Dy. Comm. of Income-tax, Kolhapur V. Dr. D.Y. Patil Pratishtan, Kolhapur

ITA 1612/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9765 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 12-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Business income; Depreciation; Search and seizure; Charitable institution; Principle of natural justice; Opportunity of cross examination; Maximum Marginal Rate; Rule of consistency; Additional evidence; Question of law; Procedural lapse; Capital receipt; Onus to prove; Cancellation of registration; Documents seized; Revenue expenditure; Capital expenditure
• Section: 43B; 133A; 37(1); 80G; 12A; 37; 263; 12; 11; 139

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1592/PN/11 (ASSESSMENT YEAR 2006-07) DR. D.Y. PATIL PRATISTHAN, SANT TUKARAM NAGAR, PIMPRI, PUNE. PAN NO. AAATD 5311R .. APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KOLHAPUR. .. RESPONDENT ITA NO.1612/PN/11 (ASSESSMENT YEAR 2006-07) DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KOLHAPUR. .. APPELLANT VS. DR. D.Y. PATIL PRATISHTHAN, 869-E, KASABA BAWADA, KOLHAPUR PAN NO. AAATD 5311R .. RESPONDENT ASSESSEE BY : SRI SUNIL PATHAK & SRI NIKHIL PATHA K DEPARTMENT BY : SRI S.K. SINGH DATE OF HEARING : 16-10-2012 DATE OF PRONOUNCEMENT : 14-12-2012 ORDER PER BENCH : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AGAINST THE ORDER DATE D 29-08-2011 OF THE CIT(A), CENTRAL, PUNE RELATING TO ASSESSMENT YEAR 2006-07. FOR THE SAKE OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE DR. D.Y. PATIL PRATHISHTHAN CAME INTO BEING ON 27-12-1990 AND GOT REGISTRATION UNDER SECT ION 12A OF THE INCOME TAX ACT, FROM THE CIT KOLHAPUR ON 15-11-1991. THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF RUNNING OF EDUCATIONAL INSTITUTIONS. HOWEVER, IT HAS NOT FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION UNDER SECTION 139 OF THE INCOME TAX ACT, 1961. A SEARCH AND SEIZURE ACTION U/S.132 WAS CONDUCTED ON 20-07-2005 IN THE CASE OF DR. D.Y. PATIL GROUP. TH E ASSESSEE BEING ONE OF THIS GROUP WAS COVERED UNDER SURVEY ACTION U/S.133A OF THE INCOME TAX ACT, 1961. ON THE BASIS OF THE DOCUMENTS SEIZED/IMPOUNDED DURING THE COURSE OF SEA RCH/SURVEY AND THE ENQUIRIES CONDUCTED LATER ON, IT WAS CONCLUDED BY THE CIT(C), PUNE VIDE HIS ORDER DT. 30-11-2007 THAT ACTIVITIES OF THE 2 TRUST ARE NEITHER GENUINE NOR ARE BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST. THE CIT(C), PUNE THEREFORE FOR THE VARIOUS REASONS MENTIONED IN HIS ORDER CANCELLED THE REGISTRATION OF THE ASSESSEE U/S.12AA(3) OF THE INC OME TAX ACT, 1961. 3. WITHOUT PREJUDICE TO THE ORDER OF CANCELLATION O F THE REGISTRATION U/S.12AA(3) THE AO NOTED THAT EVEN OTHERWISE ALSO THE ASSESSEE IS REQU IRED TO BE ASSESSED LIKE ANY OTHER ASSESSEE AND IS NOT ENTITLED TO THE BENEFIT OF SECTION 11 AND 12 BECAUSE IT IS HIT BY SECTION 13. THE AO DISCUSSED PROVISIONS OF SECTION 13 AND OBSERVED THA T THE INCOME-TAX ACT BESTOWS SPECIAL PRIVILEGE ON THE ASSESSEE IF IT IS A TRUST, WHICH I S RECOGNIZED BY THE PROVISIONS OF THE INCOME-TAX ACT UNDER SECTION 12A. FOR ENJOYING THE PRIVILEGE U NDER SECTION 12A, THE ASSESSEE HAS TO ADHERE STRICTLY TO THE PROVISIONS OF SECTION 11 AND 12. TH E LEGISLATURE, IN ITS OWN WISDOM, HAS TAKEN SPECIAL CARE FOR INTRODUCING SECTION 13 TO PUNISH P ERSONS, WHO ENJOY THIS SPECIAL STATUS SO THAT IN CASE THERE ARE CERTAIN VIOLATIONS OF PROVISIONS, WH ICH ARE ENUMERATED IN SECTION 13, THE ASSESSEE WILL NOT BE ENTITLED TO THE BENEFIT OF SECTIONS 11 TO 12. THE ASSESSEE, THEREFORE, HAS TO ADHERE STRICTLY TO THE SCHEME OF THE ACT RELATING TO THE A SSESSMENT OF THE TRUST AND ANY DEVIATION MADE HAS TO BE VIEWED VERY SERIOUSLY. THE AO NOTED THAT THE ASSESSEE, IN THE INSTANT CASE, IS A HABITUAL OFFENDER AND IS FREELY COMMITTING ACTS WHICH ARE SP ECIFICALLY MENTIONED UNDER SECTION 13. THEREFORE, EVEN OTHERWISE, ASSESSEE'S INCOME HAS TO BE COMPUTED WITHOUT APPLYING THE PROVISIONS OF SECTIONS 11 AND 12 AS THE CASE OF THE ASSESSEE IS HIT BY SECTION 13. THE AO DISCUSSED THE VIOLATION OF PROVISIONS OF SECTION 13 WHICH ARE AS UNDER: I. EXPENSES INCURRED OTHER THAN FOR THE OBJECTS OF THE TRUST: 3.1 ON PERUSAL OF ANNEXURE XII AT PAGE NO. 96 OF TH E AUDIT REPORT UNDER SECTION 142(2A), THE AO NOTICED THAT EXPENSES INCURRED NOT ON THE OBJECTS OF THE TRUST TO THE EXTENT OF RS.52,40,819/- WERE DEBITED BY THE ASSESS EE TO THE PROFIT AND LOSS ACCOUNT. ON BEING QUESTIONED BY THE AO TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AS PER SECTION 37(1) OF THE INCOME-TAX ACT, 1961 THE A SSESSEE VIDE LETTER DATED 30/06/2008 SUBMITTED INTER ALIA AS UNDER: WE SUMMARIZE THE ITEMS INCLUDED IN THE AUDIT REPORT UNDER THIS HEAD. I) ADVERTISEMENTS ON THE OCCASION OF THE BIRTHDAYS OF THE TRUSTEES. II) DONATIONS TO THE CHARITABLE TRUSTS B) THE ADVERTISEMENTS ON THE OCCASIONS OF THE BIRTH DAYS OF TRUSTEES ARE FOR THE PURPOSE OF IMAGE BUILDING OF THE INSTITUTIONS AND THE TRUST TAKES THE OPPORTUNITY ON SUCH OCCASIONS TO HIGHLIGHT THE ACHIEVEMENT OF THE TRUST BY ENLIST ING THE DETAILS OF VARIOUS INSTITUTIONS RUN BY THE TRUST. THERE IT IS SUBMITTED THAT THE SAME M AY CONSIDERED AS AN EXPENDITURE 3 INCURRED ON THE OBJECTS OF THE TRUST AND BY NO STRE TCH OF IMAGINATION DOES IT RESULT IN ANY BENEFIT TO THE TRUSTEES NOR IS THIS EXPENDITURE INC URRED AT THE INSTANCE OF THE CONCERNED TRUSTEES. C) THE DONATIONS GIVEN BY THE TRUST ARE ONLY TO THE CHARITABLE INSTITUTIONS. IT IS SUBMITTED THAT ALL THESE TRUSTS ARE IN THE FIELD OF SPREADING AADHYATMIK, PHILOSOPHICAL AND YOGA STUDIES ETC. IT IS FROM THAT ANGLE, THE TRUST HAS C ONSIDERED IT PROPER TO GIVE DONATIONS TO THESE TRUSTS AS THE ABOVE ACTIVITIES ALSO FORM PART OF EDUCATIONAL ACTIVITIES. IN VIEW OF ABOVE, WE SUBMIT THAT THE DONATIONS GIVEN TO THE VA RIOUS TRUSTS ARE ON OBJECTS OF THE TRUST. 3.2 HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPL ANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM AS PER PROVISIONS OF SECTION 37(1) FOR ALLOWABILITY OF ANY EXPENSE, IT SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF THE BUSINESS. HE OBSERVED FROM THE DETAILS SO MENTIONED IN ANNEXURE XII OF TH E AUDIT REPORT, THAT ADVERTISEMENT EXPENSES ARE INCURRED ON THE BIRTHDAYS OF THE TRUST EES. THESE ADVERTISEMENT EXPENSES ON BIRTHDAYS OF TRUSTEES ARE FOR THE PURPOSE OF IMAGE BUILDING OF THE TRUSTEES AND THEIR PERSONAL BENEFIT AND IN NO WAY CAN BE CONSIDERED FO R BEING INCURRED FOR THE OBJECTS OF THE TRUST. THE SAME IS NOWHERE MENTIONED IN THE OBJECTS OF THE TRUST DEED. AS REGARDS DONATION EXPENSES, HE NOTED THAT DONATIONS ARE GIVE N TO THE INSTITUTIONS TO WHOM PROVISIONS OF SECTION 80G DO NOT APPLY AND, THEREFO RE, THESE DONATIONS TO THE OTHER INSTITUTIONS CANNOT BE CONSIDERED FOR DEDUCTION. HE FURTHER OBSERVED FROM THE APPRAISAL REPORT THAT BESIDES THE ADVERTISEMENT AND DONATION EXPENSES EXPENSES ARE ALSO MADE WITH REGARD TO PAYMENTS TO MAHENDRA HOLIDAYS FOR THE TRU STEES. THE AO FURTHER NOTED THAT ASSESSEE HAS INCURRED THE FOLLOWING EXPENSES THROUG H CREDIT CARD : 3.3 THE AO CAME TO THE CONCLUSION THAT THESE EXPEN SES ARE INCURRED FOR THE PERSONAL BENEFIT OF THE TRUSTEES AND ARE NOT IN ANY WAY CONN ECTED WITH THE OBJECTS OF THE TRUST. FURTHER, THE EXPENSES NOT INCURRED ON THE OBJECTS O F THE TRUST AS PER ANNEXURE XII OF THE AUDIT REPORT ALSO CONTAIN BANK INTEREST ON THE MONE Y USED BY D Y PATIL EDUCATION SOCIETY. ACCORDING TO THE AO IT CANNOT BE CONSIDERED TO BE I NCURRED FOR THE OBJECTS OF THE TRUST. THEREFORE, HE DISALLOWED THE EXPENSES TO THE TUNE O F RS.52,40,819/- INCURRED NOT ON THE OBJECTS OF THE TRUST AS PER ANNEXURE XII OF THE AU DIT REPORT. 3.4 THE AO FURTHER NOTED THAT WITHOUT PREJUDICE TO THE CANCELLATION OF REGISTRATION UNDER SECTION 12AA(3) OF THE INCOME-TAX ACT, 1961, VIDE CIT(C), PUNE'S ORDER DATED 30/11/2007, THE EXPENSES INCURRED ON THE ADVERTISEM ENTS OF THE BIRTHDAYS OF THE TRUSTEES AND PAYMENTS TO MAHENDRA HOLIDAYS FOR TRUSTEES ARE CLEARLY FOR THE BENEFIT OF THE TRUSTEES AND THE PROVISIONS OF SECTION 13(I)(C) ARE APPLICAB LE AND CLEARLY FALL WITHIN THE AMBIT OF SECTION 13(I)(C) OF THE INCOME-TAX ACT, 1961. YEAR DATE HEAD OF EXPENDITURE AMOUNT RS. REMARK 2005-06 19-05-2005 OFFICE & MISCELLANEOUS EXPENSES 9000.00 CREDIT CARD EXPENSES 4 II. MAINTENANCE OF FLATS AT GULMOHAR SOCIETY, PUNE : 3.5 THE AO NOTED THAT THE ASSESSEE TRUST OWNS FLAT NOS. GL, G2 AND F8 IN GULMOHAR HOUSING SOCIETY, PUNE WHICH ARE IN THE NAME OF D.Y. PATIL PRATISHTHAN AND FLAT FI0 IS IN THE NAME OF SHRI SANJAY PATIL. PHYSICAL VERIFICATIO N WAS CARRIED OUT ON 06/09/2007 BY THE ASSESSING OFFICER AND IT WAS FOUND THAT FLAT NOS. G L AND G2 HAVE BEEN COMBINED TOGETHER AND ARE EXCLUSIVELY USED BY DR. D Y PATIL. FURTHER, FLAT NO. 8 IS BEING USED BY THREE SERVANTS, WHO DO CLEANING OF FLAT NOS. G 1, G2 AND FI0. THUS, IT WAS FOUND THAT FLAT NO. G1, G2 AND F8 ARE NOT BEING USED AS A GUEST HOUSE O F THE TRUST AS CLAIMED BY THE ASSESSEE AND IN FACT IT IS BEING USED ONLY BY DR. D Y PATIL WHEN HE COMES TO PUNE. HOWEVER, THE EXPENSES ARE BEING BORNE BY THE ASSESSEE TRUST. TH E AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY PROVISIONS OF SECTION L3(1)(C) S HOULD NOT BE APPLIED TO ITS CASE AND WHY THE EXPENSES SHOULD NOT BE DISALLOWED. IN RESPONSE , ASSESSEE VIDE ITS LETTER DATED 05/07/2008 SUBMITTED AS UNDER: FLAT NO. 8 IS BEING USED BY THE CARETAKERS AND SERV ANTS OF THE TRUST. FLAT NO. G-1 AND G-2 ARE BEING USED AS A GUEST HOUSE FOR THE VAL UED GUESTS AND DIGNITARIES. AND ALSO USED BY THE NEW RECRUITS FOR THEIR TEMPORA RY STAY TILL THEY MAKE THEIR LONG-TERM ARRANGEMENTS. PLEASE NOTE THAT, FLAT NO. G-1 AND G-2 HAVE A COMMON KITCHEN. THE DINNER SET IS KEPT IN KITCHEN. PLEASE NOTE THAT, ABOVE FLATS ARE NOT UTILIZED BY DR. D Y PATIL. THESE FLATS ARE ALSO USE D FOR THE MEETING PURPOSE OF THE INSTITUTIONS RUN BY OUR TRUST. SO WE HEREBY SUBMIT THAT THESE FLATS ARE EXCLUSIVELY USED FOR THE OBJECT OF THE TRUST. SO WE PRAY THAT, THE PROVISION OF SECTION 13(L)(C) SHOULD NOT BE APPLIED IN OUR CASE. 3.6 HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPL ANATION GIVEN BY THE ASSESSEE. HE NOTED THAT DURING THE COURSE OF PHYSICAL VERIFIC ATION OF THE FLATS, STATEMENT OF THE SERVANT, SHRI SADASHIV BAPU PATIL, CARE TAKER, WHO DO CLEANING OF THE FLATS GL, G2 AND F8 WAS RECORDED ON 06/09/2007. IN RESPONSE TO QUESTION NO. 5 IT WAS SPECIFICALLY STATED BY HIM THAT FLAT NO. G1 AND G2 WAS EXCLUSIVELY USED BY SHRI D Y PATIL WHENEVER HE COMES TO PUNE. HE EXTRACTED THE ENGLISH TRANSLATION OF TH E RELEVANT PORTION OF THE STATEMENT WHICH IS AS UNDER: Q.5 WHO LIVES IN FLAT NO. GL, G2 AND F8? ANS. IN F8 THE CARE TAKER, DRIVER, CLEANER AND GUES T LIVE WHEREAS, IN GL AND G2, SHRI D Y PATIL, WHO COMES ONCE OR TWICE IN A MONTH LIVES. 3.7 THE AO THEREFORE CAME TO THE CONCLUSION THAT TH E CONTENTION OF THE ASSESSEE THAT FLAT NO. G 1, G2 AND F8 ARE USED FOR THE GUESTS IS NOT TENABLE AND, THEREFORE, REJECTED THE SAME AND CONCLUDED THAT THESE FLATS ARE USED FOR TH E PERSONAL BENEFIT OF THE TRUSTEE, SHRI D Y PATIL AND NOT FOR THE OBJECTS OF THE TRUST. 3.8 THE AO REQUESTED THE ASSESSEE TO FURNISH DETAIL S OF MAINTENANCE EXPENSES OF THESE FLATS INCLUDING SALARY TO THE SERVANTS. AS PER THE ASSESSEE, THE MAINTENANCE CHARGES OF THE FLATS ARE RS.1,59,676/- FOR THE YEAR UNDER CONSIDER ATION. HE THEREFORE MADE ADDITION OF RS.1,59,676/- TO THE TOTAL INCOME OF THE ASSESSEE B EING THE EXPENSES NOT SPENT FOR THE 5 OBJECTS OF THE TRUST. WITHOUT PREJUDICE TO THE CANC ELLATION OF REGISTRATION UNDER SECTION 12AA(3) OF THE INCOME-TAX ACT, 1961, VIDE CIT(C), P UNE'S ORDER DATED 30/11/2007, THE AO HELD THAT FLATS ARE USED FOR THE PERSONAL BENEFI T OF DR. D Y PATIL, THE MAINTENANCE CHARGES ON THESE FLATS ATTRACT PROVISIONS OF SECTIO N 13(1)(C) OF THE INCOME-TAX ACT, 1961. III. PAYMENT TO SPECIFIED PERSONS U/S. 40A(2)(B) : 3.9 THE AO NOTED FROM ANNEXURE IX AT PAGE 74 OF THE AUDIT REPORT UNDER SECTION 142(2A) THAT PAYMENTS MADE TO PERSONS SPECIFIED UND ER SECTION 40A(2)(B) AND TO THE PERSONS SPECIFIED UNDER SECTION 13(1)(C) TO THE EXT ENT OF RS 40,41,914/- WERE DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE AO ASKED THE ASSE SSEE TO JUSTIFY THAT THE EXPENSES WERE INCURRED FOR THE OBJECTS OF THE TRUST AND THAT THE SAME WAS NOT EXCESSIVE OR UNREASONABLE. ASSESSEE WAS ALSO REQUESTED TO EXPLAIN AS TO WHY TH E PROVISIONS OF SECTION 13(1)(C) SHOULD NOT BE APPLIED TO ITS CASE FOR THE ASSESSMEN T YEAR UNDER CONSIDERATION WITHOUT PREJUDICE TO CANCELLATION OF REGISTRATION UNDER SEC TION L2AA(3) OF THE INCOME-TAX ACT, 1961. IN RESPONSE, ASSESSEE VIDE LETTER DATED 30/06 /2008 SUBMITTED THE JUSTIFICATION OF REMUNERATION/TELEPHONE CHARGES/CAR CHARGES/ ELECTRI CITY CHARGES PAID TO THE TRUSTEES AND THEIR RELATIVES ON THE BASIS OF THEIR EDUCATIONAL Q UALIFICATION AND EXPERIENCE. HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSESSEE FOR THE FOLLOWING REASONS : I) ASSESSEE, DESPITE BEING SPECIFICALLY ASKED TO FU RNISH MINUTES BOOK OF THE MEETING OF THE BOARD OF DIRECTORS, HAS FAILED TO FURNISH THE SAME. THE MINUTES BOOK SHOULD HAVE BEEN INSTANTLY AVAILABLE IF THOSE HAVE BEEN MAINTAINED. II) THAT THE ASSESSEE IS PAYING UNREASONABLE MONEY TO THE TRUSTEES AND THEIR RELATIVES IS ALSO EVIDENT FROM THE SO CALLED JUSTIFICATION FURNI SHED BY THE ASSESSEE. FOR E.G. IN CASE OF SMT. BHAGYASHREE PATIL, THOUGH SHE IS JUST A B.A., SHE HAS BEEN GIVEN HIGH REMUNERATION, IN LACS, FOR THE YEAR UNDER CONSIDERATION, THE PAYM ENT IS RS 5,40,000/-. THOUGH ON PAPER, SHE HAS BEEN APPOINTED AS ADMINISTRATIVE OFFICER OF D Y PATIL PUBLIC SCHOOL, NO DETAILS OF WHAT WERE THE ACTUAL DUTIES PERFORMED BY HER AND AS TO HOW MANY TIMES SHE HAS VISITED THE SCHOOL ARE GIVEN BY THE ASSESSEE. IT IS A KNOWN FACT THAT WIVES OF THE TRUSTEES ARE BEING GIVEN SALARY / REMUNERATION THOUGH THEY ARE HOUSEWI VES AND ARE ACTUALLY PERFORMING NO DUTIES TO JUSTIFY THE HIGH REMUNERATION PAID TO THE M. SIMILARLY, IN THE CASE OF SHRI RAJSHREE KAKADE, WHO HAS BEEN PAID RS 3,25,000/- DU RING THE YEAR, ASSESSEE HAS STATED THAT SHE HAS PLAYED MAJOR ROLE IN SETTING OF IACST (C-DAC) CENTRE IN KOLHAPUR. HOWEVER, HOW SHE HAS PLAYED THAT ROLE AND WHAT WERE THE DUTIES BASICALLY ASSIGNED TO HER HAS NOT BEEN MENTIONED AT ALL. AFTER FINANCIAL YEAR 2002-03 HE STARTED WORKING FOR THE TRUST. IT ALL SHOWS THAT THE PAYMENTS ARE MADE TO T HE TRUSTEES AS PER THEIR NEEDS AND THEIR SWEET WILL AND ARE FOR THEIR PERSONAL BENEFITS. III) ASSESSEE HAS PURPOSELY KEPT MUM ON THE TELEPHO NE CHARGES ON THE PAYMENTS MADE TO THE TRUSTEES AND THEIR RELATIVES BY THE KOLHAPUR DI VISION. IV) EVEN THE AUDITOR IN ITS UNDER SECTION 142(2A) H AS MARKED THE PAYMENTS IN ANNEXURE IX AS 'EXPENDITURE INCURRED FOR THE BENEFIT OF THE PERSONS SPECIFIED UNDER SECTION 13(1)(3)'. THIS SHOWS THAT EVEN THE AUDITOR IS SATI SFIED THAT PAYMENTS ARE FOR THE PERSONAL BENEFITS OF THE TRUSTEES AND THEIR RELATIVES. 3.10. THE AO THEREFORE CAME TO THE CONCLUSION THAT THE PAYMENTS ARE BEING MADE TO THE TRUSTEES AND THEIR RELATIVES ARBITRARILY, PAYMENTS HAVE NO AUTHORIZATION AND ARE TOTALLY UNREASONABLE AND EXCESSIVE AND FOR THE PERSONAL BEN EFIT OF THE TRUSTEES. THE MONEY, WHICH SHOULD HAVE BEEN USED FOR THE OBJECTS OF THE TRUST IS BEING SIPHONED OFF BY THE TRUSTEES AND THEIR RELATIVES AS PER THEIR NEEDS AND BENEFITS. THEREFORE, HE DISALLOWED THESE 6 PAYMENTS MADE TO THE TRUSTEES AND THEIR RELATIVES S PECIFIED UNDER SECTION 40A(2)(B) AMOUNTING TO RS.40,41,914/- ADDED BACK TO ASSESSEE' S INCOME. WITHOUT PREJUDICE TO THE ORDER OF CANCELLATION OF REGISTRATION, AS THESE PAY MENTS ARE CONSIDERED FOR THE PERSONAL BENEFITS OF THE TRUSTEES, HAVING NO AUTHORIZATION, PROVISIONS OF SECTION 13(L)(C) APPLIES TO THE ASSESSEE'S CASE. IV. EXPENSES ON CAR, ITS REPAIRS AND MAINTENANCE : 3.11 THE AO NOTED THAT DURING THE COURSE OF SEARCH IT WAS NOTICED THAT ASSESSEE HAS PURCHASED A MERCEDES CAR BY TAKING A LOAN OF RS.27 LAKHS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON BEING QUESTIONED BY THE A O IT WAS STATED BY THE ASSESSEE THAT THE CAR IS EXCLUSIVELY USED FOR THE PURPOSE OF VIP GUESTS OF THE TRUST AND THUS, EXPENDITURE IS MADE FOR THE OBJECTS OF THE TRUST. T HE FIGURES GIVEN BY THE ASSESSEE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS ARE AS UND ER: F.Y. RS. 2000-01 69721.94 2001-02 142502.94 2002-03 163774.17 2003-04 281146.62 2004-05 254942.50 3.12 THE AO SPECIFICALLY ASKED THE ASSESSEE TO EXPL AIN AS TO HOW THE ABOVE EXPENSES INCURRED ON MAINTENANCE OF THE MERCEDES CAR ARE FOR OBJECTS OF THE TRUST AND NOT FOR THE PERSONAL BENEFITS OF THE TRUSTEES. HE NOTED THAT TH E CIT(C) PUNE, IN HIS ORDER OF CANCELLATION OF REGISTRATION UNDER SECTION L2AA(3) HAS REMARKED THAT MERE LOOK AT THE FIGURES WOULD SHOW THAT CAR IS NOT BEING USED FOR T HE PURPOSE OF VIP GUESTS BUT IS BEING USED FOR THE PERSONAL PURPOSES OF THE TRUSTEES. FUR THER, DESPITE BEING ASKED TO GIVE DETAILS OF THE PERSONAL CARS OWNED BY THE TRUSTEES AND THE EXPENDITURE INCURRED BY THEM ON THE SAME, NO SUCH DETAILS WERE FILED BY THE ASSESSEE. THE ASSESSEE ALSO DID NOT GIVE ANY SEPARATE VOUCHERS OR DETAILED ACCOUNTS AS TO HOW MU CH HAS BEEN SPENT ON THE PETROL AND HOW MUCH HAS BEEN SPENT ON THE REPAIRS EITHER BEFOR E THE CIT(C), PUNE, DURING THE HEARING FOR WITHDRAWAL OF REGISTRATION UNDER SECTIO N 12AA(3) OR BEFORE HIM. ACCORDING TO THE AO THE FACTS REGARDING THE UTILIZATION OF THE M ERCEDES CAR ARE WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE. HOW IT WAS USED, WHY IT WAS USED AND WHAT PURPOSE DID IT SERVE, IS KNOWN ONLY TO THE ASSESSEE. HE THEREFORE CAME TO THE CONCLUSION THAT THE MERCEDES CAR HAS BEEN USED FOR PERSONAL PURPOSES OF THE TRUSTEES AND NOT FOR THE PURPOSE OF THE TRUST. BESIDES DISALLOWING THE DEPRECIATION ON THE CAR WHICH COMES TO RS.2,13,259/- THE AO DISALLOWED THE EXPENDITURE AND HELD THAT THIS IS A SERIOUS VIOLATION OF SECTION 13(1)(C). V. DONATIONS RECEIVED FOR ADMISSIONS : 3.13 THE AO NOTED THAT DURING THE COURSE OF SEARCH, CERTAIN DOCUMENTS WERE SEIZED, WHICH SHOWED THAT ASSESSEE WAS IN A HABIT OF COLLEC TING DONATIONS FOR THE ADMISSION TO 7 VARIOUS COURSES. HE REFERRED TO THE ASSESSMENT ORDE R FOR ASSESSMENT YEAR 2005-06, WHERE IT HAS BEEN DISCUSSED IN DETAIL AS TO HOW CONCRETE EVIDENCES OF RECEIVING DONATIONS BY THE ASSESSEE WERE FOUND DURING THE COURSE OF SEARCH AT THE PREMISES OF SHRI R S YADAV, WHO IS ONE OF THE BROKERS THROUGH WHOM ADMISSIONS TO VA RIOUS INSTITUTIONS WERE MADE. IT HAS BEEN DISCUSSED IN THE SAID ORDER AS TO HOW THIS MON EY WHICH HAS BEEN RECEIVED AS DONATION IS BEING SIPHONED OFF BY THE TRUSTEES AND THEIR RELATIVES FOR THEIR PERSONAL BENEFITS. HE THEREFORE CAME TO THE CONCLUSION THAT SIMILAR MODUS OPERANDI OF RECEIVING MONEY FROM STUDENTS OUTSIDE ITS BOOKS OF ACCOUNT AN D DIVERTING THE SAME TO THE TRUSTEES MUST HAVE BEEN ADOPTED BY THE ASSESSEE TRUST DURING THIS YEAR. HE ACCORDINGLY HELD THAT ASSESSEES CASE IS HIT BY PROVISIONS OF SECTION 13 OF THE INCOME-TAX ACT, 1961. VI. TRUST/CORPUS FUND : 3.14 THE AO NOTED THAT SINCE THE REGISTRATION OF TH E ASSESSEE WAS CANCELLED UNDER SECTION 12AA(3) OF THE INCOME-TAX ACT, 1961 BY THE CIT(C), PUNE, VIDE ORDER DATED 30/11/2007, THE APPOINTED AUDITOR WAS DIRECTED TO T REAT ALL THE RECEIPTS INCLUDING DONATIONS IN THE BALANCE SHEET OF THE ASSESSEE WHET HER SHOWN UNDER CORPUS FUND OR ANY OTHER FUND AS REVENUE RECEIPTS IN INCOME AND EXPEND ITURE ACCOUNT. HE NOTED THAT THE TOTAL RECEIPTS INCLUDING DONATIONS TO THE EXTENT OF RS.9, 25,22,312/- WERE REQUIRED TO BE CREDITED TO THE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESS EE FOR THE YEAR UNDER CONSIDERATION. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE CONSIDERED AS ASSESSEE'S INCOME FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE SUBMITTED DETAILS EXPLAINING WHY THE SAME SHOULD NOT BE TREATED AS IN COME. HOWEVER, THE AO REJECTED THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT WHET HER THE MONEY IS RECEIVED IN THE FORM OF FEE OR IN THE FORM OF DONATION, IT IS PRACTICALL Y THE SAME THING. INSTEAD OF CREDITING THE SAME TO THE FEE ACCOUNT, ASSESSEE HAS NAMED IT AS ' DEVELOPMENT FEE'. ACCORDING TO THE AO JUST BY CHANGING THE NAME OF THE MONEY RECEIVED, TH E DONATIONS CANNOT BE TREATED AS CAPITAL RECEIPTS AND THESE HAVE TO BE TREATED AS RE VENUE RECEIPTS ONLY. HE NOTED THAT SHRI SANJAY D. PATIL, TRUSTEE OF THE TRUST IN HIS STATEM ENT RECORDED ON 20/07/2005 DURING THE COURSE OF SEARCH ACTION HAS CONFIRMED THAT THE AMO UNTS TRANSFERRED TO THE BUILDING FUNDS ARE ACCEPTED FROM THE STUDENTS AGAINST WHICH NO REC EIPTS ARE ISSUED AND NO NAMES ARE WRITTEN. THE AMOUNTS IN THE BUILDING FUND ARE ULTIM ATELY TRANSFERRED TO THE TRUST FUND AND AS SUCH THE DONORS ARE UNIDENTIFIABLE. THE AO THERE FORE HELD THAT THE ASSESSEE'S CONTENTION IS NOT TENABLE AND ALL THESE RECEIPTS AR E CLEARLY TAXABLE RECEIPTS. 3.15 WITHOUT PREJUDICE TO THE ABOVE, THE AO NOTED T HAT THE CORPUS DONATION OF THE TRUST OR ANY OTHER SPECIFIC DONATION GETS THE BENEF IT OF EXEMPTION UNDER SECTION 11 ONLY WHEN THE TRUST IS REGISTERED UNDER SECTION 12A OF T HE INCOME-TAX ACT, 1961 OR ITS REGISTRATION IS VALID. HE OBSERVED THAT SINCE THE R EGISTRATION UNDER SECTION 12 A IS WITHDRAWN IN THE CASE OF THE ASSESSEE AND SINCE EVE N OTHERWISE ALSO THE ASSESSEE IS NOT ELIGIBLE FOR BENEFITS OF SECTIONS 11 AND 12 AS THE CASE OF THE ASSESSEE IS HIT BY SECTION 13, THEREFORE, THERE IS NO QUESTION OF TREATING THE DON ATION RECEIPTS AS EXEMPT. ACCORDING TO THE AO, THE COMPUTATION OF INCOME CONSIDERING THE P ROVISIONS OF SECTIONS 11 AND 12 CAN 8 GIVE THE BENEFITS OF EXEMPTION OF CORPUS DONATION O R APPLICATION OF INCOME FOR THE OBJECTS OF THE TRUST. HOWEVER, ONCE THE BENEFIT OF SECTION 12A IS WITHDRAWN, INCOME HAS TO BE COMPUTED BY APPLYING NORMAL ACCOUNTING PRINCIPLES A ND NORMAL PROVISIONS OF THE INCOME-TAX ACT AND WHAT ASSESSEE HAS STATED HAS NO MEANING. HE OBSERVED THAT THE VARIOUS DECISIONS CITED BY THE ASSESSEE WOULD HAVE BEEN RELEVANT HAD THE TRUST BEEN ASSESSED WITH EXEMPTION UNDER SECTION 12A. SINCE TH E ASSESSEE TRUST IS NOT SO ASSESSED, THEREFORE, HE HELD THAT THE DECISIONS CITED ARE NOT RELEVANT AT THIS JUNCTURE. ACCORDINGLY THE AO BY APPLYING THE NORMAL ACCOUNTING PRINCIPLES AND PROVISIONS OF THE INCOME-TAX ACT, 1961 TREATED ALL THESE RECEIPTS IN THE FORM OF DONATION RECEIVED BY THE ASSESSEE AS REVENUE RECEIPT AND CONSIDERED THE AMOUNT OF RS 9,2 5,22,312/ - AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. VII. CAPITAL EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT : 3.16 THE AO NOTED FROM ANNEXURE II AT PAGE NO.44 OF THE AUDIT REPORT UNDER SECTION 142(2A) THAT CAPITAL EXPENDITURE TO THE EXTENT OF R S.95,49,642/- WERE DEBITED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT. HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED, BEING CAPITAL IN NAT URE AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1961. IN RESPONSE TO THE SAME, THE ASSESS EE VIDE LETTER DATED 30/06/2008 SUBMITTED ITS EXPLANATION. HOWEVER, THE AO REJECT ED THE CONTENTION OF THE ASSESSEE BY HOLDING AS UNDER : THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE F ULLY. FIRST THE ASSESSEE STATED IN ITS SUBMISSION DATED 08/06/2008 THAT AS THE CAPITAL EXP ENDITURE SHOULD ALSO BE CONSIDERED AS APPLICATION OF INCOME FOR THE PURPOSE OF SECTION 11 OF THE ACT, THEREFORE, ALL THE CAPITAL EXPENDITURE DEBITED TO INCOME AND EXPENDITURE ACCOU NT BE ALLOWED TO THE ASSESSEE. IN THIS REGARD, IT IS REITERATED THAT REGISTRATION OF THE ASSESSEE UNDER SECTION 12A HAS BEEN WITHDRAWN AND SO ITS INCOME HAS TO BE COMPUTED BY A PPLYING THE NORMAL PROVISIONS OF THE INCOME-TAX ACT, 1961 UNDER CHAPTER IV. AN ANALYSIS OF SECTION 37(1) OF THE INCOME-TAX ACT, 1961 SHOWS THAT ANY EXPENDITURE NOT BEING IN T HE NATURE OF CAPITAL EXPENDITURE WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BUSI NESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEADS 'PR OFITS AND GAINS OF BUSINESS OR PROFESSION'. THUS, THE PHRASEOLOGY OF SECTION 37(1) EXPRESSIVELY EXCLUDES THE ALLOWABILITY OF CAPITAL EXPENDITURE EVEN THOUGH WHOLLY AND EXCLU SIVELY LAID OUT OR EXPENDED FOR THE PURPOSE OF THE BUSINESS. THEREFORE, CAPITAL EXPENDI TURE DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE HAS TO BE DISALLOWED AND AD DED BACK TO ASSESSEE'S INCOME FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE'S CONTENTION THAT THE AUDITOR HAS WRON GLY INTERPRETED CERTAIN ITEMS OF REPAIRS AS CAPITAL EXPENDITURE, IS NOT ACCEPTABLE. ASSESSEE WAS GIVEN 180 DAYS' TIME TO SUBMIT ITS AUDIT REPORT UNDER SECTION 142(2A) OF TH E INCOME-TAX ACT. THE APPOINTED AUDITOR, AFTER GOING THROUGH EACH AND EVERY BILL AN D VOUCHER OF THE ASSESSEE, ON THE BASIS OF SETTLED LAW, HAS DECIDED WHETHER THE EXPENDITURE IS CAPITAL OR NOT. FURTHER, DURING ASSESSMENT PROCEEDINGS ALSO, ASSESSEE COULD FURNISH NO EVIDENCE, AS SUCH, AS TO WHY CERTAIN EXPENDITURES, WHICH HAVE BEEN TREATED BY TH E AUDITORS AS CAPITAL EXPENDITURE, SHOULD BE TREATED AS REVENUE EXPENDITURE. THEREFORE , ASSESSEE'S CONTENTION IN THIS REGARD IS REJECTED. HOWEVER, FOR ASSESSMENT YEAR 2005-06, ASSESSEE'S CONTENTION THAT CERTAIN AMOUNTS WERE ALREADY TRANSFERRED IN THE BOOKS OF AC COUNTS TO CAPITAL EXPENDITURE, IS ACCEPTABLE AND ACCORDINGLY APPROPRIATE CHANGES IN T HE DEPRECIATION ALLOWABLE UNDER THE ACT IS MADE FOR ASSESSMENT YEAR 2005-06. THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, CAPITAL EXPENDITURE OF RS.95,49,642/- DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE IS H EREBY DISALLOWED AND ADDED BACK TO THE ASSESSEE'S INCOME FOR THE YEAR UNDER CONSIDERATION. 9 VIII. PAYMENT OF PROVIDENT FUND : 3.17 THE AO NOTED FROM ANNEXURE IV AT PAGE NO. 54 O F THE AUDIT REPORT UNDER SECTION 142(2A) THAT PAYMENT OF EMPLOYEES' PROVIDENT FUND N OT PAID WITHIN THE DUE DATE TO THE EXTENT OF RS. 21,55,881/ - WERE DEBITED BY THE ASSE SSEE TO THE PROFIT AND LOSS ACCOUNT. SIMILARLY EMPLOYERS CONTRIBUTION TO PF AMOUNTING T O RS. 11,65,981/- HAS ALSO BEEN DEPOSITED BELATEDLY. AFTER CONSIDERING THE EXPLANA TION OF THE ASSESSEE THE AO DISALLOWED AN AMOUNT OF RS.1,16,598/- BEING LATE PAYMENT OF EM PLOYERS CONTRIBUTION TO PF & ESI AND AN AMOUNT OF RS.21,55,881.50 AS LATE PAYMENT OF EMPLOYEES CONTRIBUTION TO PF & ESI. IX. PENALTY/FINE PAID : 3.18 THE AO OBSERVED FROM ANNEXURE V AT PAGE NO. 64 OF THE AUDIT REPORT UNDER SECTION 142(2A) THAT PENALTY/FINE PAID TO THE EXTEN T OF RS.1,24,860/- WAS DEBITED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT. THE AO ASK ED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AS PER PROVISIONS OF SECTION 37(1) OF THE INCOME-TAX ACT, 1961. IN RESPONSE TO THE SAME, THE ASSESSEE VI DE LETTER DATED 05/07/2008 SUBMITTED INTER ALIA AS UNDER: IN THIS CONTEXT, IT IS SUBMITTED THAT WE ARE A CHAR ITABLE TRUST AND THEREFORE, SUCH PAYMENTS SHOULD NOT BE CONSIDERED FOR ANY DISALLOWA NCE. WE REQUEST YOUR HONOUR TO CONSIDER THAT WE .ARE ENTITLE TO THE BENEFIT UND ER SECTION 11 AND THEREFORE, THE PROVISIONS OF SUB-CHAPTER D OF CHAPTER IV AS REGARD S BUSINESS INCOME SHOULD NOT BE MADE APPLICABLE TO US. WHAT IS IMPORTANT IS, WHE THER WE HAVE APPLIED THE INCOME FOR THE OBJECT OF THE TRUST OR IN THE COURSE OF ACTIVITIES CARRIED OUT FOR THE PURPOSES/OBJECTS OF THE OF THE TRUST. SO THE EXPEND ITURE BY WAY OF PENALTIES/FINES SHOULD PLEASE BE ALLOWED US AS APPLICATION OF THE I NCOME IN VIEW OF THE AFORESAID DISCUSSION. 3.19 HOWEVER, THE AO REJECTED THE ABOVE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT ASSESSEE'S REGISTRATION UNDER SECTION 12A HAS BEEN WITHDRAWN AND THEREFORE ITS INCOME HAS TO BE DETERMINED BY APPLYING THE NORMAL PROVISIONS OF THE INCOME-TAX ACT, 1961 INCLUDING SECTION 37 OF THE INCOME-TAX ACT, 19 61. ACCORDING TO THE AO AS PER EXPLANATION TO SECTION 37(1), ANY EXPENDITURE INCUR RED BY AN ASSESSEE FOR ANY PURPOSE, WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW S HALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. THUS, PENALTY/ FINE PAID CANNOT BE ALLOWED AS A DEDUCTION TO THE ASSESSEE WHILE COMPUTING ITS INCOM E AS PER NORMAL PROVISIONS OF THE INCOME-TAX ACT. WITHOUT PREJUDICE TO THE SAME, HE H ELD THAT EVEN IF INCOME IS COMPUTED AS PER APPLICATION OF SECTIONS 11 TO 13, IN NO WAY, PAYMENT OF PENALTY/ FINE CAN BE CONSIDERED AS FOR THE OBJECTS OF THE TRUST AND, THE REFORE, CANNOT BE ALLOWED EVEN THEN ALSO. THE AO ACCORDINGLY ADDED BACK THE PENALTY/FI NE PAID AMOUNTING TO RS.1,24,860/ - TO THE TOTAL INCOME OF THE ASSESSEE. 10 X. PRIOR PERIOD EXPENSES : 3.20 THE AO NOTED FROM ANNEXURE VII AT PAGE NO. 68 OF THE AUDIT REPORT UNDER SECTION 142(2A) THAT PRIOR PERIOD EXPENSES TO THE EXTENT OF RS.13,43,097/- WERE DEBITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT. THE AO ASK ED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AND ADDED BACK TO ITS INCOME FOR THE YEAR UNDER CONSIDERATION. IN RESPONSE TO THE SAME THE ASSESSE E REPLIED AS UNDER : THESE ARE ALL THE PAYMENTS FOR THE BILLS PERTAINING TO THE LAST TWO MONTHS OF THE EARLIER FINANCIAL YEAR AND WHICH HAVE BEEN RECEIVED IN THE CURRENT FINANCIAL YEAR. HENCE, THEY ARE NOT PRIOR PERIOD EXPENSES IN TRUE S ENSE OF THE TERM. AS THE BILLS ARE RECEIVED DURING THE YEAR, THE CORRESPONDING LIA BILITIES HAVE ARISEN IN THIS YEAR. ALTHOUGH WE SUBMIT THAT, THE ITEMS TREATED I N THE AUDIT REPORT AS PRIOR PERIOD ITEMS, IN LAW, ARE NOT PRIOR PERIOD ITEM AS THE BILLS OF MOST OF THE ITEMS WERE RECEIVED AFTER THE DATE OF RESPECTIVE BALANCE SHEETS. WE FURTHER SUBMIT THAT, IN ANY CASE, THESE PAYMENTS ARE APPLICATION OF MONE Y IN THE YEAR IN WHICH THE SAME ARE PAID. 3.21 HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXP LANATION OF THE ASSESSEE. HE OBSERVED FROM THE RECORDS MAINTAINED BY THE ASSESSE E THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, SINCE MIXED SYSTEM OF ACCOUNTING IS NOT AT ALL RECOGNIZED BY THE ACT. HE CAME TO THIS CONCLUSION O N THE GROUND THAT SOME OF THE EXPENSES ARE PROVIDED IN THE BOOKS EVEN WHEN NO PAY MENT IS MADE FOR THOSE EXPENDITURES. ACCORDING TO THE AO ONCE THE METHOD O F ACCOUNTING IS DECIDED AS MERCANTILE, ASSESSEE HAS TO PROVIDE ALL THE EXPENSE S EITHER ON THE BASIS OF ACTUAL BILLS OR ON ESTIMATED BASIS. HE THEREFORE REJECTED THE CONTE NTION OF THE ASSESSEE THAT THE BILLS WERE RECEIVED LATE AND, THEREFORE, THEY ACCRUED IN THE Y EAR IN WHICH BILLS ARE RECEIVED. ACCORDING TO THE AO THE DATE OF BILL IS RELEVANT AN D IF THE DATE PERTAINS TO THE EARLIER YEAR, THEN EXPENSE CANNOT BE SAID TO ACCRUE IN THE CURREN T YEAR. HE NOTED THAT AUDITORS HAVE CLEARLY SPECIFIED THE DATES OF BILLS OF EARLIER YEA R, HENCE, THE SAID EXPENSES ARE ACCRUED IN THE PRIOR PERIOD AND, THEREFORE, DISALLOWABLE. THE AO ACCORDINGLY DISALLOWED PRIOR PERIOD EXPENSES OF RS.13,43,097/- AND ADDED BACK THE SAME TO ASSESSEE'S INCOME. 4. THE AO MADE FURTHER ADDITION OF RS. 67040.80 U/S .40A(3) OF THE INCOME TAX ACT. SIMILARLY HE DISALLOWED AN AMOUNT OF RS.78,10,710.5 0 BEING REVENUE EXPENSES NOT SUPPORTED BY VOUCHERS. THE AO ALSO MADE ADDITION OF RS.7,11,837 /- BEING SALE OF CAR, RS. 5 LAKHS ON ACCOUNT OF UNSECURED LOANS/DEPOSITS AND AN AMOUNT OF RS.14, 03,050/- BEING INTEREST ACCRUED ON FIXED DEPOSIT IN D.Y. PATIL PAT SANSTHA. THE AO THUS DET ERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.20,68,28,820/-. 5. IN APPEAL THE LEARNED CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE. HE DELETED AN AMOUNT OF RS.11,42,81,113/- BEING THE AMOUNT ADVANCED BY THE ASSESSEE TRUST FREE OF INTEREST TO ITS RELATED CONCERNS D.Y. PATIL EDUCATION SOCIETY BY HOLDING TH AT THE PROVISIONS OF SECTION 13(1)(D) OF THE 11 I.T. ACT ARE NOT ATTRACTED. SIMILARLY HE DELETED 5 0% OF THE ADVERTISEMENT EXPENSES AS EXPENDITURE TOWARDS OBJECTS OF THE TRUST. THE LEAR NED CIT(A) DELETED PROPORTIONATE DISALLOWANCE OF RS.22,91,016/- OUT OF INTEREST TO FINANCIAL INST ITUTIONS DEBITED BY THE ASSESSEE BY HOLDING THAT ASSESSEES OWN FUNDS ARE MUCH MORE THAN THE FUNDS A DVANCED TO SISTER CONCERN. HE ALSO DELETED AN AMOUNT OF RS. 38,37,221/- BEING REMUNERATION PAI D TO RELATIVES OF THE TRUSTEES BY HOLDING THAT NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO TO SHO W THAT MARKET VALUE OF THE SERVICES/JOBS WAS LESS THAN THE PAYMENTS MADE TO THEM. THE LEARNED C IT(A) FURTHER ALLOWED DEVELOPMENT FEE OF RS.5,37,83,688/- AS CAPITAL RECEIPT AND DELETED THE ADDITION OF RS.1,59,676/- BEING MAINTENANCE OF FLAT AT GULMOHAR SOCIETY BY HOLDING THAT THE ASS ESSEE TRUST HAS NOT VIOLATED THE PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. HE ALSO DELETED THE ADDITION MADE BY THE AO BEING DELAYED DEPOSIT OF EMPLOYEES CONTRIBUTION TO PF. HOWEVER, HE CONFIRMED THE REST OF THE ADDITIONS MADE BY THE AO AND HELD THAT THE ASSESSEE TRUST IS NOT E NTITLED TO EXEMPTION U/S.11 SINCE IT HAS VIOLATED PROVISIONS OF SECTION 11 TO 13 OF THE I.T. ACT. 6. AGGRIEVED WITH SUCH PART RELIEF BY THE CIT(A) TH E ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US BY TAKING THE FOLLOWING GROUNDS : GROUNDS BY ASSESSEE : 1. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING T HAT THE ASST. U/S.143(3) PASSED BY THE LEARNED AO WAS NULL AND VOID. 1.1. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE ASSESSMENT ORDER U/S.143(3) IS NULL AND VOID SINCE NO NOTICE U/S.143(2) WAS ISSUED TO THE A SSESSEE TRUST.. 2. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THA T THE REFERENCE U/S.142(2A) FOR SPECIAL AUDIT WAS AN ILLEGAL ONE AS THE AO HAD NOT GIVEN AN OPPORTUNITY OF HEARING TO THE ASSESSEE AS REQUIRED UNDER PROVISO TO SECTION 142(2A) AND CONSE QUENTLY, THE ASST. ORDER PASSED IS BARRED BY LIMITATION. 2.1. THE LEARNED CIT(A) FURTHER FAILED TO APPRECIAT E THAT THE REFERENCE TO SPECIAL AUDITOR WAS INVALID IN LAW AND THEREFORE, THE ASST. ORDER PASSE D WAS TIME BARRED. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APP ELLANT TRUST WAS NOT ENTITLED TO THE EXEMPTION U/S.11 AS IT HAD VIOLATED THE PROVISIONS OF SECTIONS 11 TO 13 AND CONSEQUENTLY, THE INCOME OF THE APPELLANT WAS TAXABLE UNDER THE NORMA L PROVISIONS OF THE ACT. 4. THE LEARNED CIT(A) OUGHT TO HAVE GRANTED EXEMPTI ON U/S.11 TO THE APPELLANT TRUST SINCE THE REGISTRATION U/S.12A WAS RESTORED BY HONBLE IT AT, PUNE AND THEREFORE, THE APPELLANT WAS ENTITLED TO CLAIM EXEMPTION U/S.11. 5. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APP ELLANT TRUST HAD VIOLATED THE PROVISIONS OF SECTION 13(1)(C) ON ACCOUNT OF THE FOLLOWING PAYMEN TS MADE BY IT : SR.NO. PARTICULARS AMOUNT (RS.) 1 ADVERTISEMENT EXPENSES 10,33,402.00 2 EXPENDITURE ON MERCEDEZ CAR 2,13,259.00 12 5.1 THE LEARNED CIT(A) ERRED IN HOLDING THAT 50% OF THE ADVERTISEMENT EXPENSES RESULTED IN IMAGE BUILDING OF THE TRUSTEES AND THEREBY THE APPE LLANT HAD GRANTED A PERSONAL BENEFIT TO THE TRUSTEES RESULTING IN VIOLATION OF SECTION 13(1)(C) . 5.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E ADVERTISEMENT EXPENDITURE INCURRED BY THE APPELLANT DID NOT RESULT IN ANY BENEFIT TO THE TRUSTEE AND THE EXPENDITURE INCURRED WAS IN THE COURSE OF ACHIEVING THE OBJECTS OF THE APPELLANT AN D THERE WAS NO VIOLATION OF SECTION 13(1)(C). 5.3 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ME RCEDEZ CAR OF THE APPELLANT BEING USED FOR THE PERSONAL BENEFIT OF THE TRUSTEES AND NOT FO R THE OBJECTS OF THE TRUST AND HENCE, THE APPELLANT HAD VIOLATED THE PROVISIONS OF SECTION 13(1)(C). 5.4 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E MERCEDEZ CAR WAS BEING USED FOR THE PURPOSE OF THE TRUST AND THERE WAS NO EVIDENCE THAT THE SAID CAR WAS BEING USED FOR THE BENEFIT OF THE TRUSTEES AND HENCE, THE APPELLANT HAS NOT VIOL ATED THE PROVISIONS OF SECTION 13(1)(C). 6. THE LEARNED CIT(A) FURTHER ERRED IN HOLDING THAT THE FOLLOWING EXPENSES WERE NOT ALLOWABLE AS A DEDUCTION WHILE COMPUTING THE INCOME OF THE APPELLANT BECAUSE THE APPELLANT HAD VIOLATED THE PROVISIONS OF SECTION 13(1)(C) : SR.NO. PARTICULARS AMOUNT (RS.) 1 ADVERTISEMENT EXPENSES 10,33,402.00 2 EXPENDITURE ON MERCEDEZ CAR 2,13,259.00 6.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E ABOVE EXPENSES WERE INCURRED FOR THE OBJECTS OF THE TRUST AND HENCE, THE SAME OUGHT TO H AVE BEEN ALLOWED WHILE COMPUTING THE INCOME OF THE APPELLANT. 7. THE LEARNED CIT(A) ERRED IN HOLDING THAT PART OF THE DEVELOPMENT FEE AMOUNTING TO RS. 57,44,467/- COLLECTED BY THE APPELLANT FROM THE STU DENTS AS PER THE CIRCULARS ISSUED BY THE GOVT. WAS A REVENUE RECEIPT CHARGEABLE TO TAX. 7.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E ENTIRE DEVELOPMENT FEE COLLECTED BY THE ASSESSEE FROM THE STUDENTS AS PER THE CIRCULARS ISS UED BY THE GOVT. WAS A CAPITAL RECEIPT AND NO AMOUNT WAS CHARGEABLE AS A REVENUE RECEIPT. 8. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE DON ATIONS RECEIVED BY THE APPELLANT OF RS. 3,29,94,157/- WAS TAXABLE AS INCOME OF THE APPELLAN T WITHOUT APPRECIATING THAT THE SAID DONATIONS WERE RECEIVED TOWARDS THE CORPUS OF THE TRUST AND H ENCE, THE SAME WERE EXEMPT FROM TAX. 9. THE LEARNED CIT(A) ERRED IN DISALLOWING REVENUE EXPENDITURE OF RS.37,19,654/- ON THE GROUND THAT THE SAID EXPENSES WERE NOT SUPPORTED BY PROPER EVIDENCES. 9.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E DISALLOWANCE OF SUCH EXPENSES WAS NOT WARRANTED SINCE MOST OF THE EXPENSES WERE PAID BY C HEQUE AND INCURRED FOR THE OBJECTS OF THE TRUST, 10. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF DEPRECIATION ON THE CAPITAL EXPENDITURE OF RS.13,44,428/- ON THE GROUND THAT TH E SAID CAPITAL EXPENSES WERE NOT SUPPORTED BY PROPER EVIDENCES. 10.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE DISALLOWANCE OF DEPRECIATION IN RESPECT OF SUCH CAPITAL EXPENSES WAS NOT WARRANTED SINCE MO ST OF THE CAPITAL EXPENSES WERE PAID BY CHEQUE AND THEREFORE, THE DEPRECIATION OUGHT TO HAV E BEEN ALLOWED. 11. THE LEARNED CIT(A) ERRED IN CONFIRMING THE FOLL OWING DISALLOWANCES WITHOUT APPRECIATING THAT SINCE THE ASSESSEE WAS ENTITLED TO CLAIM EXEMP TION U/S.11, SUCH DISALLOWANCES WERE NOT WARRANTED WHILE COMPUTING THE INCOME OF THE APPELLA NT US/.11. SR. NO. PARTICULARS AMOUNT (RS.) A DISALLOWANCE ON ACCOUNT OF LATE PAYMENT OF EMPLOY EES PROVIDENT FUND 27,977 B DISALLOWANCE ON ACCOUNT OF LATE PAYMENT OF EMPLOY ERS CONTRIBUTION TO PROVIDENT FUND 27,976 13 C PENALTY/FINE PAID 1,24,860 D DISALLOWANCE U/S.40A(3) (20% OF CASH PAYMENTS) 67 ,041 E DONATION PAID 8,50,000 F CAPITAL EXPENDITURE DEBITED TO INCOME & EXPENDITU RE A/C 95,49,642 12. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND , OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. GROUNDS BY DEPARTMENT : 01 (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT ADVANCING INTE REST FREE LOAN OF RS.11,42,113/- BY THE ASSESSEE TO ITS RELATED CONCERN D.Y. PATIL EDUCATIO N SOCIETY DOES NOT ATTRACT PROVISIONS OF SEC. 13(1)(D) OF THE IT. ACT, 1961. (II) WITHOUT PREJUDICE, CIT(A) ERRED IN NOT APPRECI ATING THE FACT THAT D.Y. PATIL EDUCATION SOCIETY IS AN INTERESTED PERSON AS PER SE CTION 13(3) OF THE ACT AND THEREFORE, ADVANCING INTEREST FREE LOAN OF RS. 11,42,81,113/- BY THE ASSESSEE TO D.Y. PATIL EDUCATION SOCIETY IS VIOLATION OF PROVISIONS OF SEC. 13(1)(C) OF THE I.T. ACT, 1961. (III) CIT(A) ERRED IN NOT APPRECIATING THE FACT THA T EVEN IN CASE WRONG PROVISION IS INVOKED, MENTIONING WRONG SECTION, IE. SECTION 13(1 )(D) INSTEAD OF 13(1)(C), IS NOT FATAL AND IT IS MERELY A PROCEDURAL LAPSE AS HELD BY MANY JUDICIAL AUTHORITIES INCLUDING HONBLE MADRAS HIGH COURT IN THE CASE OF R.P KUNDASWAMY & O THERS VS. CIT ( 49 ITR 344). 02 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING 50% OF THE ADVERTISEMENT EXPE NSES AS EXPENDITURE TOWARDS OBJECTS OF THE TRUST, WHEN THE EXPENSES WERE INFACT FOR THE IMAGE BUILDING OF THE FOUNDER TRUSTEE AND NOT FOR THE OBJECTS OF THE TRUST, THUS SQUARELY IN VIOLATION OF PROVISIONS OF SECTION 13(1)(C). 03. (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE PROPORTIONATE DISALLOWANCE OF RS.22,91,016/- FROM OUT OF INTEREST TO FINANCIAL INSTITUTIONS DEBITED BY THE A SSESSEE HOLDING THAT ASSESSEES OWN FUNDS ARE MUCH MORE THAN THE FUNDS ADVANCED TO SISTER CONCERN WITHOUT APPRECIATING THE FACT THAT ASSESSEES OWN FUNDS AND BORROWED FUNDS ARE PART OF COMMON POO L OF FUNDS AND ASSESSEES OWN FUNDS ARE NOT IN LIQUID FORM AND ARE INFACT LOCKED AS INVESTM ENT IN BUILDING, FURNITURE, WORKING CAPITAL ETC., (II) CIT(A) FAILED TO APPRECIATE THE FACT THAT HAD THE ASSESSEE NOT ADVANCED INTEREST FREE LOANS TO SISTER CONCERN, THERE WOULD HAVE BEEN NO NEED TO BORROW FUNDS FROM FINANCIAL INSTITUTIONS TO THAT EXTENT AND ACCORDING LY NO NEED TO PAY INTEREST TO THAT EXTENT. 04. (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING REMUNERATION PAID TO RELATIVES OF TRUSTEES TO THE TUNE OF RS.38,37,221/- HOLDING THAT NOTHING HAS BEEN BROUGH T ON RECORD TO SHOW THAT MARKET VALUE OF THE SERVICES/JOBS WAS LESS THAN THE PAYMENTS MADE TO TH EM WHEN THE PAYMENTS WERE SQUARELY COVERED U/S.40A(2)(B). (II) CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ACCOUNTS WERE SUBJECT TO SPECIAL AUDIT U/S.142(2A). (III) WITHOUT PREJUDICE TO THE ABOVE, LD. CIT(A) HA S ERRED IN NOT EXERCISING HIS PLENARY POWERS WHICH ARE CONTERMINOUS WITH THAT OF ASSESSING OFFICER AS PER THE RATIO LAID DOWN BY CIT VS. KANPUR COAL SYNDICATE (1964) 5 3 ITR 225, 229 (SC). 05 (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING ENTIRE AMOUNT OF R S. 24,693/- ON ACCOUNT OF TELEPHONE AND MOBILE EXPENSES PAID TO THE TRUSTEES AT THE RESIDEN CE OF THE TRUSTEES WITHOUT CONSIDERING THE PERSONAL USE OF TELEPHONES AND MOBILES AND WITHOUT APPRECIATING THAT NO EVIDENCE WAS PRODUCED BEFORE THE AO AND WERE COVERED U/S.40A (2)(B). (II) CIT(A) ERRED IN NOT APPRECIATING THAT THE ACCO UNTS WERE SUBJECT TO SPECIAL AUDIT U/S.142(2A). 14 06. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING DEVELOPMENT FEE OF RS.5,37,83 ,688/- AS CAPITAL RECEIPT IGNORING THE FACT THAT THE SAME WAS TO BE TREATED AS INCOME IN VIEW OF CAN CELLATION OF REGISTRATION U/S.12A AND ALSO IN VIEW OF VIOLATION OF SECTION 13(1)(C) WHICH AUTOMAT ICALLY RENDERED THE INCOME CHARGEABLE TO TAX. 07. (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT EMPLOYEES CONT RIBUTION WHICH WAS NOT DEPOSITED WITHIN DUE DATE UNDER THAT ACT IS ALLOWABLE AS EXPENDITURE WHE N THE SAME WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. (II) WHETHER THE DECISION OF LD. CIT(A) IGNORING TH E CLEAR DISTINCTION BETWEEN EMPLOYEES CONTRIBUTION TO ESI, PF AND PENSION FUND AND EMPLOYERS CONTRIBUTION IS BAD IN LAW? (III) WHETHER THE DECISION OF LD. CIT(A) IGNORING T HE PROVISIONS OF SECTION 2(24)(X) R.W.S. 36(1)(VA) AS PER WHICH EMPLOYEES CONTRIBUTI ON TO ESI, PF AND PENSION FUND IS DEDUCTIBLE ONLY IF PAYMENT IS MADE BEFORE THE DUE D ATE AS PRESCRIBED IN THE RESPECTIVE ACT, RULE, ORDER OR NOTIFICATION GOVERNING SUCH FUN DS IS ERRONEOUS AND CONTRARY TO PROVISIONS OF INCOME TAX ACT, 1961? (IV) WHETHER THE DECISION OF ITAT IGNORING THE FACT THAT THE AMENDMENT TO SECTION 43B IS APPLICABLE ONLY TO EMPLOYERS CONTRIBUTION A ND NOT TO EMPLOYEES CONTRIBUTION IS BAD IN LAW? (V) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN IGNORING THE DECISION OF SP ECIAL BENCH OF KOLKATA IN THE CASE OF JCIT VS. ITC LT., REPORTED AT 112 ITD 57. 08. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING MAINTENANCE EXPENSES OF FLATS AT GULMOHAR SOCIETY WHEN THE SAID FLATS WERE USED EXCLUSIVELY BY THE FOUNDER OF THE TRUST VIOLAT ING THE PROVISIONS OF SEC.13(1)(C) OF THE ACT. 09. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. C IT(A) BE VACATED AND THAT OF THE AOS ORDER MAY BE RESTORED. 10. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND , MODIFY ANY OF THE ABOVE GROUNDS RAISED, ANY OTHER GROUNDS AT THE TIME OF PROCEEDINGS BEFORE THE HONBLE TRIBUNAL WHICH MAY BE GRANTED. 7. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS GROUNDS OF APPEAL NOS. 1 TO 2.1 FOR WHICH THE LEARNED DR HAS NO OBJECTION. ACCORDINGLY GROUNDS OF APPEAL NOS. 1 TO 2.1 ARE DISMISSED AS NOT PRESSED. 8. GROUNDS OF APPEAL NOS. 3 &4 BY THE ASSESSEE RELA TES TO THE ORDER OF THE CIT(A) IN HOLDING THAT ASSESSEE TRUST WAS NOT ENTITLED TO EXE MPTION U/S.11 SINCE IT HAS VIOLATED THE PROVISIONS OF SECTION 11 TO 13. THE LEARNED COUNSE L FOR THE ASSESSEE REFERRING TO PAGE NO.17 TO 22 OF THE PAPER BOOK SUBMITTED THAT THE REGISTRATIO N CANCELLED U/S.12A WAS RESTORED BY THE TRIBUNAL. THEREFORE, THERE IS NO REASON TO DENY EX EMPTION ON THIS GROUND. HE SUBMITTED THAT THE ASSESSEE HAS NOT AT ALL VIOLATED ANY OF THE PROVISI ONS OF SECTION 11 TO 13. HOWEVER, THE OUTCOME OF THE RESULTS OF VARIOUS GROUNDS TAKEN BY THE REVE NUE AND THE ASSESSEE WILL HAVE A BEARING ON THE OUTCOME OF THESE 2 GROUNDS. THE LEARNED DR ALSO AG REED WITH THE ABOVE PROPOSITIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. WE THEREFORE DEE M IT PROPER TO TAKE UP THESE GROUNDS LATER ON. 15 9. THE FIRST ISSUE IN GROUNDS OF APPEAL NOS. 5 TO 6 .1 BY THE ASSESSEE AND GROUNDS OF APPEAL NO.2 BY THE REVENUE RELATES TO THE PART RELIEF GIVE N BY THE CIT(A) BY HOLDING THAT 50% OF THE ADVERTISEMENT EXPENSES AS EXPENDITURE TOWARDS OBJEC TS OF THE TRUST. 10. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO DISALLOWED THE ADVERTISEMENT EXPENSES ON THE GROUND THAT THOSE WERE INCURRED ON THE OCCASION OF BIRTHDAYS OF THE TRUSTEES WHICH BENEFITTED THEIR IMAGE BUILDING AND NOT THAT OF THE TRUST. THEREFORE, THE AO DISALLOWED THE SAME HOLDING THAT THE SAME CANNOT BE SAID TO BE INC URRED FOR THE OBJECTS OF THE TRUST AND THEREFORE THE ASSESSEE HAS VIOLATED PROVISIONS OF SECTIONS OF SECTION 13(1)(C). HE SUBMITTED THAT IN APPEAL THE CIT(A) HELD THAT ALTHOUGH THE ADVERTISEMENTS HA VE RESULTED IN SOME AMOUNT OF IMAGE BUILDING OF THE TRUSTEES THE SAME TOO CERTAINLY RES ULTED IN IMAGE BUILDING OF THE VARIOUS INSTITUTIONS RUN BY THE TRUSTEES WHICH IS EVIDENT F ROM THE SPACE OCCUPIED BY THE NAMES, HIGHLIGHTS AND ACHIEVEMENT OF THE VARIOUS INSTITUTIONS IN THE ADVERTISEMENTS. HE ACCORDINGLY GAVE 50% RELIEF. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ADVERTISEMENT EXPENSES WERE INCURRED FOR THE PURPOSE OF IMAGE BUILDING OF THE T RUST BY HIGHLIGHTING THE ACHIEVEMENTS OF THE VARIOUS INSTITUTIONS RUN BY THE TRUST. REFERRING T O SOME OF THE SAMPLE COPIES OF ADVERTISEMENTS ISSUED BY THE TRUST PLACED AT PAPER BOOK PAGE NOS. 238 TO 242 HE SUBMITTED THAT THESE WERE INCURRED FOR THE PURPOSE OF IMAGE BUILDING OF THE T RUST BY HIGHLIGHTING THE ACHIEVEMENTS OF THE VARIOUS INSTITUTES RUN BY THE TRUST. HE SUBMITTED THAT THE ADVERTISEMENTS ISSUED ON THE OCCASION OF BIRTHDAYS OF THE TRUSTEES WAS JUST INCIDENTAL BU T THE MAIN PURPOSE WAS TO ADVERTISE THE VARIOUS INSTITUTES RUN BY THE TRUST. THEREFORE, IT DID NOT RESULT INTO ANY BENEFIT FOR THE TRUSTEES AND THEREFORE THE PROVISIONS OF SECTION 13(1)(C) WERE N OT ATTRACTED. 10.1 REFERRING TO THE COPY OF THE ASST. ORDERS FOR A.Y. 2000-01 TO A.Y. 2002-03 PLACED AT PAPER BOOK PAGE. NOS.293 TO 307 HE SUBMITTED THAT S IMILAR EXPENDITURE CLAIMED BY THE ASSESSEE TRUST IN THE PRECEEDING YEARS WERE ACCEPTED BY THE DEPARTMENT AND NO OBJECTIONS WERE RAISED. HE SUBMITTED THAT ALTHOUGH PRINCIPLES OF RESJUDICATA D O NOT APPLY TO INCOME TAX PROCEEDINGS, HOWEVER, THE RULE OF CONSISTENCY PREVAILS OVER THE DOCTRINE OF RES-JUDICATA WHERE THE FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING DECISIONS: I. H.A. SHAH & CO. VS. CIT & EPT 30 ITR 618 (BOMBA Y) II. RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC) 16 HE ACCORDINGLY SUBMITTED THAT THE ENTIRE ADVERTISEM ENT EXPENSES HAS TO BE TREATED AS INCURRED FOR THE OBJECTS OF THE TRUST AND IT BE HELD THAT THE AS SESSEE HAS NOT VIOLATED THE PROVISIONS OF SECTION 13(1)(C) OF THE INCOME TAX ACT. 11. THE LEARNED DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE AO. HE SUBMITTED THAT THE ADVERTISEMENT EXPENSES INCURRED ON THE BIR THDAYS OF THE TRUSTEES HIGHLIGHTING THE VARIOUS ACHIEVEMENTS OF THE INSTITUTES RUN BY THE TRUST ARE NOTHING BUT THE IMAGE BUILDING OF THE TRUSTEES AND TO IMPROVE THEIR SOCIAL IMAGE. HE SUBMITTED TH AT EVEN THOUGH PHOTOGRAPHS OF THE TRUSTEES ARE NOT THERE IN THE ADVERTISEMENTS ON THE BIRTHDAY S OF THE TRUSTEES BUT THE SAME AMOUNTS TO PUBLICISING THE TRUSTEES AND THIS IS NOTHING BUT US E OF PUBLIC MONEY. ACCORDING TO HIM, EVERYBODY IS AWARE OF THE INSTITUTES RUN BY THE TRU ST AND THEREFORE, THE EXPENDITURE INCURRED ON ADVERTISEMENTS ON THE OCCASION OF THE BIRTHDAYS OF THE TRUSTEES IS CERTAINLY NOT FOR THE OBJECTS OF THE TRUST BUT FOR THE BENEFIT OF THE TRUSTEES AND T HEREFORE THE ASSESSEE TRUST HAS VIOLATED THE PROVISIONS OF SECTION 13(1)(C) OF THE INCOME TAX AC T. HE ACCORDINGLY SUBMITTED THAT THE CIT(A) IS NOT JUSTIFIED IN HOLDING THAT 50% OF THE EXPENDI TURE ON ADVERTISEMENT RELATES TO THE OBJECT OF THE TRUST. 12. THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS REJ OINDER SUBMITTED THAT SINCE NAMES OF THE INSTITUTES ARE GIVEN, THEREFORE IT IS ENHANCEMENT O F THE IMAGE OF THE TRUSTS AND THE INSTITUTES RUN BY IT ONLY AND NOT OF THE TRUSTEES. ACCORDING TO HIM, A LAYMAN COMES TO KNOW ABOUT THE INSTITUTES FROM THE ADVERTISEMENTS ONLY. THEREFORE, THERE IS NO PERSONAL BENEFIT TO THE TRUSTEES. 13. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHAL F OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE AO DISALLOWED THE ENTIRE AMOUNT OF ADVERTISEMENT EXPENSES ON THE GROUND THAT SUCH EXPENSES INCURRED ON THE OCCASION OF BIRTHDAYS OF THE TRUSTEES BENEFITTED THE IMAGE BUIL DING OF THE TRUSTEES AND NOT OF THE TRUST. THE LEARNED CIT(A) RESTRICTED SUCH DISALLOWANCE TO 50% OF THE EXPENSES ON THE GROUND THAT SUCH ADVERTISEMENT EXPENSES HAVE RESULTED IN SOME AMOUNT OF IMAGE BUILDING OF THE TRUSTEES AS WELL AS IMAGE BUILDING OF THE VARIOUS INSTITUTES RUN BY THE ASSESSEE TRUST. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ADVERTISEMENT EXPENSES WERE INCURRED FOR THE PURPOSE OF IMAGE BUILDING OF THE TRUST BY HIGHLIGHTING THE ACH IEVEMENTS OF THE VARIOUS INSTITUTES AND THAT SUCH EXPENSES WERE ALLOWED IN THE PAST. WE FIND SO ME FORCE IN THE ABOVE ARGUMENTS MADE BY 17 THE LEARNED COUNSEL FOR THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT ADVERTISEMENTS WERE PUBLISHED IN VARIOUS NEWSPAPERS ON THE OCCASION OF THE BIRTHDAYS OF THE TRUSTEES HIGHLIGHTING THE ACHIEVEMENTS OF THE VARIOUS INSTITUTES RUN BY THE T RUST. IN THE PRESENT DAY, WHEN THERE ARE HUNDREDS OF INSTITUTIONS IMPARTING EDUCATION IN VAR IOUS FIELDS, IT IS VERY DIFFICULT FOR THE COMMON MAN TO FIND OUT WHICH IS THE BEST INSTITUTION. IT IS ONLY WHEN HE COMES TO KNOW OF THE PERSONS BEHIND RUNNING OF THE EDUCATIONAL INSTITUTIONS THAT THE CONFIDENCE LEVEL OF THE LAYMAN INCREASES. THEREFORE, IN OUR OPINION, HIGHLIGHTING THE ACHIEVE MENTS OF THE INSTITUTIONS RUN BY THE TRUST ALONG WITH THE NAMES OF THE TRUSTEES ON THEIR BIRTHDAY CA NNOT BE SAID TO BE IMAGE BUILDING OF THE TRUSTEES. RATHER IT INDIRECTLY HELPS THE VARIOUS I NSTITUTES RUN BY THE TRUST IN GETTING MORE NUMBER OF STUDENTS. FURTHER, THE SUBMISSION OF THE LEARNE D COUNSEL FOR THE ASSESSEE THAT SIMILAR EXPENSES WERE ALLOWED IN THE PAST, THEREFORE, NO ADVERSE VIE W SHOULD BE TAKEN FOR THE IMPUGNED ASSESSMENT YEAR ALSO FINDS SOME FORCE IN IT. THE H ONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT REPORTED IN 193 ITR 321 HAS OBSERVED AS UNDER : WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO IT PROCEEDINGS AND EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR. BUT WHERE A FUNDAMENTA L ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER HAND AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT C HALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 13.1 CONSIDERING THE TOTALITY OF THE FACTS OF THE C ASE AND CONSIDERING THE FACT THAT SIMILAR EXPENSES WERE ALLOWED IN THE PAST, WE ARE OF THE CO NSIDERED OPINION THAT NO PART OF THE ADVERTISEMENT EXPENSES SHOULD HAVE BEEN DISALLOWED ESPECIALLY WHEN THERE IS NO DISPUTE ABOUT THE GENUINENESS OF SUCH EXPENDITURE. THEREFORE, IN OUR CONSIDERED OPINION, THERE IS NO VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. ACCORDINGLY, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ALLOW THE ENTIRE AMOUNT OF ADVERTISEMENT EXPENDITURE AS ALLOWABLE EXPENDITURE. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED AND THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 14. THE SECOND ISSUE IN GROUNDS OF APPEAL NO.5 TO 6 .1 BY THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENDITURE ON MERCEDEZ CAR BY HOLDING THE SAME TO BE IN VIOLATION OF SECTION 13(1)(C) OF THE I.T. ACT. 15. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE TRUST HAD ACQUIRED THE MERCEDEZ CAR FOR THE PURPOSE OF THE TRUST AND INCUR RED EXPENDITURE ON REPAIRS AND HAS DEBITED 18 SUCH EXPENSES AND DEPRECIATION TO THE INCOME AND EX PENDITURE ACCOUNT. HE SUBMITTED THAT VARIOUS VIP GUESTS KEEP VISITING THE TRUST AND THER EFORE THE ASSESSEE HAD PURCHASED THE MERCEDEZ CAR. HE SUBMITTED THAT THE AO HAS SIMPLY REJECTED THE CLAIM OF THE ASSESSEE WITHOUT ANY CONTRARY EVIDENCE AND THEREFORE HE HAS NOT DISCHARGED THE BU RDEN CAST ON HIM U/S.13 OF THE I.T. ACT. HE SUBMITTED THAT THE GROSS RECEIPTS OF THE ASSESSEE T RUST FOR THE IMPUGNED ASSESSMENT YEAR WAS MORE THAN 75 CRORES AND THE ASSESSEE TRUST IS ONE OF THE LEADING EDUCATIONAL INSTITUTION IN THE COUNTRY. THEREFORE, BY PURCHASING THE MERCEDEZ CAR FOR THE U SE OF THE VVIP GUESTS SUCH AS THE PRESIDENT AND THE PRIME MINISTER OF INDIA, THE CHIEF MINISTER AND THE GOVERNOR OF THE STATE, JUDGES OF THE SUPREME COURT AND VARIOUS HIGH COURTS CANNOT RESULT INTO ANY VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. HE SUBMITTED THAT THE TR UST IS NOT PAYING ANY SALARY TO DR. D.Y. PATIL. THEREFORE, ASSUMING BUT NOT ADMITTING THAT THE SAID CAR WAS USED BY DR. D.Y. PATIL WHO IS THE FOUNDER OF THE TRUST AND BECAUSE OF WHOSE EFFORTS T HE TRUST HAS ACHIEVED TREMENDOUS SUCCESS IT CANNOT BE SAID THAT PROVIDING THE CAR TO HIM FOR OF FICIAL PURPOSE IS A BENEFIT TO HIM. HE SUBMITTED THAT THE AO ALLOWED THE EXPENDITURE OF VARIOUS OTHE R CARS OWNED BY THE TRUST BUT HAS SIMPLY DISALLOWED THE EXPENDITURE AND DEPRECIATION ON THE MERCEDEZ CAR ON THE GROUND THAT IT HAS BENEFITTED THE TRUSTEES U/S.13(1)(C) WHICH HAS BEEN UPHELD BY THE LEARNED CIT(A). ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE FOR INVOKING T HE PROVISIONS OF SECTION 13(1)(C) THE AO HAS TO CONCRETELY DEMONSTRATE THAT THE BENEFIT HAS BEEN AC TUALLY CONFERRED TO THE TRUSTEES. MERELY BECAUSE THE ASSESSEE TRUST HAS NOT SUBMITTED THE LI ST OF PERSONAL CARS OWNED BY THE TRUSTEES THE AO CANNOT HOLD THAT MERCEDEZ CAR USED BY THE TRUSTE ES ARE FOR THEIR PERSONAL BENEFIT AND IS VIOLATION OF PROVISIONS U/S.13(1)(C). HE SUBMITTED THAT SIMILAR EXPENDITURE CLAIMED BY THE ASSESSEE IN THE PAST YEARS WERE ACCEPTED BY THE DEP ARTMENT AND NO OBJECTIONS WERE RAISED. HE SUBMITTED THAT EVEN IN SUBSEQUENT YEARS ALSO NO SUC H DISALLOWANCE OF EXPENDITURE AND DEPRECIATION ON MERCEDEZ CAR HAS BEEN MADE BY THE A O. ACCORDING TO THE LEARNED AR WHEN THE AO HAS NO PROBLEM FOR OTHER CARS OWNED BY THE TRUST AND UTILISED BY THE TRUSTEES HE SHOULD NOT HAVE PROBLEM FOR THE MERCEDEZ CAR. HE ACCORDINGLY SUBMITTED THAT THERE IS NO VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. HE ALSO RELIED ON THE FOLLOWING DECISIONS : I. H.A. SHAH & CO. VS. CIT & EPT 30 ITR 618 (BOMBAY ) II. RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC) 16. THE LEARNED DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDERS OF THE AO AND CIT(A). HE SUBMITTED THAT DESPITE BEING ASKED BY THE AO THE AS SESSEE DID NOT PRODUCE THE DETAILS OF VARIOUS 19 CARS OWNED BY THE TRUSTEES. ACCORDING TO THE LEARN ED DR ANYTHING WHICH IS WITHIN THE SPECIFIC KNOWLEDGE OF THE ASSESSEE HAS TO BE GIVEN TO THE AO . SINCE THE ASSESSEE IN THE INSTANT CASE FAILED TO DISCHARGE THE BURDEN CAST ON HIM, THEREFORE, THE AO WAS JUSTIFIED IN HOLDING THAT THERE IS VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. 17. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHAL F OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND I N THE INSTANT CASE THE AO DISALLOWED THE EXPENDITURE INCURRED ON THE MERCEDEZ CAR AND DEPREC IATION THERE ON HOLDING THE SAME TO BE PERSONAL BENEFIT TO THE TRUSTEES AND THEREFORE THER E IS VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. THE LEARNED CIT(A) UPHELD THE ABO VE PROPOSITION OF THE AO. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE CAR IS BEING USED FOR THE VVIP GUESTS AND THAT SIMILAR EXPENDITURE HAS BEEN ALLOWED IN TH E PAST BY THE AO. WE FIND FROM THE COPY OF THE ASSESSMENT ORDER FOR A.Y. 2001-02 THAT NO SUCH DISALLOWANCE HAS BEEN MADE BY THE AO ON ACCOUNT OF EXPENDITURE AND DEPRECIATION ON THE MERC EDEZ CAR WHICH WAS PURCHASED DURING F.Y. 2000-01 RELEVANT TO A.Y. 2001-02. WE FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ONLY BECAUSE OF THE BRAND NAME OF THE MERCEDEZ CAR THE AO HAS PROBLEM WHEREAS HE HAS NO PROBLEM ON ACCOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE FOR VARIOUS OTHER CARS OWNED BY THE TRUST. IN OUR OPINION, WHEN THE AO HAS ALLOWED THE EXPENDITURE ON ACCOUNT OF VARIOUS OTHER CARS OWNED BY THE TRUST, THEREFORE, M ERELY BECAUSE THE ASSESSEE HAS PURCHASED THE MERCEDEZ CAR TO BE USED BY THE VVIP GUESTS THE AO S HOULD NOT HAVE DISALLOWED THE EXPENDITURE AND DEPRECIATION ON SUCH MOTOR CAR ESPECIALLY WHEN THE AO IN THE PAST HAS NOT DISALLOWED ANY EXPENDITURE ON THE MERCEDEZ CAR OWNED BY THE TRUST. THEREFORE, IN VIEW OF RULE OF CONSISTENCY AND IN ABSENCE OF ANY ADVERSE MATERIAL BEFORE THE A O TO TAKE A CONTRARY VIEW WE FIND NO JUSTIFICATION ON THE PART OF THE AO AND CIT(A) TO H OLD THAT THERE IS VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. IN THIS VIEW OF T HE MATTER, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ALLOW THE EXPENDITURE CLAIMED BY THE ASSESSEE AND HOLD THAT THERE IS NO VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. 18. IN GROUNDS OF APPEAL NO.1 THE REVENUE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN HOLDING THAT ADVANCING INTEREST FREE LOAN OF RS.11,42,81,11 3/- BY THE ASSESSEE TRUST TO D.Y. PATIL EDUCATION SOCIETY, A RELATED CONCERN, DOES NOT ATTR ACT PROVISIONS OF SECTION 13(1)(D) OF THE I.T. ACT. 20 19. THE LEARNED DR SUBMITTED THAT INITIALLY THIS AM OUNT WAS NOT DISALLOWED BY THE AO IN THE ORDER PASSED U/S.143(3). HOWEVER, DURING THE COURS E OF APPEAL PROCEEDINGS THE AO BROUGHT TO THE NOTICE OF THE LEARNED CIT(A) THAT THE ASSESSEE TRUST HAD VIOLATED THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT BY ADVANCING INTEREST FREE LOAN OF RS.11,42,81,113/- TO D.Y.PATIL EDUCATION SOCIETY BY INVESTING THE FUNDS IN MODES OTHER THAN THOSE SPECIFIED U/S.11(5) OF THE I.T. ACT. HE SUBMITTED THAT THE LEARNED CIT(A) WITHOUT APPRECIAT ING THE FACT THAT D.Y.PATIL EDUCATION SOCIETY IS AN INTERESTED PERSON AS PER SECTION 13(3) OF THE ACT HELD THAT ADVANCING INTEREST FREE LOAN BY THE ASSESSEE TO ITS RELATED CONCERN DOES NOT ATTRAC T PROVISIONS OF SECTION 13(1)(D) OF THE I.T. ACT. THE LEARNED DR SUBMITTED THAT THE ASSESSEE BY GIVIN G INTEREST FREE ADVANCE TO SISTER CONCERN HAS INVESTED ITS SURPLUS MONEY IN A MODE OTHER THAN THO SE PRESCRIBED UNDER SECTION 11(5) OF THE I.T. ACT. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF TH E CIT(A) BE SET-ASIDE AND THE INTEREST FREE LOAN ADVANCED TO RELATED CONCERN D.Y.PATIL EDUCATION SOC IETY BE HELD TO BE A VIOLATION OF SECTION 13(1)(D) OF THE I.T. ACT. 20. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OT HER HAND WHILE STRONGLY RELYING ON THE ORDER OF THE CIT(A) SUBMITTED THAT D.Y.PATIL EDUCAT ION SOCIETY IS A CHARITABLE TRUST WHICH IS ALSO ENGAGED IN EDUCATIONAL ACTIVITY. SINCE THE ABOVE T RUST WAS IN NEED OF FUNDS THE ASSESSEE TRUST HAD GIVEN INTEREST FREE LOAN TO THE SAID TRUST. RE FERRING TO THE PROVISIONS OF SECTION 11(5) HE SUBMITTED THAT IT PROVIDES VARIOUS MODES OF INVEST ING OR DEPOSITING OF MONEY. HE SUBMITTED THAT THE LOAN GIVEN BY THE ASSESSEE TRUST TO D.Y.PATIL E DUCATION SOCIETY IS NEITHER AN INVESTMENT NOR A DEPOSIT, THEREFORE, GRANTING OF SUCH LOAN IS OUTSID E THE PURVIEW OF SECTION 11(5). FURTHER THE LOAN GIVEN WAS IN ORDER TO PROMOTE THE CHARITABLE OBJECT S OF THE TRUST AND THEREFORE IT WAS NOT IN THE NATURE OF AN INVESTMENT BUT AN APPLICATION OF MONEY . FOR THE ABOVE PROPOSITION THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DE CISIONS : I. NATIONAL ENGG. COORDINATION COMMITTEE VS. ACIT 43 ITD 612 (PUNE) II. DIT VS. ACME EDUCATIONAL SOCIETY 326 ITR 146 (DELHI HIGH COURT) III. KANPUR SUBHASH SHIKSHA SAMITI VS. DCIT 11 ITR 23 (LUCKNOW) IV. ALARIPPU 244 ITR 358 (DELHI HIGH COURT) V. SARLADEVI SARABHAI TRUST 172 ITR 698 (GUJARAT HIGH COURT) HE ACCORDINGLY SUBMITTED THAT THE ASSESSEE HAS NOT AT ALL VIOLATED THE PROVISIONS OF SECTION 13(1)(D) OF THE ACT. 21 21. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHAL F OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE TRUST HAD ADVANCED INTEREST FREE LOAN OF RS.11,42,81,113/- TO ANOTHER CHARITABLE TRUST D.Y.PATIL EDUCATION SOCIETY. IT IS THE CASE OF THE REVENUE THAT BY ADV ANCING SUCH INTEREST FREE LOAN TO D.Y.PATIL EDUCATION SOCIETY THE ASSESSEE TRUST HAS INVESTED T HE FUNDS IN MODES OTHER THAN THOSE SPECIFIED U/S.11(5) OF THE I.T. ACT AND THEREFORE THERE WAS V IOLATION OF PROVISIONS OF SECTION 13(1)(D) OF THE I.T. ACT. IT IS THE CASE OF THE ASSESSEE THAT IT H AS GIVEN THE INTEREST FREE LOAN TO ANOTHER TRUST AL SO ENGAGED IN EDUCATIONAL ACTIVITY AND THAT GRANTING O F SUCH LOAN IS OUTSIDE THE PURVIEW OF PROVISIONS OF SECTION 11(5). IT IS ALSO THE SUBMIS SION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SUCH ADVANCE WAS NEITHER A DEPOSIT NOR AN INVESTMEN T AND THEREFORE GRANTING OF SUCH LOAN IS OUTSIDE THE PURVIEW OF PROVISIONS OF SECTION 11(5). WE FIND THE LEARNED CIT(A) WHILE ALLOWING THE CLAIM OF THE ASSESSEE STATED THAT ADVANCING A L OAN DOES NOT AMOUNT TO AN INVESTMENT OR DEPOSIT AND PROVISIONS OF SECTION 13 ALSO PERMIT A CHARITABLE TRUST TO LEND MONEY AND THEREFORE THERE IS NO VIOLATION OF PROVISIONS OF SECTION 13(1 )(D) THE RELEVANT OPERATIVE PART OF THE LEARNED CIT(A) READS AS UNDER : 49.3 IN RESPECT OF LOAN GIVEN TO D.Y. PATIL EDUCAT ION SOCIETY, IT HAS BEEN CLARIFIED BY THE APPELLANT THAT GIVING OF SUCH LOANS DOES NOT RESULT IN ANY VIOLATION OF SECTION 13(1)(D). IT IS TO BE NOTED THAT SECTION 13(1)(D) PROHIBITS INVE STMENTS BEING MADE IN ANY OTHER FORMS OTHER THAN THOSE PRESCRIBED IN SECTION 11(5). HOWEV ER, GIVING OF LOAN IS NOT AN INVESTMENT. FURTHER, SECTION 13, ITSELF PERMITS A C HARITABLE TRUST TO GIVE LOANS .THESE LEGAL PROVISIONS MAKE IT CLEAR THAT NO VIOLATION HAS BEEN DONE BY THE APPELLANT. IN VIEW OF THESE LEGAL AND FACTUAL POSITIONS, I AM OF THE CONSIDERED VIEW THAT A LOAN GIVEN BY ONE CHARITABLE TRUST TO ANOTHER WITH SIMILAR OBJECT CAN NOT BE TREATED AS AN INVESTMENT BUT AN APPLICATION OF INCOME. THIS VIEW WAS HELD BY DELHI ITAT IN THE CASE OF ALARIPPU (60 ITD 478). THIS DECISION OF ITAT WAS CONFIRMED BY DELHI HIGH COURT IN 244 ITR 358. IN THE JUDGMENT IN 244 ITR 358 HONBLE DELHI HIGH COURT PO INTED OUT THAT THE WORDS INVESTMENT, DEPOSIT AND LOAN HAVE DIFFERENT M EANING. RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- THE EXPRESSIONS USED IN BOTH THE PROVISIONS QUOTED ABOVE, ARE INVESTMENT AND 'DEPOSIT'. THE FORMER EXPRESSION MEANS TO LAYOUT MO NEY IN BUSINESS WITH A VIEW TO OBTAIN AN INCOME OR PROFIT. DEPOSIT, ON THE OTHER H AND, MEANS THAT WHICH IS PLACED ANYWHERE, AS IN ANY ONE'S HANDS FOR SAFE-KEE PING, SOMETHING ENTRUSTED TO THE CARE OF ANOTHER. THESE TWO EXPRESSIONS HAVE BEE N USED IN A COGNATE SENSE AND HAVE TO BE UNDERSTOOD AS SUCH. IN ORDER TO CONSTITU TE AN INVESTMENT THE AMOUNT LAID DOWN SHOULD BE CAPABLE OF ANY RESULT OF ANY IN COME, RETURN OR PROFIT TO THE INVESTOR AND IN EVERY CASE OF INVESTMENT, THE INTEN TION AND POSITIVE ACT ON THE PART OF THE INVESTOR SHOULD BE TO EARN SUCH INCOME, RETU RNS, PROFIT IN ORDER TO CONSTITUTE AN INVESTMENT, THE MONIES SHALL BE LAID OUT IN SUCH A MANNER AS TO ACQUIRE SOME SPECIES OF PROPERTY WHICH WOULD BRING IN AN INCOME TO THE INVESTOR. A LOAN, ON THE OTHER HAND, IS GRANTING TEMPORARY USE OF MONEY, OR TEMPORARY ACCOMMODATION. THE WORDS INVESTMENT, 'DEPOSIT' AND LOAN ARE CER TAINLY DIFFERENT. SEC. 1 1 (5) REFERS TO PATTERN OF INVESTMENT BY THE APPELLANT S EC. 11(5) WAS INTRODUCED BY THE FINANCE ACT, 1983, W.E.FI 1 ST APRIL, 1983, I.E., FOR AND FROM ASST. YR. 1983-84. IT PRESCRIBES THE FORMS AND MODES OF INVESTING AND DEP OSITING MONEY REFERRED TO IN 22 S. 11(2)(B). SUBSEQUENTLY, NEW FORMS AND MODES HAVE BEEN ADDED. SEC. 13(1)(D) AS AMENDED BY THE FINANCE ACT, 1983, PROVIDES THAT THE INCOME OF ANY CHARITABLE OR RELIGIOUS TRUST OR INSTITUTION WILL NOT BE ENTIT LED TO EXEMPTION UNDER SS. 11 AND 12, IT CERTAIN CONDITIONS STIPULATED THEREIN ARE NO T COMPLIED WITH. THE WORD DEPOSIT DOES NOT COVER TRANSACTION OF LOAN WHICH CA N BE MORE APPROPRIATELY DESCRIBED AS DIRECTED BAILMENT. THE ESSENCE OF DEPO SIT IS THAT THERE MUST BE A LIABILITY TO RETURN IT TO THE PARTY BY WHOM OR ON W HOSE BEHALF HAS BEEN MADE ON FULFILMENT OF CERTAIN CONDITIONS. IN THE COMMERCIAL SENSE, THE TERM IS USED TO INDICATE THE AFORESAID TRANSACTION AS DEPOSIT OF MO NEY FOR EMPLOYMENT, IN BUSINESS, DEPOSITS FOR VALUE TO INITIATE SECURITY F OR DEPOSIT OF TITLE DEEDS, SIMILAR DOCUMENTS AS SECURITY FOR LOAN, DEPOSIT OF MONEY BI LLS IN A BANK IN THE ORDINARY COURSE OF BUSINESS OF CURRENT ACCOUNT AND DEPOSITS OF A SUM AT INTEREST AT A FIXED DEPOSIT IN A BANK.' 49.3.1 IN BAIDYA NATH PLASTIC INDUSTRIES (P) LTD. & ORS. VS. K.L. ANAND, ITO (1998) 146 CTR (DEL) 421 1 (1998) 230 ITR 522 (DEL) IT WAS POI NTED OUT THAT THE DISTINCTION BETWEEN 'LOAN' AND 'DEPOSIT' IS THAT IN THE CASE OF THE FOR MER IT IS ORDINARILY THE DUTY OF THE DEBTOR TO SEEK OUT THE CREDITOR AND TO REPAY THE MONEY ACC ORDING TO THE AGREEMENT, WHILE IN THE CASE OF THE LATTER IT IS GENERALLY THE DUTY OF THE DEPOSITOR TO GO TO THE BANKER OR TO THE DEPOSITEE, AS THE CASE MAY BE, AND MAKE A DEMAND FO R IT. 49.3.2 A DIVISION BENCH OF DELHI HIGH COURT IN CASE OF DIRECTOR OF IT VS. PARIWAR SEWA SANSTHAN (2002) 254 ITR 268 (DEL) HAS HELD THAT NO QUESTION OF LAW ARISES FROM THE ORDER OF TRIBUNAL HOLDING THAT THERE WAS NO VIOLATION OF PROVISION S. 13(1)(D) OF ACT, 1961 WHERE LOAN HAD BEEN GIVEN BY ONE SOCIETY TO ANOTHER SOCIETY HAVING SIMILAR OBJECTS. 49.4 IN VIEW OF THE AFORESAID EXPOSITION OF LAW L A M OF THE VIEW THAT THE LOAN GIVEN BY THE APPELLANT TO THE D.Y. PATIL EDUCATION SOCIETY WAS N EITHER AN INVESTMENT NOR A DEPOSIT. THEREFORE, THERE IS NO VIOLATION OF PROVISION OF SE CTION 13(1)(D) BY THE APPELLANT BY GIVING LOAN TO D.Y. PATIL EDUCATION SOCIETY. THE POINT RAI SED BY THE AO IN RESPECT OF LOAN GIVEN BY THE APPELLANT TO D.Y. PATIL EDUCATION SOCIETY VI DE LETTER DT.6/10/2008 IS TREATED AS DECIDED ACCORDINGLY. 22. WE FIND THE HONBLE DELHI HIGH COURT IN THE CA SE OF DIT VS. ACME EDUCATIONAL SOCIETY REPORTED IN 326 ITR 146 HAS OBSERVED AS UN DER : 10. HAVING HEARD BOTH THE PARTIES AT LENGTH, WE AR E OF THE VIEW THAT THE ISSUE THAT ARISES FOR CONSIDERATION IN THE PRESENT CASE IS WHETHER AD VANCING OF AN INTEREST-FREE TEMPORARY LOAN BY ONE SOCIETY TO ANOTHER SOCIETY HAVING SIMIL AR OBJECTS IS AN 'INVESTMENT' OR A 'DEPOSIT' AND WHETHER THE ASSESSEE-SOCIETY HAD VIOL ATED THE PROVISIONS OF S. 13(L)(D)R/W S. 11(5) OF ACT, 1961 ? 11. SECS. 11(5) AND 13(L)(D) O F THE ACT, 1961 ARE REPRODUCED HEREINBELOW : '1 1. INCOME FROM PROPERTY HELD FOR CHARITABLE OR R ELIGIOUS PURPOSES ........ .. (5) THE FORMS AND MODES OF INVESTING OR DEPOSITING THE MONEY REFERRED TO IN CL. (B) OF SUB- S. (2) SHALL BE THE FOLLOWING, NAMELY : (I) INVESTMENT IN SAVINGS CERTIFICATES AS DEFINED I N CL. (C) OF S. 2 OF THE GOVERNMENT SAVINGS CERTIFICATES ACT, 1959 (46 OF 1959), AND AN Y OTHER SECURITIES OR CERTIFICATES ISSUED BY THE CENTRAL GOVERNMENT UNDER THE SMALL SA VINGS SCHEMES OF THAT GOVERNMENT; (II) DEPOSIT IN ANY ACCOUNT WITH THE POST OFFICE SA VINGS BANK; (III) DEPOSIT IN ANY ACCOUNT WITH A SCHEDULED BANK OR A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING (INCLUDING A CO -OPERATIVE LAND MORTGAGE BANK OR A CO-OPERATIVE LAND DEVELOPMENT BANK). 23 EXPLANATION : IN THIS CLAUSE, SCHEDULED BANK MEAN S THE SBI CONSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955 (23 OF 1955), A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 1959 (38 OF 1959), A CORRESPONDING NEW BANK CONSTITUTED UNDER S. 3 OF THE BANKING COMPANIES (ACQUISITION AN D TRANSFER OF UNDERTAKINGS) ACT, 1970 (5 OF 1970), OR UNDER S. 3 OF THE BANKING COMP ANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1980 (40 OF 1980), OR ANY OTHER BANK BEING A BANK INCLUDED IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA ACT, 1 934 (2 OF 1934); (IV) INVESTMENT IN UNITS OF THE UNIT TRUST OF INDIA ESTABLISHED UNDER THE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963); (V) INVESTMENT IN ANY SECURITY FOR MONEY CREATED AN D ISSUED BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT; (VI) INVESTMENT IN DEBENTURES ISSUED BY, OR ON BEHA LF OF, ANY COMPANY OR CORPORATION BOTH THE PRINCIPLE WHEREOF AND THE INTEREST WHEREON ARE FULLY AND UNCONDITIONALLY GUARANTEED BY THE CENTRAL GOVERNMENT OR BY A STATE GOVERNMENT; (VII) INVESTMENT OR DEPOSIT IN ANY (PUBLIC SECTOR C OMPANY) : PROVIDED THAT WHERE AN INVESTMENT OR DEPOSIT IN ANY PUBLIC SECTOR COMPANY HAS BEEN MADE AND SUCH PUBLIC SECTOR COMPANY CEASES TO BE A PUBLIC SECTOR COMPANY, (A) SUCH INVESTMENT MADE IN THE SHARES OF SUCH COMP ANY SHALL BE DEEMED TO BE AN INVESTMENT MADE UNDER THIS CLAUSE FOR A PERIOD OF T HREE YEARS FROM THE DATE ON WHICH SUCH PUBLIC SECTOR COMPANY CEASES TO BE A PUBLIC SE CTOR COMPANY; (B) SUCH OTHER INVESTMENT OR DEPOSIT SHALL BE DEEME D TO BE AN INVESTMENT MADE UNDER THIS CLAUSE FOR THE PERIOD UPTO THE DATE ON WHICH SUCH I NVESTMENT OR DEPOSIT BECOMES REPAYABLE BY SUCH COMPANY; (VIII) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISS UED BY A FINANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG-TERM FINANCE FOR INDUSTRI AL DEVELOPMENT IN INDIA AND WHICH IS (ELIGIBLE FOR DEDUCTION UNDER) CL. (III) OF SUB-S. (1) OF S. 36; (IX) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSUE D BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYIN G ON THE BUSINESS OF PROVIDING LONG- TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES AND WHICH IS (ELIGIBLE FOR DEDUCTION WIDER) CL. (VIII) OF SUB-S. (1) OF S. 36; (IXA) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSU ED BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYIN G ON THE BUSINESS OF PROVIDING LONG- TERM FINANCE FOR URBAN INFRASTRUCTURE IN INDIA. EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE, (A) LONG-TERM FINANCE MEANS ANY LOAN OR ADVANCE W HERE THE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDE FOR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN FIVE YEARS; (B) PUBLIC COMPANY SHALL HAVE THE MEANING ASSIGNE D TO IT IN S. 3 OF THE COMPANIES ACT, 1956 (1 OF 1956); (C) URBAN INFRASTRUCTURE MEANS A PROJECT FOR PROV IDING POTABLE WATER SUPPLY, SANITATION AND SEWERAGE, DRAINAGE, SOLID WASTE MANAGEMENT, ROA DS, BRIDGES AND FLYOVERS OR URBAN TRANSPORT; (X) INVESTMENT IN IMMOVABLE PROPERTY. EXPLANATION : 'IMMOVABLE PROPERTY DOES NOT INCLUDE ANY MACHINERY OR PLANT (OTHER THAN MACHINERY OR PLANT INSTALLED IN A BUILDING FOR THE CONVENIENT OCCUPATION OF THE BUILDING) EVEN THOUGH ATTACHED TO, OR PERMANENTLY FASTENED TO , ANYTHING ATTACHED TO THE EARTH; 24 (XI) DEPOSITS WITH THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ESTABLISHED UNDER THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ACT, 1964 (18 OF 1964); (XII) ANY OTHER FORM OR MODE OF INVESTMENT OR DEPOS IT AS MAY BE PRESCRIBED.' 12. THIS COURT IN THE CASE OF DIRECTOR OF IT (EXEMP TION) VS. ALARIPPU (2000) 161 CTR (DEL) 432 : (2000) 244 ITR 358 (DEL) HAS POINTED OU T THAT THE WORDS 'INVESTMENT', 'DEPOSIT', AND 'LOAN' HAVE DIFFERENT MEANINGS. THE RELEVANT OBSERVATIONS IN THE SAID JUDGMENT ARE REPRODUCED HEREINBELOW : 'THE EXPRESSIONS USED IN BOTH THE PROVISIONS QUOTED ABOVE, ARE INVESTMENT AND DEPOSIT. THE FORMER EXPRESSION MEANS TO LAYOUT MO NEY IN BUSINESS WITH A VIEW TO OBTAIN AN INCOME OR PROFIT. DEPOSIT, ON THE OTHER H AND, MEANS THAT WHICH IS PLACED ANYWHERE, AS IN ANY ONE'S HANDS FOR SAFE-KEE PING, SOMETHING ENTRUSTED TO THE CARE OF ANOTHER. THESE TWO EXPRESSIONS HAVE BEE N USED IN A COGNATE SENSE AND HAVE TO BE UNDER-STOOD AS SUCH. IN ORDER TO CONSTIT UTE AN INVESTMENT THE AMOUNT LAID DOWN SHOULD BE CAPABLE OF ANY RESULT OF ANY IN COME, RETURN OR PROFIT TO THE INVESTOR AND IN EVERY CASE OF INVESTMENT, THE INTEN TION AND POSITIVE ACT ON THE PART OF THE INVESTOR SHOULD BE TO EARN SUCH INCOME, RETU RNS, PROFIT IN ORDER TO CONSTITUTE AN INVESTMENT, THE MONIES SHALL BE LAID OUT IN SUCH A MANNER AS TO ACQUIRE SOME SPECIES OF PROPERTY WHICH WOULD BRING IN AN INCOME TO THE INVESTOR. A LOAN, ON THE OTHER HAND, IS GRANTING TEMPORARY USE OF MONEY, OR TEMPORARY ACCOMMODATION. THE WORDS INVESTMENT, 'DEPOSIT' AND LOAN ARE CE RTAINLY DIFFERENT. SEC. 11(5) REFERS TO PATTERN OF INVESTMENT BY THE ASSESSEE. SE C. 11(5) WAS INTRODUCED BY THE FINANCE ACT, 1983, W.E.F. IST APRIL, 1983, I.E., FO R AND FROM ASST. YR. 1983-84. IT PRESCRIBES THE FORMS AND MODES OF INVESTING AND DEP OSITING MONEY REFERRED TO IN S. 11(2)(B). SUBSEQUENTLY, NEW FORMS AND MODES HAVE BEEN ADDED. SEC. 13(1)(D) AS AMENDED BY THE FINANCE ACT, 1983, PROVIDES THAT THE INCOME OF ANY CHARITABLE OR RELIGIOUS TRUST OR INSTITUTION WILL NOT BE ENTIT LED TO EXEMPTION UNDER SS. LL AND 12, IF CERTAIN CONDITIONS STIPULATED THEREIN ARE NO T COMPLIED WITH. THE WORD DEPOSIT DOES NOT COVER TRANSACTION OF LOAN WHICH CA N BE MORE APPROPRIATELY DESCRIBED AS DIRECTED BAILMENT. THE ESSENCE OF DEPO SIT IS THAT THERE MUST BE A LIABILITY TO RETURN IT TO THE PARTY BY WHOM OR ON W HOSE BEHALF HAS BEEN MADE ON FULFILMENT OF CERTAIN CONDITIONS. IN THE COMMERCIAL SENSE, THE TERM IS USED TO INDICATE THE AFORESAID TRANSACTION AS DEPOSIT OF MO NEY FOR EMPLOYMENT, IN BUSINESS, DEPOSITS FOR VALUE TO INITIATE SECURITY F OR DEPOSIT OF TITLE DEEDS, SIMILAR DOCUMENTS AS SECURITY FOR LOAN, DEPOSIT OF MONEY BI LLS IN A BANK IN THE ORDINARY COURSE OF BUSINESS OF CURRENT ACCOUNT AND DEPOSITS OF A SUM AT INTEREST AT A FIXED DEPOSIT IN A BANK.' 13. IN BAIDYA NATH PLASTIC INDUSTRIES (P) LTD. & OR S. VS. K.L. ANAND, ITO (1998) 146 CTR (DEL) 421 : (1998) 230 ITR 522 (DEL) A LEARNED SINGLE JUDGE OF THIS COURT POINTED OUT THAT THE DISTINCTION BETWEEN 'LOAN' AND 'DEPOSI T' IS THAT IN THE CASE OF THE FORMER IT IS ORDINARILY THE DUTY OF THE DEBTOR TO SEEK OUT THE C REDITOR AND TO REPAY THE MONEY ACCORDING TO THE AGREEMENT, WHILE IN THE CASE OF TH E LATTER IT IS GENERALLY THE DUTY OF THE DEPOSITOR TO GO TO THE BANKER OR TO THE DEPOSITEE, AS THE CASE MAY BE, AND MAKE A DEMAND FOR IT. 14.A DIVISION BENCH OF THIS COURT IN CASE OF DIREC TOR OF IT VS. PARIWAR SEWA SANSTHAN (2002) 254 ITR 268 (DEL) HAS HELD THAT NO QUESTION OF LAW ARISES FROM THE ORDER OF TRIBUNAL HOLDING THAT THERE WAS NO VIOLATION OF PRO VISION S. 13(1)(D) OF ACT, 1961 WHERE LOAN HAD BEEN GIVEN BY ONE SOCIETY TO ANOTHER SOCIE TY HAVING SIMILAR OBJECTS. 15. KEEPING IN VIEW THE AFORESAID EXPOSITION OF LAW , WE ARE OF THE OPINION THAT INTEREST- FREE LOAN OF RS. 90,50,000 GIVEN BY THE ASSESSEE-SO CIETY TO NAV BHARTI EDUCATIONAL SOCIETY DOES NOT VIOLATE S. 13(1)(D) R/W S. 11(5) O F ACT, 1961 AS THE SAID LOAN WAS NEITHER AN 'INVESTMENT' NOR A 'DEPOSIT'. THIS IS MORE SO AS BOTH THE SOCIETIES HAD SIMILAR OBJECTS AND WERE REGISTERED UNDER S. 12A OF ACT, 1961 AND H AD APPROVALS UNDER S. 80G OF THE ACT, 1961. THE FACT THAT THE LOAN WAS INTEREST-FREE AND HAD BEEN SUBSEQUENTLY RETURNED IS ALSO SIGNIFICANT. IN VIEW OF THE ORDER PASSED BY THE CIT (A) IN THE CASE OF NAV BHARATI EDUCATIONAL SOCIETY, MS. BANSAL'S ALLEGATION WITH R EGARD TO 'ENTRY SCAM' ALSO DOES NOT 25 SURVIVE. CONSEQUENTLY, THERE IS NO SUBSTANTIAL QUES TION OF LAW INVOLVED IN THE PRESENT APPEAL AND ACCORDINGLY, APPEAL IS DISMISSED BUT WIT H NO ORDER AS TO COSTS. 23. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF NATIONAL ENGG. COORDINATION COMMITTEE VS. ACIT REPORTED IN 43 ITD 612 HAS OBSE RVED AS UNDER : 61. WE SHALL NOW DEAL WITH THE ISSUE REGARDING THE FORMS AND MODES OF INVESTING OR DEPOSITING THE MONEY AS PER S. 11(5) R/W S. L3(L)(D ) OF THE ACT. AT THE OUTSET, WE MAKE IT CLEAR THAT THIS ISSUE CANNOT ARISE IN ASST. YRS. 19 84-85 AND 1985-86. IN GIVING EFFECT TO THE ORDER OF THE CIT WHICH DID NOT GIVE ANY FINDING OR DIRECTION REGARDING THIS ISSUE, THE ASSTT. CIT COULD NOT HAVE TRAVELLED BEYOND THE MAND ATE GIVEN BY THE CIT. THE LEARNED DEPARTMENTAL REPRESENTATIVE VERY RIGHTLY DID NOT DI SPUTE THIS FACT. IT IS A MOOT QUESTION WHETHER THE ASSESSEE WILL LOOSE THE BENEFIT OF EXEM PTION UNDER S. 11 ON ACCOUNT OF THE FACT THAT IT HAD MADE ADVANCES IN ACCORDANCE WITH S. LL (5) R/W S. 13(1)(D) OF THE ACT. SEC. 11(5) PRESCRIBES THE MODES OF INVESTING OR DEPOSITI NG THE MONEY REFERRED TO IN CL. (B) OF SUB-S. (2) OF S. L1. SEC. L1(2)(B) REFERS TO THE MO NEY SO ACCUMULATED OR SET APART IS INVESTED OR DEPOSITED IN THE FORMS OR MODES SPECIFI ED IN SUB-S. (5), AND IT REQUIRED THAT SUCH MONEY SHOULD BE INVESTED OR DEPOSITED IN THE F ORMS OR MODES PRESCRIBED UNDER S. 11(5). THE QUESTION THAT AROSE IS, WHETHER THE MONE Y ADVANCED TO ACIL IS PART OF THE MONEY 'APPLIED'. THE QUESTION OF ITS INVESTMENT UND ER S. LL(5) WILL NOT ARISE. IT IS THEREFORE, NECESSARY FIRST TO SEE WHAT IS THE AMOUNT THAT WAS 'APPLIED'. BOTH THE ASSTT. CIT AND THE CIT AND THE CIT(A) HAVE EQUATED THE WOR D 'APPLIED' TO 'SPEND'. THE CIT(A) IN PARA 32 OF HIS ORDER STATES THAT THE AMOUNT ADVA NCED TO ACIL CANNOT BE CONSIDERED AS AN APPLICATION OF THE ASSESSEES INCOME. HE STATES THAT THE AMOUNTS HAVE NOT GONE OUT IRRETRIEVABLY AND, THEREFORE, IT CANNOT BE CONSIDER ED AS AN EXPENDITURE AND HENCE THERE IS NO APPLICATION OF MONEY. THIS APPROACH OF THE CIT(A ) REGARDING THE APPLICATION OF INCOME IS ERRONEOUS AND NOT KEEPING WITH THE DECIDE D CASES CITED BY THE ASSESSEES REPRESENTATIVE AND EVEN THE BOARDS CIRCULAR NO. 10 0 DT. 29TH JAN., 1973. IF THE INTERPRETATION OF THE CIT WAS CORRECT THEN THE BOAR DS INSTRUCTIONS TO CONSIDER THE LOANS, SCHOLARSHIPS GRANTED BY THE EDUCATIONAL TRUSTS AS A PPLICATION OF INCOME WOULD BECOME ERRONEOUS AND CONTRARY TO LAW. 62. AS PER THE SETTLED LEGAL POSITION, WHICH HAS BE EN LAID DOWN IN NUMEROUS DECISIONS, IT IS CLEAR THAT ANY AMOUNT WHICH IS LAID OUT BY THE C HARITABLE TRUST OR INSTITUTION FOR ACHIEVING ITS CHARITABLE OBJECT CONSTITUTES AN APPL ICATION OF INCOME TO CHARITABLE PURPOSES IRRESPECTIVE OF WHETHER THE AMOUNT IN QUES TION HAS BEEN LAID OUT IRRETRIEVABLY OR WHETHER THE AMOUNT CONTINUED TO BELONG TO THE CH ARITABLE TRUST OR THE INSTITUTION OR IT IS RECOVERABLE BY IT. CONSEQUENTLY IF THE CHARITABLE T RUST LENDS AND ADVANCES MONEY FOR THE PURPOSES WHICH ARE CONNECTED WITH ITS BASIC CHARITA BLE OBJECT THEN SUCH ADVANCES EVEN THOUGH RECOVERABLE BY THE CHARITABLE TRUST FROM THE PERSONS TO WHOM THE SAME HAS BEEN PAID WOULD STILL CONSTITUTE APPLICATION OF INCOME I N THE YEAR IN WHICH THE ADVANCES ARE MADE. WE HAVE NOW TO SEE WHETHER THE AMOUNT WHICH H AS BEEN ADVANCED BY NECC TO ACIL ACHIEVED THE CHARITABLE PURPOSE OF NECC. WE HA VE TO SEE THE MEMORANDUM OF ASSOCIATION OF ACIL AND WE FIND THAT ITS OBJECTS AR E HARMONIOUS AND SUPPLEMENTAL TO THE BASIC OBJECT OF NECC. THE ACTIVITIES OF ACIL ARE AL SO CONFINED TO OPERATION AND TRANSACTION FOR THE BENEFIT OF POULTRY INDUSTRY AS A WHOLE. THE ACIL HAS BEEN PROMOTED BY NEC FOR THE PURPOSE OF CARRYING OUT THE MARKET O PERATIONS IN EGGS WITH OBJECT OF ENSURING THAT THERE SHOULD NOT BE DISPARITY OF SUPP LY AND DEMAND IN DIFFERENT AREAS. 63. IT WAS EMPHASISED ON BEHALF OF THE ASSESSEE THA T NECCS BASIC OBJECT OF PROTECTING THE INTEREST OF POULTRY FARMERS WOULD NEVER BE FULL Y ACHIEVED UNLESS AND UNTIL IT WAS POSSIBLE TO CARRY OUT SUCH MARKET OPERATIONS IN EGG S ON LARGE SCALE. THE SHAREHOLDERS OF NECC ARE EXCLUSIVELY THE POULTRY FARMERS AS EXPLAIN ED TO US BY SHRI GANESH. THE MAIN REASON WHY ACIL WAS PROMOTED IS BECAUSE THE ASSESSE E COULD NOT UNDERTAKE THE ACTIVITY OF STABILISING THE MARKET PROCESS WHICH WOULD HAVE REQUIRED LARGE SCALE OPERATIONS OF PURCHASE AND SALE OF EGGS. THERE WAS ALSO NEED TO C ONSTRUCT COLD STORAGE IN ORDER TO PROVIDE THEM THE FACILITIES. LARGE FUNDS WERE NECES SARY FOR THESE PURPOSES. FOR SECURING FINANCIAL ASSISTANCE FROM THE FINANCIAL INSTITUTION S PUBLIC LIMITED COMPANY WOULD HAVE 26 BEEN SUITABLE. FOR ALL THESE REASONS, THE ASSESSEE PROMOTED THE ACIL. WE FIND THAT THE ASSESSEE DOES NOT HOLD ANY SHARE IN THIS CONCERN. 64. WE ALSO FIND THAT THE NECC IS THE DIVISION OF A CIL FOR THE PURPOSE OF CARRYING ON ITS ACTIVITIES. THERE IS NO ALLEGATION OR SUGGESTIONS M ADE EVEN BY THE DEPARTMENT THAT THE ADVANCES WHICH WERE MADE BY THE NECC WERE FOR ULTER IOR MOTIVE. WE THEREFORE, HOLD THAT THE AMOUNTS ADVANCED TO ACIL CONSTITUTED MONIE S APPLIED BY THE NECC TO ITS CHARITABLE OBJECT AND ACTIVITIES. FURTHER THE MINUT ES OF NABARD MEETING WHEREIN THE SAID PROPOSAL TO CARRY OUT THE MARKET OPERATIONS WA S DISCUSSED AND CONTAINS CONSIDERABLE LIGHT ON THE MATTER WHICH MAKES IT CLE AR THAT BY ESTABLISHING ACIL AND BY CARRYING ON REGULAR OPERATIONS THE INTEREST OF POUL TRY INDUSTRIES AS A WHOLE WOULD BE CORRECTLY PROTECTED. WE ALSO AGREE WITH THE ASSESSE ES SUBMISSIONS, WHICH WERE VERY FAIRLY ACCEPTED BY THE LEARNED DEPARTMENTAL REPRESE NTATIVE, THAT THE PROVISIONS OF S. 11(5) R/W S. L3(L)(D) HAVE NO APPLICATION AT ALL WH EREAS MONIES OR INCOME OF THE TRUST HAVE ALREADY BEEN APPLIED TO THE CHARITABLE OBJECTS OF T HE TRUST. CONSEQUENTLY, THE MISCHIEF OF S. L3(L)(D) IS NOT ATTRACTED TO THE PRESENT CASE FO R THAT REASON ALONE. IT WAS ALSO CONTENDED BY THE ASSESSEES REPRESENTATIVE THAT IN ANY EVENT THE AMOUNTS ADVANCED BY NECC TO ACIL ARE NEITHER INVESTMENTS NOR DEPOSITS AS THESE TWO TERMS SIGNIFY THE LENDING THE MONIES FOR THE PURPOSES OF EARNING INCOME OR RETURN IN SOME FORM SUCH AS BY WAY OF INTEREST, DIVIDENDS, RENTS OR CAPITAL GAINS. IN THE PRESENT CASE, THE MONIES HAVE BEEN ADVANCED TO ACIL ON INTEREST-FREE BASIS AND NOT WIT H THE OBJECT OF EARNING ANY INCOME OR RETURN THEREFROM BUT ONLY IN ORDER TO FURTHER THE B ASIC OBJECT OF NECC. FURTHER IN OUR OPINION, THE DECISION OF THE ANDHRA PRADESH HIGH CO URT IN THE CASE OF POLISETTY SOMASUNDARAM CHARITIES IS OF NO APPLICATION. IN THA T CASE, IT WAS HELD THAT THE TERM 'INVESTMENT' IMPLIES THAT THERE IS CERTAIN AMOUNT O F RISK INVOLVED IN THE MONEY IN QUESTION. IN THE PRESENT CASE THE ASSESSEE DID NOT ADVANCE ANY AMOUNT TO ACIL AS A LENDER INVOLVING SUCH RISK. FURTHER, IN LENDING THE INVESTMENT, RISK IS UNDERTAKEN FOR THE PURPOSE OF GETTING RETURN SUCH AS INTEREST, PROFIT, CAPITAL GAINS ETC. IN THE PRESENT CASE, THERE WAS NO SUCH OBJECT INVOLVED. FOR THIS REASON ALSO, WE ARE OF THE OPINION THAT SUCH ADVANCES MADE BY THE NECC TO ACIL DID NOT CONSTITUT E ANY INVESTMENT. 65. THE WORD 'DEPOSIT' IS USED IN ASSOCIATION WITH THE WORD 'INVEST' AND FOLLOWING THE PRINCIPLES OF 'NOSCITUR A SOCIIS'. THE WORD 'DEPOSI T' HAS TO BE UNDERSTOOD IN THE COGNATE SENSE WITH THE WORD 'INVEST'. THUS THE WORD 'DEPOSI T' CONSIDERED WITH REFERENCE TO THE RETURN THEREOF AND THE WIDER MEANING OF DEPOSIT, I. E., 'REPAYING MONEY FOR SAFE KEEPING OR BY WAY OF SECURITY PERFORMERS OBLIGATION' CANNO T BE CONSIDERED TO BE RELEVANT. IT CAN ONLY BE CONSIDERED THAT THE ADVANCING OF MONEY IS N OT FOR THE PURPOSE OF EARNING INTEREST. IN THE CONTEXT OF S. 11(5) THIS WOULD APPEAR TO BE A PROPER AND CORRECT INTERPRETATION. IF WE APPLY THIS MEANING TO DEPOSIT THEN ALSO THE ADVA NCES TO ACIL CANNOT BE CONSIDERED TO BE 'DEPOSIT' BECAUSE NO MONETARY INTEREST WAS ACCEP TED THEREFROM. WE THEREFORE, HOLD THAT THE ADVANCES TO ACIL CANNOT BE A DEPOSIT EITHE R. WE ARE SUPPORTED IN THIS FINDING BY THE FINANCE MINISTERS BUDGET SPEECH AND THE NOTES ON CLAUSES EXPLAINING THE PROVISIONS OF THE FINANCE ACT, 1983 WHICH CLEARLY BRINGS OUT T HAT THE EXPRESSION 'INVEST' OR 'DEPOSIT' USED IN S. L3(1)(D) ONLY DIRECTS THE MODE S OF INVESTMENT. ONCE IT IS HELD THAT THE ADVANCES MADE TO ACIL WAS NOT INVESTMENT OR DEPOSIT S AND ADVANCES MADE IN THE ASST. YR. 1988-89 ALSO STAND ON THE SAME FOOTING. THE QUE STION OF CONTRAVENTION OF S. 11(5) R/W S. 13(1)(D) DOES NOT ARISE AND THERE WOULD BE NO QU ESTION OF WITHDRAWING THE EXEMPTION UNDER S. 11 AND SUB-SECTION OF INCOME TO THE MAXIMUM MARGINAL R ATE ALSO DOES NOT ARISE. INCIDENTALLY, WE MAY OBSERVE THAT THE ASSTT. CIT WA S NOT JUSTIFIED IN APPLYING THE MAXIMUM MARGINAL RATE TO THE GROSS RECEIPTS. EVEN T HOUGH EXEMPTION UNDER S. 11 WAS NOT AVAILABLE, IT DOES NOT MEAN THAT THE INCOME OF THE ASSESSEE-TRUST BECAME EQUAL TO THAT OF GROSS RECEIPTS. THE INCOME OF THE ASSESSEE IN THAT CASE SHOULD HAVE BEEN COMPUTED IN A COMMERCIAL SENSE, I.E., AFTER ALLOWING ALL THE EXPE NSES THAT WERE LAID OUT FOR THE PURPOSES OF ACTIVITIES. IF THE ENTIRE ACTIVITY OF THE ASSESS EE WAS BUSINESS INCOME THEN THE ASSTT. CIT SHOULD HAVE APPLIED THE MAXIMUM RATE TO THE BUSINES S INCOME SEPARATELY COMPUTED BY HIM AND NOT TO THE GROSS RECEIPTS. THESE OBSERVATIO NS ARE ONLY INCIDENTAL AND THEY WOULD ARISE ONLY IF THERE WAS ANY JUSTIFICATION FOR APPLY ING THE MAXIMUM RATE AT ALL. 66. FOR THE REASONS GIVEN ABOVE, WE HOLD THAT THE A SSESSEE WAS ENTITLED TO CLAIM EXEMPTION UNDER S. 11 FOR ALL THE YEARS UNDER APPEA LS. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT PUNE UNDER S. 263 FOR THE ASST. YRS. 198 4-85 AND 1985-86 AND OF THE CIT(A) FOR 27 THE ASST. YRS. 1984-85 TO 1988-89 AND THOSE OF THE ASSTT. CIT FOR THE ASST. YRS. 1984-85 TO 1988-89. WE DIRECT THE ASSTT. CIT TO COMPUTE THE IN COME OF THE ASSESSEE AFTER ALLOWING THE EXEMPTION. 67. IN THE RESULT, THE APPELLANT SUCCEEDS AND ALL T HE APPEALS ARE ALLOWED. 24. WE FIND THE LUCKNOW BENCH OF THE TRIBUNAL IN T HE CASE OF KANPUR SUBHASH SHIKSHA SAMITI VS. DCIT REPORTED IN 11 ITR 23 HAS OBSERVED THAT GRANTING OF A LOAN TO ANOTHER SOCIETY WITH SIMILAR OBJECTS IS NEITHER AN INVESTMENT NOR A DEPOSIT AND HENCE, EXEMPTION U/S.11 WAS ALLOWABLE. 25. WE FIND THE HONBLE DELHI HIGH COURT IN THE CA SE OF ALARIPPU REPORTED IN 244 ITR 358 HAS ALSO TAKEN A SIMILAR VIEW BY UPHOLDING THE ORDE R OF THE TRIBUNAL. IN THAT CASE THE ASSESSEE TRUST HAD ADVANCED RS. 50,000/- AS A TEMPORARY LOAN TO ANOTHER SIMILAR SOCIETY ON THE DIRECTION OF THE DONOR. THE AO DENIED THE EXEMPTION U/S. 11 TO T HE ASSESSEE HOLDING THAT THERE WAS INFRINGEMENT OF PROVISION OF SECTION 13(1)(D) R.W.S .11(5). ON APPEAL, THE TRIBUNAL HELD THAT THE ADVANCE WAS NEITHER A DEPOSIT NOR AN INVESTMENT AND THERE WAS NO INFRINGEMENT OF PROVISIONS OF SECTION 13(1)(D). ON FURTHER APPEAL, THE HONBLE H IGH COURT DISMISSED THE APPEAL FILED BY THE REVENUE ON THE GROUND THAT NO QUESTION OF LAW ARISE S OUT OF THE ORDER OF THE TRIBUNAL SINCE THE CONCLUSION WAS ESSENTIALLY FACTUAL. 26. WE FIND THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF SARLADEVI SARABHAI TRUST REPORTED IN 172 ITR 698 HAS HELD THAT IF THE TRUST MAKES AN INVESTMENT IN THE COURSE OF ATTAINING ITS OBJECTIVES, THAT INVESTMENT IS AN APPLICATION OF IN COME AND IT CANNOT BE CONSIDERED TO BE VIOLATIVE OF SECTION 11(5). 27. SINCE IN THE INSTANT CASE THE ASSESSEE TRUST HA D ADVANCED INTEREST FREE LOAN OF RS.11,42,81,113/- TO ANOTHER CHARITABLE TRUST ENGAG ED IN EDUCATIONAL ACTIVITY, THEREFORE, IN VIEW OF THE DECISIONS CITED ABOVE WE HOLD THAT GRANTING OF SUCH LOAN IS NEITHER A DEPOSIT NOR AN INVESTMENT AND THEREFORE THERE IS NO VIOLATION OF P ROVISIONS OF SECTION 13(1)(D) OF THE I.T. ACT. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED DISCUSSION BY THE CIT(A) ON THIS ISSUE ON THE BASIS OF VARIOUS DECISIONS WE FIND NO INFIRMITY IN THE SAME AND ACCORDINGLY UPHOLD HIS ORDER ON THIS ISSUE. GROUNDS RAISED BY THE REVENUE ARE ACCO RDINGLY DISMISSED. 28 28. IN GROUNDS OF APPEAL NO.3(I) TO 3(II) THE REVEN UE HAS CHALLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE PROPORTIONATE DISALLOWANCE OF RS.2 2,91,016/- FROM OUT OF INTEREST TO FINANCIAL INSTITUTIONS DEBITED BY THE ASSESSEE. 29. AFTER HEARING BOTH THE SIDES, WE FIND THE AO ON THE BASIS OF THE SPECIAL AUDIT REPORT HELD THAT ASSESSEE TRUST HAS INCURRED EXPENDITURE ON ACC OUNT OF INTEREST ON LOAN USED BY DR. D.Y. PATIL EDUCATION SOCIETY WHICH IS NOT INCURRED ON THE OBJE CTS OF THE TRUST. ACCORDING TO THE AO THE ASSESSEE HAD ADVANCED FUNDS TO DR. D.Y. PATIL EDUCA TION SOCIETY WITHOUT CHARGING ANY INTEREST AND THEREFORE THE INTEREST PAID BY THE ASSESSEE TO THE BANK CANNOT BE ALLOWED AS A DEDUCTION. IN APPEAL THE LEARNED CIT(A) DELETED SUCH DISALLOWANCE MADE BY THE AO BY HOLDING AS UNDER : 21.4 I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS OF THE APPELLANT. THE APPELLANT IN THE COURSE OF APPELLATE PROCEEDINGS HA S SUBMITTED A CHART GIVING DETAILS OF THE OWN FUNDS AND THE AMOUNT ADVANCED TO DR. D.Y. P ATIL EDUCATION SOCIETY. AS PER THE CHART, THE APPELLANT HAD OWN FUNDS AMOUNTING TO RS. 54.34 CRS. WHILE THE AMOUNT ADVANCED TO DR. D.Y. PATIL EDUCATION SOCIETY WAS RS .11.18 CRS. IN MY OPINION, SINCE THERE IS NO NEXUS OF THE FUNDS ADVANCED WITH THE LO AN FUNDS OF THE APPELLANT, THE CASE OF THE APPELLANT IS COVERED BY HONBLE BOMBAY H.C. DEC ISION IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. [313 ITR 340 (BOM.) ]. IN THIS CASE, HONBLE H.C. HAS HELD THAT IF THE APPELLANT HAS OWN FUNDS MUCH HIGHE R THAN THE AMOUNT ADVANCED TO THE SISTER CONCERNS, THE DISALLOWANCE OF INTEREST IS NO T JUSTIFIED. ACCORDINGLY, IN VIEW OF THE SAID DECISION, I HEREBY HOLD THAT THE INTEREST DIS ALLOWED OF RS.22,91,016/- IS NOT JUSTIFIED. THEREFORE, THIS GROUND OF APPEAL IS ALLOWED. 30. WE FIND THE LEARNED CIT(A) HAS GIVEN A FACTUAL FINDING ACCORDING TO WHICH ASSESSEE TRUST HAD OWN FUNDS AMOUNTING TO RS.54.34 CRORES WHEREAS THE AMOUNT ADVANCED TO DR. D.Y. PATIL EDUCATION SOCIETY WAS RS.11.85 CRORES. HE HAD ALSO GIVEN A FINDING THAT THERE IS NO NEXUS OF THE FUNDS ADVANCED WITH THE LOAN FUNDS OF THE ASSESSEE. THE ABOVE FACTUAL FINDINGS COULD NOT BE CONTROVERTED BY THE LEARNED DR. IN VIEW OF THE ABOV E AND IN VIEW OF THE DETAILED DISCUSSION BY THE LEARNED CIT(A), WE FIND NO INFIRMITY IN HIS ORD ER ON THIS ISSUE. ACCORDINGLY THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS ACCORDINGLY DISMISSED. 31. IN GROUNDS OF APPEAL NO.4(I) TO 4(III) THE REVE NUE HAS CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN DELETING DISALLOWANCE OF RS.38,37,221/- M ADE BY THE AO BEING REMUNERATION PAID TO RELATIVES OF THE TRUSTEES. 32. THE LEARNED DR WHILE SUPPORTING THE ORDER OF TH E AO SUBMITTED THAT THE REMUNERATION PAID TO THE TRUSTEES AND THEIR RELATIVES ARE UNREAS ONABLE AND NOT UTILISED FOR THE OBJECTS OF THE TRUST. FURTHER, THE ASSESSEE HAS FAILED TO FURNISH THE MINUTE BOOKS AUTHORISING THE SAID PAYMENTS. THE ASSESSEE HAD ALSO NOT EXPLAINED THE NATURE OF D UTIES PERFORMED BY SMT. BHAGYASHREE PATIL 29 AND SHRI RAJSHREE KAKADE IN ORDER TO JUSTIFY THE RE MUNERATION PAID TO THEM. THEREFORE, THE REMUNERATION PAID TO THE VARIOUS PERSONS COVERED U/ S.40A(2)(B) ARE NOTHING BUT VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. HE ACCORDINGLY SUBMITTED THAT REMUNERATION PAID TO THE TRUSTEES AND THEIR RELATIVES TO THE TUNE OF RS. 38,37,221/- WAS RIGHTLY DISALLOWED BY THE AO U/S.40A(2)(B) AND WAS IN VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. 33. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT IN THE REMAND REPORT SUBM ITTED DURING THE APPEAL PROCEEDINGS THE AO HAS CATEGORICALLY STATED THAT THE ABOVE PERSONS SE EMED TO POSSESS REASONABLE QUALIFICATIONS AND EXPERIENCE. IT HAS BEEN FURTHER STATED IN THE REMA ND REPORT THAT INSTEAD OF DISALLOWANCE OF THE TOTAL SALARY PAID TO ALL TRUSTEES AND THEIR RELATIV ES ONLY THE UNREASONABLE PAYMENT SHOULD BE DISALLOWED. HE SUBMITTED THAT THE LEARNED CIT(A) A FTER CONSIDERING THE ADDITIONAL EVIDENCES PRODUCED BEFORE HIM AND AFTER OBTAINING THE REMAND REPORT FROM THE AO DELETED THE DISALLOWANCE MADE BY THE AO. HE FURTHER SUBMITTED THAT NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO TO PROVE EXCESSIVENESS OF THE PAYMENTS MADE TO THE VAR IOUS PERSONS AS COMPARED TO THE MARKET VALUE OF THE SERVICES RENDERED BY THEM AND THEREFOR E THE DISALLOWANCE MADE IS NOT JUSTIFIED. 34. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT SIMILAR PAYMENTS HAVE BEEN MADE IN PAST YEARS BY THE ASSESSEE TRUST WHICH WAS ACCEPTED BY THE AO AND NO OBJECTIONS WERE RAISED. FOR THIS PROPOSITION, HE REFERRED TO THE A SSESSMENT ORDER FOR A.Y. 2000-01 TO 2002-03 PLACED AT PAPER BOOK PAGE NOS. 293 TO 307. HE SUBM ITTED THAT ALTHOUGH PRINCIPLES OF RESJUDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS, HOWEVER, RU LE OF CONSISTENCY WOULD APPLY. FOR THIS PROPOSITION HE RELIED ON THE FOLLOWING TWO DECISION S : I. H.A. SHAH & CO. VS. CIT & EPT 30 ITR 618 (BOMBAY ) II. RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC) 35. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIE D ON THE DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF YOUNG SCHOLARS EDUCATIO NAL SOCIETY VS. ITO VIDE ITA NO. 1456/CHD/2010 WHEREIN IT HAS BEEN HELD THAT THE ONU S TO PROVE THE EXCESSIVENESS OF THE SALARY/ REMUNERATION PAID TO THE SPECIFIED PERSONS LIES ON THE DEPARTMENT AND WHERE THE SAME HAS NOT BEEN SHOWN BY THE A.O. IT CANNOT BE HELD THAT THE P ROVISIONS OF SECTION 13(1)(C) HAVE BEEN VIOLATED. 36. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US. WE FIND THE AO 30 DISALLOWED THE REMUNERATION PAID TO THE TRUSTEES AM OUNTING TO RS. 38,37,221/- ON THE GROUND THAT SUCH PAYMENT WAS UNREASONABLE CONSIDERING THEIR EXP ERIENCE AND QUALIFICATION AND THEREFORE THE MONEY HAS NOT BEEN UTILISED FOR THE OBJECTS OF THE TRUST FOR WHICH THE PROVISIONS OF SECTION 13(1)(C) ARE ATTRACTED. WE FIND THE LEARNED CIT(A) VERY EXHAUSTIVELY ANALYSED THE FACTS AND HELD THAT SUCH DISALLOWANCE MADE BY THE AO WAS UNJUSTIFI ED AND UNCALLED FOR. THE RELEVANT OBSERVATION OF THE LEARNED CIT(A) AT PARA 24.11 TO 24.16 OF THE ORDER READS AS UNDER : 24.11 FROM THE JUSTIFICATION NARRATED IN THE PRECE DING PARAGRAPHS, IT IS OBVIOUS THAT THE APPELLANT, DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, ITSELF, GAVE DETAILED JUSTIFICATION IN RESPECT OF, AMONG OTHER THINGS, REMUNERATION/CON SULTANCY CHARGES PAID TO THE PERSONS SPECIFIED U/S.40A(2)(B) I 13(3) OF L.T. ACT. IN ITS JUSTIFICATION, THE APPELLANT SPECIFICALLY POINTED OUT THE NATURE OF SERVICES / JOBS RENDERED BY THESE PERSONS AND HAS CONTENDED THAT PAYMENTS MADE TO THEM WERE REASONABLE. UNDER T HE CIRCUMSTANCES, THE APPELLANT DISCHARGED ITS ONUS TO PROVE REASONABLENESS OF THE PAYMENTS MADE TO THE PERSONS SPECIFIED U/S.4OA(2)(B)/ 13(3) OF I.T. ACT. THE AO CONTENDED THAT THE PAYMENTS WERE TOTALLY UNREASONABLE, EXCESSIVE AND FOR THE PERSONA L BENEFIT OF TRUSTEES. AS STATED ABOVE, THE AO DREW THIS INFERENCE AS THE APPELLANT FAILED TO FURNISH MINUTES BOOKS OF THE MEETING OF BOARD OF DIRECTORS. IN PURSUANCE OF THIS FAILURE ON THE PART OF THE APPELLANT, SHE CONCLUDED THAT PAYMENTS TO THESE PERSONS WERE WITHO UT ANY AUTHORIZATION. AS STATED ABOVE, SHE GAVE VERY GENERAL REMARK IN RESPECT OF S MT.BHAGYASHREE PATIL AND SMT.RAJASHREE KAKADE TO THE EFFECT THAT NO DETAILS OF DUTIES PERFORMED BY THEM WERE AVAILABLE. HOWEVER, A CAREFUL CONSIDERATION OF THE MATERIAL AVAILABLE ON RECORD REVEALS THAT THE AO DID NOT BRING ANYTHING ON RECORD TO PRO VE THE FACT THAT MARKET VALUE OF THE SERVICES RENDERED /JOBS DONE BY THESE PERSONS WAS L ESS THAN THE PAYMENT MADE TO THEM. AS STATED ABOVE, THE APPELLANT DISCHARGED ITS ONUS IN RESPECT OF PROVING REASONABLENESS OF PAYMENT MADE TO THESE PERSONS. UNDER THE CIRCUMS TANCES, ONUS WAS ON THE AO TO PROVE THE FACT THAT MARKET VALUE OF THESE SERVICES/ JOBS WERE LESS THAN THE AMOUNT PAID TO THESE PERSONS. HOWEVER, NOTHING TO PROVE THE FACT T HAT MARKET VALUE OF THE SERVICES RENDERED/JOBS DONE BY THE PERSONS SPECIFIED IN SEC. 4OA(2)(B)/13(3) WAS BROUGHT ON RECORD. UNDER THE CIRCUMSTANCES, THE ACTION OF THE AO IN DISALLOWING THE WHOLE AMOUNT OF REMUNERATION/CONSULTANCY CHARGES PAID TO ALL PER SONS SPECIFIED IN SECTION 40A(2)(B)/ 13(3) OF L.T. ACT WAS NOT AT ALL JUSTIFIED. RELIANCE OF THE AO ON THE REPORT OF THE AUDITOR U/S .142(2A) TO PROVE THE FACT THAT THE PAYMENTS WERE FOR THE PERSONAL BENEFIT OF THE TRUST EES AS STATED IN PARA 22(IV) IS ALSO NOT CORRECT. IN FACT, THE AUDITOR GAVE A CATEGORICAL ST ATEMENT THAT IN THE ABSENCE OF RELEVANT INFORMATION EXCESSIVENESS I UNREASONABLENESS OF SUC H EXPENSES CANNOT BE DETERMINED. THIS STATEMENT OF THE AUDITOR HAS BEEN GIVEN AT SR. NO.9(A) OF STATEMENT OF PARTICULARS WHICH IS REPRODUCED BELOW :- 9. DETAILS OF AMOUNTS NOT DEDUCTIBLE UNDER SECTION 40A A. PARTICULARS OF PAYMENT WHICH APPEAR TO BE EXCESSIVE OR UNREASONABLE IN TERMS OF SECTION 40A (2)(A). REFER ANNEXURE IX (FORMING PART OF ADDITIONAL REPORT) SPECIFYING PAYMENTS MADE TO PERSONS REFERRED U/S.40A (2)(B). IN THE ABSENCE OF RELEVANT INFORMATION EXCESSIVENESS / UNREASONABLENESS OF SUCH EXPENSES CANNOT BE DETERMINED. 24.12 AS FAR AS THE SPECIFIC COMPLIANCE RELATING TO THE NUMBER OF VISITS SMT. BHAGYASHREE PATIL PAID TO THE SCHOOL AND RELATING THE MAJOR ROL E PLAYED BY SMT. RAJASHREE KAKADE IN THE SETTING UP OF IACST (C-DAC) CENTRE AT KOLHAPUR IS CONCERNED, THERE IS NOTHING ON RECORD TO SHOW THAT SUCH SPECIFIC QUERIES WERE MADE BY THE AO IN THE ASSESSMENT PROCEEDINGS AND THE APPELLANT DID NOT MAKE COMPLIAN CE TO THESE SPECIFIC QUERIES. UNDER THE CIRCUMSTANCES, DISALLOWANCE OF THE WHOLE AMOUNT OF REMUNERATION TO THE TRUSTEES AND THEIR RELATIVES ON THE BASIS OF, AMONG OTHER THINGS , NON-FURNISHING OF DETAILS OF THE 31 NUMBER OF VISITS SMT.BHAGYASHREE PATIL MADE TO THE SCHOOL AND THE ROLE PLAYED BY SMT.RAJASHREE KAKADE IN THE SETTING UP OF IACST (C- DAC) CENTRE AT KOLHAPUR WAS NOT PROPER. 24.13 EVEN DURING REMAND PROCEEDINGS, THE AO HAS NO T BROUGHT ON RECORD ANYTHING TO PROVE THE FACT THAT THE MARKET VALUE OF THE SERVICE S RENDERED I JOBS DONE BY THESE PERSONS WERE LESS THAN THE PAYMENTS MADE TO THEM. HE HAS NO T GIVEN ANY SPECIFIC COMMENTS IN RESPECT OF THE AUTHORIZATION OF THE PAYMENTS TO THE SE PERSONS BY VARIOUS MINUTES OF MEETINGS OF TRUSTEES. HE HAS POINTED OUT THAT SALAR Y PAYMENT HAS BEEN MADE TO SMT.RAJASHREE KAKADE AND SMT.SUPRIYA P.C. PATIL SIN CE A.Y.2000-01. NO RESOLUTION PASSED BY THE TRUST WAS EITHER FILED AT THE TIME AS SESSMENT PROCEEDINGS OR AT THE TIME OF CURRENT PROCEEDINGS. HE FURTHER OBSERVED THAT JUSTI FICATION OF SALARY PAYMENT SPECIFICALLY TO SMT.RAJASHREE KAKADE AND SMT.SUPRIYA P.C.PATIL W AS NEVER GIVEN TO THE SATISFACTION OF THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDI NGS. HE FURTHER STATED THAT THE AO WHO MADE THE ASSESSMENT HAD EXPRESSED HER OPINION ONLY ABOUT SMT.BHAGYASHREE PATIL AND SMT.RAJASHREE KAKADE. ACCORDING TO HIM, THE AO WHO MADE THE ASSESSMENT HAD CATEGORICALLY HELD THAT PAYMENTS MADE TO THESE TWO LADIES WERE DISPROPORTIONATE AND EXCESSIVE AS COMPARED TO THE SERVICES RENDERED BY T HEM. AS STATED ABOVE, THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO PROVE THAT MARKET VALUE OF THE SERVICES RENDERED/JOBS DONE BY THE PERSONS SPECIFIED IN SEC.40A(2)(B)/13(3 ) WAS LESS THAN THE PAYMENTS MADE TO THEM. UNDER THE CIRCUMSTANCES, THE STATEMENT OF THE AO IN THE REMAND REPORT TO THE EFFECT THAT THE AO WHO MADE THE ASSESSMENTS HAS CATEGORICA LLY PROVED THAT THE PAYMENTS MADE TO SMT.BHAGYASHREE PATIL AND SMT.KAKADE WERE DISPRO PORTIONATE / EXCESSIVE IS NOT CORRECT. THE ISSUE RELATING TO AUTHORIZATION OF PAY MENTS TO THESE PERSONS HAS BEEN DISCUSSED IN THE PRECEDING PARAGRAPHS . 24.14 UNDER THE CIRCUMSTANCES, THE AO DURING THE CO URSE OF REMAND PROCEEDINGS DID NOT BRING ANY MATERIAL TO PROVE THE FACT THAT EXCESSIVE / DISPROPORTIONATE PAYMENTS WERE MADE TO THESE PERSONS. IN FACT, HE IS OF THE VIEW T HAT THERE IS NO SPECIFIC YARDSTIC TO DETERMINE WHETHER A PAYMENT IS EXCESSIVE OR NOT. HE IS ALSO OF THE VIEW THAT ARMS LENGTH PAYMENT CAN BE MADE TO THESE PERSONS. HE ALSO POINT ED OUT THAT THE AO MADE THE ADDITION SAYING THAT THESE ARE THE PERSONS CLASSIFI ED U/S.13(3). HE HAS FURTHER STATED THAT THERE IS NO BAN IN THE INCOME-TAX ACT ON PAYMENT TO SUCH PERSONS BY A TRUST PROVIDED THE PAYMENT IS REASONABLE AND PROPORTIONATE TO THE SERV ICES RENDERED BY THEM. IN OTHER WORDS, IF THE PAYMENT IS AT ARMS LENGTH THEN THE INCOME-TAX ACT DOES NOT TREAT THIS AS A VIOLATION. THE AO HAS NOT GIVEN ANY CATEGORICAL FIND ING AS TO HOW THE PAYMENT MADE TO THESE PERSONS IS EXCESSIVE AND HOW IT CONSTITUTES V IOLATION U/S 13(L )(C).THE APPELLANT HAS NOW PROVIDED DETAILS OF THE EDUCATIONAL QUALIFICATI ONS OF THE PERSONS AND THE DUTIES AND ROLES PLAYED BY THEM. AT THE OUTSET, IT CANT BE CO MMENTED AS TO WHETHER THE PAYMENT IS EXCESSIVE OR NOT AS THERE IS NO SPECIFIC YARDSTICK TO DETERMINE THE SAME. THE PERSONS SEEM TO POSSESS REASONABLE QUALIFICATIONS AND EXPERIENCE . HOWEVER, WHETHER THE PAYMENT OF SALARIES IS COMMENSURATE WITH THE QUALIFICATION AND EXPERIENCE IS A SUBJECTIVE MATTER. THE AO HAS NOT OPINED ON THE SAME. THE DECISION ON THE SAME MAY BE TAKEN ON MERITS AS DEEMED FIT. IF HELD AS UNREASONABLE; THIS WILL INDE ED CONSTITUTE A VIOLATION U/S 13(1)(C). HOWEVER IT IS OPINED THAT TOTAL DISALLOWANCE OF SAL ARY TO ALL TRUSTEES AND THEIR RELATIVES IS NOT PROPER. ONLY UNREASONABLE SALARY PAID TO OTHER PERSONS WILL HAVE TO BE DISALLOWED. AS DISCUSSED ABOVE, NOTHING HAS BEEN BROUGHT ON REC ORD EITHER DURING ASSESSMENT PROCEEDING OR DURING REMAND PROCEEDING TO PROVE THA T THE PAYMENTS MADE TO THE PERSONS SPECIFIED U/S.4OA(2)(B)/13(3) WERE EXCESSIVE OR DIS PROPORTIONATE IN COMPARISON TO THE MARKET VALUE OF THE SERVICES RENDERED/JOBS DONE BY THESE PERSONS. UNDER THE CIRCUMSTANCES, NO DISALLOWANCE ON ACCOUNT OF EXCESS IVE/DISPROPORTIONATE/UNREASONABLE PAYMENT TO THESE PERSONS CAN BE MADE. THEREFORE, TH E DISALLOWANCE ON ACCOUNT OF REMUNERATION / CONSULTANCY CHARGES PAID TO TRUSTEES /THEIR RELATIVES IS DIRECTED TO BE DELETED. 24.15 THE AOS CONTENTION THAT PROVISIONS OF SEC.13 (1)(C) APPLY TO THE APPELLANTS CASE IS ALSO NOT CORRECT AND IS AGAINST JUDICIAL RULINGS ON THE SUBJECT. IN VARIOUS JUDICIAL RULINGS, IT HAS BEEN HELD THAT AO HAS TO COLLECT MATERIAL TO SHOW THAT THE PAYMENT TO THE PERSONS SPECIFIED IN SEC.13(3) IS UNREASONABLE COMPARED TO THE MARKET RATE FOR THE SERVICES RENDERED. THIS VIEW HAS BEEN HELD RECENTLY BY HONB LE ITAT LUCKNOW IN THE CASE OF ITO 32 VS. VIRENDRA SINGH MEMORIAL SHIKSHA SAMITI REPORTED IN (2009) 18 DTR 502. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELO W:- I 7. IN THIS REGARD, WE REFER TO S. 13 AS UNDER '13. (I) NOTHING CONTAINED IN S. 11 OR S. 12 SHALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE PERSON IN RECEIPT THEREOF-................ (C) IN THE CASE OF A TRUST FOR CHARITABLE OR RELIGI OUS PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITUTION, ANY INCOME THEREOF- (I) IF SUCH TRUST OR INSTITUTION HAS BEEN CREATED O R ESTABLISHED AFTER THE COMMENCEMENT OF THIS ACT AND UNDER THE TERMS OF THE TRUST OR THE RULES GOVERNING THE INSTITUTION, ANY PART OF SUCH INCOME ENURES, OR (II) IF ANY PART OF SUCH INCOME OR ANY PROPERTY OF THE TRUST OR THE INSTITUTION (WHENEVER CREATED OR ESTABLISHED) IS DURING THE PRE VIOUS YEAR USED OR APPLIED, DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSO N REFERRED TO IN SUB-S. (3) : (2) WITHOUT PREJUDICE TO THE GENERALITY OF THE PROV ISIONS OF CL. (C) AND CL. (D) OF SUB-S. (I), THE INCOME OR THE PROPERTY OF THE TRUST OR INSTITUTION OR ANY PART OF SUCH INCOME OR PROPERTY SHALL, FOR THE PURPOSES OF THAT CLAUSE, BE DEEMED TO HAVE BEEN USED OR APPLIED FOR THE BENEFIT OF A PERSON REFERRED TO IN SUB-S. (3),................. (C) IF ANY AMOUNT IS PAID BY WAY OF SALARY, ALLOWAN CE OR OTHERWISE DURING THE PREVIOUS YEAR TO ANY PERSON REFERRED TO IN SUB-S. ( 3 ) OUT OF THE RESOURCES OF THE TRUST OR INSTITUTION FOR SERVICES RENDERED BY THAT PERSON TO SUCH TRUST OR INSTITUTION AND THE AMOUNT SO PAID IS IN EXCESS OF WHAT MAY BE REASONABLY PAID FOR SUCH SERVICES;................. (G) IF ANY INCOME OR PROPERTY OF THE TRUST OR INSTI TUTION IS DIVERTED DURING THE PREVIOUS YEAR IN FAVOUR OF ANY PERSON REFERRED TO I N SUB-S. (3):................... (3) THE PERSONS REFERRED TO IN CL. (C) OF SUB-S. (1 ) AND SUB-S. (2) ARE THE FOLLOWING, NAMELY: (A) THE AUTHOR OF THE TRUST OR THE FOUNDER OF THE I NSTITUTION; (B) ANY PERSON WHO HAS MADE A SUBSTANTIAL CONTRIBUT ION TO THE TRUST OR INSTITUTION, THAT IS TO SAY, ANY PERSON WHOSE TOTAL CONTRIBUTION UPTO THE END OF THE RELEVANT PREVIOUS YEAR EXCEEDS FIFTY THOUSAND RUPEES; (C) WHERE SUCH AUTHOR, FOUNDER OR PERSON IS AN H UF , A MEMBER OF THE FAMILY/; (CC) ANY TRUSTEE OF THE TRUST OR MANAGER (BY WHATEV ER NAME CALLED) OF THE INSTITUTION; (D) ANY RELATIVE OF ANY SUCH AUTHOR, FOUNDER, PERSO N, (MEMBER, TRUSTEE OR MANAGER) AS AFORESAID; (E) ANY CONCERN IN WHICH ANY OF THE PERSONS REFERRE D TO IN CLS. (A), (B), (C), (CC) AND (D) HAS A SUBSTANTIAL INTEREST.' I8. LET US EXAMINE WHETHER CASE OF THE REVENUE FALL S UNDER CL. (2) OF S. 13(1)(C) OR UNDER S. I3 (2). IT IS NOT DISPUTED THAT THE PERSON REFER RED TO IN SUB-S. (3) IS THE FOUNDER MEMBER OF THE TRUST. THE CONDITION MENTIONED IN S. 13(1)(C ) (II) IS THAT INCOME OF THE TRUST SHOULD BE USED OR APPLIED DIRECTLY OR INDIRECTLY FOR THE B ENEFIT OF ANY PERSON FALLING IN THE PROHIBITED CATEGORY. BENEFIT HERE WOULD MEAN SOME E X GRATIS EXPENDITURE WITHOUT ANY CONTRIBUTION BY SUCH PERSON TO THE SOCIETY. THE TER M 'BENEFIT EXCLUDE FROM ITS AMBIT A TWO WAY PROCESS. IF THE PERSON IN THE PROHIBITED CATEGO RY RENDERS SERVICES AND IN LIEU THEREOF A BENEFIT IS PROVIDED THEN THE CASE DOES NOT FALL I N CL. (II) OF S. 13(1)(C). THE EXPENDITURE INCURRED ON THOSE INTERESTED PERSONS WOULD BE A COM PENSATION FOR SUCH SERVICES. A BENEFIT WOULD BE SAID TO HAVE BEEN GIVEN TO THE PER SONS OF PROHIBITED CATEGORY, IF THEY IN 33 RETURN DO NOTHING BUT ONLY ENJOY THE FRUITS OF THE TRUST/SOCIETY AND TAKE AWAY THE FUNDS/INCOME OF THE SOCIETY FOR THEIR PERSONAL BENE FIT OR DISCHARGING PERSONAL OBLIGATION, BUT WHERE PERSONS OF PROHIBITED CATEGORY RENDER SER VICES TO THE SOCIETY AND IN TURN, GET SOME REMUNERATION, SALARY AND ALLOWANCES ETC. AS A MEMBER THEN PROVISIONS OF SUB-S. (2) WOULD BE APPLICABLE AND NOT OF SUB-S. (1) AND FOR A PPLYING THE PROVISIONS OF SUB-S. (2) OF S. 13, IT HAS TO BE SHOWN BY THE REVENUE THAT AMOUN T PAID TO THE PERSONS OF PROHIBITED CATEGORY WAS IN EXCESS OF WHAT MAY BE REASONABLY PA ID FOR SUCH SERVICES. IN OTHER WORDS, THE AO HAS TO COLLECT MATERIAL TO SHOW THAT PAYMENT TO THE PERSONS OF PROHIBITED CATEGORY WAS UNREASONABLE AS COMPARED TO THE MARKET RATES FO R THE SERVICES RENDERED. IN THE PRESENT CASE, THERE IS NO MATERIAL ON RECORD FIRSTL Y TO SHOW THAT ALLEGED INFLATED EXPENDITURE HAS GONE TO THE PERSONS OF PROHIBITED C ATEGORY, THEREFORE, THE CASE OF THE REVENUE MADE OUT ON THE BASIS OF S. 13(1) CANNOT BE UPHELD. THE QUESTION OF INVOKING S. 13(2) IN THE PRESENT CASE ALSO DOES NOT ARISE BECAU SE S. 13(2) COULD BE INVOKED ONLY WHEN THERE IS A CLAIM OF EXPENSES IN THE FORM OF SALARY/ ALLOWANCES OR PERQUISITES TO THE PERSONS OF PROHIBITED CATEGORY FOR SOME SERVICES RENDERED. THE AO HAS NOT MADE OUT A CASE ON THESE PREMISES. THUS, NEITHER S. 13(1) NOR S. 13(2) IS APPLICABLE ON THE FACTS OF THE PRESENT CASE. 24.16 THE AO IN HER ORDER HAS STATED THAT THE PAYME NTS TO THESE PERSONS WERE NOT AUTHORIZED BY THE MINUTES OF THE MEETING OF BOARD O F DIRECTORS. AS DISCUSSED IN THE PRECEDING PARAGRAPHS, THE AO WAS PREVENTED BY SUFFI CIENT CAUSE FROM PRODUCTION OF MINUTES OF MEETING OF TRUSTEES IN WHICH PAYMENTS TO VARIOUS PERSONS WERE AUTHORIZED. IN THE CASES WHERE PAYMENTS WERE NOT AUTHORIZED BY MIN UTES OF THE MEETING OF TRUSTEES, THEY WERE AUTHORIZED BY THE PERSONS COMPETENT TO AUTHORI ZE THEM. IN ANY CASE, THE ISSUE TO BE EXAMINED HERE IS WHETHER THE MARKET VALUE OF THE SE RVICES RENDERED / JOBS DONE WAS LESS THAN THE PAYMENTS MADE TO THE RESPECTIVE PERSONS. A S DISCUSSED ABOVE, NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT MARKET VALUE OF THES E SERVICES / JOBS WERE LESS THAN THE PAYMENTS MADE IN RESPECT OF THEM. UNDER THE CIRCUMS TANCES, I AM OF THE CONSIDERED VIEW THAT DISALLOWANCE ON ACCOUNT OF REMUNERATION / CONS ULTANCY CHARGES TO TRUSTEES AND THEIR RELATIVES AMOUNTING TO RS.38,37,221/- CANNOT BE MAD E. THEREFORE, PART OF THESE GROUNDS OF APPEAL RELATING TO THE PAYMENTS TO THE TRUSTEES AND THEIR RELATIVES ON ACCOUNT OF SALARY AND CONSULTANCY CHARGES ARE ALLOWED. 37. THE LEARNED DR COULD NOT CONTROVERT THE FINDING S GIVEN BY THE LEARNED CIT(A). FURTHER WE FIND NOWHERE IN THE ASSESSMENT ORDER THE AO HAS BROUGHT ON RECORD HOW MUCH SHOULD HAVE BEEN THE REASONABLE REMUNERATION TO THE TRUSTEES AN D THEIR RELATIVES AND WHAT IS THE AMOUNT PAID BY SIMILARLY PLACED ORGANISATIONS TO THEIR EMPLOYEE S. THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN THE PAST ALSO SUCH TYPE OF PAY MENTS WERE MADE AND IT WAS ACCEPTED BY THE DEPARTMENT IN SCRUTINY ASSESSMENTS FOR A.Y. 2000-01 TO 2002-03 (PLACED AT PAPER BOOK PAGE NOS. 293 TO 307) AND NO DISALLOWANCE HAS BEEN MADE COULD NOT BE CONTROVERTED BY THE LEARNED DR. UNDER THESE CIRCUMSTANCES AND IN VIEW OF THE E XHAUSTIVE ORDER PASSED BY THE LEARNED CIT(A) GIVING REASONS FOR SUCH DELETION AND IN ABSE NCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE FINDINGS GIVEN BY THE CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) DELETING THE DISALLOWANCE MADE BY TH E AO U/S.40(A)(2)(B) OF THE I.T. ACT. SINCE THE DISALLOWANCE HAS BEEN DELETED BY US, THEREFORE, WE HOLD THAT THERE IS NO VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. AC CORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 34 38. IN GROUNDS OF APPEAL NO.5 THE REVENUE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE OF RS. 24,693/- MADE BY THE AO ON ACCOUNT OF TELEPHONE AND MOBILE EXPENSES INCURRED BY THE ASSESSEE TRUST. 39. AFTER HEARING BOTH SIDES WE FIND THE AO HAS DIS CUSSED THIS ISSUE AT PARA NOS. 21 TO 24 OF THE ASSESSMENT ORDER. ACCORDING TO THE AO THE ASS ESSEE HAS NOT OFFERED ANY EXPLANATION REGARDING THE PAYMENT OF TELEPHONE AND MOBILE EXPEN SES OF SOME OF THE TRUSTEES. THE AO ALSO REFERRED TO THE REPORT OF THE SPECIAL AUDITOR WHERE IN IT HAS BEEN MENTIONED THAT SUCH EXPENDITURE INCURRED IS FOR THE BENEFIT OF THE PERSONS SPECIFIE D U/S.13(1)(3) OF THE I.T. ACT. THE AO THEREFORE DISALLOWED SUCH PAYMENTS BY HOLDING THAT THE ASSESS EE HAD VIOLATED THE PROVISIONS OF SECTION 13(1)(C) OF THE ACT. IN APPEAL THE LEARNED CIT(A) DELETED THE ADDITION ON THE GROUND THAT THE ASSESSEE HAD DULY EXPLAINED THE JUSTIFICATION OF TH E TELEPHONE AND MOBILE CHARGES OF THE TRUSTEES INCURRED BY THE TRUST DURING THE ASSESSMENT PROCEED INGS ITSELF. HE FURTHER HELD THAT THE AO HAD NOT BROUGHT ANY CONCRETE EVIDENCE ON RECORD TO PROV E THAT THE SAID EXPENSES RESULTED IN A BENEFIT TO THE CONCERNED PERSONS AND THEREFORE THERE IS NO VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. 40. IT IS THE SUBMISSION OF THE LEARNED DR THAT SIN CE THE ASSESSEE HAD NOT OFFERED ANY EXPLANATION REGARDING SUCH PAYMENTS DURING THE ASSE SSMENT PROCEEDINGS, THEREFORE, EXPENSES INCURRED FOR THE TRUSTEES IS A VIOLATION OF THE PR OVISIONS OF SECTION 3(1)(C) OF THE I.T. ACT. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSES SEE THAT THE TRUSTEES WHOSE TELEPHONE AND MOBILE EXPENSES ARE BORNE BY THE ASSESSEE TRUST ARE THE KEY PERSONS OF THE TRUST AND BECAUSE OF THEIR WHOLE-HEARTED EFFORTS THE TRUST HAD GROWN REM ARKABLY. FURTHER, SIMILAR EXPENSES WERE ALLOWED IN THE PAST AND THERE WAS NO DISALLOWANCE O N THIS ACCOUNT. WE FIND MERIT IN THE ABOVE ARGUMENTS BY THE LEARNED COUNSEL FOR THE ASSESSEE. FROM THE COPY OF THE ASSESSMENT ORDER FOR A.Y. 2000-01 TO 2002-03 PLACED AT PAPER BOOK PAGE N OS. 293 TO 307 WE FIND NO SUCH DISALLOWANCE HAS BEEN MADE BY THE AO IN THE SCRUTIN Y ASSESSMENTS ON ACCOUNT OF TELEPHONE AND MOBILE EXPENSES INCURRED BY THE TRUST FOR THE TRUST EES. WE FIND THAT THE LEARNED CIT(A) WHILE DELETING THE DISALLOWANCE HAS DISCUSSED THE ISSUE A T PARA 26.4 OF HIS ORDER WHICH READS AS UNDER : 46.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT. THERE IS NO DOUBT THAT THE APPELLANT TRUST HAS INCURRED TELEPHONE/ MOBILE EXPE NSES OF THE TRUSTEES. THE APPELLANT HAS ARGUED THAT THE TRUSTEES ARE WORKING FOR THE TRUST AND IT IS IN THE INTEREST OF THE TRUST THAT TELEPHONE / MOBILE ARE PROVIDED TO THE TRUSTEES. PA YMENTS IN RESPECT OF TELEPHONE I MOBILE ARE BASICALLY REIMBURSEMENT OF THE EXPENSES INCURRE D FOR THE PURPOSES OF THE TRUST. THE 35 AO DISALLOWED THESE EXPENSES AND CONSIDERED THEM RE SULTING INTO PERSONAL BENEFIT TO THE TRUSTEES MAINLY ON ACCOUNT OF THE FACT THAT, ACCORD ING TO HIM, THE APPELLANT PURPOSELY KEPT MUM ON THE TELEPHONE CHARGE ON THE PAYMENTS MADE TO THE TRUSTEES AND THEIR RELATIVES. HOWEVER, A CLOSER LOOK AT THE ASSESSMENT PROCEEDING S REVEALS THAT THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ITSELF, CLARI FIED THAT, AMONG OTHERS, PAYMENT ON ACCOUNT OF TELEPHONE EXPENSES WAS NOT FOR THE BENEF IT OF ANY TRUSTEES BUT WERE REIMBURSEMENT OF EXPENSES. THE RELEVANT PORTION OF THE SUBMISSION DT.30/06/2008 OF THE APPELLANT, WHICH WAS RECEIVED IN THE OFFICE OF THE AO DURING ASSESSMENT PROCEEDINGS ON 1/7/2008 IS AS UNDER :- QUERY NO. 6 : . . . . . . THE AUDITORS REPORT POINTS THAT APART FROM REMUNER ATION, ITEMS LIKE TRAVELLING EXPENSES AND TELEPHONE EXPENSES INCURRED ON THE TRUSTEES. I T IS SUBMITTED THAT, BOTH THE PAYMENTS ARE NOT FOR THE BENEFIT OF ANY TRUSTEE BUT ARE THE REIMBURSEMENT OF EXPENSES, (SOMETIMES DIRECT PAYMENT BY US) INCURRED BY THEM FOR THE PURP OSES OF THE TRUST. THEREFORE, THE STATEMENT OF THE AO THAT THE APPELLA NT PURPOSELY KEPT MUM ON TELEPHONE CHARGES IS NOT CORRECT. THE AO DID NOT BRING ON REC ORD ANYTHING TO CONTROVERT THE STATEMENT OF THE APPELLANT THAT THE PAYMENT ON ACCO UNT OF TELEPHONE EXPENSES WAS, IN FACT, REIMBURSEMENT OF EXPENSES INCURRED FOR THE PURPOSES OF TRUST. THEREFORE, I FIND MERIT IN THE CONTENTION OF THE APPELLANT THAT THE A.O. HAS S IMPLY DISALLOWED THE EXPENDITURE WITHOUT POINTING OUT ANY SPECIFIC VIOLATION COMMITT ED BY THE APPELLANT TRUST. THE APPELLANT HAS ALSO PLACED RELIANCE ON THE DECISION OF ITAT COCHIN IN THE CASE OF GEORGE EDUCATIONAL, MEDICAL AND CHARITABLE TRUST WHEREIN I T HAS BEEN STATED THAT FOR INVOKING THE PROVISIONS OF SECTION 13(1)(C), ONUS IS ON THE DEPARTMENT TO PROVE THAT THE APPELLANT HAS COMMITTED ANY VIOLATION. HON'BLE ITAT IN THE CA SE OF GEORGE EDUCATIONAL, MEDICAL AND CHARITABLE TRUST (80 ITD 619 [COCH]) HAS HELD T HAT IN THE CASE OF A CHARITABLE TRUST, DISALLOWANCE OF EXPENDITURE FOR PERSONAL USE IF MAD E, HAS SERIOUS CONSEQUENCES BY WAY OF ATTRACTING THE PROVISIONS OF SECTION 13(1)(C) OR HIGHER RATE OF TAX U/S.164(2). FOR INVOKING THESE SECTIONS, ONUS IS ON THE DEPARTMENT TO PROVE PERSONAL ELEMENT IN THE CONTEXT OF USE OF ASSETS OR INCURRING OF EXPENDITUR E. RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW :- 18 ........ .. IT MAY BE OBSERVED THAT THE GENUINENESS OF THE EXPE NDITURE IS NOT DOUBTED. IT IS NOT AS THOUOGH THE EXPENDITURE IS NOT DOUBTED. IT IS NOT A S THOUGH THE EXPENDITURE IS UNVOUCHED. THE CLAIM OF THE ASSESSEE IS THAT THE GOVERNING COU NCIL MEMBERS, INCLUSIVE OF THE CHAIRMAN, WERE NORMALLY RESIDING OUTSIDE INDIA. THE WORK OF THE TRUST TOOK THEM TO DIFFERENT PLACES LIKE PALGHAT, TRIVANDRUM, MAVELIKA RA, ETC. THERE ARE ALSO SUFFICIENT WITHDRAWALS FROM THE NRE ACCOUNT OF THE CHAIRMAN TO EXPLAIN HIS PERSONAL VISITS. WE SEE NO REASON FOR THE ABOVE DISALLOWANCES. THE DISALLOW ANCES AGGREGATING TO RS. 44, 048/- IS DELETED IN THIS CONTEXT WE MAY MENTION THAT IN THE COMPUTATION OF BUSINESS INCOME, NORMALLY CERTAIN DISALLOWANCES ARE MADE FOR PROBABL E PERSONAL USE OF ASSETS / EXPENDITURE ON THE GROUND THAT THERE IS NO SUFFICIE NT EVIDENCE BY WAY OF LOG BOOK, ETC. HOWEVER, IN THE CASE OF A CHARITABLE TRUST, SUCH DI SALLOWANCES FOR PERSONAL USE IF MADE HAVE SERIOUS CONSEQUENCES BY WAY OF ATTRACTING THE PROVISIONS OF S.13(1)(C) OR HIGHER RATE OF TAX UNDER S.164(2) OF THE II ACT. FOR INVOKING T HESE SECTIONS, WE ARE OF THE VIEW THAT THE ONUS IS ON THE DEPARTMENT TO PROVE PERSONAL USE IN THE CONTEXT OF USE OF ASSETS OR INCURRING OF EXPENDITURE. SUCH ONUS HAS NOT BEEN DI SCHARGED IN RESPECT OF THE DISALLOWANCE OF THE TRAVELLING EXPENSES. 19. SIMILAR IS THE POSITION WITH REGARD TO THE DISA LLOWANCE OF RS.13,4 75/- OUT OF TELEPHONE EXPENSES ............ .. AGAIN IT IS NOT THE CASE OF THE REVENUE THAT THE EX PENDITURE IS NOT VOUCHED. THEY HAVE MADE THE IMPUGNED DISALLOWANCE ONLY ON SURMISES OR ESTIMATE FOR THE POSSIBLE PERSONAL USE OF TELEPHONE BY THE CHAIRMAN. SIMPLY BECAUSE TH E CALLS ARE FREQUENT BETWEEN SINGAPORE AND TRIVANDRUM, IT CANNOT BE ASSUMED THAT THEY ARE NOT RELATABLE TO THE WORK OF THE TRUST. AS THE ASSESSEE ADMITTEDLY HAS A CENT RE IN TRIVANDRUM AND THE GOVERNING COUNCIL MEMBERS ARE STAYING IN SINGAPORE, IT IS QUI TE POSSIBLE THAT THE DIRECTIONS OF THE GOVERNING COUNCIL MEMBERS WERE SOUGHT OR THAT THEY GAVE INSTRUCTIONS TO THEIR OFFICE AT TRIVANDRUM. IN RESPECT OF THE DISALLOWANCE, OF TELE PHONE EXPENSES AT THE OFFICE, THE CIT (A) REDUCED THE DISALLOWANCE, BUT CONFIRMED A PORTI ON, AGAIN ONLY ON SURMISES. CONSIDERING THE SERIOUS CONSEQUENCES THAT COULD FLO W, LIKE THE DENIAL OF EXEMPTION UNDER S. 11, DISALLOWANCE FOR PERSONAL USER BY TRUSTEES C ANNOT BE COUNTENANCED, UNLESS PROVED. 36 THERE IS NO SUCH PROOF IN RESPECT OF THE DISALLOWAN CES IN THE PRESENT CASE. WE ACCORDINGLY DELETE THE DISALLOWANCE OF RS. 13,475 O UT OF TELEPHONE EXPENSES. ACCORDINGLY, IN VIEW OF THE ABOVE DECISION, I HOLD THAT IN THE ABSENCE OF CONCRETE EVIDENCE BROUGHT ON RECORD BY THE A.O. TO INDICATE THAT THE ASSESSEE HAS GIVEN BENEFIT TO THE CONCERNED PERSONS, THERE IS NO VIOLATION OF SEC TION 13(1)(C). FURTHER, THE DISALLOWANCE MADE BY THE A.O. IS ALSO DELETED. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 41. THE LEARNED DR COULD NOT CONTROVERT THE ABOVE F INDINGS GIVEN BY THE LEARNED CIT(A). IN VIEW OF THE DETAILED DISCUSSION BY THE LEARNED CIT( A) AND CONSIDERING THE FACT THAT NO SUCH DISALLOWANCE WAS MADE IN THE SCRUTINY ASSESSMENTS F OR A.YS. 2000-01 TO 2002-03 AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE F IND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) DELETING THE DISALLOWANCE ON ACCOUNT OF TEL EPHONE AND MOBILE EXPENSES. ACCORDINGLY, THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. SINCE THE EXPENSES ARE ALLOWED AS FOR T HE OBJECTS OF THE TRUST, THERE IS NO VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. 42. IN GROUND OF APPEAL NO. 8 THE REVENUE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN ALLOWING THE MAINTENANCE EXPENSES OF FLATS AT GULMOHAR SOCIE TY WHICH WERE EXCLUSIVELY USED BY THE FOUNDER OF THE TRUST VIOLATING THE PROVISIONS OF SE CTION 13(1)(C) OF THE I.T. ACT. 42.1 THE LEARNED DR SUBMITTED THAT DURING THE PHYSI CAL VERIFICATION OF THE FLATS IT WAS NOTICED THAT FLAT NO.F8 IN GULMOHAR SOCIETY IS OCCUPIED BY THE CARETAKER WHO TAKES CARE OF THE MAINTENANCE OF THE OTHER 3 FLATS. REFERRING TO THE STATEMENT OF ONE OF THE CARETAKER SRI SADASHIV BAPU PATIL RECORDED ON 06-09-2007 HE SUBMITTED THAT THE SAID CARETAKER HAS STATED THAT COMBINED FLATS BELONGING TO THE TRUST WERE BEING USED BY DR. D.Y. PATIL DURING HIS VISIT TO PUNE. THEREFORE, THE FLATS CLAIMED AS BEING THE GUEST HOUSE OF THE T RUST ARE INFACT BEING USED FOR THE EXCLUSIVE BENEFIT OF DR.D.Y. PATIL. THEREFORE, THE AO WAS JU STIFIED IN HOLDING THAT THE MAINTENANCE EXPENSES INCURRED BY THE ASSESSEE TRUST ON THE FLAT S WERE IN VIOLATION OF PROVISIONS OF SECTION 13(1)(C) OF THE I.T. ACT. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE AO BE UPHELD. 43. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OT HER HAND SUBMITTED THAT ON THE BASIS OF THE REMAND REPORT OBTAINED FROM THE AO AND THE AFFIDAVI T OF THE CARETAKER SRI SADASHIV BAPU PATIL THE LEARNED CIT(A) HAS DELETED THE ADDITION. HE SU BMITTED THAT THE LEARNED CIT(A) HAS CATEGORICALLY GIVEN THE FINDING THAT THE STATEMENT OF SRI SADASHIV BAPU PATIL WAS RECORDED AT THE BACK OF THE ASSESSEE AND NO OPPORTUNITY OF CROSS EX AMINATION WAS OFFERED TO THE ASSESSEE IN THIS 37 REGARD. THE LEARNED COUNSEL FOR THE ASSESSEE FURT HER SUBMITTED THAT DR. D.Y. PATIL FREQUENTLY VISITS PUNE FOR THE WORK OF THE ASSESSEE TRUST AND HE STAYS AT THE GUEST HOUSE AS HE DOES NOT OWN ANY RESIDENCE AT PUNE. FURTHER, THE SAID FLATS ARE ALSO USED AS GUEST HOUSE OF THE TRUST FOR ITS GUESTS INCLUDING SOME PROFESSORS UNTIL THEY ARRANGE THEIR OWN ACCOMMODATION. HE SUBMITTED THAT THE PREMISES ARE ALSO USED FOR THE OFFICIAL ME ETINGS OF THE TRUST AS THE MAIN OFFICE OF THE TRUST IS AT PIMPRI WHICH IS FAR AWAY FROM THE CITY. ALL THE ABOVE FACTS HAVE BEEN CONFIRMED BY THE SHRI P. D. PATIL WHO IS THE TRUSTEE LOOKING AFTER THE AD MINISTRATIVE MATTERS OF THE ASSESSEE TRUST AND HIS CONFIRMATION HAS BEEN PLACED AT PAGE NO. 244 OF THE PAPER-BOOK. HE ACCORDINGLY STATED THAT IT CANNOT BE SAID THAT THE ABOVE FLATS WERE USED FOR T HE EXCLUSIVE BENEFIT OF THE TRUSTEE DR. D. Y. PATIL. REFERRING TO THE AFFIDAVIT OF SRI SADASHIV B APU PATIL (PLACED AT PAGE NO.243 OF THE PAPER BOOK) THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTE D THAT HE HAS CLARIFIED THAT THE SAID FLATS WERE ALSO USED BY OTHER GUESTS ALONG WITH ITS USE BY DR. D.Y. PATIL. 44. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER S UBMITTED THAT COPY OF STATEMENT OF SRI SADASHIV BAPU PATIL WAS NOT AVAILABLE TO THE ASSESS EE AND HE WAS NOT GIVEN ANY OPPORTUNITY OF CROSS EXAMINATION, THEREFORE, ANY MATERIAL COLLECTE D AT THE BACK OF THE ASSESSEE AND UTILISATION OF THE SAME AGAINST THE ASSESSEE WITHOUT CONFRONTING T HE SAME TO THE ASSESSEE IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND THEREFORE SUCH MA TERIAL HAS GOT NO EVIDENTIARY VALUE. FOR THIS PROPOSITION, THE LEARNED COUNSEL FOR THE ASSESSEE R ELIED ON THE FOLLOWING TWO DECISIONS : I. KISHINCHAND CHELLARAM VS. CIT [125 ITR 713(SC)] II. CIT VS. EASTERN COMMERCIAL ENTERPRISES [210 ITR 103(CAL.)] 44.1 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR EXPENSES WERE CLAIMED BY THE ASSESSEE IN THE PAST HAS BEEN ACCEPTED BY THE AO IN SCRUTINY ASSESSMENTS FOR A.Y. 2000-01 TO 2002-03 (PAPER BOOK PAGES 293 TO 307). FURTHER THE AO IN THE REMAND PROCEEDINGS HAS ACCEPTED THAT SALARY PAID TO THE CARETAKER CANNOT B E DISALLOWED BECAUSE THE ASSESSEE WAS HAVING A GUEST HOUSE. THEREFORE, IT IS NOT PROPER ON PART O F THE REVENUE TO AGITATE THE SAME IN APPEAL. FOR THIS PROPOSITION THE LEARNED COUNSEL RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF JEEVAT LAL PRATAPSHRI REPORTED IN 65 ITR 26 1. HE ALSO RELIED ON THE FOLLOWING DECISIONS : I. C. VASANTLAL & CO. VS. CIT 45 ITR 206 (SC) II. ACIT VS. MAHESH T. PATODIA 79 ITD 40 (PUNE) III. BANAL STRIPS P. LTD. & ORS. VS. ACIT 99 ITD 177 (DELHI) IV. H.A. SHAH & CO. VS. CIT & EPT 30 ITR 618 (BOMBA Y) V. RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC) 38 HE SUBMITTED THAT THE LEARNED CIT(A) AFTER DISCUSSI NG EXHAUSTIVELY HAS DELETED THE DISALLOWANCE. THEREFORE, THE ORDER OF THE CIT(A) SHOULD BE UPHELD AND THE GROUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 45. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHAL F OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO DISALLOWED THE MAINTENANCE EXPENSES OF FLATS AT GULMOHAR SOCIETY ON THE GROUND THAT THOSE FLATS ARE EXCLUSIVELY USED BY DR.D.Y. PATIL AND THEREFORE THERE IS VIOLATION OF PROVISIONS OF S ECTION 13(1)(C) OF THE I.T. ACT. WE FIND THE LEARNED CIT(A) HAD GIVEN A CATEGORICAL FINDING THAT THE SAID FLATS ARE NOT EXCLUSIVELY USED BY DR. D.Y. PATIL BUT ALSO BY OTHER GUESTS. IT IS THE SUB MISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE STATEMENT RECORDED FROM THE CARETAKER SRI SADASHIV BAPU PATIL WAS NOT GIVEN TO THE ASSESSEE AND THE ASSESSEE WAS NOT AFFORDED AN OPPOR TUNITY TO CROSS EXAMINE SRI SADASHIV BAPU PATIL. IT IS ALSO THE SUBMISSION OF THE LEARNED CO UNSEL FOR THE ASSESSEE THAT AFFIDAVITS OF CERTAIN OTHER PROFESSORS WHO STAYED AT THE GUEST HOUSE WERE FURNISHED WHO HAVE CONFIRMED THAT THEY HAVE STAYED IN THE GUEST HOUSE. THEREFORE, IT CANN OT BE SAID THAT SUCH GUEST HOUSE IS EXCLUSIVELY USED BY DR. D.Y. PATIL. IT IS ALSO THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT NO SALARY HAS BEEN PAID TO DR. D.Y. PATIL AND IF HE WO ULD HAVE STAYED IN ANY HOTEL THE EXPENDITURE WOULD HAVE BEEN MUCH MORE THAN THE EXPENDITURE INCU RRED ON ACCOUNT OF MAINTENANCE OF THE FLATS USED AS GUEST HOUSES. FURTHER THERE IS NOTHI NG ADVERSE IN THE REMAND REPORT GIVEN BY THE AO. IT IS ALSO THE SUBMISSION OF THE LEARNED COUNS EL FOR THE ASSESSEE THAT SIMILAR EXPENSES WERE ALLOWED IN THE PAST AND NO DISALLOWANCE WAS MADE IN THE PRECEDING YEAR. WE FIND MERIT IN THE ABOVE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE AS SESSEE. FROM THE COPY OF THE ASSESSMENT ORDERS FOR A.YS. 2000-01 TO 2002-03 WE FIND NO SUCH DISALLOWANCE HAS BEEN MADE. THEREFORE, IN VIEW OF THE RULE OF CONSISTENCY ALONE NO DISALLOWAN CE SHOULD HAVE BEEN MADE ON ACCOUNT OF MAINTENANCE OF FLATS. WE ALSO FIND MERIT IN THE SU BMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT DR. D.Y. PATIL HAS NOT BEEN GIVEN ANY SALARY AND IF HE WOULD HAVE STAYED IN ANY HOTEL THE EXPENDITURE WOULD HAVE BEEN MUCH MORE THA N THE EXPENDITURE INCURRED ON ACCOUNT OF MAINTENANCE OF THE GUEST HOUSES. 45.1 WE FIND THAT THE LEARNED CIT(A) WHILE DELETING THE DISALLOWANCE HAS EXHAUSTIVELY DISCUSSED THE ISSUES AT PARA 22.8 TO 22.17 OF HIS O RDER WHICH READS AS UNDER : 39 22.8. I HAVE CONSIDERED THE FACTS OF THE CASE, TH E SUBMISSIONS MADE BY THE APPELLANT, REMAND REPORT OF THE AO, REJOINDER OF THE APPELLANT THEREON AND OTHER MATERIAL AVAILABLE ON RECORD. THE AO, WHILE MAKING THIS ADDITION, HAS PLACED HEAVY RELIANCE ON THE STATEMENT OF THE CARETAKER OF THE GUEST HOUSE. PERU SAL OF THE ASSESSMENT PROCEEDINGS REVEALS THAT THE ONLY QUERY MADE IN RESPECT OF GUES T HOUSE WAS RELATING TO THE DETAILS OF THE EXPENSES INCURRED THEREON. THE AO DID NOT DISCL OSE HER INTENTION TO MAKE DISALLOWANCE OF THE EXPENSES INCURRED ON THE MAINTE NANCE OF GUEST HOUSE ON THE BASIS OF THE STATEMENT OF THE CARETAKER. NOR DID SHE GIVE TH E STATEMENT OF CARETAKER OF THE GUEST HOUSE TO THE APPELLANT FOR ITS COMMENTS / REBUTTAL ETC. IN FACT, THE APPELLANT WAS NOT TOLD ANYTHING ABOUT THIS STATEMENT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT CAME TO KNOW ABOUT THE CONTENTS OF THE STATEMENT OF THE CARETAKER ONLY AFTER ASSESSMENT ORDER WAS PASSED. AFTER IT RECEIVED THE ASSESSMENT ORDER, THE APPELLANT OBJECTED TO THE USE OF THE STATEMENT OF THE CARETAKER WHICH WAS TAK EN AT ITS BACK. IT CONTENDED THAT THE STATEMENT TAKEN AT ITS BACK COULD NOT BE USED WITHO UT GIVING AN OPPORTUNITY TO CROSS- EXAMINE. IT GAVE ONE NOTE DURING APPELLATE PROCEEDI NG. IN ITS NOTE, IT VEHEMENTLY ARGUED THAT CERTAIN STATEMENT RECORDED OF CERTAIN PERSON I N THE COURSE OF ASSESSMENT PROCEEDING WERE USED TO ITS DISADVANTAGE WITHOUT GIVING AN OPP ORTUNITY TO IT TO EXAMINE THE STATEMENT AND EXERCISE ITS RIGHT TO CROSS-EXAMINE THE PERSON WHO MADE THE STATEMENT. THE RELEVANT PORTION OF THE NOTE IS AS UNDER : 1] THE LEARNED A.O. HAS COMPLETED THE ASSTS. FOR A. Y. 2000-01 TO A.Y. 2006-07. WHILE MAKING THE ASSTS., THE TEAMED A.O. HAS RELIED UPON THE STATEMENTS OF A FEW PERSONS. IN RESPECT OF A.Y. 2005-06, THE LEARNED A. O. HAS MADE AN ADDITION OF RS.50,85,000/- ON THE GROUND THAT THE ASSESSEE HAD RECEIVED THE SAID AMOUNT FROM SHRI R. S. YADAV. FOR GIVING ADMISSIONS TO CERTAIN STUDENTS. FROM PARA. 62- 66 OF THE ORDER FOR A.Y. 2005-06, THE LEARNED A.O. HAS. R EFERRED TO THE FACTS AND HAS ALSO RELIED UPON THE EVIDENCE FOUND WITH SHRI R. S. YADAV IN THE SEARCH PROCEEDINGS CONDUCTED ON HIM. THE LEARNED A.O. HAS ALSO RELIED UPON THE ORDER OF LEARNED CIT CANCELLING THE REGISTRATION U/S 12A. TH E ASSESSEE HAD REQUESTED THE LEARNED CIT IN THE CONTEXT OF CANCELLATION OF REGIS TRATION U/S 12A AND ALSO THE LEARNED A.O. DURING THE ASST. PROCEEDINGS FOR AN OP PORTUNITY TO CROSS EXAMINE SHRI R. S. YADAV. THE LEARNED CIT IN HIS ORDER CANC ELLING THE REGISTRATION HAS STATED THAT NO USEFUL PURPOSE WOULD BE SERVED BY AL LOWING CROSS EXAMINATION OF SHRI R. S YADAV TO THE ASSESSEE. THE RELEVANT PARS HAS BEEN REPRODUCED BY THE LEARNED A.O. ON PAGE 29 & 30 OF THE ASST. ORDER FOR A.Y. 2005-06. THE A.O. FOLLOWING THE ORDER OF CIT (C) DID NOT GRANT ANY OP PORTUNITY TO CROSS EXAMINE SHRI R. S. YADAV AND MADE AN ADDITION OF RS.50,85, 000/-. 2] SECONDLY, FOR A.Y. 2001-02 TO A.Y. 2006-07, THE LEARNED A.O. HAS DISALLOWED THE EXPENSES INCURRED ON THE GUEST HOUSE OF THE ASS ESSEE SOCIETY AT GULMOHAR HSG. SOC., PUNE. THE LEARNED A.O. HAS STATED THAT T HE EXPENDITURE RESULTED IN BENEFIT TO THE TRUSTEES. WHILE MAKING THE DISALLOWA NCE, THE LEARNED A.O. RECORDED THE STATEMENT OF SHRI. SADASHIV BAPU PATIL, CARETAK ER OF THE GUEST HOUSE. SHE HAS REPRODUCED THE RELEVANT PORTION OF HIS STATEMENT ON PAGE 14 OF THE ORDER FOR A.Y. 2001-02. THUS, THE LEARNED A.O. HAS RELIED UPON THE STATEMENT OF SHRI S. B. PATIL WHILE MAKING THE DISALLOWANCE. THEY ASSESSEE SUBMIT S THAT THE LEARNED A.O. DID NOT EVEN GIVE THE COPY OF THE STATEMENT OF SHRI S. B. PATIL TO THE ASSESSEE. IT IS SUBMITTED THAT THIS DISALLOWANCE HAS BEEN MADE WITH OUT GIVING ANY OPPORTUNITY TO THE ASSESSEE SOCIETY TO CROSS EXAMINE SHRI S. B. PA TIL. 3] IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE A.O. HAS RELIED UPON THE STATEMENTS OF THIRD PARTIES AND ALSO THE EVIDENCE FOUND WITH THE M WHILE MAKING THE ADDITION. HOWEVER, SHE DID NOT GIVE ANY OPPORTUNITY TO THE AS SESSEE TO CROSS EXAMINE SHRI YADAV OR SHRI PATIL BEFORE MAKING THE ADDITION. IT IS SUBMITTED THAT THIS ACTION ON THE PART OF THE LEARNED A.O. IN NOT GRANTING CROSS EXAMINATION IS NOT JUSTIFIED. SUPREME COURT IN THE CASE OF KISHINCHAND CHELLARAM [125 ITR 713] HAS HELD THAT IF ANY STATEMENT OF A THIRD PARTY IS TO BE USED AGA INST THE ASSESSES, AN OPPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE TO CROSS EXAMINE TH E THIRD PARTY BEFORE ANY INFERENCE CAN BE DRAWN FROM THE STATEMENT. ON PAGE 720, HONBLE SUPREME COURT HAS HELD THAT IT IS TRUE THAT THE PROCEEDINGS UNDE R THE INCOME TAX LAW ARE NOT GOVERNED BY STRICT RULES OF EVIDENCE AND THEREFORE, IT MAY BE SAID THAT EVEN 40 WITHOUT CALLING THE MANAGER OF THE BANK TO PROVE TH IS LETTER, IT COULD BE TAKEN INTO ACCOUNT AS EVIDENCE. BUT BEFORE THE I.T. AUTHORITIE S COULD RELY UPON IT, THEY WERE BOUND TO PRODUCE IT BEFORE THE ASSESSEE SO THAT THE ASSESSEE COULD CONTROVERT THE STATEMENTS CONTAINED IN IT BY ASKING FOR AN OPPORTU NITY TO CROSS EXAMINE THE MANAGER OF THE BANK WITH REFERENCE TO THE STATEMENT S MADE BY HIM. 4] SIMILARLY, IN THE CASE OF CIT V. EASTERN COMMERC IAL ENTERPRISES [210 IT R 103 (CAL) ], HONBLE H.C. HELD THAT THE ASSESSEE MUST B E GIVEN AN OPPORTUNITY TO CROSS EXAMINE THE WITNESS. IN THIS CASE, THE LEARNED A.O. HAD RELIED UPON A STATEMENT OF SHRI RAM SEVAK SUKLA WHILE MAKING THE ADDITION. H.C . HELD THAT THE LEARNED A.O. OUGHT TO HAVE GIVEN AN OPPORTUNITY TO THE ASSESSEE TO CROSS EXAMINE SHRI SUKLA BEFORE MAKING AN ADDITION. FURTHER, SUPREME COURT I N THE CASE OF C. VASANTLAL & CO. [45 IT R 206] HAS HELD THAT THE LEARNED A.O. CA N COLLECT MATERIAL TO FACILITATE THE ASST. HOWEVER, IF HE DESIRES TO USE THE MATERIA L SO COLLECTED, THE ASSESSEE MUST BE INFORMED OF THE MATERIAL COLLECTED AND SHOULD BE GIVEN AN OPPORTUNITY OF EXPLAINING IT. SIMILAR VIEW HAS BEEN TAKEN IN THE F OLLOWING DECISIONS A. BANAL STRIPS P LTD. [99 IT D I 77 (DEL) ] B. ASST. CIT V/S. MAHESH T PATODIA [79 ITD 40 (PUNE )] 5] IN VIEW OF ABOVE DECISIONS THAT THE LEARNED A.O. WAS DUTY BOUND TO GIVE AN OPPORTUNITY TO THE ASSESSEE BEFORE RELYING ON THE S TATEMENTS OF SHRI YADAV AND SHRI S. B. PATIL. THE CONTENTION OF THE A.O. AND TH E CIT (C) THAT NO USEFUL PURPOSE WOULD BE SERVED BY GRANTING AN OPPORTUNITY TO CROSS EXAMINATION IS WITHOUT ANY MERIT AND AGAINST THE PRINCIPLES LAID DOWN BY THE S UPREME COURT AND HIGH COURTS. 22.9 THE ABOVE NOTE WAS SENT TO THE AO FOR HIS COMM ENTS. HE WAS ALSO REQUESTED BY THE THEN CIT(A) TO CONSIDER THE REQUEST OF THE APPELLAN T, FURNISH THE DOCUMENT AND ALLOW THE APPELLANT TO CROSS-EXAMINE THE PERSON. THE AO WAS A LSO REQUESTED TO GIVE REASONS IN CASE HE WAS OF THE VIEW THAT REQUEST OF THE APPELLA NT CANNOT BE GRANTED TO. RELEVANT PORTION OF THE LETTER OF THE THEN CIT(A) IS REPRODU CED BELOW :- THE ABOVE APPEALS ARE BEING HEARD IN THE COURSE OF HEARING OF THE ABOVE APPEALS, THE APPELLANT HAS VEHEMENTLY ARGUED THAT C ERTAIN STATEMENT RECORDED OF CERTAIN PERSONS IN THE COURSE OF ASSESSMENT PROCEED INGS HAVE BEEN USED TO THE DISADVANTAGE OF THE APPELLANT WITHOUT GIVING AN OPP ORTUNITY TO THE APPELLANT TO EXAMINE THE STATEMENT AND EXERCISE ITS RIGHT TO CRO SS EXAMINE THE PERSONS WHO HAVE MADE THE STATEMENTS. THE APPELLANT HAS SUBMITT ED A DETAILED NOTE POINTING OUT SUCH INSTANCES WHERE EVIDENCES RELIED UPON BY T HE AO WAS NOT FURNISHED TO THE APPELLANT. THE NOTE IS ENCLOSED AT ANNEXURE-A T O THIS LETTER. 2. YOU ARE REQUESTED TO CONSIDER THE REQUEST OF TH E APPELLANT AND FURNISH THE DOCUMENTS TO THE APPELLANT AND AS WELL AS ALLOW THE APPELLANT TO CROSS EXAMINE THE PERSONS. THE ACTION TAKEN BY YOU MAY KINDLY BE REPO RTED TO THIS OFFICE. IN THE EVENT, YOU ARE OF THE VIEW THAT THE REQUEST OF THE APPELLANT CANNOT BE GRANTED, THE REASONS FOR THE SAME MAY KINDLY BE INCLUDED IN THE REPORT. 3. IN THE COURSE OF APPELLATE PROCEEDINGS, THE APP ELLANT HAS SUBMITTED 15 ITEMS OF EVIDENCE WHICH WERE NOT SUBMITTED BEFORE T HE AO AT THE TIME OF ASSESSMENT. THE EVIDENCE IS THEREFORE IN THE NATURE OF ADDITIONAL EVIDENCE. THE LIST OF 15 ITEMS IS AT FLAG AA OF THE VOLUME TITLED 'IND EX'. THE EVIDENCE APPEARS TO BE RELEVANT IN TAKING A DECISION ON THE ISSUES IN APPE AL. IT IS STATED BY THE APPELLANT THAT THE EVIDENCE COULD NOT BE PRODUCED BEFORE THE AO DUE TO NON AVAILABILITY OF DOCUMENTS AT THE TIME OF ASSESSMENT DUE TO PAUCITY OF TIME AND OTHER REASONS. THE WRITTEN SUBMISSION AND PAPER BOOK IN 10 VOLUMES IS ENCLOSED. THE ADDITIONAL EVIDENCE IS PRESENT IN DIFFERENT VOLUMES. THE SET N UMBER AND THE PAGE NUMBER OF THE DOCUMENTS ARE MENTIONED IN THE LIST AT F LAG AA OF THE ANNEXED VOLUME. 3.1 YOU ARE REQUESTED TO KINDLY EXAMINE THE ADDITI ONAL EVIDENCE SUBMITTED BY THE APPELLANT AND SUBMIT YOUR COMMENTS ON THE ADMIS SIBILITY ON THE SAME ALONG 41 WITH REASONS. YOU ARE ALSO REQUESTED TO KINDLY OFFE R YOUR COMMENTS ON THE ADDITIONAL EVIDENCE FURNISHED BY THE APPELLANT. 4. AT FLAG BB OF THE ANNEXED VOLUME, THERE IS A LIS T OF ITEMS OF EVIDENCE WHICH ACCORDING TO THE APPELLANT WERE WITH THE AO BUT WER E NOT CONSIDERED, THIS EVIDENT FROM THE FACT THAT THERE IS NO MENTION OF SUCH EVID ENCE IN THE RELEVANT PORTION OF THE ASSESSMENT ORDER. THE APPELLANT HAS REQUESTED T HAT THE EVIDENCE WHICH IS WITH THE DEPARTMENT AND WHICH APPEARS NOT TO HAVE BEEN C ONSIDERED SHOULD BE CONSIDERED WHILE TAKING A DECISION IN APPEAL. CROSS REFERENCE TO THE DOCUMENTS INCLUDING SET AND PAGE NUMBER OF THE PAPER BOOK IS GIVEN IN THE LIST AT FLAG BB. 5. YOU ARE REQUESTED TO KINDLY STUDY THE ABOVE EVID ENCE AND OFFER YOUR COMMENTS AS TO WHETHER ANY SUCH EVIDENCE INFLUENCES THE DECI SION TAKEN IN THE ASSESSMENT ON THE RELEVANT ISSUE, IN ANY SIGNIFICANT MANNER. A T THE SAME TIME, YOU MAY ALSO CONFIRM WHETHER SUCH EVIDENCE WAS ON RECORD AT THE TIME OF ASSESSMENT. 6. THE PAPER BOOKS FILED BY THE APPELLANT IN I0 VOL UMES ARE ENCLOSED IT IS REQUESTED THAT THE REPORT ON THE ABOVE ISSUES MAY K INDLY BE SENT EXPEDITIOUSLY. IF THERE IS ANY FURTHER ISSUE YOU WOULD LIKE TO BRING TO MY NOTICE, THE SAME MAY KINDLY BE INCORPORATED IN YOUR REPORT. 22.10 THE AO DID NOT GIVE OPPORTUNITY TO THE APPELL ANT TO CROSS-EXAMINE CARETAKER OF THE GUEST HOUSE, ON THE BASIS OF WHOSE STATEMENT, ADDIT ION IN RESPECT OF DISALLOWANCE OF GUEST HOUSE EXPENSES WAS MADE. HOWEVER, HE GAVE COPY OF T HE STATEMENT OF THE CARETAKER TO THE APPELLANT. IN HIS REPORT, HE STATED THAT THE ISSUE RELATING TO CROSS-EXAMINATION HAS BEEN DEALT WITH NOT ONLY BY THE AO IN HER ASSESSMENT ORD ER BUT EVEN BY CIT(CENTRAL), PUNE WHILE DECIDING THE ISSUE IN RESPECT OF REGISTRATION U/S.12AA OF L.T. ACT. HE ALSO STATED THAT RIGHT OF CROSS-EXAMINATION IS NOT AN ABSOLUTE RIGHT . THE RELEVANT PORTION OF THE REPORT OF THE AO IS REPRODUCED BELOW :- C) KIND REFERENCE IS INVITED TO PARA I AND 2 OF YOU R OFFICE LETTER DATED 17. 03.2009 WHEREIN IT IS DIRECTED TO CONSIDER THE REQUEST OF T HE APPELLANT AND FURNISH THE DOCUMENTS TO THE APPELLANT AND AS WELL AS ALLOW THE APPELLANT TO CROSS EXAMINE THE PERSONS WHOSE STATEMENT RECORDED AND HAVE BEEN UTILIZED WHILE FINALIZING THE ASSESSMENT. 24. IN THIS REGARD IT IS SUBMITTED THAT STATEMENTS OF TWO PERSONS NAMELY (1) SHRI R.S.YADAV, A BROKER BETWEEN THE ASSESSEE TRUST AND ASPIRING STUDENTS AND (2) SHRI SADASHIV BAPU PATIL, CARETAKER OF THE GUEST HOUSE A RE UTILIZED WHILE FINALIZING THE ASSESSMENT. A COPY OF STATEMENT OF SHRI R.S.YADAV W AS MADE AVAILABLE TO THE ASSESSEE. THIS IS EVIDENT FROM THE ASSESSEES OWN S UBMISSION ON STATEMENTS OF SHRI YADAV FILED BEFORE THE A.O. VIDE LETTER DATED 11.07.2008. AT THIS TIME THE ASSESSEE HAS NEVER ASKED FOR CROSS EXAMINATION OF S HRI YADAV. NOW THE ASSESSEE CANNOT ASK FOR SUCH CROSS EXAMINATION. THE ETHOS UN DERLYING THE PRINCIPLES OF NATURAL JUSTICE MAKE IT SUFFICIENTLY CLEAR THAT ONC E AN ADEQUATE AND REASONABLE NOTICE IS GIVEN, IT IS FOR THE ASSESSEE TO AVAIL OF THAT OPPORTUNITY; WHEN FOR NO GOOD REASON, OPPORTUNITY IS NOT TAKEN, THE ASSESSEE CANN OT COMPLAIN THAT PRINCIPLES OF NATURAL JUSTICE ARE VIOLATED (VINEET ENTERPRISES V/ S STATE OF ANDHRA PRADESH (I996) 101 ST C 426 (AP)). 25. SIMILARLY A COPY OF STATEMENT OF SHRI SADASHIV BAPU PATIL, CARETAKER OF THE GUEST HOUSE IS NOW MADE AVAILABLE TO THE ASSESSEE. AS SUCH DIRECTION IN RESPECT OF FURNISHING THE DOCUMENT TO THE ASSESSEE IS COMPLIED . IN RESPECT OF AFFORDING OPPORTUNITY TO CROSS VERIFY THE PERSONS MENTIONED A BOVE IT IS SUBMITTED THAT THIS ISSUE HAS BEEN DEALT WITH NOT ONLY BY THE A.O. IN H ER ASSESSMENT ORDER BUT EVEN BY THE COMMISSIONER OF INCOME TAX (CENTRAL) PUNE, WHIL E DECIDING THE ISSUE IN RESPECT OF REGISTRATION U/S. 12 AA OF THE I.T.ACT. IT IS FURTHER SUBMITTED THAT THE RIGHT OF CROSS-EXAMINATION IS NOT AN ABSOLUTE RIGHT . (NATH INTERNATIONAL SALES VS UOI AIR(DEL) 295), THE RIGHT OF HEARING DOES NOT NE CESSARILY INCLUDE RIGHT OF CROSS EXAMINATION (STATE OF J & K VS. BAKSHI GULAM MOHAMMAD AIR I 96 7 SC I22). 42 26. NOT ONLY THAT, IT IS HUMBLY SUBMITTED THAT CIT( A)'S POWERS ARE COTERMINOUS WITH THAT OF ASSESSING OFFICER. HE HOLDS A GOOD ENO UGH JURISDICTIONS OVER THE ISSUE AND THEREFORE, THE CIT (A) MAY CALL THESE PER SONS AT HIS OFFICE AND MAY AFFORD AN OPPORTUNITY TO THE ASSESSEE SUBJECT TO GR ANTING AN OPPORTUNITY TO THE A.O. TO CROSS VERIFY THE WITNESSES. 22.11 THE ISSUE RELATING TO THE STATEMENT OF SHRI R .S. YADAV HAS BEEN DEALT WITH IN THE APPEAL ORDER OF THE RELEVANT ASSESSMENT YEAR. 22.12 AS FAR AS ISSUE RELATING TO THE STATEMENT OF SHRI SADASHIV PATIL, CARETAKER OF THE GUEST HOUSE IS CONCERNED, A CAREFUL PERUSAL OF THE REMAND REPORT OF THE AO REVEALS THAT HE HAS RELIED MAINLY ON THE DISCUSSION OF THE AO IN THE ASSESSMENT ORDER AND OF THE CIT(CENTRAL) WHILE DECIDING THE ISSUE IN RESPECT OF REGISTRATION U/S.12AA OF THE L.T. ACT. HOWEVER, HE HAS NOT BROUGHT ON RECORD THE DISCUSSIO N OF THE AO AND CIT(CENTRAL) WHERE THEY SPECIFICALLY DEALT WITH THE ISSUE RELATING TO CROSS-EXAMINATION OF SHRI SADASHIV BAPU PATIL, CARETAKER OF THE GUEST HOUSE. IN FACT, WHIL E DISCUSSING THE ISSUE RELATING TO DISALLOWANCE OF GUEST HOUSE EXPENSES, THE AO HAS NO T DISCUSSED THE ISSUE RELATING TO CROSS-EXAMINATION OF CARETAKER OF THE GUEST HOUSE A T ALL, NOR ANY REFERENCE OF ANY SUCH DISCUSSION OF CIT(CENTRAL) WAS MADE. UNDER THE CIRC UMSTANCES, THE STATEMENT OF THE A0 THAT THE ISSUE RELATING TO CROSS-EXAMINATION OF SHR I SADASHIV BAPU PATIL, CARETAKER HAS BEEN DISCUSSED BY THE AO IN THE ASSESSMENT ORDER AN D BY THE CIT (CENTRAL) WHILE DECIDING THE ISSUE OF REGISTRATION U/S.12AA OF L.T. ACT IS NOT CORRECT. RELIANCE OF THE AO ON THE CASE LAWS OF NATH INTERNATIONAL SALES VS. UO I (AIR (DEL) 295) AND STATE OF J & K VS.BAKSHI GULAM MOHAMMAD (AIR 1967 SC 122) IS, AS D ISCUSSED IN PARA 20.11.2 AND 20.11.1, ALSO NOT CORRECT. 22.12.1 RELIANCE OF THE AO ON THE OBSERVATION OF HO N'BLE SUPREME COURT TO THE EFFECT THAT RIGHT OF HEARING DOES NOT NECESSARILY I NCLUDE RIGHT OF CROSS-EXAMINATION IN THE CASE OF STATE OF JAMMU & KASHMIR VS. BAKSHI GHULAM MOHAMMAD, (1967 AIR 122) IS MISPLACED. THE AO MISUNDERSTOOD, MISINTERPRETED AND MISQUOTED THIS OBSERVATION OF THE HON'BLE SUPREME COURT. THE ABOVE OBSERVATION WAS MA DE BY THE SUPREME COURT WITH REFERENCE TO THE RIGHT OF CROSS-EXAMINATION OF THE PERSONS WHO HAD SWORN AFFIDAVIT SUPPORTING ALLEGATION AGAINST PETITIONER UNDER JAMM U & KASHMIR COMMISSION OF INQUIRY ACT. THIS OBSERVATION WAS GIVEN BY HON'BLE COURT IN THE PARTICULAR SET OF FACTS AND CIRCUMSTANCES OF THAT CASE. FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE ARE ENTIRELY DIFFERENT. IN FACT, THE RATIO OF JUDGMENT GIVEN BY THE HON'BLE COURT IN THE CASE OF STATE OF JAMMU & KASHMIR VS. BAKSHI GHULAM MOHAMMAD, (1967 A IR 122) SUPPORTS CROSS- EXAMINATION OF THE CARETAKER IN THE APPELLANT'S CAS E. IN THE CASE OF STATE OF JAMMU & KASHMIR VS. BAKSHI GHULAM MOHAMMAD, (SUPRA), THE FI RST RESPONDENT BECAME A MEMBER OF THE COUNCIL OF MINISTERS OF THE STATE OF JAMMU A ND KASHMIR IN 1947 AND WAS THE PRIME MINISTER OF THE STATE FROM 1953 TO JANUARY 19 63, WHEN HE RESIGNED. THEREAFTER A NOTIFICATION WAS ISSUED BY THE STATE GOVERNMENT UND ER S.3 OF THE JAMMU AND KASHMIR COMMISSION OF INQUIRY ACT 1962 SETTING UP A COMMISS ION TO INQUIRE INTO THE WEALTH, ACQUIRED BY THE FIRST RESPONDENT AND CERTAIN SPECIF IED MEMBERS OF HIS FAMILY DURING HIS PERIOD OF OFFICE, THE COMMISSION WAS ALSO TO INQUIR E WHETHER IN ACQUIRING THIS WEALTH THERE WAS ANY ABUSE OF HIS OFFICIAL POSITION BY THE FIRST RESPONDENT OR THE SAID RELATIVES. THE COMMISSIONER SO APPOINTED HELD CERTAIN SITTINGS BETWEEN FEBRUARY 1965 AND AUGUST 1965 IN WHICH THE FIRST RESPONDENT TOOK PART. IN SE PTEMBER 1965 HE FILED A WRIT PETITION BEFORE THE HIGH COURT OF JAMMU AND KASHMIR AND THE HIGH COURT, ALLOWING THE SAID PETITION, SET ASIDE THE NOTIFICATION INSTITUTING TH E INQUIRY AND QUASHED THE PROCEEDINGS OF THE COMMISSION. THE STATE APPEALED TO THE SUPREME C OURT. HON'BLE SUPREME COURT, AMONG OTHER THINGS, EXAMINED THE ISSUE RELATING TO CROSS-EXAMINATION OF THE PERSONS WHO GAVE AFFIDAVITS AGAINST FIRST RESPONDENT. THIS ISSU E WAS EXAMINED WITH REFERENCE TO THE RELEVANT ACT I.E. JAMMU AND KASHMIR COMMISSION OF I NQUIRY ACT. AFTER EXAMINATION OF THE ISSUE, HON'BLE COURT WAS OF THE VIEW THAT RIGHT OF CROSS-EXAMINATION MUST DEPEND UPON CIRCUMSTANCES OF EACH CASE AND ALSO ON THE REL EVANT STATUTE. IN JAMMU AND KASHMIR COMMISSION OF INQUIRY ACT, RIGHT TO CROSS-EXAMINATI ON HAS BEEN ASSURED IN RESPECT OF WITNESSES CALLED TO DEPOSE AGAINST THE PERSON DEMAN DING THE RIGHT. HOWEVER, THERE IS NO SUCH PROVISION IN RESPECT OF THE PERSON WHO GAVE AF FIDAVIT AGAINST THE PERSON DEMANDING SUCH RIGHTS. THEREFORE, THIS JUDGMENT ENSURES, IN U NAMBIGUOUS TERMS, RIGHT OF CROSS- EXAMINATION AGAINST THE WITNESS WHO HAS DEPOSED AGA INST THE PERSON. THE CASE OF THE APPELLANT FALLS UNDER THIS CATEGORY. THE AO WHILE M AKING DISALLOWANCE IN RESPECT OF 43 GUEST HOUSE EXPENSES, RELIED, SUBSTANTIALLY, ON THE STATEMENT OF THE CARETAKER. UNDER THE CIRCUMSTANCES, IN VIEW OF THE RATIO PRONOUNCED BY T HE HON'BLE COURT IN THE CASE OF STATE OF JAMMU & KASHMIR VS. BAKSHI GHULAM MOHAMMAD (SUPR A), CROSS-EXAMINATION OF CARETAKER SHOULD HAVE BEEN ALLOWED BY THE AO AS HE RELIED ON HIS STATEMENT AND USED THE SAME AGAINST THE APPELLANT. IT IS NOT THE CASE OF T HE AO THAT CARETAKER FILED AN AFFIDAVIT AGAINST THE APPELLANT. EVEN IN THE CASE WHERE AFFID AVITS ARE FILED, CROSS-EXAMINATION OF THE PERSON GIVING THE AFFIDAVITS MAY BE ALLOWED AFT ER CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE. HOWEVER, IN THIS CASE, HON'BLE SUPREME COURT UPHELD THAT WHEN EVIDENCE IS GIVEN VIVA-VOCE AGAINST THE PERSON, HE (THE PERSON AGAINST WHOM SUCH EVIDENCE IN THE FORM OF VIVA-VOCE HAS BEEN GIVEN) MUST HAVE THE OPP ORTUNITY TO HEAR IT AND TO PUT THE WITNESS QUESTION IN CROSS-EXAMINATION. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- THE NEXT POINT IS AS TO THE RIGHT OF CROSS-EXAMINAT ION. THIS CLAIM WAS FIRST BASED ON THE RULES OF NATURAL JUSTICE. IT WAS SAID THAT THESE RULES REQUIRE THAT BAKSHI GHULAM MOHAMMAD SHOULD HAVE BEEN GIVEN A RIG HT TO CROSS-EXAMINE ALL THOSE PERSONS WHO HAD SWORN AFFIDAVITS SUPPORTING T HE ALLEGATIONS AGAINST HIM. WE ARE NOT AWARE OF ANY SUCH RULE OF NATURAL JUSTIC E. NO AUTHORITY HAS BEEN CITED IN SUPPORT OF IT. OUR ATTENTION WAS DRAWN TO MEENGL AS TEA ESTATES V. THEIR WORKMEN(L), BUT THERE ALL THAT WAS SAID WAS THAT WH EN EVIDENCE IS GIVEN VIVA VOCE AGAINST A PERSON BE MUST HAVE THE OPPORTUNITY TO HE AR IT AND TO PUT THE WITNESSES QUESTIONS IN CROSS-EXAMINATION. THAT IS NOT OUR CAS E. FURTHERMORE, IN MEENGLAS TEA ESTATE CASE(I) THE COURT WAS NOT DEALING WITH A FACT FINDING BODY AS WE ARE. RULES OF NATURAL JUSTICE REQUIRE THAT A PARTY AGAIN ST WHOM AN ALLEGATION IS BEING INQUIRED INTO SHOULD BE GIVEN A HEARING. BAKSHI GHU LAM MOHAMMAD WAS CERTAINLY GIVEN THAT IT WAS SAID THAT THE RIGHT TO THE HEARING INCLUDED A RIGHT TO CROSS-EXAMINE. WE ARE UNABLE TO AGREE THAT IS SO. T HE RIGHT MUST DEPEND UPON THE CIRCUMSTANCES OF EACH CASE AND MUST ALSO DEPEND ON THE STATUTE UNDER WHICH THE ALLEGATIONS ARE BEING INQUIRED INTO. THIS COURT HAS HELD IN NAGENDRA NATH BORA V. COMMISSIONER OF HILLS DIVISION AND APPEALS, ASSA M(1) THAT 'THE RULES OF NATURAL JUSTICE VARY WITH THE VARYING CONSTITUTION OF STATUTORY BODIES AND THE RULES PRESCRIBED BY THE ACT UNDER WHICH THEY FUNCTION; AN D THE QUESTION WHETHER OR NOT ANY RULES OF NATURAL JUSTICE HAD BEEN CONTRAVENED, SHOULD BE DECIDED NOT UNDER ANY PRECONCEIVED NOTIONS, BUT IN THE LIGHT OF THE S TATUTORY RULES AND PROVISIONS.' WE HAVE TO REMEMBER THAT WE ARE DEALING WITH A STAT UTE WHICH PERMITS A COMMISSION OF INQUIRY TO BE SET UP FOR FACT-FINDING PURPOSES. THE REPORT OF THE COMMISSION HAS NO FORCE PROPORTION VIGOROUS. THIS A SPECT OF THE MATTER IS IMPORTANT IN DECIDING THE RULES OF NATURAL JUSTICE REASONABLY APPLICABLE IN THE PROCEEDINGS OF THE COMMISSION OF INQUIRY UNDER THE ACT. THEN WE FIND THAT S. 10 TO WHICH WE HAVE EARLIER REFERRED, GIVES A RIGHT TO BE HEARD BUT ONLY A RESTRICTED RIGHT OF CROSS-EXAMINATION. THE LATTER RIGHT IS CON FINED ONLY TO THE WITNESSES CALLED TO DEPOSE AGAINST THE PERSON DEMANDING THE R IGHT. SO THE ACT DID NOT CONTEMPLATE A RIGHT OF HEARING TO INCLUDE A RIGHT T O CROSS-EXAMINE. IT WILL BE NATURAL TO THINK THAT THE STATUTE DID NOT INTEND TH AT IN OTHER CASES A PARTY APPEARING BEFORE THE COMMISSION SHOULD HAVE ANY FUR THER RIGHT OF CROSS- EXAMINATION. WE, THEREFORE. THINK THAT NO CASE HAS BEEN MADE OUT BY BAKSHI GHULAM MOHAMMAD THAT THE RULES OF NATURAL JUSTICE R EQUIRE THAT LIE SHOULD HAVE A RIGHT TO CROSS- EXAMINE ALL, THE PERSONS WHO HAD SW ORN AFFIDAVITS SUPPORTING THE ALLEGATIONS MADE AGAINST HIM. IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPRE ME COURT IN THE ABOVE MENTIONED CASE TO THE EFFECT THAT WHEN EVIDENCE IS GIVEN VIVA-VOCE AGAINST THE PERSON, HE MUST HAVE THE OPPORTUNITY TO HEAR AND TO CROSS-EXAMINE THE PERSON GIVING SUCH EVIDENCE, THE AO'S CONTENTION THAT CROSS-EXAMINATION OF THE CARETAKER WAS NOT REQUIRED IS NOT CORRECT. 24.12.2 RELIANCE OF THE AO OF THE JUDGMENT OF HON' BLE DELHI HIGH COURT IN THE CASE OF NATH INTERNATIONAL SALES AND ANR. VS. UNION OF INDIA AND ORS.(AIR 1992 DELHI 295) IS ALSO MISPLACED. IN THIS CASE, HON'BLE DELHI HIGH COURT RELIED ON THE DECISION OF SUPREME COURT IN THE STATE OF JAMMU & KASHMIR VS. B AKSHI GHULAM MOHAMMAD AND CAME TO THE CONCLUSION THAT IN THE FACTS OF THAT CA SE, CROSS-EXAMINATION WAS NOT REQUIRED. HON'BLE DELHI HIGH COURT GAVE THIS DECISION IN THE PARTICULAR SET OF FACTS AND CIRCUMSTANCES IN THAT CASE. IN FACT, FACTS OF THAT PARTICULAR CASE (NATH INTERNATIONAL SALES 44 AND ANR. VS. UNION OF INDIA AND ORS.) DID NOT REQUI RE OPPORTUNITY OF CROSS-EXAMINATION. THE CASE WAS IN RELATION TO THE BLACK LISTING OF ON E OF THE SUPPLIERS OF DIESEL LOCOMOTIVE WORKS (DLW), INDIAN RAILWAYS, VARANASI NAMELY NATH INTERNATIONAL SALES AND ITS SISTER CONCERN. BLACK LISTING WAS DONE BECAUSE THE SUPPLIE R FURNISHED A TEST CERTIFICATE FROM THE MANUFACTURER WHICH WAS BOGUS AS THE MANUFACTURER CO NCERN WAS NOT IN EXISTENCE. THE MANUFACTURER CONCERN ALREADY STOOD TAKEN OVER BY SO ME OTHER CONCERN WHO WAS NOT MANUFACTURING THE BRAND OF THE PRODUCT IN RESPECT O F WHOM THE TEST CERTIFICATE WAS SUBMITTED BY THE SUPPLIER BEFORE THE INSPECTOR OF D LW. THE MANUFACTURER CONCERN / THE CONCERN WHICH TOOK OVER THE MANUFACTURER CONCERN DE NIED HAVING ISSUED SUCH TEST CERTIFICATE. THE AUTHORITIES OF INDIAN RAILWAYS BLA CK LISTED THE SUPPLIER AND ITS SISTER CONCERN ON THE BASIS OF, AMONG OTHERS, PRODUCTION O F THE FAKE CERTIFICATE FROM THE ALLEGED MANUFACTURER. BEFORE DELHI HIGH COURT, TWO SETS OF REPORT OF THE INSPECTOR OF DLW WERE PRODUCED. ONE SET WAS PRODUCED BY THE PETITIONER I. E. M/S. NATH INTERNATIONAL SALES. OTHER SET WAS PRODUCED BY THE RESPONDENT I.E. UNION OF INDIA REPRESENTED BY DLW, INDIAN RAILWAYS. THESE TWO SETS OF INSPECTOR'S REPO RT WERE NOT EXACTLY IDENTICAL. HON'BLE DELHI HIGH COURT CONSIDERED THESE FACTS AND WAS OF THE VIEW THAT THE PETITIONER I.E. M/S.NATH INTERNATIONAL SALES HAD FULL KNOWLEDGE THA T THE ORIGINAL MANUFACTURER HAD BEEN TAKEN OVER BY OTHER CONCERN AND AT THE RELEVANT TIM E, NEITHER VALVES OF THE REQUIRED MAKE (THE PRODUCT WHICH WAS TO BE SUPPLIED TO DLW) WERE THE MANUFACTURED NOR WERE MARKETTED UNDER THE TRADE NAME WHICH WAS TO BE SUPP LIED TO DLW. ON THE BASIS OF THESE VITAL PIECES OF EVIDENCE, NAMELY, DENIAL OF THE MAN UFACTURER CONCERN / CONCERN WHICH TOOK OVER THE MANUFACTURER CONCERN AND TWO SETS OF INSPE CTOR'S REPORT CONTAINING, AMONG OTHERS, TEST CERTIFICATE OF THE MANUFACTURER, HON'B LE COURT STRONGLY SUSPECTED THE MOTIVE OF THE PETITIONER AND REJECTED ITS CONTENTIONS. ADV OCATE OF THE PETITIONER DEMANDED OPPORTUNITY TO CROSS-EXAMINE THE INSPECTOR TO ELICI T THE TRUTH AS TO WHICH OF THE TWO REPORTS IS GENUINE. ON THIS DEMAND, HON'BLE COURT H ELD THAT THERE IS NO DIFFERENCE IN BOTH THE REPORTS ON THE CRUCIAL POINT OF FILING OF TRW'S WORK TEST CERTIFICATE AND, THEREFORE, IN THE CIRCUMSTANCES OF THIS CASE, CROSS-EXAMINATION I S NOT REQUIRED. RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW :- (24) LASTLY, IT IS URGED BY MR.JAITLY THAT THE PRIN CIPLES OF NATURAL JUSTICE DEMAND THAT AN OPPORTUNITY SHOULD BE GIVEN TO THE PETITION ERS TO CROSS-EXAMINE MR.S.A. KHAN, DLW'S INSPECTOR, TO ELICIT THE TRUTH AS TO WH ICH OF THE TWO INSPECTION REPORTS IS GENUINE. WE DO NOT FEEL PERSUADED TO DO SO. AS IS OBSERVED BY THE SUPREME COURT IN STATE OF J&K AND OTHERS VS. BAKSHI GULAM MOHAMMAD & ANR.., A RIGHT OF HEARING DOES NOT INCLUDE A RIGHT TO CROSS-EXAMINE AND THE RIGHT TO CROSS-EXAMINE MUST DEPEND UPON THE CIRCUMSTANCES OF EACH CASE. AS ALREADY OBSERVED, THERE IS NO DIFFERENCE IN BOTH THE REPORT S ON THE CRUCIAL POINT OF FILING OF TRW'S WORKS TEST CERTIFICATE, WHICH IS SUFFICIENT T O SUPPORT RESPONDENTS ACTION. THEREFORE, CROSS-EXAMINATION IN THE ABOVE MENTIONED CASE WAS NOT ALLOWED AS IT WAS NOT REQUIRED IN THE FACTS AND CIRCUMSTANCES OF THE CASE BECAUSE THE PETITIONER WAS FOUND TO BE PURSUING ITS CASE ON THE BASIS OF A CERTIFICATE WHI CH, AFTER INQUIRY FROM THE RELEVANT PARTY, WAS FOUND TO BE FAKE. UNDER THESE SET OF CIRCUMSTAN CES, CROSS-EXAMINATION OF THE PERSON BEFORE WHOM THE CERTIFICATE WAS PRODUCED, WOULD HAV E NOT SERVED ANY PURPOSE. HOWEVER, IN THIS CASE ALSO, HON'BLE COURT FOLLOWED DECISION OF HON'BLE SUPREME COURT IN THE CASE OF STATE OF JAMMU & KASHMIR VS. BAKSHI GHULAM MOHAM MAD. THIS CASE HAS BEEN DISCUSSED IN DETAIL IN THE PRECEDING PARAGRAPH. IN FACT, AS STATED IN THE PRECEDING PARAGRAPH, THE RATIO OF THIS JUDGMENT GIVES OPPORTU NITY OF CROSS-EXAMINATION OF THE CARETAKER TO THE APPELLANT. 22.13 IN VIEW OF THE DISCUSSION IN THE PRECEDING PA RAGRAPHS, L AM OF THE CONSIDERED VIEW THAT THE AO WAS NOT RIGHT IN HOLDING THAT CROSS-EXA MINATION WAS NOT TO BE GIVEN IN THIS CASE. I AM IN AGREEMENT WITH THE SUBMISSION OF THE APPELLANT THAT IN VIEW OF VARIOUS JUDICIAL RULINGS, THE AO WAS DUTY BOUND TO GIVE OPP ORTUNITY OF CROSS- EXAMINATION OF THE CARETAKER TO THE APPELLANT. SUPREME COURT IN THE CA SE OF KISHINCHAND CHELLARAM [125 ITR 713] HAS HELD THAT IF ANY STATEMENT OF A THIRD PARTY IS TO BE USED AGAINST THE ASSESSES, AN OPPORTUNITY SHOULD BE GIVEN TO HIM TO CROSS EXAM INE THE THIRD PARTY BEFORE ANY INFERENCE CAN BE DRAWN FROM THE STATEMENT. ON PAGE 720, HON'BLE SUPREME COURT HAS HELD THAT IT IS TRUE THAT THE PROCEEDINGS UNDER TH E INCOME TAX LAW ARE NOT GOVERNED BY STRICT RULES OF EVIDENCE AND THEREFORE, IT MAY BE S AID THAT EVEN WITHOUT CALLING THE MANAGER OF THE BANK TO PROVE THIS LETTER, IT COULD BE TAKEN INTO ACCOUNT AS EVIDENCE. BUT 45 BEFORE THE L.T. AUTHORITIES COULD RELY UPON IT, THE Y WERE BOUND TO PRODUCE IT BEFORE THE APPELLANT SO THAT THE APPELLANT COULD CONTROVERT TH E STATEMENTS CONTAINED IN IT BY ASKING FOR AN OPPORTUNITY TO CROSS EXAMINE THE MANAGER OF THE BANK WITH REFER ENCE TO THE STATEMENTS MADE BY HIM . SIMILARLY, IN THE CASE OF CIT V. EASTERN COMMERCIAL ENTERPRISES [210 ITR 103 (CAL)], HONBLE H.C. HELD THAT THE ASSESSEE MUST BE GIVEN A N OPPORTUNITY TO CROSS EXAMINE THE WITNESS. IN THIS CASE, THE AO HAD RELIED UPON A STA TEMENT OF SHRI RAM SEVAK SUKLA WHILE MAKING THE ADDITION. H.C. HELD THAT THE AO OUGHT TO HAVE GIVEN AN OPPORTUNITY TO THE APPELLANT TO CROSS EXAMINE SHRI SUKLA BEFORE MAKING AN ADDITION. FURTHER, SUPREME COURT IN THE CASE OF C. VASANTLAL & CO. [45 ITR 206 ] HAS HELD THAT THE AO CAN COLLECT MATERIAL TO FACILITATE THE ASST. HOWEVER, IF HE DES IRES TO USE THE MATERIAL SO COLLECTED, THE APPELLANT MUST BE INFORMED OF THE MATERIAL COLLECTE D AND SHOULD BE GIVEN AN OPPORTUNITY OF EXPLAINING IT. SIMILAR VIEW HAS BEEN TAKEN IN TH E FOLLOWING DECISIONS A.BANAL STRIPS P LTD. [99 ITD 177 (DEL)] B. ASST. CIT V/S. MAHESH T PATODIA [79 ITD 40 (PUNE )] IN VIEW OF ABOVE DECISIONS, THE A.O. WAS DUTY BOUND TO GIVE AN OPPORTUNITY TO THE APPELLANT BEFORE RELYING ON THE STATEMENT OF SHRI S . B. PATIL. 22.14 IT MAY NOT BE OUT OF PLACE TO MENTION THAT TH E STATEMENT RECORDED UNDER SURVEY, ON ITSELF, HAS NO EVIDENTIARY VALUE. THIS VIEW WAS HEL D BY HON'BLE KERALA HIGH COURT IN THE CASE OF PAUL MATHEWS & SONS VS. CIT 263 ITR 101. IN THIS CASE, HON'BLE COURT HELD THAT SEC.133A(3)(M) ENABLES THE AUTHORITY TO RECORD THE STATEMENT OF ANY PERSON WHICH MAY BE USEFUL FOR, OR RELEVANT TO, ANY PROCEEDING UNDER TH E ACT. SEC. 133A HOWEVER, ENABLES THE IT AUTHORITY ONLY TO RECORD ANY STATEMENT OF ANY PE RSON WHICH MAY BE USEFUL, BUT DOES NOT AUTHORISE FOR TAKING ANY SWORN IN STATEMENT. THE IT ACT, WHENEVER IT THOUGHT FIT AND NECESSARY TO CONFER SUCH POWER TO EXAMINE A PERSON ON OATH, THE SAME HAS BEEN EXPRESSLY PROVIDED WHEREAS S.133A DOES NOT EMPOWER ANY ITO TO EXAMINE ANY PERSON ON OATH. THUS, IN CONTRA DISTINCTION TO THE POWER UNDER S.13 3A, S.132(4) ENABLES THE AUTHORISED OFFICER TO EXAMINE A PERSON ON OATH AND ANY STATEME NT MADE BY SUCH PERSON DURING SUCH EXAMINATION CAN ALSO BE USED IN EVIDENCE UNDER THE IT ACT. ON THE OTHER HAND, WHATEVER STATEMENT RECORDED UNDER S.133A IS NOT GIVEN ANY EV IDENTIARY VALUE OBVIOUSLY FOR THE REASON THAT THE OFFICER IS NOT AUTHORISED TO ADMINI STER OATH AND TO TAKE ANY SWORN STATEMENT WHICH ALONE HAS THE EVIDENTIARY VALUE AS CONTEMPLATED UNDER LAW. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW :- 11. THE PROVISION ALSO ENABLES THE IT AUTHORITY TO IMPOUND AND RETAIN IN HIS CUSTODY FOR SUCH PERIOD AS HE THINKS FIT ANY BOOKS OF ACCOUNT OR OTHER DOCUMENTS INSPECTED BY HIM, PROVIDED THE AUTHORITY RECORDS HI S REASONS FOR DOING SO AND ALSO SHALL NOT RETAIN THE BOOKS OF ACCOUNT FOR A PERIOD NOT EXCEEDING 15 DAYS. SEC. 133A(3)(III) ENABLES THE AUTHORITY TO RECORD THE ST ATEMENT OF ANY PERSON WHICH MAY BE USEFUL FOR, OR RELEVANT TO, ANY PROCEEDING U NDER THE ACT. SEC. 133A HOWEVER, ENABLES THE IT AUTHORITY ONLY TO RECORD AN Y STATEMENT OF ANY PERSON WHICH MAY BE USEFUL, BUT DOES NOT AUTHORIZE FOR TAK ING ANY SWORN IN STATEMENT. ON THE OTHER HAND, WE FIND THAT SUCH A POWER TO EXAMIN E A PERSON ON OATH IS SPECIFICALLY CONFERRED ON THE AUTHORISED OFFICER ON LY UNDER S. 132(4) OF THE IT ACT IN THE COURSE OF ANY SEARCH OR SEIZURE. THUS, THE I T ACT, WHENEVER IT THOUGHT FIT AND NECESSARY TO CONFER SUCH POWER TO EXAMINE A PER SON ON OATH, THE SAME HAS BEEN EXPRESSLY PROVIDED WHEREAS S. 133A DOES NOT EM POWER ANY ITO TO EXAMINE ANY PERSON ON OATH. THUS, IN CONTRA-DISTINCTION TO THE POWER UNDER S. 133A, S. 132(4) OF THE IT ACT ENABLES THE AUTHORISED OFFICER TO EXAMINE A PERSON ON OATH AND ANY STATEMENT MADE BY SUCH PERSON DURING SUCH E XAMINATION CAN ALSO BE USED IN EVIDENCE UNDER THE IT ACT. ON THE OTHER HAN D, WHATEVER STATEMENT RECORDED UNDER S. 133A OF THE IT ACT IS NOT GIVEN A NY EVIDENTIARY VALUE OBVIOUSLY FOR THE REASON THAT THE OFFICER IS NOT AUTHORISED T O ADMINISTER OATH AND TO TAKE ANY SWORN IN STATEMENT WHICH ALONE HAS THE EVIDENTIARY VALUE AS CONTEMPLATED UNDER LAW. THEREFORE, THERE IS MUCH FORCE IN THE ARGUMENT OF THE LEARNED COUNSEL FOR THE APPELLANT THAT THE STATEMENT, ELICITED DURING THE S URVEY OPERATION HAS NO EVIDENTIARY VALUE AND THE ITO WAS WELL AWARE OF THI S. 46 IN MAKING DISALLOWANCE OUT OF GUEST HOUSE EXPENSES, THE AO, SUBSTANTIVELY, RELIED ON THE STATEMENT OF THE CARETAKER WHICH, ACCORDING TO ABOVE JUDGMENT, DID NOT HAVE ANY EVIDENTIARY VALUE. 22.15 IN VIEW OF THE DISCUSSION IN THE PRECEDING P ARAGRAPHS, IT IS OBVIOUS THAT THE AO MADE DISALLOWANCE OF GUEST HOUSE EXPENSES ON THE BASIS OF THE STATEMENT WHICH WAS RECORDED AT ITS BACK AND IN RESPECT OF WH ICH NO OPPORTUNITY WAS GIVEN TO THE APPELLANT FOR CROSS-EXAMINATION. THIS STATEM ENT, ON ITS OWN, DID NOT HAVE EVIDENTIARY VALUE. UNDER THE CIRCUMSTANCES, THE AO' S ACTION IN RESPECT OF DISALLOWANCE OF THE GUEST HOUSE EXPENSES CANNOT BE UPHELD. 22.16 DURING THE COURSE OF APPELLATE PROCEEDINGS, T HE APPELLANT HAS SUBMITTED, AMONG OTHER THINGS, AFFIDAVIT OF THE CARETAKER OF T HE GUEST HOUSE AND AFFIDAVIT OF CERTAIN OTHER PERSONS. THE AFFIDAVIT OF THE CARETAK ER IS A CLARIFICATION THAT THE FLAT NOS.G1 AND G2 WERE BEING USED BY OTHER GUESTS (OTHE R THAN SHRI D.Y. PATIL) ALSO. AFFIDAVIT OF SHRI P.D. PATIL WAS ALSO IN THIS RESPE CT AS WELL AS TO ADD THAT THIS PARTICULAR PORTION (FLAT NOS.G1 AND G2) WAS USED FO R OFFICIAL PURPOSES ALSO. AFFIDAVITS FROM OTHER PERSONS WERE IN RESPECT OF TH EIR STAY IN THE GUEST HOUSE. THESE EVIDENCES WERE SENT TO THE AO FOR THEIR ADMIS SIBILITY OR OTHERWISE. THE AO GAVE A GENERAL STATEMENT QUOTING PROVISIONS OF RULE 46A OF L.T. RULES. THE AO ALSO STATED THAT THE APPELLANT WAS NEVER RESTRICTED FROM SUBMISSION OF EVIDENCES / DOCUMENTS ETC. ON THE CONTRARY, IT WAS GIVEN SUFFIC IENT OPPORTUNITY DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TO JUSTIFY ITS RE TURN OF INCOME BY SUBMITTING NECESSARY DETAIL IN SUPPORT OF ITS CLAIM. HOWEVER, A CAREFUL PERSUAL OF MATERIAL AVAILABLE ON RECORD REVEALS THAT THE AO DID NOT GIV E ANY NOTICE TO THE APPELLANT OF HIS INTENTION TO DISALLOW GUEST HOUSE EXPENSES, SUB STANTIVELY, ON THE BASIS OF THE STATEMENT OF THE CARETAKER, DURING THE COURSE OF AS SESSMENT PROCEEDINGS, AND, THEREFORE, THE APPELLANT DID NOT HAVE ANY OCCASION OR OPPORTUNITY TO FILE ANY EVIDENCE IN SUPPORT OF ITS CLAIM OF GUEST HOUSE EXP ENSES. IN FACT, THE APPELLANT WAS NOT IN THE POSSESSION OF THE STATEMENT ON THE BASIS OF WHICH THE AO WAS TO MAKE THIS ADDITION. UNDER THE CIRCUMSTANCES, I AM SATISF IED THAT THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THESE EVIDENCES BEFORE THE A0 DURING THE COURSE OF ASSESSMENT PROCEEDING AND THER EFORE, ADMIT THEM. THESE AFFIDAVITS WERE SENT TO THE AO FOR HIS COMMENTS ON THEIR IMPACT ON THE ASSESSMENT OF THE APPELLANT. THE AO HAS NOT GIVEN ANY SPECIFIC COMMENT ON THESE AFFIDAVITS. HE HAS SIMPLY STATED THAT THESE AFFIDAVITS REPRESEN T AFTERTHOUGHT. HE HAS ALSO STATED THAT PAYMENT OF SALARY TO THE GUEST HOUSE ST AFF DOES NOT RESULT IN VIOLATION OF SECTION 13(1)(C) OF L.T. ACT. HE HAS ALSO RECOMM ENDED A REASONABLE RELIEF ON ACCOUNT OF DISALLOWANCE OF GUEST HOUSE EXPENSES AS HE ACCEPTS THE FACT THAT THE APPELLANT WAS MAINTAINING A GUEST HOUSE. IT IS AN U NDISPUTED FACT THAT DISALLOWANCE OF GUEST HOUSE EXPENSES WAS MADE BECAU SE OF THE FACT THAT AO CAME TO THE CONCLUSION THAT ONE PARTICULAR PORTION OF TH E GUEST HOUSE (FLAT NOS.G1 AND G2) WAS USED BY SHRI D.Y. PATIL, TRUSTEE, EXCLUSIVE LY. THIS CONCLUSION WAS ARRIVED AT, SUBSTANTIVELY, ON THE BASIS OF THE STATEMENT OF THE CARETAKER OF THE GUEST HOUSE. AS DISCUSSED IN PRECEDING PARAGRAPHS, DISALLOWANCE OF GUEST HOUSE EXPENSES CANNOT BE MADE ON THE BASIS OF STATEMENT OF THE CAR ETAKER ON WHICH RELIANCE WAS PLACED BY THE AO. UNDER THE CIRCUMSTANCES, THIS DIS ALLOWANCE OF GUEST HOUSE EXPENSES WAS NOT JUSTIFIED AND IS, THEREFORE, DIREC TED TO BE DELETED. I FURTHER HOLD THAT NO PERSONAL BENEFIT HAS ACCRUED TO ANY PERSON ON ACCOUNT OF THESE EXPENSES. THEREFORE, THE ABOVE MENTIONED GROUNDS OF APPEAL AR E ALLOWED. 22.17 THE AO IN HIS REMAND REPORT HAS POINTED OUT THAT THE POWERS OF CIT(A) ARE CO-TERMINUS WITH THOSE OF THE AO. THEREFORE, HE SUBMITTED THAT CIT(A) MAY CALL THESE PERSONS (INCLUDING SHRI SADASHIV BAPU PA TIL) IN HIS OFFICE AND MAY AFFORD OPPORTUNITY TO THE APPELLANT SUBJECT TO GRAN TING AN OPPORTUNITY TO THE AO TO CROSS-VERIFY THE WITNESSES. INTENTION OF THE AO IN MAKING THIS SUBMISSION IS NOT UNDERSTANDABLE. IT IS NOT THE CIT(A) WHO RECORDED S TATEMENT OF THE CARETAKER AT THE BACK OF THE APPELLANT AND USED THE SAME AGAINST IT. IT WAS THE AO WHO CONDUCTED THE INQUIRY AND RECORDED STATEMENT OF THE CARETAKER AT THE BACK OF THE APPELLANT AND USED THE SAME AGAINST IT, WITHOUT DIS CLOSING DETAILS OF THE MATERIAL GATHERED, WITHOUT CONFRONTING THEM WITH THE APPELLA NT , WITHOUT GIVING ANY 47 OPPORTUNITY TO THE APPELLANT FOR ITS COMMENTS/REBUT TAL AND WITHOUT GIVING ANY OPPORTUNITY OF CROSS-VERIFICATION/EXAMINATION IN VI OLATION TO THE ESTABLISHED LAW OF THE LAND . IT IS THE AO WHO, EVEN AFTER A SPECIF IC OPPORTUNITY WAS GIVEN TO HIM TO GIVE OPPORTUNITY OF CROSS-EXAMINATION TO THE APPELL ANT DURING REMAND PROCEEDINGS, DID NOT GIVE THE SAME TO THE APPELLANT .UNDER THE CIRCUMSTANCES, SUBMISSION OF THE AO TO CIT(A) TO GIVE OPPORTUNITY OF CROSS-EXAMINATION TO THE APPELLANT BY CALLING THE WITNESS WHOSE STATEMENT WA S USED BY HIM WITHOUT GIVING PROPER OPPORTUNITY OF CROSS-EXAMINATION, IN VIOLATI ON TO THE LAW OF LAND, IN HIS OFFICE [IN THE OFFICE OF CIT(A)], AND GRANTING OPPO RTUNITY TO THE AO TO CROSS-VERIFY THE WITNESS, BEING ABSURD, UNWARRANTED AND UNCALLED FOR, IS REJECTED. 46. CONSIDERING THE TOTALITY OF THE FACTS OF THE CA SE, CONSIDERING THE DETAILED ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LEARNED DR AGAINST THE ORDER OF THE LEARNED CIT (A) WE FIND NO INFIRMITY IN THE SAME AND ACCORDINGLY UPHOLD THE SAME. THE GROUNDS RAISED B Y THE REVENUE ARE ACCORDINGLY DISMISSED. 47. IN GROUNDS OF APPEAL NO.7 THE REVENUE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN HOLDING THAT EMPLOYEES CONTRIBUTION WHICH WAS NOT DEPOSITE D WITHIN DUE DATE UNDER THE ACT OR DEPOSITED BEFORE THE DUE DATE OF FILING OF THE RETU RN IS AN ALLOWABLE EXPENDITURE. 48. AFTER HEARING BOTH THE SIDES, WE FIND THE AO DI SALLOWED AN AMOUNT OF RS.21,55,881.50 BEING LATE PAYMENT OF EMPLOYEES PROVIDENT FUND AND ESI SINCE THEY WERE NOT DEPOSITED BEFORE THE STATUTORY DATES PRESCRIBED UNDER THE P.F AND ES I ACT. IN APPEAL THE CIT(A) RELYING ON VARIOUS DECISIONS DIRECTED THE AO TO DELETE THE DIS ALLOWANCE WHEREIN THE PAYMENTS ARE MADE PRIOR TO THE DUE DATE OF FILING OF THE RETURN. WE FIND VARIOUS BENCHES OF THE TRIBUNAL ARE TAKING THE CONSISTENT VIEW THAT EMPLOYEES CONTRIBUTION TO P.F. & ESIC, IF PAID BEFORE THE DUE DATE OF FILING OF THE RETURN, IS AN ALLOWABLE DEDUCTION. W E THEREFORE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROUNDS RAI SED BY THE REVENUE ON THIS ISSUE ARE DISMISSED. 49. SO FAR AS THE OTHER GROUNDS BY THE ASSESSEE AND THE REVENUE ARE CONCERNED, WE FIND THOSE ADDITIONS/DISALLOWANCES WERE MADE SINCE BENEFIT OF DEDUCTION U/S.11 WAS DENIED TO THE ASSESSEE. WE FIND THE AO DENIED BENEFIT OF SECTION 11 TO THE ASSESSEE ON THE GROUND THAT ASSESSEE HAS ADVANCED INTEREST FREE LOAN TO RELATED CONCERN D.Y. PATIL EDUCATION SOCIETY FOR WHICH IT HAS VIOLATED PROVISIONS OF SECTION 13(1)(D) OF THE I.T. ACT. SIMILARLY SINCE THE ASSESSEE HAS INCURRED EXPENSES ON ADVERTISEMENTS ON THE BIRTHDAY OF THE T RUSTEES, HAS UTILISED THE MERCEDEZ CAR AND THE GUEST HOUSE FOR THE BENEFIT OF THE TRUSTEES AND INC URRED EXPENDITURE ON TELEPHONE AND MOBILE BILLS FOR THE TRUSTEES AND PAID EXCESSIVE REMUNERAT ION TO THE TRUSTEES AND THEIR RELATIVES, 48 THEREFORE, IT HAS VIOLATED THE PROVISIONS OF SECTIO N 13(1)(C) OF THE I.T. ACT. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO CLARIFIED THAT THERE IS N O EXPENDITURE ON ACCOUNT OF PAYMENT TO MAHENDRA HOLIDAYS FOR THE TRUSTEES DURING THE YEAR. SINCE WE HAVE ALREADY HELD IN THE PRECEDING PARAGRAPHS THAT THERE IS NO VIOLATION OF PROVISIONS OF SECTION 13(1)(D) AND 13(1)(C) OF THE I.T. ACT ON ANY OF THE ABOVE ISSUES AND SINCE T HE TRIBUNAL HAS ALREADY RESTORED THE REGISTRATION U/S.12A OF THE I.T. ACT, THEREFORE, TH E ASSESSEE IS ENTITLED TO BENEFIT OF SECTION 11 OF THE I.T. ACT AND THESE GROUNDS IN OUR OPINION BEING CONSEQUENTIAL IN NATURE BECOME ACADEMIC AND THEREFORE ARE NOT BEING ADJUDICATED. 50. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 14 TH DAY OF DECEMBER 2012. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PAND A) JUDICIAL MEMBER ACCOUNTANT MEM BER PUNE, DATED THE 14 TH DECEMBER 2012 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. DEPARTMENT 3. CIT(A) CENTRAL, PUNE 4. ACIT CENTRAL, KOLHAPUR 5. D.R. B BENCH, PUNE 6 GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE