2020 (11) TMI 1027 - AT - Income Tax

Exemption u/s 11 - payment of Income Tax as paid on deemed income u/s 11(3) for A.Y. 2013-14 to be allowed as a deduction or application of the income of the current year - CIT-A held AO was right in law in disallowing payment of income tax of 2, 16, 50, 650/- paid on deemed income u/s 11(3) for A.Y. 2013-14 as application of income or deduction of the income of the current year - HELD THAT - Referring to thoughtful consideration to the finding of the Ld. CIT(A) we do not see any infirmity into the order of Ld. CIT(A). As in the present case it is not the case of the change of accounting system. The facts are distinguishable therefore no interference in the finding of the Ld. CIT(A) is called for. Thus Grounds raised by the assessee are dismissed.

Summary

Issues:
1. Disallowance of payment of Income Tax under section 11(3) for A.Y. 2013-14 as a deduction or application of income for A.Y. 2014-15.

Analysis:
1. The assessee filed a return declaring total income and claimed exemption under section 11 of the Income Tax Act. The assessing officer disallowed the payment of Income Tax of ?2,16,50,650 under section 11(3) for A.Y. 2013-14, resulting in an addition to the assessed income for A.Y. 2014-15.

2. The assessee appealed to the Ld. CIT(A) who upheld the addition. The Tribunal noted that the only effective ground in the appeal was against sustaining the addition of ?2,16,50,650. The assessee argued that the Income Tax paid should be considered as an application of income under section 11(1)(a) of the Act, citing relevant case law.

3. The Departmental Representative opposed the submissions, stating that Income Tax payments do not amount to the application of income under the law. The DR emphasized that income should be applied for the trust's objectives and not towards tax payments.

4. The Tribunal analyzed the legal provisions and observed that sections 11(1) and 11(3) serve different purposes. Section 11(1) provides conditions for income exemption, while section 11(3) deals with consequences of default. The Tribunal agreed with the Ld. CIT(A) that Income Tax paid on deemed income under section 11(3) cannot be treated as an application of income under section 11(1).

5. The Tribunal held that allowing the Income Tax payment as a deduction would incentivize violations and defaults, contrary to the law's intention. The Tribunal found no infirmity in the Ld. CIT(A)'s order and dismissed the appeal, upholding the disallowance of ?2,16,50,650 as an application of income for A.Y. 2014-15.

6. The Tribunal concluded the appeal by dismissing the assessee's arguments and upholding the decision of the Ld. CIT(A) regarding the disallowance of the Income Tax payment under section 11(3) for A.Y. 2013-14 as a deduction or application of income for A.Y. 2014-15.