ITO (OSD), CHENNAI V. Shrine Vailankanni Senior Secondary School, CHENNAI

ITA 1475/CHNY/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4059 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-01-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 16-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R V AROON PRASAD
• Assessee Lawyers: T VASUDEVAN
• Keywords: Depreciation; Charitable institution
• Section: 12AA; 32; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1475 & 1798/CHNY/2015 ' (' / ASSESSMENT YEARS : 2011-12 & 2012-13 THE INCOME TAX OFFICER (OSD), (EXEMPTIONS), WARD 4, CHENNAI - 600 034. V. M/S SHRINE VAILANKANNI SENIOR SECONDARY SCHOOL, NO.5, DHANDAPANI STREET, T. NAGAR, CHENNAI - 600 017 PAN : AABAS 4508 H (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI R.V. AROON PRASAD, JCIT ,-*+ . / / RESPONDENT BY : SHRI T. VASUDEVAN, ADVOCATE 0 . 1$ / DATE OF HEARING : 27.12.2018 2!( . 1$ / DATE OF PRONOUNCEMENT : 07.02.2019 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAI NST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-17, CHENNAI AND PERTAIN TO ASSESSMENT YEARS 2011-12 AND 2012-13. SINCE 2 I.T.A. NOS.1475 & 1798/CHNY/15 COMMON ISSUES ARISE FOR CONSIDERATION IN BOTH THE A PPEALS, WE HEARD BOTH THE APPEALS TOGETHER AND DISPOSING THE SAME BY THIS COMMON ORDER. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS VIOL ATION OF SECTION 13(1)(C) AND 13(1)(D) OF THE INCOME-TAX ACT, 1961 ( IN SHORT 'THE ACT'). 3. SHRI R.V. AROON PRASAD, THE LD. DEPARTMENTAL REP RESENTATIVE, SUBMITTED THAT THE ASSESSEE-TRUST IS REGISTERED UND ER SECTION 12AA OF THE ACT AS A CHARITABLE INSTITUTION. ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER FOUND THAT THE ASSESSEE SHOWN AN AMOUNT OF 4,41,92,756/- AS LOAN AND ADVANCE TO M/S FUTURA CONSTRUCTION PVT. LT D. AS ON 31.03.2011. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER T HAT THAT THE SAID ADVANCE WAS GIVEN TO M/S FUTURA CONSTRUCTION PVT. L TD. FOR PURCHASE OF LAND FOR THE PURPOSE OF CONSTRUCTING A BUILDING FOR A SCHOOL. ACCORDING TO THE LD. D.R., THE MEMORANDUM OF UNDERSTANDING SAID TO BE EXECUTED WITH M/S FUTURA CONSTRUCTION PVT. LTD. WAS AN UNREG ISTERED ONE AND THE LAND DOES NOT BELONG TO M/S FUTURA CONSTRUCTION PVT . LTD. ACCORDING TO THE LD. D.R., IN FACT, THE LAND BELONGS TO ONE M/S NISCHA DEEP ENTERPRISES PVT. LTD. ON A QUERY FROM THE BENCH, W HETHER M/S NISCHA DEEP ENTERPRISES PVT. LTD. ULTIMATELY RECEIVED MONE Y ADVANCED BY THE ASSESSEE? THE LD. D.R. VERY FAIRLY SUBMITTED THAT M/S NISCHA DEEP ENTERPRISES PVT. LTD. ULTIMATELY RECEIVED THE AMOUN T ADVANCED BY THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R., IT IS A CLEAR CASE OF 3 I.T.A. NOS.1475 & 1798/CHNY/15 VIOLATION OF SECTION 13(1)(C) AND 13(1)(D) OF THE A CT, HENCE THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING EXEMPTION UNDER SECTION 11 OF THE ACT. 4. THE NEXT ISSUE ARISES FOR CONSIDERATION IS ADVAN CE OF 30 LAKHS TO SHRI C.M. BABU TOWARDS PURCHASE OF LAND. 5. SHRI R.V. AROON PRASAD, THE LD. DEPARTMENTAL REP RESENTATIVE, SUBMITTED THAT THE ASSESSEE ADVANCED A SUM OF 30 LAKHS TO SHRI C.M. BABU. ACCORDING TO THE LD. D.R., EVEN THOUGH THE A SSESSEE CLAIMS THAT THE ADVANCE WAS MADE FOR PURCHASE OF LAND, THE TRAN SACTION HAS NOT YET BEEN COMPLETED. THEREFORE, ACCORDING TO THE LD. D. R., THE ADVANCE WAS SHOWN IN THE BOOKS OF ACCOUNT AS ON 31.03.2011. AC CORDING TO THE LD. D.R., THE ADVANCE WAS MADE WITHOUT ANY SECURITY, TH EREFORE, IT WAS CLEARLY HIT BY PROVISIONS OF SECTION 13(1)(C) READ WITH SECTION 13(2)(B) OF THE ACT. 6. THE NEXT ISSUE ARISES FOR CONSIDERATION IS ADVAN CE MADE TO SOME OF THE EMPLOYEES WITHOUT CHARGING INTEREST. 7. SHRI R.V. AROON PRASAD, THE LD. DEPARTMENTAL REP RESENTATIVE, SUBMITTED THAT THE ADVANCE MADE TO EMPLOYEES WITHOU T CHARGING INTEREST IS FOR UNDUE ADVANTAGE AT THE COST OF SOCIETY FUND. ACCORDING TO THE LD. D.R., THE BORROWED FUNDS OF THE ASSESSEE-TRUST WAS ADVANCED AS INTEREST 4 I.T.A. NOS.1475 & 1798/CHNY/15 FREE LOAN TO THE EMPLOYEES AND OTHER INTERESTED PER SONS, HENCE, THERE WAS A CLEAR VIOLATION OF SECTION 13(1)(C) OF THE AC T. THE ASSESSEE, ACCORDING TO THE LD. D.R., HAS ALSO ADVANCED A HUGE LOAN TO OTHER SOCIETIES WITHOUT ANY REPAYMENT CONDITION. ACCORDI NG TO THE LD. D.R., THE LOAN ADVANCED TO OTHER TRUSTS/INSTITUTIONS IS STILL OUTSTANDING AND IT WAS NOT REPAID BY THE SAID TRUSTS, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT. 8. THE NEXT GROUND IS WITH REGARD TO INVESTMENT OF 2000 IN M/S VGP GOLDEN BEACH RESORTS PVT. LTD. 9. SHRI R.V. AROON PRASAD, THE LD. DEPARTMENTAL REP RESENTATIVE, SUBMITTED THAT THE INVESTMENT IS IN VIOLATION OF SE CTION 11(5) READ WITH SECTION 13(1)(D) OF THE ACT. ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS WRONGLY FOUND THAT THE DISALLOWANCE HAS TO BE R ESTRICTED ONLY TO THE AMOUNT OF INVESTMENT. 10. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DEP RECIATION ON THE ASSETS PURCHASED EVEN THOUGH THE COST IS CONSIDERED AS APPLICATION OF INCOME. 10. SHRI R.V. AROON PRASAD, THE LD. DEPARTMENTAL RE PRESENTATIVE, SUBMITTED THAT THE COST OF ASSETS WAS CLAIMED BY TH E ASSESSEE AS 5 I.T.A. NOS.1475 & 1798/CHNY/15 APPLICATION OF INCOME, THEREFORE, THE COST OF THE A SSETS IS NIL. HENCE, THERE CANNOT BE ANY DEPRECIATION ON THE VERY SAME A SSETS. 11. ON THE CONTRARY, SHRI T. VASUDEVAN, THE LD.COUN SEL FOR THE ASSESSEE, SUBMITTED THAT ADMITTEDLY THE ASSESSEE AD VANCED MONEY TO M/S FUTURA CONSTRUCTION PVT. LTD. AND ENTERED INTO A MEMORANDUM OF UNDERSTANDING FOR PURCHASE OF LAND AND CONSTRUCTION OF SCHOOL BUILDING. ACCORDING TO THE LD. COUNSEL, M/S FUTURA CONSTRUCTI ON PVT. LTD. HAS TO ACQUIRE A LAND ON BEHALF OF THE ASSESSEE AND CONSTR UCT A SCHOOL BUILDING AS PER THE MEMORANDUM OF UNDERSTANDING DATED 06.04. 2006. A COPY OF MEMORANDUM OF UNDERSTANDING DATED 06.04.2006 IS AVA ILABLE AT PAGE 1 OF THE PAPER-BOOK. AS PER THIS MEMORANDUM, ACCORDI NG TO THE LD. COUNSEL, IT IS OBVIOUS THAT THE SOCIETY INTENDED TO START A CBSE SCHOOL AT PERUNGUDI AT A MINIMUM OF ONE ACRE OF LAND. M/S FU TURA CONSTRUCTION PVT. LTD. WAS OWNING PLOT NO.117A AT DEVELOPED PLOT ESTATE, PEUNGUDI. M/S FUTURA CONSTRUCTION PVT. LTD. HAS ALSO UNDERTAK EN ADDITIONAL LAND AS REQUIRED FOR CONSTRUCTION OF CBSE SCHOOL. THEREFOR E, ACCORDING TO THE LD. COUNSEL, AS PER THE MEMORANDUM, AN ADVANCE WAS MADE TO M/S FUTURA CONSTRUCTION PVT. LTD. M/S FUTURA CONSTRUCT ION PVT. LTD. MADE AN ATTEMPT TO PURCHASE LAND FROM M/S NISCHA DEEP ENTER PRISES PVT. LTD. WITH REGARD TO CONDITION TO COMPLY WITH THE REQUIREMENT OF MINIMUM ONE ACRE LAND. THEREFORE, ACCORDING TO THE LD. COUNSEL, IT IS NOT CORRECT TO SAY THAT M/S FUTURA CONSTRUCTION PVT. LTD. DOES NOT OWN LAND . A PART OF LAND WAS 6 I.T.A. NOS.1475 & 1798/CHNY/15 OWNED BY M/S FUTURA CONSTRUCTION PVT. LTD. TO MAKE IT ONE ACRE OF LAND, M/S FUTURA CONSTRUCTIONS PVT. LTD. HAS TO PURCHASE THE LAND FROM M/S NISCHA DEEP ENTERPRISES PVT. LTD. 12. THE QUESTION ARISES FOR CONSIDERATION, ACCORDIN G TO THE LD. COUNSEL, IS WHEN THE ASSESSEE ADVANCED MONEY FOR PU RCHASE AND CONSTRUCTION OF SCHOOL BUILDING AT PERUNGUDI, WHETH ER SUCH AMOUNT CAN BE IN VIOLATION OF SECTION 13(1)(C) AND 13(1)(D) OF THE ACT AS CLAIMED BY THE REVENUE? PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN THE CASE OF DY.DIT(E) V. VELS INSTITUTE OF SCIENCE, TECHNOLO GY & ADVANCED STUDIES IN 1759/MDS/2013 DATED 28.10.2015, THE LD.C OUNSEL FOR THE ASSESSEE SUBMITTED THAT ON IDENTICAL SET OF FACTS, THIS TRIBUNAL FOUND THAT THERE WAS NO VIOLATION OF SECTION 13(1)(C) OF THE A CT. AS IN THE CASE OF VELS INSTITUTE OF SCIENCE, TECHNOLOGY & ADVANCED ST UDIES (SUPRA), ACCORDING TO THE LD. COUNSEL, IN THE PRESENT CASE A LSO, M/S FUTURA CONSTRUCTIONS PVT. LTD. COULD NOT ACQUIRE THE LAND AND COMPLETE THE CONSTRUCTION, THEREFORE, THE ADVANCE MADE BY THE AS SESSEE WAS RETURNED TO THE ASSESSEE. SINCE THE FACTS ARE IDENTICAL AS IN THE CASE OF VELS INSTITUTE OF SCIENCE, TECHNOLOGY & ADVANCED STUDIES (SUPRA), ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) HAS RIGHTLY AL LOWED THE CLAIM OF THE ASSESSEE. 7 I.T.A. NOS.1475 & 1798/CHNY/15 13. THE NEXT ISSUE IS WITH REGARD TO ADVANCE MADE T O SHRI C.M. BABU FOR PURCHASE OF LAND. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THIS ADVANCE WAS ALSO MADE FOR PURCHASE OF LAND FOR SCHO OL BUILDING. WHEN THE ASSESSEE MADE ADVANCE TO SHRI C.M. BABU FOR PUR CHASE OF LAND FOR THE PURPOSE OF CONSTRUCTION OF SCHOOL, IT CANNOT BE SAID THAT THERE IS A VIOLATION OF SECTION 13(1)(C) OF THE ACT. MOREOVER , ADVANCES WERE MADE TO THE EMPLOYEES OF THE SOCIETY SO THAT THE OBJECT OF THE TRUST CAN BE CARRIED OUT EFFECTIVELY. 14. REFERRING TO NEXT GROUND OF APPEAL, THE LD.COUN SEL SUBMITTED THAT THE ASSESSEE ADVANCED MONEY TO OTHER TRUSTS WHICH H AVE SIMILAR OBJECT, FROM THE CURRENT INCOME, THEREFORE, THERE IS NO VIO LATION OF SECTION 13 OF THE ACT. ACCORDING TO THE LD. COUNSEL, WHAT IS PRO HIBITED UNDER THE ACT IS THE TRANSFER OF FUNDS FROM THE ACCUMULATED INCOME O F THE EARLIER YEAR. IN THIS CASE, ACCORDING TO THE LD. COUNSEL, WHAT WAS T RANSFERRED IS ONLY CURRENT INCOME, THEREFORE, THE CIT(APPEALS) HAS RIG HTLY ALLOWED THE CLAIM OF THE ASSESSEE. 15. THE NEXT ISSUE WITH REGARD TO DEPRECIATION OF T HE ASSET, THE LD.COUNSEL SUBMITTED THAT THE CIT(APPEALS) FOUND TH AT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION EVEN THOUGH THE COST OF A SSET WAS ALLOWED AS APPLICATION OF INCOME. PLACING RELIANCE ON THE JUD GMENT OF APEX COURT IN CIT V. RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA IN CIVIL 8 I.T.A. NOS.1475 & 1798/CHNY/15 APPEAL NO.7186 OF 2014, THE LD.COUNSEL SUBMITTED TH AT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32 OF THE A CT EVEN THOUGH THE COST OF ASSET WAS ALLOWED AS APPLICATION OF INCOME. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FIRST ISSUE IS WITH REGARD TO ADVANCE MADE BY THE ASSESSEE TO M/S FUTUR A CONSTRUCTION PVT. LTD. ON 31.03.2011. THE MEMORANDUM OF UNDERSTANDIN G DATED 06.04.2006, A COPY OF WHICH IS AVAILABLE AT PAGE 1 OF THE PAPER-BOOK, CLEARLY INDICATES THAT THE ASSESSEE ADVANCED MONEY FOR THE PURPOSE OF ACQUIRING LAND AND CONSTRUCTION OF BUILDING FOR THE SCHOOL. EVEN THOUGH IT WAS PAID TO M/S FUTURA CONSTRUCTION PVT. LTD., IT R EACHED M/S NISCHA DEEP ENTERPRISES PVT. LTD., WHO IS THE OWNER OF THE LAND. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE IS NO VIOLATION OF EITHER SECTION 13(1)(C) OR 13(1)(D) OF THE ACT. HENCE, TH E CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. A SIMIL AR VIEW WAS EXPRESSED BY THIS TRIBUNAL IN DCIT (EXEMPTIONS) V. VELS INSTI TUTE OF SCIENCE, TECHNOLOGY & ADVANCED STUDIES (2015) 11 TMI 857. 17. THE NEXT GROUND OF APPEAL WITH REGARD TO ADVANC E OF 30 LAKHS MADE TO SHRI C.M. BABU IS CONCERNED, IT IS NOT DISP UTE THAT THE ASSESSEE ADVANCED AMOUNT FOR PURCHASE OF LAND. MERELY BECAU SE THERE WAS DELAY IN COMPLETION OF SALE DEED, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT 9 I.T.A. NOS.1475 & 1798/CHNY/15 IT CANNOT BE SAID THAT THERE WAS ANY VIOLATION OF S ECTION 13(1)(C) OR 13(2)(B) OF THE ACT. THEREFORE, WHEN THE ASSESSEE ADVANCED MONEY FOR ACQUISITION OF PROPERTY IN CONNECTION WITH CHARITAB LE OBJECT CARRIED ON BY THE ASSESSEE, THIS TRIBUNAL IS OF THE CONSIDERED OP INION THAT IT HAS TO BE CONSTRUED AS APPLICATION OF INCOME. THEREFORE, THE RE IS NO QUESTION OF VIOLATION OF ANY PROVISIONS OF THE ACT. 18. THE NEXT ISSUE IS ADVANCE PAID TO EMPLOYEES OF CHARITABLE TRUST. WHEN THE ASSESSEE ADVANCED MONEY TO THE EMPLOYEES O F THE TRUST, IT CANNOT BE CONSTRUED AS VIOLATION OF ANY OF THE PROV ISIONS OF SECTION 13 OF THE ACT. THE ADVANCE MADE TO EMPLOYEES OF THE TRUS T, IN FACT, ENABLES THE ASSESSEE-TRUST TO CARRY ON THE CHARITABLE OBJEC T EFFECTIVELY AND EFFICIENTLY. UNLESS THE EMPLOYEES OF THE TRUST WER E MOTIVATED BY ADVANCING INTEREST-FREE-FUNDS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE MAY NOT BE ABLE TO CARRY OUT THE CHARITABLE OBJECT AS EXPECTED BY THE TRUSTEES. THEREFORE, THERE IS NO V IOLATION OF SECTION 13(1) OF THE ACT. 19. NOW COMING TO ADVANCE MADE TO OTHER SOCIETIES, WHO ARE HAVING SIMILAR OBJECT, IT IS NOT IN DISPUTE THAT THE ADVAN CE MADE FROM THE SURPLUS FUNDS OF THE CURRENT FINANCIAL YEAR. WHAT IS PROHI BITED UNDER THE INCOME- TAX ACT IS ADVANCING OF MONEY FROM THE ACCUMULATED FUNDS OF THE EARLIER YEAR. IT IS NOT THE CASE OF THE REVENUE THAT THE A SSESSEE HAS TRANSFERRED 10 I.T.A. NOS.1475 & 1798/CHNY/15 THE ACCUMULATED FUNDS CONTRARY TO THE PURPOSE FOR W HICH IT WAS ACCUMULATED. IN THOSE CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE ADVANCED MONEY TO SI MILAR SOCIETIES WHO ARE CARRYING ON SIMILAR OBJECT OF CHARITABLE INSTIT UTION LIKE ASSESSEE, THERE IS NO VIOLATION OF SECTION 13(1) OF THE ACT. 20. NOW COMING TO THE INVESTMENT OF 2000 IN M/S VGP GOLDEN BEACH RESORTS PVT. LTD., THE CIT(APPEALS) HAS RESTR ICTED THE DISALLOWANCE TO THE EXTENT OF THE INVESTMENT MADE I N VGP GOLDEN BEACH RESORTS PVT. LTD. OF COURSE, THE INVESTMENT IN VGP GOLDEN BEACH RESORTS PVT. LTD. IS IN VIOLATION OF SECTION 11(5) OF THE ACT. THEREFORE, AS RIGHTLY FOUND BY THE CIT(APPEALS), THE DISALLOWANCE HAS TO BE RESTRICTED ONLY TO THE EXTENT OF INVESTMENT MADE. 21. NOW COMING TO THE CLAIM OF DEPRECIATION, IT IS NOT IN DISPUTE THAT THE ASSESSEE CLAIMED THE COST OF THE ASSET AS APPLI CATION OF INCOME UNDER SECTION 11 OF THE ACT. THE APEX COURT IN RAJ ASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA (SUPRA), FOUND THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32 OF THE ACT EVEN T HOUGH THE COST OF ASSET WAS ALLOWED AS APPLICATION OF INCOME. THEREF ORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 11 I.T.A. NOS.1475 & 1798/CHNY/15 22. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE STAND DISMISSED. ORDER PRONOUNCED IN THE COURT ON 7 TH FEBRUARY, 2019 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N .R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 7 TH FEBRUARY, 2019. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-17, CHENNAI-34 4. DIT(E), CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.