Muni Seva Ashram, V. The Income tax Officer,Ward-5(1), Baroda

ITA 633/AHD/2008

• Counselvise Citation: 63320514 RSA 2008
• Duration Of Justice: 4 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-02-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 18-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHIJEET KUMAR
• Keywords: Charitable institution
• Section: 11

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' BEFORE SHRI D K TYAGI JUDICIAL MEMBER AND SHRI A L GEHLOT ACCOUNTANT MEMBER ITA NO.633/AHD/2008 (ASSESSMENT YEAR:-2004-05) MUNI SEVA ASHRAM AT & POST: GORAJ, TALUKA: WAGHODIA, DIST. BARODA V/S THE INCOME-TAX OFFICER, WARD-5(1), BARODA PAN: AAATM 2038 E [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI ASHWIN SHAH, AR REVENUE BY:- SHRI ABHIJEETKUMAR, SR. DR DATE OF HEARING:- 08-02-2012 DATE OF PRONOUNCEMENT:- 30-03-2012 O R D E R PER D K TYAGI (JM) :- THIS IS ASSESSEES APPEAL AGAINST AN ORDER DATED 07-12-2007 PASSED BY THE LEARNED COMMIS SIONER OF INCOME-TAX (APPEALS)-V, BARODA [HEREINAFTER REFERRE D TO AS THE LEARNED CIT(A)] FOR ASSESSMENT YEAR 2004-05. [1] THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT PR OVISION OF SEC. 13(1)(C) IS APPLICABLE SINCE THE MISUSE OF FUNDS BY SHRI JIGNASHU PATWA SON OF A TRUSTEE AT THE RELEVANT TIM E AMOUNTS TO BENEFIT TO THE RELATIVE OF THE A TRUSTEE AND THEREB Y HAS ERRED IN HOLDING THAT THE EXPENDITURE INCURRED FOR THE OBJEC TS OF THE TRUST IS NOT ELIGIBLE FOR DEDUCTION UNDER SEC. 11 IN AS M UCH AS THE PROVISION OF SEC. 13(1)(C) ARE NOT VIOLATED. 2 THE APPELLANT SAYS AND SUBMITS THAT ANY INCOME OF T HE TRUST IS NOT USED OR APPLIED DURING THE PREVIOUS YEAR FOR TH E BENEFIT OF A RELATIVE OF A TRUSTEE. THE APPELLANT FURTHER SAYS AND SUBMITS THAT USE OR APPLICATION OF INCOME INVOLVES VOLUNTARY ACT ON THE PART OF TRUSTE E. IN THE PRESENT CASE, IT IS INVOLUNTARY ACT WHEREBY SHRI JI GNASHU PATWA HAS MISAPPROPRIATED THE FUNDS DURING A.Y. 2001-2002 WITHOUT THE KNOWLEDGE OF TRUSTEES INCLUDING HIS FATHER SHRI PIYUSHBHAI PATWA AND THEREFORE SEC. 13(1)(C) IS NOT APPLICABLE . [2] THE LEARNED CIT(A) HAS ERRED IN NOT GRANTING TH E DEDUCTION OF EXPENDITURE OF RS.2,74,78,502 INCURRED FOR THE OBJE CTS OF THE TRUST AND THAT THE SAME IS ELIGIBLE FOR DEDUCTION U NDER SEC. 11 AND THAT THE EXEMPTION UNDER SEC. 11 IS WRONGLY DEN IED BY APPLYING SEC. 13(1)(C) IN AS MUCH AS THE FACTS ARE MIS- APPRECIATED. [3] THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.19,77,634 BEING THE INTEREST RECOVERABLE FROM SH RI JIGNASHU PATWA ON THE AMOUNT OF RS.80,00,000 MIS-APPROPRIATE D BY HIM IN AS MUCH AS THE SAID INTEREST IS APPLIED FOR OBJE CTS OF THE TRUST. [4] THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.3,99,904/- BEING THE AMOUNT MISAPPROPRIATED BY S HRI PRATAP RATHWA IN MUCH AS IT IS THE CAPITAL OF THE TRUST AN D THAT IT IS NOT APPLIED FOR THE BENEFIT OF ANY RELATIVE OF A TRUST. [5] EVEN IF IT IS PRESUMED THAT SEC. 13(1)(C) IS AP PLICABLE THEN IT MAY BE APPLICABLE DURING FINANCIAL YEAR 2000-2001 R ELEVANT TO AY 2001-02 IN WHICH THE FRAUD HAS TAKEN PLACE AND N OT DURING AY 2004-05 IN WHICH THE FRAUD WAS DETECTED BY THE A UDITORS AND IT WAS SO STATED BY WAY OF A FOOT NOTE. 2 THE FACTS OF THE CASE IN RESPECT OF GROUND NOS.1 & 2, AS NOTED BY THE LEARNED CIT(A) IN HIS ORDER ARE AS UND ER:- 2.1 THE APPELLANT IS A TRUST CARRYING ON ACTIVITIE S IN THE NAME OF MUNI SEVA ASHRAM, BAKSHI PANCH ASHRAM WALA, A.P. AR OGYA MANDIR, KAILASH CANCE HOS. & RES. CENTRE, VIVEKANAND HOSTEL , GAU MANDIR, VANKUVA DIVISION, VANPRASTH MANDIR, BHAGINI MANDIR, PLARIVAR 3 MANDIR AND DOING THE MEDICAL RELIEF LAND ACTIVITIES ON EDUCATIONAL AND ALSO RUNNING A OLD HELPAGE CENTRE (GHARDA-GHAR). TH E ASSESSING OFFICER FOUND FROM THE NOTES TO ACCOUNTS FOR THE RE LEVANT FINANCIAL YEAR THAT, ONE SHRI JIGNASHU PATWA AN INSURANCE AGENT CU M-BROKER AND COMMISSION AGENT, WHO IS DOING BUSINESS FOR THE TRU ST, HAS MISAPPROPRIATED THE FUNDS OF THE TRUST. HE ISSUED S HOW-CAUSE LETTER ON 23.11.2006. THE ASSESSING OFFICER POINTED OUT THAT SHRI JIGNASHU PATWA MISAPPROPRIATED THE FUNDS OF THE TRUST BY DIV ERTING FIXED DEPOSITS OF RS.80 LACS BELONGING TO THE TRUST PLACE D WITH GRUH FINANCE LIMITED. SHRI PATWA PLEDGE THIS FIXED DEPOS IT WITH H.D.F.C. BANK BY OPENING A NEW ACCOUNT. THESE FACTS WERE MEN TIONED IN THE AUDITOR'S REPORT FOR THE RELEVANT YEAR. THE AUDITOR S CONCLUDED THAT SHRI PATWA DEFALCATED RS.77,82,366/- BEING FIXED DE POSIT AMOUNT RS.19,77,634/-BEING THE INTEREST AMOUNT FROM THE DA TE OF MATURITY OF THE DEPOSITS TO THE DATE OF RE-PAYMENT. THEY ALSO M ENTIONED THAT THE TRUST HAS STARTED RECOVERING THIS AMOUNT. THE ASSES SING OFFICER HAS ISSUED A SHOW-CAUSE ON THIS ISSUE. 2.2 THE AUTHORIZED REPRESENTATIVE HAVE REPLIED BEFO RE THE ASSESSING OFFICER THAT THE TRUST HAD A TOTAL DEPOSI TS OF RS.1,65,00,000/- WITH GRUH FINANCE LIMITED. THEY WE RE MATURING ON 01.06.2006. OUT OF THIS SHRI PATWA TOOK DEPOSITS WO RTH RS.80 LACS TO OBTAIN A PERSONAL LOAN FROM H.D.F.C. BANK. THIS WAS FOUND OUT BY AUDITORS WHILE CONDUCTING THE AUDIT FOR THE FINANCI AL YEAR 2003-04 IN THE MONTH OF AUGUST, 2004. THEY DETERMINED THE PRIN CIPLE LOAN AMOUNT MISUSED AMOUNTING TO RS.77,82,366/- AND INTE REST OF RS.19,77,634/-. THE TRUST TREATED THIS AMOUNT AS NO T AN INVESTMENT BUT AS A LOAN TO SHRI PATWA FOR THE FINANCIAL YEAR 2003 -04 AND TREATED IT IN THE SAME NATURE TILL ITS RECOVERY. 2.3 THE ASSESSING OFFICER FOUND OUT THAT SHRI JIGNA SHU PATWA IS THE SON OF SHRI PIYUSHBHAI PATWA, WHO IS A TRUSTEE OF T HE APPELLANT TRUST I.E. MUNI SEVA ASHRAM. SHRI JIGNASHU PATWA'S MOTHER SMT. JASHKANTABEN PIYUSHBHAI PATWA IS ALSO DOING THE PRO PRIETARY BUSINESS IN THE NAME OF JALARAM INVESTMENT .CONSULTANTS HAND LING THE DEPOSITS AND LOANS OF THE TRUST. SHRI JIGNASH PATWA'S FATHER IS AN AUTHORIZED SIGNATUREE OF THE TRUST. THE AUTHORIZED REPRESENTAT IVE HAS SUBMITTED A LETTER BEFORE THE ASSESSING OFFICER WRITTEN BY SH RI JIGNASHU PATWA STATING THAT THIS PLEDGING OF THE DEPOSITS ARE DONE BY SHRI PATWA HIMSELF WITHOUT THE KNOWLEDGE OF THE TRUSTEES. HOWE VER, THE ASSESSING OFFICER CONCLUDED THAT THE TRUSTEES AND T HE ACCOUNTANT ARE 4 SUPPOSED TO KNOW THE HAPPENINGS OF THE TRUST. HE AS KED THE AUTHORIZED REPRESENTATIVE TO SUBMITS IF THERE IS AN Y RESOLUTION OR MINUTES RECORDED BY THE TRUST AUTHORIZING THIS TRAN SACTION. THE APPELLANT FAILED TO SUBMIT ANY SUCH THING BEFORE TH E ASSESSING OFFICER. THE ASSESSING OFFICER CONCLUDED THAT THE TRUSTEES A ND SECRETARIES ARE WELL AWARE OF THE INCIDENTS AND ARE RELUCTANT TO FU RNISH CORRECT INFORMATION, IN ORDER TO SAFE-GUARD THEIR OWN INTER EST. HE ADDED THIS AMOUNT OF RS.80 LACS AS INCOME OF THE TRUST, AS PER PARA-8 OF HIS ASSESSMENT ORDER. 2.4 THE ASSESSING OFFICER ARGUED THAT SECTION 13(2) (A) PROVIDES THAT IF ANY PROPERTY OR PART OF INCOME OF THE TRUST IS GIVEN TO SPECIFIED PERSON WITHOUT ADEQUATE SECURITY AND INTEREST, THIS COULD LED TO FORFEITURE OF EXEMPTION U/S. 11 OF THE I.T. ACT. HE HELD THAT SHRI JIGNASHU PATWA BEING THE SON OF THE TRUSTEE SHRI PI YUSHBHAI PATWA HAS MISAPPROPRIATED THE PROPERTY OF THE TRUST AND T HERE IS A BREACH OF SECTION 13(1). HE PLACED HIS RELIANCE ON THE CASE O F BHARAT DIAMOND BOURSE (2003) 259 ITR 280 (SC) AND ON THE CASE OF M UTHOOTTU CHARITABLE TRUST (1997) 227 ITR 203 (SC). HE INVOKE D PROVISIONS OF SECTION 13(1)(C) READ WITH 13(2)(H) AND DENIED EXEM PTION TO THE TRUST. CONSEQUENTLY, THE ENTIRE INCOME OF THE TRUST AMOUNT ING TO RS.2,74,78,502/-WAS TAXED. 3 THE CASE HAS BEEN FIXED FOR HEARING AND SHRI ASHW INI SHAH, F.C.A. AND SHRI B.N. GANDHI, C.A. HAVE APPEARED. TH EY HAVE MADE ORAL AND WRITTEN SUBMISSIONS. THEIR SUBMISSIONS DAT ED 07.03.2007 HAS BEEN FORWARDED TO THE ASSESSING OFFICER AND THE ASS ESSING OFFICER HAS SUBMITTED A REMAND REPORT DATED 23.02.2007. THE ASS ESSING OFFICER HAS REITERATED HIS EARLIER STAND THAT SINCE SHRI JI GNASHU PATWA IS A SON OF THE TRUSTEE, MISAPPROPRIATION IS BY A PERSON CLO SELY CONNECTED WITH THE TRUSTEES. THE BOARD OF TRUSTEES ARE SUPPOSED TO KNOW WHAT IS HAPPENING IN THE TRUST. HE HAS STATED THAT EXEMPTIO N U/S. 11 OR 12 [SHOULD BE DENIED. HE HAS ALSO RELIED ON ORDER OF C IT (APPEALS)-V, IN ORDER NO. CAB/V/135/2005-06 DATED 02.12.2005 IN THE CASE OF PARISAR TRUST WHERE EXEMPTION WAS DENIED, ARTD CONFIRMED BY THE CIT (APPEALS) IN SIMILAR CIRCUMSTANCES. 3.1 THE MAIN THRUST OF THE ARGUMENT OF THE LEARNED AUTHORIZED REPRESENTATIVE IS THAT SHRI PIYUSHBHAI PATWA WAS NO T AWARE OF THE TRANSACTION CARRIED OUT BY THE SON. IN SUBMISSION D ATED 24.04.2007 THE 5 APPELLANT MENTIONED THAT ALTHOUGH SHRI PIYUSHBHAI P ATWA WAS A TRUSTEE BETWEEN 02ND MARCH, 2000 TO 09TH SEPT., 200 4 HE WAS NOT ASSOCIATED WITH RAISING A LOAN FROM H.D.F.C. BANK T HE APPELLANT SUBMITTED THAT 'THOUGH SHRI PIYUSH PATEL WAS PRESEN T IN THE MEETING THE AUTHORITY TO RAISE LOAN WAS GIVEN TO PRESIDENT AND SECRETARY NAMELY, LATE ANUBEN THAKKAR AND CHINUBHAI PARMAR.' THE APPELLANT SUBMITTED THAT SHRI JIGNASHU PATWA HAD TAKEN UN-DUE ADVANTAGE AND HIS FATHER DID NOT PLAY ANY ROLE, SINCE THE ACT WAS UN-AUTHORIZED SECTION 13(1)(C) CANNOT BE INVOKED. THE AUTHORIZED REPRESENTATIVES HAVE ALSO SUBMITTED A COPY OF F.I.R. BEFORE POLICE FILED BY SHRI RAHUL NIRANJANBHAI, THE AREA MANAGER IN GRUH FINANCE PVT. LTD. REGARDING FORGERY OF HIS SIGNATURE BY SHRI JIGNASHU PATWA FOR THE FDRS OF THE TRUST. THE APPELLANT HAS ALSO SUBMITTED IN LETTER D ATED 28.11.2007 THAT THE SO-CALLED FRAUD WAS COMMITTED IN-THE FINANCIAL YEAR 2000-2001 AND THIS CANNOT AFFECT ASSESSMENT YEAR 2004-05. THE APP ELLANT HAS ALSO ARGUED THAT THE ASSESSING OFFICER SHOULD HAVE ALLOW ED THEM THE EXPENDITURE OF RS.12,43,38,739/-INCURRED DURING THE YEAR. 3 AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASS ESSEE, THE LEARNED CIT(A) HAS DISCUSSED THE ISSUE AS UNDER:- 4 I HAVE CONSIDERED THE FACTS OF THE CASE, THE FIN DINGS OF THE ASSESSING OFFICER AND THE SUBMISSIONS MADE LEARNED BY AUTHORIZED REPRESENTATIVES. THE EXEMPTION U/S. 11 HAS BEEN RIG HTLY DENIED BY THE ASSESSING OFFICER TO THE APPELLANT, BECAUSE OF THE FOLLOWING REASONS: 4.1 IT IS A FACT THAT SHRI JIGNASHU PATWA HAS MISUS ED THE PROPERTY / FUNDS OF THE TRUST FOR HIS PERSONAL GAIN. AT THE RE LEVANT TIME AND UP-TO THE ASSESSMENT YEAR 2004-05 HIS FATHER SHRI PIYUSHB HAI PATWA REMAINED A TRUSTEE OF THE APPELLANT-TRUST. IN THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ACTION OF THE SON WAS NOT I N THE KNOWLEDGE OF THE FATHER. AS PER THE PROVISIONS OF SECTION 13(1)( C) OF THE ACT, IF A RELIGIOUS/CHARITABLE TRUST IS ESTABLISHED AFTER MAR CH 31, 1962 AND ANY PART OF ITS INCOME ENURES DIRECTLY OR INDIRECTLY FO R THE BENEFIT OF ANY PERSON SPECIFIED IN SECTION 13(3), THEN ENTIRE INCO ME OF SUCH TRUST IS NOT ELIGIBLE FOR EXEMPTION U/S. 11 OR 12 OF THE ACT . EXEMPTION U/S. 11 OR 12 ALSO BECOMES-INELIGIBLE IF INCOME/PROPERTY OF THE TRUST IS USED, APPLIED DURING THE PREVIOUS YEAR FOR THE DIRECT OR INDIRECT BENEFITS OF THE AUTHOR OF THE TRUST AND OTHER PERSONS MENTIONED IN SECTION 13(3) OF 6 THE ACT. THE PERSONS SO REFERRED TO IN SECTION 13(3 ) INCLUDE ANY RELATIVE OF AUTHOR, FOUNDER, PERSON, MEMBER, TRUSTE E OR MANAGER. THEREFORE, AS IN THIS CASE THE PROPERTY OF THE TRUS T HAS BEEN USED BY THE SON OF AN EXISTING TRUSTEE, SECTION 13 IS SQUARELY APPLICABLE. 4.2 THE SECTION IS FAIRLY STRAIGHT JACKETED. THE AP PELLANT TRUST CANNOT DENY RESPONSIBILITY FOR THE FACTS THAT THE S ON OF THE TRUSTEE HAS MISUSED THE FUNDS. IN THE CASE OF CIT N.V. SANGHAM 246 ITR 164(MADRAS), THE HON'BLE MADRAS HIGH COURT UP-HELD THE INVOKING OF SECTION 13(1)(C) AND DENIAL OF EXEMPTION U/S. 11 OF THE I.T. ACT, AS THE TRUST MADE CERTAIN PAYMENT TO INTERESTED PERSONS EV EN THOUGH ITS LAWS PERMITTED BY THE RULES OF THE TRUST. HON'BLE MADRAS HIGH COURT IN THIS CASE FOLLOWED THE PRINCIPLES LAID DOWN BY SUPREME C OURT IN THE CASE OF CIT. V/S. RATTAN TRUST 227 ITR 356 (S.C). 4.4 IN SEVERAL CASES UNDER SIMILAR CIRCUMSTANCES TH E COURTS OF LAW HAVE HELD UPHELD THE DENIAL OF EXEMPTION BY THE ASS ESSING OFFICER APPLYING THE PROVISIONS OF SECTION 13(1)(C). 4.3 THE ARGUMENT OF THE LEARNED AUTHORIZED REPRESEN TATIVES THAT THE RELEVANT EVENTS OCCURRED LONG BACK IS NOT ACCEP TABLE. THE ASSESSING OFFICER HAS DISCOVERED THE DIVERSION OF T HE FUND FROM NOTES ON ACCOUNT FOR FINANCIAL YEAR 2003-04. HENCE, FOR T HIS YEAR ALSO THE FUNDS OF THE TRUST STILL REMAIN UTILIZED FOR THE PU RPOSE OF AN 'INTERESTED PERSONS'. 4.4 CONSIDERING ALL THE ASPECTS OF THE CASE THE ACT ION OF THE ASSESSING OFFICER IN DENYING THE EXEMPTION U/S. 11 OF THE ACT IS UP- HELD AND THE APPEAL ON THIS GROUND IS DISMISSED. 4 AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. THE LEARNED COUNSEL OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A). THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE AO. 5 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORDS. WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT O NE MR. JIGNASHU 7 PATWA, AN INSURANCE AGENT-CUM-BROKER AND COMMISSION AGENT WHO WAS DOING BUSINESS FOR THE TRUST, MISAPPROPRIAT ED THE FUNDS OF THE TRUST BY DIVERTING FIXED DEPOSITS OF RS.80 L ACS BELONGING TO THE TRUST PLACED WITH GRUH FINANCE LIMITED. MR. JIGNASHU PATWA PLEDGED THESE FIXED DEPOSITS WITH H.D.F.C. BA NK BY OPENING A NEW ACCOUNT. MR. JIGNASHU PATWA HAPPENS T O BE THE A SON OF SHRI PIYUSHBHAI PATWA WHO IS A TRUSTEE OF TH E ASSESSEE- TRUST. THE REVENUES CASE IS THAT MR. JIGNASHU PATW A BEING SON OF SHRI PIYUSHBHAI PATWA, WHO IS A TRUSTEE OF THE ASSE SSEE-TRUST, THE ACTION OF THE SON WAS IN THE KNOWLEDGE OF THE FATHE R AND THEREFORE, AS PER THE PROVISIONS OF SECTION 13(1)(C ) OF THE ACT, IF A RELIGIOUS / CHARITABLE TRUST IS ESTABLISHED AFTER 31-03-1962 AND ANY PART OF ITS INCOME ENURES DIRECTLY OR INDIRECTL Y FOR THE BENEFIT OF ANY PERSON SPECIFIED IN SECTION 13(3), THEN THE ENTIRE INCOME OF SUCH TRUST IS NOT ELIGIBLE FOR EXEMPTION U/S 11 AND 12 OF THE ACT. EXEMPTION U/S 11 AND 12 ALSO BECOMES INELIGIBL E IF INCOME / PROPERTY OF THE TRUST IS USED, APPLIED DURING THE P REVIOUS YEAR FOR THE DIRECT OR INDIRECT BENEFIT OF THE AUTHOR OF THE TRUST AND OTHER PERSONS MENTIONED IN SECTION 13(3) OF THE ACT. SECT ION 13(3) INCLUDES ANY RELATIVE OF AUTHOR, FOUNDER, PERSON, M EMBER TRUSTEE OR MANAGER. SINCE IN THIS CASE THE PROPERTY OF THE TRUST WAS USED BY THE SON OF THE EXISTING TRUSTEE, SECTION 13(3) W AS APPLICABLE AND THEREFORE THE INCOME OF THE ASSESSEE-TRUST WAS NOT TREATED AS EXEMPT U/S 11 AND 12 OF THE ACT. THIS ACTION OF THE AO WAS CONFIRMED BY THE LEARNED CIT(A). THE ASSESSEES CON SISTENT STAND HAS BEEN THAT SHRI PIYUSHBHAI PATWA, TRUSTEE OF THE TRUST WAS NOT AWARE OF THE ACTIVITY OF THE SON MR. JIGNASHU PATWA IN MISAPPROPRIATING THE FUNDS OF THE TRUST. THE AO WAS OF THE VIEW 8 THAT SINCE SHRI PIYUSHBHAI PATWA FATHER WAS AN AU THORIZED SIGNATORY OF THE TRUST, THE FATHER WAS ALSO INVOLVE D IN MISAPPROPRIATION OF THE FUNDS. WHILE THE ASSESSEES CASE HAS BEEN THAT PLEDGING OF THE DEPOSIT WAS DONE BY MR. JIGNAS HU PATWA IN HIS INDIVIDUAL CAPACITY WITHOUT KNOWLEDGE OF HIS FA THER. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE HAS PLACED RELIANCE ON RESOLUTION NOS.2, 4 AND 5 OF THE TRUST ACCORDING TO WHICH THE PRESIDENT AND THE SECRETARY OF THE TRUST WERE AUTHO RIZED SIGNATORIES TO THE RELEVANT TRANSACTIONS AND FATHER SHRI PIYUSHBHAI PATWA WAS NOT AT ALL AUTHORIZED SIGNATOR Y. WE DEEM IT PROPER TO REFER TO THE RELEVANT RESOLUTIONS WHICH A RE AT PAGES 38 AND 39 OF THE PAPER BOOK AND READ AS UNDER:- RESOLUTION NO.2 : IT WAS DECIDED BY RESOLUTION NO.4 OF THE MEETING H ELD ON 17-02-2000 TO PURCHASE LENIER EXCELATOR MACHINE FROM VARIAN ME DICAL SYSTEM CO., USA AS RECOMMENDED BY DOCTORS COORDINATION CO MMITTEE, CANCER HOSPITAL. IT WAS ALSO RESOLVED TO MAKE THE A DVANCE PAYMENT. THE COT PRICE OF THE MACHINE WAS RS.12.00 CRORE. FO R THE PURPOSE OF MAKING PAYMENT, IT WAS NECESSARY TO RAISE LOAN FROM HDFC AGAINST THE FDS OF THE TRUST. PRESIDENT & SECRETARY WERE UN ANIMOUSLY AUTHORIZE TO COMPLETE THE FORMALITIES FOR THE PURPO SE OF RAISING THE LOAN. RESOLUTION NO.4 : FOR THE PURPOSE OF PURCHASE OF LENIER EXCELATOR MA CHINE FROM VARIAN MEDICAL SYSTEM CO., USA RS.1.20 CRORE HAS BEEN PAID IN ADVANCE. FOR THE BALANCE PAYMENT, IT WAS NECESSARY TO RAISE 90% LOAN FROM HDFC BANK AGAINST THE FDS OF MUNI SEVA ASHRAM. FOR THIS PURPOSE CHAIRMAN AND SECRETARY ARE AUTHORIZED. HDFC WAS PREPARED TO GRANT A LOAN. THEREFORE THE P ROPOSAL MAY PLEASE BE APPROVED. IF IT IS NECESSARY TO OBTAIN THE PERMISSION FROM C HARITY COMMISSIONER THEN THE NECESSARY APPLICATION SHOULD BE MADE. 9 RESOLUTION NO.5 : IT WAS UNANIMOUSLY RESOLVED TO OPEN THE BANK ACCOU NT WITH HDFC BANK, ALKAPURI BRANCH. IT WAS ALSO RESOLVED TO AUTH ORIZE THE PRESIDENT AND SECRETARY TO OPERATE THE SAID ACCOUNT. IF NECES SARY THE SB ACCOUNT AND FD ACCOUNT BE ALSO OPENED WITH THE HDFC BANK. IT WAS UNANIMOUSLY RESOLVED TO AUTHORIZE PRESIDENT AND SECRETARY TO COMPLETE ALL THE FORMALITIES REGARDING THE OPENING OF ACCOUNT AND RAISING THE LOAN FROM HDFC BANK. IT IS CLEAR FROM THE ABOVE THAT THE FINDING OF THE AO THAT SHRI PIYUSHBHAI PATWA FATHER WAS THE AUTHORIZED SIGNAT ORY OF THE TRUST IS FACTUALLY WRONG. WE FURTHER FIND THAT NO O THER EVIDENCE WHATSOEVER HAS BEEN PLACED ON RECORD TO SHOW THAT S HRI PIYUSHBHAI PATWA FATHER WAS IN ANY WAY CONNECTED WITH THE MISAPPROPRIATION OF THE FUNDS OF THE TRUST. WE FURT HER FIND THAT WHEN THIS MISAPPROPRIATION CAME TO THE KNOWLEDGE OF THE ASSESSEE-TRUST, IT MADE EFFORTS TO RECOVER THE MONE Y. THESE EFFORTS OF THE TRUST ARE MANIFESTED FROM THE FACT T HAT A COPY OF FIR MADE, WAS FILED BY THE AREA MANAGER OF GRUH FIN ANCE LTD. REGARDING THE FORGERY OF SIGNATURE BY MR. JIGNASHU PATWA FOR THE FIXED DEPOSITS OF THE TRUST. THE FACT THAT THE MONE Y WAS ULTIMATELY RECOVERED ALSO SHOWS THAT NOBODY CONNECT ED WITH THE TRUST WAS INVOLVED IN THE MISAPPROPRIATION. WE FURT HER FIND THAT ALL THESE EFFORTS WERE MADE BY THE ASSESSEE-TRUST B EFORE THE AO HAS WITHDRAWN THE EXEMPTION AVAILABLE TO THE ASSESS EE U/S 11 AND 12 OF THE ACT, WHICH SHOWS THE BONAFIDE OF THE ASSE SSEE. IT WILL NOT BE OUT OF PLACE TO MENTION THAT THIS MISAPPROPR IATION OF FUNDS WAS COMMITTED IN THE FINANCIAL YEAR 2000-01 AND THE SE FACTS WERE MENTIONED IN THE AUDIT REPORT FOR THE ASSESSME NT YEAR UNDER APPEAL, WHICH SHOWS THAT THE ASSESSEE TRUST WAS TRA NSPARENT ABOUT 10 ITS ACTIVITIES BEFORE THE REVENUE. IN VIEW OF THIS FACTUAL MATRIX OF THE CASE, WE ARE OF THE VIEW THAT IT WAS NOT A FIT CASE FOR INVOKING THE PROVISIONS OF SECTION 13 OF THE ACT FOR DENIAL OF EXEMPTION U/S 11 OF THE ACT. 6 NOW COMING TO THE DECISIONS RELIED UPON BY THE AO IN THE ASSESSMENT ORDER, WE FIND THAT THE FACTS OF THE CAS ES RELIED UPON BY THE AO WHILE DENYING EXEMPTION U/S 11 OF THE ACT , ARE DISTINGUISHABLE ON FACTS. IN THE CASE OF BHARAT DIA MOND BOURSE (SUPRA), THE INCOME OF THE CHARITABLE INSTITUTION W AS UTILIZED FOR THE BENEFIT OF FOUNDER OF THE INSTITUTION AND THERE FORE, THE EXEMPTION WAS DENIED TO THE ASSESSEE. IN THE INSTAN T CASE, IT IS NOT SO. SIMILARLY, IN THE CASE OF MUTHOOTTU CHARIT ABLE TRUST (SUPRA), THERE WAS CLOSE CONNECTION BETWEEN THE PAR TNERS OF FIRM AND FOUNDERS OF TRUST. THE SUMS SHOWN AS INCOME OF THE TRUST IN TRUST ACCOUNT FOR AYS 19980-81 AND 1981-82 WERE ACT UALLY GIVEN TO TRUST IN 1984 BY THE FAMILY FIRM AND THERE FORE, NOT USED FOR CHARITABLE PURPOSE BY THE TRUST DURING THOSE YE ARS AND UNDER THESE CIRCUMSTANCES THE TRUST WAS HELD NOT ENTITLED TO THE EXEMPTION. THEREFORE, THE FACTS OF THIS CASE ALSO B EING DIFFERENT FROM THE FACTS OF THE PRESENT CASE, ARE NOT APPLICA BLE. IN VIEW OF THE ABOVE, GROUND NOS.1 AND 2 OF THE ASSESSEES APP EAL ARE ALLOWED. 7 GROUND NO.3 RELATES TO CONFIRMATION OF AN ADDITIO N OF RS.19,77,634/- MADE BY THE AO BEING INTEREST RECOVE RABLE FROM MR. JIGNASHU PATWAL ON THE AMOUNT OF RS.80 LACS MIS APPROPRIATED BY HIM. THE FACTS AS NOTED BY THE LEARNED CIT(A) IN HIS ORDER ARE 11 THAT THE AO MADE AN ADDITION OF RS.1,03,77,538/-. T HIS COMPRISES OF THE FIXED DEPOSIT USED BY SHRI PATWA AMOUNTING T O RS.80 LACS, DEEMED INTEREST ON THE FIXED DEPOSIT AMOUNTING TO R S.19,77,634/- AND DEFALCATION OF FUNDS BY SHRI PRATAP RATHWA AMOU NTING TO RS.3,99,904/-. ACCORDING TO THE LEARNED CIT(A), TH E FIRST AMOUNT I.E. RS.80 LACS IS NOT AN INCOME OF THE TRUST. IT I S AN ASSET OUT OF THE INVESTMENT BLOCK. THE TRUST WAS IN THE PROCESS OF RECOVERING THIS AMOUNT FROM SHRI PATWA AND IT HAS BEEN CLAIMED BY THE AUTHORIZED REPRESENTATIVE THAT LATER THIS AMOUNT HA S BEEN RECOVERED. IN PARA-8 OF HIS ASSESSMENT ORDER, THE A SSESSING OFFICER HAS ADDED THIS AMOUNT AS INCOME. SINCE THIS IS NEITHER RECEIPT NOR INCOME AND EVENTUALLY THE AMOUNT HAS BE EN RECOVERED, NO SUCH ADDITION CAN BE MADE. THEREFORE, THE LEARNED CIT(A) ALLOWED THE APPEAL ON THIS GROUND AND AN ADD ITION OF RS.80 LACS WAS DELETED. THE REVENUE IS NOT IN APPEA L AGAINST THIS DELETION OF THE ADDITION. AS FAR AS INTEREST OF RS. 19,77,634/- RECEIVABLE FROM SHRI PATWA IS CONCERNED, ACCORDING TO THE LEARNED CIT(A), THIS AMOUNT WAS INCOME OF THE TRUST AND LIABLE TO BE TAXED AND CONFIRMED THE ADDITION MADE BY THE AO. 8 AGGRIEVED BY THIS ORDER OF THE LEARNED CIT(A), TH E ASSESSEES SUBMISSION BEFORE US WAS THAT THIS AMOUN T HAS ALREADY BEEN SHOWN AS INCOME OF THE ASSESSEE TRUST AND IF I T IS AGAIN TAXED, IT WILL AMOUNT TO DOUBLE ADDITION. THIS SUBM ISSION OF THE ASSESSEE REQUIRES VERIFICATION AND IF THE CONTENTIO N OF THE ASSESSEE IS FOUND CORRECT, THEN, NO ADDITION IS CAL LED FOR. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE AO FOR THIS PURPOSE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 12 9 GROUND NOS.4 AND 5 IN THE ASSESSEES APPEAL RELAT E TO CONFIRMATION OF THE ADDITION OF RS.3,99,904/- BEING THE AMOUNT MISAPPROPRIATED BY SHRI PRATAP RATHWA. THE FACTS OF THE CASE ARE THAT ONE SHRI PRATAP RATHWA WAS PERFORMING ACCOUNTI NG DUTIES SINCE LAST MORE THAN YEARS, MISAPPROPRIATED CASH TO THE TUNE OF RS.3,99,904/- THROUGH PASSING BOGUS INTERNAL DEPART MENTAL CASH TRANSFER ENTRIES. THE DEFALCATION WAS BEING DETECTE D DURING THE AUDIT PROCESS AND IMMEDIATELY ACTION FOR RECOVERY S TARTED AND AS PER ENCLOSED STATEMENT PRATAP RATHWA HAS DEPOSITED THE DEFALCATED AMOUNT TO THE TRUST AS PROMISED. THE AO THEREFORE MADE AN ADDITION OF RS.3,99,904/-. 10 THE LEARNED CIT(A) UPHELD THE ADDITION BY OBSERV ING AS UNDER:- 5.2 THE LAST ITEM IS RS.3,99,904/- DEFALCATED BY ONE SHRI PRATAP RATHWA. AS THIS IS A MIS-USE OF FUND AND THE EXPEND ITURE CLAIMED IS NOT GENUINE, THE AMOUNT HAS TO BE DISALLOWED FOR DE TERMINING CORRECT INCOME OF THE TRUST. ADDITION ON THIS ACCOUNT IS UP -HELD. 11 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE S UBMITTED THAT THIS AMOUNT HAS NOT BEEN CLAIMED BY THE ASSESS EE AS EXPENDITURE NOR HAS BEEN CLAIMED AS APPLICATION OF INCOME FOR THE OBJECTS OF THE TRUST. IN VIEW OF THIS, WE FIND THAT THIS SUBMISSION OF THE ASSESSEE ALSO REQUIRES VERIFICATI ON. THE ISSUE IS THEREFORE RESTORED TO THE FILE OF THE AO FOR THIS P URPOSE. 13 12 IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT TODAY ON 30-03-2012 SD/- SD/- (A L GEHLOT) ACCOUNTANT MEMBER (D K TYAGI) JUDICIAL MEMBER DATE : 30-03-2012 COPY OF THE ORDER FORWARDED TO: 1. MUNI SEVA ASHRAM, AT & POST: GORAJ, TALUKA: WAGH ODIA, DIST. BARODA 2. THE INCOME-TAX OFFICER, WARD-5(1), BARODA 3. CIT CONCERNED 4. CIT(A)-V, BARODA 5. DR, ITAT, AHMEDABAD BENCH-B, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD