The ACIT, Circle-4(1),, Visakhapatnam v. M/s Vizag Defence Academy,, Visakhapatnam

ITA 361/VIZ/2007 | 2004-2005
Pronouncement Date: 18-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 36125314 RSA 2007
Assessee PAN AAATV2212P
Bench Visakhapatnam
Appeal Number ITA 361/VIZ/2007
Duration Of Justice 3 year(s) 5 month(s) 17 day(s)
Appellant The ACIT, Circle-4(1),, Visakhapatnam
Respondent M/s Vizag Defence Academy,, Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 18-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 18-01-2011
Date Of Final Hearing 13-12-2010
Next Hearing Date 13-12-2010
Assessment Year 2004-2005
Appeal Filed On 31-07-2007
Judgment Text
ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 1 OF 13 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.330/VIZAG/2007 ASSESSMENT YEAR: 2004-05 VIZAG DEFENCE ACADEMY VISAKHAPATNAM VS. ITO CIRCLE-4(1) VISAKHAPATNAM (APPELLANT) PAN NO: AAATV 2212 P (RESPONDENT) ITA NO.361/VIZAG/2007 ASSESSMENT YEAR: 2004-05 ACIT CIRCLE-4(1) RANGE-4 VISAKHAPATNAM VS. VIZAG DEFENCE ACADEMY VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO: AAATV 2212 P APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI T.H. LUCAS PETER CIR (DR) ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 24-05-2007 PASSED BY THE LEARNED CIT (A)-II VISAKHAPATNAM AND T HEY RELATE TO THE ASSESSMENT YEAR 2004-05. 2. BEFORE GOING INTO THE SPECIFIC ISSUES WE FEEL I T PERTINENT TO SET OUT THE FACTS RELATING TO THE CASE IN BRIEF. THE ASSESSEE I S A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT. IT IS RUNNING AN EDUCATI ONAL INSTITUTION WITH THE SPECIAL FOCUS ON TRAINING FOR DEFENCE JOBS. THE ASSESSEE F ILED ITS RETURN OF INCOME FOR THE A.Y 2004-05 DECLARING AN INCOME OF RS.10 66 780 /- AND THE SAME WAS TAKEN UP FOR SCRUTINY. IN THE SCRUTINY PROCEEDINGS THE ASSESSING OFFICER MADE VARIOUS ADDITIONS WHICH THE ASSESSEE CONTESTED BEFORE LEAR NED CIT(A). THE FIRST APPELLATE AUTHORITY GRANTED PARTIAL RELIEF TO THE A SSESSEE. THE DETAILS OF ADDITION ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 2 OF 13 MADE BY THE ASSESSING OFFICER ITEMS CONFIRMED BY T HE LEARNED CIT (A) AND THE RELIEF GRANTED BY THE LEARNED CIT (A) ARE TABULATED BELOW: BOTH THE PARTIES ARE AGGRIEVED BY THE ORDER OF LEAR NED CIT(A) AND HENCE BOTH HAVE PREFERRED APPEAL BEFORE US. 3. THE ASSESSEE IS IN APPEAL BEFORE US IN RESPE CT OF ALL THE THREE ADDITIONS THAT WERE CONFIRMED BY LEARNED CIT(A). IN THE SIMILAR MANNER THE REVENUE IS IN APPEAL BEFORE US CHALLENGING THE DECISION OF LEARNE D CIT(A) IN GRANTING RELIEF TO THE ASSESSEE. 4. THE FIRST ADDITION RELATING TO THE ADDITION MADE TOWARDS UNEXPLAINED CAPITAL IS COMMON IN BOTH THE APPEALS. THE ASSESSIN G OFFICER NOTICED THAT THE ASSESSEE HAD INVESTED AN AMOUNT OF RS.60.00 LAKHS A S INTEREST FREE LOAN IN A PARTNERSHIP FIRM NAMED M/S VDA INDUSTRIAL PROMOTERS . IT WAS STATED THAT THE SAID FIRM USED THE SAID AMOUNT FOR THE PURPOSE OF A CQUIRING A SITE. WITH REGARD TO THE SOURCE OF INVESTMENT THE ASSESSEE EXPLAINED THAT IT HAD UTILIZED THE CAPITAL CONTRIBUTION OF RS.57.00 LAKHS MADE BY THE NEW MEMBERS WHO WERE ADMITTED TO THE SOCIETY. THE ASSESSING OFFICER NOT ICED THAT THE ASSESSEE SOCIETY DID NOT MAINTAIN ANY REGISTER OF MEMBERS NOR IT C OULD FURNISH ANY MINUTES OF MANAGEMENT COMMITTEE WHEREIN THE PROCEEDINGS WITH R EGARD TO THE ADMISSION OF THE SAID MEMBERS WERE RECORDED. IT WAS ALSO NOTIC ED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS RECEIVED THESE CAPITAL CONTRI BUTIONS BY WAY OF CASH. BEFORE THE ASSESSING OFFICER THE ASSESSEE STATED TH AT IT HAS STARTED REPAYMENT OF THE IMPUGNED CAPITAL CONTRIBUTIONS. THUS THE ASSE SSING OFFICER FOUND THAT THE NATURE OF ADDITIONS AMOUNT CONFIRMED BY CIT(A) DELETED BY CIT (A) UNEXPLAINED CAPITAL 57 00 000 42 15 000 14 85 000 DONATION 2 69 660 2 69 660 - POOJA ITEMS 2 34 311 - 2 34 311 TRAVELING EXPENSES 2 88 990 - 2 88 990 HOSTEL EXPENSES 5 47 050 5 47 050 - FESTIVAL EXPENSES 7 99 930 7 99 930 ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 3 OF 13 ASSESSEE SOCIETY IS NOT FOLLOWING THE PROCEDURES PR ESCRIBED UNDER THE SOCIETIES REGISTRATION ACT. HENCE THE ASSESSING OFFICER CALL ED FOR CONFIRMATION LETTERS WITH REGARD TO THE CAPITAL CONTRIBUTIONS RECEIVED BY IT. THE ASSESSEE FILED A LIST OF MEMBERS WITHOUT THEIR RESPECTIVE ADDRESSES. THE AS SESSEE FILED CERTAIN CONFIRMATION LETTERS BUT THE SAID LETTERS WERE FOU ND TO HAVE BEEN TYPED IN A STEREOTYPED MANNER. THE ASSESSING OFFICER ALSO NOT ICED THAT MOST OF THE NEW MEMBERS WERE FOUND TO BE THE EMPLOYEES OF THE ASSES SEE SOCIETY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE SOCI ETY ITSELF VOLUNTARILY OFFERED A SUM OF RS.12 LAKHS PERTAINING TO 24 PERSONS AS ITS INCOME. HENCE ON A OVERALL CONSIDERING ALL THESE FACTORS THE ASSESSIN G OFFICER CAME TO BE CONCLUSION THAT THE ENTIRE AMOUNT OF RS.57.00 LAKHS SHOWN TO H AVE BEEN RECEIVED BY WAY OF CAPITAL CONTRIBUTION CONSTITUTES THE INCOME OF THE ASSESSEE AND ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE UNDER SECTION 69 OF THE ACT. 4.1 IN THE APPELLATE PROCEEDINGS THE ASSESSEE FILED PAPER BOOK CONTAINING CERTAIN DETAILS AND THE SAME WAS CONFRONTED WITH TH E ASSESSING OFFICER. IN TURN THE REPORT FURNISHED BY THE ASSESSING OFFICER WAS A LSO CONFRONTED WITH THE ASSESSEE. AFTER CONSIDERING ALL THE MATERIALS THE LEARNED CIT (A) HELD THAT THE IMPUGNED ADDITION OF RS.57 LAKHS SHOULD BE CONSIDER ED TO HAVE BEEN MADE U/S 68 OF THE ACT ONLY SINCE THE ASSESSING OFFICER HAS ANALYZED THE WHOLE ISSUE FROM THE ANGLE OF THE PROVISIONS OF SEC.68. ACCORDINGLY THE LEARNED CIT (A) HELD THAT SEC.69 HAS WRONGLY BEEN QUOTED BY THE ASSESSING OFF ICER AND THE SAME IS A MISTAKE WHICH WILL NOT INVALIDATE THE ORDER. BY P LACING RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SOPHIA FINANCE LTD. (205 ITR 98) THE LEARNED CIT (A) HELD THAT THE ASSESSEE IS UNDER AN OBLIGATION TO EXPLAIN THE SOURCES FOR THE IMPUGNED CAPITAL CONTRI BUTION ALSO. 4.2 THE ASSESSEE HAD SUBMITTED A LIST OF 97 PER SONS WITHOUT ADDRESSES FROM WHOM THE IMPUGNED CAPITAL AMOUNT OF RS.57 LAKHS WAS CLAIMED TO HAVE BEEN RECEIVED. DURING THE REMAND PROCEEDINGS THE ASSES SING OFFICER EXAMINED 14 PERSONS AND CONCLUDED THAT NONE OF THEM ARE HAVING THE REQUIRED ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 4 OF 13 CREDITWORTHINESS. HOWEVER THE LEARNED CIT (A) DISA GREED WITH THE REPORT OF ASSESSING OFFICER IN RESPECT OF 2 PERSONS NAMED SHR I V. GANESH KUMAR AND SMT. V. USHA RANI WHO HAD MADE A CONTRIBUTION OF RS.8.00 LAKHS AND RS.60 000/- RESPECTIVELY. THE LEARNED CIT (A) NOTICED THAT BOTH OF THEM WERE ONE OF THE PROMOTERS OF THE ASSESSEE SOCIETY AND THEY ARE REGU LARLY ASSESSED TO INCOME TAX. FOR THE AY 2004-05 SHRI V. GANESH KUMAR HAD DISCLO SED A SUM OF RS.9.83 LAKHS AS HIS INCOME IN HIS RETURN OF INCOME. SIMILARLY S MT. V. USHA RANI HAD DISCLOSED A SUM OF RS.5.15 LAKHS AS HER INCOME IN THE RETURN OF INCOME. CONSIDERING THESE FACTS THE LEARNED CIT (A) HELD THAT BOTH THE PERSO NS CITED ABOVE HAD THE REQUIRED CREDIT WORTHINESS AND ACCORDINGLY DELETED THE ADDITION OF RS.8.60 LAKHS PERTAINING TO THESE TWO PERSONS. 4.3 THE LEARNED CIT(A) NOTICED THAT THE REMAINI NG 12 PERSONS FROM WHOM THE SWORN STATEMENTS WERE RECORDED HAD ALSO CONFIR MED ABOUT THE CONTRIBUTIONS MADE BY THEM. THE AGGREGATE CONTRIBUTIONS MADE BY THESE 12 PERSONS WAS RS.6 25 000/-. SINCE THEY HAVE CONFIRMED THEIR RES PECTIVE CAPITAL CONTRIBUTION THE LEARNED CIT (A) GRANTED RELIEF OF RS.6.25 LAKHS ALSO. 4.4 THE ASSESSEE HAD ITSELF OFFERED RS.12 LAKHS FR OM OUT OF RS.57.00 LAKHS AS ITS INCOME DURING THE COURSE OF ASSESSMENT PROCEEDI NGS. THE ASSESSEE ALSO FAILED TO FURNISH ANY CONFIRMATION LETTERS FROM THE REMAIN ING CREDITORS. ACCORDINGLY THE LEARNED CIT (A) CONFIRMED THE ADDITION TO THE TUNE OF RS.42.15 LAKHS OUT OF RS.57 LAKHS. THUS IN AGGREGATE THE LEARNED CIT(A) GRANT ED RELIEF OF RS.14.85 LAKHS (RS.8.60 LAKHS + RS.6.25 LAKHS) FROM OUT OF RS.57 L AKHS. 5. THE ASSESSEE IS ASSAILING THE DECISION OF LEARNE D CIT (A) IN CONFIRMING THE ADDITION TO THE TUNE OF RS.42.15 LAKHS. THE LEARNE D AR SUBMITTED THAT THE ASSESSEE IS A SOCIETY REGISTERED UNDER SOCIETIES RE GISTRATION ACT AND HENCE THE MEMBERS AND SOCIETY ARE ALTOGETHER DIFFERENT ENTITI ES. ACCORDINGLY HE CONTENDED THAT THE ADDITION IF ANY IN RESPECT OF THE IMPUGNE D CAPITAL CONTRIBUTION IS WARRANTED THE SAME HAS TO BE MADE ONLY IN THE HAND S OF THE MEMBERS IN ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 5 OF 13 RESPECT OF THEIR RESPECTIVE CONTRIBUTION. FOR THI S PROPOSITION HE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS (P) LTD. REPORTED IN (2008) 216 CTR SC 195). 5.1 ON THE CONTRARY THE LD DR SUBMITTED THAT THE AS SESSEE IS UNDER AN OBLIGATION TO PROVE THE GENUINENESS OF THE CAPITAL CONTRIBUTION. THE ASSESSEE BEING A REGISTERED SOCIETY COULD NOT PRODUCE THE R EGISTER OF MEMBERS. THE ASSESSEE COULD NOT FURNISH THE FULL ADDRESS OF THE MEMBERS FROM WHOM THE IMPUGNED CAPITAL CONTRIBUTIONS WERE RECEIVED. THE ASSESSEE COULD FURNISH CONFIRMATION LETTERS ONLY FROM CERTAIN MEMBERS AND IT COULD NOT FURNISH SUCH LETTERS FROM MANY OF THE ALLEGED MEMBERS. FURTHER THE ASSESSEE ITSELF HAD VOLUNTARILY OFFERED RS.12 LAKHS AS ITS INCOME DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS. ACCORDINGLY HE CONTENDED THAT THE ASSE SSEE HAS FAILED TO DISCHARGE THE BURDEN PLACED UPON IT AND HENCE THE ENTIRE ADDI TION SHOULD BE SUSTAINED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. THE ASSESSEE HEREIN IS A SOCIETY REGISTERED UNDER THE S OCIETIES REGISTRATION ACT. BEFORE US NONE OF THE PARTIES PRODUCED THE COPIES OF ANNUAL ACCOUNTS AND ALSO THE MEMORANDUM AND BYE-LAWS OF THE ASSESSEE SOCIETY . THE OBJECTS OF THE SOCIETY ARE DEFINED IN THE SAID MEMORANDUM AND ITS ACTIVITIES ARE REGULATED BY ITS BYE- LAWS. UNDER THE PROVISIONS OF SOCIETIES REGI STRATION ACT THE ASSESSEE SOCIETY IS REQUIRED TO MAINTAIN A REGISTER OF MEMB ERS. THE PROCEDURE FOR ADMISSION OF MEMBERS ARE USUALLY PRESCRIBED IN ITS BYE-LAWS. BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS CLAIMED THAT IT HAS RECEIVED A SUM OF RS.57.00 LAKHS AS CAPITAL CONTRIBUTION FROM 97 PERS ONS. HOWEVER THE ASSESSEE SOCIETY COULD NOT PROVE THAT THEY ARE MEMBERS OF TH E SOCIETY. IT COULD NOT PRODUCE THE REGISTER OF MEMBERS WHICH IS REQUIRED TO BE MAINTAINED UNDER THE PROVISIONS OF SOCIETIES REGISTRATION ACT. WE NOTI CE THAT THE ASSESSEE HAS STATED THAT IT HAS STARTED REPAYING THE SAID CAPITAL CONTR IBUTIONS. IT IS NOT CLEAR WHETHER SUCH KIND OF REPAYMENTS IS PERMISSIBLE UNDER THE SO CIETIES REGISTRATION ACT OR UNDER ITS MEMORANDUM AND BYE-LAWS. THOUGH THE ASSES SEE HAS FILED A LIST ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 6 OF 13 CONTAINING 97 PERSONS THE SAID LIST DID NOT MENTIO N THE POSTAL ADDRESS OF RESPECTIVE PERSONS. THE ASSESSING OFFICER HAS FOUN D THAT THE MANY OF ASSESSEES OWN EMPLOYEES HAVE BEEN INCLUDED IN THE LIST. ALL T HESE FACTS GO AGAINST THE VERACITY OF THE CLAIM MADE BY THE ASSESSEE. 6.1 THE LD AR PLACED RELIANCE ON THE DECISION OF HO NBLE SUPREME COURTS IN THE CASE OF LOVELY EXPORTS (SUPRA) AND CONTENDED TH AT THE RATIO LAID DOWN IN THAT CASE EQUALLY APPLY TO A SOCIETY ALSO. WE HAVE CARE FULLY CONSIDERED THE PROVISIONS OF THE SOCIETIES REGISTRATION ACT 1860. THE PUR POSE OF INTRODUCTION OF THE SAID ACT IS STATED AS UNDER: INTRODUCTION THERE ARE MANY VENTURES IN THE WORLD WHICH A PERSON OR GROUP OF PERSONS WOULD LIKE TO UNDERTAKE BUT WHICH USUALLY A CCORDING TO THEIR FAMILIES OR FRIENDS ARE NOT WORTH PURSUING. SOMET IMES THESE VENTURES BENEFIT THE SOCIETY TOO BUT DUE TO LACK OF FUNDS E XTERNAL PRESSURES ETC. THE GROUPS BREAK UP AND THE DREAM OF DOING SOMETHI NG IS LOST IN THE MIST. IT IS WITH THIS VIEW TO PROMOTE SUCH SOCIAL WELFARE ACTIVITIES THE SOCIETIES REGISTRATION ACT WAS BROUGHT INTO EFFECT IN 1860 SO THAT PEOPLE COULD FORM A SOCIETY HAVE A WELL DEFINED PURPOSE HAVE ENOUGH RESOURCES FUNDS ETC. AND ARE ALSO IMMUNE FROM EXTE RNAL PRESSURES TENSIONS ETC. SO THAT THEIR PURPOSES ARE FULFILLED. THE PREAMBLE OF THE SAID ACT READS AS UNDER : PREAMBLE:- (21 OF 1860) [21ST MAY 1860] AN ACT FOR THE REGISTRATION OF LITERARY SCIENTIFIC AND CHARITABLE SOCIETIES WHEREAS IT IS EXPEDIENT THE PROVISION SHOULD BE MAD E FOR IMPROVING THE LEGAL CONDITION OF SOCIETIES ESTABLISHED FOR THE PR OMOTION OF LITERATURE SCIENCE OR THE FINE ARTS OR FOR THE DIFFUSION OF USEFUL KNOWLEDGE THE DIFFUSION OF POLITICAL EDUCATION OR FOR CHARITABLE PURPOSES; IT IS ENACTED AS FOLLOWS AS STATED EARLIER A SOCIETY IS FORMED THROUGH ITS MEMORANDUM OF ASSOCIATION AND ITS CONTENTS ARE STATED TO BE AS UNDER: 2. MEMORANDUM OF ASSOCIATION. - THE MEMORANDUM OF ASSOCIATION SHALL CONTAIN THE FOLLOWING THINGS THAT IS TO SAY - ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 7 OF 13 THE NAME OF SOCIETY; THE OBJECT OF THE SOCIETY; THE NAMES ADDRESSES AND OCCUPATIONS OF THE GOVER NORS COUNCIL DIRECTORS COMMITTEE OR OTHER GOVERNING BODY TO W HOM BY THE RULES OF THE SOCIETY THE MANAGEMENT OF ITS AFFAIRS IS ENTRU STED. A COPY OF THE RULES AND REGULATIONS OF THE SOCIETY CERTIFIED TO BE A CORRECT COPY BY NOT LESS THAN THREE OF THE MEMBERS OF THE GOVERNING BODY SHALL BE FILED WITH THE MEMORANDUM OF ASSOCIA TION. A MEMBER IS DEFINED AS UNDER : 15. MEMBER DEFINED.- FOR THE PURPOSES OF THIS ACT A MEMBER OF A SOCIETY SHALL BE A PERSON WHO HAVING BEEN ADMITTED THEREIN ACCORDING TO THE RULES AND REGULATIONS THEREOF SHALL HAVE PAID A SUBSCRIPTION OR SHALL HAVE SIGNED THE ROLL OR LIST OF MEMBERS THERE OF AND SHALL NOT HAVE RESIGNED IN ACCORDANCE WITH SUCH RULES AND REGULATI ONS; ON A CAREFUL READING OF THE ABOVE CITED PROVISIONS OF THE SOCIETIES REGISTRATION ACT ONE CAN UNDERSTAND THAT IT IS FORMED FOR NON-C OMMERCIAL ACTIVITIES; ITS MEMORANDUM DOES NOT CONTAIN CLAUSE FOR AUTHORISED CAPITAL; ITS MEMBERSHIP IS BY PAYMENT OF A SUBSCRIPTION. THESE CLAUSES DIST INGUISHES A SOCIETY FROM A LIMITED COMPANY. A LIMITED COMPANY SHALL HAVE AN AUTHORISED CAPITAL AND THE CONTRIBUTORS TO SUCH AUTHORISED CAPITAL BECOME SHAR E HOLDERS OF THE COMPANY. IN CASE OF A SOCIETY THE CONCEPT OF CONTRIBUTION TOWA RDS AUTHORISED CAPITAL IS NOT THERE. HENCE IN OUR VIEW THE RATIO LAID DOWN IN THE CASE OF LOVELY EXPORTS (P) LTD. (SUPRA) DOES NOT APPLY TO THE INSTANT CASE. 6.2 IN VIEW OF THE DISCUSSIONS MADE IN THE PRECE DING PARAGRAPH WE AGREE WITH THE VIEW OF THE LEARNED CIT(A) THAT THE ASSESS EE HEREIN HAS TO DISCHARGE THE BURDEN OF PROOF PLACED UPON IT UNDER SECTION 68 OF THE ACT FOR THE AMOUNTS CREDITED AS CAPITAL CONTRIBUTIONS. HOWEVER THE ASS ESSEE COULD NOT FURNISH CONFIRMATION LETTERS FROM ALL THE PERSONS. BESIDES THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE ITSELF HAD OFF ERED FOR TAXATION A SUM OF RS.12 LAKHS PERTAINING TO 24 PERSONS. ALL THESE FAC TORS CUMULATIVELY SUGGEST THAT THE ASSESSEE COULD NOT ESTABLISH THE IDENTITY OF MO ST OF THE PERSONS FROM WHOM THE IMPUGNED CAPITAL AMOUNT WAS CLAIMED TO HAVE BEE N RECEIVED. ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 8 OF 13 6.3 IN PARA 4.11 OF HIS ORDER THE LD CIT (A) HAS GR ANTED RELIEF TO THE TUNE OF RS.14.85 LAKHS. OUT OF THE ABOVE A SUM OF RS.8.6 L AKHS HAS BEEN RECEIVED FROM 2 PERSONS NAMED SHRI V. GANESH KUMAR AND SMT. V. US HA RANI. THE LD CIT(A) HAS NOTICED THAT BOTH THE PERSONS ARE ASSESSED TO I NCOME TAX AND THEY HAVE DISCLOSED SUFFICIENT AMOUNT IN THEIR RESPECTIVE RET URN OF INCOME WHICH IS IN CONSONANCE WITH THE INVESTMENTS MADE BY THESE TWO P ERSONS WITH THE ASSESSEE SOCIETY. HENCE WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEARNED CIT(A) IN DELETING THE AMOUNT OF RS.8.60 LAKHS RELATING TO TH E ABOVE SAID TWO PERSONS. 6.4 HOWEVER WE ARE NOT IN AGREEMENT WITH LEARNED C IT(A) IN DELETING THE BALANCE AMOUNT OF RS.6.25 LAKHS OUT OF THE AMOUNT O F RS.14.85 LAKHS. THE SAID AMOUNT OF RS.6.25 LAKHS WAS RECEIVED FROM 12 PERSON S. IN THE REMAND PROCEEDINGS THE ASSESSING OFFICER EXAMINED ALL THE SE 12 PERSONS. THOUGH THEY HAVE CONFIRMED THE INVESTMENTS MADE IN THE ASSESSEE SOCIETY THE ASSESSING OFFICER WAS NOT SATISFIED WITH THEIR RESPECTIVE CRE DIT WORTHINESS. WE NOTICE THAT THE LD CIT (A) HAS GRANTED RELIEF OF RS.6.25 LAKHS SIMPLY BECAUSE THESE PERSONS HAVE CONFIRMED THE INVESTMENT. HOWEVER IT IS TO BE NOTED THAT MERE ADMISSION OF THE CREDITORS WILL NOT HELP THE ASSESSEE TO DISC HARGE THE BURDEN OF PROOF PLACED UPON IT. THE THREE INGREDIENTS VIZ. THE ID ENTITY OF THE CREDITORS THE GENUINENESS OF THE TRANSACTION AND THE CREDITWORTHI NESS OF THE CREDITOR HAVE TO BE PROVED BY THE ASSESSEE. FROM THE ORDER OF THE L D CIT (A) IT IS NOT CLEAR WHETHER HE IS ALSO SATISFIED WITH THE GENUINENESS O F THE TRANSACTIONS AND THE CREDITWORTHINESS OF THE PERSONS. THE ASSESSEE HAS NOT FILED ANY RECORD TO SHOW THAT IT HAD DISCHARGED ITS BURDEN IN THIS REGARD. THUS WE ARE OF THE VIEW THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE BURDEN OF PROOF PLACED UPON IT IN RESPECT OF 12 PERSONS WHO HAVE CONTRIBUTED AN AGGREGATE AMO UNT OF RS.6.25 LAKHS. IN VIEW OF THE ABOVE WE SET ASIDE THE ORDER OF THE LD CIT (A) IN RESPECT OF RS.6.25 LAKHS AND CONFIRM THE ADDITION MADE BY THE AO RELAT ING TO THE SAME. 7. NOW LET US CONSIDER THE OTHER TWO ISSUES RAISED IN THE APPEAL OF THE ASSESSEE. THE ASSESSEE IS OBJECTING TO THE ADDITION OF RS.2 69 660/- RELATING TO ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 9 OF 13 THE DONATIONS MADE BY THE ASSESSEE TO VARIOUS COMMI TTEES ON FESTIVAL OCCASION LIKE VINAYAKA CHATHURTHI DURGA POOJA AND ALSO TO A SSOCIATIONS LIKE STUDENT FEDERATION OF INDIA NSUI ETC. THE LEARNED CIT (A) CONFIRMED THE ADDITIONS MADE BY THE AO WITH THE FOLLOWING OBSERVATIONS: WHERE A DONATION GIVEN BY A STATE UNDERTAKING WAS SOUGHT TO BE CLAIMED AS BUSINESS EXPENDITURE ALLOWABLE U/S 37 IT WAS UNSUCCESSFUL IN CIT VS. INDUSTRIAL DEVELOPMENT CORPO RATION OF ORISSA LTD (249 ITR 401 ORISSA). THOUGH IT WAS CONC EDED THAT THERE MAY BE SOME BENEFIT FOR THE INSTITUTION WHERE SUCH DONATIONS WERE GIVEN IT MUST HAVE SOME INTIMATE CO NNECTION WITH SUCH BENEFIT AND NOT REMOTELY CONNECTED. IN THE INST ANT CASE THE DONATIONS MADE FOR RELIGIOUS FUNCTIONS DO NOT HAVE THE INTIMATE CONNECTION WITH THE STUDENTS OF THE APPELLANT SOCIE TY AND THE PURPOSE FOR MAKING DONATIONS TO STUDENTS ORGANIZAT IONS ARE ALSO NOT CLEAR. HENCE THE SAID DONATION OF RS.2.79 660/ - IS NOT AN ALLOWABLE DEDUCTION AND THEREFORE THE SAID ADDITION MADE BY THE AO IS HEREBY CONFIRMED. WE NOTICE THAT THE LEARNED CIT (A) HAS SPECIFICALLY POINTED OUT THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE CONNECTION BETWEEN THE ACTIVITIES CARRIED ON BY THE ASSESSEE AND THE IMPUGNED DONATIONS. HENCE WE DO NO T FIND ANY INFIRMITY IN HIS DECISION AND ACCORDINGLY CONFIRM THE SAME. 8. THE NEXT ISSUE RAISED IN THE APPEAL OF THE ASSES SEE RELATES TO THE ADDITION OF RS.5 47 050/-. THE ASSESSING OFFICER HAD MADE A N ADHOC DISALLOWANCE FROM OUT OF THE TOTAL HOSTEL EXPENDITURE CLAIMED BY THE ASSESSEE. THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS.1 22 27 941/- TOWARDS RUN NING OF THE HOSTEL MESS. OUT OF THE ABOVE SAID AMOUNT THE ASSESSEE COULD NOT FU RNISH PROPER BILLS AND VOUCHERS FOR RS.54.70 LAKHS. THE ASSESSEE SUBMITTED THAT IT WAS CONSTRAINED TO PREPARE SELF MADE VOUCHERS AS THE VENDORS OF ITEMS LIKE VEGETABLES FISH CHICKEN MUTTON ETC. DO NOT ISSUE PROPER PRINTED VOUCHERS AND FURTHER THEY DO NOT ACCEPT CHEQUES. THE ASSESSEE ALSO SUBMITTED THA T IT IS FOLLOWING THE SIMILAR PROCEDURES FOR THE PAST SEVERAL YEARS. THE ASSESSIN G OFFICER TOOK THE VIEW THAT THERE IS A POSSIBILITY OF INFLATION OF EXPENSES WHI CH ARE INCURRED BY PREPARING SELF MADE VOUCHERS AND ACCORDINGLY DISALLOWED 10% OF RS. 54.70 LAKHS WHICH ARE SUPPORTED BY SELF MADE VOUCHERS. THE LD CIT (A) OPI NED THAT THE ASSESSEE COULD ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 10 OF 13 HAVE PURCHASED VEGETABLES AND NON VEGETARIAN ITEMS THROUGH ORGANIZED AGENCIES WHO MAINTAIN PROPER VOUCHERS. BY STATING S O HE CONFIRMED THE SAID ADDITION. 8.1 WE HAVE HEARD THE PARTIES ON THIS ISSUE. AS SUB MITTED BY THE ASSESSEE IT IS IN COMMON KNOWLEDGE OF EVERY BODY THAT THE VEGE TABLES AND NON VEGETARIAN ITEMS ARE MOSTLY PURCHASED FROM THE UNREGULATED MAR KETS AND THE VENDORS DO NOT USUALLY ISSUE PRINTED BILLS. THOUGH THE LEARNE D CIT(A) HAS OPINED THAT THE ASSESSEE SHOULD HAVE PURCHASED FROM ORGANIZED AGENC IES IN OUR VIEW ONE CANNOT COMPEL AN ASSESSEE TO DO SO. THE ASSESSEE H AS EXPLAINED THE PROCEDURES FOLLOWED BY IT FOR THE PAST SEVERAL YEAR S AND THE COMPELLING CIRCUMSTANCES WHICH WARRANTED IT TO MAINTAIN SELF M ADE VOUCHERS. THE POSSIBILITY OF INFLATION IS MORE ONLY WHEN THE CON TROLLING PERSONS I.E THE OWNERS OF THE INSTITUTION ARE DIRECTLY ENGAGED IN THE PUR CHASE ACTIVITIES. IN THE INSTANT CASE IT IS NOT CLEAR WHETHER THE CONTROLLING PERSO NS OF THE INSTITUTION HAVE SO ENGAGED THEMSELVES. AT THE SAME TIME IT IS TO BE NOTED THAT THE SELF MADE VOUCHERS ARE PRONE TO SOME MANIPULATION AND HENCE T HE POSSIBILITY OF MANIPULATION COULD NOT BE ALTOGETHER RULED OUT. HE NCE ON A CONSPECTUS OF THE MATTER WE ARE OF THE VIEW THAT A ROUND SUM DISALLO WANCE OF RS.2 50 000/- WOULD BE SUFFICIENT TO TAKE CARE OF POSSIBLE DEFICIENCIES IF ANY AND IN OUR VIEW IT WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY WE SET ASID E THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO S USTAIN THE ADDITION TO THE TUNE OF RS.2.50 LAKHS ONLY AS AGAINST RS.5 47 050/- CONF IRMED BY LEARNED CIT(A) ON HOSTEL EXPENDITURE. 9. NOW LET US CONSIDER THE OTHER ISSUES AGITATED IN THE APPEAL OF THE REVENUE. THE REVENUE IS ASSAILING THE DELETION OF RS.2 34 311/- RELATING TO THE POOJA EXPENSES. THE LEARNED CIT (A) DELETED THE SAI D ADDITION BY ACCEPTING THE CONTENTION OF THE ASSESSEE THAT IT IS THE TRADITION OF THE COUNTRY TO INVOKE GOD FOR THE PROSPERITY OF THE BUSINESS. HOWEVER ON A READ ING OF THE LETTER NO.13A/20/68-IT(A-II) DATED 3.10.1968 ISSUED BY THE CBDT WHICH HAS BEEN ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 11 OF 13 REFERRED TO BY THE LEARNED CIT(A) IN RESPECT OF SOM E OTHER ISSUE WE NOTICE THAT THE CBDT HAS OBSERVED THAT THE EXPENSES INCURRED ON THE OCCASION OF DIWALI AND MUHARAT ARE IN THE NATURE OF BUSINESS EXPENDITURE. IT DID NOT STATE ANYTHING ABOUT THE DAY TO DAY POOJA EXPENSES. THUS IT IS NO T SHOWN THAT THE DAY TO DAY EXPENSES ARE RELATED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. HOWEVER BY TAKING INTO ACCOUNT THE VIEWS OF CBDT CITED ABOVE WE ARE OF THE VIEW THAT THE POSSIBILITY OF INCURRING EXPENSES DURING FESTIVAL O CCASIONS CANNOT BE ALTOGETHER RULED OUT. ACCORDINGLY WE ARE OF THE VIEW THAT AN ESTIMATED ADDITION OF RS.1.20 LAKH TOWARDS THE DAY TO DAY POOJA EXPENSES WOULD BE REASONABLE AND WE ORDER ACCORDINGLY. ACCORDINGLY WE PARTIALLY CONFIRM THE R ELIEF GRANTED BY LEARNED CIT(A). THE ASSESSING OFFICER IS DIRECTED TO SUSTAI N THE ADDITION TO THE TUNE OF RS.1.20 LAKHS IN THE PLACE OF RS.2 34 311/- MADE BY HIM. 10. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE REL ATES TO THE ADDITION OF RS.2 88 990/- RELATING TO TRAVELING EXPENSES. THE B USINESS PROMOTION EXPENSES INTER ALIA CONSISTED OF TRAVELING EXPENSES OF THE E MPLOYEES FOR OUTSTATION VISITS WHICH WERE MADE IN CONNECTION PROPAGATING THE POLI CIES AND PROGRAMMES OF THE EDUCATIONAL INSTITUTIONS RUN BY THE ASSESSEE SOCIET Y. THE AGGREGATE OF SUCH EXPENDITURE WORKED OUT TO RS.28 89 860/-. SINCE MO ST OF THESE EXPENSES WERE SUPPORTED BY SELF MADE VOUCHERS THE AO DISALLOWED 10% OF THE SAME. THE LEARNED CIT (A) DELETED THE SAME WITH THE FOLLOWIN G OBSERVATIONS. THE ASSESSING OFFICER HAS DOUBTED THE EXPENDITURE PERTAINING TO OUTSTATION VISITS OF THE EMPLOYEES AS THE SAID EXPE NDITURE HAVE BEEN INCURRED IN CASH. WHEN EMPLOYEES VISIT TO OUTS TATION AREAS CASH EXPENDITURE IS INEVITABLE. THE AO HAS NOT QUES TIONED THE NECESSITY OF THESE EXPENDITURES. THE APPELLANT HAS CLEARLY EXPLAINED THE METHODOLOGY OF INCURRING THESE EXPENDITURES. HE NCE SINCE THESE EXPENDITURES ARE FOR THE PURPOSES OF THE BUSI NESS PROMOTIONS THEY ARE ALLOWABLE AND THE AO IS NOT JUSTIFIED IN D ISALLOWING THE SAID AMOUNT OF RS.2 88 990/-. THE SAME IS HEREBY DELETED . WE HAVE EXAMINED THE VIEW OF THE LEARNED CIT (A) AN D FIND IT TO BE REASONABLE ONE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ACC ORDINGLY WE CONFIRM THE DECISION OF THE LEARNED CIT (A) ON THIS ISSUE. ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 12 OF 13 11. THE LAST ISSUE IN THE APPEAL OF THE REVENUE REL ATES TO THE RELIEF OF RS.7 99 930/- GRANTED BY LEARNED CIT (A) OUT OF THE EXPENSES INCURRED FOR CULTURAL ACTIVITIES. THE ASSESSEE HAD INCURRED A SU M OF RS.15 99 868/- UNDER THE HEAD CULTURAL ACTIVITIES WHICH INCLUDED BIRTH DAY C ELEBRATION OF THE DIRECTOR CONTRIBUTIONS TO POLICEMEN PURCHASE OF SWEETS CRA CKERS ETC. DURING DIWALI CELEBRATIONS; ON THE OCCASION OF WORLD CUP MATCHES ETC. THE ASSESSING OFFICER FELT THAT SOME OF THE EXPENDITURE DO NOT HAVE NEXUS WITH THE BUSINESS OF THE ASSESSES. ACCORDINGLY HE DISALLOWED 50% OF THE SAID EXPENDITURE WHICH AMOUNTED TO RS.7 99 930/-. THE LEARNED CIT (A) DELE TED THE SAME WITH THE FOLLOWING OBSERVATIONS: ON BEHALF OF THE APPELLANT IT WAS SUBMITTED THAT THE MAJOR HEADS OF EXPENDITURE UNDER CULTURAL ACTIVITIES ARE COLLEG E FUNCTIONS ANNUAL DAY FUNCTION VINAYAKA CHATHURTHI CELEBRATIONS DIW ALI CELEBRATIONS WORLD CUP CELEBRATIONS ETC. IN ANY EDUCATIONAL INST ITUTIONS CULTURAL ACTIVITIES HAVE TO BE CONDUCTED AS PART OF THE EXTR A CURRICULAR ACTIVITIES. THEREFORE ALL THESE EXPENDITURES ARE F OR THE BENEFIT OF THE STUDENTS WHO ARE THE MAIN CUSTOMERS OF THE APPE LLANTS BUSINESS OF RUNNING THE EDUCATIONAL INSTITUTIONS. IN THIS CONTEXT IT IS OBSERVED THAT ON THE PART OF THE EDUCATIONAL INSTIT UTIONS EXPENDITURE ON CULTURAL ACTIVITIES IS A NECESSITY A S A PART OF EXTRA CURRICULAR ACTIVITIES. MORE SO WHEN THE EDUCATIONA L INSTITUTIONS MAINTAIN HOSTELS WHERE THE INMATES OF THE HOSTELS DO NOT GO HOME DURING VARIOUS FESTIVITIES. THE CBDT VIDE LETTER F. N.13A/20/68-IT(A- II) DT. 3.10.1968 HAS OBSERVED AS THE EXPENSES INCUR RED ON THE OCCASION OF DIWALI AND MAHURAT ARE IN THE NATURE OF BUSINESS EXPENDITURE IT HAS BEEN DECIDED NOT TO LAID DOWN A NY MONETARY LIMITS FOR THE PURPOSE OF THEIR ALLOWANCE. SINCE T HESE EXPENDITURE ARE NOT OF A PERSONAL SOCIAL OR RELIGIOUS NATURE BUT ARE IN THE INTEREST OF THE BUSINESS AND LAID OUT ARE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS THEY A RE TO BE ALLOWED AS BUSINESS EXPENDITURE. HENCE THE AO IS NOT JUSTI FIED IN DISALLOWING THE 50 PER CENT SUCH EXPENDITURE AMOUNT ING TO RS.7 99 930/-. THE SAME IS HEREBY DELETED . 11.1 THERE CANNOT BE ANY DISPUTE THAT THE CULTURAL ACTIVITIES CARRIED ON BY THE EDUCATIONAL INSTITUTIONS FORM PART AND PARCEL OF ED UCATIONAL ACTIVITIES. THESE KIND OF CULTURAL ACTIVITIES HELP TO BRING OUT VARIOUS TY PES OF HIDDEN TALENTS OF THE STUDENTS. PRECISELY FOR THIS REASON ALL THE EDUCATI ONAL INSTITUTIONS INVARIABLY CONDUCT THE CULTURAL PROGRAMMES THOUGH THEY FOLLOW CERTAIN PROCEDURES FOR ITA NOS.330 & 361 OF 2007 VIZAG DEFENCE ACADEMY V ISAKHAPATNAM PAGE 13 OF 13 SELECTING THE DATES OF SUCH PROGRAMMES. BESIDES THE CBDT ALSO VIDE ITS LETTER DATED 3.10.1968 (SUPRA) HAS ALSO OBSERVED THAT THE EXPENDITURE INCURRED ON FESTIVAL OCCASIONS ARE IN THE NATURE OF BUSINESS EX PENDITURE. IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT THE LD CIT (A) RIGHT LY DELETED THE ADDITION OF RS.7 99 930/- AND ACCORDING UPHOLD HIS ORDER ON THI S ISSUE. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE AS W ELL AS REVENUE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 18 TH JANUARY 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:18-01-2011 COPY TO 1 M/S VIZAG DEFENCE ACADEMY 38-40-18/7 104 AREA M ARRIPALEM VISAKHAPATNAM 2 THE ACIT CIRCLE-4(1) 3 R D FLOOR DIRECT TAXES BUILDING VISAKHAPATNAM 17 3 4. THE CIT II VISAKHAPATNAM THE CIT(A)-II VISAKHAPATNAM 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM