2018 (5) TMI 1911 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15) - advances made by assessee trust - HELD THAT - Advances was made for charitable purpose only. AO as well as the CIT(A) has not given any reason for rejecting advances as application of income. The word may is used by the CIT(A) which means the CIT(A) has not arrived at the conclusion based on the facts and law. The assessee society paid advance of ₹ 26,87,656/- during the year under consideration to various suppliers/contractors and claimed the same as application of income for charitable purpose only. The evidence put up before the AO confirms the same. Thus, these advances was used by the assessee for charitable purpose only. AO and CIT(A) was not correct in denying the claim of application of income on the advances made to the various suppliers/contractors. Therefore, Ground No. 1 of the assessee s appeal is allowed. Deemed application u/s 11(1) explanation 2 of the Income Tax Act, 1961 fulfills all the conditions prescribed therein - HELD THAT - CIT(A) held that the original return was filed and the same was not accompanied by intimation in writing to the AO regarding exercise of the option under Explanation 2 to Section 11(1). The intimation was attached to the revised return filed under Section 139(5), and therefore, the benefit of filing of intimation was denied by the CIT(A). But as per the provision of the Section 139(5) there is no bar for filing intimation with the revised return. The intimation can be filed at any time before the assessment proceedings are completed. Therefore, the Assessing Officer as well as the CIT(A) was not correct in rejecting this claim of the assessee. Therefore, Ground No. 2 of the assessee s appeal is allowed. Granting benefit of Section 11 and 12 - when the assessee is involved in purely commercial activities. From the records we can see that the objects of the assessee was never disputed by the Revenue authorities at any stage. There was no change in the object and the functions of the assessee. The activities which are carried by the assessee was as per the objects and functions. Therefore, Revenue failed to establish that there is any commercial activity. CIT(A) rightly granted benefit of Section 11 and 12 of the Act to the assessee. Depreciation claim of assessee trust - CIT-A allowed the claim - HELD THAT - There is no need to interfere with the findings of the CIT(A) as the CIT(A) after going through various records given a finding. In fact, the Hon ble Apex Court in case of CIT vs. Rajasthan Gujrati Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT held that charitable institution registered under Section 12A, even though incurred expenditure for acquisition of capital assets has to be treated as application of income for charitable purposes under Section 11(1)(a) and depreciation has to be allowed on assets so purchased. Therefore, the appeal filed by the Revenue does not survive.

Summary

Issues Involved:

1. Denial of application of income for charitable purposes.
2. Denial of deemed application under Section 11(1) Explanation 2 of the Income Tax Act.
3. Eligibility for exemption under Sections 11 and 12.
4. Deletion of additions made by the Assessing Officer.
5. Allowance of depreciation on assets.

Detailed Analysis:

1. Denial of Application of Income for Charitable Purposes:

The assessee argued that advances made for charitable purposes should be considered as an application of income. The Assessing Officer (AO) and CIT(A) denied this claim. However, the tribunal found that the advances were indeed made for charitable purposes, and the evidence supported this. The tribunal concluded that the AO and CIT(A) were incorrect in denying the application of income for these advances, thus allowing the assessee's appeal on this ground.

2. Denial of Deemed Application under Section 11(1) Explanation 2:

The assessee claimed deemed application of unrealized income, which was denied by the CIT(A) because the intimation was not filed with the original return but with the revised return. The tribunal held that there is no bar under Section 139(5) for filing intimation with the revised return. Therefore, the tribunal allowed the assessee's claim for deemed application of income.

3. Eligibility for Exemption under Sections 11 and 12:

The Revenue contended that the assessee was engaged in commercial activities and thus not eligible for exemptions under Sections 11 and 12. The tribunal found that the objects and activities of the assessee had not changed and were charitable in nature. Therefore, the CIT(A) was correct in granting the benefits of Sections 11 and 12, and the Revenue's appeal was dismissed.

4. Deletion of Additions Made by the Assessing Officer:

The AO had made several additions, including a significant amount of ?100,00,59,234/-, which were deleted by the CIT(A). The tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had followed earlier judgments and provided a detailed analysis. The tribunal found no reason to interfere with these findings and dismissed the Revenue's appeal on this ground.

5. Allowance of Depreciation on Assets:

The AO disallowed depreciation on the grounds that it would lead to double deduction. The CIT(A) allowed the depreciation, citing the judgment of the Hon'ble Delhi High Court in the case of Vishwa Jagriti Mission, which held that depreciation should be allowed even if the cost of the asset had been treated as an application of income. The tribunal agreed with the CIT(A) and noted that the Supreme Court in CIT vs. Rajasthan & Gujrati Charitable Foundation Poona had upheld this view. Thus, the tribunal dismissed the Revenue's appeal on this issue.

Conclusion:

The tribunal allowed the assessee's appeals for the assessment years 2006-07 and 2007-08, granting the application of income for charitable purposes and the deemed application under Section 11(1) Explanation 2. The tribunal dismissed the Revenue's appeals for assessment years 2007-08 and 2008-09, upholding the CIT(A)'s decisions on eligibility for exemptions under Sections 11 and 12, deletion of additions, and allowance of depreciation on assets.