TMI Blog2020 (2) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - ITA No. 1146/JP/2018 - - - Dated:- 27-1-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri P.C. Parwal, CA For the Revenue : Smt. Runi Paul, JCIT- DR ORDER PER VIJAY PAL RAO, JM This appeal by the Revenue is directed against the order of ld. CIT(A) -1, Jodhpur dated 20-07-2018 for the Assessment Year 2012-13. The Revenue has raised the following grounds. 1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in allowing exemption u/s 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that the 2nd proviso of section 2(15) of the I.T. Act, 1961 attracted as total turnover from sweet shop business is ₹ 3,77,17,315/- which is very higher the prescribed limit of ₹ 25 lacs. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in allowing exemption u/s 11 of the I.T. Act, 1961 to the assessee withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the activity of making / buying and selling of Prasad/ Sweets to the devotees of Lord Balaji of Mehandipur. On going through the income and expenditure account of the assessee, the AO noted that the assessee is engaged in the business of selling Prasad in the form of Sawamani of Laddu Pudi, Halwa Pudi, Gulgulai and Chawal. The total receipts of the assessee from sale of Prasad is ₹ 17,63,47,527/- as against total purchase of materials of ₹ 13,23,88,744/-. The AO noted that out of total purchases assessee has purchased raw materials for preparing the Sweets of ₹ 99,50,831/- and rest of the purchases are for trading purposes. As a result of purchase and sale of Sweets/ Prasad, the assessee has shown profit of ₹ 4,36,26,588/- which includes interest on F.D. of ₹ 1,58,62,349/- and interest on saving bank account of ₹ 2,99,084/-. The AO noted that the profit from core business activity is ₹ 2,74,65,125/-. By considering these details of purchases and sales of Prasad, the AO held that the assessee is dealing in buying and selling of Sweets/prasad which is a commercial activity and it is nothing to do with charitable activity. Accordingly, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then it is a charitable activity of the assessee for which registration was granted u/s 12AA of the Act. The activity of the assessee remained the same to provide service to the devotees for preparing the Prasad as per their request and offering the same to Lord Balaji. Thereafter it is distributed to the devotees, general public as well as school children. The assessee is only receiving money from the devotees who are requesting the assessee to prepare the Prasad on their behalf and then it is offered to God and distribute the same to general public as well as school children as Midday Meal. The entire receipt of the assessee is from the devotees who request for preparation of Sawamani Prasad and the assessee is providing the services of preparation of Prasad, offering to Lord Balaji and then distributing the same amongst devotees, students as well as general public. Even the Prasad is offered is also offered to animals and birds as per rituals. Therefore, the assessee is receiving this income only from the activity of charity, being the services offered to the devotees, general public and school children. The assessee has also referred to assessment order passed u/s 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uying and selling of Prasad is nothing but the commercial activity and not eligible for exemption u/s 11 and 12 of the Act. The ld. DR has relied on the order of the AO and submitted that the conditions as enumerated in the proviso to section 2(15) of the Act are specified for excluding the activity of the assessee from charitable in nature and thereby the claim of the assessee is not found to be in accordance with the provisions of law. As regards the purchases made by the assessee in contravention to Section 13(1) (ii) read with section 13(3) is more than 75% of the purchases found from the related parties M/s. Pawansut Trading Company Pvt. Ltd. New Delhi, the assessee has not disputed the fact that Shri Mahant Kishore Puri Ji Maharaj is the main trustee of the assessee as well as director the said company. Thus the assessee has given undue benefit to the related parties. The AO has doubted the genuineness of the purchases made by the assessee. The said company has shown very meager income in the return of income. Further the purchases made from the specified person referred to u/s 13(3) of the Act, are also not reported in the audit report furnished u/s 12(A)(b) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings, assessee vide letter dated 16.03.2015 explained that the committee of the trust fixes the cost of each Sawamani every week after considering the cost of purchase of raw material used in preparation in Sawamani. A list of rate for all the weeks pertaining to AY 2012-13 along with calculation of cost of Sawamani supported by the purchase bills and booking receipts was filed. From the same, it is evident that only cost is charged from the devotees booking the Sawamani and it is not sold to any other person. Thus, the activity of the assessee trust has no commercial instinct. The AO has also not found any discrepancy in the cost so worked out by the assessee. The assessee further explained that though the Sawamani is booked on cost to cost basis but because of cancellation, surplus arises to the assessee. It was demonstrated that during AY 2012-13, 43,129 Sawamani of different bhog were booked but due to cancellation only 29,843 Sawamani were prepared. The devotees never claimed the booking amount from the trust as they feel that once they have dedicated the amount to Lord Balaji, it belongs to Shri Balaji Maharaj. Such cancellation normally range ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hid the true purpose which is trade, commerce or business would not be entitled to claim that its object is charitable purpose. From the above circular, it is clear that the proviso to section 2(15) would apply only when the activities of an institution of trade, commerce or business and section 2(15) is used only as a mask or a device to hide the true purpose which is trade, commerce or business. Therefore, the genuine institutions who carries out the activity of general public utility for the general welfare of public at large without any profit motive would not be hit by the proviso to section 2(15) even when it charges fees or consideration for the services rendered by it and the same exceeds the prescribed limit. The ld.AR of the assessee relied on following decisions. (1) CIT Vs. Jaipur Stock Exchange Ltd. (2015) 120 DTR 189/ 377 ITR 469 (Raj.) (HC) (2) India Trade Promotion Organization Vs. DGIT (Exemption) Ors. (2015) 114 DTR 329/ 374 ITR 333 (Del.) (HC) (3) ICAI Vs. DGIT (Exemptions) (2011) 347 ITR 99/ 202 Taxman 1 (Del.) (HC) From these decisions, it is evident that simply because a fees/ consideration is charged and it would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om M/s Pawansut Trading Company Pvt. Ltd. are genuine and there is no malpractice or undue advantage extended to it. Therefore, the various grounds taken by the department that assessee is carrying out sweet shop business or that there is violation of section 13(1)(c)(ii) r.w.s. 13(2)(g) of the Act or that purchases made from M/s Pawansut Trading Company Pvt. Ltd. may not be genuine are misplaced. Hence, the order of ld. CIT(A) be upheld by dismissing the ground of department. 2.6 We have considered the rival submissions as well as relevant materials available on record. The AO invoked the proviso to section 2(15) of the Act to deny the benefit of section 11 and 12 of the Act on the ground that the activities of the assessee are in the nature of trade, commerce and business as the assessee is selling the Prasad which does not involve in any activity of charitable in nature. We find that there is no change of the activity of the assessee during the year under consideration as the assessee has been carrying out the same activity of preparing the Prasad as per request of the devotees, offering the same to Lord Balaji and thereafter the Prasad is being distributed to the devotees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is offered to Lord Balaji, Mehandipur Temple Trust. The Pujari of the Balaji Temple offers the Bhog to Lord Balaji as per custom of the temple and after Bhog the Sawamani becomes the Prasad. During the course of appellate proceedings the A.R. of the appellant trust submitted that the devotees take the said Prasad as per their requirement and remaining Prasad is distributed to the other devotees visiting to Balaji Temple without any charge and to more than 200-250 schools in 7 districts of Rajasthan every day as Midday Food without any charge as per Central/State Govt. Policy to provide the Midday meal to each and every student without any cost. The A.R. of the appellant further explained that though the Sawamani is booked on cost of cost basis but because of cancellation, surplus arises to the assessee. It was demonstrated that during A.Y. 2012-13, 43,129 Sawamani of different bhogh were booked but due to cancellation only 29,843 Sawamani were prepared. The devotes never claimed the booking amount from the trust as they feel that once they have dedicated the amount to Lord Balaji, it belongs to Shri Balaji. Such cancellation normally ranges from 15-20% and it is for this reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the remand report / comments from the AO after re-examination of the submissions made by the assessee. The 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. 2.6.1 As regards the violation of provisions of Section 13(1) (ii) r.w.s.13(2)(g) of the Act, the AO has invoked the provisions merely because the assessee has made purchases from M/s. Pawansut Trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party. The ld. CIT(A) has decided this issue in para 6 of his order as under:- 6. The next issue raised by the appellant vide Ground No. 8 and 8 (i) is regarding invoking provision of Section 13(1) (ii) r.w.s. 13 (2)(g) of the Act in respect of the purchases made from Pawantsut Trading Co. and disallowing the cost of purchase of ₹ 45,02,304/-. In this regard, the AO discussed in the assessment order the assessee had made total purchases of Sawamani of ₹ 12,24,37,913/-. Out of the total purchases to the extent of ₹ 9,00,46,104/-, had been made from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi. Shri Mahant Kishore Puri Ji Maharaj is Director of the company as well as the main trustee of the assessee trust from whom purchases of more than 75% had been made. The purchases to such a huge extent had been made from a related party as mentioned under section 13(3) of the Act as such there stands a challenge of the same being at arms length. The AO further discussed that M/s. Pawansut Trading Company Pvt. Ltd. had shown an income of just ₹ 9,71,880/- on such a huge sales. The AO objected that the auditor had not reported the transaction of more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchases have been made from the related party. However, the appellant has proved that the purchases made from the third party are also at the same rate as that of the related party. Under these circumstances it cannot be said that the appellant Trust has passed on any undue profit the related person i.e. M/s. Pawansut Trading Company Pvt. Ltd. It is also noted that the related parties i.e. M/s. Pawansut Trading Company Pvt. Ltd. is also assessed to the income tax and nothing adverse has been noted by the AO in the case of M/s. Pawansut Trading Company Pvt. Ltd. with regard to any malpractice or undue advantage being extended to that company by the appellant trust. Apparently, M/s. Pawansut Trading Company Pvt. Ltd. has been carrying out commercial activity in its own right, unrelated to the functioning of the appellant trust. Keeping in view of above, no adverse fact has been brought on record or established. Addition appears to be merely on presumption/ surmises which cannot be sustained. Accordingly, addition made by the AO on this account is deleted hereby. Appellant succeeds on this ground. Ground is allowed. Hence, the ld. CIT(A) has decided this issue after ..... X X X X Extracts X X X X X X X X Extracts X X X X
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