DCIT, C-1 (E), CHANDIGARH vs. SHRI GURU GOBIND SINGH FOUNDATION, MOGA

PER N.K. SAINI, VICE PRESIDENT :

This appeal by the Department and the cross objection by the assessee are directed against the order dated 21.08.2018 of the Ld. CIT(A)- 4, Ludhiana.

(2) During the course of hearing nobody was present on behalf of the assessee, neither any adjournment was sought. We therefore, proceeded ex-parte qua the assessee and the case is decided on merit after hearing the Ld. CIT(DR).

(3) In the appeal of the Department following grounds have been raised:

i. “That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in allowing the benefit under section 11 of the Act without appreciating that there was a clear violation of Section 13 of the Income-Tax Act, 1961. ii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in not considering the provisions of section 13(1)(c) of the I.T. Act, 1961, according to which, any income of the trust directly or indirectly applied for the benefit of any person referred to in Section 13(3) of the Act shall not be excluded from the total income and provisions of Section 11 shall not apply to the same. iii. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in allowing exemption under section 11 of the I.T. Act without considering the modus operandi of the assessee for diversion of funds beyond the scope of the objects of the assessee. iv. That the appellant craves to leave, add or amend the grounds of appeal on or before the appeal heard and disposed off.”

(4) Facts of the case in brief are that the assessee is registered under Societies Registration Act, 1860 and also registered u/s 12A of the Income Tax Act, 1961 (In short ‘the Act’) with the Ld. CIT- 4, Ludhiana. The assessee filed the return of income on 29.09.2015 declaring ‘Nil’ income. Later on the case was selected for scrutiny.

(5) The AO during the course of assessment proceedings noticed that the assessee had given interest free loans without any consideration or security to M/s Baba Amarnath Educational Society amounting to Rs. 35,00,000/- which was covered u/s 13(1)(c) and 13(1)(d) of the Act. The assessee furnished the written submission which has been incorporated by the Assessing Officer in page 5 of the assessment order dated 26.12.2017, for the cost of repetition the same is not reproduced herein.

(5.1) The AO, however, did not find merit in the submissions of the assessee for the following reasons: “(i) Assessee has given unsecured loans of Rs.5.94 Crore to its sister concerns, which is 63.25% of total receipts of the assessee without any consideration. Assessee is not taking any interest from these sister concerns, neither having any security against this, which shows that assessee is providing undue benefit to its sister concerns. (ii) Assessee has given unsecured loan to its sister concern capital investments only, on perusal of balance sheet of Davinder Kaur Memorial Education & Charitable Society, it is clear that this society has taken unsecured loan of Amount of Rs. 2,22,25,000/- for A.Y. 15-16 & invested the same in capital investments of Rs. 3,57,08,710/. Capital Investments cannot be counted as educational purpose. It is strange fact that against the unsecured loan of Rs. 2,22,25,000/. Davinder Kaur is having only receipts of Rs. 2,19,31,054/- only. This shows that assessee's intention is only create the capital not the education.

In the books of ACE Educational & Charitable Society, there are unsecured loan of Rs. 6.09 Crore for A.Y. 2015-16 & ACE has made fixed assets of Rs. 11.79 Crorc & also given the unsecured loan/advance to other sister concerns namely, M/s Davinder Kaur Educational & Charitable Society. The above fact shows that the

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trustees & group societies have modus operandi to provide the loans to group concerns & invested the same in fixed assets. (iii) Reply of assessee that the sister trusts are not covered under 13(3) as specified persons, is not acceptable because there are common members, which are having interest in the all sister concerns. The details of the unsecured loans in the books of each society show that all the societies are having loan or advances from their trustees & sister societies & same distributed among the sister concerns societies & invested into capital as fixed assests. The above facts show that all the trustees are having substantial interest into each sister society. It is also a fact that from the perusal of their individual balance sheet of trustees, it is seen that they have sources of Income from salary and interest from group societies or group companies, the same then invested into group societies as loan/advances.”

(6) The AO disallowed the claim of the assessee by observing in para 5-7 of the assessment order dated 26.12.2017 as under:

“(i) Assessee has given unsecured loans of Rs. 5.94 Crore to its sister concerns, which is 63.25% of total receipts of the assessee without any considerations. Details of the same as under-

Particulars F.Y.2010-11 F.Y.2011-12 F.Y.2012-13 F.Y. 2013-14 F.Y. 2014-15 Ace Edu & Charitable 1,66,00,000/- 2,56,00,000/- 2,83,50,000/- 3,45,50,000/- 3,45,50,000/- Society Davinder Kaur 1,26,00,000/- 1,40,75,000/- 1,45,75,000/- 1,35,75,000/- 1,35,75,000/- Memorial Educational Society Sachdeva Educational 99,737/- 16,00,263/- 48,50,263/- 66,69,520/- 1,13,71,652/- Society Total- 2,92,99,737/ 4,12,75,263/ 4,77,75,263/ 5,47,94,520/- 5,94,96,652/- - - -

Assessee is not taking any interest from these sister concerns, neither having any security against this, which shows that assessee is providing undue benefit to its sister concerns. (ii) Assessee has given unsecured loan to its sister concern for capital investments only, on perusal of balance sheet of Davinder Kaur Memorial Education & Charitable Society, it is clear that this society has taken unsecured loan of Amount of Rs. 2,22,25,000/- for A.Y.15-16 & investing the same in capital investments of Rs. 3,57,08,710/-. Capital Investments cannot be counted as educational purpose. It is strange fact that against the unsecured loan of Rs. 2,22,25,000/-. Davinder Kaur is having only receipts of Rs. 2,19,31,054/- only. This shows that assessee intention is only create the capital not the education. In the books of ACE Educational & Charitable Society, there are unsecured loan of Rs. 6.09 Crore for A.Y. 2015-16 & ACE has made fixed assets of Rs. 11.79 Crore & also given the unsecured loan/advance to other sister concern namely, M/s Davinder Kaur Educational & Charitable Society. The above shows that the trustees & group societies have modus operandi to provide the loans to group concerns & invested the same in fixed assets. (iii) Reply of assessee that the sister trusts are not covered under 13(3) as specified persons, is not acceptable because there are common members, which are having interest in the all sister concerns. The details of the unsecured loans in the books of each society show that all the societies are having loan or advances from their trustees & sister societies & same distributed among the sister oncerns societies & invested into capital as fixed assets. The above facts show that all the trustees are having substantial interest into each sister society. It is also a fact that from the perusal of their individual balance sheet of trustees,

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it is seen that they have sources of Income from salary and interest from group societies or group companies, the same then invested into group societies as loan/advances. The above facts show that the group societies, grqup companies & their trustees & directors/shareholder have nexus between all of them for diversion of money from one hand to another hand under the umbrella of group concerns. In the above facts reply of assessee that these transaction are not covered u/s 13(3) is not accepted, because all the trustees, group societies, group companies have financial interest among them. Penalty proceedings u/s 271 (1) (c) for furnishing inaccurate particulars are initiated on this account.

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of these group trust/societies show that all the concerns are involved into financial transaction between group trust/societies, group companies & their trustees or members. This shows that the main objects is not education, the main object is to create capital by taking & giving unsecured loan or advances. This is violation of section 11, because assessee object is education not provide the loan to others. Assessee has filed its reply regarding this, which is not accepted because assessee's group has this modus operandi to involved into financial transaction with each others and create capital. Therefore in the light of the above facts and discussion, assessee's claim of exemption u/s 11 is denied & surplus is taxed accordingly as AOP u/s 13(l)(c), 13(l)(d) r.w. 13(3) of I.T. Act. There is loss in Income & Expenditure account of A.Y. 2015-16, hence no net addition is made for A.Y. 2015-16. Returned income Rs. NIL Addition of surplus Rs . NIL Net Income Rs. NIL”

(7) Being aggrieved, the assessee carried the matter to the Ld. CIT(A) and furnished the written submission which has been incorporated in para 4 of the impugned order which read as under: “(i) Assessee has given unsecured loans of Rs.5.94 Crore to its sister concerns, which is 63.25% of total receipts of the assessee without any consideration. Assessee is not taking any interest from these sister concerns, neither having any security against this, which shows that assessee is providing undue benefit to its sister concerns. (ii) Assessee has given unsecured loan to its sister concern capital investments only, on perusal of balance sheet of Davinder Kaur Memorial Education & Charitable Society, it is clear that this society has taken unsecured loan of Amount of Rs. 2,22,25,000/- for A.Y. 15-16 & invested the same in capital investments of Rs. 3,57,08,710/. Capital Investments cannot be counted as educational purpose. It is strange fact that against the unsecured loan of Rs. 2,22,25,000/. Davinder Kaur is having only receipts of Rs. 2,19,31,054/- only. This shows that assessee's intention is only create the capital not the education. In the books of ACE Educational & Charitable Society, there are unsecured loan of Rs. 6.09 Crore for A.Y. 2015-16 & ACE has made fixed assets of Rs. 11.79 Crorc & also given the unsecured loan/advance to other sister concerns namely, M/s Davinder Kaur Educational & Charitable Society. The above fact shows that the trustees & group societies have modus operandi to provide the loans to group concerns & invested the same in fixed assets. (iii) Reply of assessee that the sister trusts are not covered under 13(3) as specified persons, is not acceptable because there are common members, which are having interest in the all sister concerns. The details of the unsecured loans in the books of each society show that all the societies are having loan or advances from their trustees & sister societies & same distributed among the sister concerns societies & invested into capital as fixed assets. The above facts show that all the trustees are having substantial interest into each sister society. It is also a fact that from the perusal of their individual balance sheet of trustees, it is seen that they have sources of Income from salary and interest from group societies or group companies, the same then invested into group societies as loan/advances.”

(8) The Ld. CIT(A) after considering the submission of the assessee allowed the claim of the assessee and deleted the addition made by the AO by observing in para 5 in the impugned order as under: “5. I have carefully considered the facts of the case and submissions of the appellant The assessee trust is registered u/s 12A of the Income Tax Act, 1961 with Crr, Ludhiana on 22.05.2003. During financial year 2010-11 to 2015-16, the assessee has given a sum of

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Rs.5.94 Cr. to some'common members the societies namely ACE Edu. & Charitable Society, Davinder Kaur Memorial Educational Society, Malwa Educational Society, Bharti Educational Society, Global Educational Society, Sachdeva Educational Society as a loan. Educational Society is registered u/s 12AA of the Income Tax Act, 1961. The assessing officer has denied exemption u/s llof the Income Tax Act, 1961 to the assessee by invoking provisions of section 13(1)(c) & 13(1)(d) r.w.s 13(3) of the Income Tax Act, 1961. The assessing officer held that the assessee has given unsecured loans to its sister concerns without any consideration. It was held that there are common members having interest in all sister concerns and substantial contribution of unsecured loan and members fees. The assessee has provided unsecured loans to its sister concerns without any interest or security, which was not reasonable and resulted in undue benefit to assessee's sister concerns. Therefore the assessing officer denied claim of exemption u/s 11 read with section 13(1)(c) and 13(1)(d) of the Income Tax Act, 1961. Further the assessing officer held that the main object of the assessee is not education, but the main object was to create capital by taking and giving unsecured loan or advances in violation section 11. Thus, the income of the assessee was assessed at Rs.Nil/- as AOP. It is observed that on the same issue the assessing officer had made disallowance of exemption u/s 11 of the Income Tax Act, 1961 r.w.s 13(1)(c)& 13(1)(d)of the Income Tax Act and also by invoking section 11(5) of the Income Tax Act, 1961 for assessment year 2013-14 . Hon'ble ITAT Chandigarh, in ITA No. 1230/Chd/20T6, for Assessment year 2013- 14 in the DCIT,Circle-l, (Exemption) Chandigarh Vs. Sh. Guru Gobind Singh Foundations, Moga has decided as under- 13. We have heard the contentions of both the parties and have gone through the orders of the authorities below and also the order of the ITAT in the case of Amritsar International (supra). Admittedly the facts in the present cases are identical to that in the case of Amritsar International (supra). No distinguishing facts were brought to our notice by the Ld. DR. The decision rendered in the case of We therefore see no reason to interfere in the order of Amritsar International (supra) would therefore squarely apply in the present appeals also. Following the same we hold that the Ld. CIT(A) has rightly held that the provisions of section J3(I)(c) are not attracted since the AO has failed to point out how persons specified as per section 13(3) of the Act. We also agree with the Ld. CIT(A) that the loan given to the respective Educational Society do not qualify as a deposit/investment for the purposes of section 11(5) of the Act, and therefore the assessee cannot be said to have violated the provisions of section 11(5) so as to be denied exemption u/s 11, as per section 13(1)(d) of the Act. Moreover since the impugned loans/advances were made in earlier years, the provisions of section 13(1)(c)/(d) could in any case not have been invoked in the impugned year, We therefore uphold the order of the Id. ClT(appeals) and dismiss the appeal filed by the Revenue.

Respectfully following the decision of the Hon'ble ITAT, Chandigarh in the case of assessee as above, as the impugned loans/ advances were made in earlier years and the Hon'ble ITAT, Chandigarh has decided the issue of exemption u/s 11 in favour of the assessee, therefore, the appeal of the assessee is allowed. Grounds of appeal no. 1 to 8 are thus allowed.”

(9) Now, the assessee is in appeal.

(10) The Ld. CIT(DR) although supported the order of the AO but could not controvert the findings given by the Ld. CIT(A).

(11) We have considered the submission of the Ld. CIT(DR) and perused the material available on the record. In the present case, it is noticed that the Ld. CIT(A) deleted the impugned addition and allowed the claim of the assessee by

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following the order of ITAT in Chandigarh Bench, in ITA No. 1230/Chandi/2016 for the AY 2013-14 in assessee’s own case. During the course of hearing nothing was brought on record to substantiate that the said decision of the ITAT dated 26.07.2018 followed by the Ld. CIT(A) in assessee’s own case has been reversed by the higher forum. In that view of the matter we do not see any valid ground to interfere with the findings given by the Ld. CIT(A). Accordingly, we do not see any merit in this appeal of the Department.

(12) In its cross objection, the assessee had raised following grounds: 1. “That the issue raised by Worthy AO in appeal for the AY 2015-16 is the same as in AY 2013-14 and there is no new findings. In that cases worthy AO arbitrarily denied exemption us/11 and assessed the society as AOP. The appeal of the assessee society in all the three AY 2013- 14 and AY 2015-16 was allowed by Worthy CIT(A)-IV Ludhiana. The appeal of the department in AY 2013-14 ( ITA 1230/Chd/2016) with Hon’ble ITAT Chandigarh already stand dismissed vide order dated 26.07.201S and the department accepted the same has not yet preferred appeal with H'able High Court o f Punjab & Haryana. 2. That the present appeal filed by the department is based on the same facts and findings and the issue involved is also the same as in AY 2013-14 (ITA 1230/Chd/2016). Since the subject matter of the appeal filed by the department is same which has already been heard and rejected by same bench of H'able ITAT Chandigarh, the present appeal liable to be rejected. 3. That since the disputed tax amount in the present case is nil, the department can not file appeal as per CBDT circular 3/2015.”

(13) From the above grounds it is clear that these are in support of the order passed by the Ld. CIT(A) and no specific relief apart from that which had been given by the Ld. CIT(A) had been sought. Since we have dismissed the appeal of the Department in the former part of this order the cross objection filed by the assessee becomes infructuous.

(14) In the result appeal of the Department as well as cross objection of the assessee are dismissed.

(Order pronounced in the open Court on 29/03/2019).

Sd/- Sd/- (SANJAY GARG) (N.K. SAINI) JUDICIAL MEMBER VICE PRESIDENT Dated : 29/03/2019 BCG Copy to: 1.The Appellant, 2. The Respondent, 3. The CIT(A), 4. The CIT, 5. The DR

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