TaxTMI 
TaxTMI 
2015 (3) TMI 888
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....IT(E) are restricted to AY 2007-08 as the Hon'ble Bench comprising Chief Justice has elaborated in their order that; "We uphold the order of rejection on the grounds of limitation as also on merits for assessment year 2007-08. However we make it clear that the Order passed by us today in this case will not preclude the assessee from making application for approval under Section 10(23C)(vi) or Section 11 of the Act in future and if such an application is made, the competent Authority will decide the matter uninfluenced by this Order. " In view of the said order of the Hon'ble Supreme Court, CIT -A's order upholding the contention of the AO under the influence of the order of DGIT -(E) is beyond the jurisdiction and against the directions of Hon'ble Supreme Court, therefore, the impugned order in appeal is liable to be quashed as bad in law and also contrary to the directions of Hon'ble Apex Court. 3. Ld. CIT -A erred in upholding the contention of Ld. DDIT(E) that the activities of the assessee society are found to be for profit and not for charitable purposes and is not justified in declining the exemptions Vis 11 & 12 of the Income Tax Act whereas the exemp....
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....the Vehicles. The DDIT (E) without verifying the factual details disallowed the expense. 7. That having regard to the facts and circumstances o f the case, the ld. CIT -A erred while upholding the order of DDIT(E) alleging that the expenditure shown on account of construction of College and Hospital building and hostel expenses are inflated and the allegation that trust funds have been siphoned off. Whereas all the expenditures are properly vouched and find place in the books of accounts of the appellant and duly produced for verification during the remand report before the Assessing officer as well. Therefore, the contention of the AO is out of proportion and to be quashed. 8. That having regard to the facts and circumstances of the case, Ld. CIT -A has erred in law and on facts by upholding the contention of Ld. DDIT(E) in passing the order by not allowing the depreciation claim. 9. That having regards to the facts and circumstances of the case, Ld CIT-A has erred in law and on facts in upholding the order of the DDIT(E) estimating the income of the appellant society at Rs. 59,60,363/- calculated at 50% of the gross receipts of the society for Rs.l,19,20,725/-, which is wholly....
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....appellant filed u/s 10(23C) of the Act, ignoring the directions of Hon'ble Supreme Court in the order dated 2-4-2012, wherein it was held that the findings of the order of DGIT(E) are restricted only to AY 2007-08. Ld. AR has drawn our attention towards Paper Book page no. 41 and 42 of the assessee and submitted that Hon'ble Supreme Court, while upholding the order of rejection on the ground of limitation and merits for AY 2007-08 made it clear that the order passed by their lordships in that case will not preclude the assessee from making an application for approval u/s 10(23C)(vi) or section 11 of the Act in future and if such an application is made, then the competent authority will decide the matter without being influenced by the order of the Hon'ble Apex Court. Ld. AR further contended that the CIT(A) was not justified in upholding the contention of the AO which was purely influenced by the order of the DGIT(E) and was against the directions of the Hon'ble Supreme Court and, therefore, the impugned order is contrary to the directions of the Hon'ble Supreme Court liable to be quashed. 7. Ld. AR further submitted that the Ld. CIT(A) has erred in upholding the contention of....
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....stances the AO rightly proceeded to assess the income of the assessee without allowing the benefit of exemption as provided in section 11 and 12 of the Act and the assessee society was rightly assessed in the status of Association of Persons (AOP). 10. Ld. AR also placed rejoinder to above submissions of the department and submitted copies of the decision of ITAT 'A' Bench in ITA No. 1647/Del/2009 dated 17.6.2011 and in ITA No. 1607/Del/2013 for AY 2009-10 dated 18.7.2014 and submitted that the registration us/ 12AA of the Act was granted to the assessee society vide order dated 3.9.2004 which was cancelled by the DIT(E) and the same was set aside by the Tribunal with a further direction to decide the matter afresh. Ld. AR vehemently contended that the department has not passed any order in the second round of proceedings as per directions of the Tribunal order dated 17.06.2011 (supra) and the order granting registration u/s 12AA r/w section 12AA(1)(v) of the Act dated 3.9.2004 w.e.f. 1.4.2003 is in force till date. Ld. AR has further drawn our attention towards order of the ITAT "A" Bench Delhi for AY 2009-10 dated 18.7.2014 (supra) and submitted that the Tribunal has held that a....
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....abad had rejected the application for grant of exemption under section 10(23C)(vi) of the Act. In the present case, as we have already pointed out that the assessee was engaged in the activities of providing the education since its inception and the said activity comes under the purview of charitable activities as per the provisions contained in section 2( 15) of the Act. Secondly the rejection of application under section 10(23C)(vi) of the Act cannot be a reason to cancel the registration under section 12AA(3) of the Act. On going through the detailed submission, I considered that the findings of the DGIT(E) were followed by the AO during the assessment proceedings without further examining the same. The assessing officer is duty bound to make proper examination and inquiry in such matters. The conclusions drawn by the DGIT were in the nature of creation of doubts which also could not be properly established and the AO just followed those remarks. The salary registers were also impounded for further verification and examination by forensic department, whereas the said action was also incomplete and without the report from expert, the appellant was held as guilty. The assessment p....
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....esent case, we are of the considered view that the CIT(A) erred in upholding the contention of the AO in the assessment order which were influenced by the order of DGIT(E). At the cost of repetition, we are inclined to hold that since the registration granted for the assessee on 3.9.2004 w.e.f. 1.4.2003 is still in force and the DIT(E) has not taken any action in pursuance to the order of the Tribunal dated 17.6.2011 (supra), then it is an obvious fact that the registration of the assessee society u/s 12A of the Act is in force, therefore, the claim of the assessee for grant of exemption u/s 11 of the Act cannot be rejected merely on the basis of order of the DGIT(E) which rejected application for registration u/s 10(23C)(vi) of the Act. At the same time, we also conclude that the exemption u/s 11 and 12 of the Act cannot be denied only on the basis of rejection of application of the assessee filed u/s 10(23C) of the Act. Before we part, we may point out that the CIT(A) in the impugned order has clearly held that action of the AO in allowing exemption u/s 11 and 12 of the Act is beyond jurisdiction exercised by him during the assessment proceedings and at the same time, the CIT(A) ....
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....as not judicious and the CIT(A) simply upheld the conclusion of the AO without addressing to the contention of the AO and submissions of the assessee and even the comments of the AO in the remand report which also support the case of the assessee. 18. Placing reliance on the decision of Hon'ble Jurisdictional High Court of Delhi in the case of DIT(E) vs Bharat Kalyan Pratisthan (supra) and decision in the case of DIT(E) vs Keshav Social and Charitable Foundation (supra) and decision of the ITAT, Jaipur in the case of Arya Sanstha vs CIT (supra) and submitted that when the assessee had furnished list of donors, their income tax return acknowledgement, copies of their annual account and bank statement along with memorandum of association of all the donor companies and also obtained confirmation of all the petty donation with their identification, then the AO cannot make addition u/s 68 of the Act, treating the amount of corpus donations and petty donation as cash credits. The AR further pointed out that the AO or the CIT(A) has not brought out any adverse material or fact that either the corpus donations or petty donations were introduced by the assessee society to rotate its unexpl....
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....O to the CIT(A) during first appellate proceedings wherein on the issue of corpus and petty donations, the AO has accepted some vital facts supporting the claim of the assessee which read as under:- "Corpus Donations: The assesses objection regarding contents quoted from the letter dated 04.08.2008; it is correct that the assessee had stated that it had also received corpus donations along with the income from operations of Ayurvedic College by way of fees, hospital development fees. Hostel fees, and receipts from the patients in the hospital. Further the assessee has stated that corpus donation of Rs . 71,00,000/- and Rs. 4,05.000/- (petty donations) were received and assessee had furnished the income tax return acknowledgment, copy of annual accounts and bank statements with Memorandum of Association of all the donor companies and obtained confirmations of all the petty donations with their identifications But the assessee could not produce in person the donor parties during the assessment proceedings therefore the AO made the additions considering the amount as unexplained cash credit which is based on sound footing. The assessee relied on the judicial pronouncements in ....
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....idance from the decision of Hon'ble Jurisdictional High Court of Delhi in the case of DIT vs Bharat Kalyan Pratisthan (supra) wherein it has been held that where the CIT(A) recorded a categorical finding that the Trust had furnished all details required by the AO and having done so, it was not for the Trust to produce the donors before the AO as desired by him. On this issue, we further take cognizance of the decision of Hon'ble Jurisdictional High Court of Delhi in the case of DIT(E) vs Keshav Social and Charitable Foundation (supra) wherein their lordships held that when the assessee had furnished the list of donors and the AO disallowed the claim stating that the assessee could not furnish details regarding the donors and that it was just a way of introducing unaccounted money into the books of the assessee trust and thus, the AO treated the same amount as cash credit making addition u/s 68 of the Act. In this case, dismissing the appeal of the revenue, Hon'ble High Court held that to obtain the benefit of exemption us/ 11 of the Act, the assessee was required to show that the donations were voluntary and the assessee had not only disclosed its donations but had also submitted a....
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....mitted that the finding of DGIT(E) were also not conclusive being decided without the expert advice and the embezzlement and fraud so stated does not in any way establish the intent of siphoning of funds by the assessee society or its office bearers or its management officers. Therefore, the conclusion of the AO deserves to be quashed. The AR further pointed that the revenue authorities have not brought out any evidence to show that the embezzlement or fraud have taken place by the officers or managers of the assessee society or with their help and therefore, the conclusion of the AO on this issue is not sustainable. 27. Ld. AR further pointed out that the management of the Trust has taken a serious action against the culprit employees for their act of fraud, therefore it was wrongly concluded that the money has been siphoned off by the trustees/members of the appellant society. 28. Ld. DR replied that when the AO observed that there was excess salary claim of Rs. 1,59,942 which was debited to the expenditure account, then there was a serious infirmity in the details of salary payment submitted by the asssesse trust before the AO and it was found by the assessing officer in certa....
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....by 30.11.08, the DGIT(E) proceeded to adjudicate the application of the assessee for grant of registration u/s 10(23C) of the Act without assistance of expert report and hence serious criminal allegation of embezzlement against Members and trustees cannot be labelled merely on the surmises and conjectures. The ld. AR strenuously contended that it was not open for the AO to borrow and apply above baseless conclusion of the DGIT(E) for making impugned disallowance about a part of the salary payment claim of the assessee. 31. Ld. DR replied that the cash payment of salary to the employees have left the organisation much earlier is a serious act which resulted into embezzlement and siphoning of the funds by the members/officers and trustees of the society as the salary payments have been made in cash for the period after resignation of respective employees and have been found to be bogus by DGIT(E) and there was no action by the assessee society then it may be inferred that the assessee society is responsible for siphoning of funds. 32. Ld. AR placed rejoinder to the above submissions of the department and submitted that even the AO in the operative para at page 7 has held that the s....
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.... without expert's advice. Hence, we are inclined to hold that although the authorities below have held that there was siphoning of funds from the funds of the society but there is no finding or conclusion that the siphoning of funds was made by the members and trustees of the society. We may also point out that when the act of embezzlement was noticed by the management during the proceedings before the DGIT(E), then the management proceeded to take action against the responsible employee and the management also submitted documents pertaining to appointment, resignation and affidavits of the alleged employees and also some of them were also produced before the DGIT(E), therefore, act of siphoning of funds cannot be attributed to the management or trustees of the society. 34. At this juncture, we respectfully take cognizance of Hon'ble Jurisdictional High Court of Delhi in the case of DIT(E) vs Moti Bagh Mutual Aid Education (supra) wherein their lordships have held thus:- "We view that even if there are minor contradictions or deviations in the accounts of the assessee, that by itself cannot substantiate the allegation that the assessee does not exist solely for educational purpos....
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....expenses claimed by the assessee society are genuine as the vehicles were used only for the purpose of the day to day work of the society and Dr. Sunil Mittal did not use the vehicle for his personal purpose. Ld. AR further submitted that the revenue authorities should have verified whether the vehicle was used for the purpose of activities of the assessee society or not. 37. Ld. DR supported the orders of the authorities below and submitted that the onus was on the assessee to show that the claim of vehicle hiring expenses is genuine and on failure to substantiate this fact, the AO was right in rejecting the claim of the assessee and the CIT(A) was also justified in upholding the conclusion of the AO. 38. On careful consideration of above submissions, we are of the considered view that for verification and allowability of claim of expense of vehicle charges, the prime issue to be adjudicated is that whether the vehicle was used for the purpose and activities of the assessee society and the payment made by the assessee society was in accordance with the prevailing fair market price of the vehicle hiring charges. Although the revenue authorities can also verify the fact of persona....
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....ish the allegations of the AO that the purchase of timber, tiles and iron as shown in a very shabby manner and were not having correct units as per items appearing in sl. No. 139, 140 and 141 and labor payment appearing at sl. No. 38 & 145. Ld. DR further submitted that the AO was quite justified in holding that all the hostel expenses are being paid in cash and the same have varied from month to month and found to be erratic in nature and therefore, the same are not allowable. 42. Ld. AR also submitted rejoinder to the above allegation of the department and submitted that cash memos and vouchers of construction expenses and hostel expenses were very well available before the AO and assessee trust had not been given any opportunity to explain the alleged vague and incorrect narrations as pointed out by the AO and the AO completed the assessment proceedings in a hasty manner keeping his office open on a holiday in the name of shortage of time. The AR strenuously contended that in this situation, how the AO can justify proper consideration of all vouchers and records with details of construction and hostel expenses which was very well verifiable from the vouchers placed before him. ....
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.... sustainable and the same was confirmed by the CIT(A). 45. First of all, we may pointed out that the AO does not raise any doubt about the entire expenditure incurred on construction of college and hospital building and the AO raised doubt only about unsupported payment of Rs. 85,25,300 out of total expenditure of Rs. 2,62,79,888. Meaning thereby the AO was satisfied about the correctness of the remaining payment which was not objected neither during the assessment proceedings nor during the first appellate proceedings. From the narration of the assessment order, we note that the AO has pointed out certain defects in Annexure A submitted by the assessee and after that the AO noted that no explanation was filed by the assessee when confronted with the details of unsupported cash payments but this noting does not show that the AO provided due opportunity of hearing to the assessee to explain discrepancies and inconsistencies noted and objected by the AO. 46. During the first appellate proceedings, the CIT(A) has simply reproduced the detailed contentions of the AO running into 3-4 pages and after reproducing conclusion of the AO, the CIT(A) has confirmed the observations and additi....
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....years. Ld. DR supported the orders of the authorities below and submitted that the assessee has been allowed the benefit of application of funds in the year in which assets were procured and written down value of these assets has been reduced to nil, therefore, claim of depreciation of the assessee society is not allowable specially when there was huge inflation shown in expenditure on account of construction of college and hospital building and also for hostel expenses. 49. At the very outset, we respectfully take cognizance of decision of Hon'ble Bombay High Court in the case of CIT vs Institute of Banking (supra) wherein it has been held that the Tribunal was right in law in directing the AO to allow depreciation on the assets, the cost of which had been fully allowed as application of income u/s 11 in the past year. The operative part of this order is being reproduced for the sake of clarity in our conclusions which reads as under:- "It was held by the Bombay High Court that section 11 of the Income Tax Act makes provision in respect of computation of income of the Trust from the properly held for charitable or religious purposes and it also provides for application and accum....
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....e is to be computed as provided under Chapter 4 as the benefit of section 11 and 12 has been denied to the assessee. The first appellate authority i.e. CIT(A) upheld the conclusion of the AO without any detailed adjudication and ignoring the ratio of the decision of Hon'ble Mumbai High Court in the case of CIT vs Institute of Banking (supra). 51. During the first appellate proceedings, ld. AR of the assessee society also sought attention and consideration of the CIT(A) to the decision of ITAT Bench "H" Delhi in the case of DIT vs Vishwa Jagriti Mission dated 13.5.2011 in ITA No. 3877/Del/2010 for AY 2006-07, we note that the claim of charitable institution for depreciation was allowed by the Tribunal by holding as under:- "4. After hearing both the sides, we find that the CIT (A) has granted the relief to the assessee by holding as under :- "7. In ground No.6 the appellant has raised issue regarding not allowing deduction of Rs. 36,53,818/- on account of depreciation on fixed assets utilized for charitable objects of the trust, in as much as, depreciation is a legitimate deduction in computing the income of the trust. I am also of the opinion that the appellant is entitled to th....
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....1 ITD (BOM) 539 (ii) Director of Income Tax (Exemption) Vs.Framjee Cawasjee Institute (1993) 109 CTR (BOM) 464 (iii) CIT Vs. Institute of Banking Personnel Selection (2003)264 ITR (Bom.) 110 4 ITA No.3877/Del/2010 7.1 Thus, in light of the above discussion, the claim of the appellant in respect of depreciation amounting to Rs. 36,53,818/- is allowed." Since the relief has been granted on the basis of various judgments of ITAT, Delhi Bench, respectfully following the same, we sustain the order of the CIT (A) and dismiss the appeal of the revenue." 52. In view of above, we are of the considered view that the claim of depreciation of the assessee society is legally allowable in the manner as held by Hon'ble Bombay High Court in the case of CIT vs Institute of Banking (supra) and the AO is directed to examine, verify and to allow the same, keeping in view the legal propositions as reproduced hereinabove. Accordingly, ground no. 8 of the assessee is allowed. Ground No. 9 53. Apropos ground no. 9, the ld. AR contended that the Ld CIT-A has erred in law and on facts in upholding the order of the AO, wherein the AO denied exemption u/s 11 and 12 of the Act to the assessee and estimate....