Denial of Section 11 Exemption for Advances/Loans to Related Parties/Entities to be Reverified by AO, Considering Purpose and Past History

I. Denial of Section 11 Exemption for Advances/Loans to Related Parties/Entities to be Reverified by AO, Considering Purpose and Past History

Issue:

Whether a charitable trust, registered under Section 12A and claiming exemption under Section 11, can be denied the benefit of exemption due to alleged contravention of Section 11(5) read with Section 13(1)(d) for giving advances/loans, when the purpose of such advances is linked to the trust’s charitable objectives or involves entities part of the trust, and past history supports genuine intent.

Facts:

For assessment years 2015-16 and 2016-17, the assessee trust, engaged in charitable educational activities and registered under Section 12A, claimed exemption under Section 11. The Assessing Officer (AO) found that the assessee had given advances to four parties: RHPL, RT, AMEC, and AMREC. The AO was of the opinion that these investments by way of loan/deposit did not fulfill the requirements of forms and modes of investment permitted by Section 11(5) (which mandates investment in specified avenues) and, thus, denied the exemption under Section 11 due to contravention of Section 11(5) read with Section 13(1)(d) (which deals with application of income for the benefit of specified persons).

It was noted that:

Regarding payment to RDPL (likely a typo, possibly related to RHPL or a similar entity), a similar issue arose in earlier assessment years (2006-07 and 2013-14), where it was held that the amount was paid to RDPL with a view to acquire land for the purpose of construction of an educational building.
Advance to RT was given in an earlier year, and the assessee had received a certain amount back, implying it was an ongoing transaction from a previous period, not a fresh investment in the current year.
AMEC was an engineering college that was part of the assessee trust.

Decision:

Yes, the court held that, on facts, the impugned disallowance of exemption under Section 11 was not correct.

Considering the past history of the assessee and the decision of the co-ordinate bench in earlier years regarding RDPL, the Assessing Officer was directed to verify the facts for the advance given by the assessee in the relevant year after affording a reasonable opportunity of being heard to the assessee.
For the advance to RT, since it was given in an earlier year and the assessee had received a certain amount back, it could not be questioned during the relevant year.
For AMEC, as it was an engineering college and part of the assessee trust, there was no merit in considering the advance given to it as violative of Section 11(5) read with Section 13(1)(d).

Key Takeaways:

Section 11(5) Compliance: Section 11(5) is crucial for charitable trusts; it specifies the modes in which funds not applied for charitable purposes must be invested to retain exemption. Investments in non-specified avenues can lead to denial of exemption.
Section 13(1)(d) (Investment in Prohibited Modes): This section prohibits investment of funds in modes other than those specified in Section 11(5), and its violation leads to denial of exemption. Section 13(1)(d) read with 13(3) also addresses benefits to “specified persons.”
Purpose of Advance/Loan: Advances or loans given by a trust, especially for acquiring assets for its charitable objectives (like land for an educational building), can be seen as an application of income for charitable purposes or an investment incidental to the objects, rather than a violation of Section 11(5), provided proper documentation and genuine intent.
Internal Transfers/Part of Trust: Advances within entities that are part of the same trust (e.g., to an engineering college run by the trust) are generally not considered violations of Section 11(5) or 13(1)(d), as they are an internal application of funds for the trust’s objects.
Past History and Precedent: The court considers the assessee’s past history and favorable decisions by co-ordinate benches in similar issues as strong indicators of the genuineness of the transactions.
Opportunity of Hearing and Remand: When there’s a need for factual verification (like for RDPL) or the AO’s interpretation is flawed based on existing facts, the matter is remanded back to the AO to conduct proper verification after affording the assessee an opportunity to be heard.

II. Unsecured Loans from Confirmed Creditors Not Cash Credit Under Section 68

Issue:

Whether unsecured loans taken by a charitable trust from several parties can be added under Section 68 of the Income-tax Act, 1961 (cash credit), when the amounts are duly confirmed by creditors, opening balances were accepted in earlier years, and all transactions were through banking channels.

Facts:

For assessment years 2015-16 and 2016-17, the assessee trust, registered under Section 12A and engaged in charitable educational activities, received unsecured loans from several parties. The Assessing Officer (AO) proceeded to make additions under Section 68 on account of these loans.

It was noted that:

The amounts received during the year were duly confirmed by the creditors.
The opening balances of these loans were accepted in earlier assessment years, implying that the genuineness and creditworthiness of these parties had been accepted previously.
All transactions were conducted through banking channels.

Decision:

Yes, the court held that, on facts, the impugned amount received by the assessee could not be added under Section 68 for the year under consideration.

Key Takeaways:

Section 68 – Cash Credit: Section 68 allows the AO to add any sum found credited in the books of an assessee for which the assessee offers no explanation about its nature and source, or the explanation is unsatisfactory. The onus is on the assessee to prove the identity, genuineness, and creditworthiness of the creditor.
Discharge of Onus: The assessee successfully discharged the onus under Section 68 by:
- Providing confirmations from creditors (identity).
- Demonstrating transactions through banking channels (genuineness of transaction).
- Referring to acceptance of opening balances in earlier years, implying prior acceptance of the creditors’ creditworthiness.
No Re-Agitation of Accepted Facts: If the genuineness and creditworthiness of a creditor have been accepted by the department in earlier assessment years (for opening balances), the AO cannot simply disregard that in subsequent years without fresh adverse material.
Banking Channel Transactions: Transactions conducted through proper banking channels are generally strong evidence of genuineness, making it difficult for the AO to classify them as “cash credits” unless further evidence of routing own money is found.

III. Denial of Section 11 Exemption for Advances/Loans to Unrelated Parties and for Trust Objects Unjustified

Issue:

Whether the denial of exemption under Section 11 for advances/loans given by a charitable trust to various parties (TTPL, D, SMGSL, and JMC) due to alleged contravention of Section 11(5) read with Section 13(1)(d) is justified, when these advances are for the use of property, purchase of assets, arranging finance, or are opening balances, and involve non-related parties.

Facts:

For assessment years 2015-16 and 2016-17, the assessee trust, registered under Section 12A and engaged in charitable educational activities, claimed exemption under Section 11. The Assessing Officer (AO) found that the assessee had given advances to four parties: TTPL, D, SMGSL, and JMC. The AO was of the opinion that these investments made by way of loan/deposit did not fulfill the requirements of forms and modes of investment permitted by Section 11(5) and, thus, denied the exemption under Section 11 due to contravention of Section 11(5) read with Section 13(1)(d).

It was noted that:

Advance to TTPL was for the use of property belonging to TTPL as per a memorandum of understanding, for the purpose of carrying on the objects of the trust.
Advance to D was for furniture and D was not a related party.
Advance to SMGSL was for arranging finance, and SMGSL was also not a related party. Moreover, this payment was subject to TDS applicable to a professional consultant.
Advance to JMC was an opening balance from an earlier year and could not be considered a fresh investment during the relevant year.

Decision:

Yes, the court held that, on facts, the impugned denial of exemption under Section 11 was unjustified.

The advance to TTPL for the use of property for the trust’s objects was not violative of Section 11(5) read with Section 13(1)(d).
The advance to D for furniture, being to a non-related party, meant Section 13(1)(d) was not applicable.
The advance to SMGSL for arranging finance, also to a non-related party and subject to TDS, was not hit by Section 13(1)(d).
The advance to JMC, being an opening balance, was not relevant for the current year’s assessment of new investments.

Key Takeaways:

Specific Application of Section 11(5) and 13(1)(d): The court meticulously examined the nature of each advance/loan to determine if it truly violated Section 11(5) (specified modes of investment) and Section 13(1)(d) (prohibited investments benefiting “specified persons”).
Advances for Trust Objects vs. Prohibited Investments: Advances given for acquiring operational assets (like furniture) or for using property directly in furtherance of the trust’s charitable objects (like land for educational activities) are generally treated as permissible applications of income or investments incidental to the objects, not violations of Section 11(5).
“Related Party” is Crucial for Section 13(1)(d): Section 13(1)(d) (read with 13(3)) specifically targets investments/benefits to “specified persons” (related parties). If the recipient of the advance is not a related party, then the provisions of Section 13(1)(d) are not attracted.
TDS Compliance as Indicator: The fact that TDS was deducted on payments for arranging finance (to SMGSL) as a professional consultant indicates a genuine service transaction, making it less likely to be a prohibited investment or an undue benefit.
Opening Balances: Additions cannot be made for opening balances of advances/loans in the current year if they originated in prior years and were not questioned then, or if they represent continuing legitimate transactions.
Justified Denial of Exemption: The court’s detailed reasoning for each advance demonstrates that the AO’s blanket denial of exemption was not based on a proper understanding of the nature and purpose of each transaction in relation to the trust’s objects and the specific provisions of Sections 11 and 13.
Favor of Assessee: The overall ruling is in favor of the assessee, allowing them to claim exemption under Section 11 by clarifying that their advances/loans did not violate the specified conditions.

IN THE ITAT MUMBAI BENCH ‘G’

Sai Shiva Educational Trust

Income-tax Officer (Exemp)-2(3), Mumbai

SANDEEP SINGH KARHAIL, Judicial member
and Narendra Kumar Billaiya, Accountant member

IT Appeal No. 4082 and 4081 (Mum) of 2023
[Assessment Year 2015-16, 2016-17]

APRIL 21, 2025

Ketan L. Vajani, C.A. for the Assessee. Vivek Perampurna, CIT, D/R for the Revenue.

ORDER

Narendra Kumar Billaiya, Accountant Member. – I.T.A. No. 4082/Mum/2023 & I.T.A. No. 4081/Mum/2023 are two separate appeals by the assessee preferred against two separate orders dated 27/06/2023 and 21/06/2023 by NFAC, Delhi, pertaining to AYs 2015-16 & 2016-17.

2. Since common issues are involved, both these appeals were heard together and are disposed of by this common order for the sake of convenience and brevity.

3. Both the appeals are barred by limitation. The assessee has filed affidavits explaining the facts causing the delay in filing the appeal. Considering the facts, the delay is condoned.

ITA No. 4082/Mum/2023; AY 2015-16

4. The grievance of the assessee reads as under:-

“1. The grounds of appeal mentioned hereunder are without prejudice to one another.

2. The learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre [CIT(A)] erred on facts as also in law in confirming addition of Rs.87,74,730/-. The addition has been made on the alleged ground of denial of the benefit of exemption u/s 11 and taxing net receipt of 87,74,730/- stating advance of Rs. 13,53,39,422/- hit by the provision of section 13. The addition confirmed by CIT (A) is bad in law as also on facts and therefore the same may kindly be deleted.

3. The learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre [CIT(A)] erred on facts as also in law in confirming addition of Rs.69,75,000/-. The addition has been made u/s 68 on the alleged ground of unsecured loan taken from trustee. The addition confirmed by CIT (A) is bad in law as also on facts and therefore the same may kindly be deleted.

4. The appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.”

5. Briefly stated the facts of the case are that the assessee is a registered charitable organization with DIT(E), Mumbai, u/s 12A of the Act vide Registration No. 34500 and with Charity Commissioner, Mumbai. The assessee is engaged in charitable activities in field of education and has claimed exemption u/s 11 of the Act.

6. The return was selected for scrutiny assessment and accordingly a questionnaire was issued and served upon the assessee. On perusing the details, the AO found that the assessee has given advance to the following parties:-

Ritika Hotels Pvt Ltd	68732439
Rainbow Tech	1000000
Arun Muchhala Engineering College	655819831
Anin Muchhala Research & Education Centre	25000
	135339422

7. The assessee was asked to explain the nature and purpose of these advances. The assessee filed necessary details along with the copies of accounts of the aforementioned parties. After perusing the details, the AO was of the opinion that the investment made by the assessee by way of loan/deposit to another trust does not fulfill the requirements of the forms and modes of investment permitted by Section 11(5) of the Act. The AO accordingly denied the benefit of exemption u/s 11 of the Act in view of contravention of provisions of Section 11(5) r.w.s. 13(1)(d) of the Act and made the addition of Rs. 13,53,39,422/-.

7.1. Proceeding further, the AO noticed that the assessee taken unsecured loans from the following parties:-

Sr. No.	Name of the person	Amount (Rs.)
1	Sai Shiva Developers	3250000
2	Muchhala Magic Land P. Ltd.	3525000
3	Arun Muchhala Co-owners	2,00,000

7.2. The assessee was asked to explain the credits in light of the provisions of Section 68 of the Act. The assessee furnished necessary documents/details which did not find any favour with the AO who proceeded by making addition of Rs. 69,75,000/- u/s 68 of the Act.

8. Assessee carried the matter before the ld. CIT(A) but without any success.

9. Before us, the ld. Counsel for the assessee explained that advance given to Ritika Hotels Pvt. Ltd., amounting to Rs. 6,87,32,439/- was for the purpose of acquiring the building of Ritika Hotels which the assessee is also using for its educational activities. It is the say of the ld. Counsel for the assessee that as per the memorandum of understanding as and when the assessee is able to purchase the property on payment of the consideration, the property shall be transferred to the assessee but in the mean-time, the assessee is allowed to run its educational activities from the impugned property. Insofar as, advance given to Rainbow Tech, the ld. Counsel for the assessee pointed out that it is a opening balance and the advance given to Arun Muchhala Engineering College is nothing but advance given to the second limb of the Trust and the advance given to Arun Muchhala Research & Education Centre is nothing but the closing balance out of the opening balance of Rs.29.25 Lakhs, given in earlier year.

11. We have carefully perused the copies of the ledger accounts. We find that Ritika Hotels Pvt. Ltd. had an opening balance of Rs.6,79,90,564/-. This advance was given in earlier years. We find that the same was subject to scrutiny in AY 2006-07 and the quarrel travelled upto the Tribunal and the Co-ordinate Bench in ITA No. 124/Mum/2022 & C.O. No. 71/Mum/2022 has considered this issue and held as under:-

“3. Briefly stated, the facts of the case are that the assessee is a public charitable trust and during the year under consideration was engaged in running a polytechnic college. The assessee filed its return of income for the year under consideration on 31.10.2006 declaring Nil income. The assessment was reopened by way of issue of notice u/s 148 of the Act on 25.03.2011. The Assessing Officer completed reassessment u/s 147 r.w.s. 144 of the Act on 30.12.2011. In the said assessment order, the claim of exemption u/s 11 of the Act was denied and income of the assessee was determined at ^2,32,12,740/-. The said exemption was withdrawn, in view of the finding of the Ld. Assessing Officer in assessment year 2008-09 on the ground that interest-free advances were given to one of the trustee and the business concern wherein the trustee’s were having substantial interest. On further appeal, the assessee filed additional evidence before the Ld. CIT(A). The Ld. CIT(A) after considering the remand report of the Assessing Officer and rejoinder of the assessee, directed the Assessing Officer to grant exemption to the assessee u/s 11 of the Act.

4. Before us, the Ld. Counsel of the assessee has filed a Paper Book containing pages 1 to 60.

5. We have heard rival submissions of the parties on the isuse-in- dispute and perused the material on record. In the case of the assessee addition in assessment year 2008-09 was made on the ground that interest-free advances have been granted to the persons covered u/s 13(3) of the Act and therefore, the assessee was not entitled for exemption u/s 11 of the Act. In the assessment year 2008-09, the Tribunal in ITA No. 5803/Mum/2011 restored the issue to the Assessing Officer for verification of the fact whether the interest-free advances was for benefit of the trust or was for the benefit of the trustee. The relevant finding of the Tribunal (supra) is reproduced as under:

“6. We have heard the rival contentions and have perused the material available on record. It is seen that the learned CIT(A) as well as by the learned Counsel for the assessee seems to be plausible. But on these contentions, reasonings have to be supported with the facts and evidences. Certain questions still remain unanswered and the learned Counsel for the assessee could not show any material to find answers of these questions e.g., what happened to the advance and whether any such or any other property was actually purchased, or whether the advance was returned, or the same was squared off, or it was adjusted against some other property and whether the property proposed to be purchased was of any use for the assessee trust, etc., etc. All these facts need to be analysed and only then appropriate decision can be taken to decide the issue whether the interest free advance was for the benefit of trust or was for the benefit of the trustee. The learned CIT(A), while adjudicating this issue, has not passed a speaking order and has not given any such facts or referred to any such evidence in support of the contentions of the assessee. In our opinion, this issue deserves to be restored to the file of the learned CIT(A) for denovo adjudication after examining all the evidences which the assessee may place before the learned CIT(A) to decide the issue with the help of actual facts and figures, as to whether the interest free advance was given for the benefit of the assessee trust, or for the benefit of the trustees. The questions that came to our mind some of which have been referred to herein above, need to be answered with the help of evidences and in addition to that the learned CIT(A) is free to call for any other details / evidence to decide the issue as per law and facts. We thus set aside the impugned order passed by the learned Commissioner(Appeals) and allow ground no.1, raised by the Revenue for statistical purposes.”

5.1. All the grounds raised by the Revenue are related to the issue-in-dispute of exemption u/s 11 of the Act. In Ground No. 1, the Revenue has urged that since order for the assessment year 200809 has been restored to the file of the Assessing Officer. Therefore, in the year under consideration also the issue should be restored to the file of the Assessing Officer. However, we find that in the year under consideration, the Ld. CIT(A) sent the additional evidences to the Assessing Officer for calling his comments. The Ld. Assessing Officer in the remand report after verifying the documents furnished by the assessee has categorically stated that no direct benefit or advantage had been given to the persons specified u/s 13(3) of the Act. The relevant finding of the Assessing Officer has been reproduced by the Ld. CIT(A) in para 5.7 and 5.8 of the impugned order. For ready reference, the said finding is extracted as under:

“5.7 During the course of the appellate proceedings the appellant furnished the copies of the land agreement made with Ritika Hotels Pvt. Ltd., Memorandum of Understanding with Ritika Hotels Pvt. Ltd. and with Shri. Arun Kumar Muchhala. Since these before the Assessing Officer, the same were sent to the Assessing hese werences were not produced Officer for submission of a remand report.

5.8. The Assessing Officer vide his reply dated 11/03/2020 submitted that the trustees Shri. Arunkumar Muchhala and Smt. Ritika Arun kumar Muchhala were also directors in Ritika Hotels Pvt. Ltd. It could be seen that as per the MOU between the Trust and Ritika Hotels Pvt. Ltd., it was mentioned that developers shall be entitled to retain the 5th floor of the building for their own exclusive and the bona fide use, however no direct benefit to/advantage has been given to these persons.

5.9. From the remand report of the Assessing Officer, it could be observed that no evidence has been brought on record against the appellant to prove that the provisions of Section 13(1)(c)(ii) could be applied to the appellant’s case. Appellant had clearly established that the advances made to the trustee Shri. Arun Kumar Muchhala was towards purchase of vacant plot/land for the use of the trust.”

5.2. In our opinion, the Assessing Officer himself has verified these facts and accepted that there is no direct benefit or advantage to the person specified u/s 13(3) of the Act. In such circumstances, there is no need to restore the matter back to the file of the Assessing Officer. The Assessing Officer himself has accepted that no advantage has been passed on to the specified persons u/s 13(3) of the Act still the Assessing Officer has filed the appeal on the same issue. This action of the Assessing Officer is not justified unless same is not bonafide. Before us, the Revenue has nowhere said anything on the bonafide of the Assessing Officer while sending the remand report.

5.3. In view of the above facts and circumstances, we do not find any error in the order of the Ld. CIT(A) on the issue-in-dispute and accordingly, we uphold the same.”

12. Again this issue arose in AY 2013-14 and the ld. First Appellate Authority held as under:- “7.1. The AO has concluded that the amounts given to M/s Ritika Hotels Pvt. Ltd. is in violation of section 11(5) r.w.s. 13(1)(d) of the I.T. Act, 1961. The appellant, under the facts and circumstances of the case has relied on the decision in the case of CIT v. Brihdaranyak Mandal Trust [2009] 319 ITR 363 (Allahabad) where it was held that income of educational institution use to purchase Land and construct building constituted application of income.

7.2. It is on record that the appellant has made the transaction for the purpose of acquiring piece and parcels of land admeasuring 12 acres purpose only (as appearing in clause-3, pg. of the said agreement, reproduced above). It Is also stipulated In clause-s of the agreement that the cost of the construction shall be borne by the assignee i.e. the appellant. Thus, it can be seen that the amount has been given to M/s Ritika Hotels Pvt. Ltd. with a view to acquire capital asset for the purpose of the object – educational building – of the trust. The AO has specifically referred to section 13(1)(d) which reads as under –

” (d) If the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation.”

There is no dispute on the nature of transaction which is duly supported by registered document that the amounts are for the purpose of acquiring capital assets for the objects of the trust. The AO has not raised any question on the genuineness of the transaction. There is no instance recorded by A.O pointing out any inadequacy or undue benefit derived by transacting parties.

7.3 The issue relating to this transaction had come up for adjudication in appeal for A.Y. 2008-09 in Ground No. 1 of the said appeal that –

“1. (a) The Ld. AO failed to appreciate that:-

i. The appellants have not given any interest free loan / Advances to any trustees or any concern wherein trustees or any concern wherein trustees are interested in violation of the provision of Sec. 13 of the I.T. Act.

(b) The appellants have advanced money to M/s. Ritika Hotels Pvt. Ltd. towards the purchase of land / development rights and providing accommodation to run the polytechnic.

(c) The appellants have not advanced any interest free advances/loan to Shri Arunkumar J. Muchhala, trustee, the amount is given for the loan to purpose of trust activities.”

My predecessor had decided this Issue after considering the facts and circumstances of the case in detail in favour of the appellant in the following

“DECISION

3.2 I have duly considered the appellant ARs submission and facts of the case. I find that the assessee trust has not given any Interest free advance for the benefit of any trusty, but the advance was given for acquiring land and building as per the agreement. Therefore, it is to be regarded that the advance was not Interest free but for acquiring land and building for the purpose of Educational Institute run by the appellant trust. U/s. 13, If any, benefit directly or indirectly is given to any trustee, the exemption cannot be allowed u/s. 11 of the Act. In this case, the assessee has only given advance for purchase of property: therefore, it has to be held that advance was given not for the benefit of the specified persons u/s. 13(3) but for the purchase of property for running educational Institute. Hence, I hold that the assessee has given the advance for the purpose of the object of the trust and the same is not hit by the provisions of Section 13(3), but for the furtherance of the objects of the Trust. The assessee trust was already allowed registration u/s. 12A by DIT(E) on the basis of the object of the trust. The AO is directed to allow exemption u/s. 11 as the assessee has given advance for the purpose of the object of the trust and not for the personal benefit of any trustee. This ground of appeal is allowed.”

Therefore, under the same and similar facts and circumstances of the case, I do not find any reason to deviate from the decision of my predecessor on this issue.”

13. Considering the past history of the assessee and decision of the Co-ordinate Bench (supra), we direct the AO to verify the facts for the advance given for the year under consideration only after affording reasonable and adequate opportunity of being heard to the assessee.

14. The next disputed advance relates to Rainbow Tech. We find from the copy of accounts that Rs.18,00,000/- was given in the earlier year. Therefore, the same cannot be questioned during the year under consideration, out of which the assessee has received Rs.5,00,000/- back and the closing balance stands at Rs.30,00,000/- which cannot be added during the year under consideration. Moreover, in subsequent financial year, the entire advance has been received as per the copy of account exhibited at page 41 of the paper book.

15. The next disputed advance is in respect of Arun Muchhala Engineering College. A perusal of the copy of account shows that there was a pending balance of Rs. 6,65,09,376/-. Moreover, this engineering college is part of the Trust as can be seen from the financial statements and audit report of the Trust exhibited at pages 37 & 38 of the paper book. Therefore, we do not find any merit in considering this advance as violative of the provisions of Section 11(5) r.w.s. 13(1)(d) of the Act.

16. The fourth disputed advance relates to Arun Muchhala Research & Education Centre. A perusal of the copy of account shows that there was an opening balance of Rs.29.25 lakhs. Therefore, there is no question of making any addition of the balance outstanding amount of Rs. 25,000/-.

17. Accordingly, this ground is partly allowed for statistical purposes.

18. Insofar as the addition u/s 68 of the Act is concerned, the first disputed loan is in respect of Sai Shiva Developers which has an opening balance of Rs.67.50 Lakhs and the closing balance of Rs.32,50,000/- is out of the pending balance. Therefore, the same cannot be added u/s 68 of the Act for the year under consideration.

18.1. The second loan is from Mucchala Magic Land P. Ltd.. The copy of accounts shows that there is a credit balance of Rs.17,75,000/- which cannot be added during the year under consideration. Other amounts received during the year have been duly confirmed by the creditor. Since the opening balance has been accepted in the earlier year, there is no question of treating the party as non-genuine and all the transactions have been done through banking channels. Therefore, we do not find any merit in the impugned additions u/s 68 of the Act.

18.2. The third loan is from Arun Muchhala Co-owners is again the opening balance, therefore, cannot be added u/s 68 of the Act for the year under consideration.

19. Accordingly, the additions made u/s 68 of the Act are directed to be deleted.

ITA No. 4081/Mum/2023; AY 2016-17

20. The grievance of the assessee reads as under:-

“1. The grounds of appeal mentioned hereunder are without prejudice to one another

2. The leared Commissioner of Income-tax (Appeals), National Faceless Appeal Centre [CIT(A)] erred on facts as also in law in confirming addition. The addition has been made on the alleged ground of denial of the benefit of exemption u/s 11 stating advance of Rs.6,70,83,844/- hit by the provision of section 13. The addition confirmed by CIT (A) is bad in law as also on facts and therefore the same may kindly be deleted.

3. The learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre [CIT(A)] erred on facts as also in law in confirming addition of Rs.80,50,061/-. The addition has been made under income from other sources on the alleged ground of interest income @ 12% on interest fee advances of Rs.6,70,83,844/. The addition confirmed by CIT (A) is bad in law as also on facts and therefore the same may kindly be deleted.

4. The appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.”

21. While scrutinising the return of income, the AO found that the assessee has given advance to the following parties:-

Ritika Hotels Pvt Ltd	86,51,624
Arun Muchhala Engineering College	97,62,220
Tarapur Textile Park Ltd	4,66,70,000
Divina	10,00,000
S.M.G. Securities Ltd.	5,00,000
J. M. Consruction	5,00,000
	6,70,83,844

22. The AO was of the opinion that the assessee has violated the provisions of Section 13(1)(d) r.w.s. 11(5) of the Act and denied the claim of exemption u/s 11 of the Act. 22.1. Proceeding further taking a leaf out of the preceding AY 2015-16, the AO was of the opinion that since the assessee has given interest free advances, he went on to compute the notional interest on the advance given in earlier years and made the addition of Rs. 80,50,061/-.

23. The assessee carried the matter before the ld. CIT(A) without any success.

24. Before us, the ld. Counsel for the assessee reiterated what has been stated before him AY 2015-16. The ld. D/R placed strong reliance on the findings of the AO.

25. We have carefully perused the orders of the authorities below and the relevant documentary evidence brought to our notice.

26. Insofar as advances to Ritika Hotels Pvt Ltd. and Arun Muchhala Engineering College, are concerned, the same have been considered by us in detail in ITA No. 4082/Mum/2023 (supra). For our detailed discussion therein, we hold accordingly.

27. Advance given to Tarapur Textile Park Ltd., is for the use of property as per the memorandum of understanding exhibited at page 86 to 92 of the paper book. Since advances given for the use of property belonging to Tarapur Textile Park Ltd., for the purpose of carrying on the objects of the Trust, we do not find such advances violative of Section 11(5) r.w.s. 13(1)(d) of the Act.

28. Advance given to Divina, is for furniture and that too not a related party. Therefore, provisions of Section 13(1)(d) of the Act are not applicable.

29. Advance given to S.M.G Securities Ltd. is for arranging finance, again not a related party. Moreover, the payment made to S.M.G. Securities Ltd., was subject to TDS @ 10% applicable to professional consultant. In our considered opinion, such payment is not hit by the provisions of Section 13(1)(d) of the Act.

20. Advance given to J.M. Constructions is an opening balance and cannot be considered during the year under consideration.

21. Considering the facts of the case in totality, we do not find any merit in denying the benefit of Section 11 of the Act. The same is directed to be allowed. Accordingly, Ground No. 1 is allowed.

22. Insofar as Ground No. 2 is concerned, the AO himself is stating that the interest is a notional interest. In our considered opinion, only real income has to be taxed and notional interest computed by the AO does not pass the test of real income. Therefore, the same is directed to deleted.

23. In the result appeal of the assessee are allowed subject to the directions given elsewhere in respect of Ritika Hotels Pvt. Ltd.