2018 (6) TMI 92 - AT - Income Tax

Benefit u/s 10(21) denied - AO held that the assessee has not been notified by the CBDT as Scientific research Association for granting benefit - Held that - Restore this issue to the file of the Ld. CIT(A) for verifying the status of litigation in the matter of notifying the assessee as Scientific Research Association and, thereafter, to take a decision in accordance with law after providing opportunity of being heard to both the parties. The ground of the appeal of the Revenue is, accordingly, allowed for statistical purposes. Charitable purpose - assessee has claimed only exemption u/s 10(21) - Order of CIT(A) allowing exemption u/s 11(1) set aside - matter restored before CIT(A) Charitable purpose - Application of loan repayment allowability - loans received or the money borrowed by the assessee has not been shown as income at any point of time by the assessee - Held that - The repayment of the loan is not allowed in the profit and loss account even under the general principles. Therefore, in our opinion, the ratio of the decision of the Hon ble Supreme Court in the case of Rajasthan Gujarati Charitable Foundation, Poona 2017 (12) TMI 1067 - SUPREME COURT is not applicable and the assessee is not eligible for application of loan repayment against the income for charitable purposes. We also note that the Tribunal in order 2016 (11) TMI 527 - ITAT DELHI has also disallowed application of loan repayment - Decided against assessee.

Issues Involved:

1. Exemption under Section 11 of the Income-tax Act.
2. Admission of additional ground by the CIT(A) without giving the Assessing Officer an opportunity to be heard.
3. Exemption under Section 10(21) of the Income-tax Act.
4. Allowability of 'Loan Repayment' as an application of income for the objects of the trust.

Detailed Analysis:

1. Exemption under Section 11:

The Revenue argued that the CIT(A) erred in allowing exemption under Section 11 by disregarding the facts of the case. The assessee had claimed exemption under Section 10(21) in its return, and the Assessing Officer had not examined the question of exemption under Section 11. The CIT(A) relied on the Delhi High Court's decision in India Trade Promotion Organization vs. DGIT(E), which held that mere receipt of fees or charges does not mean the assessee is involved in trade, commerce, or business. The Tribunal found that the CIT(A) did not provide the Assessing Officer an opportunity to comment on the additional ground and did not analyze the facts of the case in comparison to the cited High Court decision. The Tribunal restored the issue to the CIT(A) for fresh adjudication after providing an opportunity to both parties.

2. Admission of Additional Ground:

The Revenue contended that the CIT(A) admitted the additional ground for allowing exemption under Section 11 without giving the Assessing Officer an opportunity to be heard, violating Rule 46A of the Income Tax Rules. The Tribunal noted that Rule 46A pertains to additional evidence, not additional grounds, but agreed that the Assessing Officer should have been given a chance to comment. The Tribunal restored the issue to the CIT(A) for fresh adjudication.

3. Exemption under Section 10(21):

The Revenue argued that the CIT(A) erred in allowing exemption under Section 10(21) without verifying whether the assessee was notified as a Scientific Research Association by the CBDT, given the pending review petition. The Tribunal noted that the CIT(A) relied on a previous Tribunal order without considering the status of the litigation. The Tribunal restored the issue to the CIT(A) for verification of the litigation status and subsequent decision in accordance with the law.

4. Allowability of 'Loan Repayment':

The Revenue challenged the CIT(A)'s decision to allow loan repayment as an application of income. The Tribunal had previously disallowed this in the assessee's case for the assessment year 2008-09. The Tribunal noted that the repayment of the loan was not shown as income when received, and the fixed assets acquired with the loan were already claimed as an application of income. Allowing the repayment as an application would result in double deduction. The Tribunal also distinguished this case from the Supreme Court's decision in Rajasthan and Gujarati Charitable Foundation, where depreciation was allowed as an application of income. The Tribunal upheld the disallowance of loan repayment as an application of income.

Conclusion:

The Tribunal allowed the Revenue's appeal partly for statistical purposes, restoring the issues related to exemptions under Sections 11 and 10(21) to the CIT(A) for fresh adjudication and upholding the disallowance of loan repayment as an application of income.

← Previous Next →