Diversion of income under Section 13 denies trust exemption while reconciliation of contractual receipts restored for tax purposes.

Reconciliation of contractual receipts shown net of GST against Form 26AS was accepted, leading to deletion of an addition for short-declared receipts and restoration of the assessee's claim on that head. Separately, an interest-free advance to a trustee was treated as conferring benefit on a specified person and therefore as diversion/application of income, resulting in denial of exemption to that extent under the trust-exemption provisions. Outcome: reconciliation-based deletion upheld for the assessee; application of the anti-diversion principle to the trustee advance upheld for the Revenue, producing a mixed result.

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Issues: (i) Whether the addition of Rs. 2,19,43,348/- made on account of short declaration of contractual receipts (difference between books and Form 26AS) was correctly deleted; (ii) Whether the interest free advance of Rs. 9,00,000/- to a trustee invoked Sections 13(1)(c) and 13(1)(d) leading to denial of exemption under Section 11(1).

Issue (i): Whether the difference between receipts shown in books and receipts as per Form 26AS justified an addition.

Analysis: The difference was reconciled on account of turnover being shown net of GST and supporting reconciliation was placed on record and accepted by the appellate authority.

Conclusion: The deletion of the addition of Rs. 2,19,43,348/- is upheld in favour of the assessee.

Issue (ii): Whether the interest free advance to a trustee amounted to diversion or application of income in favour of a specified person under Sections 13(1)(c) and 13(1)(d), thereby disentitling the trust from exemption under Section 11(1).

Analysis: The trust carried out contract work of a commercial nature as principal activity and received running account receipts from persons specified under Section 13; the trustee received interest free advances which were not shown as reasonable remuneration for services and were treated as benefiting a specified person as contemplated by Section 13. The appellate authority's acceptance of records and finding on the nature of activities and trustee transactions were relied upon to determine applicability of Section 13.

Conclusion: The invocation of Sections 13(1)(c) and 13(1)(d) in respect of the interest free advance of Rs. 9,00,000/- is upheld against the assessee and the denial of exemption under Section 11(1) is sustained to that extent (in favour of the Revenue).

Final Conclusion: The appeals are disposed of by upholding the appellate authority's reconciliation based deletion of the contractual receipts addition and by confirming the application of Section 13 to the trustee advance, resulting in a mixed outcome with parts allowed for the assessee and parts upheld for the Revenue.

Ratio Decidendi: Contract receipts from work contracts not incidental to charitable objects do not attract exemption under Section 11, and transfers or advances conferring benefit on specified persons fall within Section 13 and disentitle the trust to exemption.

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