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2015 (3) TMI 888 - AT - Income TaxExemption u/s 10(23C)(vi) denied - exemption u/s 11 and 12 denied - whether CIT(A) has erred in upholding the contention of Ld. DGIT(E) that the activities of the assessee society are found to be for earning profit and not for charitable purposes and is not justified in declining the exemptions u/s 11 & 12 of the Income Tax Act, specially when registration u/s 12A of the Act is still in force and available for the assessee and which has not cancelled as on the date of the assessment? - Held that - CIT(A) erred in upholding the contention of the AO in the assessment order which were influenced by the order of DGIT(E). At the cost of repetition, we are inclined to hold that since the registration granted for the assessee on 3.9.2004 w.e.f. 1.4.2003 is still in force and the DIT(E) has not taken any action in pursuance to the order of the Tribunal dated 17.6.2011 (supra), then it is an obvious fact that the registration of the assessee society u/s 12A of the Act is in force, therefore, the claim of the assessee for grant of exemption u/s 11 of the Act cannot be rejected merely on the basis of order of the DGIT(E) which rejected application for registration u/s 10(23C)(vi) of the Act. At the same time, we also conclude that the exemption u/s 11 and 12 of the Act cannot be denied only on the basis of rejection of application of the assessee filed u/s 10(23C) of the Act. Before we part, we may point out that the CIT(A) in the impugned order has clearly held that action of the AO in allowing exemption u/s 11 and 12 of the Act is beyond jurisdiction exercised by him during the assessment proceedings and at the same time, the CIT(A) has upheld the action of the AO which rejected the claim of the assessee for exemption u/s 11 of the Act, this contradictory observation and conclusion of first appellate authority is not permissible and sustainable. Therefore, action of the authorities below is not sustainable. - Decided in favour of assessee. Bogus corpus donations and miscellaneous donations - AO making addition u/s 68 - Held that - The assessee trust submitted all the required details before the authorities below but the AO objected to the claim of assessee only on this premise that the assessee could not produce in person the donor parties during the assessment proceedings. On similar liens, the CIT(A) upheld the action of the AO without addressing to the explanation and contentions of the assessee and remand report of the AO dated 4.3.2013, merely observing that the activities of the assessee society are not genuine and registration granted to the assessee u/s 12A of the Act shall be cancelled in future in due course of time. This is not judicious and proper approach for a quasi-judicial authority who are duty bound to address and adjudicate all the issues and grounds raised by the assessee. The AO and the CIT(A) are not adjudicators but they are also investigators and examiners. In view of above, we reach to a conclusion that ground no. 4 of the assessee is squarely covered in favour of the assessee by the decision of DIT vs Bharat Kalyan Pratisthan (2007 (1) TMI 98 - DELHI HIGH COURT) and DIT(E) vs Keshav Social and Charitable Foundation (2005 (2) TMI 84 - DELHI High Court ) and therefore, we set aside the orders of the authorities below and directed the AO to delete the impugned addition made u/s 68 of the Act. - Decided in favour of assessee. Excess salaries being allegedly charged with the intent of siphoning off funds of the appellant - Held that - We are inclined to hold that although the authorities below have held that there was siphoning of funds from the funds of the society but there is no finding or conclusion that the siphoning of funds was made by the members and trustees of the society. We may also point out that when the act of embezzlement was noticed by the management during the proceedings before the DGIT(E), then the management proceeded to take action against the responsible employee and the management also submitted documents pertaining to appointment, resignation and affidavits of the alleged employees and also some of them were also produced before the DGIT(E), therefore, act of siphoning of funds cannot be attributed to the management or trustees of the society. - Decided in favour of assessee. Genuity of vehicle hiring expenses - AO held that in absence of maintenance of log book, it is not possible to verify the use of hired vehicles by the assessee society - Held that - for verification and allowability of claim of expense of vehicle charges, the prime issue to be adjudicated is that whether the vehicle was used for the purpose and activities of the assessee society and the payment made by the assessee society was in accordance with the prevailing fair market price of the vehicle hiring charges. Although the revenue authorities can also verify the fact of personal use of the vehicle owner but this is a secondary issue which cannot be a basis for rejecting the entire claim of the assessee society. Therefore, we are of the considered view that the revenue authorities had not adjudicated this issue as per section 37 and other relevant provisions of the Act and, therefore, their findings are set aside and the issue is restored to the file of the AO to adjudicate the same in accordance with the provisions of the law - Decided in favour of assessee for statistical purposes. Construction of College and Hospital building and hostel expenses disallowed - Held that - CIT(A) has confirmed the observations and additions made by the AO on account of construction and hostel expenses without addressing, evaluating and adjudicating the contentions of the AO in the light of submissions and explanation of the assessee. In this situation, it can safely be presumed that the AO did not afford opportunity to the assessee to explain discrepancies and inconsistencies noted by him during the assessment proceedings. issues of allowability of expenses on construction of hospital and hostel building of ₹ 85,25,300 and hostel expenses of ₹ 9,51,664 are restored to the file of AO with a direction that the AO shall adjudicate both the issues afresh, after considering submissions and explanation of the assessee along with remand report of the AO (supra), after affording due opportunity of hearing for the assessee and without being prejudiced and influenced by the earlier orders on this issue. - Decided in favour of assessee for statistical purposes. Depreciation claim disallowed - AO has denied the claim of depreciation by holding that the whole expenditure on account of addition to fixed assets has ready been allowed as application of income for charitable purposes in the earlier years in effect the written down value of the assets would be zero and also that the claim of depreciation is not allowable even when the income of the assessee is to be computed as provided under Chapter 4 as the benefit of section 11 and 12 has been denied to the assessee - Held that - Claim of depreciation of the assessee society is legally allowable in the manner as held by Hon ble Bombay High Court in the case of CIT vs Institute of Banking (2003 (7) TMI 52 - BOMBAY High Court) and the AO is directed to examine, verify and to allow the same, keeping in view the legal propositions as reproduced hereinabove.- Decided in favour of assessee for statistical purposes. Denying claim of exemption u/s 11 - AO estimating the income of the assessee society at ₹ 59,60,363 calculated at 50% of the gross receipts of the society during the year under consideration - Held that - AO is empowered to examine and verify the claim of the assessee u/s 11 of the Act within the ambit of relevant provisions of the Act including section 11 of the Act. Therefore, disallowance of exemption u/s 11 of the Act as well as estimation of income of the appellant society in the status of AOP as made by the AO is not sustainable and we set aside the same. Accordingly, ground of the assessee is allowed with this direction to the AO that the assessment of the assessee trust for the year under consideration i.e. 2006-07 be reframed by granting exemption u/s 11 of the Act to the assessee society. - Decided in favour of assessee.
Issues Involved:
1. Legality of CIT(A)'s order upholding the AO's order passed u/s 143(3). 2. Rejection of exemption application u/s 10(23C) and its implications. 3. Denial of exemptions u/s 11 & 12. 4. Addition of Rs. 75,05,000/- as unexplained cash credit u/s 68. 5. Allegations of siphoning off funds through excess salaries. 6. Disallowance of vehicle hiring charges. 7. Allegations of inflated construction and hostel expenses. 8. Disallowance of depreciation claim. 9. Estimation of income at 50% of gross receipts. Detailed Analysis: Ground No. 1, 2, and 3: The assessee contended that the CIT(A) erred in upholding the AO's order influenced by the DGIT(E)'s findings, contrary to the Supreme Court's directions that the DGIT(E)'s order was restricted to AY 2007-08. The Tribunal noted that the registration u/s 12A granted on 3.9.2004 was still in force and had not been cancelled. The CIT(A)'s contradictory stance-acknowledging the AO's lack of jurisdiction while upholding the AO's decision-was deemed unsustainable. The Tribunal allowed these grounds, emphasizing that exemption u/s 11 & 12 cannot be denied based on DGIT(E)'s order. Ground No. 4: The AO had added Rs. 75,05,000/- as unexplained cash credit, doubting the genuineness of corpus and petty donations. The Tribunal noted that the assessee had furnished all necessary documents and confirmations from donors. The CIT(A)'s decision to uphold the AO's addition was found contradictory and perverse. The Tribunal cited precedents from the Delhi High Court and other authorities, concluding that the addition u/s 68 was not sustainable. This ground was allowed in favor of the assessee. Ground No. 5: The AO alleged that excess salaries indicated siphoning off funds. The Tribunal found no evidence that the trustees or management were involved in siphoning off funds. The Tribunal noted that the management had taken action against the responsible employees. Citing the Delhi High Court's decision in DIT(E) vs Moti Bagh Mutual Aid Education, the Tribunal quashed the AO's conclusion. This ground was allowed. Ground No. 6: The AO disallowed vehicle hiring charges due to the absence of log books and alleged personal use. The Tribunal emphasized the need to verify whether the vehicles were used for the society's activities and if the expenses were in line with market rates. The issue was remanded to the AO for fresh adjudication, directing that expenses be allowed if used for the society's purposes. This ground was allowed for statistical purposes. Ground No. 7: The AO alleged inflated construction and hostel expenses. The Tribunal noted that the AO did not provide the assessee an opportunity to explain discrepancies and that the CIT(A) failed to address the assessee's submissions. The Tribunal restored the issue to the AO for proper verification and adjudication. This ground was allowed for statistical purposes. Ground No. 8: The AO denied the depreciation claim, arguing that the cost of assets had been fully allowed as application of income in earlier years. The Tribunal, citing the Bombay High Court's decision in CIT vs Institute of Banking, held that depreciation is allowable even if the cost was previously allowed as application of income. This ground was allowed. Ground No. 9: The AO estimated the income at 50% of gross receipts, denying exemption u/s 11 & 12. The Tribunal reiterated that the registration u/s 12A was still in force, and exemption u/s 11 could not be denied merely because proceedings for cancellation were pending. The Tribunal directed the AO to reframe the assessment by granting exemption u/s 11. This ground was allowed. Conclusion: The Tribunal partly allowed the appeal on grounds 1 to 5 and 9, and allowed grounds 6 to 8 for statistical purposes, directing fresh adjudication by the AO in line with the Tribunal's observations.
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