TaxTMI 
TaxTMI 
2014 (3) TMI 24
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....ar 2009-10 was filed on 22nd September, 2009. During the course of the assessment the assessing officer raised various issues. After examination of the details submitted by the assessee and the reply thereto, the AO was of the view that the assessee-society is not eligible for claiming exemption under Section 11 of the Act as it has violated the AICTE guidelines, rules of the Registrar of Societies as well as Section 13 of the Income Tax Act. The AO also disallowed various expenses including depreciation claimed by the assessee and assessed the income of the society at Rs. 2,70,51,170/-. 3. Aggrieved by the order of the AO the assessee preferred an appeal before the CIT(A). The CIT(A) after detailed examination held that the assessee is eligible for exemption under Section 11. The CIT(A) gave partial relief in respect of the various additions made by the AO. 4 Aggrieved by the order of the CIT(A) the revenue is in appeal and has raised the following grounds of appeal:- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing violation of provision of section 13(1)(b) and thereby availing the benefits of exemption u/s 11 & 12 wi....
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.... the assessee. 10. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing." 5. Ground no. 1, 4, 5, 6 and 8 are in respect of exemption allowed under Section 11 of the Act. During the course of the hearing the learned DR has relied upon the order passed by the AO. On the other hand the learned AR supported the order of the CIT(A). 6. We have perused the assessment order as well as the order of the CIT(A). On going through the above order of the CIT(A) we notice that each of the allegations levied by the AO has been examined by the CIT(A) and a finding has been given based on the facts. As regards the allegation that it has violated certain guidelines of AICTE, the CIT(A) has dealt this issue in para 5.7 of its order as under:- "5.7 For denying this benefit either the AO has to co-relate the allegation so as to make out a case under the Income Tax Act. Thus assessee is a society which is engaged in educational activity. If it has admitted students in excess of the norms prescribed by the AICTE it can be an issue connected with appellant society and AICTE and not connected with AO and that appellant society unless ther....
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....ssee society has duly complied with these conditions. Its activities are educational and as such, it is eligible for exemption under Section 11 of the Act. Thus, the CIT(A) was correct in holding that these allegations cannot be the basis for denying exemption under Section 11 of the Act. 8. The CIT(A) has dealt with the issue of governance in para 5.7, 5.8, 5.9 and 5.10 of the impugned order, as under:- "The other reasons for denying benefit of section 11 by the AO are violation of Registrar of Societies norms. In this regard the allegations of the AO are as under- 1. The Executive President and Director General are related to each other and holding the position in violation of the guidelines issued under Societies Registration Act. 2. Annual elections are not being conducted in the AGM of the members of the society. 3. The governing council members registered as the society did not reimburse the medical expenses of the employee. 4. No record of AGM and governing council meetings have been filed with the Registrar of Societies. 5. The balance sheet of the society are being signed only by Dr. Gaganjit Singh and Dr. Jagjit Singh. 6. The society has fabricated....
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....ving no relatives. The society is registered under the Societies Registration Act and it has its own bye-laws for managing its affairs. Accordingly, this cannot be a ground for denying exemption under Section 11 of the Act. Similarly, the allegation of the AO that the balance sheet and the cheques are being signed by two persons and hence it is not eligible for exemption, is incorrect. This being the internal procedure of the society about managing its affairs and operation of the bank account, it cannot be a ground for denying exemption under Section 11 of the Act. There is no prohibition or condition prescribed under Section 12A or under Section 11 regarding operation of the bank account. Similarly, the allegation of the AO that the AGM is not being properly held and amendment in the Memorandum of Association has not been properly carried out, is not correct. In this regard, we notice that the statement of Dr. Gaganjit Singh, Executive President of the Society, was also recorded and he has clarified the variousissues involved including the issues on the question of governance of the society. Similarly, the allegation that two persons of the governing council have resigned because....
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....lding position in the charitable society or institution. 12. Further, as regards the allegation of the AO that the facilities of the society are being misused by the office bearers regarding cars, premises, etc., we notice that this issue got clarified during the course of the survey itself, where one of the employee, Mr. S.K. Dhall, in response to a specific question, stated that the vehicles were being used by the officers, staffers/faculty and also by other staff members, for liaison work of the society. This statement clearly addresses the concern of the AO. This statement being a statement recorded during the survey, it cannot be ignored, particularly when the AO has not brought any material to substantiate his allegation against the assessee. The survey report was also before the AO and in case he had any doubt about the same, he could have made further investigation, which he chose not to do. Having failed to do so, he cannot ignore the statement and draw adverse inference merely on the basis of assumptions. The CIT(A) has dealt with this issue in paras 5.11 and 5.12 as follows:- "The other allegation of the AO on this account is the office bearers are maintaining luxu....
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....ly provides regarding payment of salary and allowances to the persons rendering services. It is not the case of the AO, as we notice from the assessment order, that the salary or the perquisites paid to the office bearers are either unreasonable, or excessive. As such, we are in agreement with the CIT(A) that no adverse inference on this account can be drawn against the society. 15. Similarly, we notice that as regards the alleged payment of Rs. 12 Lacs by the assessee Society for a plot to Haryana Urban Development Authority, this payment was made under an MOU, for construction of a hostel for the society. This payment was made directly to the Haryana Urban Development Authority and not to any office bearer of HUDA. It was only on failure to get the permission from the Haryana Urban Development Authority that the amount was received back by the society. In these circumstances, the finding of the CIT(A) that the payment was for the benefit of the society, is a correct finding of fact and it cannot be said that any benefit has been passed on to any related person, so as to violate the provisions of Section 13 of the Act. 16. Likewise, the premises in Navjeevan Vihar was taken ....
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.... to the assessee emerged during survey on this account. The assessee has given an explanation that the expenses incurred through credit card were meant for the society. It organized various seminars and conferences, through which an eminent faculty was invited. Thus, the assumption of the AO that the expenditure incurred through credit card was personal, is not correct. The CIT(A) has correctly held that the facility of the credit card is a facility like that of a bank. The credit card has been used to incur expenses for and on behalf of the assessee society. 19. In the course of the hearing the learned DR could not point out any error or defect in the finding given by the CIT(A). We are in agreement with the CIT(A) that the objects of the assessee Society are educational in nature and hence, they fall within the meaning of 'charitable purpose' under Section 2(15) of the Act. The assessee is a Society registered under Section 12A of the Act. 20. In view of the above facts, we uphold the finding of the Ld. CIT(A) that the assessee is eligible for exemption under Section 11 and accordingly, ground Nos. 1, 4, 5, 6 and 8 raised by the Department are rejected. 21. Groun....
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....ritable purposes. It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV-D of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions. We are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under Section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. The question was whether after claiming deduction in respect of the cost of the asset under Section 35(1), can the assessee again claim deduction on account of depreciation in respect of the same asset. The Supreme Court ruled that, under general principles of taxation, double deduction in regard to the same business outgoing is not intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT (....
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....on this issue, particularly in the year under consideration. Accordingly, this ground of appeal is rejected. 26. Ground no. 9 is regarding allowing of deduction of expenditure of Rs. 36,32,518/- disallowed by the AO while computing the income of the assessee. This issue has been dealt with by the CIT(A) in para 5.26 thus:- "5.26 The AO has further alleged that certain expenses incurred by the appellant-society could not be got verified in the enquiry conducted under section 133(6) of the Act. In this regard the AO has arrived at adverse inference in respect of the expenditure incurred to the extent of Rs.36,32,518/-. As per this enquiry, the persons from whom these works have been got done were not available and the letters sent to them have been returned back. In this regard the assessee has submitted before me that it has purchased the item or taken services from these suppliers/service providers and the payment has been made by account payee cheques. There is no material or evidence that the society has any link directly or indirect with any of these enterprises. These were independent supplier who has provided services. One of the persons is a painting contractor to whom ....