2015 (3) TMI 601 - AT - Income Tax

Deduction under section 11 - CIT(A) allowed the claim - assessee-trust runs a school - Held that - Exemption under section 11 of the Act was disallowed by the Assessing Officer, inter alia, on the ground that the assessee-trust gave contract for constructing the school building to Niche Realty Pvt. Ltd in which one of the trustees was having substantial interest. The learned Commissioner of Income-tax (Appeals) placing reliance on the photocopy of annual report filed with the Registrar of Companies held that Mr. Desai only holding 4 per cent of the equity shares of M/s. Niche Realty Pvt. Ltd and therefore it cannot be said that he was holding a substantial interest in that company. During the appellate proceedings before us neither this document nor any evidence to the effect that this was before the Assessing Officer was found in the paper book of the assessee. Though later on photocopy of annual report with the Registrar of Companies was submitted but no evidence in respect of this document being filed before the Assessing Officer was filed. We further find that in its submission before the Assessing Officer it was claimed by the assessee-trust that Sri Ashish J. Desai was not having substantial interest in M/s. Niche Realty Pvt. Ltd. but even in these submissions of the assessee which have been reproduced by the Assessing Officer in his order there is any mention about the copy of annual report with the Registrar of Companies being filed, though in the submission before the learned Commissioner of Income-tax (Appeals), it was mentioned by the assessee-trust that copy of annual report with Registrar of Companies was being filed. In view of these undisputed facts of this case, we are inclined to agree with the contention of the learned Departmental representative that the learned Commissioner of Income-tax (Appeals) has given relief to the assessee by admitting and relying on the additional evidence which was not before the Assessing Officer, therefore in the interest of natural justice and fair play we are of the considered opinion that matter be restored back to the file of the Assessing Officer for fresh adjudication as per law. - Decided in favour of revenue for statistical purposes. Cancellation of registration of the assessee granted under section 12AA and disallowing exemption in respect of corpus donation - Held that - Both the denials as based on assessee's non eligibility to exemption under section 11. Since the point of eligibility is remanded back for reconsideration, these matters should also go back to the file of the Director of Income-tax (Exemption) and Joint Director of Income-tax (Exemption) respectively for fresh adjudication after the matter is decided by the Assessing Officer in respect of eligibility to exemption under section 11 - Decided in favour of assessee for staitistical purposes.

Summary

Issues Involved:
1. Deduction under section 11 of the Income-tax Act.
2. Cancellation of registration under section 12AA of the Income-tax Act.
3. Disallowance of exemption in respect of corpus donation.

Detailed Analysis:

1. Deduction under section 11 of the Income-tax Act:

The Revenue's appeal contested the grant of deduction under section 11 amounting to Rs. 10,19,39,409. The assessee-trust, which runs a school, had taken a loan for acquiring land and constructing a school building, awarding the contract to Niche Realty Pvt. Ltd., where one of the trustees, Dr. Ashish Desai, was a director. The Assessing Officer disallowed the deduction, citing a violation of section 13(2)(g) read with section 13(3) of the Income-tax Act, as the trust's income was allegedly diverted in favor of a related party. The Commissioner of Income-tax (Appeals) reversed this decision, stating that the activities of the trust were charitable and that the shareholding of Dr. Desai in Niche Realty Pvt. Ltd. was less than 20%, thus not constituting a substantial interest. However, the Tribunal found that the Commissioner relied on additional evidence (annual report filed with the Registrar of Companies) not presented to the Assessing Officer, and thus, in the interest of natural justice, remanded the matter back to the Assessing Officer for fresh adjudication.

2. Cancellation of registration under section 12AA of the Income-tax Act:

The assessee's appeal against the cancellation of registration under section 12AA was based on the Assessing Officer's findings for the assessment year 2008-09. The Director of Income-tax (Exemption) had canceled the registration, citing the same reasons for disallowing the exemption under section 11. Since the Tribunal remanded the primary issue back to the Assessing Officer, it also directed the Director of Income-tax (Exemption) to re-evaluate the cancellation of registration after the fresh adjudication by the Assessing Officer.

3. Disallowance of exemption in respect of corpus donation:

The assessee appealed against the disallowance of exemption for corpus donations amounting to Rs. 90,59,750. The Joint Director of Income-tax (Exemption) had disallowed this exemption due to the cancellation of the trust's registration under section 12AA. Given that the Tribunal remanded the issue of cancellation of registration back to the Director of Income-tax (Exemption), it also directed the Joint Director of Income-tax (Exemption) to re-assess the exemption for corpus donations after the registration issue is resolved.

Conclusion:

The Tribunal allowed both the Revenue's and the assessee's appeals for statistical purposes, remanding the matters back to the respective authorities for fresh adjudication based on the proper examination of evidence and adherence to principles of natural justice.