Assistant Commissioner of Income Tax (Exmp), Raipur V. M/s Shri Bhagwan Mahaveer Jain Educational & Cultural Society, Raipur

ITA 86/RPR/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2734 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 28-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Diversion of income; Fair market value
• Section: 12; 11; 143(3); 143(2); 13(2)

Judgement Text

आयकर अपीलȣय अͬधकरण Ûयायपीठ रायप ु र मɅ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR (Through Virtual Court) BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI JAMLAPPA D BATTULL, ACCOUNTANT MEMBER आयकरअपीलसं. / ITA No. 86/RPR/2019 Ǔनधा[रणवष[ / Assessment Year : 2015-16 The Assistant Commissioner of Income Tax (Exemption) Raipur (C.G.) .......अपीलाथȸ / Appellant बनाम / V/s. Shri Bhagwan Mahaveer Jain Educational and Cultural Society, Pagaria Complex, New Bus stand, Pandri, Raipur (C.G.)-492 001 PAN : AAATB6871G ......Ĥ×यथȸ / Respondent Assessee by : Shri Akshay Ringasia, AR & Shri Rajesh Kumar, AR Revenue by : Shri G.N Singh, DR 2 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 स ु नवाई कȧ तारȣख / Date of Hearing :11.02.2022 घोषणा कȧ तारȣख / Date of Pronouncement : 09.05.2022 आदेश/ ORDER PER RAVISH SOOD, JM: The present appeal filed by the revenue is directed against the order passed by the CIT(Appeals)-1, Raipur, dated 03.12.2018, 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 29.12.2017 for assessment year 2015-16. Before us the Revenue has assailed the impugned order on the following grounds of appeal: “1. "Whether on facts & circumstances of the case and law, the ld. CIT(A) was justified in deleting the addition of Rs.6,60,35,827/- being the surplus amount made by the A.O due to denial of exemption u/s. 11& 12 of I.T. Act, 1961 on account of violation of provisions of section 13(1)(c) read with 11(5) and 13(2)(g) of I. T. Act, 1961 even though such violation is proved and upheld by the ld. CIT(A)?" 2. "Whether on facts & circumstances of the case, and on the point of law, the Id. CIT(A) is correct in holding that only the amount of Rs.12.00 Lacs paid in violation of section 13(1)(c) and 13(2)(g) will be taxed by denying exemption to such payments and no denial of exemption u/s. 11 is to be made even if there is violation of provision u/s13(1)(c) and 13(2)(g) of the I. T. Act which is contrary to the provisions of the Act? 3. "The order of Ld. CIT(A) is erroneous both in law and on facts". 4. "Any other ground may be adduced at the time of hearing". 3 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 2. Succinctly stated, the assessee society is registered as a charitable institution u/s. 12AA(b) of the Act vide F. No.CIT/RPR /Tech/12A/25/2007-08/536 dated 18.06.2007 by the CIT, Raipur and is running an educational institution in the name of MATS University, Raipur. The return of income for the assessment year 2015-16 was filed by the assessee society on 30.09.2015, declaring an income of Rs. Nil. Subsequently, the case of the assessee society was selected for scrutiny assessment u/s. 143(2) of the Act. 3. During the course of assessment proceedings, it was observed by the A.O that the assessee society had, inter alia, claimed to have paid an amount of Rs.12 lacs towards salary to Shri Shreyans Pagariya, system administrator. Observing, that Shri Shreyans Pagariya (supra) was a person falling within the meaning of Section 13(3) of the Act, the A.O carried out verifications as regards the claim of the assessee of having paid the aforementioned amount of salary to Shri Shreyans Pagariya. On being confronted Shri Shreyans Pagariya (supra) denied of having worked with the assessee society. Also, it was claimed by him that he had not received any salary from MATS University during the year under consideration, i.e., A.Y.2015- 16. On the contrary, it was stated by Shri Shreyans Pagariya that 4 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 during the year under consideration he was not available in India. On being confronted with the aforesaid facts the assessee tried to impress upon the A.O that it had during the year under consideration paid the aforementioned amount of Rs.12 lacs towards salary/remuneration to Shri Shreyans Pagariya, i.e, for the duties which were performed by him as a system administrator. However, the explanation of the assessee did not find favour with the A.O. Observing, that the assessee society had diverted its income to the extent of Rs.12 lacs to Shri Shreyans Pagariya, a person falling within the meaning of section 13(3) of the Act, the A.O triggered the provisions of section 13(2)(g) r.w.s. 13(1)(c) of the Act and disallowed the aforesaid amount. On the basis of his aforesaid deliberations, the A.O holding a conviction that the diversion of Rs.12 lacs by the assessee society to Shri Shreyans Pagariya, i.e, a person falling within the meaning of Section 13(3) of the Act, without charging of any interest on the said amount had resulted to violation of Sec. 13(2)(a) and Sec. 13(2)(g) r.w Sec. 11(5) and Sec. 13(1)(c)(ii) of the Act, the A.O. decline to allow the assessee’s entire claim of exemption of Rs.6,60,35,827/- under Sec. 11 and Sec. 12 of the Act. 5 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 Accordingly, the A.O., on the basis of his aforesaid observations assessed the income of the assessee society at Rs. 6,72,35,830/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). Observing, that as per Sec. 13(1)(c) r.w. Sec. 13(2)(g) of the Act, if any income or property of a trust/institution is diverted directly or indirectly for the benefit of a specified person mentioned in Sec. 13(3) of the Act, then, only the said amount in question would not be eligible for exemption under Sec. 11 and Sec. 12 of the Act, the CIT(Appeals) did not find favor with the declining of the assessee’s entire claim of exemption by the AO. The CIT(A) was of the view that the declining of the assessee’s claim for exemption u/s.11 of the Act was liable to be restricted only qua the amount of Rs.12 lacs (supra) and could not have been extended to denial of the entire claim of exemption under the said statutory provisions. Accordingly, the CIT(Appeals) on the basis of his aforesaid observations, concluded, that the declining of the assessee’s claim for exemption u/s.11 of the Act was liable to be confined only to the extent of Rs.12 lacs (supra). 6 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 5. Aggrieved, the revenue has assailed the order of the CIT (Appeals) 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 them to drive home their respective contentions. 7. Controversy involved in the present appeal lies in a narrow compass ,i.e., as to whether application/diversion of any part of income/property of the assessee society in favour of a person falling within the meaning of Sec. 13(3) of the Act would justify declining of the assessee’s entire claim of exemption under Sec. 11 of the Act or, the same was liable to be restricted only qua the amount in question.? We find that the CIT(Appeals) after deliberating at length on the issue in hand, had concluded, that the payment/diversion of any income or property of a trust in favour of a person falling within the meaning of Sec. 13(3) of the Act would trigger the provisions of section 13(1)(c) and 13(2)(g) of the Act, as a result whereof, the assessee’s claim for exemption u/s.11 of the Act would not be 7 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 available qua only such part of income/property of the trust that was diverted for the benefit of the person specified in Sec. 13(3) of the Act. Accordingly, the CIT(Appeals) backed by his aforesaid conviction had set-aside the view taken by the Assessing Officer, and for the aforesaid violation of Section 13(1)(c) r.w Sec. 13(2)(g) of the Act, had disallowed the assessee’s claim for exemption under Sec. 11 of the Act only qua the amount in question, i.e., Rs.12 lacs (supra) which was held by him to be taxable. For the sake of clarity, the relevant observations of the CIT(Appeals) are culled out as under: “2.3 I have gone through the submission of the appellant and also perused the assessment order. As per the above facts, Shri Shreyans Pagaria has denied having worked for the assessee institution. Appellant has stated that he has worked as system administrator and was involved in developing the online system and web site development of MATS University. No evidence has been produced regarding the same. No details of the entire team which may have worked with this person for the stated purpose has been provided. What were the role of these persons, who was group leader, what was the time taken for project completion and what are the particular software used to develop the online system and web site development, no details on these points have beenfurnished. On the other hand letter of this person is on record denying any work done by him. The benefit has been given to family member of trustee and related parties in violation of provision of Sec. 13(i)(d). When payment has been made to a person not for the benefit of the trust, there is diversion of funds due to which the provisions of 13(1)(c), 13(2)(c) and 13(2) (g) of the Income Tax Act, 1961 read with section 13(3) of the Act will be applicable 8 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 as the amount has not been applied for the purposes for which the society is registered. Similar facts were dealt with by Mumbai ITAT in the case of 83 taxmann.com 27 (Mumbai - Trib.) Edwise Consultants (P.) Ltd. v. Deputy Commissioner of Income-tax, 4(3), Mumbai IT Appeal Nos. 5376 (Mum.) of 2011, 594 (Mum.) of 2013 & 4121(Mum.) of 2014 in which the facts are that Assessing Officer disallowed part of salary and incentives paid by the assessee to its three directors on the ground that same was excessive. The Tribunal has held that that all the three directors have taken full responsibility and are also in direct charge of all the operations of the business. It is also pertinent to note that the company has not appointed any senior executives in key areas of operation, i.e., it has not appointed IIR manager, Media & Event Manager, Marketing & Business Development Manager, Finance Manager, Administrative Manager. Thus all the three directors are fully in-charge of all the operations and further they possess required qualification and experience to carry out all the operations. The decision of the ITAT was as under: ... The payment made to them was for legitimate business needs of the assessee-company. The financial and operational results shows that the assessee-company has derived benefit from the payment made to the directors. The question as to whether the payment is excessive or unreasonable has to be examined every year and one should not mechanically follow the decision taken on the very same issue in the preceding years. All the directors are in-charge of the entire operations of the assessee-company and the financial/operational results of the company are growing every year. Hence, on that count alone, the salary and incentive paid to the directors could be justified and could not be found fault with, without bringing the fair market value of services. The assessee contended that there was no attempt to evade tax. Hence, on this count also, the disallowance made under section 40A(2)(a) is liable to be deleted in all the three years. Any expenditure to be considered in 5 the light of provisions of section 40A(2) must have a comparison. Only when it is shown that as 6 compared to payments made in similar other case, the payment by assessee is excess then it can be a disallowed. Out of umpteen decision on this issue, some are as under-b Where assessee 9 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 allowed trade discount to its related parties, however, no such discount was offered to other parties, in absence of any prohibitory provisions under section 40A(2)(a)-or-under section 37, same could not be disallowed [2018] 90 taxmann.com 189 (Jaipur - Trib.) ACCME (Urvashi Pumps) Eng. (P.) Ltd. v. Joint Commissioner of Income-tax.(OSD) Circle-4 Jaipur IT Appeal Nos. 561 (JP) of 2014 and 1111 &. 1112 (JP) of 2016 A Where no attempt was made by revenue to establish that professional fees paid to advocate firm was excessive, there was no discharge of burden by Revenue under section 40A(2)(b),persons mentioned in said sub-sec (3) then the amount in question will be excluded from the exempted income which is to say that of that part of the expenditure tax will have to be paid. Therefore, only the amount of Rs.12 lakhs will be taxed and there will not be any denial of exemption u/s 11 as has been held by the AO. 3.0 The appeal is partly allowed.” 8. We have given a thoughtful consideration to the aforesaid observations of the CIT(Appeals), and concur with the view taken by him, that the diversion of income or property of a trust in favor of a person specified in section 13(3) of the Act would trigger the provisions of Section 13(1)(c) and Section 13(2)(g) of the Act, as a result whereof such amount alone would not be eligible for exemption contemplated under Sec. 11 of the Act, but the same in no way would have any bearing on its entitlement for claim of exemption qua its balance income. We, thus, in terms of our aforesaid observations, finding no infirmity in the view taken by the CIT(Appeals) uphold the same. Thus, the Grounds of appeal No.(s) 1 10 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 and 2 raised by the Revenue are dismissed in terms of our aforesaid observations. 9. The Grounds of appeal No.(s) 3 and 4 being general in nature are dismissed as not pressed. 10. In the result, appeal of the Revenue is dismissed in terms of our aforesaid observations. Order pronounced in open court on 09 th day of May 2022. Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायप ु र/ RAIPUR ; Ǒदनांक / Dated : 09 th May, 2022 SB आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant. 2. Ĥ×यथȸ / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The CIT(Exemption), 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. 11 ACIT Vs. Shri Bhagewan Mahavir Jain Educational & Cultural Society ITA No. 86/RPR/2019 Date 1 Draft dictated on 02.05.2022 Sr.PS/PS 2 Draft placed before author 02.05.2022 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