TMI Blog2016 (4) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... re already reflected in the regular books of the assessee, if the Assessing Officer feels that the loans (based on the blank promotes/ application forms) are actually disbursed as contained in the MIS data base, the said disbursement stands explained and accounted in the books. If the Assessing Officer feels that the amounts in the MIS data base are different loans, then there is no evidence to show that the assessee actually advanced loans to the said SHGs, based on the blank pronotes / application forms. Further, even if it is presumed that there were loans advanced to the said SHGs based on the said blank pronotes/application forms, whether accounted in the books or not, still the same will not amount to violations u/s. 13(l)(c) of the Act as none of the self help groups or SHGs are the persons specified u/s. 13(3) of the Act. Thus, the Assessing Officer in not justified in coming to the conclusion that there were unaccounted loans disbursed to the SHGs etc., and treating the same as a violation u/s. 13(l)(c) of the Act. - Decided in favour of assessee Disallowance of 10% of administrative expenditure - 80% made by the AO - Held that:- Whatever assessee claimed for expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected the assessee s claim of exemption u/s.11 of the Act and brought the excess of income over expenses to tax as per the regular provisions of the Act. While doing so, the AO also disallowed the assessee s claim of provision for doubtful debts, 80% of the administrative expenses and also added interest on unaccounted loans disbursed. On appeal, the CIT(A) observed that the requirement of investments in the specified modes u/s.11(5) of the Act is only with respect to the unspent portion of 85% in the Trust s income. As far as the other portion of 15% of the trust s income is concerned, as an absolute and unfettered exemption of accumulated income guaranteed by section 11(1)(a) of the Act, the assessee need not invest the same in the modes specified u/s.11(5) of the Act. As the trust has clearly fulfilled the statutory requirements laid down in the provisions. In the F.Y. 2007-08 (i.e. A.Y 2008-09), the assessee has applied 85% of its income for the objects and hence the balance of income (which is within the limits of 15%) is not subjected the restrictions imposed u/s.11(2) r.w.s.11(5) of the Act. As far as the F.Y 2006-07,(i.e.A.Y 2007-08) is concerned, the assessee failed to app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding violation of Sec.13(1)(c) of the Act, CIT(A) observed that on the basis of blank signed pronotes and the application forms, the assessee claimed that no loans were advanced to the said groups due to paucity of funds. Hence the same cannot be considered as loans actually disbursed. On the other hand, since the amounts reflected in the MIS in the said names are the previous loans availed by the said groups and were properly accounted in the books of the assessee, the said amounts of MIS data base cannot be treated as the loans advanced on account of the blank pronotes/ application forms. These are two separate and independent transactions. In any case, since the advances mentioned in the MIS data base are already reflected in the regular books of the assessee, if the Assessing Officer feels that the loans (based on the blank promotes/ application forms) are actually disbursed as contained in the MIS data base, the said disbursement stands explained and accounted in the books. If the Assessing Officer feels that the amounts in the MIS data base are different loans, then there is no evidence to show that the assessee actually advanced loans to the said SHGs, based on the blank pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referral fee is being collected by the assessee from JFSL, as the latter is using the assessee s facilities in terms of premises and manpower. The referral fee is to be collected on the average loans outstanding and not on the amounts outstanding in the last month. The average loans outstanding means the sum of loans outstanding at the end of each month divided by twelve. The assessee calculated the referral fee @ 0.25% on the average loans outstanding at the end of each month. Hence there is no short collection of referral fee by the assessee from JFSL in order to attract the violations u/s. 13(1)(c) of the Act. Hence, the Assessing Officer is not justified incoming to the conclusion that the assessee committed violations u/ s. 11(5) and also u/s. 13(1)(c) of the Act. Therefore, the assessee is eligible for exemption of income u/s. 11 and the CIT(A) directed the Assessing Officer to allow the benefit of exemption to the assessee u/s. 11 of the Act. The CIT(A) has decided this issue in favour of the assessee. 6. Further, CIT(A) observed that the Assessing Officer, after noticing violations u/s. 13(1)(d) and u/s. 13(1)(c) of the Act, disallowed the assessee s claim of exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso on account of payment of referral charge. On this also, assessee is not entitled for exemption u/s.11 of the Act. Following judgments support Revenue case. 1. ITO V. KAS Foundation reported in (2012) 23 taxmann.com 292(Chennai). 2. The Mundakapadam Mandiams Society Vs. CIT (2002) 178 CTR (Ker) 79. 3. George Educational Medical Charitable Society Vs. CIT reported in [2012] 20 taxamann. Com 638(Ker.) 4. Sharada Trust Vs. CIT (1980) 16 CTR (P H) 36. 5. In the case of M/s.KAS Foundation in ITA No.1892 1893/Mds./2010 vide order dated 19th May, 2012. Ld.A.R relied on the judgement of jurisdictional High Court in the case of CIT v. Working Women s Forum reported in [2014] 365 ITR 353 (Mad) wherein held that only that portion of income which is violation of section 13(1)(d) ordered for exemption u/s.11 of the Act and not the total denial of sec.11 of the Act. 9. However, we come across the judgement of jurisdictional High Court in the case of Ramalingam charities Vs. CIT reported in 243 ITR 307 wherein held that when the assessee not satisfying requirement of sec.11(5) of the Act, the assessee cannot claim exemption u/s.11 of the Act. In addition to this, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : 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 ; 5. As per sec. 13, the benefit of exemption from income tax is not available if any part of their income or property enures or is, during the previous year, applied, directly or indirectly, for the benefit of the author, founder, substantial contributor or relative aforesaid or for the benefit of any concern in which any such author, founder, substantial contributor or relative has substantial interest. The exemption from tax will be denied only if their income is applied for the benefit of the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is violative of Sec.13(1)(c) of the Act 13(1)(d) to be considered for denying exemption u/s.11 of the Act. 10. Next grievance of the Revenue is with regard to sustaining the disallowance of 10% of administrative expenditure instead of 80% made by the AO. In this case, the assessee in spite of given several opportunity, has not produced the books before the AO for examination for one reason or the other. The assessee used to avoid the production of books of accounts before the AO to prove the genuineness of the expenditure incurred by the assessee and as such AO disallowed 80% of the administrative expenditure. In our opinion, whatever assessee claimed for expenditure, the burden is on the assessee to produce necessary documents to prove the expenditure that was incurred wholly and exclusively for the purpose of carrying out the objectives of the Trust or for the purpose of business of assessee. Since the assessee has failed to produce books of accounts, the AO forced to estimate the disallowance of administrative expenditure at 80%. The CIT(A) reduced to 10% without any basis. The CIT(A) observed that disallowance of 10% is sufficient in view of the facts of the case. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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