The ACIT, Circle 2(1), Indore V. M/s. Vajdi Educational Society, Indore

ITA 720/IND/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2321 (ITAT-INDORE)
• Duration Of Justice: 4 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 09-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DESHPAN D E
• Assessee Lawyers: K G GOYAL
• Keywords: Unexplained expenditure; Charitable institution; Non-deduction of tax; Accommodation entries
• Section: 69C; 143(3); 12A; 194C; 68; 12; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.653/IND/2013 ASSESSMENT YEAR: 2010-11 M/S. VAJDI EDUCATION SOCIETY, F-12, JHOOMER GHAT RAU, INDORE / VS. A CIT - 2 (1) INDORE ( APPELLANT ) ( REVENUE ) P.A. NO. AAAAC1063F ITA NO.720/IND/2013 ASSESSMENT YEAR: 2010-11 ACIT - 2(1) INDORE / VS. M/S. VAJDI EDUCATION SOCIETY, F-12, JHOOMER GHAT RAU, INDORE ( REVENUE ) ( RESPONDENT ) P.A. NO. AAAAC1063F APPELLANT BY SHRI DESHPANDE, CA RESPONDENT BY SHRI K.G. GOYAL , SR. DR DATE OF HEARING: 10.01.2018 DATE OF PRONOUNCEMENT: 09.02.2018 / O R D E R PER KUL BHARAT, J.M: THESE TWO CROSS APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST ORDER OF LD. COMMISSIONER OF INCOM E TAX- (APPEALS)-I, INDORE DATED 20.09.2013 PERTAINING TO THE A.Y. 2010-11. V AJDI EDUCATION SOCIETY 2 FIRST, WE TAKE UP ASSESSEES APPEAL IN ITA NO.653/I ND/2013, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: THE ORDER OF THE LD. CIT(A) IS BAD IN LAW. 2.THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ADDITIO N AND IN NOT CONSIDERING THE FACT THAT THE ASSESSEE IS AN EDUCAT IONAL INSTITUTION REGISTERED U/S 12A AND HENCE THE PROVIS IONS OF SECTION 12 TO 13 WHERE APPLICABLE AND NO DEMAND COU LD BE RAISED, IF THE INCOME IS APPLIED FOR THE OBJECTS OF THE TRUST. 2.1 THE LD. CIT(A) HAS BEEN OBSERVING THAT THE AO S HALL BE FREE TO DECIDE THE CLAIM OF EXEMPTION U/S 11 AND 12 WHER EIN NO SUCH PROVISION EXISTS IN THE STATUTE BOOK. THE LD. CIT(A ) DID NOT CONSIDERED THE CASE LAWS CITED BEFORE HIM. 2.2 ALL THE ADDITIONS MAINTAINED BY THE LD. CIT(A) AND THE DEMAND RAISED MAY PLEASE BE CANCELLED. 3. THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ADDITI ON OF RS.15,36,486/- FOR ALLEGED LABOUR EXPENSES INCURRED BY THE ASSESSEE. THE LD. CIT(A) HAS BASED HIS CONCLUSION O N TOTALLY WRONG FACTS. THE LD. CIT(A) DID NOT CONSIDERED BY O PENING BALANCE ON THE CONSTRUCTION OF THE BUILDING. THE MA TERIAL EXPENSES TAKEN BY THE LD. CIT(A) AT RS.17,68,243/- IS TOTALLY WRONG. 3.1 THE ADDITION MAINTAINED AT RS.15,36,486/- BASED ON THE DECISION OF THE APEX COURT WHICH IS TOTALLY IRRELEV ANT MAY PLEASE BE DELETED. 4. THE LD. CIT(A) HAS ERRED IN MAINTAINING THE ADDI TION OF RS.30,00,000/- BEING THE CASH CREDIT IN THE NAME OF K.K. PATEL FINANCE LTD. AND JAIN SECURITIES, ON THE WRONG ASSU MPTION THAT THEY ARE RELATED TO THE LUNKAD GROUP. 4.1 COMPLETED DETAILS WITH BANK STATEMENTS, CONFIRM ATION AND THE BALANCE SHEET WERE FILED BEFORE THE AUTHORITIES AND AS SUCH PROVISIONS OF SECTION. 68 ARE NOT ATTRACTED. 4.2 THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE CASE LAWS CITED BEFORE HIM REGARDING THE APPLICATION OF SECTI ON.11 TO 13 IN WHICH IT HAS BEEN HELD THAT ONCE THE INCOME IS APPL IED FOR THE OBJECT OF THE TRUST NO ADDITION COULD BE MADE. THE LD. CIT(A) HAS BASED HIS CONCLUSION ON IRRELEVANT CASE LAWS WHICH ARE NOT APPLICABLE TO THE CASE OF CHARITABLE TRUST. V AJDI EDUCATION SOCIETY 3 5. THE LD. CIT(A) HAS ERRED IN MAINTAINING THE FIXE D ASSET DISALLOWANCE OF RS.45,81,092/- ON THE GROUND THAT T HE LOANS TAKEN IN EARLIER YEAR WERE NOT GUANINE WEANS AS SUC H THE INTEREST EXPENSES CANNOT BE ALLOWED. 5.1 THE LD. CIT(A) HAS ALLOWED THE ASSESSEES APPEA L IN RESPECT OF EAST WEST FINVEST INDI LTD. ON THE SAME BASIS HE SHOULD HAVE DELETED THE ADDITION IN OTHER CASES. 2 . BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASS ESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 1 43(3) OF THE INCOME TAX ACT, 1961(HEREINAFTER CALLED AS THE ACT ) WAS FRAMED VIDE ORDER DATED 07.01.2013. THE ASSESSING OFFICER MADE VARIOUS ADDITIONS ON THE RETURNED INCOME NAMELY DISALLOWANC E MADE ON ACCOUNT OF NON-DEDUCTION OF TAX OF RS.9,13,795/- & RS.1,25,800/-. APART FROM THIS THE AO MADE ADDITION ON ACCOUNT OF CONSTRUCTION EXPENSES OF RS.47,18,448/- AND ADDITIONS ON ACCOUNT OF LOAN ALLEGED TO HAVE BEEN OBTAINED FROM LUNKAD GROUP OF COMPANIES OF RS.30,00,000/- AND OTHER DISALLOWANCE OF RS.3,94,37 8/- AND RS.33,103/- IN RESPECT OF CLAIM OF VAT(LOCAL SALES TAX) AND DISALLOWANCES OF TRAVELLING EXPENSES FOR NON-DEDUCT ION OF TAX. 3. AGGRIEVED BY THIS THE ASSESSEE PREFERRED AN APPE AL BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING THE APPEAL, LD. CIT(A ) REDUCED THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF LABOUR EXPENDITURE OUT OF THE ADDITION OF RS.47.18 LACS, THE LD. CIT(A) SU STAINED ADDITION OF RS.15,36,486/-. IN RESPECT OF THE ADDITION MADE ON ACCOUNT OF LOAN OF RS.30,00,000/- AND ALSO CONFIRMED ADDITION OF RS .45,01,732/-, MADE BY DISALLOWING THE INTEREST EXPENDITURE. V AJDI EDUCATION SOCIETY 4 4. AGGRIEVED BY THIS BOTH THE ASSESSEE AND REVENUE HAVE FILED SEPARATE APPEALS. 5. GROUND NO.1 IS NOT PRESSED AT THE TIME OF HEARIN G, HENCE SAME IS DISMISSED AS NOT PRESSED. 6. GROUND NO.2 TO 2.2 ARE IN RESPECT OF DEMAND RAIS ED BY THE AO WHETHER THE ADDITION CONFIRMED BY THE LD. CIT(A). L D. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE SOCIETY IS REGISTERED WITH INCOME TAX ACT, U/S 12A OF THE ACT. THE ASSESSEE, T HEREFORE, IS ENTITLED FOR EXEMPTION. THE LD. DR OPPOSED THESE SU BMISSIONS. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED MATERIAL AVAILABLE ON RECORD. THE CONTENTIONS OF THE LD. COU NSEL FOR THE ASSESSEE IS THAT SINCE THE ASSESSEE SOCIETY IS REGI STERED U/S 12A OF THE ACT, NO DEMAND CAN BE RAISED IN OUR VIEW THIS C ONTENTION IS MISCONCEIVED, AS PER THE RELEVANT PROVISION OF THE ACT THERE IS NO BLANKET EXEMPTION UPON REGISTRATION U/S 12A. HENCE GROUND NOS. 2 TO 2.2 RAISED IN THIS APPEAL ARE DISMISSED. 8. GROUND NO.3 TO 3.1 IS AGAINST THE UPHOLDING THE ADDITION OF RS.15,36,486/-. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS AS MADE IN THE WRITTEN SUBMISSIONS. THE SUBMISSIONS OF THE ASSESSEE ARE REPRODUCED AS UNDER: THE LD. AO HAS MADE THE ADDITION OF RS.47,18,448/- ON THE HYPOTHETICAL GROUND THAT THE ASSESSE HAS INCURRED E XTRA LABOUR COST OF THIS AMOUNT. THE CONCLUSIONS HAVE BEEN DRAW N ON THE BASIS OF THE COPY OF THE ACCOUNT OF BUILDING CONSTR UCTION REPRODUCED ON PAGE 4 OF THE ASSESSMENT ORDER. IN PA RA 7.4 THE LD. AO OBSERVED THAT THE ASSESSEE HAS INCURRED THE MATERIAL COST OF RS.70,77,672/- AND AS SUCH HE MUST HAVE INC URRED 40% V AJDI EDUCATION SOCIETY 5 OF THIS EXPENDITURE BY WAY OF LABOUR PAYMENTS WHICH COMES TO RS.47,18,448/-. THIS ADDITION HAS BEEN MADE BY IGNO RING THE ACTUAL FACTS ON RECORDS AND THE COPY OF ACCOUNT REP RODUCED AT PAGE 4 OF THE ASSESSMENT ORDER WHICH CLEARLY SHOWS THAT THE OPENING BALANCE IN THIS ACCOUNT IS RS.60,77,069/- A ND THE ADDITIONS DURING THE YEAR ARE ONLY TO THE TUNE OF R S.10,00,603/- . FROM THIS COPY OF ACCOUNT IT WOULD BE REVEALED TH AT ASSESSEE HAS MADE PAYMENT TO M/S. GUPTA CONSTRUCTION OF RS.9 2,703/- AND RS.1,39,054/- FOR LABOUR PAYMENTS. ON THESE LAB OUR PAYMENTS THE TDS HAS ALSO BEEN MADE. FOR KEEPING TH E RECORD OF BUILDING CONSTRUCTION ALL THE EXPENSES HAVE BEEN DEBITED IN THIS ACCOUNT AND HAVE BEEN ENTERED UNDER THE HEAD P URCHASES FOR BUILDING UNDER CONSTRUCTION. WITHOUT RAISING AN Y QUERY IN THIS REGARD ON A WRONG ASSUMPTION THE ADDITIONS HAV E BEEN MADE ON THE HYPOTHETICAL GROUND THAT THE ASSESSEE M IGHT HAVE INCURRED 40% AS LABOUR PAYMENTS. 1.1 THE LD. CIT(A) VIDE PARA 11 PAGE 10 HAS UPHELD THE ADDITION ON THE GROUND THAT 50% OF THE TOTAL EXPENSES SHOULD BE FOR LABOUR EXPENSES WHICH WOULD BE TO THE TUNE OF RS. 1 7,68,243/-. HOW THIS FIGURE OF RS.17,68,243/- IS ARRIVED IS NOT KNOWN. HE HOWEVER, SUSTAINED THE ADDITION OF RS.15,36,486/- O N THIS ACCOUNT. 1.2 IT IS HUMBLY SUBMITTED THAT THE LD. CIT(A) HAS TOTALLY IGNORED THE BUILDING ACCOUNT GIVEN FROM PG. 45 TO 51 WHICH CONSIST OF THE ACCOUNT OF BUILDING UNDER CONSTRUCTION AND THE ACCO UNT OF LABOUR CONTRACTOR, GUPTA CONSTRUCTION. THE ASSESSEE HAD TH E OPENING BALANCE OF RS.66,77,069/- INCLUDING THE VARIOUS LAB OUR PAYMENTS MADE. THE ASSESSEE HAS INCURRED FURTHER EX PENSES OF RS.10,00,503/- DURING THE YEAR UNDER CONSIDERATION WHICH INCLUDES THE LABOUR PAYMENT OF RS.2,31,757/- TO GUP TA CONSTRUCTION. THERE IS NO QUESTION OF ANY UNDISCLOS ED INVESTMENT IN THE BUILDING AND THE ADDITION SO SUST AINED BY THE LD. CIT(A) IS ILLEGAL AND UNWARRANTED FOR. THE LD. DR OPPOSED THE SUBMISSIONS AND SUPPORTED TH E ORDER OF THE AO. V AJDI EDUCATION SOCIETY 6 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE AO MADE ADDITION BY OBSERVING THAT ON VE RIFICATION OF DETAILS OF TDS SUBMITTED BY THE ASSESSEE IT IS SEEN THAT NO ENTRY OF TDS RETURN DETAILS U/S 194C IS MATCHED WITH THE DET AILS OF BUILDING UNDER CONSTRUCTION SUBMITTED BY THE ASSESSEE. AS SU CH THE SUBMISSION OF THE ASSESSEE IS A COOKED UP STORY, TO TALLY WRONG, BASELESS AND WITHOUT ANY EVIDENCE HENCE NOT ACCEPTA BLE AT ALL. FURTHER CONSIDERING THE PROVISION OF MPVAT ACT, TH E AO TREATED THE LABOUR COST AS 40% OF THE TOTAL COST OF CONSTRUCTIO N. HOWEVER, THE LD. CIT(A) SUSTAINED THIS ADDITION BY OBSERVING AS UNDER: APPELLANT HAS NOT SUCCESSFULLY EXPLAINED THE ISSUE RAISED BY AO. APPELLANT HAS NOWHERE GIVEN TOTAL AMOUNT OF LAB OUR EXPENSES DEBITED IN THE AMOUNT OF RS.70,77,672/- AN D NOT EXPLAINED WHETHER THERE WAS A RIGHT PROPORTION IN M ATERIAL EXPENSE ON ONE HAND AND LABOUR EXPENSE ON THE OTHER . WHAT IS MOST STRIKING IN THAT THOUGH MOST IMPORTANT FINISHI NG WORK TAKES PLACE AT THE END INVOLVING FLOOR/WOOD WORK/ELECTRIC WORK/TOILETS ETC. AND SUCH LABOUR CHARGES OF FINISHING WORK ARE HIGHEST RANGING ABOUT 50% OF THE COST, YET VERY SMALL BILLS WERE DEBITED TOWARDS LABOUR COST. OUT OF TOTAL EXPENSES DEBITED THIS YEAR OF RS.10 LAKHS, ONLY RS.2,31,757/- IS DEBITED TOWARDS LABOUR EXPENSES. EVEN IF OPENING STOCK OF CONSTRUCTION MAT ERIAL AS ON 01.04.2009 IS TAKEN AS RS.10 LAKH, THE LABOUR EXPEN SES SHOWN BY APPELLANT WERE NOT COMMENSURATE WITH MATERIAL EX PENSES OF RS.17,68,243/- AND EXPLANATION OFFERED BY APPELLANT WAS NOT FOUND SATISFACTORY. SINCE IN THIS YEAR THE WORK OF CONSTRUCTION WAS COMPLETED AND ONLY FINISHING WORK WAS DONE WHIC H INVOLVES LABOUR OF AROUND 50% OF TOTAL EXPENSE, HEN CE LABOUR EXPENSE IN THIS YEAR SHOULD HAVE BEEN EQUAL TO MATE RIAL EXPENSE, I.E., LABOUR EXPENSE SHOULD ALSO BE OF RS. 17,68,243/- BUT APPELLANT HAS DEBITED SUCH EXPENSE AT ONLY RS.2 ,31,757/- WHICH SHOWS UNEXPLAINED EXPENDITURE TOWARDS LABOUR OR V AJDI EDUCATION SOCIETY 7 RS.15,36,486/-. FOR THIS PURPOSE RELIANCE IS PLACED ON THE DECISION BY APEX COURT IN CASE OF ORISSA STATE WARE HOUSING CORP. (1999) 239 ITR 509(HON'BLE SUPREME COURT), BE CAUSE THE WORD ANY INCOME AS USED U/S 10(22) IS NOT THERE I N SECTION 11 WHERE WORDS USED ARE DERIVED FROM WHICH MAKE IT R ESTRICTIVE IN ITS APPLICATION AND DOES NOT GIVE BLANKET EXEMPT ION TO SUCH INCOME. RELIANCE IS ALSO PLACED IN CASE OF KEDAR NA TH MODI (1993) 200 ITR 685(DEL), WHEREIN APPLICATION OF SEC TION 69C OF THE INCOME TAX ACT WAS UPHELD AND EVEN ESTIMATION O F UNEXPLAINED EXPENSES WAS CONFIRMED. THEREFORE, GROU ND NO.(4) OF THE APPEAL IS PARTLY ALLOWED. 10. THERE IS NO DISPUTE WITH REGARD TO THE FACT THA T THE ACCOUNTS OF THE ASSESSEE ARE AUDITED. THE AUDITORS HAVE NOT MAD E ANY ADVERSE OBSERVATION REGARDING THE LABOUR EXPENDITURE. BOTH THE AUTHORITIES BELOW HAVE MADE ADDITION AND SUSTAINED THE SAME ON THE BASIS OF GUESS WORK WHICH IN OUR VIEW IS NOT A PROPER APPROA CH, THEREFORE, SUCH ADDITION CANNOT BE SUSTAINED. THE ASSESSING OF FICER IS DIRECTED TO DELETE THE SAME. THUS GROUND NO.3 AND 3.1 OF ASS ESSEES APPEAL ARE ALLOWED. 11. GROUND NO.4 TO 4.2 ARE AGAINST SUSTAINED ADDITI ON OF RS. 30,00,000/- AND GROUND NO. 5 TO 5.1 ARE AGAINST DIS ALLOWANCE OF INTEREST EXPENDITURE, SINCE THE GROUNDS ARE INTERCO NNECTED. THESE GROUNDS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF TOGETHER FOR THE SAKE OF BREVITY. THE LD. COUNSEL FOR THE ASSESS EE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SUBMISSION. PER CONTRA LD. DR SUPPORTED THE ORDERS OF THE AUTHO RITIES BELOW. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED MATERIAL ON RECORD. THE SOLE BASIS OF ADDITION BY REVENUE IS TH AT UPON SPECIFIC V AJDI EDUCATION SOCIETY 8 INVESTIGATION IT WAS FOUND THAT LUNKAD GROUP OF CO. WAS PROVIDING ENTRIES OF UNSECURED LOANS. THE ENTIRE MO DUS OPERANDI WAS TO PROVIDE LOAN ENTRIES THROUGH CIRCUITOUS RULE THE AUTHORITIES BELOW ARE OF THE VIEW THAT THE ASSESSEE OBTAINED LO AN FROM M/S. K.K. PATEL FINANCE LTD. AND M/S. JAYANT SECURITIES AND FINANCE LTD. OF RS.20,00,000/- & RS.10,00,000/- RESPECTIVEL Y. DURING THE YEAR UNDER CONSIDERATION THE AUTHORITIES BELOW ARE OF THE VIEW THAT THE TRANSACTIONS WITH THESE COMPANIES WERE NOT GENU INE. THE LD. CIT(A) HAS OBSERVED AS UNDER IN RESPECT OF THESE TR ANSACTIONS: THIS YEAR THE APPELLANT HAS RECEIVE RS.20 LAKHS FR OM M/S. K.K. PATEL FINANCE LTD. AND RS. 10 LAKHS M/S. JAYANT SEC URITIES FINANCE LTD. ONGOING THROUGH THE RETURNS OF THESE T WO CREDITORS, BOTH CREDITORS ARE RETURNING HUGE LOSSES EVERY YEAR WHICH PUTS SERIOUS QUESTION MARK ON THEIR CREDITWORTHINESS. M/ S. K.K. PATEL FINANCE LTD. HAS RETUNED LOSS OF RS.59.67 LAKHS IN A.Y. 2010- 11. CREDITORS HAVE NOT GIVEN SUCH UNSECURED LOAN ON THEIR WON BUT THE MODUS PERANDI IS TO ROTATE SUCH AMOUNT THRO UGH VARUOUS ACCOUNT, SO AS TO CONCEAL THE CASH DEPOSITS IN ORIGINAL ACCOUNTS. IN THIS YEAR CREDITOURS HAVE RECEIVED FUN DS FROM M/S. PURVI FINVEST LTD. WHICH IS A LUNKAD GROUP COMPANY, A KNOWN ACCOMMODATION ENTRY PROVIDER. IN BOTH A.Y. 2008-09 AND A.Y. 2009-10 WHOSE ASSESSMENT ORDER U/S 143(3) IS FURNIS HED BY APPELLANT, ENTIRE FUNDS RECEIVED FROM M/S. LUNKAD S ECURITIES LTD., M/S. PURVI FINVEST LTD, M/S. TRIMURTHI FINVES T LTD. WERE TREATED AS UNEXPLAINED IN CASE OF M/S. K.K. PATEL F INANCE LTD. & ADDED U/S 68 OF THE INCOME TAX ACT. THE LOSS FROM SALE OF SHARES IS ALSO DISALLOWED. CLEARLY THIS COMPANY M/S . K.K. PATEL FINANCE LTD. IS INTO PROVIDING THE ACCOMMODATION EN TRIES OF TWO KINDS NAMELY ENTRY OF UNSECURED LOAN AND ENTRY OF S HARE CAPITAL & SHARE PREMIUM. POINTS WHICH PROVE THME AS ACCOMMODATION ENTRY PROVIDER IS THAT THEY GIVE HUGE AMOUNTS OF UNSECURED LOANS THOUGH THEY ARE THEMSELVES VERY O RDINARY PERSONS, INCURRING HUGE LOSSES IN RETURNS. SUCH LOA NS CONTINUE YEAR AFTER YEAR. THE LOANS ARE GIVEN ON THE BASIS O F QUID PRO QUO V AJDI EDUCATION SOCIETY 9 BY RECEIVING CASH FROM SUCH PARTIES LIKE APPELLANT AND AFTER ROTATING IT THROUGH MANY ACCOUNTS, SUCH MONEY IS UL TIMATELY GIVEN TO APPELLANT. SIMILARLY THEY PROVIDE HUGE ACC OMMODATION ENTRIES FOR SHARE CAPITAL AND WHOM ON PAPER THAT TH EY HAVE PURCHASE SHARES OF SUCH COMPANIES AT HUGE PREMIUM. AFTER THIS TRANSACTION THEY SALE SUCH SHARES TO DIRECTORS AT A HUGELY DISCOUNTED PRICE AND THUS INCUR HUGE LOSSES YEAR AF TER YEAR. SUCH LOSS INCURRED ON SHARE OF M/S. BINDAL REALITY PVT. LTD. AND M/S. BHAIRAVI REAL ESTATE PVT LTD. WAS DISALLOWED B Y AO IN CASE OF M/S. K.K. PATEL FINANCE LTD. IN A.Y. 2008-0 9. 14. THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET O F M/S. JAYANT SECURITIES & FINANCE LTD. ARE SIMILAR TO THA T OF M/S. K.K. PATEL FINANCE LTD. IN THIS CASE ALSO THEY HAVE RETU RNED A LOSS OF RS.26,89,435/-. YEAR AFTER YEAR THEY HAVE RETURNED LOSS. IT IS COMMON SENSE THAT PERSON INCURRING LOSSES YEAR AFTE R YEAR CANNOT GIVE HUGE UNSECURED LOANS AND SHARE CAPITAL AND SHARE PREMIUM TO LARGE NUMBER OF COMPANIES AS THEY HAVE N O CREDITWORTHINESS UNLESS SUCH CREDIT IS IN NATURE OF ACCOMMODATION ENTRIES. 15. THE NATURE OF THESE TWO COMPANIES AS ACCOMMODAT ION PROVIDERS IS QUITE OBVIOUS FROM THEIR BALANCE SHEET S AND BALANCE SHEETS ARE PROOF OF THE ACTIVITIES CARRIED OUT BY THEM. M/S. JAYANT SECURITIES & FINANCE LTD. HAS SHOWN REC EIPT OF INTER CORPORATE DEPOSIT OF RS.40.20 CRORES AND THEY HAVE GIVEN LOANS AND ADVANCES OF RS.40.92 CRORES IN A.Y. 2010-11. S IMILAR M/S. K.K.PATEL FINANDC LTD. HAS RECEIVED LOAN TO RS.47.7 1 CRORES AND GIVEN LOAN OF RS.58.41 CRORES IN A.Y. 2010-11. THOU GH RECEIPT OF DEPOSITS AND GIVING OF ADVANCES COULD BE A NORMAL B USINESS ALSO. BUT IN THAT CASE PERSONS WHO CARRY SUCH GENUI NE LOAN BUSINESS ARE KNOWN MONEYLENDERS OF THE CITY. SUCH MONEYLENDERS WHO WERE AN INTEGRAL PART OF TRADITION AL BUSINESS HAVE DISAPPEARED BECAUSE OF SECURED LOANS AVAILABLE FROM BANKS, AS THE INTEREST RATES HAVE GONE DOWN SUBSTAN TIALLY AND GIVING HUGE LOANS WITHOUT ANY SECURITY BECAME A RIS KY BUSINESS AS THE MOST IMPORTANT COMPONENT OF TRADITIONAL SOCI ETY KNOWN AS FAITH JUST DISAPPEARED. 16. WHAT MAKES THESE TRANSACTIONS QUESTIONABLE IS T HAT PERSONS BEHIND THESE COMPANIES ARE MAN OF SMALL MEANS. THE RECEIPTS OF LOANS BY SUCH COMPANIES LIKE M/S. K.K. PATEL FIN ANCE LTD. V AJDI EDUCATION SOCIETY 10 AND M/S. JAYANT SECURITY & FINANCE LTD. REMAIN UNEX PLAINED WHEREVER IT IS EXAMINED AS IN CASE OF M/S. K.K. PAT EL FINANCE LTD. BECAUSE EITHER THEY FAIL TO GIVE NAME AND ADDR ESS OF THEIR CREDITORS OR IF THEY PROVIDE SUCH NAME, THEIR CREDI TORS ARE MOSTLY SOME OTHER ENTRY PROVIDERS LIKE LUNKAD GROUP BECAUS E THEY ACT IN TANDEM TO CREATE A MAZE OF ACCOUNTS TO ROTATE UN ACCOUNTED CASH RECEIVED FROM THEIR CLIENTS, WHICH ULTIMATELY REACHES TO THEIR CLIENTS SUCH AS APPLICANT IN THE NAME OF UNSE CURED LOANS. 17. BESIDES THIS SUCH ENTRY PROVIDERS BEING PERSON OF SMALL MEANS, HAVE PROVIDED ENTRIES TO ONLY BIG AND KNOWN INDUSTRIES OF THE CITY. THIS REVERSE FLOW OF MONEY FROM POOR T O RICH IS NOT POSSIBLE AND POOR PERSON CANNOT ACT AS ROBINHOOD, UNLESS THEY HAVE SIMPLY TAKEN UPON THEM ROLE OF CLEANING W HEREBY THEY CONVERT SLUSH MONEY OF BIG PEOPLE INTO ACCOUNT ED FUNDS IN THE GUISE OF UNSECURED LOANS OR SHARE CAPITAL AND S HARE PREMIUM AND THEY ARE MOTIVATED TO DO THIS IN ORDER TO RECEIVE THEIR COMMISSION FOR DOING THIS. 18. THE OTHER PROOF OF THEIR BEING ACCOMMODATION PR OVIDER IS THAT THEY SIMPLY GIVE LOANS BUT DO NOT TAKE IT BACK FOR SEVERAL YEARS UNLESS THEIR CLIENT NEEDS REVERSAL OF ENTRIES IF CLIENTS NEED UNACCOUNTED CASH BACK. 19. SIMILARLY INVARIABLY THESE ACCOMMODATION PROVID ERS PURCHASE SHARES OF NEWLY LAUNCHED COMPANIES AT A HU GE PREMIUM WHEN WORTH OF SHARES OF SUCH COMPANIES IS V ERY LOW AND WITHIN 2-3 YEARS, SUCH SHARES ARE SOLD BACK TO DIRECTORS OF THOSE COMPANIES AT VERY LOW RATES, WHEREBY ACCOMMOD ATION PROVIDER INCURS HUGE LOSSES. IT IS NOT THAT M/S. K. K. PATEL FINANCE LTD. HAS INCURRED SUCH LOSS IN ONE YEAR, BU T IN SEVERAL YEARS, THEY INCUR SUCH LOSSES AND EVEN AFTER SUCH L OSSES, THEY SURVIVE IN MARKET AND AGAIN GIVE LOANS TO SAME COMP ANIES. THIS IS BECAUSE IN REALITY SUCH ACCOMMODATION PROVIDERS DO NOT INCUR ANY REAL LOSS AS THEY CONVERT BLACK MONEY OF CLIENT S INTO WHITE BY GIVING IT APPEARANCE OF A REAL SHARE TRANSACTION . 20. AS A CHARITABLE INSTITUTE, APPELLANT HAS EVEN G REATER RESPONSIBILITY TO KEEP AWAY FROM SUCH ACCOMMODATION PROVIDERS. NOT ONLY THAT UNSECURED LOAN IS RECEIVED FROM SUCH TAINTED PERSONS, BUT IT REMAINED IN HANDS OF APPELL ANT AND IT IS BEING SEEN AS FDR OF RS.2 CRORES AND BANK BALANCE O F RS.70.89 LAKHS, AS IF IT WAS OWN MONEY OF APPELLANT. V AJDI EDUCATION SOCIETY 11 21. AS A RESULT OF AFORESAID DISCUSSION, ADDITION U /S 68 OF THE INCOME TAX ACT AS DONE BY AO IS FULLY JUSTIFIED. SE CTION 68 IS APPLICABLE TO ALL TYPES OF ASSESSEES INCLUDING CHA RITABLE TRUSTS AND THE ONLY CONDITIONS IS THAT A SUM SHOULD BE F OUND CREDITED IN THE BOOKS OF ASSESSEE AND ASSESSEE EITHER OFFERS NO EXPLANATION OR EXPLANATION OFFERED BY HIM IS NOT FO UND SATISFACTORY AND THE SECOND CONDITION DIRECTLY APPL IES TO THE PRESENT CASE. 13. THE CONTENTION OF THE ASSESSEE IS THAT THE OPIN ION OF AO THESE COMPANIES BELONG TO LUNKAD GROUP. THE ASSESSE HAD F ILED THE CONFIRMATIONS FROM THE CREDITORS, THE BALANCE SHEET , THE COPY OF BANK STATEMENT AND COPY OF INCOME TAX RETURN OF THE SAID CREDITORS. IT IS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE COMPANIES DO NOT BELONG TO LUNKAD GROUP. THE CONFIRMATION ALONG WITH BALANCE SHEET AND THE INCOME TAX RETURNS WITH THE BANK STATEMENT WERE FILED IN THE CASE OF M/S. K.K. PATEL FINANCE LTD. AND M/S. J AYANT SECURITIES FINANCE LTD. AND IF THE LD. COUNSEL DREW OUR ATTENT ION TO PAPER BOOK PAGE NOS. 62 TO 68 AND 95 TO 99 IN SUPPORT OF THIS CONTENTION. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE LAW IS WELL SETTLED. THE ASSESSEE IS REQUIRED TO PROVE IDENTITY OF THE CREDI TORS GENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF THE CREDITORS. IN THE PRESENT CASE, THE REVENUE HAS DOUBTED ABOUT THE GENUINENESS OF THE TRANSACTIONS. IT IS STATED BY THE LD. COUNSEL FOR T HE ASSESSEE THAT THE COMPANY FROM WHOM LOAN WAS TAKEN DOES NOT BELON G TO THE LUNKAD GROUP WHICH WAS INVOLVED INTO THE BUSINESS O F ENTRY PROVIDING. THE COUNSEL FOR THE ASSESSEE HAS DEMONST RATED THAT THE COMPANIES WERE HAVING SUFFICIENT AMOUNT FOR GIVING SUCH LOANS, HOWEVER, WE FIND THAT THE LD. CIT(A) DOUBTED THE GE NUINENESS OF THE V AJDI EDUCATION SOCIETY 12 TRANSACTIONS, ON THE BASIS THAT THE ASSESSEE HAD NO REQUIREMENT OF LOAN AS THE ASSESSEE ITSELF HAVING SUFFICIENT FUND AVAILABLE WITH IT. IN OUR VIEW THIS SUSPICION OF THE LD. CIT(A) IS JUSTIF IED, NO SANE PERSON WOULD TAKE LOAN THUS MAKE HIMSELF LIABLE FOR INTER EST EXPENDITURE WHEN HE IS HIMSELF HAVING SUFFICIENT FUND, HOWEVER, CONTENTION OF THE ASSESSEE IS THAT WAS REQUIRED FOR CONSTRUCTION OF BUILDING. WE THEREFORE, CONSIDERING THE TOTALITY OF THE FACT, DE EM IT PROPER TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO VERIFY WH ETHER THE COMPANIES FOR WHICH LOAN HAS BEEN TAKEN BELONG TO LUNKAD GROU P AND GIVE A SPECIFIC FINDING WHETHER THE TRANSACTIONS IN THE QU ESTION WERE EXECUTED THROUGH CIRCUITOUS ROUTE SUGGESTING THAT M ONEY BELONGING TO THE ASSESSEE IS ROUTED THROUGH THE CHANNEL OF LO AN. WITH THESE OBSERVATIONS THE ISSUE IS RESTORED TO THE FILE OF T HE AO FOR DECISION AFRESH. THE GROUND NOS. 4 TO 4.2 ARE ALLOWED FOR ST ATISTICAL PURPOSES. 14. GROUND NO.5 TO 5.1 ARE RELATED TO DISALLOWANCE OF INTEREST EXPENDITURE IN RESPECT OF LOAN OBTAINED FROM M/S. K .K. PATEL FINANCE LTD. AND M/S. JAYANT SECURITIES AND FINANCE LTD. ARE CONNECTED WITH GROUND NO.3. WE, THEREFORE, SET ASID E THE ORDER OF AUTHORITIES BELOW ON THIS ISSUE AND RESTORE THIS IS SUE TO THE FILE OF AO TO DECIDE IT AFRESH. NEEDLESS TO SAY THAT THE AO WOULD AFFORD REASONABLE OPPORTUNITY TO THE ASSESSEE. THUS, GROUN D NO. 5 TO 5.1 ARE ALLOWED FOR STATISTICAL PURPOSES. 15. AS A RESULT APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. V AJDI EDUCATION SOCIETY 13 NOW WE TAKE UP REVENUES APPEAL IN ITA NO.720/IND/2 013 16. GROUND NO.1 IS AGAINST DELETION OF ADDITION MAD E ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE INCURRED ON MAINTENANCE OF ROAD BUILDING AND MAINTENANCE CHARGES, WATER CHARGES AND TRAVELLING EXPENSES. LD. DR SUPPORTED THE ORDER OF THE AO AND THE LD. CO UNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT (A) O BSERVED THAT THESE EXPENSES WERE DISALLOWED BY AO MAINLY ON THE GROUND THAT SINCE TDS WAS NOT DEDUCTED BEFORE MAKING OF SUCH PAYMENTS , PROVISION OF SECTION 40(A)(IA) OF THE ACT WAS APPLIED BY AO A ND DISALLOWED ENTIRE AMOUNT OF SUCH EXPENSES. THOUGH CHARITABLE T RUST HAVE NOT BEEN MADE EXEMPT U/S 190 & 194 OF THE ACT AND THEY ARE MADE LIABLE TO DEDUCT TDS ON CONTRACTUAL PAYMENT, YET FA ILURE TO DO SO WOULD ONLY MAKE THEN LIABLE FOR PAYMENT TO TAX AND PENALTY U/S 201(1)/201(1A) OF THE ACT. BUT IN SUCH CASES SECTIO N 40(A)(IA) COULD NOT BE INVOKED BECAUSE THE SECTION ITSELF SAYS THAT FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INC OME CHARGEABLE UNDER THE HEAD PROFITS & GAINS OF BUSIN ESS OR PROFESSION. HENCE THIS SECTION HAS NO APPLICATION TO COMPUTATION OF INCOME OF CHARITABLE TRUST U/S 11 OF THE ACT. BESID ES AO HAS NOT RAISED ANY REAL PROBLEM IN CLAIM OF SUCH EXPENSES. V AJDI EDUCATION SOCIETY 14 LD. DR COULD NOT CONTROVERT THIS FINDING OF LD. CIT (A). WE, THEREFORE DO NOT SEE ANY REASON TO INTERFERE WITH T HE FINDING OF LD. CIT(A) AND CONFIRM THE SAME. THUS, THE GROUND NO.1 IS DISMISSED. 18. GROUND NO.2 AND 2.1 WITH REGARD TO RESTRICTION OF THE ADDITION TO RS.15,36,486/- IN RESPECT OF CONSTRUCTION EXPEND ITURE. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SUBMISS IONS MADE IN GROUND NO.3 OF THE ASSESSEES APPEAL MAY AL SO BE TREATED AS SUBMISSION FOR THIS GROUND AS WELL. LD. DR ALSO ADOPTED THE SAME ARGUMENT. WE HAVE HEARD THE RIVAL CONTENTIONS. THE CONNECTED GROUND IN ASSESSEES APPEAL I.E. GROUND NO.3 HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY DIRECTING THE AO TO DELETE THE DISALLOW ANCE. WE THEREFORE, FOR THE SAME REASONING DISMISS THIS GROU ND OF REVENUES APPEAL. GROUND NO.2 OF REVENUES APPEAL IS DISMISSE D. 19. GROUND NO.3 WITH REGARD TO DELETION OF THE ADDI TION OF RS.77,360/-. BOTH THE REPRESENTATIVE OF THE PARTIES SUBMITTED TH AT ARGUMENTS ARE SAME TO ASSESSEES APPEAL IN ITA NO. 653/IND/2013. 20. WE HAVE HEARD BOTH THE PARTIES, WE DECIDED THIS ISSUE IN ASSESSEES APPEAL BY OBSERVING AS UNDER: 13. THE CONTENTION OF THE ASSESSEE IS THAT THE OPI NION OF AO THESE COMPANIES BELONG TO LUNKAD GROUP. THE ASSESSE HAD FILED THE CONFIRMATIONS FROM THE CREDITORS, THE BAL ANCE SHEET, THE COPY OF BANK STATEMENT AND COPY OF INCOME TAX RETUR N OF THE SAID CREDITORS. IT IS CONTENDED ON BEHALF OF THE AS SESSEE THAT THE COMPANIES DO NOT BELONG TO LUNKAD GROUP. THE CONFIR MATION V AJDI EDUCATION SOCIETY 15 ALONG WITH BALANCE SHEET AND THE INCOME TAX RULES W ITH THE BANK STATEMENT WERE FILED IN THE CASE OF M/S. K.K. PATEL FINANCE LTD. AND M/S. JAYANT SECURITIES FINANCE LTD . AND IF THE LD. COUNSEL DREW OUR ATTENTION TO PAPER BOOK PAGE N OS. 62 TO 68 AND 95 TO 99 IN SUPPORT OF THIS CONTENTION. THERE I S NO DISPUTE WITH REGARD TO THE FACT THAT THE LAW IS WELL SETTLE D. THE ASSESSEE IS REQUIRED TO PROVE IDENTITY OF THE CREDITORS GENU INENESS OF TRANSACTIONS AND CREDITWORTHINESS OF THE CREDITORS. IN THE PRESENT CASE, THE REVENUE HAS DOUBTED ABOUT THE GEN UINENESS OF THE TRANSACTIONS. IT IS STATED BY THE LD. COUNSE L FOR THE ASSESSEE THAT THE COMPANY FROM WHOM LOAN WAS TAKEN DOES NOT BELONG TO THE LUNKAD GROUP WHICH WAS INVOLVED INTO THE BUSINESS OF ENTRY PROVIDING. THE COUNSEL FOR THE AS SESSEE HAS DEMONSTRATED THAT THE COMPANIES WERE HAVING SUFFICI ENT AMOUNT FOR GIVING SUCH LOANS, HOWEVER, WE FIND THAT THE LD. CIT(A) DOUBTED THE GENUINENESS OF THE TRANSACTIONS. ON THE BASIS THAT THE ASSESSEE HAD NO REQUIREMENT OF LOAN AS THE ASSESSEE ITSELF HAVING SUFFICIENT FUND AVAILABLE WI TH IT. IN OUR VIEW THIS SUSPICION OF THE LD. CIT(A) IS JUSTIFIED, NO SANE PERSON WOULD TAKE LOAN THUS MAKE HIMSELF LIABLE FOR INTER EST EXPENDITURE WHEN HE IS HIMSELF HAVING SUFFICIENT FU ND, HOWEVER, CONTENTION OF THE ASSESSEE IS THAT WAS REQUIRED FOR CONSTRUCTION OF BUILDING. WE THEREFORE, CONSIDERING THE TOTALITY OF THE FACT, DEEM IT PROPER TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO VERIFY WHETHER THE COMPANIES FOR WHICH LOAN HAS BEE N TAKEN BELONG TO LUNKAD GROUP AND GIVE A SPECIFIC FINDING WHETHER THE TRANSACTIONS IN THE QUESTION WERE ADJUDICATED THROU GH CIRCUITOUS ROUTE SUGGESTING THAT MONEY BELONGING TO THE ASSESS EE IS ROUTED THROUGH THE CHANNEL OF LOAN. WITH THESE OBSERVATION S THE ISSUE IS RESTORED TO THE FILE OF THE AO FOR DECISION AFRE SH. THE GROUND NOS. 4 TO 4.2 ARE ALLOWED FOR STATISTICAL PURPOSES. 21. BY FOLLOWING THE ABOVE THE REVENUES GROUND IS ALSO RESTORED TO THE FILE OF THE AO FOR DECISION AFRESH. ACCORDINGLY THE SAME IS ALLOWED FOR STATISTICAL PURPOSES. V AJDI EDUCATION SOCIETY 16 22 . IN THE RESULT, BOTH THE APPEAL OF ASSESSEE AND REV ENUE IN ITA NO. 653/IND/2013 & ITANO270/IND/2013 ARE PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 09 .02.20 18. SD/- (MANISH BORAD) SD/- (KUL BHARAT) CCOUNTANT MEMBER JUDICIALMEMBER INDORE; DATED : 09 / 02/2018 CTX? P.S/. . . COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUA RD FILE. BY ORDER PRIVATE SECRETARY/DDO, INDORE