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Income Tax Appellate Tribunal, CHANDIGARH
Before: SMT. DIVA SINGH, JM & SMT.ANNAPURNA GUPTA, AM
ORDER आदेश आदेश आदेश PER DIVA SINGH By the present appeal the assessee assails the correctness of the order dated 12.02.2019 of CIT(A), Patiala pertaining to 2010-11 assessment year on the following Grounds : 1 . That the order of the Learned Commissioner of Income Tax (Appeals) is not a complete speaking order, is erroneous and opposed to law and facts in parts. 2 . That the Learned Commissioner of Income Tax(Appeals) has erred in interpreting section 11(2) of the Income Tax Act, 1961 viz a viz the underutilized receipts of Rs. 68,81,725/-. 3 . That the Learned Commissioner of Income Tax (Appeals) has grossly erred in taxing a sum of Rs. 9,62,580/- of interest on over draft against FDR as penal interest and mis-utilization of funds. 4 . That the appellant craves leave to add, to alter, to amend or vary from the aforesaid grounds of appeal at or before the time of hearing of the said appeal.
ITA 647 /CHD/2019 A.Y. 2010-11 Page 2 of 8
The ld. AR inviting attention to the impugned order submitted that in the facts of the present case, the addition of Rs. 68,84,176/- made for non utilization of funds was made ignoring the fact that the Statute provides the assessee with time to utilize the amounts in the following years. Re ferring to the facts of the present case, it was his submission that the assessee is a 100% charitable trust of the Punjab Government is a law abiding assessee who has always co-operated with the department in all Income Tax matters. It was submitted that the services and all facilities being provided by Punjab Heritage Tourism Promotion Board are not accruing to any individual, firm, corporate business house but to the general public in India. The Trust, it was submitted, is not existing for profit purposes but for providing facilities to improve Tourism and saving the Rich Cultural Heritage of the state. The assessee, it was submitted, is a government trust existing for the benefit of the general public at large.
Attention was invited to the Bye Laws of the Trust, the objectives and functions of the Punjab Heritage and Tourism Promotion Board which have been noticed by the CIT(A) at pages 8 & 9 of his order. The Objects and the Functions of the Board specifically highlighted and relied upon by the ld. AR are extracted hereunder :
ITA 647 /CHD/2019 A.Y. 2010-11 Page 3 of 8 i) To take all necessary steps for planning, coordination, implementation and propagation of all activities, events, projects and other matters connected with the conservation, preservation, dissemination and documentation of the cultural heritage of Punjab in all its form and for the development of Tourism in the State. ii) To undertake directly or through government agencies or through private parties the comprehensive development, conservation and renovation of heritage properties in Punjab and up-gradation of the areas around such properties. iii) To undertake directly or through public-private partnership setting up of tourism infrastructure such as conference centers, auditoriums, museums, libraries, hotels, institutes etc; for the promotion of tourism. iv) To promote crafts and skills related to the State of Punjab v) To encourage expression of artists in the mediums of painting, sculpture, theatre, creative writing, music, films, documentaries, multi-media or in any other form. vi) To publish the rich and diverse heritage of Punjab, especially in music, dance, cuisines, costumes etc. vii) To co-ordinate with Government of India, various State Government, Semi- Government Organizations, Non-Government Organizations and other agencies as well as eminent individuals within India and abroad for promotion of tourism and preservation of the cultural heritage of Punjab and for seeking financial contributions for the fulfillment of these objectives. viii) To take steps for securing the participation and involvement of the widest cross-section of individuals and organizations worldwide for the preservation of the cultural heritage of Punjab and development of Tourism in the State. ix) To acquire, purchase, exchange, transfer, lease out, hold or dispose of property and to enter into contracts in pursuance of the functions assigned to the Board.
The Aims and Objectives of the Board which were highlighted before the CIT(A) and further relied upon before us found reproduced in the impugned order at page-9 are also extracted hereunder for the sake of completeness :
a. "conservation, preservation, dissemination and documentation of the cultural heritage of Punjab in all its form and for the development of Tourism in the State" Include b. To undertake directly or through public-private partnership setting up of tourism infrastructure such as conference centers, auditoriums, museums, libraries, hotels, institutes etc; for the promotion of tourism. c. To promote crafts and skills related to the State of Punjab
ITA 647 /CHD/2019 A.Y. 2010-11 Page 4 of 8 d. To publish the rich and diverse heritage of Punjab, especially in music, dance, cuisines, costumes etc.
Inviting attention to para 4 of the impugned order it was his submission that the facts have been summed up by the ld. Commissioner in the following manner :
“4. Ground of Appeal No. 2 agitates the addition on account of underutilized receipts. During the assessment proceedings the Ld AO found that the appellant had utilized Rs. 2,08,35,253 out of the total revenue receipts of Rs. 4,64,58,863 and states that that that the underutilization is in excess of the mandated 15% as per Section 11(2). The AO further states that utilization too has largely gone towards expenditure in the nature of advertisements, travelling, telephone, repair and maintenance of office vehicles office expenses, business promotions, penal interest on FDR and the like and not on the declared purpose of the trust. The Ld. AO asked the Ld AR to show cause as to why the underutilized and mis-utilised funds should not be brought to tax. The Ld. AO thereafter mentions the submission of the Ld AR during assessment proceedings in para 4 page 3 of the Assessment order which aver that the expenses were necessary for the purposes of the trust as the advertisement and travel were part of the trust in promoting the heritage of the state. Further the penal interest on FDR too was incurred for the objects of the trusts.The Learned AO holding that the trust had not submitted the mandatory declaration in Form 10 under rule 17 of the IT Rules 1962 and that appellant had underutilized the receipts, added back the under-utilized receipts of Rs. 2,08,35,253/- to the taxable income of the trust as an amount deemed not to be applied and therefore not to be treated as deemed application of the funds.”
6. Inviting attention to the arguments recorded in para 4.1 of the impugned order, it was submitted that the assessee had invited attention of the ld. Commissioner to the provisions of sub-section (2) of Section 11 which mandated that 85% of the income of the year was to be applied for charitable purposes and the amount which has not been utilized for charitable purposes could be accumulated as per the Statutory mandate and has to be set apart by the assessee by notice in writing vide Form No. 10 and intimation to the AO about the ITA 647 /CHD/2019 A.Y. 2010-11 Page 5 of 8 accumulation which was to be utilized within a period of five years. Accordingly, inviting attention to the finding arrived at in page 5 and 6, it was his submission that the CIT(A) has lost sight of this fact. Form No. 10 was filed and it was noticed to be on record by the CIT(A) himself, hence, it was his limited prayer that the issue may be restored for verification on facts, if need be,
The ld. Sr.DR relying upon the impugned order submitted that he has no objection in case the issue is restored back for verification.
We have heard the rival submissions and perused the material available on record. On a consideration thereof, we find in terms of ground No. 1 which supports the arguments in ground No. 2 being argued that in the facts of the present case, it would be appropriate to restore the issue back to the file of the AO with a direction to verify the factual position after hearing the assessee.
Inviting attention to the next issue agitated by the assessee, the ld. AR submitted that the AO made an addition of Rs. 9,62,580/- for penal interest on FDR loan treating it as mis-utilization of funds and hence not allowable as utilization u/s 11 of the Act.
ITA 647 /CHD/2019 A.Y. 2010-11 Page 6 of 8
The ld. AR invited submission to para 6.1 of the impugned order at pages 11 and 12 wherein on the factual aspect, following submissions were advanced before the CIT(A) :
6.1……..The Learned Assessing Officer has not allowed the payment of interest of Rs. 9,62,580/- on the premise that the interest paid on the FDR loans is penal interest. Details are as per ledger account enclosed vide Annexure - 6. It is humbly submitted that the assessee had claimed interest expenses of Rs. 9,62,580/- which was interest paid on the overdraft loans against security of their FDRs with State Bank of Patiala, (Now merged in State Bank of India), Sector - 8, Chandigarh in Financial Year 2009 -10. However, while compilation of the Balance Sheet for the year ending 31.03.2010, the accountants wrongly depicted the payment of interest in the indirect expenses schedule (schedule 3) as penal interest on loans which is not the correct picture. It is actually the interest paid on the overdraft facilities / loans against the security of the Boards FDRs. It is not by any stretch of imagination any penal interest but normal interest paid on the overdraft or loan facility taken from the bank. The bank authorities were requested to confirm that the interest paid of Rs. 9,62,580/- in F. Y 2009-10 was normal interest and not penal interest. The bank authorities vide their letter 2018/CR/ADV/dated 15.11.2018 have confirmed that a sum of Rs. 7,75,093.18 was normal interest applied against the loans against the FDRs and in no manner any penal interest was charged. Copy of letter enclosed vide Annexure - 7. It is humbly submitted that the interest and loan account details pertain to loans taken 9 years ago against FDRs. The bank could immediately only locate 3 loans against FDRs against which an interest of Rs. 7,75,093.18 was paid and the 4th loan whose interest was Rs. 1,87,487.18 was not immediately traceable. This is primarily due to the fact that the loan account number was not traceable viz a viz the FDR as the Board had a number of fixed deposits in that year. The bank branch has confirmed that the interest paid is normal interest on loans and not penal interest. Hence this disallowance may kindly be deleted. The auditor also did not verify the nature of these expense in detail as considering the amount viz a viz the gross receipts, these Interest payments were very less.
Inviting attention to the finding of the First Appellate Authority, it was his submission that these facts as argued by the assessee have not been disputed. Accordingly, addition, it was prayer, may be directed to be deleted.
The finding arrived at by the CIT(A) under challenge in the present proceedings :
ITA 647 /CHD/2019 A.Y. 2010-11 Page 7 of 8 “I have carefully perused the written submission of the Ld AR the findings of the Ld AO and contextualised these to the records. That the interest has been categorised by the Auditor of the appellant as penal interest is a matter of record and not in dispute. During the appellate proceedings the Ld AR has submitted the penal interest was interest paid on overdraft taken and is not in the nature of a penalty. The appellant has not made this submission before the Ld AO and has also not produced a correction by the approved auditor in this regards. While it is trite law that an appellant must not suffer from error of an auditor, the remedy to the finding of an auditor in my considered opinion is a certificate from an Auditor to the effect that a wrong qualification has been given. That not being the case, I see no reason to interfere with the order of the Ld AP on this ground of Appeal. The ground of appeal is dismissed. It is ordered accordingly.
The ld. Sr.DR relied upon the impugned order. It was his submission that the CIT(A) has not given any finding whether it was interest paid on over draft taken as argued by the ld. AR. Hence, it was his prayer that the facts need to be verified and may be remanded, howeve r, deletion thereof without verifying was objected to.
We have heard the rival submissions and perused the material available on record. We find that as far as the legal position is concerned, we are of the firm view that an assessee should not suffer on account of the mistake of a counsel/accountant/auditor etc. stands well addressed legally. The assessee has relied upon the proposition of law as laid down by the Hon'ble Punjab & Haryana High Court in the case of CIT Vs Siddhartha Enterprises ( 322 ITR 80 (P&H); CIT Vs S. Dhanbal (309 ITR 268 (Del) and the oft quoted decision of the Apex Court in the case of Price Waterhouse Coopers Pvt. Ltd. V CIT ( Civil Appeal 6924 2012 (SLP 10700 of 2009). However, before considering the position of law, it
ITA 647 /CHD/2019 A.Y. 2010-11 Page 8 of 8 is necessary to first address the facts since there is no finding on the nature of this penal interest. Accordingly, we set aside this issue back to the file of the AO with a direction to give a specific finding on the nature of interest disallowed. In case it is a case of mis-utilization of funds, then of course the rigors of law will apply.
However, if it is an issue of interest on over draft or loan facility for the purposes of the Board, then disallowance cannot be maintained. Said order was pronounced in the presence of the parties via Webex.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on 18th November, 2021.