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TMI Blog2025 (4) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) erred in allowing the exemption under section 11 of I.T. Act, on the ground that the AO cannot disallow exemption of section 11 of IT. Act merely on the addition of Rs. 1,80,000/-received on rent, when the provisions of section 13(1)(c)(ii) read with section 13(3). states that if any part of income or any property of the trust is applied directly or indirectly for the benefit of any trustee, then the benefit of exemption under section 11 of the Act will not be available to the trust. 3. On the fact and in the circumstances of the case, the Ld. CIT(A) erred in considering the addition of Rs. 43,50,000 as regular income of the assessee, ignoring the facts that addition was made by the AD as undisclosed income u/s 69A of the Act which was based on the impounded Document as per Annexure B-4, and the said document have the evidentiary value. 4. On the fact and in the circumstances of the case, the Ld.CIT(A) erred in allowing the exemption u/s. 11 to the assessee ignoring the fact that the AO during the course of assessment proceedings has clearly demonstrated the entire trail by way of which the assessee has advanced money in the garb of property transactions just to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es have given non-interest bearing advances to the trust or they are rendering managerial services cannot be a ground for lending the trust property to a interested person without adequate compensation. In the case of a trust, unlike a business entity, the trustee is vested with the responsibility of being a custodian of the funds/property. Therefore, the argument put forth by the assessee trust in this regard is found unacceptable. The assessee has not furnished any rental agreement or details of rental advance taken, if any. Due to paucity of time, the fair market value of the bungalow let out to the trustee could not be verified from the records of the prescribed authority. In the assessee's own Income statement, it is seen that the Bank ATM is paying a monthly rent of Rs. 12,000/- to the trust. A monthly rental of Rs. 25,000/- is considered as the fair market value and the annual lettable value is taken at Rs. 3,00,000/- accrues to the assessee trust. Hence, the income of the trust has to be brought to tax as per the provisions of sec. 164 (2), i.e., in the status of AOP at the Maximum marginal rate." 5. On appeal, before the learned CIT(A), the assessee trust furnished de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on record and gone through the orders of the authorities below. We find that the Joint Secretary of the assessee trust was residing in the Bungalow belonging to the assessee trust by paying monthly rent of Rs. 10,000. The Assessing Officer was of the opinion that it ought to have been Rs. 25,000 per month. According to the Assessing Officer, the fair market value was Rs. 25,000. We find that the Joint Secretary who is working for the assessee trust, has been provided a residential accommodation by charging a nominal rent. The Assessing Officer added the difference amount of Rs. 15,000 per month i.e., Rs. 1,80,000 per annum and the same was confirmed by the learned CIT(A). The assessee trust has not challenged an addition of Rs. 1,80,000. Therefore, the issue of short charging of rent from the trustee is not in dispute before us. However, a question arose before us is that whether or not there remains any violation of provisions of the statute in charging rent in reduced rate and to what extent the addition ought to have been made. 9. Now, on the other hand, the ground no.2, raised by the Revenue relates to the disallowance of exemption should have been made in light of provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the generality of the provisions of clause (c) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- (a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-section (3) for any period during the previous year without either adequate security or adequate interest of both; (b) if any land, building or other property of the trust or institution is, or continues to be, made available for the use of any person referred to in sub-section (3), for any period during the previous year without charging adequate rent or other compensation; (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reason-ably paid for such, services; (d) if the services of the trust or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the Assessing Officer, the assessee trust has charged at reduced rate of Rs. 1,80,000. It was for the sole reason that in charging of rent in reduced rate, the learned Assessing Officer has opined that the assessee trust has applied income of the trust for the benefit of assessee trustee and, therefore, there is violation of section 13(1)(c)(ii) and accordingly the assessee trust is ineligible for exemption under section 11. Therefore, the question, which came before us for the adjudication whether entire income of trust will be stripped of entire exemption under section 11 of exemption will be denied only to the extent of the violation of provisions of section 13(1)(c)(ii). 12. Whenever the exemption under section 11 is to be denied the income of the trust is to be computed as per the specific provisions of section 164(2) provided in the statute, which are reproduced below for ready reference:- "164(2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, [or which is of the nature referred to in sub-clause (iia) of clause (24) of section 2,] [or which is of the nature referred to in sub-section (4A) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise chargeable to tax. In other words, where such a trust contravenes the provisions of section 13(1)(c) or (d) of the Act, the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provisions. [Emphasis supplied] 14. The aforesaid Circular, clarifies the stand of the CBDT as to where such a trust contravenes the provisions of section 13(1)(c) or 13(1)(d) of the Act, the maximum marginal rate of income-tax will apply only to that part of income, which has forfeited exemption under the said provisions. Even the jurisdictional Bombay High Court in the DIT (E) v/s Sheth Mafatlal Gagalbahai Foundation Trust [2001] 249 ITR 533 (Bom) and CIT(E) v/s Audyogik-shikshan Mandal [2019] 101 taxmann.com 247 (Bom.) has upheld the interpretation that the legislature did not contemplate the denial of the benefit of section 11 of the Act to the entire income of the trust/charitable institution. If the interpretation sought by the Revenue is accepted, it would lead to grave injustice as any mistake minor or contravention of provisions will lead to complete denial of the benefit of exemption which otherwise a trust registered under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Agnihotri. The Assessing Officer further noted that Shri Sachin Agnihotri was receiving interest on behalf of the assessee trust. It was further opined that the transactions were corroborated from the impounded diary found during the survey premises of M/s. Vedisddha Products Pvt ltd. These diaries were in the form of daily cash diaries in the handwritten format. Therefore, the Assessing Officer held that it has to be construed that the handwritten cash books reflect the true picture of Shri P.D. Vyas, and his related concerns with the respondent trust. Accordingly, the Assessing Officer as per these documents, opined that the assessee trust has received interest income from M/s. Harmony Homes. The Assessing Officer assessed interest income as unexplained income under section 69A to the tune of Rs. 43,50,000. 17. On appeal, the first appellate authority granted part relief and confirmed the addition of the interest income. However, the learned CIT(A) reclassified the interest income, which was earlier classified as unexplained money under section 69A to the interest income under head income from other sources, assessable as per normal provisions of the statute. The learned CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it was not backed by any independent corroborative evidence. The Assessing Officer has recorded nothing about what is the explanation of M/s Vedshida Products Pvt. Ltd. Nothing is available in the assessment order. In our opinion, once the documents are impounded and seized, the same has to be confronted with the persons in whole possession it was found. There is nothing on record which shows that such exercise has been done by the Assessing Officer. In our view, the Assessing Officer has simply made addition on the basis of loose sheet found in the premises of third party, which according to our opinion is incorrect. That apart, in the remand report called for by the learned CIT(A), it is clear that the assessee trust entered into an agreement for purchase of property in a stamp paper. It was the explanation of the assessee that the assessee trust could not purchase the property because there is an encroachment. Keeping in view the overall facts and circumstances of the case, we are of the opinion that impounded documents which were found in the possession of third party, are neither signed nor authenticated by anyone cannot be simply relied to make an addition under section 69A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty. The fact that M/s. Harmony Homes, have given a property advance is apparent from the balance sheet of the assessee trust, therefore it is also not in violation of any provisions of section 11(5). The opinion of the Assessing Officer is that the trust has invested in the modes other than the one provided under section 11(5) is not tenable as the assessee trust have invested in the purchase of property, wherein the assessee trust has advanced the said amount for purchase of property. The assessee also submitted agreement to sale before authorities below. The said investment in immovable property is allowable as per section 11(5)(x) of the Act. Even otherwise also, if the view of the Assessing Officer is considered that the trust has given loan to the M/s. Harmony Homes (third party) and has received interest on same. Question of investment does not arise when loan has been provided which has been admitted by Department also and hence there is no breach of provisions of investment under section 11(5) of the Act. 22. Accordingly, nothing merits in the Revenue's submission that entire exemption under section 11 of the Act should be revoked. Accordingly, we direct the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has not claimed the capital as an application of income. The assessee trust submitted that if the depreciation as per the Assessing Officer is disallowed, then the assessee trust may be allowed benefit of the investment which is not barred by any provisions of the statute and the assessee trust has not claimed the same as an application of income. The remand report furnished by the Assessing Officer did not mention any reservation on the said issue. The learned CIT(A) allowed the claim of the assessee by holding as under:- "It is a trite law, that the appellant can claim an application of income either with related to purchase of capital asset or either claim depreciation on the said capex as an application of income. The appellant is barred by the law to claim double benefit. In a given case, the Assessing Officer has pressed into service, the section 11(6) of the statute. The said section debars appellant from claiming double application of income vis-à-vis depreciation, if the appellant has already claimed capital expenditure as an application of income. It was submitted as well as demonstrated by the appellant, that in a given year the appellant has only claimed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, which provides either capital investment or depreciation as an application of income. Consequently, nothing warrants us to disturb the impugned order passed by the learned CIT(A). Accordingly, ground no.1, raised by the Revenue is dismissed. 32. The ground no.2, relates to the addition of Rs. 37,50,000, on account of undisclosed income under section 69A of the Act. 33. After hearing both the parties and on a perusal of the material available on record, we find that identical issue has been raised by the Revenue in its appeal being ITA no.335/Nag./2023, for the assessment year 2017-18, vide ground no.3, wherein, we have decided this issue in favour of the assessee and against the Revenue in Para-20 of this order. Since the issue for our adjudication being identical, except variation in figures, consistent with the view taken therein in assessee's case cited supra and following the findings given therein, similar directions are issued on this issue as well. Accordingly, ground no.3, raised by the Revenue is dismissed by upholding the impugned order passed by the learned CIT(A). 34. Ground no.3, relates to allowance of exemption under section 11. 35. Having heard both the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition under section 69A to the tune of Rs. 1,41,50,000. 40. After hearing both the parties and on a perusal of the material available on record, we find that identical issue has been raised by the Revenue in its appeal being ITA no.335/Nag./2023, for the assessment year 2017-18, vide ground no.3, wherein, we have decided this issue in favour of the assessee and against the Revenue in Para-20 of this order. Since the issue for our adjudication being identical, except variation in figures, consistent with the view taken therein in assessee's case cited supra and following the findings given therein, similar directions are issued on this issue as well. Accordingly, ground no.1, raised by the Revenue is dismissed by upholding the impugned order passed by the learned CIT(A). 41. Grounds no.2 and 3, raised by the Revenue relate to denial of exemption under section 11 of the Act. 42. Having heard both the parties and while going through the material available on record, we find that identical issue has been raised by the Revenue in its appeal being ITA no.335/Nag./2023, for the assessment year 2017-18, vide ground no.4, wherein, we have decided this issue in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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