NAVODAYA KANNADA SEVA SANGHA,MUMBAI vs ASST DIT (E) II(2), MUMBAI

Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

Before: SHRI JOGINDER SINGH & SHRI RAMIT KOCHAR

For Appellant: Shri. Ashwin S. Chhag

Assessee by: Shri. Ashwin S. Chhag Revenue by : Shri. T.A Khan(DR) सुनवाई की तारीख /Date of Hearing : 21-02-2018 घोषणा की तारीख /Date of Pronouncement : 27 -03-2018 आदेश / O R D E R

PER RAMIT KOCHAR, Accountant Member

This appeal, filed by the assessee, being 2011-12 is directed against the appellate order dated 09.11.2015 passed by learned Commissioner of Income-tax (Appeals)-1, Mumbai (hereinafter called “the CIT(A)”) for assessment year 2011-12, appellate proceedings had arisen before learned CIT(A) from the assessment order dated 31.01.2014 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”).

The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:- “The following grounds are without prejudice to each other. On the facts and on the circumstances of the case -

1. The Hon. Commissioner of Income Tax (Appeals) Mumbai -1, has erred in sustaining the additions of Rs. 51,50,000/- made by the ld. Assessing officers, on account of alleged non-application of funds accumulated u/s 11(2).

2. The Hon. Commissioner of Income Tax (Appeals) Mumbai-3, has erred in disregarding the payments of Rs. 1,00,00,000/- made by the appellant of the builder and considering the same as application of funds accumulated u/s 11(2) of the Act. 3. The Hon. Commissioner of Income Tax (Appeals) Mumbai-1 has erred in uphelding the Ld. Assessing Officer's finding that the payments were made to the builder only after 31/03/2011, when the assesses had provided sufficient documentary evidence to prove to the contrary,and the action of the assesses has been held to be invalid. 4. The appellant craves leave to add to, alter, vary, amend or delete any or all of the above grounds of appeal.”

The brief facts of the case are that the assessee trust is registered u/s. 12A of the Act and also the assessee is registered with Charity Commissioner, Mumbai. The assessee was asked by the AO to give details of the accumulations within provision of section 11(2) of the Act for the last 10 years and assessee submitted the details as under:-

The AO observed from the receipt of payment as well from the bank statement that the assessee has paid this amount of Rs. 1 crore to the builder in the form of Demand Draft which has been debited in the assessee bank account on 30.03.2011. The AO was of view that the assessee should have made the payment by way of cheque instead of Demand Draft. The assessee replied that it is the assessee’s discretion to make payment by demand draft. The AO observed that the assessee has got the debit to his account instantly by getting the demand draft issued from his bank before 31-03-2011 which as per AO lead to conclusion that the amount was not utilised before 31-03-2011. The AO issued notices u/s. 133(6) dated 20.01.2014 to the builder which was duly served . The builder was asked to submit the details of the transaction made with the assessee during the FY 2010-11 and to produce certain documents to substantiate the transaction with the assessee . In response to the notice u/s. 133(6) , the builder submitted reply dated 24.11.2014, as under:- “M/s. Deal Well Developers have entered into the agreement with M/s. Navodaya Kannada Seva Sangh in the FY 2011-12(AY 2012-13). No transaction took place in the FY 10-11(AY 11-12). The booked amount was received in the FY 2011-12(AY 12-13).

The builder also submitted its bank statement highlighting the receipt of payment from the assessee which shows that the payment is credited in the builders bank accounts on 08.08.2011 only i.e. during the FY 2011-12(AY 2012-13). The AO was of the view that the builder has received payment in the month of August 2011 only, with proves that no work was done by the builder up to the end of the March 2011, and it was merely advance paid for booking. The builder also confirmed to inspector of the department that the school building construction work started in December 2013. Thus, the AO was of the view that the assessee has not utilised the amount till 31-03-2011 which has to be assessed as income of the assessee, which led the AO to issue show cause notice to the assessee and the assessee replied to SCN as under:- “This has reference to your show cause notice dated 24.01.2014 issued to the above assessee with regard to the accumulation of Rs. 51.50.000/- during the F. Y. 2005-06 which must have been spent by tile end of 31.03.2011. This is to bring to your kind attention that the assessee has already spent Rs. 1,18,02,699/- during the financial year ending 2010-2011 as depicted in the accounts and also claimed as application of income. Now, with regard to the payment of Rs. 1,00,00,000/- made to M/s. Deal Well Developers, we have already given a note on the above dated 09.10.2013. However, here again we reiterate as under:

1. 1. Payment is made to M/s. Deal Well Developers as per Memorandum of Understanding signed between them , copy of which is already given for your record.

2. Clause no. 5(a) Page no. 4 of the MOU mentioned above clearly indicates the necessity of advance payment of Rs. 2 crores before signing the present MOU of the premises against which first instalment of Rs. 1 crores was paid.

3. Payment is made by Demand Draft by the assessee to the builder which was been debited to Bank Account of the assessee on or before 31.03.2011. Copy of the bank account has already been submitted to you for your reference.

Builder has issued receipts in the month of April 2011, after the drafts were cleared by the bank. Receipts of the builder has also been submitted by us for your record.

Since the bank has already debited the payments to our bank account on or before 31.03.2011 the amount is deemed to have been applied during the year as the money has gone out of the account.

6. Assessee has made payments by drafts to the builder by the end of March 2011 and the said drafts were cleared in the first of April 2011. Thereof, builder has recorded the receipts in April 2011 upon clearance of the drafts in his books which falls in FY 2011-12.

7. In view of the above explanations we request you treat the utilization of Rs. 1,18,07,699/- during the FY 2010-11, as having been spent by the assessee during FY 2010-11 as the money has actually gone out of the bank account of the assessee and therefore, it should be treated as utilized for the purpose.

8. Moreover, assessee is a charitable institution running an academic school, a charitable activity brightening the lives of thousands of students and therefore, we appeal to your goodselves to be reasonable and considerate with regard to the assessee favourably.”

The AO rejected the contention of the assessee as merely debiting the amount in the bank statement is not an application of the income. The AO doubted the intention of the assessee in getting the amount debited to his bank account before 31-03-2011 to get benefit of application of income . The AO observed that the amount was credited in the builder’s account on 08.08.2011 only while the receipt was issued by the builder in the month of April 2011. It was observed by the AO that the builder has also confirmed that no transaction took place with the assessee in FY 2010-11 as substantiated by bank statement of the Builder. The assessee on the other hand submitted that the draft got cleared by the builder in the month of April 2011 . It was observed by the AO then in that fact situation also benefit of application of income cannot be allowed to the assessee. Thus it was held by the AO that amount of Rs. 51,50,000/- which was accumulated during the AY 2005-06 and not utilised within the stipulated period is to be added to the income of the assessee vide assessment order dated 31.01.2014 passed by the AO u/s 143(3) of the 1961 Act .

4. The assessee filed an appeal before the learned CIT-A which was also dismissed by learned CIT-A vide orders dated 09-11-2015.

5. Aggrieved by the appellate orders dated 09-11-2015 passed by learned CIT(A), the assessee has come in an appeal before the tribunal .

The Ld. Counsel for the assessee submitted that dispute is with regard to application of money u/s. 11(2) within 5 years of accumulation u/s. 11 of the Act. The assessee has made the payment of Rs. 1 crore by Demand Draft which was debited to the assessee bank account on 30.03.2011 and the payment was made to the builder M/s. Deal-Well Developers. The assessee has produced its bank statement wherein the said amount was debited on 30-03-2011 as well as the receipt dated 05.04.2011 issued by the builder before the AO . The main bone of contention of the AO is that the assessee has paid the amount by Demand Draft instead of making the payment by way of cheque and receipts were issued by the builder on 05.04.2011 while MOU was signed in the month of October 2011 while the demand draft as per the AO were encashed in the month of August 2011 by the builder. It was submitted that the amount was paid towards the booking by way of advance for purchasing premises for school building in 3 floors and terrace in a building constructed by the builder in Thane, Mumbai. It was submitted that the this building to be built by the Builder Deep-well was adjacent to the school already run by the assessee and was a viable proposal for the assessee to expand its school keeping in view increased demand from students in the vicinity. It was submitted that Demand Draft were honoured and duly cleared and they got credited in the builders account in the month of April 2011 itself although the AO is stating that the said demand drafts got credited in builder account in August 2011. It was submitted that ultimately in 2016 , the three floor along with terrace were given to the assessee by the builder Deal Well Developers. The assessee also produced its audited account which is placed in paper book to show that advances were paid towards school premises as is appearing in the assessee audited books of accounts of Rs. 1 crore. The Ld. DR on the other hand relied upon the order of the authorities below and also submitted that notices u/s. 133(6) were issued to the builder and inspector was deputed to visit the builder. It was submitted that builder had confirmed that during financial year 2010- 11 , no payment was received from the assessee by the Builder while it is only in the financial year 2011-12 , the builder received this payment. The Ld. AR on the other hand submitted that the findings of the AO with respect to the notice issued u/s. 133(6) as well deputation of the inspector and his reports were not brought to the notice of the assessee otherwise the assessee would have cross examined the said builder . It was submitted that the validity of Demand Draft is for a period of 6 months during the relevant period under consideration and its encashment is to be considered related back to the date of the issue of demand draft. It was submitted that provisions of Section 11(2) are benevolent provisions and are to be construed liberally. The assessee also relied upon the decision of Hon’ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT reported in (1992) 196 ITR 188(SC)

We have considered rival contentions and perused the material on record . The assessee trust is registered u/s. 12A of the 1961 Act and also registered with Charity Commissioner, Mumbai . The whole controversy revolves around the utilization of the accumulated funds within a period of 5 years from the date of accumulation as provided u/s. 11(2) of the Act. The details of the accumulation done by the assessee are as under:-

Assessment Amount Amount Purpose of Purpose of Balance Amt accumulated utilization Unutilized year of utilized till Accumulation accumulation end of Yr under assessment 2001-02 NIL - Construction/Repairs - 1700000 of Bldg. 2002-03 Nil - Construction/Repairs - 1700000 of Bldg. 2003-04 2800000 Nil Construction/Repairs - 4500000 of Bldg. And addition to fixed assets 2004-05 5200000 2500000 Construction/Repairs Building & 7200000 of Bldg. And addition Fixed Assets to fixed assets 2005-06 5150000 2000000 Construction/Repairs Building & 10350000 of Bldg. And addition Fixed Assets to fixed assets 2006-07 2300000 400000 Construction/Repairs Building & 12250000 of Bldg. And addition Fixed Assets to fixed assets 2007-08 2300000 140000 Construction/Repairs Building & 14410000 of Bldg. And addition Fixed Assets to fixed assets 2008-09 2600000 430000 Construction/Repairs Building & 16580000 of Bldg. and addition Fixed Assets to fixed assets 2009-10 NIL 840000 Construction/Repairs Building & 15740000 of Bldg. And addition Fixed Assets to fixed assets 2010-11 NIL NIL NA NA 15740000 2011-12 2715000 1,18,02,699 Construction/Repairs Building & 6652301 of Bldg. And addition Fixed Assets to fixed assets The assessee had contended that it had given drafts of Rs. 1 crore consisting of four drafts of Rs. 25,00,000/- each to the builder M/s. Deal-Well Developers for acquiring three floors and open terrace in a commercial building to be constructed by the said builder to be used for running school in Thane , which building to be constructed was adjacent to the existing school run by the assessee and was considered most viable by the assessee to expand its educational activities by enrolling more students keeping in view increased demand from students . The assessee has produced bank statement to evidence that the amount was debited to the tune Rs. 1 crore in its bank statement on 30.03.2011 for issuance of drafts in favour of the builder Deal-Well Developers . The assessee also produced receipts issued by the said builder dated 05.04.2011 to evidence that three floors along with open terrace were booked and advance were paid towards booking amount for purchasing three floors and open terrace in a building to be constructed by the said builder in Thane. The assessee entered into MOU in October 2011 with the said builder. The said builder has confirmed that he received the payment in FY 2011-12 and entered into transaction with the assessee in FY 2011-12. There is some dispute between both the parties as to the clearance of demand draft while the AO is contending that the drafts got cleared by the builder in the month of August 2011, while the assessee is contending that the said draft got cleared in builder bank account in April 2011. But this is undisputed that the drafts were made by the assessee on 30.03.2011 by debit to its bank account on 30-03-2011 and the builder has issued receipt on 05.04.2011. The AO has not brought on record any evidence/material to prove that the said receipt dated 05.04.2011 were bogus/non-genuine. The enquiry conducted by the AO u/s. 133(6) as well as report of the inspector deputed to conduct field enquiries were not made available to the assessee and no cross examination was allowed to the assessee of the builder or of the inspector who conducted enquiries. It is not uncommon in the city of Mumbai which is facing acute shortage of properties/spaces for the persons to book/block the spaces before they are being bought by others. The assessee found it viable to book the space in the building consisting of three floor and open terrace which building is adjacent to the assessee’s existing school and was found to be most suitable by the assessee for expanding its existing school keeping in view increased demand from the students in the area. The builder had issued the receipt on 05.04.2011 confirming the booking of the space while the MOU was entered in the month of October 2011. It is also not uncommon that the acquisition of property entails certain lengthy formalities and the persons rush to block the space/property before it is booked by others . It is not the case of the revenue that these demand drafts were subsequently cancelled at the behest of the assessee and also it is also not the case of the Revenue that the said commercial space was ultimately cancelled by the assessee and in fact the assessee got the possession of the said premises in the year 2016. Under these circumstances bona-fide of the assessee could not be doubted and more so there is no incriminating material on record to prove/show that said drafts were cancelled later on or the said booking was cancelled. The Ld. Counsel for the assessee on the other hand made statement before the bench that the assessee got the premises in 2016 after building was completed by M/s. Deal-Well Developers. The contentions of Revenue that since construction of the building did not started before 2013 and hence the said payment cannot be allowed as application of accumulated funds can also not be accepted and is a fallacious argument as the spaces / flats/floors in commercial/residential building has two elements namely building as well proportionate land underneath the said space/floors/flats. The purchaser has to pay for not only the constructed area but also towards the proportionate land underneath said flats/floor/space. In the aforesaid circumstances we are inclined to accept the contentions of the assessee based on the material on record and the appeal of the assessee stood allowed and the benefit of an application of the income be allowed to the assessee. We order accordingly.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 27.03.2018 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 27.03.2018 को की गई । Sd/- Sd/- (JOGINDER SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, dated: 27.03.2018 Nishant Verma Sr. Private Secretary copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench 6. Master File

NAVODAYA KANNADA SEVA SANGHA,MUMBAI vs. ASST DIT (E) II(2), MUMBAI