Jeppiaar Educational Trust, CHENNAI V. DCIT, CHENNAI

CO 40/CHNY/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8458 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-04-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-04-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 01-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T BANUSEKAR
• Assessee Lawyers: DR S MOHARANA IRS
• Keywords: Charitable institution
• Section: 143(3); 260A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI S.S.GODARA , JUDICIAL MEMBER I.T.A.NO. 86/MDS/2013 AND C.O.NO. 40/MDS/2013 ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-I(3), CHENNAI 600 034. VS. M/S. JEPPIAAR EDUCATIONAL TRUST, NO.12, GANAPATHY STREET, ROYAPETTAH, CHENNAI 14. PAN AAATJ0562E (APPELLANT) (RESPONDENT/CROSS OBJECTOR) APPELLANT BY : DR. S. MOHARANA, IRS, CIT RESPONDENT BY : SHRI T. BANUSEKAR, FCA DATE OF HEARING : 22 ND APRIL, 2013 DATE OF PRONOUNCEMENT : 22 ND APRIL, 2013 O R D E R PER BENCH THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OB JECTION BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2009-10. THE APPEAL AND THE CROSS OBJECTION ARE DIRECTED AGA INST THE ORDER ITA 86 & CO 40/13 :- 2 -: OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-I AT CHE NNAI, DATED 22.10.2012 AND ARISE OUT OF THE ASSESSMENT COMPLETE D UNDER SEC. 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE GROUNDS RAISED BY THE REVENUE IN THE APPEAL READ AS BELOW : 1.A ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THERE IS NO VIOLATION OF THE PROVISIONS OF SECTION 13 TO THE PAYMENTS MADE TO M/S JET ASSOCIATES AND M/S HOLY SATELLITE TOWN LTD. BY RELYING ON THE ORDERS O F THE HONBLE ITAT, D BENCH, CHENNAI IN ITA NOS. 1333, 1334, 1591 TO 1595/MDS/2010 DATED 15-06-2011 FOR THE ASSESSMENT YEARS 2001-02 TO 2007-08 AND ALSO ORDER OF THE HONBLE ITAT A BENCH IN ITA NO.3387/MDS/2004 DATED 22.09.2006 FOR ASSESSMENT YEAR 2001-02 WITHOUT NOTING THAT THE RELIED UPON OR DERS HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEALS U/S 260A ARE PENDING BEFORE THE HONBLE HIG H COURT OF MADRAS. 1.B ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT EXEMPT ION U/S 11 CANNOT BE DENIED SINCE THERE IS HUGE DIVERSI ON OF FUNDS AND PROVISIONS OF SECTION 13(1)(C) ARE VIO LATED FOR THE REASONS STATED BELOW. ITA 86 & CO 40/13 :- 3 -: (I) M/S JET ASSOCIATES HAS RECEIVED ` 42,69,362 FROM THE ASSESSEE AND SUPPLY TO THE TRUST WAS ONLY ` 8,42,42,867. M/S JET ASSOCIATES HAS UTILIZED THE F UNDS OF THE ASSESSEE AMOUNTING TO ` 34,26,67,495 WITHOUT PAYING ANY INTEREST. THE TRANSACTION CANNOT BE CONSIDERED AS NORMAL BUSINESS TRANSACTION SINCE NO PRUDENT BUSINESSMAN WILL ADVANCE SUCH A HUGE SUM WHEN ALREADY HUGE SUM WAS LYING WITH JET ASSOCIATES THAT TWO WITHOUT ANY INTEREST. (II) M/S HOLY SATELLITE TOWN LTD HAD ALREADY RECEI VED ` 10.18 CRORES AS ADVANCE AND FURTHER ADVANCE DURING THE RELEVANT ASSESSMENT YEAR WAS ` 6,67,97,933. M/S HOLY SATELLITE TOWN LTD HAS SUPPLIED STEEL TO THE ASSESSEE FOR ` 5,72,57,434 AND NO INTEREST WAS PAID FOR THE BALANCE AMOUNT OF ` 11.13 CRORE. THE TRANSACTION CANNOT BE CONSIDERED AS NORMAL BUSINESS TRANSACTION SINCE NO PRUDENT BUSINESSMAN WILL ADVANCE SUCH A HUGE SUM WHEN ALREADY HUGE SUM WAS LYING WITH M/S HOLY SATELLITE TOWN LTD THAT TOO WITHOUT ANY INTEREST. (III) THE ABOVE TRANSACTIONS RESULT IN CLEAR DIVER SION OF FUNDS AS PER THE RATIO OF THE JUDGMENTS MENTIONED BELOW : 1. CIT VS. V.G.P.FOUNDATION (262 ITR 187) (MAD) (2003) ITA 86 & CO 40/13 :- 4 -: 2. AGAPPA CHILD CENTRE VS. CIT (226 ITR 221) (KER) (1997) 3. KANAHYA LAL PUNJ CHARITABLE TRUST VS. DIT (EXEM) (297 ITR 66)(DEL) (2008) 2.A ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEE , THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THERE IS NO CASE FOR MAKING A DISALLOWANCE IN RESPE CT OF INTEREST AMOUNTING TO ` 4,17,19,667 WITHOUT APPRECIATING THAT THE TRANSACTIONS ARE NOT GENUINE BUSINESS TRANSACTIONS BUT ONLY INTENDED TO BENEFIT THE TRUSTEES/OTHER CONCERNS. 2.B THE LEARNED CIT(A) HAS ERRED BY RELYING ON THE APPELLATE ORDERS FOR ASSESSMENT YEAR 2008-09 WITHOU T NOTING THAT THE RELIED UPON ORDERS HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT AND THE ISSUE HAS NOT BECOME FINAL. 3.A ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT EVEN A FTER IGNORING THE ALLEGED DONATION OF ` 66,36,000 THE TOTAL APPLICATION BY THE TRUST IS STILL ABOVE THE PRESCRI BED PERCENTAGE OF 85%, THE EXEMPTION U/S 11 WILL BE AVAILABLE TO THE TRUST. 3.B THE LEARNED CIT(A) HAS FAILED TO NOTE THAT SIN CE NO EVIDENCE FOR DONATION HAS BEEN PRODUCED EITHER BEFORE THE A.O. OR BEFORE THE CIT(A), THE TRUST LOS ES ITS ITA 86 & CO 40/13 :- 5 -: EXEMPTION U/S 11 AUTOMATICALLY FOR MISUSE OF FUNDS BY THE TRUSTEES. 3.C THE LEARNED CIT(A) HAS FAILED TO NOTE THAT EVE N AS PER CIT(A) OBSERVATION, THE ASSESSEE IS NOT ELIGIBL E FOR EXEMPTION U/S 11 SINCE THERE IS A SHORTFALL IN UTIL IZATION OF FUNDS, 85% OF GROSS RECEIPTS OF ` 1,77,18,69,802 IS ` 1,50,60,89,331 AND UTILIZATION AS PER ASSESSEES O WN ACCOUNT IS ONLY ` 1,48,72,18,881. 3. THE ABOVE GROUNDS WERE IN FACT CONSIDERED BY THE INCOME- TAX APPELLATE TRIBUNAL, D BENCH, CHENNAI IN ASSES SEES OWN CASE FOR THE ASSESSMENT YEARS 2001-02 TO 2007-08. THE ISSUES WERE CONSIDERED BY THE TRIBUNAL IN ITS ORDER DATED 15.6.2011 PASSED IN ITA NOS.1333, 1334, 1591 TO 1595/MDS/2010 . AGAIN THESE ISSUES WERE CONSIDERED FOR THE ASSESSMENT YEA R 2001-02 IN ASSESSEES OWN CASE BY THE TRIBUNAL, A BENCH THRO UGH ITS ORDER DATED 22.9.2006 IN ITA NO.3387/MDS/2004. IN THE SA ID ORDERS, THE TRIBUNAL HAS CONSISTENTLY HELD THAT THE PAYMENT S MADE TO M/S. JET ASSOCIATES AND M/S. HOLY SATELLITE TOWN LTD. DI D NOT RESULT IN VIOLATING SEC.13(1)(C). THE TRIBUNAL HELD THAT THE PAYMENTS MADE TO THOSE ENTITIES WERE NOT IN THE NATURE OF DIVERSI ON OF FUNDS FROM THE CORPUS OF THE ASSESSEE-TRUST. THE TRIBUNAL AL SO HELD THAT ITA 86 & CO 40/13 :- 6 -: THOSE PAYMENTS WERE MADE AGAINST SUPPLY OF GOODS AN D SERVICES RENDERED BY THOSE CONCERNS FOR THE REQUIREMENTS OF THE EDUCATIONAL INSTITUTIONS RUN BY M/S. JEPPIAAR EDUCA TIONAL TRUST. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS FOLLOWE D THE SAID ORDERS AND ALLOWED THE CONTENTIONS OF THE ASSESSEE. THE GROUND OF THE REVENUE IS THAT THOSE DECISIONS OF THE TRIBU NAL HAVE NOT REACHED FINALITY AND THE REVENUE HAS TAKEN UP THE M ATTER BEFORE THE HONBLE HIGH COURT OF MADRAS IN APPEALS FILED U NDER SEC.260A. 4. AS OF NOW, THE ORDERS OF THE TRIBUNAL PASSED FOR THE EARLIER ASSESSMENT YEARS STAND GOOD AND NOT DISTURBED BY AN Y COURT OF LAW. AS SUCH, THE COMMISSIONER OF INCOME-TAX(APPEA LS) IS BOUND TO FOLLOW THE SAID ORDERS OF THE TRIBUNAL. THIS BE NCH IS ALSO BOUND TO FOLLOW THE EARLIER ORDERS OF THE CO-ORDINATE BEN CHES. IN THESE CIRCUMSTANCES, WE HAVE TO CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) ON THESE ISSUES AND DISMISS THE APPEAL FILED BY THE REVENUE. 5. IN THE COURSE OF HEARING, DR. S. MOHARANA, THE L EARNED COMMISSIONER OF INCOME-TAX HAS RAISED HIS ARGUMENTS TO DISTINGUISH THE FACTS OF THE PRESENT CASE FROM THE FACTS OF THE ITA 86 & CO 40/13 :- 7 -: CASES DECIDED BY THE TRIBUNAL FOR THE EARLIER ASSES SMENT YEARS. THE LEARNED COMMISSIONER POINTED OUT THAT IN THE EA RLIER ASSESSMENT YEARS, THE AMOUNTS PAID BY THE ASSESSEE- TRUST TO THOSE CONCERNS WERE NOT BIG AND WERE COMPARABLE TO THE GOODS DELIVERED AND SERVICES RENDERED BY THOSE CONCERNS. HE POINTED OUT THAT FOR THE IMPUGNED ASSESSMENT YEAR, THE PAYM ENTS MADE TO THOSE CONCERNS HAVE BECOME ASTRONOMICALLY HIGH A ND THE PAYMENTS THAT COULD BE ATTRIBUTED AGAINST THE SERVI CES RENDERED AND GOODS DELIVERED TO THE ASSESSEETRUST, ARE RELA TIVELY VERY LOW AND THEREFORE, THIS SHOULD BE TREATED AS A DUBIOUS MEANS OF DIVERTING FUNDS FROM THE TRUST TO THE INTERESTED CO NCERNS. WHILE CONSIDERING THE ARGUMENTS OF THE LEARNED COMMISSION ER, WE HAVE TO STATE THAT VARIATION IN THE QUANTUM OF PAYMENTS MADE BY THE ASSESSEE-TRUST TO THOSE CONCERNS ALONE WOULD NOT CH ANGE THE CHARACTER OF THE PAYMENTS. IN ITS EARLIER ORDERS, THE TRIBUNAL HAS CONSISTENTLY HELD THAT THE TRANSACTIONS THE ASSESSE E HAD WITH M/S. HOLY SATELLITE TOWN LTD. AND M/S. JET ASSOCIATES AR E BUSINESS TRANSACTIONS AND THE PAYMENTS MADE BY THE ASSESSEE- TRUST ARE AGAINST SUPPLY OF GOODS AND RENDERING OF SERVICES. WHEN THE CHARACTER OF PAYMENTS ARE HELD TO BE IN THE NATURE OF BUSINESS TRANSACTIONS AND FOR VALID CONSIDERATION, IT IS NOT POSSIBLE FOR THE ITA 86 & CO 40/13 :- 8 -: TRIBUNAL TO HOLD A DIFFERENT VIEW THAT THE PAYMENTS MUST BE TREATED AS INDIRECTLY DIVERTED BY THE ASSESSEE. I T IS ALSO NECESSARY TO TAKE INTO CONSIDERATION THE ARGUMENT O F THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE THA T THE QUANTUM OF SUPPLY OF GOODS AND SERVICES AVAILED BY THE ASSESSEE-TRUST FROM THOSE CONCERNS HAVE INCREASED M ANIFOLD AND THE INCREASE IN THE PAYMENTS MADE TO THOSE CONCERNS ARE ONLY THE REFLECTION OF INCREASE IN THE QUANTUM OF SUPPLY OF GOODS AND SERVICES. THEREFORE, WE FIND THAT THIS APPEAL HAS TO BE DECIDED BY FOLLOWING THE BINDING DECISIONS OF THE CO-ORDINATE BENCHES RENDERED FOR THE EARLIER ASSESSMENT YEARS. 6. THE APPEAL FILED BY THE REVENUE IS LIABLE TO BE DISMISSED. 7. AS FAR AS THE CROSS OBJECTION IS CONCERNED, THE ASSESSEE HAS RAISED A NUMBER OF GROUNDS, BUT THE PRINCIPAL O NE BEING THE DISALLOWANCE OF A CLAIM OF DONATION OF ` 66,36,000/- MADE BY THE ASSESSEE-TRUST AS EXPENDITURE. AS POINTED OUT BY T HE LOWER AUTHORITIES, THERE ARE NO MATERIALS AVAILABLE ON RE CORD TO SUPPORT ITS CLAIM. THE DISALLOWANCE IS THEREFORE CONFIRMED . LEVY OF INTEREST IS ONLY CONSEQUENTIAL. REGARDING THE OTHE R GROUNDS, THE ITA 86 & CO 40/13 :- 9 -: LEARNED CHARTERED ACCOUNTANT HAS FAIRLY CONCEDED NO T TO PRESS THEM. 8. IN RESULT, THE APPEAL FILED BY THE REVENUE AND T HE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDERS PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON MONDAY, THE 22 ND OF APRIL, 2013 AT CHENNAI. SD/- SD/- (S.S.GODARA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 22 ND APRIL, 2013 MPO* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.