ITO (OSD), CHENNAI V. Kandukuri Educational and Charitable Trust, CHENNAI

ITA 409/CHNY/2015

• Counselvise Citation: 40921714 RSA 2015
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: R GANESAN
• Keywords: Capital asset; Charitable institution; Reasonable cause; Capital expenditure
• Section: 11; 12AA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.409/MDS/2015 ( )( / ASSESSMENT YEAR : 2010-11 THE INCOME TAX OFFICER (OSD), (EXEMPTIONS)-IV), CHENNAI - 600 034. V. M/S KANDUKURI EDUCATIONAL AND CHARITABLE TRUST, NO.175-A, JAI HINDI APARTMENTS, VELACHERY MAIN ROAD, GOWRIVAKKAM, CHENNAI - 600 073. PAN : AAATK 4945 N (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI N. MADHAVAN, JCIT -.+, / 0 / RESPONDENT BY : SHRI R. GANESAN, FCA 1 / 2% / DATE OF HEARING : 19.05.2015 3') / 2% / DATE OF PRONOUNCEMENT : 29.05.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VII, CHENN AI, DATED 23.06.2014 AND PERTAINS TO ASSESSMENT YEAR 2010-11. 2. SHRI N. MADHAVAN, THE LD. DEPARTMENTAL REPRESENT ATIVE, SUBMITTED THAT THERE WAS A DELAY OF 130 DAYS IN FIL ING THE APPEAL 2 I.T.A. NO.409/MDS/15 BEFORE THIS TRIBUNAL. THE REVENUE HAS FILED AN APP LICATION REQUESTING TO CONDONE THE DELAY. ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER WANTED TO VERIFY THE ASSESSEES S TATUS OF THE REGISTRATION UNDER SECTION 12AA OF THE INCOME-TAX A CT, 1961 (IN SHORT 'THE ACT') BEFORE FILING OF THE APPEAL BEFORE THIS TRIBUNAL. SINCE THE FILE RELATING TO REGISTRATION WAS MAINTAINED IN THE OFFICE OF THE COMMISSIONER AND IT WAS MIXED UP WITH OTHER FILES B ECAUSE OF RESTRUCTURING, THE FILE COULD NOT BE TRACED OUT. T HEREFORE, THERE WAS A DELAY. WE ARE OF THE CONSIDERED OPINION THAT THE DELAY OF 130 DAYS WAS DUE TO RESTRUCTURING OF THE DEPARTMENT AND MIXING UP OF THE FILES. THEREFORE, THERE WAS A REASONABLE CAUSE ON THE PART OF THE REVENUE FOR NOT FILING THE APPEAL WITHIN THE PR ESCRIBED TIME. THEREFORE, WE CONDONE THE DELAY OF 130 DAYS IN FILI NG THE APPEAL AND ADMIT THE APPEAL. 3. NOW COMING TO THE MERIT OF THE APPEAL, SHRI N. M ADHAVAN, SUBMITTED THAT THE ASSESSEE-TRUST IS REGISTERED UND ER SECTION 12AA OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT). THE ASSESSEE IS MANAGING TWO INSTITUTIONS, NAMELY, SAILORS MARITIME ACADEMY AND SAILORS MARITIME EDUCATION & TRAINING INSTITUTE. H OWEVER, THE ASSESSEE HAS NOT RETURNED ANY INCOME FROM SAILORS M ARITIME EDUCATION & TRAINING INSTITUTE. ACCORDING TO THE L D. D.R., THE 3 I.T.A. NO.409/MDS/15 ASSESSEE HAS DISCLOSED INCOME ONLY FROM SAILORS MAR ITIME ACADEMY. THE LD. D.R. FURTHER SUBMITTED THAT THE G ROSS RECEIPT OF SAILORS MARITIME EDUCATION & TRAINING INSTITUTE FOR THE ASSESSMENT YEAR 2010-11 WAS ` 2,22,05,277/-. DURING THE COURSE OF EXAMINATION, THE ASSESSING OFFICER FOUND THAT THE INCOME FROM SA ILORS MARITIME EDUCATION & TRAINING INSTITUTE HAS TO BE INCLUDED I N THE INCOME OF THE ASSESSEE-TRUST. ACCORDING TO THE LD. D.R., HOW EVER, THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE TO T HE EXTENT OF ` 20,67,984/- WHICH WAS INCURRED TOWARDS CAPITAL ASSE T AS APPLICATION OF INCOME. ACCORDING TO THE LD. D.R., THERE WAS NO CLAIM MADE BY THE ASSESSEE AS APPLICATION OF INCOME . THEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE C LAIM OF THE ASSESSEE. THE LD. D.R. FURTHER POINTED OUT THAT TH E ASSESSEES CLAIM OF APPLICATION OF FUND TO THE EXTENT OF ` 48,57,842/- IN THE RETURN OF INCOME WAS RESTRICTED TO ` 40,79,975/- BY THE ASSESSING OFFICER. THE CLAIM OF THE ASSESSEE WITH REGARD TO SAILORS MA RITIME EDUCATION & TRAINING INSTITUTE TO THE EXTENT OF ` 20,67,984/- WAS A FRESH CLAIM WHICH WAS NOT MADE DURING THE COURSE OF THE ASSESSM ENT PROCEEDINGS. SINCE THE CLAIM WAS NOT MADE IN THE R ETURN OF INCOME, ACCORDING TO THE LD. D.R., IT CANNOT BE ALLOWED. T HE LD. D.R. FURTHER SUBMITTED THAT THE CAPITAL EXPENDITURE IS NOT AN AL LOWABLE ITEM AS APPLICATION OF INCOME. ACCORDING TO THE LD. D.R., CAPITAL 4 I.T.A. NO.409/MDS/15 EXPENDITURE WAS INCURRED OUT OF BORROWED FUNDS, THE REFORE, IT CANNOT BE ALLOWED IN COMPUTING THE TOTAL INCOME. 4. REFERRING TO THE FEES PAID BY THE ASSESSEE AS DI RECT LINE PROGRAMME (DLP) AND DLP FEES, THE ASSESSEE COULD NO T PRODUCE ANY MATERIAL TO SHOW THAT THE EXPENDITURES WERE INC URRED. REFERRING TO PARA 12 OF THE ASSESSMENT ORDER, THE LD. D.R. SU BMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY BILLS AND VOUCHERS TO WARDS THE PAYMENTS. THEREFORE, THE CIT(APPEALS) IS NOT JUSTI FIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 5. ON THE CONTRARY, SHRI R. GANESAN, THE LD. REPRES ENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAD PRODU CED BILLS AND VOUCHERS BEFORE THE ASSESSING OFFICER AND TAX WAS A LSO DEDUCTED. THE BILLS WERE ALSO PRODUCED BEFORE THE CIT(APPEALS ). THEREFORE, IT IS NOT CORRECT TO SAY THAT THE BILLS AND VOUCHERS W ERE NOT PRODUCED BEFORE THE ASSESSING OFFICER. HENCE, THE CIT(APPEA LS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. COMING TO THE D ISALLOWANCE OF ` 20,67,984/-, THE LD. REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS RUNNING TWO INSTITUTIONS, NAMELY, SAILORS MARIT IME ACADEMY AND SAILORS MARITIME EDUCATION & TRAINING INSTITUTE. A CCORDING TO THE LD. REPRESENTATIVE, THE ACTIVITIES OF SAILORS MARIT IME EDUCATION & TRAINING INSTITUTE WERE MANAGED BY ANOTHER TRUST, N AMELY, 5 I.T.A. NO.409/MDS/15 KANDUKURI BANGARAMMA EDUCATION AND CHARITABLE TRUST . THEREFORE, INCOME FROM SAILORS MARITIME EDUCATION & TRAINING INSTITUTE WAS NOT INCLUDED IN THE INCOME OF THE ASS ESSEE-TRUST. SINCE THE ASSESSING OFFICER INCLUDED THE INCOME OF THE SAILORS MARITIME EDUCATION & TRAINING INSTITUTE, THE EXPEND ITURE INCURRED BY THE SAID INSTITUTE IS ALSO TO BE ALLOWED. THE ASSE SSEE, IN FACT, INCURRED THE EXPENDITURE TO THE EXTENT OF ` 20,67,984/- FOR THE CAPITAL ASSET. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOWED AS APPLICATION OF INCOME UNDER SECTION 1 1 OF THE ACT. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. LETS FIRS T TAKE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS DLP PROGRAMME FEES AND DLP FEES. THE ASSESSING OFFICER SAYS THAT NO BILLS AND VOUCHERS WERE PRODUCED BEFORE HER. HOWEV ER, THE ASSESSEE CLAIMED BEFORE THE CIT(APPEALS) THAT BILLS AND VOUCHERS WERE PRODUCED BEFORE THE ASSESSING OFFICER ALSO. T HE SAID BILLS WERE PRODUCED BEFORE THE CIT(APPEALS) ALSO. THEREF ORE, THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE. SI NCE THERE WAS A DISPUTE WHETHER THE BILLS AND VOUCHERS WERE PRODUCE D BEFORE THE ASSESSING OFFICER OR NOT, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT GIVING ONE MORE OPPORTUNITY TO THE ASSESSING O FFICER TO 6 I.T.A. NO.409/MDS/15 EXAMINE THE BILLS AND VOUCHERS MAY NOT PREJUDICE TH E INTEREST OF THE ASSESSEE IN ANY WAY. SINCE THE ASSESSEE SUBMITS T HAT THE BILLS AND VOUCHERS WERE PRODUCED FOR THE EXPENDITURE INCU RRED BY IT BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(APPEALS), THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT EXA MINING THE SAME BY THE ORIGINAL ASSESSMENT AUTHORITY IS NECESSARY. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND T HE ISSUE OF DISALLOWANCE OF DLP PROGRAMME FEES AND DLP FEES IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASS ESSING OFFICER SHALL RE-EXAMINE THE ISSUE AFRESH IN THE LIGHT OF T HE BILLS AND VOUCHERS THAT WOULD BE FILED BY THE ASSESSEE AND TH EREAFTER DECIDE THE ISSUE BY GIVING REASONABLE OPPORTUNITY TO THE A SSESSEE. 7. NOW COMING TO THE DISALLOWANCE OF ` 20,67,984/-, ADMITTEDLY, INCOME OF THE SAILORS MARITIME EDUCATION & TRAINING INSTITUTE WAS NOT INCLUDED BY THE ASSESSEE IN THE TOTAL INCOME. THOUGH THE ASSESSEE CLAIMS THAT THE SAID INSTITUTE WAS MANAGED BY ANOTHER TRUST, THE ASSESSING OFFICER HAS TAKEN THE INCOME O F THE SAID INSTITUTE, NAMELY, SAILORS MARITIME EDUCATION & TRA INING INSTITUTE AS INCOME OF THE ASSESSEE. THEREFORE, AS OBSERVED BY THE CIT(APPEALS), THE EXPENDITURE RELATING TO THAT INST ITUTE HAS ALSO TO BE ALLOWED WHILE COMPUTING THE INCOME OF THE SAID I NSTITUTE. NOW 7 I.T.A. NO.409/MDS/15 THE ASSESSEE CLAIMS THAT A SUM OF ` 20,67,984/- WAS INCURRED IN THE CAPITAL ASSET. IF THE SAID EXPENDITURE WAS INCURRE D FROM THE INCOME OF THE TRUST, THEN NATURALLY IT HAS TO BE ALLOWED A S APPLICATION OF INCOME UNDER SECTION 11 OF THE ACT. THE REVENUE NO W CLAIMS THAT THE EXPENDITURE WAS INCURRED OUT OF BORROWED FUNDS AND NOT FROM THE INCOME OF THE ASSESSEE. IF THE BORROWED FUNDS WERE USED FOR ACQUISITION OF CAPITAL ASSET, THEN SUCH BORROWED FU NDS CANNOT BE TREATED AS INCOME OF THE ASSESSEE FOR THE YEAR UNDE R CONSIDERATION. AT THE BEST, THE REPAYMENT OF BORROWED FUNDS IN THE RESPECTIVE YEAR CAN BE CONSIDERED AS APPLICATION OF INCOME. THE DE TAILS OF THE BORROWED FUNDS ARE NOT AVAILABLE ON THE FILE OF THI S TRIBUNAL. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATT ER NEEDS TO BE RE- CONSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE. THE ASSESSING OFF ICER SHALL RECONSIDER THE MATTER AFRESH AND FIND OUT THE ACTUA L BORROWAL OF LOAN AND ITS APPLICATION AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. 8 I.T.A. NO.409/MDS/15 ORDER PRONOUNCED ON 29 TH MAY, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) (. !'# ! ) ( . . . ) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 29 TH MAY, 2015. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-VII, CHENNAI-34 4. DIRECTOR OF INCOME TAX (EXEMPTIONS), CHENNAI 5. 7: -2 /DR 6. ( ; /GF.