AI Drafter 
TaxTMI 
TaxTMI 
2017 (4) TMI 167
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....d is of diverting the funds of the assessee to its interested concern. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A), erred in admitting additional evidence in the form of telephone bills, building taxes receipts and electricity bills, etc. without giving the Assessing Officer an opportunity to examine the same, thereby violating the provisions of Rule 46A of the IT Rules. 4. The Appellant prays that the order of the Commissioner of Income-Tax (Appeals) I, Mumbai be set aside and that of the Assessing Officer be restored. 5. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 2. Rival contentions have been heard and record perused. 3. Facts in brief are that the assessee is a charitable trust registered as such under Income Tax Act, 1961 & further registered u/s 80G of the Act. Objects of the trust include promotion of education & allied activities. Accordingly, trust is running school, college of engineering, pharmacy, management etc. During F.Y. 2009-10 assessee received donations towards its Building Fund from Mr. Nilesh J. Thakur (Proprietor of PRS Enterprises and PRS Developers) to the ....
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....of the LT. Act in the computation' of income. Hence same could not be added as unexplained income of the appellant. 4.4 The appellant has also filed explanation/reconciliation for the amount of donation of Rs. 6.00 Cr. In addition to various documents in support of the said transaction stating that - In the FY:2007-08 Rs. 75,OO,OOO/- was given to Laxmi Babu Mercating Pvt. Ltd. for purchase of office. But the transaction was cancelled and the money was returned by Laxmi Babu Marketing to the Trust in the FY:20D8-09. During the" FY:2008- 09 accountant had make a technical accounting mistake and wrongly taken amount received Rs. 75 lacs form Laxmi Babu Mercating Pvt. Ltd. to building fund. The said mistake was rectified during the current Financial Year 2009-10 by Debiting building fund and crediting Advance Given to Laxmi Babu Markeing Pvt. Ltd. Building Fund received during the year Rs.6,38,00,000/- Less: Above Rectified Entry Rs.75,00,000/- Amount Transferred to Balance sheet Rs.5,63,00,000/- The books of account of the appellant were produced before he AO and as such same are accepted and not rejected b-y him. The appellant also enjoys Cert....
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....ure to be set off against the surplus of the subsequenly, ears on, the ground that in the' case of a charitable trust, their income was assessable under self-contained code mentioned in s. 11 to s: 13 of the IT Act and that the income of the charitable trust was not assessable under the head "Profits and gains of business" under s. 28 in which the provision for carry forward of losses was relevant. That, in the case of a charitable trust, there was no. provision for carry forward of the excess of expenditure of earlier years to be adjusted against income of subsequent years. We do not find any merit in this argument of the Department. Income derived from the trust property has also got to be computed on commercial principles and if commercial principles are applied then adjustment of expenses incurred by the trust for charitable and religious purposes in the earlier years against the, income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which adjustment has been made having regard to the benevolent provisions contained in s. 11 of the Act and that -such....
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....be relied upon as an evidence in the favour of the assessee, to conclude that 'the nature of transaction with the excluded person is in the nature of 'deposit "for leased assets. ' "b) That the agreement is just a facade to camouflage the diversion of funds of the trust to an excluded person in the garb of the said agreement. c) That the agreement is a colorable device, merely created, to legalise prohibited transactions, with a view to save tax liability and is sham and bad in law. d) That the agreement has been entered into with a deliberate and intentional mala fide design to divert the money of the charitable entity to the business concern of the trustees. The .agreement being colorable device, is liable to be treated non-est and cannot be relied upon as an evidence in support of the claim that the amount diverted is in the nature of 'deposit for leased assets'. e) Hon. Apex Court in 154 ITR 148 (SC) McDowell and Co. Ltd. Vs. Commercial tax Officer has observed as under: "Tax planning may be legitimate provided it is within the framework of law Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belie....
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....to Mar.2014. The company has forgone rent @ Rs. 35.00 Lacs per month for 72 months which amounts to Rs. 2S.20 crore against which the deposit kept by the trust is just Rs. 6.8O. Crore as on 31.03.2010. If he trust was required to pay rent as per the market trend the total amount payable amounted to Rs. 7. 70 Crore by the rust to Kalyani Education Pvt. Ltd. for the FY as under: Particulars Amount in Crores Deposit for Equipment 3.50 12 Months Rent Rs. 35 Lacs in advance 4.20 Total Amount Payable 7.70 However the trust has just kept only Rs. 6.BO Crores for deposit for leased assets. Respected Madam it is now very much Clear that no funds have been diverted from the trust to benefit of the excluded persons hence the section 13(l)(c)(ii) does not apply as it state as under. "Section 13(1)(c)(ii) reads as follows "if any of such income or any property of the rust or the institution' (whenever created or established) is during the previous year used or applied, directly of indirectly for the benefit of any person referred to in sub-section (3) "Section 13(2)(g) reads as follows "if any income or property of the trust or institution is diverted....
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....hat section 13 applies is on department. The onus lies on the revenue to bring on record, cogent material/evidence to establish that the Trust/Charitable Institutions were hit-by the provisions of section 13. (CIT vs. Kamla Town Trust (279 lTR 89 (All.)] 8) The learned AO erred in treating the payment of deposits-which is out of commercial expediency only, as diversion of funds for benefit of excluded person without appreciating the fact that, land & building worth Rs. 35 Cr. were taken rent free by trust for running schools & colleges at a nominal deposit & as such" there is-no undue benefit out of trust funds to the lessor company. 9) The learned AD failed to rebut the commercial expediency of the transaction as explained by the appellant in 'detail during the course of assessment proceedings with the help of relevant facts and figures. [page 11 and 12 of assessment order] Thus, AO's view is guided by the prejudices and preconceived notions about the payment of deposits and nothing is brought on record how the undue benefit is accrued to the payee company. 5.4 I have considered the facts and circumstances of the case and it is on record that the amount of Rs. 6,6....
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.... denying the exemption u/s 11 of the Act to the appellant for the year, solely based on the issue of undue benefit to specified person, is unjustified for being not based on facts hence liable to be rejected. In view of the above facts and the decision in the case of CIT Vs. Kamla Town Trust (Alld.) 279 ITR which clearly supports the ground of the appellant, where it was held that - "Even when there is some transaction involving the interested persons, it is not sufficient to attract section 13, unless some benefit is proved by the revenue." Hence, it is held that there is no applicabllity of section 13 of the LT. Act on the facts and issue during this year as decided by AO for denying exemption u/s 11 of the Act. 5.6 In view of facts and circumstances of the case on this issue, the appellant is entitled for exemption u/s.11 of the I.T.Act, Hence, the AO is directed to delete the additions and allow exemption to the appellant u/s.11 r.w.s. 12 and 13 of the I.T.Act. 6. Against the above order of CIT(A) revenue is in further appeal before us. 7. We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that asse....