TaxTMI 
TaxTMI 
2020 (1) TMI 445
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....lso granted approval u/s 10(23C)(vi) of the Act, 1961 vide notification No. 10/2007-08 dated 28.12.2007. 3. For A.Y 2014-15, the assessee filed its return of income declaring total income at Nil on 26.09.2014. Thereafter, a search was conducted on 11.12.2016 in the case of M/s Integral Urban Cooperative Bank Ltd to which the assessee belongs and thereafter, a notice u/s 153C was issued on 22.12.2017 and in compliance thereof, the assessee filed its return of income on 13.01.2018 declaring total income at Nil claiming exemption of Rs. 6,34,41,423/- u/s 10(23C)(vi) of the Act. Thereafter, the notice u/s 143(2) was issued on 11.07.2018 and notice u/s 142(1) issued on 17.07.2018 asking various details/information from the assessee society. The said details/information were subsequently submitted by the assessee and examined by the Assessing Officer. 4. During the pendency of reassessment proceedings, the ld. Pr. CIT (Central), Rajasthan, Jaipur passed orders withdrawing approval granted u/s 10(23C)(vi) on 14.12.2018 and approval u/s 12AA was also withdrawn vide letter No. 267 on 14.12.2018 on the grounds of diversion of the funds of the assessee society for personal purposes, non....
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....ssessment order determining total income at Rs. 6,60,24,570/- was passed on 28.12.2018 u/s 143(3) read with section 153C of the Act. 6. For A.Y 2015-16, under identical set of facts and circumstances of the case, the surplus amounting to Rs. 6,65,39,611/- shown in the income and expenditure account was brought to tax. In addition, disallowance was made towards bogus scholarship expenses amounting to Rs. 27,94,931/- and the total income was assessed at Rs. 6,93,34,540/- vide order dated 28.12.2018 u/s 143(3) r.w.s 153C of the Act. 7. For A.Y 2016-17, under identical set of facts and circumstances of the case, the surplus amounting to Rs. 11,18,05,539/- was brought to tax besides bogus scholarship expenses amounting to Rs. 53,70,250/- was disallowed. Further, the Assessing Officer has disallowed an amount of Rs. 47,10,589/- towards depreciation on building for the reason that the assessee society has no ownership rights over the land and subsequently no depreciation can be claimed on the building constructed on the said land. Accordingly, the total income was assessed at Rs. 12,18,86,380/- vide order dated 28.12.2018 u/s 143(3) read with section 153C of the Act. 8. For A.Y 2....
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....; 15659500 13. We shall now take up each of these grounds of appeal and the relevant contentions taken and material relied upon by both the parties. Taxing surplus as per income and expenditure account (A.Y 2014-15 to A.Y 2017-18) 14. As we have noted above, for each of the years under consideration, the Assessing Officer has brought the surplus of income over expenditure to tax in the hands of the assessee society for the reason that the approval u/s 10(23C)(vi) as well as registration u/s 12AA has been withdrawn by ld. Pr. CIT(Central), Rajasthan, Jaipur. The reason for the withdrawal of the approval by the ld. Pr. CIT(Central), Jaipur relates to diversion of funds of the trust for personal purposes, non genuine scholarship expenses and addition to fixed asset claimed the assessee society in view of the payment made to Rajasthan Housing Board. We find that each of these issues have been dealt with at length by the Co-ordinate Bench while restoring approval u/s 10(23C)(vi) as well as registration u/s 12AA and following the same, the ld. CIT(A) has directed the Assessing Officer not to tax the surplus of income over the expenditure. 15. During the course of hea....
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....society u/s 12AA is hereby directed to be restored from the date the same was withdrawn and cancelled by the ld. Pr. CIT in terms of the impugned order." "60. In ITA No. 10/JP/2019, the assessee has challenged the withdrawal of the exemption granted U/s 10(23C)(vi) of the Act. Both the parties have fairly submitted that under identical facts and circumstances of the case as in ITA no. 9/JP/2019 and following the same reasoning, the ld. Pr. CIT has withdrawn the exemption by invoking 15th Proviso to Section 10(23C) of the Act and similar contentions have been raised by both the parties. Therefore, our findings and directions as contained in ITA No. 09/JP/2019 shall apply mutatis mutandis to this matter as well. The exemption granted to the assessee society U/s 10(23C)(vi) of the Act is hereby directed to be restored from the date the same was withdrawn and cancelled by the ld. Pr. CIT in terms of the impugned order." 17. In light of aforesaid discussion, the ground of appeal so taken by the Revenue for each of the years under consideration is hereby dismissed. Non genuine scholarship expenses (A.Y 2014-15 to A.Y 2017-18) 18. The Assessing Officer has disallowed the....
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....e assessee's bank account. Further, students were produced for verification before the ITO and an affidavit of assessee's accountant who accompanied the students for verification has been placed on record and confirmation letters from the students have also been filed. 32. Firstly, we find that the apprehension raised by the ld PR CIT is based on proceedings conducted by the Assessing officer for AY 2014-15 whereby the AO has issued the summons to the students and basis that, he has reached certain preliminary findings as the Assessing officer has finally passed the assessment order for AY 2014-15 much after the conclusion of the present proceedings before the ld Pr.CIT. We therefore find that the ld Pr.CIT has proceeded on the preliminary findings arrived at by the Assessing officer. Thereafter, even though he has issued the show-cause to the assessee during the impugned proceedings, however, his findings reflect that he was guided solely by the initial and preliminary findings so arrived by the Assessing officer and has not carried out any independent examination and verification of the transactions under consideration. There is nothing in law which prevents the....
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....ne student) and the said payments has been duly reflected in the assessee's bank account. In respect of three students who have denied receiving the scholarship, the assessee has submitted due explanation in terms of one of the student (Yuvraj Singh) having not presented the cheque no. 780228 for payment of Rs. 3306 and the entry for such payments been reversed in the books of accounts on 31.3.2015, and in respect of other two students namely Anshu Agarwal and Pooja Kumar Jain, copy of their scholarship forms duly approved by the Principal, St. Wilfred's College for Girls, copy of account payee cheques issued in their favour bearing cheque no. 780912 dated 13.01.2014 for Rs. 3,180 cleared on 10.02.2014 and cheque no. 780917 dated 13.01.2014 for Rs. 3,180 cleared on 17.02.2014 respectively and copy of their confirmations addressed to DCIT(Exemption), Circle 1, Jaipur are available on record. Therefore, there is nothing on record to suggest that the scholarship payments are not genuine and the amount has been withdrawn by the assessee society in the guise of scholarship expenses. Further, there is nothing on record which remotely suggests that the amount so claimed by the assessee so....
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....authorities. Therefore, the latter is in a position and is expected to timely respond and co-operate in the proceedings before the taxing authorities and in case of non-compliance, he can be fastened with appropriate penalty actions. However, a student who is studying or has recently passed out of his/her college or University and who is issued summons under section 131, he or she is not expected to appreciate and respond in the manner as expected from any other service provider. Therefore, where there is a noncompliance on part of certain students to respond to such notices/summons in a timely manner and in some cases, where they have responded though with wrong facts, the authorities have to appreciate the same in a more realistic manner rather than in a ritualistic manner and their conclusions should not be guided solely by non-appearance of certain students before them. In other words, unless the Revenue authorities are ceased of sufficient material or information and such material/information is credible enough to prove that the assessee society is withdrawing the funds of the society in the guise of scholarship expenses systematically over a period of time and such f....
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.... this is a case of "use of society fund" for the benefit of M/s Adarsh Gyan Vidhalaya Society (a related entity u/s 13(3)) which is in violation of the provisions of section 13(3) of the Act. Further, it is against the objects of the Society, as it is diversion of funds. Hence, it is clear that the assessee has made payment for purchase of land by its sister concern Adarsh Gyan Society. The assessee has only presented a purported agreement to sale which is illegal. In this case, the assessee has, by making payment on behalf of Adarsh Gyan Society, used part of its income for the direct benefit of its sister concern Adarsh Gyan Society and has therefore violated provisions of Section 13(1)(c) and consequently, Section 11 and 12 will not be applicable in the case of the assessee. 8.3 On the basis of above discussion, exemption u/s 10(23C)(vi) and approval u/s 12AA was withdrawn in the case of the assessee. From perusal of the statements of accounts of the assessee, it was observed that the assessee has claimed depreciation amounting to 47,10,589/- on the building on the same land. Since, the agreement to sale is already illegal which proves that the assesse....
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.... is applicable for the two years under consideration i.e. A.Y 2016-17 and 2017-18 respectively and he has no objection where the matter is set aside to the file of the Assessing Officer to carry out necessary verification in this regard. Further, reliance was placed on Hon'ble Kerala High Court in case of CIT vs. Parthas Trust [2001] 116 Taxman 282 (Kerala), the Hon'ble Calcutta High Court in case of CIT vs. General Marketing & Mfg. Co. Ltd., [1989] 86 Taxman 488 (Calcutta) and the Hon'ble Supreme Court in case of CIT vs. Podar Cement (P.) Ltd. [1997] 92 Taxman 541 (SC) for the legal proposition that the assessee would be entitled to depreciation on building constructed by the assessee society even though the land on which building is constructed is not registered in the name of the assessee society. 27. We have heard the rival contentions and purused the material available on record. The case of the Revenue is that since the assessee society has no ownership over the land, no depreciation can be claimed on the building constructed on the said land. We note that the Coordinate Bench has recorded a finding that land is in effective possession of the assessee society and building ....
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....ssee is entitled to depreciation? The facts are as follows : The assessee is a private trust. While completing the assessment, the Assessing Officer disallowed the assessee's claim for depreciation on certain buildings. According to the Assessing Officer, the buildings had not been registered in the name of the assessee-trust. On appeal, the first appellate authority held that the assessee was entitled to depreciation on the buildings as they were constructed by the trust (though the land on which they stood was not registered in their name). The Tribunal held that even if the land does not belong to him, the assessee would be entitled to depreciation. The Tribunal also held that there is nothing in section 32 which bars such a claim being made. 2. The learned counsel for the department Sri P.K. Ravindranatha Menon brought to our notice the following decision in Kalpaka Trust Home (P.) Ltd. v. CIT [1988] 172 ITR 364 (Ker.), wherein it was held that the depreciation cannot be claimed by someone without any real connection with the asset and the claimant must be one with much more than some threads of rights. Depreciation is claimable only by the owner ....
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....me-tax Act and has to be taken as a trendsetter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term 'owned' as occurring in section 32(1) of the Act. The term 'owned' as occurring in section 32(1) of the Income-tax Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. 'Building owned by the assessee', the expression as occurring in section 32(1) of the Income-tax Act, means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been convjeyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc. Generally sp....
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....ousing Board. There are enabling provisions in the conveyance cum perpetual lease deed which allows such transfer subject to approval and sanction of Rajasthan Housing Board. Necessary permission has been sought from the Rajasthan Housing Board for such transfer in favour of the assessee society and the same is currently awaited and on receipt thereof, formal sale deed shall be executed in favour of the assessee society. The assessee society has already paid substantial amount of Rs. 6.73 Crores, out of total purchase consideration of Rs. 7.54 Crores in terms of agreement to sell, directly to Rajasthan Housing Board. Further, the assessee society is in effective possession of the said plot of land as it has since built a school building thereon and carrying on its educational activities and the fees so received have been reflected in its books of accounts. 52. In light of above factual matrix, as far as proximate and immediate benefit of such payment of Rs. 6.73 Crores is concerned, it is the assessee society which is benefitted whereby it has built a school building wherein it is carrying on its educational activities. At the same time, it cannot be ruled out that Adarsh ....
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....ause (d) talks about any relative of any such author, founder, person, member, trustee or manager of the assessee society which is also not a case before us. The clause (e) talks about any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. If we were to read the said clause (e) in the context of present facts, it means Adarsh Gyan Vidyalya society, being a concern in which members/trustees of the assessee society have a substantial interest. The term "substantial interest in a concern" has been defined in Explanation 3 to mean..." "56. That is, members and trustees of the assessee society either individually or collectively are entitled at any time during the previous year, to not less than twenty per cent of the profits of such concern i.e, Adarsh Gyan Vidyalya Society. In the present case, the case of the Revenue is that there are three common members/trustees in both the societies and therefore, these are related entities and are covered by provisions of section 13(3) of the Act. On perusal of records, we find that there are fifteen members in the executive committee of Saint Wilfred Education Society and e....
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....rder. If we look at the provisions of section 11(5), in clause (x), it provides for investment in immoveable property as one of the permissible mode of investment of amount of income which is accumulated or set-apart for being not included in the total income of the person in receipt of income. In the instant case, the assessee society having entered into an agreement to sell with Adarsh Gyan Vidyalya Society and having paid a substantial amount in consideration for purchase of land and in possession of the said land has clearly made an investment in an immoveable property though the same is subject to approval of Rajasthan Housing Board and signing of the final conveyance deed. Accordingly, in light of above discussions and in the entirety of facts and circumstances of the case, the payment to Rajasthan Housing Board is not in contravention of section 11(5) r/w section 13(1)(c) of the Act. Therefore, the findings of the ld Pr CIT cannot be sustained and cannot be made a basis to hold that the assessee society is not carrying out its activities as per its objects and the exemption granted under section 12AA should be withdrawn. 58. In light of above discussions and in the ....
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.... same was not recorded in the books of Integral Bank nor entered in the cash books of accounts of the assessee society and transferred directly to the bank, that the fee was collected from students in old denomination illegally with an objective of converting in new denomination notes and that that there was certain discrepancy in inventory of old & new denomination notes. Accordingly, addition of Rs. 1,56,59,500 was made as unexplained money u/s 69A of the Act. 32. On appeal, the ld CIT(A) held that the issue of cash found at the premises of Urban Co-Operative Bank was duly examined by the Tribunal as the same was one of the reasons for withdrawal of approval u/s 10(23C)(vi) and section 12AA of the Act and referred to the relevant findings of the Tribunal which are contained in para 18- 23 which reads as under: "18. We have heard the rival contentions of both the parties and pursued the material available on the record. During the course of search operations conducted at the premises of Integral Urban Co-operative Bank Limited, cash amounting to Rs. 1,56,59,000 has been found in possession of the Bank at its clearing house room. The statement of General Manager of the ....
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.... assessee society whose statement was recorded u/s 131 on 9.12.2016. In response to question no. 19, he has stated that they issue receipt to the students against deposit of their fees and subsequently in response to question no. 51, he has again confirmed that students have been given receipt against deposit of their fees and the same is recorded in the computers. Further, in response to question no. 9 wherein he was asked the status of cash in hand, he has stated that they prepare a daily collection sheet and based on the same, the daily collection is deposited in the bank. Further, he has stated that they update the books later as and when they get time. In response to question no. 10, he has further stated that books have been updated till 30.11.2016 and for the remaining days, vouchers have been prepared but they couldn't do the entry. If we correlate the said statements of accountants of the assessee society with the statements of the Bank's employees, we find that the said statements corroborates the fact that the source of cash found in the possession of the bank is the fees collected from students by Saint Wilfred College. It is also clear on clos....
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....ipts and related vouchers have been examined by the survey team at the time of survey as evident from the question no. 13 raised to Ganesh kumar Gupta, the accountant of the assessee society where the tax official has asked a question that based on perusal of vouchers, it is apparent that after 21.11.2016, fees and other related charges have been collected in cash amounting to Rs. 2.15 Crores. Therefore, we find that though the cash book has not be updated at the time of survey in terms of recording the movement of cash for deposit in its bank account, cash inward in form of fees collected from the students have been duly recorded in the books of accounts as demonstrated by fee receipts, individual student register, daily cash collection sheets and related vouchers prepared by the assessee society. We therefore find that there was suspicion in the mind of authorities that assessee's funds have been diverted as the cash book doesn't reflect any outward movement of cash. Further, even the Bank has not recorded such funds and there are allegations regarding exchange of old currency notes with new notes. To our mind, once the cash is found in possession of the bank where the as....
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....ssessee society as related entity in terms of section 13(3) of the Act. 22. Now, in order to invoke the provisions of section 13(1)(c) of the Act, the question that arise for consideration is whether Shri Keshav Badaya, being a related person in relation to the assessee society has actually benefited directly or indirectly by virtue of cash belonging to the assessee society found in the possession of the Integral Urban Co-operative Bank where he hold the position of chief executive officer. The provisions of section 13(1)(c) states that if any part of the income during the previous year used or applied directly or indirectly for the benefit of any person referred to sub-section (3) to section 13 of the Act. It thus talks about the usage or application i.e, there has to be actual utilization or application of funds for the benefit of the related person. It doesn't contemplate a situation of intended or future application of such funds for the benefit of such person. In the instant case, firstly the funds belonging to the assessee society have been physically found in the possession of the Bank at its strong room and not in possession of Shri keshav Badaya. Secondly, suc....
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....the funds of the assessee society have actually been diverted for purposes other than the stated objects of the assessee society, it can be said that such funds have not been utilized for the purposes the exemption under the Income Tax Act has been granted to the assessee society and to the extent of such diversion, the provisions of section 11 and 12 shall not apply. Further, where the Revenue through its investigation finds that there is actual diversion of funds of the assessee society and such diversion has actually resulted in direct/indirect benefit of the related persons so defined u/s 13(3) of the Act, the activities and the conduct of the assessee society will surely come under the cloud. In the instant case, the cash has been physically found in possession of the assessee's bank and the said cash belongs to the assessee society as corroborated by the statements of the bank employees, there is thus no basis to hold that there is any diversion of funds of the assessee society for the personal benefit of Badaya family and the same cannot be a basis to withdrawn the exemption so granted to the assessee society u/s 12AA of the Act." 33. Thereafter, the ld CIT(A) has rec....
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....11. Admittedly the cash book was not updated nor was exit of cash to the bank was recorded in the cash book. Yet the nature & source of cash was adequately explained as it is the fee from the student received over period of time which is duly attributable to each of the student (with name & IDs available), the receipts issued to them and corresponding entry in the fee register maintained in the computer. Noticeably, a pointed out earlier, the survey team has examined the receipt vouchers issued by the appellant and nothing adverse is noted by them nor adversely commented upon by the Ld. AO. Thus merely there is no debit entry in the cash book it is not prudent to hold the cash as unexplained when other it is duly entered in the other books of accounts as defined in the section 2(12A) of the I.T. Act. 11.2 Thus the it is not the case that the cash so fond is unexplained. Such cash is duly explained by the documentary evidence which is maintained in the regular course and no suspicion is cash on them. It may be pointed out that following is the date wise collection of cash which his duly reflected in the cash book: Date Amount (in Rs.) 01.12.2017 9,87,037 02.1....
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....ent has stopped over the counter exchange of old notes of Rs. 500 and Rs. 1000 from today midnight. Government has permitted various exemptions for certain transactions and activities wherein payment could be made only through old Rs. 500 notes. All these places will allow usage of Rs. 500 notes till the midnight of 15 December 2016. 1) Payments towards pre paid mobile top-up to a limit of Rs. 500 per top-up. 2) Purchase from Consumer Cooperative Stores will be limited to Rs. 5000 at a time. 3) Payment of fees in Central or State Government colleges. 4) Foreign citizens will be permitted to exchange foreign currency up to Rs. 5000 per week. Necessary entry to this effect will be made in their passports. 5) Payment of current and arrear dues to utilities will be limited to only water and electricity. This facility will continue to be available only for individuals and households. 6) It has been decided that toll payment at toll plazas to be made through old Rs. 500 notes from 3.12.2016 to 15.12.2016. 7) Payment of School fees up to Rs. 2000 per student in Central Government, State Government, Municipality and local body ....