DCIT, Mandi V. M/s Sai Ram Education Trust, Hamirpur

ITA 250/CHANDI/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81082 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-12-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Application of stay
• Section: 12A; 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 250/CHD/2014 ASSESSMENT YEAR : 2010-11 THE D.C.I.T., VS. M/S SAI RAM EDUCATION TRUST CIRCLE MANDI. VPO TIPPER, TEHSIL BARSAR, H.P. DISTT. HAMIRPUR. PAN: AAITS2467F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : SHRI VISHAL MOHAN DATE OF HEARING : 09.12.2014 DATE OF PRONOUNCEMENT : 12.12.2014 O R D E R PER BHAVNESH SAINI, J.M. : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEAL S), SHIMLA DATED 21.11.2013 FOR ASSESSMENT YEAR 2010-11 , CHALLENGING THE ORDER OF THE LEARNED CIT (APPEALS) IN DELETING THE ADDITION MADE BY DISALLOWING EXEMPTION CLAIMED BY THE ASSESSEE UNDER SECTION 11 OF THE ACT FOR VIOLATION OF THE PROVISION OF SECTION 13(1)(C)(II) OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT). 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE RETU RN DECLARING NIL INCOME, AFTER CLAIMING EXEMPTION UNDER SECTION 12A OF THE ACT, 1961 WAS FILED ON 01.11.2010. IN SCRUTINY ASS ESSMENT, 2 THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE TRU ST ENGAGED IN THE BUSINESS OF RUNNING AN EDUCATIONAL I NSTITUTION, HAVING REGISTRATION UNDER SECTION 12AA, WHICH WAS A CCORDED BY THE CIT, SHIMLA W.E.F. ASSESSMENT YEAR 2010-11. THE ASSESSING OFFICER NOTED THAT A SUM OF RS.88,77,698 /- SHOWN IN THE NAME OF SH. MADAN GOPAL SHARMA, A TRUSTEE, W AS A CLEAR CASE OF VIOLATION OF SECTION 13(1)(C)(II) OF THE INCOME TAX ACT, 1961. THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO EXPLAIN THAT IT HAS NOT COMPLIED WITH THE PROVISIONS OF SEC TION 13(1)(C)(II)AND WHY THE INCOME MAY NOT BE TREATED A S TAXABLE INCOME. THE REPLY TENDERED BY THE ASSESSEE WAS NOT TO THE SATISFACTION OF THE ASSESSING OFFICER. THE ASSESSI NG OFFICER HELD THAT THE ASSESSEE TRUST DOES NOT QUALIFY FOR E XEMPTION UNDER SECTION 12A OF THE INCOME TAX ACT AND AMOUNT OF RS.1,87,63,548/- WAS DISALLOWED AND ASSESSED AS TAX ABLE INCOME. 3. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LEARNED CIT (APPEALS) AND WRITTEN SUBMISSIONS OF THE ASSESS EE ARE REPRODUCED IN THE APPELLATE ORDER, IN WHICH THE ASS ESSEE SUBMITTED AS UNDER : I) THAT THE ASSESSES HAD FILED AN APPLICATION IN FOR M NO. 10A ON 4-2- 2010 REQUESTING REGISTRATION U/S 12AA OF THE INCOME TAX ACT. THAT THE WORTHY CIT FOUND THAT SHRI MADAN GOPAL SHARMA HAD T AKEN/ EMBEZZLED A LOT OF FUND OF THE TRUST AND AFTER SATI SFYING HIMSELF ABOUT THE IMPLICATIONS OF SECTION 13 OF THE INCOME TAX ACT , 1961 THE LD COMMISSIONER OF INCOME TAX ACCORDED REGISTRATION TO THE ASSESSES WITHIN THE MEANING OF SECTION 12AA OF THE INCOME TAX ACT, 1961 VIDE ORDERS DATED 14 TH OF SEPTEMBER 2010 W.E.F. A.Y. 2010-11. 3 II) THAT WITHOUT FOLLOWING THE ORDERS OF THE LD CIT AN O FFICER MUCH LOWER IN RANK DISALLOWED THE EXEMPTION CLAIMED UNDER SECTION 12A OF THE INCOME TAX ACT, 1961 AND NOT ONLY THAT WITHOUT CONSI DERING THE FACT THAT THE ASSESSES HAD LANDED INTO A DEFICIT OF RS.49,8 6,445.50 IN THE INSTANT YEAR ASSESSED THE ENTIRE EXPENDITURE AS INCO ME FOR THE REASONS BEST KNOWN TO HIM AS /S EVIDENT FROM THE ENC LOSED COPY OF THE AUDITED ACCOUNTS OF THE ASSESSES TRUST. III) THAT IT IS PERTINENT TO MENTION THAT THE ASSES SEE APPELLANT HAD ALSO APPROACHED THE HON'BLE HIGH COURT OF HP. IN CWP NO. 2517 OF 2013 FOR STAY OF DEMAND AND THE HON'BLE DIVISION BEN CH OF THE HIGH COURT HELD THAT ENTIRE EXPENDITURE OF THE ASSESSEE CO ULD NOT BE DISALLOWED AND ASSESSED AS INCOME. IV) THAT THE FIRST ISSUE THAT REQUIRES CONSIDERATIO N OF THIS HON'BLE FORUM IS WHETHER THE LD A.O. COULD DISALLOW THE EXE MPTION ALLOWED BY THE LD CIT ON THE GROUNDS ALREADY CONSIDERED BY H IM WHILE ACCORDING REGISTRATION. IN THAT REGARD IT IS SUBMITTED THAT AFTER DUE DELIBERATIONS THE ID CIT WAS PLEASED TO ACCORD REGIS TRATION TO THE APPELLANT AFTER CONSIDERING THE FACT OF EMBEZZLEMENT MADE BY ONCE SH. MADAN GOPAL SHARMA AND THE SAME STANDS INCORPORATED BY THE LD CIT IN HIS ORDER PASSED UNDER SECTION 12AA OF THE I NCOME TAX ACT, 1961. V) THAT AS ALL THE ISSUED HAD BEEN EXAMINED AT LENG TH BY THE LD. CIT AN AUTHORITY LOWER THAN HIM COULD NOT SIT IN JUDGMENT OV ER THE SAID ISSUE AND AS SUCH THE OBSERVATION THAT THE TRUST WA S NOT ELIGIBLE FOR REGISTRATION UNDER SECTION 12AA OF THE INCOME TAX AC T, 1961 IS PERVERSE AND THE SAME IS NOT SUSTAINABLE IN THE EYES OF LAW. IT IS, THEREFORE, MOST RESPECTFULLY PRAYED THAT THE SAID O BSERVATION MAY KINDLY BE REVERSED AND THE TRUST BE HELD TO BE ELIG IBLE FOR DEDUCTION MAY KINDLY BE REVERSED AND THE TRUST BE HELD TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 12AA OF THE INCOME TAX ACT, 1961 OR ANY OTHER RELIEF FOR DEDUCTION UNDER SECTION 12AA OF TH E INCOME TAX ACT, 1961 OR ANY OTHER RELIEF BE GIVEN WHICH THIS HON'BLE FORUM DEEMS FIT AND PROPER IN THE FACTS AND CIRCUMSTANCES OF THE CASE. VI) THE SECOND ISSUE WHICH ARISES FOR CONSIDERATION IS WHETHER THE ENTIRE EXPENDITURE OF THE ASSESSEE APPELLANT OF RS. 1,87,64,538.50 COULD BE ASSESSED AS INCOME FOR THE YEAR UNDER CONSI DERATION. THE 4 SCOPE OF INCOME HAS BEEN DEFINED UNDER SECTION 5 OF THE INCOME TAX ACT, 1961 AND THERE EXISTS NO PROVISION UNDER THE I NCOME TAX ACT, 1961 VIDE WHICH THE ENTIRE EXPENDITURE CAN BE TREATE D AS INCOME OF THE APPELLANT. THE SAME HAS EVEN BEEN ACKNOWLEDGED BY THE HON'BLE DIVISION BENCH OF THE HIGH COURT IN CWP NO. 2517 OF 2013 HAS ALSO ACKNOWLEDGED THE SAME IN THEIR ORDER. 4. THE LEARNED CIT (APPEALS) CONSIDERING THE EXPLAN ATION OF THE ASSESSEE AND MATERIAL ON RECORD DELETED THE ADD ITION. HIS FINDINGS IN PARAS 6 TO 6.2 IN THE IMPUGNED ORDER AR E REPRODUCED AS UNDER : 6. I HAVE GONE THROUGH THE FACTS OF THE CASE AND WR ITTEN SUBMISSIONS GIVEN BY THE APPELLANT. THE A.O. HAD NOTICED T HAT A SUM OF RS. 88,77,698/- SHOWN IN THE NAME OF SH. MADAN GOPAL SH ARMA, A TRUSTEE WAS IN VIOLATION OF PROVISIONS OF SECTION 1 3(1)(C)(II) AND THE A.O. FOUND THAT THE CASE OF THE ASSESSEE TRUST DOES NOT QUALIFY FOR EXEMPTION UNDER THE IT. ACT. HE, THEREFORE, DISALLOWED THE EX EMPTION CLAIMED U/S 12A OF IT. ACT AND ASSESSED THE TAXABLE INCOME AT RS . 1,87,63,548/- . WHEREAS THE APPELLANT SUBMITTED THAT THE SUM OF RUPE ES SHOWN AGAINST THE NAME OF SH. MADAN GOPAL SHARMA IN THE BALANCE SH EET WAS ON ACCOUNT OF EMBEZZLEMENT OF FUND BY SH. MADAN GOPAL S HARMA. THE APPELLANT FURTHER SUBMITTED THAT LD. CIT GRANTED TH E REGISTRATION U/S 12 AA OF I.T. ACT AFTER DUE CONSIDERATION OF ISSUE AND E MBEZZLEMENT OF FUND BY SH. MADAN GOPAL SHARMA. HE FURTHER SUBMITTED THA T AS THE ISSUE HAD ALREADY BEEN EXAMINED AT LENGTH BY THE LD. CIT SO THE AUTHORITY LOWER THAN HIM CANNOT DECIDE THE ISSUE FOR NON-ELIGIBILI TY OF REGISTRATION U/S 12AA OF I.T. ACT. REGARDING DISALLOWANCE OF EXP ENDITURE, THE APPELLANT SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE EXPENDITURE AS PER INCOME AND EXPENDITURE AC COUNT OF THE TRUST AND ENTIRE EXPENDITURE OF RS.1,87,164,538/- HAS BEEN ASSESSED AS TAXABLE INCOME. AFTER CONSIDERING THE SUBMISSIONS AND ON PERUSAL OF REGISTRATION GRANTED BY THE LD. CIT IT IS NOTED THAT THE CIT HAS EXAMINED THE ISSUE OF EMBEZZLEMENT BY SH. MADAN GOPAL SHARMA F ROM THE AUDIT REPORT PERTAINING TO FINANCIAL YEAR 2008-09. THE CIT HAS RECORDED THE FOLLOWING FINDINGS IN HIS ORDER DATED 14.09.2010:- 5 'WHILE PROCESSING THE APPLICATION IT WAS NOTICE FROM THE AUDIT REPORT FOR F. Y. 2008-09 THAT SUBSTANTIAL FUNDS HAVE BEEN DIVE RTED FROM THE ACCOUNTS OF THE TRUST BY THE BOARD OF TRUSTEES. ON ENQUIRY IT HAS BEEN EXPLAINED THAT THE ORIGINAL TRUSTEES WERE SH. AJAY S HARMA AND SMT. SHIVANI SHARMA AND ONE SH. MADAN GOPAL SHARMA WAS I NDUCTED AS A TRUSTEE BY AN AFFIDAVIT DATED 27.07.2008. SHRI MA DAN GOPAL SHARMA THEREAFTER WITHDREW THESE SUMS FROM THE TRUS T ACCOUNT WITHOUT THE KNOWLEDGE OF FOUNDERS. IT WAS SUBMITTED THAT THIS WAS A CASE OF EMBEZZLEMENT BY SH. MADAN GOPAL SHARMA WHIC H IS BEING PURSUED BY THE TRUST AND THAT REGISTRATION SHOULD N OT BE DENIED ON THIS ACCOUNT, AS THERE IS NO INVOLVEMENT OF THE FOUND ERS IN SUCH EMBEZZLEMENT. A COPY OF LEGAL NOTICE DATED NOVEMBER 2009 ISSUED TO SH. MADAN GOPAL SHARMA HAS BEEN PLACED ON RECORD. 3. IN VIEW OF THE SUBMISSIONS MADE BY THE TRUST AND THE FACTS THE TRUST HAS BEEN PURSUING ITS OBJECTS BY SETTING UP A POLYTECHNIC COLLEGE AND OTHER COLLEGES REGISTRATION UNDER SECTION 12AA IS HEREBY GRANTED TO SAI RAM EDUCATION TRUST W.E.F. A.Y. 2010 -11. THE NAME OF THE TRUST HAS BEEN ENTERED AT S. NO. S-97 IN T HE REGISTERED MAINTAINED IN THIS OFFICE.' 6.1 IN VIEW OF FINDING GIVEN BY LD. CIT IN HIS ORDER F OR REGISTRATION OF TRUST U/S 12AA IT IS FOUND THAT FOR THE EMBEZZLEMEN T OR ANY DIVERSION OF FUND PERTAINING TO FINANCIAL YEAR 2008-09 AGAINST SH. MADAN GOPAL SHARMA THE TRUST HAS GIVEN A LEGAL NOTICE FOR RECOV ERY FOR SUCH FUND. THEREFORE, IT CANNOT BE SAID THAT THE PART OF ANY I NCOME OF THE CURRENT YEAR HAS BEEN USED OR APPLIED DIRECTLY OR INDIRECTL Y FOR BENEFIT OF THE TRUSTEE. THE A.O. WAS NOT JUSTIFIED IN INVOKING THE PR OVISIONS OF SECTION 13 (1) (C) (II) AS NO INCOME OF THE CURRENT YEAR WAS DIV ERTED FOR ANY BENEFIT OF THE TRUSTEE. SINCE THERE IS NO VIOLATION SECTION 13, THEREFORE, THE A.O. WAS NOT JUSTIFIED IN HIS CONCLUSION THAT THE ASSESSEE TR UST DOES NOT QUALIFY FOR EXEMPTION UNDER IT. ACT. 6.2 SECONDLY I HAVE GONE THROUGH AUDIT REPO RT ALONGWITH INCOME AND EXPENDITURE ACCOUNT OF THE TRUST FOR THE YEAR UNDER CONSIDERATION AND IT IS NOTICED THAT THE TRUST HAS SHO WN EXCESS OF EXPENDITURE OVER INCOME BY AN AMOUNT OF RS.49,86,445/-. THERE WAS NO SURPLUS INCOME AVAILABLE WITH THE TRUST DURING THE YEAR UNDER CONSIDERATION. THE STATEMENT ALSO SHOWS THAT TOTAL E XPENDITURE INCURRED 6 BY THE TRUSTEE IS RS.1,87,64,538/-. IT MEANS THAT THE A.O . HAS TAKEN THE FIGURE OF TOTAL EXPENDITURE AND THE SAME HAS BEEN CO NSIDERED BY HIM AS TAXABLE INCOME AFTER DENYING THE EXEMPTION TO THE TRU ST. THIS FINDING OF THE A.O. IS TOTALLY MISPLACED AND EXPENDITURE CANNO T BE ASSESSED AS INCOME. THEREFORE, THE ASSESSMENT OF TAXABLE INCOME OF RS.1,87,64,538/- MADE BY THE A.O. IS WRONG AND DIRECTED TO BE DELETED. IN THE RESULT, THE APPEAL IS ALLOWED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE FACTS NOTED ABOVE HAVE NOT BEEN DISPUTED BY THE AUTHORITIES. IT IS ADMIT TED FACT THAT THE ASSESSEE HAS BEEN GRANTED REGISTRATION UNDER SE CTION 12AA OF THE ACT W.E.F. ASSESSMENT YEAR 2010-11. THE L EARNED CIT IN THE ORDER DATED 14.9.2010 SPECIFICALLY NOTED THE HISTORY OF THE ASSESSEE FOR EMBEZZLEMENT COMMITTED BY SHRI MAD AN GOPAL SHARMA IN EARLIER YEAR 2008-09. THE ASSESSE E HAS TAKEN STEPS AGAINST THAT PERSON FOR RECOVERY OF THE AMOUNT IN QUESTION. THEREFORE, THE EMBEZZLEMENT COMMITTED BY ONE OF THE TRUSTEE PRIOR TO GRANT OF REGISTRATION WOULD NO T BE RELEVANT FOR DISALLOWING THE CLAIM OF THE ASSESSEE IN THE AS SESSMENT YEAR UNDER APPEAL. ACCORDING TO SECTION 13(1(C)(I I) OF THE ACT, ANY PART OF THE INCOME OR ANY PROPERTY OF THE TRUS T OR INSTITUTION DURING THE PREVIOUS YEAR SHOULD HAVE BE EN MIS- USED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF THE PERSON SPECIFIED IN SUB-SECTION(3) OF THE ACT. SINCE NO THING HAS HAPPENED DURING THE PREVIOUS ASSESSMENT YEAR RELEVA NT TO THE YEAR UNDER APPEAL, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING THE CLAIM OF THE ASSESSEE FOR EXEMPTION IN THE ASSESSMENT YEAR UNDER APPEAL BY APPLYING THE AB OVE PROVISION. THEREFORE, THE LEARNED CIT (APPEALS) W AS JUSTIFIED 7 IN HOLDING THAT THE PART OF THE INCOME FROM THE CUR RENT YEAR HAS NOT BEEN USED OR APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF THE TRUSTEE. THEREFORE, THE PROVISION OF SECTION 13(1)(C)(II) OF THE ACT COULD NOT HAVE BEEN INVOKED AGAINST THE ASSESSEE. FURTHER IT WAS FOUND FROM THE RECORD TH AT THE ASSESSEE TRUST HAS SHOWN EXCESS EXPENDITURE OVER TH E INCOME OF RS.49,86,445/-. THEREFORE, THERE WAS NO SURPLU S INCOME AVAILABLE WITH THE TRUST DURING THE YEAR UNDER CONS IDERATION. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE EN TIRE EXPENDITURE OF RS.1.87 CRORES. THE INCOME COULD H AVE BEEN CONSIDERED FOR DENYING THE EXEMPTION TO THE ASSESSE E BUT THE ASSESSING OFFICER HAS WRONGLY TAKEN THE EXPENDITURE FOR ASSESSING THE INCOME OF THE ASSESSEE. THEREFORE, THE LEARNED CIT (APPEALS) CORRECTLY DIRECTED TO DELETE THE ADDI TION IN QUESTION. THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF DECEMBER, 2014. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12 TH DECEMBER, 2014 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8