TMI Blog2021 (1) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts that it was very much justifiable on assessee s part to maintain all the said fixed deposits for the purpose of carrying out the trust s medical education activities. Excessive interest payments @ 10 % to its trustee Shri Grewal - As come on record that the department has itself accepted interest paid to the lender banks @ 14. 75 % in case of secured loans are against unsecured loans availed from Shri Grewal. That itself suggests that the impugned interest rate @ 10 % is not excessive so as to attract the impugned disallowance/addition. We are dealing with this assessee paying market rate of interest to the trustee. We go by all this elaborate reasoning to conclude that the assessing authority had erred in disallowing assessee s interest payment followed by the CIT(A) s enhancement action under challenge which is also not sustainable. The same stand reversed therefore. Assessee s appeal is allowed. - ITA No. 174/Chd/2019 - - - Dated:- 10-11-2020 - Shri N.K. Saini, Vice President And Shri Satbeer Singh Godara, Judicial Member For the Assessee : Shri Ashwani Kumar, Shri Aditya Kumar Shri Bhavesh Jindal (CAs) For the Revenue : Smt. Geetinder Maan ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustee Shri Hoshiar Singh Grewal qua net balance with interest of ₹ 12,82,64,914/- as on 31/3/2015. He sought the assessee s explanation/justification. 4. The assessee pleaded before the assessing authority that there was neither any application of income nor its property used for the benefit of the specified persons U/s 13 of the Act. It highlighted the fact that no such related person worked in the hospital nor any transaction had been carried out with related parties except the impugned interest paid to Shri Grewal due to shortage of funds in the Trust and in order to reduce the term loan carrying higher rate of interest. All this failed to prevail upon the Assessing Officer who compared the assessee s interest derived from fixed deposits @ 7. 5 % to 7. 75 % with the interest paid in issue @ 10 %. He went by foregoing comparison to disallow/add the assessee s interest payment of ₹ 1,13,41,361/- U/s 11 (1) to 13 (1)(c) r. w. s 13 (3) of the Act. 5. The CIT(A) has enhanced the Assessing Officer s action in the following terms: 7. Grounds of appeal no. 1 and 2 are regarding addition of interest paid totaling ₹ 1,13,41,361. 00 made by the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2A of the Act. The assessee is having income mainly from the interest on fixed deposits and donations. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has advanced huge amounts to M/s. Punj Lloyd Limited and as such he raised a query as to why section 13(1)(c) read with section 13(2)(a) of the Act be not invoked as no adequate interest has been charged on such amount, though that company was substantially interested in the trust. From the bank statements, the Assessing Officer found that as on March 31,1997,a sum of ₹ 75 lakhs was outstanding with M/s. Punj Lloyd Ltd. In response to a query, it was stated that the assessee paid this amount to M/s. Punj Lloyd Ltd. as earnest money for purchase of land for a school project to be set up at Ponta Sahib (near Dehradun),and that interest charged by the bank from the trust was fully reimbursed by M/s. Punj Lloyd Ltd. to the trust and hence there was no loss to the trust. It was also noticed by the Assessing Officer that the trust has not taken adequate security to which the assessee stated that the security was provided in the form of equitable mortgage of commercial space owned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so not taken. 8. Section 13(1)(c) of the Act speaks of any income which has been used to benefit directly or indirectly any person referred to in section 13(3). The plain reading of this section would show that the Act is intended to eliminate any possibility of the trust's fund being used for the benefit of any interested person. In the present case, it cannot be denied that a benefit has directly or indirectly reached the interested person, namely M/s. Punj Lloyd Ltd. and thus, there is a clear violation of sections 13(1)(c) and 13(2)(a) of the Act. 9. The Tribunal in its order has noted that once there is a violation of provision of section 13(3) read with section 13(1)(c),the provisions of sections 11 and 12 of the Act shall not operate so as to exclude the income of the trust from the total income of the previous year. According to sections 11 and 12 of the Act, the voluntary contribution made with specific direction that they shall form part of the corpus of the trust or institution, shall not be included in the total income of the previous year of the trust. But once the exemption under sections 11 and 12 is denied, the assessee would not get any protecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts, I am satisfied that the assessee has furnished inaccurate particulars of income. Therefore, penalty proceedings u/s 271(1)(c) of the Income Tax Act,1961 for furnishing inaccurate particulars of the income are also initiated. This leaves the assessee aggrieved. 5. We have given our thoughtful consideration to rival pleadings against and in support of impugned enhancement. Suffice to say, it is an admitted fact that the assessee has derived interest on its fixed deposits maintained with bank(s) @ 7. 5 % to 7. 75 % and in turn paid interest to its trustee Shri Grewal in question @ 10 % and @ 14. 75 % to State Bank of Patiala in their relevant previous year (supra). All this same sufficiency indicates that the Assessing Officer had erred during the course of assessment in comparing the assessee s fixed deposits interest derived from banks against that paid forming subject matter on the instant l is. 6. The Revenue at this stage sought to draw support from CIT(A) s action adding the trust s total income to the extent of ₹ 11,98,68,227/- on the ground that there was no justification to avail the interest bearing funds at such an unreasonable rate without any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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