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2016 (4) TMI 512 - ITAT CHENNAI

2016 (4) TMI 512 - ITAT CHENNAI - TMI - Entitlement for exemption u/s.11 - violation u/s.13(1)(d) & 13(1)(c) - Held that:- The investment of ₹ 30,00,000/- during the F.Y.2006-07, in the shares of JFSL, which is within the limits of 15% of the income, is deemed to have been made out of the 15% of the income of the trust exempted u/s. 11(1)(a) of the Act. This is the only investment made in F.Y. 2006-07 and continued during the F.Y.2007-08, which the Assessing Officer treated as a violation .....

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ur of assessee

Unaccounted loan disbursed - Held that:- 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 .....

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fied 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 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 objectiv .....

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rection to the assessee to produce necessary books of accounts and supporting vouchers and bills to prove the expenditure incurred by the assessee and AO would decide the issue afresh. - I.T.A.No. 2006/Mds./2012 - Dated:- 11-3-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER For The Appellant : Mr.A.B.Koli,JCIT,D.R For The Respondent : Mr.T.Vasudevan,Advocate ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal is filed by the Revenue is directed agains .....

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ndian Companies Act, 1956 on 19.04.2004, engaged in micro financing activities to the self-help groups. The assessee trust filed its return of income on 13.07.2009 admitting income of 18,25,220/- before claiming exemption u/s.11 of the Act. The AO while completing the assessment u/s.143(3) of the Act on 31.12.2010, observed that the assessee invested ₹ 30,00,000/- in the shares of M/s.Jagannath Financial Services Ltd., in violation of provisions of the section 13(1)(d) r.w.s. 11(5) of the .....

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t 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 clear .....

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ught for accumulation in form No.10 before the Revenue. The details are as under:- Particulars A.Y.2008-09 F.Y.2007-08 AY.2007-O8 A.Y.2006-07 Gross Receipts 4,27,05,826 6,57,82,073 85% for Application thereon 3,62,99,952 5,59,14,762 Amount Applied for the Object of the Trust - On Revenue Account. - On Capital Account Total Application . 4,06,96,827 50,26,834 4,57,23,661 4,75,94,361 11,35,230 4,87,29,591 Excess! (Shortfall) Application 94,23,709 (71,85,171) Form 10 applied For accumulation 1,78,6 .....

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f the Act. Hence, the investment of 30,00,000/- during the F.Y.2006-07, in the shares of JFSL, which is within the limits of 15% of the income, is deemed to have been made out of the 15% of the income of the trust exempted u/s. 11(1)(a) of the Act. This is the only investment made in F.Y. 2006-07 and continued during the F.Y.2007-08, which the Assessing Officer treated as a violation u/s. 13(1)(d) r.w.s. 11(5) of the Act. There are no other investments made in violation of sec. 13(1)(d) w.r.s. 1 .....

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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 .....

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t 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 co .....

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07/- and the same was credited in the accounts and hence there was no short collection from JFSL during the year; The relevant portion of the assessee s submissions are as under: 8. As regards the referral fees of ₹ 2,3 7,607 the same is the amount due from Jagannatha Financial Services Ltd., who had utilized the name of the appellant trust for lending loans, and also used the premises of the Trust, and who had agreed to pay referral fee of ₹ 5,00,000 per quarter or 0.25% of the aver .....

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the financial year is 7,25,45,083/-, based on which the Assessing Officer calculated the referral fees at 2,55,666/-, as against the referral fee of 2,37,607/- claimed by the assessee. Hence the Assessing Officer treated the difference of 18,059/- (i.e. 2,55,666- 2,37,607) as short collection of referral fee from JFSL amounting to violation u/s. 13(1)(c) of the Act. The CIT(A) observed that the above observation of the Assessing Officer is not correct. The referral fee is being collected by the .....

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e 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, CI .....

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eligible for exemption of its income u/s. 11 of the Act, the income of the assessee and its exemption is to be determined, as per the provisions of sec. 11 to 13 of the Act. 7. Regarding the disallowance of expenditure, he observed that considering the nature of the activities of the assessee, the disallowance of 80% of the administrative expenses made by the Assessing Officer is highly unreasonable and not justified. Considering the facts and assessee s failure to furnish the full details befor .....

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. Against this the Revenue is in appeal before us. 8. We have heard both the parties and perused the material on record. In this case there is violation of sections 13(1)(c) & 13(1)(d) of the Act as the assessee invested 30 lakhs in the share of M/s.Jagannath Financial Services Ltd., and remained to continue in the assessment year under consideration also. The contention of the ld.A.R is that investment itself is not made in the relevant assessment year 2008-09. In our opinion, disqualificat .....

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naccounted disbursement of loan by assessee and also 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 .....

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rt 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 Co-ordinate Bench in the case of India Cement Educational Society in ITA No.1525/Mds./2010 dated 20.01.2016 after considering the judgement of jurisdictional High Court in the case of CIT v. Nagarathu Vaisiyargal Sangam reported in 246 ITR 164 held as follows:- .....

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held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India ; and where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent. of the income from such property ; Sec. 13(1)(c) of the Act reads as follows: Section 11 not to apply in certain cases (1) Nothing con .....

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f any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) : Provided that in the case of a trust or institution created or estab-lished 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 .....

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ause (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 .....

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should apply the funds in a concern in which they themselves are interested, if there was a mandatory provision in the trust deed for such a purpose. Such a mandate in the trust deed should have existed and could not have been brought in by amending the trust deed at a later stage after that crucial date, even if the trust deed authorized the trustees to amend the trust deed to bring in the mandatory condition or requirement for them to invest funds of the trust in a concern in which they might .....

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ng the provisions of sec. 13(1)(c) of the Act and denying exemption to the assessee u/s 11 of the Act. The assessee relied on the judgment of Bombay High Court in the case of Sheth Mafatlal Gagalbhai Foundation Trust (supra) which cannot be considered in view of the jurisdictional High Court judgment which is against the assessee. 6.- 7. The provision of section 164(2) is concerned with taxability of income (i) which is derived from property held under trust wholly for charitable or religious pu .....

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