M/S. SREE MANIPRAKASH CHARITABLE WELFARE SOCIETY,VISAKHAPATNAM vs. THE INCOME TAX OFFICER (EXEMPTIONS), VISAKHAPATNAM

आयकर अपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री एन के चौिरी,न्याधयक सदस्य एिं श्री धड.एस .सुन्दर धसंह, लेखा सदस्य के समक्ष BEFORE SHRI N.K.CHOUDHRY, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.669/Viz/2019 (निर्धारण वर्ा/Assessment Year:2019-20) M/s Sree Maniprakash Charitable Vs. Income Tax Officer Welfare Society (Exemptions) D.No.19-53/1 Visakhapatnam Near Railway Flyover Bridge Pendurthy, Visakhapatnam [PAN : AAOTS8801M] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधथी की ओर से/ Appellant by : Shri G.V.N.Hari, AR प्रत्यधथी की ओर से / Respondent by : Shri T.S.N.Murthy, CIT(DR) सुिवधई की तधरीख / Date of Hearing : 02.02.2021 घोर्णध की तधरीख/Date of Pronouncement : 10.02.2021 आदेश /O R D E R Per D.S.Sunder Singh, Accountant Member : This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Exemptions) [CIT(E)], Hyderabad in F.No.CIT(E), Hyd/85(03)/80G/2018-19 dated 30.09.2019 for the Assessment Year (A.Y.) 2019-20.

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the notice and furnished the details. On verification of the details, the Ld.CIT(E) found the following defects : (a) The Ld.CIT(E) found that the assessee company has made the profit of Rs.10,06,717/-, Rs.18,77,065/- and Rs.16,84,131/- during the Financial Year 2015-16 to 2017-18 respectively, which was ranging from 51% to 55%, hence, the Ld.CIT(E) viewed that the activity of the assessee is profit making activity, but not a genuine charitable activity. (b) Secondly the Ld.CIT(E) observed the violation of provisions of section 13(1) of the Act. The Ld.CIT(E) observed that the assessee had incurred the expenditure on building construction on the land taken on lease from the daughters of the founder of the trust Mr.D.Prakash Rao and constructed a building after obtaining the necessary permissions from the local authorities in the names of three daughters. Since the legal ownership of the buildings vests with land owners i.e., the daughters of Shri Prakash Rao, the Ld.CIT(E) viewed that the assessee society has given the benefit to the daughters of the founder of the society, thus violated the provisions of section 13(1) of the act. The CIT(E) also suspected the source of investment of the

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daughters for the entire land. He was of the opinion that the funds were flown from the society for purchase of the land also. (c) Thirdly, the Ld.CIT(E) observed that a sum of Rs.50,000/- was fixed as annual rent for the said land and the assessee failed to furnish comparable rates of rents of the lands in the area to ascertain the violation of section 13(1) the act, thus, viewed that the assessee has failed to discharge the primary onus to establish the rent paid was comparable.. (d) Fourthly, the Ld.CIT(E) found that the salary of Rs.7500/- per month was paid to Shri P.Prabhakar, brother-in-law of the founder of the trust Shri D.Prakash Rao. He is staying in the same premises and his lodging and boarding is taken care by the assessee society. Shri Prabhakar Rao is 55 year old and studied upto 10th Std only thus, viewed that the assessee has given the benefit to relatives of the founder of the society. (e) Fifthly, the Ld.CIT(E) found that the assessee had received the donations in the name of ‘Loyola’s Sweet Home’ and nowhere on the receipt, assessee’s name was mentioned, thus viewed that the genuineness of the so called donations was in doubt.

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(f) The next contention of the Ld.CIT(E) is that the assessee has received the donation of Rs.1.00 lakh on 15.11.2016 and Rs.10,000/- on 25.11.2016 and the corresponding entries were not made in the cash book, hence doubted the genuineness of the said donations. (g) It was also found that the assessee owned Maruti van which was not appearing in the balance sheet. The assessee has filed it’s explanation stating that Maruti van was purchased prior to grant of registration on 12.05.2009 for a sum Rs.2,19,510/- and prior to the registration, proper care was not taken for accounting, since, the activity was very low key. It has further submitted that subsequent to grant of registration, the society is maintaining the regular books of accounts and there were no violations. It was also submitted that the van was purchased in the name of the society and used for the purpose of society. However, the Ld.CIT(E) was not convinced with the explanation of the assessee. (h) The assessee has received the interest free loans of Rs.14,40,000/- and furnished the confirmations but unable to furnish the satisfactory explanation with regard to genuineness and credit worthiness of the creditors. Therefore, the Ld.CIT(E) viewed that the

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assessee failed to prove the identity, genuineness and credit worthiness for the so-called loans. The Ld.CIT(E) held that all the above defects do not inspire genuineness and the assessee is not eligible for approval u/s 80G of the Act. (i) The next contention of the CIT(E) is that the assessee was constructing old age home. As per the balance sheet, total expenditure up to 31.03.2018 was Rs.74,30,566/- and most of the expenditure was observed to be incurred in cash and the assessee failed to produce the bills for the construction. Therefore, the Ld.CIT(E) viewed that the activity of the assessee society was not genuine, hence rejected the application filed in Form No.10G for registration. 6. Against the order of the Ld.CIT(E), the assessee filed appeal before us. The Ld.AR submitted that there was no profit-making activity in the society it was purely engaged in charitable activities and the surplus was spent for construction of the building and the same was reflected in the balance sheet, thus submitted that the Ld.CIT(E) erred in holding that the assessee is indulging in profit making activity. The said expenditure was incurred on building construction and taken directly to balance sheet, since, it was

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capital expenditure and accordingly submitted that there is no irregularity with regard to Income and Expenditure account.

6.1. With regard to violation of section 13(1), the Ld.AR submitted that Shri D.Prakash Rao is the founder of the society and his three daughters own a piece of land admeasuring 1355 sq.yards which was acquired from their own sources. The assessee society had entered into an agreement for construction of old age home in the said land with a condition that the land would be used only for old age home for 15 years and the lease rent was fixed at Rs.50,000/- per year for 1355 sq.yards and the same is reasonable by any comparable rate in any of the areas of Visakhapatnam and there is no excess rent paid by the assessee. Therefore, argued that there is no violation u/s 13(1) and no benefit is given to the daughters of the promoters.

6.2. With regard to payment of salary to Sri P.P.Prabhakar, the Ld.AR submitted that Shri P.Prabhakar is working 24 x 7 in the society and taking care of more than 50 patients who are housed in the society, thus, submitted that monthly salary of Rs.7,500/- was meager amount and very less compared to the minimum wages prescribed by District Collector.

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6.3. The next issue is with regard to donation receipt of ‘Loyola Sweet Home’. The Ld.AR submitted that Loyola Sweet Home is the name of orphanage/old age home and the donations are accepted in the name of Loyola Sweet Home and accounted in the books of accounts and there is no violation with regard to accounting of donations. Merely because of the name of orphanage home is written on the receipt, the same cannot go against the assessee for granting approval u/s 80G of the Act. The Ld.AR further submitted that the society’s registration number was also printed on the receipt.

6.4. With regard to deposit of donations in the bank and non-issue of receipts, the Ld.AR submitted that all the donations were duly accounted in the books of accounts. Some donations were deposited by the donors directly in the bank account without the knowledge of the organizers for which the receipts could not be issued. However, submitted that the donations were duly accounted in the books of accounts and hence there is no defect on the part of the organization. Merely because of the reason that some donors have deposited money in the bank account without the knowledge of the organisers for which receipts could not be issued, the

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society could not furnish the details society cannot be found to be faulted and there is no case for doubting the genuineness.

6.5. The next issue is with regard to Maruti car. With regard to Maruti van, the Ld.AR submitted that it was purchased on 12.05.2009 in the name of the society before grant of registration u/s 12AA to the society. At that time, the activity of the society was very low and informal and books of accounts were not properly maintained. Subsequent to grant of registration u/s 12AA, the assessee was properly accounting and the ambulance was exclusively used for the purpose of society only.

6.6. With regard to loans taken, the Ld.AR submitted that P.Karuna Kumar, from whom the loan of Rs.2 lakhs was taken was working as priest of church in West Indies . He has given the loan and confirmation was also submitted. Similarly in the case of Sri P.Prabhakar, the assessee submitted account copy and confirmation letter. He was working in the old age home for a meager salary and the assessee is ready to produce him before the income tax office at Visakhapatnam. The assessee further explained that the loans were taken for making the payments steel and cement.

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6.7. With regard to construction account, the ld.AR submitted that the assessee has already produced the books of accounts and ready to produce the bills for the expenditure on construction. Therefore, submitted that the society’s activities are genuine and hence requested to grant registration u/s 80G of the Act.

7.0. On the other hand, the Ld.DR relied on the orders of the Ld.CIT(E).

8.0. We have heard both the parties and perused the material placed on record. The Ld.CIT(E) doubted the genuineness of the activity of the society, because, he had observed certain defects with regard to profit for the F.Y. 2015-16, 2016-17 and 2017-18. However, the assessee has furnished financial statement and as seen from the financial statements, the same refers to the construction account undertaken by the assessee which was not reflected in the income and expenditure statement, but recorded in the balance sheet. Thus, there was an error in the finding of the Ld.CIT(E) with regard to profit making activity of the assessee society.

8.1. With regard to violation of provisions of section 13(1) of the Act, daughters of the founder of the society had purchased site admeasuring 1355 sq.yards. Though Ld.CIT(E) expressed suspicion with regard to the

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source, he did not bring any evidence to show that the society had funded the daughters for acquiring the land, thus, there is no basis for suspecting the source of income of the daughters for purchase of land. It is observed that the assessee society is paying the rent of Rs.50,000/- per year for 1355 sq.yds of land which is leased to the society for 15 years for the purpose of construction of old age home which works out Rs.3.00 per square yard for month. The rent of Rs.50,000/- per year on 1355 sq.yds of land in the vicinity of Visakhapatnam district appears to be reasonable and there is no reason to suspect the reasonableness of payment of rent.

8.2. With regard to payment of salary of Rs.7500/- paid to Sri P.Prabhakar, who is working in the orphanage home for 24 x 7 cannot be said to be unreasonable by any stretch of imagination. The Ld.CIT(E) ought to have considered the minimum wages as per the act in the area as decided by the District Collector, working hours and compared the salary paid to Sri P.Prabhakar with the minimum wages to arrive at the reasonableness.

8.3. With regard to defects of donations, ‘Loyola Sweet Home’ is stated to be the name of orphanage home and on the receipt, registered number of the society was also duly printed and no defects were brought on record

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with regard to accounting of the receipts in the society’s books, thus, there is no reason to suspect the genuineness of the activity of the society.

8.4. With regard to donations deposited in the bank account on 15.11.2016 and 25.11.2016, the sums of Rs.1.00 lakh and Rs.10,000/- respectively, the assessee submitted that the same were directly deposited in the in the bank account and duly accounted in the books of accounts. If the Ld.CIT(E) suspects the donations, the CIT(E) ought to have taken action for assessing the same as income u/s 68 r.w.s. 115BBE as per law, but there is no case for suspecting the genuineness of the activity of the society.

8.5. With regard to Maruti van, it is observed that Maruti van was purchased by the society prior to registration and the same was not brought into books of accounts. Van was used exclusively for ambulance of the society. The invoices was also available for purchase of Maruti van and no depreciation was claimed. The Ld.CIT(E) ought to have taken the appropriate action for the A.Y.2010-11( relevant to the Previous year 2009- 10) if necessary as per law.

8.6. With regard to loans, genuineness cannot be doubted. The assessee has accepted the interest free loans, the creditors are identifiable and the no

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individual benefit was given by accepting interest free loans thus there is no reason for the CIT(E) to reject the registration u/s 80G of the Act.

8.7. With regard to bills for construction activity, the assessee stated that it would produce the bills given the opportunity. In the instant case, we find that though the assessee has filed application on 29.03.2019, the case was taken up by the Ld.CIT(E) at the fag end of the period i.e. 13.09.2019, thus there was no time for the Ld.CIT(E) to examine the issue properly. Though all the issues prima facie appears to be not a reason for rejection of application of the assessee society, all the above issues needs to be verified in detail to take further action. Therefore, in our considered opinion, the issue needs to be remitted back to the file of the CIT(E). Accordingly, we remit the matter back to the file of the Ld.CIT(E) with a direction to examine the issues with regard to genuineness of the society and take appropriate action as per law. It is needless to say that reasonable and sufficient opportunity should be given to the assessee. Accordingly, the appeal is remitted back to the file of the Ld.CIT(E) for denovo consideration. The appeal of the assessee is allowed for statistical purpose.

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Order pronounced in the open court on 10th February, 2021.

Sd/- Sd/- (एन के चौिरी) (धड.एस .सुन्दरधसंह) (N.K.CHOUDHRY) (D.S.SUNDER SINGH) न्याधयक सदस्य/ JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Dated : 10.02.2021 L.Rama, SPS आदेश की प्रतितिति अग्रेतषि/Copy of the order forwarded to:- 1. तिर्धाररिी/ The Assessee–M/s Sree Maniprakash Charitable Welfare Society D.No.19-53/1, Near Railway Flyover Bridge, Pendurthy, Visakhapatnam 2. रधजस्व/The Revenue –Income Tax Officer (Exemptions), Visakhapatnam 3. The Commissioner of Income Tax (Exemptions), Hyderabad 4. तवभधगीय प्रतितितर्, आयकर अिीिीय अतर्करण, तवशधखधिटणम/DR, ITAT, Visakhapatnam 5.गधर्ाफ़धईि / Guard file आदेशधिुसधर / BY ORDER // True Copy //

Sr. Private Secretary ITAT, Visakhapatnam