2017 (1) TMI 1056 - AT - Income Tax

Exemption u/s 11 - denial of claim on non-registration under section 12AA - Held that - Nothing has been brought on record to suggest that besides non-registration under section 12AA, the assessee has failed to fulfill any other conditions as envisaged u/s 11, 12 and 13 of the Act by virtue of which it shall be denied the exemption under section 11 & 12 of the Act. In fact, on perusal of assessment order, it is noted that the Assessing officer has noted in context of grant of ₹ 2,50,00,000 to Amber Development Authority and of ₹ 3,82,10,322 to Jaipur Metro Rail Corporation Limited that these expenses would be admissible as application of income if it was to be considered exempted under section 11, 12 and 13 and as the benefit of section 11 is not admissible, the sum paid to these two institutions as grant would not be admissible and hence added back to assessee s income. Similar is the position in respect of other disallowances except for an amount of ₹ 1,57,56,523 which has been allowed in the earlier years and disallowance thereof confirmed by the ld CIT(A). It is thus clear that the Revenue has not disputed any of these expenses as application of income (except ₹ 1,57,56,523 which was already allowed in earlier years) for want of fulfilment of any of the conditions specified under section 11, 12 and 13 of the Act. Regarding applicability of section 13(8), we have already held above that in view of proviso to section 2(15) not applicable in the case of the assessee, provisions of section 13(8) would not be applicable. Rejection of books of accounts u/s 145(3) - on account of change in the accounting policy - Held that - Coordinate Bench has already examined this matter in the year of change of accounting policy ie. AY 2009-10 and has held that the appellant had changed method of accounting during the year under consideration but the same has been found more accurate and scientific to determine the assessee s income. Therefore, change of accounting is bonafide and same cannot be rejected on the ground that the assessee had claimed more expenses during the year under consideration. On the issue of depreciation and double deduction, the matter has again been examined by the Coordinate Bench earlier and decided in favour of the assessee. Nothing has been brought to our notice which controvert the said findings of the Coordinate Bench and we accordingly, do not see any infirmity in ld CIT(A) following the said decision of the Coordinate Bench. - Decided against revenue

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Application of provisions of Section 145(3) and assessment under Section 144.
3. Allowance of development expenditure.
4. Disallowance of 5% of development expenditure due to change in accounting policy.
5. Allowance of expenses on shooting range.
6. Allowance of expenditure on grants/contributions to charitable institutions.
7. Allowance of depreciation on fixed assets.

Detailed Analysis:

Issue 1: Exemption under Section 11 of the Income Tax Act
The Revenue contended that the activities of the appellant authority are commercial in nature and thus, the amended provisions of Section 2(15) should apply, denying the exemption under Section 11. The CIT(A) and ITAT held that the appellant's activities are charitable, referencing the Jaipur Development Authority Act, 1982, and the ITAT Jaipur Bench's earlier decisions. The ITAT emphasized that the predominant object of the authority is charitable, and thus, the proviso to Section 2(15) does not apply. The ITAT directed the AO to allow the benefit of Section 11 and 12 to the assessee.

Issue 2: Application of Provisions of Section 145(3) and Assessment under Section 144
The AO rejected the books of accounts under Section 145(3) due to dissatisfaction with the correctness or completeness of the accounts maintained by the assessee. The CIT(A) and ITAT found that the change in the method of accounting was bona fide and more accurate, thus rejecting the AO's application of Section 145(3). The ITAT upheld the CIT(A)'s direction to assess the income on the real income basis.

Issue 3: Allowance of Development Expenditure
The AO disallowed the development expenditure of ?1,52,05,67,555 due to the change in the accounting method. The CIT(A) and ITAT, referencing the ITAT Jaipur Bench's decision, accepted the change in the accounting method as more accurate and scientific, thus allowing the development expenditure.

Issue 4: Disallowance of 5% of Development Expenditure due to Change in Accounting Policy
The AO disallowed ?16,07,46,832, representing 5% of the development expenditure due to a change in accounting policy. The CIT(A) and ITAT allowed this expenditure, following the ITAT Jaipur Bench's decision that the change in accounting policy was bona fide and accurate.

Issue 5: Allowance of Expenses on Shooting Range
The AO disallowed ?1,05,752 on account of expenses on a shooting range, arguing that these expenses were not for earning any income. The CIT(A) and ITAT allowed these expenses, treating them as part of the overall application of income under Section 11.

Issue 6: Allowance of Expenditure on Grants/Contributions to Charitable Institutions
The AO disallowed ?6,32,10,322, arguing that the assessee's activities were commercial in nature. The CIT(A) and ITAT allowed this expenditure, treating it as an application of income since the benefit of Section 11 was granted.

Issue 7: Allowance of Depreciation on Fixed Assets
The AO disallowed ?1,81,89,705 on account of depreciation on fixed assets, arguing that it would result in double deduction since 100% expenditure on capital assets was already allowed. The CIT(A) and ITAT allowed the depreciation, referencing various court decisions that permit depreciation on assets acquired through income application.

Conclusion
The ITAT upheld the CIT(A)'s decisions on all issues, emphasizing the charitable nature of the appellant's activities and the bona fide change in accounting methods. The appeals filed by the Revenue were dismissed, and the benefit of Section 11 and 12 was granted to the assessee. The ITAT's decision was in line with previous decisions of the ITAT Jaipur Bench and the Hon'ble Rajasthan High Court.