THE LAKSHYA BHARTEE FOUNDATION,NEW DELHI vs. ITO (E) WARD-2(3), NEW DELHI

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ITA 8392/DEL/2019Status: DisposedITAT Delhi15 March 2021AY 2016-173 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The tribunal held that the advance was an interest-free refundable security deposit for hostel services provided on a no-profit-no-loss basis. Since the revenue could not prove any undue benefit to the specified person and the arrangement was consistent for years, no disallowance was warranted.

What were the facts?

The assessee society, registered under sections 12AA and 80G, provided an advance to a specified person for hostel services exclusively for its students. The AO treated this advance as a diversion of income violating Section 13(1)(c), and the CIT(A) confirmed this.

What were the issues?

Whether an advance given to a specified person for providing services to the assessee's beneficiaries constitutes a diversion of income or a violation of Section 13(1)(c) if no undue benefit is proven.

Which sections of the Income-tax Act were involved?

Section 13(1)(c),Section 13(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-2’, NEW DELHI

Before: Sh. Bhavnesh SainiDr. B. R. R. Kumar

Hearing: 11.03.2021Pronounced: 15.03.2021

Per Dr. B. R. R. Kumar, Accountant Member:

1.

The present appeal has been filed by the assessee against the order of the ld. CIT(A)-40, New Delhi dated 22.08.2019.

2.

The assessee society is registered u/s 12AA of the Income Tax Act, 1961 vide Registration No. DIT(E)/200203/T- 789/02/432 dated 27.06.2003 and registered u/s 80G vide order dated 01.12.2005 of DIT(E), Delhi.

3.

The assessee has given advance of Rs.17,34,400/- to a specified person as per Section 13(3) of the Act who provided the hostel services exclusively to the student of the society. The AO has considered the advance given as diversion of the income

2 Lakshya Bhartee Foundation of the society to the specified person in violation of the provisions of Section 13(1)(c) of the Act.

4.

The ld. CIT (A) confirmed the action of the Assessing Officer.

5.

Heard the arguments of both the parties and perused the material available on record.

6.

We find that the recipient LBIHM Pvt. Ltd. who was a specified person u/s 13(3) is providing the students of the assessee society, accommodation and provision of food and there was no undue benefit obtained by the recipient by way of the transaction. The MoU between the recipient and the assessee has been entered in the year 2008 and continuing till today. As per the MoU, the recipient will provide lodging and boarding facilities exclusively to the student on no profit no loss basis. The recipient would take on rent and provide boarding facilities and for such purpose, the assessee would pay interest free refundable security advance which would be refunded in case surplus is generated from its operation.

7.

We find that revenue has not disputed the stated position for the last 7 assessment years. The advance provided as security deposit is in turn for the accommodation obtained by the assessee society from LBIHM Pvt. Ltd. The revenue could not prove that the amount paid is a device to pass on any benefit to the recipient. Just because the recipient is a specified party as per Section 13(3) it doesn’t automatically call for disallowance. No disallowance is called for unless the amount paid is proven to be beyond the market rate /system and only

3 Lakshya Bhartee Foundation to pass on the benefit and give undue advantage to the recipient. The recipient is provided services to the assessee which has not been disputed and the payment has not been found to be of any extraneous or beneficial to the recipient.

8.

Hence, we direct that the disallowance made by the AO be obliterated.

9.

In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 15/03/2021.

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