DCIT, Central Circle-2, Faridabad vs Aggarwal Vidya Pracharini Sabha

PERSHRI ANUBHAV SHARMA, JUDICIAL MEMBER :

These appeals and cross objection preferred by the Assessee and revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-3, New Delhi (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in appeals filed before him against the orders of the ld. Assessing Officer (hereinafter referred to as the Ld. AO, for short) passed u/s 143(3)/153A of the Income-tax Act, 1961 (hereafter referred to as ‘the Act’). Further details of the orders of the lower authorities are as under: -

Heard and perused the record. The appeals were heard together as they involved common question of facts and law. The facts in brief are that there was a search and seizure operation in the case of Dev Wine Group on 19.02.2020 and based upon the same assessee’s jurisdiction was transferred to Central Circle and thereupon notice u/s 153A of the Act issued on 13.11.2020. Assessee had responded filing return of income and the specific questionnaire were raised. The group is involved in different activities of trading liquor, packaging industry, real estate development and imparting education and the last one falls in the scope of assesse trust which is controlled and managed by Dev Wine Group under chairman ship of Shri Devender Kumar Gupta (the chairman/trustee of the society).

In the assessment proceedings concluded thereby allegations of deviation of funds was made and accordingly assessments are completed and when assesse went in appeal as with regard to AY: 2015-16 to AY; 2017-18 the assesse succeeded, as ld. CIT(A) deleted the impugned additions holding that in the absence of incriminating material found or seized during the course of search, the additions cannot be sustained for these AYs.

As with regard to AY: 2018-19 to 2020-21 additions were made on the allegation that assesse had advanced loans to specified persons u/s 13(3) of the Act and consequently the exemption claimed by the assesse u/s 11 & 12 of the Act was denied for the years under consideration and surplus amount arising as per income and expenditure account was brought to tax on the maximum marginal rate in terms of Section 164(2) of the Act.

Accordingly, the assesse and revenue, both are in appeal and as with regard to departments appeal ITA No. 49/Del/2024, 57/Del/2024 & 58/Del/2024 for AY: 2015-16 to AY: 2017-18, assesse has filed cross objection No. 08/Del/2024, 09/Del/2024 & 10/Del/2024 respectively and in regard to these after hearing both sides we find that there is absolutely no material whatsoever before us or coming up of the impugned orders of ld. Tax authorities below that as for AY: 2015-16 to AY: 2017-18, the AO had made any reliance on seized material or called for any explanation of the assesse on the basis of any incriminating material found during the search of the group. The grounds raised in these AYs are common and one from AY 2015-16 are reproduced below:

After considering grounds and the impugned orders we find that there is absolutely no reference of any incriminating documents seized during the search to make the disallowance. Thus, on the basis of aforesaid we are inclined to not interfere in the findings of ld. CIT(A). The grounds raised by the department have no substance.

As with regard to AY: 2018-19 to AY: 2020-21 we find that admitted position is that assesse trust has been running educational institutions for higher education in the name and style i.e. Aggarwal Sr. Secondary School, Ballabhgarh; Aggarwal Girls Sr. Secondary School, Ballabhgarh; Aggarwal Public School, IMT, Machagarh, Ballabhgarh; Aggarwal Public School, Ballabhgarh; Aggarwal Public School, Sector 3, Faridabad; Aggarwal College of Education, Milk Plant Road, Ballabhagarh and Aggarwal College, Ballabhgarh. The ld. AO on the basis of the return of the assesse and the financials concluded that funds of assesse trust have been diverted to other entities/concern controlled by the chairman of the society for his personal benefit.

In AY: 2018-19 there was allegation of diversion of funds of the assesse society to the extent of Rs.100,00,00,000/- to M/s Tirupati Realbuild Pvt. Ltd. The Assessing Officer observes that Shri Naveen Aggarwal is close friend of chairman of the assesse and director of M/s Tirupati Realbuild Pvt. Ltd. and ld. AO alleged, that proprietary concern of the chairman, M/s Property Zone and M/s Tirupati Realbuild Pvt. Ltd. were engaged in the business of commission and brokerage based sale of flats of M/s Pivotal Infrastructure Pvt. Ltd. which is a group concern of the chairman. M/s Tirupati Realbuild Pvt. Ltd. is also a partner in the firm M/s Dev Wine Sales Corporations. During the search the ledger accounts of M/s Tirupati Realbuild Pvt. Ltd. were allegedly seized which are said to be indicate that how the funds of the assesse society were credited in the account of M/s Tirupati Realbuild Pvt. Ltd. and debited on the same day to the account of M/s Pivotal Infrastructure Pvt. Ltd., Shri Devender Kumar Gupta, Balaji Sales, Dev Wine Sales Corporation and Smt. Kusum Aggarwal etc. and thus, it was alleged that M/s Tirupati Realbuild Pvt. Ltd. was used as a conduit company for diversion and misappropriation of the funds of the assesse society.

Similarly, there was allegation that diversion of funds of the assesse society using M/s Radhey Krishna Infratech Pvt. Ltd. as a conduit. The said company was incorporated in 17.07.2009 and is classified as non-govt. company involved in real estate activities with own or leased properties and registered with the Registrar of Companies, Delhi. Shri Uday Karan Dalal, Shri Deep Karan Dalal were directors of this company till AY: 2016-17. Presently, the directors of Radhey Krishna Infratech Pvt. Ltd. are chairman and its family members. Allegedly, no business was actually carried out by this company. The ld. AO alleges that from FY: 2019-20 chairman started using M/s RadheyKrishna Infratech Pvt. Ltd. as a conduit for diversion of funds of the assesse society to his other group concern such as M/s Dev Wines and M/s Pivotal Infratech Pvt. Ltd.

Allegedly, in AY: 2018-19 there was a diversion of funds of Rs.28,75,00,000/- out of which Rs.14,75,00,000/- were returned by M/s Tirupati Realbuild Pvt. Ltd. In AY: 2019-20 funds of Rs.11,75,00,000/- were transferred from assesse to M/s Tirupati Realbuild Pvt. Ltd. which was transferred to M/s Pivotal Infratech Pvt. Ltd. and M/s Dev Wine Sales Corporation Ltd. on same day and thus, during AY: 2018-19 assessee transferred Rs.11,75,00,000/- M/s Tirupati Realbuild Pvt. Ltd. which in turn returned Rs.27,00,00,000/- to the assesse society including balance outstanding amount of Rs.15,25,00,000/- of earlier years.

Allegedly, in AY: 2020-21 Rs.50,75,00,000/- were transferred from assesse society to M/s Radhey Krishna Infratech Pvt. Ltd. and funds of Rs.51,60,00,000/- were transferred to M/s Pivotal Infrastructure Pvt. Ltd. and M/s Dev Wine Sales Corporation and M/s Balaji Sales. Ld. AO concluded that Rs.50,75,00,000/- was never repaid to the assesse society in violation of the provision of Section 13 of the Act. Thus, there was misappropriation of the funds for his personal benefit.

The Explanation given by the assesse with regard to advance so given were not found sufficient and ld. AO found violation of provision of Section 13(1)(c) r.w.s 13(3) of the Act and thereby denied the exemption u/s 11 & 12 of the Act and surplus for the years under consideration for AY: 2018-19 to 2020-21 of Rs.20,95,13,117/-, Rs.20,47,90,694/- and Rs.21,27,06,438/- respectively were added to the income of the assesse as taxable income and the income so calculated was taxed at maximum marginal rate as per Section 164(2) of the Act.

The case of assesse aas canvassed before us is that the amounts were advanced to M/s Tirupati Realbuild Pvt. Ltd. for facilitating identification of suitable land and initiated proposed acquisition on behalf of the trust and thus, the payment was intrinsically connected with and intended to facilitate the attainment of charitable object of the appellant/trust.

As with regard to M/s Radhey Infratech Pvt. Ltd. it was submitted that appellant had entered into an agreement during AY: 2020-21 with M/s Radhey Infratech Pvt. Ltd. for construction of its Mirapur College Campus, District Palwal and accordingly, a contract of Rs.240.20 croreswas granted and out of which Rs. 50.75 crores being 25% of the total construction value was given as advance. However, due to intervening pandemic all the activities got stopped and the funds kept lying unused by M/s Radhey Krishna Infratech Pvt. Ltd. It was submitted by ld. Counsel that for identified purposes advances made and it is not the case of diversion of funds for the benefit of any specified person. It was submitted that in the assessment proceedings for AY; 2015-16 to 2017-18the books of accounts of the assesse were examined and the exemption claimed u/s 11 & 12 were duly allowed. Thus, on principle of consistency transaction cannot be reopened. It was submitted that no material was found during search indicating misuse of funds.

Ld. DR has relied the impugned orders and submitted that ld. CIT(A) has dealt with the issues in more comprehensive manner establishing all the trails of transaction showing ultimate beneficiary were specified persons u/s 13(3) of the Act.

On giving thoughtful consideration to the material on record we find from the paper book that vide show cause notice dated 03.09.2021, the ld. AO had called for explanation from the assesse laying down the allegations and categorically observing that assesse is directed to respond to alleged violations of Section 11 & 13. Now, with regard to the nature allegations as examined by AO and ld. CIT(A) we find that AO had made a conclusive determination of the issue by observing that provision of Section 13(3) of the Act are invoked. Meaning thereby that as per AO it was in regard to specified persons being benefitted the provisions of Section 13(1)(c) have been invoked. However, what was the nature of benefit has not been alleged in terms of deeming benefit clauses narrated in Section 13(2) of the Act.

Further from the nature of allegations asserted by AO it appears that AO had found from the alleged incriminating materials and the statements recorded that assesse company had made certain payments to two entities M/s Tirupati Realbuild Pvt. Ltd. and M/s Radhey Krishna Infratech Pvt. Ltd. and these entities had interest of specified persons and therefore, the funds being given to M/s TirupatiRealbuild Pvt. Ltd. and M/s Radhey Krishna Infratech Pvt. Ltd. have endured a benefit to the specified persons. In this context, as before us, so before ld. AO and ld. Appellate authority the case of assesse was as per the statement on oath recorded on 02.01.2021 of the Chairman which has been reproduced in the assessment order as follows:

The crucial question thus being the benefit as alleged is undue personal enrichment of the specified persons or a reasonable commercial transaction. Now, the assessment order and the impugned order of ld. CIT(A) discard the explanation of the assessee through its Chairperson that the Chairperson who is controlling and managing assesse trust has used the trust money for commercial purposes and for M/s Dev Wine Corporation and M/s Pivotal Infrastructure Pvt. Ld. which are other concerns owned by him. However, the matter of fact is that the amounts as given to M/s Tirupati Realbuild Pvt. Ltd. were returned and with regard to amounts given to M/s Radhey Krishna Infratech Pvt. Ltd. on the basis of contract the amounts were given as a part payment. There is no inquiry whatsoever by the AO to show that the explanation given by the chairman of the assesse trust about the funds being given for a commercial transaction were not verifiable. The on oath statement needed to be rebutted by some material evidences by examining financials of M/s Dev Wine Corporation and M/s Pivotal Infrastructure Pvt. Ltd. that the funds received by the two entities were never meant for the commercial transaction asserted by the chairman in his on oath statement.Throughout the impugned order, the AO had merely reproduced the fact of funds being transferred from the assessee to M/s Tirupati Realbuild Pvt. Ltd. or M/s Radhey Krishan Infrastructure Pvt. Ltd.. The funds may have thereafter been transferred to the other entities in which the chairman of the assessee or other specified persons had some interest. However, to allege that the same was in the form of any benefit to the specified persons there should be some material on record to rebut the on oath statement that the amounts were given for commercial transactions. The claim of the assesse that amounts were given for acquiring land or construction of building through these two entities is not an unreasonable and unfounded claim when otherwise the fact that assesse was engaged in running as many as six big educational institutions is not disputed.Then assesse being a trust established for educational institution and catering to its need and expansion of its activities, if had given any money in the form of advance to any entity with the mandate to identify and acquire land for the assesse or to make construction for establishing new institution, same is quite a reasonable explanation and AO and so also ld. CIT(A) should have brought on record that actually there was no such intention of assesse for these commercial transaction to undue personal enrichment specified persons these amounts were diverted.

It further comes from the impugned orders that no material evidence was collected from the books of these entities of the specified persons that on receipt of the funds the recipient companies used the same for any specific purposes and thus drawing any pecuniary benefit which was otherwise not possible by their own activities. Such inquiry is necessary where the assesse claims that the funds have been given for purpose of commercial transaction and under contract for acquiring land or getting the building constructed for the use of functions of the assesse.

Then if on oath statement was being recorded then at least a suggestion should have been given to the Chairman of assessee, that what he deposed on oath is false. There is no such assertion of department to challenge the veracity of on oath statement of Chairman. We are of considered view that when the matter is of drawing inferences only on the basis of circumstances arising out of trail of transaction, and ld. Tax authorities have recorded an on oath statement of a specified person explaining the genuineness of transaction as for benefit of assessee and its charitable activity, then on oath statement should be rebutted by some direct evidence of assessment or quantification of benefit and mere inferences on basis of trail is not sufficient to assert that what is deposed on oath is false. A financial trail is only evidence of a fact of transfer of fund but not of ‘benefit’ derived from such transfer in itself. A deemed evidence clause has to be duly corroborated by some enquiry of the benefit, specially to rebut the reasonable justification given for transfer of funds.

Then, we are of considered view that were the allegation is of extending a benefit to specified person and ld. tax authorities intend to invoke provision of Section 13(1)(c) r.w.s 13(1)(3) then, there should also be some assertion as to how the income or property of the assesse has been used or applied with an alternative income possibility loss to the assesse trust. Which is not the case of assessee. Ld. CIT(A) while examining the issue has improved upon the case of the assessing officer by alleging that violations fall within the ambit of provision of Section 13(1)(c), 13(1)(d), 13(2)(a) & (g) r.w.s Section 11(1)(a), 11(2), 11(5) of the Act (para 7.10 of the impugned order). However same is on bald assertions but no further enquiry of own. Similar to deficiency we observed from the case made by the ld. AO.

Then, based on the impugned orders we find that no incriminating material was found that out of the funds so allegedly diverted were used by the specified persons.

We also find substance in the contention of ld. AR that ld. AO has denied complete benefit of Section 11 & 12 of the Act and ld. CIT(A) has sustained the same while in fact the quantification of benefit was necessary so as to disallow the exemption to that extent only. It is a trite law that exemption u/s 11 & 12 may be declined only to the extent that the said income of chargeable or religious purposes is applied for the benefit of specified person and not beyond the benefit to extend. Reliance in this regard is placed on Hon’ble jurisdictional High Court in CIT(Exemption), Delhi Vs. IILM Foundation reported in (2025) DHC: 2745-DB dated 21.04.2025 and following decisions i.e. CIT vs. Fr. Mullers Chartiable Institutions Karnataka High Court, SLP (2014) 363 ITR 0230 (Kar:) dated 19.09.2014; Audyogika Shikshan Mandal reported in [2019] 101 taxmann.com 247(Bombay); DIT(Exemption) v. Sheth Mafelal Gagalbahai Foundation Trust [2001] 114 Taxman 19/249 ITR 533 (Bom.); Delhi High Court the case of IT (Exemption) v. AgrimCharan Foundation [2002] 253 ITR 3 ITR 593/[2001] 119 Taxman 569. 1119 Taxman 569 and Mumbai Tribunal decision in Anthayya Education Foundation Trust Vs. ITO Exemption 1(1) vide ITA No. 5001/Mum/2014 dated 09.05.2025.

Ld. Counsel has also drawn our attention to the amendment brought in the Finance Act, 2022, as hitherto there was no specific section for taxing the certain income of a charitable institution at a specific prescribed rate. Section 115BBI has been inserted by the Finance Act, 2022 with effect from assessment year 2023-24 to provide that where the total income of any "specified charitable institution" includes any "specified income", then notwithstanding anything contained in any other provision of the Act, the income-tax payable. Therefore it is correct to submit that if at all the case of Assessee was required to be considered for computing tax on specified income then the provision of section 115 BBI of the Act would be applied.

As for aforesaid principles of law we also rely Hon'ble Bombay High Court in Audyogika Shikshan Mandal, ITA 764 of 2016 order dated 18.12.1018 whichhas sustained a Third Member decision of this Tribunal that complete denial of exemption under section 11 and 12 for non-compliance under section 13 of the Act would create grave injustice against the revenue. The third member of the Tribunal by an order dated 3rd November, 2014, after having considered the decision of the Supreme Court in Director of Income Tax v/s. Bharat Diamond Bourse 259 ITR 280 and the subsequent decision of the Karnataka High Court in CIT v/s. Fr. Mullers Charitable Institutions 366 ITR 378, held that denial of exemption under Section 11 of the Act should be limited to the amount which had been diverted to purchase the car in the name of prohibited person under Section 13 of the Act. In view of the above, the Regular Bench of the Tribunal by the impugned order dated 25th February, 2015 denied the benefit of Section 11 of the Act only to the extent the income is diverted/ used to purchase a car in the name of the trustee i.e. in view of Section 13(2)(b) read with Section 13(3) of the Act. The Hon’ble High Court sustained the same by following conclusions;

In the light of aforesaid decision we are inclined to hold that impugned denial of exemption is not sustainable in law. The corresponding grounds in appeal of assessee for AY: 2018-19 to AY: 2020-21 are sustained and the appeals are allowed.

Accordingly, appeals of assesse are allowed and of departments are dismissed.