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TMI Blog2016 (7) TMI 1578X X X X Extracts X X X X X X X X Extracts X X X X ..... he main objects of the Trust as spelt out in clause 3 of the Trust deed read as under: "a) To identify, enroll, allot the work and regulate the Private Workers engaged by the Members and users of Stevedore's Association and Clearing and Forwarding Agents' Association of Visakhapatnam, only against short supply of the labour by the Visakhapatnam Dock Labour Board, Visakhapatnam. b) To generally promote the welfare of the workers who are identified and enrolled in the Trust. c) To utilize the Funds of the Trust for the above purposes and also for other charitable purposes such as Education, Health, Sports and Alleviation of sufferings of the poor and the needy etc., d) To carry out other public utility activity within the meaning of 'charitable purposes' defined in the Income-tax Act." 3. The assessee has filed return of income for the assessment year 2009-10 declaring nil total income after claiming exemption u/s. 11 of the Act. The case was selected for scrutiny and accordingly, notice u/s. 143(2) of the Act was issued. In response to notice, the authorized representative of the assessee appeared from time to time and furnished the details called for. Durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 of the Act. The CIT(A) further held that as regards the method of accounting followed by the assessee, the assessee is following cash system of accounting for the purpose of determination of income under the provisions of section 11 of the Act continuously for the past several years, therefore, directed the A.O. to adopt cash system of accounting for the purpose of determination of income. Similarly, as regards disallowance of excess amount refunded to M/s. South India Corporation Ltd., the CIT(A) upheld the action of the A.O. in making additions towards amount refunded to M/s. South India Corporation Ltd. As regards the additions towards accrued interest, the CIT(A) upheld the additions made by the A.O. Aggrieved by the CIT(A) order, the assessee as well as revenue are in appeal before us. 5. The assessee has raised common grounds for the assessment years 2009-10 & 2010-11. From these grounds of appeal, the assessee challenged the action of A.O. in denying the benefit of exemption u/s. 11 of the Act and additions towards refund of excess amount collected from M/s. South India Corporation Ltd. for violation of the provisions of section 13(1)(c), 13(2)(g) r.w.s. 13(2) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with the interest @ 12%. According to Ld. AR, since the impugned loans are covered by adequate security and adequate interest, there is no violation of section 13(1)(c) r.w.s. section 13(2) of the Act. In this regard, Ld. AR has placed reliance on the decision of the Hon'ble Jurisdictional AP High Court in the case of Polisetty Somasundaram Charities, supra. The relevant observations of the Hon'ble High Court are extracted below: "Section 13(2)(a) provides that the exemption under section 11 cannot be denied in the event of lending the amount jacked up by interest or adequate security or both. The lending as such is not prohibited if adequate interest and security are taken care of. Section 13(2) (h) interdicts investment and the act of investment alone is sufficient to deny the exemption. In view of this seminal distinction, the Revenue endeavoured to bracket the transaction under investment so as to attract the denial of exemption under clause (h). The amount is advanced on an agreed rate of interest and, therefore, the transaction is within the fold of lending and it cannot be considered as an investment. The lending in clause (a) should be supported by adequate int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is adequate. The AO has not expressed any doubt about the financial stability of the two settler associations. Thus the amounts lent to the two founder associations were adequately secured and also earned adequate interest @ 12%. It was stated that the assessee is following cash system of accounting for the income tax purposes and hence the interest can be offered to tax only in the year of receipt. Though initially the assessee trust did not charge interest, later it has fully collected the due interest. According to the cash system, the interest has been offered to tax in the year of receipt which is also in accordance with the provisions of the Income tax Act". 7. Considering the facts and circumstances of this case and also respectfully following the Co-ordinate Bench decision in assessee's own case, we are of the view that the assessee is following Cash System of accounting for determination of income for the purpose of application of income for charitable purpose. Therefore, we direct the A.O. to compute the income as per the method of accounting followed by the assessee. 8. The next issue that came up for our consideration is denial of exemption u/s. 11 of the Act for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that excess levy was collected. The assessee is bound to return the said amount to the party, from which such excess levy was collected. Otherwise it would amount to undue enrichment. In this case the Visakhapatnam Port refunded an aggregate amount of Rs. 7,99 crores, of which, an amount of Rs. 4,39 crores was adjusted by credit notes and the balance only was refunded to the party to which it was due. This amount was refunded to South India Corporation Ltd. on various dates during the A.Y. 2008-09, 2009-10 and 2010-11. Refunding the amount legally due to a party cannot be considered a violation of any of the provisions of the Act much less violation of S. 13 of the Act, The amount is rightfully and legally due to MIs South India Corporation. In fact the Ld. CIT, Visakhapatnam has without proper verification of the facts, come to such wrong conclusions, Thus we reverse this finding of the Ld. CIT, Visakhapatnam and hold that there is no violation of Sec. 13(1)(c) read with sections 13(2)(g) and 13(3) of the Act." 9. Considering the facts and circumstances of the case and also respectfully following the decision of coordinate bench, in assessee's own case in ITA No. 269/Viza ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that it has offered interest on accrual basis, we deem it appropriate to remit the issue back to the file of the A.O. and direct the A.O. to examine the issue afresh in the light of the above discussions. Accordingly, we set aside the issue to the file of the A.O. and direct the A.O. to examine the issue of taxability on accrued interest on deposits, keeping in view of the method of accounting followed by the assessee. ITA 16/Vizag/2015: 11. The revenue has filed this appeal, challenging the order of the Ld. Commissioner of Income Tax (A), deleting the penalty levied u/s. 271(1)(c) of the Act for concealment of income or furnishing inaccurate particulars of income. The A.O. levied penalty u/s. 271(1)(c) of the Act, towards disallowance of refund of excess fees collected from M/s. South India Corporation Ltd. The A.O. was of the opinion that the assessee has diverted its funds to the interested persons, thereby violated the provisions of section 13(1)(c) and 13(2)(g) r.w.s. 13(3) of the Act and hence, denied the benefit of exemption u/s. 11 of the Act and made additions towards refund of excess fees collected from M/s. South India Corporation Ltd. The A.O. further wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. denying exemption claimed u/s. 11 of the Act and directed the A.O. to allow exemption as claimed by the assessee. The A.R. further submitted that the issue on which penalty levied by the A.O. has been considered by this Tribunal, in ITA No. 269/Vizag/2013 and held that the refund of excess levy to M/s. South India Corporation Ltd. is not amounts to diversion of funds as defined u/s. 13(2)(g) of the Act which violates the provision of sec. 13(1)(c) r.w.s. 13(2) of the Act. Even on merits, the Tribunal, in assessee's own case, while adjudicating the issue of denial of registration u/s. 12AA of the Act, held that the excess amount refunded to M/s. South India Corporation Ltd. is in the normal course of business of the assessee and it is not a diversion of funds to interested persons. Since, the ITAT has deleted the quantum additions made by the A.O., the penalty levied on such additions cannot sustain in the eyes of law. 14. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. levied penalty u/s. 271(1)(c) of the Act, towards disallowance of excess amount refunded to M/s. South India Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X
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