Jeppiaar Educational Trust, CHENNAI V. ACIT, CHENNAI

CO 45/CHNY/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 8092 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 23-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T BANUSEKAR
• Assessee Lawyers: DR S MOHARANA IRS
• Keywords: Charitable institution; Capital expenditure
• Section: 260A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A.NO. 398/MDS/2012 ASSESSMENT YEAR : 2008-09 AND C.O.NO.45/MDS/2012(IN ITA NO.398/MDS/2012) THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-I(3), CHENNAI-34. VS. M/S. JEPPIAAR EDUCATIONAL TRUST, NO.29, GANAPATHY STREET, ROYAPETTAH, CHENNAI-14. PAN AAATJ 0562 E (APPELLANT) (RESPONDENT/CROSS OBJECTOR) APPELLANT BY : DR. S. MOHARANA, IRS, CIT RESPONDENT BY : SHRI T. BANUSEKAR, FCA DATE OF HEARING : 12 TH DECEMBER, 2012 DATE OF PRONOUNCEMENT : 14 TH DECEMBER, 2012 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THE APPEAL IS FILED BY THE REVENUE. THE CROSS OBJE CTION IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEA R IS 2008-09. THE APPEAL AND CROSS OBJECTION ARE DIRECTED AGAINST THE ORDER ITA 398 & CO 45/12 :- 2 -: PASSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS)-I AT CHENNAI ON 8.12.2011. THEY ARISE OUT OF THE ASSESSMENT COM PLETED UNDER SEC.143(3) OF THE INCOME-TAX ACT, 1961. 2. THE GROUNDS RAISED BY THE REVENUE IN ITS 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 THE PROVISIONS OF SECTION 13(1)(C) WILL NOT APPLY TO TH E PAYMENTS MADE TO M/S JET ASSOCIATES, M/S HOLY SATEL LITE TOWN LTD. AND M/S JAISAKTHI EDUCATIONAL TRUST BY RE LYING ON THE ORDERS OF THE HONBLE ITAT, D BENCH, CHENN AI IN ITA NOS. 1333, 1334, 1591 TO 1595/MDS/2010 DAT ED 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 O RDERS HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL S U/S 260A ARE PENDING BEFORE THE HONBLE HIGH 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 THE ITA 398 & CO 45/12 :- 3 -: ASSESSEE HAS TO BE ASSESSED AS A TRUST AND NOT AS AN AOP SINCE THERE IS HUGE DIVERSION OF FUNDS AND PROVISIONS OF SECTION 13(1)(C) ARE VIOLATED FOR THE REASONS STATED BELOW. (I) AS PER THE LEDGER ACCOUNT COPY OF JET ASSOCIATE S IN THE BOOKS OF JEPPIAR EDUCATIONAL TRUST FOR THE ASSESSMENT YEAR 2008-09 THE ASSESSEE TRUST ADVANCE D ` 17,96,39,933/- (OPENING BALANCE ` 11,37,76,152/-) AGAINST MEAGER CREDIT ENTRY OF ` 7,06,47,816/-. THE TRANSACTION CANNOT BE CONSIDERED AS NORMAL BUSINESS TRANSACTION SINCE NO PRUDENT BUSINESSMAN WILL ADVAN CE SUCH A HUGE SUM WHEN ALREADY HUGE SUM OF ` 11,37,76,152/- IS LYING WITH JET ASSOCIATES THAT TO O WITHOUT ANY INTEREST. (II). AS PER CASH FLOW STATEMENT FILED BY SMT. REM IBAI JEPPIAR FOR THE ASSESSMENT YEAR 2008-09, DRAWINGS F ROM M/S JET ASSOCIATES IS SHOWN AT ` 1,35,12,945/- AND INVESTMENT BY SMT. REMIBAI JEPPIAR IN M/S JEPPIAR CEMENTS PRIVATE LIMITED IS SHOWN AT ` 1,28,50,000/- AND AS PER THE CASH FLOW STATEMENT FILED BY SHRI JEPPIA R, ITA 398 & CO 45/12 :- 4 -: DRAWINGS FROM M/S JET ASSOCIATES IN SHOWN AT ` 1,55,00,000/- AND INVESTMENT BY SHRI JHEPPIAR IN M/ S JEPPIAR CEMENTS PRIVATE LIMITED IS SHOWN AT ` 1,28,50,000/-. THESE TRANSACTIONS ARE NOTHING BUT TRUST MONEY BEING ROUTED THROUGH JET ASSOCIATES WHICH IS UTILIZED BY SHRI JEPPIAR AND SMT. REMIBAI JEPPIAR W HO ARE TRUSTEES OF THE JEPPIAR EDUCATIONAL TRUST. (III) THE ABOVE TRANSACTIONS RESULT IN CLEAR DIVERS ION OF FUNDS AS PER THE RATIO OF THE JUDGMENTS MENTIONED B ELOW: 1. CIT VS. V.G.P.FOUNDATION (262 ITR 187)(MAD)(2003) 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) 1.C ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE EXCESS OF INCOME OVER EXPENDITURE IS NOT TAXABLE SINCE THE PROVISIONS OF SECTION 11 ARE NOT AVAILABLE TO THE ASSESSEE FOR THE DEFAULT RELATING TO DIVERSION OF FUNDS. 1.D ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THERE IS N O CASE FOR MAKING A DISALLOWANCE IN RESPECT OF INTEREST ITA 398 & CO 45/12 :- 5 -: AMOUNTING TO ` 3,25,78,844/- WITHOUT APPRECIATING THAT THE TRANSACTIONS ARE NOT GENUINE BUSINESS TRANSACTI ONS BUT ONLY INTENDED TO BENEFIT THE TRUSTEES/OTHER CON CERNS. 3. AS SEEN FROM THE FIRST GROUND RAISED BY THE REVE NUE, THE ISSUES RAISED IN THE PRESENT APPEAL HAVE ALREADY BE EN CONSIDERED BY THE INCOME-TAX APPELLATE TRIBUNAL, CHENNAI A B ENCH IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS 20 01-02 TO 2007-08. THE TRIBUNAL HAS DECIDED THE ISSUES IN FA VOUR OF THE ASSESSEE-TRUST. THE FACTS AND CIRCUMSTANCES AND TH E NATURE OF TRANSACTIONS POINTED OUT BY THE ASSESSING AUTHORITY ARE ALL SIMILAR FOR THE IMPUGNED ASSESSMENT YEAR 2008-09, AS WELL. THEREFORE, IT GOES WITHOUT SAYING THAT THE DECISION OF THE COMMIS SIONER OF INCOME-TAX(APPEALS) IS JUSTIFIED BY THE EARLIER ORD ER OF THE TRIBUNAL ON THE SAME ISSUES AND THERE CANNOT BE ANY INFIRMIT Y IN THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS). ON THIS GROUND ITSELF THIS APPEAL FILED BY THE REVENUE IS L IABLE TO BE DISMISSED. 4. DR. S. MOHARANA, THE LEARNED COMMISSIONER OF INC OME-TAX, APPEARING FOR THE REVENUE CONTENDED THAT WHILE ADMI TTING THAT THE ISSUES ARE COVERED BY THE ORDERS OF THE TRIBUNAL PA SSED IN ITA 398 & CO 45/12 :- 6 -: ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR S, HE IS HIGHLIGHTING ANOTHER ASPECT OF THE CASE THAT THE AS SESSEE IS PARKING LOT OF FUNDS WITH ITS SISTER CONCERNS IN TH E GARB OF ADVANCE AND IN EFFECT, ALL THOSE ADVANCES ARE DIVERTING THE FUNDS FROM THE TRUST FUND TO SUBSERVE PERSONAL INTEREST OF THE TRU STEES. THE LEARNED COMMISSIONER SUBMITTED THAT IN ORDER TO SAT ISFY A SMALL AMOUNT OF LIABILITY WITH ASSOCIATE CONCERNS, THE AS SESSEE-TRUST IS GIVING AWAY HUGE AMOUNTS AND THE AMOUNTS ADVANCED B Y THE ASSESSEE AND SERVICES OBTAINED FROM THE SISTER CON CERNS ARE NOT COMPARABLE AND ALL THESE CIRCUMSTANCES STRENGTHENED THE CONCLUSION OF THE REVENUE THAT ALL THESE SATELLITE INSTITUTIONS ARE JUST OPERATING TO TAKE AWAY THE FUNDS OF THE ASSESS EE-TRUST AND FINALLY TO UTILIZE THE SAME FOR THE BENEFIT OF THE TRUSTEES. THE LEARNED COMMISSIONER EXPLAINED IN THAT CONTEXT THAT THERE IS DEFINITELY VIOLATION OF SEC.13(C) AND THE ASSESSEE CANNOT BE GRANTED THE BENEFIT OF SEC.11. 5. THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT WHAT HA S BEEN STATED BY THE REVENUE IS ONLY UNFOUNDED APPREHENSION, WHER EAS THE EXPLANATIONS OFFERED BY THE ASSESSEE BEFORE THE COM MISSIONER OF INCOME-TAX(APPEALS) ARE METICULOUSLY SUPPORTED BY T HE ACCOUNTS ITA 398 & CO 45/12 :- 7 -: AND THE DETAILS. THE ADVANCES ARE GIVEN TO SISTER CONCERNS TO MEET SPECIFIC OBLIGATIONS FOR SUPPLY OF GOODS AND A VAILING SERVICES. THE ASSESSEE IS RUNNING A NUMBER OF INST ITUTIONS UNDER ITS COMMON UMBRELLA. THEREFORE, IT IS NECESSARY FO R THE ASSESSEE- TRUST TO HAVE DEPENDABLE SUPPLIERS AND FACILITATORS TO CARRY ON ITS ACTIVITIES WITHOUT ANY BREAK DOWN. THE ASSESSEE-T RUST HAS ALSO EXAMINED THE PRIORITIES OF ECONOMY, AS WELL. IT IS IN THIS CONTEXT THAT THE ASSESSEE TRUST IS DEALING WITH ASSOCIATE C ONCERNS AT ARMS LENGTH AND THERE IS NOTHING LIKE ANY SCHEME O F TAKING AWAY THE FUNDS OF THE ASSESSEE-TRUST FOR THE PERSONAL BE NEFIT OF THE TRUSTEES. 6. IN THE PRESENT CASE, THE ATTENTION OF THE REVEN UE IS MORE ON SISTER CONCERNS LIKE M/S. JET ASSOCIATES, M/S. J EPPIAR CEMENTS PVT. LTD., M/S. JAISAKTHI EDUCATIONAL TRUST, M/S. H OLY SATELLITE TOWN LTD. AND SMT. REMIBAI JEPPIAR. IT HAS BEEN A LREADY HELD BY THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS TH AT ADVANCES WERE GIVEN TO M/S. JET ASSOCIATES FOR UNINTERRUPTED SUPPLY OF WATER AND MILK IN THE CANTEEN AND HOSTELS RUN BY TH E ASSESSEE. THE ADVANCES GIVEN TO M/S. HOLY SATELLITE TOWN LTD. IS AGAINST SUPPLY OF READY MIX CONCRETE. THE RATES ARE LOWER COMPARED TO OPEN MARKET RATES. THEREFORE, AS HELD FOR THE EARL IER ASSESSMENT ITA 398 & CO 45/12 :- 8 -: YEARS, THERE CANNOT BE A CASE OF ATTRACTING PROVISI ONS OF SEC.13(1)(C) WITH REFERENCE TO THE ABOVE TWO SISTER CONCERNS. THIS IS THE CASE WITH M/S. JET STEEL ADVANCE ALSO. IT I S FOR THE SUPPLY OF GOODS. FOR THE PURCHASES MADE FOR M/S. HOLY SATELL ITE TOWN LTD. THE ASSESSEE HAD MADE PAYMENTS LESSER THAN THE NORM AL MARKET RATES. IT HAS ALSO BEEN FOUND IN THE EARLIER ASSE SSMENT YEARS THAT M/S. HOLY SATELLITE TOWN LTD. COULD NOT BE CONSIDE RED AS ANY OTHER PERSON REFERRED TO IN SEC.13(3) AND THEREFORE , THE PROVISIONS OF SEC.13(1)(C)(II) CANNOT BE APPLIED. THIS IS TH E SAME CASE WITH M/S. JAISAKTHI EDUCATIONAL TRUST, AS THE TRIBUNAL HAS HELD FOR EARLIER ASSESSMENT YEARS THAT IT IS NOT A CONCERN WITHIN THE MEANING OF SEC.13(3)(E). 7. TO SUM UP THE ESSENCE OF THIS APPEAL, WE FIND TH AT THE ISSUES RAISED FOR THE PRESENT ASSESSMENT YEAR ARE E XACTLY SIMILAR TO THOSE ISSUES CONSIDERED BY THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS AND THE SURROUNDING CIRCUMSTANCES REMAIN THE SAME. THEREFORE, WE FIND THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) IS JUSTIFIED IN FOLLOWING THE EARLIER ORDERS OF THE JURISDICTIONAL TRIBUNAL AND AS SUCH, HIS ORDER NEED S TO BE UPHELD. 8. THE APPEAL FILED BY THE REVENUE IS LIABLE TO BE DISMISSED. ITA 398 & CO 45/12 :- 9 -: 9. IN THE CROSS OBJECTION FILED BY THE ASSESSEE, TH E FOLLOWING GROUNDS HAVE BEEN RAISED: 1. FOR THAT THE COMMISSIONER OF INCOME-TAX(APPEALS ) FAILED TO APPRECIATE THAT THE ORDER OF THE ASSESSING OFFIC ER IS WITHOUT JURISDICTION, IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE AND IS OPPOSED TO THE PRI NCIPLES OF EQUITY, NATUREL JUSTICE AND FAIR PLAY. 2. FOR THAT THE CAPITAL EXPENDITURE ALSO SOUGHT TO BE REDUCED IN DETERMINING THE TOTAL INCOME OF THE RESPONDENT. 3. FOR THAT EVEN ASSUMING WITHOUT CONCEDING THAT THE INCOME IS ASSESSABLE THE SAME COULD BE DONE ONLY T O THE EXTENT OF THE VIOLATION. 4. FOR THESE GROUNDS AND SUCH OTHER GROUNDS THAT M AY BE URGED BEFORE OR DURING THE HEARING OF THE APPEAL IT IS MOST HUMBLY PRAYED THAT THE HONBLE TRIBUNAL MAY BE PLEA SED TO : A. RESTRICT THE INCOME IF IT IS ASSESSABLE TO THE E XTENT OF VIOLATION OR B. PASS SUCH OTHER ORDERS AS THE HONBLE TRIBUNAL M AY DEEM FIT. 10. AS THE APPEAL FILED BY THE REVENUE STANDS DISMI SSED, THE ABOVE GROUNDS RAISED BY THE ASSESSEE IN ITS CROSS O BJECTION HAVE ITA 398 & CO 45/12 :- 10 -: BECOME INFRUCTUOUS. THEREFORE, THE CROSS OBJECTION IS ALSO LIABLE TO BE DISMISSED. 11. IN RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE, BOTH ARE DISMISSED . ORDERS PRONOUNCED ON FRIDAY, THE 14 TH OF DECEMBER, 2012 AT CHENNAI. SD/- SD/- (V.DURGA RAO) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 14 TH DECEMBER, 2012. MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR