DCIT, Trichy V. M/s. Society for Educational Village Action and Improvement, Trichy

ITA 432/CHNY/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9244 (ITAT-CHENNAI)
• Duration Of Justice: 6 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-04-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 06-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Diversion of income; Onus to prove
• Section: 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . ! , '!# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 432/MDS/2010 ' $ %$ / ASSESSMENT YEAR : 2006-2007 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, TIRUCHIRAPALLI 620 001. VS. M/S. SOCIETY FOR EDUCATIONAL VILLAGE ACTION AND IMPROVEMENT, NO.6, 3 RD STREET, ANNANAGAR, PETTAVAITHALAI, TRICHY 639 112. [PAN AABTS 1169D ] ( / APPELLANT) ( /RESPONDENT) &' ( ) / APPELLANT BY : SHRI. A.V. SREEKANTH, IRS, JCIT. *+&' ( ) /RESPONDENT BY : SHRI. S. SRIDHAR, ADVOCATE ( , / DATE OF HEARING : 12-04-2016 -.% ( , / DATE OF PRONOUNCEMENT : 25-05-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), TIRUCHIRA PPALLI, IN ITA NO.252/08-09, DATED 01.01.2010 FOR THE ASSESSMENT Y EAR 2006-07, ITA N.432/ MDS /2010. :- 2 -: PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE HAS FAILED THE FOLLOWING GROUNDS:- 2) THE LEARNED CIT(A)'S FINDING THAT THE ASSESSIN G OFFICER HAS FAILED TO ESTABLISH INFLATION OF EXPENDITURE AN D DIVERSION OF FUND IS NOT CORRECT. HE OUGHT TO HAVE APPRECIATE D THE FACT THAT THE ASSESSING OFFICER FOUND LARGE SCALE DISCRE PANCIES IN THE CLAIM OF EXPENSES UNDER THE HEADS LABOUR PAYMENTS AND PURCHASE OF STEEL, POINTED OUT SPECIFI C DISCREPANCIES ILLUSTRATIVELY AS NARRATED IN ANNEXUR E-I TO THE ASSESSMENT ORDER, PROVING THE INFLATION OF EXPENSES RESULTING INTO SIPHONING OF FUNDS BY THE MANAGEMENT OF THE SOCIETY. THIS WAS IN VIOLATION OF THE PROVISIONS CO NTAINED UNDER SEC. 13 (2)(G) READ WITH SUB-SECTION 3 (CC) O F THE ACT. 3) THE LEARNED COMMISSIONER OF INCOME TAX(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSING OFFICER FOUN D THAT THE ASSESSEE HAS NOT DISCHARGED THE ONUS TO PROVE GENUINENESS OF EXPENDITURE TOWARDS PURCHASE OF STEE L. 4) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OUG HT TO APPRECIATE THE FACT THAT THE ASSESSING OFFICER B ROUGHT ON RECORD THAT THE CLAIM OF LABOUR PAYMENTS TO THE TUN E OF RS.4I.35 LAKHS WAS BOGUS AS IT WAS BASED ON DUBIOUS VOUCHERS. HE FOUND THAT THE ASSESSEE CLAIMED EXPENS ES AS PAID ON SEPTEMBER 31, 2005 AND NOVEMBER 31, 2005, T HE DATES WHICH ARE NON- EXISTENT, AMPLY PROVE THAT THE FUNDS WERE SIPHONED OFF BY THE MANAGERS OF THE SOCIETY AN D THIS WAS IN VIOLATION OF THE PROVISIONS CONTAINED UNDER SEC. 13(2)(G) READ WITH SUB-SECTION 3 (CC) OF THE A CT. 5) THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSING OFFICER MADE A FAIR ESTIMATION OF INFLATI ON OF EXPENDITURE ON THE BASIS OF MATERIAL EVIDENCE FOUND OUT BY HIM AT THE RATE OF 5% OF EXPENSES CLAIMED TO HAVE BEEN SPENT. THE LEARNED CIT(A) OUGHT TO HAVE CONFIRMED T HE ORDER OF THE ASSESSING OFFICER. 6) THE LEARNED COMMISSIONER OF INCOME TAX(A) FAILE D TO NOTE THAT AS PER SEC.13(2)(G) R.W. SECTION 3 (CC), IF ANY INCOME OF THE SOCIETY IS DIVERTED DURING THE PREVIO US YEAR IN FAVOUR OF ANY TRUSTEE OF THE TRUST OR MANAGER(BY WHATEVER NAME CALLED) OF THE INSTITUTION, PART OF S UCH ITA N.432/ MDS /2010. :- 3 -: INCOME SHALL BE DEEMED TO HAVE BEEN USED OR APPLIED FOR THE BENEFIT OF A PERSON REFERRED TO IN SUB SECTION (3) OF SECTION 13. IN 'THIS CASE, THE ASSESSING OFFICER PR OVED THAT THE FUNDS OF THE SOCIETY WERE SIPHONED OFF BY THE MANAGERS OF THE SOCIETY BY MAKING INFLATED CLAIM OF EXPENSES UNDER DUBIOUS VOUCHERS TOWARDS PAYMENT OF LABOUR CHARGES AND PURCHASE OF STEEL. THE COMMISSIO NER OF INCOME TAX(A) FAILED TO CONSIDER THIS VITAL ASPECT . 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE IS A SOCIETY REGISTERED U/S.12A OF THE ACT FROM ASSESSMENT YEAR 1993-1994 AND FILED RETURN OF INCOME ADMITTING NIL INCOME AND TH E CASE WAS SELECTED UNDER SCRUTINY NORMS AND NOTICE U/S.143(2) OF THE A CT WAS ISSUED. IN COMPLIANCE TO NOTICE, THE LD. AUTHORISED REPRESENTA TIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND PRODUCED BOOKS OF AC COUNT, VOUCHERS AND DETAILS. THE LD. ASSESSING OFFICER FOUND DURI NG THE FINANCIAL YEAR THE ASSESSEE HAS ADMITTED GRANTS/CONTRIBUTIONS, BAN K INTERESTS OF RS.14,63,74,167/- AS APPLICATION OF FUNDS TO VARIO US ACTIVITIES. THE MAIN ACTIVITIES CARRIED BY SOCIETY ARE RURAL DEVELO PMENT, DEWOS ROOFING, AEM-CHILDREN CARE AND EDUCATION PROJECT, P RO-VICTIMS TRICHY HOUSING PROJECT, SAVE THE CHILDREN, IMPROVEMENT OF TEMPORARY SHELTERS, OXFAM- TRICHY FLOOD RELIEF INSTITUTION SH ELTER PROGRAMME AEA-EQUITABLE REHABILIATION OF TSUNAMI VICTIMS, CAR E COMMUNITY BOAT IN PROJECT, PALAYAR, CMP- POOMPUHAR BOAT PROJECT, C AR WATSAN, FDF- IMMEDIATE FEEDINGS, UNITED WAY-BOAT PROGRAMME, OXFA M PHP, SSA- IED PROGRAMME, CARE-PERMANENT HOUSING ETC. THE LD . ASSESSING ITA N.432/ MDS /2010. :- 4 -: OFFICER PERUSED THE APPLICATION OF EXPENDITURE OF D14.63 CRORES WITHIN A SPAN OF ONE YEAR TOWARDS CONSTRUCTION OF BUILDING S, SHELTERS AND RELIEF AND REHABILITATION ACTIVITIES TO THE TSUNAMI VICTIMS. THE LD. ASSESSING OFFICER CALLED FOR EXPLANATIONS OF EXPEND ITURE INCURRED ON PROJECTS AS UNDER:- SL.NO PARTICULARS OF PROJECT AMOUNT SPENT 1 DESOWS ROOFING 15,00,090 2 PRAVICFIMS TRICHY HOUSING PROJECT 43,89,731 3 SAVE THE CHILDREN IMPROVEMENT OF TEMP. SHELTER 21,75,260 4 OXFAN-TRICHY FLOOD RELIEF INSTITUTION SHELTER 23,83,492 5 CARE WATSAN 20,68,453 6 FD-FRERES DE NOS FRERES IMMEDIATE 2,76,78,501 7 UNITED WAY-UW BOAT PROGRAMME 48,98,192 8 CARE PERMANENT HOUSING 4,80,98,151 9 SSA-IED PROGRAMMED 33,61,189 THE LD. ASSESSING OFFICER MADE LIST OF DEFECTIVE VOUCHERS OF EXPENDITURE AND STATEMENT OF OFFICE BEARERS AND A SSISTANTS WERE RECORDED. THE MAJOR EXPENDITURE INCURRED TOWARDS PR OJECTS OF TSUNAMI VICTIMS AND ON SAMPLE TECHNIQUES BASED ON MASTER RO LLS AND THE PAYMENTS THE LD. ASSESSING OFFICER FOUND CERTAIN DI SCREPANCIES IN RESPECT OF THE NAMES, SIGNATURE AND COLUMNS. THE LD . AUTHORISED REPRESENTATIVE EXPLAINED THAT ASSESSEE SOCIETY HAS MADE SUBSTANTIAL EXPENDITURE TOWARDS PROJECTS, THE LD. ASSESSING O FFICER IS OF THE ITA N.432/ MDS /2010. :- 5 -: OPINION THAT EXPENDITURE IS INFLATED BY FICTITIOUS NAMES AND WRONG VOUCHERS. FURTHER THE FUNDS OF THE SOCIETY ARE DI VERTED. THE ASSESSEE SOCIETY PURCHASED STEEL FOR THE PROJECT WORK AT NA GAPATTINAM AND AMOUNT OF D91.20 LAKHS WAS PAID TO SUPPLIER, WHO CL OSED THE BUSINESS AFTER THE SALE TRANSACTION AND SUPPLIER WAS ESTABL ISHED AS ACCOMMODATION SUPPLIER TO THE PROJECT. THE LD. ASS ESSING OFFICER WITH THESE OBSERVATIONS AND THE STATEMENTS OF OFFICE IN-CHARGE HAS CONCLUDED THAT EXPENDITURE WAS NOT PROPERLY ACCOUNT ED AND WITHOUT FURTHER INVESTIGATION FORMED AN SUSPICIOUS OPINIO N THAT SOCIETY WAS ENGAGED IN DIVERSION OF FUNDS. FURTHER CONSIDERING THE VOLUME OF EXPENDITURE INCURRED BY THE SOCIETY DISALLOWED 5% OF APPLICATION OF FUNDS AS INCOME AND PASSED ASSESSMENT ORDER U/S. 14 3(3) OF THE ACT DATED 29.12.2008 ALONGWITH ANNEXURES. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE COMMISSIONE R OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE COMMISSIONER OF I NCOME TAX (APPEALS) HAS CONSIDERED THE GROUNDS AND FINDI NGS OF THE ASSESSING OFFICER. THE LD. AUTHORISED REPRESENTATI VE OF ASSESSEE MADE A EXHAUSTIVE SUBMISSIONS AND ARGUED THE GROUND S DULY SUPPORTED BY JUDICIAL DECISIONS WHICH THE LD. COMMI SSIONER OF INCOME ITA N.432/ MDS /2010. :- 6 -: TAX (APPEALS) HAS DEALT IN HIS ORDER AT PAGE NOS. 7 TO 12. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) EXAMINED THE O BJECTIONS, SUBMISSIONS AND JUDICIAL DECISIONS. THE ASSESSEE I S A NGO WITH OBJECTIVE WORK IN THE FIELD OF POVERTY ELIMINATION, HOUSING ORPHANAGE, HIV PATIENTS FROM YEAR 1984 WITH HIGH LEVEL OF INTE GRITY AND EXPERIENCE. THE DONOR ORGANIZATIONS CAME FORWARD FOR HELP AFTER CAREFUL STUDY AND EVALUATION BASED ON THE PAST RECO RD AND EXPERIENCES OF THE SOCIETY. THE GOVERNMENT OF TAMIL NADU AND G OVERNMENT OF PONDICHERRY HAS APPRECIATED THE WORK FOR QUICKER AN D SUFFICIENT DELIVERY OF TSUNAMI VICTIMS HOUSES. THE LD. AUTHOR ISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS SPENT 94% OF INCOME I.E. D14.63 CRORES AS APPLICATION OF INCOME. THE ASSESSING OFF ICER HAS DISALLOWED D73,78,708/- BEING 5% OF APPLICATION OF FUNDS AS IN FLATION OF EXPENDITURE OF THE PROJECT. EVEN IF D73,78,708/- IS DEDUCTED FROM D14.63 CRORES, THE APPLICATION OF FUNDS COULD WORK OUT TO D13.89 CRORES WHICH COMPLY THE PROVISIONS OF LAW. THE LD. ASSESSI NG OFFICER IDENTIFIED THE MISTAKES IN VOUCHERS AND POSTING OF ACCOUNTING ENTRIES BUT OVERLOOKED CONSTRUCTION OF HOUSES AND THE COST OF C ONSTRUCTIONS. THE ASSESSEE SOCIETY HAS CONSTRUCTED 437 HOUSES AT AVER AGE COST OF D514 PER SQ.FT WHICH IS REMARKABLE LOWER COST COMPARED T O THE CONSTRUCTIONS IN COASTAL DISTRICT, WHICH WORKED OUT TO D700 TO 9 00/- PER SQ.FT. ON ITA N.432/ MDS /2010. :- 7 -: THE ISSUE OF DISPUTE ON LABOUR PAYMENTS THERE IS UR GENT NEED AND EMERGENCY DUE TO NATURAL CALAMITY, THE ASSESSEE CO ULD NOT HAVE A BROADER VIEW OF COST AND PRIORITY GIVEN TO OTHER S ECTORS IN THE PROJECTS. THE LABOUR COST WORKED OUT TO 18.7% ONLY IN THE TOTAL PROJECT. THE SOCIETY WAS WORKING IN THE POST TSUNAM I PROJECTS AND COMPLETED THE PROJECT WITH LOCAL PEOPLE AND UNSKILL ED LABOURS AS THERE WAS URGENT NECESSITY. THE LD. ASSESSING OFFICER FAI LED TO VIEW THE NATURE AND REASONABILITY OF EXPENDITURE DURING POS T TSUNAMI PERIOD WERE COMMUNITY PARTICIPATION INVOLVING LOCAL POOR PEOPLE FOR EMPLOYMENT GENERATION. THE LD. ASSESSING OFFICER H AS POINTED OUT DEFECTS OF MATHEMATICS/ DATES / SIGNATURE/ NAMES A ND NOT APPRECIATED THE MERITS OF SOCIETY IN THE ORGANIZING THE FUNDS TO PROVIDE HOUSES TO THE POOR FISHERMEN COMMUNITY AND TSUNAMI AFFECTED P EOPLE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WITH ABOVE OBS ERVATIONS RELIED ON DECISION OF AMRITSAR TRIBUNAL IN THE CASE OF GURU GOVIND SINGH EDUCATIONAL SOCIETY VS. CIT AND ALSO JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS. NELLAI TRADING AUTOMOBILE AGENCIES (2008) 172 TAXMAN 330 WERE IT WAS OBSERVED THAT NO CONCEALMENT PENALTY I S LEVIABLE IN A CASE OF GENUINE MISTAKE AND ALSO APE X COURT DECISION OF CIT VS. P. MOHANA MOHAN KALA 291 ITR 278(SC). THE ASSESSING OFFICER SHOULD HAVE APPRECIATED THE OBJECTIVES AND CIRCUMST ANCES DEALT RATHER ITA N.432/ MDS /2010. :- 8 -: THAN DISSATISFACTORY NOTE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERING THE OBJECTIVES, ACTIVITIES A ND COMPLYING OF PROVISIONS OF LAW AND APPRECIATED BY GOVERNMENT OF TAMIL NADU AND PONDICHERRY OBSERVED AT PAGE 18 OF THE ORDER AND DELETED THE ADDITION. AGGRIEVED BY THE ORDER OF THE COMMISSION ER OF INCOME TAX (APPEALS) THE REVENUE ASSAILED AN APPEAL BEFORE TR IBUNAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HA S ARGUED THE GROUNDS THAT COMMISSIONER OF INCOME TAX (APPEAL S) HAS DELETED THE ADDITION WITHOUT CONSIDERING THE DISCREPANCIES IN THE CLAIM OF EXPENDITURE AS PER THE ANNEXURE TO THE ASSESSMENT O RDER AND INFLATION OF EXPENDITURE AND ONUS OF PROOF OF PURCHASE OF ST EEL AND MISTAKE COMMITTED IN RECORDING THE ENTRIES IN THE BOOKS AND SOCIETY FUNDS WERE MISMANAGED BY THE MANAGER TOWARDS LABOUR AND P URCHASE OF STEEL. THEREFORE, THE DISALLOWANCE BY THE ASSESSIN G OFFICER AT 5% IS REASONABLE AND THE SOCIETY HAS VIOLATED THE PROVIS IONS OF SEC. 13(2) (G) R.W.S 3(CC) OF THE ACT AND PRAYED FOR ALLOWING THE APPEAL. 6. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIV E RELIED ON THE FINDINGS OF THE COMMISSIONER OF INCOME TAX ( APPEALS), WRITTEN ITA N.432/ MDS /2010. :- 9 -: SUBMISSIONS AND JUDICIAL DECISIONS AND PRAYED FOR D ISMISSING THE APPEAL. 7. WE HEARD RIVAL SUBMISSIONS, PERUSED THE MATERIAL O N RECORD AND JUDICIAL DECISIONS CITED. THE ASSESSEE SOCIETY IS A NON GOVERNMENT ORGANIZATION REGISTERED U/S.12A OF THE ACT IN THE Y EAR 1984 AND HAS BEEN PROVIDING CONSTANT SERVICE TO THE SOCIETY AND ACCOMPLISHING THE OBJECTS AND AIMS WHICH ARE APPRECIATED BY THE SOCI ETY AND GOOD TRACK RECORD IN RENDERING HUMAN SERVICE TO THE POOR PEOPL E OF SOCIETY. THE LD. ASSESSING OFFICER WITHOUT APPRECIATING THE BACK GROUND AND THE ACHIEVEMENTS WHICH THE ASSESSEE SOCIETY ACCORDED I N THE PAST DECADES. THE LD. ASSESSING OFFICERS OBJECTIONS ARE ON THE ISSUE OF LABOUR PAYMENT, PURCHASE OF STEEL AND STATEMENTS W HICH ELABORATELY DISCUSSED IN ASSESSMENT ORDER. THE LABOUR CHARGES ARE PAID TO THE UNSKILLED ILLITERATE PERSONS WHOSE SERVICES ARE UTI LIZED IN CONSTRUCTING THE SHELTERS IN THE TSUNAMI PERIOD FOR FISHERMEN AN D OTHER POOR PEOPLE WHO LOST THEIR HOUSES AND PERSONAL EFFECTS. THE LABOUR CHARGES ARE ONLY ONE OF THE CONTRIBUTING COST FACTOR IN THE TOTAL PROJECT COST. THE LD. ASSESSING OFFICER HAS NOT DISPUTED ON THE C ONSTRUCTION COST OR NUMBER OF HOUSES CONSTRUCTED WITHIN THE TIME PERIOD TO TSUNAMI VICTIMS. THE LD. ASSESSING OFFICER HAS NOT POINTED IN THE ORDER WITH ITA N.432/ MDS /2010. :- 10 -: EVIDENCE OF MONEY HAS BEEN MISUTILIZED EXCEPT THE R EASONS OF DEFECTIVE VOUCHERS, WRONG NARRATIONS/PARTY AND THE STATEMENT RECORDED. PRIME FACIE NO INDEPENDENT INVESTIGATION WAS CARRIED OUT TO PROVE THE DIVERSION OF INCOME. THE LD. ASSESSING OFFICER WAS SATISFIED WITH THE APPLICATION OF FUNDS AS PER THE PROVISIONS OF LAW AND NOT DISPUTED OTHER EXPENDITURE AND HAS SUMMARILY ESTIM ATED 5% OF EXPENDITURE AS DISALLOWANCE. THE LD.ASSESSING OFFIC ER ACCEPTS THE MISTAKE AND DEFICIENCY IN VOUCHERS BUT SUSPECTED DI VERSION OF FUNDS BY INFLATING THE EXPENDITURE. THE LD. ASSESSING OFFI CER ON SURMISES AND APPLYING SAMPLING TECHNIQUES FOR VERIFICATION OF VO UCHERS CANNOT ECLIPSE THE OBJECTS AND IMAGIE IN RENDERING CONTIN UOUS SERVICES TO SOCIETY FROM THE YEAR 1984 AND COMPLYING THE PROVIS IONS OF LAW AND THERE IS NOT FINDING OF VIOLATION OF PROVISIONS U/S EC. 11(2) OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RELIED ON THE EXHAUSTIVE SUBMISSIONS AND JUDICIAL DECISIONS. FURT HER, SOCIETY HAS APPLIED THE FUNDS FOR OBJECTS MORE THAN 85% OF ITS INCOME. WE ARE OF THE OPINION THAT SOCIETY HAS APPLIED FUNDS FOR ITS PROJECTS WHICH IS MORE THAN 94% OF INCOME IN CONSTRUCTION OF RELIEF HOMES FOR TSUNAMI VICTIMS AND WAS APPRECIATED BY THE GOVERNMENT OF T AMIL NADU AND PONDICHERRY. THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) HAS DEALT ON SUBMISSION AND QUALITY OF EVIDENCE VIZ-A-VIZ EXP LANATION OF ASSESSEE ITA N.432/ MDS /2010. :- 11 -: AND WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND UPHOLD THE SAME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED ON WEDNESDAY, THE 25TH DAY OF MAY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 0 / DATED: 25.05.2016 KV 1 ( *',23 43%, / COPY TO: 1 . &' / APPELLANT 3. 5, () / CIT(A) 5. 389 *',' / DR 2. *+&' / RESPONDENT 4. 5, / CIT 6. 9:$ ; / GF