IN INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 2649/Del/2010 Assessment Year: 2002-03 Rajasthan Club, DP-22, Vs. ADIT(E), Inv. Circle-II, New Pitampura, New Delhi Delhi PAN : AAATR6043G (Appellant) (Respondent) Appellant by S/sh. Gautam Jain & P.K. Kamal, Advocates Respondent by Sh. F.R. Meena, Sr.DR Date of hearing 10.08.2016 Date of pronouncement 19.10.2016 ORDER PER O.P. KANT, A.M.: This appeal by assessee is directed against order dated 22/03/2010 passed by learned Commissioner of Income-tax (Appeals)-XI, New Delhi, for assessment year 2002-03 raising following grounds: 1. appellant, Rajasthan Club is engaged in charitable activity during Financial year 2001-02. appellant is regular Income Tax assessee and assessed to Income Tax for last several years. All income, assets and investments are disclosed to Income Tax Department in regular Income Tax returns. 2. On facts and in circumstances of case and in law learned Assessing Officer and Commissioner of Income Tax (Appeal) was incorrect and unjustified in making reference of property in this case to valuation officer without any reason basis and evidence. 2 ITA No. 2649/Del/2010 AY: 2002-03 3. On facts and in circumstances of case and in law learned Assessing Officer and Commissioner of Income Tax (Appeal) was incorrect and unjustified in adopting value of property under reference in this case at Rs. 13,93,400/- instead of value of property of Rs.2,30,000/- for which property was sold. 4. On facts and in circumstances of case and in law learned Assessing Officer and Commissioner of Income Tax (Appeal) erred in holding of denying exemption u/s 11 without any reason basis and evidence. 5. On facts and in circumstances of case and in law learned Assessing Officer and Commissioner of Income Tax (Appeal) was incorrect and unjustified in assessing assessee in status of AOP. 6. On facts and in circumstances of case and in law learned Assessing Officer and Commissioner of Income Tax (Appeal) erred in holding assessment only on ground that case was time barring and Assessing Officer was left with no alternative but to complete assessment. 7. On facts and in circumstances of case and in law learned Assessing and Commissioner of Income Tax (Appeal) erred in holding disallowance 20% of total expenses of Rs. 3,44,614/- on estimate basis even though there is no case for any such disallowance. 8. On facts and in circumstances of case and in law learned Assessing Officer and Commissioner of Income Tax (Appeal) erred in holding that treating income of Rs. 11,60,400/- on sale of flat whereas as matter of fact, assessee has not earned any such income. 9. On facts and in circumstances of case and in law learned Assessing Officer and Commissioner of Income Tax (Appeal) erred in holding disallowance of Rs. 75000/- on account of seminar and conference without any reason basis and evidence. 10. On facts and in circumstances of case and in law learned Assessing Officer and Commissioner of Income Tax 3 ITA No. 2649/Del/2010 AY: 2002-03 (Appeal) erred in holding that treating amount of Rs. 1,55,000/- as income which was received on account of membership fees and which is exempt for tax. 11. On facts and in circumstances of case and in law learned Assessing Officer was incorrect and unjustified in issuing penalty notice and also in charging interest. 2. appeal of assessee was dismissed for non-prosecution by Tribunal in its order dated 17/06/2011 but subsequently on miscellaneous petition filed by assessee, order has been recalled by Tribunal in its order dated 01/02/ 2016. 3. facts in brief of case are that assessee society has been registered under section 12A of Income-tax Act, 1961 (in short Act ). assessee claimed its income as exempted under section 11 of Act and filed its return of income on 05/09/2002, declaring nil income. case was selected for scrutiny and assessment under section 143(3) of Act was completed on 30/03/2005 assessing total income at Rs.13,97,084/- in status of Association of Persons (AOP). Aggrieved, assessee filed appeal before learned Commissioner of Income-tax (Appeals), however, appeal of assessee was dismissed. Aggrieved, assessee is in appeal before Tribunal, raising grounds as reproduced above. 4. grounds number No. 1, 2 and 6 are general in nature and, therefore, not required to be adjudicated upon by us. 5. grounds No. 3 and 8 of appeal are regarding addition made of Rs.11,60,400/- on account of full value consideration enhanced by Assessing Officer on sale of building on estimate basis. 5.1 facts in respect of issue in dispute are that in relevant financial year 2001-02, assessee sold office premises at Flatted Factory Complex, Jhandewalan , New Delhi for sum of Rs. 2,30,000/-, 4 ITA No. 2649/Del/2010 AY: 2002-03 which was purchased in financial year 1994-1995 for consideration of Rs. 2,32,933/- and shown capital loss of Rs. 2,933/-, which was computed as under: S.No. Particulars Amount (Rs.) 1. Full value consideration received and 2,30,000/- accrued 2. Less: Cost 2,32,933/- 3. Capital Gain/loss (-) 2,933/- 5.2 Assessing Officer did not accept sale consideration shown by assessee and estimated full value of consideration at Rs.13,93,400/- and after reducing cost of Rs. 2,30,000/- he computed capital gain at Rs.11,60,400/-. Before Assessing Officer, it was submitted on behalf of assessee (i) that in financial year 1994-95 , seller sold flat to assessee club and given power of attorney in name of Sh. Surender Sharma, son of late Sh. Bal Kishan Vaid, then President of assessee club (ii) that said flat could not be transferred in name of assessee club because of prohibition of such transfer by Directorate of Industries, and no other person was willing to take this flat, thus being no option to dispose of this flat , Sh Surender Sharma was requested to take possession of flat. (iii) That in financial year 2001-02, assessee club received Rs. 2, 30,000 from Sh. Surender Sharma and possession was handed over to him. 5.3 Assessing Officer referred property to valuation cell under section 55A(b) of Act for determining fair market value as 5 ITA No. 2649/Del/2010 AY: 2002-03 according to Assessing Officer sale value was grossly undervalued. 5.4 Subsequently, it was submitted by assessee that flat was purchased by Sh. Ashish Sharma, son of Sh. Surender Sharma and payment of Rs.2,30,000/- was made out of his saving account and, therefore, Sh. Ashish Sharma was legal and de-facto owner of flat. According to Assessing Officer, assessee did not produce relevant minute books and copy of resolution passed in respect of sale of flat and change in name of purchaser from Sh. Surender Sharma to Sh. Ashish Sharma was done to avoid invoking of provisions of section 13(3) of Act which affects exemption availed by assessee club. 5.5 Assessing Officer observed that vide notice under section 55A of Act, issued by Assistant Valuation Officer dated 24/03/2005 addressed to assessee club, he had estimated interim value of flat sold by assessee club at Rs.13,93,400/- and final value was yet to come. On basis of interim finding of Asst. Valuation Officer, Assessing Officer issued final show cause notice wherein assessee was asked, as why estimated value of Rs.13,93,400/- be adopted instead of Rs.2,30,000/- declared by club and as to why provisions of section 13(3) not applied as trust through this transaction had sold property to interested person and accordingly, why exemption under section 11 of Act be denied to assessee. According to Assessing Officer, assessee did not comply with above notice, and thus, he computed capital gain on full value consideration at Rs.13,93,400/-. 5.6 On appeal, learned Commissioner of Income-tax(Appeals) forwarded submission of assessee to Assessing Officer for his comments under section 250(4) of Act, but no report was 6 ITA No. 2649/Del/2010 AY: 2002-03 received from Assessing Officer concerned. Ld. Commissioner of Income-tax (Appeals) on basis of interim report of Assistant Valuation Officer upheld addition with following findings: 2.6 I have observed that in this case reason best known to itself appellant has not complied with any of notices of Deptt. i.e. from side of AO and also from side of Valuation Officer. Deptt. has no authority to comply attendance of assessee otherwise than due process of law. record reveals that repeated opportunities were allowed both by Deptt. and by Valuation Cell but to no avail. If appellant decides not to comply with notice of Deptt. either from AO or from Valuation Cell and if valuation officer on basis of his judgment gives report (may be interim report), there is no reasonable ground for appellant to contest same. appellant decided not to comply with direction of Deptt. at assessment stage and to comply only at appellate stage and to raise ground which was never raised before A.O. record reveals that before framing of assessment order sufficient opportunities were adduced by A.O. As A.O. is not expert on valuation matter, as per provisions of law matter was referred to competent authority for this purpose i.e. Valuation Officer and I find no discrepancy in approach of the. AOLln view of constant refusal on port of appellant, interim report will be final report and AO has rightly estimated property at Rs.13,93,400/- and added difference of Rs.11,60,4000/- and his order does not require interference of any sort from this side. 5.7 Before us, learned Authorized Representative of assessee submitted : (i) that addition made was without jurisdiction as there is no provision in Act to enhance full value consideration. and what is chargeable under section 48 of Act, is full value of consideration received or accrued to assessee, which was only Rs. 2,30,000 as evident from confirmation given by buyer Sh. Ashish Sharma as well as statement of Sh. Dinesh Chandra Gupta, who was president of assessee club, at time of assessment proceeding; 7 ITA No. 2649/Del/2010 AY: 2002-03 (ii) that expression full value consideration denotes actual consideration and not notional or deemed consideration, placing reliance on judgment reported in 309 ITR 233 (Del) in case of CIT versus Smt. Nilofer I. Singh and other decisions; (iii) that interim valuation of District Valuation Officer (DVO) cannot be said to be full value consideration received or accrued to assessee; (iv) that DVO s Report, whether interim or final, cannot be made basis to enhance full value consideration, placing reliance on 328 ITR 515 (Supreme Court) in case of ACIT versus Dhariya construction company, 316 ITR 46(Del) in case of CIT versus Shakuntala Devi and other decisions; (v) that no final report of DVO was submitted by Assessing Officer in spite of direction of learned Commissioner of Income-tax (Appeals) in remand proceedings under section 250(4) of Act; (vi) that report of Inspector also cannot be made basis for enhancing full value consideration, relying on 215 taxmann 11 (Del) (Mag) in case of CIT versus Delhi housing and finance Corporation and other decisions; (vii) that section 50C of Act was applicable from assessment year 2003-04 and not from instant assessment year. 5.8. In view of above submissions, learned Authorized Representative prayed to delete addition. 5.9 On other hand, learned Senior Departmental Representative relied on orders of lower authorities. 5.10 We have heard rival submissions and perused relevant material on record. undisputed fact in case is that addition of 8 ITA No. 2649/Del/2010 AY: 2002-03 Rs.11,60,400/- has been made keeping in view full value of consideration of Rs.13,93,400/-, estimated on basis of interim report of Assistant District Valuation Officer . We find that in case of CIT versus Smt. Nilofer (supra), it has been held as under: 7. These decisions make it more than clear that expression full value of consideration that is used in s. 48 of present Act does not have any reference to market value but only to consideration referred to in sale deeds as sale price of assets which have been transferred. 5.11 In view of above precedent, we find that value of consideration declared by assessee as full value consideration received in accrued cannot be substituted by value estimated by DVO. assessee has submitted necessary evidence in form of confirmation from buyer as well as confirmation from authorities of assessee club. relevant finding mentioned in assessment order, is reproduced as under: On 29.03.2005, Sh. B.S. Jindal, C.A. attended and filed letter signed by him and contents of which were confirmed by Sh. Ashish Sharma s/o- Sh. Surender Sharma by putting his signatures on same. This letter in para 1 stated as under: Shri Ashish Sharma has purchased property at B-27 Flatted Factory Complex New Delhi from Rajasthan Club for Rs.230000/- and amount was paid by cheques no. 985356 out of my saving account no. 17908 with Bank of Rajasthan Club Ext. Counter, PM Hospital Delhi. Hence Shri Ashish Sharma is legal and de facto owner. 5.12 We also observed that no other material or evidence was found from assessee, which could lead to prove that value received by assessee was higher than what is declared in return of income. Thus 9 ITA No. 2649/Del/2010 AY: 2002-03 respectfully, following above decision, we delete addition made by Assessing Officer and sustained by learned Commissioner of Income-tax (Appeals) on issue in dispute. Since addition has already been directed to be deleted on first proposition of assessee, we are not discussing other proposition of assessee on issue in dispute. grounds no. 3 & 8 of appeal are accordingly allowed. 6. ground Nos. 4 and 5 are related to denial of exemption under section 11 of Act and assessment in status of AOP. According to Assessing Officer, flat sold to Sh. Surinder Sharma, who was President of assessee club at time of sale and, therefore, provisions of section 13 of Act were applied in case of assessee as transaction of sale of property was to interested person. learned Commissioner of Income-tax (Appeals), concurred with finding of Assessing Officer and upheld denial of exemption and assessment in status of AOP. 6.1 Before us, learned Authorized Representative of assessee submitted that Revenue has not discharged its burden to establish that transaction of sale of property was less than adequate value and addition of Rs.11,60,400/- itself was not tenable, thus , denial of exemption was not valid. learned Authorized Representative further submitted that flat was transferred to Sh. Ashish Sharma , through Sh. Surender Sharma because of compelling circumstances of prohibition of transfer by Delhi government and assessee was having no option other than to dispose off said flat. On other hand, Ld. senior departmental representative relied on finding of lower authorities. 6.2 We have heard rival submissions and perused material on record. Assessing Officer has withdrawn exemption on 10 ITA No. 2649/Del/2010 AY: 2002-03 ground that assessee has sold flat for benefit of person referred to in subsection 3 of Section 13 and thus violated provisions of section 13 of Act. According to section 13(1)(c) of Act provisions of section 11 of Act are not applied, in case any income or property of trust for charitable purpose is applied directly or indirectly for benefit of persons, whose list is mentioned in subsection 3 of section 13 of Act. list of such persons is reproduced as under: 3) persons referred to in clause (c) of sub-section (1) and sub-section (2) are following, namely : (a) author of trust or founder of institution; (b) any person who has made substantial contribution to trust or institution, that is to say, any person whose total contribution up to end of relevant previous year exceeds fifty thousand rupees; (c) where such author, founder or person is Hindu undivided family, member of family; (cc) any trustee of trust or manager (by whatever name called) of institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of persons referred to in clauses (a), (b), (c), (cc) and (d) has substantial interest. 6.3 Further, provisions of section 11 are also not applied wherein there is violation of section13(2)(f) of Act. relevant section is reproduced as under: Section 13(2) .. b c . d .. .. 11 ITA No. 2649/Del/2010 AY: 2002-03 e .. .. f. If any share, security or other property is sold by or on behalf of trust or institution to any person referred to in sub-section(3) during previous year for consideration which is less than adequate; g h .. 6.4 In case of assessee fact that property has been sold to then President of assessee club or his son is undisputed. only issue whether consideration on which it is transferred was adequate or not, in terms of provisions of section 13(2)(f) of Act . While deciding ground Nos. 3 and 8 of appeal, we have already held that there are no other materials or evidence which could establish that property has been transferred at value more than what is recorded in return of income. We have already referred to compelling circumstances shown by assessee under which property was transferred to Sh. Surender Sharma or his son. We have observed that though property was purchased by assessee, but it could not be registered in name of assessee and seller gave power-of-attorney in name of Sh. Surender Sharma. Moreover, Government of Delhi also refused to transfer property in name of assessee, because, property was restricted for specific use of factory and not for office. In view of restriction on use of property and lack of title in favour of assessee, assessee was compelled to transfer property to Sh. Surender Sharma in absence of any buyer as stated by Sh. Dinesh Chand Gupta, President of club at time of assessment proceeding. In his statement recorded on 18/02/2005 under section 131 of Act, he stated facts and circumstances under which property was sold to Sh. Surender Sharma and justified that property was sold at market value. 12 ITA No. 2649/Del/2010 AY: 2002-03 Relevant part of statement has already been reproduced by Assessing Officer in assessment order . In view of above circumstances, we find that there is no violation of provisions of section 13(2) (f) of Act in case of assessee and accordingly benefit of exemption under section 11 of Act cannot be withdrawn. Thus actions of Assessing Officer in assessing assessee club as AOP and withdrawing of exemption are held as incorrect and not according to law. grounds No. 4 & 5 of appeal are accordingly allowed. 7. In ground No. 7, assessee challenged disallowance of Rs.3,44,614/- @ 20%, out of expenditure incurred of Rs.17,23,075/- under head cultural and sports expenses. Assessing Officer observed that assessee had incurred following expenses totaling to Rs.17,23,075/-: 1. Mehandi Rache Hath 9,63,638 2. Sharad Purnima Programme 1,14,330 3. Play 7,858 4. Gazal Sandhya 1,05,067 5. New Year Programme 1,74,806 6. Holi Mangal Milan 1,77,655 7. Cricket Match 53,076 8. Founder s Day 1,13,645 9. Cricket Match 2001 13,000 Total 17,23,075 8. Assessing Officer noted that above expenses were unverifiable and requisite vouchers and books of accounts were not produced before Assessing Officer, therefore, he allowed 20% of total expenses, which worked out to Rs.3,44,614/-. learned Commissioner of Income-tax( Appeals) also upheld disallowance. 13 ITA No. 2649/Del/2010 AY: 2002-03 8.1 Before us, learned Authorized Representative of assessee referred to para 1 of assessment order and submitted that books of accounts were produced before Assessing Officer and same were examined on test check basis. He also submitted that Assessing Officer has not pointed out any specific expenses, vouchers corresponding to which, were not produced and he made disallowance in ad-hoc manner without pointing out any specific faults in vouchers or books of accounts of assessee. In support, thereof, learned Authorized Representative relied on following decisions: 1. 76 ITR 690(SC) state of Orissa versus maharaja Sh. BP Singh Deo. 2. 60 ITR 239 (SC) state of Kerala versus C Velukutty 3. 288 ITR 10 (SC), Kachwala Gems versus CIT 8.2 On other hand, learned Sr. Departmental Representative, relied on order of lower authorities. 8.3 We have heard rival submissions and perused material on record. We find that Assessing Officer has not pointed out any specific vouchers or bill in respect of expenses which were not found with assessee or not produced before him and he has made disallowance purely on ad hoc manner, which is not permitted by law. In case of state of Orissa Vs. Maharaja s BP Singh Deo (supra), Hon ble Supreme Court has held that even in case of best judgment, Assessing Officer does not have arbitrary power and assessment must be based on some relevant material. In case of Kachwala Gems (supra), also Hon ble Supreme Court has held that while making best judgment assessment, authorities concerned should try to make honest and fair estimate of income and should not make addition of arbitrarily. We find that in case of assessee also disallowance has been made in ad hoc manner without any justified reasons, therefore disallowance made by Assessing Officer and 14 ITA No. 2649/Del/2010 AY: 2002-03 confirmed by learned Commissioner of Income-tax (Appeals) is deleted. ground No. 7 of appeal is accordingly allowed. 8.4 In ground No. 9 of appeal, assessee challenged disallowance of Rs.75,000/- out of expenses of Rs.2,32,946/- on account of annual general meetings and members meeting. Assessing Officer noted that those expenses are unverifiable and in nature of personal nature, and therefore he disallowed expenses of Rs.75,000 out of Rs.2,32,946/- claimed by assessee. learned Commissioner of Income-tax (Appeals) upheld disallowance. 8.5 Before us, learned Authorized Representative submitted that disallowance was without any basis and not permissible in law in view of judgments referred in case of ground No. 7 of appeal. 8.6 learned Sr. Departmental Representative, on other hand, relied on finding of lower authorities. 8.7 We have heard rival submissions and perused relevant material on record. We find that Assessing Officer has not pointed out any specific defects either in vouchers or bills or in books of accounts in respect of expenses claimed by assessee. Assessing Officer has not also given any reasoning how part of expenses were personal in nature. In view of above, disallowance made by Assessing Officer in ad-hoc manner cannot be sustained. Following our findings, in case of ground No. 7 of appeal, we hold that disallowance of expenses in arbitrary manner cannot be allowed, and thus same is deleted. ground No. 9 of appeal is accordingly allowed. 9. In ground No. 10, assessee has challenged addition of Rs. 1,55,000/- on account of membership fees. Since Assessing Officer, held status of assessee AOP and withdrawn exemption, he added membership fee amount of Rs.1,55,000/- received by 15 ITA No. 2649/Del/2010 AY: 2002-03 assessee during year as income of assessee and added same to total income of assessee. learned Commissioner of Income Tax (Appeals) upheld action of Assessing Officer. 9.1 Before us, learned Authorized Representative of assessee submitted that there was no valid legal justification for making addition of membership fee as same was exempt from tax in view of following judgments: 1. 138 DTR 145 (Bom) CIT Vs. Shree Parleshwar Cooperative Housing Society Ltd. 2. 209 ITR 396 (Bom) Trustees of Sh. Kot Hindu Stree Mandal Vs. Commissioner of Income Tax 9.2 On other hand, learned Sr. Departmental Representative relied on authorities below and submitted that order of learned Commissioner of Income-tax (Appeals) might be upheld on issue in dispute. 9.3 We have heard rival submissions and perused relevant material on record. In case of assessee, in ground No. 4 & 5, we have already allowed exemption granted to assessee under provisions of section 11 of Act. In case of Trustees of Sri Kot Hindu Stree Mandal (supra), assessee, who was eligible for exemption under section 11 of Act subject to conditions, specified therein, Hon ble High Court held as under: 7. We accept above referred submission of learned counsel for assessee. We accordingly hold that membership and subscription amounts received by applicant-trust/society from its members cannot be characterized as "voluntary contribution" within meaning of said expression under section 12 of Income- tax Act, 1961. entire income of trust is exempted under section 11 of Income-tax Act, 1961. In our opinion, Tribunal was not justified in treating receipt of subscription amounts from members as voluntary contribution or donation. 16 ITA No. 2649/Del/2010 AY: 2002-03 9.4 In view of above, addition made towards membership fee is deleted. ground of appeal is accordingly allowed. 10. ground No. 11 of appeal is in respect of issuing penalty notice and charging interest, which being either premature or consequential in nature, and therefore not required to be adjudicated upon by us. 11. In result, appeal of assessee is allowed. decision is pronounced in open court on 19th October, 2016. Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 19th October, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi Rajasthan Club v. ADIT(E), Inv. Circle-II, New Delhi