TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 507
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....challenged the rejection of claim of exemption under section 11 of the Income Tax Act, 1961 (Act), which read as under: "7. On the facts and circumstances of the case, the Ld. CIT(A) has erred, both on the facts and in law, in upholding the rejecting the claim of exemption u/s 11 of the Income Tax Act by Ld. AO on the incorrect understanding of accounting principles and provisions of section 13 of the Income Tax Act, 1961. The Ld. AO erred in holding and CIT(A) erred in confirming that (a) This cash transfer, which was not from the appellant, is clearly attracted by the disqualification enumerated in provision of section 13(2) and 13(3), (b) The institution/ school's actual earning capacity/ strength is much higher than what is reflected in their books of account, due to which the erstwhile promoters/substantial contributors have received/ reaped substantial benefit in terms of cash which inures to them for their personal benefit and not for the benefit of the company or for charitable purpose for which exemption u/s 11 read with section 12 and 13 is allowed ignoring that the section stipulates provision of any benefit directly or indirectly to specified persons for rejec....
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.... to K.D.S. Corporation Pvt. Ltd vide receipt dated 08.02.2013. As per this document, 100% shares of MAF Academy Pvt. Ltd. were transferred to Promotors of M/s K.D.S. Corporation Pvt. Ltd. and some of its associates. The details of share transfers are as under: - S. No. No. of Shares Date of transfer of Shares Transferor's name Transferee's name 1. 65100 03.06.2013 Farooqi Asad K.D.S. Corporation Pvt. Ltd. 2. 65130 03.06.2013 Farooqi Fazal Mohd. Abul K.D.S. Corporation Pvt. Ltd. 3. 32550 03.06.2013 Farooqi Jafri K.D.S. Corporation Pvt. Ltd. 4. 32550 03.06.2013 FArooqi Ayesha K.D.S. Corporation Pvt. Ltd. 5. 32550 03.06.2013 Azmi Zeenat K.D.S. Corporation Pvt. Ltd. 6. 32550 03.06.2013 Raza Nalia K.D.S. Corporation Pvt. Ltd. 7. 10 03.06.2013 Farooqi Fazal Mohd. Abul K.D.S. Corporation Pvt. Ltd. 8. 10 03.06.2013 Farooqi Fazal Mohd. Abul Anil Oberoi 9. 10 03.06.2013 Farooqi Fazal Mohd. Abul Satish Mehta 10. 10 03.06.2013 Farooqi Fazal Mohd. Abul Dr. Gurinder Singh 11. 10 03.06.2013 Farooqi Fazal Mohd. Abul Pawan Kumar Verma 12. 10 03.06.2013 Dr. Gurinder Singh K.D.S. Corporation Pvt. Ltd. 4.2 The AO made inquiries ....
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.... below: - Satisfaction Note for taking up the case of M/s Aspam Academy Noida u/s 153C of IT Act, 1961 (Formerly known as M/s M.A.F. Academy Pvt. Ltd.) PAN: AADCM1107C A search and seizure action u/s 132(1) of the I.T. Act, 1961 was conducted on 20.06.2014 in the case of M/s Alchemist Ltd., M/s Alchemist Infra Reality Ltd. M/s Alchemist Holdings ltd and other companies at office address 23, Alchemist House, Nehru Place, New Delhi-110019 (Party SS-17) was covered under the above action. During the search action on Alchemist group, various incriminating documents were found and seized. Documents pertained to companies owned, controlled and managed by Alchemist group were found and seized as part of Annexure A-15 and A-18 from the office premise situated at 23, Nehru Place, New Delhi (SS-17). It shows that M/s Aspam Academy Noida is one of the 66 group companies/entities of Alchemist group which is being controlled by Shri K.D. Singh and his close associates. Most of the directors are employees or friends of K.D. Singh, Chairman Emeritus of Alchemist Group. Annexure- A-4, A-5, A- 24 and A-44 (Party SS-17) is also pertains to M/s Aspam Academy Noida. On the page No. 19 to 26 o....
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....d. and letter regarding change in director/ shareholder. A-25 (Party SS-17) 115-124 Investment in shares of M/s M.A.F. Academy Pvt. Ltd., Ledger Account in the books of KD Corporation Pvt. Ltd. for the period 01-04-13 to 20-06-14. A-44 (Party SS-17) 98 Consolidated Balance Sheet, P&L Account along with its schedules of M/s M.A.F. Academy Pvt. Ltd. Blank letter head of M/s M.A.F. Academy Pvt. Ltd. The above information/documents pertains to M/s M.A.F. Academy Pvt. Ltd. was found and seized from the office premise situated at 23, Alchemist House, Nehru Place, New Delhi 110019. It proves that M/s M.A.F. Academy Pvt. Ltd. is one such company of the Alchemist Group. In view of the above, I am satisfied that the above-mentioned documents/Information pertain to M/s Aspam Academy Noida (Formerly known as M/s M.A.F. Academy Pvt. Ltd.) and therefore it is a fit case for the initiation of proceeding of assessment u/s 153C/143(3) of the I.T. Act, 1961, Issue Notice u/s 153C of the I.T. Act, 1961. Sd/- Asstt. Commissioner of Income Tax, Central Circle-20, New Delhi, Dated: 09.08.2016 From the satisfaction note it is apparent that the AO has noted that the seized do....
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.... the said premises and the AO has mentioned in the satisfaction note that several incriminating documents were seized from the said premises. The seized receipt in question is reproduced below for a better understanding of the transaction in question: - The above receipt dated 08.02.2013 has been signed by Mr. Mohammad Abdul Fazal Farooqui who is stated in the receipt to be representing all the directors and shareholders of MAF Academy Pvt. Ltd viz the assessee company. The receipt further states that Mr. Farooqui has been authorized by all the directors and shareholders of the appellant company to receive money on behalf of all of them and to sign and issue this receipt for receipt of Rs. 1,00,00,000/- in cash being part consideration for sale of 100% equity shares held by all of the promoters of MAF/ the appellant company. The receipt further refers to a share purchase agreement dated 28.11.2012 vide which the consideration for share transfer was agreed for an amount of Rs. 45.50 Cr. This receipt has been signed by Mr. Farooqui on behalf of the promoters of the appellant company as well as the appellant company itself as is evident from the noting at the end of the receipt whi....
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....any person referred to in sub-section (3)" In this regard, members of Farooqui family who are shareholders of the appellant company, are specified persons u/s 13(3). Now, the question which remains is whether the property of the institution is directly or indirectly used for the benefit of any person referred to in section 13(3). In my considered opinion since 100% of the property of the institution is indirectly being transferred and, in such transfer, the specified persons u/s 13(3) are obtaining a huge benefit of Rs. 24.92 Cr. in cash, which is not disclosed in the accounts, such specified persons u/s 13(3) are indirectly, if not directly, deriving a benefit by using the property of the Institution. Since the said property has been indirectly transferred due to transfer of the 100% of the shares, such benefit can be said to be an indirect benefit, which is also covered by the general provisions of section 13(1)(c). The appellant company cannot wash its hands off the transaction since it is clearly a party to the said use, or rather misuse, of the property of the institution, since the entire transaction has been done on behalf of the promoters of appellant company as well as ....
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.... nothing to do with the appellant company. Further, there was neither decrease in value of any asset of the appellant company nor any direct/indirect benefit derived/flown by/from the specified persons/appellant company. The Ld. Counsel also contended that the alleged said cash transactions could not thus be accounted for in the books of accounts of the appellant assessee because the appreciation in the value of shares had no impact on financials of the appellant company. Therefore, there was no violation of any provisions of section 13 of the Act. Thus, the Ld. CIT(A) had erred in upholding the denial of exemption under section 11 of the Act. 5.2 The Ld. Counsel further contended that the AO had wrongly applied maximum marginal tax rate while taxing the surplus of the appellant company as the normal surplus shown in the ITR was without claim of depreciation as per the Act (allowable depreciation: Rs. 47,17,382/- as against the claimed depreciation of Rs. 28,69,548/-) and set off of brought forward loss of Rs. 12,65,427/-. She prayed for allowance of exemption under section 11 of the Act and in case the same did not get favour then the income had to be worked out in accordance wit....
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....rty of the trust or institution is made available to the 'interested person' without charging adequate rent or other compensation; (iii) Any amount paid by way of salary or allowance or otherwise to the interested person which is in excess of what may be reasonably paid for such services; (iv) If the services of the trust or institution are made available to such 'interested person' without adequate remuneration or other compensation; (v) If any share, security or other property was purchased from such 'interested person' for consideration which is more than adequate; (vi) If any share, security or other property was sold to such 'interested person' for consideration which is less than adequate; (vii) If any income or property is diverted during the previous year in favour of such 'interested person' provided the amount exceeds Rs. 1,000; and (viii) If any funds of the trust or institution are invested in any concern in which the 'interested person' has substantial interest. 9. There is no dispute on transfer of shares amongst erstwhile shareholders of Farooqi Group and present shareholders of K D Singh/ Alchemist Group. ....
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....ppellant assessee. The Tribunal in the case of Chandarkala Somani Charitable Trust (30 ITD 70) has observed that the word 'benefit' has to be interpreted as an advantage, profit, fruit or privilege and, in the context in which it is used in the present section, it has to be treated as an advantage of a pecuniary nature. Referring to the decision of Madras High Court in the case of Manickvasagam Chettiar (53 ITR 292) the Tribunal observed that the characteristic of a benefit is that it is real and not notional, concrete and not abstract, certain and not conjectural. Here, the seized material referred in orders of lower authorities clearly demonstrate that the benefit has been derived by the specified persons referred to in section 13(3) of the Act. The AO have proved to the hilt, on the basis of positive evidence brought on record, that there is violation of the provisions of section 13 of the Act. 12. In view of the foregoing discussion/observation, we are of the considered opinion that the benefit has been derived by the specified persons referred to in section 13(3) of the Act on transfer of shares along with the control & management of the appellant company. Thus, we hold that ....