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Income Tax Appellate Tribunal, BENCH ‘B’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM ]
Per Shri N.V.Vasudevan, JM :
This is an appeal by the Revenue against the order dated 12.11.2008 of CIT(A)-XL, Kolkata, relating to AY 2005-06.
2. The assessee is a trust. The trust was created by a deed of Trust dated 21.06.1950 by Smt. Shakti Sudha Devi, w/o Debi Shankar Bandopadhya of labour, District-Birbhum. There is no dispute that the objects of the trust were charitable in nature. The trust was accorded registration u/s 12AA of the Income tax Act, 1961 (Act) vide Registration No.DIT(E)/T/548D dated 06.12.1980.
3. For A.Y.2005-06, the assessee filed return of income showing ‘Nil ‘ income. During the previous year the assessee received interest income on FDRs in a sum of Rs.5,10,22,844/-.
Devi Kamal Trust Estate – A.Y.2005-06 1
The computation of total income of the Assessee is at page-25 of the paper book and it shows that the Assessee had declared gross income of the Trust at Rs.5,10,22,844. Sec.11 of the Act provides as follows:
“Sec.11: Income from property held for charitable or religious purposes. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income— (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property ;” 85% of the income of the Trust has to be applied for charitable purpose. 15% of the income can be accumulated for application for charitable purpose in future as laid down in explanation to Sec.11(1) of the Act. After reducing 15% towards accumulation which is permitted under Explanation to Sec.11(1) of the Act, viz., a sum of Rs.76,53,427 and after reducing sums spent for charity and donation of Rs.31,10,525, administrative expenses of the Assessee at Rs.39,340 and another sum of Rs.4,54,11,300 towards repayment of loan taken for charitable purpose, the Assessee declared deficit of Rs.51,82,748/-.
In the annexure to the audit report filed in Form No.10B required to be filed in accordance with Sec.12A(b) of the Act in the case of charitable or religious trusts or institutions, the auditors have certified that out of income of the previous year, a sum of Rs.4,85,52,165 was applied by the Assessee for charitable purposes in India during the previous year. The Income and Expenditure Account for the year ended 31.3.2005 shows receipt of bank interest of Rs.5,10,22,844 as income and after claiming deduction of an amount of Rs.31,01,525 as spent for charitable purpose and Rs.39, Devi Kamal Trust Estate – A.Y.2005-06 2 as administrative expenses a surplus of Rs.4,78,81,978 is shown. In the Balance Sheet an accumulated deficit of Rs.8,54,16,519 is shown. Accumulated deficit is nothing but excess amounts spent by the Assessee for charitable purposes in the earlier years than its income. It is like a brought forward loss in the case of a business man having income under the head “Income from Business”. After reducing the surplus of Rs.4,78,81,978 from the accumulated deficit a deficit of Rs.3,75,34,540 was sought to be carried forward for set off in the later assessment years as accumulated deficit. There is therefore a contradiction between the way books of accounts were maintained by the Assessee and certified by its auditors and the computation of total income filed by the Assessee along with the return of income filed for AY 2005-06.
The AO started the computation of total income as per the return of income filed by the Assessee. As we have already seen, the Assessee had claimed that it had, during the previous year, repaid loans taken by it in the past AYs for the purpose of carrying out the charitable objects of the trust and had in fact applied loans for charitable purposes in the past AYs in which loans were taken. The Assessee claimed that the repayment of loans during the previous year of loans so taken in the past AYs would amount to application of income for charitable purpose and exemption u/s.11 of the Act ought to be allowed to the Assessee to the extent of repayment of loans. There is no dispute that repayment of loan taken for charitable purposes had to be treated as application of income for charitable purposes. CBDT in Circular No.100 dated 24.1.1973 had accepted this position, as given below: “where a trust incurs a debt for the purpose of the trust whether the repayment of the debt would amount to an application of income for the purposes of the trust …… Board has decided that repayment of the loan originally taken to fulfil one of the objects of the trust will amount to an application of the income for charitable and religious purposes.”
The AO called upon the Assessee to furnish the following details with regard to the claim of the Assessee that a sum of Rs.4,54,11,300/- was to be regarded as application of income for charitable purpose. A letter was issued to the trustee vide Devi Kamal Trust Estate – A.Y.2005-06 3 F.No.ADIT(E)-I/Scrutiny/06-07/220 dated 19.02.2007, which was duly serviced on 02.03.2007 calling for the following details : (a) A list of the persons with addresses from whom advances/loans have been taken year-wise (b) Loan confirmation from all the loan creditors showing the PAN and IT Jurisdictions. (c) Purposes of the loans taken . (d) Details of year-wise utilizations of the loans. (e) Nexus of the loans with the objects of the Trust. (f) Details of charity and donation made during the year along with the bills and vouchers. (g) Details of repayment of the loans amounting to rs.4,45,11,300/- made during the relevant year.
The Assessee gave the following details to the AO: “1. Repayment of Loan & Evidences : During the year the trust had paid a sum of Rs.4,54,11,300/- towards repayment of loan which was given to the trust to continue with the benevolent activities of the trust for the needy people of labhpur and the surrounding areas in the district of Birbhum. However a detailed list of repayment of loan has already been filed along with the evidence e.g. the bank statement. The total repayment of loan amounting to Rs.,4,54,11,300/- was made to four parties as absolute natural and legal heirs of late Smt. Anita Banerjee namely (i) K.N.Banerjee (Rs.1,29,69,500/-) (ii) Debashis banerjee (Rs.1,12,87,000/-) (iii) Subhashis Banerjee alias Bandyopadhyay (Rs.1,06,04,800/-) and Ms. Maitrayee Mukherjee (Rs.1,12,87,000/-). The entire amount was paid by cheque which is evident from the bank statement which has already been filed during the course of assessment.
Chairty & Donation : A list of charity & donation expenses has already been filed during the course of assessment. However a detailed list is being annexed with this letter once again for your ready reference which includes details of donation paid and expenses & purchases of materials utilised for the purpose of charity.
Loans & Advances : During the course of assessment we have already filed the detailed list of advances amounting to Rs.8,69,47,275.97 along with the confirmation from each of the loan creditor whom the trust had procured. Late Mrs. Anita Banerjee was one of the main loan creditors in the period between 1956 and 1993. It is worthwhile to mention here that after search & seizure conducted by the Income Tax Devi Kamal Trust Estate – A.Y.2005-06 4
Department in 1980 practically the entire activities of the trust became loan dependent only.”
The AO however did not accept the claim of the Assessee. The AO firstly held that the Assessee had given only details of repayment of loan but did not give details of when and how the loans were availed. The AO held that the confirmations filed from the loan creditors contained only the balance as on 31.03.2005. The assessee has failed to give details relating to the actual receipt of the loans. The reply of the Assessee was that the loans were received during the period from 1956 to 1993, which according to the AO was vaguereply. He therefore held that the assessee has failed to fulfill its primary onus to file confirmation showing the details of loans. The AO held that to allow repayment loans as application of the year, out of the income from the property held under the trust, it is required to mention along with evidences when the loans were taken, in which particular Years those were utilized and how the repayments were' made. The AO also found that the Assessee did not file any returns of income before 2002-03, and. no account showing the utilization could be furnished by. the assessee. No books of accounts could be produced for the current financial year or earlier years. The AO also concluding that the Assessee has transferred trust fund to the trustees or their relatives in the pretext of repayment of loan and doing so was clearly a violation of the provision contained in 13(1)(c). He therefore refused to accept the plea of the Assessee to treat repayment of loan as application of income for charitable purpose.
Relating to the charity and donation of Rs. 31,01,525/-, the AO held that only a list of payments has been filed. It was neither supported by any bills and vouchers nor any books of accounts showing the actual expenditures could be furnished. The AO therefore, held that the deduction on account of charity and donation as an application of income for charitable purpose during the relevant previous year, cannot be accepted. The AO accordingly computed income of the Assessee as given below :-
Devi Kamal Trust Estate – A.Y.2005-06 5
Income from Other Sources :- . Bank Interest : Rs.5,10,22,843/- TOTAL TAXABLE INCOME : Rs.5,10,22,843/- Rounded off to : Rs.5,10,22,840/-“
Before CIT(A) the Assessee filed additional ground of appeal taking a stand that the interest income was only Rs.2,21,17,169 and not Rs.5,10,22,840/- as wrongly disclosed in the return of income filed by the Assessee. The CIT(A) has not given any findings on the aforesaid additional ground of appeal. The Assessee has not filed any cross-objection against the order of the CIT(A) and therefore this issue does not arise for consideration before the Tribunal.
12. Before CIT(A) the Assessee took a stand that the AO was not justified in not allowing adjustment of current years income (excess of income after application for charitable purpose and administrative expenses) of Rs.4,78,81,676/- against accumulated deficit of Rs. 8,54,16,519/-. In making the aforesaid submission the Assessee relies on the audited books of accounts and the certificate of auditor in Form No.10B which we have already set out in the earlier part of this order. This was not the computation of total income filed by the Assessee nor was a plea to the above effect taken before the AO.
The case of the AO before the CIT(A) in the remand report was that the Assessee was not filing any return of income prior to AY 2002-03 and the loans were stated to have been received during the period from 1956 to 1993. The purpose of the loan and its utilization for charitable purpose in the past was not established by the Assessee. The accumulated deficit of the past AYs was therefore not established by the Assessee.
The CIT(A)’s findings on the above claim of the Assessee was as follows:
Devi Kamal Trust Estate – A.Y.2005-06 6
“I have carefully gone through the submissions made by the Id. A/R of the appellant and the order passed by the A.O. The A.O. has not brought my concrete evidence in support of his disallowance of Rs.4,78,81,9781- under the head accumulated deficit, The A.O. has stated in his order that the appellant has failed to submit details and books of accounts. The assessment record for the relevant assessment year was requisitioned. It is evident from the assessment record that the appellant submitted all the relevant documents in this aspect. It is not clear what were the books evidences, details etc., the A.O. had called for specifically for the purpose of assessment. However it is a matter of record that the appellant had provided all the necessary High Court orders (page No. 85, 128, 147) details of expenses along with evidence (page No.95), loan confirmation (page No.I73) , balance sheet for last eight years (page No.103),bank statements (page No.190), list of repayment of loan (pager No.186), write-up on purpose for acquiring loans (page No.170) etc., which were good enough for substantiating the claim of the appellant. Probably the A.O. has not gone through the details and evidences filed by the appellant before him. The Id. A/R of the appellant relied upon the case law of Mewar Charitable Foundation vs. CIT. The Hon'ble Rajasthan High Court has held that Mewar Charitable Foundation suffered a deficit in assessment year 1970-71 which was adjusted with the surplus in assessment year 1971-72 for the purpose of section 11(1)(a). The Hon’ble Rajasthan High Court ruled that the said application of the income for charitable or religious purpose takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. In other words, even if the expenses for charity have been incurred in the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the year in which the expenses incurred for charitable and religious purposes had been adjusted. Similar view was taken in CIT vs. Shri Pol Swetambar Murtipujak Jain Mandir. Following the above facts and circumstances of the case as elaborately discussed, I am of the considered opinion that the action of the A.O. is not justified. Hence the disallowance of Rs.4,78,81,978/- is therefore deleted. The appellant succeeds on this ground.”
The next submission of the Assessee before CIT(A) was that the repayment of loan by the Assessee during the previous year should be considered as application of income for charitable purpose as the loans in question that were repaid were borrowings by the Assessee for carrying out charitable activities and therefore repayment of the said loans had to be regarded as application of income for charitable purpose and therefore the benefit of deduction u/s.11(1)(a) of the Act had to be allowed to the Assessee. The Assessee also challenged the disallowance of administrative expenses and donations and charity given during the previous year.
Devi Kamal Trust Estate – A.Y.2005-06 7
On the above submission the learned CIT(A) held as follows: “I have carefully gone through the submissions made by the ld. A/R of the appellant and the contention of the A.O. The A.O. has made disallowances of Rs.4,85,52,165/- under the head i.e. loan repayment of Rs.4,54,11,300/-, charity & donation of Rs.31,01,525/- and administrative expenses of Rs.39,340/-. The appellant filed details of these expenses during the course of assessment proceeding before the A.O. and also before me. It is evident from the records submitted to this office that the assessee trust paid loan of Rs.4,54,11,300/- by cheque. The A.O. has failed to make any enquiry to prove the genuineness of creditworthiness. He had not brought any thing on record nor he has gone through the details/evidences filed by the appellant during the course of assessment proceedings in support of his contention. Loan is neither treated as income nor repayment of loan as expenditure. These are in fulfilment of objects of the trust which have been accepted as charitable. The CBDT has clarified in Circular No.100 dated 24th January 1973 that repayment of loan originally taken to fulfil one of the objects of the trust would be treated as application of income. Regarding disallowances of charity & donation Rs.31,01,525/- and administrative expenses of Rs.39,340/- the appellant submitted all the bills & voucher during the course of assessment proceedings before him and also before me at the time of appeal proceedings. The A.O. has not gone through the bills vouchers produced before him by the appellant to disprove it. The appellant relied upon the Hon’ble Calcutta High Court Judgment in the case of CIT v. Birla Janahit Trust 15-(1998)-230 ITR 636 (SC) where it has been held that expenses incurred for running a trust should be considered to have been applied for the objects of the trust. The expenditure on salaries and miscellaneous expenses for the purpose of carrying out the objects and purposes of the trust be considered as application for charitable purposes. Following the above cited decision, I am of the considered view that the A.O. is not justified in making disallowances under this head. Hence disallowance of Rs.4,85,52,165/- is hereby deleted. The appeal is allowed on this ground.”
Aggrieved by the order of the CIT(A), the Revenue is in appeal before the Tribunal. The grounds of appeal raised by the Revenue reads as follows:
“1. On the facts and circumstances of the case, Ld. CIT(A) was not justified in deleting the disallowance of Rs.4,78,81,978/- against accumulated deficit when the assessee failed to furnish the year-wise accumulation of deposit and no return was filed before A.Y. 2002-03.
2. On the facts and circumstances of the case, Ld. CIT(A) was not justified in accepting the repayments of loans as genuine though no details of receiving the loans were filed.
3. On the facts and circumstances of the case, Ld. CIT(A) was not justified in directing to allow the repayment of loan as expenditure though failed to justify that the loan was taken for fulfilment of the object of the trust. Devi Kamal Trust Estate – A.Y.2005-06 8
4. On the facts and circumstances of the case, Ld. CIT(A) was not justified in accepting that loans were taken during 1980 to 2003 though it was stated before the AO that the loans were taken during 1956 to 2003.
5. On the facts and circumstances of the case, Ld. CIT(A) was not justified in accepting the balance sheet of 1980 which were not submitted before the AO without giving opportunity to the AO. 6. On the facts and circumstances of the case, Ld. CIT(A) was not justified in allowing the charity and donation of Rs.31,01,525/- and administrative expenses of Rs.39,340/- though neither books of accounts nor the bills & vouchers were produced.”
The learned DR reiterated the stand of the revenue as reflected in the grounds of appeal raised before the Tribunal. The learned counsel for the Assessee reiterated stand of the Assessee as put forth before the CIT(A). Our attention was drawn to the paper book filed before us, wherein the confirmation of the persons who advanced loans to the Assessee are placed. Our attention was also drawn to the details of charity and donations along with supporting evidence and details of administrative expenses.
19. We have given a very careful consideration to the rival submissions. In so far as Gr.No.1 raised by the revenue is concerned, it is a fact that the Assessee did not file return of income before AY 2002-03. It is not the case of the Assessee that the accumulated deficit was determined in assessments completed after AY 2002-03 when from the Assessee started filing return of income. The accumulated deficit is claimed on the basis of Balance Sheet as on 31.3.1996 in which loans and advances received in cash or kind is shown at Rs.9,29,50,000/-. As to what is the opening balance as on 1.4.1995 is also not found in this Balance Sheet. The accumulated deficit as per this balance sheet is shown at Rs.8,63,10,133/-. The accumulated deficit is thereafter carried forward from AY 96-97 to AY 2004-05 and stands reduced to Rs.8,54,16,519 as on 31.3.2005 which is sought to be set off against the income of AY 2005-06. It is also pertinent to note that the aforesaid claim was not made in the return of income filed by the Assessee nor in the proceedings before the AO. The claim was made for Devi Kamal Trust Estate – A.Y.2005-06 9 the first time before CIT(A). The CIT(A)’s findings on this aspect have already been given in the earlier part of this order. The evidence referred to in the findings of CIT(A) are relevant only with regard to the claim of the Assessee that Rs.4,54,11,300/- was repayment of loans which had been taken by the Assessee in the earlier AYs and used for charitable purpose and repaid during the PY. There is no material on record to substantiate the claim of the Assessee that a sum of Rs.8,54,26,519/- was accumulated deficit. Admittedly such accumulated deficit has not been determined in any assessment proceedings and therefore the claim of the Assessee in this regard was wrongly allowed by the CIT(A). Gr.No.1 raised by the revenue is accordingly allowed.
20. As regards grounds No.2 to 5 raised by the revenue, the issue is with regard to the claim of the Assessee that during the previous year it had repaid loans of Rs.4,54,11,300/- taken by it in the past AYs for the purpose of carrying out the charitable objects of the trust and had in fact applied loans for charitable purposes in the past AYs. The Assessee claimed that the repayment of loans during the previous year of loans so taken in the past AYs would amount to application of income for charitable purpose and exemption u/s.11 of the Act ought to be allowed to the Assessee to the extent of repayment of loans. There is no dispute that repayment of loan taken for charitable purposes had to be treated as application of income for charitable purposes. The evidence on record indicates that there are loan confirmations by the following persons for the following amounts: 1. Jadavlal Trust Estate Rs.96,00,000 2. Devi Lachmi Debottar Estate Rs.14,00,000 3. Smt.Anita Banerjee (decd) Rs.4,80,00,000 4. Sri Keshab Narayan Banerjee Rs.1,66,00,336 5. Sri.Subhashis Bandopadhyay Rs.5,04,000 6. Sri.Debashis Banerjee Rs.5,04,000 7. Smt.Maitree Mukherjee Rs.5,04,000 Advances Dubrajpur Rice Mills Pvt.Ltd. Rs.86,24,940 Jadavlal Trust Estate Rs.12,00,000 -------------------- Rs.8,69,47,276 ----------------------- Devi Kamal Trust Estate – A.Y.2005-06 10 A matching of loan and charitable activities done by the trust during the last 23 years w.e.f. from the date of search in 1980 and to the day of release in 2003 by filing every year balance sheets was also filed. It was submitted that the charitable activities done long back and it was not possible to preserve the documentary records for these charitable activities for a long period as the records are weeded out every 10 years for paucity of space to preserve the same. At page-26 to 29 is the ledger account of Advance/Loans Received from 1.4.2004 to 31.3.2005. Perusal of the same shows that the opening credit balance was Rs.8,69,47,276 and the Assessee has repaid loans to the extent of Rs.4,54,11,300 to the following persons during the previous year: 1. K.N.Banerjee Rs.1,29,69,500 2. D.Banerjee Rs.1,12,87,000 3. S.Banerjee Rs.1,06,04,800 4. M.Mukherjee Rs.1,05,50,000 Rs.4,54,11,300 The balances in all these confirmations are opening balance. These do not prove how and when the loan in question was availed. More importantly the manner in which the amounts borrowed were used for charitable purpose. The loans were stated to be availed between the year 1980 to June, 2003 when the Assessee did not have funds to carry out charitable activities. In the year in which the loans were availed, there was no scrutiny assessment. In fact the Assessee has started filing returns of income only after AY 2002-03. Therefore the factum of borrowing and the utilization of the funds borrowed were never subjected to scrutiny in the past. There is no evidence filed by the Assessee in this regard. The CIT(A) has referred to the following evidence in upholding the claim of the Assessee viz., (a) details of expenses along with evidence; (b) Loan confirmation; (c) balance sheet for last eight years; (d) Bank statements; ( e) list of repayment of loan, (f) write-up on purpose for acquiring loans. As already stated the Assessee has clearly admitted before the CIT(A) on its inability to produce evidence to prove borrowing and that the loans borrowed were spent for charitable Devi Kamal Trust Estate – A.Y.2005-06 11 activities and nature of those charitable activities. The mere assertion of the Assessee in this regard without evidence cannot be the basis to uphold the claim of the Assessee in this regard. We therefore do not agree with the conclusions of the CIT(A) in this regard. We therefore reverse the order of the CIT(A) and restore the order of the AO in this regard.
21. As regards ground No.6, the AO did not allow the claim of the Assessee for the reason that only a list of payments had been filed which was neither supported by any bills and vouchers nor any books of accounts sowing the actual expenditure. The bills and vouchers had been filed before the AO. A specific ground had been raised by the Assessee before CIT(A) in this regard. The CIT(A) has also held that the bills and vouchers evidencing expenses were filed before the AO. The details of charity and donations and the supporting vouchers are at page 75 to 91 of Assessee’s paper book. The details of administrative expenses are placed at page-92 of the paper book and the payments in question were made by cheques. The expenditure in question is reasonable and deserves to be accepted. We are of the view that the CIT(A) rightly deleted the addition made by the AO. We hold and direct accordingly.
In the result the appeal by the revenue is partly allowed.
Order pronounced in the court on 16.12.2015.