2016 (1) TMI 369 - HC - Income Tax

Eligibility for exemption under Section 80G(5) denied - Commissioner rejected the application is that proper accounts were not maintained by the respondent - assessee - ITAT allowed claim - Held that - Revenue is right in his submission that the paragraphs dealing with the merits of the case in the impugned order passed by the Tribunal do not advert to any factual matrices of the case insofar as the figures reflecting income and expenditure which were adverted to by the Commissioner of Income Tax in extenso. The appellate authority has reversed the findings of the Commissioner. However the impugned order is not supported by reasons and does not suggest that the Tribunal had re-appreciated the facts with reference to the various financial entries found in the order passed by the Commissioner. Whenever an order is passed by a quasi - judicial authorities either upholding or reversing a finding of lower authority the appellate order must necessarily record cogent reasons with reference to facts and reasons contained in the order assailed before appellate authority. On perusal of the order of the Tribunal we are of the considered view that the Tribunal has not adverted to the various aspects of factual matrices which resulted in rejection of application by the Commissioner. Admittedly the Tribunal is the last fact-finding authority. The Commissioner while rejecting the application has adverted to various aspects of the matter to support his reasoning. They include receipt and expenditure by the Trust and posting of entries in the books of account of Trust. The whole intent and purpose of granting exemption under section 80 to a Trust or an Organisation is to facilitate the donors to get the benefit of tax exemption and at the same time the Trust or the organisation to get donations. Such a Trust or Organisations which perform their duties to further their aims and objects are duty bound to maintain proper accounts. Admittedly the applicant was enjoying the benefit of exemption for the previous years. It has taken a definite stand that accounts with regard to the project work is separately maintained. The Commissioner has adverted to various aspects and rejected the application. Therefore the Tribunal ought to have considered each and every aspect and examined as to whether or not the findings recorded by the Commissioner are in accordance with law. In the circumstances we feel it appropriate that the matter must be reconsidered by the Tribunal in the light of what is stated hereinabove. Accordingly we deem it appropriate to remand the matter to the ITAT for re-consideration - Decided in favour of revenue

Summary

Issues:
1. Interpretation of provisions of Section 11 regarding maintenance of separate accounts for vermicular project.
2. Compliance with provisions of Sec.80G(5)(iv) for claiming exemption under Sec.80G of the I.T.Act, 1961.
3. Alleged fault of not accounting for grant money as income and utilizing it as per Sec.11(2) of the IT Act 1961.
4. Punishment for misappropriation of funds by Chairman and Secretary under Sec.13 of the IT Act 1961.
5. Reliance on a decision of Rajasthan High Court in a different context.

Analysis:
1. The case involved a dispute regarding the maintenance of separate accounts for a vermicular project by the respondent society under Section 11. The Commissioner rejected the application for exemption under Section 80G due to discrepancies in accounting for grant money. The ITAT reversed this decision, prompting the appeal. The High Court remanded the matter to the ITAT for reconsideration, emphasizing the need for a detailed examination of factual matrices and compliance with accounting standards.

2. The issue of compliance with Sec.80G(5)(iv) arose concerning the maintenance of regular books of account for claiming exemption. The Commissioner found discrepancies in the respondent's accounting for a government grant related to the Vermiculture Project. The ITAT overturned this decision, leading to the High Court's decision to remand the case for a fresh consideration, highlighting the importance of proper accounting practices for entities seeking tax exemptions.

3. The alleged fault of not accounting for grant money as income and utilizing it as per Sec.11(2) was a key issue. The Commissioner's detailed examination of the respondent's accounts led to the rejection of the exemption application. The ITAT's decision to reverse this finding lacked a thorough analysis of the factual aspects, prompting the High Court to remand the case for a comprehensive reevaluation by the ITAT.

4. The question of punishing the respondent society for misappropriation of funds by the Chairman and Secretary under Sec.13 of the IT Act 1961 was raised. The High Court emphasized the need for the ITAT to reexamine the matter in detail, considering all aspects of income, expenditure, and maintenance of accounts before making a conclusive decision on the alleged misappropriation issue.

5. The reliance on a decision of the Rajasthan High Court in a different context was contested. The High Court noted that the ITAT did not adequately consider the specific discrepancies and violations in the respondent's case, indicating a need for a fresh examination based on the factual circumstances. The High Court directed the ITAT to reconsider the case in light of the specific facts and legal provisions relevant to the respondent's situation.