ASSISTANT COMMISSIONER OF INCOME TAX(EXEMPTIONS), COIMBATORE V. MAZDOOR WELFARE TRUST, TIRUVARUR

ITA 515/CHNY/2024

AI Insights

The case revolves around the Mazdoor Welfare Trust, which was denied exemption under Section 11 of the Income Tax Act by the Assessing Officer (AO) due to incomplete auditing of accounts for the previous years and other discrepancies. The Trust appealed this decision, and the Commissioner of Income Tax (Appeals) later granted the exemption, which was contested by the revenue. The Tribunal's decision favored the Trust, emphasizing the continuity and consistency in the Trust's operations and the rectification of earlier discrepancies through subsequent audits.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 107924 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-09-2024
• Assessment Year: 2007-2008
• Appeal Filed On: 27-02-2024
• Other Referred Cases: Sree Sree Ramakrishna Samity Vs DCIT cir.2 Siliguri (2015) 64 taxmann 330 (Kolkata- Trib)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NILAY BARAN SOM
• Assessee Lawyers: G. BASKAR
• Keywords: Set aside; Reasonable cause; Capital expenditure; TDS; Charitable institution; Maximum Marginal Rate
• Section: 64; 11; 12AA; 234B; 12; 10B

Judgement Text

"आयकर अपीलीय अिधकरण,‘ए’ ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ᮰ी मनु कुमार िगᳯर, ᭠याियक सद᭭य एवं᮰ी एस. आर.रघुनाथा, लेखा सद᭭य के समᭃ BEFORE SHRI MANU KUMAR GIRI, HON’BLE JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./ITA No.: 515/Chny/2024 िनधाᭅरणवषᭅ / Assessment Year: 2007-08 Assistant Commissioner of Income Tax (Exemptions), 2nd Floor, Mayflowe Mideity Building, 1510 Trichy Road, Coimbatore – 641 018. v. Mazdoor Welfare Trust, Kovilvenni S.O. , Krishnapuram, Thiruvarur – 614 403. [PAN:AAATM-0632-Q] (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮकᳱओरसे/Appellant by : Shri. Nilay Baran Som, CIT ᮧ᭜यथᱮकᳱओरसे/Respondent by : Shri. G. Baskar, Advocate सुनवाई कᳱ तारीख/Date of Hearing : 26.09.2024 घोषणा कᳱ तारीख/Date of Pronouncement : 27.11.2024 आदेश /O R D E R PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER: This appeal by the revenue is filed against the order of the Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2007-08, vide order dated 21.12.2023. 2. At the outset, we find that there is a delay of 7 days in appeal filed by the revenue, for which petition for condonation of delay along with reasons for delay has been filed. After :-2-: ITA. No:515/Chny/2024 considering the petition filed by the revenue and also hearing both the parties, we find that there is a reasonable cause for the assessee in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the revenue for adjudication. 3. The revenue has raised the following grounds of appeal: “1. The order of the Learned CIT(A) is contrary to the law and facts of the case. 2.1 When the exemption claimed by the assessee u/s. 11 and 12 of the Act was denied on more than one ground, whether the Ld.CIT(A)is right in deciding the appeal only on one ground viz. absence of accounts in respect of past period? 2.2 Whether the Ld.CIT(A) was right in omitting the fact that the audit report in Form 10B was not filed within stipulated time and thus the assessee failed to comply with the requirements of Section 12A(b)? 2.3 The ld.CIT(A) erred in not considering the fact that accounts submitted by the assessee for the AY 2007-08 were not full and complete without inclusion of the accounts of 'Balamurugan Hostel/ Mess '? 2.4 Whether the ld.CIT(A) was right in overlooking the auditor’s report that “the accounts of Balamurugan Hostel/Mess have not been considered for audit”? 3. The ld.CIT(A) failed to appreciate the fact that the AO had clearly stated ‘the receipts and payments account filed had many items relating to the hostel and mess including the receipt of Rs.28,14,710/- towards hostel fee collection? 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Learned :-3-: ITA. No:515/Chny/2024 CIT(Appeals) may be set aside and that of the Assessing Officer may be restored.” 4. The brief facts of the case are that the assessee is a registered charitable trust, carrying on the activity of running of an Engineering college by the name Anjali Ammal Mahalingam Engineering College at Kovilvenni, Tiruvarur District, Tamilnadu. For the A.Y.2007-08 the assessee trust filed its return of income on 15.07.2008 admitting a total income of Rs.NIL. The case was selected for scrutiny and issued notice u/s.143(2) dated 19.01.2009 was issued to assessee. Further, the AO issued statutory notices and in response the assessee furnished the details called for and the assessment was completed by the AO on 03.12.2009. During the course of assessment proceedings for the A.Y. 2007-08, the assessee produced books of accounts and other details called for. The trust has filed an Auditor’s report in Form 10A as envisaged u/s.12A(b) of the Act was filed only on 11.11.2009. 5. Further, there were some disputes between the trustees and the southern Railway mazdoor union. The cases were filed before the courts with serious allegations on the trustees who had been managing the affairs of the trust alleging :-4-: ITA. No:515/Chny/2024 mismanagement of funds and other affairs of the trust. As a result the Hon’ble High court of Madras in their order dated 29.04.2005 appointed Hon’ble justice A.Ramamurthy as Managing Trustee of the Trust. The Managing trustee claims to have taken charge on 09.05.2005. From then onwards, the books of accounts and other activities of the Trust have come under the control and supervision of the Managing Trustee appointed by the court. 6. Based on the above details, the audit report filed along with the notes to accounts, which qualified as follows: \"As per the High Court Order dt. 29.4.2005, the college is run by a Managing Trustee appointed by the Court. The accounts of the Trust for the period 01.04.2004 to 28.5.2005 are under dispute and hence not completed till date. Therefore the financial for the period 2005-06 (from 29.5.05 to 31.3.06) has been prepared without considering the balances as on 28.05.05. Considering this, the financial statements for this period have been prepared based on the audited financial statements of previous year and also without considering the balances as on 28.5.05. The accounts of Balamurugan Hostel/Mess have not been considered for audit \" 7. In view of the above, the AO in his order u/s.143(3) dated 03.12.2009, noted the following discrepancies and disallowed the exemption u/s.11 of the Act: “Though, the Managing Trustee, Hon'ble Justice A, Ramamoorthy has elaborated on the intended activities of the trust, the question :-5-: ITA. No:515/Chny/2024 has not been answered as to why the trust should not be denied the exemption u/s 11 owing to the fact that the heavy balances of deposits and investments as on 28.5.05 have not come to light. The sums which were deposited, invested, extended as loan and advances during the period 1.4.04 to 28.5.05 are still in dark. I am of the considered opinion that the possibility of the funds of the trust lying with modes of deposits other than contemplated u/s 11(5) and misuse of funds by the concerned parties who had been running the trust cannot be ruled out. The opening balances as on 29.5.05 could not be certified by the auditors as to their accuracy and their true application during the blank period. The trust has not fulfilled the requirements of Sec. 12A(b) within the stipulated time. Moreover, the auditor has qualified that the accounts of Balamurugan Hostel and Mess were not subject to audit. The representative has not furnished any satisfactory reply on the question as to why the books of account are not full and complete by incorporating the accounts of Balamurugan Hostel and Mess. The receipts and payments account filed has many items relating to the hostel and mess including the receipt of Rs.28,14,710 towards hostel fee collection. When the receipts and payment account incorporates the above receipts. books of account not being audited for the hostel and mess do not amount to a complete audit of the accounts of the trust for the previous year. In this respect also, the trust has not complied with the requirements to claim exemption u/s 11.” 8. The AO assessed the income at MMR as detailed below: “For the reasons discussed, the trust is not allowed the exemption u/s. 11 for the previous year 2006-07 and the excess of income over expenditure is taxed at maximum marginal rate. The trust has filed the receipts and payments account. The receipts admitted are for Rs.8,15,93,035. From the payments claimed the capital expenditure for acquisition of assets and expenditure not allowable under the provisions of the Act are disallowed as follows. The assessment is completed as under: Gross receipts as per Receipts and Payments account Rs.8,15,93,035 Less: Payments claimed Rs.13,60,61,558 Less: 1. Fixed Deposits Rs. 5,55,00,000 2. Fees refund Rs. 24,000 :-6-: ITA. No:515/Chny/2024 3. Bus fee refund Rs. 6,200 4. Capital a/c expenses Rs. 2,49,27,019 5. Salary advance Rs. 2,76,500 6. Books and steel rack Rs. 77,000 7. Caution deposit refund Rs. 8,89,750 8. Hostel rent refund Rs. 7,000 9. Mess refund Rs. 2,62,144 10. TDS Rs. 23,332 11. Advance for construction Rs. 25,000 12. Closing balance cash Rs. 77,47,962 Rs.4,62,95,651 Total income for taxation Rs.3,52,97,384 OR Rs.3,52,97,380 Tax on the above sum at maximum marginal rate Rs.1,05,89,215 Add: Surcharge Rs.10,58,922 and cess Rs.2,32,963 Rs. 12,91,885 ----------------- Rs.1,18,81,100 Add: Interest u/s. 234A Rs.10,69,299 Interest u/s. 234B Rs.39,20,763 Rs. 49,90,062 -------------------- Total demand payable Rs.1,68,71,162 (Rupees one crore sixty eight lakhs seventy one thousand one hundred sixty two only) Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A) and later migrated to CIT(A) – NFAC. 9. Before the ld.CIT(A), the assessee submitted that after appointment of Managing Trustee by the Hon’ble High Court of Madras on 29.04.2005, the return of Income for the A.Y.2007- 08 was filed under the direction of the Apex court with all statements along with an audit report in form No 10B of the :-7-: ITA. No:515/Chny/2024 Act. Under the Circumstances of non-filing of return for A.Y.2005-06 & 2006-07 the assessment for 2007-08 was completed u/s.143(3), denied the exemption claimed u/s.11 of the Act and opinion that the possibility of the funds of the trust lying with modes of deposits Other than contemplated u/s.11(5) and misuse of funds by the concerned parties. Further the AO stated that the opening balances as on 29.05.2005 could not be certified by the auditors as to their accuracy and their true application during the blank period (2005-06 & 06-07) thereby not fulfilling the requirements of sec 12A(b) of the Act. It is submitted that the position of the trust after the direction of High court was changed and the income tax return for the blank periods being AY 2005-06 & 06-07 were filed along with an audit report u/s 10B. In this Connection it is submitted that previously the return for the AY 2005-06 & 06-07 were not filed due to dispute between the trustees and hence order u/s.144 of the Act was passed for both the years without allowing the exemption u/s 11 of the Act. This order was subsequently set- aside by ITAT Chennai bench by its order No.1314 & 1315 dt.09.09.2011 and directed the AO to re-do the assessment. Then the trust filed a return With Rs.NIL income for both years. The assessment was completed u/s.143(3) and allowed the :-8-: ITA. No:515/Chny/2024 exemption claimed u/s.11 of the Act but restricted some of the expenses claimed as application of fund. The appeal against the above order was allowed (for statistical purpose) on 05.02 2015 vide order in ITA No.244 and 245/11-12 with a direction to allow all the expenses after verification. Now it is humbly submitted that the claim of exemption u/s.11 of the Act were allowed for the block period being A.Y. 2005-06 & 06-07, hence the opinion of the AO is incorrect with regards to application of the funds for the A Y 2007-08. 9.1 It is further submitted that there has been no change in the object of the trust and the trust continues to run the college by properly using its funds to the object of the trust under the control of a court appointed administrator. Attention was invited to the Case Sree Sree Ramakrishna Samity Vs DCIT cir.2 Siliguri (2015) 64 taxmann 330 (Kolkata- Trib). It is submitted that the AO failed to consider the independent application of income for each year and earlier year application or income have no impact on the current year application. Further the AO failed to consider the audit report filed in Form No.10B and went wrong to state it as form 10A and gave his finding on it. :-9-: ITA. No:515/Chny/2024 9.2 It is further submitted that the trust has filed the return for AY 2007-08 with audit report in form NO.10B of the Act and the claim of exemption u/s.11 were allowed for the block periods. The regıstration u/s 12AA was not cancelled at any point of the year. Hence it is humbly requested to kindly allow the exemption claimed u/s 11 of the act for AY 07-08 and allow the appeal and render justice. 10. On perusal of the submissions made by the assessee before the ld.CIT(A), the appeal of the assessee was allowed by passing an order dated 21.12.2023 holding as under: “6.4 The reply of the appellant is considered. It is noted that the exemption for the AY 2005-06 and AY 2006-07 already stand allowed by the AO in the remanded assessment proceedings after the original assessment orders were set aside by the ITAT, Chennai by its order No.1314 & 1315 dated 09.09.2011. It is also noted that there has been no change in the object of the trust, and as confirmed by the appellant, the trust continues to run the college under the control of a court appointed administrator. 6.5 Under these circumstances, the very basis of denial of exemption, Viz. absence of accounts in respect of past period leading to suspicions about the opening balances as on 01.04.2006 is now gone. There is no justification for denial of exemption u/s 11 to the appellant in the A.Y. 2007-08 in the light of the settled position of the assessments for the A.Y. 2005-06 and A.Y. 2006- 07, after two rounds of litigation, and no change in facts for the impugned year vis-à-vis the earlier years. 6.6 In view of the above, I am of the considered view that the appellant is entitled for exemption u/s 11 of the Act during the impugned assessment year, and therefore the A.O. is directed to allow the same. Grounds of appeal no. 1 - 9 are hereby allowed.” :-10-: ITA. No:515/Chny/2024 Aggrieved by the order of the ld.CIT(A), the revenue preferred an appeal before us. 11. The ld.DR stated that the Ld.CIT(A) has erred in allowing exemption claimed by the assessee u/s.11 and 12 of the Act, which was denied on more than one ground, and deciding the appeal only on one ground viz. absence of accounts in respect of past period. Further, the ld.DR submitted that the Ld. CIT(A) has erred in allowing the exemption, when the audit report in Form 10B was not filed within stipulated time and failed to comply with the requirements of Section 12A(b). The ld.DR also submitted that the ld.CIT(A) has erred in not considering the fact that accounts submitted by the assessee for the AY 2007-08 were not full and complete without inclusion of the accounts of 'Balamurugan Hostel / Mess. The ld.CIT(A) failed to appreciate the fact that the AO had clearly stated ‘the receipts and payments account filed had many items relating to the hostel and mess including the receipt of Rs.28,14,710/- towards hostel fee collection and prayed for setting aside the order of the Ld.CIT(A) by upholding the order of the Assessing Officer. :-11-: ITA. No:515/Chny/2024 12. Per contra, the Ld.AR for the assessee stated that the ld.CIT(A) in his order, very clearly stated that the books of accounts and audit for the blank period of A.Y.2005-06 & 2006-07 has been completed by the assessee, which has been accepted by the AO by passing an order after the file was remanded from the ITAT for both the years and the same has not been disputed by the revenue. Further, the AO has not denied the exemption u/s.11 of the Act for the earlier A.Ys. 2005-06 & 2006-07. The ld.AR submitted that as far as the hostel and mess receipt is concerned, the revenue has failed to note that the AO has wrongly concluded the rent of Rs.28,14,710/- of hostel building with the ‘mess receipts’ and also failed to consider the ledger account copies for the same submitted by the assessee. When these details for sent to AO for his remand report, ‘no adverse report’ has been sent by the AO to the Ld.CIT(A) and hence there is no fault in the order of the Ld.CIT(A) in granting the exemption to the assessee. In light of the above submissions, the ld.AR prayed for dismissing the appeal of the revenue. :-12-: ITA. No:515/Chny/2024 13. We have heard the rival contentions, materials available on record and gone through the orders of the lower authorities. It is admitted fact that the assessee is a trust having registered u/s.12A and carrying on the activities of education. The AO had denied exemption u/s.11 of the Act for the impugned assessment year for the reason that the books of accounts of the earlier two A.Ys.2005-06 & 2006-07, were not audited and the opening balances for the impugned A.Y. has been taken are incomplete and hence the application of funds for the purpose of objectives of the trust is not acceptable. The ld.CIT(A) has decided the issue in favour of the assessee by allowing the exemption to the trust u/s.11 of the Act based on the fact that the accounts for the A.Y. 2005-06 & 2006-07 were later audited and the assessee also filed the returns for the said A.Ys. and the assessment order u/s.144 of the Act was completed by the AO by denying exemption u/s.11 of the Act for both the years. However, the order was subsequently set aside by the ITAT, Chennai by its order in ITA No.1314 & 1315 dated 09.09.2011 by directing the AO to conduct the assessment afresh. Later, the AO passed :-13-: ITA. No:515/Chny/2024 an order of assessment by allowing exemption u/s.11 of the Act, by restricting certain expenditure claimed as not allowable as application of funds for the objectives of the Trust. Further, the assessee again carried the matter upto ITAT, Chennai and the Tribunal allowed the appeal of the assessee by directing the AO to verify and allow the disallowed expenses vide in its order in ITA No.244 and 245/11-12 dated 05.02.2015. 14. We also note that the assessee has furnished the entire details of the hostel building rent of Rs.28,14,710/- along ledger extracts the ld.CIT(A), which has been referred to the AO for remand report and the AO has not given adverse remarks to ld.CIT(A) and hence ground of the revenue is devoid of merits. In the present facts and circumstances of the case, we are of the considered opinion that there is no need to interfere in the orders of the ld.CIT(A). 15. Further, we note that the ld.CIT(A) has allowed the exemption u/s.11 of the Act to the assessee, after perusal of the documents in relation to books of :-14-: ITA. No:515/Chny/2024 accounts, audit report, filing of return and assessment by the department, which were furnished by the assessee with reference to the earlier A.Ys.2005-06 & 2006-07. Since, there is no change in the activities of the trust and the assessee is continued to enjoy the exemption u/s.11 of the Act for the earlier A.Ys. 2005- 06 & 2006-07, we do not find any fault in the decision of allowing exemption u/s.11 of the act to the assessee by the ld.CIT(A) for the impugned A.Y. 2007-08 and hence we dismiss the grounds of the appeal raised by the revenue. 16. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 27th November, 2024 at Chennai. Sd/- (मनु क ुमार िगįर) (MANU KUMAR GIRI) Ɋाियक सद˟/Judicial Member Sd/- (एस.आर.रघुनाथा) (S. R. RAGHUNATHA) लेखा सद˟/Accountant Member चे᳖ई/Chennai, ᳰदनांक/Dated, the 27th November, 2024 JPV आदेशकीŮितिलिपअŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT– Coimbatore :-15-: ITA. No:515/Chny/2024 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF "