2014 (11) TMI 1026 - AT - Income Tax

Disallowance of exemption claimed u/s. 10(23c)(iiiad) - CIT(A) deleted the disallowance - Held that - The provision b to sec 10 (23C) is not applicable to claim exemption under section 10(23c)(iiiad). Similarly, Assessing Officer was not justified by invoking provisions of maintaining separate set of books of accounts for activities concern with object of society, activities incidental to the object of the society are not applicable to claim exemption u/s. 10(23c)(iiiad). In this background, CIT(A) was justified in deleting disallowance of exemption claimed u/s. 10(23c)(iiiad) made by Assessing Officer. Same is uphold. - Decided against revenue. Assessee samiti is imparting education and exist solely and exclusively for education purposes and not for purpose of profit and not doing any other business as there is no other source of income from any other business and the aggregate receipts does not exceed the prescribed limit i.e. one crore. So, the disallowance of claim of exemption u/s. 10(23c)(iiiad) is not justified as there is no justification to assess income of assessee as business income and to disallow the expenditure treating the entity as business organization. Assessee samiti have been allowed to registration u/s. 12A of Act, with effect from 1.4.2000, by ITAT vide its order dated 13.05.2011 inter alia held that assessee satisfies list of genuineness of activities of institution as per objects of institution. In view of above, CIT(A) justified in granting relief to assessee in all these 3 years on all above issues as claimed u/s. 10(23c)(iiiad) of Act.

Summary

Issues Involved:
1. Deletion of disallowance of exemption claimed under Section 10(23c)(iiiad).
2. Deletion of various additions made by the Assessing Officer (AO) on account of rent, car expenses, interest, and donations.
3. Justification of the AO's decision to treat the income of the assessee society as business income.
4. Maintenance of separate books of accounts for incidental activities.
5. Applicability of Section 40(a) regarding disallowance of expenses for non-deduction of TDS.

Issue-Wise Detailed Analysis:

1. Deletion of Disallowance of Exemption Claimed under Section 10(23c)(iiiad):
The Revenue challenged the deletion of disallowance of exemption claimed under Section 10(23c)(iiiad) for various assessment years. The Assessing Officer (AO) had contended that the assessee society violated the conditions laid down by Section 10(23c)(iiiad) by providing financial aid to Nirwan Charitable Trust without interest and not maintaining separate books for incidental activities like hostel and bus facilities. However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee society met all the conditions of Section 10(23c)(iiiad), including being an educational institution existing solely for educational purposes, not for profit, and having aggregate receipts below the prescribed limit. The Tribunal upheld the CIT(A)'s decision, stating that the AO's invocation of provisions was not justified, and the society was entitled to exemption under Section 10(23c)(iiiad).

2. Deletion of Various Additions Made by the AO:
For the assessment years 2004-05, 2005-06, and 2006-07, the AO had made several additions, including disallowances on account of rent, car expenses, interest, and donations. The AO argued that the facts and circumstances were the same as in the earlier year, 2003-04, where similar disallowances were made. However, the CIT(A) found that the nature of the assessee's activities had not changed, and the facts and circumstances remained the same. The Tribunal upheld the CIT(A)'s decision, stating that the disallowances were not justified as the assessee society was imparting education solely for educational purposes and not for profit.

3. Justification of the AO's Decision to Treat the Income of the Assessee Society as Business Income:
The AO treated the income of the assessee society as business income and disallowed various expenditures, asserting that the society was engaged in business activities. The CIT(A) and the Tribunal found that the assessee society was solely engaged in educational activities and not in any business. The Tribunal upheld the CIT(A)'s decision, stating that the AO's treatment of the income as business income was not justified, and the society was entitled to exemption under Section 10(23c)(iiiad).

4. Maintenance of Separate Books of Accounts for Incidental Activities:
The AO had contended that the assessee society did not maintain separate books of accounts for incidental activities like hostel and bus facilities. However, the CIT(A) found that the requirement to maintain separate books of accounts was not applicable to the claim of exemption under Section 10(23c)(iiiad). The Tribunal upheld the CIT(A)'s decision, stating that the AO's invocation of provisions for maintaining separate books was not justified.

5. Applicability of Section 40(a) Regarding Disallowance of Expenses for Non-Deduction of TDS:
For the assessment year 2007-08, the AO disallowed expenses under Section 40(a) for non-deduction of TDS. The CIT(A) found that the provisions of Section 40(a) were not applicable to the assessee society as it was not engaged in business or profession, and its income was exempt under Section 10(23c)(iiiad). The Tribunal upheld the CIT(A)'s decision, stating that the AO's disallowance under Section 40(a) was not justified.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue for all the assessment years, upholding the CIT(A)'s decisions on all issues. The Tribunal found that the assessee society was entitled to exemption under Section 10(23c)(iiiad) and that the AO's disallowances and treatment of income as business income were not justified. The Tribunal also upheld the CIT(A)'s decisions regarding the non-applicability of provisions for maintaining separate books of accounts and Section 40(a).