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2018 (7) TMI 813 - AT - Income TaxEligible for exemption u/s 11 - loans and advances given to two trade unions - violation of section 13(1)(c ) r.w.s 13(3) - Held that - When the bench pose a specific question about continuation of violation referred to u/s 13(1)(c) for subsequent years, the ld. AR for the assessee fairly accepted that such violation is perpetuated in subsequent years, however tried to argued that violations brought out by the AO shall not be reason for denial of exemption, when the assessee continued to carry out its activities in accordance with its objects. We find that, the assessee failed to negate observation of the lower authorities in the light of provisions of section 13(1)(c) of the Act. Therefore, consistent with the view taken by the Coordinate bench, we are of the considered view that the assessee is not eligible for exemption u/s 11 of the Act, and hence we are inclined to upheld finding of the ld. CIT(A) and reject ground of the assessee for all asst. years. Taxation of corpus donations - Held that - On perusal of facts, we find that the AO as well as the ld. CIT(A) gave categorical findings that the assessee failed to file any evidences to prove that these donation are corpus donations. Once, these donations are not corpus donations, then, automatically all receipts including corpus donations shall be treated as receipts of the trust and income wherefrom shall be computed in normal commercial practices by deducting all expenses. The CIT(A) after considering relevant facts has rightly treated corpus donation as part of gross receipts to determine income. We do not find any error in the order of the ld. CIT(A). Hence, we are inclined to uphold the CIT(A) order and reject ground taken by the assessee for all years. Addition towards expenditure in the assessment - Held that - There is no cause of grievance for the assessee insofar this issue is concerned. But, fact remains that, the AO has said in para 2 of his order that the amount of expenditure is taxable. Once, exemption is denied, income shall be computed under normal accounting principles by considering all income and expenses to determine profit/loss, but at no stretch of imagination expenditure shall be treated as income, unless such expenses is unexplained or such expenses has not be substantiated with evidences. In this case, there are no findings from the AO on these aspects. Therefore, we are of the considered view that no addition can be made towards expenditure incurred for objects of the trust. Denial of credit for TDS - Held that - The assessee claims that the AO did not allowed credit for TDS amounting to ₹ 1,25,032/-. But, on perusal of orders of the ld. AO as well as the Ld. CIT(A), we find that facts with regard to claim of TDS is not emanating from orders of lower authorities. However, if the assessee able to prove the claim with necessary TDS certificates and corresponding income is already considered in books, then the AO is directed to allow credit for TDS. Hence, the matter is set aside to the file of the AO to cause necessary enquiries and allow credit for TDS. Carry forward and set off of loss of earlier years - Held that - AO denied benefit of exemption u/s 11 and computed income under normal commercial principles. Once, benefit of exemption is denied and income is considered under normal commercial principles, then the benefit of carry forward and set off of losses shall be allowed, provided all other conditions of carry forward and set off of losses as provided under section 72 are satisfied. Therefore, we set aside the issue to the file of the AO to cause necessary enquiries and allow the benefit accordingly. Additions towards loans and advances given to two trade unions, i.e. Engineering Mazdoor Sabha(EMS) and Mumbai Mazdoor Sabha(MMS) - Held that - As gathered during assessment and violations of section 13(1)(c) brought out by the AO may be a good reason for rejection of exemption, but loans and advances being current assets cannot be treated as income of the assessee. The ld. CIT(A) after considering relevant facts has rightly deleted additions towards loan and advances. We do not find any error in the order of the ld. CIT(A) and hence, we are inclined to upheld findings of the CIT(A) and reject grounds of revenue for all assessment years. Additions towards purchase car in the name of trustee and repairs and also other expenses - Held that - Once, exemption is denied, income shall be computed under normal accounting principles by considering all income and expenses to determine profit/loss, but at no stretch of imagination expenditure shall be treated as income, unless such expenses is unexplained within the provisions of section 69C or such expenses has not be substantiated with evidences. In this case, there is no finding from the AO on these aspects. Therefore, we are of the considered view that no addition can be made towards expenditure incurred for objects of the trust, purchase of car being capital in nature and treated as such in books and amount paid to Shankar Gadam of M/s Mahalaxmi Enterprises.
Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act, 1961. 2. Taxation of corpus donations. 3. Non-adjudication of specific ground for A.Y. 2005-06. 4. Denial of credit for TDS for A.Y. 2013-14. 5. Rejection of carry forward and set off of loss. 6. Additions towards loans and advances given to two trade unions. 7. Additions towards the purchase of a car in the name of a trustee and other expenses. Detailed Analysis: 1. Denial of Exemption under Section 11: The assessee, a charitable trust, claimed exemption under Section 11 for various assessment years. The Assessing Officer (AO) rejected the exemption by invoking provisions of Section 13(1)(c) and 13(2), citing that trustees siphoned off money for personal benefit and engaged in non-genuine activities. The CIT(A) upheld the AO’s findings. The ITAT confirmed the denial of exemption, noting the trust violated provisions of Section 13(1)(c) r.w.s. 13(3) by benefiting trustees directly or indirectly. The ITAT emphasized that the trust's conduct violated the conditions for exemption under Section 11. 2. Taxation of Corpus Donations: The AO treated corpus donations as part of the trust's income after denying exemption under Section 11. The CIT(A) supported this, stating that corpus donations should be included in gross receipts for income computation. The assessee argued that corpus donations, even if exemption is denied, should not be taxed as income. The ITAT upheld the CIT(A)'s decision, noting the assessee failed to provide evidence that donations were indeed corpus donations. Thus, corpus donations were treated as part of the trust's income. 3. Non-Adjudication of Specific Ground for A.Y. 2005-06: The assessee raised a ground regarding an expenditure of ?15,80,077 made out of corpus donations. The AO did not make any specific additions for this amount but mentioned it in the assessment order. The ITAT found that the AO did not add the expenditure as income and clarified that expenses should not be treated as income unless unexplained or unsubstantiated. Thus, no addition was warranted. 4. Denial of Credit for TDS for A.Y. 2013-14: The assessee claimed the AO did not allow credit for TDS amounting to ?1,25,032. The ITAT directed the AO to verify the claim with necessary TDS certificates and corresponding income in the books. If substantiated, the AO should allow the credit for TDS. 5. Rejection of Carry Forward and Set Off of Loss: The assessee argued that if exemption under Section 11 is denied and income is computed under commercial principles, then losses should be allowed to be carried forward and set off against future income. The ITAT agreed, stating that if income is computed under normal commercial principles, the benefit of carry forward and set off of losses should be allowed, provided all conditions under Section 72 are satisfied. 6. Additions Towards Loans and Advances Given to Two Trade Unions: The AO added loans given to two trade unions to the trust’s income, alleging funds were siphoned off by trustees. The CIT(A) deleted the additions, stating loans treated as current assets cannot be considered income. The ITAT upheld the CIT(A)’s decision, noting that while the loans could justify denial of exemption, they could not be added as income since they were not claimed as expenditure. 7. Additions Towards Purchase of Car in the Name of Trustee and Other Expenses: The AO made additions for expenses incurred for the trust’s objects, purchase of a car in a trustee’s name, and non-genuine repair expenses. The CIT(A) deleted these additions, noting that the car was treated as a fixed asset and expenses for objects of the trust could not be treated as income unless found non-genuine. The ITAT upheld the CIT(A)’s decision, emphasizing that expenses should be considered under normal accounting principles unless unexplained or unsubstantiated. Conclusion: The ITAT dismissed the appeals filed by the Revenue and partly allowed the appeals filed by the assessee for statistical purposes. The judgment emphasized adherence to legal provisions and proper substantiation of claims by the assessee.
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