MESERS MAITRI EDUCATIONAL SOCIETY, ANJORA, DURG V. ASSISTANT COMMISSIONER OF INCOME TAX, (EXEMPTION), RAIPUR

ITA 76/RPR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3194 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 17-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Notional interest
• Section: 12; 143(3); 13

Judgement Text

आयकर अपीलȣय अͬधकरण Ûयायपीठ रायप ु र मɅ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.76/RPR/2019 Ǔनधा[रण वष[ / Assessment Year : 2015-16 Maitry Educational Society Village-Anjora, Dist. Durg, Chhatisgarh-491 001. PAN : AAAAM5180E .......अपीलाथȸ / Appellant बनाम / V/s. The Assistant Commissioner of Income Tax (Exemption) Raipur (C.G.) ......Ĥ×यथȸ / Respondent Assessee by :Shri Moolchand Jain, AR Revenue by :Shri G.N Singh, DR स ु नवाई कȧ तारȣख / Date of Hearing :08.06.2022 घोषणा कȧ तारȣख / Date of Pronouncement :26.07.2022 2 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 आदेश/ ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT (Appeals)-II, Raipur, dated 25.01.2019, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-Tax Act, 1961 (for short ‘the Act’) dated 28.12.2017 for assessment year 2015-16. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. That the learned C.I.T.has erred in law and facts in maintaining the invoking of the provision of section13(1)(ii)r.w.s.11(5), 13(2)(A) and 13(2)(g)of the 1.T.Act by A.O.and denying the benefits of section 11and12 of the Act without appreciating and considering the submissions and evidences submitted by the appellant,which is most arbitrary unjustified,badinlaw and against the principals of natural justice. 2. That the learned C.I.T.(A)has erred in law and facts in maintaining the addition of notional interest income of Rs.15,00,000/-@12%p/a/on amount of advance given to M/s Raja Bada,Durg against purchase of 4 Shops which is most arbitrary,prejudiced and bad in law and on facts. 3. That the learned C.I.T.(Appeals)has passed a non-speaking order without appreciating the evidences and caselaws,which is arbitrary and bad in law. 4. That the appellant craves leave to add, amend or alter the grounds of appeal at the time of hearing.” 2. Succinctly stated, the assessee, a charitable society/institution which is engaged in the business of running a college of nursing and dentistry at Anjora, Durg, had filed its return of income for AY 2015-16 on 29.09.2015 in the status of Association of Person (AOP), declaring an income of Rs. Nil (after claiming exemption 3 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 u/s 11 of the Act). Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the balance sheet of the assessee society revealed an advance of Rs.1,32,69,563/-. On being queried, it was submitted by the assessee that the aforesaid amount was an advance that was given to M/s. Raja Bada, Durg, i.e a partnership firm, for purchasing 4 (four) shops at Durg. Elaborating on the nature of transaction, it was submitted that as the assessee society had intended to open up a City Clinic of dental college, therefore, it had executed an “Agreement”, dated 16.01.2014 with M/s. Raja Bada, Durg for purchasing 4 (four) shops (admeasuring 2058 Sq. ft.) and had advanced an amount of Rs.1.25 crore to the aforesaid seller concern. On further being queried as to what was the current status of the aforesaid transaction, it was submitted by the assessee society that as the purchase transaction thereafter did not materialize and was rescinded at its behest, therefore, the “agreement”, dated 16.01.2014 was repudiated in July,2015. It was submitted by the assessee that out of the advance of Rs.1.25 crore (supra) an amount of Rs.1.01 crore was received back from the aforesaid seller concern, viz. M/s. Raja Bada, Durg over the period i.e, 09.07.2015 to 08.12.2015. As regards the balance amount of Rs. 24 lac (out of Rs.1.25 crore), it was submitted by the assessee that as there was delay in repayment of the said amount by the aforesaid seller concern 4 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 and the same was finally received back only as on 03.08.2018, therefore, the assessee society had received an amount of Rs.3 lac towards interest a/w. refund of the aforesaid principal amount of Rs.24 lac. However, the A.O was not persuaded to accept the aforesaid explanation of the assessee. It was observed by the A.O that Shri Rajesh Paliwal, a relative of the president of the assessee society was a partner in the aforesaid concern, viz. M/s. Raja Bada, Durg. On further verification, it was observed by the A.O that Shri Rajesh Paliwal (supra) a/w. his family members had given unsecured loans to the assessee society at an interest of 12%. Observing, that while for the assessee society had advanced interest free amount to M/s. Raja Bada, Durg, but at the same time had raised interest-bearing loans/advances from Shri Rajesh Paliwal and his family members, the A.O held a conviction that a substantial amount of the assessee society of Rs.1.25 crore was used without charging of any interest for the benefit of the aforesaid person who fell within the realm of section 13(3) of the Act. Taking cognizance of the fact that the assesee society had paid interest @12% on the advance/loans received from Shri Rajesh Paliwal and his family members the AO made an addition towards notional interest of Rs.15 lac i.e., @12% on the amount Rs.1.25 crore that was advanced by the assessee society free of interest to the aforesaid concern, viz. M/s. Raja Bada, Durg. Considering the fact that as the amount advanced by the assessee society to M/s. Raja Bada, Durg was in violation of Section 13(2)(a) & Section 13(2)(g) r.w.s. 11(5) & 13(1)(c)(ii) of the Act, the A.O declined the assessee’s claim of exemption of the excess of its income 5 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 over expenditure of Rs.34,99,310/- u/ss. 11 & 12 of the Act. Accordingly, the A.O vide his order passed u/s.143(3), dated 28.12.2017 assessed the income of the assessee society at Rs.49,99,310/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) but without any success. 5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 6. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. AR in order to drive home his contentions. 7. Controversy involved in the present appeal is triple facet, viz., (i) that as to whether or not the advance of Rs.1.25 crores given by the assessee society to M/s. Raja Bada, Durg would trigger the provisions of section 13(2)(a) & 13(2)(g) r.w.s. 11(5) & Sec. 13(1)(c)(ii) of the Act; (ii) that as to whether or not the lower authorities are right in law and in the facts of the case in declining the entire claim of the assessee for exemption u/s.11 & 12 of the Act; and (iii). that as to whether or not the AO had rightly made an addition of Rs. 15 lac towards notional interest that the assessee ought to have charged on the amount advanced to M/s Raja Bada, Durg. 6 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 8. Admittedly, it is a matter of fact borne from record that an amount of Rs.1.25 crore was advanced by the assessee society to M/s. Raja Bada, Durg. As observed by us hereinabove, it is the claim of the assessee that as it had intended to open a city clinic of dental college in the heart of the Durg City, therefore, it had executed an “Agreement” dated 16.01.2014 with M/s. Raja Bada, Durg for purchasing 4 (four) shops (admeasuring 2058 Sq. ft.) @ Rs. 11,543/- per square feet, i.e, for a total consideration of Rs.2,37,55,494/-. As stated by the Ld. AR, an amount of Rs.1.25 crore (supra) was paid by the assessee as an advance for purchase of the aforesaid property in question. In order to fortify the aforesaid factual position our attention was drawn by the Ld. AR towards the copy of the aforesaid “Agreement”, dated 16.01.2014, Page 20-22 of APB. As stated before the lower authorities as well as before us, it is the claim of the assessee that due to paucity of funds the aforesaid purchase transaction could not materialize and had to be rescinded at its behest in July, 2015. Our attention was drawn towards the back side of the aforesaid “Agreement”, dated 16.01.2014 wherein the terms of cancellation of agreement were mentioned, Page 21 of APB. It was averred by the Ld. AR that as provided in the aforesaid agreement, in case the deal was cancelled due to the assessee backing out of the same, then, though the earnest money/advance so paid would be refunded, but the same would not carry any interest on it. In order to support his aforesaid contention the Ld. AR had taken us through Clause 4 of the aforesaid 7 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 “Agreement”, dated 16.01.2014. It was submitted by the Ld. AR that as the assessee had paid the aforesaid amount of Rs.1.25 crore (supra) pursuant to a commercial transaction i.e., towards purchase of a property for furtherance of its objects i.e., running a college of dentistry, therefore, the amount so advanced on the rescinding of the agreement could not be given the color and character as that of a simplicitor loan/advance for the purpose of triggering the provisions of section 13 of the Act. Also, it was claim of the Ld. AR that as the transaction for purchasing the property in question was executed @ Rs.11,543/- per square feet i.e, as per the guideline rates fixed by the Government, therefore, there could also be no occasion for alleging that the assessee in the garb of the aforesaid transaction had advanced interest free amounts to the aforesaid concern, viz. M/s. Raja Bada, Durg. In sum and substance, it was claim of the Ld. AR that as the assessee had not given any simplicitor loan/advance but had in furtherance its objects paid the aforesaid amount to facilitate purchase of the property in question, which, though did not materialize, therefore, the adverse inferences drawn by the lower authorities by triggering Section 13 of the Act was uncalled for and thus, were liable to be vacated. 9. Adverting to the addition of Rs.15 lac towards notional interest @12% per annum on the amount of Rs.1.25 crore (supra), which as per the A.O the assessee should have charged on the amount that was advanced free of interest to M/s. Raja Bada, Durg, it was averred by the Ld. AR that without prejudice to its claim that no 8 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 simplicitor loan/advance of money was given by the assessee society to M/s. Raja Bada, Durg, but was an amount that was advanced in the course of a commercial transaction which though did not see the light of the day, even otherwise the impugned addition of Rs.15 lac towards notional interest not being as per the mandate of law was liable to be struck down. In support of his aforesaid contention the Ld. AR had relied on the celebrated judgment of the Hon’ble Supreme Court in the case of CIT Vs. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC). 10. Per contra, the Ld. Departmental Representative (for short ‘DR’) had relied on the orders of the lower authorities. It was submitted by the Ld. DR that as the assessee had violated the provisions of Sec. 13(3) r.w.s. 13(1)(c)(ii) of the Act, therefore, the lower authorities had rightly declined its claim for exemption u/ss. 11 & 12 of the Act. In support of his aforesaid contentions the Ld. DR had relied on the judgment of the Hon’ble Delhi High Court in the case of Pt. Kanahya Lal Punj Charitable vs DIT (2008) 297 ITR 66 ( Del). 11. After having given a thoughtful consideration to the aforesaid issue in hand, we find substantial force in the claim of the ld. AR that as the assessee in order to facilitate the transaction in question i.e., purchase of 4 (four) shops (admeasuring 2058 sq.ft.) @ Rs.11,543/- per square feet for a total consideration of Rs.2,37,55,494/-, had in lieu thereof advanced an amount Rs.1.25 crore (supra) at the time of execution of “agreement”, dated 16.01.2014, which though could not 9 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 fructify and had to be rescinded at the its behest, therefore, advancing of the aforesaid amount in question which was clearly prompted by commercial reasons could not be given the color and character as that of a simplicitor loan transaction. At this stage, we may herein observe that neither the lower authorities nor the Ld. DR has assailed the genuineness of the “Agreement”, dated 16.01.2014. Backed by the aforesaid facts, we are of the considered view that now when the assessee had admittedly paid an amount of Rs.1.25 crore (supra) towards advance in order to facilitate the purchase of the aforesaid property in question, which, though did not materialize, therefore, the advancing of the aforesaid amount could not be held as diversion of any part of its income or property for the benefit of any person referred to in sub-section (3) of Section 13 of the Act. But then, it takes us to another aspect of the issue in question i.e., retaining of an amount Rs.24 lac by the aforesaid concern, viz. M/s. Raja Bada, Durg which, thereafter, was refunded by the latter only as on 03.08.2018 i.e., after lapse of more than 3 years from the date of the signing of the agreement. At this stage, we may herein observe that as the assessee for the aforesaid extended period of retention had charged interest on the aforesaid amount Rs. 24 lac (supra), therefore, no adverse inferences as regards such delayed payment which carried along with it interest as per the prevailing market rate could have been drawn in the hands of the assessee. 10 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 12. At this stage, we cannot also remain oblivion of the fact that as the “Agreement”, dated 16.01.2014 was rescinded at the behest of the assessee, therefore, as pointed by the Ld. AR, and rightly so, as per Clause-4 of the aforesaid agreement, though the assessee would stand entitled for refund of the principal amount so advanced, but the same would not carry any interest on it. As the veracity of the aforesaid “Agreement”, dated 16.01.2014 had neither been doubted by the authorities below, nor assailed before us by the Ld. DR, therefore, going by the terms therein contained we find no infirmity in the refund of the aforesaid amount of Rs.1.01 crore (supra) to the assessee society, de hors, payment of any interest by the aforementioned concern, viz. M/s. Raja Bada, Durg. 13. As we have hereinabove concluded that the amount of Rs.1.25 crore (supra) was advanced by the assessee society to M/s. Raja Bada, Durg in the course of a commercial transaction, therefore, for the said reason alone the addition towards notional interest of Rs.15 lac made by the A.O cannot be sustained and is liable to be struck down. 14. As we have vacated the declining of the assessee’s claim of exemption u/ss. 11 & 12 of the Act by the A.O, therefore, the alternative contention advanced by the Ld. AR as regards the scope of declining of the assessee’s claim for exemption u/ss. 11 & 12 of the Act on account of diversion of a part of income or property of the assessee society for the benefit of specified party contemplated in sub-section (3) 11 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 of Section 13 of the Act; or qua the merits of the additions made, having been rendered as merely academic in nature, thus, are left open. We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeals) and vacate both the declining of the assessee’s exemption u/s.11 & 12 of the Act of Rs.34,99,310/- by the AO and the addition of Rs.15 lac made by him towards notional interest in the hands of the assessee society. Thus, the Grounds of appeal No.(s) 1, 2 & 3 raised by the assessee are allowed in terms of our aforesaid observations. 15. Ground of appeal No.4 being general in nature is dismissed as not pressed. 16. In the result, appeal of the assessee is allowed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- RATHOD KAMLESH JAYANTBHAI RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायप ु र/ RAIPUR ; Ǒदनांक / Dated : 26 th July, 2022 **SB 12 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant. 2. Ĥ×यथȸ / The Respondent. 3. The CIT(Appeals)-II, Raipur (C.G) 4. The Pr. CIT-II, Raipur (C.G) 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण,रायप ु र बɅच, रायप ु र / DR, ITAT, Raipur Bench, Raipur. 6. गाड[फ़ाइल / Guard File. आदेशान ु सार / BY ORDER, // True Copy // Ǔनजी सͬचव / Private Secretary आयकर अपीलȣय अͬधकरण, रायप ु र / ITAT, Raipur. 13 Maitry Educational Society Vs. ACIT (Exemption) ITA No.76/RPR/2019 Date 1 Draft dictated on 20.06.2022 Sr.PS/PS 2 Draft placed before author 20.06.2022 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order