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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 22/03/2010 passed by the learned Commissioner of Income-tax (Appeals)-XI, New Delhi, for assessment year 2002-03 raising following grounds: “
1. The appellant, Rajasthan Club is engaged in charitable activity during the Financial year 2001-02. The appellant is a regular Income Tax assessee and assessed to Income Tax for the last several years. All income, assets and investments are disclosed to Income Tax Department in regular Income Tax returns.
2. On the facts and in the circumstances of the case and in law the learned Assessing Officer and Commissioner of Income Tax (Appeal) was incorrect and unjustified in making a reference of the property in this case to the valuation officer without any reason basis and evidence.
3. On the facts and in the circumstances of the case and in law the learned Assessing Officer and Commissioner of Income Tax (Appeal) was incorrect and unjustified in adopting the value of the property under reference in this case at Rs. 13,93,400/- instead of value of the property of Rs.2,30,000/- for which the property was sold.
On the facts and in the circumstances of the case and in law the learned Assessing Officer and Commissioner of Income Tax (Appeal) erred in holding of denying the exemption u/s 11 without any reason basis and evidence. 5. On the facts and in the circumstances of the case and in law the learned Assessing Officer and Commissioner of Income Tax (Appeal) was incorrect and unjustified in assessing the assessee in the status of AOP. 6. On the facts and in the circumstances of the case and in law the learned Assessing Officer and Commissioner of Income Tax (Appeal) erred in holding the assessment only on the ground that the case was time barring and the Assessing Officer was left with no alternative but to the complete the assessment. 7. On the facts and in the circumstances of the case and in law the learned Assessing and Commissioner of Income Tax (Appeal) erred in holding the disallowance 20% of the total expenses of Rs. 3,44,614/- on estimate basis even though there is no case for any such disallowance. 8. On the facts and in the circumstances of the case and in law the learned Assessing Officer and Commissioner of Income Tax (Appeal) erred in holding that treating the income of Rs. 11,60,400/- on sale of flat whereas as a matter of fact, the assessee has not earned any such income. 9. On the facts and in the circumstances of the case and in law the learned Assessing Officer and Commissioner of Income Tax (Appeal) erred in holding the disallowance of Rs. 75000/- on account of seminar and conference without any reason basis and evidence. 10. On the facts and in the circumstances of the case and in law the learned Assessing Officer and Commissioner of Income Tax (Appeal) erred in holding that treating the amount of Rs. 1,55,000/- as income which was received on account of membership fees and which is exempt for tax. 11. On the facts and in the circumstances of the case and in law the learned Assessing Officer was incorrect and unjustified in issuing penalty notice and also in charging interest.”
The appeal of the assessee was dismissed for non-prosecution by the Tribunal in its order dated 17/06/2011 but subsequently on miscellaneous petition filed by the assessee, the order has been recalled by the Tribunal in its order dated 01/02/ 2016.
The facts in brief of the case are that the assessee society has been registered under section 12A of the Income-tax Act, 1961 (in short ‘the Act’). The assessee claimed its income as exempted under section 11 of the Act and filed its return of income on 05/09/2002, declaring nil income. The case was selected for scrutiny and the assessment under section 143(3) of the Act was completed on 30/03/2005 assessing the total income at Rs.13,97,084/- in the status of Association of Persons (AOP). Aggrieved, the assessee filed appeal before the learned Commissioner of Income-tax (Appeals), however, the appeal of the assessee was dismissed. Aggrieved, the assessee is in appeal before the Tribunal, raising the grounds as reproduced above. 4. The grounds number No. 1, 2 and 6 are general in nature and, therefore, not required to be adjudicated upon by us. 5. The grounds No. 3 and 8 of the appeal are regarding addition made of Rs.11,60,400/- on account of full value consideration enhanced by the Assessing Officer on sale of building on estimate basis. 5.1 The facts in respect of issue in dispute are that in the relevant financial year 2001-02, the assessee sold office premises at Flatted Factory Complex, Jhandewalan , New Delhi for a sum of Rs. 2,30,000/-, 1994-1995 for a consideration of Rs. 2,32,933/- and shown capital loss of Rs. 2,933/-, which was computed as under:
S.No. Particulars Amount (Rs.) 1. Full value consideration received and 2,30,000/- accrued 2. Less: Cost 2,32,933/- 3. Capital Gain/loss (-) 2,933/- 5.2 The Assessing Officer did not accept the sale consideration shown by assessee and estimated the full value of consideration at Rs.13,93,400/- and after reducing the cost of Rs. 2,30,000/- he computed the capital gain at Rs.11,60,400/-. Before the Assessing Officer, it was submitted on behalf of the assessee (i) that in financial year 1994-95 , the seller sold the flat to the assessee club and given the power of attorney in the name of Sh. Surender Sharma, son of late Sh. Bal Kishan Vaid, the then President of the assessee club (ii) that the said flat could not be transferred in the name of the assessee club because of prohibition of such transfer by the Directorate of Industries, and no other person was willing to take this flat, thus being no option to dispose of this flat , Sh Surender Sharma was requested to take possession of the flat. (iii) That in financial year 2001-02, the assessee club received Rs. 2, 30,000 from Sh. Surender Sharma and possession was handed over to him. 5.3 The Assessing Officer referred the property to the valuation cell under section 55A(b) of the Act for determining the fair market value as Assessing Officer the sale value was grossly undervalued. 5.4 Subsequently, it was submitted by the assessee that the flat was purchased by Sh. Ashish Sharma, son of Sh. Surender Sharma and payment of Rs.2,30,000/- was made out of his saving account and, therefore, Sh. Ashish Sharma was legal and de-facto owner of the flat. According to the Assessing Officer, the assessee did not produce relevant minute books and copy of a resolution passed in respect of sale of the flat and the change in the name of purchaser from Sh. Surender Sharma to Sh. Ashish Sharma was done to avoid invoking of provisions of section 13(3) of the Act which affects the exemption availed by the assessee club. 5.5 The Assessing Officer observed that vide notice under section 55A of the Act, issued by the Assistant Valuation Officer dated 24/03/2005 addressed to the assessee club, he had estimated an interim value of the flat sold by the assessee club at Rs.13,93,400/- and the final value was yet to come. On the basis of interim finding of the Asst. Valuation Officer, the Assessing Officer issued a final show cause notice wherein the assessee was asked, as why the estimated value of Rs.13,93,400/- be adopted instead of Rs.2,30,000/- declared by the club and as to why the provisions of section 13(3) not applied as the trust through this transaction had sold the property to an interested person and accordingly, why the exemption under section 11 of the Act be denied to the assessee. According to Assessing Officer, the assessee did not comply with the above notice, and thus, he computed the capital gain on the full value consideration at Rs.13,93,400/-. 5.6 On appeal, the learned Commissioner of Income-tax(Appeals) forwarded the submission of the assessee to the Assessing Officer for his comments under section 250(4) of the Act, but no report was Assessing Officer concerned. The Ld. Commissioner of Income-tax (Appeals) on the basis of the interim report of Assistant Valuation Officer upheld the addition with following findings: “2.6 I have observed that in this case reason best known to itself the appellant has not complied with any of the notices of the Deptt. i.e. from the side of the AO and also from the side of the Valuation Officer. The Deptt. has no authority to comply attendance of an assessee otherwise than due process of law. The record reveals that repeated opportunities were allowed both by the Deptt. and by the Valuation Cell but to no avail. If an appellant decides not to comply with the notice of the Deptt. either from the AO or from the Valuation Cell and if the valuation officer on the basis of his judgment gives a report (may be an interim report), there is no reasonable ground for appellant to contest the same. The appellant decided not to comply with the direction of the Deptt. at the assessment stage and to comply only at the appellate stage and to raise ground which was never raised before the A.O. The record reveals that before framing of the assessment order sufficient opportunities were adduced by the A.O. As the A.O. is not an expert on valuation matter, as per the provisions of the law the matter was referred to the competent authority for this purpose i.e. Valuation Officer and I find no discrepancy in the approach of the. AOLln view of constant refusal on port of the appellant, the interim report will be the final report and the AO has rightly estimated the property at Rs.13,93,400/- and added the difference of Rs.11,60,4000/- and his order does not require interference of any sort from this side.” 5.7 Before us, the learned Authorized Representative of the assessee submitted : (i) that the addition made was without jurisdiction as there is no provision in the Act to enhance the full value consideration. and what is chargeable under section 48 of the Act, is the full value of consideration received or accrued to the assessee, which was only Rs. 2,30,000 as evident from the confirmation given by the buyer Sh. Ashish Sharma as well as the statement of Sh. Dinesh Chandra Gupta, who was president of the assessee club, at the time of assessment proceeding; (ii) that expression “full value consideration” denotes actual consideration and not notional or deemed consideration, placing reliance on the judgment reported in 309 ITR 233 (Del) in the case of CIT versus Smt. Nilofer I. Singh and other decisions; (iii) that the interim valuation of the District Valuation Officer (DVO) cannot be said to be full value consideration received or accrued to the assessee; (iv) that the DVO’s Report, whether interim or final, cannot be made basis to enhance the full value consideration, placing reliance on 328 ITR 515 (Supreme Court) in the case of ACIT versus Dhariya construction company, 316 ITR 46(Del) in the case of CIT versus Shakuntala Devi and other decisions; (v) that no final report of DVO was submitted by the Assessing Officer in spite of the direction of the learned Commissioner of Income-tax (Appeals) in remand proceedings under section 250(4) of the Act; (vi) that the report of the Inspector also cannot be made basis for enhancing the full value consideration, relying on 215 taxmann 11 (Del) (Mag) in the case of CIT versus Delhi housing and finance Corporation and other decisions; (vii) that the section 50C of the Act was applicable from assessment year 2003-04 and not from the instant assessment year. 5.8. In view of the above submissions, the learned Authorized Representative prayed to delete the addition. 5.9 On the other hand, learned Senior Departmental Representative relied on the orders of the lower authorities. 5.10 We have heard the rival submissions and perused the relevant material on record. The undisputed fact in the case is that the addition of Rs.11,60,400/- has been made keeping in view the full value of consideration of Rs.13,93,400/-, estimated on the basis of the interim report of the Assistant District Valuation Officer . We find that in the case of CIT versus Smt. Nilofer (supra), it has been held as under:
“7. These decisions make it more than clear that the expression “full value of consideration” that is used in s. 48 of the present Act does not have any reference to the market value but only to the consideration referred to in the sale deeds as the sale price of the assets which have been transferred.”
5.11 In view of the above precedent, we find that the value of the consideration declared by the assessee as full value consideration received in accrued cannot be substituted by the value estimated by the DVO. The assessee has submitted necessary evidence in the form of confirmation from the buyer as well as confirmation from the authorities of the assessee club. The relevant finding mentioned in the assessment order, is reproduced as under:
On 29.03.2005, Sh. B.S. Jindal, C.A. attended and filed a letter signed by him and contents of which were confirmed by Sh. Ashish Sharma s/o- Sh. Surender Sharma by putting his signatures on the same. This letter in para 1 stated as under: “Shri Ashish Sharma has purchased the property at B-27 Flatted Factory Complex New Delhi from Rajasthan Club for Rs.230000/- and amount was paid by cheques no. 985356 out of my saving account no. 17908 with The Bank of Rajasthan Club Ext. Counter, PM Hospital Delhi. Hence Shri Ashish Sharma is legal and de facto owner.
5.12 We also observed that no other material or evidence was found from the assessee, which could lead to prove that value received by the assessee was higher than what is declared in the return of income. Thus Assessing Officer and sustained by the learned Commissioner of Income-tax (Appeals) on the issue in dispute. Since the addition has already been directed to be deleted on the first proposition of the assessee, we are not discussing the other proposition of the assessee on the issue in dispute. The grounds no. 3 & 8 of the appeal are accordingly allowed.
The ground Nos. 4 and 5 are related to denial of exemption under section 11 of the Act and the assessment in the status of AOP. According to the Assessing Officer, the flat sold to Sh. Surinder Sharma, who was the President of the assessee club at the time of sale and, therefore, provisions of section 13 of the Act were applied in the case of the assessee as the transaction of sale of the property was to an interested person. The learned Commissioner of Income-tax (Appeals), concurred with the finding of the Assessing Officer and upheld the denial of exemption and assessment in the status of AOP. 6.1 Before us, the learned Authorized Representative of the assessee submitted that Revenue has not discharged its burden to establish that the transaction of sale of property was less than the adequate value and the addition of Rs.11,60,400/- itself was not tenable, thus , the denial of exemption was not valid. The learned Authorized Representative further submitted that the flat was transferred to Sh. Ashish Sharma , through Sh. Surender Sharma because of compelling circumstances of prohibition of transfer by the Delhi government and the assessee was having no option other than to dispose off the said flat. On the other hand, the Ld. senior departmental representative relied on the finding of the lower authorities. 6.2 We have heard the rival submissions and perused the material on record. The Assessing Officer has withdrawn the exemption on the 3 of Section 13 and thus violated the provisions of section 13 of the Act. According to section 13(1)(c) of the Act the provisions of section 11 of the Act are not applied, in case any income or property of the trust for charitable purpose is applied directly or indirectly for the benefit of the persons, whose list is mentioned in subsection 3 of section 13 of the Act. The list of such persons is reproduced as under:
3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :— (a) the author of the trust or the founder of the institution; (b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest.
6.3 Further, the provisions of section 11 are also not applied wherein there is a violation of section13(2)(f) of the Act. The relevant section is reproduced as under:
“Section 13(2)…………….. a…………………………… b…………………………… c………………………….… d……………………..…….. e………………………..….. f. If any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section(3) during the previous year for consideration which is less than adequate; g………… h…………..” 6.4 In the case of the assessee the fact that property has been sold to the then President of the assessee club or his son is undisputed. The only issue whether the consideration on which it is transferred was adequate or not, in terms of the provisions of section 13(2)(f) of the Act . While deciding the ground Nos. 3 and 8 of the appeal, we have already held that there are no other materials or evidence which could establish that the property has been transferred at a value more than what is recorded in the return of income. We have already referred to the compelling circumstances shown by the assessee under which the property was transferred to Sh. Surender Sharma or his son. We have observed that though the property was purchased by the assessee, but it could not be registered in the name of the assessee and the seller gave a power-of-attorney in the name of Sh. Surender Sharma. Moreover, the Government of Delhi also refused to transfer the property in the name of the assessee, because, the property was restricted for specific use of factory and not for the office. In view of the restriction on the use of the property and lack of title in the favour of the assessee, the assessee was compelled to transfer the property to Sh. Surender Sharma in absence of any buyer as stated by Sh. Dinesh Chand Gupta, President of the club at the time of assessment proceeding. In his statement recorded on 18/02/2005 under section 131 of the Act, he stated the facts and circumstances under which the property was sold to Sh. Surender Sharma and justified that the property was sold at market value.
Relevant part of the statement has already been reproduced by the Assessing Officer in the assessment order . In view of above circumstances, we find that there is no violation of provisions of section 13(2) (f) of the Act in the case of the assessee and accordingly the benefit of exemption under section 11 of the Act cannot be withdrawn. Thus the actions of the Assessing Officer in assessing the assessee club as AOP and withdrawing of exemption are held as incorrect and not according to the law. The grounds No. 4 & 5 of the appeal are accordingly allowed.
In ground No. 7, the assessee challenged the disallowance of Rs.3,44,614/- @ 20%, out of expenditure incurred of Rs.17,23,075/- under the head cultural and sports expenses. The Assessing Officer observed that the assessee had incurred following expenses totaling to Rs.17,23,075/-:
Mehandi Rache Hath 9,63,638 2. Sharad Purnima Programme 1,14,330 3. Play 7,858 4. Gazal Sandhya 1,05,067 5. New Year Programme 1,74,806 6. Holi Mangal Milan 1,77,655 7. Cricket Match 53,076 8. Founder’s Day 1,13,645 9. Cricket Match’2001 13,000 Total 17,23,075
The Assessing Officer noted that above expenses were unverifiable and the requisite vouchers and books of accounts were not produced before the Assessing Officer, therefore, he allowed 20% of the total expenses, which worked out to Rs.3,44,614/-. The learned Commissioner of Income-tax( Appeals) also upheld the disallowance.
8.1 Before us, the learned Authorized Representative of the assessee referred to para 1 of the assessment order and submitted that books of accounts were produced before the Assessing Officer and same were examined on the test check basis. He also submitted that the Assessing Officer has not pointed out any specific expenses, vouchers corresponding to which, were not produced and he made disallowance in ad-hoc manner without pointing out any specific faults in the vouchers or the books of accounts of the assessee. In support, thereof, the learned Authorized Representative relied on the following decisions: 1. 76 ITR 690(SC) state of Orissa versus maharaja Sh. BP Singh Deo. 2. 60 ITR 239 (SC) state of Kerala versus C Velukutty 3. 288 ITR 10 (SC), Kachwala Gems versus CIT 8.2 On the other hand, the learned Sr. Departmental Representative, relied on the order of the lower authorities. 8.3 We have heard the rival submissions and perused the material on record. We find that the Assessing Officer has not pointed out any specific vouchers or bill in respect of the expenses which were not found with assessee or not produced before him and he has made disallowance purely on ad hoc manner, which is not permitted by law. In the case of state of Orissa Vs. Maharaja’s BP Singh Deo (supra), the Hon’ble Supreme Court has held that even in case of best judgment, the Assessing Officer does not have an arbitrary power and the assessment must be based on some relevant material. In the case of Kachwala Gems (supra), also the Hon’ble Supreme Court has held that while making best judgment assessment, the authorities concerned should try to make an honest and fair estimate of the income and should not make the addition of arbitrarily. We find that in the case of the assessee also the disallowance has been made in ad hoc manner without any justified reasons, therefore the disallowance made by the Assessing Officer and Commissioner of Income-tax (Appeals) is deleted. The ground No. 7 of the appeal is accordingly allowed. 8.4 In ground No. 9 of the appeal, the assessee challenged disallowance of Rs.75,000/- out of the expenses of Rs.2,32,946/- on account of annual general meetings and members meeting. The Assessing Officer noted that those expenses are unverifiable and in the nature of personal nature, and therefore he disallowed the expenses of Rs.75,000 out of Rs.2,32,946/- claimed by the assessee. The learned Commissioner of Income-tax (Appeals) upheld the disallowance. 8.5 Before us, the learned Authorized Representative submitted that disallowance was without any basis and not permissible in law in view of the judgments referred in case of ground No. 7 of the appeal. 8.6 The learned Sr. Departmental Representative, on the other hand, relied on the finding of the lower authorities. 8.7 We have heard the rival submissions and perused the relevant material on record. We find that the Assessing Officer has not pointed out any specific defects either in the vouchers or bills or in books of accounts in respect of the expenses claimed by the assessee. The Assessing Officer has not also given any reasoning how the part of expenses were personal in nature. In view of above, the disallowance made by the Assessing Officer in ad-hoc manner cannot be sustained. Following our findings, in case of ground No. 7 of the appeal, we hold that disallowance of expenses in arbitrary manner cannot be allowed, and thus same is deleted. The ground No. 9 of the appeal is accordingly allowed.
In ground No. 10, the assessee has challenged addition of Rs. 1,55,000/- on account of membership fees. Since the Assessing Officer, held the status of the assessee AOP and withdrawn the exemption, he added the membership fee amount of Rs.1,55,000/- received by the assessee during the year as income of the assessee and added the same to the total income of the assessee. The learned Commissioner of Income Tax (Appeals) upheld the action of the Assessing Officer. 9.1 Before us, the learned Authorized Representative of the assessee submitted that there was no valid legal justification for making addition of membership fee as same was exempt from tax in view of the following judgments: 1. 138 DTR 145 (Bom) CIT Vs. Shree Parleshwar Cooperative Housing Society Ltd. 2. 209 ITR 396 (Bom) Trustees of Sh. Kot Hindu Stree Mandal Vs. Commissioner of Income Tax 9.2 On the other hand, the learned Sr. Departmental Representative relied on the authorities below and submitted that the order of the learned Commissioner of Income-tax (Appeals) might be upheld on the issue in dispute. 9.3 We have heard the rival submissions and perused the relevant material on record. In the case of the assessee, in ground No. 4 & 5, we have already allowed the exemption granted to the assessee under the provisions of section 11 of the Act. In the case of Trustees of Sri Kot Hindu Stree Mandal (supra), the assessee, who was eligible for exemption under section 11 of the Act subject to the conditions, specified therein, the Hon’ble High Court held as under:
“7. We accept the above referred submission of learned counsel for the assessee. We accordingly hold that the membership and subscription amounts received by the applicant-trust/society from its members cannot be characterized as "voluntary contribution" within the meaning of the said expression under section 12 of the Income- tax Act, 1961. The entire income of the trust is exempted under section 11 of the Income-tax Act, 1961. In our opinion, the Tribunal was not justified in treating the receipt of subscription amounts from the members as voluntary contribution or a donation.”
9.4 In view of the above, the addition made towards membership fee is deleted. The ground of the appeal is accordingly allowed. 10. The ground No. 11 of the appeal is in respect of issuing penalty notice and charging interest, which being either premature or consequential in nature, and therefore not required to be adjudicated upon by us. 11. In the result, appeal of the assessee is allowed. The decision is pronounced in the open court on 19th October, 2016.