TaxTMI 
TaxTMI 
2018 (10) TMI 1919
X X X X Extracts X X X X
X X X X Extracts X X X X
....als), Central, Pune dated 14.10.2014 for A.Y. 2008-09 & 2009-10 respectively. Since all the appeals are interconnected, all these appeals are heard together. We first take up the appeal for A.Y.2007-08. 2. The facts as culled out from the material on record for AY 2007-08 are as under. Assessee is a trust whose aims and objects are stated to include imparting education, running educational institutions. Assessee filed its return of income for A.Y. 2007-08 on 31.10.2007 showing Nil taxable income. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) of the Act vide order dated 31.12.2009 and the total income was determined at Rs. 31,06,59,700/-. Aggrieved by the order of Assessing Officer (AO), Assessee carried the matter before CIT(A), who vide order dated 31.10.2014 (in appeal No. PN/CIT(A)- CENTRAL/DCIT Cen. Cir. 2(2)/1188/2009-10) granted partial relief to the Assessee. Aggrieved by the order of Ld CIT(A), Assessee and Revenue are now in appeal before us. The grounds raised by the Assessee in appeal No 2075/PUN/2015 reads as under. "1. On the facts and in the circumstances of the case the CIT(A) has erred in not apprecia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s erred in deciding the issue of excess payment of rent considering only one limb of the Hon'ble ITAT's order no.149/PN/2010 dtd. 31/03/2012 regarding the existence of M. N. Navale (bigger HUF), however has entirely overlooked the other limb of the said order wherein the Hon'ble ITAT had directed the AO to examine the veracity of source of investment in the properties by the Bigger HUF which were let out on rent to the assessee. 4. On the facts and in the circumstances of the case, the Ld. CIT (A) was not justified in deleting the addition made by the AO on account of Investment in shares of Co-operative bank and Public Limited Companies by not. appreciating the Facts that the assessee had contravened the provisions of Section 13(1)(d) for the reason of investment in shares of co-operative bank and Public Limited Companies as these are not specified in section 11 (5) of the Act. The Ld. CIT (A) has also not appreciated the fact that similar addition made in A.Y. 2006-07 with respect to investment in shares of Cooperative Banks which has been confirmed by Ld. CIT (A). Further, the Ld. CIT (A) has not considered the amended provisions of section 13(1)(d)(iii) of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns referred to in section 13(3) of the Act. He, therefore, held that the Assessee is to be assessed like any other assessee and no benefit u/s. 11 & 12 were available to Assessee and accordingly treated the Assessee to be as "Association of Persons (AOP)". Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A) who granted partial relief to the Assessee by following his own order in Assessee's own case for AY 2008-09. The relevant observations of the Ld. CIT(A) are as under: "6. Grounds No.1 (a) and 2(c): Under these grounds of appeal it is contended that the AO erred in holding that the appellant had contravened the provisions of section 13(1)(c) by reason of payment of excess rent to Shri M. N. Navale and that no disallowance under section 40A(2)(b) was called for on account of the rents paid to Shri M.N.Navale. This ground is identical to Ground No.1 (a) and 2(b) of appeal for AY. 2008-09. Hence, the ratio of decision for AY 2008-09 applies equally to this AY too. 6.1 In view of the detailed discussions in my order in the appellant's own case for A.Y 2008-09, the additional made by the Ld. AO vis-a-vis the properties at Flat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w, but left the issue of quantification of the income generated by the HUF out of its agricultural holdings to the Ld. AO That exercise for quantification by the AO of income potentially earned by the HUF and the assets acquired by the HUF out of the same, is still underway. From the point of view of the issue at hand, however, the significant fact to be noted is that ITAT categorically held that the Compromise Decree passed by the Civil Court, Pandhapur is sacrosanct and binding upon the department " so far as the quantity allocated by the Hon'ble Court, Pandharpur are concerned.". Having perused a copy of the said Compromise Decree, I find that the properties under contention namely Flat No. 7,8 & 9, Geeta Building, Sion, Mumbai and the property at Warje ( NDA Road) are listed as properties of the M.N Navale ( Bigger HUF) which have been partitioned among the smaller HUFs. Such being the facts, respectfully following the decision of jurisdictional bench of ITAT which still holds the field notwithstanding the department's appeal before the Hon'ble High Court. I hereby uphold the appellant's contention and delete the addition worked out by the Ld. AO on account of excess re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of similar properties or comparable instances of rent paid for similar properties. I have given careful consideration to the appellant's submissions on this issue. There is little doubt that the rental value of any property would depend on a number of factors including some of the factors listed by the appellant At the same time, however, where the owner and the tenant were closely related and there is a strong reason to believe that the transaction was not at arm's length, there is little option with the AO but to estimate the fair rent In this context I do not find any fundamental infirmity in the AO's reliance upon the judgment of the Allahabad High Court. I also find that my predecessor while deciding the appeal in the appellant's case for A Y 2006-07 had held as follows: "10.11 With regard to the Assessing officer questing the hiring of the Farm House at Village Warje, NDA Road, Pune which was approximately at 10 Kms distance from the campus of the institutions run by the appellant has justified its earlier stand and contented that it was not for the Assessing Officer to suggest that the appellant should have hired halls for meeting and sports comple....
X X X X Extracts X X X X
X X X X Extracts X X X X
....least one year. It is a common experience that investment in properties for its rental return have not been found to be a worthwhile proposition and experience and it has been experienced that bank fixed deposit have been providing better rates of returns with lesser hassels. 10.13 It is therefore a fact that there are decisions of two different High Courts, in which 7 to 8.4% of the rate of return with reference to the cost of investment in property have been held to be reasonable. It is also noticed that the appellant has not been able to give any contrary decisions of any court of tribunal." 6.11 In view of the my observations as above as well as considering the reasons provided by the CIT(A)-II, Pune in his order extracted above with which I am in full agreement, this argument of the appellant is also hereby rejected. 6.12 The next contention of the appellant is that Shri M.N.Navale was making immense contribution to the management of the affairs of the appellant trust including day to day administration, coordination and liaison, obtaining necessary clearances from government authorities, entering into agreements, pursuing legal matters, managing the....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., Pune while disposing of the appellant's case for A.Y 2006-07, I find myself in full agreement with him. It is a self defeating argument to say that since the managing trustee was making a valuable contribution, the trust found a way to compensate him by paying excess rent for the properties owned by him and hired by the trust. It is also true that the case law relied upon by the appellant in his support does not come to his rescue by any stretch of imagination. In that case the issue arose vis-à-vis the amount spent by a missionary on maintenance of nuns who had taken vows of poverty, were not supposed to own any worldly wealth, and were not getting any salary. Having considered these facts, the Hon'ble High Court of Madras held that the provisions of S. 13(1)(c) could not be invoked in relation to the amount spent on their maintenance. There are absolutely no parallels between the facts of the case and the present one. Most significantly, amounts spent on subsistence of an individual cannot be equated with rent paid for hiring of properties. As such this argument off the appellant is hereby rejected. 6.14 The next contention of the appellant is that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plied by the AO without bringing on record any comparable data regarding reasonableness of rent. In doing so he has also ignored CBDT Circular NO.6-P of 1968 dated 06/07/1968 which mandates that fair market value of the goods, legitimate needs of the business and benefit derived etc. I have given careful consideration to this submission of the appellant. In the said circular, the Board had conveyed that while invoking the provisions of the section the Assessing Officer is expected to exercise his judgment in a reasonable and fair manner and that it should be borne in mind that the section is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in the manner which will cause hardship in bonafide cases. As discussed in the foregoing paragraphs, the facts of the present case do not speak of a situation where the AO has acted in the manner in which CBDT has spoken of in its circular. For the reasons discussed in detail in the said paragraphs, the applicability of S. 13(1)(c) in the appellant's case is hereby upheld. Accordingly, the appellant cannot draw any support from the said circular. 6.17. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee trust has taken on rent flat/office at Govind Chambers, Karve Road, Pune on a monthly rent of Rs. 75,000/-, the farm house at Warje, NDA Road, Pune on a monthly rent of Rs. 1,25,000/- and Flat Nos. 7,8, & 9 in Geeta Building, Sion, Mumbai on a monthly rent of Rs. 1,56,000/-. According to the Assessing Officer the fair rent should be equal to 7% per annum of the cost of the property in view of the decision of Hon'ble Allahabad High Court in the case of Radha Devi Dalmia reported in 125 ITR 134. We find the Ld.CIT(A) enhanced such fair rent to 9% of the cost of property. It is the submission of the Ld. Counsel for the assessee that the rent paid to M.N. Navale (Bigger HUF) in respect of the first two properties are outside the purview of section 13(1)(c). It is also his submission that the CIT(A) in assessee's own case for A.Y. 2007-08 and 2008-09 has held that there is no violation of provision of section 13(1)(c) on account of rent paid to M.N. Navale (Bigger HUF) in respect of the properties being Flat No.7, 8 and 9 at Geeta Building, Bombay and the Farm house at Warje. 83. We find force in the above argument of the Ld. Counsel for the assessee. We find the CIT(A)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....UF) which have been partitioned among the smaller HUFs. Such being the facts, respectfully following the decision of jurisdictional bench of ITAT which still holds the field notwithstanding the department's appeal before the Hon. High Court, I hereby uphold the appellant's contention and delete the addition worked out by the Ld. AO on account of excess rent paid to the bigger HUF. It is also correct that the said Bigger HUF does not stand in a relationship specified under section 13(3) of the Act. Therefore, the provisions of section 13(1)(c) will not be attracted vis-à-vis these properties. 6.9. . . . . . . . . . . . . . . . 6.17. In view of the detailed discussions above, the addition made by the Ld. Assessing Officer vis-à-vis the properties at Flats No.7,8 & 9, Geeta Building, Sion, Mumbai and Farm House at NDA Road, Warje, Pune are hereby deleted and the additions in respect of the remaining properties are confirmed. For the same reasons, the applicability of S.13(1)(c) in the appellant's case is hereby upheld since a part of the income of the institution was used during the PY for the benefit of a person referred to under section 13(1)(c). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hri M.N. Navale although may be higher according to the Assessing Officer, however, considering the services rendered by Shri M.N. Navale to the trust free of any remuneration should have also been considered. 87. We find the CIT(A) has directed the Assessing Officer to adopt 9% of the cost of the property at Karve Road as reasonable rent. While doing so, he has also relied on the decision of the Hon'ble Allahabad High Court in the case of Smt. Radha Devi Dalmia reported in 125 ITR 134. In our opinion, the above decision is not applicable to the facts of the present case. In that case, the property was vacant and for the purpose of section 22 of the I.T. Act the notional annual value was required to be decided u/s.23. Under these circumstances the annual value of the property was directed to be determined at 7% of the cost of the property. However, in the instant case the assessee had filed certain details before the CIT(A) for calculation of fair rent of the property which has been ignored by him. Under these circumstances and in the interest of justice, we deem it proper to restore this issue to the file of the CIT(A) with a direction to adjudicate this issue in the ligh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Section 13(1)(d) of the Act and accordingly, the Assessee trust is to be assessed as AOP. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who, following his order for AY 2008-09 granted partial relief to the Assessee by observing as under: "7. Ground No. 1(b): Under this ground of appeal, the appellant has challenged the AO's action of holding that the appellant had contravened the provisions of S. 13(1)(d) for the reason of investment in shares of cooperative banks and public limited companies. Upon closer perusal it is seen that this ground is identical to Ground No. 1(b) for A.Y. 2008-09. Hence, the ratio of decision for A.Y 2008-09 applies equally to this AY too." 12. While deciding the issue for A.Y 2008-09, the Ld. CIT(A) has observed as under: "7.8 The next issue therefore is applicability of the said provision, namely, S. 13(1) (d) vis-à-vis Shares held in Public Limited Companies. In this regard, the appellant vide submission dated 14.03.2012 has enclosed a list of the shares acquired. It is contented that there are the shares of different companies having different activities. The quantity of the shares acquired was ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re income and at the most dividend on shares would lose the benefit of exemption. He pointed to the relevant findings of the order. He therefore submitted that since the facts of the case in the year under appeal are identical to that of AY 2006-07, following the order of the AY 2006-07, the ground be allowed. Ld DR on the other hand supported the order of Assessing Officer and further submitted that once there was violation of the provisions of Section.13(1)c) rws 13(2)(a) to 13(2)(h) of the Act, for diversion of income or part of the income for the benefit of the interested persons as prescribed under Section 13(3) of the Act, the Assessee would forfeit the benefit of exemption under Section 11 and 12 of the Act on the entire income and no benefit of application of income can be given. 14. We have heard the rival submissions and perused the material on record. We find that identical issue arose in Assessee's own case in A.Y 2006-07 and the issue was decided by the Co-ordinate Bench of the Tribunal by observing as under: "128. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ical observation of the jurisdictional Bench of the Tribunal in para 28 of ITA No.113/PN/2010 in the appellant's own case for 1999-2000. 7.10 The AO is directed accordingly. In view of the above decision with regard to investment in shares of co-operative society and shares of public limited companies, this ground of appeal may be treated as partly allowed." 130. We find the CIT(A) has also followed the same view in A.Y. 2007-08. It was brought to our notice by the Ld. Authorised Representative that the Revenue has not gone on appeal on this issue. 131. While deciding the additional ground No.3 we have already held that there cannot be wholesale denial of exemption of the entire income of the assessee and at the most dividend on shares would lose the benefit of exemption. In view of the above, we restore the issue to the file of the Assessing Officer with a direction to find out the dividend income, if any, out of these shares including that of value of bonus shares that were received/obtained during the year and bring the same to tax. We hold and direct accordingly. Ground of appeal No.8 by the assessee is accordingly partly allowed for statistical purpo....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it is true that the Hon'ble High Court, which is the jurisdictional High Court, has categorically observed that investment in shares of Co-operative banks which is a precondition for raising of loans is not an 'investment' as normally understood. It is also true that there is no adverse finding of fact in the impugned assessment order either as regards the fact that the investment were utilized for the objects of the trust. In view of these facts, I find the contention of the appellant acceptable and accordingly, hold that section 13(1)(d) cannot be allowed invoked vis a vis the investments in shares of cooperative society." 123. In the instant case also the Ld. Counsel for the assessee substantiated that the shares were obtained on account of loans availed. He has also filed a chart showing that after the loans were repaid, the shares were subsequently redeemed in May 2010 and July 2010. Therefore, considering the totality of the facts of the case and relying on the decision of Hon'ble Bombay High Court cited (supra), we hold that the assessee has not violated the provisions of section 13(1)(d) by investing in shares of cooperative banks from which it h....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... claim remitted the issue to AO. He pointed to the relevant paras 159 to 162 of the Tribunal and submitted that since the issue under the year in consideration is similar to that of AY 2006-07, therefore, with similar directions, the matter may be remitted to AO. Ld DR did not controvert the submissions of Ld AR but however supported the order of CIT(A). 18. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to allowability of prior period expenses which were disallowed by AO and CIT(A). We find that identical issue arose in Assessee's case in AY 2006-07. The Coordinate Bench of Tribunal, by following the decision of Hon'ble Bombay High Court in the case of CIT Vs. Nagri Mills (33 ITR 681) and Ahmedabad Bench of Tribunal in the case of ACIT Vs. Home & Life Solutions (India) Ltd (41 taxmann.com) remitted the matter back to the AO. The relevant observations of the Tribunal in AY 2006-07 as under: "159. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cite....
X X X X Extracts X X X X
X X X X Extracts X X X X
....DR supported the assessment order, whereas the learned AR supported the order of the learned CIT(A). 15. We have considered rival submissions. We find that it is observed by the learned CIT(A) at page no.11 of his order that this request was also made by the assessee before the AO that this expense, related to prior period, should be either allowed in the present year or if it is not allowed in the present year, then the same should be allowed in the earlier year, to which such expenses are related to. He also noted that the AO has totally ignored this aspect, although, he has passed the assessment order for the preceding year i.e. A.Y.2000-2001 on the same date. We are of the considered opinion that when there is no other objection of the AO, regarding allowabililty of expenses relating to prior period, the same should be allowed either in the present year or in the preceding year, to which such expenses are related to. The assessee has disclosed a loss of Rs. 6,92,700/- in the present year, and in A.Y.2000-2001, the assessee has filed return of income disclosing NIL income after setting off of brought forward loss of earlier years to the extent of Rs. 303.11 lakhs. Hence....
X X X X Extracts X X X X
X X X X Extracts X X X X
....exemption under section 11. 13.1 The AO has not specifically discussed this issue in the order other than holding that the assessee was not entitled to the benefit-of section 11 and 12 and was to be assessed as an AOP. He added the said amount to the income of the appellant in the computation occurring at the end of the order with the remark "Add: Donation". 13.2 The appellant in its brief submission on this issue vide letter dated 14/03/2012, has contended that the AO has made the addition merely relying on the report of the Special Auditor ignoring the fact that these donations were received from doners towards trust corpus with specific directions to this effect. Being earmarked donations towards the trust corpus, the receipts capital in nature and could not be taxed regardless of whether or not the appellant was held to be eligible for deduction under section 11. 13.3 I have given careful consideration to the above facts. The scheme of taxation of charitable trusts and institutions under the IT Act is that firstly all voluntarily contributions received by them are deemed to be the income of such entities under section 2(24)(iia) and thereafter, subjec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the case the CIT (A) has erred in holding that shares acquired in Public Ltd Company are in the nature of investment contravening the provisions of section 13(1)(d) overlooking the fact that the said expenditure of Rs. 1,50,000/- incurred on acquiring those shares constitute the capital expenditure incurred for furtherance of objects of trust and therefore it amounts to application of income. 4. On the facts and in the circumstances of the case the CIT (A) has erred in sustaining the disallowance of Rs. 69,00,538/- on the ground that it is a prior period expenditure. The above grounds of appeal may kindly be allowed to be amended, altered, modified etc., in the interest of' natural justice." 25.1. On the other hand, the grounds raised by the Revenue (which have been subsequently revised) in ITA No.16/PUN/2015 for A.Y. 2008-09 reads as under: "1. On facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance made u/s.40A(2)(b) on account of payment on rent in excess made to M.N. Navale ( Bigger HUF), a related party. 2. On facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the grounds raised by the assessee in its appeal for A.Y. 2007-08 and therefore the submissions made by him while arguing the appeal for A.Y. 2007-08 would be equally applicable to the present appeal also. Ld DR did not controvert the submissions made by Ld AR. 27. We have heard the rival contentions. Ground of appeal No.1 is dismissed. The Ld. AR for the assessee pointed out that the ground No.2, 3 and 4 raised in A.Y.2008-09 and ground of appeal No.2 and 3 raised in A.Y.2009-10 are identical to issue raised in A.Y.2007-08 by the assessee. According, we hold that our decision given in A.Y.2007-08 on the said issues would apply mutatis-mutandis. Accordingly, said grounds of appeal are decided as in A.Y.2007-08. The Ld. AR for the assessee pointed out that the issues raised by Revenue in ground of appeal No. 1 to 5 are similar to ground raised by Revenue in A.Y.2007-08. Hence, our decision in A.Y.2007-08 would apply mutatis-mutandis. Grounds of appeal raised by Revenue are, thus, decided as indicated above. 28. Ground No 6 raised by Revenue is with respect to deletion of disallowance of Rs. 1,49,532/- in respect to amounts written off. 29. CIT(A) while deciding the issu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1,50,000/- incurred on acquiring those shares constitute the capital expenditure incurred for furtherance of objects of trust and therefore it amounts to application of income. 3. On the facts and in the circumstances of the case the CIT (A) has erred in sustaining the disallowance of Rs. 59,33,827/- in the ground that it is a prior period expenditure." 35. On the other hand, the grounds raised by the Revenue (which were subsequently revised) in Appeal No.17/PUN/2015 reads as under: "1. On facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance made u/s.40A(2)(b) on account of payment on rent in excess made to M.N. Navale (Bigger HUF), a related party. 2. On facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the provision of section 13(1)(c) r.w.s.13(3) of the Income Tax Act, 1961 are not attracted. 3. On facts and in the circumstances of the case, the Ld. CIT(A) has erred in deciding the issue of excess payment of rent considering only one limb of the Hon'ble ITAT's order no.149/PN/2010 dtd.31/03/2012 regarding the existence of M. N. Navale (bigger HUF), howe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecord. In view of the Ld AR's submission, ground No.1 is dismissed as not pressed. As far as the issues raised in ground Nos.2 & 3 are concerned, in view of the submissions of both the parties that the facts in those grounds are identical and similar to the grounds raised by Assessee in AY 2007-08. Following the same parity of reasoning, our decision given in A.Y.2007-08 would apply mutatis-mutandis to the issue raised by assessee. Hence, grounds of appeal raised by assessee are decided accordingly. Similarly, issues raised by Revenue are also identical to the issues raised in A.Y.2007-08 and our decision shall apply mutatismutandis. 38. In the result, appeal of the assessee and appeal of the Revenue are decided as indicated above. 39. We now take up Assessee's appeal No.2077/PUN/2014 for AY 2008- 09. 40. The grounds raised by the Assessee in ITA No.2077/PUN/2014 reads as under: "On the facts and in the circumstances of the case the CIT(A) has erred in not directing the Assessing Officer to rectify the assessment order by setting off the unabsorbed deficit of earlier A.Y. 2000-01 and 2003-04." 41. Before us, at the outset, the Ld AR submitted that the grounds r....