WATERSHED ORGANISATION TRUST,AHMEDNAGAR vs. ACIT EXEMPTION CIRCLE, AURANGABAD

Reproducing in Para 4 of the appellate order as the appellant's written submissions, submissions which had no relevance to the facts of the appellant's case and which were not made by the appellant. The appellant pleads that the written submissions in Para 4 of the appellant order be struck off as non-est and its statement of facts in Form 35 along with written submissions dt. 01.06.2023 and Paperbook placed on record be treated as the relevant submissions for the purpose of adjudicating grounds of appeal raised by the appellant. 3. confirming the addition made by the AO of hypothetical interest of Rs. 20,30,990 on advances of Rs 2,38,94,008 to Sampada Trust on grounds that the advances were an investment in contravention of section 11(5) of IT Act. The appellant pleads that the subject advances were in the nature of application of income in furtherance of the objects of the assessee trust and not in the nature of investments. The action of the AO is not justified and is invalid. 4. confirming the addition made by the AO of Rs 32,25,573 to declared income, by calculating presumptive profit on professional receipts & contract receipts on grounds that the assessee was involved in business activities and had not maintained separate books of accounts for business income thereby violating section 11(4A) of IT Act. The appellant pleads that the subject receipts were in connection with execution of training programmes in furtherance of the objects of the assessee trust and were integral part of its activity. The action of AO is not justified and is invalid. 5. confirming the addition made by the AO to declared income of Rs 8,53,50,000 claimed as deduction u/s 11(2) on account of accumulation of income out of current year's income, on grounds that the purpose "Rural Development" mentioned by the assessee in Form No 10 was general in nature without indicating specific details of the objects for which the accumulated funds were to be utilized in future. The appellant pleads that its application for accumulation of the subject funds and utilization thereof in subsequent years(s) is in accordance with law. The action of the AO is not justified and is invalid.

The appellant pleads for directions deleting the additions made by the AO and sustained by the CIT(A) and craves leave to add to, amend, modify, delete or withdraw any ground(s) of appeal.”

Briefly stated the facts are that the assessee is a public charitable trust registered under Bombay Trusts Act, 1950. It is registered u/s 12A and 80G of the Income Tax Act, 1961 (the “Act”). The assessee is also approved u/s 10(23C)(iv) of the Act w.e.f. AY 2015-16. The main object of the assessee is providing relief to the poor and preservation of the environment (including watersheds, forest and wild life). For AY 2015-16, the assessee filed return on 30.09.2015 declaring total income of Rs. Nil. The case of the assessee was selected for scrutiny under CASS. Accordingly, statutory notice(s) u/s 143(2) and 142(1) of the Act along with questionnaire were issued and served on the assessee calling for certain details/information contained therein. During the course of assessment proceedings the assessee submitted the requisite details/documents from time to time which have been verified and placed on record by the Ld. Assessing Officer (“AO”). The Ld. AO completed the assessment u/s 143(3) of the Act vide order dated 27.12.2017 assessing the total income of the assessee at Rs.9,06,06,563/- as against the Nil income returned by the assessee by: i. invoking section 13(1)(d) of the Act and adding to declared income hypothetical interest of Rs.20,30,990/- calculated @ 8.5% p.a. of advances amounting to Rs.2,38,94,008/- to Sampada Trust on the ground that the advances were an investment in contravention of section 11(5) of the Act. ii. adding to declared income Rs.32,25,573/- calculated @ 50% of professional receipts of Rs.60,35,586/- & 8% of contract receipts of Rs 25,97,250 on grounds that the said receipts were subject to TDS which clearly indicated that the assessee was involved in business activity and that the assessee had not maintained separate books of accounts for business income, thereby violating section 11(4A) of the Act. iii. adding to declared income Rs.8.53,50,000/- claimed by the assessee as deduction u/s 11(2) on account of accumulation of income out of the current years income on grounds that the purpose "Rural Development" mentioned by the assessee in Form No. 10 was general in nature without indicating specific details of the objects for which the accumulated funds were to be utilized in future.

Aggrieved, the assessee filed an appeal before the Ld. CIT(A) challenging the above additions made by the Ld. AO. Before the Ld. CIT(A), the assessee also raised an additional ground of appeal vide application dated 01.06.2023 (page 47 of the paper book refers). The Ld. CIT(A) dismissed all the grounds of appeal raised by the assessee in respect of the above three additions made by the Ld. AO for want of satisfactory documentary evidence filed by the assessee to substantiate its claim. The Ld. CIT(A) also did not adjudicate the additional ground raised by the assessee holding the same to be academic in nature for the reason that the assessee had not filed any submission towards the same. The relevant findings and observations of the Ld. CIT(A) are reproduced below : “6.1 I have gone through the assessment order and ground of appeal. The Ld. AO has carried out multiple additions against which the appellant has filed appeal with multiple grounds. The appeal of the appellant is adjudicated as under: Ground 1 6.2 the assessee has claimed closing balance of advance of Rs.2,39,20,566/- as on 31/03/2014 to 31/03/2017, in the case of Sampada Trust. These advance were given interest free. The appellant submitted that Sampada Trust works in the field of relief to the poor specifically for the purpose of women's empowerment, self help groups, micro enterprises and livelihoods for the rural women. The object of the Sampada Trust is similar to the object of the WOTR. Sampada Trust had requested WOTR to provide financial support to it; accordingly the advance is given to Sampada Trust. The appellant also mentioned that few of its trustee are trustee of Sampada Trust as well. The appellant had contested that the said advances were given under an agreement.

3 The Ld. AO held that the advances given to Sampada Trust were in contravention to provision of Section 11(5) w.r.s.

Thus, he imputed 8.5% interest on said advances and thus added Rs 20,30,990/- to total income of the appellant.

4 During the appellate proceedings, the appellant once again contested that the objective of Sampda Trust were same that of the appellant trust and thus the aforesaid advances shall be considered as extension of appellant trust and the fulfilment of objectives of the Trust. Further, the said advances were backed by the agreement and requisite board resolution.

5 The contention of the appellant has been considered but not found to be acceptable. The appellant has merely claimed that the objective of sampada trust are similar but has not filed it bye-laws to prove the same. Further, the appellant filed following chart emerging out of audited financial statements of Sampada Trust. Sr. No. Amt. Rd. from WOTR Fin Year wise Rs. 1st April through Sampada 1 2007-08 2 2008-09 6,87,00,000 74,00,000 9,67,46,390 11,13,39,614 M.F. O/B Nil 5,17,19,281 M.F. Disbursement 5,17,19,281 6,72,06,488 6,85,62,682 7,43,56,230 12,94,73,933 1,01,01,168 41,08,331 49,05,80,017 M.F. Recovery 4,50,27,109 5,30,27,701 9,17,11,264 6,09,29,961 9,56,23,646 9,25,39,993 47,87,306 47,87,306 Year ending 31/03 Sampada Other Loan & Advances Loan & Advances 13,08,420 17,37,389 14,50,654 33,44,175 50,51,488 88,95,637 57,36,418 48,57,92,711 As per B/s. M.F. O/s on 31/03 5,17,19,281 9,58,52,407 6,72,06,488 5,74,85,841 9,13,34,462 88,95,637 1.05,23,724 32,54,86,921 Remarks Amount 3 2009-10 Nil 6,72,06,488 4,40,57,906 6,08,30,016 5,74,85,841 9,13,34,462 1,41,67,445 47,87,306 2,39,00,352 35,52,33,043 4 2010-11 Nil 4,40,57,906 5,74,85,841 5 2011-12 Nil 5,74,85,841 9,13,34,462 6 2012-13 Nil 9,13,34,462 88,95,637 7 2013-14 NH 88,95,637 Total 2007-08 to 2014 8 2014-15 7,61,00,000 22,39,425 34,93,87,273 Total 2007-08 to 2014-15 7,83,39,425 49,05,80,017 32,54,86,921 2,97,46,122 32,54,86,921

6 The appellant has not filed a reason when ultimately the objective is to provide micro finance assistance to public at large, then why the same is not routed through appellant itself. Placing interest free advance with Sampada trust indicates that interest that could have been earned by the appellant by providing DIRECT micro finance to beneficiaries, leads to parking interest income in hands of the Sampada Trust.

7 Therefore, merely contesting that advances are backed by agreement will not lead to fulfil the objective of the appellant trust. The appellant has also not filed copy of its own bye-laws which permits placing of such advances and placing of such advances are also not approved by Charity Commissioner as contested by the Ld. AO.

8 Therefore, the estimation of interest is found to be correct and being upheld.

9 Accordingly ground 1 of the appellant is disposed on merits and based on information/documents available on records. Ground 2

10 The appellant had earned income from Contracts Rs.25,97,250/- and Professional Fees Rs.60,35,586/-. The appellant had not maintained separate books for these activities and thus the Ld. AO estimated profit on these activities as under. Sr. No. Nature of receipts Gross amount Percentage of net profit adopted Net profit in Rs. 01 Professional receipts 60,35,586 50% 30,17,793 02 Contract payments 25,97,250 8% 2,07,780 Total 32,25,573 Accordingly, he added Rs.32,25,573/- to total income of the appellant.

11 The appellant contested that these receipts are incidental to main objective of the Trust and this eligible for deduction as charitable activity is being done by the appellant. The appellant had undertaken training activity and undertaking technical evaluation of the projects. These activities are akin to relief to poor and perseverance of environment including watershed development as per Section 2(15) of the IT Act. The appellant also filed profitability statement from these projects. But said statements are self made and not backed by any supporting evidences such as proof of time spent by employees is not provided which is base of the profitability statement.

12 In view of the above, the contention of the appellant are not found to be acceptable. Having regard to frequency of TDS, it is observed that the appellant is undertaking these activities very frequently and thus the same can not be held to be incidental commercial activity. Further, the appellant has also not proved that it had no profit motive behind undertaking these activities by furnished profitability from these activities.

13 Therefore, the addition carried out by the Ld. AO are found to be correct and being upheld.

14 Accordingly, Ground 2 of the appeal is disposed on merits and based on information/documents available on records. Ground 3

15 In the computation of income, the assessee has claimed deduction u/s 11 (2) on account of accumulation of income of Rs.8,53,50,000/- along with filing Form No. 10 for the year under consideration. The purpose of accumulation mentioned is "Rural development Fund". The same being vague, the assessee was requested to justify the said deduction u/s 11(2) of the Act.

16 The appellant submitted the its objective to provide relief to poor and perseverance of environment including watershed development. These objects are carried out in the rural areas hence the accumulation is done under Rural Development Fund. Rural Development Fund is just a name given to accumulation, the objects remain the same i.e. relief to the poor and the preservation of the environment.

17 During the appellate proceedings, the appellant contested that it had earned revenue of Rs.24.22 Croes and as per Section 11(2) it had set aside unutilized funds of Rs.8.53 Crores and had also applied for accumulation as well. Further, the appellant also mentioned that inadvertently had applied in Form 10 which is not towards accumulation. The appellant also contested that these funds were set aside in preceding year and not in current year.

18 The appellant has not filed any evidence to show case that these funds were accumulated from preceding years and the same are being used subsequently. There is merely a claim of the appellant but no documentary evidence to substantiate the same. In absence of documentary evidence the claim of the appellant could not be verified. Even though the appellant could not file Form 10 which is claimed to be filed by the appellant.

19 Therefore, the addition carried out by the Ld. AO is being justified and being upheld.

20 Accordingly, Ground 3 of the appellant is disposed on merits and based on information/documents available on records. Additional Ground 1

21 The appellant has merely raised ground but has not filed any submission towards the same. Therefore, the ground is found to be academic in nature."

Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.

At the outset, the Ld. AR for the assessee submitted that the Ld. CIT(A) has not adjudicated the additional ground raised by the assessee before him relating to assessee's claim for exemption of its income u/s 10(23C)(iv) of the Act observing that the assessee has not filed any submissions in respect thereof. He submitted that this observation of the Ld. CIT(A) is factually incorrect as the assessee in response to hearing notice dated 27.05.2023 had filed written submissions on 01.06.2023 along with supporting evidence in Annexure B of paper book and refiled the same thereafter on 7 subsequent dates at the request of the Ld. CIT(A).

The Ld. DR relied on the order of the Ld. AO/CIT(A). He, however, had no objection if the impugned issues are set aside to the file of the Ld. CIT(A) for fresh adjudication on merits.

We have heard the Ld. Representatives of the parties and perused the material on record as well as paper book filed by the Ld. AR on behalf of the assessee. Perusal of the order of the Ld. CIT(A) reveals that the Ld. CIT(A) has confirmed the additions made by the Ld. AO for want of sufficient supporting documentary evidence furnished by the assessee to substantiate its claim. The assessee also raised an additional ground before the Ld. CIT(A) vide its application dated 01.06.2023 (page 47 of the paper book refers) making an alternate claim for exemption of its income u/s 10(23C)(iv) of the Act, the assessee trust being an approved organization for the purpose of section 10(23C)(iv) of the Act and having applied its income or accumulated it for application of income, wholly and exclusively, to the objects of the trust in accordance with the said section. A copy of order dated 15.09.2015 u/s 10(23C)(iv) of the Act granting approval to the assessee w.e.f. AY 2015-16 onwards is placed on record at pages 48 to 49 of the paper book filed before us. It is seen that a copy of the said approval was also filed before the Ld. CIT(A) along with written submissions filed by the assessee o n 01.06.2023. Perusal of the appellate order reveals that the Ld. CIT(A) has not adjudicated the additional ground of appeal raised by the assessee for the reason that the assessee failed to make any submissions in respect of the same. However, the fact on record as discussed above shows otherwise. The assessee furnished the detailed written submissions dated 01.06.2023 along with supporting documentary evidences before the Ld. CIT(A) (pages 31 to 46 of the paper book refers). Considering the totality of the facts and in the circumstances of the case enumerated above, we deem it fit, to set aside the impugned order of the Ld. CIT(A) and restore the impugned issues (including the additional ground of the assessee) back to his file with a direction to adjudicate the same afresh on merits as per facts and law, taking into consideration the written submissions/ supporting documentary evidence filed by the assessee before him which is already available on records with him and such other details/documents as may be called upon by him during the course of fresh appellate proceedings, after affording due opportunity of hearing to the parties. Needless to say, the assessee shall provide the requisite support in terms of submitting the relevant documents/evidence as may be required/called upon without taking adjournment on the appointed date unless otherwise required for reasonable cause, failing which the Ld. CIT(A) shall be at liberty to pass appropriate order as per law. The order of the Ld. CIT(A) is hereby set aside and the matter is restored back to the file of Ld. CIT(A) for de-novo adjudication on merits. We direct and order accordingly. The grounds raised by the assessee are therefore allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 02ND May, 2025. (R.K. Panda) VICE PRESIDENT पुणे / Pune; दिनांक / Dated : 02nd May, 2025. (Astha Chandra) JUDICIAL MEMBER रवि आदेश की प्रतिलिपि अग्रेषित /