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2019 (1) TMI 266 - AT - Income TaxCharitable activity - grating exemption u/s 10(23C)(vi) - exemption u/s 11 - CCIT observed that, assessee cannot be said to be existed only for educational purposes and accordingly rejected the contention of the assessee for grating exemption u/s 10(23C)(vi) - Held that - ITAT Delhi Bench in the case of Puranchand Dharmath Trust Vs. ITO, Wd-1, Gurgaon 2018 (5) TMI 630 - ITAT DELHI held that where the assessee Trust advanced money as a loan to another Trust for which the assessee had not received any interest and the said sum was returned by the Trust, the amount advanced not being investment could not be held to be in violation of section 13(1)(d), 11(5) of the Act. Therefore, respectfully following the view taken by this Tribunal in the assessee s own case, and as per our findings, we hold that there are no violations and the revenue did not make out any case to substantiate the violations in respect of 13(1)(c), 13(2)(a), 13(2)(g) and 13(2)(h) of the Act. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The cars are used for the purpose of the assessee s regular activity and the department did not place any material to establish that the cars were used for the personal benefit of directors/ authors/ promoters of the society. During the appeal hearing the revenue did not place any material to controvert the finding of the LD.CIT(A). Therefore we uphold the order of the ld.CIT(A) and dismiss the appeal of the revenue on this ground. Expenses related to the liquor and tobacco products and other entertainment expenses - Held that - AO during the assessment proceedings observed that the assessee has incurred certain expenditure on cigarettes, in the name of Godavari Institute of Engineering which is run by the Society. Since the expenditure was not incurred for furtherance of the objects of the Society, the AO disallowed the said expenditure holding that it is gross violation of the objects of the Society. The Ld.CIT(A) examined the account of boarding and lodging and observed that a sum of ₹ 24,035/- relating to the expenses incurred for liquor and cigarettes was recovered and credited to the account. Ultimately, no expenditure was claimed relating to liquor and cigarettes etc. Therefore, allowed the appeal of the assessee and held that there are no violations for granting of exemption u/s 11 of the Act. During the appeal hearing, the revenue could not controvert the finding of the Ld. CIT(A) with tangible material. Therefore, we uphold the order of the CIT(A) and dismiss the appeal of the revenue on this ground. Reopening of assessment - Held that - As per the proviso to section 147 of the Act, no notice u/s 148 could be issued unless, there is failure on the part of the assessee that income chargeable to tax had escaped assessment. In this case, the assessee filed the return of income claiming exemption u/s 10(23C) of the Act and there was no claim made by the assessee u/s 11. Only on cancellation of the approval granted u/s 10(23C) and on receipt of observations from the CCIT regarding violations and diversion of funds, it has come to the knowledge of the AO that the assessee has violated the provisions of section 13(1)(c), 13(2)(a), 13(2)(g) and 13(2)(h) of the Act thus there is no occasion to the AO to examine the violations u/s 13. The assessee did not furnish information with regard to it s claim u/s 11, in the original assessment. In view of the findings of the CCIT with regard to the violations u/s 13(1)( c) and section 11(5) the AO reopened the assessment. There was no claim u/s 11 and no information was furnished with regard to satisfaction of the conditions for granting exemption of income under section 11 of the Act by the assessee. Thus there was a failure on the part of the assessee and the AO has rightly reopened the assessment u/s 148 of the Act.
Issues Involved:
1. Validity of reassessment proceedings under section 147. 2. Eligibility for exemption under section 11 of the Income Tax Act. 3. Alleged violations of section 13(1)(c), 13(2)(a), 13(2)(g), 13(2)(h), and section 11(5) of the Act. 4. Usage of luxury cars and its impact on exemption eligibility. 5. Expenditure on liquor and tobacco products and its impact on exemption eligibility. Detailed Analysis: 1. Validity of Reassessment Proceedings Under Section 147: The assessee challenged the validity of the notice issued under section 147, arguing that no notice could be issued beyond four years from the relevant assessment year unless there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal upheld the validity of the notice, stating that the assessee had not furnished information regarding its claim under section 11 during the original assessment. The AO reopened the assessment based on the Ld. CCIT's observations regarding violations and diversion of funds, which indicated a failure on the part of the assessee to disclose necessary information. 2. Eligibility for Exemption Under Section 11 of the Income Tax Act: The Tribunal examined whether the assessee was eligible for exemption under section 11 despite the denial of exemption under section 10(23C). The CIT(A) held that sections 10(23C) and 11 operate independently, and if the assessee is granted registration under section 12A, it is entitled to exemption under section 11, subject to fulfilling the conditions under sections 12A and 11. The Tribunal upheld this view, noting that the assessee had satisfied the conditions for exemption under section 11. 3. Alleged Violations of Section 13(1)(c), 13(2)(a), 13(2)(g), 13(2)(h), and Section 11(5) of the Act: The AO contended that the assessee had violated these sections by advancing loans to interested parties without security and charging interest, thereby diverting funds for personal benefit. The CIT(A) examined each advance independently and found no violations, noting that the advances were made to institutions with similar objects and for specific purposes related to the assessee's activities. The Tribunal upheld the CIT(A)'s findings, stating that the revenue did not provide evidence of any violations or personal gains. 4. Usage of Luxury Cars and Its Impact on Exemption Eligibility: The AO argued that owning luxury cars like BMW and Volkswagen without maintaining log sheets disentitled the assessee from exemption under section 11. The CIT(A) found no evidence that the cars were used for personal gains and held that there is no restriction on using luxury cars for achieving the society's objects. The Tribunal agreed, noting that the cars were used for the society's regular activities and the revenue did not provide evidence to the contrary. 5. Expenditure on Liquor and Tobacco Products and Its Impact on Exemption Eligibility: The AO disallowed expenditure on liquor and tobacco products, stating it was not incurred for the society's objects. The CIT(A) observed that these expenses were recovered and credited back, and no expenditure relating to liquor and cigarettes was claimed in the books. The Tribunal upheld this finding, noting that the revenue did not provide evidence to refute the CIT(A)'s conclusion. Conclusion: The Tribunal dismissed the revenue's appeals and upheld the CIT(A)'s order, granting the assessee exemption under section 11 and finding no violations of sections 13(1)(c), 13(2)(a), 13(2)(g), 13(2)(h), and 11(5). The Tribunal also upheld the validity of the reassessment proceedings under section 147.
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