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TMI Blog2020 (2) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany Pvt. Ltd., New Delhi which is a specified persons u/s 13(3) of the I.T. Act, 1961 and thus provisions of Section 3(1)(c)(ii) r.w.s. 13(2)(g) of the I.T. Act, 1961 attracted in this issue. 3. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in allowing exemption 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that the purchases from specified persons i.e. M/s. Pawansut Trading Company Pvt. Ltd., New Delhi were not reported by the auditor in the audit report furnished u/s 12A(1)(b) in Form No. 10B. 4. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in allowing exemption 11 of the I.T. Act, 1961 to the assessee without appreciating the fact that the entities i.e. M/s. Pawansut Trading Company Pvt. Ltd. and M/s. Maruti Traders from where maximum purchases were made, had show a very meager income of Rs. 9,71,880/- and Rs. 19,357/- respectively which leads doubts into the genuineness of these purchases from these concerns. 5. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 45,02,304/- on account of disallowance @ 5% out of purchases made f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d consequently the claim of exemption u/s 11 was denied. The AO has also held that there is violation of section 13(1)(c)(ii) of the Act so far as the purchases of Rs. 9,00,46,104/- have been from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi. The basis of the observation of the AO is that the income declared by the said company for the Assessment Year 2012-13 is very meager and further the main trustee of the assessee trust is also the director of the said company. Thus, the AO was of the view that the transaction was done with the related party which falls in the specified person u/s 13(3) of the Act. The AO held that the management of the assessee trust has used the property of the trust for personal benefit and thereby attracting the provisions of section 13(1)(c)(ii) of the Act read with section 13(2)(g) of the Act and consequently assessee is not eligible to claim exemption u/s 11 and 12 of the Act. Hence, the AO has assessed the entire surplus of Rs. 4,36,26,558/- to tax. The assessee challenged the action of the AO before the ld. CIT(A). 2.2 Before the ld. CIT(A), the assessee contended that the assessee has been doing some activity of preparing the Prasad for the dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 11 and 12 of the Act. The ld. CIT(A) after considering all these facts and submissions of the assessee as well as the remand report of the AO held that assessee's activities are charitable in nature and not in the nature of trade, commerce or business. Accordingly, the ld. CIT(A) allowed the claim of exemption u/s 11 and 12 to the assessee. 2.3 As regards the violation of proviso to section 13(1)(c )(ii) r.w.s. 13(2)(g) of the Act, the ld. CIT(A) has considered all the relevant facts and found that no undue benefit was given to the so called related parties as purchase price from the said party M/s. Pawansut Trading Company Pvt.Ltd. New Delhi is at the same rate as it was purchased from third party. Accordingly, the ld. CIT(A) allowed the appeal of the assessee and claim u/s 11 and 12 of the Act. 2.4 Before the Tribunal, the ld. DR has submitted that the AO has clearly brought out the fact that the activity of the assessee is trading of purchase and sale of Prasad to offer the Lord Balaji Mehandipur Temple Trust. The activity of the assessee is nothing but like a sale of Prasad. Therefore, the same is trade, commerce and business activity and not the activity of charitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mandatory disclosure and reporting of a trust for related parties transactions. This is not an isolated or insignificant transaction of the purchases. The assessee has made purchases as much as Rs. 9.00 crores out of total purchases of 12 crores from the related parties which has not been reported in the audit report. Therefore, such purchases shown from the related parties are not from serious doubt of genuineness. 2.5 On the other hand the ld.AR of the assessee has submitted that that Shri Mehandipur Balaji Temple is an ancient Temple dedicated to "Lord Hanuman Ji", "Bhairon Ji" and "Pret Raj Ji". The devotees offer Sawamani in the form of Laddu Puri and Halwa Puri for bhandara, gulgulai for birds and rice for cows / animals. Earlier there was no adequate arrangement to offer Sawamani to Lord Balaji. With the increase in the number of devotees and Sawamani Bhog, the trust was created with the object that the devotees shall get pure and best quality of Sawamani at cost which will be offered to Lord Balaji. With this object, the trust was registered on 20.09.1995 under the name Shri Ramdoot Prasad Sewa Samiti Trust. The trust provides service to its devotees for Sawamani only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved that the surplus be set apart for a period of 5 years to be utilized for the objectives listed in the resolution. The amount set aside has been invested in the modes prescribed u/s 11(5) i.e. FDR. It is evident that activities of the assessee are charitable in nature and fall in the definition of Sec 2(15) as advancement of any other object of general public utility. Its activities are not in the nature of trade, commerce or business. The Sawamani is prepared only for the devotees and is not sold to outsiders. Only the cost is charged from the devotees. Due to cancellations in Sawamani bookings', surplus arises to the assessee. Such surplus is incidental to the activity of the trust. The surplus is set apart and is applied for charitable purpose. The AO has wrongly compared the activity of the assessee to a sweet shop ignoring that assessee is not selling the Prasad to outsiders but only preparing it for the devotees at their request and charging cost for the same without any profit motive. Similar activity carried out in earlier years has been accepted by the AO in the assessment order passed u/s 143(3) for AY 2007-08, AY 2009-10 and AY 2011-12 by allowing the exemption to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulfillment of the charitable object of the institution, the same cannot be said to be carrying on any activity in the nature of trade, commerce or business or for rendering any service in relation thereto provided it do not involve profit motive. The AO is therefore not correct to presume that the activity of preparing Sawamani for the devotees is on commercial basis and therefore it is not entitled for benefit of exemption u/s 11 & 12 of the Act. 2.5.1 As regards the violation of Section 13(1)(c)(ii) read with section 13(2)(g) of the Act, the ld.AR of the assessee submitted that in fact in course of assessment proceedings the assessee has filed the evidence that purchases made by the assessee from M/s Pawansut Trading Company Pvt. Ltd. is comparable to the purchases made from other concerns namely Maruti Traders. The AO after examination has not found that the purchases made from M/s Pawansut Trading Company Pvt. Ltd. is at a rate higher than the purchases from Maruti Traders. In fact the AO himself has observed that M/s Pawansut Trading Company Pvt. Ltd. has declared just an income of Rs. 9,71,880/- on turnover of Rs. 9,00,46,104/- which itself shows that the purchases made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also not in dispute that entire receipts as pointed out by the AO are received from the devotees who are requesting for preparation of Sawamani for offering to the Lord Balaji and thereafter Prasad is distributed amongst the devotees, general public and remaining Prasad is distributed to school children as well as even offered to animals and birds. The AO has not disputed all these activities of the assessee but the AO has raised the point that the assessee is doing activity of purchasing the raw materials for Parsad and selling the Prasad which is nothing but it is in the nature of trade, commerce or business. However, in the absence of profit motive the said activity of preparing the Prasad on behalf of the devotees and after offering to the God, the same is distributed to the devotees visiting temple, general public as well as students of various schools as Midday Meal. It is clearly established that the entire exercise and services offered by the assessee is for advancement of the objection of the public utility in the shape of providing Prasad for offering to God as well as providing Midday Meal to the school children which is in the interest of larger general public an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution. The mount set aside has been invested in the modes prescribed u/s 11(5) i.e. FDR. Further, during appellate proceedings, the AO was asked by the undersigned to re-examine the issue in view of the fresh submissions made by the appellant before the undersigned; and to submit his comments on appellant's written submission. I response, AO vide his letter No205 dated 11-07-2018 submitted that the assessee society is distributing Prasad to 10 school (s) working days of schools in 6 district (Alwar, Bharatpur, Dausa, Karauli, Sawai Madhopur, Jaipur) of Rajasthan. Every school is getting Prasad for 2 or 3 times in a year. The society is distributing Prasad 200 to 210 days in a year subject to the vacation period of schools. The society is distributing 10,000 to 15,000 laddus (weight 170-180 gram per laddu) on working days in school, perused the registers maintained for distribution of Prasad in schooks from August, 2011 to April,2012. Further the AO submitted that the surplus amounting to Rs. 1,48,00,000/- for A.Y. 2011-12 has been utilized to the full extent in A.Y. 2015-16 as per the audit report filed by the assessee. I have considered the remand report of the AO as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the related party than to the unrelated third party. Therefore, 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). These provisions specifically contemplate that if any part of such income or any pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansut Trading Company Pvt. Ltd., New Delhi, a reasonable disallowance is required to be made. In the assessee's case eve if the assessee's contention is considered that purchases are made in bulk then also in the absence of comparable rates coupled with non-disclosure in audit report leads to hold that purchases are overpriced. Therefore, after considering all the facts and circumstances of the case I consider it fair and reasonable to make a disallowance of 5% out of the purchases made from M/s. Pawansut Trading Company Pvt. Ltd., New Delhi. Accordingly, a sum of Rs. 45,02,304/- (5% of 9,00,46,104/-) is disallowed and added to the total income of the assessee.'' 5.1 The appellant's written submissions regarding this issue are reproduced as below: ''It is submitted that in course of assessment proceeding in order to verify the reasonability of the rates at which purchases are made from M/s. Pawansut Trading Company Pvt. Ltd., assessee provided as a sample the copy of purchase bills of 30-04-2001 of M/s. Pawansut Trading Company Pvt. Ltd. and Maruti Traders Ltd. From the same, it can be noted that the rates of purchases from both the parties are same. The AO in course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3.1 The Ground No. 5 of the Revenue is regarding 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). 3.2 We have heard the ld. DR as well as the ld.AR of the assessee and considered the relevant materials available on record. 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. Hence, we do not find any error or illegality in the findings of the ld. CIT(A) as reproduced hereinabove. Thus the Ground No. 5 of the Revenue is di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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