RITIKA VEGETABLE OIL PRIVATE LIMITED,JAIPUR vs. ACIT CENTRAL CIRCLE, ALWAR

Further, notices u/s 142(1) was issued from time to time. In response to the above referred notice(s), assessee submitted the details which was examined on a test- check basis and placed on record by the ld. AO. Based on the information so received in the assessment proceedings it was noticed from the ledger account of Dharmada / Charity, that the assessee company has a credit balance of Rs. 21,94,939/- including collection during the year under consideration from the purchasers parties charged in the sales bills. The amount was collected for charity purposes but remained unutilized throughout the year. In the search proceeding statement of Shri Vijay Data u/s. 132(4) was recorded on 14.10.2015. He was asked vide Q.

No. 26 about the amount of Rs. 3,04,13,269.43/- shown in the 'Charity Ledger' in M/s. Vijay Solvex Limited on 31.03.2015 and the amount of Rs. 1,14,08,453.06/- shown in the 'Charity Ledger' in M/s. Deepak Vegpro Pvt. Ltd.. He replied that the companies of Data group charge ‘Chairty’ at the time of issuing the bills and this amount is deposited in ‘Charity’ ledger and when we feel suitable, this amount is used in charitable activities. During 03.10.2017, was specifically asked at point no. 30 to furnish complete details of Dharmada/ Charity charged by company on sale bills alongwith bank statement for last six years including year under consideration.

Assessee was also asked to furnish proof of utilization of Dharmada Account/charity fund for the year under consideration, alongwith copy of ledger of Dharmada. In this regard assessee was asked to show cause as to why the Dharmada fund may not be treated as art of sale and accordingly by the addition may not be made on this account. In response, the assessee vide his reply dated 11.12.2018 furnish only the ledger of Dharmada/Charity but not give any justification in respect of the amount remained unutilized throughout the year. The reply of the assessee was considered but not found tenable, as assessee has not furnished any justification that how the amount charged from buyer on the name of so called Charity/Dharmada does quality the requirements to justify it as Charity/Dharmada and it was considered as part of sales consideration.

During the year under consideration, the assessee has total credit balance of Rs. 21,94,939/- as dharmada out of which Rs. 16,22,841/- is collected during the year under consideration that the amount of so called dharmada was added back to the income of the assessee. preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

“5.2 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contention/submissions of the appellant are being discussed and decided as under:- (i) The Ld. AO has made addition of Rs. 16,22,841/- on account of dharmada/charity collected as part of sale. The Ld. AO has established that the companies of Data group have collected huge sum of Rs. 3,04,13,269.43 as dharmada over the years and nothing has been spent by it for any charitable purpose. As per assessment order the assessee has not furnished any justification regarding how the amount charged from buyer on name of so called Charity/Dharmada does qualify the requirements to justify it Charity/Dharmada. (ii) It is noticed in the assessment order that the assessee was specially asked to provide the details of the utilization/ application of the fund towards the objects for which it was collected from the customers. It was noted that the assessee has not spent this amount on charitable or religious purpose even in the earlier years but just accumulated the fund year by year in its books which shows that assessee was not intended to spent this receipts on charity at all. Secondly, assessee has not only accumulated the fund in its own hand but enjoyed interest earning also thereon year by year and the funds were put to use in the business as part of overall funds. (iii) The appellant has been collecting money from the customers in the name of charity but the appellant has not spent such money for several years. In the present case the appellant himself is collecting the charity funds and also himself is keeping the funds for expenditure on charitable purposes however the judgment cited by the appellant are different in the nature as in those cases the funds were handed over by the assesses to the charitable organizations. This issue has also been discussed by the Learned Assessing Officer in the assessment order. The appellant is silent and has not explained the issue in his appeal and has relied upon the judgments in support of his appeals whichindicates that the factual position is undisputed. The facts in the judgments relied upon by the appellant are different. As noted in the assessment order also in the judgments the collecting taxpayer who was collecting the Dharmada transferred the same to a separate registered trust and it was the legal obligation of the separate trust to fulfill the legal requirements and spend the money for charitable purposes.

Ritika Vegetable Oil Pvt. Ltd. vs. ACIT (iv) The search and seizure action took place on the appellant group on 14.10.2015 (F.Y. 2015-16) (A.Υ. 2016-17) wherein the issue of accumulation of fund by misusing the dharmada / charity structure was unearthed. During the appeal the appellant has furnished the details of expenditure, where it is claimed that Rs. 2,100 were paid in cash to a society in two parts during the F.Y. 2015-16. No evidence of the same has been furnished and further the payment is claimed in cash so it cannot be verified whether the payment was actually made by the appellant and whether it was made out of the accumulated dharmada / charity fund. Further no details have been furnished with respect to any payment of expenditure out of the said fund in the earlier period. The said small payment is an exception and not the normal. As per assessment order, for little payments if any no supporting for 80G registration of the payee institute/concern has been furnished. Therefore, a little payment out of this fund does not found sufficient to serve the claim of assessec. Any act of the appellant in showing utilisation out of such dharmada fund after the date of search and seizure action is a mere afterthought and a cover-up exercise and cannot justify the earlier conduct and at the same time the intentions of the appellant for the year under appeal are to be judged and inferred on the basis of conduct and transactions till the date of search and seizure action. (v) The present appeal on the ground is squarely covered by the judgement of Hon'ble Supreme Court in Commissioner of Income-tax v. Amritsar Transport Co. (P.) Ltd. [1993] 68 Taxman 56 (SC)/[1993] 201 ITR816 (SC)/[1993] 111 CTR 316 (SC)[31-03- 1993]. Hon'ble Supreme Court distinguished the case from earlier judgement in the case of CIT v. Bijli Cotton Mills (P.) Ltd. [1979] 116 ITR 60 (SC) on the ground that the revenue's case herein is that though collected in the name of Dharmada, e the amounts were neither meant for any charitable purpose nor were they spent on charitable purposes and held in favour of the Revenue.

(vi) The Id. AO has noted after detailed analysis that if the question is whether these receipts were voluntary donation the answer would be emphatically a big NO. The appellant has prime facie used the principles of trust and dharmada for the purposes of collecting money for his own benefit as the funds are being utilized in the business apparently and no separate funds bank accounts are maintained and even the interest income is being earned by the appellant on such funds, meaning thereby that the funds are not being utilized for the purposes for which these are being collected and the nomenclature of dharmada is just a façade and colourable device.

In view of the above discussion itself this ground of Appeal is liable to be dismissed. The same is discussed further in view of the examination of the provisions applicable to trusts. (vii) As stated in the assessment order assessee is not a Trust or Society registered under 12AA or 10(23C) of the I.T. Act thus assessee is not eligible to receive donation as exempt income. Assessee is a registered company under the Ritika Vegetable Oil Pvt. Ltd. vs. ACIT Companies Act under section 149 (3) and not under 25 of the companies act which pertains to registration of non-profit making company. Assessee is a private/public limited company which purely runs on commercial principles. Looking at the broader picture and facts of the case even if it can be said that the assessee himself has created an unregistered charitable trust within his organization, the appellant has not spent the money and it was required to keep those funds in modes specified under section 11. Even though such benefits areavailable to registered trusts, even then for the sake of examination the appellant has not fulfilled even such conditions. As per section 11 the trust is required to spend at least 85% of the voluntary contributions received during the year on charitable purposes. However the appellant has not done so. Further it is not the case of the appellant that he has obtained registration under section 12A/12AA. The appellant has also not complied with the legal provisions of trust and exemption provisions under section 11 and 12 regarding the registration of trust and regarding the application of the voluntary contribution and the investment of the unspent contribution. The appellant has prime facie used the principles of trust and dharmada for the purposes of collecting money for his own benefit as the funds are being utilized in the business apparently and no separate funds bank accounts are maintained and even the interest income is being earned by the appellant on such funds as noticed by the learned AO, meaning thereby that the funds are not being utilized for the purposes for which these are being collected and the nomenclature of dharmada is just a façade and colourable device. The appellant has also not shown that the trust is registered under the state government relevant laws and it is a settled law that in case the trust is not registered under the state government laws as applicable in that case the exemption under section 11 and 12 is not available. The exemption under section 11 and 12 is also not eligible to the appellant on account of misuse of the trust structure for non- chartiable/personal benefits. (viii) In view of the detailed discussion the appellant is not entitled to exemption benefit regarding the money collected as dharmada and thus not entitled to relief on this ground and the appeal of the appellant on this ground is dismissed.”

5. As the assessee did not find any favour, from the appeal so filed before the ld. CIT(A) the assessee has preferred the present appeal before this Tribunal on the single ground challenging the addition so sustained. To support the solitary ground so raised by the assessee, ld. AR of the sustained :

3. The Ld. CIT(A) at Para 5.2, Page 16-20 of the order observed that assessee has not spent the amount for charitable purpose but accumulated the funds in its books which shows that it is not intended to be spent on charity. Further assessee enjoyed interest earning on such fund and the funds were put to use in the business as part of overall funds. The facts of the judgement relied upon by the assessee are different. Any act of the appellant in showing utilization out of such fund after the date of search is a mere afterthought. He relied on the decision of Hon’ble Supreme Court in case of CIT Vs. Amritsar Transport Company Private Limited (1993) 201 ITR 816. Accordingly he confirmed the order of AO.

The Learned Counsel for the assessee has placed reliance on CIT vs. Bijli Cotton Mills (P.) Ltd. (1979) 116 ITR 60 (SC), which has settled the controversy. The Supreme Court in that case held that "dharmada" means anything given in charity for religious or charitable purposes. Among the trading and commercial community, payment for "dharmada" is regarded as a gift for charitable purposes. It was further held that when the customers or brokers paid the amounts to the respondent earmarking them for dharmada those payments were validly earmarked for charity. The assessee was under an obligation to spend them only for charitable purposes. Therefore, the amounts received as "dharmada" were not its trading receipts. It has been further held that the "dharmada" amount could not be regarded as a part of price or surcharge on the price of goods purchased by the customers. Even though the "dharmada" was collected through the sale bills and every purchaser had to pay "dharmada" if he had to purchase goods from the assessee, still it did not make the payment of "dharmada" involuntary inasmuch as it was out of his own volition that the purchaser purchased the goods from the assessee. Therefore, the amount of "dharmada" should not be held to be part of price, but a payment for specific purpose for being spent on charitable purpose. The Supreme Court went further to hold that even though the "dharmada" amount was of a compulsory nature and the assessee had discretion as regards the manner in which and the time when it should spend for charitable purposes, or even if the assessee did not keep the amounts in a separate bank account, the "dharmada" amount could not be held to be part of price. The assessee holds the amount in trust. The Supreme Court approved the cases of the Allahabad High Court in Thakur Das Shyam Sunday vs. Addl. CIT (1974) 93 ITR 27(All) (FB) and of the Punjab High Court in CIT vs. GheruLal Bal Chand (1978) 111 ITR 134(P&H) and followed its earlier authority in CIT vs. Tollygunge Club Ltd. (1977) 107 ITR 776 (SC) and confirmed the decision of the Allahabad High Court in Bijli Cotton Mills Ltd. vs. CIT (1970) 76 ITR 194(All) . The Punjab and Haryana High Court in Nathu Ram Shiv Narayan vs. CIT (1982) 134 ITR 625(P&H) , has held that the definition of charitable purpose in s. 2(15) of the Act was of a very wide amplitude. The donations made by the assessee did not involve any process or carrying on of any activity for profit. Therefore, the payments made to the Bank Employees' Union and backward classes were held to be for charitable purposes. In this view of the matter, we hold that the amount of Rs. 7,984 collected by the assessee as "dharmada" through its sale bills did not constitute, part of sale price and, as such, it is not taxable income of the assessee.

Court u/s 256(2) of the Act. Thus this decision nowhere states that dharmada is assessable as revenue receipt. As against this the Hon’ble Supreme Court in a three judges bench in case of M/s D.J. Malpani Vs. CCE (2019) 176 DTR 305 in an excise matter by relying on its decision in case of CIT Vs. Bijli Cotton Mills 116 ITR 60 at Para 18 & 23 of its order held as under:

“18. We find from the facts of the case before us that the receipts on account of Dharmada were voluntary, earmarked for charity and in fact credited as such. Though the payment as Dharmada has been found to be voluntary, it would make no difference to the true character and nature of the receipts even if there were found to be paid compulsorily because the purchaser, purchased the goods out of their own volition. The purchase of the goods is the occasion and not consideration for the Dharmada paid by the customer as held in Bijli Cotton Mills (supra) vide para 15: -

"15.. .... It is true that without payment of "Dharmada" amount the customer may not be able to purchase the goods from the assessee but that would not make the payment of "Dharmada" amount involuntary inasmuch as it is out of his own volition that he purchases yarn and cotton from the assessee. The "Dharmada" amount is, therefore, clearly not a part of the price, but a payment for the specific purpose of being spent on charitable purposes. . ..........

“23. In the circumstances we hold that when an amount is paid as Dharmada along with the sale price of goods, such payment is not made in consideration of the transfer of goods. Such payment is meant for charity and is received and held in trust by the seller. If such amounts are meant to be credited to charity and do not form part of the income of the assessee they cannot be included in the transaction value or assessable value of the goods.”

In view of above the addition made by AO and confirmed by Ld. CIT (A) be deleted.”

S. No. Particulars Pg No. 1 Copy of Balance Sheet 1 2 Copy of list of other creditors 2-3 3 Copy of Dharmada Account 4-7 4 Copy of invoice 8-9 5 Copy of audit report along with Balance Sheet & Profit & Loss account 10-31 for A.Y 2011-12

S. No. Particulars Pg No. 1. Copy of decision of Hon’ble Supreme Court in case of D.J. Malpani Vs. 1-8 CCE 176 DTR 305 dt. 09.04.2019 2. Copy of decision of Hon’ble Supreme Court in case of CIT Vs. Amritsar 9-11 Transport Company Private Limited (1993) 201 ITR 816 3. Copy of decision of Hon’ble Rajasthan High Court in case of Hari 12-14 Industries Vs. CIT (1985) 153 ITR 656

Ld. CIT(A) also considered the provision of section 11 & 12 of the Act and has dismissed the appeal of the assessee.

Before us it has been submitted that the assessee right from inception used to collect certain amount of dharmada from its customers on sale of mustard oil which is separately depicted in the bills. This amount is tax. From the charity ledger account placed on record it can be noted that the amount so collected has been utilized for charitable purpose in the subsequent year. Since this amount is earmarked for charity, it is not a part of sales consideration. The various observations made by AO & CIT(A) are incorrect on facts as assessee has spent such amount for charitable purpose. This issue is also covered by the decision of Hon’ble Rajasthan High Court in case of Hari Industries Vs. CIT (1985) 153 ITR 656 where it observed as under:-

The Learned Counsel for the assessee has placed reliance on CIT vs. Bijli Cotton Mills (P.) Ltd. (1979) 116 ITR 60 (SC), which has settled the controversy. The Supreme Court in that case held that "dharmada" means anything given in charity for religious or charitable purposes. Among the trading and commercial community, payment for "dharmada" is regarded as a gift for charitable purposes. It was further held that when the customers or brokers paid the amounts to the respondent earmarking them for dharmada those payments were validly earmarked for charity. The assessee was under an obligation to spend them only for charitable purposes. Therefore, the amounts received as "dharmada" were not its trading receipts. It has been further held that the "dharmada" amount could not be regarded as a part of price or surcharge on the price of goods purchased by the customers. Even though the "dharmada" was collected through the sale bills and every purchaser had to pay "dharmada" if he had to purchase goods from the assessee, still it did not make the payment of "dharmada" involuntary inasmuch as it was out of his own volition that the purchaser purchased the goods from the assessee. Therefore, the amount of "dharmada" should not be held to be part of price, but a payment for specific purpose for being spent on charitable purpose. The Supreme Court went further to hold that even though the "dharmada" amount was of a compulsory nature and the assessee had discretion as regards the manner in which and the time when it should spend for charitable purposes, or even if the assessee did not keep the amounts in a separate bank account, the "dharmada" amount could not be held to be part of price. The assessee holds the amount in trust. The Supreme Court approved the cases of the Allahabad High Court in Thakur Das Shyam Sunday vs. Addl. CIT (1974) 93 ITR 27(All) (FB) and of the Punjab High Court in CIT vs. GheruLal Bal Chand (1978) 111 ITR 134(P&H)

Ritika Vegetable Oil Pvt. Ltd. vs. ACIT and followed its earlier authority in CIT vs. Tollygunge Club Ltd. (1977) 107 ITR 776 (SC) and confirmed the decision of the Allahabad High Court in Bijli Cotton Mills Ltd. vs. CIT (1970) 76 ITR 194(All) . The Punjab and Haryana High Court in Nathu Ram Shiv Narayan vs. CIT (1982) 134 ITR 625(P&H) , has held that the definition of charitable purpose in s. 2(15) of the Act was of a very wide amplitude. The donations made by the assessee did not involve any process or carrying on of any activity for profit. Therefore, the payments made to the Bank Employees' Union and backward classes were held to be for charitable purposes. In this view of the matter, we hold that the amount of Rs. 7,984 collected by the assessee as "dharmada" through its sale bills did not constitute, part of sale price and, as such, it is not taxable income of the assessee. Before us, the ld. DR did not place on record any other binding precedent on the issue we respectfully follow the decision of our High Court. Not only that even after the amended provision of Act u/s. 145A of the Act while making the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation is not applicable to the present case. Considering the above facts and decision relied upon by the assessee we direct the ld. AO delete the addition of Rs. 16,22,840/- made in the hands of the assessee.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 17/10/2024. Sd/- Sd/- ¼Mk0 ,l- lhrky{eh½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 17/10/2024 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Ritika Vegetable Oil Pvt. Ltd., Jaipur izR;FkhZ@ The Respondent- ACIT, Central Circle, Alwar 2. 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr ¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File (ITA No. 495/JP/2024) 6. vkns'kkuqlkj@ By order,

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