Chennai Kanchipuram Thiruvallur District Film Distributors Associatiion, CHENNAI V. DDIT, CHENNAI

CO 22/CHNY/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1154 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 24-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 21-02-2014
• Court: TRIBUNAL
• Department Lawyers: G BASKAR; A B KOLI
• Keywords: Gift; Reasonable cause; Corroborative evidences; Condonation of delay
• Section: 37(1); 12A; 12AA; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , ! ' , # $% BEFORE SHRI N.R.S.GANESAN, JUDICIAL MMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NOS. 2318 TO 2321/MDS/2013 AND C.O.NOS. 20 TO 23/MDS/2014 (IN ITA NOS.2318 TO 2321/MDS/2014 / ASSESSMENT YEARS : 2004-05 TO 2007-08 THE DEPUTY DIRECTOR OF INCOME-TAX(EXEMPTIONS-I), AAYAKAR BHAVAN, NUNGAMBAKKAM,CHENNAI-34 ( /APPELLANT) VS M/S. CHENNAI KANCHIPURAM TIRUVALLUR DISTRICT FILM DISTRIBUTORS ASSOCIATION, 32/33 MEERAN SAHIB STREET, CHENNAI-600 002. PAN AAAAT0014E (RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : SHRI A.B.KOLI, JCIT / RESPONDENT BY : SHRI G. BASKAR, ADVOCATE / DATE OF HEARING : 24.08.2015 ! / DATE OF PRONOUNCEMENT: 28.08.2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX(APPE ALS) DATED 27.9.2013 FOR THE ASSESSMENT YEARS 2004-05 TO 2007-08. - - ITA 2318 TO 2321/13 ETC. 2 THE CROSS OBJECTIONS ARE FILED BY THE ASSESSEE IN S UPPORT OF THE ORDER OF THE CIT(APPEALS). THE ISSUES IN THESE APP EALS ARE AGAINST THE DISALLOWANCES AND ADDITIONS. SINCE, CO MMON ISSUES ARE INVOLVED IN THESE APPEALS, THEY ARE CLUBBED TOG ETHER, HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR T HE SAKE OF CONVENIENCE. 2. THE REVENUE HAS RAISED THE FOLLOWING COMMON GROU NDS IN THESE APPEALS: 2.1 THE ID. CIT (A) ERRED IN DELETING THE ADDITION MADE TOWARDS SERVICE CHARGES FROM DISPUTED PARTIES TO TH E TUNE OF ` 23,81,829/-. 2.2 THE ID. CIT (A) FAILED TO APPRECIATE THAT THE SAID ADDITION WAS MADE BASED ON THE SPECIAL AUDIT REPORT AND THAT THE ASSESSEE HAS NOT PRODUCED ANY MATERIAL EVI DENCE TO REBUT THE FINDING OF THE SPECIAL AUDIT REPORT. 3.1 THE ID. CIT (A) ERRED IN DELETING THE PICTURE REGISTRATION CHARGES TO THE TUNE OF ` 4,44,850/-. 3.2 THE ID. CIT (A) FAILED TO APPRECIATE THAT THE SAID ADDITION WAS MADE BASED ON THE FINDINGS OF THE SPEC IAL AUDIT REPORT THAT THE REGISTRATION CHARGES WERE COL LECTED BELOW THE PRESCRIBED LIMIT OF ` 5000/- EACH. 3.3 THE ID. CIT (A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAS NOT PRODUCED ANY MATERIAL EVIDENCE TO REBUT THE FINDING OF THE SPECIAL AUDIT REPORT AND DID NOT GIVE ANY REASON FOR COLLECTING LESSER AMOUNT THAN THE PRESCR IBED - - ITA 2318 TO 2321/13 ETC. 3 AMOUNT. 4.1 THE ID. CIT (A) ERRED IN DELETING THE ADDITION MADE TOWARDS ENTRANCE FEES TO THE TUNE OF ` 8,55,000/-. 4.2 THE ID. CIT (A) OUGHT TO HAVE APPRECIATED THAT THE AMENDMENT MADE TO CLAUSE II OF MOA BY RE-FIXING THE COLLECTION AT ` 25,000/- WAS REJECTED BY THE REGISTRAR OF SOCIETIES. 5.1 THE ID. CIT (A) ERRED IN ADMITTING FRESH/ADDITI ONAL EVIDENCES WITHOUT ALLOWING REASONABLE OPPORTUNITY T O THE AO, IN VIOLATION OF RULE 46A OF THE I.T. RULES. 5.2 THE ID. CIT (A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE TO SHOW THAT THE COLLECTION TOWARDS CORPUS FUND ACTUALLY RELATED TO ENTRANCE FEES AS SPECIFIED BY THE SPECIAL AUDIT REPORT. 5.3 THE ID. CIT (A) FAILED TO TAKE NOTE THAT THE E NTITY IS NOT REGISTERED U/S 12AA OF THE I. T. ACT. 6.1 THE ID. CIT (A) ERRED IN DELETING THE ADDITION MADE TOWARDS PURCHASE OF GIFTS FOR MEMBERS TO THE TUNE O F ` 15,49,598/-. 6.2 THE ID. CIT (A) OUGHT TO HAVE APPRECIATED THAT AS PER SECTION 25(2) OF TAMIL NADU SOCIETIES REGISTRAT ION ACT, NO GIFT COULD HAVE BEEN GIVEN TO THE MEMBERS. 6.3 THE ID. CIT (A) FAILED TO APPRECIATE THAT EXPL ANATION 1 TO SECTION 37(1) OF THE LT. ACT WOULD BE ATTRACTE D SINCE THE ASSESSEE IS NOT A REGISTERED ENTITY U/S 12A OF THE LT. ACT. - - ITA 2318 TO 2321/13 ETC. 4 3. THERE IS A DELAY OF 4 DAYS IN FILING THIS APPEAL BEFORE THE TRIBUNAL. THE DEPARTMENT HAS FILED AN AFFIDAVIT ST ATING THAT DUE TO NON-AVAILABILITY OF CERTAIN RECORDS WHICH WERE T O BE ANNEXED WITH THE TAX APPEAL, IT COULD NOT BE FILED IN TIME. WE HAVE GONE THROUGH THE AFFIDAVIT FILED BY THE DEPARTMENT SEEKI NG CONDONATION OF DELAY AND WE FIND THAT THERE EXISTS A REASONABLE CAUSE FOR THE DELAY OF 4 DAYS IN FILING THE APPEAL AND THE SAME IS CONDONED AND THE APPEAL IS ADMITTED FOR ADJUDICATIO N. 4. THE CROSS OBJECTIONS ARE FILED IN SUPPORT OF THE ORDER OF THE CIT(APPEALS). 5. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A N ASSOCIATION OF PERSONS FORMED TO TAKE CARE OF THE W ELFARE OF THE FILM DISTRIBUTORS WHO ARE MEMBERS. IT WAS REGISTER ED U/S.12AA OF THE ACT ON 7.4.1992. THE ASSESSEE WAS RUN BY THE O FFICE BEARERS, WHO ARE ELECTED BY THE MEMBERS. THERE WAS A DISPUTE AMONG THE MEMBERS AND THE MATTER WAS TAKEN TO THE M ADRAS HIGH COURT FOR RESOLUTION. THE HIGH COURT APPOINTE D JUSTICE K.P.SIVASUBRAMANIAN AS ADMINISTRATOR TO EXAMINE THE ACCOUNTS OF THE ASSESSEE FOR THE FYS 2003-04 TO 2006-07. TH E ADMINISTRATOR APPOINTED A CHARTERED ACCOUNTANT TO A UDIT THE - - ITA 2318 TO 2321/13 ETC. 5 ACCOUNTS OF THE ASSESSEE FOR THE ABOVE PERIOD. ACC ORDINGLY, THE SPECIAL AUDITOR SUBMITTED A REPORT. 5.1 THE AO STATED THAT THE SPECIAL AUDITOR GAVE A R EPORT INDICATING NON-ADMISSION OF INCOME. THEREFORE, HE ISSUED NOTICE U/S.148 OF THE ACT FOR THE AYS 2004-05 TO 2007-08 A ND REOPENED THE ASSESSMENTS. AFTER DISCUSSING THE CASE WITH TH E AR, THE AO COMPLETED THE ASSESSMENTS U/S.143(3) READ WITH SEC. 147 OF THE ACT FOR ALL THE YEARS IN QUESTION. THE AO MADE THE FOLLOWING ADDITIONS: S. NO. NATURE OF ADDITION 2004-05 ( ` ) ASSESSMENT 2005-06 ( ` ) YEARS 2006-07 ( ` ) 2007-08 ( ` ) 1 INCOME FROM DISPUTED PARTIES (SERVICE CHARGES) 23,81,829 39,43,112 3,91,210 49,18,289 2 PICTURE REGIST- RATION CHARGES 4,44,850 3,40,125 1,00,410 87,000 3 ENTRANCE FEES 8,55,000 25,000 11,424 1,50,000 4 OTHER EXPENSES -- 3,73,214 2,65,353 1,02 ,823 5 GIFT PURCHASE 15,49,598 -- -- -- TOTAL 52,31,277 46,81,541 7,68,367 52,58,112 5.2 THE REASONS ATTRIBUTED BY THE AO FOR THE ABOVE ADDITIONS ARE AS UNDER : 1. THE ASSESSEE HAS NOT COLLECTED SERVICE CHARGES FROM CERTAIN PERSONA AND HAS COLLECTED SERVICE CHARGES A T A LESSER RATE IN SOME OTHER CASES. - - ITA 2318 TO 2321/13 ETC. 6 2. THE ASSESSEE HAS NOT CHARGED PICTURE REGISTRATIO N CHARGES ADEQUATELY. 3. THE ASSESSEE HAS COLLECTED LESSOR AMOUNT THAN MENTIONED IN THE BYE-LAWS TOWARDS ENTRANCE FEES. 4. THE ASSESSEE CLAIMED COST OF GIFT PURCHASED FO R MEMBERS WHICH IS UNRELATED EXPENDITURE WHICH IS AGA INST SEC.25(2) OF THE SOCIETIES ACT (AY 2004-05 ONLY). AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFO RE THE CIT(APPEALS). 6. ON APPEAL, THE COMMISSIONER OF INCOME-TAX(APPEAL S) FOR EACH AY SEPARATELY OBSERVED AS UNDER: A.Y. 2004-05 (FY 2003-04) : VARIOUS ADDITIONS AMOUNTING TO ` 36,81,679/- AS PER THE TAX EVASION PETITION (AS MENTIONED IN TH E REASONS FOR RE-OPENING BY THE DDIT). THE DETAILS VI S-A- VIS THE AUDIT REPORT ARE AS UNDER: AS PER TEP AS PER AUDIT REPORT (RS.) (RS.) INCOME FROM DISPUTED PARTIES 23,81,829 26,39,467 PICTURE REGISTRATION CHARGES 4,44,850 96,650 ENTRANCE FEES 8,55,000 7,45,500 36,81,679 34,81,617 THE COMPARISON OF THE ABOVE FIGURES INDICAT E THAT THERE IS EXCESS COLLECTION OF INCOME FROM DISPUTED PARTIES. REGARDING PICTURE REGISTRATION CHARGES THE RE IS A SHORTAGE OF COLLECTION TO THE TUNE OF ` 3,48,200/- ( ` 4,44,850-RS.96,650). THE ASSESSEE CLAIMED REVISION OF REGISTRATION CHARGES (REDUCING) FOR THE SHORT FA LL. THE - - ITA 2318 TO 2321/13 ETC. 7 SPECIAL AUDITOR IN ANNEXURE VII POINTED OUT THE CAS ES WHERE THE AMOUNTS COLLECTED WAS LESS THAN THE PRESCRIBED AMOUNT OF ` 5,000/- FROM EACH PARTY. IN THE ASSESSMENT ORDER, NO REASONS WERE GIVEN FOR NON- ACCEPTANCE OF REASONS FOR REDUCING THE RATE OF PICTURE REGISTRATION CHARGES. THE SPECIAL AUDITOR ALSO DID NOT SAY THAT THE DISPUTED AMOUNT WAS COLLECTED BUT NOT ACCOUNTED. IN THE ABSENCE OF PROOF FOR THE COLLECTI ON OF ` 4,44,850/- AGAINST THE ADMITTED COLLECTION OF ` 96,650/-, THE SAME CANNOT BE BROUGHT TO TAX. REGARDING ENTRANCE FEES, THE DIFFERENCE IS ` 1,09,500/- ( ` 8,55,000- ` 7,45,500). THE SUM OF ` 7,45,500/- WAS CREDITED TO THE CAPITAL FUND ACCOUNT IN THE BALANCE SHEET ENCLOSED WITH THE RETURN. THE DIFFERENCE OF ` L,09,500/- WAS NEITHER EXPLAINED BY THE AO NOR THE SPECIAL AUDITOR IN HIS REPORT. THE AO DID NOT EXPLAIN AS TO WHY THE SUM WAS BROUGHT TO TA X WHEN THE SUM OF ` 7,45,500/- WAS TREATED AS CORPUS FUND (CAPITAL IN NATURE) IN THE BALANCE SHEET. THEREFORE, THE ADDITION OF ` 8,55,000/- IS NOT SUSTAINABLE. WHILE MAKING ADDITION OF ` 23,81,629/- ONWARDS SERVICE CHARGES, THE AO DID NOT CONSIDER ` 16,40,832/- ( ` 15,49,598+ ` 91,234) BEING THE AMOUNT SPENT TOWARDS GIFTS TO MEMBERS, MARRIAGE PRESENTATION FOR MEMBERS' SON/DAUGHTER, ETC. NO REASONS WERE GIVEN BY THE AO IN THE ASSESSMENT ORDER FOR REFUSAL OF THE CLAIM. THE AO BROUGHT TO T AX ` 2,70,612/- BEING NET INCOME FROM PROFIT & LOSS ETC. WHICH CONSISTED OF INCOME FROM DISPUTED PARTIES OF ` L0,95,284/- CREDITED TO THE PROFIT & LOSS A/C. THE SUM OF ` L0,95,284/- ( ` 26,39,467+ ` 91,234) WAS ARRIVED AT BY THE ASSESSEE BY DEDUCTING GIFT EXPENDITURE FROM SERVICE CHARGES COLLECTED. THIS ASPECT WAS NOT CONSIDERED BY THE AO WHILE MAKING ADDITION TOWARDS SERVICE CHARGES AND PICTURE REGISTRATION CHARGES. THEREFORE, I AM OF THE VIEW THAT ALL THE FOUR ADDIT IONS MADE BY THE AO ARE NOT SUSTAINABLE AND HENCE DELETED. - - ITA 2318 TO 2321/13 ETC. 8 A.Y. 2005-06 (FY 2004-05) : VARIOUS ADDITIONS AMOUNTING TO ` 46,81,541/- WERE MADE AS PER THE TAX EVASION PETITION. THEY ARE COMPARED WITH SPECIAL AUDIT REPORT FIGURES. DETAILS ARE AS UNDER: AS PER TEP AS PER AUDIT REPORT (RS.) (RS.) INCOME FROM DISPUTED PARTIES 39,43,112 25,01,042 PICTURE REGISTRATION CHARGES 3,40,215 1,67,785 ENTRANCE FEES 25,000 3,61,424 OTHER EXPENSES 3,73,214 --- - 46,81,541 30,30,251 PERUSAL OF THE ABOVE DETAILS INDICATES THA T THERE IS EXCESS COLLECTION OF ENTRANCE FEES. A SUM OF ` 5,65,424/- WAS CREDITED TO THE CAPITAL FUND ACCOUNT. THIS IS MORE THAN THE ENTRANCE FEE COLLECT ION OF ` 3,61,424/- (AUDIT REPORT FIGURE) AND ` 25,000/- (TEP FIGURE). HENCE THE ADDITION OF ` 25,000/- IS NOT WARRANTED. REGARDING PICTURE REGISTRATION CHARGES, THERE IS A SHORTAGE OF ` L,72,430/- ( ` 3,40,215- ` L,67,785). REDUCTION OF REGISTRATION CHARGES WAS TH E REASON FOR THE SHORT FALL ACCORDING TO THE ASSESSEE . THE ASSESSMENT ORDER IS SILENT ON THIS ASPECT. REGARDIN G SERVICE CHARGES, THERE IS A SHORTFALL OF ` 14,42,070/- ( ` 39,43,112- ` 25,01,042). WHILE MAKING ADDITION OF ` 39,43,112/-, THE AO DID NOT CONSIDER ` 3,05,400/- SPENT TOWARDS GIFTS, CM RELIEF FUND AND PRESENTATIO N MADE TO MEMBERS' SONS/DAUGHTERS MARRIAGE. NO REASONS WERE GIVEN BY THE AO FOR REFUSAL OF THE CLA IM. THE AO BROUGHT TO TAX THE NET PROFIT OF ` 6,46,950/- ADMITTED IN THE PROFIT & LOSS ETC WHICH WAS ARRIVED AT - - ITA 2318 TO 2321/13 ETC. 9 TAKING INTO ACCOUNT SERVICE CHARGES OF ` 23,63,427/- INCLUDING PICTURE REGISTRATION CHARGES OF ` 1,67,785/-. THEREFORE, I AM OF THE VIEW THAT ALL THE FOUR ADDITIONS MADE ARE NOT SUSTAINABLE AND HENCE DELETE D. A.Y. 2006-07 (FY 2005-06) : THE VARIOUS ADDITIONS AMOUNTING TO ` 7,68,367/- WERE MADE AS PER THE TAX EVASION PETITION. THEY ARE COMPARED WITH SPECIAL AUDIT REPORT FIGURES. DETAILS ARE AS UNDER: AS PER TEP AS PER ,SPECIAL AUDIT (RS.) REPORT (RS.) SERVICE CHARGES 3,91,210 15,17,652 PICTURE REGISTRATION CHARGES 1,00,410 1,36,841 ENTRANCE FEES 11,424 6,38,576 OTHER EXPENSES 2,65,353 --- 7,68,367 22,93,069 PERUSAL OF ABOVE DETAILS REVEALS EXCESS COLLE CTION OF ` 6,38,576/- TOWARDS ENTRANCE FEES. THE SUM OF ` 6,38,576/- WAS CREDITED TO CORPUS FUND IN THE BALAN CE SHEET. WHEN THE ASSESSEE ADMITTED ` 1,36,841/- TOWARDS PICTURE REGISTRATION CHARGES IN THE PROFIT & LOSS ACCOUNT, THERE IS NO NEED FOR MAKING SEPARATE ADDIT ION. SIMILARLY SERVICE CHARGES ADMITTED IN THE PROFIT & LOSS A/C IS MORE THAN THE ADDITION MADE. THE ASSESSEE ADMITTED ` 14,10,834/- TOWARDS SERVICE CHARGES IN THE PROFIT & LOSS ACCOUNT. UNDER THE CIRCUMSTANCES, I AM OF THE VIEW THAT NO ADDITION IS WARRANTED FOR THE AY 2 006- 07 AND HENCE ADDITIONS MADE ARE HEREBY DELETED. - - ITA 2318 TO 2321/13 ETC. 10 A.Y. 2007-08 (FY 2006-07) : VARIOUS ADDITIONS AMOUNTING TO ` 52,58,112/- WERE MADE AS PER THE TAX EVASION PETITION. THEY ARE COMPARED WITH SPECIAL AUDIT REPORT FIGURES. DETAILS ARE AS UNDER: AS PER TEP AS PER SPECIAL AUDIT (RS.) REPORT (RS.) SERVICE CHARGES 49,18,289 5,07,837 PICTURE REGISTRATION CHARGES 87,000 2,23,900 ENTRANCE FEES 1,50,000 8,50,000 OTHER EXPENSES 1,02,823 --- 52,58,112 15,81,737 PERUSAL OF THE ABOVE DETAILS REVEALS EXCESS COLLECTION OF ENTRANCE FEES. THE ENTRANCE FEES OF ` 8,50,000/- WAS CREDITED TO THE CAPITAL FUND ACCOUNT IN THE BALANCE SHEET. WHEN THE ASSESSEE ADMITS PICTURE REGISTRATION CHARGES AT A HIGHER FIG URE IN THE PROFIT & LOSS A/C THERE IS NO NEED FOR MAKING SEPARATE ADDITION. REGARDING SERVICE CHARGES COLLECTED, SPECIAL AUDIT REPORT OBSERVED THAT ` 2,96,837/- HAS BEEN COLLECTED FROM ROHINI THEATRE. THE AO DID NOT PUTFORTH ANY REASON FOR THE ADDITION MADE. THE ASSESSEE ADMITTED ` 2,23,900/- TOWARDS PICTURE REGISTRATION CHARGES AND ` 3,39,831/- TOWARDS SERVICE CHARGES (NAMED AS HANDLING CHARGES) IN THE PROFIT & LOSS A/C. THE AO TOOK INTO ACCOUNT THE LOSS OF ` 3,42,630/- FOR COMPUTING TOTAL INCOME OF THE ASSESSEE. THIS LOSS WAS ARRIVED AT TAKING INTO ACCO UNT PICTURE REGISTRATION CHARGES, HANDLING CHARGES, SUBSCRIPTION, ETC. IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE VIEW THAT ALL THE FOUR ADDITIONS MADE ARE NO T - - ITA 2318 TO 2321/13 ETC. 11 TENABLE AND HENCE DELETED. THE ADDITIONS ARE MADE MAINLY ON THE BASIS OF TAX EVASION PETITION RECEIVED. BECAUSE OF THE DISPU TE BETWEEN TWO GROUPS OF MEMBERS, THE MATTER WENT UPTO THE HIGH COURT WHICH RESULTED IN APPOINTMENT OF ADMINISTRATOR WHO IN TURN ORDERED FOR THE SPECIAL A UDIT BY AN INDEPENDENT AUDITOR. THE AUDITOR SUBMITTED HI S REPORT WHICH WAS MADE AVAILABLE TO THE AO DURING ASSESSMENT PROCEEDINGS. THE AO DID NOT DOVETAIL TH E TEP WITH THE AUDIT REPORT AND ARRIVED AT THE FINDIN GS. CORROBORATIVE EVIDENCES WERE NOT BROUGHT ON RECORD TO SUBSTANTIATE THE ADDITIONS MADE. THE ASSESSING OFFICER DID NOT TAKE UP THE LEAD FROM THE AUDIT REP ORT AND INVESTIGATE FURTHER TO COME TO A LOGICAL CONCLU SION. IN THE ABSENCE OF PROPER FINDING, ADDITIONS MADE CANNOT BE SUSTAINED. MISTAKES BY THEMSELVES CANNOT BE ADDED UNLESS IT IS PROVED THAT THE ASSESSEE SUPPRESSED THE RECEIPTS OR DID TRANSACTIONS OUTSIDE THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER DID NO T PROVE BEYOND DOUBT THE ADDITIONS MADE. THEREFORE, THE ADDITIONS MADE IN ALL THE ASSESSMENT YEARS ARE NOT MADE ON FIRM FOOTING AND HENCE DELETED. AGAINST THIS, THE REVENUE IS IN APPEALS BEFORE US. 7. THE LD. DR SUBMITTED THAT THE COMMISSIONER OF IN COME- TAX(APPEALS) WITHOUT GOING INTO THE DETAILS OF AUDI TED REPORT, DELETED ALL THE ADDITIONS. ACCORDING TO HIM, HE SH OULD HAVE GONE - - ITA 2318 TO 2321/13 ETC. 12 INTO THE AUTHORITY OF MANAGING COUNCIL NOT TO CHARG E SERVICE CHARGES, REGISTRATION CHARGES, ENTRANCE FEES IN CER TAIN CASES AND ALSO AUTHORITY TO MAKE THE GIFTS. ACCORDING TO HIM , THE ISSUES MAY BE REMITTED TO THE AO FOR FRESH CONSIDERATION. 8. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT THE RE WAS AN ADMINISTRATOR APPOINTED BY THE MADRAS HIGH COURT, V IZ., JUSTICE K.P.SHIVA SUBRAMANIUM (RETD.), WHO WAS AUTHORIZED T O APPOINT A SPECIAL AUDITOR. ACCORDINGLY, THE ADMINISTRATOR HAS APPOINTED THE AUDITOR. THE AUDITOR HAS GIVEN THE SPECIAL AU DIT REPORT AND HE DREW OUR ATTENTION TO THAT REPORT, WHICH IS KEPT ON RECORD IN THE PAPER BOOK AT PAGES 1 TO 9. ACCORDING TO THE LD. AR, THIS REPORT WAS ACCEPTED BY THE MADRAS HIGH COURT VIDE J UDGMENT DATED 26.8.2009 IN MP NO. 2 OF 2009 IN WTA NO.763 O F 2008. BEING SO, THE COMMISSIONER OF INCOME-TAX(APPEALS) PLACING RELIANCE ON IT, DELETED THE ADDITIONS AND THE AO BA SED HIS CONCLUSION ONLY ON THE BASIS OF TAX EVASION PETITIO N AND HE HAS NOT CONSIDER THE SPECIAL AUDIT REPORT IN RIGHT PERS PECTIVE. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORDS. IN THE SPECIAL AUDIT REPORT, IT WAS ME NTIONED THAT THERE WERE DISCREPANCIES IN COLLECTION OF SERVICE C HARGES, PICTURE - - ITA 2318 TO 2321/13 ETC. 13 REGISTRATION CHARGES, ENTRANCE FEES AND OTHER EXPEN SES. IN ADDITION TO THIS, THE ASSESSEE HAS ALSO GIVEN GIFTS TO CERTAIN MEMBERS, WHICH IS AGAINST THE SOCIETIES ACT. SINCE , THERE WERE DISPUTES AMONG THE TRUSTEES/MEMBERS REGARDING THE MANAGEMENT, THE ISSUE TRAVELLED TO MADRAS HIGH COUR T. THE HIGH COURT APPOINTED AN ADMINISTRATOR AND HAS GIVEN HIM AUTHORITY TO APPOINT A SPECIAL AUDITOR. THE SPECIA L AUDITOR HAS GIVEN THE REPORT ON MAIN ISSUES AS FOLLOWS: 9.1 REGARDING RECEIPTS, IT WAS HELD AS FOLLOWS: ALL RECEIPTS ISSUED DURING THE YEAR HAVE BEEN ACCOUNTED EXCEPT THE FOLLOWING: RECEIPT NO. NAME AMOUNT ( ` ) 301 KOYEMBEDU LOADERS 65 686 K.SANTHANAM 500 1176 KOYAMBEDU LOADERS 20 9.2 REGARDING ANNUAL SUBSCRIPTION, THE SPECIAL AUDI TOR HAS GIVEN THE REPORT AS FOLLOWS : ANNUAL SUBSCRIPTION INCOME FOR THE YEAR 2003-04 AMOUNTED TO ` 2,56,500. (EXCLUDING ` 1,000 WHICH STILL REMAINED IN ADVANCE SUBSCRIPTION). THE MEMBERSHIP FEES COLLECTED FROM EACH COMPANY/MEMBER WAS ` 500. HENCE, THE TOTAL NUMBER OF MEMBERS AS PER THIS CALCULATION WORKS OUT TO 513. BUT AS PER THE FORM VI WHICH REPRESENTS THE NAME OF THE MEMBERS OF THE - - ITA 2318 TO 2321/13 ETC. 14 ASSOCIATION AS AT 31 ST MARCH 2004 ONLY 500 MEMBERS WERE SHOWN. A RECONCILIATION STATEMENT GIVING OPENING NUMBER OF MEMBERS, MEMBERS ADMITTED, MEMBERS CEASED AND CLOSING NUMBER OF MEMBERS WAS NOT PRODUCED. IF FORM VI IS TAKEN AS CORRECT, THER E WAS AN EXCESS OF ` 6500 WHICH NEED TO BE EXPLAINED. 9.3 REGARDING PAYMENT OF DISPUTED AMOUNTS, THE REPO RT WAS AS UNDER: ALL DISPUTED PARTIES PAYMENTS WERE MADE BY THE ASSOCIATION ONLY THROUGH NON-ACCOUNT PAYEE CHEQUES AND IN CERTAIN CASES TO PERSONS OTHER THAN THE DISPUTED PARTIES. WE UNDERSTAND THAT THESE PAYMENT S MADE TO OTHER PARTIES WERE AGAINST SPECIFIC AUTHORIZATION LETTERS, OUT OF WHICH ONLY A FEW WERE PRODUCED TO US. SO WE ARE UNABLE TO COMMENT WHETHER THE PAYMENTS FOR DISPUTED AMOUNTS WERE PAID TO PARTIES WHO HAVE ORIGINALLY LODGED THE COMPLIANT . 9.4 IN RESPECT OF EDUCATIONAL FEES, THE AUDITOR HAS GIVEN THE REPORT AS BELOW: THE ASSOCIATION HAS A PRACTICE OF GIVING ` 1,500 EVERY YEAR TO THEIR MEMBERS AS EDUCATIONAL FEES FOR THEIR CHILDRENS EDUCATION. A SUM OF ` 1,500 WAS GIVEN TO MR. V.J.BABU A MEMBER OF THE ASSOCIATION AS EDUCATIONAL FEES BUT THE SAME WAS NOT RECORDED IN THE MINUTES. 9.5 IN RESPECT OF EDUCATIONAL FEES, THE AUDITOR HAS GIVEN THE REPORT AS BELOW: - - ITA 2318 TO 2321/13 ETC. 15 PLEASE REFER TO THE BALANCE SHEET OF THE YEAR 200 3- 2004 OF THE ASSOCIATION IN WHICH, HAS BEEN MENTIONE D IN COLUMN INCOME FROM DISPUTE PARTIES IS ` 10,95,284.70. ACCORDING TO THE BYE-LAW NO. 8 & 9 O F THE ASSOCIATION IT HAS BEEN CLEARLY STATED THAT 5% OF THE DISPUTE AMOUNT HAS TO BE COLLECTED FROM MEMBERS AND 10% FROM NON MEMBERS. PLEASE REFER TO THE CIRCULAR ISSUED BY THE ASSOCIATION FROM 01.04.2003 TO 31.03.2004 THE DISPUTED AMOUNT IS ` 1,56,72,923/- ASSUMING THAT THE SERVICE CHARGES FOR THE ABOVE AMOUNT AT 15% (5% + 10%) THE AMOUNT TO BE COLLECTED ` 23,50,938.45 WHERE AS THE BALANCE SHEET REFLECTS ONLY ` 10,95,284.70. KINDLY NOTE THERE IS A GROSS ERROR TO THE TUNE OF ` 12,55,653.75. THIS AMOUNT HAS NOT BEEN REFLECTED IN THE BALANCE SHEET BUT IT HAS BEEN COLLECTED AS PER THE VARIOUS CIRCULARS ISSUED BY TH E ASSOCIATION. PLEASE REFER THE LETTER DATED 14.07.2005 BY M/S. IC ON ENTERTAINMENT TO THE ASSOCIATION. THEY HAVE COLLEC TED A BULK AMOUNT OF ` 1,00,000/- FOR SETTLEMENT OF THEIR CLAIMS. THERE HAD BEEN NO UNIFORM SYSTEM ADAPTED I N RESPECT OF COLLECTION OF SERVICE CHARGES BY THE OFF ICE BEARERS. THEY HAVE COLLECTED IN RANDOM AS PER THEI R LIKES AND DISLIKES. THIS WHOLE ACTIVITIES BY THE O FFICE BEARERS ARE AGAINST THE BY LAW 8 & 9. 9.6 FURTHER, THE AUDIT OBSERVATIONS WERE AS FOLLOWS : 1.1 WE NOTED THAT ALL THE RECEIPTS AND PAYMENTS W ERE DULY RECEIVED/PAID TO THE DISPUTE PARTIES AFTER DEDUCTING CERTAIN PERCENTAGE AS INCOME FROM DISPUTE PARTIES, EXCEPT FOR CERTAIN FRIENDLY ASSOCIATIONS, DETAILS OF WHICH IS GIVEN IN POINT NO.1.3. 1.2 WE NOTED THAT A TOTAL AMOUNT OF ` 26,39,466.78 HAS BEEN COLLECTED DURING THE YEAR AS INCOME FROM DISPUTE PARTIES AND ` 96,650 AS PICTURE REGISTRATION CHARGES. THE FIGURE SHOWN AS SERVICE CHARGES IN TH E - - ITA 2318 TO 2321/13 ETC. 16 INCOME & EXPENDITURE ACCOUNT IS AFTER NETTING OFF CERTAIN EXPENDITURE FROM THE ABOVE SAID INCOMES. 1.3 THE ASSOCIATION HAS NOT DEDUCTED ANY SERVICE CHARGES FOR THEIR SERVICES RENDERED TO THEIR FRIEND LY ASSOCIATIONS LIKE NORTH ARCOT ASSOCIATION ETC. AS MENTIONED IN BYE LAW NO.9 OF THE ASSOCIATION. THE DETAILS OF SUCH TRANSACTIONS ARE GIVEN IN THE ANNEX URE- I. 1.4 THE ASSOCIATION HAS NOT DEDUCTED ANY SERVICE CHARGES FROM CERTAIN PARTIES OR HAS DEDUCTED LESSER PERCENTAGE AS COMMISSION. THE INSTANCES ARE GIVEN IN ANNEXURE II. 1.7 FURTHER WE NOTED THAT CERTAIN PAYMENT TO DISP UTE PARTIES AFTER DEDUCTION OGF SERVICE CHARGES HAVE BE EN COLLECTED AND ACCOUNTED IN THE BOOKS OF ACCOUNTS BU T THE SAME HAS NOT BEEN RECORDED IN THE MINUTES. THE DETAILS OF SUCH PAYMENTS ARE GIVEN IN ANNEXURE-III. 2.3 THOUGH THE ASSOCIATION COLLECTS ` 10,000/- EACH FOR EVERY READMITTED MEMBER, THE SAME HAS NOT BEEN MENTIONED IN MOA. BUT THE SAME WAS MENTIONED IN THE CIRCULAR DATED 07.12.2000 AND 12.04.2002. SO I TS IS NOT KNOWN WHETHER THE SUM TO BE COLLECTED FROM READMITTED MEMBER SHOULD BE ` 50000 OR RESTRICTED TO ` 10,000 ONLY. 10. THUS, IN OUR OPINION, VARIOUS DISCREPANCIES WER E REPORTED BY THE AUDITOR. NEITHER THE COMMISSIONER OF INCOME - TAX(APPEALS) NOR THE ASSESSING OFFICER HAS CONSIDE RED THESE ADVERSE POINTS CONSIDERED BY THE AUDITOR. THE ASSE SSING OFFICER JUST GONE THROUGH THE TAX EVASION PETITION. THEREF ORE, WE ARE OF - - ITA 2318 TO 2321/13 ETC. 17 THE OPINION THAT IT IS APPROPRIATE TO EXAMINE THE I SSUE IN THE LIGHT OF SPECIAL AUDIT REPORT AND TO DECIDE THE ISSUE AFR ESH. HENCE, WE REMIT THE ENTIRE ISSUES BACK TO THE FILE OF THE ASS ESSING OFFICER TO EXAMINE THE UNDER-STATEMENT OF INCOME OR OVER-STATE MENT OF EXPENDITURE WITH REFERENCE TO THE BYE-LAWS AND DECI DE ACCORDINGLY. 11. SINCE, WE HAVE REMITTED THE ISSUES IN DISPUTE T O THE FILE OF THE ASSESSING OFFICER, THE CROSS OBJECTIONS FILED B Y THE ASSESSEE HAVE BECOME INFRUCTUOUS. 12. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJE CTIONS FILED BY THE ASSESSEE ARE DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED ON FRIDAY, THE 28 TH OF AUGUST, 2015 AT CHENNAI. SD/- SD/- ( ' . . ' . #$ ) ( % & ' ( ) ) N.R.S.GANESAN * )+,-./0-1223-04* 5 67 /JUDICIAL MEMBER 6789::2;.<-.<=>?@>0 %5 /CHENNAI, A6 /DATED, THE 28 TH AUGUST, 2015. MPO* - - ITA 2318 TO 2321/13 ETC. 18 6$ BCDC /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E)* /CIT(A) 4. E /CIT 5. CF# G /DR 6. #HI /GF.