Income Tax Appellate Tribunal - Indore
M/S Rkdf Education Society, Bhopal vs The Acit-2(1), Bhopal on 28 July, 2021
आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE HON'BLE MANISH BORAD, ACCOUNTANT MEMBER
AND
HON'BLE MADHUMITA ROY, JUDICIAL MEMBER
IT(SS)A No.69 to 73/Ind/2019
Assessment Years 2004-05, 2006-07 to 2009-10
RKDF Education Society, : Appellant
202, Ganga Jamuna Complex,
Zone-1, M.P. Nagar,
Bhopal
PAN : AATR1026R
V/s
ACIT-2(1),
Bhopal : Respondent
IT(SS)A No.126 to 128/Ind/2019
Assessment Years 2008-09 to 2010-11
ACIT (Exemption),
Bhopal : Appellant
V/s
RKDF Education Society, : Respondent
202, Ganga Jamuna Complex,
Zone-1, M.P. Nagar,
Bhopal
PAN : AATR1026R
IT(SS)A No.74 to 76/Ind/2019
Assessment Years 2008-09 to 2010-11
Ayushmati Educational &
Social Society, : Appellant
202, Ganga Jamuna Complex,
Zone-1, M.P. Nagar,
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
Bhopal
PAN : AAAAA3026D
V/s
ACIT-2(1),
Bhopal : Respondent
IT(SS)A No.129 & 130/Ind/2019
Assessment Years 2009-10 & 2010-11
ACIT (Exemption),
Bhopal : Appellant
V/s
Ayushmati Educational &
Social Society, : Respondent
202, Ganga Jamuna Complex,
Zone-1, M.P. Nagar,
Bhopal
PAN : AAAAA3026D
Revenue by Shri S.S. Mantri, CIT-DR
Assessee by S/Shri Sumit Neema, Sr. Adv with Gagan
Tiwari & Piyush Parashar, Advocates
Date of Hearing 24.06.2021
Date of 28.07.2021
Pronouncement
ORDER
PER MANISH BORAD, A.M
The above captioned appeals/Cross Appeals for Assessment Years 2004-05 to 2010-11 are directed against the orders of Ld. Commissioner of Income Tax(Appeals)-2 (in short 'Ld. CIT], Bhopal 2 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 dated 31.03.2019 and 25.03.2019 which are arising out of the order u/s 153A r.w.s. 143(3) of the Income Tax Act 1961(In short the 'Act') evenly dated 16.05.2014 framed by ACIT-2(1), Bhopal.
2. In the case of RKDF Education Society both Assessee and Revenue are in appeal before us
(i) Assessee has raised following grounds of appeal:-
ITSS(A) No.69/Ind/2019 Assessment Year 2004-05 1 There is no jurisdiction either in law or on facts for the Ld CIT (A) to sustain the addition of Rs 15,00,000/- as alleged unexplained expenditure for an amount allegedly paid by Dr. Sunil Kapoor to S.N Sharma.
1.1 That on the facts and in the circumstances of the case, the addition of Rs 15 Lacs as alleged' unexplained expenditure is not sustainable in law because no incriminating material seized from the appellant during the course of search and further no assessment was pending on the date of search and therefore the impugned addition is beyond the scope of Section 153 A. 1.2 That the addition of Rs 15 00,000/- was based on a paper seized from the residence of S.N Sharma and was not seized from the Appellant society and thus the presumption U/S 292C cannot be apply against the Appellant society.
1.3 That the Ld. CIT(A) was not justified in concluding that the amount was not recorded in the books of the Appellant society. That said finding is contrary to the material placed on record before the Ld. AO and Ld. CIT (A).
1.4 That the entire addition of Rs 15,00,000/- is based on material seized from the premises of a third person and to such seized material from a third person the provisions of Section 153C are applicable and not the provisions of Section 153A and on this count alone addition of Rs 15,00,000/- deserve to be deleted as being without jurisdiction.
1.5 That Ld. CIT(A) was not justified either in law or on facts in arriving at a conclusion that no opportunity of cross examination of S.N Sharma was required. This finding is not justified both in law & on facts. That the addition is based on hind the back of the Appellant without any opportunity 3 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 of hearing being provided of cross- examination makes such addition in complete breach of principle of natural justice and on this ground alone the impugned addition of Rs.15,00,000/- deserves to be deleted. 1.6 That the finding of Cit(A) that by making the payment of Rs. 15,00,000 the appellant society used /misapplied the funds of the society is perverse and deserves to be deleted.
1.7 That the Ld. CIT(A) has incorrectly arrived at the finding that by debiting society has reduced receipt over expenditure. The said amount was debited to building construction account which was a balance sheet item and not claimed as expenditure and thus such a finding by the Ld. CIT(A) is perverse.
2. That without prejudice to aforesaid ground since the addition of Rs 15 Lac has been confirmed in the assessment/appeal order of S.N. Sharma as being unexplained then the same addition cannot be again made in the hands of appellant society as unexplained expenditure as that would amount to double taxation both in the hands of payee and the payer. ITSS(A) No.70/Ind/2019 Assessment Year 2006-07
1.That the is no jurisdiction either in law or on facts for the Ld. CIT (A) to sustain the addition of Rs39, 77,200 (being 40% of purchase disallowed of Rs 99,43,000/--) alleged bogus payment made to M/s Saluja Enterprises and M/s Prateek Enterprises 1.1 That the Ld. CIT (A) was not justified either in law or in facts in sustaining the addition of Rs 39,77,200 which is clearly not based on any incriminating material seized from the premises of the Appellant and moreover on the date of search the assessment for A. Y 2006-07 was not pending and thus the addition is beyond the scope of Section 153A. 1.2 That the Ld. CIT (A) erred in upholding the impugned addition of Rs 39,77,200 on account of purchase of CBT Bars from M/s Prateek Enterprises and M/s Saluja Enterprises by making reliance' on the pre-search affidavit submitted by Sunil Khandewal & Narendra Sharma in the search case of Bharat Kothari Group wherein infact the said Sunil Khandewal and Narendra Sharma were not a key person of M/s Saluja Enterprises and M/s Prateek Enferprises respectively and also the said affidavits do not mention the name of Appellant society.
1.3 That the Ld CIT (A) failed to appreciate the settled principle that addition can only be on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment and in the present case the purchase of CBT Bars from M/s Prateek Enterprises and M/s Saluja Enterprises was duly 4 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 recorded in books of Account of Appellant for A. Y 2006-07 and copies of ledger account of both vendors, bank statement, copies of purchase bill of CBT Bars, copies of weighing slip, certificate from contractor, sub contractor and purchase order was duly placed during proceeding before Ld. AO and Ld. CIT (A) to prove genuineness of transaction. 1.4 That the Ld. CIT (A) was not justified in concluding that a material seized from a third party can also be termed as incriminating documents for the purpose of Section 153A addition. Such a finding by the Ld. CIT(A) is contrary to the provision of Section 153C and Section 292C of the Act. If at all such material was to be used then the only possible provision was section 153C and not section 153A.
1.5 That the Ld. CIT (A) was not justified either in law or on facts in arriving at a conclusion that no opportunity of cross examination of Shri Sunil Khundewal and Shri Narendra Sharma was required, this finding is not justified both in law & on facts. That the addition is based Oil affidavit given Shri Sunil Khandewal Shri Narendra Sharma in case of third person and using that affidavits behind the back of the Appellant without any opportunity of rebutting such affidavits and cross examination of Shri Sunil Khandewal and Shri Narendra Sharma makes such addition in complete breach of principle of natural justice and on this ground alone the impugned addition deserves to be deleted.
2.That without prejudice to aforesaid ground, the quantum of addition sustained by the Ld. CIT (A) is arbitrary, excessive, &. high under the facts and circumstances of the case. There is no justification for the Ld. CIT(A) to sustain addition @ 40%. There is no justification either in law or on facts to sustain addition @40%. There is no justification either in law or on facts to arrive @40% disallowance.
ITSS(A) No.71/Ind/2019 Assessment Year 2007-08
1.That. the is no jurisdiction either in law or on facts for the Ld. CIT (A) to sustain the addition of Rs 2,10,800 (being 40% of purchase disallowed of Rs 5,27,000/-) alleged bogus payment made to M/s Saluja Enterprises and M/s Prateek Enterprises 1.1 That the Ld. CIT (A) was not justified either in law or in facts in sustaining the addition of Rs 2,10,800 which is clearly not based on any incriminating material seized from the premises of the Appellant and moreover on the date of search the assessment for A. Y 2007-08 was not pending and thus the addition is beyond the scope of Section 153A. 1.2 That the Ld. CIT (A) erred in upholding the impugned addition of Rs 2,10,800 on account of purchase of CBT Bars from M/s Prateek Enterprises and M/s Saluja Enterprises by making reliance on the pre-search dated 5 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 affidavit submitted by one Sunil Khandewal & Narendra Sharma in the search case of Bharat Kothari Group wherein infact the said Sunil Khandewal and Narendra Sharma were not key persons of M/s Saluja Enterprises and M/s Prateek Enterprises respectively and also the said affidavits do not mention the name of Appellant society. 1.3 That the Ld CIT (A) failed to appreciate the settled principle that addition can only be on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment and in fact of present case the purchase of CBT Bars from M/s Prateek Enterprises and M/s Saluja Enterprises was duly recorded in books of Account of Appellant for A. Y 2007-08 and copies of ledger account of both vendors, bank statement, copies of purchase bill of CB T Bars, copies of weighing slip, certificate from contractor, sub contractor and purchase order was duly placed during proceeding before Ld. AO and Ld. CIT (A) to prove genuineness of transaction.
1.4 That the Ld. CIT (A) was not justified in concluding that a material seized from a third party can also be termed 'as incriminating documents for the purpose of Section 153A addition. Such a finding by the Ld. CIT(A) is contrary to the provision of Section 153 and Section 292C of the Act. In fact such material seized from the premises of a third persons search can only be used as per _the provisions contained in section 153C and not u/s 153A. 1.5 That the Ld. CIT (A) was not justified either in law or on facts in arriving at a conclusion that no opportunity of cross examination of Shri Sunil Khandewal and Shri Narendra Sharma was required. This finding is not justified both in law & on facts. That the addition is based on affidavit given Shri Sunil Khandewal Shri Narendra Sharma in case of third person and using that affidavits behind the back of the Appellant without any opportunity of rebutting such affidavits and cross examination of Shri Sunil Khandewal and Shri Narendra Sharma makes such addition in complete breach of principle of natural justice and on this ground alone the impugned addition of Rs 2,10,800 deserves to be deleted.
2. That without prejudice to aforesaid ground, the quantum of addition sustained by the Ld. CIT (A) is arbitrary, excessive, &. high under the facts and circumstances of the case. There is no justification for the Ld. CIT(A) to sustain addition @ 40%. There is no justification either in law or on facts to sustain addition @40% disallowance.
ITSS(A) No.72/Ind/2019 Assessment Year 2008-09
1. That. the is no jurisdiction either in law or on facts for the Ld. CIT (A) to sustain the addition of Rs 1,14,000/- (being 40% of purchase disallowed of Rs 2,85,000/-) alleged bogus payment made to M/s Saluja Enterprises and M/s Prateek Enterprises 6 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 1.1 That the Ld. CIT (A) was not justified either in law or in facts in sustaining the addition of Rs 1,14,000/- which is clearly not based on any incriminating material seized from the premises of the Appellant and moreover on the date of search the assessment for A. Y 2007-08 was not pending and thus the addition is beyond the scope of Section 153A. 1.2 That the Ld. CIT (A) erred in upholding the impugned addition of Rs 1,14,000/- on account of purchase of CBT Bars from M/s Prateek Enterprises and M/s Saluja Enterprises by making reliance on the pre- search dated affidavit submitted by one Sunil Khandewal & Narendra Sharma in the search case of Bharat Kothari Group wherein infact the said Sunil Khandewal and Narendra Sharma were not key persons of M/s Saluja Enterprises and M/s Prateek Enterprises respectively and also the said affidavits do not mention the name of Appellant society. 1.3 That the Ld CIT (A) failed to appreciate the settled principle that addition can only be on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment and in fact of present case the purchase of CBT Bars from M/s Prateek Enterprises and M/s Saluja Enterprises was duly recorded in books of Account of Appellant for A. Y 2008-09 and copies of ledger account of both vendors, bank statement, copies of purchase bill of CBT Bars, copies of weighing slip, certificate from contractor, sub contractor and purchase order was duly placed during proceeding before Ld. AO and Ld. CIT (A) to prove genuineness of transaction. 1.4 That the Ld. CIT (A) was not justified in concluding that a material seized from a third party can also be termed 'as incriminating documents for the purpose of Section 153A addition. Such a finding by the Ld. CIT(A) is contrary to the provision of Section 153 and Section 292C of the Act. In fact such material seized from the premises of a third persons search can only be used as per _the provisions contained in section 153C and not u/s 153A. 1.5 That the Ld. CIT (A) was not justified either in law or on facts in arriving at a conclusion that no opportunity of cross examination of Shri Sunil Khandewal and Shri Narendra Sharma was required. This finding is not justified both in law & on facts. That the addition is based on affidavit given Shri Sunil Khandewal Shri Narendra Sharma in case of third person and using that affidavits behind the back of the Appellant without any opportunity of rebutting such affidavits and cross examination of Shri Sunil Khandewal and Shri Narendra Sharma makes such addition in complete breach of principle of natural justice and on this ground alone the impugned addition of Rs 1,14,000/- deserves to be deleted.
2. That without prejudice to aforesaid ground, the quantum of addition sustained by the Ld. CIT (A) is arbitrary, excessive, &. high under the facts and circumstances of the case. There is no justification for the Ld. CIT(A) to 7 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 sustain addition @ 40%. There is no justification either in law or on facts to sustain addition @40% disallowance.
ITSS(A) No.73/Ind/2019 Assessment Year 2009-10
1.That there is no justification either in law or in facts for the Ld. CIT (A) to sustain the addition of Rs 17,00,000/- as alleged bogus payment made to S.D Tomar.
1.1 That the Ld. CIT (A) was not justified either in law or in facts in concluding that opportunity of cross examination of Anees Khan was not required to be given to the Appellant. The said finding is contrary to the settled principles of natural justice and fair play. 1.2 That the Ld. CIT (A) was not justified in concluding that a material seized from a third party can also be termed as incriminating documents for the purpose of Section 153A addition. Such a finding by the Ld. CIT(A) is contrary to the provision of Section 153 and Section 292C of the Act. In fact such evidence seized from a third persons search can only be used in accordance with the provisions of section 153C and not section 153A. 1.3 That the Ld. CIT (A) was not justified either in law or on facts in concluding that the payment of Rs 17,00,000 was against the purpose of the Appellant Society.
1.4 That without prejudice to the aforesaid grounds, the alternative claim put by the Appellant society before the Ld. CIT (A) regarding the allowability of payment of Rs 17,00,000/- as payment for protecting the assessee society from prolonged litigation should have been allowed by the Ld. CIT (A) as the necessary evidence & documents pertaining to the said submission were accepted as genuine by the Ld. CIT (A) and Ld. AO.
2. That there is no justification either in law or on facts for the Ld. CIT (A) to confirm the addition of Rs 36,08,666/- as alleged benefit given to M/s Siddharth Kapoor Infrastructure Pvt Ltd in violation of section 13(I)(c). 2.1 That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in denying the exemption u/s. 11 by holding that the case of appellant hit by section 13(I)(c) read with section 13(2)(a) and section 13(I)(d) and that too disregarding the fact that the M/s Ayushmati Educational Society, does not fall in the category of (he person referred under section 13(I)(c) read with section 13(2)(a) and section 13(I)(d) of the Act. 2.2 That on the facts and in the circumstances of the case, the Ld. CIT (A) erred in confirming the addition of Rs 36,08,6661- on account of loan given to M/s Ayushmati Educational Society registered under Section12A in form of 8 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 making payment to farmers against the purchase of Land by Mls Siddharth Kapoor Infrastructure by taking cognizance of section 13 (3) of the Act without looking into crucial fact that the Appellant and M/ls Ayushmati Educational Society belong to same group concern and such payments are not violated and hit by the provision contain under section 13(3) of the Act. 2.3 The Ld. Lower authority erred in taking the view that Appellant by making payment of Rs 36,08,666/- to farmers on behalf of M/s Ayushmati Educational Society has benefited directly to the persons referred to in Section 13 (3) of the Act without going into the real and pivotal reason that the said transaction was actually a loan transaction between appellant and M/s Ayushmati Educational Society both enjoying registration U/S 12AA as education organization.
2.4 The Ld. Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in making the impugned addition of Rs.36,08,666/- in as much as the assessment order has been framed in violation and utter disregard to the principles of natural justice in as much as, amongst others, the Assessing Officer has not given the documents/statements of farmers taken on oath by the Ld. A.O to the appellant for rebuttal, which are in his possession and on which he has relied upon and has not given an opportunity to the appellant to cross examine the farmers whose statement the Assessing Officer has relied upon.
(ii) In the case of assessee RKDF Education Society, Revenue is in appeal for A.Y. 2008-09 to 2010-11 raising following grounds IT(SS) A No.126/2019 Assessment Year 2008-09
1.Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct in allowing relief to the extent of 60 of the bogus purchases, though such bogus expenses are held to be for the benefit of the members of the society thereby violating the provisions u/s 13(1)(c) r.w.s 13(3) of the Act?
2.On the facts and circumstances of the case, whether the Ld. CIT(A) is correct in directing the AO to allow exemption u/s 11 of the Act, even though the assessee society has violated the provisions of 13(1)(c) r.w.s 13(3) of the Act, thereby the provisions of sec 11 or 12 are not applicable to the case of assessee society?
3.On facts and circumstances of the case, whether the Ld. CIT(A) is correct in directing the AO to allow deduction u/s 11(1)(a) of the Act, even though the assessee has violated the provisions u/s 13(1)(c) r.w.s 13(3) of the act and the provisions of section 11 & 12 are not applicable to the case of the assessee society?
4.On the facts and circumstances of the case, whether the Ld. CIT(A) is correct in directing the AO to allow deduction on account of Capital expenditure even though the assessee has violated the provisions of section 9 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 13(1)(c) r.w.s 13(3) of the Act and the provisions of section 11 and 12 are not applicable to the case of assessee society?
5.Any other grounds may be adduced at the time of hearing. IT(SS) A No.127/2019 Assessment Year 2009-10
1. On the facts and circumstances of the case, whether the Ld. CIT(A) is correct in directing the AO to allow exemption u/s 11 of the Act, even though the assessee society has violated the provisions of 13(1)(c) r.w.s 13(3) of the Act, thereby the provisions of sec 11 or 12 are not applicable to the case of assessee society?
2. On facts and circumstances of the case, whether the Ld. CIT(A) is correct in directing the AO to allow deduction u/s 11(1)(a) of the Act, even though the assessee has violated the provisions u/s 13(1)(c) r.w.s 13(3) of the act and the provisions of section 11 & 12 are not applicable to the case of the assessee society?
3. On the facts and circumstances of the case, whether the Ld. CIT(A) is correct in directing the AO to allow deduction on account of Capital expenditure even though the assessee has violated the provisions of section 13(1)(c) r.w.s 13(3) of the Act and the provisions of section 11 and 12 are not applicable to the case of assessee society?
4. Any other grounds may be adduced at the time of hearing. IT(SS) A No.128/2019 Assessment Year 2010-11
1. On the facts and circumstances of the case, whether the Ld. CIT(A) is correct in directing the AO to allow exemption u/s 11 of the Act, even though the assessee society has violated the provisions of 13(1)(c) r.w.s 13(3) of the Act, thereby the provisions of sec 11 or 12 are not applicable to the case of assessee society?
2. On the facts and circumstances of the case, whether the Ld. CIT(A) is correct deleting the additions of Rs.153,30,530/- being income in the form of FDR is utilized by the society for the benefits of its members?
3. On facts and circumstances of the case, whether the Ld. CIT(A) is correct in directing the AO to allow deduction u/s 11(1)(a) of the Act, even though the assessee has violated the provisions u/s 13(1)(c) r.w.s 13(3) of the act and the provisions of section 11 & 12 are not applicable to the case of the assessee society?
5. On the facts and circumstances of the case, whether the Ld. CIT(A) is correct in directing the AO to allow deduction on account of Capital expenditure even though the assessee has violated the provisions of section 13(1)(c) r.w.s 13(3) of the Act and the provisions of section 11 and 12 are not applicable to the case of assessee society?
6. Any other grounds may be adduced at the time of hearing. 10
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
3. In case of another Assessee i.e. M/s Ayushmati Educational & Social Society, both Assessee and Revenue are in appeal before us
(i) Assessee has raised following grounds of appeal:-
IT(SS) A No.74/Ind/2019 Assessment Year 2008-09
1.That on the facts and in the circumstances of the case, the Ld. CIT(A) and Ld. AO erred in confirming the disallowance of legitimate depreciation amounting Rs. 7,71416/- (as per SLM Method) on alleged bogus asset in the Appellate proceeding and in assessment proceedings uls.153A of the I. T. Act because during search proceedings no incriminating material or evidence was found or seized regarding the acquisition of asset during merger with M/s Vedica Education Society which could justify disallowing such depreciation. This addition is contrary to the provisions of section 153A.
IT(SS) A No.75/Ind/2019 Assessment Year 2009-10
1.The learned CIT (Appeals) erred in. law and on facts in confirming the action of the learned AO in denying the benefit of exemption u/s 10 (23c) (vi) of the ITA, 1961 .
1.1 The learned CIT (Appeals) failed to appreciated that the Appellant society for the year under consideration was exempted u/s 10 (23c)
(vi) of the Income tax Act, 1961 and the appellant had specifically mentioned the factum of availability of such exemption in its return of income.
1.2 That the CIT (A) erred in holding that for the year under consideration the benefit under section 11 and u/s 10 (23c) (vi) cannot be claim simultaneously without appreciating the fact that the amendment for taking benefit either under section 11 or u/s 10 (23c) was introduced only by Finance (No.2) Act, 2014 r/w (Circular NCJ·112015, dated: 21.1.2015) and thus prior to 2014 the appellant could claim exemption both u/s 10(23C)(vi) and section 11. 1.3 That the Ld. CIT (A) erred in not taking into cognizance that for the year under Consideration Appellant Society was entitled for exemption u/s 10 23c (vi) of the Act and thus the total income of the Appellant society is exempted and hence the addition of Rs 11 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 1,99,21,499/. is illegal, arbitrary and without jurisdiction.
2.Without prejudice to above ground, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in denying the exemption u/s. 11 by holding that the case of appellant is hit by section 13(1)(c) read with section 13(2)(a) and section 13(1)(d) and that too disregarding the fact that the reason for making payment of Rs 1,99,21,499/- to farmers on behalf of M/s Siddharth Kapoor Infrastructure was for taking that particular land on lease from M/s Siddharth Kapoor Infrastructure for the purpose of sport related activity and the said fact was evident from the lease deed registered on 20/02/2009 for 20 years for using of said land for the purpose of sport related activity.
2.1 The. Ld. CIT(A) erred in taking the view that Appellant by making payment of Rs 1,99,21,499/- to farmers has benefited directly to the persons referred to in Section 13 (3) of the Act without going into the real and pivotal reason for making payment which was for bonafide use of the said land by the, appellant society.
2.2. The LD. CIT(A) erred in upholding the action of the Assessing Officer in making the impugned addition of Rs 1,99,21,499/- inasmuch as the assessment order has been framed in violation of the principles of natural justice inasmuch as, amongst others, the Assessing Officer has not given the documents/statements of farmers taken on oath by the Ld. AO to the appellant for rebuttal, which are in his possession and on which he has relied upon and has not given an opportunity to the appellant to cross examine the farmers whose statement the Assessing Officer has relied upon.
3.That on the facts and in the circumstances of the case, the Ld. CIT(A) and Ld. AO erred in confirming the disallowance of legitimate depreciation amounting Rs.7,71416/- (as per SLM Method) on alleged bogus asset in e Appellate proceeding and in assessment proceedings s.153A of e I. T. Act because during search proceedings no incriminating material or evidence was found or seized regarding the acquisition of asset during merger with M/s Vedica Education Society which could justify disallowing such depreciation. IT(SS) A No.76/Ind/2019 Assessment Year 2010-11
1.The learned CIT (Appeals) erred in law end on facts in confirming the action of the learned, AO in denying the benefit of exemption u/s 10 (23c) (vi) of the ITA, 1961 .
1.1 The learned CIT (Appeals) failed to appreciated that the Appellant 12 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 society for the year under consideration was exempted u/s 10 (23c) (vi) of the Income tax Act, 1961 and the appellant had specifically mentioned the factum of availability of such exemption in its return of income.
1.2 That the CIT (A) erred in holding that for the year under consideration the benefit under section 11 and u/s 10 (23c) (vi) cannot be claim simultaneously without appreciating the fact that the amendment for taking benefit either under section 11 or u/s 10 (23c) was introduced only by Finance (No.2) Act, 2014 r/w (Circular No.112015, dated: 21.1.2015) and thus prior to 2014 the appellant could claim exemption both u/s 10(23C)(vi) and section 11.
2.That on the facts and in the circumstances of the case, the Ld. CIT(A) and Ld. AO erred in confirming the disallowance of legitimate depreciation amounting Rs. 7,71416/- (as per SLM Method) in the Appellate proceeding and in assessment proceedings u/s.153A of the I. T. Act because during search proceedings no incriminating material or evidence was found or seized which could have justified such a disallowance u/s 153A.
(ii) Revenue has raised following grounds of appeal:-
IT(SS) A No.129/Ind/2019 Assessment Year 2009-10
1.Whether on facts & circumstances of the case, Ld. CIT(A) is correct in deleting the denial of exemption u/s 11 of Rs. 34,07,25,659/- for A.Y. 2009- 10 even though the assessee society has applied income of the society for the benefit of the persons referred to section 13(3) of the Act and the said violation is held to be correct in view of the section 13(1)(c) of the Act?
2.Whether on facts & circumstances of the case, Ld. CIT(A) is correct in directing the A.O to allow deduction of Rs. 8,27,57,688/- in A.Y 2009-10 u/s 11(1)(a) of the act, even though the assessee society has violated the provisions of sec 13(1)(c) r.w.s 13(3) of the Act and hence exemption u/s 11 are not applicable to the assessee society?
3. Whether on facts & circumstances of the case, Ld. CIT(A) is correct in directing the A. O to allow deduction of Rs. 11,19,28,121/- in A. Y 2009-10 as application of income as capital expenditure, even though the assessee society has violated the provisions of sec 13(1)(c) r.w.s 13(3) of the Act and hence exemption u/s 11 are not applicable to the assessee society?
4.Whether on facts & circumstances of the case, Ld. CIT(A) is correct in deleting the addition of Rs. 25,83,030/- for the A.Y 2009-10 on interest free loan given to sister concern violating the provision of sec 13(1)(c) r. w.s 13(3) 13 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 of the Act even though no proper explanation or details submitted before the A. O during the assessment proceedings?
5.Any other ground may be adduced at the time of hearing IT(SS) A No.130/Ind/2019 Assessment Year 2010-11
1.Whether on facts & circumstances of the case, Ld. CIT(A) is correct in deleting the denial of exemption u/s 11 of Rs. 20,35.53.275/- for A.Y. 2010- 11 even though the assessee society has applied income of the society for the benefit of the persons referred to section 13(3) of the Act and the said violation is held to be correct in view of the section 13(1)(c) of the Act?
2.Whether on facts & circumstances of the case, Ld. CIT(A) is correct in directing the A.O to allow deduction of Rs. 7,83,19,820/- in A.Y 2010-11 u/s 11(1)(a) of the act, even though the assessee society has violated the provisions of sec 13(1)(c) r.w.s 13(3) of the Act and hence exemption u/s 11 are not applicable to the assessee society?
3. Whether on facts & circumstances of the case, Ld. CIT(A) is correct in directing the A. O to allow deduction of Rs. 17,41,75,826/- in A. Y 2010-11 as application of income as capital expenditure, even though the assessee society has violated the provisions of sec 13(1)(c) r.w.s 13(3) of the Act and hence exemption u/s 11 are not applicable to the assessee society?
4.Whether on facts & circumstances of the case, Ld. CIT(A) is correct in deleting the addition of Rs. 9,39,890/- for the A.Y 2010-11 on interest free loan given to sister concern violating the provision of sec 13(1)(c) r. w.s 13(3) of the Act even though no proper explanation or details submitted before the A. O during the assessment proceedings?
Any other ground may be adduced at the time of hearing
3.
4. As the issue raised in all these appeals are mostly common and the assessee(s) relate to same group, these were heard together at the request of all the parties and are being disposed off by this common order for the sake of convenience and brevity. We will first take up the appeals at the instance of assessee and Revenue in the case of RKDF Education Society wherein the assessee is in appeal for A.Ys. 2004- 14 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 05, 2006-07, 2007-08, 2008-09 & 2009-10 and Revenue is in appeal for A.Ys. 2008-09 to 2010-11.
5. Brief facts of the case as culled out from the records are that the assessee is a registered society with the Registrar of Societies and also registered u/s 12AA of the Income Tax Act 1961 (in short the Act) since 13.08.1999. The assessee society is running following Educational institutions under its aegis:-
S.No. Name of the institutions 1 RKDF Institute of Science & Technology 2 RKDF College of Technology 3 RKDF (Polytechnic) Pharmacy 4 RKDF Institute of Management 5 RKDF College of Nursing 6 RKDF Dental College & Research Centre 7 RKDF Institute of Science & Technology (MCA) 8 RKDF Homoeopathic Medical College & Hospital
6. Search action u/s 132 of the Act was carried out on 23.07.2009 at various business premises of the assessee society, sister concern and others. Various incriminating material were found and seized. Notice u/s 153A of the Act was issued for A.Ys.2004-05 to 2010-11 to file the return.
7. The details of date of filing returns u/s 139(1)and u/s 153A of the Act and income declared therein are mentioned below:- 15
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
S. No. A.Y. Date of filing Date of filing Returned
of original of return u/s total income
return u/s 153 (in Rs.)
139(1)
1 2004-05 01.11.2004 17.10.2011 NIL
2 2005-06 30.10.2005 17.10.2011 NIL
3 2006-07 31.10.2006 17.10.2011 NIL
4 2007-08 25.10.2007 17.10.2011 NIL
5 2008-09 30.09.2008 17.10.2011 NIL
6 2009-10 23.03.2010 17.10.2011 NIL
7 2010-11 14.10.2010 17.10.2011 NIL
8. During the pendency of assessment proceedings assessee filed writ petition before Hon'ble jurisdictional High Court challenging the assessment proceedings but the same was subsequently dismissed as withdrawn by the Hon'ble Court vide order dated 21.03.2014. In the past for A.Y. 2004-05 & 2005-06 certain additions were made by the Ld. AO u/s 143(3) of the Act vide order dated 29.12.2006 and 28.12.2007 and the issue relating to the additions went up to the Hon'ble jurisdictional High Court and same were decided in favour of the assessee.
9. In the instant appeal at the instance of assessee pertaining to A.Ys.2004-05, 2006-07 to 2009-10, during the course of assessment proceedings various observations were made by the Ld. AO alleging that the assessee society has directly or indirectly used or applied the Sciety's, fund for the benefit of 16 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 persons referred to in section 13(3) of the Act, which thus disentitles the assessee to claim benefit of exemption u/s 11 of the Act. Ld. AO after considering the submissions of the assessee was of the view that the assessee is not entitled to claim benefit of exemption u/s 11 of the Act in view of the following additions made for various AYs:
i) Addition at Rs.15 lakhs towards unexplained expenses debited in the name of Shri S. N. Sharma for A.Y. 2004- 05
ii) Additions for unexplained expenses/bogus purchase from M/s. Prateek Enterprises & M/s. Saluja Enterprises at Rs.1,09,43,000/-, Rs.5,27,000/- & Rs.2,85,000/- for A.Ys. 2006-07, 2007-08 & 2008-09.
iii) Addition at Rs.28,51,523/- towards bogus payment to Shri S.N. Reddy for A.Y. 2008-09
iv) Addition at Rs.36,08,666/- for excess payment made on behalf of Ayushmati Education & Social Society to M/s. Siddharth Kapoor Infrastructure Pvt. Ltd. (in short SKIPL) during A.Y. 2009-10
v) Addition at Rs.17,00,000/- on account of bogus payment to Shri S.D. Tomar during A.Y. 2009-10 vii. Addition at Rs. 2,18,048/- and Rs.41,84,920/- for 17 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 A.Y. 2009-10 & 2010-11 towards benefit of interest passed on to Home Bound Travels Pvt. Ltd. (in short HBTPL) viii. Addition of Rs.1,53,30,530/- on account of excess benefit given to HBTPL and benefit of interest at Rs.41,84,920/- passed to HBTPL during A.Y. 2010-11
10. After making above additions and denial of benefit of exemption u/s 11 of the Act, income of the assessee was assessed as under:
AY Income assessee
2004-05 NIL
2005-06 NIL
2006-07 1,09,43,000/-,
2007-08 5,27,000/-
2008-09 11,44,48,454/-
2009-10 12,73,44,852/-
2010-11 14,56,33,595/-
11. Aggrieved assessee preferred an appeal before the ld. CIT(A) raising various grounds both on legal as well as merits and partly succeeded. Before us assessee is in appeal for A.Ys. 2004-05 to 2006-07 & 2009-10 and Revenue is in appeal for A.Y. 2008-09 to 2010-11.
12. Ld. senior counsel for the assessee vehemently argued referring to submission made by the assessee before lower 18 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 authorities, paper book filed on 23.03.2021 running from pages 1 to 211 and also another paper book running from pages 1 to 245. The reliance was also placed on various judgments and decisions referred in the submissions which are dealt in the subsequent paras while dealing with the relevant issues.
13. On the other hand, Ld. Departmental Representative (DR) apart from supporting the finding of the Ld. AO and Ld. CIT(A) where the issues have been decided in favour of the revenue and finding of Ld. AO, where ld. CIT(A) has given relief to assessee, also referred to Paper book dated 11th June 2021 containing letter dated 3rd June 2019 and various documents filed by the Revenue in support of the grounds raised in their appeals.
14. We have heard rival contentions and perused the records placed before us and carefully gone through the detailed submissions filed by the both the parties and also considered the judgments referred and relied by Ld. Sr. Counsel for the assessee.
We will first take up issues raised in the assessee's appeal 19 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
15. First issue raised by the assessee for A.Y. 2004-05 relates to addition of Rs.15,00,000/- for alleged unexplained expenditure for the amount paid to Shri S.N. Sharma.
16. Facts pertaining to this issue are that during the search a loose paper Annexing A-1/1/6, page no.38 was seized from the residence of Shri S.N. Sharma which was a deposit slip of State Bank of Indore in the account in the name of Shri S.N. Sharma wherein Cheque No.072347 dated 30.01.2004 for Rs.15 lakhs was deposited. This cheque was issued by the assessee society (RKDF Education Society). Mr. S.N. Sharma stated that this amount was taken as loan. Ld. AO however, noticed that Assessee society has claimed this amount as expenditure. During the assessment proceedings it was submitted by the assessee that this was a loan but inadvertently debited under building construction account and subsequently, when the loan was repaid by Mr. S.N. Sharma, the same was credited in the building construction account and therefore, the finding that payment was not recorded is factually incorrect. Ld. AO was not convinced and made the addition. Ld. CIT(A) also appreciated the finding of Ld. AO.
17. Before us Ld. Sr. Counsel for the assessee (in short Ld. AR) submitted that firstly the alleged incriminating material was not 20 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 seized from the assessee society's premises. Therefore, in view of the judgment of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla [2016] 380 ITR 573(Del) no addition could be made for A.Y. 2004-05 which is non-abated assessment since for A.Y. 2004-05 regular assessment proceedings stood already carried out vide order dated 29.12.2006. On merit it was submitted that the payment has been made by cheque and there was a mistake in the accounting of transaction which was subsequently rectified. Further there is no effect on computation of income at all since the total expenditure was much more than the gross receipts. Even otherwise assessee is eligible for exemption u/s 11(1)(a) of the Act as the expenditure was more than 85% of the receipts.
18. We find that the issue pertains to A.Y.2004-05 for which. original return of income filed on 01.11.2004. Case selected for scrutiny by serving notice u/s 143(2) and financially assessed u/s 143(3) on 29.12.2006. The alleged incriminating material was not found from the assessee premises and it was found from the promises of Mr. S.N. Sharma. The alleged entry was recorded in the book and since A.Y.2004-05 is non-abated assessment year, no addition was called for, in view of the settled ratio laid down by Hon'ble Delhi High Court 21 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 in the case of CIT v. Kabul Chawla (supra) wherein it has been held that the assessment proceedings for the relevant assessment years which are not pending and no incriminating material is found during the course of search, the addition is beyond the scope of section 153A. Thus, in our view on this legal aspect itself the impugned addition of Rs.15,00,000/- deserves to be deleted.
19. However, for academic purpose, we will deal on the merits of this issue. We, note that the facts remain undisputed that the alleged transaction is through banking channel. Accounts of the society are regularly audited and income Tax Returns stood filed on 01.11.2004 which was subsequently assessed u/s 143(3) on 29.12.2006. The fact is that the alleged amount was given on loan to Shri. S.N. Sharma is accepted by S.N. Sharma also in his statement. This amount was repaid by the Mr. S.N. Sharma to the assessee society subsequently. It is contended that there was a mistake in punching the transaction in the account books as the accountant inadvertently debited the building construction account, rather then debiting the account of S.N. Sharma to be shown as loan given to Mr. S.N. Sharma. This mistake was subsequently rectified.
20. We, find merit in the submission of the Ld. Sr. counsel for the 22 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 assessee and are of the considered view thatsince there was a mistake on the part of accountant and transaction carried out through banking channel and amount recorded in books of account, no disallowance of Rs.15,00,000/- paid to Shri S.N. Sharma was called for. The finding of Ld. CIT(A) is thus set aside and the addition for unexplained expenses debited to Mr. S.N. Sharma at Rs.15,00,000/- is deleted. Ground No.1 (ground No.1.1 to 1.7) raised by the assessee is allowed. The alternate ground no.2 raised by the assessee becomes infructuous and thus dismissed as infructuous.
21. The appeal of the assessee for A.Y. 2004-05 is allowed.
22. Now we take up the common issue relating to addition for alleged bogus purchase from M/s. Prateek Enterprises and M/s. Saluja Enterprises for which addition made by the ld. AO were partly deleted by the Ld. CIT(A) sustaining the addition @ 40% of total purchase of CTD(steel) made from M/s. Prateek Enterprises and M/s Saluja Enterprises. The assessee has challenged the additions sustained by the Ld. CIT(A) for A.Ys. 2006-07, 2007-08 & 2008-09 at Rs.39,77,200/-, Rs.2,10,800/- & Rs.1,14,000/- respectively. Revenue has also raised this issue for the addition deleted by Ld. CIT(A) the same will be dealt while dealing with the revenue's appeal 23 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 subsequently.
23. Brief facts relating to this issue as observed by ld. CIT(A) in the impugned order will be relevant and the same is abstracted below:
14.1 The brief facts of the additions as discussed by the A.O. in assessment order are thus that in another search operation conducted by the Income Tax Department in case of Bharat Kothari Group, Indore prior lu search operation on RKDF Group, two business enterprises namely M/s Prateek Enterprises(key person-
Shri Sunil Khandelwal) and M/s Saluja Enterprises (key person- Shri Narendra Sharma) were found involved in activities of providing spurious bills of bogus sale of iron and steel. These persons submitted affidavits to the department that they had been engaging in providing bogus bills on commission basis and actually no steel etc. was supplied by them. As per assessment order, these persons used to receive payment of sale through cheques and repaid back the money to the persons to whom bogus sales were made after charging commission. They both were assessed u/s 153A r.w.s. 143(3) by ACIT-5(1) Indore. As per the A.O., no books of account and bills/vouchers were maintained by these persons. The A.D. has further stated that appellant society made payments to these persons to obtain bills of bogus purchases. In F.Y. 2005-06 appellant showed purchase of CTD Bars of Rs. 40,77,000/- from M/ s. Prateek Enterprises and Rs. 68,66,000/- from M/s. Saluja Enterprises. In F.Y. 2006-07, assessee showed purchase of Rs. 5,27,000/- from M/s. Saluja Enterprises and in F.Y. 2007-08, appellant showed purchase of CTD Bars of Rs. 2,85,000/- from M/s. Prateek Enterprises. These figures hage been rounded off to the nearest multiple of Rs.1,000/- by the A.O. As per contents of assessment order, the A.O. supplied the appellant the copies of affidavits filed by them. The A.O. has discussed in assessment order that the appellant, during 24 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 assessment proceedings, submitted that it had purchased CTD Bars Irorn M/~ Prateek Enterprises & M/'$ Saluja Enterprises fur construction work in the college premises of appellant society. The appellant further contended that copy of affidavit belonged to Shri Sunil Khandelwal who was neither proprietor nor key managerial person in the firm and the name of society was nowhere mentioned in his statement. The appellant raised before the A.a. that department had not made any enquiry from the appellant u/s 133(6) of the Act. The appellant claimed that society genuinely purchased the material and payments were made through bank account. Appellant produced various documents before the A.O. including copies of ledger account of these firms, bank statements, copies of bills, copies of weighing slips, certificates from contractor, sub-contractor, architect, purchase order, quotation etc. The A.a. relied upon the statements of Shri Sunil Khandelwal & Shri Narendra Sharma and disallowed the relevant expenses and made addition of the same treating non-application of the income. Accordingly the A.a. made additions of Rs. 1,09,43,000/- in A.Y. 2006-07, Rs. 5,27,000/- in A.Y. 2007-08 and Rs. 2,85,000/- in A.Y. 2008-09.
24. We note that during the assessment proceedings assessee filed complete details of both the parties namely M/s Prateek Enterprises & M/s. Saluja Enterprises in order to satisfy the Ld. AO that the purchases are genuine and actual quantity CTD bars (steel) were used for the building construction. We further note that the assessee challenged the addition for bogus purchase before Ld. CIT(A) and made following submission before Ld. CIT(A):-
14.2 During the appellate proceedings, the appellant has reiterated 25 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 the same facts which the appellant submitted before the A.O. during assessment proceedings. The appellant has also questioned the admissibility of affidavits dt. 30.09.2008 by these persons whereas the search on the RKDF Group was conducted on 23.07.2009. Appellant has further submitted that the said affidavits are concocted to be used against the appellant. Hence, the appellant has requested that the additions made in these assessment years be deleted. The appellant has further submitted a certificate of the architect specifically mentioned that during F.Y. 2005-06 to 2007-08, total 3,36,764.3 sqft. area of building premise of appellant was constructed and in this construction 8,31,910.76 kg CTD Bars were consumed which is well within the norms of standard structure value.
S.N Financial Name of party Weight Total
o year (In Kg) weight
consumed
(In %)
1. 2005-06 Pratik Enterprises lIJ.S387.63 23..35%
Saluja 209400.93 32.96%
Enterprises
Others 277460.66 43.67%
Total 635249.22 100%
2. 2006-07 Saluja 17583 8.85%
Enterprises
Others 181087.78 91.15%
Total 198670.78 100%
3. 2007-08 Pratik Enterprises 7990.76 100%
Total 7990.76 100%
Consolidated Chart
Financial Name of party Weight Total
year (In Kg) weight
consumed
(In %)
2005-06 Pratik 156378.39 18.58%
To 2007-08 En terprises
Saluja 226983.93 26.96%
Enterprises
Others 458548.44 54-46%
Total 841910.76 100%
25. After considering the assessee's submission Ld. CIT(A) partly 26 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 allowed the claim of 60% of bogus purchase and sustained the remaining 40% observing as follows:
14.9 I have carefully observed the written submission of the appellant, the case laws quoted by it and oral argume/nts put-
forth in the matter. It is well known fact that the consumption of the CTD Bars in any construction bears a large part of cost. Even in the case, the appellant-is found to be in possession of bogus bills, the fact that it may have consumed large quantity of CTD Bars in construction cannot be denied. However two case laws quoted above are also related to the Bharat Kothari Group in which M/s Prateek Enterprises & M/s Saluja Enterprises were found to be bogus firms. The facts of the case laws quoted by the appellant and that of present case are different. In these case laws, the assessee is a trader and the appellate authority justifies net profit @ 6% on assumption basis on the ground that a trader who sells product must have surely purchased the material. But in the present case, the appe1lant is the end user of the material i.e. CTD Bars and genuineness of its purchases from certain firms is in question. Therefore the decision of these case laws cannot be applied in this case mutatis mutandis. However this fact is also true that the appellant may have consumed of CTD Bars in high quantity if the construction has taken place in the relevant periods. 14.10 On perusal of the audit reports of relevant financial years i.e. for F.Y. 2005-06, 2006-07 & 2007-08, I have observed that in one building namely - Building (Jatkheri) - the appellant has shown additions of Rs. 2,72,82,075/-, Rs. 1,41,18,557/- and Rs. 38,02,078/ - respectively. To take a fair assumption of consumption of Bars in any building construction, the cost of Bars with regard to complete cost of building @ 30%, in my views, may be naturally justified. During F.Y. 2005-06, 2006-07 and 2007-08, the appellant has purchased CTD Bars from other 27 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 parties also besides than M/s Prateek Enterprises and M/s Saluja Enterprises. The following table represents the consumption of CTD Bars in the construction of building year wise -
F.Y. Addition in Purchase from Purchase from Purchase from building Saluja (in Rs.) Prateek (in Rs.) others (in Rs.) (jatkheri) in Rs.) 2005-06 2,72,82,075/- 58,65,750/- 40,76,845/- 58,66,370/- 2006-07 1,41,18,557/- 5,27,015/- -- 15,66,027/-
2007-08 38,02,078/- -- 2,85,000/- -- Total 4,52,02,710/- 63,92,765/- 43,61,845/- 74,32,397/-
The value of estimated consumption of CTD Bars @ 30% addition in building from F.Y. 2005-06 to 2007-08 arrives to Rs. 1,35,60,813/- (30% of 4,52,02,710/-). Out of purchase of CTD Bars Rs. 1,35/60,813/-, the appellant had purchased Rs. 74,32,397/- from other parties, the purchases from whom have been allowed by the A.O. Thus, the remaining consumption of CTD Bars is left of Rs. 61,28,416/- (Rs. 1,35,60,813/- less Rs. 74,32,397/-). Therefore, it may be presumed that the appellant may have consumed Rs. 61,28,416/- in CTD Bars, the consumption of which still remains unallowable. The total purchase from M/ s Prateek Enterprises and M/ s Saluja Enterprises'" in. F.Y. 2005-06 to 2007-08 arnves to Rs. 1,07,54,610/-. Therefore, the appellant is allowed to take credit of purchases made from M/ s Prateek Enterprises and M/ s Saluja Enterprises @ 56.98% (Rs. 61,28,416/- multiplied by 100, divided by Rs. 1,07,54,610/-). To adopt the liberal approach, the purchases made ~rom M/ s Prateek Enterprises and M/ s Saluja Enterprises is allowed to the extent of 60% and the purchases are disallowed @ 40%. In view of the above discussion, the Trustees of the appellant Trust obtained bogus purchase bills from the abo~~_ concerns in inn~tt.~d rates with a motive to take back cash in unaccounted manner for the personal benefit. Therefore. the appellant has benefited related persons which is not allowable as per the provisions of 13(1) (c) r.w.s .. 13(3) of the Act. Therefore, the additions made by the A.O. are restricted to Rs. 39,77,200/- (40% of purchases of Rs. 1,09,43,000/- after deducting Rs. 10,00,000/- on account of two DDs of Rs. 5,00,000/- each being cancelled) in A.Y. 2006- 07, Rs. 2,10,800/- (40% of Rs. 5,27,000/-) in A.Y. 28 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 2007-08 and Rs. 1,14,000/- (40% of Rs. 2,85,000/-) in A.Y. 2008-09. Consequently, the appeal on these grounds is partly allowed.
26. Now before us Ld. Sr. counsel for the assessee firstly raised the legal grounds relying on the judgment of Delhi High Court in the case of CIT vs. Kabul Chawla(supra) that the impugned addition is beyond the scope of section 153A of the Act as no incriminating material was found during the course of search from the assessee premises. The alleged additions were based on the information from 3rd party. On merits it was contended that all the documentary evidences to prove the genuineness of purchases were filed before both the lower authorities and that the building was actually constructed is not in dispute. The certificate of Architect and contractors with regard to consumption of CTD bars are also on record. The purchases are genuine and duly recorded in the regular books of accounts and thus no disallowance was called for. It was also submitted that the impugned additions made by the Ld. AO are merely bared on surmises and conjecture and it was also wrongly observed by Ld. AO that the proprietors of the alleged two concerns namely M/s Prateek Enterprises and M/s Saluja Enterprises have admitted on affidavit to have provided bills to the assessee society on commission basis and Ld. AO also wrongly assumed that no material was actually supplied. 29
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IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
27. Ld. Sr. counsel for the assessee also submitted that no construction can be done without iron and steel which are one of the major components of the construction cost. Building has been constructed is not in dispute. Reliance placed on the judgment of Hon'ble' Supreme Court decision in the case of Dhakeshwari Cotton Mills vs. CIT reported in (1954) 26 ITR 775 where it has been held that "even though the strict rules or evidence Act did not apply to Income Tax Proceedings, it does not mean that assessments can be made only on the basis of guess works and imaginations".
28. We note that Ld. AO initiated the examination of this issue on the basis of independent inquiries carried out by the Investigation wing of the Income Tax Department in some other cases wherein it was alleged that two business enterprises namely M/s Prateek Enterprises and M/s Saluja Enterprises are providing spurious bills of bogus sale of iron and steel. Based on this information assessee was asked to furnish following details:
"It has been found from enquiries that you have made payments accounting to Rs.38 lacs during F.Y. 2005-06 to M/s Saluja Enterprisess, Indore and M/s Prateek Enterprisess of Indore through your bank account at IDBI bank. Copies of letters of the IDBI bank in this regard giving details of the payments are enclosed wherewith as Annexure A. It has been confirmed by the proprietors of M/s Saluja Enterprises and M/s Prateek Enterprisess on affidavit to the department that they had been engaged in providing bogus purchase bills on commission basis and no steel etc. had been actually 30 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 supplied by them to the parties. Copies of same affidavit are enclosed herewith as Annexure A. You are, therefore, enquired to explain/justify the said transactions with M/s. Saluja Enterpises, Indore and M/s Pratik Enterprises, Indore and reconcile the same with your regular books of accounts. You are also required to give details of all transactions made with aforesaid parties i.e. M/s Saluja Enterprises, Indore and M/s Pratik Enterprises from F.Y. 2003-04 to F.Y. 2009-10. You are also required to show cause as to why bogus purchases, if any debited by you should not be disallowed and added to your total income for the concerned assessment year."
29. We further notice that assessee gave detailed submissions and documentary evidences for both the parties to the Ld. AO submitting as follows:
"During the F Y. 2005-06, the Assessee Society had purchased CTD Bars from Mis Prateek Enterprises, Indore worth &.40. 77 lacs and during the F Y.2007-08 of &.2.85 lacs.
The same was purchased for us in construction work going in the college premises of the Assessee SOciety. Purchase Order was issued to the party after receiving proper quotation. All the payments to Mis Prateek Enterprises were made through bank account no. 121165 of Sri Satya Sui Nagrik Suhakari Bank Mydt, Bhopal.
Copy of affidavit enclosed at Annexure A of the notice u/s 142(1) belongs to some Shri Sunil Khandelwal who is neither the proprietor 1101' key managerial person of the firm. In the affidavit, he himself has stated that he was merely an employee of the firm ie. M/s Prateek Enterprises and was involved in the work of providing bogus bills to parties against some commission. The name of the assessee society is nowhere mentioned .in his statement. He has nowhere mentioned that he has provided bogus bills to the Assessee society.
As is clear that the enquiries on Mrs Prateek Enterprises was held during F Y.200 F.Y. 2005-06 Since then the Department has not raised any question to the Assessee Society. If the matter was so grave, the Department would have enquired the Assessee Society u/s 133(6) of the IT Act then and there only. No information was sought during that period and now during the assessment proceedings of the Assessee Society, this matter has been raised. It seems as if the Department has unreasonably extended the issue to the Assessee Society.31
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 On the basis of vague statement of any person, the integrity and accountability of the Assessee Society cannot be challenged. The actual purchases made by someone cannot be treated as bogus just because some other person or parties are involved in such kind of illegal
3. transactions. Moreover statement of any person who is neither' the proprietor not the partner in the firm stands illegal.
We humbly request the honorable Assessing Officer to kindly provide us an opportunity to cross examine Shri Sunil Khandelwal in your presence so that we can also discuss specifically our matter with him. On the law point, justice can only be done when both the parties are given the chance to cross examine.
Once again we would like to reiterate that the Assessee Society has genuinely purchased the material and all the payments have been made through its bank account.
Following documents are attached at Annexure-A for your ready reference. •Certified copy of ledger account of Mis Prateek Enterprises in the books of Assessee Society for the F. Y 2005-06 and 2007-08 at Annexure A-I. •Copy of bank statement reflecting all the payments at Annexure A-2. •Copy of bills of Mrs Prateek Enterprises at Annexure A-J. •Copy of weighing slips issued by the weigh bridge at Annexure A-4. •Certificate from the main contractor Mohd. Anee~ Khan about the consumption of CTD bars during F. Y 2005-06 to 2007-08 at Annexure A-5. •Certificate from the sub-contractor Ameen Khan about the consumption of CTD bars during F.Y 2005-06 to 2007-08 at Annexure A-6. •Certificate from the architect Mr.Manoj Mishra about the consumption of CTD bars during F. Y 2005-06 10 2007-08 for construction of building of Colleges running under RKDF Education Society at Annexure A-7. •Copy of approved plan of building by Nagar Nigam, Bhopal at Annexure ..1-
8. •Ledger account of'Ameen Khan clearly showing the amount of bill booked during the year on which TDS has been properly done and deposited in the account of Income Tax Department at Annexure A-9. •Purchase Order and quotation at Annexure A-I0. •Quotation at Annexure A-II.
.
Regarding M/s Saluja Enterprises:
"
During the F. Y 2005-06, the Assessee Society had purchased CTD Bars from M/s Saluja Enterprises, Indore worth &.68.66 lacs and during F. Y2006-07, of &.5.27 lacs. The same was purchased for use in construction work going in the college premises. Purchase order was issued to the party after receiving proper quotation. All the payments to MIs Saluja Enterprises were made through bank account no. 121165 of Sri Satya Sai Nagrik Sahakari Bank Mydt, Bhopal.
32
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 We humbly request the honorable Assessing Officer to kindly provide us an opportunity to cross examine. Shri Narendra Sharma in your presence so that we can also discuss specifically our matter with him because just on the basis of vague statement of any person, the integrity and accountability of the Assessee Society cannot be challenged. Moreover on the law point, justice can only be done when both the parties are given the chance to cross examine.
The actual purchases made by someone cannot be treated as bogus just because some other person or parties are involved in such kind of illegal transactions. Moreover the name of the Assessee Society is nowhere mentioned in his statement. It has not been mentioned in the statement that Bogus bills were issued to the Assessee Society. As is clear that the enquiries on Mis Saluja Enterprises was held during F.Y.2005-06. Since then the Department has not raised any question to the Assessee Society. If the matter was so grave, the Department would have enquired the Assessee Society u/s 133(6) of the IT Act then and there only. No information was sought during that period and now during the assessment proceedings of the Assessee Society, this matter has been raised. It seems as if the Department has unreasonably extended the issue to the Assessee Society.
Once again we would like to reiterate that the Assessee Society has genuinely purchased the material and all the payments have been made through its bank account.
Following documents are attached at Annexure- B for your ready reference. Certified copy of ledger account of Mis Saluja Enterprises in the books of Assessee Society at Annexure- B-l.
Copy of bank statement reflecting all the payments Annexure- B-2. Copy of bills of Mis Saluja Enterprises Annexure- B-3. Copy of weighing slips issued by the weigh hridge at Annexure B-4. Certificate from the main contractor Mohd. Anees Khan about the consumption of CTD bars during F. Y. 2005-0610 2007-08 Annexure- B-5, Certificate from the sub-contractor Ameen Khan about the consumption ~f CTD bars during F. Y 2005-06 to 2007-08 Annexure- B-6. Certificate from the architect JvIr.Manoj JvJishra about the consumption of CTD bars during F. Y 2005-06 to 2007-08 Annexure- B-7. Copy of approved plan of building by Nagar Nigam, Bhopal Annexure- A-8. Ledger account of Ameen Khan clearly showing the amount of bill booked during the y~ which TDS has been properly done and deposited in the account of Income Tax Department AnnexureB-8 Annexure- B-S. Purchase Order and quotation at Annexure B-9.' Quotation at Annexure B-1O."
30. The above details prima facie shows that all the relevant ingredients necessary to prove the purchases are genuine has been 33 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 filed by the assessee. Weighing slips are also annexed in the paper book along with other documents. Certificate from Architect and contractor supporting the purchase of CTD bars have been filed. The facts that the building has been constructed is not in dispute as there is an approved plan of building by Nagar Nigam Bhopal. Complete quantitative details along with bills and bank statement is on record. For total construction 841910.76 kg CTD bars (PB page 85) were consumed during A.Y. 2006-07 to 2008-09 for the construction of 3,36,764.3 sq feet area of building premise and same is certified by Architect Mr. Manoj Mishra. Ld. CIT(A) has also appreciated that the actual construction activity was carried out for which CTD bars were utilized. Disallowing of 40% of purchase by Ld. CIT(A) merely seems to be on assumption as he has not referred to any material in support of this finding.
31. We also note that total 841910.76 kg CTD bars were used for the construction of building, out of which around 73% of the CTD bars were purchased from these two parties. Since the construction has been done is on record and has not been objected or adversely commented in any manner by both the lower authorities and it is an established fact that construction of the building cannot be done 34 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 without iron and steel which is crucial and major components of construction cost, the alleged disallowance seems to be made merely on assumption basis as there is no direct evidence to show that any such disallowance was even called for.
32. Hon'ble Bombay High Court in the case of DCIT vs. Vaman International Pvt. Ltd. dated 29.01.2020 has held that:
Thus, from the above, it is seen that Tribunal had returned a fnding of fact that the assessee had fled copies of purchase bills, copies of purchase/ sale invoices, challan cum tax invoices in respect of the purchases, extracts of stock ledger showing entry/exit of the materials purchased, copies of bank statements to show that payment for such purchases were made through regular banking channels, etc., to establish the genuineness of the purchases. Thereafter, Tribunal held that Assessing Officer could not bring on record any material evidence to show that the purchases were bogus. Mere reliance by the Assessing Officer on information obtained from the Sales Tax Department or the statements of two persons made before the Sales Tax Department would not be sufficient to treat the purchases as bogus and thereafter to make addition under Section 69C of the Act. Tribunal has also held that if the Assessing Officer had doubted the genuineness of the purchases, it was incumbent upon the Assessing Officer to have caused further enquiries in the matter to ascertain genuineness or otherwise of the transaction and to have given an opportunity to the assessee to examine /cross examine those two parties vis-à-vis the statement made by them before sales tax department. Without causing such further enquiries in respect of the purchase, it was not open to the assessing officer to make the addition under Section 69C of the Act.35
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
18. We are in agreement with the view expressed by the Tribunal. In fact, Tribunal has only affirmed the finding of the first Appellate authority.
Thus, there is concurrent finding of fact by the two lower appellate authorities.
33. We, therefore, in the given facts and circumstances of the case and respectfully following above decisions are of the view that on merits the assessee deserve to succeed as the documents filed before lower authorities and before us, are sufficient enough to demonstrate that the alleged purchase from M/s. Prateek Enterprises and M/s Saluja Enterprises are genuine and CTD bars purchased through bills issued by both these concerns have been utilized in the construction of the building of the society. Thus, Ld. AO was not justified in making addition of Rs.1,09,43,000/-, Rs.5,27,000/- & Rs.2,85,000/- for A.Y. 2006-07, 2007-08 & 2008-09 respectively. Finding of Ld. CIT(A) is set aside and the grounds raised by the assessee for A.Ys. 2006-07, 2007-08 & 2008-09 challenging this issue of bogus purchase are allowed. Alternate ground no.2 raised for all these three years are dismissed as infructuous.
34. As regards the legal issue raised by the assessee that no addition was called for since no incriminating material relating 36 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 to the alleged bogus purchase was found during the search u/s 132 of the Act at assessee premises, additions made only on the basis of 3rd party information and opportunity of cross examination was not provided, we observe that this is an admitted fact that the Ld. AO doubted the genuineness of the purchase of CTD bars from M/s Prateek Enterprises & M/s. Saluja Enterprises on the basis of the investigation carried out by the investigation wing independently and the information was forwarded to the Ld. AO. No incriminating material has been referred by the ld. AO during the assessment proceedings which was found during the course of search. Assessment year 2006-07 & 2007-08 are non-abated assessment since the time limit of issuance of notice u/s 143(2) of the Act expired before the date of conduct of search. For such non-abated assessment additions could be made only if incriminating material is found during search proceedings as held by Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla(Supra). Thus, in view of the judgment of Delhi High Court in the case of Kabul Chawla (supra) the addition for A.Y.2006-07 & 2007-08 deserves to be deleted. 37
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 Further we find that the assessee was not provided any opportunity to cross examine these two parties which certainly defies the principles of nature justice as the information of the 3rd party has been used against the assessee. The decision of Coordinate Bench Mumbai in the case of ACIT vs. Tristar Jewellery Export Pvt. Ltd. ITANO.7593/Mum/2011 supports this view that the assessee should be provided an opportunity of cross examination, if addition in its hands is based on 3rd party information. The relevant finding of the Coordinate Bench reads as follows:
8. Having heard the parties and having perused the material on record, we find that the completed assessment of the assessee was reopened on the basis of the statement of Shri Hiten L. Rawal, the proprietor of M/s Zalak Impex. In this statement recorded u/s 131 of the Act, Shri Rawal confessed to have provided accommodation entries in the form of sales and purchases, to various parties. The assessee was stated to have obtained bills for non existing parties, amounting to Rs. 4,09,12,718/-, during the year under consideration. The assessment order dated 21-12-
2010 was passed pursuant to the said reopening.
9. It remains undisputed that the assessee was never provided any opportunity to cross examine Shri Hiten L. Rawal, though he specifically asked for such cross examination. On the other hand, the burden was sought to be shifted on the assessee by the A.O., by asking him to produce Shri Rawal, even though it was the A.O. who had relied on the statement of Shri Rawal, without either confronting this statement to the 38 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 assessee, or providing opportunity to the assessee to cross examine Shri Rawal. Therefore, the reassessment order is as a result of violation of the natural principle of audi alteram partem. A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party. Hence, on this score alone, the reassessment order is unsustainable in the eye of law and we hereby cancel the same. As a consequence, the order of the ld. CIT(A) is also cancelled in toto.
35. Similar view was also taken in case of Aquatic Remedies Pvt. Ltd. vs. DCIT ITANo.6356/Mum/2014 Hon'ble Coordinate Bench of Mumbai observing as follows:
24. So one thing is clear that assessee was actually purchasing goods and selling them. We have also gone through the audited statement of accounts. We find that the trading results are quantified and so also the closing stock. No adverse inferences have been drawn in these respect.
The additions have been made purely on presumptions and surmises and the statement of third party i.e. M/s. Globe Pharma and others who may be providing accommodation bills but the trading account of the present assessee do not show anything which could suggest that the purchases are bogus as there is no adverse inferences in so far as sales are concerned. Without purchases there cannot be any sales. Considering all these facts in totality, we do not find any merit in respect of the additions made on account of alleged bogus purchases which are based merely on the statements backed by no cogent/demonstrative material evidences on record. We, therefore, set aside the findings of the Ld. CIT(A) and direct the AO to delete the additions made on account of bogus purchases/accommodation bills from all the assessment years under this appeal.
36. Therefore, in view of the judgment of Kabul Chawla (supra) 39 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 and the decision of Coordinate Bench Mumbai referred hereinabove, on legality also the impugned addition made by the Ld. AO for alleged bogus purchases for A.Y. 2006-07 to 2008-09 deserves to be deleted. We, accordingly order so and thus assessee's appeal for A.Y. 2006-07 to A.Y. 2008-09 are allowed.
37. As regards the addition of Rs.17,00,000/- for the alleged unexplained payment to Shri S.D. Tomar during A.Y. 2009-10 raised by assessee in ground no. 1, facts in brief are that the sum of Rs.17,00,000/- was paid by the assessee society to Shri Anees Khan. Ld. AO enquired about this transaction and found that Shri Anees Khan after receiving the payments of Rs.17,00,000/- from assessee society on 14.12.2008 immediately gave this sum of Rs.17,00,000/- to Mr. S.D. Tomar. When asked about this transaction, the assessee submitted that sum was paid to Mr. Anees Khan for construction and the amount is debited in construction account. Ld. AO was not satisfied as he was of the view that the alleged sum is not spent for the objects of the assessee society.
40
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
38. When the matter came up before the Ld. CIT(A) assessee society was not able to satisfy him with the submissions and addition made by the ld. AO was confirmed.
39. Before us Ld. Sr. Counsel for the assessee submitted that the alleged sum was a payment towards contract charges for construction. Tax had been deducted at source and the relevant transaction are duly recorded in Account Books and forms part of the audited financial statement. Copies of bills issued by Mr. Anees Khan are placed in the paper book.
40. We observe that these documents filed by the assessee towards incurring construction expenses during the year and the bills issued by Mr. Anees khan has not been claimed to be bogus by the revenue authorities except for the payment of Rs.17 lac. The alleged sum has been paid through banking channel and tax has been deducted at source. Ledger account of Mr. Anees Khan, contractor for F.Y. 2008-09 in the books of RKDF Education Society is placed at page 163 wherein it appears that against bills received from Mr. Anees Khan, Rs.1.04 cr. has been paid by the assessee society. Except for the transaction of Rs.17,00,000/- paid by the assessee to Mr. 41 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 Anees Khan on 24.12.2008, there is no contrary finding by both the lower authorities for remaining transaction which itself proves that Mr. Anees Khan is a civil contractor and has simultaneously provided the services to assessee society. Ld. CIT(A) ought to have appreciated the transaction between Anees Khan and assessee society in entirety. We, are thus satisfied with the transactions between assessee society and Mr. Anees Khan contractor and are of the considered view that alleged sum of Rs.17,00,000/- is part of the construction cost incurred during the year and has been rightly disclosed under the head of construction expenses in the audited books. The inference drawn by both lower authorities alleging that this sum of Rs. 17 lac is not incurred for the objects of the society has no merits. Thus, the finding of Ld. CIT(A) is set aside and ground no.1 (1.1 to 1.4) raised by the assessee for A.Y. 2009- 10 is allowed.
41. As regards ground no.2 raised by the assessee for A.Y. 2009-10 is concerned the same relates to addition of Rs. 36,08,666/- for the alleged benefit given to M/s. Siddharth Kapoor Infrastructure Pvt. Ltd. (in short SKIPL) in violation of 42 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 section 13(1)(c) of the Act. Facts in brief relating to this issue are that SKIPL entered into transaction for purchase of land from various farmers which was intended to be leased out to M/s Ayushmati Education & Social Society (in short AESS). The payments were required to be made to farmers. Out of the total purchase consideration a sum of Rs.36,08,666/- was paid by the assessee society directly to the following farmers for the purchase of land made by SKIPL Sr. Name of Date Cheque No. Amount in No. seller(Framer) Rs.
1 Pratap Singh 20.01.2009 184672 1,00,000 2 Om Prakash 23.01.2009 184671 1,00,000 3 Om Prakash 22.11.2008 223110 11,000 4 Mannu Lal 17.01.2009 227431 21,000 5 Mannu Lal 23.03.2009 186968 3,18,000 6 Mannu Lal 22.03.2009 186862 17,55,000 7 Anokhi Prasad 25.03.2009 186965 6,01,833 8 Brijmohan 23.03.2009 186966 7,01,833 Total 36,08,666
42. Ld. AO was of the view that the assessee society has violated the provision of section 13(3) of the Act by making payment to farmers on behalf of the SKIPL. Assessee failed to get any relief by ld. CIT(A) as he was also of the view that the alleged sum is only for the benefit of SKIPL in which Mr. R.N. Kapoor and his grandson Shri Siddharth Kapoor are having equal shares and thus there is a clear violation of 43 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 provision of section 13(1)(c) r.w.s 13(3) of the Act.
43. Before us, Ld. Sr. counsel for the assessee submitted that the land purchased by SKIPL has been leased to AESS for imparting education to carry charitable activities. The assessee society being the group concern has given the alleged sum to the farmers on behalf of AESS and the said sum is neither investment nor deposits and is merely a loan to 'AESS' which is also a society duly registered u/s 12AA of the Act and also holds to certificate u/s 10(23C)(vi) of the Act. He also mentioned that sum of Rs.1,99,21,499/- paid by AESS to SKIPL was also added by the ld. AO in the hands of AESS which is under challenged in ITANo.75/2019.
44. Ld. Sr. counsel for the assessee also submitted that in assessee's own case and on identical facts i.e. amounts were given as loan to another charitable society, Hon'ble jurisdictional High Court in ITANO.236/2012 vide order dated 14.09.2015 dismissed the revenue's appeal by referring to the judgment of Hon'ble Delhi High Court in the case of Director of Income Tax (Exemption) v. Acme Education Society (2010) 326 ITR 146 (Delhi) and the judgment of division bench of jurisdictional High Court in the case of CIT vs. Maa Vaishnav Education Society, (2013) 218 Taxman 152 (MP). Placing 44 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 reliance on the above sated judgment it was submitted that the alleged sum was a loan to AESS and Ld. CIT(A) was not justified in confirming the addition made by the Ld. AO without looking into the crucial fact that the appellant society AESS belongs to same group concerns. However, ld. DR supported the finding of both lower authorities.
45. We note that alleged transaction is of purchase of land by SKIPL from group of farmers. Land was purchased and in owned by SKIPL and subsequently has been leased to AESS. Against the total purchase consideration of land, only a sum of Rs.36,08,666/- was paid by assessee society directly to the farmers. Perusal of records shows that the alleged amount was paid by assessee society on behalf of the AESS and the said sum has been disclosed as loan to AESS. There are no records available to show the connection of the assessee society, whatsoever with the alleged purchase of land and the same being leased out by SKIPL to AESS. This transaction in simple terms is a loan given by assessee society to AESS by making payment on behalf of AESS to the farmers. Such loan is not in the nature of any investment or deposits in light of the judgment of Hon'ble Delhi High Court in the case of Acme Educational Society (supra) wherein Hon'ble 45 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 Court have made reference to other judgments namely Director of Income Tax (Exemption) Vs. Alarippu, (2000) 244 ITR 358, Baidya Nath Plastic Industries (P) Ltd. & Ors. Vs. K.L. Anand, (1998) 230 ITR 522 (Delhi) and the judgment in the case of Director of Income- Tax (Exemption) Vs. Priwar Sewa Sansthan, (2002) 254 ITR 268 wherein it was held that "interest free loan of Rs. 90,50,000/- given by the assessee society to Nav Bharti Educational Society does not violate Section 13(1)(d) read with Section 11(5) of Act, 1961 as the said loan was neither an "investment" nor a "deposit".
46. We, therefore, in the given facts and circumstances of the case and respectfully following the judgment of jurisdictional High Court in the assessee's own case in ITANo.236/2012 dated 14.09.2015, and the judgment of Hon'ble Delhi High Court in the case of Acme Educational Society, (supra), are of the considered view that the alleged sum of Rs.36,08,666/- is not a payment to SKIPL but actually it is in the nature of loan by assessee society to the other group society AESS which is running education institution and is registered u/s 12AA of the Act and the same being not in the nature of investment and deposit is not hit by the provision of section 13(3) of the Act and thus no addition/disallowance of the said sum was called 46 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 for by the Ld. AO. We, thus, set aside the finding of Ld. CIT(A) and delete the addition of Rs.36,08,666/- and allow ground no.2 (2.1 to 2.4) raised by the assessee. Thus, appeal of the assessee for A.Y. 2009-10 stands allowed.
47. Now we take up revenue's appeals in the case of RKDF Education Society vide IT(SS) No.126 to 128/Ind/2019 pertains to A.Ys. 2008-09 to 2010-11.
48. With regard to various grounds raised by the revenue Ld. DR vehemently argued supporting the orders of the Ld. AO. Whereas ld. Sr. Counsel for the assessee apart from relying the finding of Ld. CIT(A) also referred to the written submissions and paper book filed and contended that the ld. CIT(A) has rightly given relief , in view of the facts of the case and settled judicial precedents.
49. We have heard rival contentions and perused the records placed before us and carefully gone through the decisions referred and relied by the ld. counsel for the assessee.
50. As regards ground No.1 raised by the revenue challenging the finding of Ld. CIT(A) allowing relief to the extent of 60% of the bogus purchases and not considering the fact that such bogus expenses are 47 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 held to be for the benefit of the members of the society thereby violating provisions of section 13(1)(c) rw.s. 13(3) of the Act, we observe that this issue relates to the purchase of CTD bars made by the assessee from M/s Prateek Enterprises and M/s Saluja Enterprises. Ld. AO based on investigation report, observed that these two suppliers are bogus and accordingly held the total purchases of CTD bars from these two parties as bogus. Ld. CIT(A) gave the relief by sustaining the addition to 40% of the total purchases.
52. We further observe that the assessee raised similar issue for the disallowance sustained by the Ld. CIT(A) @ 40% of the alleged bogus purchase in ITANo. 70 to 72/Ind/2019 for A.Ys. 2006-07 to 2008-09. We have adjudicated this issue in the preceding paras and after examining the facts and details had come to a conclusion that the alleged purchase of CTD bars from M/s Prateek Enterprises & M/s Saluja Enterprises are not bogus and the purchase of CTD bars have been actually used in the construction of building and thus have held that M/s Prateek Enterprises & M/s Saluja Enterprises are not bogus concerns. Disallowance of purchase of CTD(Bars) for various years was deleted both on merit as well as legality. Since, we have already decided this issue, our finding shall apply mutatis mutandis on this 48 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 common issue raised by the Revenue for A.Y. 2008-09 and accordingly hold that since purchase of CTD bars are not bogus, no disallowance was called for by the Ld. AO. Finding of Ld. CIT(A) is set aside and ground no.1 of the Revenue for A.Y. 2008-09 is dismissed.
53. Now we take up ground no.2 of revenue's appeal for A.Y. 2010-11 in ITANo.127 & 128/Ind/2019 challenging the finding of Ld. CIT(A) deleting the addition of Rs.1,53,30,530/- which was made by the ld. Assessing Officer observing that the income of the society in the form of fixed deposit with bank was utilized by the society for the benefit of its members. We note that during the year under appeal the assessee society entered into transactions of providing school buses on hire with a company namely Homebound Travels Pvt. Ltd. (in short HTPL) Smt. Sadhna Kapoor who is a member of the society and also relative of other members/office bearers of the assessee society, is director in the company 'HTPL', holding more than 20% share in the company. There was a fixed deposit of Rs.1,53,30,530/- owned by the assessee society. HTPL obtained term loan from the Union Bank of Indian to purchase 50 buses. The maturity proceeds of three FDRs of the society worth of Rs.1,53,30,530/- is alleged to have been deposited in the term loan of HTPL. Ld. Assessing Officer alleged this transaction 49 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 as violation of section 13 of the Act.
54. Before the ld. Assessing Officer when the assessee was confronted with their transaction it was submitted that the HTPL has not availed any loan on the FDRs of the society. The loan is obtained on hypothecation of buses which were used as school buses for assessee society and M/s. Ayushmati Education & Social Society. Ld. Assessing Officer was not satisfied and disallowed the sum of Rs. 1,53,30,530/-. Ld. CIT(A) after examining the facts deleted this addition observing as follows:
20. This ground is against the addition of Rs. 1,53,30,530/- for the alleged benefit to Homebound Travels Pvt. Ltd. The A.O. has stated in the assessment order that HTPL obtained a term loan (TL A/c No. 537106390000012) for purchase of 50 buses from Union Bank of India, Bhopal and as lien for this account, the appellant had given certain FDRs worth Rs. 2,00,00,000/- for obtaining this term loan. The loan account was opened on 06.03.2008 and closed on 24.09.2009. The A.O. has alleged that the maturity proceeds of 3 FDRs of the appellant worth Rs.
1,53,30,530/- was deposited in this term loan account of HTPL. As per table prepared by the A.O. in the assessment order, the pre - maturity value of FDR account No. 537103030002079 of Rs. 1,07,78,792/-,573803030000192 of Rs. 22,51,177/- and 537103030001750 of Rs. 23,00,561/- of appellant's society was deposited in HTPL Term Loan Account no.
537106300000012.
20.1 The appellant has submitted during . appellate proceedings that maturity value of Rs. 23,00,561/- is related to M/s Ayushmati Education and Social Society and not to the appellant society. The appellant has produced ledger of M/ s Ayushmati Education and Social Society in the books of HTPL for F.Y. 2009-
10. According to this ledger, on 27.07.2009, HTPL has credited Ayushmati Education and Social Society for an amount of Rs. 23,00,561/- through bank. The appellant has produced bank 50 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 account statement of Mj s Ayushmati Education and Social Society in which it is clearly visible that on 27.07.2009, two amounts Rs. 22,63,759/- and 36,802/- (equivalent to Rs. 23,00,561/-) are visible as withdrawal with the narration as closer proceeds: 537106390000012 which is the term loan account of HTPL. Therefore, it is clear that the proceeds of closed FDR of Rs. 23,00,561/- in the term loan account of HTPL was credited by M/s Ayushmati Education and Social Society and not by the appellant's society.
20.2 Regarding other two amounts of Rs. 1,07,78,792/- and Rs. 22,51,177/-, it has been submitted by the appellant that the said amounts have been shown debited in the ledger of HTPL in the books of the appellant. On perusal of this ledger, it is observed that on 27.07.2009 two entries of similar amounts have been shown debited as 'INTEREST RECEIVED'. Regarding the narration 'INTEREST RECEIVED', it is submitted by appellant that this is due to the fact that in Tally Software, the narration of only one entry appears in case of multiple entries. To explain the same assessee has produced two copies of journal vouchers dated 27.07.2009 in the books of appellant which includes the value of interest received on closer of the FDRs. In these two journal vouchers, HTPL has been shown debited for Rs. 1,07,78,792/- and Rs.22,51,177/- in the ledger of HTPL for F.Y.2009-10, the closing debit balance is 3,48,74,333/-. In Audit report of the appellant and HTPL, it may be cross verified that the appellant has given loan/advance to HTPL of Rs. 3,48,74,333/-. It is therefore, clear that" the pre-mature proceeds of two FDRs of Rs. 1,07,78,792/- and Rs. 22,51,177/- were included In the loan/advance amount of Rs. 3,48,74,333/- 20.3 In view of the discussion held above, the addition of Rs. 1,53,30,530/- is hereby deleted and consequently this ground of appeal is allowed.
55. We note that M/s HTPL provided the services by way of giving buses on hire to the school and colleges run by the assessee society. During the year the total buses and cars hire charges booked by the assessee society in the income and expenditure account is Rs. 77,10,342/- and advance to HTPL as on 31.03.2010 stood at Rs.3,48,74,333/-, 51 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 interest income of Rs.43,59,500/- received from HTPL is shown by the assessee society as appearing in the interest received account placed at page 177 of the paper book.
56. Now out of the total sum of Rs.1,53,30,530/- received from encashment of FDR of Rs.1,07,78,792/- and Rs.22,51,177/- was paid to the 'HTPL by assessee society. This fact is appearing from the ledger account of HTPL in the books of assessee society for F.Y. 2009-10. This ledger account also reveals that monthly buses hire charges are credited in the account of HTPL and various payments are made against the same. However, at the end of year there is debit balance of Rs.3,48,74,333/- and for the advance so given interest of Rs.43,59,500/- has been charged. Therefore, this fact is clear from the audit report that the part of the proceeds of FDRs at Rs.1,30,29,969/- has been given as loan to HTPL and interest has been charged thereon and it is also an established fact that the HTPL is providing services of giving school buses to the assessee society. The remaining portion of the FDR encashment at Rs.23,00,561/- is given to M/s Ayushmati Education 52 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 Society and this fact is proved with the necessary ledger account and financial statements placed on record in the paper book. We also note that Ld. AO made addition for notional interest on the sum advanced to HTPL at Rs.2,18,048/- and Rs.41,84,920/- for A.Y. 2009-10 & 2010-11. We are also of the view that Ld. CIT(A) has rightly deleted both these additions on observing that there was no unsecured loan given to HTPL during A.Y. 2009-10 and for the advance/loans given during A.Y. 2010-11. Assessee society has already charged interest of Rs.43,59,500/- which is duly reflected in the books of account. Though Ld. CIT(A) has rightly deleted both these additions but revenue has not challenged this issue of addition of notional interest before us.
57. We, therefore, in the given facts and circumstances of the case find no justification in the action of the Ld. AO making addition of Rs.1,53,30,530/- in the hands of assessee and thus the finding of Ld. CIT(A) stands confirmed. Accordingly ground no.2 of Revenues appeal for A.Y. 2010-11 is dismissed.
58. Now we take up the common issue raised by the Revenue for 53 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 A.Ys. 2008-09, 2009-10 & 2010-11 challenging the finding of Ld. CIT(A) allowing the benefit of exemption u/s 11 of the Act. We observe that the assessee society is registered u/s 12AA of the Act since 13.08.1999. It was originally registered w.e.f. 01.04.2000 but subsequently this tribunal vide its order ITANo. 98/Ind/2007 dated 11.08.2007 granted registration u/s 12AA w.e.f. 13.08.1999. The assessee society is running various education institutions in the field of science & Technology, pharmacy, Management, Nursing and Dental College & Homoeopathic Medical College & Hospital, that assessee society is running to carry at charitable and educational purposes and its fulfilling the objects u/s 2(15) of the Act is not in dispute by the Revenue authorities at any stage.
59. During the course of assessment proceedings Ld. AO based on his observation made some additions and disallowances alleging that the assessee had made violation u/s 13 of the Act and therefore not eligible to claim the benefit of exemption u/s 11 of the Act. When this matter was carried before the ld. CIT(A), he though confirmed some of the additions and disallowances but was of the firm view based on 54 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 the judicial precedents and circular issued by CBDT that only the disallowances/additions should be taxed to maximum marginal rate but for the remaining profits earned by the charitable society benefit u/s 11 of the Act should not be denied.
60. Now this finding of Ld. CIT(A) is in challenge before us by the Revenue authorities for the benefit granted u/s 11 of the Act. We note that the benefit u/s 11 of the Act was denied by the Ld. Assessing Officer based on observations and findings about the various additions and disallowances made in the hands of assessee alleging that the assessee had made violation u/s 13 of the Act. While dealing with assessee's appeal and Revenue's appeal in the preceding paras, we have dealt with each of disallowances and additions made by the Ld. Assessing Officer and have held that the action of the ld. Assessing Officer was not justified and there was no merit in making such additions/disallowances. Since the very basis of denying the benefit of section 11 of the Act does not stand for as the additions/disallowances have been deleted by us and both the lower authorities have never disputed the activities of assessee society which are being solely carried out for carrying charitable and educational 55 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 activities for which it is registered u/s 12AA of the Act, automatically the assessee becomes eligible to claim benefit u/s 11 of the Act and thus this common ground raised by the revenue pertaining to allowing of benefit u/s 11 of the Act becomes infructuous, since there remains no disallowance u/s 13 of the Act.
61. However, for academic purpose we will deal with this issue raised by the revenue. We observe that Ld. CIT(A) while granting the benefit of exemption u/s 11 of the Act, Ld. CIT(A) referred to various judgments and decisions and CBDT Circular observing as follows:
17.11 Now I take up another issue by which Assessing Officer denied exemption u/s 11 to the appellant society from AY2009-10 and AY 2010-11 and by virtue of this, whole excess of income over expenditure amounting to Rs.11,18,18,138/- in AY 2009-10 & Rs.12,61,18,145/- in A.Y. 2010-11 have been brought to tax. The appellant has quoted sec 13(1)(c), 13(2), sec 164(2), circular no. 387 dt. 06.07.1984 issue by CBDT under the heading ' Levy of income tax at maximum marginal rate in the case of charitable and religious trusts which forfeit tax exemption' and various legal precedents in its favour.
17.12 For the sake of convenience and to analyse applicability of sec 13(1)(c), relevant provision of sec 13(1)(c) are reproduced as under_ Nothing contained in section 11 3 or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-
(a) ............
(b) .............
(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 56 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
(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-
section (3):
Section 13(1) restricts the exemption to the assessee of the income which is used/applied in various forms described in clause (a) to clause (d), meaning thereof the assessee would not be entitled for exemption of it uses/applied income in violation of fundamental principles for which the assessee is registered u/s 11 or 12. The assessing officer in this case has foudnt hat appellant society misused/misapplied its income to the tune of Rs.36,08,666/- for the benefit of individuals responsible to run the society. Chairman of society shri R N Kapoor and his grandson Shri Diddharth Kappor, vice-chairman of the society had 50% stake in SKIPL, thus having substantial interest in SKIPL, both are covered ujs 13(3) of the Act. Furthermore, SKIPL itself is covered ujs 13(3) by virtue of provisions of clause 'e' of sec 13(3). Taking note of this"
misappropriation of funds, Assessing Officer denied exemption to the appellant uj s 11 of the Act. The appellant in its submission has submitted that the benefit of exemption under section 11 of the Act, will not be available to the trust, in respect of such income. Therefore the appellant submitted that exemption in respect of only such income which is misappropriated by the appellant should be brought to tax, not the whole excess income over expenditure which was done by A.O. in this case. 17.13 In sub clauses (i) and (ii) of clause (c) of sub section (1) of section 13, 'any part of such income' phrase has been used. Therefore, I agree with the contention of the appellant that the intention of the law framers is to tax only such income which is directly or indirectly used for the benefit of any person referred to in sub section(3).
17.14 In sub section (2) of section 13 even, 'any part of such income or property' phrase has been used which also supports the claim of the appellant.
17.15 The appellant has also quoted sec 164(2) In favour of its claim. Sec 164(2) is reproduced as below-
(((2) In the case of relevant income which is derived from propertij he~d under trust wholly for charitable or religious purpose or which is of the nature referred to in sub-clause (iid) of clause (24) of section 2, or which is of the nature referred to in sub section (4A) of section 11, tax. shall be charged on so much of the relevant income as is not exempt under section 11 or section 12 as if the relevant income not so exempt were 57 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 the income of an association of persons.
Provided that in a case where the whole or any part of the relevant income is not exempt u/ s 11 or section 12 by virtue of the previsions contained in clause (c) or clause (d) of sub-
section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate."
According to section 164(2), in case which is of the nature referred to in sub-clause (iia) of clause (24) of section 2 (as in the case of appellant), tax shall be charged on so much of the relevant income as is not exempt u/s 11 or 12, as if the relevant income not so exempt were the income of assessee. It is very clear from the section 164(2), that in this case, tax on the relevant income of Rs. 36,08,666/- should be charged and not on the whole excess income over expenditure. However, the tax on such relevant income should be ,charged at the maximum marginal rate.
17.16 The appellant has also relied upon circular no. 387 dt. 06.07.1984 issued by CBDT titled as 'Levy of income-tax at maximum marginal rate in the case of charitable and religious trusts which forfeit tax exemption'. The relevant portion of this circular is appended below:
"28.6 It may be noted that new sub-section (lA) inserted in section 161 of the IT Act, which provides for taxation of the entire income received by trusts at the maximum marginal rates is applicable only in the case of private trusts having profits and gains of business. So far as public charitable and religious trusts are concerned, their business profits are not exempt from tax, except in the cases falling under clause (a) or clause (b) of section 11 (4A) of the IT Act. As the maximum marginal rate of tax under the new proviso to section 164(2) applies to the whole or a part of the relevant income of a charitable or religious trust which forfeits exemption by virtue of the provisions of the IT Act in regard to investment pattern or use of the trust property for the benefit of the settlor, etc., contained in section 13(l)(c} and (d) of the Act, the said rate will not apply to the business profits of such trusts which are otherwise chargeable to tax. In other words, where such a trust contravenes the provisions of section 13(1 Hc} or (d) of the Act, the maximum marginal rate of income tax will apply only to that part of the income which has forfeited exemption under the said provisions."58
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IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 17.17 The appellant has also quoted various case laws in support of its claim. The gist of decision of these case laws is summarized as under-
(i) Commissioner of Income Tax vis Fr. Mullers Charitable Institutions [2014J 44 taxmann.com 275(Kamatakaj- Only the non exempt income portion would fall in the net of tax as if it was the income of an A.O. P. The phrase 'relevant income or part of the relevant income' in the proviso is required read in contradistinction to the phrase 'whole income' under s. 161(lA).
In this case, the SLP filed by the revenue in Supreme Court was dismissed. Citation- Commissioner of Income Tax, Mangalorc vis Fr. Mullcrs Charitable Institutions [2014) 51 taxmann.com378(SC)
(ii) Director of Income Tax(Exemptions) vis Sheth Mafatlal Gagalbhai Foundation Trust P001J 114 taxman 0019, Bombay- In case of contravention of s. 13(1)(d), maximum marginal rate of tax under s. 164(2), proviso is applicable only to that part of income of the trust which has forfeited exemption and not the entire income.
(iii) Jamshetji Tata Trust vis Joint Director of Income Tax(Exemption) , ITAT, Bombay, [2014J 148 lTD 0388(MUMjBreach of section 13(1)(d) and 13(2)(h) would lead to forfeiture of exemption of income derived from such investment and not entire income would be subjected to maximum marginal rate of tax uls 164(2).
(iv) Commissioner of Income Tax vis Red Rose School [2007J 75 CCH 0138 All HC- Profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect of that part of the income but cannot be taken to be a synonym }o the genuineness of the activities of the trust or the institution. 17.18 I have considered the submission of the appellant and in view of the decisions cited by the appellant on subjected matter and circular of CBDT (supra), the additions of Rs.1,13,11,931/- in A.Y. 2008-09, Rs. 12,18,18,138/- in A.Y, 2009-10 & Rs. 12,61,18,145/- in A.Y. 2010-11 for bringing whole excess of income over expenditure to tax net are hereby deleted. Consequently, these grounds of appeal are allowed.
62. Hon'ble Karnataka High Court in the case of Commissioner of Income-tax vs Fr. Mullers Charitable Institutions [2014] 363 ITR 230 (KARN) has held that, "perusal of section 13(1)(d) of the Act, makes it 59 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 clear that it is only the income from such investment or deposit, which has been made in violation of section 11(5) of the Act, that is liable to be taxed and violation of section 13(1)(d) does not result in denial of exemption under section 11 to the total income of the assessee trust". [
63. Further In the present context, the provisions of section 164, particularly section 164(2) and proviso thereto, are also relevant. It may also be stated here that in view of the proviso to section 164(2) and Circular No.387, dt.6.7.1984, issued by the CBDT, all the legal precedents applicable to the violations under section 13(1)(d) of the Act, will equally apply to the violations under section 13(1)(c) of the Act.
64. Before proceeding to deal with the relevant legal precedents in support of the aforesaid stand, it would be appropriate to refer to the relevant provisions of sections 13 and 164 of the Act. The same are discussed as follows:
Sections 13(1)(c) and 13(2) of the Act.
In the present context, the provisions of sections 13(1)(c) and 13(2) of the Act, are relevant. The same are discussed as follows :
Provisions of sections 13(1)(c) of the Act For the sake of ready reference, the relevant part of section 13(1)(c) of the Act, is reproduced as follows :60
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IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 "13. Section 11 not to apply in certain cases.
(1) Nothing contained in section 11 or section 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-section (3) :"
Thus from the aforesaid provisions of section 13(1)(c)(ii), it may be seen that if any part of income or any property of the trust is applied directly or indirectly for the benefit of any trustee, etc, then the benefit of exemption under section 11 of the Act, will not be available to the trust, in respect of such income.
Provisions of section 13(2) of the Act.
In the present context, section 13(2) of the Act is also relevant. For the sake of ready reference, section 13(2) of the Act, is reproduced as follows:
"13.Section 11 not to apply in certain cases.
(2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1), 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-section (3),--
(a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest or both;
(b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-
section (3), for any period during the previous year without charging adequate rent or other compensation;
(c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or 61 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 institution and the amount so paid is in excess of what may be reasonably paid for such services;
(d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation;
(e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate;
(f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate;
(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-section (3):
Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees;
(h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern in which any person referred to in sub-
section (3) has a substantial interest."
From the aforesaid provisions of section 13(2), it may be seen that in respect of various circumstances referred to in clauses (a) to (h) thereof, the income or property of the trust or institution or any part of such income or property shall, for the purposes of section 13(1)(c) and 13(1)(d), be deemed to have been used or applied for the benefit of the trustee, etc. It clearly implies that section 13(2) is nothing but an extension of section 13(1)(c) / 13(1)(d). Section 164(2) of the Act.
In the present context, the provisions of section 164(2) are also relevant, which are reproduced as follows :
"164.Charge of tax where share of beneficiaries unknown.
(2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause (iia) of clause (24) of section 2 or which is of the nature referred to in sub-section (4A) of section 11 tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, 62 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 as if the relevant income not so exempt were the income of an association of persons :
Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate."
From the aforesaid provisions of section 164(2), it may be seen that in the case of relevant income referred to therein, tax shall be charged on so much of the relevant income, as is not exempt under section 11 or 12, as if the relevant income not so exempt were the income of an association of persons (AOP). It clearly implies that only that part of the relevant income which is not exempt under section 11 or section 12 is brought to tax, as the income of an AOP and the balance of income of the charitable trust / institution, will remain exempt.
Further, as per the proviso to section 164(2), where the whole or any part of the relevant income is not exempt under section 11 or section 12, by virtue of the provisions of section 13(1)(c) or section 13(1)(d), tax shall be charged on the relevant income or part of relevant income, at the maximum marginal rate.
65. In view of the aforesaid proviso to section 164(2), Hon'ble Courts in the judgments referred by Ld. CIT(A) in the impugned order have held that in case of violation of the conditions under section 13(1)(c) or 13(1)(d) of the Act, only the relevant income or part of such relevant income is liable to be taxed at maximum marginal rate. It is also held that the violation of section 13(1)(c) or 13(1)(d) does not result in denial of exemption under section 11, in respect of the total income of the assessee. In other words, only the non-exempt income, in view of the provisions of section 13(1)(c) would fall in the tax-net 63 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 and the other income of the charitable trust / institution would remain exempt under the provisions of section 11 of the Act.
66. In view of the above discussions, relevant provisions, the CBDT circular No.387 dated 06.07.1984 and the judgment referred by Ld. CIT(A) in the impugned order we observe that where a trust/society contravenes the provisions of section 13(1)(c) of the Act, the maximum marginal rate of income tax will apply only to that part of the income for which contravention is made under the provision of section 13 and not on the remaining income of trust/society. This view also stands taken in the following judgments/decisions:
1. DIT(E) Vs Sheth Mafatlal Gagalbhai Foundation Trust [2001] 249 ITR 533 (Bom).
2. JAMSETJI TATA TRUST VS JDIT (E) [2014] 101 DTR (TRIB) 305 (MUM
3. CIT VS. RED ROSE SCHOOL [2007] 163 TAXMAN 19 (ALL.)
4. ITO VS. VIRENDRA SINGH MEMORIAL SHIKSHA SAMITI [2009] 18 DTR (TRIB.) 502 (LUCKNOW).
5. ARVIND BHARTIYA VIDHYALYA SAMITI VS. ACIT [2008] 115 TTJ 351 (JP.)
6. DY.CIT VS. COSMOPOLITAN EDUCATION SOCIETY [2000] 244 ITR 494 (RAJ.) 64 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
67. We, therefore, in view of the settled judicial precedents find merit in the finding of Ld. CIT(A) holding that if there is some mis-utilization or mismanagement of the income/fund of the charitable society, the exemption u/s 11 of the Act cannot be denied to the assessee trust on the remaining income. Thus, it is clearly established that only the relevant income falling within the mischief u/s 13(1)(c)/13(1)(d) will lose the benefit of exemption under section 11 of the Act and the balance of the total income of the trust will remain eligible for the benefit of exemption under section 11 of the Act . Accordingly this common issue raised by the Revenue for A.Y. 2009-10 & 2010-11 against the benefit of exemption u/s 11 of the Act allowed by the ld. CIT(A) is dismissed. Relevant grounds raised pertaining to this issue in the three assessment years stands dismissed.
68. Next common issue raised by the Revenue in Ground no.4, ground no.3 & ground no.5 of A.Y. 2008-09 to 2010-11 respectively are against the finding of Ld. CIT(A) allowing deduction of capital expenditure of Rs.2,43,75,990/- for A.Y. 2008-09 to 2010-11 as application of income.
65
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69. Brief fact relates to this issue are that the assessee society claimed deduction of various amounts for the year under appeal as application of income for the capital expenditure incurred during the year. However, Ld. Assessing Officer while concluding the assessment and determining the total income has not deducted the said amount. Ld. CIT(A) after appreciating this fact that the Ld. Assessing Officer has not discussed anything in the assessment order about the capital expenditure claimed as an application of income by the assessee directed the Ld. Assessing Officer to allow the said claim. The revenue has challenged this finding.
70. Ld. DR could not bring any contrary material on record to oppose the finding of Ld.CIT(A) and thus relied on the assessment order whereas Ld. Sr. counsel for the assessee relied on the finding of ld. CIT(A).
71. We note that the assessee society claimed deduction for capital expenditure as application of income during A.Y. 2008-09 to 2010-11 at Rs. 2,43,75,990/-, Rs. 11,06,15,735/- & Rs.2,00,48,975/- against the total income earned by the assessee society. Ld. Assessing Officer made various additions and disallowances alleging that assessee violated the provision of section 13 but while determining the total 66 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 income denied this claim but made no discussion/ mention in the assessment order. It thus transpires that since the Ld. Assessing Officer held that as the assessee has violated the provision of section 13 of the Act, therefore, Assessee is not entitled to any benefit u/s 11 of the Act and thus did not give the benefit of deduction of capital expenditure incurred during the year as application of income.
72. We observe that ld. CIT(A) has allowed this claim observing as follows:
22. These grounds are raised against not allowing the deduction of Rs. 2,43,75,990/- in A.Y. 2008-09, Rs. 11,06,15,735/- in A.Y. 2009-10 and Rs .. 2,OO!48,975/- in A.Y. 2010-11 as application of income as capital expenditure.
22.1 Appellant in the return of income/computation of income claimed the deduction of similar amounts as application of income as capital expenditure. In the assessment order, the A.O. has stated nothing about this deduction. On perusal of the tables prepared in the assessment order while concluding the assessment order for determination of the total income, the A.O. has not deducted the said amounts. For A.Y. 2008-09, as discussed in the preceding paras, the A.O. has not denied exemption u/s 11 to the appellant. Therefore the appellant is also entitled for deduction of Rs. 2,43,7~990/-, For A.Y. 2009-10 & A.Y. 2010-11, the A.O. denied the exemption vi] s 11 of the Act to the appellant and therefore, added the excess of income over expenditure (gross receipts less revenue expenses) i.e. Rs.
12,18,18,138/- in A.Y. 2009-10 and Rs. 12,61,18,145/- in A.Y. 2010-11. It is, therefore clear, that while ascertaining the, amount of excess of income over expenditure, the A.O. did not consider the capital expenditure incurred by appellant. 22.2 Certain grounds raised by appellant during appellate proceedings have been allowed in the preceding paras which have the effect of allowing exemption u/ s 11 of the Act to the appellant and accordingly additions made by the A.O. bringing whole excess of income over expenditure have been deleted. Therefore, appellant is also entitled for deduction in respect of application of income for capital expenditure. Hence, these 67 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 grounds of appeal are allowed.
73. We further observe that in the preceding paras, after examining the facts and circumstances of the case and the settled judicial precedents we have deleted the disallowance and additions made by the ld. Assessing Officer. Thus, since the very basis for denying the benefit u/s 11 of the Act has been removed/deleted and there is nothing contrary on record brought by the revenue to show that the assessee is not carrying on the activities for charitable and educational activities as per the objects for which it is established, there remains no hurdle for the assessee society to claim benefit of exemption u/s 11 of the Act. Therefore in the given facts and circumstances of the case, in our considered view assessee has rightly claimed capital expenditure as application of income during the year and therefore the finding of ld. CIT(A) needs no interference. This common issue raised by the revenue in Ground nos.4,3 & 5 for A.Y. 2008-09 to 2010-11 are dismissed.
74. In the result, in the case of RKDF appeals of the assessee for A.Y. 2004-05, 2006-07 to 2009-10 are allowed and appeals of the revenue for A.Y.2008-09 to 2010-11 are dismissed.
68
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IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 Now we take up the appeals in the case of assessee namely Ayushmati Education & Social Society (in short AESS) wherein assessee is in appeal for A.Ys. 2008-09 to 2010-11 and cross appeals by Revenue are for A.Y. 2009-10 & 2010-11.
75. Brief facts relating to this case available from records are that the assessee society is registered with the Registrar of Societies vide registration number 7407/99 effective from 15.10.1999. It is also registered u/s 12AA of the Income Tax Act 1961 vide registration No.56/445 w.e.f. 01.04.2004. It is running various educational institutions. The assessee society filed an application seeking approval u/s 10 (23C)(vi) of the Act from A.Y. 2006-07 but was finally accorded approval u/s 10(23C)(vi) of the Act from A.Y. 2009-10 and onwards. Assessee society is running around 26 educational institutions (list mentioned in the assessment order at page 3 & 4) which are engaged in imparting education in the field of pharmacy, engineering, Research & technology, hotel management, Polytechnic college and others. As per the bylaws /Rules & Regulations 69 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 of the society filed with the Registrar of Societies, M.P. at the time of registration, the objectives of the society are social service activities, educational activities, import medical, paramedical, nursing, dental & school education by opening of medical, paramedical, nursing, dental, ayurvedic, homeopathic colleges hospitals and schools.
76. Search action u/s 132 of the Act was carried out on 23.07.2009 at various premises of RKDF group which also included the assessee society (AESS) which is part of the same group. Assessment proceedings were initiated by serving notice u/s 153A of the Act to file the return for A.Ys. 2004-05 to 2009-10. In compliance to the notice u/s 153A of the Act assessee stated that returns originally filed may be treated as return filed in response to notice u/s 153A of the Act. The dates of original return filed for A.Y. 2004-05 to 2010-11 and the return filed u/s 153A of the Act are mentioned below:
S.No. A.Y. Date of filing Dated of Returned
of original filing of income/loss
return u/s return u/s (In Rs.)
139(1) 153A
1 2004-05 23.12.04 17.10.11 NIL
2 2005-06 28.10.05 17.10.11 NIL
3 2006-07 27.10.06 17.10.11 NIL
70
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4 2007-08 29.10.07 17.10.11 NIL
5 2008-09 30.09.08 17.10.11 NIL
6 2009-10 31.03.10 17.10.11 NIL
7 2010-11 14.10.20 17.10.11 NIL
Notice u/s 143(2) & 142(1) of the Act along with
questionnaire duly served upon the assessee.
77. First issue raised by the Ld. AO was for A.Y. 2009-
10with regard to utilization of society fund at Rs.
1,99,21,499/- by giving it to the benefit of persons referred u/s 13(3) of the Act which in this case was a company namely M/s. Siddharth Kapoor Infrastructure Pvt. Ltd. (in short 'SKIPL') which was run by founder member of the society, Shri R.N. Kapoor and his grandson Shri Sidharth Kapoor. Ld. AO alleged that SKIPL purchased 10.17 hectare land located at Gondarmau, vide registry dated 20.03.2009 from various farmers. Ld. AO initiated enquiry into this transaction based on documents seized during the course of search action bearing numbers the LPS No.8B (Panchnama dated 24.07.2009) which is a photocopy of a registered sale deed of a land purchase by the SKIPL. Ld. AO after discussing various information found from the 71 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 seized material, finally discussed in the assessment order that sum of Rs.1,99,21,499/- was paid by AESS to 10 farmers through account payee cheque during the month of March 2009. The assessee society submitted that the land purchased by 'SKIPL' was leased to the assessee society for 'NIL' rent and against the consideration of advance paid to farmers and NIL rent assessee was required to develop the land for sports activities and various other related facilities. The said land is used for this purpose only. The Ld. AO however, alleged that the said land was purchased by SKIPL in its name and assessee society diverted the funds of the society to made payment to the farmers which was a clear violation of provision of section 13 of the Act. Ld. AO accordingly made the addition for Rs.19921,499/- to the income of assessee and also denied benefit of exemption u/s 11 for the alleged violation of section 13 of the Act for directly using or applying the income of the assessee society for the benefit of person referred to in section 13(3) of the Act.
78. Second issue raised by the Ld. AO to A.Y. 2008-09 was 72 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 regarding the payment of Rs.15,00,000/- to Shri Aneesh Khan. Ld. AO alleged that there was a transaction of purchase of land from Shri Gyan Chand Jain & Shri Amar Chand Jain. The amount was given by cheque by the society for the amount appearing in the registered sale deed but the 'on money' was paid through Shri Anees Khan by way of issuing bearer cheque which were encased by the power of attorney holder name of Shri Shyam Lal Patidar and Tulsiram Patidar on behalf of Shri Gyan Chand Jain & Shri Amar Chand Jain. The assessee however contended that Mr. Anees Khan is a contractor and had carried out construction activities round the year. Payments were made against bills issued and tax at source was deducted. Ld. AO was not satisfied with this reply and disallowed a sum of Rs.15,00,000/- as unexplained expenditure.
79. Ld. AO also raised doubt on the transaction with HTPL observing that the assessee had given interest free loan to this company which is run by Smt. Sakhana Kapoor who is member and also relative of other members of society. Ld. 73 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 AO calculated notional interest of Rs.25,83030/- and Rs. 9,39,890/- for A.Y. 2009-10 & 2010-11 and made the addition in the hands of assessee.
80. Ld. AO also observed that there was a bogus claim of asset in the case of Vedica Education Society for A.Y. 2004-05 to 2007-08 and the depreciation was claimed on Straight line Method (SLM) on such bogus claim of assets. Subsequently, Vadica Education Society was merged with Ayushmati Education & Social Society. The assets were carried over by the later and the depreciation on such bogus assets were claimed during A.Y. 2008-09 to 2010- 11 at Rs.7,71,416/- in each year and the same was disallowed and added to the income of respective assessment year.
81. Further Ld. AO also observed that for A.Y. 2009-10 though the assessee has been granted the approval for exemption u/s 10(23C)(vi) of the Act, assessee is not eligible to claim the same as it exists for the purpose of profit and fund of the society were grossly mis-utilized for the family concerns of office bearers and thus held that 74 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 the society cannot be held as running solely for education purposes for A.Y.2009-10 and subsequent year. Observing so Ld. AO denied the benefit of exemption u/s 10(23C)(vi) of the Act along with denying the exemption u/s 11 of the Act.
82. Income of the assessee for A.Y.2004-05 to 2007-08 was assessed at nil income and for A.Y. 2008-09 to 2010-11 was computed in the following manner:
A.Y. 2008-09 (Computation of application of income Gross Receipts Rs. 24,82,75,281/-
Add. Unexplained expenses debited to 15,00,000/-
Anees Khan on account of payment of
Tulisram Patidar and Shyam Lal Patidar as
discussed in para 10.3
Add. On account depreciation on bogus asset
as discussed in para 10.5 7,71,416/-
Gross receipts 25,05,46,697/-
Less. Total Expenditure 28,40,33,255/-
Total Income assessed NIL because
application of income more 248275281/-
A.Y. 2009-10
Income shown in the return Rs. NIL
Add: Excess of income over expenditure 34,07,25,659/-
Add: Addition on account of excess payments
to farmers on behalf of family concern SKIPL
as discussed in para 10.2
Add: Benefit of interest passed on to Home
75
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IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
Bound Travels Private Limited as discussed 1,99,21,499/-
in para 10.4
Add. On account depreciation on bogus
Asset as discussed in para 10.5
25,83,030/-
7,71,416/-
Total income assessed Rs. 36,40,01,604/-
A.Y. 2010-11
Income shown in the return Rs. NIL
Add: Excess of income over expenditure 20,35,53,275/-
Add: Benefit of interest passed on to Home
Bound Travels Private Limited as discussed 9,39,890/-
in para 10.4
Add. On account depreciation on bogus 7,71,416/-
Asset as discussed in para 10.5
Total income assessed Rs. 20,52,64,581/-
83. Aggrieved assessee preferred an appeal before Ld. CIT(A) and partly succeeded and now the assessee is in appeal before this Tribunal for A.Y. 2008-09 to 2010-11 by the assessee and cross appeals for A.Y. 2009-10 & 2010-11 by the revenue.
First we take up assessee's appeal
84. The first common issue raised in ground No.1 for A.Y. 2008-09, ground no.3 for A.Y. 2009-10 and ground No.2 for A.Y. 2010-11 for disallowance of depreciation expenses at Rs.7,71,146/-.
76
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
85. Ld. AO disallowed the expenses treating it as wrong claim on the bogus assets purchased in the case of Vedica Education Society during A.Y. 2004-05 to 2007-08. Ld. CIT(A) confirmed the view of the Ld. AO.
86. Before us Ld. Sr. counsel for the assessee submitted that no incriminating material was found for the alleged claim of assets during search proceedings and such additions deserves to be deleted in view of ratio laid by Hon'ble Delhi High Court in the case of Kabul Chawla (Supra).
87. Per Contra Ld. DR vehemently argued supporting the order of lower authorities.
88. We have heard rival contentions and perused the records placed before us. The common issue raised by the assessee is with regard to disallowance of depreciation at Rs.7,71,416/- for each year from A.Y. 2008-09 to 2010-11. This disallowance was computed by the Ld. AO based on the bogus claim of assets in case of Vedica Education Society during A.Y. 2004-05 to 2007-08. Subsequently Vedica Education Society was merged with AESS.
77
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
89. We note that with regard to bogus assets there is no reference to any incriminating material found during the course of search. The alleged bogus claim of assets is during A.Y. 2004-05 to 2007-08. Returns for all these three years were duly filed u/s 139(1) of the Act. Time limit for issuance of notice u/s 143(2) of the Act has either expired before the date of search or the years were assessed u/s 143(3) of the Act. In view of the ratio laid down by the Hon'ble Delhi High Court in the case of Kabul Chawla(supra) which have been subsequently followed in various other decision of this tribunal that for non-abated assessment addition cannot be made by Ld. AO in absence of any incriminating material found during the course of search.
90. We are of the considered view that since Ld. AO had made the disallowance of depreciation only on the basis of bogus claim of assets purchased during A.Y. 2004-05 to 2007-08 but without giving reference to any incriminating material found during search nor giving any other details in the assessment order and therefore making disallowance on the basis of such bogus claim for A.Y. 2004- 05 to 2007-08, has no foundation to stand for. Moreover assessee society acquired Vedica Education Society subsequent to A.Y. 2007- 78 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019
08. There is no evidence on record to show the details of such bogus claim in case of Vadica Education Society.
91. We, therefore, in the given facts and circumstances of the case absence of any finding for the alleged bogus assets found during A.Y. 2004-05 to 2001-08 and respectfully following the judgment of Hon'ble Delhi High Court in the case of Kabul Chawla(supra) are of the considered view that Ld. AO erred in making disallowance for depreciation at Rs.7,71,416/- for each year from A.Y. 2008-09 to 2010-11. The finding of Ld. CIT(A) is set aside and this common issue is decided in favour of the assessee. Thus ground no1, Ground no.3 and Ground no.2 of assessee's appeal for A.Y. 2008-09 to 2010-11 are allowed.
92. Now we take up ground No.1 & 2 for A.Y.2009-10 wherein the assessee has raised two fold contentions, firstly that Ld. CIT(A) erred in confirming the action of the Ld. AO by making addition at Rs. 1,99,21,499/- on account of land purchased by SKIPL for the amount given by the assessee society. Secondly it is contend that the assessee society was granted the approval u/s 10(23C)(vi) of the Act and ld. AO denied the benefit exemption without following the procedure provided in Proviso to section 143(3)(e) of the Act. 79
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93. We will first deal with the quantum addition Ld. Sr. counsel for the assessee referring to written submissions filed before us and lower authorities as well as relevant documents placed in the paper book submitted that the alleged sum of Rs.1,99,21,499/- is payments made through account payee cheque and duly accounted for in the books of account and shown in the balance sheet. There is no element of 'on money' which can be alleged upon the assessees society. Assessee was not provided any opportunity of cross examination of all those farmers/parties who have stated against the assessee. Reference was made to the lease agreement between the appellant and SKIPL placed at paper book page 16 to 18, as per which land owned by SKIPL measuring 10.147 hectare situated at Gondarmau, was agreed to be used by the assessee society for its educational institutions by way of development of the land for making sport ground and incurring expenditure on land leveling temporary construction and landscaping etc. This land is being used by the assessee society for this purpose only. Regarding the allegation that lease deed is unregistered and therefore, not admissible evidence reference was made to section 2(47) of the Act and submitted that the expression 'transfer' defined u/s 2(47) of the Act includes "any 80 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 transaction entered into it any manner which has the effect of transferring, or enabling the enjoyment of, any immovable property". Reliance was placed on the judgment of Hon'ble Punjab and Haryana High Court in the case of Ram Kishan vs. Bijeder Mann. (2013) 1 PLR
195. It was also submitted that if in case SKIPL refused to honour the lease agreement, the appellant has a right to get his agreement enforced by way of suit for specific performance.
94. In case of G.Balakishtiah vs. B. Ranga Reddy AIR 1960 AP 112, it was held that unregistered lease deed can be admissible as evidence for proving appellant's (who was owner of the land in dispute) title to the leased property.
95. Reliance was also placed on the judgment of Hon'ble Supreme Court in the case of Shibani Basu v. Sandip Ray AIR 2011 SC 509 (SC) wherein Hon'ble Court has held that non-registration of a rent note did not debar use of a document that was to be compulsorily registered for collateral purposes.
96. As regard the second contention that ld. AO ought to have allowed the benefit of exemption u/s 10(23C)(vi) of the Act it was submitted that Ld. AO failed to comply to the procedure laid down in proviso to section 143(3) of the Act and denied the benefit of exemption u/s 81 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 10(23C)(vi) of the Act without intimating Central Government or the prescribed authority about the contravention if any of u/s 10(23C)(vi) of the Act. It is only after such intimation that exemption u/s 10(23C)(vi) of the Act can be withdrawn. No such contravention of this provision has been stated by Ld. AO or Ld. CIT(A). Activities of the assessee society running primarily for educational activities have not been doubted. Only on the basis of some disallowances benefit of section 11 of the Act has been denied. However, Ld. AO has not given any reason as why the assessee is not entitled to the benefit of exemption u/s 10(23C)(vi) of the Act. It was also submitted that prior to Finance Act 2020, the appellant can claim the exemption both u/s 10(23C)(vi) and section 11 of the Act simultaneously. This amendment is prospective in nature.
Reliance was placed on the following decisions:
1. Peoples Education Society [2014] 42 taxmann.com 353 (Karnataka)
2. Commissioner of Income-tax v. Jeevan Deep Charitable Trust [2012] 28 taxmann.com 242 (All.)
3. Commissioner Of Income tax Vs. Mahasabha Gurukul Vidyapeeth Haryana (2010) 326 ITR 25 (Pun),
97. Per contra Ld. Departmental Representative (DR) 82 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 vehemently argued supporting the orders of both lower authorities and relied on the following finding of ld. CIT(A) with regard to quantum addition of Rs.1,99,21,499/- mentioned in para 13 of the impugned order and with regard to the denial of exemption u/s 10(23C)(vi) of the act referred to the finding of ld. CIT(A) in para 12 of the impugned order. Relevant part is extracted below:
Finding confirmed the addition of Rs.1,99,21,499/-
"13.10Carefully considering the above mentioned facts, I see no reason to rely on the claim of the appellant that the appellant society possessed right to enjoy over the land. The appellant society made payment of Rs.1,99,21,499/- to farmers on behalf of SKIPL to enjoy no benefit. In fact, in these transactions, the only beneficiary is SKIPL, in which Shri R.N. Kapoor, Chairman of the appellant society and Shri Siddarth Kapoor, Vice - Chairman & grand son of Shri R.N. Kapoor held equal share. Therefore, the addition of Rs.1,99,21,499/- made by the AO in A.Y. 2009-10 on this count is confirmed as this is violation of provisions of Section. 13(1)© read with Section. 13(3) of the Act. Consequently, this ground of appeal is dismissed.
Finding denying the benefit of section 10(23C(vi) of the Act
12. These grounds are raised by the appellant for claiming exemption in respect of entire income u/s 10(23C)(vi) of the Act. Appellant claimed exemption u/s 11 in ITRs filed for A.Y. 2004- 05 to A.Y. 2010-11. The AO has also passed assessment order- uys 153A r.w.s. 143(3) keeping in mind the exemption u/ s 11 available to the assessee for all assessment years 2004-05 to 2010-11. Approval u/s 1 0(23C) (vi) has been accorded to the appellant on 24.03.2009 for AY 2009-10 onwards. Since, search operation was conducted on 23.07.2009 and 83 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 consequently mandatory assessment was conducted for AY 2004-05 to 2010-11. The major part of the assessment period is prior to date of approval u/s 10(23C)(vi) and AO has also relied upon exemption u/s 11 as claimed by the appellant in returns of income/computation of income filed u/s 139(1) before obtaining approval ii]« 1 0(23C) (vi) and also u/s 153A after obtaining approval u/s 1 0(23C) (vi) as appellant submitted before A.O. during the assessment proceedings that returns filed by it uls 139(1) may be treated as returns filed in response to notice u/ s 153A.
12.1 In view of the aforesaid points mentioned in the preceding para, I am of the view that appellate proceedings should also be concluded on the basis of exemption claim u/s 11 by the appellant for all assessment year 2004-05 to 2010-11, in respect of which a composite assessment order has been passed by the AO. However, benefit u/s 11 and u/s 10(23C)(vi) of the Act cannot be claimed simultaneously.
Hence, these grounds of appeal are hereby dismissed.
98. We have heard rival contentions and perused the records placed before us and carefully gone through the decision referred by Ld. counsel for the assessee and the finding of Ld. CIT referred by Ld. DR.
99. As regards the quantum addition of Rs.1,99,21,499/- confirmed by Ld. CIT(A) on account of land purchase by SKIPL measuring 10.17 hectare located at village- Gondarmau, registered on 20.03.2009, we note that this property is purchased by SKIPL. A sum of Rs.1,99,21,499/- was paid by the 84 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 assessee society to the following farmers who sold the land to SKIPL.
Name of seller Date Cheq.No. Amount(in Rs.) Paid from Laxman Singh 28.3.2009 232389 10,15,333 A/c No.12/940 SSS Nagrik Bank Pratap Singh 25.3.2009 232391 91,52,333 A/c No.12/940 SSS Nagrik Bank Gopal Singh 25.3.2009 232390 10,15,333 A/c No.12/940 SSS Nagrik Bank Om Prakash 24.3.2009 232386 8,89,000 A/c No.12/940 SSS Nagrik Bank Prem Narayan 23.3.2009 232387 34,77,750 A/c No.12/940 SSS Nagrik Bank Nirbhay Singh 23.3.2009 231554 3,46,650 A/c No.12/120 SSS Nagrik Bank Kamal 23.3.2009 231555 22,85,250 A/c No.12/120 SSS Nagrik Bank Ganga Ram 23.3.2009 231556 32,52,750 A/c No.12/120 SSS Nagrik Bank Hari Singh 23.3.2009 231557 12,95,250 A/c No.12/120 SSS Nagrik Bank Dhan Singh 23.3.2009 231558 23,09,000 A/c No.12/120 SSS Nagrik Bank Total 1,99,21,499
100. The above stated sum paid to farmers is duly appearing in the balance sheet of assessee society for F.Y. 2008-09 as land development and advances. Under this schedule total sum of Rs.3,63,41,058/- is shown which also comprises of the name of persons and the amount of Rs.1,99,21,499/- given to some persons during F.Y. 2008-09. We also note that a lease agreement was entered between the assessee and SKIPL on 28.02.2009 and assessee society agreed that in lieu of advance given to farmers at Rs.1,99,21,499/- and developing the said land for sports related activities under CSR, 85 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 making construction, landscaping land leveling and other land development work, 'NIL' rent will be paid for 20 years commencing from 20th April 2009.
101. Though it is alleged by the revenue authorities that the lease deed is unregistered and not admissible as evidence, we however, observe that definition of expression "transfer" provided in section 2(47) is more wider than in the general law. The expression "transfer" employed in section 2(47) includes "any transaction entered into in any manner which has the effect of transferring, or enabling the enjoyment of, any immovable property". In these two eventualities, profits on account of capital gains would be taxable in the year in which such transactions are entered into, even if a transfer of immovable property is not effective or completed under the general law. In the present case, there is a fine distinction which remained un-noticed at the end of the ld. AO. According to the appellant, the rights which have been acquired by it by virtue of lease agreement are the rights of capital nature. These rights have been alienated in favour of the appellant by SKIPL. The ld.AO has referred to sections 17 and 49 of the Indian Registration Act, but, failed to notice the proviso appended to section 49 which has been incorporated by way 86 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 of amendment subsequently. Thus, it is pertinent to take note of section 49 along with proviso which reads as under:
"49. Effect of non-registration of documents required to be registered.--No document required by section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall--
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered :
Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (1 of 1877), or as evidence of part performance of a contract for the purposes of section 53A of the Transfer of Property Act, 1882 (4 of 1882) or as evidence of any collateral transaction not required to be effected by registered instrument."
102. In the case of Ram KishanVs. Bijeder Mann. The Hon'ble P&H High Court has resolved the controversy and held that such unregistered agreement can be produced as evidence in suit for specific performance. It can be made basis of suit for specific performance. The finding recorded by the Hon'ble Punjab & Haryana High Court in this case reported in (2013) 1 PLR 195 as under:
"11. A conjoint appraisal of sections 53A of the Transfer of Property Act, 1882, sections 17(1A) and 49 of the Indian Registration Act, 1908, particularly the proviso to section 49 of the Indian Registration Act, in our considered opinion, leaves no 87 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 ambiguity that, though, a contract accompanied by delivery of possession or executed in favour of a per- son in possession, is compulsorily registrable under section 17(1A) of the Registration Act, 1908, but the failure to register such a contract would only deprive the person in possession of any benefit conferred by section 53A of the 1882 Act. The proviso to section 49 of the Indian Registration Act clearly postulates that non-registration of such a contract would not prohibit the filing of a suit for specific performance based upon such an agreement or the leading of such an unregistered agreement into evidence.
12. A suit for specific performance based upon an unregistered agreement to sell accompanied by delivery of possession or executed in favour of a person who is already in possession, cannot, therefore, be said to be barred by section 17(1A) of the Registration Act, 1908.
13. Section 17(1A) merely declares that such an unregistered contract shall not be pressed into service for the purpose of section 53A of the Transfer of Property Act, 1882. Section 17(1A) of the Registration Act, 1908, does not, whether in specific terms or by necessary intent, prohibit the filing of a suit for specific performance based upon an unregistered agreement to sell, that records delivery of possession or is executed in favour of a person to whom possession is delivered and the ITA No.2414/Ahd/2013 proviso to section 49 of the Indian Registration Act, 1908, put paid to any argument to the contrary.
14. We, therefore, hold that :
(a) a suit for specific performance, based upon an unregistered contract/agreement to sell that contains a clause recording part per- formance of the contract by delivery of possession or has been executed with a person, who is already in possession shall not be dismissed for want of registration of the contract/agreement;
(b) the proviso to section 49 of the Registration Act, legitimises such a contract to the extent that, even though unregistered, it can form the basis of a suit for specific performance and be led 88 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 into evidence as proof of the agreement or part performance of a contract."
103. Thus, if SKIPL refused to honour the lease agreement the appellant has a right to get this agreement enforced by way of suit for specific performance. The validity of this agreement under general law viz. Specific Relief Act as well as Indian Registration Act has not been effected. This aspect has not been appreciated by the ld.AO and by the LD CIT (A) while holding that since the agreement is unregistered, therefore, they are non-genuine. We find support to our view from the following case laws:-
a) In G. Balakishtiah vs. B. Ranga Reddy AIR 1960 AP 112it was held that unregistered lease deed can be admissible in evidence for proving appellant's (who was owner of the land in dispute) title to the leased property.
b) Similarly in HemantaKumari Debi v. MidnapurZamindari Co. AIR 1919 PC 79, Privy Council had held that the admission of title in the unregistered lease deeds can be admissible as evidence.
c) More recently in ShibaniBasu v. Sandip Ray AIR 2011 SC 509 Supreme Court held that non-registration of a rent note did not debar use of a document that was to be compulsorily registered, for collateral purposes.
104. In view of the above discussion relating to the aspect that 89 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 whether unregistered lease deed can be admitted as an evidence we find that in view of the judgments referred above, the lease agreement dated 20.02.2009 between the assessee and SKIPL is valid documents and rightly acted upon by both the parties.
105. We also note that the assessee society is running around 26 educational institutions and imparting Education to thousands of students. Sport related activities is necessary for the overall development of the students, service for healthy mind good health is necessary. It is not in dispute that the said land is being used for such sports related activities. The alleged sum is duly recorded in the books of account. Even during the course of search the books made on computer were also impounded and the alleged amount was duly reflected in these books.
106. We also note that there is a violation of principles of nature justice as the assesse was denied the opportunity of cross examining those persons whose statements were used against the assessee. Ld. CIT(A) has himself mentioned in the impugned order at page 19 that " because of time barring issue, I am of the opinion that AO was not in position to afford opportunity of cross examination proceedings to 90 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 appellant before limitation. Ld. CIT(A) also held that "only fact that appellant did not have cross examination opportunity does not affect other facts/circumstances of the case". This shows that the assessee's request on 12.05.2014 demanding cross examination of the said farmers was denied by the Ld. AO and this action in itself leave no room for the Ld. AO to make addition in the hands of assessee. We find support from various judgments including that of Hon'ble Apex Court in the case of Andman Timber Industries v. CCE (2015) 281 CIR 241 (SC).
107. We, therefore, in the given facts and circumstances of the case and factual matrix and the judicial precedents are of the considered view that the alleged sum of Rs.1,99,21,499/- has been rightly and legally utilized for the attainment of the objects of the society and has been spent for the development of land in the sports activities and other land development in the interest of the students studying at the educational institutions run by the assessee society duly supported by legal term and conditions provided in lease deed dated 20.04.2009.
108. In our considered view Ld. AO erred in making the addition for Rs.1,99,21,499/- treating it as an amount given for the benefit of 91 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 members of the society and also erred in holding that the assesse had violated the provision of section 13(1)(c) r.w.s. 13(2)(a) and section 13(1)(d) of the Act. Thus, this issue raised on quantum addition raised in ground no.2 of assessee's appeal for A.Y. 2009-10 is allowed.
109. Now coming to legal issue raised by assessee in ground no.1 for A.Y. 2009-10 & 2010-11 challenging the finding of both lower authorities denying the benefit of exemption from tax of total income of the society u/s 10(23C)(vi) of the Act, claimed by it in return of income as it exists solely for carrying educational activities and not for the purpose of profit.
110. We notice that for the relevant Assessment year i.e. 2009-10 the Appellant society was granted exemption certificate under sub clause
(vi) of clause (23C) of Section 10 the Income Tax Act, 1961 vide order dated 24/03/2009 passed by chief Commissioner of Income Tax, Bhopal Department of Revenue Ministry of Finance. That as per order dated 24/03/2009 the Appellant was accorded approval to "Ayushmati Education & Social Society, Bhopal" for the Purpose of the said sub clause (Section 10 (23C) (vi) of the Act) for A.Y 2009-10 and for subsequent years, subject to certain conditions to be fulfilled 92 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 by the assessee-society.
111. We also note that at the time of filing of return of income the Appellant had specifically mentioned the factum of availability of such exemption in its return of income and thereof in view of exemption been granted u/ s 10(23C)(vi) there can't be any income of the appellant trust which is liable to tax. However the LD AO without appreciating the submission of Appellant and without adjudicating this issue denied the benefits of the aforesaid exemption on the ground that Appellant is not eligible for benefits of Section 11 or Section 10 (23c) (vi) at the same time and simultaneously benefits cannot be granted under both section 11 and u/s 10 (23c) and further the object of society can't be held as solely for education purpose for the A.Y 2009-10 & 2011-12. The extract of relevant finding of LD Assessing office in Assessment order is re-produced as under :-----
B) the CCIT, Bhopal accorded approval for exemption u/s 10 (23C) (vi) for A.Y 2009-10 and for subsequent years. However as per discussion made in this assessment order revels that Applicant society exists for the purposes of profit & fund of the society was grossly misutilized for family concerns of the office bearer. Therefore, the object of society can't be held as solely for education purpose for the A.Y 2009-10 and for subsequent year.
112. When the matter came up before LD CIT (A) he also confirmed the action of Ld. AO stating that "In view of the aforesaid points 93 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 mentioned in the preceding para, I am of the view that Appellate proceedings should be concluded on the basis of exemption claimed u/s 11 by the Appellant for all the assessment years 2004-05 to 2010- 11, in respect of which a composite assessment order has been passed by AO. However, benefits of exemption u/s 11 and u/s 10 (23C) (vi) of the Act cannot be claimed simultaneously."
113. We however on perusal of proviso to section 143(3) of the Act find that the LD AO is not empowered to deny the benefits of Section 10 (23C) (vi) once it is granted as per the procedure prescribed under the statue. The LD AO is bound by law to give effect to the exemption order passed under Section 10 (23C) (vi) of the Act. Further if the LD AO at the time of assessment proceedings was of opinion that Appellant society has contravene with object of society for making profit or the main object and the purpose of the society was not imparting education for which such certificate is issued, then in such circumstances the LD AO has to follow the procedure prescribed under 1st Proviso to Section 143 (3) of the Act.
(3) 88[On the day specified in the notice issued under] sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the 94 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 sum payable by him or refund of any amount due to him on the basis of such assessment:
Provided that in the case of a--
(a) research association referred to in clause (21) of section 10;
(b) news agency referred to in clause (22B) of section 10;
(c) association or institution referred to in clause (23A) of section 10;
(d) institution referred to in clause (23B) of section 10;
(e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) of clause (23C) of section 10, which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10, unless--
(i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause
(v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, by such research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place; and
(ii) the approval granted to such research association or other association or fund or trust or institution or university or other educational institution or hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded :
Provided further xxxxxxxxxxxxxxxxxxxxxxxxx
114. That as per proviso to Section 143(3) it is evident no order making an assessment shall be made by the Assessing Officer without giving effect to the provisions of Section10 unless the Assessing Officer has intimated the Central Government or the prescribed authority, the contravention of the provisions of clause (23C) 95 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 of Section10. Only after such approval granted has been withdrawn, he can proceed to pass an order, denying the benefit of exemption on the ground of contravention.
115. In light of above, we find that in the instant case the Ld. Assessing officer without giving intimation or recommendation to the Central Government or the prescribed authority to withdraw the order under Section 10 (23C) (vi) of the Act issued to Appellant, has directly denied the benefits of Section 10 (23C) (vi) of the Act in the assessment proceeding, and this finding of Ld. AO is in contravention to 1st Proviso to Section 143 (3) of the Act.
116. Reliance is placed on the case of Commissioner of Income-tax, Central Circle, Bangalore v. Peoples Education Society [2014] 42 taxmann.com 353 (Karnataka) [2014] 42 taxmann.com 353 (Karnataka) wherein Hon'ble High Court held that :--
7. From the aforesaid facts, it is not in dispute that the assessee is a charitable society running an educational institution. The DIT (Exemption) registered the assessee-society under Section 12AA of the Act on 5.5.2003.
By an order dated 12.5.2004, the Central Board of Direct Taxes accorded approval to the assessee-society for the purpose of Section10(23C)(vi) of the Act, subject to certain conditions to be fulfilled by the assessee-society. The assessee had filed its return on 21.9.1993 before grant of such approval and exemption. The proceedings under Section 147 was initiated on 10.4.2003 and notice under Section 148 was issued on 11.9.2003 and the re-assessment order is passed on 28.3.2005, holding that the assessee has 96 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 not complied with the conditions imposed by C.B.D.T. and therefore, he is not entitled to the exemption.
8. The proviso to Section 143(3) was inserted by way of Finance Act, 2002 w.e.f. 1.4.2003. The said provision reads as under:
"Provided that in the case of a-
(a) to (d)* ** **
(e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or medical institution referred to in sub-clause (vii) of clause (23C) of Section10, which is required to furnish the return of income under sub-section 4(C) of section 139, no order making an assessment of the total income or loss of such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or any other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of Section10 unless -
(i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-
clause (v) or sub-clause (vi) or sub-clause (via) or clause (23C) of section10 as the case may be, by such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place, and
(ii) the approval granted to such scientific research association or other association or institution or university or other educational institution or hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded)".
The aforesaid provision makes it clear that no order making an assessment shall be made by the Assessing Officer without giving effect to the provisions of Section10 unless the Assessing Officer has intimated the Central Government or the prescribed authority, the contravention of the provisions of clause (23C) of Section10. Only after such approval granted has been withdrawn, he can proceed to pass an order, denying the benefit of exemption on the ground of contravention. Having regard to the language employed, the said provision is mandatory. Without complying with the requirement of the said provision, the Assessing Authority gets no jurisdiction to re-open the assessment made. That is what the Tribunal has held and therefore, the said finding is in accordance with law and do not suffer from any legal infirmity, which calls for interference. 97
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117. We further observe that in view of settled judicial precedence assessee society is not required to fulfill the conditions mentioned under Section 11 of the Act while claiming exemption under Section 10(23C) (vi) of the Act.
118. Reliance is placed case of Commissioner of Income-tax v. Jeevan Deep Charitable Trust [2012] 28 taxmann.com 242 (All.) Hon'ble High Court held that "in our considered opinion, exemption under Section10(23C)(vi) of the Act can be claimed by an assessee without applying for registration under Section 12A of the Act as it is not required to fulfill the conditions mentioned under Section11 of the Act while claiming exemption under Section10(23C) (vi) of the Act. Further in the order passed by the Commissioner of Income Tax, there is no whisper that the assessee has not fulfilled any of the conditions of the Section11 of the Act for claiming it to be a charitable institution. He had solely relied on the order of the Chief Commissioner of Income Tax passed under Section10(23C) (vi) of the Act while denying the exemption under the aforesaid sub-section. We are, therefore, of the considered opinion that the Tribunal had rightly restored the registration on the ground that in the Assessment Years 2004-05 and 98 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 2006-07 benefit of exemption/deduction under Section11 of the Act was allowed to the respondent-assessee."
119. Further Section 10(23C) does not prescribe any stipulation which makes registration u/s 12AA a mandatory condition. The provisions of section 11 and 10(23C) are two parallel regimes and operate independently in their respective realms. Thus For claiming exemption under section 11, it is not necessary that the conditions u/s 10(23)(vi) must be fulfilled. Our view is supported by following:
a) In Commissioner Of Income tax Vs. Mahasabha Gurukul Vidyapeeth Haryana (2010) 326 ITR 25 (Pun), it was held that Exemption under s. 11 was allowable to the assessee society running an educational institution which was registered under s. 12A, once it is held that all requisite conditions for exemption under s. 11 have been met, even if conditions under s. 10(23C)(vi) have not been complied with, there will be no bar to seek exemption under s. 11.
a) Conversely, while claiming the exemption u/s 10(23)(vi), it is not required to fulfill the conditions mentioned u/s 11 as also exemption u/s 10(23)(vi). Exemption u/s 10(23)(vi) can be claimed by the assessee without applying for registration us 12A. See Commissioner Of Income tax and Another Vs. Society Of Advanced Management Studies (2013) 352 ITR 269 (All) wherein it has been held that Exemption u/s 10(23C)(vi) of the Act can be claimed by an assessee without applying for registration u/s 12A of the Act as it is not required to fulfil the conditions mentioned u/s 11 of the Act while claiming exemption u/s 10(23C) (vi) of the Act.
120. Further as regarding the issue that whether prior to Finance Act 2020 the assessee society can claim exemption both u/s 10(23C)(vi) and section 11 Simultaneously. We find that LD AO and CIT (A) were not justified in reaching a finding that for the year under 99 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 consideration the benefit under section 11 and u/s 10 (23c) (vi) cannot be claimed simultaneously without appreciating the fact that the amendment for taking benefit either under section 11 or u/s 10 (23c) was introduced only by Finance (No.2) Act, 2020 r/w (Circular No.1/2020, dated: 27.03.2020) and thus prior to 2020 the appellant could claim exemption both u/s 10(23C)(vi) and section 11. That as per Finance (No.2) Act, 2020 the amendment was to section 11 of the Act which provides that if the institution is registered for exemption U/s. 11 etc. as well as approved U/s. 10(23C) / notified U/s. 10(46) then the above registration shall became inoperative from the date of coming in to force of the amendment.
121. The relevant amendment in sub-section (7) of Section 11, with effect the 1st day of June, 2020--is re-produced as under :-
(7) Where a trust or an institution has been granted registration 62[under section 12AA or section 12AB] or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and the said registration is in force for any previous year, then, nothing contained in section 10 [other than 63[clause (1), clause (23C) and clause (46)] thereof] shall operate to exclude any income derived from the property held under trust from the total income of the person in receipt thereof for that previous year:] [Provided that such registration shall become inoperative from the date on which the trust or institution is approved under clause (23C) of section 10 or is notified under clause (46) of the said section, as the case may be, or the date on which this proviso has come into force, whichever is later:100
RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 Provided further that the trust or institution, whose registration has become inoperative under the first proviso, may apply to get its registration operative 65[under section 12AA] 66[or section 12AB] subject to the condition that on doing so, the approval under clause (23C) of section 10 or notification under clause (46) of the said section, as the case may be, to such trust or institution shall cease to have any effect from the date on which the said registration becomes operative and thereafter, it shall not be entitled to exemption under the respective clauses.]
122. In light of above amendment that only from finance Act, 2020 simultaneous Registration For Exemption under Section 11 etc and Approval For Section 10(23C) Exemption is Not Permissible and prior to this the Assessee can claim exemption under both section as there was no bar from claiming exemption under both provision and further there was no condition prior to amendment introduced by finance Act 2020 to claim exemption under either of the two.
123. Thus In light of above we hold that learned CIT (Appeals) failed to appreciate that the income of Appellant society for the year under consideration was exempt u/s 10 (23C) (vi) of the Income tax Act, 1961 and the appellant had specifically mentioned the factum of availability of such exemption in its return of income and has also made submission before the Ld assessing officer regarding exemption u/s 10(23C)(vi). Thus, Ld CIT (A) and LD AO failed to take into consideration that after giving effect to exemption under Provisions of section 10(23C)(vi) there cannot be any income of the appellant trust 101 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 which can be charged to tax. In view of exemption been already granted u/ s 10(23C)(vi) there can't be any income of the appellant trust which is liable to tax even ignoring the Provisions of section 11 of the Act. Therefore, even if the benefits of section 11 is denied than too there can be no income of the appel1ant trust on which tax can be collected from it in view of the provisions of section 10(23C)(vi) of the Act considering the approval granted to the appellant trust. Therefore, after giving effect to exemption under provisions of section 10(23C)(vi) there cannot be any income of the appellant trust which can be charged to tax as the total income of the Appellant society is exempted and hence the addition of Rs 1,99,21,499/ sustained by the Ld CIT (A) is uncalled for and the same is set aside. Common ground no.1 raised by the assessee for A.Y. 2009-10 & 2010-11 is allowed.
124. In the result, appeals of the assessee for A.Y. 2009-10 & 2010- 11 are allowed.
Now we take the Revenue's appeal for A.Y. 2009-10 & 2010-11
125. The first common issue raised relates to addition of notional interest on the amount advanced to Homebound Travel Pvt. Ltd. (HTPL). This issue has been raised by the revenue in ground no.4 of appeal for A.Y. 2009-10 & 2010-11 102 RKDF Education Society & Anr.
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126. Facts in brief relating to this issue are that the assessee company needs school buses its various educational institutions and for the same it takes services from 'HTPL'. Ld. AO observed that in the instant years under appeal apart from the payment for business hire charges other sum has also been advanced for which no interest has been charged. Ld. AO also observed that 'HTPL' is run by Smt. Sadhana Kapoor who is director of this company and also member in the assessee society. Ld. AO was of the view that since 'HTPL' is sister concern of the assessee society. Benefit has been given by giving interest free loan, thus, falls under the provision of section 13, Ld. AO accordingly made the addition for notional interest at Rs.25,83,030/- & Rs.9,39,890/- for A.Y. 2009-10 & 2010-11 respectively.
127. Ld. DR relied on the submissions made before Ld.AO and Ld. Sr. counsel for the assessee relied on the finding of Ld. CIT(A) and also submitted that the interest was duly charged and recorded in the books of account on the amount advanced to Homebound Travel Pvt. Ltd.
128. We have heard rival contentions and perused the records placed before us and carefully gone through the submission. Deletion of notional interest by Ld. CIT(A) calculated by the Ld. AO on the 103 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 amount advance to HTPL is in challenge before us. On perusal of the ledger account of 'HTPL' in the books of assessee society we observe that interest has been charged at Rs.26,90,656/- and Rs.9,50,000/- for A.Y. 2009-10 & 2010-11 respectively on the amount advanced to HTPL. This fact remains un-rebutted by the Ld. DR. Therefore, in our considered view Ld. AO failed to appreciate the facts of the case properly and therefore no interference is called for in the following finding of Ld. CIT(A) deleting the impugned addition:
16. These grounds have been raised by the appellant against the additions of Rs. 25,83,030/- in A.Y. 2009-10 and Rs. 9,39,890/-
in A.Y. 2010-11 as benefit of interest passed on to M/s. Homebound Travels Pvt. Ltd. The A.O. has stated in the assessment order that the appellant gave interest free unsecured loan to M/s. HomebO'\.mo Travels Pvt. Ltd. (herein after called HTPL). The A.O. found that Smt. Sadhna Kapoor, a member of the appellant society was director in the HTPL holding more than 20% shares. During assessment proceedings, the A.O. noticed that closing. debit balance of HTPL in the books of appellant society as on 31.03.2009 and 31.03.2010 was Rs. 2,15,25,251/- and Rs. 78,32,406/respectively. Therefore, the ·A.O. applied notional interest rate 12% on closing balance and made additions accordingly.
16.1 During appellate proceedings, the appellant has submitted the advance amount was not interest free but was interest bearing and interest of Rs. 26;90,656/- was charged from HTPL in A.Y. 2009-10 and Rs. 9,50,000/- in A.Y. 2010-11. The appellant has produced copy of ledger account of HTPL in the books of the appellant for F.Y. 2008-09 & F.Y. 2009-10. In these ledgers, appellant has debited interest on loan amounting to Rs.26,90,656/- on 31.03.2009 and Rs. 9,50,000/- on 31.03.2010. Appellant has also produced ledger of 'interest on term loan' in the books of HTPL for these two F.Ys. As per these ledgers, HTPL has debited sum of Rs. 26,90,656/- on 31.03.2009 and credited the appellant society for the same amount. Similarly, HTPL debited Rs. 9,50,000/- on 31.03.2010 crediting appellant society for the same amount on 31.03.2010. 104
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IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 Appellant has also produced audit reports including P&L account and Balance Sheet of HTPL for F.Y. 2008- 09 & 2009-10. On perusal of these audit reports, it is noticed that HTPL has debited Rs. 34,65,685/- as interest on term loan in F.Y. 2008-09 and Rs. 12,53,857/- in F.Y. 2009-10 which are cross verified with the ledgers of 'interest of term loan' in the books of HTPL. Appellant"
society has produced ledgers of indirect incomes, interest of FDR and interest of loan in its books of F.Y. 2008-09 & 2009-10. According' to these ledgers, the indirect incomes of appellant society is Rs. 2,14,19,349.73/- in F.Y. 2008-09 which includes interest on loan which has Rs. 26,90,656/- from HTPL. During F.Y. 2009-10 indirect incomes ofthe appellant is amounted to Rs. 4,34,65,056.49/- which includes interest on loan Rs. 9,50,000/- from HTPL. The figures of indirect incomes in the ledgers produced by the appellant society are matched with the figures of income shown in the P&L account in audit reports of appellant for the relevant years. Appellant has also produced copies of ledgers of HTPL in its books of account; the relevant figures of charging of interest may also be cross verified with these documents. 16.2 On perusal of all the copies of ledgers produced by appellant and the audit reports of appellant & HTPL, it is clear that the term loan provided by appellant to HTPL in F.Y. 2008-09 & 2009-10 was not interest free and -appellant has charged interest on these term loan given to HTPL. The AO charged notional interest @ 12% and added Rs. 25,83,030/- in A.Y. 2009- 10 and Rs. 9,39,890/- in A.Y. 2010-11 respectively whereas the appellant has charged interest of Rs. 26,90,656/L in F.Y. 2008- 09 & Rs. 9,50,000/- F.Y. 2009-10 respectively; Therefore, the additions of Rs. 25,83,030/- in A.Y. 2009-10 and Rs. 9,39,890/- in A.Y. 2010-11 are hereby deleted. Consequently , these grounds of appeal are allowed.
129. In the result this common issue raised by revenue in ground no.4 in appeal for A.Y. 2009-10 & 2010-11 stands dismissed.
130. Now we take up the next common issue raised in ground no.1 for A.Y. 2009-10 & 2010-11 challenging the finding of Ld. CIT(A) allowing the benefit u/s 11 of the Act.105
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131. We observe that the Ld. AO on the basis of his examination of the issues made certain disallowance and additions concluded that the assessee society has applied some of its fund for the benefit of officer bearers/members/relative and violated the provisions of Section.13 of the Act and therefore the assessee society is not eligible to claim exemption u/s 11 of the Act. It is noteworthy that while denying this exemption u/s 11 except for the additions/disallowances made in the assessment order. Ld. AO has not referred to any other instance which could show or prove that the assessee society is not working solely for the purpose of imparting education to students in various streams [which in itself is a charitable activity provided in Section.2(15) of the Act].
132. When the matter came up before the Ld. CIT(A), he based on order issued by CBDT No.387 dated 06.07.1984 and other settled judicial precedents came to conclusion that the benefit of exemption u/s 11 or 12 of the Act should be denied only on the addition/advances made for violation of provision of section 13 of the Act or any others 106 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 provisions of the Act but not on the remaining income of the society undisputedly earned from carrying out charitable activity u/s 2(15) of the Act.
133. In the proceedings before this tribunal Ld. DR supported the order of the Ld. AO whereas Ld. Sr. counsel for the assessee relied on the finding of Ld. CIT(A) and it was also submitted that the assessee was granted approval u/s 10(23C)(vi) of the Act from A.Y. 2009-10 onwards and therefore, the total income already stands exempted, since Ld. AO failed to comply to the 1st proviso to section 143(3) of the Act before denying the exemption u/s 10(23C)(vi) of the Act. Reference was also made to the written submissions filed before us.
134. We note that this very issue came up before us in the case of RKDF Education Society which has been dealt by us in the preceding paras and the finding of Ld. CIT(A) was confirmed. In the instant case also the facts and issue remains the same. We note that some addition and disallowance were made by the Ld. AO showing that the 107 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 assessee has utilized funds of the society for the benefit of its member and was thus hit by section 13 of the Act. After dealing with these issues in the preceding paras the impugned addition have already been deleted and one of the remaining addition of Rs.15,00,000/- made for A.Y. 2008-09 for the payment made to Mr. Anees Khan, though Ld. CIT(A) has deleted the addition for the year in which the addition was made but had confirmed the same for A.Y. 2007-08. We, however, note that similar type of payment to Shri Anees Khan was also made in the case of RKDF Education Society wherein we have given a finding that Shri Anees Khan is a contractor and does construction work on behalf of society. Regular transaction have taken place round the year and invoices were regularly raised for which payments are made through banking channel and tax deducted at source. Though this issue addition of Rs.15,00,000/- is not before us by the assessee since it was directed by Ld. CIT(A) to be taxed in A.Y. 2007-08.
However since no incriminating material was found with regard to this addition and the assessment for A.Y. 2007- 108 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 08 is a non-abated assessment, thus no addition was called for by the Ld. AO towards the payment of Rs.15, lacs to Anees Khan in view of the judgment of Hon'ble High Court in the case of Kabul Chawla(supra).
135. In this way all the additions/ disallowances which were the foundation of the action of the Ld. Assessing Officer denying benefit u/s 11 of the Act has already been held to be unjustified/deleted by us on the basis of facts of the case as observed in the preceding paras. Accordingly there is no hurdle left for the assessee to claim the benefit of exemption u/s 11 of the Act. Even otherwise for A.Y. 2009-10 & 2010-11 as held by us in the preceding paras while dealing with assessee appeal that it is eligible for exemption of income earned during the year from educational work as it has necessary approval u/s 10(23C)(vi) of the Act.
136. Now though we have already decided that the assessee is eligible for benefit of exemption of total income earned during the year under section 11 & section 10(23C)(vi) of the Act but still for academic purpose we deal 109 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 this issue raised by revenue in ground no.1 of appeal for A.Y. 2009-10 & 2010-11, that in case any additions/disallowances were made the benefit for exemption u/s 11 should not be denied for the remaining income which is not in dispute. In this context and in view of our finding made in the preceding paras while dealing with the issue in case of RKDF Education Society that Ld. CIT(A) has rightly dealt with this issue by placing reliance by circular issued on CBDT No.387 dated 06.07.1984 and other settled judicial precedents, we find that Ld. CIT(A) has given the similar finding in the case of assessee society namely AESS as was given in the case of RKDF Education Society. Since we have confirmed the finding of Ld. CIT(A) in the case of RKDF Education Society and the facts and issues remains the same in the case of AESS also which has not been disputed by Ld. DR, we thus taking a consistent view confirm the finding of Ld. CIT(A) in the instant appeal also and dismiss common ground no.1 raised by the Revenue for A.Y. 2009-10 & 2010-11.
137. Now we take up ground no.2 of revenue appeal 110 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 wherein allowing of deduction u/s 11(1)(a) (15 % of the gross receipts) by Ld. CIT(A) is in challenge. We note that Ld. AO while denying the benefit of section 11 of the Act did not allow this claim of deduction of 15% of gross receipts. Since we have already decided that assessee is eligible to claim exemption u/s 11 & section 10(23C)(vi) of the Act and have also deleted the addition/disallowance made by the Ld. AO, this issue raised by the revenue becomes infructuous and therefore, following the finding of Ld. CIT(A) needs to be confirmed.
17. These grounds are raised against not allowing the deduction of Rs. 8,27,57,688/- in A.Y. 2009-10 and Rs. 7,83,19,820/- in A.Y. 2010-11 as application of income u/s 11(I)(a) of the Act (15% of the gross receipts in the relevant financial year). 17.1 Appellant in the return of income/ computation of income claimed the deduction of similar amounts as application of income @ 15% of gross receipts u/s 11(I)(a) of the Act. In the assessment order, the A. o. has stated: nothing about this deduction. On perusal of the tables prepared in the assessment order while concluding the assessment order for determination of the total income, the A.O. has not deducted the said amounts. For A.Y. 2009-10 & A.Y. 2010-11, the AO denied the exemption u/s11 of the Act to the appellant and therefore, added the excess of income over expenditure (gross receipts less revenue expenses) i.e. Rs. 34,07,25,659/- (Rs. 55,17,17,918/- less Rs. 21,09,92,259/-) in A.Y. 2009-10 and Rs. 20,35,53,275/- (Rs. 52,21,32,132/- less Rs. 31,85,78,857/-) in A.Y. 2010-11. Since A.O. disallowed exemption ix] s 11 to the appellant, deduction on the amount of application of money ii] s 11 (l)(a) was .not allowed.
17.2 Certain grounds raised by appellant during appellate proceedings have been allowed in the preceding paras which have effect of allowing exemption u/ s 11 of the Act to the appellant and accordingly additions made by AO bringing 111 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 whole excess of income over expenditure have been deleted. Therefore, appellant is also entitled for deduction u/s 11(1)(a) in respect of application of income. Hence, these grounds of appeal are allowed.
138. Accordingly common ground no.2 raised by the revenue for A.Y. 2009-10 & 2010-11 is dismissed.
139. As regard common ground no. 3 raised by Revenue for A.Y. 2009-10 & 2010-11 challenging the finding of Ld. CIT(A) allowing deduction for capital expenditure for both the years, we observe that in view of our finding that Ld. AO grossly erred in giving benefit of exemption u/s 11 & section 10(23C)(vi) of the Act held by us, ground of revenue also becomes infructuous as a society which is registered u/s 12AA of the Act is eligible to claim deduction of capital expenditure incurred during the year for the purpose of objects for which it is registered as an application of income.
140. Similar issue came before us in the case of RKDF Education Society and decided by us in the preceding paras confirming the view taken by Ld. CIT(A). Since the issue remains the same following finding of Ld. CIT(A) 112 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 needs no interference:-
18. These grounds are raised against not allowing the deduction of Rs. 11,19,28,121/- in A.Y. 2009-10 and Rs. 17,41,75,826/- in A. Y. 2010-11 as application of income as capital expenditure. 18.1 Appellant in the return of income/computation of income claimed the deduction of similar amounts as application of income as capital expenditure. In the assessment order, the A. O. has, stated nothing about this deduction. On perusal of the tables prepared in the assessment order while concluding the assessment order for determination of the total income, the A. O. has not deducted the said amounts. For A.Y. 2009-10 & A.Y. 2010-11, the AO denied the exemption u/s 11 of the Act to the appellant and therefore, added the excess of income over expenditure (gross receipts less revenue expenses) i.e. Rs.
34,07,25,659/- (Rs. 55,17,17,918/- less Rs. 21,09,92,259/-) in A.Y. 2009-10 and Rs. 20,35,53,275/- (Rs. 52,21,32,132/- less Rs. 31,85,78,857/-) in A.Y. 2010-11. It is, therefore clear, that while ascertaining the amount of excess of income over expenditure, AO'did not consider the capital expenditure incurred by appellant.
18.2 Certain grounds raised by appellant during appellate proceedings have been allowed in the preceding paras which have effect of allowing exemption vi] s 11 of the Act to the appellant and accordingly additions made by AO bringing whole excess of income over expenditure have been deleted. Therefore, appellant is also entitled for deduction in respect of application of income for capital expenditure. Hence, these grounds of appeal are allowed.
141. In view of the above this common ground no.3 raised by the Revenue stands dismissed.
142. In the result, appeals filed by the assessee in case of RKDF Education Society in IT(SS)A NO.69 to 73/Ind/2019 & Ayushmati Education & Social Society in IT(SS) A No.74 to 76/Ind/2019 are 113 RKDF Education Society & Anr.
IT(SS) A No.69 to 76 & 126 to 130/Ind/2019 allowed and appeals by the revenue in IT(SS)ANo.126 to 128/Ind/2019 & IT(SS)A No.129 to 130/Ind/2019 are dismissed.
Order was pronounced as per Rule 34 of the I.T.A.T. Rules 1963 on 28.07.2021 Sd/- Sd/-
(MADHUMITA ROY) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
दनांक /Dated : 28.07..2021
Patel/PS
Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.
By Order, Asstt.Registrar, I.T.A.T., Indore 114