JCIT(OSD), C-1, (E), CHANDIGARH vs. THE SIKH EDUCATIONAL SOCIETY, PATIALA

आयकर अपीलीय अिधकरण,च"ीगढ़ "ायपीठ “बी” , च"ीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: HYBRID MODE "ी िव"म िसंह यादव, लेखा सद" एवं "ी परेश म. जोशी, "ाियक सद" BEFORE: SHRI. VIKRAM SINGH YADAV, AM & SHRI. PARESH M. JOSHI, JM आयकर अपील सं./ ITA NO. 687/Chd/2018 िनधा"रण वष" / Assessment Year : 2010-11 The Sikh Educational Society बनाम The Addl. CIT Shiromani Budha Dal, Punjawan Patiala Range Takhat (Regd.), Lower Mall, Patiala Patiala(Punjab) "ायी लेखा सं./PAN NO: AADTS3991B अपीलाथ"/Appellant ""थ"/Respondent आयकर अपील सं./ ITA NO. 874/Chd/2018 िनधा"रण वष" / Assessment Year : 2010-11 The Jt. CIT(O ) बनाम The Sikh Educational Society Circle-1(Exemption), Shiromani Budha Dal, Punjawan Chandigarh Takhat (Regd.), Lower Mall, Patiala(Punjab) "ायी लेखा सं./PAN NO: AADTS3991B अपीलाथ"/Appellant ""थ"/Respondent िनधा"रती की ओर से/Assessee by : Shri Vibhor Garg, C.A राज" की ओर से/ Revenue by : Smt. Kusum Bansal, CIT, DR सुनवाई की तारीख/Date of Hearing : 08/05/2024 उदघोषणा की तारीख/Date of Pronouncement : 21/06/2024 आदेश/Order PER PARESH M. JOSHI, J.M. :

This is an appeal filed by the Assessee called Sikh Educational Society Patiala, Punjab. The Assessment Year is 2010-11. 2. The assessee is aggrieved by order of Ld. CIT(A) dt. 28/03/2018 in Appeal No. 87/IT/CITA/PTA/13-14 passed under section 250(6) of the Income Tax Act, 1961, which is hereinafter referred to as the “ impugned order”. The assessee was in first appeal before the Ld. CIT(A) against assessment order dt. 30/03/2013 which was passed by Additional Commissioner of Income Tax, Patiala Range, Patiala, Punjab which order is hereinafter referred to as “AO’s order”.

Factual Matrix Return declaring NIL income by availing exemption u/s 11 of the 3. Income Tax Act, 1961 was filed on 15/10/2010 by the assessee wherein exemption under section 11 of the Income Tax Act, 1961 was sought and claimed. Section 11 of the Income Tax Act, 1961 which falls under Chapter III and broadly deals with income which do not form part of total income. In specific section 11 falls under heading Income from Property held for charitable or religious purposes. The return of income was processed under section 143(1) of the Income Tax Act.

(i) Despite affording number of opportunities , you have failed to produce the books of accounts for the period relevant to assessment year under consideration i.e. A.Y. 2010-11. (ii) You have produced bills/ vouchers only. A perusal of these bills/ vouchers reveals that on most of the bills no mode of transportation has been mentioned. (iii) From the purchase bills of various items , which you have claimed for the construction of school building, it is noticed that in the column where name of purchaser is mentioned , in that column name of station is mentioned Mohali, Fatehgardh , Damdama Sahib etc. (iv) Till date, you have failed to produce the approved plan prepared by an architect for the construction of the school buildings under taken by you at different places i.e. zirakpur, Samana, Patiala. (v) Enquiries made from the Municipal Corporation, Patiala reveals that the civic body never got any application for approval of site/ building plan in respect of any construction carried out by you during the Assessment years 2008-09, 2009-10, 2010-11 .

(vi) No details such as name and address of the persons/ contractors from whom you have got constructed the school buildings for verification in respect of your claim in respect of expenditure incurred by you on the construction of buildings have been filed. (vii) No details of persons engaged as electricians, carpenters, plumbers, interior-decorators, painters, polishers & any other work related to execution of construction of school building have been furnished. (viii) As per assessment records during the year under consideration you have claimed the additions made in the building accounts as per details given below :-

Sr.No. Place of Building/ authority incurring the Amount for additior made expenditure. during the yea under consideration. 1 Budha Dal Public School Patiala. Rs. 87,58,302/- 2 Budha Dal Public School Samana. Rs. 6,32,238/- 3 Budha Dal Public School Zirakpur Rs. 51,80,286/- 4 Sikh Education society. Rs. 4,68,38,055/- Rs. 6,14,08,881/-

Further no documentary evidence of having made payments to these persons has been adduced which means you have not done any construction of the building amounting to Rs. 6,14,08,881/- claimed by you.

Further, it is ironical that such a huge expenditure on account of building construction has been claimed by you but no corroborative or contemporaneous records have been produced by you. At the rate of Rs. 800/- per sq. Ft.( The average rate of construction of building of good quality), by spending Rs. 6,14,08,881/- , your covered areas of the building should have been about 76,760 sqt ft. You have not been able to offer the undersigned to inspect the building physically claimed to have been constructed by you during the period under consideration at any stage of the assessment proceedings. During the course of assessment proceedings, no log books, with the complete names and address and contact number of drivers have been provided in respect of Car utilized by the society. You have also failed to intimate about of purpose for which these cars have been utilized . Even the identity of the persons who utilized these cars have not been furnished by you with documentary evidence. Since, you have failed to produce the documentary evidence in respect of expenditure incurred by the society amounting to Rs. 6,14,08,881/- as detailed above , towards the construction of building, you are required to show cause as to why the difference of surplus in excess of 15% as envisaged u/s 11 read with section 12 i.e. 33% ( 85% minus %age of application of income in the year under consideration ) should not be added in your return of income. Your reply should reach to the office of the undersigned on or before 26-03-2013 at 3.30 P.M.

(i) It is incorrect to say that the books of account have not been produced. It is a fact that the case was fixed many a times and the information filed was examined vis a vis the books of account by Mr. Kapil Kumar, Inspector, to whom the dealing with the proceedings was entrusted. The undersigned appeared before your goodself in the month of December, 2012 when various vouchers were examined qua the books of account. It may be submitted that the assessee is a educational society and operates through three schools, Budha Dal Public School, Patiala, Samana and Zirakpur. Separate books of account for each institutin are maintained. A chart showing the books of account maintained in each institution is separately enclosed. The car load of books of account is being produced for necessary examination.

(ii) A very general statement has been given in the query vide which it is noted that on most of the vouchers the mode of transportation of material has not been mentioned. No such bill has been pointed out in the notice. The goods are purchased FOR destination in some cases in which case there is no requirement of any bill of transportation. A statement showing the bills received in connection with material supplied and transportation charges debited to the respective account is enclosed. The fact can be verified from the books of account produced for your examination in 2(i) above. (iii) The purchases of material made is supported by duly drawn bills, detail of which is enclosed separately. To cut short, the seller of the goods might have mentioned the name of the station only but it is a fact that the material reached the premises and used on construction of the building. (iv) Copies of the plans of school building as prepared by the architect were supplied during the course of assessment proceedings which might

have escaped your notice. The fact is clear from reply to query No.2 of notice dated 11.02.2013. The copy of the reply filed is enclosed. However, another copy of the plans is also enclosed for your kind perusal. (v) It may be clarified that the additions and alternations were made within the boundary wall and the management was advised that no sanction or permission from the Municipal Corporation Authorities was required. However, to substantiate the fact certificate from the Architech under whose supervisions the work was carried out is enclosed alongwith the photographs of the new and altered structures. (vi) It is incorrect to say that the names and addresses of persons/contractors. (vii) Who were engaged in the construction of the building were not supplied. In fact the details were filed twice, copies of which are again enclosed. It may be reminded that some of the artisans were also called for examination by your office. It may be further submitted that tax was deducted at source from the payments made to them. Copies of the TDS returns filed for different quarters are enclosed. Almost all the artisans are regular income-tax assessees and their PAN's have been mentioned on the returns filed before the respective wing of the Department. (viii) It is admitted that the expenditure to the tune of Rs.6,14,08,881/- was incurred on construction. Almost all the payments to various artisans are made by account by account payee cheques which can be verified from the books of account produced and also the bank account therein. The inference that that no construction was done involving the expenditure of the volume shown by the assessee is perverse to the facts on record which are enumerated below:-

(ix) Copies of the plans drawn by Mr. L.R. Gupta, Architect. a) Copies of various bills of material purchased. b) Certificate from the Architect that he made the plans and supervised the construction. c) Copies of account of various artisans to whom the payments were made. d)The payments to the artisans were made by account payee cheques. e) That the payments so made are verifiable from the copy of bank account called for by your office from the banker. f) The TDS returns showing payments made to various artisans containing their PAN's. g) The books of account maintained in the regular course of business. The newly constructed buildings are still there. Your goodself is most welcome to inspect the same. Even otherwise, the inspection of the building by your goodself does not depend on the invitation of the assessee. It can be done under the provisions of law. (ix) The vehicles owned are either buses or cars meant for the purpose of carrying out the activity of the Schools. It has already been stated that the assessee operates through three educational institutions and the internal control mechanism is such that the misuse of the vehicles is not possible. However, it is not possible to maintain the log books as it would require deployment of the employees causing avoidable expenditure. It may be noticed from the books of account, audit report and above discussion that the institution is purely charitable institution and no employee would bungle the charity.

In view of the above discussion, the inference that the construction was not carried out and that the application income was not for the objects of the institution is completely misplaced and in the interest of equity, good conscious and facts on record, the claim of the assessee may kindly be allowed, more so, when on the same facts and circumstances, the claims have been allowed in earlier years also. Although the principle of res-judicata is not applicable in income-tax proceedings, yet similar decision on the similar facts cannot be disturbed on whims and fancies." Findings of AO

ii) In response to the summons issued to the M/s Aman Sanitary store, Patiala were issued. In compliance therto, Sh Avtar Singh",Prop. Of the concern, has filed the date wise and narration- wise of Budha Dhall, Public School and Sikh Education Society for the financial year 2009-10, as appearing the account only. He could not prove the availability of stock of items sold by him to the assessee on various dates as neither the purchase bills in support of his stock availability on the respective dates, nor stock register or stock statement have been filed. He even could not prove the payments to any person on account of cartage or transportation. The assessee could not offer any explanation as to why the bills of the same items claimed to have been purchased by it bear the names of the Stations such as Mohali, Fatehgarh Sahib and Damdama Sahib. It means the same material has been diverted to these places and the assessee could not substantiate as to how the same can be attributed to the application of income for the purpose of its charitable activities.

(iii) Except claiming that the material reached the premises of the assessee, the assessee could not bring anything on record to substantiate the same. No stock register/gate register or name of the person delivering the material at the site has been disclosed.

a. There is always the chronological order of consumption of raw material for the construction of the building. In the ordinary course of contraction, Bricks are purchase first, then Sand/ Stone, cement and TMT bars. In the instant case, the assessee was going to construct a building at the cost of Rs.6,14,08,881/- aggregating to 38,506.52 sq. ft of covered area. The first material it purchased on 7-4-09 was Cement for Rs. 51,000/-. Similarly, the second item i.e. TMT Bars were purchased on 14-4-09 for Rs. 4,62,400/-. b. The bricks of Rs. 1,21,000/- were purchased by the assessee on 1-5- 2009 which @ Rs. 3000 per 7000 works out to be 40,333 in number i.e just sufficient for the construction 4033 sq.ft. of covered area @ 10 bricks per sq.ft. c. Though the assessee has claimed to have made addition of 38,506.52 sq. ft of covered area but expenditure claimed on account of electrical fitting is just mere Rs. 4664 i.e just not sufficient for even a single room. d. The assessee has claimed to have purchased cement but no purchase of sand has been shown. It is not explained by the assessee that in the absence of sand, how the construction was carried out. e. No purchase of store or bazari again sine quo non for any type of ceiling and flooring has been shown. f. The assessee has claimed have made alternation and modification but no expenditure on account of labour to the person who dismantled the old structures has been shown. g. The photograph produce by the assessee show a well and beautiful painted building and well laid down lawns but no expenditure on account of paint, varnish, palsing and landscaping has been shown.

h. The assessee has shown the total purchase or TMT bars at Rs.7,68,460/- for 1 sq. ft. covered area atleast TMT bars of Rs. 140/- is required, the expenditure shown by the assessee is just sufficient to add5489 sq.ft. of covered area. i. The expenditure of account of cement has been claimed by the assessee aggregates to Rs. 11,36,425/- which @ Rs. 250/- per bag comes to Rs. 5 per kg which can be used for construction not more than 11,364 sq. ft of covered area @ 20Kg. per Sq ft. j. The assessee has shown payment of Rs. 14,322/- on account of marble fitting to Chunni Lal but no purchases of marble has been shown by it.

k. Further no purchase of timber has been shown. The assessee has shown purchase of plywood for Rs. 2,09,595/- which again is not sufficient to account for the construction of 38,506.52 sq. ft. of covered area. l. The assessee has claimed to have constructed 13,316.66 sq. ft of covered area at Zirkpur but it is astonishing that no material has been shown to have been purchase from Zirkpur. No explanation furnished how the material was transported from Patiala to Zirkpur.

He has further deposed that the approximate rate of construction of building was between Rs. 600 to 700/- per sq. Feet. He was taken to the site and identified the buildings supervised by him during the construction thereof.

In view of the above discussions, the covered area of the building constructed by it during the year under consideration is worked out as under :-

Budha Dhall Public School, Patiala.(Senior Wing) Administrative Block Covered Area in Sq. feet 5000 Date of commencement. 2009 Date of Completion 2010 and 2011 Transformer and Generator Set Room. Covered Area in Sq. feet 1200 Date of commencement 2009 Date of Completion 2010 & 2011 Construction Area at Samana : 7700 Sq. Feet approximate. ( 50% area of the building i.e. 3850 sq. feet is deemed to be constructed by the assessee during the financial year 2009-10 as completion took place in the financial year 2012) Date of Start : 2010 Date of Completion : 2012 Construction Area at Zirakpur : 7000 Sq. Feet approximate. (Ist and 2nd Floor) Date of Start : 2009-10

As per above chart, the total allowable constructed area during the financial year works out to 17050 sq. Feet. Shri L.R. Gupta has deposed in this statement that the approximate rate of construction of the building under his supervision was between Rs. 600 to 700 per sq. feet. However, for the sake of natural justice and equity , I estimate the cost of construction of buildings in questions, by applying the rate of Rs. 800/- sq. feet. Therefore, the allowable expenditure during the financial year 2009-10, for the purpose of section 11 of the Income-tax Act, 1961 comes to Rs. 1,36,40,000/- on account of application of income for the construction of building. vii) “The assessment records reveals that the assessee has not applied for in Form No. 10 as presecribed in Section 11(2) of the Income Tax Act, 1961 before the A.O. to accumulate and set apart of its funds in the succeeding years. Core Findings of AO

viii) a) The Ld. AO further has held “Without prejudices to the above, as discussed in the preceding paragraphs, against the claim of capital expenditure of Rs. 6,33,47,767/- on account of construction of buildings, the actual expenditure have been found to Rs. 1,36,40,000/- . Hence, it is held that the capital expenditure of Rs. 4,97,07,767/- ( 6,33,47,767/- - 1,36,40,000/-) has actually

not been applied for the purposes of construction of buildings and to avail the benefit of section 11 of the I.T. Act, 1961..” b) Expenditure not eligible for exemption on account of donation paid by the society: During the course of assessment proceedings, it was noticed that the assessee society has debited an amount of Rs. 46,000/- in the Income and Expenditure Account under the head donation account. As per details of the donation account , the assessee has paid donation of Rs. 31,000/- for water cooler to Smt. Harjit Kaur and donation of Rs. 15,000/- to M/s Hrinder of AAKAR Foundation, Chandigarh. The donation paid by the society is not related to the expenditure incurred for Education Purposes. There is no provisions in the bye laws of the society that it will make donation to the other persons. As the expenditure is not incurred to achieve the Aims and Objects of the society, therefore, this expenditure of Rs. 46,000/- is not a allowable expenditure. The same is accordingly disallowed and added to the income of the assessee. c) Addition on account of conveyance allowance: During the course of assessment proceedings, it was noticed that the assessee debited the expenditure of Rs. 12,70,000/- to the Income and Expenditure Account under the head 'Conveyance Allowance'. The perusal of details of conveyance allowance furnished by the assessee during the course of assessment proceedings, revealed that it had paid conveyance allowance of Rs. 6,70,000 to Mrs. Sukhdvinerjit Kaur, Member of the AOP and President of the Society and Rs.3,36,000 to Smt. Paraminderjit Kaur Brara, Member of the AOP and Administrative Officer of the Society. According to the provisions of Section 13(l)(c)(ii ) of the Income-tax Act, 1961, the provisions of section 11 of the Income- tax Act, 1961 are not applicable to the cases where any part of the income directly or indirectly paid to the persons specified in Sub-section 3 of Section 13 of the I. T. Act, 1961. The relevant provisions of section are reproduced below :-

Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3),in so far as such use or application relates to any period before the 1st day of June, 1970; Provisions of Section 13(3) are 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. Since both the above noted persons namely Mrs. Sukhdvinerjit Kaur, Member of the AOP and President of the Society and Smt. Paraminderjit Kaur Brara, Member of the AOP and Administrative Officer of the Society, are a specified persons in view of the provisions of section 13(3) of the Income-tax Act, 1961, as such the expenditure of Rs. 10,06,000/- debited by the assessee under the Head 'Conveyance Allowance" is not allowable for the purpose of Section 11 of the Income-tax Act, 1961. Therefore, the amount of Rs. 10,06,000/- is disallowed and added to the income of the assessee.

ix) Disallowance of expenditure claimed by the Assessee under the head depreciation on account of building under construction : The perusal of the depreciation Chart furnished by the assessee during the course of assessment proceeding reveals that it claimed depreciation on the buildings under construction as per details given below :-

Buildings in the books of :

Society 30992365 Buda Dal public, Patiala 269576 Buda Dal public, Zirakpur 560901 Buda Dal public, Samana 255181 Buda Dal public, Patiala (Primary 110704 Building, Patiala) Rs. 3,21,88,727/-

As the assets/ buildings are not put to use in the year under consideration, therefore, this amount of Rs. 3,21,88,727/- is reduced from the expenditure incurred for the purposes of section 11 of the Income-tax Act, 1961 and accordingly the same is disallowed. Keeping in view, the above facts, the income of the Society for the purpose of section 11 is computed as under :- Particulars Income

x) “ Rejection of claim of the assessee u/s 11 of the I.T. Act, 1961” There are conditions prescribed u/s 12A of the Income Tax Act,1961 for the applicability of the section 11 & 12 of the Income Tax Act, 1961 i.e. for claiming exemption u/s 11 of the Income Tax Act,1961. According to sub- clause 1(b) of section 12A of the Income Tax Act,1961. The assessee was required to furnish alongwith the return of income, the report of Auditor mentioned in sub-section (2) of section 288 of the Income Tax Act,1961 in the prescribed form duly signed and verified by such accountant. The relevant provisions of section 12A (l)(b) are reproduced as under:-

Conditions for applicability of section 11 and 12. 12A(1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:-

(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub- section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

According to rule 17B, of the Income-tax Rules, 1962, the report is required to be furnished in Form 10B prescribed in the Rules. The relevant provision of this section Rule is reproduced as under :-

Audit report in the case of Charitable or religious Trust etc.

17B. The report of the audit of the accounts of Trust or institution which is required to be furnished under clause (b) of Section 12A shall be in Form No. 10B.

The assessee has furnished in the Income-tax Return in the ITR-7 on 15-10-2010. The assessee has not enclosed the audit report of the Chartered Accountant in the prescribed form 10B alongwith other particulars required in that form. The perusal of the return reveals that the column relating to number of documents/ statements attached has been left blank. The assessee was asked to file a copy of prescribed Audit report for the relevant year as per notice issued u/s 142(1) of the I. T.Act, 1961 by the Income-tax Officer, Ward-l, Patiala. Again, the ITO Ward-l,Patiala has requested to submit the Audit report vide notice dated 18.4.2012. Again, the A.O., made request to the assessee vide letter dated 16-7-2012 to submit the copy of audit report. The assesse has not made compliance to the notices/letter issued by the A.O. Vide this office notices dated 29-8-2012, the assessee was asked to furnish the audit report. However, on 7-9-2012, the assessee has submitted the audit report on form no. 3CB under section 44AB of the Income-tax Act, 1961 prepared by Sh. Ajay Kumar Garg, and Associates, Chartered Accountants, Patiala on 22-9-2010. Since, the assessee claimed the Exemption under section 11 of the Income- tax Act, 1961, as such it was required to furnish the Prescribed Audit report of the Chartered Accountant in the prescribed form 10B as discussed supra. The assessee has also not filed the audit report in the prescribed form No. 10B during the course of assessment proceedings. Therefore, according to the provisions of section 12A(1) (b) of the Income –tax Act, 1961, the provisions of section 11 are not applicable in the case of the assessee . Accordingly, the claim of the assessee for exemption u/s 11 and 12 are hereby rejected. Without prejudice to the above, against the gross receipts of Rs. 11,34,16,023/- the assessee has claimed to have utilized Rs. 7,54,74,465/- for the purpose of application of funds . 85% of the gross receipts works out to be Rs. 9,64,03,619/- which means the assessee has accumulated Rs. 2,09,29,154/- in excess of 15% of its gross receipts which is liable to be taxed as the assessee has not given any notice to the concerned Assessing Officer in form No. 10 before the expiry of time allowed under section 139(1) in respect of any income accumulated or set apart in excess of 15% of the gross receipts of the assessee earned during the year under consideration. Keeping in view the facts stated above, the taxable income of the society is computed as under :-

1 Income as per Income and Expenditure account of the 3,66,78,419/- Society 2 Add: Depreciation on building under construction as 3,21,88,727/- discussed above 3 Addition on account donations as discussed above Rs. 46,000/- 4 Addition on account of conveyance allowance as Rs. 10,06,000/- discussed above. 5 Total assessed income. Rs. 6,99,19,146/-

Order under section 154 of the Income Tax Act, 1961

1 Income as per Income and Expenditure Rs. 3,66,78,419/- account of the Society. 2 Add: Depreciation on building under Rs. 72,33,282/- construction as discussed above. 3 Addition on account donations as disused above. Rs. 46,000/- 4 Addition on account of conveyance Rs. 10,06,000/- allowance as discussed above. 5 Total assessed Income. Rs. 4,49,63,701/- The application of the filed by the assessee u/s 154 on 3-4-2013 is partly accepted. Proceedings before CIT(A)

no. 2 is a question of fact on recording of statement on which separate finding is given. Ground nos. 4,5,6 are taken up separately.