The ACIT, Circle-1(1), Visakhapatnam, V. M/s Cargo Handling private workers pool, Visakhapatnam

ITA 680/VIZ/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1001 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 24-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M N MURTHY NAIKDR
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Charitable institution; Difference of opinion; Benefit of exemption
• Section: 12AA; 11

Judgement Text

ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NOS.680&681/VIZAG/2013 ( / ASSESSMENT YEARS: 2010-11 & 2009-10) ACIT, CIRCLE - 1(1), VISAKHAPATNAM VS. M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPATNAM [PAN: AAATC1920F ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NOS.690&691/VIZAG/2013 ( / ASSESSMENT YEARS: 2009-10 & 2010-11) M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPATNAM VS. JCIT, RANGE - 1, VISAKHAPATNAM ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.16/VIZAG/2015 ( / ASSESSMENT YEARS: 2010-11) ACIT (EXEMPTIONS) CIRCLE, VIJAYAWADA VS. M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPATNAM ( % / APPELLANT) ( &'% / RESPONDENT) ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 2 / APPELLANT BY : SHRI M.N. MURTHY NAIK,DR / RESPONDENT BY : SHRI C.P. RAMASWAMY, AR / DATE OF HEARING : 12.07.2016 / DATE OF PRONOUNCEMENT : 22.07.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DIRECTED AGAINST THE SEPARATE, BUT IDENTICAL ORDERS PASSED BY THE CIT(A), VISAKHAPATNAM DATED 20.9.2013 FOR THE ASSESSMENT YE ARS 2009-10 & 2010-11. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED OFF, BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A TRUST CREATED BY THE TRUST DEED DATED 19.1.1994 AND REGISTERED U/ S 12AA OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE AC T'). THE AUTHORS OF THE TRUST WERE TWO TRADE BODIES, WHICH ARE VISAKHAPATNAM STEVEDORES ASSOCIATION AND VISAKHAPATNAM CLEARING AND FORWARDING AGENTS ASSOCIATION . THE MAIN OBJECTS OF THE TRUST AS SPELT OUT IN CLAUSE 3 OF THE TRUST DEED READ AS UND ER: ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 3 A) TO IDENTIFY, ENROLL, ALLOT THE WORK AND REGULATE TH E PRIVATE WORKERS ENGAGED BY THE MEMBERS AND USERS OF STEVEDORES ASSOCIATION AND CLEARING AND FORWARDING AGENTS ASSOCIATION OF VISAKHAPATNAM, ON LY AGAINST SHORT SUPPLY OF THE LABOUR BY THE VISAKHAPATNAM DOCK LABOUR BOAR D, VISAKHAPATNAM. B) TO GENERALLY PROMOTE THE WELFARE OF THE WORKERS WHO ARE IDENTIFIED AND ENROLLED IN THE TRUST. C) TO UTILIZE THE FUNDS OF THE TRUST FOR THE ABOVE PUR POSES AND ALSO FOR OTHER CHARITABLE PURPOSES SUCH AS EDUCATION, HEALTH, SPOR TS AND ALLEVIATION OF SUFFERINGS OF THE POOR AND THE NEEDY ETC., D) TO CARRY OUT OTHER PUBLIC UTILITY ACTIVITY WITHIN T HE MEANING OF CHARITABLE PURPOSES DEFINED IN THE INCOME-TAX ACT. 3. THE ASSESSEE HAS FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 DECLARING NIL TOTAL INCOME AFTER CLAIMING E XEMPTION U/S 11 OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND AC CORDINGLY, NOTICE U/S 143(2) OF THE ACT WAS ISSUED. IN RESPONSE TO NOTIC E, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FURNISHED THE DETAILS CALLED FOR. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE A.O. EXAMINED THE CORRECTNESS OF E XEMPTION CLAIMED BY THE ASSESSEE U/S 11 OF THE ACT, IN VIEW OF THE A MENDMENT MADE TO THE DEFINITION OF CHARITABLE PURPOSES IN SECTION 2(15) OF THE ACT BY FINANCE ACT, 2008 W.E.F. 1.4.2009. THE A.O. AFTER CONSIDERING THE REPRESENTATIONS OF THE ASSESSEE, CAME TO THE CONCLU SION THAT THE ASSESSEES OBJECTIVES DOES NOT INVOLVE RELIEF TO TH E POOR AND ALSO AMOUNTS TO ADVANCEMENT OF ANY OTHER OBJECT OF GENER AL PUBLIC UTILITY WITHIN THE MEANING OF SECTION 2(15) OF THE ACT. AS THE ASSESSEES ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 4 ACTIVITY INVOLVE RENDERING OF SERVICES IN RELATION TO TRADE, COMMERCE OR BUSINESS, IT FALLS WITHIN THE MISCHIEF OF PROVISO T O SECTION 2(15) OF THE ACT AND THEREFORE, IT WOULD NOT BE ENTITLED TO EXEMPTIO N U/S 11 OF THE ACT. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS VIO LATED THE PROVISIONS OF SECTION 13(1)(C) & 13(2)(G) R.W.S. 13(2) OF THE ACT BY DIVERTING ITS FUNDS TO INTERESTED PERSONS. THE A.O. FURTHER OBSE RVED THAT THE ASSESSEE HAS REFUNDED THE PORTION OF AMOUNT COLLECT ED FROM ITS CUSTOMERS BY STATING THAT IT HAS COLLECTED EXCESS A MOUNT FROM THE CUSTOMERS AND THE SAME HAS BEEN RETURNED TO THE CUS TOMERS BY ANONYMOUS RESOLUTION OF BOARD OF DIRECTORS OF THE T RUST. TO SUPPORT HIS ARGUMENTS, FURNISHED COPIES OF BOARD RESOLUTIONS AN D OTHER RELEVANT INFORMATION. ON VERIFICATION OF THE DETAILS FILED BY THE ASSESSEE, IT WAS NOTICED THAT THE ASSESSEE HAS REFUNDED A PORTION OF AMOUNT COLLECTED FROM M/S. SOUTH INDIA CORPORATION LIMITED, THEREFOR E, OPINED THAT IT HAS DIVERTED ITS FUNDS TO ONE OF THE INTERESTED PERSONS AND ACCORDINGLY NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. WITH THE SE OBSERVATIONS, DENIED THE BENEFIT OF EXEMPTION U/S 11 OF THE ACT A ND COMPUTED INCOME UNDER THE NORMAL PROVISIONS OF INCOME FROM BUSINESS OR PROFESSION. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 5 THE SUBMISSIONS MADE BEFORE THE A.O. THE CIT(A) AF TER CONSIDERING THE EXPLANATIONS FURNISHED BY THE ASSESSEE, UPHELD THE ACTION OF THE A.O. IN DENYING EXEMPTION U/S 11 OF THE ACT. THE CIT(A) AL SO NOTED THAT THERE IS A VIOLATION OF SECTION 13(1)(C), 13(2)(G) R.W.S. 13(2) OF THE ACT, IN SO FAR AS THE REFUND OF EXCESS AMOUNT TO M/S. SOUTH IN DIA CORPORATION LTD., AS SUCH, THE ASSESSEE IS NOT ENTITLED FOR THE BENEF IT OF EXEMPTION U/S 11 OF THE ACT. THE CIT(A) FURTHER HELD THAT AS REGARD S THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, THE ASSESSEE I S FOLLOWING CASH SYSTEM OF ACCOUNTING FOR THE PURPOSE OF DETERMINATI ON OF INCOME UNDER THE PROVISIONS OF SECTION 11 OF THE ACT CONTINUOUSL Y FOR THE PAST SEVERAL YEARS, THEREFORE, DIRECTED THE A.O. TO ADOPT CASH S YSTEM OF ACCOUNTING FOR THE PURPOSE OF DETERMINATION OF INCOME. SIMILA RLY, AS REGARDS DISALLOWANCE OF EXCESS AMOUNT REFUNDED TO M/S. SOUT H INDIA CORPORATION LTD., THE CIT(A) UPHELD THE ACTION OF THE A.O. IN M AKING ADDITIONS TOWARDS AMOUNT REFUNDED TO M/S. SOUTH INDIA CORPORA TION LTD. AS REGARDS THE ADDITIONS TOWARDS ACCRUED INTEREST, THE CIT(A) UPHELD THE ADDITIONS MADE BY THE A.O. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US. 5. THE ASSESSEE HAS RAISED COMMON GROUNDS FOR THE A SSESSMENT YEARS 2009-10 & 2010-11. FROM THESE GROUNDS OF APP EAL, THE ASSESSEE ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 6 CHALLENGED THE ACTION OF A.O. IN DENYING THE BENEFI T OF EXEMPTION U/S 11 OF THE ACT AND ADDITIONS TOWARDS REFUND OF EXCESS A MOUNT COLLECTED FROM M/S. SOUTH INDIA CORPORATION LTD. FOR VIOLATION OF THE PROVISIONS OF SECTION 13(1)(C), 13(2)(G) R.W.S. 13(2) OF THE ACT. SIMILARLY, THE REVENUE HAS RAISED COMMON GROUNDS FOR THE ASSESSMENT YEARS 2009-10 & 2010- 11. FROM THESE GROUNDS, THE REVENUE HAS CHALLENGED THE ACTION OF CIT(A) REGARDING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE LD. A.R. FOR THE ASSESSEE, SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF ITAT, VISAKHAPATNAM BENCH, IN ASSES SEES OWN CASE FOR THE ASSESSMENT YEARS 1999-2000 TO 2004-05 IN ITA NO S.272 TO 274/VIZASG/2005 AND SUBMITTED THAT THE ITAT, HAS UP HELD THE CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. WE F IND THAT THE COORDINATE BENCH OF THIS TRIBUNAL, IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEARS 1999-2000 TO 2004-05 HELD THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING FOR THE PURPOSE OF DETERMINATION OF INCOME U/S 11 OF THE ACT. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 7 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERA TION IS METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVER ED BY THE DECISION OF THE ITAT, VISAKHAPATNAM BENCH IN ASSESSEES OWN CASE FOR THE AYS. 1999-2000 TO 2004-05 IN ITA NOS. 272 TO 274/VIZAG/2005. WE FIND THAT THE C O-ORDINATE BENCH OF THIS TRIBUNAL, IN ASSESSEES OWN CASE FOR THE EARLIER PE RIOD HELD THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING FOR THE PURPOSE OF DETERMINATION OF INCOME U/S. 11 OF THE ACT. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: 11.3 THE NEXT ISSUE IS WHETHER THERE IS ANY VI OLATION OF SECTION 13(1)(C) R.W.S. 13(2) OF THE ACT. THE IMPUGNED AMO UNT OF RS.30.00 LAKHS AND RS.5.00 LACS HAVE BEEN ADVANCED TO THE TWO SETT LER ASSOCIATIONS. SINCE THEY ARE THE AUTHORS OF THE ASSESSEE TRUST AND THE TRUSTEES OF THE ASSESSEE TRUST ARE ALSO THE OFFICE BEARERS IN THE ABOVE SAID TWO ASSOCIATIONS, THE AO TREATED THE TWO ASSOCIATIONS AS THE PERSONS REFERRE D TO IN SECTION 13(3) OF THE ACT. AS POINTED OUT IN PARA 11.1 SUPRA, A CHARI TABLE TRUST WILL LOOSE EXEMPTION U/S 11, IF ANY INCOME OR PROPERTY IS USED OR APPLIED FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SECTION 13(3). ACCORDING TO LD AR, THOUGH THE ASSESSEE DID NOT CHARGE INTEREST ON THES E TWO LOANS INITIALLY, LATER ON BOTH THE AMOUNTS WERE COLLECTED ALONG WITH THE INTEREST @ 12%. ACCORDING TO LD AR, SINCE THE IMPUGNED LOANS ARE CO VERED BY ADEQUATE SECURITY AND ADEQUATE INTEREST, THERE IS NO VIOLATI ON OF SECTION 13(1)(C) R.W.S. SECTION 13(2) OF THE ACT. IN THIS REGARD, LD AR HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL AP HIGH COURT IN THE CASE OF POLISETTY SOMASUNDARAM CHARITIES, SUPRA. THE RELEV ANT OBSERVATIONS OF THE HONBLE HIGH COURT ARE EXTRACTED BELOW: SECTION 13(2)(A) PROVIDES THAT THE EXEMPTION UNDER SECTION 11 CANNOT BE DENIED IN THE EVENT OF LENDING THE AMOUNT JACKED UP BY INTEREST OR ADEQUATE SECURITY OR BOTH. THE LENDING AS SUCH IS N OT PROHIBITED IF ADEQUATE INTEREST AND SECURITY ARE TAKEN CARE OF. S ECTION 13(2) (H) INTERDICTS INVESTMENT AND THE ACT OF INVESTMENT ALO NE IS SUFFICIENT TO DENY THE EXEMPTION. IN VIEW OF THIS SEMINAL DISTINCTION, THE REVENUE ENDEAVOURED TO BRACKET THE TRANSACTION UNDER INVEST MENT SO AS TO ATTRACT THE DENIAL OF EXEMPTION UNDER CLAUSE (H). THE AMOUNT IS ADVANCED ON AN AGREED RATE OF INTEREST AND, THEREFORE, THE TRAN SACTION IS WITHIN THE FOLD OF LENDING AND IT CANNOT BE CONSIDERED AS AN INVESTMENT. THE LENDING IN CLAUSE (A) SHOULD BE SUPPORTED BY ADEQUA TE INTEREST OR SECURITY. THE APPELLANT ASSISTANT COMMISSIONER FOUND THAT THE RATE OF INTEREST AT 12% IS NORMAL AND ADEQUATE AND THE FIRM IS FINANCIA LLY SOUND AND THE APPELLANT TRIBUNAL CONFIRMED THE FINDING. THEREFORE , THE ASSESSEE IS ENTITLED TO EXEMPTION UNDER SECTION 11 AND THE COND ITIONS UNDER SECTION 13(2) ARE SATISFIED AND SECTION 13 (2) (H) IS NOT A PPLICABLE. ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 8 THE LD AR ALSO SUBMITTED THAT FOR THE PURPOSE OF CO MPUTING THE INCOME U/S 11 TO 13 OF THE INCOME TAX ACT, THE ASSESSEE IS FOLL OWING THE CASH SYSTEM OF ACCOUNTING. THE INTEREST COLLECTED FROM THE IMPU GNED TWO LOANS HAS BEEN OFFERED TO TAX IN THE YEAR OF RECEIPT. THE DETAILS OF LOANS GRANTED AND RECEIPT OF INTEREST AND PRINCIPAL ON THESE TWO LOANS HAVE B EEN EXTRACTED BELOW FROM THE WRITTEN SUBMISSIONS OF LD AR. VISAKHAPATNAM STEVEDORES ASSOCIATION DATE RS. PS. 03-04-1995 LOAN AMOUNT GRANTED 30,00,000.00 INTEREST ACCRUED ON LOAN 46,60,451.86 ---------------- 76,60,451.86 LESS 15-10-2003 INTEREST AMOUNT RECEIVED 22,56,000.00 07-07-2007 INTEREST AMOUNT RECEIVED 12,51,121.86 26-11-2007 INTEREST AMOUNT RECEIVED 10,98,248.00 29-01-2008 INTEREST AMOUNT RECEIVED 20,000.00 24-03-2008 INTEREST AMOUNT RECEIVED 35,082.00 26-11-2007 PRINCIPAL AMOUNT RECEIVED 10,00,00 0.00 29-01-2008 PRINCIPAL AMOUNT RECEIVED 10,00,00 0.00 24-03-2008 PRINCIPAL AMOUNT RECEIVED 10,00,000 .00 ------------------------------------- 46,60,451.86 30,00,000.00 76,60,451.86 --------------------------------------------- -------- NIL --------------- VISAKHAPATNAM CUSTOMS CLEARANCE & FORWARDING AGENTS ASSOCIATION DATE RS. PS. 03-04-2005 LOAN AMOUNT GRANTED 5,00,000.00 INTEREST ACCRUED ON LOAN 3,62,137.00 --------------- 8,62,137.00 LESS 26-02-2001 PRINCIPAL AMOUNT RECEIVED 5,00,000.00 15-05-2002 INTEREST AMOUNT RECEIVED 3,62,137.00 8, 62,137.00 --------------------------------------------- ---- NIL ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 9 ---------------- ACCORDING TO LD AR, THE INTEREST RATE OF 12% WAS MO RE THAN THE INTEREST EARNED BY THE ASSESSEE BY PARKING THE SURP LUS FUNDS IN THE FIXED DEPOSITS OF THE SCHEDULED BANKS. THUS, THERE CAN NO T BE ANY DISPUTE THAT THE INTEREST RATE OF 12% RECEIVED BY THE ASSESSEE I S ADEQUATE. THE AO HAS NOT EXPRESSED ANY DOUBT ABOUT THE FINANCIAL STABILI TY OF THE TWO SETTLER ASSOCIATIONS. THUS THE AMOUNTS LENT TO THE TWO FOU NDER ASSOCIATIONS WERE ADEQUATELY SECURED AND ALSO EARNED ADEQUATE INTERES T @ 12%. IT WAS STATED THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM O F ACCOUNTING FOR THE INCOME TAX PURPOSES AND HENCE THE INTEREST CAN BE O FFERED TO TAX ONLY IN THE YEAR OF RECEIPT. THOUGH INITIALLY THE ASSESSEE TRUST DID NOT CHARGE INTEREST, LATER IT HAS FULLY COLLECTED THE DUE INTE REST. ACCORDING TO THE CASH SYSTEM, THE INTEREST HAS BEEN OFFERED TO TAX IN THE YEAR OF RECEIPT WHICH IS ALSO IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT. 7. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISI ON IN ASSESSEES OWN CASE, WE ARE OF THE VIEW THAT THE ASSESSEE IS FOLLO WING CASH SYSTEM OF ACCOUNTING FOR DETERMINATION OF INCOME FOR THE PURP OSE OF APPLICATION OF INCOME FOR CHARITABLE PURPOSE. THEREFORE, WE DIREC T THE A.O. TO COMPUTE THE INCOME AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. 8. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S DENIAL OF EXEMPTION U/S 11 OF THE ACT FOR VIOLATION OF THE PR OVISIONS OF SECTION 13(1)(C) & 13(2)(G) R.W.S. 13(2) OF THE ACT AND ADD ITION TOWARDS REFUND OF EXCESS AMOUNT TO M/S. SOUTH INDIA CORPORATION LT D. THE LD. A.R. FOR THE ASSESSEE, SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF ITAT, VISAKHAPATNAM IN A SSESSEES OWN CASE ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 10 IN ITA NO.269/VIZAG/2013. THE A.R. FURTHER SUBMITT ED THAT THE ITAT, WHILE EXAMINING THE ISSUE OF CANCELLATION OF REGIST RATION U/S 12AA(3) OF THE ACT, IN PARA 16.2 OF THE ORDER, OBSERVED THAT T HE EXCESS AMOUNT CHARGED FROM M/S. SOUTH INDIA CORPORATION LTD. IS R EFUNDED IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE AND ACCOR DINGLY THE A.O. WAS NOT RIGHT IN HOLDING THAT THE ASSESSEE HAS DIVERTED ITS FUNDS TO THE INTERESTED PERSONS, THEREBY VIOLATED THE PROVISIONS OF SECTION 13(1)(C) & 13(2)(G) R.W.S 13(3) OF THE ACT. WE FIND THAT THE C OORDINATE BENCH OF THIS TRIBUNAL, IN ASSESSEES OWN CASE IN ITA NO.269 /VIZAG/2013 HELD THAT EXCESS AMOUNT COLLECTED FROM M/S. SOUTH INDIA CORPO RATION LTD AND REFUNDED SUBSEQUENTLY DOES NOT AMOUNTS TO DIVERSION OF FUNDS AS DEFINED U/S 13(2)(G) OF THE ACT AND ACCORDINGLY THE ASSESSEE HAS NOT VIOLATED THE PROVISIONS OF SECTION 13(1)(C) & 13(2) (G) R.W.S 13(3) OF THE ACT. THE RELEVANT PORTION OF THE ORDER IS REPRODUC ED BELOW: 16. THE LAST QUESTION IS WHETHER THE ASSESSEE HAS V IOLATED THE PROVISIONS OF S.13(3)(G) RWS 13(CC) OF THE ACT. AT THE OUTSET THE VIOLATION HAS TO BE LOOKED INTO AT THE TIME OF THE ASSESSMENT AND NOT F OR APPLYING THE PROVISIONS OF S.12AA(3) OF THE ACT. SEC.12AA(3) DOE S NOT PERMIT THE CIT TO EXAMINE VIOLATION U/S 13 ETC. 16.1. BE IT AS IT MAY, ON FACTS WE FIND THAT THE RE PRESENTATIVE OF M/S SOUTH INDIA CORPORATION LTD. WAS NOT A TRUSTEE OF T HE ASSESSEE TRUST, DURING THE PERIOD WHEN EXCESS FEE COLLECTED WAS REF UNDED. THIS FACTUAL POSITION, AS ALREADY STATED, WAS NOT CONTROVERTED B Y THE LD.CIT, D.R. THUS PRIMA FACIE, INVOCATION OF S. 13(2)(G) OF THE ACT R WS 13(3)(CC) IS BAD IN LAW. 16.2. EVEN OTHERWISE, THE FEE TO BE CHARGED BY THE ASSESSEE TRUST IS FIXED BY THE VISAKHAPATNAM PORT TRUST THROUGH THE V ISAKHAPATNAM DOCK ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 11 LABOUR BOARD, IN THE CASE ON HAND, IT IS THE VISAKH APATNAM DOCK LABOUR BOARD, WHICH FOUND THAT FEE CHARGED FROM MIS SOUTH INDIA CORPN. LTD. FOR A PARTICULAR PERIOD WAS EXCESSIVE. - THIS AMOUN T WAS REFUNDED BY THE DOCK LABOUR BOARD TO THE ASSESSEE ON THE GROUND THAT EXCESS LEVY WAS COLLECTED. THE ASSESSEE IS BOUND TO RETURN THE SAID AMOUNT TO THE PARTY, FROM WHICH SUCH EXCESS LEVY WAS COLLECTED. O THERWISE IT WOULD AMOUNT TO UNDUE ENRICHMENT. IN THIS CASE THE VISAKH APATNAM PORT REFUNDED AN AGGREGATE AMOUNT OF RS7,99 CRORES, OF W HICH, AN AMOUNT OF RS.4,39 CRORES WAS ADJUSTED BY CREDIT NOTES AND THE BALANCE ONLY WAS REFUNDED TO THE PARTY TO WHICH IT WAS DUE. THIS AMO UNT WAS REFUNDED TO SOUTH INDIA CORPORATION LTD. ON VARIOUS DATES DURIN G THE A.Y. 2008-09, 2009-10 AND 2010-11. REFUNDING THE AMOUNT LEGALLY D UE TO A PARTY CANNOT BE CONSIDERED A VIOLATION OF ANY OF THE PROV ISIONS OF THE ACT MUCH LESS VIOLATION OF S13 OF THE ACT, THE AMOUNT I S RIGHTFULLY AND LEGALLY DUE TO MIS SOUTH INDIA CORPORATION. IN FACT THE LD.CIT, VISAKHAPA&IAM HAS WITHOUT PROPER VERIFICATION OF TH E FACTS, COME TO SUCH WRONG CONCLUSIONS, THUS WE REVERSE THIS FINDIN G OF THE LD.CJT, VISAKHAPATNAM AND HOLD THAT THERE IS NO VIOLATION O F SEC.13(1)(C ) READ WITH SECTIONS 13(2)(G) AND 13(3) OF THE ACT. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE B ENCH, IN ASSESSEES OWN CASE IN ITA NO.269/VIZAG/2013, WE ARE OF THE VI EW THAT THE EXCESS AMOUNT REFUNDED TO M/S. SOUTH INDIA CORPORATION LTD . DOES NOT AMOUNT TO DIVERSION OF FUNDS AS DEFINED U/S 13(2)(G) OF TH E ACT. THE ASSESSEE HAS REFUNDED EXCESS AMOUNT COLLECTED FROM THE PARTY BY WAY OF ANONYMOUS DECISION OF THE BOARD OF DIRECTORS OF THE TRUST FURTHER SUPPORTED BY PROOF OF PAYMENT. THEREFORE, WE ARE O F THE VIEW THAT THE A.O. WAS NOT CORRECT IN HOLDING THAT THE ASSESSEE H AS VIOLATED THE PROVISIONS OF SECTION 13(1)(C) & 13(2)(G) R.W.S 13( 3) OF THE ACT. HENCE, WE DIRECT THE A.O. TO ALLOW THE EXEMPTION AS CLAIME D BY THE ASSESSEE ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 12 AND DELETE THE ADDITIONS MADE TOWARDS REFUND OF EXC ESS AMOUNT TO M/S. SOUTH INDIA CORPORATION LTD. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION TOWARDS ACCRUED INTEREST. THE A.O. MADE ADDITIONS TOWARDS ACCRUED INTEREST OF ` 50,74,385/-. THE A.O. OBSERVED THAT THE ASSESSEE ITSELF HAS OFFERED INTEREST AS PER THE TDS CERTIFICATE. THE A .O. FURTHER OBSERVED THAT AS PER THE INCOME AND EXPENDITURE ACCOUNT, THE ASSESSEE HAS SHOWN INTEREST INCOME OF ` 39,91,593/-, WHEREAS THE ACTUAL INTEREST ACCRUED TO THE ASSESSEE FOR THE YEAR AS PER THE TDS CERTIFICATE IS AT ` 50,74,385/-, WHICH IS SHOWN IN ANNEXURE 7 OF THE IN COME AND EXPENDITURE ACCOUNT. IT IS THE CONTENTION OF THE AS SESSEE THAT IT IS FOLLOWING CASH SYSTEM OF ACCOUNTING FOR THE PURPOSE OF DETERMINATION OF INCOME AND OFFERED INTEREST INCOME ON RECEIPT BASIS , HOWEVER, FOR THE PURPOSE OF PREPARATION OF FINANCIAL STATEMENTS, IT HAS CONSIDERED INTEREST ACCRUED FOR THE PERIOD. THEREFORE, THE A.O. WAS NO T CORRECT IN MAKING ADDITIONS BASED ON THE INCOME & EXPENDITURE ACCOUNT . WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT T HE ASSESSEE IS CONSISTENTLY FOLLOWING CASH SYSTEM OF ACCOUNTING FO R THE PURPOSE OF DETERMINATION OF INCOME. HOWEVER, THOUGH ASSESSEE CLAIMS THAT IT IS FOLLOWING CASH SYSTEM OF ACCOUNTING FOR THE PURPOSE OF DETERMINATION OF ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 13 INCOME, THE ASSESSEE ITSELF ADMITTED THAT IT HAS OF FERED INTEREST INCOME BASED ON TDS CERTIFICATE. THERE IS A CONTRADICTORY STATEMENT FROM THE ASSESSEE AS REGARDS THE METHOD OF ACCOUNTING FOLLOW ED FOR THE PURPOSE OF DETERMINATION OF INCOME AND TREATMENT OF INTERES T ACCRUED ON FIXED DEPOSITS FOR THE PURPOSE OF TAX. THOUGH, IN PRINCI PLE, WE ACCEPT THE CONTENTION OF THE ASSESSEE THAT IT IS FOLLOWING CAS H SYSTEM OF ACCOUNTING, IN VIEW OF THE CLAIM MADE BY THE ASSESSEE THAT IT H AS OFFERED INTEREST ON ACCRUAL BASIS, WE DEEM IT APPROPRIATE TO REMIT THE ISSUE BACK TO THE FILE OF THE A.O. AND DIRECT THE A.O. TO EXAMINE THE ISSU E AFRESH IN THE LIGHT OF THE ABOVE DISCUSSIONS. ACCORDINGLY, WE SET ASIDE T HE ISSUE TO THE FILE OF THE A.O. AND DIRECT THE A.O. TO EXAMINE THE ISSUE O F TAXABILITY ON ACCRUED INTEREST ON DEPOSITS, KEEPING IN VIEW OF TH E METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. ITA 16/VIZAG/2015: 11. THE REVENUE HAS FILED THIS APPEAL, CHALLENGING THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A), DELETING THE PENALT Y LEVIED U/S 271(1)(C) OF THE ACT FOR CONCEALMENT OF INCOME OR F URNISHING INACCURATE PARTICULARS OF INCOME. THE A.O. LEVIED PENALTY U/S 271(1)(C) OF THE ACT, TOWARDS DISALLOWANCE OF REFUND OF EXCESS FEES COLLE CTED FROM M/S. SOUTH INDIA CORPORATION LTD. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 14 HAS DIVERTED ITS FUNDS TO THE INTERESTED PERSONS, T HEREBY VIOLATED THE PROVISIONS OF SECTION 13(1)(C) AND 13(2)(G) R.W.S. 13(3) OF THE ACT AND HENCE, DENIED THE BENEFIT OF EXEMPTION U/S 11 OF T HE ACT AND MADE ADDITIONS TOWARDS REFUND OF EXCESS FEES COLLECTED F ROM M/S. SOUTH INDIA CORPORATION LTD. THE A.O. FURTHER WAS OF THE OPINI ON THAT THE ASSESSEE HAS WILLFULLY CONCEALED THE PARTICULARS OF INCOME T O AVOID PAYMENT OF TAXES, THEREFORE, OPINED THAT IT IS A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. WITH THESE OBSERVATIONS, LEV IED PENALTY U/S 271(1)(C) OF THE ACT. 12. AGGRIEVED BY THE PENALTY ORDER, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE A.O. WAS NOT CORRECT IN LEVY OF PENALTY U/S 271(1)( C) OF THE ACT TOWARDS DISALLOWANCE OF REFUND OF EXCESS FEES COLLECTED FRO M M/S. SOUTH INDIA CORPORATION LTD. THE ASSESSEE FURTHER SUBMITTED TH AT IT HAS REFUNDED EXCESS FEES CHARGED TO M/S. SOUTH INDIA CORPORATION LTD. WHICH WAS SUPPORTED BY ANONYMOUS RESOLUTION PASSED BY THE BOA RD OF TRUSTEES, FURTHER SUPPORTED BY PAYMENT VOUCHERS, THEREFORE, T HE A.O. WAS INCORRECT IN HOLDING THAT THE ASSESSEE HAS CONCEALE D THE PARTICULARS OF INCOME. THE CIT(A) AFTER CONSIDERING THE EXPLANATI ONS OF THE ASSESSEE, HELD THAT THE ASSESSEE HAS DISCLOSED PARTICULARS OF PAYMENT MADE TO ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 15 M/S. SOUTH INDIA CORPORATION LTD. AND DISCLOSED TH E INFORMATION IN THE REGULAR RETURN OF INCOME. THE CIT(A) FURTHER HELD THAT THE A.O. HAS NOT POINTED OUT ANY FACTUAL INCONSISTENCY OR INACCURACY IN THE PARTICULARS DISCLOSED. IT WAS FURTHER OBSERVED THAT THE QUESTI ON WHETHER REFUND OF LEVY AMOUNT MADE TO M/S. SOUTH INDIA CORPORATION LT D. IS AN EXPENDITURE INCURRED FOR THE PURPOSE OF TRUST OR WH ETHER THE SAID AMOUNT IS A DIVERSION OF FUNDS TO THE INTERESTED PE RSONS, THEREBY VIOLATES THE PROVISIONS OF SECTION 13(1)(C), 13(2)( G) R.W.S. 13(3) OF THE ACT AND IS NOT AN EXPENDITURE INCURRED FOR THE PURP OSE OF TRUST OR ONLY A LEGAL ISSUE IS THE FACTUAL MATRIX OF THE ASSESSEES CASE AND COULD INVOLVE DIFFERENCE OF OPINION. WITH THESE OBSERVATIONS, BY FOLLOWING THE DECISION OF HONBLE APEX COURT, IN THE CASE OF CIT VS. RELIA NCE PETRO PRODUCTS LTD. DELETED THE PENALTY LEVIED BY THE A.O. U/S 271 (1)(C) OF THE ACT. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE IS IN AP PEAL BEFORE US. 13. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING, SUBMITTED THAT THE A.O. LEVIED PENALTY ON THE ADDITIONS MADE TOWARDS REFUND OF EXCESS LEVY COLLECTED FROM M/S. SOUTH INDIA CORPORA TION LTD BY REJECTING EXEMPTIONS U/S 11 OF THE ACT. THE A.R. FURTHER SUB MITTED THAT THE ITAT, IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 -10 HAS SET ASIDE THE ORDER PASSED BY THE A.O. DENYING EXEMPTION CLAI MED U/S 11 OF THE ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 16 ACT AND DIRECTED THE A.O. TO ALLOW EXEMPTION AS CLA IMED BY THE ASSESSEE. THE A.R. FURTHER SUBMITTED THAT THE ISSU E ON WHICH PENALTY LEVIED BY THE A.O. HAS BEEN CONSIDERED BY THIS TRIB UNAL, IN ITA NO.269/VIZAG/2013 AND HELD THAT THE REFUND OF EXCES S LEVY TO M/S. SOUTH INDIA CORPORATION LTD. IS NOT AMOUNTS TO DIVE RSION OF FUNDS AS DEFINED U/S 13(2)(G) OF THE ACT WHICH VIOLATES THE PROVISION OF SEC. 13(1)(C) R.W.S. 13(2) OF THE ACT. EVEN ON MERITS, THE TRIBUNAL, IN ASSESSEES OWN CASE, WHILE ADJUDICATING THE ISSUE O F DENIAL OF REGISTRATION U/S 12AA OF THE ACT, HELD THAT THE EXC ESS AMOUNT REFUNDED TO M/S. SOUTH INDIA CORPORATION LTD. IS IN THE NORM AL COURSE OF BUSINESS OF THE ASSESSEE AND IT IS NOT A DIVERSION OF FUNDS TO INTERESTED PERSONS. SINCE, THE ITAT HAS DELETED THE QUANTUM ADDITIONS M ADE BY THE A.O., THE PENALTY LEVIED ON SUCH ADDITIONS CANNOT SUSTAIN IN THE EYES OF LAW. 14. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. LEVIED PENALTY U/S 271(1)(C) OF THE ACT, TOWAR DS DISALLOWANCE OF EXCESS AMOUNT REFUNDED TO M/S. SOUTH INDIA CORPORAT ION LTD. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS DIVERTED I TS FUNDS TO THE INTERESTED PERSONS, THEREBY VIOLATED THE PROVISIONS OF SECTION 13(1)(C) AND 13(2)(G) R.W.S. 13(3) OF THE ACT, THEREFORE, IT IS A FIT CASE FOR LEVY OF ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 17 PENALTY. THE LD. A.R. FOR THE ASSESSEE, AT THE TIM E OF HEARING, SUBMITTED THAT THE QUANTUM ADDITION ON WHICH PENALT Y LEVIED U/S 271(1)(C) OF THE ACT, IS SQUARELY COVERED BY THE DE CISION OF ITAT, IN ASSESSEES OWN CASE IN ITA NO.269/VIZAG/2013. WE FI ND THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.269/VIZAG/2013 HAS CONSIDERED THE ISSUE ON MERIT S AND HELD THAT THE EXCESS AMOUNT REFUNDED TO M/S. SOUTH INDIA CORPORAT ION LTD. DOES NOT AMOUNT TO DIVERSION OF FUNDS TO INTERESTED PERSONS. 15. WE FURTHER OBSERVED THAT THE COORDINATE BENCH O F THIS TRIBUNAL, IN THE PREVIOUS PARAGRAPHS 8 & 9 IN ITA NO.680/VIZAG/2 013 HAS CONSIDERED THE PLEA OF THE ASSESSEE AND HELD THAT THE EXCESS A MOUNT REFUNDED TO M/S. SOUTH INDIA CORPORATION LTD. IS NOT A DIVERSIO N OF FUNDS TO INTERESTED PERSONS, THEREBY THE ASSESSEE HAS NOT VI OLATED THE PROVISIONS OF SECTION 13(1)(C) & 13(2)(G) R.W.S. 13(3) OF THE ACT. SINCE, THE QUANTUM ADDITION ON WHICH PENALTY LEVIED WAS DELETE D, THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT CANNOT SUSTAIN. EV EN OTHERWISE, THE QUESTION WHETHER THE REFUND OF EXCESS AMOUNT MADE T O M/S. SOUTH INDIA CORPORATIN LTD. IS AN EXPENDITURE INCURRED FOR THE PURPOSE OF THE TRUST OR THE SAID PAYMENT IS A DIVERSION OF FUNDS TO THE INTERESTED PERSONS WHICH VIOLATES THE PROVISIONS OF SECTION 13(1)(C) R .W.S. 13(3) OF THE ACT, ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 18 IS A LEGAL ISSUE AND COULD INVOLVE DIFFERENCE OF OP INION. THE A.O. DISALLOWED THE AMOUNT BECAUSE HE HAD DENIED THE BEN EFIT OF EXEMPTION U/S 11 OF THE ACT. THE HONBLE SUPREME COURT IN TH E CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. CLEARLY HELD THAT DISA LLOWANCE OF EXPENDITURE DOES NOT AMOUNT TO CONCEALMENT OF PARTI CULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME WHICH L EADS TO LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. THEREFORE, CONSIDERING T HE FACTS AND CIRCUMSTANCES OF THIS CASE, WE DIRECT THE A.O. TO D ELETE THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NOS.690 & 691/VIZAG/2013 ARE ALLOWED FOR STATISTICAL PURPOSES AND APPEALS FILED BY THE REVENUE IN ITA NOS.680 & 681/VIZAG/2013 AND ITA NO.16/VIZAG/2015 ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND JUL16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 22.07.2016 VG/SPS ITA NOS.680, 681, 690 & 691/VIZAG/2013 & ITA NO.16/ VIZAG/2015 M/S. CARGO HANDLING PRIVATE WORKERS POOL, VISAKHAPAT NAM 19 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-1(1), VISAKHAPA TNAM 2. / THE APPELLANT THE ACIT, (EXEMPTIONS) CIRCLE, V IJAYAWADA 3. / THE RESPONDENT M/S. CARGO HANDLING PVT. WORKER S POOL, S.J. WARD BUILDING, VDLB HOSPITAL PREMISES, OPP. FIRE STATION , PORT AREA, VISAKHAPATNAM 4. / THE RESPONDENT THE JCIT, RANGE-1, VISAKHAPATNA M 5. + / THE CIT-1, VISAKHAPATNAM 6. + ( ) / THE CIT (A), VISAKHAPATNAM 7. # . , . , # / DR, ITAT, VISAKHAPATNAM 8 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM