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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आयकर अपीलीय अधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM (through web-based video conferencing platform) श्री िी. दुगााराि,न्याधयक सदस्य एिं श्री धड.एस. सुन्दर धसंह, लेखा सदस्य के समक्ष BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER& SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.179/Viz/2018 (निर्धारण वर्ा/Assessment Year:2013-14) Deputy Commissioner of Vs. M/s Smt.Kandula Income Tax (Exemptions) Lakshumma Memorial Vijayawada Educational Society D.No.3/429 Raja Reddy Street Kadapa [PAN :AADAS4432Q] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) Cross Objection No.91/Viz/2018 (Arising out of I.T.A. No.179/Viz/2018) (निर्धारण वर्ा/Assessment Year:2013-14) Vs. M/s Smt.Kandula Lakshumma Deputy Commissioner of Memorial Educational Society Income Tax (Exemptions) D.No.3/429 Vijayawada Raja Reddy Street Kadapa [PAN :AADAS4432Q] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) रधजस्व की ओर से /Revenue by : Shri B.Rama Krishna, DR निर्धाऩरती की ओ रसे / Assessee by : Shri G.V.N.Hari, AR सुिवधई की तधरीख / Date of Hearing : 18.08.2020 घोर्णध की तधरीख/Date of Pronouncement : 21.09.2020
2 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa आदेश /O R D E R Per Shri D.S.Sunder Singh, Accountant Member :
This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Kurnool in ITA No.048/CIT(A)/KNL/2016-17dated 16.02.2018 and cross objections are filed by the assessee in support of the order of the Ld.CIT(A).
In this case, the revenue has filed the following grounds of appeal. 1. The order of the Ld.CIT(A) is erroneous both on facts and in law. On the facts and in the circumstances of the case the CIT(A) has erred in 2. stating that AO has not established that (i) the society is not genuine and misuses the benevolent legislation (ii) Not running the educational institution for which the society was formed (iii) the society is running for the purpose profit (iv) registration granted for genuine charitable/education, not withdrawn by the compete authority, which is not the requirement for invoking section 13(1)(c). 3. On the facts and in the circumstances of the case, the CIT(A) has erred in allowing exemption u/s 11. 4. On the facts and in the circumstances of the case, the CIT(A) has erred in not appreciating the fact that the assessee has made payment of Rs. 10,00,000/- to the trustee which falls in the ambit of section 13(1)(c). 5. On the facts and in the circumstances of the case, the CIT(A) has erred in admitting additional evidence in the form of Confirmation Letters (which have not been mentioned by the Assessing Officer in the assessment order), copies of receipts without giving opportunity to the Assessing Officer in violation Rule 46A. 6 On the facts and in the circumstances of the case, the CIT(A) has erred in allowing deduction u/s.11 for undisclosed income of Rs. 1,03,65,000/- and income from undisclosed Bank Account of Rs. 7,79,514/-.
3 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa 7. Any other ground that maybe urged at the time of hearing of the case. All the grounds of appeal are related to the denial of exemption u/s 11 of the Income Tax Act, 1961 (in short ‘Act’). The assessee is a Society engaged in running the educational institution, i.e. engineering college and maintenance of hostel filed its return of income for the A.Y.2013-14 on 19.08.2014, disclosing total income of Rs.Nil, after claiming the exemption u/s 11 of the Act. During the assessment proceedings, the Assessing Officer (AO) found that the Society has shown a loan of Rs.7,91,850/- against Sri K.Sivananda Reddy, a member of the society as opening balance as on 01.04.2012, in the books of accounts of KLM Educational Society (Hostel). The AO found that against the due of Rs.7,91,850/-, the assessee paid the amount of Rs.10 lakhs, thus it has paid the excess amount of Rs.2,08,150/- over and above the amount due to Sri K.Sivananda Reddy and not recorded the same in the books of accounts. In the ledger account of Corporation Bank, it was shown as Rs.7,91,850/- as against the actual payment of Rs.10 lakhs on 30.03.2013. Since the provisions of section 13(1)(c) are attracted, the AO called for the explanation of the assessee as to why the exemption u/s 11 should not be denied, since the excess amount was paid to the member of the society. In response to the notice, the assessee filed explanation stating that the assessee has paid the sum of Rs.10 lakhs
4 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa towards the amount due to Sri K.Sivananda Reddy and also for settlement of dispute with regard to the liability for supplies made by one of the parties Shri Sreeramulu. Since the society intended to utilize the services of the member of the society, Shri K.Sivananda Reddy for settlement of the dispute, the said amount was paid through the member and no excess amount was paid by the assessee. As there was no excess amount paid to the member, over and above the actual amount due to him, the assessee submitted that there is no contravention of the provisions of section 13(1)(c) of the Act, hence, requested the AO not to deny exemption u/s 11 of the Act. The AO considered the explanation of the assessee, but not convinced, since, the said amount was not recorded in the books of accounts of the assessee and the assessee has not furnished any evidence except the receipt / vouchers from the trader. Therefore, the AO rejected the explanation of the assessee and the surplus income was treated as income of the assessee, denying the exemption u/s 11 of the Act. Apart from the denial of exemption, the AO also made addition of Rs.1,03,65,000/- in respect of caution deposits, Rs.7,79,514/- in respect of undisclosed bank accounts and Rs.80,62,870/- on account of disallowance of depreciation and the expenditure was disallowed to the extent of 10% amounting to Rs.11,05,053/-.
5 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa 3. Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) found from the details furnished by the assessee that there was no violation of provisions u/s 13(1)(c) of the Act and has paid the sum of Rs.7,91,850/- to Sri K.Sivananda Reddy and the amount of Rs.2,08,150/- was paid to Sri K.Sreeramulu. Thus, held that there is no violation of section 13(1)(c) of the Act, no justification for denying the exemption u/s 11 of the Act and accordingly directed the AO to allow the exemption. The Ld.CIT(A) allowed the appeal of the assessee.
Against the order the of the Ld.CIT(A), the revenue has filed appeal before us. During the appeal hearing, the Ld.DR argued that the AO has rightly denied the exemption u/s 11 of the Act by invoking the provisions of section 13(1)(c) of the Act. It was found from the books of accounts of the assessee that an amount of Rs.7,91,850/- was due to Sri K.Sivananda Reddy, against which the assessee has paid the sum of Rs.10 lakhs, giving room for invoking the provisions of section 13(1)(c) of the Act. It is evident from the order of the AO that the assessee has never recorded the sum of Rs.2,08,150/- paid to Sri K.Sreeramulu. The assessee also has not furnished the details of transaction and Sri K.Sreeramulu and the rice supplied by him was also returned. The assessee has not furnished any
6 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa evidence except submitting the receipts / vouchers to support the contention that the sum of Rs.2,08,150/- was paid to Sri K.Sreeramulu, but not to the member of the Trust. Therefore, argued that the AO has rightly denied the exemption claimed u/s 11 of the Act by invoking the provisions of section 13(1)(c) of the Act. Therefore, argued that the order of the Ld.CIT(A) needs to be set aside and the assessment order to be restored. The Ld.DR also submitted alternate argument that since the Ld.CIT(A) has entertained the fresh evidence, the case needs to be remitted back to the file of the AO, since no opportunity was given to the AO as required under Rule 46A of Income Tax Rules.
Per contra, the Ld.AR submitted that the assessee has furnished the entire information which is clearly evident from the order of the AO. The Ld.AR further submitted that as per page No.2 of the assessment order, the assessee has submitted its explanation, stating that out of the payment of Rs.10 lakhs, Rs.7,91,851/- was paid to Sri K.Sivananda Reddy and the balance amount of Rs.2,08,149/- was paid towards the settlement of dues to Sri K.Sreeramulu, rice supplier. The Ld.AR submitted that there was a mistake in the ledger account, instead of writing the actual payments made to Sri K.Sreeramulu and Shri K.Sivananda Reddy the entire sum was taken
7 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa in the name of Sri K.Sivananda Reddy. The Ld.AR further argued that it is incorrect to say that the assessee has not furnished the details to the AO. From the assessment order, it can be seen that the assessee has furnished the receipts, vouchers from the traders. Therefore, submitted that there is no fresh evidence, hence, there is no need to remit the matter back to the file of the AO. The Ld.AR argued that there is no violation of provisions of section 13(1)(c), hence, there is no case in denying the exemption. The Ld.AR further submitted that even after considering the caution deposit, the assessee has spent more than 85% of capital receipts, hence no interference is called in the order of the Ld.CIT(A).
We have heard both the parties and perused the material placed on record. In this case, the reason for denial of exemption u/s 11 was the payment made to Sri K.Sivananda Reddy, member of the Trust. The assessee has paid the sum of Rs.10 lakhs to Sri K.Sivananda Reddy in a consolidated cheque representing the amounts due to Shri K.Sivananda Reddy and Shri K.Sreeramulu. The total amount due to Shri K.Sivananda Reddy was Rs.7,91,850/- and the amount paid towards the settlement of dues to Shri Sreeramulu was Rs.Rs.2,08,150/- . However in the books of the assessee, the payment was shown at Rs.7,91,850/-, whereas in the bank
8 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa account it was shown as Rs.10 lakhs. The AO called for the explanation of the assessee and the assessee explained the transaction stating that Sri K.Sivananda Reddy was paid the actual sum of Rs.7,91,850/- and the balance amount was related to the amount due to Sri K.Sreeramulu who was a rice supplier, towards the settlement of a dispute with regard to supplies made. The assessee also furnished the ledger extracts, vouchers from Sri K.Sreeramulu. The AO did not make any enquiries with Sri K.Sreeramulu to find out the fact. Without examining the genuineness of the payment made to Sri K.Sreeramulu, The AO denied the exemption u/s 11 of the Act, presuming that the assessee has made excess payment to Sri K.Sivananda Reddy, thereby violated the provisions of section 13(1)(c) of the Act. We find from the order of the AO that the assessee has furnished the information and filed the explanation, produced vouchers, therefore, the burden of the assessee has been discharged and the AO failed to bring any evidence to show that the excess amount was paid to Sri K.Sivananda Reddy, member of the Trust.. The Ld.CIT(A) has called for the details and found that the sum of Rs.7,91,850/- was paid to Sri K.Sivananda Reddy and the balance amount of Rs.2,08,150/- was paid to Sri K.Sreeramulu. At the same time, the Ld.CIT(A) also observed that there was a dispute between the assessee and Sri K.Sreeramulu, the rice supplier, who was continuously
9 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa pressing for the payment and the payment was finally settled through Sri K.Sivananda Reddy. Thus, the assessee has paid the sum of Rs.10 lakhs towards the amount due to Sri K.Sreeramulu and Sri K.Sivananda Reddy and no amount was paid to Sri K.Sivananda Reddy in excess for his own benefit. For the sake of clarity we extract, relevant part of the order of the Ld.CIT(A) which reads as under : “From the details furnished by the appellant, it is clear that Sri Sivananda Reddy provided funds to the society. The balance due to Sri K. Sivananda Reddy was Rs.7,91,850/- as on 31.03.2013. At the same time, an amount of Rs.2,08,150/- was due to Sri K. Sreeramulu, who was insisting for payment of the amount due to him by the society. The society was disputing the payment on the ground that the rice supplied by Sri K. Sreerarnulu was not up to the mark. Finally, the society prepared to pay the amount through Sri K.Sivananda Reddy. Therefore, the appellant paid Rs.10,00,000/- i.e. Rs.7,91,850/- due to Sri K. Sivananda Reddy and Rs.2,08,150/- due to Sri K. Sreeramulu. The payment made by the Society to Sri K. Sivananda Reddy is not for the benefit of Sri K. Sivananda Reddy. The provisions of Sec.13(l)(c) clearly indicate that the violation would come into play only if such payments were made for the personal benefit of the persons interested in the management of the society. In the case of the appellant, there is no such personal gain to Sri K. Sivananda Reddy so as to enable the AO to apply the provisions of Sec.13(1)(c) of the I.T. Act and reject the claim for exemption u/s 11 of the Act. Further, the A0 has not established that (i) the society is not genuine and misuses the benevolent legislation (ii) not running the educational institution for which the society was formed (iii) the society is running for the purpose of profit (iv) registration granted for genuine charitable/ educational purpose, not withdrawn by the competent authority (v) members are getting any benefit of society and (vi) The payment of Rs.2,08,150/- was not due to Sri K.Sreeramulu and the amount of Rs.7,91,850/- was not due to Sri K.Sivananda Reddy. There may be an error in the accounting by the society. Keeping in view the aforementioned facts, I, hold that the appellant society is lawfully entitled for benevolent provision of sec.11 of the IT Act. The AO is, therefore, directed to grant exemption u/s 11 of the IT Act.”
On perusal of the orders lower authorities, we find that the assessee has furnished the details and the vouchers before the AO and he did not cause any enquiries to disprove the claim of the assessee. Since the details
10 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa are made available to the AO, the AO ought to have made the enquiries with Shri K.Sreeramulu as per the powers vested in him u/s 133(6) or 131 of I.T.Act. When the assessee furnished the details and vouchers without causing any enquiry simply brushing side is unjustified. The Ld.CIT(A) called for the information and the assessee furnished the same information in the form of confirmation letter. There was no difference in the amount as per confirmation and the receipt, hence the simple confirmation letter cannot be held to be fresh evidence when the assessee has complied with the notices and filed the information before the AO. Therefore, we are in agreement with the finding of the Ld.CIT(A) that the AO did not make out a case of excess payment to the member Trustee for his personal benefit by the society. Hence there is no violation of the provisions of section 13(1)(c) of the Act. Therefore, we, hold that the Ld.CIT(A) has rightly directed the AO to grant exemption u/s 11, hence, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed.
The assessee filed cross objection with the delay of 7 days, but has not filed the condonation petition. Therefore, the cross objections are dismissed in limine.
11 I.T.A. No.179/Viz/2018 and CO No.91/Viz/2018, A.Y.2013-14 M/s Smt. Kandula Lakshumma Memorial Educational Society, Kadapa 8. In the result, appeal of the revenue as well as the cross objections of the assessee are dismissed. Order pronounced in the open court on 21st September, 2020.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER नििधंक /Dated : 21.09.2020 L.Rama, SPS आदेश की प्रतितिति अग्रेतषि/Copy of the order forwarded to:- 1. राजस्व/The Revenue –Deputy Commissioner of Income Tax (Exemptions) Vijayawada 2. तिर्ााररिी/ The Assessee–M/s Smt.Kandula Lakshumma Memorial Educational Society, D.No.3/429, Raja Reddy Street, Kadapa 3. The Commissioner of Income Tax (Exemptions), Hyderabad 4. The Commissioner of Income Tax (Appeals), Kurnool 5. तवभागीयप्रतितितर्, आयकरअिीिीयअतर्करण, तवशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्ाफ़ाईि / Guard file आदेशािुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, Visakhapatnam