SHRI DNYANESHWAR TRUST,AHMEDNAGAR vs. DCIT (E), AURANGABAD

First we take up ITA No.1881/PUN/2025 for assessment year 2011-12 as the lead case. This is the second round of litigation before the Tribunal. Facts of the

Aggrieved by the order of the Assessing Officer the assessee preferred an appeal before the CIT(A) who vide order dated 04.10.2019 allowed all the grounds of appeal except change in the status. Against the above order of the CIT(A) the assessee as well as the Revenue filed appeals before the Tribunal with their respective grounds. In the meantime, on 14.02.2023 the assessee trust received an order u/s 12AA(3) of the Act from the CIT, Exemption, Pune dropping the proceedings initiated in 2018 for cancellation of registration.

The Tribunal vide order dated 08.03.2023 in ITA Nos.1647/PUN/2019 to 1650/PUN/2019 for assessment years 2011-12, 2012-13, 2013-14 and 2016-17 and ITA Nos.34 to 37/PUN/2020 for assessment years 2011-12, 2012-13, 2013-14 & 2016-17 restored the matter to the file of the Assessing Officer with a direction to examine the entire issue and pass the order as per fact and law by observing as under: “12. We have given our thoughtful consideration to the foregoing rival submissions and find no merit to express our agreement with either of these two parties in entirety at this stage. We observe first of all that we have already decided the assessee’s foregoing legal ground of its assessment as an “AOP” or a charitable trust in its favour (supra). This is further coupled with the fact that the assessee prima facie appears to have filed all the relevant details [strongly contested by the Revenue side] before the Assessing Officer as per the assessment discussion. It transpires from the perusal of the assessment order that the learned Assessing Officer had not examined the ‘tripartite agreement’ executed amongst the assessee, the payer Shree Dnyaneshwar SSK Ltd., and the ultimate payee

In view of the above direction of the Tribunal, the Assessing Officer issued notice u/s 142(1) of the Act asking for certain details. The assessee in response to the same filed the requisite details from time to time.

The Assessing Officer on perusal of the Income & Expenditure account, ledger accounts, agreements, trust deed and the reply furnished by the assessee trust noted that the assessee trust has shown supervision charges received from Shri Dyaneshwar SSK Ltd amounting to Rs.3,20,14,050/- against which the trust has claimed interest payment of Rs.2,83,27,925/- as expenditure on the object of the trust. From the submissions made by the assessee and the terms and conditions of the agreement between Dyaneshwar SSK Ltd and the assessee trust, he noted that all the expenses including advance payments incurred by the trust on harvesting and transportation contract are borne by Shri Dyaneshwar SSK Ltd. Further, if any of expenses incurred by the trust on account of harvesting and transporting on behalf of Dyaneshwar SSK Ltd are reimbursed to the assessee trust if the same are incurred by the trust. He observed that the bank has disbursed

However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and disallowed the interest on loan amounting to Rs.2,83,27,925/- by recording as under:

Similarly the Assessing Officer has made disallowance for assessment year 2012-13 at Rs.3,86,39,767/-, for assessment year 2013-14 at Rs.4,11,48,160/- and for assessment year 2016-17 at Rs.10,23,29,756/-.

In appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under:

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. On the facts and in the circumstances of the case and in law, Ld. AO erred in initiating the reassessment proceedings u/s 147 by issuing notice u/s 148 dated 23/03/2018 for AY 2011-12, the period which is beyond four years especially in view of the fact that all the material facts were discussed in the original assessment proceedings for which order u/s 143(3) date 16/01/2014 was passed, therefore entire reassessment proceedings are bad in law and deserves to be struck down and consequential order needs to be annulled. 2. On the facts and in the circumstances of the case and in law, Ld. AO erred in making disallowance of Rs.2,83,27,925/- being expenditure claimed under the head 'Interest Expenses', without appreciating the manner in which activities are carried out by trust and disregarding appellant's contention and detailed submissions made in this regard. Your appellant prays for deletion of entire addition. Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend, modify, delete any or all grounds of appeal before or during the course of hearing in the inter of principle of natural justice.

The Ld. Counsel for the assessee did not make any submission regarding validity of reopening. We, therefore, dismiss this ground as ‘not pressed’ for assessment years 2011-12, 2012-13, 2013-14 and 2016-17.

So far as ground of appeal No.2 is concerned the Ld. Counsel for the assessee submitted that the common issue involved in the appeals for assessment years 2011-12, 2012-13, 2013-14 and 2016-17 is regarding the disallowance of interest debited to income and expenditure account by assuming that this interest is not a liability of trust and therefore it cannot be treated as allowable expenditure. He submitted that in the first round in all these cases the Assessing Officer has treated the society as a contractor of H&T workers and treated advances given to these H&T workers as turnover of trust and estimated the profit @ 8% of the turnover. Further, he also disallowed the interest expenses debited to Income and Expenditure account by invoking provision of section 43B(e) and disallowed such interest alternatively. The Ld. CIT(A) / NFAC deleted the addition on account of estimation of profit @ 8% of the turnover as well as interest addition made u/s 43B which was reversed by the Tribunal with a direction to the Assessing Officer for arriving at correct computation of income by treating assessee's status as pass through entity only.

He submitted that in the second round of assessment the Assessing Officer although in principle has accepted the pass through entity status and did not estimate any income, however, treated the interest expenses as disallowed

The Ld. Counsel for the assessee reiterated that the supervision charges received from the Sugar Factory are not "income" in the commercial sense. He submitted that the Trust calculates the total cost of helping illiterate labourers such as salaries, admin, interest etc. Any small income earned is deducted and the net deficit is reimbursed by the Sugar Factory. Referring to the resolution of the sugar factory he submitted that the payment is calculated specifically to cover the Trust's expenses which confirms a "No Profit, No Loss" mandate. He submitted that the disallowance of interest of Rs.2,83,27,925/- for assessment year 2011-12 by the Assessing Officer and such similar disallowances of later years creates an artificial profit where none exists. He submitted that the trust pays interest to banks (BOB, IOB, IDBI) on funds used to provide vital advances to rural labourers. This is a direct cost of its charitable objects. He submitted that the Sugar Factory reimburses this exact interest amount to the Trust. This is credited to the Income & Expenditure account as a recovery of cost. He submitted that by treating the reimbursement of interest as Revenue and further disallowing the interest as Expenditure the Assessing Officer is taxing a gross recovery without allowing the actual cost which is contrary to the principles of real income.

So far as the objection of the Assessing Officer that those banks issued loans to individuals and not to the trust is concerned, the Ld. Counsel for the assessee submitted that due to lack of collateral security, loans are sanctioned to labourers. He submitted that with the trust's guarantee, banks transfer these funds directly into the trust's account in lots. Referring to pages 4 to 12 of written submission the Ld.

So far as ITA Nos.1882/PUN/2025 and 1883/PUN/2025 for assessment years 2010-11 and 2018-19 are concerned, he submitted that here this is the first round of litigation before the Tribunal where the Assessing Officer treated the trust as a contractor and applied the provisions of presumptive tax and estimated the profit 8% on advances routed through the trust. Further, he has also made the disallowance of interest on loan and further added supervision charges and certain disallowances u/s 40(a)(i)(a) without appreciating the fact that for the relevant years no disallowance was prescribed in the statute for TDS default in case of trust.

The Ld. DR heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case initially treated the society as contractor of H & T workers and treated the advances given to these H&T workers as turnover of the assessee trust and estimated the profit @ 8% of such turnover. He further disallowed the interest expenses debited to Income and Expenditure account by invoking provision of section 43B(e) and disallowed such interest.

In the first round of appeal the Ld. CIT(A) / NFAC deleted the addition made by the Assessing Officer both on account of estimation of profit @ 8% as well as interest addition made u/s 43B. We find on further appeal by the Revenue, the Tribunal set aside the matter to the file of the Assessing Officer for arriving at correct computation of income by treating assessee's status as pass through entity only. We find the Assessing Officer in the set aside proceedings disallowed the interest on loan of Rs.2,83,27,925/- which has been sustained by the Ld. CIT(A) / NFAC, the reasons of which have already been reproduced in the preceding

We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of some of the loans disbursed on account of H & T advances to the assessee trust by Bank of Baroda are as under:

Similarly, we find the Indian Overseas Bank has also disbursed the loans to the trust account on behalf of the labourers , the details of which are as under:

We find the terms and conditions of IDBI Bank while sanctioning the advances to H & T Contractor through the assessee’s trust, are as under:

We find clause (N) of the above terms and conditions shows that H & T arrangement will be managed by Dnyaneshwar Trust, a no profit, no gain trust promoted for the management as well as betterment of labourers involved in the activity. All these things clearly and categorically show that the banks have disbursed the loan to the assessee trust on behalf of H & T Contractors. Therefore, when the assessee trust pays interest to the banks which in turn has been reimbursed to the assessee by Shri Gnyaneshwar SSK Limited, such interest expenditure could not have been disallowed by the Assessing Officer and confirmed by the Ld. CIT(A) / NFAC. We, therefore, set aside the order of the Ld. CIT(A) / NFAC and direct the Assessing Officer to delete the disallowance of interest on loan amounting to Rs.2,83,27,925/-. Similarly, the Assessing Officer is also directed to delete the interest disallowance of Rs.3,86,39,767/- for assessment year 2012-13, Rs.4,11,48,160/- for assessment year 2013-14 and Rs.10,23,29,756/- for assessment year 2016-17.

So far as ITA No.1882/PUN/2025 is concerned, as mentioned earlier, this is the first round of litigation before the Tribunal. A perusal of the assessment order shows that the Assessing Officer has determined the total income of the assessee at Rs.3,55,05,459/- by making the following additions: i) Addition @ 8% of gross receipts Rs.2,06,90,138/- ii) Disallowance of interest u/s 43B(e) Rs.46,25,263/-

We find in appeal, the Ld. CIT(A) / NFAC deleted the disallowance of audit fee of Rs.63,950/- made by the Assessing Officer u/s 40(a)(ia) of the Act. He, however, has sustained the other additions made by the Assessing Officer.

So far as the addition of Rs.2,06,90,138/- made by the Assessing Officer by estimating the profit @ 8% of gross receipts is concerned, the same is liable to be deleted in view of the decision of the Tribunal in assessee’s own case for assessment years 2011-12, 2012-13, 2013-14 and 2016-17. We find, following the order of the Tribunal, the Assessing Officer has not made any addition and restricted the addition only by disallowance on interest u/s 43B(e) of the Act. Therefore, the addition made by the Assessing Officer by estimating the profit @ 8% for assessment year 2010-11 is liable to be deleted. We, therefore, direct the Assessing Officer to delete the addition.

So far as the disallowance of interest u/s 43B(e) of Rs.46,25,263/- is concerned, we find the same is identical to the ground raised by the assessee in ITA Nos.1881/PUN/2025, 1880/PUN/2025, 1879/PUN/2025 and 1884/PUN/2025 for assessment years 2011-12, 2012-13, 2013-14 and 2016-17 respectively. We have already decided the issue and directed the Assessing Officer to delete the

So far as the addition of Rs.1,00,19,078/- on account of supervision charges is concerned, we find the Assessing Officer made disallowance on the ground that the assessee has debited an amount of Rs.2,20,96,871/- on account of objectives of the trust which includes the expenditure of Rs.1,00,19,078/- on account of supervision charges. Since the assessee did not justify the said expenses particularly with respect to the disallowance u/s 40(a)(ia) of the Act, the Assessing Officer, in absence of any TDS details, disallowed the same and made addition of Rs.1,00,19,078/-.

We find in appeal the Ld. CIT(A) / NFAC upheld the same by observing as under:

It is the submission of the Ld. Counsel for the assessee that for the relevant assessment year no disallowance was prescribed in the statute for TDS default in case of trust. It is his submission that since the trust is registered u/s 12A of the Act since 1982 and there is no change in the object of the trust or activities of the trust and the trust is regularly filing its return of income in the status of "Trust" and claiming deductions u/s 11 to 13 of the Act, therefore, no disallowance is called for.

We find before the Ld. CIT(A) / NFAC the assessee has not addressed or controverted the basis on which the Assessing Officer had disallowed the amount of Rs.1,00,19,078/- for which he has dismissed the ground raised before him. It is the submission of the Ld. Counsel for the assessee that the assessee is not required to deduct TDS from the payments made. It is his submission that no disallowance was prescribed in the statute for TDS default in case of trust. Since it is his submission that given an opportunity the assessee is in a position to substantiate its case by filing the requisite details, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the

In ground No.4 the assessee has challenged the order of the Ld. CIT(A) / NFAC in confirming the disallowance of Rs.1,07,030/- u/s 40(a)(ia) of the Act.

After hearing both the sides, we find it is the submission of the Ld. Counsel for the assessee that no disallowance was prescribed in the statute for TDS default in case of trust. In the preceding paragraphs while deciding the ground No.3, we have restored the issue to the file of the Assessing Officer for fresh adjudication. Following similar reasonings, this ground is also restored to the file of the Assessing Officer for adjudication of the issue afresh. This ground is accordingly allowed for statistical purposes.

In ground No.5 the assessee challenged the order of the Ld. CIT(A) / NFAC in confirming the addition of Rs.63,950/- u/s 40(a)(ia) of the Act on account of audit fees. However, a perusal of the order of the Ld. CIT(A) / NFAC shows that he has deleted the addition by observing as under:

Therefore, the ground raised by the assessee becomes infructuous and is dismissed.

The grounds raised by the assessee are as under: 1. On the facts and in the circumstances of the case and in law. Ld. AO erred in making an addition of Rs.4,49,93,157/- being estimated profit @ 8% on gross receipts without appreciating the detailed submissions and documentary evidences placed on record, while doing so Ld AO has not even rejected books of accounts therefore estimating the income without any basis is incorrect and therefore entire addition deserves to be deleted. Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend, modify, delete any or all grounds of appeal before or during the course of hearing in the interest of principle of natural justice.

After hearing both the sides, we find the Assessing Officer in the order passed u/s 143(3) r.w.s. 147 r.w.s. 254 of the Act for assessment years 2011-12, 2012-13, 2013-14 and 2016-17 has not made any addition by estimating the profit @ 8% of the gross receipts after the order of the Tribunal. Since this issue is raised before the Tribunal for the first time and since the Assessing Officer or the Ld.

In the result, ITA Nos.1881/PUN/2025, 1880/PUN/2025, 1879/PUN/2025 and 1884/PUN/2025 for assessment years 2011-12, 2012-13, 2013-14 and 2016-17 respectively filed by the assessee are partly allowed. ITA No.1882/PUN/2025 for assessment year 2010-11 is partly allowed for statistical purposes. ITA No.1883/PUN/2025 for assessment year 2018-19 is allowed.