TMI Blog2015 (11) TMI 1636X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken into account and it cannot be presumed that the trustees were keeping their personal cars idle and using the trust vehicles for personal purposes. Similarly a statement of one of the trustees that sometimes the cars are used for private purposes also cannot be taken as misuse of the trust vehicles for personal purposes. Both the trustees were using the vehicles are also senior and qualified Doctors and providing services to the trust. Hence their use of vehicles cannot be said to be for private purposes only on the basis of surmises and conjectures. From the above it is evident that the observations of the AO that there is misuse of vehicles of the trust for personal purposes of the trustees and hence the provisions of section 13(1)(c) are attracted is totally based on surmises and conjecture and the same is not at all sustainable. Renovation in the hospital building which has been done to benefit for the trustees who is owner of the building - Held that:- The total area of the building is 18306 sq.ft. and the total expenditure under the block period is 6143699. In this regard assessee’s contention is that rent paid for such property is ₹ 2.75 per sq.ft. and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submission of the assessee that Shri Gupta, owner of the medical store in the premises of the trust, has made payment for services provided by the concerned persons on individual personal capacity and it has no nexus with the activity of the trust or any profit of the trust. Hence the payment of commission by the medical store cannot be said to be an indirect benefit to the trustees. Non explain the nature of the travelling expenses and how it was done for the purpose of the business - Held that:- Genuineness of this expenditure has not been doubted. Necessity and nexus of expenditure has been said to be demonstrated by the fact that they were made for medical consultation, research activity and attending conferences. In this regard certificate of attendance of various firms out of India has also been placed in paper book. Thus we find that the AO has also made this observation of mis-use of travelling expenditure also on the basis of his surmises and conjecture. Hence there is no basis on which it can be held that there is any undue benefit to the trustees within the meaning of section 13(1)(c) of I.T. Act by way of personal travelling expenditure. Assessee trust has all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being exempt u/s 11 of I.T. Act, 1961. 3. The learned A.O. erred in holding that in the case of assessee trust there is violation of section 13(1)(c) of I.T. Act, 1961 and therefore assessee is not eligible for benefit of income being exempt u/s 11 of I.T. Act, 1961. 4. The learned CIT(A) erred in upholding the action of A.O. in not granting exemption u/s 11 of I.T. Act, 1961 and upholding the action of A.O. that there is violation of provisions of section 13(1)(c) of I.T. Act, 1961. 5. The addition sustained out of travelling and conveyance expenses by Hon ble CIT(A) is unjustified, unwarranted and excessive. 6. The addition sustained out of promotional and inaugural expenses by Hon ble CIT(A) is unjustified, unwarranted and excessive. 7. The addition sustained out of depreciation on cars by Hon ble CIT(A) at ₹ 1,94,129 is unjustified, unwarranted and excessive. 8. The addition sustained by CIT(A) at ₹ 10,000/- on account of salary is unjustified, unwarranted and excessive. 9. The addition sustained out of expenses by CIT(A) at ₹ 75,000/- is unjustified, unwarranted and excessive. 10. The assessee denies liability to be assessed to inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the Trust would not be eligible for exemption u/s 11. 5. Renovation of hospital building owned by Dr. Sudhir Babhulkar. In this regard the AO noted that the assessee trust carried out major repair and renovation of ₹ 35,86,995/- during the financial year 2006-07. Total expenditure of such major repair was ₹ 61,43,599/- during the period relevant to assessment years 2005-06 to 2008-09. In this regard the AO referred to a statement obtained from Dr. Sudhir Babhulkar. The AO observed that from the statement it is clear that the assessee trust carried out major capital expenditure in the form of change of the flouring of the entire building and patient room, electrification and painting of the building. There was also front elevation of the hospital. The AO held that these were capital expenses and not repair and were meant to give benefit to its founder trustee Dr. Sudhir Babhulkar. On this account also the AO held that founder trustee got direct benefit and, therefore, the assessee would not be entitled to exemption u/s 11 of the I.T. Act. 6. Private practice of Dr. Mrs. Nandani Sushrut Babhulkar. In this regard the AO observed that Dr. Nandani S. Babhulkar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO referred to certain loose papers which were meant for ticket of Mrs. Aruna Babhulkar, Sudhir Babhulkar, Nandani Babhulkar, Ms Sanskriti Babhulkar and Ms Siddhi Babhulkar. Referring to this the AO held that it was amply clear that expenses are in the nature of expenses incurred on personal purpose of both the trustee and the relative. The AO also noted that in the statement of Dr. Sudhir Babhulkar regarding the professional activity of Mrs. Aruna Babhulkar, he had explained that |Mrs. Aruna Babhulkar is engaged in the business of garden layout and maintenance of garden. Hence the AO held that the visit of Mrs. Aruna Babhulkar to foreign country is a direct benefit to the assessee within the meaning of section 13(1)(c). In absence of explanation regarding the nature of travelling expenses and its purpose, the AO held that the assessee was not eligible for exemption u/s 11 of the I.T. Act. 10. Personal expenses of trustees. In this regard the AO referred to a bill of Gondwana Clup for ₹ 1100/- in the name of Dr. Sudhir Babhulkar. The AO held that in absence of any explanation this was a direct benefit to the trustee. The AO further referred to a bill of Eureka Forbes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence the AO held that it was just and appropriate to presume that there was uniform practice in all the assessment years during the search period. AO proceeded to make the assessment at ₹ 14,28,700/-. 14. Against the above order, assessee appealed before the learned CIT(Appeals). The learned CIT(Appeals) considered the various submissions of the assessee. He also obtained the remand report from the AO. The learned CIT(Appeals) proceeded to principally affirm the finding of the AO and held that the AO has rightly denied the exemption u/s 11 of the I.T. Act. Learned CIT(Appeals) granted some relief on addition. 15. Against the above order, the assessee is in appeal before us. At the threshold learned counsel of the assessee submitted that in the first year i.e. assessment year 2003-04 the assessee had filed its return of income on 3110-2003. The assessment was completed when the search was conducted on 1004-2008. He submitted that the assessment has not been made on the basis of any material found during the search. Hence placing reliance upon Hon ble jurisdictional High Court decision in the case of CIT vs. All Cargo Global Logistics Ltd. in Income Tax Appeal No. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stees. 2. Travelling expenses. 3 Charitable commercial character of assessee. 4 Use of vehicles. 5 Renovation of buiding. 6 Personal use of staff.~ 3. Commission paid to Mrs. Aruna Bhabulkar, G) The assessee trust is managed by two experienced Senior Doctors specialized in Orthopedic. The educational qualification and experience of such doctors was explained before the authority by placing profiles of such doctors. H) Two senior doctors are full time looking after the activity of the trust and are also trustees. For rendering services for day to day activity, a reasonable compensation is being paid to trustees in the form of sharing of fees and other reasonable facilities/perquisites. Value of compensation paid even after considering disallowance made by AO. is computed at Pages 20 to 34.. I) The assessments of two doctors were also completed under section 153A r.w.s. 143(3) of LT. Act 1961 and income shown by them in the return being amount paid by assessee trust has been accepted by the same A.O. without inviting any adverse observation with regard to income earned or assets held by them. J) The A.O. in the case of two doctors has disallowed salary p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable activity was verified by the authority and no fault/mistake has been found with the same. P) The various camps conducted at tribal areas to provide medical relief to poor is demonstrated by placing legal evidence on record i.e. photographs, publications advertisement. Q) The assessee trust has been holding accreditation of National Board of Examinations and College of Physicians and Surgeons operating under the Ministry of health and family welfare, Govt. of India. The aforesaid accredition is provided to charitable trust as per rules framed by Government of India. This amply demonstrates that one arm of the Government of India has duly recognized the assessee trust as charitable institution and same is disputed by revenue authorities being another arm of Government of India. R) There is evidence on record that one Mercedez Benz ca owned by Dr. Sushrut Babulkar. The AO. in assessment framed u/s 153A/143(3) made part disallowance for personal use of car out of depreciation and expenses. This takes reasonable care for personal use of vehicle. The cars owned by trust are used for the purpose of objects of trust. The expense claimed by trust on car in no manner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Del.) 42 Hyundai Heavy Industries Co. Ltd. Vs. ITa iii) 76 ITD 101 (Del.(S8) Saipem Spa as Agent of D.N. Vittoria Ors. Vs. ITa iv) (1989) 178 ITR 470 (Cal.) CIT Vs. D.S. 81ackwood v) ITAT order in ITA No.4514/De1/2011 in the case of M/s. Idicula Trust Society vide order dated 30/4/2012 vi) Hon'ble High Court Punjab and Haryana at Chandigarh in ITA No.1 of 2011 (0 M) in the case of M/s. Idicula Trust Society vide order dated 11/04/2014 vii) ITAT order in ITA NO.5503/De1/2012 in the case of Institute for Human Development vide order dated 10/10/2014. viii) ITAT order in ITA NO.2745/De1/2011 in the case of Nutrition Foundation of India vide order dated 7/2/2014 ix) (2009) 17 DTR (Del.) 283 Director of Income Tax (Exemption) vs. Span Foundation x) (2014) 41 CCH 0119/Ahd. (Trib.) PNR Society FIR Relief and Rehabilitation of the Disabled Trust vs. DOlT (Exemptions) xi) (2013) 354 ITR 605 (AP) Chirec Education Society vs. Assistant Director of Income Tax 17. Per contra learned D.R. relied upon the orders of the authorities below. 18. We have carefully considered the submissions. First we deal with the preliminary issue of jurisdiction for assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT : a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the finding of the section and any other material existing or brought on the record of the AO. b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. 20. From the above it is evident that in respect of non-abated assessments, the assessment u/s 153A has to be made on the basis of books of accounts or other documents not produced in the course of original assessment but found in the course of search and undisclosed income or undisclosed property is covered in the course of search. When the above exposition is viewed and the basis of AO s assessment as above is considered, we do not have any hesitation in holding that since the assessment year 2003-04 is a case of non-abated assessment, the AO s jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO is that there has been renovation in the hospital building which has been done to benefit for the trustees who is owner of the building. In this regard the AO has observed that there has been major capital expenditure which is in the form of change of the flooring, electrification, painting and front elevation. The AO has held that these are not repair and renovation and were meant to be given benefit to its founder trustee. Above observation of the AO clearly is in the nature of a sweeping generalisation and comment. The total area of the building is 18306 sq.ft. and the total expenditure under the block period is 6143699. In this regard assessee s contention is that rent paid for such property is ₹ 2.75 per sq.ft. and the asking rent for similarly located property is around 901 to 100/- per sq.ft.s The trust is occupying the property since 1992 and had to replace flooring due to extensive foot fall being a public hospital. That the property shall be used for a further period of 15 years by the trust. Considering from this angle, the quantum of expenditure on repair and renovation and the nature thereof it cannot be held that expenditure was not meant for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of drugs. This commission has been paid by a medical store that runs from hospital. Since the medical store does not pay any rent to the assessee trust, this was an indirect benefit to the trustee and wife of one of the trustees. In this regard we find that it is the submission of the assessee that Shri Gupta, owner of the medical store in the premises of the trust, has made payment for services provided by the concerned persons on individual personal capacity and it has no nexus with the activity of the trust or any profit of the trust. Hence the payment of commission by the medical store cannot be said to be an indirect benefit to the trustees. 27. Another observation of the AO is that the assessee has not been able to explain the nature of the travelling expenses and how it was done for the purpose of the business. In this regard it is the assessee s submission that travelling expenditure has been incurred in the course of day to day activity of running of hospital. Genuineness of this expenditure has not been doubted. Necessity and nexus of expenditure has been said to be demonstrated by the fact that they were made for medical consultation, research activity and attending c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the trustees and the relatives. That if the documents for each and every assessment year are insisted to be searched practically the provision for such assessment would be defeated. That this cannot be an intention of the legislature that the AO cannot shut his eyes to the legislative intent. That it was just and appropriate to assume that there was uniform practice in all assessment during search period. The above observation of the AO clearly amplify that the AO has picked up and magnified some statements obtained and has made sweeping generalisation which is not sustainable in law. By no stretch of imagination it can be said that it is a legislative intent that the AO s intention and feelings should be the basis of assessment. The AO s observation that the assessee trust is not doing any charitable activity is also devoid of any cogency. The assessee trust was constituted on 30-03-1991 and the main object of the trust was to provide medical relief and promote education in the field of medicine. The Trust is registered u/s 12A of the I.T. Act and a certificate has been issued u/s 12A on 13-03-1992. It is holding valid registration even on date. The assessee trust is holding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee should be denied benefit u/s 11 of the I.T. Act. 32. i) Apropos addition out of travelling and conveyance expenses: ii) Apropos addition out of promotional and inaugural expenses: iii) Apropos addition out of depreciation on cars. iv) Apropos addition of ₹ 10,000/- on account of salary. v) Apropos addition on account of expenses of ₹ 75,000/-. We have already held in initial paras of this order that the assumption of jurisdiction in this case was bad in law as this was a case of non abated assessment and no addition dehorse any thing found in search is sustainable. On none of the additions above, the AO has referred to any material found on search. He has merely referred that some material were found without even bothering to specify the nature and contents thereof or the amounts involved. In these circumstances, in our considered opinion, these additions on merits are not at all sustainable in the case of assessment u/s 153A in case of non abated assessment. Hence respectfully following the decision of jurisdictional High Court in the case of CIT vs. All Cargo Global Logistics above, we set aside the orders of the authorities below ..... X X X X Extracts X X X X X X X X Extracts X X X X
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