Institute for Human Development, New Delhi V. ADIT, New Delhi

CO 163/DEL/2014

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0022 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 18-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Depreciation; Maximum Marginal Rate
• Section: 69C; 12A; 10B; 12; 11

Judgement Text

1 ITA 5503/DEL/2012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV : JUDICIAL MEMBER ITA NO. 5503 /DEL/2012 ASSTT. YR: 200 9 - 10 ASSTT. DIRECTOR OF INCOME - TAX(E), VS. INSTITUTE FOR HUMAN DEVELOPMENT TC - II, NEW DELHI. NIDM BUILDING, IIPA CAMPUS, MAHATAMA GANDHI MARG, NEW DELHI. PAN: AA ATI 0390 K C.O. NO. 163/DEL/2014 ( IN ITA NO. 5503/DEL/2012 ) ASSTT. YR: 2009 - 10 INSTITUTE FOR HUMAN DEVELOPMEN T VS. ASSTT. DIRECTOR OF INCOME - TAX(E), NIDM BUILDING, IIPA CAMPUS, TC - II, NEW DELHI. MAHATAMA GANDHI MARG, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) DEPARTMENT BY : SHRI SATPAL SINGH SR. DR ASSESSEE BY : SHRI PRAKASH GUPTA CA DATE OF HEARING : 07 - 1 0 - 2014 DATE OF ORDER : 10 - 1 0 - 2014. O R D E R PER S.V. MEHROTRA, A.M: - TH E CAPTIONED APPEAL , BY THE REVENUE , AND THE CROSS - OBJECTION BY THE ASSESSEE, ARE DIRECTED AGAINST THE ORDER DATED 2 7 - 08 - 201 2 PASSED BY THE LD. CIT(A) - XX I , NEW DELHI, RELATING TO A.YR. 200 9 - 10 . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SOCIETY, REGISTERED U/S 12A OF THE INCOME - TAX ACT, 1961, VIDE ORDER NO. 1723 DATED 14 - 08 - 2000 . THE MAIN OBJECTS OF THE TRUST ARE TO UNDERTAKE, PROMOTE AND PROVIDE FACILITIES FOR CARRYING OUT RESEARCH INCLUDING ACTION RESEARCH IN THE AREA OF LABOUR, EMPLOYMENT, POVERTY, HEALTH, EDUCATION AND OTHER ASPECTS OF HUMAN 2 ITA 5503/DEL/2012 DEVELOPMENT, TO DISSEMINATE INFORMATION AND KNOWLEDGE AND RESULTS OF RESEARCH ON ALL MATTERS WITHIN THE SCOPE OF ITS OBJECTIVES THROUGH PUBLICATIONS, SEMINARS, CONFERENCES, WORKSHOPS, LECTURES ETC. IT HAD FILED ITS RETURN OF INCOME, DECLARING NIL INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE L OANS AND ADVANCES, AS MENTIONED IN SCHEDULE 5 OF THE BALANCE SHEET, INCLUDED LOANS AND ADVANCES TO STAFF OF RS. 19,65,379/ - . FROM THE BREAK UP OF THE SAME IT TRANSPIRED THAT RS. 17,27,052/ - HAD BEEN PAID TO SHRI A.N. SHARMA, DIRECTOR. THE AO NOTICED THAT HOUSING LOAN HAD BEEN ADVANCED @ 6 % P.A., WITHOUT ANY SECURITY. HE FURTHER NOTED THAT THE AUDITORS IN FORM 10B HAD STATED AS UNDER: COIII(1) WHETHER ANY PART OF THE INCOME OR OUTSTANDING AS ON PROPERTY OF THE SOCIETY/ INSTITUTION WAS IS 31/3/09 AGAINST LENT, OR CONTINUES TO BE LENT IN THE PREVIOUS MR. A.N. SHARMA YEAR TO ANY PERSON REFERRED TO IN SECTION 13(3) (DIRECTOR) (HEREINAFTER REFERRED TO IN THIS ANNEXURE AS RS. 1727052 WAS GIVEN SUCH PERSON)? IF SO, GIVE DETAILS OF THE AMOUNT, AS HOUSING LOAN @ 6% RATE OF INTEREST CHARGED AND THE NATURE OF P.A. WITHOUT ANY SECURITY. SECURITY, IF ANY. 2.1. AFTER CONSIDERING THE PROVIS I ONS OF SECTION 13 AND THE EXPLANATION OF ASSESSEE, THE AO CONCLUDED THAT ASSESSEE HAD COMMITTED DEFAULT U/S 13(1)(C)/13(2). HE FURTHER CONCLUDED THAT SUCH DEFAULT AUTOMATICALLY PRE CLUDES APPLICATION OF SECTION 11 / 12. HE, ACCORDINGLY, DETERMINED THE TAXABLE INCOME OF RS. 72,44,190/ - AS UNDER: INCOME FROM BUSINESS/ OTHER SOURCES (AS DISCUSSED IN PARA 3 - 5) RECEIPTS AS PER 1/E A/C RS. 4,02,76,857 ADD: UNEXPLAINED EXPENDITURE IN R/O C REDIT BALANCE IN CASH BOOK. RS. 3,06,123 ADD: INCOME DIRECTLY CREDITED TO DEVELOPMENT FUND. RS. 2,79,380 RS. 4,08,62,360 LESS: EXPENDITURE AS PER 1/E A/C INCLUSIVE OF DEPRECIATION ( - ) RS. 3,36,18,241 TOTAL TAXABLE INCOME RS. 72,44,119 3 ITA 5503/DEL/2012 2.2. LD. CIT(A) PARTLY ALLOWED THE ASSESSEE S APPEAL, INTER ALIA, OBSERVING THAT THE AO IS REQUIRED TO MAKE ADDITION ONLY IN RESPECT OF DIFFERENCE OF THE INTEREST PORTION AS PER MARKET RATE WHICH IS 13.5 % AS AGAINST 6% I.E. DIFFERENCE OF RS. 7.5%. THE OTHER ADDITIONS WERE DELETED. 2.3. BEING AGGRIEVED WITH THE ORDER OF L D. CIT(A), THE DEPARTMENT HAS PREFERRED APPEAL AND THE ASSESSEE HAS FILED CROSS - OBJECTION. F OLLOWING RESPECTIVE GROUNDS HAVE BEEN TAKEN: REVENUE S APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE EXEMPTION U/S 11 & 12 OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAD GIVEN A HOUSING LOAN TO ITS DIRECTOR @ 6% P.A. WITHOUT ANY SECURITY. THIS HAD SPECIFICALLY BEEN POINTED OUT BY THE AUDITOR IN FORM NO. 10B, WHICH IS CLEARLY VIOLATION OF SECTION 13(1)(C)/13(2) FOR THE INADEQUATE INTEREST CONSIDERATION OF 6% AGAINST MARKET RATE OF 13.25% TO 13.5%. 3. ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 3,06,123/ - MADE U/S 69C OF THE ACT ON THE FACT THAT NEGATIVE BALANCE IN THE CASH BOOK FOR MANY MONTHS IS A CLERICAL MISTAKE AS STATED BY THE ASSESSEE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONSIDERING THE CONSULTANCY FEE TO BE RECOGNIZED AS CORPUS DONATION WITHOUT IT BEING REFLECTED IN THE INCOME & EXPENDITURE ACCOUNT OF THE ASSESSEE. ASSESSEE S CROSS - OBJEC TION: THE LD. CIT(A) HAS ERRED O N FACTS AS WELL AS IN LAW IN DIRECTING TO ADD 7% OF THE LOAN AMOUNT AS INCOME OF RESPONDENT INSPITE OF FACT THAT IT IS NOT APPLICABLE IN THE CASE OF EMPLOYEE AND RATE OF 6% IS REASONABLE BECAUSE AMOUNT GIVEN AS LOAN WAS LYING AT THE RATE OF 3% IN THE BANK. RATE OF INTEREST GE NERALLY CHARGED ON HOUSE BUILDING LOAN BY BANK IS 9 TO 10%. 4 ITA 5503/DEL/2012 3. AS FAR AS GROUND NO. 1 IS CONCERNED, THE SHORT POINT FOR CONSIDERATION IS THAT IF THERE IS DEFAULT BY A SOCIETY REGISTERED U/S 13(1)(C)/13(2), WHETHER THAT RESULT S IN DENYING EXEMPTION U/S 1 1/12 QUA THE ENTIRE RECEIPTS OF ASSESSEE SOCIETY OR TO BE RESTRICTED QUA THE AMOUNT TO WHICH DEFAULT IS ATTRACTED. WE FIND THAT THIS ISSUE IS NO MORE RES INTEGRA AND IS COVERED BY THE DECISIONS OF VARIOUS HIGH COURTS AND THE ITAT , HOLDING THAT DISALL O WANCE IS TO BE RESTRICTED ONLY QUA AMOUNTS TO WHICH VIOLATION U/S 13(1)(C)/ 13(2) IS ATTRACTED AND THE EXEMPTION IN RESPECT OF OTHER INCOMES CANNOT BE FORFEITED. 3.1. THE HON BLE BOMBAY HIGH COURT IN THE CASES OF DIRECTOR OF INCOME - TAX (EXEMPTIONS) VS. SH ETH MAFATLAL GAGALBHAI FOUNDATION TRUST HAS OBSERVED AS UNDER: THE PROVISO TO SECTION 164(2) OF THE INCOME - TAX ACT, 1961, W A S INSERTED BY THE FINANCE ACT, 1984. IT SPECIFICALLY REFERS TO VIOLAT I ON OF SECTION 13(1)(D) AND ITS CONSEQUENCES. THE PROVISO TO SECTION 164(2) REFERS TO FORFEITURE OF EXEMPTION FOR BREACH OF SECTION 13(1)(D) RESULTING IN LEVY OF MAXIMUM MARGINAL RATE OF TAX ONLY TO THAT PART OF THE INCOME WHICH HAS FORFEITED EXEMPTION. WHERE A TRUST CONTRAVENES SECTION 13(1)(D), THE MAXIMUM MARG INAL RATE OF INCOME - TAX WILL APPLY ONLY TO THAT PART OF INCOME WHICH HAS FORFEITED EXEMPTION UNDER THE SAID PROVISION AND NOT THE ENTIRE INCOME. FOR THE ASSESSMENT YEAR 1994 - 95, THE ASSESSEE TRUST EARNED DIVIDEND AS WELL AS INTEREST INCOME AS A HOLDER OF EQUITY SHARES IN M. THE TRUST CLAIMED EXEMPTION ON INTEREST INCOME. THE ASSESSING OFFICER DENIED EXEMPTION HOLDING THAT THE TRUST HAD FORFEITED ITS EXEMPTION IN RESPECT OF ITS ENTIRE INCOME. ON APPEAL, THE COMMISSIONER HELD LIKEWISE. THE TRIBUNAL ALLOWING THE APPEAL HELD THAT ONLY DIVIDEND INCOME WAS TO BE TAXED AT MAXIMUM MARGINAL RATE. ON APPEAL BY THE DEPARTMENT: HELD, DISMISSING THE APPEAL, THAT VIOLATION OF SECTION 11(5) READ WITH SECTION 13(1)(D) BY THE ASSESSEE TRUST WOULD RESULT IN THE MAXIMUM MAR GINAL RATE OF TAX ONLY ON THE DIVIDEND INCOME ON SHARES AND NOT ON THE ENTIRE INCOME. THEREFORE, INCOME OTHER THAN DIVIDEND INCOME WAS TO BE TAXED AT THE AT THE NORMAL RATE OF TAXATION UNDER THE ACT. 5 ITA 5503/DEL/2012 3.2. FURTHER, THE ITAT IN THE CASE OF ACIT V. IDICULA TRUST SOCIETY HAS OBSERVED AS UNDER: PARA 11. A BARE PERUSAL OF SECTION 13(1)(C) WOULD SUGGEST THAT WHATEVER HAS BEEN STATED IN SECTIONS 11 & 12 PROVIDING CERTAIN BENEFITS TO THE ASSESSEE WOULD NOT BE AVAILABLE ON THE AMOUNTS WHICH HAVE BEEN EXTENDED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUB - SECTION (3) OF SECTION 13 OF THE ACT, MEANING THEREBY, IF AN ASSESSEE HAS EXTENDED ANY UNDUE BENEFIT TO THE PERSON MENTIONED IN SUB - CLAUSE (3) THEN THOSE AMOUNTS WOULD NOT BE CONSIDERE D AS APPLICATION OF INCOME FOR THE PUR P OSE OF FULFILMENT OF OBJECTS OF THE SOCIETY AND BENEFIT OF SECTIONS 11 & 12 WOULD NOT BE AVAILABLE TO THE ASSESSEE ON THOSE AMOUNTS. THUS, SECTION 13(3)(1)(C)(II) IS ANALOGOUS TO SECTION 40A(2A) OF THE ACT. LEARNED CI T(APPEALS) HAS RIGHTLY OBSERVED THAT RESTRICTION IS APPLICABLE TO THOSE AMOUNTS WHICH HAVE BEEN APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUB - SECTION (3) OF THE ACT. IT WILL NOT LEAD TO ANY CONCLUSION THAT ASSESSEE WOULD L OOSE ITS CHARITY STATUS. IN OTHER WORDS IF A SMALL AMOUNT IS TO BE DISALLOWED THAT WOULD NOT DISQUALIFY TO ENJOY THE STATUS OF CHARITY. 3. 3 . IN VIEW OF ABOVE POSITION OF LAW, WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS ISSUE. GROUND IS REJECTED. 4. APR OPOS GROUND NO. 2, LD. CIT(A) HAS ALREADY HELD THAT THE DIFFERENCE BETWEEN THE MARKET RATE AND LENDING RATE OF LOAN TO DIRECTOR IS TO BE INCLUDED IN TOTAL INCO ME. THEREFORE THE GROUND RAISED BY REVENUE IS MISCONCEIVED AND STANDS DISMISSED ACCORDINGLY. 5. APROPOS GROUND NO. 3, BRIEF FACTS ARE THAT IN COURSE OF EXAMINATION OF BOOKS OF A/C, THE AO NOTICED THAT CASH BOOK SHOWED CREDIT BALANCE ON SEVERAL DATES THROUGHOUT THE YEAR. HE HAS GIVEN DETAILS FROM PAGE 4 TO 7 OF THE ORDER. THE CREDIT BALANCE INDICATES A NEGATIVE C ASH BALANCE AND SINCE NO EXPLANATION WAS FURNISHED BY THE ASSESSEE, THE AO MADE ADDIT I ON OF RS. 3,06,123/ - . 6 ITA 5503/DEL/2012 5.1. LD. CIT(A) DELETED THE ADDITION, INTER ALIA, TAKING NOTE OF THE FACT THAT IN THE RECASTED CASH BOOK, FILED BY THE ASSESSEE, ON WHICH REMAND REPORT HAD BEEN CALLED FOR, FROM THE AO, IT IS FOUND THAT UNEXPLAINED AMOUNT OF RS. 3,06,123/ - HAD PROPERLY BEEN EXPLAINED AND THERE IS NO SCOPE OF THE ADDITION ON THIS ACCOUNT. THE ACTUAL CASH IN HAND AND THE CASH BALANCE, AS REFLECTED IN THE CASH BOOK, HAS NOT BEEN ALTERED . THE DEPARTMENT HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF LD. CIT(A). WE, ACCORDINGLY, CONFIRM THE SAME. GROUND IS DISMISSED. 6. APROPOS GROUND NO.4, BRIEF FACTS ARE AO FOUND DEVELOPMENT FUND IN THE BALANCE SHEET AT RS. 2,79,380/ - . THE ASSESSEE IN ITS EXPLANATION POINTED OUT THAT THE FUND BASICALLY INCLUDED CONSULTANCY FEE RECEIVED BY THE EMPLOYEES OF THE ASSESSEE TRUST IN INTRUDED CAPACITY, A PART OF WHICH HAS TO BE GIV EN BACK TO THE ASSESSEE TRUST FOR USING THE RESOURCES OF THE ORGANIZATION. THE ASSESSEE FURTHER POINTED OUT THAT THE CONSULTANCY FEE WERE NOT RECOGNIZED AS DONATION AND HAD NOT BEEN TAKEN IN THE INCOME & EXPENDITURE A/C. THE AO DID NOT ACCEPT THE ASSESSEE S CONTENTION AND TREATED THE SAME AS ASSESSEE S TOTAL INCOME. 6.1. LD. CIT(A) DELETED THE ADDITION TAKING NOTE OF THE FACT THAT TWO EMPLOYEES, NAMELY, SH. HARISHWAR DAYAL AND DR. PREETI RASTOGI HAD VOLUNTARILY CONTRIBUTED RS. 2,79,380/ - WITH THE SPECIFIC DIRECTION THAT THE AMOUNT SHALL BECOME PART OF CORPUS OF THE INSTITUTION. THE COPY OF CONFIRMATION OF BOTH THE EMPLOYEES WERE ALSO FILED BEFORE HIM. 6.2. HAVING HEARD BOTH THE PARTIES WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF LD. CIT(A) BECAUSE THE VOLUNTARY DONATIONS HAD BEEN RECEIVED BY THE ASSESSEE TRUST WITH SPECIFIC DIRECTION THAT THE SAME WOULD FORM PART OF CORPUS. GROUND IS DISMISSED . 7 ITA 5503/DEL/2012 7. IN VIEW OF OUR FINDINGS , WHILE ADJUDICATING GROUND NOS. 1 & 2 OF R EVENUE S APPEAL, UPHOLDING THE ADDITION TO THE EXTENT OF 7.5% ON ACCOUNT OF DIFFERENCE OF THE INTEREST PORTION AS PER MARKET RATE , WE DISMISS THE GROUND TAKEN BY THE ASSESSEE IN ITS CROSS - OBJECTION. 8 . IN THE RESULT, REVENUE S APPEAL AS WELL AS ASSESSEE S CROSS OBJECTIONS ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 10 - 1 0 - 2014. SD/ - SD/ - ( RAJPAL YADAV ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 10 - 1 0 - 2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR