2019 (11) TMI 507 - AT - Income Tax

Exemption u/s 11 - discrepancy in respect of unexplained loan - assessee society is registered under section 12AA - HELD THAT - The Ld. CIT(A) held that it is not the case of the AO that certain unsecured loans were bogus or unproved as seen from the explanation given by the appellant in assessment proceedings and also no separate addition has been made u/s 68 in respect of these loans. The exemption u/s 11 can be denied only when the assessee s case falls in any of the limb of section 13. In the present case, assessee has not defaulted any of the limb of section 13 - denial of exemption by the AO is not justified. - Order of CIT(A) sustained. Addition on account of non deduction of TDS by holding that assessee trust was allowed the benefit of section 11 12 - HELD THAT - provisions of section 40(a)(ia) are not applicable on trust. Explanation 3 to section 11 inserted by FA, 2018 which provides that provisions of section 40(a)(ia) is applicable in case of charitable or religious trust or institution is applicable from 01.04.2019. - Since assessee is eligible for exemption u/s 11, no addition can be made u/s 40(a)(ia) Addition u/s 68 - HELD THAT - We find that the assessee has duly explained the transaction with Anil Nuhal and Krishna Developers which has been rightly appreciated by the ld CIT(A) and no infirmity therein has been observed by the ld CIT(A). We accordingly confirm the findings of the ld CIT(A) and the ground of the Revenue is dismissed. Addition on account of expenses claimed for investment in acquisition of fixed assets by holding that assessee trust was allowed benefit of section 11 12 - AO has denied the claim of application of income by way of capital expenditure towards acquisition of fixed assets for the reason that the assessee society was held not eligible for exemption under section 11 and 12 of the Act. However, while disposing off the aforesaid grounds of appeal, we have already held that the assessee society is eligible for exemption under section 11 and 12. Hence, the said ground of appeal becomes academic and is hereby dismissed as infructous. Accumulation or set apart to the extent of 15% by holding that assessee trust was allowed the benefit of section 11 12 - AO did not allow the accumulation or set apart to the extent of 15% of total receipts to the assessee as the assessee s claim of exemption u/s 11 is rejected - HELD THAT - . Given that besides the fees receipts and other income, the assessee has shown unsecured loans of ₹ 8,85,32,180, prima facie the excess of expenditure has been met out of unsecured loans and not out of total fee and other income receipts during the year. Therefore, it needs to be examined in detail to what extent the unsecured loans have been utilised for meeting the expenditure and to what extent, fee receipts and other income have been utilised for meeting the expenditure and then determine the amount of accumulation out of total fee and other income receipts accordingly. In the result, the matter is set-aside to the file of the Assessing officer for the limited purposes of determination the accumulation of receipts, if any and take action as per law. Appeal of the Revenue is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Exemption under Section 11 of the IT Act, 1961.
2. Addition of ?25,625/- on account of non-deduction of TDS.
3. Addition of ?5,00,000/- under Section 68 of the IT Act.
4. Addition of ?2,28,24,920/- on account of expenses claimed for investment in acquisition of fixed assets.
5. Allowing accumulation or set-apart to the extent of 15%.

Detailed Analysis:

1. Exemption under Section 11 of the IT Act, 1961:
The Revenue contended that the CIT(A) erred in allowing exemption under Section 11 without considering discrepancies in unsecured loans. The AO observed unsecured loans totaling ?8,85,32,180/- and noted discrepancies in nine cases, including a difference of ?5,00,000/- with Anil Kumar Nuhal. The AO denied exemption under Section 11 & 12, treating the assessee as an AOP and taxing the surplus at the maximum marginal rate. The CIT(A) held that the discrepancies did not justify denial of exemption under Section 11, as the assessee did not default under any limb of Section 13. The Tribunal confirmed the CIT(A)'s findings, noting no evidence of bogus loans or non-fulfillment of conditions specified in Sections 11, 12, 12A, and 13. The Tribunal upheld the CIT(A)’s direction to compute income after allowing exemption under Section 11/12.

2. Addition of ?25,625/- on Account of Non-Deduction of TDS:
The AO disallowed ?25,625/- under Section 40(a)(ia) due to non-deduction of TDS on interest credited to Sita Devi Kabra, rejecting the assessee’s claim of exemption under Section 11. The CIT(A) deleted this disallowance, referencing ITAT Jaipur Bench's decision in a similar case. The Tribunal noted that since the assessee was eligible for exemption under Section 11 and 12, the ground became academic and was dismissed as infructuous.

3. Addition of ?5,00,000/- under Section 68 of the IT Act:
The AO observed a discrepancy in the loan amount from Anil Kumar Nuhal, who confirmed a loan of ?10,00,000/- while the assessee showed ?15,00,000/-. The AO treated the difference as unexplained cash credit under Section 68. The CIT(A) found that ?5,00,000/- was a loan from Krishna Developers, supported by confirmation and bank account details, and deleted the addition. The Tribunal upheld the CIT(A)'s findings, confirming that the transaction was duly explained and no infirmity was observed.

4. Addition of ?2,28,24,920/- on Account of Expenses Claimed for Investment in Acquisition of Fixed Assets:
The AO disallowed the claim for capital expenditure on fixed assets, rejecting the exemption under Section 11. The CIT(A) directed the AO to compute income as per Sections 11 and 12, allowing the claim. The Tribunal noted that since the assessee was eligible for exemption under Sections 11 and 12, the ground became academic and was dismissed as infructuous.

5. Allowing Accumulation or Set-Apart to the Extent of 15%:
The AO did not allow accumulation or set-apart of 15% of total receipts due to rejection of exemption under Section 11. The CIT(A) directed the AO to compute income as per Section 11. The Tribunal acknowledged the assessee’s eligibility for accumulation within the prescribed threshold. However, it required examination of the extent to which unsecured loans were utilized for expenditure versus fee receipts and other income. The matter was set aside to the AO for detailed determination of accumulation and appropriate action as per law, allowing the ground for statistical purposes.

Conclusion:
The Tribunal upheld the CIT(A)’s decision on most grounds, confirming the eligibility for exemption under Sections 11 and 12 and addressing the discrepancies noted by the AO. The matter of accumulation was remanded for further examination by the AO. The Revenue’s appeal was partly allowed for statistical purposes.