Commissioner of Income Tax vs Sree Seetharama Anajaneya Veda Kendra

C.N. Ramachandran Nair, J.—The appeals filed u/s 260A of the Income Tax Act, are against the orders of the Tribunal upholding the respondent/assessee''s claim for exemption u/s 11(2) of the Act for the assessment years 1995-96 and 1996-97. The assessee is a charitable institution formed with the object of imparting education in Vedas and Upanishads. In the course of assessment for the assessment years concerned, the assessing officer noticed that the assessee was carrying over 75 per cent of the income from year to year for 10 years every year on a regular basis and the assessee was only engaged in creation of assets. On enquiry conducted by the Inspector of Income Tax, it was found that there was no regular course study for Vedas and Upanishads and the Inspector noticed substantial reduction in student numbers in the course of time. Two teachers appeared to have been found with some students from Maharashtra. Even though notice for accumulation of income was given, the assessing officer doubted whether the respondent/assessee is capable of achieving the objects stated in the trust deed. The assessing officer also found that the purpose for which accumulation was made as stated in the prescribed form u/s 11(2) is vague. He also took into account the contract the assessee has with another company for construction of buildings, though for the purpose of the trust. If the projects have to be funded with the income accumulated, then it is not known whether the assessee will have any surplus fund to spend for the objects of the trust after meeting the huge project cost in the construction activity undertaken by the assessee. The appellate authority also confirmed the order of the assessing officer. However, the Tribunal took the view that the assessee has accumulated only 75 per cent of the income every year and the amount so accumulated is invested in the specified investments qualifying for deduction u/s 11(2) of the Act.

Learned standing Counsel for the department rightly pointed out that the approach of the Tribunal is technical and the assessing officer is justified in going into the question whether the objects of the trust are really accomplished which alone will entitle the assessee for claiming exemption. Prima facie, we are of the view that the carry forward of income upto 75 per cent, though permitted u/s 11(2) of the Act, should not be adopted on a routine basis and if it is done, the very purpose of the trust will be defeated. In fact, Section 11(2) of the Act providing for carry over upto 75 per cent is an exception and if it is followed from year to year, then the genuineness of the activities of the trust itself should be examined by the assessing officer. In any case, we feel that since the assessment pertains to the years 1995-96 and 1996-97, the assessing officer had occasion to consider the facts pertaining to subsequent years. Since another 12 years have passed from the relevant assessment years, we feel that the assessing officer should examine the matter with reference to the activities of the assessee for subsequent years, the orders passed for those years and pass fresh orders, in fact, we are of the view that a detailed investigation is required about the activities of the trust and the expenditure it incurred so far to achieve the objects of the trust and diversions, if any made. We, therefore, set aside the orders of the Tribunal and all the authorities below and remand the matter back to the assessing officer for fresh consideration with reference to subsequent assessments and after conducting enquiry and if necessary, after conducting a local inspection in the premises of the assessee about the activity being carried on by the trust. The appeal is disposed of in the above terms.

Incomplete

D21845A

We have considered the rival contentions and carefully gone through the material available on record. In the present case, it is not disputed that complete vouchers relating to expenses claimed by the assessee in P&L a/c were not produced for examination and verification of the assessing officer, therefore, the assessing officer rightly rejected the books of account and the learned Commissioner (Appeals) was justified in upholding the action of the assessing officer. It is well-settled that in such type of cases when the books of account are rejected only alternative remains to estimate the income on the basis of net profit rate but that net profit rate should be fair and reasonable considering all the relevant circumstances. In the present case the assessing officer applied net profit rate of 0.5 per cent on the basis of the case of Darshan Singh & Co. (supra) wherein the learned Commissioner (Appeals) had applied this rate but in the said case, there was a survey and certain loose papers were found which is not in the case of the assessee, therefore, the case relied on by the assessing officer is distinguishable on facts. Similarly the case cited by the assessee of Kewal Krishan and Ors. (supra) wherein the addition @ 0.14 per cent of GP was taken by the assessing officer, cannot be a sole basis for deciding the assessee''s case. However, in the present case, the assessing officer did not point out any specific defect in the books of account produced by the assessee. No instance of suppressed sales or inflated purchase was pointed out, the books of account maintained in regular course of business were audited and no specific shortcoming/defect was pointed out by the auditor, therefore, keeping in view the peculiar facts of this case, we are of the opinion that the estimate of net profit by learned Commissioner (Appeals) at 0.25 per cent is on higher side, therefore, to meet the ends of justice, we direct the assessing officer to estimate the net profit @ 0.20 per cent instead of 0.25 per cent estimated by the learned Commissioner (Appeals). The above estimate is made considering the peculiar facts of the present case, so, it cannot be a precedent for other cases or in assessee''s case for another year.

In the result, the appeal of the department is dismissed and the appeal of the assessee is partly allowed.