TaxTMI 
TaxTMI 
2013 (2) TMI 482
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....seizure action u/s.132 was conducted on 20-07-2005 in the case of Dr. D.Y. Patil Group. The assessee being one of this group was covered under survey action u/s.133A of the Income Tax Act, 1961. On the basis of the documents seized/impounded during the course of search/survey and the enquiries conducted later on, it was concluded by the CIT(C), Pune vide his order dt. 30-11-2007 that activities of the Trust are neither genuine nor are being carried out in accordance with the objects of the Trust. The CIT(C), Pune therefore for the various reasons mentioned in his order cancelled the registration of the assessee u/s.12AA(3) of the Income Tax Act, 1961. 3. Without prejudice to the order of cancellation of the registration u/s.12AA(3) the AO noted that even otherwise also the assessee is required to be assessed like any other assessee and is not entitled to the benefit of section 11 and 12 because it is hit by section 13. The AO discussed provisions of section 13 and observed that the Income-tax Act bestows special privilege on the assessee if it is a Trust, which is recognized by the provisions of the Income-tax Act under section 12A. For enjoying the privilege under section 12A, ....
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....f the concerned trustees. C) The donations given by the trust are only to the charitable institutions. It is submitted that all these trusts are in the field of spreading aadhyatmik, philosophical and Yoga studies etc. It is from that angle, the trust has considered it proper to give donations to these trusts as the above activities also form part of educational activities. In view of above, we submit that the donations given to the various trusts are on objects of the trust. 3.2 However, the AO was not satisfied with the explanation given by the assessee. According to him as per provisions of section 37(1) for allowability of any expense, it should be incurred wholly and exclusively for the purpose of the business. He observed from the details so mentioned in annexure XII of the audit report, that advertisement expenses are incurred on the birthdays of the trustees. These advertisement expenses on birthdays of trustees are for the purpose of image building of the trustees and their personal benefit and in no way can be considered for being incurred for the objects of the Trust. The same is nowhere mentioned in the....
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.... it was found that flat no. G1, G2 and F8 are not being used as a guest house of the Trust as claimed by the assessee and in fact it is being used only by Dr. D Y Patil when he comes to Pune. However, the expenses are being borne by the assessee Trust. The AO therefore asked the assessee to explain as to why provisions of section 13(1)(c) should not be applied to its case and why the expenses should not be disallowed. In response, assessee vide its letter dated 05/07/2008 submitted as under: Flat no. 8 is being used by the caretakers and servants of the trust. Flat No. G-1 and G-2 are being used as a guest house for the valued guests and dignitaries. And also used by the new recruits for their temporary stay till they make their long-term arrangements. Please note that, Flat No. G-1 and G-2 have a common kitchen. The dinner set is kept in kitchen. Please note that, above flats are not utilized by Dr. D Y Patil. These flats are also used for the meeting purpose of the institutions run by our trust. So we hereby submit that these flats are exclusively used for the object of the trust. So we pray that, the provision of section 13(1)(c) sho....
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....st and that the same was not excessive or unreasonable. Assessee was also requested to explain as to why the provisions of section 13(1)(c) should not be applied to its case for the assessment year under consideration without prejudice to cancellation of registration under section l2AA(3) of the Income-tax Act, 1961. In response, assessee vide letter dated 30/06/2008 submitted the justification of remuneration/telephone charges/car charges/ electricity charges paid to the trustees and their relatives on the basis of their educational qualification and experience. However, the AO rejected the contention of the assessee for the following reasons : i) Assessee, despite being specifically asked to furnish minutes book of the meeting of the Board of Directors, has failed to furnish the same. The minutes book should have been instantly available if those have been maintained. ii) That the assessee is paying unreasonable money to the trustees and their relatives is also evident from the so called justification furnished by the assessee. For e.g. in case of Smt. Bhagyashree Patil, though she is just....
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....)(c) applies to the assessee's case. IV. EXPENSES ON CAR, ITS REPAIRS AND MAINTENANCE : 3.11 The AO noted that during the course of search it was noticed that assessee has purchased a Mercedes car by taking a loan of Rs.27 lakhs. During the course of assessment proceedings on being questioned by the AO it was stated by the assessee that the car is exclusively used for the purpose of VIP guests of the Trust and thus, expenditure is made for the objects of the Trust. The figures given by the assessee during the course of the assessment proceedings are as under: F.Y. Rs. 2000-01 69721.94 2001-02 142502.94 2002-03 163774.17 2003-04 281146.62 2004-05 254942.50 3.12 The AO specifically asked the assessee to explain as to how the above expenses incurred on maintenance of the Mercedes car are for objects of the Trust and not for the personal benefits of the trustees. He noted that the CIT(C) Pune, in his order of cancellation of registration under section l2AA(3) has remarked that mere look at the figures would show that car is not being used for the purpose of VIP guests but is being used....
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..../11/2007, the appointed auditor was directed to treat all the receipts including donations in the balance sheet of the assessee whether shown under corpus fund or any other fund as revenue receipts in income and expenditure account. He noted that the total receipts including donations to the extent of Rs.9,25,22,312/- were required to be credited to the income and expenditure account of the assessee for the year under consideration. The AO asked the assessee to explain as to why the same should not be considered as assessee's income for the year under consideration. The assessee submitted details explaining why the same should not be treated as income. However, the AO rejected the explanation of the assessee on the ground that whether the money is received in the form of fee or in the form of donation, it is practically the same thing. Instead of crediting the same to the fee account, assessee has named it as 'development fee'. According to the AO just by changing the name of the money received, the donations cannot be treated as capital receipts and these have to be treated as revenue receipts only. He noted that Shri Sanjay D. Patil, trustee of the Trust in his statement recorded....
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....see to explain as to why the same should not be disallowed, being capital in nature as per the provisions of the Income Tax Act, 1961. In response to the same, the assessee vide letter dated 30/06/2008 submitted its explanation. However, the AO rejected the contention of the assessee by holding as under : "The contention of the assessee is not acceptable fully. First the assessee stated in its submission dated 08/06/2008 that as the capital expenditure should also be considered as application of income for the purpose of section 11 of the Act, therefore, all the capital expenditure debited to income and expenditure account be allowed to the assessee. In this regard, it is reiterated that registration of the assessee under section 12A has been withdrawn and so its income has to be computed by applying the normal provisions of the Income-tax Act, 1961 under Chapter IV. An analysis of section 37(1) of the Income-tax Act, 1961 shows that any expenditure not being in the nature of capital expenditure wholly and exclusively used for the purpose of business or profession shall be allowed in computing the income chargeable under the heads 'Prof....
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....ESI. IX. PENALTY/FINE PAID : 3.18 The AO observed from annexure V at page no. 64 of the audit report under section 142(2A) that penalty/fine paid to the extent of Rs.1,24,860/- was debited by the assessee to the profit and loss account. The AO asked the assessee to explain as to why the same should not be disallowed as per provisions of section 37(1) of the Income-tax Act, 1961. In response to the same, the assessee vide letter dated 05/07/2008 submitted inter alia as under: In this context, it is submitted that we are a charitable trust and therefore, such payments should not be considered for any disallowance. We request your honour to consider that we .are entitle to the benefit under section 11 and therefore, the provisions of sub-chapter D of chapter IV as regards business income should not be made applicable to us. What is important is, whether we have applied the income for the object of the trust or in the course of activities carried out for the purposes/objects of the of the trust. So the expenditure by way of penalties/fines should please be allowed us as application of the income i....
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....sp; 3.21 However, the AO was not satisfied with the explanation of the assessee. He observed from the records maintained by the assessee that assessee is following mercantile system of accounting, since mixed system of accounting is not at all recognized by the Act. He came to this conclusion on the ground that some of the expenses are provided in the books even when no payment is made for those expenditures. According to the AO once the method of accounting is decided as mercantile, assessee has to provide all the expenses either on the basis of actual bills or on estimated basis. He therefore rejected the contention of the assessee that the bills were received late and, therefore, they accrued in the year in which bills are received. According to the AO the date of bill is relevant and if the date pertains to the earlier year, then expense cannot be said to accrue in the current year. He noted that auditors have clearly specified the dates of bills of earlier year, hence, the said expenses are accrued in the prior period and, therefore, disallowable. The AO accordingly disallowed prior period expenses of Rs.13,43,097/- and added back the same to assessee's income. ....
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....ice u/s.143(2) was issued to the assessee trust.. 2. The learned CIT(A) erred in not appreciating that the reference u/s.142(2A) for special audit was an illegal one as the AO had not given an opportunity of hearing to the assessee as required under proviso to section 142(2A) and consequently, the asst. order passed is barred by limitation. 2.1. The learned CIT(A) further failed to appreciate that the reference to special auditor was invalid in law and therefore, the asst. order passed was time barred. 3. The learned CIT(A) erred in holding that the appellant trust was not entitled to the exemption u/s.11 as it had violated the provisions of sections 11 to 13 and consequently, the income of the appellant was taxable under the normal provisions of the Act. 4. The learned CIT(A) ought to have granted exemption u/s.11 to the appellant trust since the registration u/s.12A was restored by Hon'ble ITAT, Pune and therefore, the appellant was entitled to claim exemption u/s.11. 5. The learned CIT(A) erred in holding that the appellant trust had violated the provisions of section 13....
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.... no amount was chargeable as a revenue receipt. 8. The learned CIT(A) erred in holding that the donations received by the appellant of Rs.3,29,94,157/- was taxable as income of the appellant without appreciating that the said donations were received towards the corpus of the trust and hence, the same were exempt from tax. 9. The learned CIT(A) erred in disallowing revenue expenditure of Rs.37,19,654/- on the ground that the said expenses were not supported by proper evidences. 9.1 The learned CIT(A) failed to appreciate that the disallowance of such expenses was not warranted since most of the expenses were paid by cheque and incurred for the objects of the trust, 10. The learned CIT(A) erred in confirming the disallowance of depreciation on the capital expenditure of Rs.13,44,428/- on the ground that the said capital expenses were not supported by proper evidences. 10.1 The learned CIT(A) failed to appreciate that the disallowance of depreciation in respect of such capital expenses was not warranted since most of the capital expenses were paid by cheque and therefore, the ....
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.... circumstances of the case and in law the Ld. CIT(A) was justified in deleting the proportionate disallowance of Rs.22,91,016/- from out of interest to financial institutions debited by the assessee holding that assessee's own funds are much more than the funds advanced to sister concern without appreciating the fact that assessee's own funds and borrowed funds are part of common pool of funds and assessee's own funds are not in liquid form and are infact locked as investment in building, furniture, working capital etc., (ii) CIT(A) failed to appreciate the fact that had the assessee not advanced interest free loans to sister concern, there would have been no need to borrow funds from financial institutions to that extent and accordingly no need to pay interest to that extent. 04. (i) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing remuneration paid to relatives of Trustees to the tune of Rs.38,37,221/- holding that nothing has been brought on record to show that market value of the services/jobs was less than the payments made to them when the payments ....
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.... tax Act, 1961? (iv) Whether the decision of ITAT ignoring the fact that the amendment to section 43B is applicable only to employer's contribution and not to employee's contribution is bad in law? (v) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in ignoring the decision of Special Bench of Kolkata in the case of JCIT Vs. ITC Lt., reported at 112 ITD 57. 08. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was justified in allowing maintenance expenses of flats at Gulmohar Society when the said flats were used exclusively by the founder of the Trust violating the provisions of Sec.13(1)(c) of the Act. 09. The Appellant prays that the order of the Ld. CIT(A) be vacated and that of the AOs order may be restored. 10. The appellant craves leave to add, alter, amend, modify any of the above grounds raised, any other grounds at the time of proceedings before the Hon'ble Tribunal which may be granted." 7. The learned counsel for the assessee di....
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....sued by the trust placed at Paper Book Page Nos. 238 to 242 he submitted that these were incurred for the purpose of image building of the trust by highlighting the achievements of the various institutes run by the trust. He submitted that the advertisements issued on the occasion of birthdays of the trustees was just incidental but the main purpose was to advertise the various institutes run by the trust. Therefore, it did not result into any benefit for the trustees and therefore the provisions of section 13(1)(c) were not attracted. 10.1 Referring to the copy of the asst. orders for A.Y. 2000-01 to A.Y. 2002-03 placed at Paper Book Page. Nos.293 to 307 he submitted that similar expenditure claimed by the assessee trust in the preceeding years were accepted by the department and no objections were raised. He submitted that although principles of resjudicata do not apply to Income Tax Proceedings, however, the rule of consistency prevails over the doctrine of res-judicata where the facts and circumstances of the case are identical. For this proposition, he relied on the following decisions: i. H.A. Shah & Co. Vs. CIT & EPT 30 ITR 618 (Bombay) &nbs....
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....age building of the various institutes run by the assessee trust. It is the submission of the learned counsel for the assessee that advertisement expenses were incurred for the purpose of image building of the trust by highlighting the achievements of the various institutes and that such expenses were allowed in the past. We find some force in the above arguments made by the learned counsel for the assessee. There is no dispute to the fact that advertisements were published in various newspapers on the occasion of the birthdays of the trustees highlighting the achievements of the various institutes run by the trust. In the present day, when there are hundreds of institutions imparting education in various fields, it is very difficult for the common man to find out which is the best institution. It is only when he comes to know of the persons behind running of the educational institutions that the confidence level of the layman increases. Therefore, in our opinion, highlighting the achievements of the institutions run by the trust along with the names of the trustees on their birthday cannot be said to be image building of the trustees. Rather it indirectly helps the various institu....
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....oss receipts of the assessee trust for the impugned assessment year was more than 75 crores and the assessee Trust is one of the leading educational institution in the country. Therefore, by purchasing the Mercedez car for the use of the VVIP guests such as the President and the Prime Minister of India, the Chief Minister and the Governor of the State, Judges of the Supreme Court and various High Courts cannot result into any violation of provisions of section 13(1)(c) of the I.T. Act. He submitted that the trust is not paying any salary to Dr. D.Y. Patil. Therefore, assuming but not admitting that the said car was used by Dr. D.Y. Patil who is the founder of the trust and because of whose efforts the trust has achieved tremendous success it cannot be said that providing the car to him for official purpose is a benefit to him. He submitted that the AO allowed the expenditure of various other cars owned by the trust but has simply disallowed the expenditure and depreciation on the Mercedez car on the ground that it has benefitted the Trustees u/s.13(1)(c) which has been upheld by the learned CIT(A). According to the learned counsel for the assessee for invoking the provisions of sec....
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....r A.Y. 2001-02 that no such disallowance has been made by the AO on account of expenditure and depreciation on the Mercedez car which was purchased during F.Y. 2000-01 relevant to A.Y. 2001-02. We find merit in the submission of the learned counsel for the assessee that only because of the brand name of the Mercedez car the AO has problem whereas he has no problem on account of expenditure incurred by the assessee for various other cars owned by the trust. In our opinion, when the AO has allowed the expenditure on account of various other cars owned by the trust, therefore, merely because the assessee has purchased the Mercedez car to be used by the VVIP guests the AO should not have disallowed the expenditure and depreciation on such motor car especially when the AO in the past has not disallowed any expenditure on the Mercedez car owned by the trust. Therefore, in view of rule of consistency and in absence of any adverse material before the AO to take a contrary view we find no justification on the part of the AO and CIT(A) to hold that there is violation of provisions of section 13(1)(c) of the I.T. Act. In this view of the matter, we set-aside the order of the CIT(A) and direct....
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....f an investment but an application of money. For the above proposition the learned counsel for the assessee relied on the following decisions : i. National Engg. Coordination Committee vs. ACIT 43 ITD 612 (Pune) ii. DIT Vs. ACME Educational Society 326 ITR 146 (Delhi High Court) iii. Kanpur Subhash Shiksha Samiti Vs. DCIT 11 ITR 23 (Lucknow) iv. Alarippu 244 ITR 358 (Delhi High Court) v. Sarladevi Sarabhai Trust 172 ITR 698 (Gujarat High Court) He accordingly submitted that the assessee has not at all violated the provisions of section 13(1)(d) of the Act. 21. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee trust had advanced interest free loan of Rs.11,42,81,113/- to another charitable trust D.Y.Patil Education Society. It is the case of the revenue that by advancing such interest free loan to D.Y.Patil Education Society the assessee trust has inv....
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.... to the care of another. These two expressions have been used in a cognate sense and have to be understood as such. In order to constitute an investment the amount laid down should be capable of any result of any income, return or profit to the investor and in every case of investment, the intention and positive act on the part of the investor should be to earn such income, returns, profit in order to constitute an investment, the monies shall be laid out in such a manner as to acquire some species of property which would bring in an income to the investor. A loan, on the other hand, is granting temporary use of money, or temporary accommodation. The words investment', "deposit" and 'loan' are certainly different. Sec. 11 (5) refers to pattern 'of investment by the appellant Sec. 11(5) was introduced by the Finance Act, 1983, w.e.fi 1st April, 1983, i.e., for and from asst. yr. 1983-84. It prescribes the forms and modes of investing and depositing money referred to in s. 11(2)(b). Subsequently, new forms and modes have been added. Sec. 13(1)(d) as amended by the Finance Act, 1983, provides that the income of any charitable or religious trust or institution will not be entitled to e....
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....at arises for consideration in the present case is whether advancing of an interest-free temporary loan by one society to another society having similar objects is an "investment" or a "deposit" and whether the assessee-society had violated the provisions of s. 13(1)(d)r/w s. 11(5) of Act, 1961 ? 11. Secs. 11(5) and 13(1)(d) of the Act, 1961 are reproduced hereinbelow : "1 1. Income from property held for charitable or religious purposes ........ .. (5) The forms and modes of investing or depositing the money referred to in cl. (b) of subs. (2) shall be the following, namely : (i) investment in savings certificates as defined in cl. (c) of s. 2 of the Government Savings Certificates Act, 1959 (46 of 1959), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; (ii) deposit in any account with the Post Office Savings Bank; (iii) deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operativ....
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....in India for residential purposes and which is (eligible for deduction wider) cl. (viii) of sub-s. (1) of s. 36; (ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing longterm finance for urban infrastructure in India. Explanation : For the purposes of this clause,- (a) 'long-term finance' means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; (b) 'public company' shall have the meaning assigned to it in s. 3 of the Companies Act, 1956 (1 of 1956); (c) 'urban infrastructure' means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport; (x) investment in immovable property. Explanation : 'Immovable property' does not include any machinery or plant (other than machinery or plant installed in a building fo....
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....ion of loan which can be more appropriately described as directed bailment. The essence of deposit is that there must be a liability to return it to the party by whom or on whose behalf has been made on fulfilment of certain conditions. In the commercial sense, the term is used to indicate the aforesaid transaction as deposit of money for employment, in business, deposits for value to initiate security for deposit of title deeds, similar documents as security for loan, deposit of money bills in a bank in the ordinary course of business of current account and deposits of a sum at interest at a fixed deposit in a bank." 13. In Baidya Nath Plastic Industries (P) Ltd. & Ors. vs. K.L. Anand, ITO (1998) 146 CTR (Del) 421 : (1998) 230 ITR 522 (Del) a learned Single Judge of this Court pointed out that the distinction between "loan" and "deposit" is that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement, while in the case of the latter it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. &....
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....d be invested or deposited in the forms or modes prescribed under s. 11(5). The question that arose is, whether the money advanced to ACIL is part of the money "applied". The question of its investment under s. 11(5) will not arise. It is therefore, necessary first to see what is the amount that was "applied". Both the Asstt. CIT and the CIT and the CIT(A) have equated the word "applied" to "spend". The CIT(A) in para 32 of his order states that the amount advanced to ACIL cannot be considered as an application of the assessee's income. He states that the amounts have not gone out irretrievably and, therefore, it cannot be considered as an expenditure and hence there is no application of money. This approach of the CIT(A) regarding the application of income is erroneous and not keeping with the decided cases cited by the assessee's representative and even the Board's circular No. 100 dt. 29th Jan., 1973. If the interpretation of the CIT was correct then the Board's instructions to consider the loans, scholarships granted by the educational trusts as application of income would become erroneous and contrary to law. 62. As per the settled legal position, which h....
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.... allegation or suggestions made even by the Department that the advances which were made by the NECC were for ulterior motive. We therefore, hold that the amounts advanced to ACIL constituted monies applied by the NECC to its charitable object and activities. Further the minutes of NABARD meeting wherein the said proposal to carry out the market operations was discussed and contains considerable light on the matter which makes it clear that by establishing ACIL and by carrying on regular operations the interest of poultry industries as a whole would be correctly protected. We also agree with the assessee's submissions, which were very fairly accepted by the learned Departmental Representative, that the provisions of s. 11(5) r/w s. 13(1)(d) have no application at all whereas monies or income of the trust have already been applied to the charitable objects of the trust. Consequently, the mischief of s. 13(1)(d) is not attracted to the present case for that reason alone. It was also contended by the assessee's representative that in any event the amounts advanced by NECC to ACIL are neither investments nor deposits as these two terms signify the lending the monies for the purposes of....
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....ithdrawing the exemption under s. 11 and sub-section of income to the maximum marginal rate also does not arise. Incidentally, we may observe that the Asstt. CIT was not justified in applying the maximum marginal rate to the gross receipts. Even though exemption under s. 11 was not available, it does not mean that the income of the assessee-trust became equal to that of gross receipts. The income of the assessee in that case should have been computed in a commercial sense, i.e., after allowing all the expenses that were laid out for the purposes of activities. If the entire activity of the assessee was business income then the Asstt. CIT should have applied the maximum rate to the business income separately computed by him and not to the gross receipts. These observations are only incidental and they would arise only if there was any justification for applying the maximum rate at all. 66. For the reasons given above, we hold that the assessee was entitled to claim exemption under s. 11 for all the years under appeals. We, therefore, set aside the order of the CIT Pune under s. 263 for the asst. yrs. 1984-85 and 1985-86 and of the CIT(A) for the asst. yrs. 1984....
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....ing the proportionate disallowance of Rs.22,91,016/- from out of interest to financial institutions debited by the assessee. 29. After hearing both the sides, we find the AO on the basis of the special audit report held that assessee trust has incurred expenditure on account of interest on loan used by Dr. D.Y. Patil Education Society which is not incurred on the objects of the trust. According to the AO the assessee had advanced funds to Dr. D.Y. Patil Education Society without charging any interest and therefore the interest paid by the assessee to the bank cannot be allowed as a deduction. In appeal the learned CIT(A) deleted such disallowance made by the AO by holding as under : "21.4 I have considered the facts of the case and the submissions of the appellant. The appellant in the course of appellate proceedings has submitted a chart giving details of the own funds and the amount advanced to Dr. D.Y. Patil Education Society. As per the chart, the appellant had own funds amounting to Rs.54.34 Crs. while the amount advanced to Dr. D.Y. Patil Education Society was Rs.11.18 Crs. In my opinion, since there is no nexus of the funds advanced with the loan fun....
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....eedings the AO has categorically stated that the above persons seemed to possess reasonable qualifications and experience. It has been further stated in the remand report that instead of disallowance of the total salary paid to all trustees and their relatives only the unreasonable payment should be disallowed. He submitted that the learned CIT(A) after considering the additional evidences produced before him and after obtaining the remand report from the AO deleted the disallowance made by the AO. He further submitted that nothing has been brought on record by the AO to prove excessiveness of the payments made to the various persons as compared to the market value of the services rendered by them and therefore the disallowance made is not justified. 34. The learned counsel for the assessee further submitted that similar payments have been made in past years by the assessee trust which was accepted by the AO and no objections were raised. For this proposition, he referred to the assessment order for A.Y. 2000-01 to 2002-03 placed at Paper Book Page Nos. 293 to 307. He submitted that although principles of resjudicata do not apply to Income Tax proceedings, however, rule of consiste....
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....ish minutes books of the meeting of Board of Directors. In pursuance of this failure on the part of the appellant, she concluded that payments to these persons were without any authorization. As stated above, she gave very general remark in respect of Smt.Bhagyashree Patil and Smt.Rajashree Kakade to the effect that no details of duties performed by them were available. However, a careful consideration of the material available on record reveals that the AO did not bring anything on record to prove the fact that market value of the services rendered /jobs done by these persons was less than the payment made to them. As stated above, the appellant discharged its onus in respect of proving reasonableness of payment made to these persons. Under the circumstances, onus was on the AO to prove the fact that market value of these services/jobs were less than the amount paid to these persons. However, nothing to prove the fact that market value of the services rendered/jobs done by the persons specified in sec.4OA(2)(b)/13(3) was brought on record. Under the circumstances, the action of the AO in disallowing the whole amount of remuneration/consultancy charges paid to all persons specified....
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....ther observed that justification of salary payment specifically to Smt.Rajashree Kakade and Smt.Supriya P.C.Patil was never given to the satisfaction of the assessing officer during assessment proceedings. He further stated that the AO who made the assessment had expressed her opinion only about Smt.Bhagyashree Patil and Smt.Rajashree Kakade. According to him, the AO who made the assessment had categorically held that payments made to these two ladies were disproportionate and excessive as compared to the services rendered by them. As stated above, the AO has not brought on record any material to prove that market value of the services rendered/jobs done by the persons specified in sec.40A(2)(b)/13(3) was less than the payments made to them. Under the circumstances, the statement of the AO in the remand report to the effect that the AO who made the assessments has categorically proved that the payments made to Smt.Bhagyashree Patil and Smt.Kakade were disproportionate / excessive is not correct. The issue relating to authorization of payments to these persons has been discussed in the preceding paragraphs. 24.14 Under the circumstances, the AO during the cours....
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....to the appellant's case is also not correct and is against judicial rulings on the subject. In various judicial rulings, it has been held that AO has to collect material to show that the payment to the persons specified in sec.13(3) is unreasonable compared to the market rate for the services rendered. This view has been held recently by Hon'ble ITAT Lucknow in the case of ITO Vs. Virendra Singh Memorial Shiksha Samiti reported in (2009) 18 DTR 502. The relevant portion of the judgment is reproduced below:- 17. In this regard, we refer to s. 13 as under "13. (I) Nothing contained in s. 11 or s. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-................ (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the i....
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....ther case of the Revenue falls under cl. (2) of s. 13(1)(c) or under s. I3 (2). It is not disputed that the person referred to in sub-s. (3) is the founder member of the trust. The condition mentioned in s. 13(1)(c) (ii) is that income of the trust should be used or applied directly or indirectly for the benefit of any person falling in the prohibited category. Benefit here would mean some ex gratis expenditure without any contribution by such person to the society. The term 'benefit' exclude from its ambit a two way process. If the person in the prohibited category renders services and in lieu thereof a benefit is provided then the case does not fall in cl. (ii) of s. 13(1)(c). The expenditure incurred on those interested persons would be a compensation for such services. A benefit would be said to have been given to the persons of prohibited category, if they in return do nothing but only enjoy the fruits of the trust/society and take away the funds/income of the society for their personal benefit or discharging personal obligation, but where persons of prohibited category render services to the society and in turn, get some remuneration, salary and allowances etc. as a member th....
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....assessment order the AO has brought on record how much should have been the reasonable remuneration to the trustees and their relatives and what is the amount paid by similarly placed organisations to their employees. The submission of the learned counsel for the assessee that in the past also such type of payments were made and it was accepted by the department in scrutiny assessments for A.Y. 2000-01 to 2002-03 (placed at Paper Book Page Nos. 293 to 307) and no disallowance has been made could not be controverted by the learned DR. Under these circumstances and in view of the exhaustive order passed by the learned CIT(A) giving reasons for such deletion and in absence of any contrary material brought to our notice against the findings given by the CIT(A), we do not find any infirmity in the order of the learned CIT(A) deleting the disallowance made by the AO u/s.40(A)(2)(b) of the I.T. Act. Since the disallowance has been deleted by us, therefore, we hold that there is no violation of provisions of section 13(1)(c) of the I.T. Act. Accordingly, the grounds raised by the revenue are dismissed. 38. In Grounds of appeal No.5 the revenue has challenged the order of the CIT(A) in d....
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....is no doubt that the appellant trust has incurred telephone/ mobile expenses of the trustees. The appellant has argued that the trustees are working for the trust and it is in the interest of the trust that telephone / mobile are provided to the trustees. Payments in respect of telephone I mobile are basically reimbursement of the expenses incurred for the purposes of the trust. The AO disallowed these expenses and considered them resulting into personal benefit to the trustees mainly on account of the fact that, according to him, the appellant purposely kept mum on the telephone charge on the payments made to the trustees and their relatives. However, a closer look at the assessment proceedings reveals that the appellant during the course of assessment proceedings, itself, clarified that, among others, payment on account of telephone expenses was not for the benefit of any trustees but were reimbursement of expenses. The relevant portion of the submission dt.30/06/2008 of the appellant, which was received in the office of the AO during assessment proceedings on 1/7/2008 is as under :- Query No. 6 : . . . . . . &nbs....
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..... 44, 048/- is deleted In this context we may mention that in the computation of business income, normally certain disallowances are made for probable personal use of assets / expenditure on the ground that there is no sufficient evidence by way of log book, etc. However, in the case of a charitable trust, such disallowances for personal use if made have serious consequences by way of attracting the provisions of s.13(1)(c) or higher rate of tax under s.164(2) of the II Act. For invoking these sections, we are of the view that the onus is on the Department to prove personal use in the context of use of assets or incurring of expenditure. Such onus has not been discharged in respect of the disallowance of the travelling expenses." 19. Similar is the position with regard to the disallowance of Rs.13,4 75/- out of telephone expenses ............ .. Again it is not the case of the Revenue that the expenditure is not vouched. They have made the impugned disallowance only on surmises or estimate for the possible personal use of telephone by the chairman. Simply because the calls are frequent betwe....
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....e other 3 flats. Referring to the statement of one of the caretaker Sri Sadashiv Bapu Patil recorded on 06-09-2007 he submitted that the said caretaker has stated that combined flats belonging to the trust were being used by Dr.D.Y. Patil during his visit to Pune. Therefore, the flats claimed as being the guest house of the trust are infact being used for the exclusive benefit of Dr.D.Y. Patil. Therefore, the AO was justified in holding that the maintenance expenses incurred by the assessee trust on the flats were in violation of provisions of section 13(1)(c) of the I.T. Act. He accordingly submitted that the order of the AO be upheld. 43. The learned counsel for the assessee on the other hand submitted that on the basis of the remand report obtained from the AO and the affidavit of the caretaker Sri Sadashiv Bapu Patil the learned CIT(A) has deleted the addition. He submitted that the learned CIT(A) has categorically given the finding that the statement of Sri Sadashiv Bapu Patil was recorded at the back of the assessee and no opportunity of cross examination was offered to the assessee in this regard. The learned counsel for the assessee further submitted that Dr. D.Y. Patil ....
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.... relied on the following decisions : i. C. Vasantlal & Co. Vs. CIT 45 ITR 206 (SC) ii. ACIT Vs. Mahesh T. Patodia 79 ITD 40 (Pune) iii. Bansal Strips P. Ltd. & Ors. Vs. ACIT 99 ITD 177 (Delhi) iv. H.A. Shah & Co. Vs. CIT & EPT 30 ITR 618 (Bombay) v. Radhasoami Satsang Vs. CIT 193 ITR 321 (SC) He submitted that the learned CIT(A) after discussing exhaustively has deleted the disallowance. Therefore, the order of the CIT(A) should be upheld and the grounds raised by the revenue should be dismissed. 45. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO disallowed the maintenance expenses of flats at Gulmohar Society on the ground that those flats are exclusively used by Dr.D.Y. Patil and therefore there is violation of provisions of section 13(1)(c) of the I.T. Act. We find the learned CIT(A) had given a categorical finding that the said flats are not exclusively used by Dr. D.Y. Patil b....
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....n to make disallowance of the expenses incurred on the maintenance of guest house on the basis of the statement of the caretaker. Nor did she give the statement of caretaker of the guest house to the appellant for its comments / rebuttal etc. In fact, the appellant was not told anything about this statement during the course of assessment proceedings. The appellant came to know about the contents of the statement of the caretaker only after assessment order was passed. After it received the assessment order, the appellant objected to the use of the statement of the caretaker which was taken at its back. It contended that the statement taken at its back could not be used without giving an opportunity to crossexamine. It gave one note during appellate proceeding. In its note, it vehemently argued that certain statement recorded of certain person in the course of assessment proceeding were used to its disadvantage without giving an opportunity to it to examine the statement and exercise its right to cross-examine the person who made the statement. The relevant portion of the note is as under : 1] The learned A.O. has completed the assts. f....
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....she did not give any opportunity to the assessee to cross examine Shri Yadav or Shri Patil before making the addition. It is submitted that this action on the part of the learned A.O. in not granting cross examination is not justified. Supreme Court in the case of Kishinchand Chellaram [125 ITR 713] has held that if any statement of a third party is to be used against the assesses, an opportunity should be given to the assessee to cross examine the third party before any inference can be drawn from the statement. On page 720, Hon'ble Supreme Court has held that "it is true that the proceedings under the Income Tax Law are not governed by strict rules of evidence and therefore, it may be said that even without calling the manager of the bank to prove this letter, it could be taken into account as evidence. But before the I.T. Authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him". 4] Similarly, in the case of CIT v. Eastern Comme....
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....re evidences relied upon by the AO was not furnished to the appellant. The note is enclosed at annexure-A to this letter. 2. You are requested to consider the request of the appellant and furnish the documents to the appellant and as well as allow the appellant to cross examine the persons. The action taken by you may kindly be reported to this office. In the event, you are of the view that the request of the appellant cannot be granted, the reasons for the same may kindly be included in the report. 3. In the course of appellate proceedings, the appellant has submitted 15 items of evidence which were not submitted before the AO at the time of assessment. The evidence is therefore in the nature of additional evidence. The list of 15 items is at Flag AA of the volume titled 'Index'. The evidence appears to be relevant in taking a decision on the issues in appeal. It is stated by the appellant that the evidence could not be produced before the AO due to non availability of documents at the time of assessment due to paucity of time and other reasons. The written submission and paper book in 10 v....
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.... right. The relevant portion of the report of the AO is reproduced below :- C) Kind reference is invited to Para I and 2 of your office letter dated 17. 03.2009 wherein it is directed to consider the request of the appellant and furnish the documents to the appellant and as well as allow the appellant to cross examine the persons whose statement recorded and have been utilized while finalizing the assessment. 24. In this regard it is submitted that statements of two persons namely (1) Shri R.S.Yadav, a broker between the assessee trust and aspiring students and (2) Shri Sadashiv Bapu Patil, caretaker of the guest house are utilized while finalizing the assessment. A copy of statement of Shri R.S.Yadav was made available to the assessee. This is evident from the assessee's own submission on Statements of Shri Yadav filed before the A.O. vide letter dated 11.07.2008. At this time the assessee has never asked for cross examination of Shri Yadav. Now the assessee cannot ask for such cross examination. The ethos underlying the Principles of natural justice make it sufficiently clear that once an ....
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....e issue relating to cross-examination of caretaker of the guest house at all, nor any reference of any such discussion of CIT(Central) was made. Under the circumstances, the statement of the A0 that the issue relating to cross-examination of Shri Sadashiv Bapu Patil, caretaker has been discussed by the AO in the assessment order and by the CIT (Central) while deciding the issue of registration u/s.12AA of I.T. Act is not correct. Reliance of the AO on the case laws of Nath International Sales Vs. UOI (AIR (Del) 295) and State of J & K Vs.Bakshi Gulam Mohammad (AIR 1967 SC 122) is, as discussed in para 20.11.2 and 20.11.1, also not correct. 22.12.1 Reliance of the AO on the observation of Hon'ble Supreme Court to the effect that right of hearing does not necessarily include right of cross-examination in the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad, (1967 AIR 122) is misplaced. The AO misunderstood, misinterpreted and misquoted this observation of the Hon'ble Supreme Court. The above observation was made by the Supreme Court with reference to the right of cross-examination of the persons who had sworn affidavit supporting allegation against pe....
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....as deposed against the person. The case of the appellant falls under this category. The AO while making disallowance in respect of guest house expenses, relied, substantially, on the statement of the caretaker. Under the circumstances, in view of the ratio pronounced by the Hon'ble Court in the case of State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad (supra), cross-examination of caretaker should have been allowed by the AO as he relied on his statement and used the same against the appellant. It is not the case of the AO that caretaker filed an affidavit against the appellant. Even in the case where affidavits are filed, cross-examination of the person giving the affidavits may be allowed after considering facts and circumstances of the case. However, in this case, Hon'ble Supreme Court upheld that when evidence is given viva-voce against the person, he (the person against whom such evidence in the form of viva-voce has been given) must have the opportunity to hear it and to put the witness question in cross-examination. The relevant portion of the judgment is reproduced below:- The next point is as to the right of cross-examination....
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....ing before the Commission should have any further right of crossexamination. We, therefore. Think that no case has been made out by Bakshi Ghulam Mohammad that the rules of natural justice require that lie should have a right to cross- examine all, the persons who had sworn affidavits supporting the allegations made against him. In view of the ratio laid down by the Hon'ble Supreme Court in the above mentioned case to the effect that when evidence is given viva-voce against the person, he must have the opportunity to hear and to cross-examine the person giving such evidence, the AO's contention that cross-examination of the caretaker was not required is not correct. 24.12.2 Reliance of the AO of the judgment of Hon'ble Delhi High Court in the case of Nath International Sales and Anr. Vs. Union of India and Ors.(AIR 1992 Delhi 295) is also misplaced. In this case, Hon'ble Delhi High Court relied on the decision of Supreme Court in the State of Jammu & Kashmir Vs. Bakshi Ghulam Mohammad and came to the conclusion that in the facts of that case, cross-examination was not required. Hon'ble Delhi High Court gave this decision in the particular....
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....W's work test certificate and, therefore, in the circumstances of this case, cross-examination is not required. Relevant portion of the judgment is reproduced below :- (24) Lastly, it is urged by Mr.Jaitly that the principles of natural justice demand that an opportunity should be given to the petitioners to cross-examine Mr.S.A. Khan, DLW's Inspector, to elicit the truth as to which of the two inspection reports is genuine. We do not feel persuaded to do so. As is observed by the Supreme Court in State of J&K and others Vs. Bakshi Gulam Mohammad & Anr.., a right of hearing does not include a right to cross-examine and the right to cross-examine must depend upon the circumstances of each case. As already observed, there is no difference in both the reports on the crucial point of filing of TRW's works test certificate, which is sufficient to support respondents action. Therefore, cross-examination in the above mentioned case was not allowed as it was not required in the facts and circumstances of the case because the petitioner was found to be pursuing its case on the basis of a certificate which, after inquiry fro....
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....erial so collected, the appellant must be informed of the material collected and should be given an opportunity of explaining it. Similar view has been taken in the following decisions - a.Banal Strips P Ltd. [99 ITD 177 (Del)] b. Asst. CIT v/s. Mahesh T Patodia [79 ITD 40 (Pune)] In view of above decisions, the A.O. was duty bound to give an opportunity to the appellant before relying on the statement of Shri S. B. Patil. 22.14 It may not be out of place to mention that the statement recorded under survey, on itself, has no evidentiary value. This view was held by Hon'ble Kerala High Court in the case of Paul Mathews & Sons Vs. CIT 263 ITR 101. In this case, Hon'ble Court held that sec.133A(3)(m) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Sec. 133A however, enables the IT authority only to record any statement of any person which may be useful, but does not authorise for taking any sworn in statement. The IT Act, whenever it thought fit and necessary to confer ....
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.... counsel for the appellant that the statement, elicited during the survey operation has no evidentiary value and the ITO was well aware of this. In making disallowance out of guest house expenses, the AO, substantively, relied on the statement of the caretaker which, according to above judgment, did not have any evidentiary value. 22.15 In view of the discussion in the preceding paragraphs, it is obvious that the AO made disallowance of guest house expenses on the basis of the statement which was recorded at its back and in respect of which no opportunity was given to the appellant for cross-examination. This statement, on its own, did not have evidentiary value. Under the circumstances, the AO's action in respect of disallowance of the guest house expenses cannot be upheld. 22.16 During the course of appellate proceedings, the appellant has submitted, among other things, affidavit of the caretaker of the guest house and affidavit of certain other persons. The affidavit of the caretaker is a clarification that the flat Nos.G1 and G2 were being used by other guests (other than Shri D.Y. Patil) ....
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....enses cannot be made on the basis of statement of the caretaker on which reliance was placed by the AO. Under the circumstances, this disallowance of guest house expenses was not justified and is, therefore, directed to be deleted. I further hold that no personal benefit has accrued to any person on account of these expenses. Therefore, the above mentioned grounds of appeal are allowed. 22.17 The AO in his remand report has pointed out that the powers of CIT(A) are co-terminus with those of the AO. Therefore, he submitted that CIT(A) may call these persons (including Shri Sadashiv Bapu Patil) in his office and may afford opportunity to the appellant subject to granting an opportunity to the AO to cross-verify the witnesses. Intention of the AO in making this submission is not understandable. It is not the CIT(A) who recorded statement of the caretaker at the back of the appellant and used the same against it. It was the AO who conducted the inquiry and recorded statement of the caretaker at the back of the appellant and used the same against it, without disclosing details of the material gathered, without confronting them with the appellant , without giving an....