DCIT, TRICHY vs. M/S. SOCIETY FOR EDUCATIONAL VILLAGE ACTION AND IMPROVEMENT, TRICHY

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA N.432/ Mds /2010. :- 2 -: passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

The assessee has failed the following grounds:- 2.

‘’2) The learned CIT(A)'s finding that the Assessing Officer has failed to establish inflation of expenditure and diversion of fund is not correct. He ought to have appreciated the fact that the Assessing Officer found large scale discrepancies in the claim of expenses under the heads labour payments and purchase of steel, pointed out specific discrepancies illustratively as narrated in Annexure-I to the assessment order, proving the inflation of expenses resulting into siphoning of funds by the management of the Society. This was in violation of the provisions contained under Sec. 13 (2)(g) read with sub-section 3 (cc) of the Act. 3)The learned Commissioner of Income Tax(A) failed to appreciate the fact that the Assessing Officer found that the assessee has not discharged the onus to prove genuineness of expenditure towards purchase of steel. 4)The learned Commissioner of Income Tax(Appeals) ought to appreciate the fact that the Assessing Officer brought on record that the claim of labour payments to the tune of Rs.4I.35 lakhs was bogus as it was based on dubious vouchers. He found that the assessee claimed expenses as paid on September 31, 2005 and November 31, 2005, the dates which are non- existent, amply prove that the funds were siphoned off by the managers of the society and this was in violation of the provisions contained under Sec. 13(2)(g) read with sub-section 3 (cc) of the Act. 5) The learned CIT(A) failed to appreciate the fact that the Assessing Officer made a fair estimation of inflation of expenditure on the basis of material evidence found out by him at the rate of 5% of expenses claimed to have been spent. The learned CIT(A) ought to have confirmed the order of the Assessing Officer.

6) The learned Commissioner of Income Tax(A) failed to note that as per Sec.13(2)(g) r.w. Section 3 (cc), if any income of the society is diverted during the previous year in favour of any trustee of the trust or manager(by whatever name called) of the institution, part of such ITA N.432/ Mds /2010. :- 3 -: income shall be deemed to have been used or applied for the benefit of a person referred to in sub section (3) of Section 13. In 'this case, the Assessing Officer proved that the funds of the society were siphoned off by the managers of the society by making inflated claim of expenses under dubious vouchers towards payment of labour charges and purchase of steel. The Commissioner of Income Tax(A) failed to consider this vital aspect’’.

The Brief facts of the case that the assessee is a society 3. registered u/s.12A of the Act from assessment year 1993-1994 and filed return of income admitting Nil income and the case was selected under scrutiny norms and notice u/s.143(2) of the Act was issued. In compliance to notice, the ld. Authorised Representative of assessee appeared from time to time and produced books of account, vouchers and details. The ld. Assessing Officer found during the financial year the assessee has admitted grants/contributions, bank interests of Rs.14,63,74,167/- as application of funds to various activities. The main activities carried by society are rural development, Dewos Roofing, AEM-Children care and education project, Pro-victims Trichy Housing Project, save the children, improvement of temporary shelters, OXFAM- Trichy Flood Relief Institution Shelter programme AEA-Equitable Rehabiliation of Tsunami victims, CARE community Boat in project, Palayar, CMP- Poompuhar Boat Project, Car –Watsan, FDF- Immediate feedings, United way-boat programme, OXFAM PHP, SSA- IED Programme, Care-Permanent Housing etc. The ld. Assessing

ITA N.432/ Mds /2010. :- 4 -:

Officer perused the application of expenditure of �14.63 crores within a span of one year towards construction of buildings, shelters and relief and rehabilitation activities to the Tsunami victims. The ld. Assessing Officer called for explanations of expenditure incurred on projects as under:-

Sl.No Particulars of project Amount spent ₹15,00,090 1 Desows Roofing ₹43,89,731 2 Pravicfims Trichy Housing Project ₹21,75,260 3 Save the Children Improvement of Temp. Shelter ₹23,83,492 4 Oxfan-Trichy flood Relief Institution Shelter ₹20,68,453 5 Care Watsan ₹2,76,78,501 6 FD-Freres De Nos Freres Immediate ₹48,98,192 7 United way-UW Boat Programme ₹4,80,98,151 8 Care – Permanent Housing ₹33,61,189 9 SSA-IED Programmed The ld. Assessing Officer made list of defective vouchers of expenditure and statement of office bearers and assistants were recorded. The major expenditure incurred towards projects of Tsunami victims and on sample techniques based on master rolls and the payments the ld. Assessing Officer found certain discrepancies in respect of the names, signature and columns. The ld. Authorised Representative explained that assessee society has made substantial expenditure towards projects, the ld. Assessing Officer is of the ITA N.432/ Mds /2010. :- 5 -: opinion that expenditure is inflated by fictitious names and wrong vouchers. Further the funds of the society are diverted. The assessee society purchased steel for the project work at Nagapattinam and amount of �91.20 lakhs was paid to supplier, who closed the business after the sale transaction and supplier was established as accommodation supplier to the project. The ld. Assessing Officer with these observations and the statements of office–in-charge has concluded that expenditure was not properly accounted and without further investigation formed an suspicious opinion that society was engaged in diversion of funds. Further considering the volume of expenditure incurred by the society disallowed 5% of application of funds as income and passed assessment order u/s. 143(3) of the Act dated 29.12.2008 alongwith annexures. Aggrieved by the order, the assessee has filed an appeal before the Commissioner of Income Tax (Appeals).

In the appellate proceedings, the Commissioner of Income 4.

Tax (Appeals) has considered the grounds and findings of the Assessing Officer. The ld. Authorised Representative of assessee made a exhaustive submissions and argued the grounds duly supported by judicial decisions which the ld. Commissioner of Income

ITA N.432/ Mds /2010. :- 6 -:

Tax (Appeals) has dealt in his order at page Nos. 7 to 12. The ld. Commissioner of Income Tax (Appeals) examined the objections, submissions and judicial decisions. The assessee is a NGO with objective work in the field of poverty elimination, housing orphanage, HIV patients from year 1984 with high level of integrity and experience. The donor organizations came forward for help after careful study and evaluation based on the past record and experiences of the society. The Government of Tamil Nadu and Government of Pondicherry has appreciated the work for quicker and sufficient delivery of tsunami victims houses. The ld. Authorised Representative submitted that the assessee has spent 94% of income i.e. �14.63 crores as application of income. The Assessing Officer has disallowed �73,78,708/- being 5% of application of funds as inflation of expenditure of the project. Even if �73,78,708/- is deducted from �14.63 crores, the application of funds could work out to �13.89 crores which comply the provisions of law. The ld. Assessing Officer identified the mistakes in vouchers and posting of accounting entries but overlooked construction of houses and the cost of constructions. The assessee society has constructed 437 houses at average cost of �514

per sq.ft which is remarkable lower cost compared to the constructions in coastal district, which worked out to �700 to 900/- per sq.ft. On

ITA N.432/ Mds /2010. :- 7 -: the issue of dispute on labour payments there is urgent need and emergency due to natural calamity, the assessee could not have a broader view of cost and priority given to other sectors in the projects. The labour cost worked out to 18.7% only in the total project. The society was working in the post Tsunami projects and completed the project with local people and unskilled labours as there was urgent necessity. The ld. Assessing Officer failed to view the nature and reasonability of expenditure during post Tsunami period were community participation involving local poor people for employment generation. The ld. Assessing Officer has pointed out defects of mathematics/ dates / signature/ names and not appreciated the merits of society in the organizing the funds to provide Houses to the poor fishermen community and Tsunami affected people. The ld. Commissioner of Income Tax (Appeals) with above observations relied on decision of Amritsar Tribunal in the case of Guru Govind Singh Educational Society vs. CIT and also jurisdictional High Court decision in the case of CIT vs. Nellai Trading Automobile Agencies (2008) 172 Taxman 330 were it was observed that no concealment penalty is leviable in a case of genuine mistake and also Apex Court decision of CIT vs. P. Mohana Mohan Kala 291 ITR 278(SC). The Assessing Officer should have appreciated the objectives and circumstances dealt rather

ITA N.432/ Mds /2010. :- 8 -: than dissatisfactory note. The ld. Commissioner of Income Tax (Appeals) considering the objectives, activities and complying of provisions of law and appreciated by Government of Tamil Nadu and Pondicherry observed at page 18 of the order and deleted the addition. Aggrieved by the order of the Commissioner of Income Tax (Appeals) the Revenue assailed an appeal before Tribunal.

Before us, the ld. Departmental Representative has argued 5. the grounds that Commissioner of Income Tax (Appeals) has deleted the addition without considering the discrepancies in the claim of expenditure as per the annexure to the assessment order and inflation of expenditure and onus of proof of purchase of steel and mistake committed in recording the entries in the books and society funds were mismanaged by the manager towards labour and purchase of steel. Therefore, the disallowance by the Assessing Officer at 5% is reasonable and the society has violated the provisions of Sec. 13(2)

(g) r.w.s 3(cc) of the Act and prayed for allowing the appeal.

ITA N.432/ Mds /2010. :- 9 -: submissions and judicial decisions and prayed for dismissing the appeal.

We heard rival submissions, perused the material on record 7. and judicial decisions cited. The assessee society is a Non Government organization registered u/s.12A of the Act in the year 1984 and has been providing constant service to the society and accomplishing the objects and aims which are appreciated by the society and good track record in rendering Human service to the poor people of society. The ld. Assessing Officer without appreciating the background and the achievements which the assessee society accorded in the past decades. The ld. Assessing Officer’s objections are on the issue of labour payment, purchase of steel and statements which elaborately discussed in assessment order. The labour charges are paid to the unskilled illiterate persons whose services are utilized in constructing the shelters in the Tsunami period for fishermen and other poor people who lost their Houses and personal effects. The labour charges are only one of the contributing cost factor in the total project cost.

The ld. Assessing Officer has not disputed on the construction cost or number of houses constructed within the time period to Tsunami victims. The ld. Assessing Officer has not pointed in the order with ITA N.432/ Mds /2010. :- 10 -: evidence of money has been misutilized except the reasons of defective vouchers, wrong narrations/party and the statement recorded. Prime facie no independent investigation was carried out to prove the diversion of income. The ld. Assessing Officer was satisfied with the application of funds as per the provisions of law and not disputed other expenditure and has summarily estimated 5% of expenditure as disallowance. The ld.Assessing Officer accepts the mistake and deficiency in vouchers but suspected diversion of funds by inflating the expenditure. The ld. Assessing Officer on surmises and applying sampling techniques for verification of vouchers cannot eclipse the objects and imagie in rendering continuous services to society from the year 1984 and complying the provisions of law and there is not finding of violation of provisions u/sec. 11(2) of the Act.

The ld. Commissioner of Income Tax (Appeals) relied on the exhaustive submissions and judicial decisions. Further, society has applied the funds for objects more than 85% of its income. We are of the opinion that society has applied funds for its projects which is more than 94% of income in construction of relief homes for Tsunami victims and was appreciated by the Government of Tamil Nadu and Pondicherry. The ld. Commissioner of Income Tax (Appeals) has dealt on submission and quality of evidence viz-a-viz explanation of assessee

ITA N.432/ Mds /2010. :- 11 -: and we do not see any reason to interfere with the order of Commissioner of Income Tax (Appeals) and uphold the same.

In the result, the appeal of the Revenue is dismissed. 8.

Order pronounced on Wednesday, the 25th day of May, 2016, at Chennai.