2017 (6) TMI 235 - AT - Income Tax

Exemption u/s 11 - application of income - which the income is being accumulated or set apart - assessee requirement to intimate the A.O. before the date of filing of the return u/s 139(1) - Held that - Income from trust property will be exempt from tax if 85% thereof is applied for the purpose of the trust. If the application of income falls short of 85% for the reason of non-receipt of income assessee may defer utilization of 85% of the income to another year. For this assessee was required to give notice in writing with the Assessing Officer in the prescribed manner explaining the purpose for which the income is been accumulated and set apart and the period for which the income is to be accumulated and set apart. It has further been provided that the money so accumulated and set apart is to be invested and deposited in specified manner. We find that admittedly assessee has not exercised any such option. Assessee has been all along been claiming that the said income has not accrued. Hence there was no occasion for the Assessing Officer to consider the same. Furthermore, the provisions of the act envisage that the assessee has to explain in the said notice the purpose for which the income is being accumulated or set apart. There is no whisper whatsoever in the assessee s submissions in this regard. Hence we are in full agreement with the learned CIT(A) that there was no occasion for the Assessing Officer to consider this aspect of assessee s plea. As clear from the above discussion, such a plea was not prima facie tenable also. - Decided against assessee.

Summary

Issues Involved:

1. Accrual of income and its recognition for the assessment year 2011-2012.
2. Application of income towards charitable purposes as per Section 11(1) of the Income Tax Act, 1961.
3. Adequate opportunity of being heard and principles of natural justice.

Issue-wise Detailed Analysis:

1. Accrual of Income and its Recognition for the Assessment Year 2011-2012:

The primary issue was whether the amount of ?3,55,45,600 accrued to the appellant as income for the assessment year 2011-2012. The Assessing Officer (AO) noted that the assessee had sold immovable property for ?3,55,45,600 but failed to disclose this transaction in the return of income. The assessee contended that the income had not accrued as the payment was deferred until 31st March 2015 or the date of obtaining the Building Completion Certificate, whichever was earlier. The AO rejected this explanation, stating that the deed of assignment dated 19.01.2011 clearly indicated that the right, title, and interest in the property were assigned to the assignee, and the income should be recognized on an accrual basis. The learned CIT(A) upheld the AO's decision, noting that the original deed was registered, and the subsequent unregistered addendum could not alter the accrual of income. The Tribunal agreed with the CIT(A) that the income had accrued to the assessee in the assessment year 2011-2012 as per the original deed.

2. Application of Income Towards Charitable Purposes as per Section 11(1) of the Income Tax Act, 1961:

The assessee argued that the amount should be deemed to be applied towards charitable purposes under clause (2) of Explanation to Section 11(1) since it was not actually received during the year under appeal. The CIT(A) rejected this contention, stating that the assessee did not provide any intimation to the AO before the date of filing the return u/s 139(1), as required by the provisions. The Tribunal noted that the assessee had not exercised the option to defer the application of income by giving notice in writing to the AO, explaining the purpose and period for which the income was being accumulated. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's plea was not tenable as there was no compliance with the procedural requirements of Section 11(1).

3. Adequate Opportunity of Being Heard and Principles of Natural Justice:

The assessee claimed that both lower authorities erred in passing their respective orders without granting adequate opportunity of being heard, violating the principles of natural justice. However, the Tribunal did not find any merit in this contention. The Tribunal observed that the assessee had been given sufficient opportunity to present its case before the AO and CIT(A). The Tribunal concluded that there was no contravention of the principles of natural justice in the proceedings.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, upholding the orders of the lower authorities. The Tribunal confirmed that the income of ?3,55,45,600 had accrued to the assessee in the assessment year 2011-2012 and rejected the plea for deferment of income application under Section 11(1). The Tribunal also found no violation of the principles of natural justice in the proceedings. The order was pronounced on 25th May 2017.