DDIT (E), New Delhi V. Aashiana Trust, New Delhi

ITA 1394/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3496 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 09-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: FARHAT QURESHI
• Assessee Lawyers: PUNEETH KAPOOR
• Keywords: Unexplained cash credit; Charitable institution; Additional evidence
• Section: 68; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO.1394(DEL)/2009 ASSESSMENT YEAR: 2005-06 DEPUTY DIRECTOR OF INCOME AASHIANA TRUST, TAX (E), INV. CIRCLE-I, VS. K-11, NDSE, PART-I, NEW DELHI. NEW DELHI. PAN-AABTA0527B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI FARHAT QURESHI, SR. D R RESPONDENT BY: SH RI PUNEETH KAPOOR, CA ORDER PER K.G. BANSAL : AM THIS APPEAL OF THE REVENUE EMANATES FROM THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-XXI, NEW DEL HI, ON 19.01.2009 IN APPEAL NO. 323/07-08, PERTAINING TO ASSESSMENT YEAR 2005-06. THE REVENUE HAS TAKEN THE FOLLOWING SUBSTANTIVE GRO UNDS IN THE APPEAL:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN ALLOWING EXEMPTION U/S 11 OF THE INCOM E-TAX ACT, WHEN IT WAS CLEARLY ESTABLISH BY THE AO THAT THERE WAS VIOLATION OF PROVISIONS OF SECTION 13(1)(D) AND 13(2) READ WITH SECTION 13(3) AND IN DIRECT VIOLATION OF THE RATIO OF DECISION OF HONBLE DELHI HIGH COURT IN KANHAYA LAL PUNJ CHA RITABLE TRUST, (2208) 297 ITR 6 (DEL). (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER OF CIT(A) IS PERVERSE AS HE HAS NOT DISCUSSED HOW THE AGREEMENT ITA NO. 1394(DEL)/2009 2 BETWEEN ASSESSEE AND AAKASH INSTITUTE PVT. LTD. IS GENUINE, ESPECIALLY WHEN THE AO HAD ESTABLISHED THAT TH E AGREEMENT WAS BOGUS AND WAS ENTERED INTO ONLY TO TRANS FER FUNDS OF RS. 1,40,00,000/-. 2. THE FACTS OF THE CASE ARE THAT THE RETURN OF INCOME WAS FILED ON 23.9.2005 DECLARING LOSS OF RS. 30,000/-. IN TH E COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT IT HAD ADVA NCED A SUM OF RS. 1.40 CRORE TO AAKASH INSTITUTE PVT. LTD. FOR BOOKIN G SPACE IN A HOSPITAL. THIS AMOUNT WAS CONSIDERED AS APPLICATION OF INCO ME U/S 11(1)OF THE ACT. IT WAS FURTHER OBSERVED THAT AAKASH INSTITUTE PVT. LTD. WAS A CONCERN COVERED U/S 13(3) OF THE ACT. THEREFORE, THE TRA NSACTION WAS FURTHER EXAMINED. THE OBSERVATIONS OF THE AO ARE AS U NDER:- I HAVE GONE THROUGH THE CONTENTS OF THIS AGREEM ENT DATED 10.3.2004. FOLLOWING FACTS EMERGED FROM THE EXAMINATION OF THE AFORESAID AGREEMENT: (I) THE AGREEMENT IS DRAWN ON A STAMP PAPER O F RS. 100/- ONLY AND DOES NOT BEAR SIGNATURES OF ANY WITNESSES. (II) THE AGREEMENT IS NOT REGISTERED WITH ANY AUT HORITY. (III) THE AGREEMENT DOES NOT CARRY ANY DEFINITE PERIOD OF TIME WHEN THE PHYSICAL POSSESSION OF THE SPACE SHALL BE ALLOTTED TO THE ASSESSEE. (IN CLAUSE 4, IT IS MENTIONED THAT T ENTATIVE PERIOD OF CONSTRUCTION OF HOSPITAL BUILDING IS 5 YEARS. HOWEVER, IT IS NOT MENTIONED AS TO WHEN THE CONSTRUCTION OF HOSPI TAL WOULD START. IT MEANS THAT THE MONEY SHALL BE LEFT WITH M/S AKASH INSTITUTE PVT. LTD. FOR AN INDEFINITE PERIOD. ITA NO. 1394(DEL)/2009 3 (IV) THE AGREEMENT DOES NOT HAVE ANY ANNEXURE CARRYING MAP OF THE SPACE TO BE ALLOTTED TO THE ASSESSEE. THERE IS NO LAY-OUT PLAN ANNEXED TO THE AGREEMENT. (V) CLAUSE 7 OF THE AFORESAID AGREEMENT STATES THAT ANY AMOUNT PAID TO M/S AKASH INSTITUTE PVT. LTD. SHALL BE FREE O F INTEREST AND NO OTHER CLAIM EXEMPT FOR THE PURPOSE OF BOOKING T HE SPACE WOULD BE MADE BY THE ASSESSEE. (VI) CLAUSE 6 OF THE AFORESAID AGREEMENT STATE S THAT PAYMENT AS AND WHEN AVAILABLE WITH THE ASSESSEE SHALL BE MAD E OVER TO M/S AKASH INSTITUTE PVT. LTD. FOR ONWARD USE IN TH E PAYMENT OF THE BALANCE COST OF LAND, AS ALSO COST OF CONSTRUCT ION, WHICH SHALL BE UNDERTAKING LATER. (VII) CLAUSE 11 OF THE AFORESAID AGREEMENT STA TES THAT THE AGREEMENT WILL NOT CONFER ANY LEGAL TITLE OR INTEREST IN THE ASSESSEE AND M/S AKASH INSTITUTE PVT. LTD. SHALL BE AT LIBE RTY, IN CASE OF ANY UNAVOIDABLE CONTINGENCY, TO RETURN THE ABOVE AM OUNT WITHOUT INTEREST TO THE ASSESSEE. (VIII) THERE IS NO PENAL CLAUSE TO TAKE CARE OF TH E INTEREST OF THE ASSESSEE TRUST IN AN EVENTUALITY OF THE DEAL NOT C OMING THROUGH, ON A FUTURE DATE. 2.1 IT WAS SUBMITTED THAT THE TRANSACTION WAS PURELY COMMERCIAL IN NATURE AND, THEREFORE, PROVISIONS CONTAINED IN CLAUSES (A) TO (H) OF SECTION 13(2) WERE NOT APPLICABLE. HOWEVER, THE AO DID NOT AGREE WITH THIS EXPLANATION. IT WAS MENTIONED THAT THE ASSESSEE PARTED WITH AN AMOUNT OF RS. 1.40 CRORE WITHOUT ADEQUATE SE CURITY TO SAFEGUARD ITS INTEREST. THERE WAS ALSO NO STIPULATION FOR CH ARGING OF INTEREST. THEREFORE, IT WAS HELD THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION ITA NO. 1394(DEL)/2009 4 U/S 11(1). FURTHER, THE ASSESSEE HAD SHOWN R ECEIPT OF DONATIONS AMOUNTING TO RS. 1,74,41,800/-. THIS AMOUNT WAS TREATED AS UNEXPLAINED CASH CREDIT U/S 68. CONSEQUENTLY, THE TOTAL I NCOME OF THE ASSESSEE WAS COMPUTED AT RS. 1,74,11,770/- AS UNDER:- CORPUS DONATION RECEIVED DURING THE YEAR TREATED AS INCOME U/S 68 AS DISCUSSED ABOVE. 1,74,41,800/- SAVING BANK INTEREST (AS SHOWN) 71,157/- GROSS TAXABLE INCOME 1,75,12,957/- LESS: EXPENSES AS CLAIMED 1,01,187/- TOTAL INCOME: 1,74,11,770/- 3. AGGRIEVED BY THIS ORDER, THE ASSESSEE FILED A PPEAL BEFORE THE CIT(APPEALS)-XXI, NEW DELHI, WHO DISPOSED OFF TH E SAME ON 19.01.2009. THE LD. CIT(APPEALS) CAME TO THE CO NCLUSION THAT THE AGREEMENT WITH THE AFORESAID COMPANY WAS FOR B OOKING THE SPACE. THEREFORE, THERE WAS NO VIOLATION OF THE PROVISI ONS CONTAINED IN SECTION 13(2)(B), (G) AND (H). THEREFORE, THE APPEAL OF THE ASSESSEE WAS ALLOWED. THE RELEVANT PORTION OF THE ORDER IS CONTAINED I N PARAGRAPH 5, WHICH IS REPRODUCED BELOW:- 5. I HAVE CONSIDERED THE SUBMISSION OF THE APPE LLANT AS WELL AS FACTS BROUGHT ON RECORD BY THE AO. IN WHOLE OF THE ASSESSMENT ORDER, THE AO HAS BLAMED THE AP PELLANT FOR ENTERED INTO AN AGREEMENT WITH M/S AAKASH INSTIT UTE PVT. LTD, ITA NO. 1394(DEL)/2009 5 WHERE ONE OF THE TRUSTEE IS DIRECTOR. IN THE WR ITTEN SUBMISSION BEFORE ME, IT HAS BEEN BROUGHT BY THE A PPELLANT IN CLEAR TERMS THAT THE AGREEMENT WAS FOR BOOKI NG OF SPACE FOR DHARAMSHALA IN A HOSPITAL CONSTRUCTED BY A AKASH INSTITUTE PVT. LTD. AND THE DHARAMSHALA IS FOR THE FREE STAY OF RELATIVES OF THE PATIENTS, WHO WOULD COME FOR TR EATMENT IN THE SAID HOSPITAL WHICH IS ALSO A CHARITABLE WORK A S PER THE AIMS AND OBJECTIVES OF THE APPELLANT-TRUST. IN THE W RITTEN SUBMISSION, THE LD. AR HAS SUBMITTED THAT THERE HAS NO VIOLATION OF SUB-SECTION 2(B), (G) AND (H) OF S ECTION 13. THEREFORE, DENIAL OF EXEMPTION U/S 11 IS NOT JUSTIFIED. FROM THE FACTS IT IS CLEAR THAT THE APPELLAN T HAS NOT GIVEN OR ADVANCED MONEY TO THE INSTITUTE BUT THEY HAVE BOOKED A SPACE IN THE HOSPITAL WHICH IS TO BE CONSTRUCTED BY AAKASH INSTITUTE PVT. LTD. AS PER THE AGREEMENT ENTERE D INTO BETWEEN THE APPELLANT AND THE INSTITUTE. THE BOOKING RATE WAS @ RS. 3,000/-, WHILE THE INFORMATION RECEIVED FROM VARIOUS WEBSITES OF DELHI PROVED THAT THE SPACE BOOKED BY THE APPELLANT IN THE HOSPITAL TO BE CONSTRUCTED IS MORE BENEFICIAL TO TRUST AT THE TIME WHEN DEALT WITH THE A GREEMENT WITH M/S AAKASH INSTITUTE PVT. LTD. THE OBJECTIVES OF T HE TRUST ARE TO BE MANAGED BY THE TRUSTEES OF THE APPELLANT AND NOT ONE MEMBER. THE DECISION TO BOOK SPACE AND ADVANCE MONEY FOR THE SAME IN AGREEMENT DOES NOT VIOLATE SEC TION 13(2)(B), (G) AND (H) AS HAS BEEN HELD BY THE AO. IT HA S BEEN CLEARLY DEMONSTRATED IN THE WRITTEN SUBMISSION BY THE AR OF THE APPELLANT THAT THE TRANSACTION IS BENEFICIAL FO R THE TRUST ONLY. IN THE CIRCUMSTANCES, CONCLUSION MADE BY T HE AO IN THE ASSESSMENT ORDER FAILS AND THE APPELLANT HAS NOT VIOLATED ANY OF THE PROVISIONS OF SECTION 13 AS HAS BEEN HELD BY THE AO. THEREFORE, THE APPELLANT HAS BEEN ALLOWED EXEMPT ION U/S 11 AND SUCCEEDED ON VARIOUS GROUNDS TAKEN TOGETH ER FOR ADJUDICATION OF THE APPELLANT AND ARE DECIDED I N FAVOUR OF THE APPELLANT. 4. BEFORE US, THE CASE OF THE LD. DR WAS BASE D ON THE ASSESSMENT ORDER THAT THE FUNDS OF THE ASSESSEE-TRUST WER E APPLIED FOR THE BENEFIT OF ITA NO. 1394(DEL)/2009 6 AAKASH INSTITUTE PVT. LTD., A CONCERN COVERED UN DER SECTION 13(3) OF THE ACT. IT WAS HIS CASE THAT THE TRANSACTION WAS SHAM IN NATURE, UNDERTAKEN WITH A VIEW TO BENEFIT THE AFORESA ID COMPANY. THEREFORE, IT WAS STRONGLY ARGUED THAT THE AO RIGHTLY REF USED TO GRANT DEDUCTION U/S 11(1). FOR THIS PURPOSE, HE RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF KANHAYA LAL PUNJ CHAR ITABLE TRUST VS. DIRECTOR OF INCOME-TAX (E), (2008) 171 TAXMAN 134. IN T HAT CASE, ALL THE THREE AUTHORITIES HAD RECORDED A CONCURRENT FINDING T HAT BENEFIT WAS GRANTED DIRECTLY OR INDIRECTLY TO PUNJ LLYOD LTD., LEA DING TO VIOLATION OF THE PROVISIONS CONTAINED IN SECTIONS 13(1)(A) AND 1 3(1)(C). IT WAS HELD THAT THE FINDING WAS PURELY A FINDING OF FACT AND THERE WAS NO REASON TO DISAGREE WITH THE CONCLUSION ARRIVED AT BY THE L OWER AUTHORITIES. 4.1 IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE TOOK US THROUGH VARIOUS PAPERS PLACED IN THE PAPER BOOK. IT WAS SU BMITTED THAT AKASH INSTITUTE PVT. LTD. WAS OWNING A PIECE OF LAND IN AN IN STITUTIONAL AREA, EARMARKED FOR CONSTRUCTION OF A HOSPITAL. THE ASSESSEE WANTED TO PROVIDE FACILITIES TO THE NEEDY AND POOR PEOPLE OF THE SOCIETY BY WAY OF MEDICAL ASSISTANCE. THEREFORE, AN AGREEMENT WAS ENTERE D INTO WITH THE COMPANY FOR BOOKING SPACE WHICH COULD BE USED FOR ACHI EVING THE AFORESAID ITA NO. 1394(DEL)/2009 7 PURPOSE. THE COMPANY, BEING A CONNECTED CONCER N, OFFERED THE SPACE AT RS. 3,000/- PER SQ. FT. AGAINST THE FAIR MARK ET VALUE OF RS. 5,000/- PER SQ. FT. THIS TRANSACTION WAS PURELY COMMERCI AL IN NATURE WHICH RESULTED INTO AN ADVANTAGE TO THE ASSESSEE ON ACCOUNT OF THE OFFER OF DISCOUNTED PRICE. THE AGREEMENT WITH THE COMPA NY WAS DRAWN ON A STAMP PAPER OF RS. 100/-. THE AGREEMENT WAS BI NDING ON BOTH THE PARTIES ALTHOUGH THE SAME HAS NOT BEEN REGISTERED WIT H ANY AUTHORITY. CLAUSE 11 OF THE AGREEMENT PERMITTED THE COMPANY TO RETURN THE AMOUNT WITHOUT ANY INTEREST BUT SUBSEQUENTLY IT OFFER ED THE ASSESSEE TO REFUND THE ENTIRE AMOUNT WITH INTEREST CALCULATED @ 18 % P.A., IF SO DESIRED. THE GOING RATE IN THE AREA WAS IN THE VICINITY OF RS. 12,000/- TO RS. 15,000/- PER SQ. FT. THEREFORE, IT WAS ARGUED THA T NO BENEFIT HAS BEEN PASSED TO THE COMPANY BY THE ASSESSEE-TRUST. ON THE OTHER HAND, THE ASSESSEE- TRUST HAS BEEN GREATLY BENEFITED BY THE AGRE EMENT. IN THE COURSE OF HEARING CERTAIN ADDITIONAL EVIDENCES WERE FURNI SHED TO SUPPORT THE CASE THAT NO BENEFIT HAD BEEN PASSED TO THE AFORESAID COMPANY. RELIANCE HAS ALSO BEEN PLACED INTER-ALIA ON THE DECISION IN THE CASE OF CIT VS. RADHA KRISHNA TEMPLE TRUST (2005) 277 ITR 158 (ALL.) AND CIT VS. KAMLA TOWN TRUST (2005) 279 ITR 89 (ALL.). ITA NO. 1394(DEL)/2009 8 4.2 IN THE COURSE OF HEARING, THE LD. COUNSEL WAS QUESTIONED ABOUT THE NATURE OF INCOME ASSESSED BY THE AO. THE RECEIPT S WERE TAXED U/S 68 AS UNEXPLAINED CASH CREDITS. SUCH INCOME COUL D POSSIBLY BE NOT TAKEN AS INCOME DERIVED FROM PROPERTY HELD UNDER TRU ST WHOLLY FOR CHARITABLE PURPOSES, AS CONTEMPLATED U/S 12 OF THE ACT. T HE CASE OF THE LD. COUNSEL WAS THAT SOME EVIDENCE WAS FILED BEFORE THE A O TO SUPPORT THE DONATIONS AND COMPLETE EVIDENCE CAN BE FILED IF AN O PPORTUNITY IS GRANTED TO DO SO. HOWEVER, IT EMERGED THAT THE ASSESSEE HA S NOT CHALLENGED THE FINDING OF THE AO IN WHICH DONATIONS HAVE BEEN T AXED U/S 68. THUS, THIS FINDING HAS BECOME FINAL. IN SUCH A SITUATION, I T IS CONTENTIOUS AS TO WHETHER EXEMPTION U/S 11(1) COULD BE GRANTED I N RESPECT OF THE INCOME AS ASSESSED BY THE AO. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE FIND THAT THE AO HAS SUMMARILY TAXE D THE DONATIONS AS UNEXPLAINED CREDITS, WITHOUT DISCUSSING THE FAC TS IN THIS REGARD. FURTHER, THE ASSESSEE HAS FILED ADDITIONAL EVIDENCE R EGARDING RETURN OF PART MONEY BY THE COMPANY TO THE ASSESSEE ETC. TO SUP PORT HIS CASE FOR GRANT OF EXEMPTION U/S 11(1). IN THESE CIRCUMSTANCES , WE THINK IT FIT TO RESTORE THE MATTER TO THE FILE OF THE AO FOR FRE SH CONSIDERATION AND ITA NO. 1394(DEL)/2009 9 DECISION AFTER HEARING THE ASSESSEE. BOTH TH E PARTIES WILL BE AT LIBERTY TO BRING ANY EVIDENCE ON RECORD TO SUPPORT THE IR CASES. 6. IN THE RESULT, THE APPEAL IS TREATED AS AL LOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 23 JULY, 2010. SD/- SD/- (R.P. TOLANI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 23RD JULY,2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- AASHIANA TRUST, NEW DELHI. DEPUTY DIRECTOR OF INCOME-TAX(E) , NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.