s 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that the 2nd proviso of section 2(15) of the I.T. Act, 1961 attracted as total turnover from sweet shop business is 2 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli Rs.3,77,17,315/- which is very higher the prescribed limit of Rs. 25 lacs.
2. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in allowing exemption u/s 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that the trust has made purchases of Rs. 9,00,46,104/- from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi which is a specified persons u/s 13(3) of the I.T. Act, 1961 and thus provisions of Section 3(1)(c)(ii) r.w.s. 13(2)(g) of the I.T. Act, 1961 attracted in this issue.
3. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in allowing exemption 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that the purchases from specified persons i.e. M/s. Pawansut Trading Company Pvt. Ltd., New Delhi were not reported by the auditor in the audit report furnished u/s 12A(1)(b) in Form No. 10B.
4. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in allowing exemption 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that the entities i.e. M/s. Pawansut Trading Company Pvt. Ltd. and M/s. Maruti Traders from where maximum purchases were made, had show a very meager income of Rs.9,71,880/- and Rs.19,357/- respectively which leads doubts into the genuineness of these purchases from these concerns.
5. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.
45,02,304/- on account of disallowance @ 5% out of purchases made from M/s. Pawansut Trading Company Pvt. Ltd. by taking into consideration of bulk purchasing and also in absence of comparable rates coupled with non-closure in audit report.
3 ITA No.1146/JP/2018The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli 2.1 The Ground Nos. 1 to 4 of the Revenue are regarding denial of benefit of exemption u/s 11 and 12 of the I.T. Act, 1961 by AO by invoking the proviso to section 2(15) of the I.T. Act, 1961 on account of certain purchases made by the assessee treating as transactions with specified persons u/s 13(3) of the Act which was allowed by the ld. CIT(A) by holding that assessee's activities are chartable in nature and there is no violation of section 13 (3) of the Act. The assessee society is registered with Devsthan Vibhag, Jaipur vide certificate dated 29-09- 1995. The assessee was granted registration u/s 12AA of the Act vide order dated 23-12-2008 w.e.f. 01-04-2001. The assessee filed its return of income on 28-09-2012 declaring Nil income after claiming deduction u/s 11 and 12 of the Act. During the assessment proceedings, the AO noted that assessee trust/ society is engaged in the activity of making / buying and selling of Prasad/ Sweets to the devotees of Lord Balaji of Mehandipur. On going through the income and expenditure account of the assessee, the AO noted that the assessee is engaged in the business of selling Prasad in the form of Sawamani of Laddu Pudi, Halwa Pudi, Gulgulai and Chawal. The total receipts of the assessee from sale of Prasad is Rs. 17,63,47,527/- as against total purchase of materials of Rs. 13,23,88,744/-. The AO noted that out of total purchases assessee has 4 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli purchased raw materials for preparing the Sweets of Rs. 99,50,831/- and rest of the purchases are for trading purposes. As a result of purchase and sale of Sweets/ Prasad, the assessee has shown profit of Rs. 4,36,26,588/- which includes interest on F.D. of Rs. 1,58,62,349/- and interest on saving bank account of Rs. 2,99,084/-. The AO noted that the profit from core business activity is Rs. 2,74,65,125/-. By considering these details of purchases and sales of Prasad, the AO held that the assessee is dealing in buying and selling of Sweets/prasad which is a commercial activity and it is nothing to do with charitable activity. Accordingly, the AO held that the assessee does not fall in the definition of charitable activity as defined u/s 2(15) of the Act in view of the 2nd proviso to the said section and consequently the claim of exemption u/s 11 was denied. The AO has also held that there is violation of section 13(1)©(ii) of the Act so far as the purchases of Rs. 9,00,46,104/- have been from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi. The basis of the observation of the AO is that the income declared by the said company for the Assessment Year 2012-13 is very meager and further the main trustee of the assessee trust is also the director of the said company. Thus, the AO was of the view that the transaction was done with the related party which falls in the specified person u/s 13(3) of the Act. The AO held that the management 5 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli of the assessee trust has used the property of the trust for personal benefit and thereby attracting the provisions of section 13(1)©(ii) of the Act read with section 13(2)(g) of the Act and consequently assessee is not eligible to claim exemption u/s 11 and 12 of the Act. Hence, the AO has assessed the entire surplus of Rs.4,36,26,558/- to tax. The assessee challenged the action of the AO before the ld. CIT(A).
2.2 Before the ld. CIT(A), the assessee contended that the assessee has been doing some activity of preparing the Prasad for the devotees visiting to Balaji Temple and to offer the Bhog to Lord Balaji as per customs of the temple. The Prasad is prepared as per request of the devotees and after Bhogh Sawamani - 50 Kg becomes the Prasad of the Lord Balaji. The devotees take the Prasad as per their requirement and remaining Prasad is distributed to other devotees visiting to the Temple without any charge and also to the students of 200-250 schools in 7 districts of Rajasthan as Midday food without any charge. The ld.AR of the assessee thus contended that the preparation of Prasad is done by the assessee as per request of the devotees which is first offered to God and then it is distributed amongst devotees including the devotees who had ordered the preparation of Prasad and remaining Prasad is distributed to the general public as well as school children. When the assessee is not 6 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli charging for the service of distribution of Prasad to public as well as school children and even not charging for transportation of Prasad from Temple to various schools then it is a charitable activity of the assessee for which registration was granted u/s 12AA of the Act. The activity of the assessee remained the same to provide service to the devotees for preparing the Prasad as per their request and offering the same to Lord Balaji. Thereafter it is distributed to the devotees, general public as well as school children. The assessee is only receiving money from the devotees who are requesting the assessee to prepare the Prasad on their behalf and then it is offered to God and distribute the same to general public as well as school children as Midday Meal. The entire receipt of the assessee is from the devotees who request for preparation of Sawamani Prasad and the assessee is providing the services of preparation of Prasad, offering to Lord Balaji and then distributing the same amongst devotees, students as well as general public. Even the Prasad is offered is also offered to animals and birds as per rituals. Therefore, the assessee is receiving this income only from the activity of charity, being the services offered to the devotees, general public and school children. The assessee has also referred to assessment order passed u/s 143(3) for the Assessment Years 2007-08, 2009-10 and 2011-12 7 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli wherein the AO has not doubted the charitable nature of the activity of the assessee and allowed the claim of exemption u/s 11 and 12 of the Act. The ld. CIT(A) after considering all these facts and submissions of the assessee as well as the remand report of the AO held that assessee's activities are charitable in nature and not in the nature of trade, commerce or business. Accordingly, the ld. CIT(A) allowed the claim of exemption u/s 11 and 12 to the assessee.
2.3 As regards the violation of proviso to section 13(1)(c )(ii) r.w.s. 13(2)(g) of the Act, the ld. CIT(A) has considered all the relevant facts and found that no undue benefit was given to the so called related parties as purchase price from the said party M/s. Pawansut Trading Company Pvt.Ltd. New Delhi is at the same rate as it was purchased from third party. Accordingly, the ld. CIT(A) allowed the appeal of the assessee and claim u/s 11 and 12 of the Act.
2.4 Before the Tribunal, the ld. DR has submitted that the AO has clearly brought out the fact that the activity of the assessee is trading of purchase and sale of Prasad to offer the Lord Balaji Mehandipur Temple Trust. The activity of the assessee is nothing but like a sale of Prasad. Therefore, the same is trade, commerce and business activity and not the activity of charitable in nature. Since the activity of the assessee is even 8 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli otherwise falls in the last limb of definition of charitable purpose u/s 2(15) of the Act being the advancement of any other objects of general public utility. Therefore, if the said activity of the assessee involves the carrying on of any activity in the trade of commerce or business and aggregate receipts from such activity is more than Rs. 25 lacs then the same is not eligible for benefit of section 11 and 12 of the Act as it is excluded from the definition of charitable purpose as per the proviso to section 2(15). The ld. DR has referred to the findings of the AO and submitted that the AO has clearly made out a case of activity of the assessee in the nature of trade, commerce or business and the gross receipt of the activity is more than the threshold limit to proviso to section 2(15) of the Act then such activity of the assessee shall not be treated as charitable in nature. Therefore, these activities of the assessee dealing in buying and selling of Prasad is nothing but the commercial activity and not eligible for exemption u/s 11 and 12 of the Act. The ld. DR has relied on the order of the AO and submitted that the conditions as enumerated in the proviso to section 2(15) of the Act are specified for excluding the activity of the assessee from charitable in nature and thereby the claim of the assessee is not found to be in accordance with the provisions of law. As regards the purchases made by the assessee in contravention to 9 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli Section 13(1)©(ii) read with section 13(3) is more than 75% of the purchases found from the related parties M/s. Pawansut Trading Company Pvt. Ltd. New Delhi, the assessee has not disputed the fact that Shri Mahant Kishore Puri Ji Maharaj is the main trustee of the assessee as well as director the said company. Thus the assessee has given undue benefit to the related parties. The AO has doubted the genuineness of the purchases made by the assessee. The said company has shown very meager income in the return of income. Further the purchases made from the specified person referred to u/s 13(3) of the Act, are also not reported in the audit report furnished u/s 12(A)(b) of the Act in the form of 10B of the Act. The AO has specifically pointed out that in the audit report the auditor has not pointed out any related parties transactions and therefore, it is a clear violation of the mandatory disclosure and reporting of a trust for related parties transactions. This is not an isolated or insignificant transaction of the purchases. The assessee has made purchases as much as Rs. 9.00 crores out of total purchases of 12 crores from the related parties which has not been reported in the audit report. Therefore, such purchases shown from the related parties are not from serious doubt of genuineness. 10 ITA No.1146/JP/2018
The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli 2.5 On the other hand the ld.AR of the assessee has submitted that that Shri Mehandipur Balaji Temple is an ancient Temple dedicated to "Lord Hanuman Ji", "Bhairon Ji" and "Pret Raj Ji". The devotees offer Sawamani in the form of Laddu Puri and Halwa Puri for bhandara, gulgulai for birds and rice for cows / animals. Earlier there was no adequate arrangement to offer Sawamani to Lord Balaji. With the increase in the number of devotees and Sawamani Bhog, the trust was created with the object that the devotees shall get pure and best quality of Sawamani at cost which will be offered to Lord Balaji. With this object, the trust was registered on 20.09.1995 under the name Shri Ramdoot Prasad Sewa Samiti Trust. The trust provides service to its devotees for Sawamani only on cost to cost basis. Considering these objects, the trust was granted registration u/s 12AA w.e.f. AY 2001-02. The ld.AR further submitted that in course of assessment proceedings, assessee explained that Sawamani is booked according to the request of the devotees. After preparation of the same, it is offered to Lord Balaji, Mehandipur Temple Trust. The Pujari of the Balaji Temple offers the Bhog to Lord Balaji as per custom of the Temple and after Bhog the Sawamani becomes the Prasad. The devotees take the said Prasad as per their requirement and 11 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli remaining Prasad is distributed to the other devotees visiting to Balaji Temple without any charge and to more than 200-250 schools in 7 districts of Rajasthan every day as Midday food without any charges as per Central/State Government Policy to provide the Midday meal to each & every student without any cost. The assessee vide letter dated 20.03.2015 filed the certificate issued by such schools. The ld.AR further submitted that in course of assessment proceedings, assessee vide letter dated 16.03.2015 explained that the committee of the trust fixes the cost of each Sawamani every week after considering the cost of purchase of raw material used in preparation in Sawamani. A list of rate for all the weeks pertaining to AY 2012-13 along with calculation of cost of Sawamani supported by the purchase bills and booking receipts was filed. From the same, it is evident that only cost is charged from the devotees booking the Sawamani and it is not sold to any other person. Thus, the activity of the assessee trust has no commercial instinct. The AO has also not found any discrepancy in the cost so worked out by the assessee. The assessee further explained that though the Sawamani is booked on cost to cost basis but because of cancellation, surplus arises to the assessee. It was demonstrated that during AY 2012-13, 43,129 Sawamani of different bhog were booked but due to cancellation only 29,843 Sawamani were 12 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli prepared. The devotees never claimed the booking amount from the trust as they feel that once they have dedicated the amount to Lord Balaji, it belongs to Shri Balaji Maharaj. Such cancellation normally ranges from 15-20% and it is for this reason that there remains a surplus. The surplus amount is set apart u/s 11(2) to be utilized for charitable purpose. As per the Board Resolution passed on 25.03.2012, it is resolved that the surplus be set apart for a period of 5 years to be utilized for the objectives listed in the resolution. The amount set aside has been invested in the modes prescribed u/s 11(5) i.e. FDR. It is evident that activities of the assessee are charitable in nature and fall in the definition of Sec 2(15) as advancement of any other object of general public utility. Its activities are not in the nature of trade, commerce or business. The Sawamani is prepared only for the devotees and is not sold to outsiders. Only the cost is charged from the devotees. Due to cancellations in Sawamani bookings', surplus arises to the assessee. Such surplus is incidental to the activity of the trust. The surplus is set apart and is applied for charitable purpose. The AO has wrongly compared the activity of the assessee to a sweet shop ignoring that assessee is not selling the Prasad to outsiders but only preparing it for the devotees at their request and charging cost for the same without any profit motive. Similar activity carried out in earlier 13 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli years has been accepted by the AO in the assessment order passed u/s 143(3) for AY 2007-08, AY 2009-10 and AY 2011-12 by allowing the exemption to the assessee u/s 11 of the Act. The ld.AR of the assessee relied on the decision of Hon'ble Supreme Court in case of Radhasoami Satsang Vs. CIT 193 ITR 321, where also the issue of exemption u/s 11 & 12 was involved, held that in the absence of any material change, a different view than that taken in earlier years, could not be taken. Therefore, there is no reason for the AO to hold that the activity of the assessee for the year under consideration is commercial in nature and hit by proviso to Sec 2(15) of the Act. It is a settled proposition of law that only because a charitable institution is pursuing the object of general public utility and having receipt of more than prescribed limit from activities in the nature of trade, commerce or business, it would not automatically loose the exemption u/s 11. The CBDT in circular no. 11/2008 dated 19.12.2008 in this connection has clarified that only in cases where the object of general public utility is a mask or device to hid the true purpose which is trade, commerce or business would not be entitled to claim that its object is charitable purpose. From the above circular, it is clear that the proviso to section 2(15) would apply only when the activities of an institution of trade, commerce 14 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli or business and section 2(15) is used only as a mask or a device to hide the true purpose which is trade, commerce or business.
Therefore, the genuine institutions who carries out the activity of general public utility for the general welfare of public at large without any profit motive would not be hit by the proviso to section 2(15) even when it charges fees or consideration for the services rendered by it and the same exceeds the prescribed limit. The ld.AR of the assessee relied on following decisions.
(1) CIT Vs. Jaipur Stock Exchange Ltd. (2015) 120 DTR 189/ 377 ITR 469 (Raj.) (HC) (2) India Trade Promotion Organization Vs. DGIT (Exemption) & Ors. (2015) 114 DTR 329/ 374 ITR 333 (Del.) (HC) (3) ICAI Vs. DGIT (Exemptions) (2011) 347 ITR 99/ 202 Taxman 1 (Del.) (HC) 15 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli From these decisions, it is evident that simply because a fees/ consideration is charged and it would not make a charitable organization, non-charitable.
The proviso would apply only when the activity carried out by it is in the nature of trade, commerce or business with the object of earning profit. Therefore, when a consideration is charged in fulfillment of the charitable object of the institution, the same cannot be said to be carrying on any activity in the nature of trade, commerce or business or for rendering any service in relation thereto provided it do not involve profit motive. The AO is therefore not correct to presume that the activity of preparing Sawamani for the devotees is on commercial basis and therefore it is not entitled for benefit of exemption u/s 11 & 12 of the Act.
2.5.1 As regards the violation of Section 13(1)©(ii) read with section 13(2)(g) of the Act, the ld.AR of the assessee submitted that in fact in course of assessment proceedings the assessee has filed the evidence that purchases made by the assessee from M/s Pawansut Trading Company Pvt. Ltd. is comparable to the purchases made from other concerns namely Maruti Traders. The AO after examination has not found that the purchases made from M/s Pawansut Trading Company Pvt. Ltd. is at a rate higher than the purchases from Maruti Traders. In fact the AO himself has observed that M/s 16 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli Pawansut Trading Company Pvt. Ltd. has declared just an income of Rs.9,71,880/- on turnover of Rs.9,00,46,104/- which itself shows that the purchases made by the assessee from this concern is at arm's length. Similarly, it is incorrect on part of the AO to observe that non reporting of this transaction by the auditor is deliberate and the property of the trust is used for personal benefit when the AO after examining the rate at which purchases of various items made from M/s Pawansut Trading Company Pvt. Ltd. found the same comparable with the rate of the purchases of same items from other suppliers and therefore no such discrepancy could be pointed out by him in the assessment order. Thus, there is no violation of section 13(1)(c)(ii) r.w.s. 13(2)(g) of the Act as alleged by the AO. The Ld. CIT(A) considering the above facts called a remand report from the AO. The AO in the remand report has accepted the fact that Sawamani Prasad is not sold in the market but distributed to various schools free of cost for which proper records are maintained. Further, the purchases made from M/s Pawansut Trading Company Pvt. Ltd. are genuine and there is no malpractice or undue advantage extended to it. Therefore, the various grounds taken by the department that assessee is carrying out sweet shop business or that there is violation of section 13(1)(c)(ii) r.w.s. 13(2)(g) of the Act or that purchases made from M/s Pawansut Trading Company Pvt. Ltd. may not be genuine are 17 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli misplaced. Hence, the order of ld. CIT(A) be upheld by dismissing the ground of department.
2.6 We have considered the rival submissions as well as relevant materials available on record. The AO invoked the proviso to section 2(15) of the Act to deny the benefit of section 11 and 12 of the Act on the ground that the activities of the assessee are in the nature of trade, commerce and business as the assessee is selling the Prasad which does not involve in any activity of charitable in nature. We find that there is no change of the activity of the assessee during the year under consideration as the assessee has been carrying out the same activity of preparing the Prasad as per request of the devotees, offering the same to Lord Balaji and thereafter the Prasad is being distributed to the devotees at the temple, general public and students of various schools. The assessee has specifically given the details of around 200 to 250 schools in seven district of Rajasthan State wherein the assessee is distributing the Prasad under the Midday Meal Scheme of the State Govt.. It is also not in dispute that entire receipts as pointed out by the AO are received from the devotees who are requesting for preparation of Sawamani for offering to the Lord Balaji and thereafter Prasad is distributed amongst the devotees, general public and remaining Prasad is distributed to school children as well as even offered to animals and birds. The AO has not 18 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli disputed all these activities of the assessee but the AO has raised the point that the assessee is doing activity of purchasing the raw materials for Parsad and selling the Prasad which is nothing but it is in the nature of trade, commerce or business. However, in the absence of profit motive the said activity of preparing the Prasad on behalf of the devotees and after offering to the God, the same is distributed to the devotees visiting temple, general public as well as students of various schools as Midday Meal. It is clearly established that the entire exercise and services offered by the assessee is for advancement of the objection of the public utility in the shape of providing Prasad for offering to God as well as providing Midday Meal to the school children which is in the interest of larger general public and therefore, the said activity of the assessee is clearly a charitable activity and does not involve any motive of earning profit and consequently it cannot be termed as trade, commerce or business. This is a consistent activity being performed by the assessee for the last several years and the AO has undisputedly accepted the same as charitable in nature and benefit of section 11 and 12 in the scrutiny assessment for the Assessment Year 2007-08, 2009- 10 and 2011-12. Only for the Assessment Year under consideration, the AO has first time treated the activity of the assessee in the nature of trade, 19 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli commerce of business. The ld. CIT(A) after considering all the facts has given his findings in para 5.2 as under:-
''5.2 I have considered the assessment order, appellant's submissions and documents on record. I find that Sawamani is booked according to the request of the devotees. After preparation of the same it is offered to Lord Balaji, Mehandipur Temple Trust. The Pujari of the Balaji Temple offers the Bhog to Lord Balaji as per custom of the temple and after Bhog the Sawamani becomes the Prasad. During the course of appellate proceedings the A.R. of the appellant trust submitted that the devotees take the said Prasad as per their requirement and remaining Prasad is distributed to the other devotees visiting to Balaji Temple without any charge and to more than 200-250 schools in 7 districts of Rajasthan every day as Midday Food without any charge as per Central/State Govt. Policy to provide the Midday meal to each and every student without any cost.
The A.R. of the appellant further explained that though the Sawamani is booked on cost of cost basis but because of cancellation, surplus arises to the assessee. It was demonstrated that during A.Y. 2012-13, 43,129 Sawamani of different bhogh were booked but due to cancellation only 29,843 Sawamani were prepared. The devotes never claimed the booking amount from the trust as they feel that once they have dedicated the amount to Lord Balaji, it belongs to Shri Balaji. Such cancellation normally ranges from 15-20% and it is for this reason that there remains a surplus. The surplus amount is set apart u/s 11(2) to be utilized for charitable purpose. As per the Board Resolution passed on 25-03-2012, it is resolved that the surplus be set apart for a period of 5 years to be utilized for the objectives listed in the resolution. The mount set aside has been invested in the modes prescribed u/s 11(5) i.e. FDR.
Further, during appellate proceedings, the AO was asked by the undersigned to re-examine the issue in view of 20 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli the fresh submissions made by the appellant before the undersigned; and to submit his comments on appellant's written submission. I response, AO vide his letter No205 dated 11-07-2018 submitted that the assessee society is distributing Prasad to 10 school (s) working days of schools in 6 district (Alwar, Bharatpur, Dausa, Karauli, Sawai Madhopur, Jaipur) of Rajasthan. Every school is getting Prasad for 2 or 3 times in a year. The society is distributing Prasad 200 to 210 days in a year subject to the vacation period of schools. The society is distributing 10,000 to 15,000 laddus (weight 170-180 gram per laddu) on working days in school, perused the registers maintained for distribution of Prasad in schooks from August, 2011 to April,2012. Further the AO submitted that the surplus amounting to Rs. 1,48,00,000/- for A.Y. 2011-12 has been utilized to the full extent in A.Y. 2015-16 as per the audit report filed by the assessee.
I have considered the remand report of the AO as well, as above. On overall perusal of the case, I find that activities of the assessee are charitable in nature and fall within the definition of sec 2(15) as advancement of any other object of general public utility. Its activities are not in the nature of trade, commerce or business. The Sawamani is prepared only for the devotees and is not sold to outsiders. Only the cost is charged from the devotees. Surplus arises to the appellant only because of cancellation of Sawamani's bookings The surplus is set apart and applied for charitable purpose. AO had compared the activity of the assessee to a sweet shop ignoring, which assessee had not been selling the Prasad to outsiders but only preparing for the deveotees on their request and charging cost for the same without any profit. The appellant succeeds on this issue. Ground is allowed.'' Thus it is clear that the ld. CIT(A) has called for the remand report / comments from the AO after re-examination of the submissions made by 21 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli the assessee. The AO in the remand report has not disputed the core basic activity of the assessee as preparation of Prasad as per request of the devotees, offering the same to God and thereafter distribution of this Prasad to other devotees as well as general public and finally remaining Prasad is distributed to the children of various schools. The assessee has furnished the details of day today distribution of Prasad which is not in dispute. Therefore, when the assessee is not charging anything for providing the services of distribution of Prasad to the devotees, general public as well as school children in the state of Rajasthan then the receipts from the devotees who are requesting for preparation of Prasad and offering the same to God itself is not in the nature of trade, commerce or business. Hence, we do not find any error or illegality in the order of the ld. CIT(A) qua this issue.
2.6.1 As regards the violation of provisions of Section 13(1)©(ii) r.w.s.13(2)(g) of the Act, the AO has invoked the provisions merely because the assessee has made purchases from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi which is a related party. However, the AO has nowhere stated that the assessee has made excess payment to the said unrelated party. This payment ought to have been made in terms of fair market price. There is no allegation of the AO that the assessee has given 22 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli more prices to the related party than to the unrelated third party.
Therefore, merely because the transaction is done with the related party, if the same is done strictly as per normal terms and conditions and no undue benefit is given to the unrelated party then even if the transaction is done with specified persons, it will not amount to violation of provisions of section 13(1)©(ii) r.w.s. 13(2)(g) of the Act. Only when it is found that the assessee has given undue benefit to the related party then it would amount to violation of these provisions. Further, even if it is found that the assessee has give some benefit by making excess payment in comparison to the actual price in terms of fair market price then only excess payment found to be made to the related party would be considered as income not applied for charitable purposes. In this case, the AO has not made any such allegations and his finding is not based on any specific actual undue benefit but only on conjecture and surmises that since the transaction is with related party, it is a violation of provisions of section 13(1)©(ii) r.w.s. 13(2)(g). These provisions specifically contemplate that if any part of such income or any property of the trust or the institution is used or applied directly or indirectly for the benefit of any person referred to in sub-section (3), it would not be eligible for the benefit of Section 11 & 12 of the Act. Once the income is 23 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli not applied or used for direct or indirect benefit of specified person but it is only a transaction on a competitive rate then there would be no violation of section 13(1)©(ii) of the Act. Further, when the income or the property of the trust is not diverted in favour of the any person specified in sub-section (3) then the provisions of section 13(2(g) of the Act are also not violated. In this case, it is only a transaction of purchase of materials by the assessee from the related party but when the purchases are made at the market rate and at competitive price then it would not amount to giving any benefit or utilizing the income for the benefit of related party. The ld. CIT(A) has decided this issue in para 6 of his order as under:-
''6. The next issue raised by the appellant vide Ground No. 8 and 8 (i) is regarding invoking provision of Section 13(1)©(ii) r.w.s. 13 (2)(g) of the Act in respect of the purchases made from Pawantsut Trading Co. and disallowing the cost of purchase of Rs. 45,02,304/-. In this regard, the AO discussed in the assessment order the assessee had made total purchases of Sawamani of Rs. 12,24,37,913/-. Out of the total purchases to the extent of Rs. 9,00,46,104/-, had been made from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi. Shri Mahant Kishore Puri Ji Maharaj is Director of the company as well as the main trustee of the assessee trust from whom purchases of more than 75% had been made. The purchases to such a huge extent had been made from a related party as mentioned under section 13(3) of the Act as such there stands a challenge of the same being at arms' length. The AO further discussed that M/s. Pawansut Trading Company Pvt. Ltd.
had shown an income of just Rs. 9,71,880/- on such a huge sales. The AO objected that the auditor had not reported the transaction of more than Rs. 9 Crore purchases out of the total purchases of Rs. 12 Crore which was made from a related party. The AO disallowed the cost of purchase. The relevant portion of the assessment order is as under:- 24 ITA No.1146/JP/2018
The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli ''6.6 Disallowance out of cost of purchase: In view of the unreasonable payment made against purchases from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi, a reasonable disallowance is required to be made. In the assessee's case eve if the assessee's contention is considered that purchases are made in bulk then also in the absence of comparable rates coupled with non-disclosure in audit report leads to hold that purchases are overpriced.
Therefore, after considering all the facts and circumstances of the case I consider it fair and reasonable to make a disallowance of 5% out of the purchases made from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi. Accordingly, a sum of Rs. 45,02,304/- (5% of 9,00,46,104/-) is disallowed and added to the total income of the assessee.'' 5.1 The appellant's written submissions regarding this issue are reproduced as below:
''It is submitted that in course of assessment proceeding in order to verify the reasonability of the rates at which purchases are made from M/s. Pawansut Trading Company Pvt. Ltd., assessee provided as a sample the copy of purchase bills of 30-04-2001 of M/s. Pawansut Trading Company Pvt. Ltd. and Maruti Traders Ltd. From the same, it can be noted that the rates of purchases from both the parties are same. The AO in course of assessment proceeding has examined the number of such purchase bills from the purchases made from unrelated concern but not found any verification in the rates. It is for this reason that he could not point out any instance of purchases being made at a higher rate from M/s. Pawansut Trading Company Pvt. Ltd.25 ITA No.1146/JP/2018
The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli Therefore, the observation of the AO that purchases made from related concerns is overpriced is on surmises, conjectures and without basis. Hence, the disallowance made by him be deleted.'' 5.2 I have considered the assessment order, appellant's submissions and documents on record. I find that rates of purchases from related party i.e. M/s. Pawansut Trading Co. and unrelated party i.e. M/s. Maruti Traders Ltd.
are same. There is no certain findings in the assessment order as to what is the basis of addition made except that the purchases have been made from the related party. However, the appellant has proved that the purchases made from the third party are also at the same rate as that of the related party. Under these circumstances it cannot be said that the appellant Trust has passed on any undue profit the related person i.e. M/s. Pawansut Trading Company Pvt. Ltd. It is also noted that the related parties i.e. M/s. Pawansut Trading Company Pvt. Ltd. is also assessed to the income tax and nothing adverse has been noted by the AO in the case of M/s. Pawansut Trading Company Pvt. Ltd. with regard to any malpractice or undue advantage being extended to that company by the appellant trust. Apparently, M/s. Pawansut Trading Company Pvt. Ltd. has been carrying out commercial activity in its own right, unrelated to the functioning of the appellant trust. Keeping in view of above, no adverse fact has been brought on record or established. Addition appears to be merely on presumption/ surmises which cannot be sustained. Accordingly, addition made by the AO on this account is deleted hereby. Appellant succeeds on this ground. Ground is allowed.'' Hence, the ld. CIT(A) has decided this issue after giving opportunity to the AO to point out as to how any undue profit has been passed to the related party. In the absence of any facts or materials to indicate that the 26 ITA No.1146/JP/2018 The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli assessee has given any undue benefit or even applied its income or property for the benefit of the specified person, the mere transaction with the related party would not ipso facto attracts the provisions of section 13(1)©(ii) r.w.s. 13(2)(g) of the Act. Accordingly, we do not find any reason to interfere with the order of the ld. CIT(A) qua this issue. 3.1 The Ground No. 5 of the Revenue is regarding disallowance of 5% of the purchases made from M/s. Pawansut Trading Company Pvt.Ltd., New Delhi by the AO which was deleted by the ld. CIT(A).
3.2 We have heard the ld. DR as well as the ld.AR of the assessee and considered the relevant materials available on record. This issue is only a consequential disallowance made by the AO after denying the benefit of exemption u/s 11 and 12 of the Act in respect of purchases made by the assessee from related party. Since we have already considered and decided this issue of violation of 13(1)©(ii) r.w.s. 13(2)(g) of the Act, therefore, in the absence of any excess or extra payment made by the assessee to the said related party on account of purchases and the transaction is found at arms' length, therefore, the adhoc disallowance of 5% made by the AO is arbitrary and unjustified. Hence, we do not find any error or illegality in the findings of the ld. CIT(A) as reproduced hereinabove. Thus the Ground No. 5 of the Revenue is dismissed. 27 ITA No.1146/JP/2018
The DCIT(E), Circle, Jaipur vs M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli
4. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 27/01/2020.
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(Vikram Singh Yadav) (Vijay Pal Rao)
ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 27/01/ 2020
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vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The DCIT (E), Circle, Jaipur
2. izR;FkhZ@ The Respondent- M/s. Shri Ramdoot Prasad Sewa Samiti Trust, Karauli
3. vk;dj vk;qDr¼vihy ) @ CIT(A),
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.1146/JP/2018) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar