IFMR Finance Foundation, CHENNAI V. ACIT, CHENNAI

ITA 955/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86353 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 16-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N RENGARAJ
• Assessee Lawyers: S E DASTUR
• Keywords: Charitable institution; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 80G; 12A; 12AA; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 955/MDS/2014 ( / ASSESSMENT YEAR: 2009-10) M/S. IFMR FINANCE FOUNDATION, A-1, 10 TH FLOOR, IIT-M RESEARCH PARK, KANAGAM VILLAGE, TARAMANI, CHENNAI-600 113. VS ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTIONS-IV), CHENNAI-600 034. PAN:AABCI9264N ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.E.DASTUR, SR.ADVOCATE & MR. NIRAJ SHETH, ADVOCATE /RESPONDENT BY : MR. N.RENGARAJ, CIT DR /DATE OF HEARING : 23 RD FEBRUARY, 2015 /DATE OF PRONOUNCEMENT : 18 TH MARCH, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VII, CH ENNAI DATED 28.01.2014 FOR THE ASSESSMENT YEAR 2009-10. 2. THOUGH THE ASSESSEE HAS RAISED SEVERAL GROUNDS O F APPEAL, THE EFFECTIVE GROUNDS FOR CONSIDERATION AR E AS UNDER:- I) THE COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN ENHANCING THE ASSESSMENT WITHOUT PROVIDING ENHANCEMENT NOTICE CALLING 2 ITA NO.955/MDS/2014 UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY EXPENDITURE OF ` 7,46,40,480/- SHOULD BE TREATED AS TOTAL INCOME OF THE ASSESSEE AND ALSO IN HOLDING THAT ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT. II) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN NOT CONSIDERING THE GRANTS UTILIZED AMOUNTING TO ` 1,82,18,903/- AS APPLICATION OF INCOME BY STATING THAT AMOUNT WAS EXPENDED BEFORE FORMATION OF THE COMPANY. III) COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN HOLDING THAT EMPLOYEE COST OF ` 13,74,905/- CANNOT BE CONSIDERED AS APPLICATION OF INCOME. THE ASSESSEE ALSO RAISED ADDITIONAL GROUNDS STATING THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ISSUI NG CORRIGENDA DATED 20.05.2014 AND 19.09.1014 ENHANCIN G TOTAL INCOME TO ` 18,82,25,900/- BY WAY OF CORRIGENDA WITHOUT NOTICE. 3 ITA NO.955/MDS/2014 3. BRIEF FACTS ARE THAT ASSESSEE IS A COMPANY REGIS TERED UNDER SECTION 25 OF THE COMPANIES ACT AS NON-PROFIT ABLE ORGANIZATION. THE ASSESSEE ALSO REGISTERED UNDER SE CTION 12AA OF THE INCOME TAX ACT. ASSESSEE FILED RETURN O F INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 7.12.2009 ADMITT ING NIL INCOME AFTER CLAIMING EXEMPTION UNDER SECTION 11 O F THE ACT. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) O F THE ACT ON 29.12.2011 BY THE ASSESSING OFFICER. THE ASS ESSING OFFICER NOTICED THAT ASSESSEE RECEIVED A SUM OF ` 9,00,00,000/- AS GRANTS AND ` 5,69,468/- AS INTEREST ON FIXED DEPOSITS AND OUT OF THESE AMOUNTS ` 8,54,37,997/- WAS EXPENDED LEAVING A BALANCE AMOUNT OF ` 51,31,471/- AS INCOME OVER EXPENDITURE. THE ASSESSEE CLAIMED THAT OUT OF EXPENDITURE OF ` 8,54,37,997/-, A SUM OF ` 6,11,42,080/- WAS INCURRED TOWARDS GRANTS UTILIZED, ` 13,74,905/- TOWARDS STAFF COST AND ` 2,29,21,012/- TOWARDS ADMINISTRATIVE AND OTHER EXPENSES. ON EXAMINING THE DETAILS FILED BY THE AS SESSEE, ASSESSING OFFICER FOUND THAT ASSESSEE HAS REIMBURSE D ` 5,88,36,473/- TO IMFR TRUST, WHICH IS A PARENT TRU ST OUT OF THE TOTAL GRANTS UTILIZED ` 6,11,42,080/-. HE FURTHER NOTICED THAT ASSESSEE COMPANY WAS INCORPORATED ON 4.8.2008 AND ASSESSEE HAS SHOWN PAYMENTS WHICH WERE MADE EVEN 4 ITA NO.955/MDS/2014 BEFORE THE DATE OF FORMATION TO VARIOUS PARTIES AMO UNTING TO ` 1,82,18,903/- DURING THE PERIOD FROM APRIL, 2008 TO JULY, 2008. THE ASSESSEE CONTENDED THAT AS THE INCORPORAT ION OF THE ASSESSEE COMPANY TOOK SOME TIME RESEARCH PROJEC TS WERE FUNDED BY THE PARENT TRUST I.E. IMFR TRUST ON BEHALF OF THE ASSESSEE AND AFTER INCORPORATION OF THE ASSESS EE COMPANY AND AFTER RECEIVING GRANTS FROM ICICI FOUND ATION, THE ASSESSEE REIMBURSED THE GRANTS FUNDED BY THE PARENT TRUST, THEREFORE ASSESSEE CLAIMED THAT REIMBURSEMENT OF GR ANTS TO THE PARENT TRUST IS AN APPLICATION OF INCOME UNDER SECTION 11 OF THE ACT. HOWEVER, THE ASSESSING OFFICER DID NOT CONSIDER THE SAID AMOUNT AS APPLICATION OF INCOME FOR THE PU RPOSE OF SECTION 11 FOR THE REASON THAT GRANTS FUNDED BY THE PARENT TRUST WERE ALL PRIOR TO INCORPORATION OF THE ASSES SEE COMPANY AND THEY ARE ALL ONGOING PROJECTS. THE ASSESSING O FFICER ALSO DENIED THE CLAIM OF THE ASSESSEE THAT THE REIMBURS EMENT OF EXPENSES TO PARENT TRUST ON ACCOUNT OF STAFF COST W HICH WAS EXPENDED BY THE PARENT TRUST ON BEHALF OF THE ASSES SEE TOWARDS SALARY AND STAFF WELFARE EXPENSES IS APPLIC ATION OF INCOME. 5 ITA NO.955/MDS/2014 4. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE ORDER OF THE ASSESSING OFFICER IN NOT CONSIDERING THE REIMBURSEMENT OF GRANTS AS WELL AS THE STAFF COST IN NOT TREATING THEM AS APPLICATION OF INCOME. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER HELD T HAT ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT. THE COMMISSIONER OF INCOME TAX (APPEALS) BY O RDER DATED 28.01.2014 DIRECTED THE ASSESSING OFFICER TO ENHANCE THE TOTAL INCOME TO ` 7,46,40,480/- AS AGAINST ASSESSED INCOME OF ` 1,11,39,860/- BY HOLDING THAT ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT. THIS ORDER WAS LATER AMENDED ON 20.05.2014 BY WAY OF CORRIGEND A MODIFYING THE ORIGINAL ORDER ENHANCING THE INCOME TO ` 15,96,40,480/- AND FURTHER ENHANCING THE INCOME TO ` 18,82,25,900/- BY WAY OF CORRIGENDA DATED 19.09.201 4 WITHOUT ISSUE OF NOTICE OF HEARING. THE ASSESSEE I S IN APPEAL BEFORE US CHALLENGING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN SUSTAINING THE ORDER OF ASS ESSMENT IN NOT CONSIDERING THE REIMBURSEMENT OF GRANTS AND STAFF COST AS APPLICATION OF INCOME AND ENHANCING THE ASSESSME NT WITHOUT NOTICE. 6 ITA NO.955/MDS/2014 5. LEARNED SENIOR ADVOCATE SHRI S.E.DASTUR, APPEARI NG FOR THE ASSESSEE SUBMITS THAT ASSESSEE IMFR FINANCE FOUNDATION WAS INCORPORATED ON 4 TH AUGUST, 2008 UNDER SECTION 25 OF THE COMPANIES ACT, 1956 WITH THE OBJE CTS SET OUT IN ITS MEMORANDUM. LEARNED COUNSEL SUBMITS THA T ASSESSEE OBTAINED REGISTRATION UNDER SECTION 12AA AND APPROVAL UNDER SECTION 80G OF THE ACT VIDE ORDER DA TED 02.02.2009 PASSED BY THE DIRECTOR OF INCOME TAX (EXEMPTIONS). LEARNED COUNSEL SUBMITS THAT BOTH TH E REGISTRATIONS WERE GRANTED AFTER A DETAILED ENQUIRY AND THEY ARE STILL IN FORCE. LEARNED COUNSEL FOR THE ASSESS EE SUBMITS THAT ASSESSEE RECEIVED GRANT OF ` 19,00,00,000/- FROM ICICI FOUNDATION FOR INCLUSIVE GROWTH (ICICI FOUNDATION) OUT OF WHICH ` 10,00,00,000/- WAS TAKEN TO CORPUS AS PER THE DIRECTIONS OF THE DONOR. LEARNED COUNSEL SUBMITS TH AT ICICI FOUNDATION IS A CHARITABLE ORGANIZATION REGISTERED UNDER SECTION 12A OF THE ACT. LEARNED COUNSEL SUBMITS THA T AMOUNT TO BE APPLIED FOR CHARITABLE PURPOSES DURING THE YE AR WAS 85% OF ` 9,05,69,468/- (REVENUE GRANT OF ` 9,00,00,000/- PLUS INTEREST ON DEPOSITS ` 5,69,468/-) AND THE ASSESSEE APPLIED ` 8,54,37,997/- TO CHARITABLE PURPOSES LEAVING BALANCE SURPLUS OF ` 51,31,471/-. LEARNED COUNSEL SUBMITS 7 ITA NO.955/MDS/2014 THAT AS MORE THAN 85% OF INCOME WAS APPLIED, THE AS SESSEE FILED RETURN OF INCOME DECLARING NIL INCOME. LEARN ED COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSING OFFICER DIS ALLOWED ` 1,82,18,903/- OUT OF PAYMENTS OF ` 6,11,42,080/- MADE TO CHARITIES TREATING SUCH EXPENDITURE AS PRE-INCORPOR ATION EXPENSES. THE ASSESSING OFFICER ALSO DISALLOWED REIMBURSEMENT OF STAFF COST OF ` 13,74,905/-. 6. WITH RESPECT TO DISALLOWANCE OF ` 1,82,18,903/- OUT OF PAYMENTS MADE TO CHARITIES, LEARNED COUNSEL SUBMITS THAT ASSESSEE HAS FURNISHED DETAILS OF APPLICATION OF ` 6,11,42,080/- INTER-ALIA THE DATES WHEN THE PAYMENTS WERE MADE. LEARNED COUNSEL SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE ASSESSEES EXPLAN ATION THAT IFMR TRUST HAD FUNDED THE PROJECTS ON BEHALF O F THE ASSESSEE. LEARNED COUNSEL SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) SURMISED THAT IFMR TRUST WOULD HAVE CLAIMED BENEFITS UNDER SECTION 11 IN RESPECT OF THE AMOUNTS PAID BY THE ASSESSEE TO IMFR TRUST OVERLOOKING THAT IMFR TRUST WAS A NON-CHARITABLE PRIVATE TRUST WHICH DID NOT CLAIM ANY BENEFITS UNDER SECTION 11 OF THE ACT. LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE WAS GIVEN CORPUS GRANT 8 ITA NO.955/MDS/2014 OF ` 10,00,00,000/- AND REVENUE GRANT OF ` 9,00,00,000/- BY THE ICICI FOUNDATION IN FEBRUARY AND MARCH, 2009 FO R PURSUING ITS OBJECTIVES. LEARNED COUNSEL SUBMITS TH AT ICICI FOUNDATION BY ITS LETTER DATED 9 TH MAY, 2008 ADDRESSED TO MR. S.G.ANIL KUMAR, WHO WAS THE FIRST DIRECTOR OF THE A SSESSEE, EVEN BEFORE INCORPORATION OF THE ASSESSEE TRUST, E XPRESSED ITS APPROVAL OF PROJECTS AND IT WAS PROPOSED THE A SSESSEE WOULD UNDERTAKE AND COMMITED TO CONTRIBUTE ` 50 CRORES OVER A PERIOD OF THREE YEARS. IN THE PREVIOUS YEAR 2008-09 ICICI FOUNDATION HONORED THIS COMMITMENT BY CONTRIB UTING ` 19,00,00,000/-. LEARNED COUNSEL SUBMITS THAT AS INCORPORATION OF THE ASSESSEE COMPANY TOOK SOME TIM E, THE PROJECTS TO BE UNDERTAKEN BY THE ASSESSEE NEEDED UR GENT FUNDING AND THE IFMR TRUST IN ITS CAPACITY AS PRO MOTER OF THE ASSESSEE PROVIDED NECESSARY FUNDS TO THE PROJEC TS PRIOR TO INCORPORATION OF THE ASSESSEE TO THE EXTENT OF ` 1,82,18,903/- TO SEVEN NGOS AND ALL THOSE NGOS ARE REGISTERED UNDER SECTION 12A OF THE INCOME TAX ACT. LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT EVEN AFTER INCORPORATION OF THE ASSESSEE BUT BEFORE THE ASSES SEE RECEIVED GRANTS FROM ICICI FOUNDATION IN FEBRUARY/M ARCH, 2009, IFMR TRUST CONTINUED TO MAKE PAYMENTS ON BEHA LF OF 9 ITA NO.955/MDS/2014 THE ASSESSEE TO VARIOUS NGOS AMOUNTING TO ` 3,66,86,709/-. THEREFORE, COUNSEL SUBMITS THAT THE TOTAL PAYMENTS MADE BY IFMR TRUST ON BEHALF OF THE ASSESSEE TO NGOS WAS ` 5,49,04,612/-. LEARNED COUNSEL FOR THE ASSESSEE SU BMITS THAT SUBSEQUENTLY WHEN THE ASSESSEE RECEIVED GRANTS FROM ICICI FOUNDATION, ASSESSEE REIMBURSED THE AMOUNTS P AID BY IFMR TRUST TO NGOS AND CLAIMED THE SAME AS APPLICA TION FOR CHARITABLE PURPOSES. LEARNED COUNSEL SUBMITS THAT ASSESSEE HAD IN FACT DIRECTLY PAID ` 62,37,468/- TO THE NGOS AFTER INCORPORATION. LEARNED COUNSEL FOR THE ASSES SEE SUBMITS THAT ASSESSING OFFICER ACCEPTED SUCH PAYMEN T OF ` 62,37,468/- AND ALSO ON-ACCOUNT PAYMENT BY IFMR TR UST AFTER INCORPORATION OF THE ASSESSEE AS APPLICATION OF INCOME FOR CHARITABLE PURPOSES. IN THE CIRCUMSTANCES, LEA RNED COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSING OFF ICER IS NOT JUSTIFIED IN NOT CONSIDERING ` 1.82 CRORES AS NON- APPLICATION OF INCOME FOR CHARITABLE PURPOSES FOR T HE REASON THAT THESE PAYMENTS WERE MADE TO NGOS BY IFMR TRUST ON BEHALF OF THE ASSESSEE PRIOR TO INCORPORATION OF TH E ASSESSEE. LEARNED COUNSEL SUBMITS THAT AMOUNTS PAID BY IFMR T RUST ON BEHALF OF THE ASSESSEE WERE SHOWN IN THE BOOKS OF IFMR TRUST AS PAID BY IFMR TRUST ON BEHALF OF THE ASSESS EE TO 10 ITA NO.955/MDS/2014 THOSE NGOS AND ON INCORPORATION, THE ASSESSEE PASSE D NECESSARY ENTRIES IN ITS BOOKS SHOWING THE SAID AMO UNTS PAYABLE TO IFMR TRUST. LEARNED COUNSEL SUBMITS THAT HAVING ACCEPTED BY THE ASSESSING OFFICER THAT THE AMOUNTS PAID BY IFMR TRUST, POST- INCORPORATION OF THE ASSESSEE AN D REIMBURSED BY THE ASSESSEE CONSTITUTED APPLICATION OF INCOME FOR CHARITABLE PURPOSES, THERE IS NO REASON WHY THE PAYMENT OF ` 1.82 CRORES IS TO BE REGARDED AS NON-APPLICATION OF INCOME FOR CHARITABLE PURPOSES. 7. COMING TO THE DISALLOWANCE OF SALARY PAID TO DEP UTATION EMPLOYEES, LEARNED SENIOR ADVOCATE SUBMITS THAT AS SESSING OFFICER DISALLOWED STAFF COST TO THE EXTENT OF ` 13,74,905/- ON THE GROUND THAT ASSESSEE DID NOT HAVE ANY EMPLOYEES OF ITS OWN. LEARNED COUNSEL SUBMITS THAT LOWER AUTHORITIE S HAVING ACCEPTED THE ASSESSEES EXPLANATION THAT WHAT WAS R EFLECTED AS SALARY COST WAS IN FACT REIMBURSEMENT TO IFMR TR UST AS THE COST OF EMPLOYEES DEPUTED BY IFMR TRUST AS TH E ASSESSEE WAS NEWLY FORMED. LEARNED COUNSEL SUBMITS THAT THESE EMPLOYEES WERE TAKEN ON THE PAY ROLLS OF THE ASSESSEE SUBSEQUENTLY. LEARNED COUNSEL SUBMITS THAT COMMISSI ONER OF INCOME TAX (APPEALS) DISBELIEVED THAT IFMR TRUST HAD 11 ITA NO.955/MDS/2014 DEPUTED TWO OF ITS EMPLOYEES TO THE ASSESSEE ON THE GROUND THAT IF SUCH DEPUTATION WAS DONE THEN ASSESSEE WOUL D HAVE DISCHARGED NECESSARY COMPLIANCE SUCH AS PF, ESI ETC . IN RESPECT OF SUCH DEPUTED EMPLOYEES. LEARNED COUNSEL SUBMITS THAT ASSESSEE IS NOT REQUIRED TO COMPLY WIT H SUCH REQUIREMENTS IN RESPECT OF DEPUTED EMPLOYEES AS IT IS THE DUTY OF THE ACTUAL EMPLOYER TO ENSURE SUCH COMPLIAN CE. LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT EXPEN SES OF EMPLOYEES DEPUTED TO THE ASSESSEE WERE CORRECTLY BO RNE BY THE ASSESSEE AS THE ASSESSEE HAD AVAILED THEIR SERV ICES. HE FURTHER SUBMITS THAT PROVISIONS OF PF & ESI ACT HA VE NO APPLICATION TO THE ASSESSEE DURING THE PREVIOUS YEA R RELEVANT TO THE ASSESSMENT YEAR 2009-10 SINCE PF ACT APPLIES TO AN EMPLOYER WHO IS HAVING MINIMUM OF 20 EMPLOYEES AND ESI ACT APPLIES WHERE AN EMPLOYER EMPLOYS MINIMUM OF 1 0 EMPLOYEES, WHEREAS IN ASSESSEES CASE ONLY TWO EMP LOYEES HAVE BEEN DEPUTED BY IFMR TRUST . 8. COMING TO THE ISSUE OF ENHANCING OF ASSESSMENT WITHOUT NOTICE, LEARNED COUNSEL FOR THE ASSESSEE SU BMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) DENIED EXEMPTI ON UNDER SECTION 11 OF THE ACT TO THE ASSESSEE HOLDIN G THAT 12 ITA NO.955/MDS/2014 ASSESSEES ACTIVITIES COULD NOT BE REGARDED AS CHA RITABLE ACTIVITIES AND THUS ENHANCED THE INCOME OF THE ASSE SSEE FROM ` 1,11,39,860/- TO ` 7,46,40,480/-. LEARNED COUNSEL FURTHER SUBMITS THAT AFTER PASSING THE ORDER ON 28.01.2014 THE COMMISSIONER OF INCOME TAX (APPEALS) ISSUED CORRIGE NDA DATED 20.05.2014 AND 19.09.2014 FURTHER ENHANCING T HE TOTAL INCOME TO ` 15,96,40,480/- AND THEN TO ` 18,82,25,900/-. LEARNED COUNSEL SUBMITS THAT EVEN THOSE TWO CORRIGE NDA WERE ISSUED ENHANCING THE INCOME WITHOUT ANY NOTICE TO THE ASSESSEE BY MODIFYING THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS). LEARNED COUN SEL FOR THE ASSESSEE SUBMITS THAT ENHANCEMENT HAS TO BE STR UCK DOWN AS IT WAS MADE WITHOUT GIVING NOTICE OF ENHANC EMENT AS REQUIRED BY SECTION 251(2) OF THE ACT. LEARNED COUNSEL PLACING RELIANCE ON THE DECISION OF THE HONBLE MAD RAS HIGH COURT IN THE CASE OF CIT VS. LOTTE INDIA CORPORATIO N LTD. (290 ITR 248) SUBMITS THAT THE HONBLE HIGH COURT HELD T HAT COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIF IED IN SETTING ASIDE THE MATTER TO THE ASSESSING OFFICER T O EXAMINE THE ISSUE WHICH COULD HAVE LED TO ENHANCEMENT WITHO UT GIVING NOTICE TO THE ASSESSEE. LEARNED COUNSEL SUB MITS THAT 13 ITA NO.955/MDS/2014 IN ASSESSEES CASE COMMISSIONER OF INCOME TAX (APPE ALS) HAD MADE INDEFINITE ENHANCEMENT. 9. LEARNED CIT DR SHRI N.RENGARAJ, INSOFAR AS DISALLOWANCE OF ` 1,82,18,903/- OUT OF PAYMENTS OF ` 6,11,42,080/- MADE TO CHARITIES TREATING IT AS NON- APPLICATION OF INCOME AND DISALLOWANCE OF STAFF COST ARE CONC ERNED, VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES IN NOT CONSIDERING THEM AS APPLICATION OF INCOME. IN RESPE CT OF ENHANCEMENT WITHOUT NOTICE, THE BENCH QUERIED AS T O WHETHER SHOW CAUSE NOTICE WAS SERVED ON THE ASSESSE E PROPOSING ENHANCEMENT, LEARNED CIT SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) ISSUED A LETTE R CALLING FOR INFORMATION IN RESPECT OF APPLICATION OF INCOM E BY THE ASSESSEE ON THE GRANTS UTILIZED TO VARIOUS RESEAR CH ORGANIZATIONS AND THE EXPENSES INCURRED ON CONSULTA NCY CHARGES DEBITED BY THE ASSESSEE. THE REVENUE COULD NOT PLACE ON RECORD ANY NOTICE PROPOSING FOR ENHANCEMEN T EXCEPT THE LETTER DATED 12.12.2013 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) CALLING FOR IN FORMATION ON APPLICATION OF GRANTS AND THE EXPENDITURE INCURR ED ON 14 ITA NO.955/MDS/2014 CONSULTANCY CHARGES WHICH WERE CLAIMED AS APPLICATI ON OF INCOME UNDER SECTION 11 OF THE ACT. 10. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE MATERIALS ON RECORD. FIRST, WE TAKE UP THE ISSUE OF ENHANCEMENT OF ASSESSMENT BY DENYING EXEMPTION UNDE R SECTION 11 OF THE ACT WHICH HAS BEARING ON THE ENTI RE ASSESSMENT OF THE ASSESSEE ON APPLICATION OF ITS I NCOME. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT DID NOT CONSIDER GRANTS OF ` 1,82,18,903 REIMBURSED BY THE ASSESSEE TO IFMR TRUST ON THE GROUND THAT THESE GR ANTS WERE PAID BY IFMR TRUST BEFORE FORMATION OF THE AS SESSEE COMPANY AND THEREFORE THEY CANNOT BE TREATED AS APP LICATION OF INCOME. THE ASSESSING OFFICER ALSO DISALLOWED S TAFF COST REIMBURSED BY THE ASSESSEE TO IFMR TRUST AS THESE EXPENSES WERE ALSO REIMBURSED TO IFMR TRUST AND TH ERE WERE NO EMPLOYEES ON THE ROLLS OF THE ASSESSEE COMP ANY. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) SUS TAINED THE ACTION OF THE ASSESSING OFFICER IN NOT CONSIDER ING THE APPLICATION OF INCOME. FURTHER COMMISSIONER OF INCO ME TAX (APPEALS) IN THE COURSE OF PROCEEDINGS BEFORE HIM BY LETTER DATED 12.12.2013 CALLED FOR CLARIFICATION ON THE E XPENSES 15 ITA NO.955/MDS/2014 DEBITED BY THE ASSESSEE TOWARDS CONSULTANCY CHARGE S OF ` 2,05,77,444/- AND OTHER EXPENSES AND GRANTS OF ` 6,11,42,080/- UTILIZED BY THE ASSESSEE FOR THE RES EARCH PROJECTS CONDUCTED BY VARIOUS NGOS. THE ASSESSEE B Y LETTER DATED 24.12.2013 FURNISHED THE INFORMATION CALLED FOR BY THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIO NER OF INCOME TAX (APPEALS) PASSED ORDER DENYING EXEMPT ION UNDER SECTION 11 OF THE ACT WHICH RESULTED IN ENHAN CEMENT AND THEREBY TOTAL INCOME OF THE ASSESSEE WAS SUBJEC TED TO TAX. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT ISSUED A SEPARATE NOTICE PROPOSING FOR ENHANCEMENT OF INCOME EXCEPT THE LETTER CALLING FOR CLARIFICATION OF APPLICATION OF ITS INCOME AND EXPENSES DEBITED TOWARDS CONSULT ANCY CHARGES ETC. AFTER CONSIDERING THE CLARIFICATION, C OMMISSIONER OF INCOME TAX (APPEALS) PASSED ORDER ENHANCING THE TOTAL INCOME OF THE ASSESSEE TO ` 7,46,40,480/- WITHOUT GIVING PROPER NOTICE OR OPPORTUNITY TO THE ASSESSEE TO EXP LAIN AS TO WHY EXEMPTION UNDER SECTION 11 OF THE ACT SHOULD NO T BE DENIED. THE COMMISSIONER OF INCOME TAX (APPEALS) F URTHER PASSED CORRIGENDA DATED 20.05.2014 AND 19.9.2014 MODIFYING THE ORDER BY FURTHER ENHANCING THE TOTAL INCOME TO ` 15,96,40,480/- AND TO ` 18,82,25,900/-. IT APPEARS THAT 16 ITA NO.955/MDS/2014 THESE CORRIGENDA WERE ISSUED TO MODIFY THE ORDER P ASSED ON 28.01.2014 WITHOUT GIVING ANY OPPORTUNITY TO THE AS SESSEE. PRINCIPLES OF NATURAL JUSTICE HAVE NOT BEEN OBSERVE D IN THIS CASE AS THE COMMISSIONER OF INCOME TAX (APPEALS) PA SSED THE ORDER WITHOUT ISSUING SHOW CAUSE NOTICE FOR ENHANCEMENT AS REQUIRED BY SECTION 251(2) OF THE AC T. THE REASONS FOR DENYING EXEMPTION UNDER SECTION 11 OF T HE ACT BY THE COMMISSIONER OF INCOME TAX (APPEALS) AS ELABORA TED IN PARA 3.8 TO 5 OF THE ORDER ARE AS UNDER:- 3.8 WITHOUT PREJUDICE TO WHAT HAS BEEN DISCUSSED AND DECIDED IN THE FOREGOING PARAGRAPHS, A LOOK INT O THE ISSUES RAISED BY ME VIDE LETTER NO.CIT(A)- VII/ITA 597/11-12 DATED 12.12.2013 DEMANDING CLARIFICATION FROM THE APPELLANT BECOMES IMPERATIVE . IN RESPONSE TO THE SAID LETTER, THE APPELLANT HAS REPLIED IN ITS LETTER DATED 24.12.2013 ALONG WITH 6 ANNEXURES. THE APPELLANT HAS RECEIVED A TOTAL LOAN OF RS.19 CRORES FROM ICICI FOUNDATION OUT OF WHICH RS.9 CRORES WAS SHOWN AS INCOME AND RS.10 CRORES WAS SHOWN AS GRANTS RECEIVED TOWARDS CORPUS. IT DOES NOT APPEAL TO THE COMMON UNDERSTANDING WHY A FINANCIER/CREDITOR (ICICI FOUNDATION) SHOULD GIVE GRANT TO THE APPELLANT. AS A FINANCIAL ORGANIZATION NATURALLY IT SHOULD BE INTERESTED ONLY IN THE SECURITY OF ADVANCE AND PROMPT RECOVERY. IF ICICI FOUNDATION IS PRESUMED A S A DONOR ORGANIZATION FOR THE SAKE OF ARGUMENT, IT CANNOT BE EXPECTED FROM A DONOR, CONDITIONS AND STIPULATIONS LIKE THAT OF WHAT HAVE BEEN NARRATED I N THE LETTER DATED 20.02.2009 (ANNEXURE-I FILED BY THE APPELLANT). IT IS UNABLE TO ASSERT BY ANY MEANS, THE KIND OF RELATIONSHIP THAT EXISTED BETWEE N ICICI FOUNDATION AND THE APPELLANT. HOWEVER WHAT HAS BEEN REVEALED IN THIS REGARD BY THE APPELLANT I S UNUSUAL AND HARD TO BELIEVE IN THE ABSENCE OF TRANSPARENT DECLARATIONS TOGETHER WITH DOCUMENTARY 17 ITA NO.955/MDS/2014 EVIDENCES. I AM NOT ABLE TO MAKE OUT ANY CHARITABLE ACTIVITY ARISING OUT OF THE RELATIONSHIP AND TRANSACTION ESTABLISHED BETWEEN THE ICICI FOUNDATION AND THE APPELLANT. A SPECIFIC QUESTION ABOUT THE CHARITABLE UTILIZATION OF THE GRANTS OF RS.6,11,42,080/- WAS ASKED IN THIS OFFICE LETTER DATED 12.12.2013. FOR THAT QUESTION, THE APPELLANT HAS REPLIED THAT THE MAIN OBJECT OF THE APPELLANT I S TO ANALYZE VARIOUS ASPECTS OF LIVING CONDITIONS, FINANCIAL NEEDS, ETC. OF THE RURAL POOR AND PROVIDE SUGGESTIONS OR SOLUTIONS BY CARRYING OUT IN DEPTH STUDIES OF THE SAME. THE AMOUNT OF ` 6,11,42,080/- HAD BEEN DISTRIBUTED TO EIGHT SUNDRY RESEARCH AGENCIES. BUT NO WHERE IT HAS BEEN BROUGHT TO LIGHT TO SHOW THE EXACT CHARITABLE BENEFIT THAT REACHED T HE TARGETED END GROUP, ARISING OUT OF THE ACTIVITIES DONE BY THOSE EIGHT PROJECT RESEARCH/SERVICE AGENCIES. 3.9 SIMILARLY A SUM OF RS.2,05,77,444/- HAS BEEN PAID TO 11 PROJECT RESEARCH/SERVICE/CONSULTANCY AGENCIES ADMITTEDLY FOR CARRYING OUT STUDIES AND MAKING SUGGESTIONS ABOUT VARIOUS FACTORS AND ISSUES WHICH CAN BE MORE USEFULLY UTILIZED FOR HELPING THE RURAL POOR. STILL IN THIS CONTEXT ALSO, NOTHING HAS BEEN CONCRETELY EXHIBITED WITH TANGIBLE EVIDENCE TO IDENTIFY THE CHARITIES DONE AND THE BENEFICIARIES. MOREOVER, THE NAMES OF TWO PROJECT AGENTS VIZ. 1. JAY MILLER, 2. MC KINSEY & COMPANY WHO HAVE RECEIVED CONSULTANCY CHARGES OUT OF ` 2,05,77,444/- PRIMA-FACIE APPEAR TO BE FROM OVERSEAS COUNTRIES. A SUM OF RS.30,49,149/- ($60,000) WAS PAID TO MASSACHUSETTS INSTITUTE OF TECHNOLOGY (AMERICA) TOWARDS PROJECT WORK. PAYMENT OF MONEY IN THE PROCESS OF APPLICATION OF INCOME SHOULD BE RESTRICTED TO WITHIN INDIA ONLY AS STIPULATED IN SEC.11 OF THE ACT. WHEREAS THE ABOVE MENTIONED THREE AGENCIES DO NOT APPEAR TO BE FROM WITHIN INDIA. ON THIS GROUND ALONE, THE APPELLANT I S BOUND TO LOSE EXEMPTION U/S 11 OF THE IT. ACT. 3.10 FROM THE ABOVE, I AM NOT ABLE TO SEE THE APPELLANT HAVING A GENUINE, TRANSPARENT, HEALTHY, CHARITY ORIENTED TRANSACTION/RELATIONSHIP WITH ICIC I FOUNDATION, IFMR TRUST, AND THE SUNDRY PROJECT AGENCIES. ANYTHING OF THE FINANCIAL TRANSACTIONS ENTERED BY THE APPELLANT WITH THE ABOVE ORGANIZATIONS HAS NOT CULMINATED IN PERCEIVABLE 18 ITA NO.955/MDS/2014 CHARITY DONE TO A BENEFICIARY, IN THE AREA OF (1) R ELIEF OF THE POOR (2) EDUCATION (3) MEDICAL RELIEF (4) PRESERVATION OF ENVIRONMENT (5) PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST AND (6) ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. 4. CHARITY SHOULD BE ALTRUISTIC. HERE THE OBJECTS A ND ACTIVITIES OF THE COMPANY BEING ABSTRACT CONCEALS MORE THAN IT REVEALS ABOUT THE ACTUAL INTENTION AND PURPOSE OF THE ORGANIZATION. IT IS SHROUDED IN MYSTERY AS TO HOW THE COMPANY TAKES OVER THE ACTIVITY OF ANOTHER INSTITUTION NAMELY IFMR TRUST AND REIMBURSES THE EXPENSES OF THAT TRUST. THE IFMR TRU ST WAS DESCRIBED BY THE APPELLANT AS A PARENT COMPANY AND BOTH I.E. IFMR TRUST AND THE APPELLANT WERE SITUATED EARLIER IN THE SAME ADDRESS I.E. NO.1, CENOTAPH ROAD, TEYNAMPET, CHENNAI-18. THE APPELLANT REIMBURSES THE EXPENSES OF THE PARENT COMPANY IFMR TRUST AND CLAIMED IT AS APPLICATION OF INCOME. IT IS INTERESTING TO OBSERVE HERE THAT MS. BINDU ANANTH IS DIRECTOR OF THE APPELLANT AND ALSO THE PRESIDENT OF THE IFMR TRUST. MR. PUNEET GUPTA IS DIRECTOR OF THE APPELLANT AND HOLDS 9900 SHARES AMOUNTING TO RS.99,000/-. HE HAS ALSO BEEN WORKING WITH IFMR TRUST SINCE OCTOBER, 2007. MS. BINDU ANANTH AND MR. PUNEET GUPTA ALSO WORKED IN ICICI BANK PRIOR TO BECOMING DIRECTORS OF THE APPELLANT COMPANY. THE ICICI FOUNDATION IS THE ONLY DONOR WHO GAVE RS.10 CRORES TO THE APPELLANT DURING THE RELEV ANT AY 2009-10. THE ABOVE RELATIONSHIP ATTRACTS THE PROVISIONS OF SEC.13(1), 13(2) AND 13(3) OF THE ACT . WHEN THE PROVISIONS OF SEC.13 ARE ATTRACTED, THE APPELLANT COMPANY LOSES EXEMPTION U/S.11 OF THE ACT . THE APPELLANT, IFMR TRUST, IFMR HOLDINGS PVT. LIMITED, IFMR CAPITAL FINANCE PVT. LIMITED, IFMR ADVISORY SERVICES INDIA PVT. LIMITED, NE AGRI SERVI CES PVT. LIMITED, SACHKHAND MOTORS AND FINANCE COMPANY PVT. LIMITED ARE THE SUBSIDIARIES OF IFMR TRUSTEESHIP SERVICES PVT. LIMITED. THE APPELLANT IS A CLASSIC EXAMPLE WHERE THE DECISION OF SUPREME COURT IN THE CASE OF MC DOWELLS & CO. LIMITED VS COMMERCIAL TAX OFFICER (1985) 154 ITR 148 IS TO BE INVOKED. IN THE PARTHIAN SHOT, THE SUPREME COURT SA ID AS UNDER: 'IT IS NEITHER FAIR NOR DESIRABLE TO EXPECT THE LEGISLATURE TO INTERVENE AND TAKE CARE OF EVERY DEVICE AND SCHEME TO AVOID TAXATION. IT IS UPTO 19 ITA NO.955/MDS/2014 THE COURT TO TAKE STOCK TO DETERMINE THE NATURE OF THE NEW AND SOPHISTICATED LEGAL DEVICES TO AVOID TAX AND CONSIDER WHETHER THE SITUATION CREATED BY THE DEVICES COULD BE RELATED TO THE EXISTING LEGISLATION WITH THE AID OF 'EMERGING' TECHNIQUES OF INTERPRETATION TO EXPOSE THE DEVICES FOR WHAT THEY REALLY ARE AND TO REFUSE TO GIVE JUDICIAL BENEDICTION. ' 5. IN VIEW OF THE ABOVE DISCUSSIONS AND FINDINGS, I AM NOT INCLINED TO INTERFERE WITH THE IMPUGNED ASSESSMENT ORDER DATED 29.12.2011 FOR THE AY 2009-10. IT IS FURTHER ORDERED THAT THE APPELLANT I S NOT ENTITLED TO EXEMPTION U/S 11 OF THE I.T. ACT FOR THE REASONS DELINEATED IN THE FOREGOING CONTENTS OF THI S ORDER. HENCE THE TOTAL INCOME IS TO BE RECOMPUTED AS UNDER:- GROSS INCOME RECEIVED BY COMPANY : ` 9,05,69,468 LESS 15% THEREOF : ` 1,35,85,420 ` 7,69,84,048 LESS: ADMINISTRATIVE AND OTHER EXP. ` 23,43,568 ( ` 2,29,21,012 ` 2,05,77,444*) TOTAL INCOME : ` 7,46,40,480 *CONSULTANCY CHARGES OF RS.2,05,77,444/- IS NOT ALLOWED TO BE DEDUCTED AS IT WAS CONSIDERED AS APPLICATION OF INCOME. SINCE EXEMPTION U/S 11 IS DENIED, APPLICATION OF INCOME IS OF NO RELEVANCE AN D HENCE NOT ALLOWED. THE TOTAL INCOME IS ENHANCED TO RS.7,46,40,480/- FROM THE ASSESSED INCOME OF RS.1,11,39,860/-. THE ASSESSING OFFICER IS DIRECTED TO TAX ` 7,46,40,480/- AS TOTAL INCOME AND DEMAND THE TAX ACCORDINGLY. THE ORDER OF THE ASSESSING OFFICER IS CONFIRME D. 11. ON GOING THROUGH THE ABOVE FINDINGS, WE ARE OF THE CONSIDERED VIEW THAT COMMISSIONER OF INCOME TAX (AP PEALS) 20 ITA NO.955/MDS/2014 SHOULD NOT HAVE DENIED EXEMPTION UNDER SECTION 11 W ITHOUT PROPER NOTICE AND AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN VIEW OF THE SERIOUSNESS OF THE ISSUE, COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE IS SUED NOTICE TO THE ASSESSEE TO SHOW CAUSE AS TO WHY EXE MPTION UNDER SECTION 11 SHOULD NOT BE DENIED. THERE IS VI OLATION OF PRINCIPLES OF NATURAL JUSTICE IN PASSING THE ORDER DATED 28.01.2014 AND ALSO THE CORRIGENDA DATED 20.05.2014 AND 19.09.2014. IN SUCH CIRCUMSTANCES, WE ARE OF THE CO NSIDERED VIEW THAT THIS MATTER SHOULD GO BACK TO THE COMMISS IONER OF INCOME TAX (APPEALS) FOR DE NOVO CONSIDERATION, AFT ER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. 12. SINCE THIS ASPECT OF THE MATTER I.E. THE DECISI ON AS TO WHETHER THE ASSESSEE IS ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT OR NOT HAS BEARING ON THE OTHER DISA LLOWANCES MADE BY THE ASSESSING OFFICER FOR NON-APPLICATION OF INCOME, WE RESTORE THE ENTIRE APPEAL TO THE FILE OF THE COM MISSIONER OF INCOME TAX (APPEALS) FOR CONSIDERING ALL THE ISSUES AFRESH IN ACCORDANCE WITH LAW. 21 ITA NO.955/MDS/2014 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DAY OF MARCH, 2015 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 18 TH MARCH, 2015 SOMU 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .