DCIT, C-1, (E), Chandigarh V. M/s Aryans Educational and Charitable Trust, Mohali

ITA 880/CHANDI/2019

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0758 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-06-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 02-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: TEJ MOHAN; SINGH
• Keywords: Charitable institution; Bogus
• Section: 12; 11; 80G; 12A; 12AA; 13

Judgement Text

आयकर अपीलȣय अͬधकरण,चÖडीगढ़ Ûयायपीठ, चÖडीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH, ‘A’, CHANDIGARH BEFORE SHRI A.D. JAIN, VICE PRESIDENT & DR KRINWANT SAHAY, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 880/CHD/2019 Ǔनधा[रण वष[ / Assessment Years : 2014-15 The DCIT, Circle-1 (Exemptions), Chandigarh Vs. बनाम M/s Aryans Educational and Charitable Trust, # 2129, Phase-X, Mohali èथायी लेखा सं./PAN No: AABTA7550L अपीलाथȸ/ APPELLANT Ĥ×यथȸ/ REPSONDENT Ǔनधा[ǐरती कȧ ओर से/Assessee by : Sh. Tej Mohan, Singh, Advocate राजèव कȧ ओर से/ Revenue by : Shri Rohit Sharma, CIT DR स ु नवाई कȧ तारȣख/Date of Hearing : 19.06.2024 उदघोषणा कȧ तारȣख/Date of Pronouncement : 25.07.2024 आदेश/Order Per Dr. Krinwant Sahay, A.M.: Appeal in this case has been filed by the Revenue against the order dated 05.03.2019 of the ld. Commissioner of Income Tax (Appeals)-2, Chandigarh, [herein referred to as “CIT(A)’] on the following Grounds: - 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 2 i. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in allowing the benefits under section 11 of the IT Act without appreciating that there was a clear violation of section 13 since the assessee had given undue benefit to specified person u/s 13(3) during the A.Y. 2014-15 by allowing him to retain the assessee's funds without interest or security. ii. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in allowing the donation paid to India Vision Foundation as application when the assessee is an educational institute and the donation was given for non educational activities. iii. That the appellant craves to leave, add or amend any grounds of appeal on or before the appeal is heard or disposed of. 2. Appeal on Ground No.1 is against the allowance of benefit u/s 11 of the Income Tax Act, 1961 (in short 'the Act') by the ld. CIT(A) without appreciating that there is a clear violation of Section 13 of the Act since the Assessee had given undue benefit to specified person u/s 13(3) during the A.Y. 2014-15. 3. The brief facts, as enumerated in CIT(A)’s order, on this issue are as under: - 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 3 “7.1 Brief facts of the case are that the assessee trust is registered u/s 12AA of of the Income Tax Act, 1961 with the Commissioner of Income Tax, Chandigarh-II, vide order dated 31.07.2006. Assessing Officer, on perusal of balance sheet of the assessee noticed that the assessee had shown an amount of Rs. 11,32,302/- to Sh. Anshu Kataria (Chairman of assessee trust) as imprest. During the assessment proceeding nature of this account and purpose of the same was asked from the assessee. In response, the assessee filed a copy of account of imprest with Sh. Anshu Kataria and bank statement of the same. On perusal of the same, AO observed that there were some cash deposits and transfer entries in the bank account of assessee, regarding which the assessee stated that the deposits were on account of fees received from students and the assessee had shown closing balance of the same as imprest in the hands of Sh.. Anshu Kataria. On perusal of copy of bank account of Sh. Anshu Kataria, AO noted that there were deposits in cash from various places and these were part of fees from various students, which Sh. Kataria retained as imprest without any purpose. This led to the AO to conclude that Sh. Anshu Kataria, Chairman of the society, was taking undue benefit of the property of the society as Sh. Anshu Kataria, Chairman had retained the amount of Rs. 11,32,302/-without any specific purpose. The assessee was confronted regarding the nature and genuineness of the transactions. In response, AR of the assessee submitted that it was ‘repayment of loan'. The said reply of the assessee was not found tenable by the AO, as on one hand, the assessee had submitted that the amount of Rs. 11,32,302/- was advance recoverable from Sh. Anshu Kataria, while vide 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 4 submission dated 13.12.2016, the assessee submitted that it was repayment of loan. The assessee has failed to justify the transaction and assessee had also failed to justify the reasonability of this transaction and purpose of the same. The assessee had provided undue benefit to the chairman of the society. This fact is also apparent from Form 10B, in which the auditor has referred the said transaction in column of "Application or use of income or property for the benefit of persons referred to in section 11(3) of the Act." Since Sh. Anshu Kataria was chairman of the society, he fell under the category of persons as defined in Sec. 13(3)(c) of the I.T. Act, 1961. Assessee had shown payments to its chairman as imprest. This amount was fund of the assessee, which should have been part of the assessee's income and deposited in modes u/s 11(5) of the Act if the assessee hadn't utilized 85% of its income. As the assessee had made payments to its chairman without any interest or security, which was not reasonable and was intended to accord undue benefit for the chairman of the society. So assessee's claim of exemption was denied u/s 13(l)(c) and u/s 13(l)(d) of I.T. Act, 1961 & surplus was taxed by treating AOP.” 4. The ld. CIT(A) in his order has given findings on this issue as under: - “6.3 The submissions of the assessee have been considered. Imprest on the basis of which exemption has been denied in the case during the year, is derived from the Balance Sheet. It is clear that the said imprest is a carry-over from the balance sheet of previous year. At this juncture, it is pertinent to 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 5 mention that during the previous year, exemption has been denied to the assessee on account of the same balance in Imprest account. That year another significant matter of bogus / anonymous donations was unearthed by the AO that led subsequently to withdrawal of exemption and consequent taxing of the entire surplus during that year It is relevant to mention that AO's mandate is to examine whether income claimed as exempt from tax does get covered by the definitions of income u/s 11 & 12 of the Act and whether utilization of such income has been done to the extent of 85% or not every year separately. In short this is an annual exercise mandated to the AO. An infraction reported for another year would not be relevant for the year under consideration, unless and until additional evidences of deviation from the objects of society or accordance of direct or indirect benefits to person covered u/s 13 of the Act had been unearthed that would merit denial of exemption. In the present year, there is no further accretion to the imprest account that would warrant invocation of section 13 of the Act. The action taken by the A.O. to tax the entire surplus is not made out.” 5. The ld. DR argued vehemently that since the fee collected by the Chairman of the Trust was deposited by him in his personal account and a portion of the amount so collected to the tune of Rs. 11,32,022/- was retained by him, therefore, the action of the 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 6 Assessing Officer to invoke section 13(1)(c) of the Act read with section 13(3) of the Act was justified. 6. On the other hand, the ld. Counsel for the Assessee mostly relied on the findings given by the CIT(A). 7. We have considered the findings of the Assessing Officer in the assessment order, the discussion on the issue and findings given by the CIT(A) in his appeal order and the submissions filed by the ld. Counsel of the Assessee during the proceedings before us. 8. During the proceedings before us, the ldd counsel of the Assessee has filed written submissions on this issue, which is as under:- “An addition of Rs. 5.46 Crores being entire surplus of the Income and Expenditure account of the society. This addition has been made by invoking the provisions of section 13(l)(c) and section 13(l)(d) of the Income Tax Act. These provisions have been invoked because there was an imprest account balance of Rs. 11.33 Lakhs in the name of Chairman of the society. This imprest is previous years balance. It was mostly on account of out of fee collection in cash of students on his tour to remote states like Orissa, Bihar & Jammu & Kashmir etc. Out of the total such fee collection of Rs. 18.78 lakhs; Rs. 7.46 lakhs were 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 7 remitted from his account to the college account. The balance amount of Rs. 11.33 lakhs; he kept in his account against his interest free loan of more than Rs. 50 lakhs given to college. As such adequate interest free security existed against the imprest account. This does not relate to the current year. It represent last year balance. Respectfully; we wish to submit that Sh. Anshu Kataria has given a loan of Rs. 50 Lacs to the Society. In addition to this loan other bank loans were also raised by the society for building colleges. The banks have made a stipulation in the loan documents that during the tenure of their loans, No repayment of the unsecured loan to the number of the society shall be undertaken. The society was during the year looking for availment of more loans from the bank. The society could not afford to debunk the old loan conditions while asking for new loans. So they could not repay the loans taken from Sh. Anshu Kataria. So indirectly, when Sh. Anshu Kataria needed the funds out of the loan given by him, instead he was asked to keep the college funds available in his account against the previous balance of Rs. 50 lakhs. So it was actually his own funds which were kept by him in the imprest accounts. As per above facts your Honour will realize that the amount of Rs. 11.33 was not imprest but adjustment of account against his interest free credit balance of Rs. 50 lakhs. No interest was paid or charged on the two balances. As such the imprest account was not application of college funds by the Chairman within the meaning of section 13(l)(c) or section 13(l)(d) of the Income Tax Act. The learned AO has erred in law and facts in treating the imprest account of Chairman of 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 8 the society as diversion of funds of the society and consequently disallowing the exemption by invoking the provisions of section 13(l)(c) or section 13(l)(d) of the Income Tax Act. In fact there was no diversion of funds to give any advantage to Sh. Anshu Kataria. During the year there was not any payment made in this imprest account and this imprest account stands Nil as of date. As per our above explanation, your Honour will find that there is no diversion of funds during the year to the interested person so as to attract the provisions of section 13(l)(c) or section 13(l)(d) of the Income Tax Act and as such the addition of Rs. 5.46 crores as made, is highly unjust & factually not correct. Without prejudice to above; even the addition as made by the learned AO is arbitrary and highly exorbitant. The maximum addition that could have been made u/s 13 is the amount that has been diverted for the benefit of the interested persons and not the entire surplus as has been made by the learned Assessing officer.” 9. In our opinion, the findings of the ld. CIT(A) on this issue is very clear. The CIT(A) has correctly mentioned that the A.O.’s mandate is to examine whether income claimed as except from tax is covered by the definition of income u/s 11 & 12 of the I.T. Act and whether utilization of such income has been done to the extent of 85% or not ever year separately. In short, this is an annual exercise mandated to the A.O., therefore, the findings reported in another order could not be 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 9 relevant for the year under consideration unless and until additional evidence of deviation from the objects of the society or grievance is detected and persons covered u/s 13 of the Act are found to have been benefitted. Only such findings would merit denial of exemption. In the case of present year, there is no such findings brought on record by the Assessing Officer, therefore, invocation of section 13 of the Act in this year for the year under consideration is not justified. Accordingly, Revenue’s appeal on this Ground is dismissed. 10. Appeal on Ground No.2 is against the allowing of donation to India Vision Foundation. The facts brought on record by the Assessing Officer on this issue is as under: - “8.1 Brief facts of the case are that during the assessment proceedings, AO noticed that the assessee had claimed Rs. 1,50,000/- in its income and expenditure account as expenses under 'donation'. During the proceedings nature of the same and details of the donee were called from the assessee. In response, the assessee stated that Rs. 1,50,000/- were donated to India Vision Foundation, a trust registered u/s 12AA and 80G of the Act. This trust was related to Smt. Kiran Bedi, Governor, Puducherry. In response, the AO stated that the foundation to which the amount was donated was not dealing in educational activities & the donation was not allowable, as assessee had spent it on non- educational activity and other than the purpose of the 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 10 assessee society. AO further mentioned that the payments looked like an agreement between the assessee and Vision India Foundation, because assessee had mentioned in its reply that Smt. Kiran Bedi had visited assessee's institutions two times and assessee had paid the donation to her trust against the same^-On the basis of above discussion, AO disallowed the donation of Rs. 1,50,000/- and added it to the surplus of Assessee and taxed the same as AOP u/s 11(1) of the I.T. Act.” 11. The ld. CIT(A) has given his finding on this issue, which is reproduced as under: - “8.3 I have considered the relevant portion of AO's order and submission of the appellant. During assessment proceedings, the AO observed that the assessee had claimed Rs. 1,50,000/- as expense, on account of donation made to an NGO by the name of India Vision Foundation, founded by Smt. Kiran Bedi. The AO held that since, the trust to which donation had been made, was not in field of education, the donation could not be treated as an allowable expenditure. During the appellate proceedings, the counsel of the assessee submitted that the donee trust is registered u/s 12A of the Act and donations made by donors entitle them to claim deduction u/s 80G of the Act. The counsel of the assessee further stated that payments made by assessee to another charitable trust is eligible as application of income as per various court's decision & CBDT's instruction no. 1132 dated 05.01.1978. There are a plethora of judgements of various courts wherein courts have held that donations made by one charitable trust to another, tantamount to application of 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 11 funds. It is common knowledge that the foundation concerned is well known for its charitable activities across the country. The AO's plea that the donation to this entity was not allowable, since, India Vision Foundation was not in field of education, is preposterous. The Act clearly envisages utilization for charitable purposes that include several limbs enunciated in section 2(15) of the Act. Moreover, it is not the case where the AO has pointed that the objects of the assessee were restricted only to education. It is also not the case where there is any finding that the donation was made either for corpus of the India Vision Foundation or out of the assessee's accumulated funds, two facets that are specifically precluded by the Act as qualifying for "utilization of income". In light of above, the disallowance of donation of Rs. 1,50,000/- made by AO, is deleted. Ground of appeal no. 3 is allowed.” 12. We have considered the findings of the Assessing Officer in the assessment order, the arguments put forward by ld. DR and the submissions filed by the Counsel of the Assessee. We find that the ratio decided by the ld. CIT(A) on this issue is very clear. The Counsel of the Assessee argued before us that the payments made by the Assessee to charitable trust is eligible as application of income as per the various Courts decisions and CBDT Instruction No. 1132 dated 5.1.1978. In fact, it is a common knowledge that the Foundation concerned to whom the donation had been made by the Assessee 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 12 trust is a well-known charitable organization, therefore, A.O.’s findings that the donation made to this charitable trust was not allowable simply because India Vision Foundation was not in the field of education is not justified. The Income Tax Act clearly envisages that utilization for charitable purpose that includes several limbs enunciated or discussed in section 2(15) of the Act. Here it is important to note that it is not a case where the Assessing Officer has given his finding that the object of the Assessee trust were restricted only to education. It is also not a case where there is any finding that the donation was made either for corpus of India Vision Foundation or out of Assessee’s accumulated funds. In fact, these two are facts that are subsequently precluded by the Act as qualifying for utilization of income. Keeping in view these facts and the findings given by the ld. CIT(A) in his order, Revenue’s appeal on this Ground is dismissed. 14. Ground No. 3 is general in nature. 15. In the result, Revenue’s appeal is dismissed. Order pronounced on 25.07.2024 Sd/- Sd/- ( A.D. JAIN ) (DR KRINWANT SAHAY) Vice President Accountant Member “आर.के.” 880--Chd-2019 – M/s Aryans Educational and Charitable Trust, Mohali 13 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the order forwarded to : 1. अपीलाथȸ/ The Appellant 2. Ĥ×यथȸ/ The Respondent 3. आयकर आय ु Èत/ CIT 4. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय आͬधकरण, चÖडीगढ़/ DR, ITAT, CHANDIGARH 5. गाड[ फाईल/ Guard File आदेशान ु सार/ By order, सहायक पंजीकार/ Assistant Registrar