PADMASHREE ANNASAHEB JADHAV BHARTIYA SAMAJ UNNATI MANDAL, MUMBAI V. DCIT CIR -1, KALYAN

ITA 2919/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2827 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 15-04-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 30-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Assessee Lawyers: H N MOTIWALA
• Keywords: Competent authority; Assessment record; Onus to prove
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SANJAY ARORA , A M AND SHRI AMARJEET SINGH, JM ./ I.T.A. NO. 2919/MUM/2012 ( / ASSESSMENT YEAR: 2003 - 04 ) PADMASHREE AN NASAHEB JADHAV BHARATIYA SAMAJ UNNATI MANDAL C/O. H. N. MOTIWALLA & CO., 508, SHARDA CHAMBERS, 33, NEW MARINE LINES, MUMBAI - 400 020 / VS. DY. CIT, CIR. 1, KALYAN ./ ./ PAN/GIR NO. AAATP 2888 F ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI H. N. MOTIWALA / RESPONDENT BY : SHRI S. PANDIAN / DATE OF HEARING : 11.07.2016 DATE OF ORDER : 11 .1 1 .2016 / O R D E R PER SANJAY ARORA, A. M. : THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - I , THANE (CIT(A) FOR SHORT) DATED 31.10.2012 , DISMISSING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) R EAD WITH S ECTION 26 4 OF THE I NCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2003 - 04 VIDE ORDER DATED 29.12.2010 . 2 ITA NO. 2919/MUM/2012 (A.Y. 2003 - 04) PADMASHREE ANNASAHEB JADHAV BHARATIYA SAMAJ UNNATI MANDAL VS. DY. CIT 2. THE ASSESSEE IS A TRUST REGISTERED UNDER BOMBAY PUBLIC TRUST ACT, 1950 AS ALSO UNDER MAHARASHTRA STATE REGISTRATION ACT, 1860. IT RUNS SEVE RAL SCHOOLS, COLLEGES, ETC. AS THERE WERE ALLEGATIONS OF VARIOUS FINANCIAL IRREGULARITIES HAVING BEEN COMMITTED, A SPECIAL AUDIT U/S. 33(4)(A) OF THE BOMBAY PUBLIC TRUST ACT WAS DIRECTED, AT THE INSTANCE OF THE CHARITY COMMISSIONER, BY THE STATE GOVERNMENT (ACTING THROUGH THE MINISTRY OF LAW) , F OR THE PERIOD APRIL, 1990 TO MARCH, 2003, VIDE ITS ORDER DATED 23.03.2004. ASSESSMENT U/S. 143(3) R /W S.147 OF THE ACT WAS FRAMED ON 31.12.2008 AT AN I NCOME OF RS.916.38 LACS. THE SAME WAS SET ASIDE BY COMMISSIONER O F INCOME TAX - II, THANE (CIT) VIDE HIS ORDER U/S. 264 DATED 16.12.2009 DIRECTING DE NOVO ASSESSMENT. THE ASSESSING OFFICER (AO) HAD DENIED DEDUCTION OF ANY EXPENDITURE, BRINGING THE ENTIRE GROSS RECEIPT TO TAX. ASSESSMENT OF INCOME IS TO BE MADE AS PER THE PROVISIONS OF THE ACT, ALLOWING ALL PERMISSIBLE EXPENSES INCURRED IN THE COURSE OF EARNING ITS INCOME BY THE ASSESSEE AS AN UNREGISTERED TRUST/AOP . INCOME WAS ACCORDINGLY ASSESSED AT RS.137.51 LACS, MAKING AS MANY AS EIGHT ADJUSTMENTS TO THE DEFICIT OF RS. 27.19 LACS AS PER THE INCOME & EXPENDITURE ACCOUNT. THE SAME BEING CONFIRMED IN APPEAL FOR THE SAME REASONS, THE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED MATERIAL ON RECORD. 3.1 WE MAY ENLIST THE VARIOUS REASONS FOR, CONSTIT UTING THE BROAD AREAS UNDER, WHICH ADDITIONS STAND MADE IN ASSESSMENT: (A) INTERNAL TRANSFERS (TYPE - A) : THE TRUSTS MAIN OFFICE IS THE MANDAL, AT BHIWANDI, DISTRICT THANE. THE EDUCATIONAL & SOCIAL ACTIVITIES OF THE TRUST ARE CARRIED OUT THROUGH DIFFEREN T COMMITTEES, SUCH AS EDUCATION COMMITTEE, ORGANIZATION COMMITTEE, CONSTRUCTION COMMITTEE, HOSTEL COMMITTEE, ETC. THE SCHOOLS, COLLEGES, KENDRAS, ETC. RUN ARE THE UNITS. EACH ENTITY MAINTAINS ITS SEPARATE BOOKS OF ACCOUNTS. THERE IS REGULAR TRANSFER O F FUNDS FROM ONE TO ANOTHER, VIZ. FROM MANDAL TO COMMITTEE, FROM MANDAL TO UNIT, FROM UNIT TO MANDAL, FROM COMMITTEE TO MANDAL, ETC. THE FIRST TYPE OF IRREGULARITY OBSERVED BY THE AUDITORS IS WHERE THE RECIPIENT RECORDS THE RECEIPT IN ITS BOOKS OF ACCOUNTS , WHILE THERE IS NO CORRESPONDING TRANSFER RECORDED IN THE BOOKS OF THE PAYER/TRANSFEROR. E.G. WHILE A UNIT RECORDS A RECEIPT IN ITS BOOKS FROM MANDAL, 3 ITA NO. 2919/MUM/2012 (A.Y. 2003 - 04) PADMASHREE ANNASAHEB JADHAV BHARATIYA SAMAJ UNNATI MANDAL VS. DY. CIT THERE IS NO DEBIT OR PAYMENT THERETO IN THE ACCOUNTS OF THE MANDAL. THE SOURCE OF RECEIPT BEING THUS UNE XPLAINED, THE SAME IS ADDED U/S. 68. (B) INTERNAL TRANSFERS (TYPE - B) : UNDER THIS CATEGORY, THE TRANSFER IS RECORDED IN THE ACCOUNTS OF THE TRANSFEROR BUT NOT THAT OF THE TRANSFEREE. IN AS MUCH AS THE FUNDS SO TRANSFERRED, BEING UNACCOUNTED BY THE OSTENSIB LE RECIPIENT, COULD NOT POSSIBLY BE APPLIED FOR THE OBJECTS OF THE TRUST, THE SAME WERE DISALLOWED. (C) BOGUS & INFLATED EXPENDITURE : WITH A VIEW TO VERIFY THE EXPENDITURE; THERE BEING ALLEGATIONS OF LARGE SCALE SIPHONING OFF/LEAKAGE OF FUNDS, THE AUDITOR S COMMUNICATED DIRECTLY WITH THE SUPPLIERS. SOME DENIED ANY SUPPLY BY THEM WHILE OTHERS DENIED RECEIPT OF CASH, OSTENSIBLY PAID TO THEM (AS PER THE ASSESSEES BOOKS) AGAINST THE SUPPLIES MADE BY THEM. NO CONFIRMATION WAS RECEIVED FROM SOME OTHERS. THESE DI SCREPANCIES STANDS LISTED AT PARA 11.2 (PAGES 23 - 24) OF THE ASSESSMENT ORDER. THE ASSESSE FAILING TO FURNISH ANY EXPLANATION IN RESPECT OF SAME THE ENTIRE EXPENDITURE, SO CONTRADICTED, PERTAINING TO OR AS APPORTIONED FOR THE RELEVANT YEAR, WAS DISALLOWED ( DETAILS AT PAGE 25 OF THE ASSESSMENT ORDER). (D) UNRECORDED RECEIPTS IN THE SUM OF RS.1,91,377/ - WERE FOUND BY THE AUDITORS WHILE AUDITING THE BOOKS OF A UNIT KHODALA VIBHAG HIGH SCHOOL, I.E., ON THE BASIS OF RECEIPTS, OF WHICH RS.12,416/ - PERTAINED TO AN EARLIER YEAR. YEAR - WISE BREAKUP FOR THE BALANCE RS.1,78,961/ - BEING NOT APPLICABLE, 1/13 THEREOF WAS ADOPTED AS AMOUNT APPLICABLE FOR THE CURRENT YEAR. 3.2 WE SHALL PROCEED GROUND - WISE. HOWEVER, IT NEEDS TO BE CLARIFIED AT THE OUTSET THAT THE REGISTRA TION OF THE TRUST STANDS CANCELLED BY THE COMPETENT AUTHORITY, AND WHICH HAS SINCE BEEN UPHELD BY THE TRIBUNAL. THAT APART, THE FUNDS OF THE TRUST HAVE INURED DIRECTLY FOR THE BENEFIT OF TRUSTEES, AND THE TRUST IS CLEARLY NOT WORKING FOR ITS STATED OBJECTS , SO THAT SECTIONS 13(3) AND 13(1)(C) OF THE ACT STAND ATTRACTED. THOUGH THE ASSESSE HAS PER ITS GROUND 1 QUESTIONED THE WITHDRAWAL OF EXEMPTION U/S. 11 , THE SAME IS AN ADMITTED FACT, WITH IN FACT EVEN NO ARGUMENTS HAVING BEEN RAISED BEFORE US DURING THE H EARING IN ITS RESPECT. WHY, EVEN THE ORDER U/S. 264 IS BASED ON THIS PREMISES; THE LD. CIT CLEARLY DIRECTING THE AO TO ALLOW ALL DEDUCTIBLE EXPENSES INCURRED IN THE COURSE OF CARRYING ITS ACTIVITIES, SO THAT ASSESSING AT GROSS RECEIPT WAS 4 ITA NO. 2919/MUM/2012 (A.Y. 2003 - 04) PADMASHREE ANNASAHEB JADHAV BHARATIYA SAMAJ UNNATI MANDAL VS. DY. CIT PLAINLY INAPPOSIT E, I.E., EVEN FOR AN UNREGISTERED TRUST/INSTITUTION. GROUND 1, WHICH IS CAST IN GENERAL TERMS, STANDS, THUS, DISMISSED. THE SECOND ASPECT WHICH WE WISH TO CLARIFY IS THAT THE ASSESSEE STANDS ALLOWED ABUNDANT OPPORTUNITY TO EXPLAIN ITS CASE BOTH BY THE AS SESSING AND THE FIRST APPELLATE AUTHORITY. REFERENCE IN THIS CONTEXT IS MADE TO PARAS 4 & 5 OF THE ASSESSMENT ORDER & PARAS 2 & 2.1 OF THE IMPUGNED ORDER. RATHER, THE PLEA RAISED BEFORE US BY THE LD. AR WAS THAT THE AUDIT REPORT, WHICH FORMS THE BASIS OF T HE IMPUGNED ASSESSMENT, HAD NOT BEEN FURNISHED TO THE ASSESSEE. EVEN AS NO SUCH OBJECTION HAD BEEN RAISED BEFORE THE AO , OR EVEN THE LD. CIT(A), AND THE OBJECTION EVEN OTHERWISE PRIMA FACIE UNSUSTAINABLE, THE BENCH, ALLOWING THE ASSESSE BENEFIT OF DOUBT AN D, FURTHER, IF ONLY TO ALLAY ANY DOUBT IN THE MATTER, CALLED FOR THE ASSESSMENT RECORD, AND WHEREAT THE LD. AR CONCEDED TO IT BEING NOT SO, AND THAT THE SAID AUDIT REPORT HAD BEEN DULY SUPPLIED TO ASSESSEE. IN FACT, THERE IS A REFERENCE TO THE SAID AUDIT R EPORT IN THE ASSESSEES REPLY DATED 14.12.2010, REPRODUCED AT PARA 6 OF THE ASSESSMENT ORDER. 3.3 GROUNDS 2 TO 7 RELATE TO THE OBJECTIONS (A) & (B) AT PARA 3.1 ABOVE, I.E., FOR PURPORTEDLY INTERNAL TRANSFERS. WHILE FOR THE FIRST CATEGORY, THE SOURCE OF FU NDS IS UNKNOWN, QUA THE SECOND IT IS THE AVENUE OF FUNDS THAT REMAINS UNKNOWN AND, THUS, UNEXPLAINED. SECTION 68 IS CLEARLY ATTRACTED QUA THE FIRST CATEGORY. FOR THE SECOND (TYPE - B) CATEGORY, HOW, WE WONDER, AS ALSO EXPRESSED DURING HEARING, WOULD IT LEAD TO ANY INCOME, OR INCOME BEING ASSESSED, IN THE HANDS OF THE ASSESSEE. THERE HAS BEEN LARGE SCALE MISFEASANCE OF FUNDS BY THE TRUSTEES, SO THAT IT MAY WELL BE THAT THE FUNDS STAND MISAPPROPRIATED. NO EXCLUSION FOR APPLYING THE INCOME FOR THE OBJECTS OF THE TRUST - WHICH WOULD, EVEN WHERE APPLICABLE, REQUIRE BEING PROVED, IS TO BE ALLOWED. THERE IS ACCORDINGLY NO QUESTION OF THE UNKNOWN OR UNEXPLAINED DESTINATION OF FUNDS RESULTING IN INCOME BEING ASSESSED. FOR THE FIRST (TYPE - A) CATEGORY, WE HAVE ALREADY EX PRESSED, AS ALSO DURING HEARING, THAT SECTION 68 STANDS RIGHTY INVOKED IN - AS - MUCH AS THE SOURCE AND, IN FACT, EVEN THE NATURE OF CREDIT /S REMAINS COMPLETELY UNEXPLAINED. 5 ITA NO. 2919/MUM/2012 (A.Y. 2003 - 04) PADMASHREE ANNASAHEB JADHAV BHARATIYA SAMAJ UNNATI MANDAL VS. DY. CIT THE SAME WOULD STAND TO BE AGGREGATED ACROSS ALL SUCH TRANSFERS. WE MAY AT THIS STAG E ALSO MEETS THE ASSESSEES OBJECTION FOR BEING ASSESSED AT 1/13 OF THE AGGREGATE SUM FOR 13 YEARS (FOR EACH TRANSACTION TYPE) FOR WHICH THE SPECIAL AUDIT WAS ORDERED AND CONDUCTED. THE IRREGULARITIES POINTED OUT ARE NOT DENIED. THE ASSESSE, WHO HAS BEEN F OUND TO MAINTAIN DUPLICATE, NAY, EVEN TRIPLICATE SET OF ACCOUNT BOOKS, I.E., TO SUIT DIFFERENT PURPOSES, HAS NOT AT ANY STAGE EXPLAINED THE DISCREPANCIES OR EVEN PRODUCED MATERIAL TO ENABLE THE YEAR - WISE BREAKUP. THE AO IS OBLIGED TO ADOPT A REASONABLE MET HOD, AND WHICH HE UNDER THE CIRCUMSTANCES DOES BY ALLOCATING THE AMOUNT FOR THE CURRENT YEAR ON A (TIME) PROPORTION(ATE) BASIS. HIS SAID ACT ACCORDINGLY CANNOT BE FAULTED WITH ON THAT SCORE. WE DECIDE ACCORDINGLY, AND ASSESSEE FAILS ON ITS GROUND 2 TO 5 AN D 7 TO 8, WHILE IT SUCCEEDS ON ITS GROUND 6. 3.4 GROUND 8 RELATES TO THE DISALLOWANCE/ADDITION FOR BOGUS/INFLATED EXPENDITURE. FOR BACKGROUND FACTS, REFER PARA 3.1 (C) OF THIS ORDER. NO EXPLANATION OR MATERIAL IN SUPPORT OF ITS CASE HAS BEEN FURNISHED OR ADVANCED BY THE ASSESSEE AT ANY STAGE. SO HOWEVER, WE ARE UNABLE TO COMPREHEND AS TO WHY ANY DISALLOWANCE WOULD ARISE WHERE THE SUPPLIES ARE CONFIRMED AS MADE BY THE CONCERNED SUPPLIER/S. TRUE, NO PAYMENT IS STATED AS RECEIVED BY IT, EVEN AS IT IS REFLECT ED IN THE ASSESSEES ACCOUNTS. BUT, THEN, THE FUNDS HAVING BEEN MISAPPROPRIATED, IT MAY WELL BE THAT THE PAYMENT/S, OSTENSIBLY MADE TO THE SUPPLIERS, STANDS APPROPRIATED BY THE TRUSTEES. THAT DOES NOT HOWEVER MEAN THAT EITHER NO EXPENDITURE STANDS INCURRED ON THE RELEVANT PURCHASES OR THAT THE SUPPLIERS - TO WHOM THEREFORE PAYMENTS SHALL HAVE TO BE MADE, HAD WAIVED THEIR DUES AGAINST SUPPLIES THAT STAND SINCE CONFIRMED. THERE IS ALSO NO CASE FOR INVOCATION OF SECTION 41(1). EXCEPTING SUCH CASES (OF CONFIRME D SUPPLIES), AND THE CORRESPONDING SUMS, INCLUDING OF PARTIAL DENIAL OF SUPPLY (LISTED AT SERIAL NOS. (II) & (III) OF PARA 11.2 (PAGE NO.25) OF THE ASSESSMENT ORDER), SO THAT DEDUCTION IS EXIGIBLE FOR THE SUPPLIES CONFIRMED, THE DISALLOWANCE IS IN ORDER. 6 ITA NO. 2919/MUM/2012 (A.Y. 2003 - 04) PADMASHREE ANNASAHEB JADHAV BHARATIYA SAMAJ UNNATI MANDAL VS. DY. CIT THE AO SHALL HOWEVER EXAMINE THE ASPECT OF TELESCOPING OF THE SAID DISALLOWANCE AGAINST THE ADDITIONS CONFIRMED U/S. 68. THIS IS SO, AND EVEN AS THE TWO ADJUSTMENTS CAN BE MADE INDEPENDENTLY, WITH THE BURDEN OF PROOF FOR TELESCOPING BEING ON THE ASSESSEE, THE OUT - OF - BOOKS GENERATION OF FUNDS BY BOOKING BOGUS/INFLATED EXPENDITURE CAN DEFINITELY BE SAID AS FORMING A SOURCE - TO THAT EXTENT, OF UNEXPLAINED FUNDS (CREDITS) ADDED U/S. 68. THE ASSESSEE GETS PART RELIEF. 3.5 GROUND 9 IS QUA OBJECTION (D). THE SA ME IS DISMISSED AS NOT PRESSED. THE SAME BEING IN RESPECT OF UNRECORDED RECEIPTS IN ACCOUNTS, IS EVEN OTHERWISE APPROPRIATE ON MERITS. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 11, 201 6 SD/ - SD/ - ( AMARJEET SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 11 . 1 1 .201 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI