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TMI Blog2020 (6) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in law. 2) Ld. CIT(A) erred in facts and in law in deleting addition of Rs. 1,75,34,760/- u/s. 13(1)(c). 3) Ld. CIT(A) erred in facts and in law in allowing assessee's appeal on the issue of applicability of provisions of section 164(2) and Circular 387 dated 06/07/1984 issued by the CBDT with regard to disallowance of expenditure made by the AO thereby granting relief of Rs. 1,14,08,663/- 4) ld. CIT(A) erred in facts & in law in deleting additions made by the AO towards advancing loans to the staff as welfare measure of Rs. 2,85,000/-, vehicle loans of Rs. 57,844/- building security deposit of Rs. 7,11,708/- purchase of canteen equipment of Rs. 3,150/- and computer system & printer of Rs. 36,000/- 5) Any other ground that may be urged at the time of hearing of the case." 4. Ground Nos. 1 & 5 are general in nature, no adjudication is required, therefore same are dismissed. 5. Ground No.2 relates to addition of Rs. 1,75,34,760/-. The assessee is a trust, filed its return of income and assessment was completed u/sec.143(3) of the Act on 15/12/2010. Subsequently, case was selected for scrutiny and was reopened and assessment was completed u/sec. 143(3) r.w.s. 147 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcess amount to M/s. South India Corporation Ltd. The Ld. A.R. for the assessee, submitted that the issue involved in this appeal is squarely covered by the decision of ITAT, Visakhapatnam in assessee's own case in ITA No.269/Vizag/2013. The A.R. further submitted that the ITAT, while examining the issue of cancellation of registration u/s 12AA(3) of the Act, in para 16.2 of the order, observed that the excess amount charged from M/s. South India Corporation Ltd. is refunded in the normal course of business of the assessee and accordingly the A.O. was not right in holding that the assessee has diverted its funds to the interested persons, thereby violated the provisions of section 13(1)(c) & 13(2)(g) r.w.s 13(3) of the Act. We find that the coordinate bench of this Tribunal, in assessee's own case in ITA No.269/Vizag/2013 held that excess amount collected from M/s. South India Corporation Ltd and refunded subsequently does not amounts to diversion of funds as defined u/s 13(2)(g) of the Act and accordingly the assessee has not violated the provisions of section 13(1)(c) & 13(2)(g) r.w.s 13(3) of the Act. The relevant portion of the order is reproduced below: 16. The last question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined u/s 13(2)(g) of the Act. The assessee has refunded excess amount collected from the party by way of anonymous decision of the Board of Directors of the Trust further supported by proof of payment. Therefore, we are of the view that the A.O. was not correct in holding that the assessee has violated the provisions of section 13(1)(c) & 13(2)(g) r.w.s 13(3) of the Act. Hence, we direct the A.O. to allow the exemption as claimed by the assessee and delete the additions made towards refund of excess amount to M/s. South India Corporation Ltd." 11. By respectfully following the decision of the coordinate bench of the tribunal in assessee's own case in A.Ys. 2009-10 & 2010-11, we find no infirmity in the order passed by the ld.CIT(A). Thus, this ground of appeal raised by the Department is dismissed. 12. So far as ground Nos.3 & 4 relate to the addition of Rs. 1,14,08,663/-, out of which Rs. 9,11,880/- and Rs. 91,16,768/- are in respect of income-tax payment. According to the Assessing Officer, the income-tax payment made by the assessee for the A.Ys. 2004-05 & 2005-06 amounting to Rs. 9,11,880/- and Rs. 91,16,768/- which comes to Rs. 1,00,28,648/- is not allowable deduction, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /sec. 11 of the Act. Therefore, respectfully following the decision of the coordinate bench of the tribunal in assessee's own case for the A.Y. 1997-98, we dismiss the ground raised by the department. 16. Insofar as other additions i.e. building security deposit amounting to Rs. 7,11,708/-, canteen equipment of Rs. 3,150/-, computer system and printer of Rs. 36,500/-, advancing loans to the staff of Rs. 2,85,000/-, vehicle loan of Rs. 57,844/- and TDS payable of Rs. 2,85,813/- are concerned, the Assessing Officer has disallowed these expenditure on the ground that in absence of registration u/sec. 12A of the Act. 17. On appeal, ld. CIT(A) considered the same and held that these are the allowable expenses. We find that when the Assessing Officer passed the assessment order the assessee was not having 12A registration. Subsequently, on 22/05/2015 the ITAT in ITA No. 269/VIZ/2013 has restored 12A registration to the assessee. Therefore, the ld. CIT(A) by considering the same is of the opinion that these are the expenditure incurred by the assessee are in the nature of application of income, hence, allowed. We find no infirmity in the order passed by the ld.CIT(A). Thus, this ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot to have been accounted in the books of account in the balance sheet. Contrary to the details of current assets and current liabilities in the nature of receivable and payables accounted in the balance sheet for the year ending 31/03/2010, the assessee has preferred to take a stand that, it has been following cash system of accounting and hence the ascertained liabilities due to M/s.SICL have neither been accounted in the books of account nor in the balance sheet filed with the return of income. The Assessing Officer not satisfied about the correctness and completeness of the accounts of the assessee, hence rejected the books of account u/sec. 145 and proceed to estimate the income under section 144 of the Act. Accordingly estimated the income of the assessee by treating the assessee as AOP at 12% of the receipts. 22. On appeal, ld. CIT(A) deleted the addition made by the Assessing Officer on the ground that assessee is consistently following cash system of account the same is accepting by the Assessing Officer. Therefore, the action of the Assessing Officer in rejecting the books of account without finding any defects in the account cannot be upheld. Accordingly, directed the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for the purpose of determination of income u/s. 11 of the Act. The relevant portion of the order is extracted below: "11.3 The next issue is whether there is any violation of section 13(1)(c) r.w.s. 13(2) of the Act. The impugned amount of Rs. 30.00 lakhs and Rs. 5.00 lacs have been advanced to the two settler associations. Since they are the authors of the assessee trust and the trustees of the assessee trust are also the office bearers in the above said two associations, the AO treated the two associations as the persons referred to in section 13(3) of the Act. As pointed out in Para 11.1 supra, a charitable trust will loose exemption u/s 11, if any income or property is used or applied for the benefit of any person referred to in Section 13(3). According to Ld AR, though the assessee did not charge interest on these two loans initially, later on both the amounts were collected along 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount received 10,00,000.00 24-03-2008 Principal amount received 10,00,000.00 46,60,451.86 30,00,000.00 76,60,451.86 NIL VISAKHAPATNAM CUSTOMS CLEARANCE & FORWARDING AGENTS' ASSOCIATION Date Rs. Ps. 03-04-2005 Loan amount granted 5,00,000.00 Interest accrued on loan 3,62,137.00 8,62,137.00 Less 26-02-2001 Principal amount received 5,00,000.00 15-05-2002 Interest amount received 3,62,137.00 8,62,137.00 NIL According to Ld AR, the interest rate of 12% was more than the interest earned by the assessee by parking the surplus funds in the fixed deposits of the Scheduled banks. Thus, there cannot be any dispute that the interest rate of 12% received by the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) Payment to PWP workers 67,29,257 c) Retrenchment compensation 2,18,66,837 d) Gratuity payment 2,96,01,351 Total 15,96,89,738 The Assessing Officer disallowed the above amount on the ground that assessee is not having 12A registration and it has to be treated as business expenditure as the activity of the assessee is treated as business activity. 31. On appeal, the ld. CIT(A) by following the order of the ITAT in assessee's own case in ITA Nos. 272 to 274/VIZ/2005 by order dated 085/01/2010 restored 12A registration to the assessee. Accordingly, the ld. CIT(A) allowed the appeal of the assessee, however, while allowing the appeal ld. CIT(A) has observed that all the payments are made through bank accounts as confirmed by the appellant and in accordance with the Board resolution filed by the appellant. 32. As against the order of the ld. CIT(A), on appeal before us, the ld.DR has pointed out that the ld. CIT(A) has not examined whether the payments are actually made or not, simply on the basis of submissions of the ld. CIT(A) allowed the appeal of the assessee. 33. On the other hand, ld. counsel for the assessee has submitted that he is ready to furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as business activity as per the view of the AO. It is now well settled preposition that the term "Business" denotes "continuous and systematic exercise of an occupation or profession with the object of making income or profit. Hence the profit motive is one of the main ingredients to test the nature of activity carried on by the assessee. 10.1 The preamble of the Trust Deed states that the assessee trust was constituted in order to organize the functioning of private workers pool for the benefit of such workers. Clause 16 of the Trust Deed states that the Board of Trustees shall not be entitled to any remuneration and shall work in an honorary capacity. Clause 34 of the Trust Deed states that the in the event of the dissolution of the Trust, the remaining property shall not be distributed among the members of the Trust but shall be given or transferred to any other institution with similar objectives and aims and which is registered u/s 12A of the Income-tax Act. The main objects for which the trust was formed, as extracted in Para 4 supra, does not depict any profit motive. The primary object of the Trust is to identify, enroll, allot the work and regulate the operation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Port Trust through the Visakhapatnam Dock Labour Board and this fee is charged for supply of labour, which is in turn paid to the labour force. Such charge of fee, cannot in our opinion be construed as commercial activity carried out by the Trust, when the tests laid down by various Courts are applied to the facts of this case. (c) The main and predominant object of the assessee is to promote the welfare of the workers. The assessee is admittedly formed for supply of labour when there is shortage of work force in the port and for taking care of the welfare of the workers. The maximum expenditure incurred by the assessee is towards payment for the workers and for their welfare. The prime object of the assessee is not to do trade, commerce or business or rendering of any activity or services in relation to trade, commerce or business etc. The assessee has no profit motto. Hence the Proviso to S.2(15) does not apply to the case of the assessee. Thus the cancellation of registration granted u/s 12A(a) of the Act is bad in law." The ld. CIT(A) keeping in view of the order passed by the ITAT, allowed the appeal of the assessee by observing that these payments are made through bank ..... X X X X Extracts X X X X X X X X Extracts X X X X
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