ASSISTANT COMMISSIONER OF INCOME TAX(EXEMPTIONS), COIMBATORE vs. MAZDOOR WELFARE TRUST, TIRUVARUR

The brief facts of the case are that the assessee is a registered charitable trust, carrying on the activity of running of an Engineering college by the name Anjali Ammal Mahalingam Engineering College at Kovilvenni, Tiruvarur District, Tamilnadu. For the A.Y.2007-08 the assessee trust filed its return of income on 15.07.2008 admitting a total income of Rs.NIL. The case was selected for scrutiny and issued notice u/s.143(2) dated 19.01.2009 was issued to assessee. Further, the AO issued statutory notices and in response the assessee furnished the details called for and the assessment was completed by the AO on 03.12.2009. During the course of assessment proceedings for the A.Y. 2007-08, the assessee produced books of accounts and other details called for. The trust has filed an Auditor’s report in Form 10A as envisaged u/s.12A(b) of the Act was filed only on 11.11.2009.

Further, there were some disputes between the trustees and the southern Railway mazdoor union. The cases were filed before the courts with serious allegations on the trustees who had been managing the affairs of the trust alleging

Based on the above details, the audit report filed along with the notes to accounts, which qualified as follows: "As per the High Court Order dt. 29.4.2005, the college is run by a Managing Trustee appointed by the Court. The accounts of the Trust for the period 01.04.2004 to 28.5.2005 are under dispute and hence not completed till date. Therefore the financial for the period 2005-06 (from 29.5.05 to 31.3.06) has been prepared without considering the balances as on 28.05.05. Considering this, the financial statements for this period have been prepared based on the audited financial statements of previous year and also without considering the balances as on 28.5.05. The accounts of Balamurugan Hostel/Mess have not been considered for audit "

In view of the above, the AO in his order u/s.143(3) dated 03.12.2009, noted the following discrepancies and disallowed the exemption u/s.11 of the Act: “Though, the Managing Trustee, Hon'ble Justice A, Ramamoorthy has elaborated on the intended activities of the trust, the question

The AO assessed the income at MMR as detailed below: “For the reasons discussed, the trust is not allowed the exemption u/s. 11 for the previous year 2006-07 and the excess of income over expenditure is taxed at maximum marginal rate. The trust has filed the receipts and payments account. The receipts admitted are for Rs.8,15,93,035. From the payments claimed the capital expenditure for acquisition of assets and expenditure not allowable under the provisions of the Act are disallowed as follows. The assessment is completed as under: Gross receipts as per Receipts and Payments account Rs.8,15,93,035 Less: Payments claimed Rs.13,60,61,558 Less: 1. Fixed Deposits Rs. 5,55,00,000 2. Fees refund Rs. 24,000

Before the ld.CIT(A), the assessee submitted that after appointment of Managing Trustee by the Hon’ble High Court of Madras on 29.04.2005, the return of Income for the A.Y.2007- 08 was filed under the direction of the Apex court with all statements along with an audit report in form No 10B of the :-7-: ITA. No:515/Chny/2024 Act. Under the Circumstances of non-filing of return for A.Y.2005-06 & 2006-07 the assessment for 2007-08 was completed u/s.143(3), denied the exemption claimed u/s.11 of the Act and opinion that the possibility of the funds of the trust lying with modes of deposits Other than contemplated u/s.11(5) and misuse of funds by the concerned parties. Further the AO stated that the opening balances as on 29.05.2005 could not be certified by the auditors as to their accuracy and their true application during the blank period (2005-06 & 06-07) thereby not fulfilling the requirements of sec 12A(b) of the Act. It is submitted that the position of the trust after the direction of High court was changed and the income tax return for the blank periods being AY 2005-06 & 06-07 were filed along with an audit report u/s 10B. In this Connection it is submitted that previously the return for the AY 2005-06 & 06-07 were not filed due to dispute between the trustees and hence order u/s.144 of the Act was passed for both the years without allowing the exemption u/s 11 of the Act. This order was subsequently set- aside by ITAT Chennai bench by its order No.1314 & 1315 dt.09.09.2011 and directed the AO to re-do the assessment. Then the trust filed a return With Rs.NIL income for both years. The assessment was completed u/s.143(3) and allowed the :-8-: ITA. No:515/Chny/2024 exemption claimed u/s.11 of the Act but restricted some of the expenses claimed as application of fund. The appeal against the above order was allowed (for statistical purpose) on 05.02 2015 vide order in and 245/11-12 with a direction to allow all the expenses after verification. Now it is humbly submitted that the claim of exemption u/s.11 of the Act were allowed for the block period being A.Y. 2005-06 & 06-07, hence the opinion of the AO is incorrect with regards to application of the funds for the A Y 2007-08.

On perusal of the submissions made by the assessee before the ld.CIT(A), the appeal of the assessee was allowed by passing an order dated 21.12.2023 holding as under: “6.4 The reply of the appellant is considered. It is noted that the exemption for the AY 2005-06 and AY 2006-07 already stand allowed by the AO in the remanded assessment proceedings after the original assessment orders were set aside by the ITAT, Chennai by its order No.1314 & 1315 dated 09.09.2011. It is also noted that there has been no change in the object of the trust, and as confirmed by the appellant, the trust continues to run the college under the control of a court appointed administrator. 6.5 Under these circumstances, the very basis of denial of exemption, Viz. absence of accounts in respect of past period leading to suspicions about the opening balances as on 01.04.2006 is now gone. There is no justification for denial of exemption u/s 11 to the appellant in the A.Y. 2007-08 in the light of the settled position of the assessments for the A.Y. 2005-06 and A.Y. 2006- 07, after two rounds of litigation, and no change in facts for the impugned year vis-à-vis the earlier years. 6.6 In view of the above, I am of the considered view that the appellant is entitled for exemption u/s 11 of the Act during the impugned assessment year, and therefore the A.O. is directed to allow the same. Grounds of appeal no. 1 - 9 are hereby allowed.”

The ld.DR stated that the Ld.CIT(A) has erred in allowing exemption claimed by the assessee u/s.11 and 12 of the Act, which was denied on more than one ground, and deciding the appeal only on one ground viz. absence of accounts in respect of past period. Further, the ld.DR submitted that the Ld. CIT(A) has erred in allowing the exemption, when the audit report in Form 10B was not filed within stipulated time and failed to comply with the requirements of Section 12A(b). The ld.DR also submitted that the ld.CIT(A) has erred in not considering the fact that accounts submitted by the assessee for the AY 2007-08 were not full and complete without inclusion of the accounts of 'Balamurugan Hostel / Mess. The ld.CIT(A) failed to appreciate the fact that the AO had clearly stated ‘the receipts and payments account filed had many items relating to the hostel and mess including the receipt of Rs.28,14,710/- towards hostel fee collection and prayed for setting aside the order of the Ld.CIT(A) by upholding the order of the Assessing Officer.

We also note that the assessee has furnished the entire details of the hostel building rent of Rs.28,14,710/- along ledger extracts the ld.CIT(A), which has been referred to the AO for remand report and the AO has not given adverse remarks to ld.CIT(A) and hence ground of the revenue is devoid of merits. In the present facts and circumstances of the case, we are of the considered opinion that there is no need to interfere in the orders of the ld.CIT(A).

Further, we note that the ld.CIT(A) has allowed the exemption u/s.11 of the Act to the assessee, after perusal of the documents in relation to books of :-14-: ITA. No:515/Chny/2024 accounts, audit report, filing of return and assessment by the department, which were furnished by the assessee with reference to the earlier A.Ys.2005-06 & 2006-07. Since, there is no change in the activities of the trust and the assessee is continued to enjoy the exemption u/s.11 of the Act for the earlier A.Ys. 2005- 06 & 2006-07, we do not find any fault in the decision of allowing exemption u/s.11 of the act to the assessee by the ld.CIT(A) for the impugned A.Y. 2007-08 and hence we dismiss the grounds of the appeal raised by the revenue.

In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 27th November, 2024 at Chennai. Sd/- Sd/- (एस.आर.रघुनाथा) (मनु कुमार िग�र) (S. R. RAGHUNATHA) (MANU KUMAR GIRI) लेखा सद�/Accountant Member �ाियक सद�/Judicial Member चे�ई/Chennai, �दनांक/Dated, the 27th November, 2024 JPV आदेशकी�ितिलिपअ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3.आयकर आयु�/CIT– Coimbatore