M/S. SHIVANI EDUCATIONAL & CHARITABLE TRUST,CUTTACK vs ACIT, CUTTACK

Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK

Before: SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM

Hearing: 11/07/2017Pronounced: 13/07/2017

Per Shri Pavan Kumar Gadale, JM: The assessee has filed an appeal against the order of CIT(A), Cuttack, passed in ITA No.0241/2013-14, dated 29.1.2015, u/s.143(3) of the Income Tax Act.

The assessee has raised substantial grounds where the CIT(A) was not justified in treating the loan of Rs.80,06,821/- given to Shivani Educare Pvt. Ltd. as violation of Section 13(1) of the Act and the CIT(A) has erred in sustaining the addition of unsecured loan Rs.19,00,000/- provided to Annapurna Memorial Charitable Trust, though the trust was registered under Section 12AA of the Act.

The brief facts of the case are that the assessee is a charitable trust, registered under Section 12AA of the I.T.Act and the main object of the assessee trust is to impart technical knowledge in various fields of establishing educational institutions and filed the Return of income for the A.Y.2010-2011 on 30.9.2010 with total loss of Rs.1,40,96,680/- and the 2 return of income was processed u/s.143(1) of the Act on 20.5.2011. Subsequently, the case was selected for scrutiny under CASS and the notices u/s.143(2) and 142(1) of the Act were issued. In compliance to the same, the ld. AR of the assessee appeared from time to time and explained the working operations and submitted various details and financial statements, referred at page 2 of the assessment order. The ld. AO observed that unsecured loan of Rs.19,00,000/- was provided by the assessee trust to Annapurna Memorial Charitable Trust and dealt on the provisions of Section 11(5) of the Act and held that the assessee trust has violated the provisions of Section 11(5) of the Act as it has provided unsecured loans to another trust. Similarly, the assessee has advanced loan of Rs.80,06,821/- to Shivani Educare Private Ltd. and produced the ledger copy of Shivani Educare Charitable Trust in the books of accounts. Ld. AO observed that as per annual report of the Shivani Educare Pvt. Ltd., 71.4% of the shareholding of the company was held by trustees of the assessee company. The ld. AO dealt on the various aspects and provisions of Section 13(1) and the judicial decisions and finally assessed the total income of Rs.3,61,21,975/- and passed the order u/s.143(3) dated 15.3.2013. 4. Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A). Ld. CIT(A) considering the fact that the assessee trust has advanced money to its two parties and dealt on the findings of AO on these two transactions and observed at page 3 and dismissed the assessee’s appeal as under :-

3 The appellant trust had given unsecured loan of Rs.19,00,000/- to another charitable trust namely M/s. Annapurna Memorial Charitable Trust which is registered U/S.12A of the Act. The Hon'ble ITAT Cuttack opined that if 'Annapurna Memorial Charitable Trust' is registered as a charitable trust U/S.12AA of the Act the advance of unsecured loan could not be treated as violation u/s.ll(5) of the Act. This is because the interest-free unsecured loan would not be an investment of the assessee in 'Annapurna Memorial Charitable Trust'. The appellant had given an advance of Rs.80,06,821/- to M/s.Shivani Educare Pvt. Ltd. during the year. The AO found that the trustees of the appellant trust hold substantial shares in the company M/s.Shivani Educare Pvt. Ltd. The appellant submitted that M/s Shivani Educare Pvt. Ltd. provides hostel facilities to its students and therefore this advance has been given. The Hon'ble ITAT, Cuttack while deciding restoration of registration U/S.12A of the Act to the appellant observed that it is to be verified as to whether M/s.Shivani Educare Pvt. Ltd. has used the funds provided by the assessee for putting up hostel for the students studying in the education institution run by the assessee's -trust and to verify as to whether the hostel facility is being provided to the assessee or the students of the assessee's education institution at less than the market rate for such hostel facility. From the details submitted by the appellant during appeal hearing it is evident that the appellant trust has charged an amount of Rs.12,000/- per annum from the students as boarding charges for the Kapilash Hostel for the financial year 2009-10. The Kapilash Hostel is owned by M/s.Shivani Educare Pvt. Ltd. From the same it is obvious that the Kapilash Hostel was already built or owned by M/s.Shivani Educare Pvt. Ltd. and the funds provided by the assessee to M/s.Shivani Educare Pvt. Ltd. were not used by it for putting up of the hostel for the students studying in the educational institution run by the assessee-trust. So the first test prescribed by the Hon'ble ITAT, Cuttack is not applicable to the issue. Secondly the appellant stated that it had charged an amount of Rs.12,000/- per annum from the students as boarding charges for the Kapilash Hostel for the impugned year. The appellant did not provide the details of what has been paid by it to M/s.Shivani Educare Pvt. Ltd. on such arrangement and whether the payment to M/s.Shivani Educare Pvt. Ltd. by the appellant trust is less than the market rates. The trustees of the appellant hold substantial shares in the private company as M/s.Shivani Educare Pvt. Ltd. Under the circumstances and also because of the fact that both the tests prescribed by the Hon'ble ITAT Cuttack have failed in the case of the appellant, I agree with the finding of the AO that there have been violation of the provisions of Section 13(1) of the Act by the appellant-trust I also agree with the finding of the AO that the 4 appellant trust is not qualified to be granted exemption u/s.11 of the Act.

Ground Nos.6& 7 Since registration U/S.12AA of the Act have already been restored by the Hon'ble ITAT, Cuttack to the appellant and the Hon'ble ITAT, Cuttack did not observe that the AO had breached her powers in making the request to cancel the appellant registration u/s.l2AA of the Act, I do not have any reason to adjudicate the issue.

Aggrieved by the order of CIT(A), assessee is in appeal before the Tribunal.

Before us, ld. AR submitted that the AO has denied the benefit of Section 11 on the basis of allegations that it has provided unsecured loans to Annapurna Memorial Charitable Trust and Shivani Educare Pvt. Ltd. Ld.AR further submitted that Annapurna Memorial Charitable Trust is for Medical Sciences and Spiritual Development and Shivani Educare Pvt. Ltd. Is providing hostel facilities to the students of education institutions and the ld. AO was not correct in requesting the ld. CIT Cuttack to cancel the registration u/s.12AA of the Act. Ld. AR further submitted that the ld. CIT Cuttack vide order dated 31.10.2013 has cancelled the registration of assessee trust invoking powers u/s.12AA(3) of the Act and against the cancellation order the assessee filed an appeal against the order with the Tribunal. The Hon’ble Tribunal in ITA No.579/CTK/2013, order dated 22.10.2014 has allowed the appeal of the assessee for statistical purposes. The ld. AR contended that the ld. CIT(A) was not correct in confirming the additions though there is registration existing with the assessee and supported with paper book and prayed for allowing the appeal.

5 7. Contra, ld. DR relied on the order of CIT(A) and opposed to the grounds.

We heard the rival submissions, perused the material on record and judicial decisions. Ld. AR’s contention that the CIT(A) was not correct in confirming the order of the AO irrespective of the fact that assessee has advanced the money for specific causes and supported his arguments with the financial statements of Shivani Educare Pvt. Ltd. and Registration details of Annapurna Memorial Charitable Trust. Further ld. AR submitted that coordinate bench of this Tribunal earlier has dealt on the cancellation of registration u/s.12AA and the matter was restored to the file of ld. CIT for adjudication. On the query from the bench, to ld. DR with regard to present status of passing of the order by ld. CIT as per the directions of ITAT, the revenue could not give any reply. We find the AO and CIT(A) dealt on the assessment proceedings irrespective of the directions of Tribunal in respect of granting of Registration u/s.12AA of the Act subject to verification and matter was restored to ld. CIT(A). We perused the coordinate bench decision order dated 22.10.2014 in assessee’s own case in ITA No.579/CTK/2013, wherein at page 3 at para 8, the Tribunal has observed as under :-

We have considered the rival submissions. We are of the view that this issue must also be restored to the file of the Id. CIT for verification. Ld. CIT shall verify or get verified as to whether M/s. Shivani Educare Pvt. Ltd. has used the funds provided by the assessee for putting up Hostel for the students studying in the educational Institution run by the assessee-Trust. If it is found to be running Hostel, then he shall next verify as to whether the Hostel facility is being provided to the assessee or the students of the assessee’s educational Institution at less than the market rate for such Hostel facility. If this is found to be correct then obviously funds have been provided to M/s. Shivani Educare Pvt. Ltd. for the 6 purpose of attaining the objects of the assessee-Trust and consequently could not be. held to be violation of the provisions of section 13[1)(d) or 11(5) of the Act. Further we may mention here that prima facie the Id. CIT has not found nor demonstrated that the assessee-Trust is not genuine nor is there any finding that the activities of the assessee-Trust are not being carried out in accordance with the objects of the Trust. In these circumstances, we are of the view that even if there is a violation as mentioned by the ld. CIT then it is only the income in relation to the violations if any that could be taxed in view of the provisions of section 13. Those violations in any case would not affect the genuineness of the Trust nor lead to a conclusion that the Trust is violating its objects. In these circumstances, the cancellation of the registration as done by the ld. CIT is annulled and the registration under section 12AA stands restored. Our direction in restoring the two issues to the ld. CIT would be for verification of the violations under section 11(5) and 13(1)(d) of the Act.” We considering the directions of the coordinate bench of this Tribunal to the ld CIT in restoring the Registration u/s.12AA for verification of violation u/s.11(5) and Section 13(1)(d) of the Act. In the present appeal filed by the assessee, the ld. CIT and AO has not considered these facts and as per the submission of revenue there is no information on record on passing of orders by the ld. CIT as per the directions of the Tribunal. Accordingly, in the interest of substantial justice, we set aside the orders of ld. CIT(A) and remit the entire disputed issue to the file of AO to consider afresh and also consider the decision of ld. CIT in granting of registration u/s.12AA of the Act. The assessee shall be provided adequate opportunity of hearing before passing the order and the grounds of appeal of the assessee are allowed for statistical purposes.

In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 13/07/2017. (N. S. SAINI) (PAVAN KUMAR GADALE) लेखा सदस्य / ACCOUNTANT MEMBER न्याधयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 13/07/2017 प्र.कु.धि/PKM, Senior Private Secretary आदेश की प्रधतधलधप अग्रेधषत/Copy of the Order forwarded to : अपीलाथी / The Appellant-

M/s Shivani Educational & Charitable Trust, Mahanadi Road, Tulsipur, Cuttack-753008 प्रत्यथी / The Respondent-

ACIT, Circle-2(1), Cuttack आयकर आयुक्त(अपील) / The CIT(A), 3. 4. आयकर आयुक्त / CIT विभागीय प्रविविवि, आयकर अपीलीय अविकरण, कटक / DR, ITAT, Cuttack 5. 6. गाडा फाईल / Guard file. सत्याधपत प्रधत ////

आदेशानुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपीलीय अधधकरण, कटक / ITAT, Cuttack

M/S. SHIVANI EDUCATIONAL & CHARITABLE TRUST,CUTTACK vs. ACIT, CUTTACK