2015 (7) TMI 235 - AT - Income Tax

Expenses claimed by the assessee as application of income u/s. 11 - CIT(A) allowed claim - assessee is a company registered u/s 25 of the Companies Act and is also registered u/s 12A - Held that - With respect to the defects pointed out by the AO that the company was not able to submit any details of the work undertaken or the amounts spent in places affected by natural calamities the assessee is unable to give a reason for the same which is satisfactory even before us. We notice that through the show cause letter issued the AO had asked the assessee company to submit all copies relevant documents for expenditure incurred with respect to the relief to the poor affected by natural calamities which was not responded by the assessee, hence we deem it fit to restore the issue to the file of the AO and give one more opportunity to the assessee to produce the same to the satisfaction of the assessing authority who shall decide the issue in accordance with law. The AO also had come out with a point that the assessee company was granted registration u/s 12A of the Act, based on MOA approved by the Registrar of Companies and any change in the objects of the MOA as per the Companies Act became operative from the date of such approval given by the concerned authorities for Corporate Affairs and approval is given prospectively and therefore it is only when modified objects are intimated and approved by the DIT (E) that these modified objects can be implemented and the works can be undertaken in pursuance of the objects. Hence the AO was of the view that the expenditure which was not in accordance with the object mentioned in the MOA is to be disallowed. Since we have remitted the issue with respect to the application of income u/s 11 in order to give an opportunity to the assessee to produce the necessary details before the AO, the AO shall also examine the issue with respect to the change in the objects of MOA as per the Companies Act and the date of approval by the DIT (E) of the modified objects as this fact is relevant for the implementation in pursuance of the objects and also in deciding whether expenditure is allowable when it is not in accordance with the objects mentioned in the MOA as on that date. - Decided in favour of revenue for statistical purposes.

Summary

Issues:
1. Appeal by Revenue against CIT(A)'s order for A.Y 2011-12.
2. Allowance of expenses claimed by assessee as application of income u/s 11.
3. Justification of expenses claimed by assessee for medical camps, rehabilitation, and relief work without proper documentation.
4. Interpretation of objects by Assessing Officer and CIT(A) regarding charitable activities.
5. Consistency in granting exemption u/s 11 based on objects and activities.

Analysis:
1. The appeal was filed by Revenue against CIT(A)'s order for A.Y 2011-12. The assessee, a company registered u/s 25 of the Companies Act and u/s 12A of the Income Tax Act, claimed exemption u/s 11. The Assessing Officer noted that the assessee applied for modification of its objects, indicating awareness of limitations. The AO observed that expenses not aligned with objects in MOA were not allowable as application of income u/s 11.

2. During appellate proceedings, the AR argued that the assessee could undertake charitable activities for relief of the poor, disabled, and others affected by natural calamities. The CIT(A) relied on past exemptions granted under similar circumstances and directed AO to allow expenses as application of income u/s 11. The Department appealed, questioning the lack of documentation for expenses claimed by the assessee.

3. The AO highlighted that the assessee's activities did not align with the objects listed in the MOA. The assessee applied for modification of objects, indicating awareness of limitations. The AO requested evidence for expenses related to natural calamities, which were not provided satisfactorily. The case was adjourned multiple times for document submission.

4. The CIT(A) referred to the objects of the assessee, emphasizing social and relief work for the poor, disabled, and those affected by natural calamities. Relying on past decisions, the CIT(A) directed the AO to allow expenses as application of income u/s 11 due to consistency in granting exemptions under similar circumstances.

5. The AO's decision to disallow expenses not in accordance with MOA objects was upheld, pending submission of necessary documents by the assessee. The issue of change in MOA objects and approval by DIT(E) was highlighted for future consideration. The Revenue's appeal was allowed for statistical purposes, emphasizing the need for proper documentation and alignment with MOA objects for expense allowance u/s 11.