IN THE ITAT DELHI BENCH ‘B’
Chiranjiv Charitable Trust
Additional Director of Income-tax (E), Range-1, New Delhi
IT APPEAL NOS. 3602 & 3856 (DELHI) OF 2009 AND 786 (DELHI) OF 2011
[ASSESSMENT YEARS 2006-07 & 2007-08]
APRIL 30, 2012
R.P. Tolani, Judicial Member
This is a set of cross appeals for A.Y. 2006-07 and assessee’s appeal for A.Y. 2007-08. All these appeals are heard together and being disposed of by a common order for the sake of convenience. Respective grounds are as under:
ITA no. 3602/Del/09 (Assessee’s appeal for A.Y. 2006-07):
“1.1 That on the law, facts and in the circumstances of the case, the learned CIT (Appeals) has erred in sustaining the addition of Rs. 1.50 crores u/s 68 of Income-tax Act, 1961 being the corpus donation received by the appellant trust from S. Jagjit Singh in utter disregard to the facts and evidence of the case on record as reproduced in the impugned order and relying merely on alleged denial of making any donation in form of statement recorded by the Additional Director of Income-tax (Investigation), inter alia, the learned CIT (Appeals) failed to appreciate that without allowing the requested opportunity to the appellant to cross examine the party, the said evidence could not be used as evidence in law.
1.2 Without prejudice, even otherwise, the alleged assertion of the party in the statement denying the fact of making the donation stood vitiated by other evidence on record, the party himself not disputing the donation to the appellant Trust of his own funds and under his own direction.
2. That on the law, facts and in the circumstances of the case, the learned CIT (Appeals) has erred in sustaining the addition of Rs. 25 lacs as corpus donation received by means of account payee cheque from Shri Piyush Jain in utter disregard to the confirmatory letter dated 24-02-2006 forwarding the donation containing details of payment of cheque and details of bank account number and branch as also the appellant’s request for summoning the party and the requisite information from his bank account.
3. That on the law, facts and in the circumstances of the case, the learned CIT (Appeals) has erred in treating the development fund charges of Rs. 59,58,384/- recovered during the year and directly credited to the development fund in the balance sheet as corpus of the trust. The receipts were embedded as source with the obligation to apply them to the development activities for the welfare of the students.
4. That on the law, facts and in the circumstances of the case, the learned CIT (Appeals) has erred in confirming the denial of depreciation in computing the real income for the purpose of determination of application of income on the ground that investment in fixed assets had duly been claimed as application of income and acceptance of the appellant’s claim amounted to granting of double deduction.
5. That the order of CIT (Appeals) is wrong being in violation of the principles of natural justice and contrary to facts and law of the case.
6. That the appellant craves leave to add, alter or amend or forego any grounds of appeal at the time of hearing.
ITA no. 3856/Del/09 (Revenue’s appeal for A.Y. 2006-07):
“1. Whether on the facts & in the circumstances of the case, the ld. CIT(A) was correct in holding that there was no violation of the provisions of Section 13(1)(c) read with Section 13(2) of the I.T. Act, 1961 particularly when a sum of Rs. 8,17,15,200/- was in fact given as loan or advance by the assessee to M/s Ansal Properties and Infrastructure Ltd. and as such it cannot be treated as the sum paid for purchase of plots from M/s Ansal Properties and Infrastructure Ltd. at Gurgaon.
2. Whether on the facts & in the circumstances of the case, the ‘Agreement to Sell’ entered into by Charanjiv Charitable Trust with Ansal Properties and Infrastructure Ltd. in March 2004 can be considered as real or genuine for effecting the transfer of plots at Gurgaon particularly when such agreement was, a colourable device, made simply for facilitating transfer of funds by the assessee to M/s Ansal Properties and Infrastructure Ltd. in order to escape the rigors contained in Section 13(1)(c) read with section 13(2) of the Income-tax Act, 1961.
3. Whether on the facts & in the circumstances of the case, the ld. CIT(A) was correct in holding that there was no violation of the provisions of Section 13(1)(c) read with section 13(2) of the Income-tax Act, 1961, particularly when ‘interest’ and ‘rent’ outstanding at Rs. 51,59,370/- and Rs. 9,54,240/-respectively on 31-03-2006 continued to be lent to M/s Ansal Properties and Infrastructure Ltd. by the assessee.
4. Whether on the facts & in the circumstances of the case, the ld. CIT(A) was correct in holding that advances made by the assessee to Charanjiv Educational Society were meant for establishing an educational institution at Chhattisgarh particularly when Charanjiv Educational Society was not registered u/s 12A of the Act.
5. Whether on the facts & in the circumstances of the case, the ld. CIT(A) was correct in holding that there was no violation of the provisions of Section 13(1)(c) read with section 13(2) of the Income-tax Act, 1961, particularly when an amount of more than Rs. 2 crores was continued to be lent to Charanjiv Educational Society during the relevant accounting period and a sum of Rs. 16,55,448/- remained payable on 31-03-06.
6. Whether on the facts & in the circumstances of the case, the ld. CIT(A) was correct in holding that corpus donation received by the assessee from M/s HCL Corporation Ltd. and M/s Blue Bird Electrotrading Ltd. amounting respectively to Rs. 15,00,000/- and Rs. 13,00,000/- are eligible for benefit u/s 11(1)(d) of the Income Tax Act, 1961.
7. The Appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
ITA no. 786/Del/11 (Assessee’s appeal for A.Y. 2007-08):
“1.1 That on the law, facts and in the circumstances of the case, the learned CIT(A) has erred in not following the decision of his predecessor CIT(A) and in holding that the amount of Rs. 16,58,736/- standing debited in the name of Chiranjiv Educational Society was a transaction in violation of provisions of section 13(1)(c) read with section 13(2) of the Act on the mere ground that Chiranjiv Educational Society was not registered u/s 12A of the Income-tax Act which was mandatory without rejecting the explanation of the appellant that monies given to the Society were in pursuance of the objects of the appellant trust and were solely given and also solely utilized by the society for establishing a private university in Chhattisgarh.
1.2 Without prejudice, the learned CIT (Appeals) has erred in holding that it was mandatory for the society to have been registered u/s 12A of the Income-tax Act. There was no such mandatory provision under the Income-tax Act.
1.3 Without prejudice to the foregoing grounds, even otherwise, there was no violation of the provisions of section 13(1)(c) and section 13(2) in as much as the society could not be regarded as a concern in which the trustees or other specified persons were substantially interested within the meaning of Explanation 3 to Sub-section (7) of Section 13 of the Income-tax Act.
2. That on the law, facts and in the circumstances of the case, the learned CIT(A) has erred in not following the decision of his predecessor CIT(A) in the immediately preceding year and in holding that the amount standing debited as interest receivable in the account of Ansal Properties & Industries Limited (APIL) constituted violation of Section 13(1)(c) read with section 13(2) of the Income-tax Act without considering and appreciating the appellant’s explanation that the outstanding amount neither represented any advance, deposit nor an investment in APIL.
2.2 That without prejudice to the above, the learned CIT(A) failed to consider and appreciate that the amount had been set off against the credit balance in the account of APIL there being sufficient opening and closing credit balance in the account of APIL.
3. That on the law, facts and in the circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs. 59,06,750/- recovered by the Appellant Trust towards development fund charges directly crediting the same to the development fund in the Balance Sheet as corpus of the trust in utter disregard to the fact that the receipts were embedded at source with the obligation to apply the same solely for development activities and welfare of the students.
4. That on the law, facts and in the circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs. 25,00,000/-u/s 68 received as donation from M/s Kuberswamy Ashutosh Consultants (P) Limited. He, inter alia, failed to consider and appreciate the fact that in response to summons u/s 131, the party had duly appeared through his representative and not only confirmed the donation and also filed copy of its bank account in support.
5. That on the law, facts and in the circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs. 9,06,000/- u/s 68 received as donation from M/s Sun Systems Institute of Information Technology (P) Limited by not properly and judiciously appreciating the evidence adduced before him.
6. That the order of CIT (Appeals) is wrong being in violation of the principles of natural justice and contrary to facts and law of the case.
7. That the appellant craves leave to add, alter or amend or forego any grounds of appeal at the time of hearing.
2. Brief facts are: Assessee is a charitable trust registered u/s 12A of the Income-tax Act, 1961 since 28-5-1976. It is one of the group trust managed by Ansal group. The main objects of the Trust include to promote and encourage educational activities and in furtherance thereof, it runs various educational organizations, which are as under:
a. Charanjiv Bharti School, Palam Vihar, Gurgan.
b. Charanjiv Bharti School, Sushant Lok, Gurgan
c. Sushant School of Art & Architecture, Sushant Lok, Gurgaon; and
d. Ansal Institute of Technology, Sushant Lok, Gurgaon.
2.1 The trust has been assessed to tax in earlier years enjoying benefits u/s 11 & 12, there is no change in the objects of the trust. For the impugned A.Y. 2006-07 it filed its return of income with following computation:
|85% of above 117,610,332||
|Less:||Amount applied to charitable purposes|
|Amount as per Audit Report in form 10B||
|Addition to fixed assets|
|(10,10,39,851 less 8,63,88,126)||
|Excess of application of income||
2.2 One of the concern of Ansal group i.e. Ansal Properties & Industries Limited (APIL) was owner of plots of land earmarked for schools, dispensary etc. Since the assessee trust desired to open a school in furtherance of objects, it entered into agreements with APIL dated 18-3-2004 & 24-3-2004 for the purchase of plots situated at Palam Vihar, New Delhi. By stipulations of these agreements, assessee trust paid 95% of the sale consideration to APIL and simultaneously obtained the possession of these plots. One of the conditions of the agreements also stipulated that in case the allotment of the plots is sought to be cancelled, assessee will be liable for cancellation charges of 10% of the cost of the plots. The moneys so advanced are recorded in the books of F.Y. 2004-05 i.e. 2005-06 of both concerns. In the case of trust it has been added to the list of fixed assets and in the books of APIL as advances received. The books are duly audited in time and all relevant statements of accounts were filed along with returns of income of both the concerns for A.Y. 2005-06.
2.3 In April 2005 the assessee cancelled the sale agreement and the moneys paid to APIL by way of sale consideration were returned to APIL by assessee in instalments as per the copy of a/c placed on record. It may be pertinent to mention that cancellation charges @ 10% were not levied by APIL from the assessee and the entire amount of Rs. 8,60,16,000/- was thereby returned to the assessee as per the copy of a/c on record.
2.4 During the course of assessment proceedings AO doubted the genuineness of the transaction of agreement to sell by various observations which are summarized as under:
(i) The agreements to sell were not registered.
(ii) No registered sale deed was executed for more than one year after the agreements of sale and if the transactions were genuinely ale transactions, there was no explanation why the ale deeds are not executed for such a long duration.
(iii) No evidence for taking possession of land has been furnished.
(iv) APIL has submitted that no income for this transaction was shown by it during the year 2003-04 when the agreements to sell were executed and that this also showed that possession was given to assessee was not beyond doubt.
(v) That although agreements were cancelled on 21st April, 2005, the financial books entries of cancellation were passed by the Trust on last date of accounting year i.e. 31st March, 2006 (although dated 21st April, 2005).
2.5 In response to AO’s queries, the assessee filed its written submissions emphasizing that transactions were genuine, duly entered in the books of accounts; the payments were through banking channels. The assessee was an educational trust; the plots were sought to be purchased from APIL in furtherance of objects of the trust; the availability of clear land was scarce in Delhi and the the deal was offered at reasonable terms and cancelled without imposing the 10% penalty. AO, however, held that the transactions were not genuine by a group concern and devised with an intention to advance surplus moneys to APIL. The directors and trustees of both concerns are connected/specified persons and fall within the purview of specified person u/s 13(1)(c) read with sec. 13(2) of the I.T. Act. Since the assessee trust has advanced the money without interest for the benefit of the specified persons, it was denied benefit of Sec. 11 & 12 of the I.T. Act. While arriving at this conclusion AO relied on the Hon’ble Delhi High Court judgment in the case of Kanahya Lal Punj Charitable Trust v. DIT (Exemptions)  297 ITR 66/171 Taxman 134 (Delhi).
3. The other issues involved, are: AO while framing the assessment observed that during the year in question the assessee had received corpus donations of Rs. 1.5 crores from one S. Jagjit Singh S/o S. Bachan Singh (JS), by way of pay order, assessee filed necessary confirmation in this behalf. AO issued notice u/s 131 and requested ADIT (Exemptions), who recorded statement of S. Jagjit Singh behind the back of the assessee. JS stated that he had some disputes about clearance of title of land with DLF. In order to resolve the dispute with DLF, was directed to pay Rs. 1.6 crores and release this payment, as under:
(i) Rs. 10 lacs paid to Ansal Township.
(ii) Rs. 1.5 crores given to assessee trust.
3.1 JS though agreed that it was donation but it was not voluntary and the payment of Rs. 1.5 crore was made directly by DLF Universal Ltd. to assessee by way of this pay order. He further stated that there was no specific direction about its being corpus donation. AO made this addition of Rs.1.5 crore as income of the assessee trust from undisclosed sources u/s 68 of the I.T. Act.
3.2 AO further found that assessee has claimed a further corpus donation of Rs. 25 lacs received from one Shri Piyush Jain by a/c payee cheque. On assessee’s request summons u/s 131 were issued on him who did not appear. Assessee thereafter vide letter dated 26-12-2008 submitted that Piyush Jain was abroad and therefore he could not be produced. AO, however, held that the donation was unexplained and accorded added this amount also u/s 68 of the Act.
3.3 Assessee further received corpus donation of Rs. 15,00,000/- from HCL Corporation Ltd. The same was also added in the hands of assessee by observing that since benefits of secs. 11 & 12 were denied on account of violation of sec. 13 of the Act, the assessee could not be given the benefit of sec. 11(1)(d) of the Act.
3.4 The other corpus donation of Rs. 13 lacs was received by assessee from Blue Bird Electro trading Ltd. and on the same analogy about violation of sec. 13 and like HCL Corporation due to non-availability of benefits of sec. 11 & 12 this amount was also added.
3.5 AO further found that assessee had received a sum of Rs. 59,58,384/- by way of development charges which were not included in the P&L A/c for the current year. Assessee replied that this amount was received specifically for the purpose of further capital development and therefore it was directly credited to Development Fund A/c. reflected in balance sheet. Alternatively it was contended that even if the amount is treated as income of the year the total application of income was more than 85% during the year.
3.6 Besides, AO held that development fund was received from the students and therefore it was part of fee from students. It was accordingly taxed.
3.7 AO computed the taxable income of the assessee as under:
|Receipt as per statement of income filed with I.T. Return:||
|1. Income u/s 68 on account of donation received from S. Jagjit Singh||
|2. Income u/s 68 on account of donation received from Sh. Piyush Jain||
|3. Voluntary donation received from HCL Corpn. Ltd.||
|4. Voluntary donation received from Blue Bird Electro Trading Pvt. Ltd.||
|5. Amount received on account of Development charges Directly credited in the balance sheet.||
|Less: Expenditure as per statement of income:|
|(i) Establishment expense||
|(ii) operative cum admn. Expense||
|Net taxable income:||
3.8 Thus, while framing this computation on income and expenditure a/c AO made following types of adjustments/additions:
i. Violation of sec 13(1)(c) rws 13(2)
ii. Interest and rent receivable from APIL Rs 51,59,370/-
iii. Debit balance in the name of Chiranjiv Education Society, Chhattisgarh 16.55,448/-
iv. The denial of depreciation on assets which are acquired by application of trust income
v. Development funds cr. to balance sheet Rs. 59,58,834/-
vi. Corpus donation by S Jagjit Singh Rs 1.5 crs
vii. Corpus donation by Shri Piyush Jain Rs. 25 Lacs
viii. Corpus donation from HCL corpn. Rs. 15 lacs and Blue Bird Electro Corpn Rs. 13 lacs.
3.9 Aggrieved against the order of AO, assessee preferred 1st appeal before CIT(A). Detailed submission along with evidence were filed which are on the paper book.
4. CIT(A), after considering the assessee’s explanation available on record, held that there was no violation of provisions of sec. 13(1)(c) read with sec. 13(2) and that the judgment of Hon’ble Delhi High Court in the case of Kanahya Lal Punj Charitable Trust (supra) was not applicable to assessee’s case by following observations:
“5. I have perused and considered the assessment order, the submissions of the appellant as also the relevant evidenced adduced. The facts that cannot be denied are:-
That the plots purchased were earmarked in the sanctioned development plants for high school and primary school and for dispensary etc. The appellant was already engaged in running an educational institution and in the absence of any cogent evidence to the contrary, the intention of purchasing the plots cannot be doubted.
Further, there were simultaneous sale agreements executed between the trust and the APIL setting out the detailed clauses restricting the use of the plots only for the purpose of school etc. and also stating since 95% of the sale consideration had been received, the possession of the plots had been handed over to the appellant trust. The AO has made enquiries from APIL and they filed with the AO copies of the sale agreements as also copies of handing over of the physical possession letters issued by it in the normal course of business. In the face of the clear stipulation in the sale agreement and the physical possession letters that too in March 2004 there cannot be any reasonable ground for doubt that the possession had not been handed over. The sale agreements themselves provided that in the case of failure neglect on the part of APIL to register and execute the final documents, the appellant shall be entitled to have the agreements specifically performed through court of law at the cost of APIL. The other objection taken by the learned AO is that agreement to sell were not registered. It is common practice with the developers and builders that the agreement to sells are not registered. It is only later on that sale deeds are registered on the receipt of full sale consideration and there is always a time gap. No adverse inference is possible on this scope. The AO ha also taken objection that APIL had not shown any income from this transaction during March, 2004. It was explained by the appellant that according to the method of accounting followed by APIL, the profit/loss is accounted for only in the year of registration of sale in the case of residential, commercial and institutional plots. The appellant was required to produce the published accounted accounts of APIL to support their contention. Schedule 17 of Accounting policies and notes attached to the audited financial accounts as on 31-3-2004 contain the following Note:-
The revenue relating to sale of residential, commercial and institutional plots is recognized on execution of sale deed in the case of projects commenced upto 31-3-2003. In the case of new projects commenced with effect from 1-4-2003, the revenue on sale of residential, institutional and commercial plots is recognized on a proportionate basis when 2/3rd of the progress has been achieved as measured in terms of actual cost incurred to total estimated cost.
5.1 It is stated that Palam Vihar Project commenced sometime in 1985 or so. An objection has also been taken that agreement to sell was cancelled in April 2005, the final adjustment regarding the cancellation was made by the appellant in its books on 31-3-2006 i.e. within the same financial year. It was explained by the appellant that it is only at the time of closing of books of account when all accounts are scrutinized and finalized and the balance lying in fixed assets account representing the cost of the plots and amounts lying in Land Refund Due Account and Land Amount payable Account were consolidated and squared up by transfer thereof to the current account of APIL It is further submitted that these consolidating entries having been passed during the same accounting year giving full narration of cancellation particulars etc. could not give rise to any adverse inference about the genuineness of the transaction and these adjustments are much before the impugned assessment was taken up. The appellant further stated that there were further scores of adjustment entries which have been finally adjusted at the time of closing of books of account.
5.2 In the light of the totality of the circumstances and evidence available the fat that adjustment entry was passed on the last day of the financial year could not impact the genuineness of the transaction. A further objection has been taken by the AO that even after the cancellation of plots, two cheuqes of Rs. 75 lacs and Rs. 80 lacs were given by the trust to APIL on 29-11-2005 and 13-12-2005 respectively for which no explanation had been furnished. The appellant had filed a copy of account of APIL in its books which had also been filed under their letter dated 26-11-2008 with the AO. The sum of Rs. 75 lacs as is obvious from the copy of account did not represent any advance by trust to APIL but represented the cancellation of earlier cheques received by trust from APIL on 3-6-2005 and 16-11-2005. As regards the payment of Rs. 80 lacs that was made against the credit balance of APIL in the books of account of the trust representing interest free funds provided by APIL.
5.3 The AO has relied upon the decision of Hon’ble Delhi High Court in the case of Kanahya Lal Punj Charitable Trust v. Director of Income-tax Exemptions  297 ITR 66 and observed that the facts of the appellant trust was similar to the case of Kanahya Lal Punj Charitable Trust. I find that the assessee advanced huge amounts to Punj Llyods Limtied without interest or adequate security. In response to the AO’s query the assessee stated that it had paid amount to ‘P’ as earnest money for the purchase of land for school project. The learned AO however found that this explanation was after thought as there was no agreement even with the vendors of the land or corresponding bank transaction and no proof of the same was furnished. In the present case, the transaction is evidenced not only by any written agreements but are backed by bank transaction and further documentary evidence and possession letters etc. The further fact that these payments were capitalized in the books of account of the appellant trust in Land Account and appear in the Schedule of fixed assets as cost of land on 31st March, 2004 cannot be ignored.
5.4 Having regard to the totality of the facts, evidence and circumstances of the case, I am of the view that this amount of Rs. 8,17,15,200/- did not represent any loan or advance by the trust to APIL but represented the payments made towards purchase of schools and dispensary plots, the possession of which had also been taken over by the trust. As such the question of charging any interest or security in respect of this transaction does not arise. I, therefore, hold that there is no violation of provisions of section 13(1)(c). This ground is decided in favour of the appellant.
5. Apropos ground 2, raised before CIT(A) about interest and rent receivable from APIL amounting to Rs. 51,59,370/- assessee submitted that:
(i) The amount did not represent any loan and the interest pertains prior to 2001.
(ii) Assessee had running account with APIL and their interest free credit balance far exceeded the above outstanding.
(iii) APIL as a goodwill gesture had waived the right of enforcing 10% plot cancellation charges
(iv) Reliance was placed on ITAT judgment in the case of Kishore Trust v. Asstt. DIT  59 ITD 137 (Cal.) and CIT v. Nachimuthu Industrial Association  138 ITR 585/ 14 Taxman 224 (Mad.), holding that non collection of rent or interest cannot be termed as a benefit.
5.1 CIT(A) after considering the facts and circumstances acceded to assessees plea and deleted the addition.
6. Apropos assesses ground 3 about debit balance of Rs. 16,55,448/- in the name of Chiranjiv educational society, Chhatisgarh (“CES”). Assessee stated the facts as:
(a) The appellant trust decided to establish an educational institution as private university in the state of Chhattisgarh.
(b) According to the laws of Chhattisgarh Government, no society or institution established outside the State of Chhattisgarh was permitted to register and open a private university.
(c) It was in order to overcome this legal hurdle that the trust decided to form and register a society in Chhattisgarh. In the name of Chiranjiv Educational Society as an independent unit. Accordingly, a society namely Chiranjiv Educational Society was registered in Chhattisgarh. And signatories to the trust were the trustees of the Appellant Trust.
(d) All objects of the said society are charitable and similar to the objects of the Appellant Trust. To enable the establishment of educational society/private university, the appellant trust provided the funds to the society for the purpose of meeting the expenditure required for establishing the institution.
(e) That the funds provided by the appellant trust were in turn used by Chiranjiv Educational Society for making payments for purchase of land, required contributions for endowment fund etc.
(f) It is admitted fact that neither disputed nor challenged by the learned AO that no personal benefit was derived by the appellant trust or its trustees or Chiranjiv Educational Society or the trustees thereof. These funds provided by the appellant trust were in furtherance of its objects to establish educational institution.
(g) These funds were held in trust by the society solely for the purpose of establish educational institution.
(h) After receiving the permission and making the required payments to Chhattisgarh Government etc., unfortunately, Supreme Court delivered a decision in 2005 declaring sections 5 and 6 of Chhattisgarh Niji Kshetra Vishwavidalaya Regulatory Commisson (Sthapana Aur Viniyaman) Adhiniyam, 2002 ultra vires and the Chhattisgarh Government vide their letter dated June, 2006 informed the society that the project could not be proceeded with in view of the above decision and returned the deposit of Rs. 2 crores by account payee cheque which in turn was returned by Chiranjiv Educational Society to the appellant trust. Similarly, other amounts as and when received were returned back to the appellant trust. Establishment, legal and other expenses incurred in this behalf by Chiranjiv Educational Society at the behest of the appellant trust was to be made good to the Society and was in fact made good by the appellant trust on closure of operations by Chiranjiv Educational Society in 2008. Thus this was not a loan or advance but finances provided by way of assistance for the sole purpose of establishment of educational institution. These were in the nature of trust funds provided to the society for educational purposes for which the accounts were to be rendered. As stated earlier, these fund were provided not for any personal benefit by the appellant trust or its trustees. These funds were used by the appellant trust for effectuating its objects through the medium of Chiranjiv Educational Society. There was no personal benefits derived by the society or the trust. The objects of the appellant trust and the society being charitable, it was open under the law for the appellant trust even to make the donations of the above amounts to the society which would be regarded as application of income of the trust. This has been so held in various decisions. As a matter of fact, there is no prohibition under the Act in this behalf. There is also no requirement that the other charitable trust should be a registered trust u/s 12AB.”
6.1 Reliance was placed on the judgments in the cases of:
– CIT v. Aurobindo Memorial Fund Society  247 ITR 93
– CIT v. Thanthi Trust  137 ITR 735 (Mad.).
– DIT v. Sir Shriram Education Foundation  262 ITR 164
– Aditanar Educational Institution vs Addl.CIT  224 ITR 310
– CIT v. Indian National Theatre Trust  305 ITR 149
– Guru Gobind Singh Educational Society v. CIT  118 ITD 207 (Asr.).
6.2 CIT(A) deleted the addition by following observation:
“7.3 I have considered the objections of the AO as also the submissions of the appellant. From the facts and evidence adduced before the authorities, I find that the appellant had established the facts that the Trust had to form a separate institution registered in Chhattisgarh for the purpose of promoting the objects of the trust. That the institution was financed by the appellant for establishing educational institution in furtherance of the objects of the appellant trust. No benefit was derived either by the trust or Chiranjiv Educational Society and after granting approval, Chhattisgarh Government had to invoke its decision in view of the Supreme Court decision, money refunded by the Government was paid back to the appellant trust. It is further submitted that on closing of the institution, all the expenses on the abandoned project have been borne by the appellant trust.
7.4 In the circumstances of the case, it cannot be held that there was a violation of the provisions of section 13(1)(d) in as much as this was not a case of deposit of funds of the trust in mode other than the modes prescribed u/s 11(1) of the Income tax Act. This in fact amounted to utilization of the funds of the appellant for the purpose of promoting its educational objects and no benefit was derived by any interested party or by the society or their trustees. This issue is therefore decided in favour of the appellant.
7. Apropos assesses ground 4 i.e. the issue of depreciation on assets acquired by application of trust income CIT(A) gave alternate findings by following observations:
“8.2 The appellant has , however, submitted that in so far as the additions of fixed assets made during the year under appeal is concerned in respect of which deduction of cost has not been allowed as application of income, the depreciation should have suo moto been allowed thereon by the AO. It was submitted that principle of double deduction would not apply to the additions of fixed assets. As regard the technical objection of the AO that the claim should have been made through revised return and not through a letter, my attention has been drawn to the provisions of Explanation 5 to Section 32(1) inserted w.e.f. 1-2-2002 which provides that the depreciation shall be allowed under the provisions of sub-section, whether or not the assessee has claimed the deduction in computing, its total income. Therefore, irrespective of whether claim was made in the return or later on through a letter, the AO was statutorily bound to allow the depreciation. I find force in the arguments in the case of the appellant trust. Therefore, if withdrawal of exemption u/s 11 is upheld, the AO would be bound to allow depreciation. Since however the withdrawal of exemption u/s 11 is not being upheld by me as per my decision on the earlier grounds as also the later grounds, the appellant’s claim for deduction of the whole cost as application of income would be allowable and the AO is directed accordingly.
8. Apropos ground 5 about development charges of Rs. 59,58,384/- cr. directly to balance sheet CIT(A) dealt the issue as under:
“9.1 It is submitted by the appellant that there was over riding obligation to apply these funds for further development and they stood diverted at source for that purpose. It was further submitted that even if the amount was treated as income of the year, the application of income during the year will exceed 85% of such revised income and the Ld. AO however ignored this ground and made an addition of Rs. 59,58,834/- to the income of the appellant.
9.2 I have considered the facts brought on record by the AO and the submission of the appellant. It is seen that the development charges have been directly taken into balance sheet on the plea that the same stood diverted into development fund. However, since the amount is collected from students as part of fee, same should have been shown as receipt of the appellant which has not been done by the appellant and thus the disallowances made by the AO are justified and has rightly been treated as income of the appellant during the year. Since the appellant has failed to justify that the same were applied for the object of the trust during the year, the AO was right in making the disallowance and addition is confirmed.”
9. Apropos ground 6 about the corpus donation of 1.5 crs from S Jagjit Singh assessee submitted that:
(i) AO made addition on alternate ground that exemption u/s 11 and 12 was denied, therefore, benefit of corpus donation cannot be given.
(ii) The amount of Rs. 1.5 crores was received by Pay order no 922790 dtd 28.2.2005 drawn on Citi Bank. S Jagjit Singh (“JS”) is assessed to tax with PAN No AFMPS5851A which id duly supported by his confirmation. Subsequently in connection with other search/survey proceedings he gave an statement to ADIT(INV), Ludhiana u/s 131 contending that it was not voluntary or for corpus.
(iii) Despite assessee’s requests no cross examination on his statement recorded behind the back of the assessee was given. During the course of his statement copy of confirmation of corpus donation given to assessee was not confronted to JS by ADIT, Ludhiana. His statement refers to an agreement between S Jagjitsingh and DLF Universal Ltd purporting to direct Jagjit Singh to give the pay order of Rs 1.5 crores to assessee. Copy of this agreement was also not given to assessee. Earlier he denied having signed any agreement however later he changed his stand and did not deny his signature on confirmation.
(iv) Assessee again requested for copies of relevant documents and cross examination of S Jagjit Singh which was not provided.
Assessee relied on following case laws :
– Kishinchand Chellaram v. CIT  125 ITR 713/4 Taxman 29 (SC)
–  106 TTJ (Del.)(sic)
– CIT v. Arun Sizing Mills  127 ITR 186/5 Taxman 279 (Mad.)
– Navin Kumar v. Jt. CIT  98 ITD 242 (Asr.)
(v) Assessee as an alternative contention pleaded that without prejudice, even if for a moment the above legal submissions are ignored, there is no occasion for making the addition u/s 68 of the Income-tax Act inasmuch as the identity of the party as also the name of the party stand established. The fact that he confirmed that the payment was made under his direction fully satisfied the ingredients of section 68. The appellant trust was not a party to any agreement or arrangement between the donor and DLF Universal Limited nor there was any evidence that the trust exerted any pressure on the donor. As such the addition is wholly unwarranted and deserves to be deleted.
(vi) Assessee in fact argued before the CIT(A) that it had filed a confirmation from the party confirming the payment of Rs. 1.5 crores towards corpus of the appellant trust vide pay order no. 922790 dated 28-5-2005 drawn on Citi Bank. The donor was assessed to tax and his permanent account number also mentioned in this confirmation. Statement of the party was recorded by Addl. Director of Income-tax, Ludhiana as per direction of the AO.
(vii) In the statement which was recorded at the back of the appellant, the party stated that no donation was given nor any direction to use this corpus donation issued. Since the Statement of S. Jagjit Singh was recorded at the back of the appellant, a specific written request was made by the appellant to the AO for summoning the party and allowing the appellant to cross examine him. Enquiry was also made by the appellant from AO whether during the course of examination, the party has been confronted with his confirmation filed by the appellant. It appears that AO wrote another letter to Addl. Director of Income-tax, Ludhiana. The appellant is not aware whether the statement of the party was again recorded by him. However, it appears from the assessment order that the party sent a letter dated 23-12-2008 stating the denial of any voluntary donation to the appellant and yet signed the confirmation which was forwarded to him by Ansals.
(viii) JS further stated that he did make the payment of Rs. 1.5 crores which he actually made for the settlement of the dispute. In the statement of the party recorded by Addl. Director of Income-tax, Ludhiana there is a reference to an agreement furnished by the party and sub-clause B-4 a payment of Rs. 1.5 crore had been made to the appellant. The party was examined by Addl. Director of Income-tax, Ludhiana with reference to the clause B4 of the agreement and when asked it to explain why this payment of Rs. 1.5 crores was made, he replied that as per question and answer reproduced in the assessment order also that the total amount of Rs. 1.6 crores was made to Ansal Township for taking the clear possession and to make the title clear of land in question as the property was in dispute with Ansals. Out of this , Rs. 10 lacs was directly given to Ansal Township and remaining Rs. 1.5 crores was given to the trust which may be an entity of Ansals. He further stated that payment of Rs. 1.5 crores was made directly to the trust by a pay order by DLF Universal Limited. On request of the appellant, copy of portion of the sale deed referred to in the party’s statement was furnished to the appellant. Clause 3 and 4 whereof were not at all considered by the learned AO. Clause 4 of the sale deed which was executed between S. Jagjist Singh & others in favour of DLF Universal Limited refers as under:
“A sum of Rs. 1.5 crores which has been paid as per direction of the vendors to M/s Chiranjiv Charitable Trust at New Delhi vide pay order no. 922790 dated 28-5-2005 drawn on Citi Bank.”
9.1 The registered sale deed therefore itself states that this payment was made to Chiranjiv Charitable Trust as per the direction of the party. In the sale deed, apart from mention of payment of other amounts aggregating to over Rs. 13 crores there is a mention of this payment of Rs. 1.5 crores having been paid to Chiranjiv Charitable Trust as per direction of the party.
9.2 Ld. counsel submitted that despite specific requests, no right of cross examination was allowed by the AO to the appellant. Further the facts that a letter was obtained by Addl. Director of Income-tax, Ludhiana from the party were never informed or confronted to the appellant. It was, therefore, vehemently contended that there was complete violation of the principle of natural justice and the evidence obtained at the back of the appellant without providing opportunity of cross examination to the appellant was nonest in law and has to be excluded out of consideration. The Authorized Representative for the appellant has relied upon a number of decisions in this behalf. It has been further submitted that without prejudice to the above, even if these legal submissions were to be ignored, there was no occasion for making addition u/s 68 of the Income tax Act inasmuch as the identity of the party and the source of making donation duly stand proved. The evidence available on file fully satisfied the ingredients of section 68. He further submitted that the appellant was not a party to the agreement or arrangement between the donor and DLF Universal Limited etc. nor any evidence placed on file that the trust exerted any pressure on the donor.
9.3 The assessee was a distinct legal entity distinct from its trustees or donors etc. and in so far as the appellant trust is concerned, the only onus of the trust is to prove that the amount received by it did not come out of its own coffers but has been received from this identifiable entities. The case was on parity with the case of a company which received share application money from others. It has been held in these decision that addition could not be made to the income of the company unless the department discharged its burden of showing that he amounts paid by the shareholders emanated from the coffers of the company.
9.4 CIT(A) was however not convinced and upheld the AO’s addition by following observations:
“10.3 I have considered the submissions of the appellant, and the facts brought on record by the AO. It is clear that the appellant has filed confirmation letter from Shri S. Jagjit Singh but later on, on enquiries, it was found that Shri Jagjit Singh has denied of any donation to the trust and more so as corpus fund. Despite written submission and arguments by the appellant that there was no applicability of section 68, I do not find any merit in the statement made by the Ld. AR of the appellant. Sine there has been clear cut denial of making any donation by the so called donor and copy of denial in the form of statement recorded by the Addl. DI, Investigation Wing, it is established that there was no donation by the so called donor of Rs. 1.5 crores. Therefore, the amount has been rightly added back u/s 68 of the IT Act by the AO and his action is upheld. The appellant fails on this ground.”
10. Apropos ground 7 of the assessee before CIT(A) in respect of corpus donation of Rs. 25 lacs from Piyush Jain, following facts and arguments were submitted: The appellant trust received a donation of Rs. 25 lacs as corpus donation by way of account payee cheque from one Shri Piyush Jain was duly filed. Copy of account payee cheque signed by Shri Piyush Jain confirmation drawn on Standard Chartered Grindlays Bank was also filed by the appellant. The learned AO, however, required the appellant to produce Shri Piyush Jain to verify the genuineness of the transaction. Summons were issued to him u/s 131 and Mr. Piyush Jain failed to appear in reply to the summons. The AO asked the assessee in case Shri Piyush Jain was not produced to confirm the genuineness of the transaction, this amount of Rs. 25 lacs shall be treated as income of the appellant. The appellant, however, informed the AO vide letter dated 26-12-2008 that Shri Piyush Jain was abroad and could not be produced before him. Mr. Piyush Jain was now abroad and his father was living at the same address. The appellant requested that present address of Mr. Piyush Jain be obtained from his father and enquiries be made at the cost of the appellant. A request was also made to summon the copy of bank account of the party for the relevant period from Standard Chartered Grindlays Bank which will also prove the financial status of the party and source of making the donation. Assessee stated that it was also making best efforts to ascertain the precise foreign address of the party but his father was not cooperating. The appellant made an offer to make an advance deposit for such estimated cost as may be named by AO for making the above enquiry. AO however, ignored this letter and the request and added the amount. It was submitted by the appellant that the donation was made by means of account payee cheque, the confirmation of the party and his bank account number have been furnished, the AO was unreasonable in not accepting the request of the appellant contained in its letter dated 26-12-2008 and not even making a mention thereof. The fact of existence of identity of the party and the source of payment by him by an account payee cheque was established, the AO could not treat this amount as unexplained deposit for addition u/s 68 of I.T. Act. Copy of account payee cheque issued by the party to the trust duly established source of payment from his bank account No. 33112934 with Standard Chartered Grindlays Bank Limited, NRE, 10E, Connaught Place, New Delhi which cheque also contained his printed name duly establish the identity of the party and the source of funds of the party which is from the said bank account. If the learned AO had any doubt, he should have accepted the request of the appellant to summon the copy of the bank account of the party from the bank for the relevant period. The assessee therefore submitted that this addition was arbitrary and unjustified and could not be made u/s 68 of the Act.
10.1 Assessees pleadings on this issue did not find favour with CIT(A) who upheld the addition by following observations:
11.1 I have considered the submission made by the appellant. The appellant has failed to produce the party or the proof that the donation was towards the corpus of the trust. The appellant has also failed to demonstrate even otherwise it was for any other purpose other than corpus and the same has been applied for the charitable purpose during the year. Therefore, the addition made by the AO on this count is also confirmed.”
11. Apropos ground no. 8 i.e. corpus donation of Rs. 15 lacs and 13 lacs from HCL Corpn and Blue Bird electro Trading. AO summoned these parties who confirmed and verified these corpus donations. Despite there confirmation AO proceeded to make these additions on the ground that benefit u/s 11(1)(d) was denied.
11.1 CIT(A) deleted the additions by following observations:
“12.1 I have considered the facts of the case and submissions of the appellant. The AO is correct in holding that if exemption u/s 11 is denied then this donation cannot be excluded u/s 11(1)(d). Denial of exemption is not being upheld by me, this addition would as a consequence stand deleted.”
12. Apropos assesses ground no 9, about depreciation, CIT(A) decided the in alternative terms by following observations:
“13. Ground no. 9 being the submission of the appellant that even assuming that the benefit of exemption denied to the appellant, the AO has erred in determining the taxable income of Rs. 4,96,58,406/-. He should have computed the income under different heads as per normal provisions of the Income-tax Act governing the computation of income. He further erred in not even allowing the depreciation as per Income-tax Rules and in not computing income under the head property after allowing statutory deduction. Since I am holding that exemption u/s 11 cannot be denied to the appellant, this ground becomes redundant.”
12.1 Thus, aggrieved in AY 2006-07 both parties are before us.
12.2 The assessee is before us on the issues of upholding –
i. Corpus donations Rs. 1.5 crs from S Jagjit Singh.
ii. Corpus donation Rs. 25 lacs from Piyush Jain.
iii. Development Fund Charges credit in balance sheet Rs. 59,06,750/-.
iv. Non-allowance of depreciation on assets acquired by application of trust income.
12.3 Revenue is before us on the issues of:
i. CIT(A)’s holding that sec 13 has been wrongly applied by AO and assessee is eligible for benefits of sec 11 and 12.
ii. Whether non-collection of rent and interest from APIL amounted to violation of sec 13(1)(c).
iii. Whether the advance made by assessee to another associated trust ‘Chiranjiv Educational Society’ (for short CES) Chhattisgarh was for charitable purposes.
iv. Allowing the corpus donations of Rs. 15 lacs from HCL Corpn.; Rs. 13 lacs from Blue Bird Electro trading.
12.4 In AY 2007-08 only assessee is in appeal on by and large following issues:
i. CIT(A)’s order taking a contrary view to AY 2006-07 and holding amounts advanced to CES as violation of Sec 13.
ii. Non-receipt of interest from APIL as violation of Sec 13.
iii. Development Fund credit in balance sheet.
iv. Addition of corpus donation of Rs. 25 lacs.
v. Addition of corpus donation of Rs. 9,06,000/-.
12.5 Since the main issue pertains to revenue appeal in AY 2006-07 in respect of CIT(A) allowing the claim of the assessee that there was no violation of provisions of sec. 13(1)(c) and the transactions of agreement to sale between APIL & assessee trust were genuine. It is desirable to start with revenue appeal.
13. Ld CIT(DR) reiterated the detailed facts about purported agreements executed by the assessee and APIL for alleged sale of reserved plots at Palam Vihar, New Delhi which are claimed to be reserved by local authorities for school purposes. It is not disputed that assessee is an educational trust and already running various schools. It is however pleaded that APIL is a builder company and requires frequent funds for its business operations. Both the entities operate from the same address. To utilize the idle funds of trust they devised a scheme to divert the trust funds by way of interest free advances to APIL. The explanation about there being agreement to purchase plots is only an afterthought. It is evident from the ambivalent explanations of the assessee on the issue of possession of land. By letter dated 26-11-2008 to AO, assessee contended that possession of land was not taken whereas by letter dated 18-12-08 it was submitted that possession of land was taken which was surrendered on cancellation of the deal. Both the entities have relationship as specified by sec. 13(1)(c) as they have common trustees and directors. AO by various observations in page 4 & 5 of his order, has held the alleged transaction of sale of land as an afterthought and held that an amount of more than 8 crores has been advanced by assessee trust without any security and interest to APIL, which amounts to clear violation of provisions of sec. 13(1)(c) & 13(2). It is further pleaded that AO has rightly applied the ratio of Delhi High Court judgment in the case of Kanhaiyalal Punj Charitable trust (supra). His order is relied on.
13.1 Ld. CIT(DR) thus makes following main arguments in this behalf:
(i) The theory of interest free advance of Rs. 8 crores being for alleged purchase of land to APIL an specified concern, is unbelievable as it does not fit into the normal human conduct and preponderance of probabilities. Reliance is placed on Hon’ble Supreme Court judgment in the case of Sumati Dayal v. CIT  214 ITR 801/80 Taxman 89.
(ii) The factum of taking possession has not been demonstrated by assessee, similarly returning the possession to APIL has also not been corroborated.
(iii) Assessee advanced a huge amount of 95% of purchase consideration on the plea that the possession was handed over to it. Surprisingly vide letter dtd 26.11.2008 assessee stated that possession of land was not taken. Thereafter realizing its goof up it came with another submission dtd 18.12.2008 possession was taken.
(iv) Ld DR contends that the transactions have not been registered as prescribed by S. 49 of the Registration Act, which reads as under:-
“Effect of non-registration of documents required to be registered- No document “required by Sec. 17 (or by any provision of the Transfer of Property Act, 1882 (IV of 1882) to be registered shall-
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power.
Unless they have been registered, they cannot be relied as evidence in income-tax proceedings.
(v) Thus the agreements being relied on by the assessee can not be admissible as evidence and can not be of any help to assessee to corroborate its stand.
(vi) None of the documents is registered with any independent agency as there was no such agreement. The amounts were advanced interest free, thereafter, realizing its mistake this theory was enacted to escape from the rigor of provisions of sec 13(1)(c). Parties being related operating from same premises, there control over each other affairs, common managements and account books is to be viewed properly.
(vii) The gamut of these transactions has resulted in detriment of the trust and for the benefit of specified entity i.e. APIL thus there is violation of provisions of sec. 13.
(viii) Assessee has been a probating and reprobating on its stand, therefore, suitable adverse inference is to be drawn in this behalf.
(ix) Management and auditors of both the entities are practically same, in such a case the accounting entries of both should have matched. Surprisingly assessee reflects this entry as acquisition of asset and APIL as advances for sale of plots.
(x) If deal was cancelled the moneys advanced by assessee should have been returned on the contrary instead after cancellation two more cheques of Rs. 80 lacs & Rs 75 lacs were advanced by assessee.
(xi) Thus there was no transaction as such deal for purchase of plots, possession and cancellation of plots. The advances were for the benefit of group business entity namely APIL ex gratia, it is in clear violation of provisions of sec 13. AO was right in invoking the same, his order on the issue deserves to be upheld.
(xii) The theory and transactions as proposed by assessee are colourable devise, it is imperative that while deciding the issues in income tax substance shall take precedence over the form.
(xiii) Reliance is placed on:
– Delhi High Court in the case of Kanahya Lal Punj Charitable Trust (supra);
– Mcdowells & Co. Ltd. v. CIT  154 ITR 148/22 Taxman 11 (SC);
– DIT v. Bharat Diamonds Bourse  259 ITR 280/126 Taxman 365 (SC)
– Nagarathu Vaisiyargal Sangam  246 ITR 164/ 115 Taxman 62 (Mad.)
– Champa Charitable Trust v. CIT  214 ITR 764/81 Taxman 58 (Bom.).
– Contents of relevant commentary from the book “Income Tax Law” by Sampath Aiyenger.
13.2 Apropos other revenue ground no. 3 about non collection of rent and interest from APIL & grounds no 4 & 5 i.e. advances to another trust with similar objects i.e. CES; Ld DR contends that applying the same analogy these amounts have been rightly held to be in violation of sec 13(1)(c) & 13(2). AOs order is relied on.
13.3 Apropos revenue ground no 6 about the corpus donations from HCL corpn. & Blue Bird Electrotrading amounting to Rs 15 lacs and 13 lacs respectively, the order of AO is relied on.
14. Ld counsel for the assessee on the other hand vehemently argues that all the additions have been made without lawful justification and twisting of facts.
14.1 The assessee Charanjiv Trust was registered as a Charitable Trust u/s 12A(a) of the Act on 25th May 1976. The main object of the trust is to provide education for which purpose it has been running four highly esteemed schools and colleges. Right from beginning its income has been exempt u/s 11 of the Act.
14.2 In these two years for the first time, the Assessing Officer has denied exemption u/s 11 on the ground that certain transactions undertaken by the assessee attract the provisions of section 13(1)(c) read with section 13(2)(a) of the Act. These transactions are as under:-
(a) The alleged loan or advance of Rs. 8.17 crores to M/s Ansal Properties and Infrastructure Limited (AIPL).
(b) Outstanding balance of ‘interest receivable’ and ‘rent receivable’ from AIPL brought forward from earlier years.
(c) Advances of more than Rs. 2 crores made to Charanjiv Educational Society, Chhattisgarh (CES).
14.3 AO has endeavoured to twist the facts to convert a genuine property purchase transaction between assessee and APIL into an afterthought. The gist of AOs propositions and assessee’s reply is summarized as under with reference to Paper Book placed on record, in a tabular form:
|(i) Payment of more than Rs. 8 crores was made to Ansal Properties and Infrastructures Ltd. in the F.Y. 2003-04.||(i) The impugned payment have infact been made by a/c payee cheques during FY 2003-04 for purchase of 6 plots of land in Ansal Vihar for the objects of the trust, incorporated in a/cs of relevant years.|
|(ii) Ansal Properties and Infrastructure Limited is a concern covered u/s 13(3)(e) of the I.T. Act.||(ii) This is admitted position.|
|(iii) Payment supposedly made for purchase of land.||(iii) The payment was in fact made for purchase of land. The use of the expression ‘supposedly’ is without any basis.|
|(iv) The agreements to sell were entered into between the assessee and Ansal Properties and Infrastructure Limited on 18.3.2004 and 24.3.2004.||(iv) Facts stated are correct. There are part of record of the Assessing Officer and are placed at Pg. 25-106/PB.|
|(v) The total amount to be paid by the assessee to Ansal Properties and Infrastructure Limited as per the agreement to sell was Rs. 8,60,16,000 out of which 95% i.e. Rs. 8,17,15,200 was claimed to have been paid by 31.3.2004.||(v) The payment of this amount was actually made by cheques and it is duly reflected in the contemporary account for the F. Y. 2003-04, both in the books of Trust as well as AIPL.|
|(vi) The agreement to sell was not registered.||(vi) This is correct. The agreements to sell were not registered as the trust would have unnecessarily been burdened with early payment of stamp duty of about Rs. 50 lakhs. CIT(A) accepted that in fact this was a widespread practice. It may be noted that since the trustees of the trust had majority stake in AIPL, it did not really need additional protection u/s 53A of the T. P. Act.|
|(vii) Vide letter dated 26.11.2008, assessee submitted that the possession of land was not taken by it. Thereafter vide letter dated 18.12.2008, it was submitted that possession of land was taken. Thus the assessee changed its submission. In any case, no evidence for taking the possession of land has been furnished.||(vii) A bona fide mistake had crept into the letter of 26.11.2008 that possession was not taken (Pg. 127-129/PB) even though documentary evidence already filed with AO is to the contrary. On discovery, correct factual position was brought out in letter dt. 18.12.2008 (Pg. 1-3/PB). Copies of agreements are at pgs. 25-106/PB. These agreements had already been filed with the AO. Clause 16 of the agreement clearly states “as the second party has already made payment of 95% of sale consideration i.e. Rs. 66.50,000/- therefore, physical possession of said plot has been handed over by the first party to the second party”. Similar clauses occur in other agreements. Summary of the six agreements is at Pg. 108/PB. On 26.12.2008, AIPL had also confirmed to AO in response to summons u/s 131 of the Act. (Pl. see Pg. 135-146/PB).|
|(viii) Moreover, in case the possession of land had been given by Ansal Properties and Infrastructure Limited to the assessee during the year as claimed, the transaction would fall within the definition of ‘transfer’ on account of ‘part performance’. Summons u/s 131 was issued to Ansal Properties and Infrastructure Limited. Ansal Properties and Infrastructure Limited has submitted that no income from this transaction was shown by it during the year 2003-2004 i.e. A. Y. 2004-05. This also shows that the claim that the possession was given to the assessee is not beyond doubt. Even otherwise, the fact that the possession was given to the assessee or not is of little relevance in the facts and circumstances of the case.||(viii) In response to summons dt 22/12/08, AIPL placed its annual report with the Assessing Officer along with detailed explanatory note letter dt. 26.12.2008. (pgs. 135- 153/PB). Note 6 of schedule 17 at Pg. 151 makes it clear that AIPL recognized its income only on execution of sale deeds. AIPL’s Explanation is at P.137/PB. This is ignored by the AO, but CIT(A) takes note of it.|
|(ix) The amount of more than Rs. 8 crore continued to be with Ansal Properties and Infrastructure Limited for the whole of the financial year 2004-05 without any further progress in transaction.||(ix) The assessee had cancelled the sale agreements unilaterally for its own reasons as given in its letter dt. 31.3.2005. The acceptance letter from AIPL dt. 11.4.2005 clearly states that the money shall be refunded in due course. There is no requirement for immediate refund of price paid by vendee on cancellation of contract by the letter. On the other hand, the contract provides forfeit of 10% of the price in such a contingency. This aspect required to be sorted out between the two parties. (Clause 20 at 36/PB). The refund was fully paid and settled before the close of the Financial Year 2003-04. In fact there was credit balance in favour of AIPL at the end of the year.|
|(x) No sale deed was signed for more than one year after the agreement to sell was signed. If the transaction was genuinely for sale transaction, there is no explanation why the sale deed was not signed for such a long duration. Even though almost whole of the payment was made.||(x) It was shown that in a large number of cases the sale deeds are not executed for a number of years after signing of the agreement of sell and handing over of possession. This is so because the buyers continue postponing the payment of Stamp Duty.|
|(xi) During the F. Y. 2005-06, assessee claims to have cancelled the deal with Ansal Properties and Infrastructure Limited. The same was claimed to have been conveyed to Ansal Properties and Infrastructure Limited vide letter dated 31.3.2005.||(xi) The letter of cancellation dt. 31.3.2005 is at Pg. 107.|
|(xii) It has been claimed that Ansal Properties and Infrastructure Limited accepted the request for cancellation of deal vide its letter dated 21.4.2005.||(xii) This is at Pg 109/PB|
|(xiii) Even though the agreement to sell is claimed to have been finally cancelled on 21.4.2005, the copy of the accounts of Ansal Properties and Infrastructure Limited as submitted by the assessee reveals that no corresponding entry was made in the books of accounts on this date. Copy of accounts of Ansal Properties and Infrastructure Limited as submitted by the assessee is as under:-||(xiii) The cheques received from AIPL were duly recorded in the ledger account of AIPL on respective dates. On final settlement of the dues (after AIPL chose to withdraw its option to forfeit 10% of total cost) and on receipt of full refund necessary entries were passed in the journal (Pg. 154- 163 at Pg. 162/PB).|
|(xiv) The entry reflecting the cancellation of agreement to sell was passed in the accounts only on 31.3.2006.||(xiv) As stated earlier the journal entry was passed on final settlement of account with AIPL.|
|(xv) For whole of the period of more than one year, the huge amount of more than Rs. 8 crores continued to be with Ansal Properties and Infrastructure Limited for which no interest was charged, nor any security was taken.||(xv) This is factually incorrect. The credit balance of AIPL as on 1.4.2005 in the current account was already more than Rs. 4 crores and thereafter AIPL paid large sums periodically during FY 2004-05 and fully refunded the debt by 31.3.2005. The AO has confused ‘loan’ with ‘debt’. No money was advanced by the assessee to AIPL. No loan was given by the assessee and no amount was borrowed by AIPL from the assessee. It was payment for purchase of plots of land from AIPL. Due to cancellation of the agreements a debt had come into existence in favour of the assessee which was collected before the end of the Financial Year.
As money was not lent by the assessee, the transaction is not covered by section 13(2)(a). Please see Calcutta Tribunal decision in Kishore Trust (59 ITD 137) Shree Ram Mills Ltd. (23 ITR 120 SC) and CIT Vs. Nachimuthu Industrial Association 138 ITR 585 (Mad.).
|(xvi) Even after the cancellation of the deal, two cheques of Rs. 80,00,000/- and Rs. 75,00,000/- were given to Ansal Properties and Infrastructure on 29.11.2005 and 13.12.2005 for which no explanation has been furnished.||(xvi) These passing observations are made by the AO unilaterally without giving the assessee any opportunity. However, detailed explanation was furnished to the CIT(A) who has discussed it in para 5.2 of his order and has accepted the explanation. The findings of fact by the CIT(A) has not been questioned by the revenue in this appeal.|
14.3 Adverting to other arguments, ld counsel contends that the Assessing Officer has principally relied on the decision of Delhi High Court in the case of Kanahya Lal Punj Charitable Trust (supra) for holding that the purchase consideration paid under the sale agreement was in fact an advance of money to AIPL. The reliance on this judgment is misconceived. In Punj case it was found as a matter of fact that the story of purchase of land at Ponta Sahib for which earnest money of Rs. 70 lakhs was outstanding with M/s Punj Lloyd was an afterthought and without evidence. There was no sale agreement and nor was there any evidence to show that the payment was made by cheque. Entire refund was shown to have been received within the same year as the deal was allegedly cancelled within the same financial year.
14.4 On the other hand, in this case the payments were made to AIPL in the Financial Year 2003-2004. Clause 16 of the Agreement clearly states that:
“As the second party has already made payment of 95% of sale consideration, therefore, physical possession of the said plot has been handed over by the first party to the second party”.
14.5 All the six agreements to sell were duly signed on 18th and 24th of March 2004 by Mr. Aditya Wadhera Addl. G.M. (Mktg) & Mr. Bawa Kapoor -A.G.M. (Sales) of AIPL on behalf of that company. All the six plots purchased were located in plots approved for school and dispensary in Palam Vihar, which was already a well-developed colony. These personnel are unrelated, professional executives of a public limited company which is listed on major stock exchanges. The Assessing Officer has cast a doubt on the genuineness of these agreement without even bothering to examine the authorized signatories of AIPL who signed the agreements on behalf of AIPL or the Chief Project Manager (services), Palam Vihar Project, who handed over the possession of six plots to the assessee trust.
14.6 Another important distinguishing fact is that whereas in the case of Kanahya Lal Punj Charitable Trust (supra) the admitted position was that the trust had advanced earnest money to Punj Lloyd without taking possession of land. Even the alleged plot of land was not identifiable. In the present case, identified plots for school and dispensary in the Zoning Plans approved by the State authorities were given possession of and for which the assessee paid purchase money, and not advance of earnest money, being 95 percent of the agreed consideration, under duly signed sale agreements duly signed.
14.7 The assessee filed its return in time for the A.Y. 2004-05 on 18.10.2004 together with audited copy of balance sheet and the statement of income clearly disclosing the acquisition of impugned plots of land and some other fixed assets amounting to Rs. 9,31,81,364/- The schedule of ‘Fixed Assets’ clearly shows that the assessee had acquired lands worth Rs. 8,66,78,466/- during F.Y. 2003-04. The statement of income filed along with the return also disclosed addition of Rs. 93,181,364 to ‘fixed assets’, which figures includes Rs. 8,66,78,466/-. Considering this statutory and contemporaneous evidence which became part of the records with the Assessing Officer, much before the date of cancellation of the contracts, how the AO has held the explanation as afterthought is beyond comprehension. Hence, the allegation that the whole transaction was a colourable one or that it was a story or it was an afterthought is baseless. The land was acquired in March 2004 which was duly disclosed in the audited balance sheet and the return for A.Y. 2004-05 on 18th October 2004.
14.8 As pointed out by the CIT(A), the Assessing Officer is not factually correct in saying that evidence of handing over of the possession of the impugned plots of land was not furnished. Apart from copy of six agreements to sell, the AIPL had filed copy of the following documents along with letter dt. December 26, 2008 in response to summons u/s 131 from the Assessing Officer:-
(i) Letter dt. 18.3.2004 from AIPL authorizing Chief Project Manager (Services), Palam Vihar Project to hand over the possession of Dispensary Plot ‘H’ Block Palam Vihar to the assessee trust. (Pg. 140/PB)
(ii) Letter dt. 18.3.2004 from AIPL authorizing Chief Project Manager (Services), Palam Vihar Project to hand over the possession of Health Centre Plot ‘F’ Block Palam Vihar to the assessee trust. (Pg. 141/PB)
(iii) Letter dt. 18.3.2004 from AIPL authorizing Chief Project Manager (Services), Palam Vihar Project to hand over the possession of Dispensary Plot ‘D’ Block Palam Vihar to the assessee trust. (Pg. 142/PB)
(iv) Letter dt. 24.3.2004 from AIPL authorizing Chief Project Manager (Services), Palam Vihar Project to hand over the possession of High School Plot – CII Block Palam Vihar to the assessee trust. (Pg. 143/PB)
(v) Letter dt. 24.3.2004 from AIPL authorizing Chief Project Manager (Services), Palam Vihar Project to hand over the possession of Primary School Plot ‘I’ Block Palam Vihar to the assessee trust. (Pg. 144/PB)
(vi) Letter dt. 24.3.2004 from AIPL authorizing Chief Project Manager (Services), Palam Vihar Project to hand over the possession of Primary School ‘D’ Block Palam Vihar to the assessee trust. (Pg. 145/PB)
These documents along with letter dt. 18.3.2004 in response to AO’s summons to AIPL and there summary are at Pgs. 135-147.
14.9 It has been alleged that since the outstanding amount is shown under the head “sale of fixed assets” it was not the case of debt arising on cancellation of agreements. ‘Sale of assets’ is standard terminology. It is trite law that the terminology or terms used by the assessee is not determinative about the character of transaction the meaning thereof is determined by the real nature.
15. Coming to the bench query about the effect of non-registration and amendment of section 17(1A) read with section 49 of the Registration Act 1908 by the Amendment Act, 2001 on S. 53A of the TP Act ld. counsel contends that the contentions of the Ld. CIT(DR) are not tenable for the following reasons:-
(i) S. 49 of the Registration Act reads as under:-
“Effect of non-registration of documents required to be registered- No document “required by Sec. 17 (or by any provision of the Transfer of Property Act, 1882 (IV of 1882) to be registered shall-
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power.
Unless it has been registered:
[Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (IV of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (1 of 1877) (***) or as evidence of any collateral transaction not required to be effected by registered instrument.”
In view of the proviso to that section, the courts have always held that an unregistered document which is required to be registered under Sec. 20 of the Registration Act, it can be admitted for proving a collateral transaction. The sale agreements are therefore clearly admissible evidence to prove that the possession of the plots was willingly and voluntarily given by AIPL to the Assessee Trust in March, 2004 on receipt of 95% of the purchase consideration. We also enclose relevant extracts of the authoritative Sanjiva Row’s Commentaries on the Registration Act (12th edition) as annexure to these submissions.
(ii) Definition of ‘transfer’ in section 2(47) is relevant only in the case of transfer of a ‘Capital Asset’ as defined in Sec. 2(14) of the Act and not for transfer of stock-in-trade. It is nobody’s case that the impugned plots of land in Palam Vihar were held by AIPL as capital asset and not as its stock-in-trade in the course of its business of developing a major colony in Gurgaon.
As explained by Palkhivala: “This clause defines the word ‘transfer’ only in relation to a capital asset and has no bearing on the meaning of the word in any section where it is not used in relation to a capital asset”
(Kanga Palkhivala & Vyas, Ninth Edition Pg. 173, Vol-1)
(iii) In Mysore Minerals v. CIT  239 ITR 775/106 Taxman 166, the Supreme Court held that: “Building owned by the assessee, the expression as occurring in section 32(1) of the Income-tax Act, means the person who having acquired possession over the building in his own sought uses the same for the purposes of the business for profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act etc.” This judgment was followed by the Apex Court in Dalmia Cement (Bharat) Ltd. v. CIT  247 ITR 267.
(iv) The facts of the case are squarely covered by these judgments of the Supreme Court. On payment of 95 per cent of purchase price the assessee had obtained the possession and dominion over the impugned plots of land, which the vendor willingly handed over and which it never contested.
(v) The sale agreements are admittedly unregistered, but looking at the documentary evidence On record, it cannot be said that by any stretch of imagination that these are ‘sham’ or were not given effect to by the parties to the contract.
(vi) Section 53A of the TP Act provides shield and protection to the vendee against the vendor. But, in a case where the vendor, who is the legal owner, admits to the transaction and does not treat the vendee being in address possession, the courts will have to accept the dominion of the vendee. It may repeated again that the vendor; namely, AIPL clearly admitted this position in its letter dt. 26.12.2008 addressed to the A.O. (Pl. see Pgs. 135-146 of the Paper Book). The assessee postponed the payment of stamp duty for considering the relationship between the two parties, the assessee did not have to apprehend hostility from AIPL.
(vii) It is trite law that the tax authorities as also the Appellate Tribunal are not fettered by technical rules of evidence.
(viii) What was paid by the assessee trust to AIPL is purchase money and not advance by way of earnest money. On cancellation of the contract in April 2005, the amount payable by AIPL is not a loan from the assessee trust. But it is a trade debt. (Pl. see Shree Ram Mills Ltd. v. Commissioner of Excess Profits Tax  23 ITR 120 (SC), infra). In the relevant previous year the AIPL had credit opening balance of Rs. 4.4 crores in the current account in the books of the Trust. AIPL fully settled before the end of the relevant Financial Year ending 31.3.2006 (Ref Pg. 132-134/ PB). In fact, it had closing credit balance of Rs. 88 lakhs in the books of the trust. It must be borne in mind that was there was not term for immediate refund. On the other hand, AIPL had also foregone the forfeit. The provisions of section 13(1)(c) or section 13(2) do not apply.
15.1 The allegation that the sale agreements of March, 2004 are a ‘colourable device’, is merely a figment of imagination as all the contemporaneous evidence on record clearly established that the sale agreements were given effect. This is obvious from the return of income for A.Y. 2004-05 along with the annexed audited accounts.
15.2 In UOI v. Azadi Bachao Andolan  263 ITR 706/132 Taxman 373 (SC) the Supreme Court had the occasion to discuss the meaning of ‘colourable device’ by following observations:
“If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non est based upon some hypothetical assessment of the “real motive” of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o’-the-wisp”.
“We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents”.
It is submitted that the sale agreements are valid and were given effect to by the parties to the contract. The cancellation was accepted as a ‘special case’ and finally the option of forfeit was also not exercised by the vendor. It is also cannot be said that the vendor did not liquidate the debt within reasonable time.
15.3 Adverting to issue about outstanding balance of ‘interest receivable’ Rs. 61,13,610 and ‘rent receivable’ Rs. 9,54,240 it is pleaded that there is no dispute that the principal amounts of advances to AIPL had already been paid back to the assessee prior to 31.3.2001. It is only the interest receivable which has been carried forward in the books of the trust ever since. AIPL in response to summons u/s. 131 of the Act from the AO had explained in its letter 26.12.2008 that this is the result of incorrect passing of entries by the erstwhile accountants of the trust rather than actual amounts being due. For instance, rent of FY. 96-97 was already paid to the trust, but it still shown as receivable in the books of the trust. Similarly, there other cheques amounting to Rs. 20 lakhs which remained unadjusted. Thus the mistaken posting of entries by accounting staff, which are duly reconciled by assessee cannot be so treated to hold the entire transaction as colorable devise.
15.4 CIT(A) held that S. 13(1)(c) read with S. 13(2)(a) are not applicable to the facts of this case as what is due from AIPL is not money lent or advanced to AIPL, but unadjusted balances of interest on debts already discharged prior to 2001. Hence, the proposition applicable to the amounts receivable on account of cancellation of sale agreements by the assessee is also applicable to the amount of interest receivable and not yet received. Further, at the beginning of the relevant financial year, AIPL had a credit balance of more than Rs. 4 crores. Even at the end of the year, i.e., 31.3.2006, AIPL had a credit balance of more than Rs. 80 lakhs.
15.5 As regard ‘rent receivable’, the A.O. has without any reason ignored the explanation that the payment of interest was wrongly credited to different account in the books of the trust. However, that apart uncollected rent cannot be called money lent and therefore provisions of section 13 do not apply.
15.6 The assessee relies on the following judgments:-
– Shree Ram Mills Ltd.’s case (supra)
– Nachimuthu Industrial Association’s case (supra)
– Kishore Trust’s case (supra)
15.7 Provisions of section 13(2)(h) also do not apply to the outstanding balances as these are not in the nature of “investment” as held in the case of Chandrika Trust (supra).
15.8 Even if it is assumed that outstanding balances aggregating about Rs. 71 lakhs are ‘investment’, the transaction is saved by the provisions of Sec. 13(4) of the Act. This is so because the share capital of AIPL is more than 100 crores, which is much less than threshold amount of 5% prescribed in S. 13(4) which is not disputed.
15.9 Following Madras High Court in Nachimuthu Industrial Association’s case (supra) the Hon’ble Kerala High Court in CIT v. Chandrika Educational Trust  207 ITR 108 held:
“Section 11 of the Income-tax Act, 1961, provides, inter alia, that income derived from property held under trust wholly for charitable or religious purposes shall not be included in the total income of the person in receipt of the income. Section 13 enumerates certain contingencies when section 11 will not apply. Sub-clause (ii) of clause (c) of sub-section (1) of section 13 provides that nothing contained in section 11 shall operate to exempt the income of a trust for religious or charitable purposes, if any part of the income or any property of the trust is, during the previous year, used or applied directly or indirectly for the benefit of any person referred to in sub-section (3). Sub-section (3) of section 13 refers to various persons, the benefit derived by whom precludes the trust from claiming the benefit of exemption under section 11. Sub-section (2) of section 13 mentions certain circumstances in which the income or the property of the trust will be deemed to have been used or applied for the benefit of a person referred to in sub-section (3). Clause (h) of section 13(2) provides that the income or the property of a trust shall be deemed to have been used or applied for the benefit of a person referred to in sub-section (3) if any funds of the trust are, or continue to remain, invested for any period during the previous year in any concern in which any person referred to in sub-clause (3) has a substantial interest. The conditions referred to in clause (h) are cumulative, all of which have to be satisfied before the deeming provision in sub-section (2) could be attracted, and the assessee held to have used or applied the income of the trust for the benefit of a person referred to in sub-section (3). The expression “invest” in section 13(2)(h) connotes a positive act on the part of the trust whereby the funds of the trust are laid out or committed in any particular property or business or transaction with the object of earning a profit or financial advantage or return. The retention of profits of a trust in a firm in which the trust is a partner or delayed withdrawal of profits from the firm would not constitute investment.
It is not a case where the retained amount of outstanding interest, if any, was the amount lent by the Trust so as to attract section 13(2)(a). As explained by the Supreme Court in Shree Ram Mills Ltd. case (supra):
“The next question is about the managing agency commission. Under the Articles of Agreement entered into between the assessee and its managing agents the agents were to be paid a certain commission and the articles provided :-
“The said commission shall be due to the said firm yearly on the thirty-first day of December in each and every year during the continuance of this agreement and shall be payable and be paid immediately after annual accounts of the said company have been passed by the shareholders of the company . . . . . . . . . .”
The managing agents left the commission lying with the assessee. The assessee contends that this constitutes a “borrowing” within the meaning of Rule 2A of Schedule II. The Commissioner of Income-tax says it is a “debt” within the meaning of Rule 2. We agree with the High Court that this is a “debt” and not a “borrowing”.
It is a question of fact that money so left could, by a proper agreement between the parties, be converted into a loan, but in the absence of an agreement mere inaction on the part of the managing agents cannot convert the money due to them, and not withdrawn, into a loan. A loan imports a positive act of lending coupled with an acceptance by the other side of the money as a loan. The relationship of borrower and lender cannot ordinarily come about by mere inaction. The clause in the Articles of Agreement quoted above was relied on for the purpose of showing that there was such an agreement in the case. We are unable to construe the provisions in that way. They merely give the managing agents a right to receive their commission at a certain time. If the money is not paid in time it lies with the assessee as a debt due to the agents”.
16. Apropos Advance of more than Rs. 2 crores made to Chiranjiv Education Society (Chhattisgarh trust), ld counsel pleads that:-
(i) Chhattisgarh Society is a public charitable society having same objects as the assessee society.
(ii) It is registered with registrar of societies, Chhattisgarh.
(iii) It is not registered u/s.12A of the Act with the Commissioner of Income-tax.
(iv) Rules 23 and 24 make it clear that trustees have no personal rights to the property or income of the trust.
(v) The AO states that since the assessee trust has lent money to the impugned sums to Chhattisgarh Society and since the trustees of both the societies are same, the transaction is hit by section 13(1)(c) read with 13(3)(e).
(vi) It is submitted that Chiranjiv Trust, Chhattisgarh does not fall within the meaning of the word ‘concern’ issued in section 13(3)(e) of the Act. According to Concise Oxford Dictionary ‘concern’ as a noun means: “(1) worry, anxiety. 2 a matter of interest or importance, 3. A business ‘ According to Webster Encyclopedia Dictionary , ‘concern’ contextually means: “a commercial or manufacturing company or establishment.
The objects of Chhattisgarh Society and its Rules make it clear that its activities do not constitute ‘business’ as there is total absence of profit motive. Please see Third Member Special Bench in Bhartiya Janata Party v. Dy. CIT  258 ITR 1 (Delhi).
(vii) The meaning of the word ‘concern’ in S. 13(3)(e) has been explained by the legislature itself in the Explanation 3 to Section 13. The said Explanation deems a person “to have a substantial interest in a concern” if he is entitled to twenty percents profits of the such concern”. The section read as a whole makes it clear that only such a business undertaking which is set up with a view to earn profits would mean ‘concern’ for the purpose of S. 13(3)(e).
(viii) A bare perusal of the memorandum and rules of Chhattisgarh Society make it clear that all the trustees of that Society put together are not entitled to even a single penny, let alone 20 percent its income. There is no question of such a society making ‘profit’.
(ix) The A.O. has failed to establish that the Chhattisgarh trust comes within the purview of section 13(3)(e) read with Explanation 3 of that section.
(x) The main reason for which the Ld. A.O. has disallowed the claim is that the Chhattisgarh Society is not registered u/s. 12A of the Act. But, he has not indicated any provision of the Act putting such a bar. Further this question would arise had the assessee instead of advancing the money invested it in the Chhattisgarh society. In such a case, section 13(1)(d) read with section 13(2)(h) would apply. But, the admitted facts are that the assessee had made advance/ loan to Chhattisgarh society.
(xi) There is no dispute that money of more than Rs. 2 crores was advanced by the assessee to Chhattisgarh Society so as to set up a private university. For reasons which are set out in detail in the orders of the AO and the CIT(A) this could not fructify and the money was refunded to the assessee.
(xii) The Ld. CIT(DR) has relied on the judgment of Supreme Court in DIT v. Bharat Diamond Bourse  259 ITR 280/126 Taxman 365. In that the individual ‘B’ was ‘founder’ of the trust. This is not so in the present case. the assessee trust is not founder of the Chhattisgarh Trust. The Ld. CIT(DR) has also relied on Madras High Court in Nagarathu Vaisiyargal Sangam’s case (supra). That judgment is clearly distinguishable as it was an admitted position in that the amended trust deed included a mandatory requirement for payment to persons interested in the trust. There is no such provision in the Memorandum of Association or Rules of the Chhattisgarh Trust. The Ld. CIT(DR) has strongly relied on Bombay High Court in Champa Charitable Trust’s case (supra). In that case, the admitted position is that a donated substantial sum to a Charitable Trust. The court held that according to Section 13(3), the persons referred to in Cl. (C) section 13(2) include a trust as it is an association of the persons. This judgment is also distinguishable for the following reasons:-
(a) The trust which made the contribution was not apparently a charitable trust, in which case it would have been exempt in view of CBDT instruction no. 1132.
(b) In Champa Charitable Trust’s case (supra) the Bombay High Court was concerned with donation by another trust, which is in the nature of ‘contribution’ referred to Sec. 13(3)(b) read with section 13(2)(h) of the Act. A loan (which is recoverable and which is returned) can never he said to be ‘contribution’.
(c) Bombay High court had no occasion to consider the applicability of Explanation 3 to section 13. Indeed, it was not even referred.
This decision therefore is not applicable to the facts of the present case.
16A. There is no dispute that the amount was advanced out of exempt income brought forward from earlier years available with the assessee trust. There is also no dispute that the assessee trust has never set apart funds and claimed exemption thereon u/s. 11(a) read with section 11(2) of the Act. Therefore provisions of section 11(3) are also not applicable. In such a case the advance is also covered by the special treatment granted under CBDT Instruction no.1132 dt.5-1-1978 extracted in CIT v. Sarladevi Sarabhai Trust (No. 2)  172 ITR 698/40 Taxman 388 (Guj.) at 709 of the Report. The said instruction clearly states “where the payment by one charitable to another for utilization by the donee trust towards its charitable objects is proper application of income for charitable purpose”. In the fact that the Chhattisgarh Trust spent the amount so advanced for on purchase of land and for depositing Rs. 2 crores with the Govt of Chhattisgarh for setting up a university which is not in dispute. The CBDT instruction No. 1132 is at Pg. 12 of the Paper Book filed on 26.8.2011.
17. The Ld. CIT(DR) has relied on certain observations made in Sampath Aiyenger book “Law of Income Tax”. We have no quarrel with them but they are not relevant for deciding the question of exemption u/s 11 on the facts of the present case covered by Sec. 13(3)(e). So far as AIPL is concerned, it is admitted that it is an interested party. As regards Chhattisgarh society, it is also admitted that the founder/ trustees of the assessee trust are also the founder/trustees of Chhattisgarh Society. However, the provisions of section 13 do not apply to it from the reasons given in para 17 & 18 of these submissions. The judgments cited by the Ld. DR also do not apply for the same reasons.
17.1 It is thus pleaded that there is no justification in revenue ground proposing that CIT(A)s order on this issue is erroneous. The assessee and Chhattisgarh Trust having common charitable objects any amount utilized by it is to be considered as furthering the assesses charitable objects. Transactions having been accepted as genuine in view of the above judicial authorities, CIT(A)s order on this issue is urged to be upheld.
18. Apropos remaining ground in respect of corpus donations of:
Rs. 15 lacs from HCL Corpn.
Rs. 13 lacs from Blue Bird Electrotrading
18.1 These amounts have been held to be income of the assessee due to denial the benefits of sec. 11&12 by holding the trust ineligible for violation of provisions of sec 13.
18.2 It is vehemently contended by ld AR that both the parties appeared/confirmed before AO that they have given these corpus donations. Thus there is no question about their genuineness. As assessee has not violated the provisions of sec 13, order of CIT(A) deserves to be upheld.
19. We have heard the rival contentions and perused the material available on record. Since the issue about violation of provisions of sec 13 are of vital importance, it will be desirable to first decide this issue.
19.1 Facts have been narrated in details above. It emerges from the record that both parties have been transacting with each other in past and more often the APIL has been advancing money to assessee trust on which no interest is charged. Therefore one has to dispassionately ascertain the facts about the impugned advances of about Rs. 8 crores for purchase of plots ; the alleged agreements for sale of plots; cancellation thereof and as a consequence violation of provisions of sec. 13(1)(c) and 13 (2) as contemplated by AO, if any.
19.2 The following facts clearly emerge from the record:
(i) Assessee is a charitable trust registered u/s 12A since 28-5-76. It has been regularly filing it’s returns of income on the basis of duly audited accounts. It is already running reputed educational institutions and in furtherance of its objects, it is endeavoring to open more educational institutions. This is clear from the fact that it attempted to open a university at Raipur, Chhatisgarh. Therefore it’s effort to look for an opportunity in opening school at Delhi cannot be doubted in ordinary course.
(ii) APIL is a group concern owning reserved plots of land for educational institutions at Palam Vihar, New Delhi. It has been of continuous financial help to assessee which is evident from the fact that by and large had interest free credit balance with the assessee in past several years. Therefore, on prima facie view it cannot be assumed that it was using the trust as a tool for financial gains in terms of using it’s funds ex gratia.
(iii) The agreement to sale the plots to assessee were entered into the FY 2003-04 i.e. AY 2004-05 and the alleged 95% advance and possession were exchanged in that year. In AY 2006-07 there is no further advance rather the advances have been returned and agreements cancelled. Even if some colorable evidence about misuse of fund is assumed, it may be in AY 2004-05, but not in the present assessment year. In essence assessee is being denied of benefits of sec 13 for the allegation relatable to AY 2004-05, in the year money is rather brought back to the trust.
(iv) Be that as it may the whole case of revenue hinges on the fact that the agreements of sale of educational plots is a colorable devise for fabricated to use the trust funds for the benefits of specified person APIL, because of common trustees and directors. The colorable transaction theory is based on the facts that (a) there were no registered agreements, therefore, they cannot be relied in income tax proceedings as evidence; (b) about possession assessee gave ambivalent explanation; (c) both entities operate from same address; (d) the transactions do not stand the test of human conduct and preponderance of probabilities; (e) though assessee in AY 2005-06 reflected the plots as it’s fixed assets however in the corresponding books of APIL they were shown as receipt as advances; (f) APIL did not recognize the income from the constructive sale of plots on same considerations; (g) Valuable rights in these plots were relinquished by the assessee in favor of APIL; (h) The agreements were cancelled in April 2005 whereas journal book entries were incorporated as late as on 31-3-2006 i.e. end of the accounting year.
19.3 Detailed explanation of the assessee on each aspect including some other fringe issues and reliance on case laws have been reproduced above. We do not wish to repeat them for sake of brevity. In consideration of foregoing we find merit in the arguments of ld. counsel for the assessee and see no infirmity in the order of CIT(A) on this issue. It has been rightly held that assessee cannot be denied the benefits of sec 13 on this accounts. For coming to this conclusion we wish to ascribe following reasons:
(a) Assessee is a charitable institution, there is no change in it’s objects. It carried on educational institutions and intended to further its objects by opening new schools and a university.
(b) APIL owned reserved educational plots and it’s agreements to sale of such reserved plots with group educational trust do not carry any element of primary suspicion.
(c) The agreements are being held as colorable devise as they are not registered and therefore, cannot be considered evidence. Assuming even that agreements cannot be produced as evidence; the contemporaneous records for AY 2004-05; 2005-2006; bank accounts and other relevant evidence does support the explanation of the assessee. Besides its trite law that an evidence which may not be admissible in court of law can be admissible for income tax purposes. This is so as in income-tax proceedings there is no lis or adversarial proceedings between assessee and department. Income tax proceedings are not fettered by technical rules of evidence and evidence which has bearing on the subject matter and is primarily relied can be considered in income tax proceedings. The agreements and other record is complimentary to each other, corroborative to each other. In our considered view on the basis of contemporaneous evidence, like account books, bank accounts and returns of income it cannot be held that assesses explanation in this behalf is unbelievable. Some minor issues here and there about posting a journal entry at the end of the year or difference in nomenclature cannot make a transaction colourable, which otherwise has corroborative evidence.
(d) From APIL copy of account in the assesses books it clearly emerges that more often than not APIL had credit balance, thus it has been providing monetary support to trust now and then. Therefore, a presumption cannot be drawn that APIL diverted the funds without proper justification for its use.
(e) Assessee debited 95% advance to asset acquisition a/c itself indicate that because of substantial advance and possession it treated the plots as its assets. Treatment of these amounts as advances in APIL books, does not militate against assessee’s method of accounting. Both maintain independent accounts; assessee under Trust regulations and APIL under normal Company Law and commercial principles, method of accounting and revenue recognition principles. Therefore, the alleged variation in categorization of accounting in two deferent set of books will not convert valid transactions into colourable transactions.
(f) So far we have been unable to find any motivation on the part of APIL to clandestinely divert Trust Funds for its personal use. Before the agreements and after the termination of agreements APIL had interest-free credit balance with assessee. On cancellation of plots entire amount has been duly returned within reasonable time on running account basis.
(g) Revenue has an objection that possession of plots and valuable rights to insist for specific performance were vested in assessee, they has been relinquished. Apropos assessee contends that cancellation of plots was in the interest of trust as by that time it had moved on to better projects including a university. Since no cancellation charges were to be levied, it terminated the agreements. In our view every entity has a right to carry on its objectives in the manner it best considers. Revenue cannot step in the shoes of the trustee in these matters. If the explanation is prima facie convincing and reasonably corroborated by record, evidence and explanation; the same should not be rejected on ipse-dixit.
(h) In view of the foregoings we see no reason to interfere with the finding of ld. CIT(A) which have been arrived at after due consideration of evidence, record, explanations and case laws mentioned above. Revenues reliance on the case of Kanahya Lal Punj Charitable Trust (supra) has been rightly distinguished and held to be not applicable to the assesses case in view of the contemporaneous evidence.
19.4 This ground of the revenue is dismissed.
20. Coming to the revenue ground about alleged non collection of rent and interest from APIL. The principal amounts of advances were already re paid by APIL to the assessee prior to 31.3.2001. Only interest receivable has been carried forward in the books of the trust. AIPL in response to summons u/s. 131 of the Act, explained the AO by letter 26.12.2008 that due to mistake of erstwhile accountants proper entries were not made, actually payments made were more than rent and interest. For instance, rent of FY. 96-97 was already paid to the trust, but it was shown as receivable in the books of the trust. Similarly three other cheques amounting to Rs. 20 lakhs remained unadjusted. These mistaken posting were duly reconciled by assessee.
20.1 In our considered view CIT(A) rightly held that S.13(1)(c) read with S. 13(2) (a) are not violated as what is due in books from AIPL was not money lent or advanced to APIL. It was caused by unadjusted balances of interest on debts already discharged prior to 2001. At the beginning of the relevant financial year, APIL had a credit balance of more than Rs. 4 crores and at the end of the year, i.e. 31.3.2006, APIL had a credit balance of more than Rs. 80 lakhs. Thus in real terms there is no merit in the revenue ground which is dismissed.
21. Apropos revenue ground about debit balances against CES also we see no infirmity in the order of CIT(A). It has been held that assessee in furtherance of its objects intended to open a university at Chhattisgarh, proper formalities were completed, due to Supreme Court order the object could not be achieved in the hands of the assessee. Therefore, it formed this charitable society with same objects and trustees and incurred the expenses which are shown as advance to CES. In our view, even if the same amount was donated to CEC in place of advance, in that eventuality also it would have been allowed as application of objects. CIT(A) rightly dismissed this ground which had no merit.
22. Apropos corpus donations – Rs. 15 lacs from HCL Corpn; Rs. 13 Lacs from Blue Bird Electro trading. We have already held that assessee did not violate any provisions of Sec 13, besides it emerges from the record that both the donors confirmed the corpus donations. In our view CIT(A) was right in deleting these additions, revenue appeal on this issue is dismissed.
23. In the result revenue appeal for A.Y. 2006-07 is dismissed,
24. Adverting to assessee appeal for A.Y. 2006-07:
24.1 First issue is in respect of corpus donation received from S Jagjit Singh, who though first confirmed such donations, in some other proceeding by a statement on oath denied some contents. It was stated that the donation was given not by him albeit DLF. To resolve a land dispute between him, APIL and DLF a sum of Rs 1.6 crores was to be paid by JS. Out of that 1,5 crores was paid by DLF directly to assessee as corpus donation of S Jagjit Singh. AO held it to be not a corpus donation and as benefits of sec 13 were denied it was added as unexplained cash credit u/s 68. It may be pertinent to mention that assessee was not allowed the cross examination of JS and while recording his statement copy of his original confirmation accepting corpus donation was not confronted.
24.2 In our considered view in the first place such addition cannot be made u/s 68 as unexplained cash credit as we have held that there is no violation of Sec. 13. Besides, the name of creditor and identity is accepted by AO. The transaction is through DLF pay order which was donated to assessee, on behalf of JS, to resolve a land dispute. Therefore genuineness and creditworthiness is proved. Thus legally this addition can not be made u/s 68.
24.3 That leaves questions- whether it is a donation, if so voluntary and for corpus. If some parties resolve a dispute with a desire to donate the part of such amount for charity; in our view it is acceptable and natural; it cannot be viewed adversely. SJS first accepted having given the corpus donation, in some proceedings which he was not offered to be cross-examined to the subsequent, assessee any different version given by SJS will not bind the assessee. Besides assessee consequently treated it as corpus donation, used it accordingly on which no question has been raised. Even donors may develop some bad feelings about the trust they donated but it can not take away the original nature of corpus donation. In view thereof we are inclined to hold that this amount has been wrongly added as unexplained cash credit u/s 68, the same is deleted. This ground of the assessee is allowed.
24.4 Other amount added u/s 68 is corpus donation made by one Shri Piyush Jain. Copy of signed confirmation along with photo copy of a/c payee cheque drawn on Standard Chartered Grindlays Bank was also filed by the appellant. Summons were issued and he did not appear, assessee informed the AO vide letter dated 26-12-2008 that Mr. Piyush Jain was now living abroad and his father was living at the same address. The present address may be obtained from his father and these enquiries may be made at the cost of the appellant. A request was also made to summon the copy of his bank account for the relevant period from Standard Chartered Grindlays Bank to prove his financial status and source of donation.
24.5 In our considered view the assessee discharged its primary onus if any to prove the donation. To comply with sec 68, it made an offer to make advance deposit for estimated expenses for making such enquiries. AO however did not oblige him and made the addition u/s 68. Assessee demonstrated the identity of the party and the source of payment through donors a/c payee cheque, his PAN no. and request for bank details. AO failed to do any further inquiry, thus it cannot hold this amount as unexplained deposit for addition u/s 68 of I.T. Act. Assessee filed all necessary documents i.e. Original confirmation, donation receipt, copy of cheque bearing his name and bank account No. 33112934 with Standard Chartered Grindlays Bank Limited, NRE, 10E, Connaught Place, New Delhi. Mr. Jain was assessed to tax, his address and fact about his being abroad, his father’s domicile at given address; all the possible record was demonstrated. AO could have made further inquiries as they were beyond the capability of the assessee. Having discharged the primary onus of leading evidence for identity, donor and his creditworthiness, assessee trust can not be saddled with this addition u/s 68 which is deleted. This ground of the assessee is allowed.
25. Apropos development fund charges directly credited to balance sheet. In our considered view the amount has been rightly held by the lower authorities to be the income of the assessee. This ground of the assessee is dismissed. We may add that the assessee claims that it’s application of trust income to the objects of the trust to be more than 85% of it’s income including this development fund. This aspect is to be borne in mind while giving effect to this order.
26. Apropos non-allowance of depreciation on assets acquired by the application of trust income. This controversy is now set at rest by recent judgment of Hon’ble Delhi High Court in the case of DIT v. Vishwa Jagriti Mission IT Appeal No. 140 of 2012, dated 29-3-2012, upholding the ITAT order allowing such depreciation it has been held that:
“11. The revenue is in appeal against the aforesaid order of the Tribunal. We are not inclined to admit the appeal and frame any substantial question of law since none arises from the order of the Tribunal. There is no dispute that the assessee has been granted registration under Section 12AA vide order dated 11th September, 2009 and, therefore, it was entitled to exemption of its income under Section 11. The only question is whether the income of the assessee should be computed on commercial principles and in doing so whether depreciation on fixed assets utilised for the charitable purposes should be allowed. On this issue, there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT (Appeals) as well as the Tribunal. In CIT v. The Society of the Sisters of St. Anme (Supra), an identical question arose before the Karnataka High Court. There the society was running a school in Bangalore and was allowed exemption under Section 11. The question arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J. speaking for the Division Bench of the Court held that income derived from property held under trust cannot be the “total income” as defined in Section 2(45) of the Act and that the word “income” is a wider term than the expression “profits and gains of business or profession”. Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The circular No.5-P (LXX-6) of 1968, dated July 19, 1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. The circular is as under:-
“Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word ‘income’ should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax u/s. 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent. Of the latter, if the trust is to get the full benefit of the exemption u/s. 11(1).”
12. A similar view was earlier expressed by the Andhra Pradesh High Court in Commissioner of Income-tax v. Nizam’s Suppl. Religious Endowment Trust  127 ITR 378 and by the Madras High Court in Commissioner of Income-tax v. Rao Bahadur Calavala Cunnan Chetty Charities  135 ITR 485. The Madhya Pradesh High Court in CIT v. Raipur Pallottine Society (supra) has held, following the judgment of the Karnataka High court cited above, that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgments of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes.
13. The judgment of the Supreme Court in Escorts Limited v. Union of India (supra) has been rightly held to be inapplicable to the present case. There are two reasons as to why the judgment cannot be applied to the present case. Firstly, the Supreme Court was not concerned with the case of a charitable trust/institution involving the question as to whether its income should be computed on commercial principles in order to determine the amount of income available for application to charitable purposes. It was a case where the assessee was carrying on business and the statutory computation provisions of Chapter IV-D of the Act were applicable. In the present case, we are not concerned with the applicability of these provisions. We are concerned only with the concept of commercial income as understood from the accounting point of view. Even under normal commercial accounting principles, there is authority for the proposition that depreciation is a necessary charge in computing the net income. Secondly, the Supreme Court was concerned with the case where the assessee had claimed deduction of the cost of the asset under Section 35(1) of the Act, which allowed deduction for capital expenditure incurred on scientific research. The question was whether after claiming deduction in respect of the cost of the asset under Section 35(1), can the assessee again claim deduction on account of depreciation in respect of the same asset. The Supreme Court ruled that, under general principles of taxation, double deduction in regard to the same business outgoing is not intended unless clearly expressed. The present case is not one of this type, as rightly distinguished by the CIT (Appeals).
26.1 Since the issue has been decided by Hon’ble jurisdictional Delhi High Court, respectfully following the same, we allow the claim of depreciation on such asset.
26.2 In the result assessees appeal for A.Y. 2006-07 is partly allowed.
27. AY 2007-08- Assessee’s appeal -Grounds in brief:
i. CIT(A)’s order taking a contrary view to AY 2006-07 and holding amounts advanced to CES as violation of Sec 13.
ii. Non-receipt of interest and rent from APIL as violation of Sec 13.
iii. Development Fund credit in balance sheet.
iv. Addition of corpus donation of Rs. 25 lacs.
v. Addition of corpus donation of Rs. 9,06,000/-.
27.1 Both the parties are heard on the issues.
(a) The first issue about advances to Chhatisgarh trust and second issue about non receipt of rent and interest from APIL are already decided by us in favor of the assessee while deciding the revenue appeal for AY 2006-07; following the same these two grounds of the assessee are allowed in AY 2007-08 also.
(b) Third issue about non inclusion of development fund in trust income by credit in the balance sheet has been decided against the assessee in AY 2006-07, following the same this ground of the assessee in AY 2007 is also dismissed. The direction about 85% application of income shall accordingly be applicable.
27.2 The remaining two issue pertain to addition of donations u/s 68:
M/s Kuberswamy Ashutosh Consultants P Ltd Rs. 25.0 lacs
M/s Sun system Inst. of I Technology Rs. 09.06 lacs
27.3 AO made these additions u/s 68 on the reason that as the benefits of assessee u/s 11 & 12 have been withdrawn due to violation of provisions of sec 13, therefore, the assessee has to comply with the rigour of sec 68 as these donations represent cash credits in the books of account.
27.4 During the course of assessment proceedings M/s Kuberswamy Ltd appeared in pursuance to notice u/s 131through its representative, confirmed the donation and filed copy of bank statement in support thereof.
27.5 In respect of Sun System donation, assessee filed confirmation, bearing address, PAN no and balance sheet of the donor. The balance sheet reflected that the company had paid up capital of Rs. 1 crore.
27.6 AO however was of the view that due to violation of sec 13, assessee had to explain the donations as cash credit u/s 68. It was further held that the evidence furnished in respect of both the donors was not sufficient to discharge the onus of identity, creditworthiness of the donor. The amounts were added as unexplained cash credits u/s 68. In first appeal additions were confirmed by CIT(A). Aggrieved assessee is before us.
27.7 Ld counsel for the assessee contends that all the necessary documents confirming donations were furnished before AO. Sec 68 has been applied to donations on the reasoning sec 13 benefits have been withdrawn and the donations are to be treated as cash credits. Even from the perspective of Sec. 68, assessee has discharged its burden of establishing identity of donors, genuineness of donations and creditworthiness of the donors. The additions are urged to be deleted. Ld DR is heard who supports the orders of lower authorities.
27.8 We have heard the parties on these grounds and perused the material available on the record. Since we have already held that the assessee has not violated the provisions of sec 13, therefore, applying this propositions assessee donations cannot be treated as unexplained cash credits. They are to be examined on the yardsticks are applicable to donations received by a charitable trust.
27.9 In respect of M/s Kuberswamy their representative complied with summons u/s 131 and confirmed the gift along with their bank account. In view of these facts we see no justification in this addition, the same is deleted.
27.10 Apropos Sun System donation, it emerges from record that assessee filed confirmation of donation, name, address, PAN and balance sheet of the donor. The balance sheet reflected that the company had paid up capital of Rs. 1 crore. In our the evidence ion record is sufficient to prove the donation thus this addition is deleted.
27.11 The assessees appeal for AY 2007-08 is partly allowed.
28. In the result revenue appeal for AY 2006-07 is dismissed an both the appeals of the assessee are partly allowed.