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2020 (2) TMI 75 - AT - Income TaxExemption u/s 11 - Charitable activity u/s 2(15) - Total turnover from sweet shop business which is very higher the prescribed limit of ₹ 25 lacs - Transaction done with related party - certain purchases made by the assessee treating as transactions with specified persons u/s 13(3) of the Act which was allowed by the ld. CIT(A) by holding that assessee's activities are chartable in nature and there is no violation of section 13 (3) - HELD THAT:- AO in the remand report has not disputed the core basic activity of the assessee as preparation of Prasad as per request of the devotees, offering the same to God and thereafter distribution of this Prasad to other devotees as well as general public and finally remaining Prasad is distributed to the children of various schools. The assessee has furnished the details of day today distribution of Prasad which is not in dispute. Therefore, when the assessee is not charging anything for providing the services of distribution of Prasad to the devotees, general public as well as school children in the state of Rajasthan then the receipts from the devotees who are requesting for preparation of Prasad and offering the same to God itself is not in the nature of trade, commerce or business. Hence, we do not find any error or illegality in the order of the ld. CIT(A) qua this issue. Violation of provisions of Section 13(1)(C)(ii) r.w.s.13(2)(g) - AO has invoked the provisions merely because the assessee has made purchases from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi which is a related party. However, the AO has nowhere stated that the assessee has made excess payment to the said unrelated party. This payment ought to have been made in terms of fair market price. There is no allegation of the AO that the assessee has given more prices to the related party than to the unrelated third party. Merely because the transaction is done with the related party, if the same is done strictly as per normal terms and conditions and no undue benefit is given to the unrelated party then even if the transaction is done with specified persons, it will not amount to violation of provisions of section 13(1)(C)(ii) r.w.s. 13(2)(g) of the Act. Only when it is found that the assessee has given undue benefit to the related party then it would amount to violation of these provisions. Further, even if it is found that the assessee has give some benefit by making excess payment in comparison to the actual price in terms of fair market price then only excess payment found to be made to the related party would be considered as income not applied for charitable purposes. In this case, the AO has not made any such allegations and his finding is not based on any specific actual undue benefit but only on conjecture and surmises that since the transaction is with related party, it is a violation of provisions of section 13(1)(c)(ii) r.w.s. 13(2)(g). Once the income is not applied or used for direct or indirect benefit of specified person but it is only a transaction on a competitive rate then there would be no violation of section 13(1)(c)(ii) - when the income or the property of the trust is not diverted in favour of the any person specified in sub-section (3) then the provisions of section 13(2(g) are also not violated. In this case, it is only a transaction of purchase of materials by the assessee from the related party but when the purchases are made at the market rate and at competitive price then it would not amount to giving any benefit or utilizing the income for the benefit of related party. CIT(A) has decided this issue after giving opportunity to the AO to point out as to how any undue profit has been passed to the related party. In the absence of any facts or materials to indicate that the assessee has given any undue benefit or even applied its income or property for the benefit of the specified person, the mere transaction with the related party would not ipso facto attracts the provisions of section 13(1)(C)(ii) r.w.s. 13(2)(g) of the Act. Accordingly, we do not find any reason to interfere with the order of the ld. CIT(A) qua this issue. Disallowance of 5% of the purchases made from M/s. Pawansut Trading Company Pvt.Ltd., New Delhi by the AO which was deleted by the ld. CIT(A) - This issue is only a consequential disallowance made by the AO after denying the benefit of exemption u/s 11 and 12 of the Act in respect of purchases made by the assessee from related party. Since we have already considered and decided this issue of violation of 13(1)(c)(ii) r.w.s. 13(2)(g) of the Act, therefore, in the absence of any excess or extra payment made by the assessee to the said related party on account of purchases and the transaction is found at arms’ length, therefore, the adhoc disallowance of 5% made by the AO is arbitrary and unjustified. - Decided against revenue
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