TaxTMI 
TaxTMI 
2013 (6) TMI 218
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....11. For knowing the exact grounds of appeal, we are reproducing the grounds raised by the assessee in it's appeal for A.Y. 2007-08 as under :- "1. That the learned Assessing officer and the Commissioner of Income Tax (Appeals) has erred in law and on facts in denying exemption u/s 11 & 12 of the Income-tax Act, 1961. 2. That the learned Assessing officer and the Commissioner of Income Tax (Appeals) has erred in law and on facts in referring the matter to the Valuation Officer for determining the cost of construction of building and adopting the same without disposing the appellant's objection so raised. 3. That the learned Assessing Officer and the Commissioner of Income Tax (Appeals) has erred in law and on facts in treating that there was violation of provision of section 13(1)(c) read with section 13(3) of the Income-tax Act, 1961 without there being any nexus or material on record to substantiate the same. 4. That the learned Assessing officer and the Commissioner of Income Tax (Appeals) has erred in law and on facts in making addition of Rs.48,74,000/- on account of ....
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....he A.O. calculated the total income for A.Y. 2007-08 as under :- (Page No.11) "Surplus as per income & expenditure account Rs.1,13,52,755/- ` Add: donation received as per Balance Sheet Rs. 48,74,000/- Total Rs.1,62,26,755/-" 6. The CIT(A) has confirmed the order of the Assessing Officer following his order for A.Y. 2005-06. The relevant finding of CIT(A) is reproduced as under :- (Page nos.22 23 & 24) "5.1 The, issue this year is same as that in the earlier year, i.e., A.Y. 2005-06. The assessee's submission is also same for both the years. So, the findings in this year are linked to the findings in A.Y. 2005-06; wherein similar issue for difference in valuation in property and invocation of Section 13 was adjudicated by me as under :- "..........5.1 The entire case of Assessing Officer and all the grounds of appeal of appellant revolve around denial of exemption to appellant u/s 11 & 12, on the ground of violation of provisions of Section 13. It is clear from the facts on record that books of accounts were never produced for verification. I agree with AO that the app....
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....vidence like technical estimates, drawings and approved plans, duplicate bills etc. have been produced, EVEN DURING APPEAL. The moot point is that even if some adjustments, here and there, are allowed; a glaring gap remains between the value of consideration, as declared by the assessee vis-à-vis that estimated by the DVO, even after giving some margins for rates adopted, or supervision etc. So, the AO was correct in detecting and establishing that this case is a glaring example of present day syndrom of trustees siphoning off the fund by inflating/overinvocing the cost of construction. 5.5 The AO is absolutely justified, also in holding that since all the expenditure was under the control of managing trustee Sri. Vipin Varshney, it can be concluded that he benefited from such siphoning off of trust fund, and, so there was a clear violation of provision of Section 13, to penalize such cases of financial fraud, and I find this case to be an appropriate one to be brought under the rigours of Section 13." 7. The ld. Authorised Representative submitted that there is no dispute about the fact t....
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....t any basis. 10. The ld. Authorised Representative submitted that on identical set of facts Lucknow Bench of I.T.A.T. has decided the issue in favour of the assessee in the case of ITO v. Virendra Singh Memorial Shiksha Samiti [2010] 35 SOT 1 (URO). 11. The ld. Departmental Representative, on the other hand, relied upon the order of CIT(A) and submitted that the relevant provisions clearly cover the cases where income or property deemed to have been benefitted. Therefore, the CIT(A) and A.O. both have rightly taken a view that the Managing Trustee has deemed to be benefited by inflating cost of construction. As regards reference to D.V.O., the ld. Departmental Representative submitted that the assessee did not produce the books of account as in A.Y. 2006-07 it was stated that the books of account had been lost. He submitted that in the absence of books of account the A.O. has rightly taken the difference estimated by the D.V.O. in his report. 12. We have heard the ld. Representatives of the parties and records perused. Some of the admitted facts of the case are that the assessee society is a registered society under section 12AA of the Act. The case of the Revenue is that ....
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....e 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 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): Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not appl....
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....; (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984, or any subsequent assessment year. Explanation. - Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business.] [Explanation.- For the purposes of sub-clause (ii) of clause (c), in determining whether any part of the income or any property of any trust or institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of July, 1972, no regard shall be had to the amendments made to this section by section 7 [other than sub-clause (ii) of clause (a) thereof] of the Finance Act, 1972.] (2) Without prejudice to the generality of the [provisions of clause (c) and clause (d)] of subsection (1), the income or the propert....
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....eing 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. (3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :- (a) the author of the trust or the founder of the institution; [(b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution upto the end of the relevant previous year exceeds [fifty thousand] rupees ;] (c) where such author, founder or person is a Hindu undivided family, a member of the family; [(cc) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, [member, trustee or manager] as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), [(c), (cc)] and (d) has substantial interest. (4) Notwithstanding anything contained in clause (c) of sub-s....
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....n which tax is payable in accordance with the provisions of that section.] [(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.]. [Explanation 1.- For the purposes of sections 11, 12, 12A and this section, "trust" includes any other legal obligation and for the purposes of this section "relative", in relation to an individual, means- (i) spouse of the individual ; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual ; (iv) any lineal ascendant or descendant of the individual ; (v) any lineal ascendant or descendant of the spouse of the individual; (vi) spouse of a person referred to in sub-clause (ii), sub-clause (iii), sub-clause (iv)or sub-clause (v); (vii) any lineal descendant of a bro....
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....usts established for relief of the poor, education or medical relief unless the business is carried on in the course of the actual carrying out of a primary purpose of the trustor institution [s.13(1)(bb)]. This clause was in force only for asst. yrs 1977-78 to 1983-84 (both years inclusive). However consequent to the insertion of sub-section (4A) in section 11 this clause became redundant and was omitted and effect from the asst. yr. 1984-85; (c) (i) where the trust/institution is established after 1st April, 1962, any part of its income ensures for the benefit of specified persons [s. 13(1) (c) (i)]; (ii) if any party of the income or property of the trust/institution is used or applied directly or indirectly for the benefit of specified persons subject to the two provisos given under the sub-cl. (c) and also subject to the Explanation given under sub-cl. (d) [s.13(1)(c)(ii)]; Both these sub-clauses are also subject to sub-section (4) of section 13. (d) when the investment pattern of the trust/institution is not in accordance with that prescribed in section 11(5) or suc....
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....In the present case under consideration, there is nothing on record to show that the Managing Trustee Shri Vipin Varshney in fact inflating the construction cost for his benefits. If the A.O. was having any doubt, he could have summoned the office bearers of the trust and concerned parties related to construction expenditure incurred. That having not been done, he could not have disputed the genuineness of the expenditures. There was absolutely no material before the Assessing Officer to show that the Managing Trustee Shri Vipin Varshney in fact inflating the construction cost for his benefits. The Revenue has failed to bring on record any evidence in the form of Bill, Voucher or other records proving that the amount of purchase which has accounted for in the construction cost and money has been taken by the Managing Trustee or the goods purchased was used by the Managing Trustee for his personal benefit. There is no evidence that the income of the society was used or applied directly or indirectly for the benefit of Managing Trustee. It is not the case of the Revenue that the Managing Trustee benefited directly or indirectly as listed/provided in sub-section (2) of section 13 of t....
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....mental Representative did not controvert these facts pointed out by the ld. Authorised Representative. Hon'ble Allahabad High Court in the case of CIT v. Kamla Town Trust [2005] 279 ITR 89/[2006] (All.) held that the burden was on the Revenue to prove that section 13 applies. It was observed that section 13 of the Act carves out an exception to the general exemption granted under sections 11 & 12 of the Act to income derived by trusts/charitable institutions. The onus lies on the Revenue to bring on record, cogent material/evidence to establish that the trust/charitable institution is hit by the provisions of section 13 of the Act. As discussed above, the A.O. has completely failed to bring any sort of evidence or material based on which it can be said that the Managing Trustee Shri Vipin Varshney benefited directly or indirectly to invoke section 13 of the Act. The Revenue failed to discharge burden in this regard. Therefore, under the circumstances and in absence of the material, the view of Revenue authorities cannot be up held. The Revenue is of the view that as per the provisions of section 13(1)(c)(ii) of the Act it is deemed to benefit to the Managing Trustee as covered b....
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.... Valuation Officer to make an estimate of such value and report the same to him. (2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or re-assessment: Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A. Explanation. - In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]" 20. On reading of above sub-section (1) of section 142A we notice that a reference under sect....