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2020 (1) TMI 501 - AT - Income TaxExemption u/s 11 - Accumulation of income - Net income determination of assessee trust - AO allowing deduction of 15% on the net income after deduction of administrative expenses - assessee is enjoying registration u/s. 12A - whether 15% accumulation for application in future has to be calculated on gross receipt or net receipt after deduction of revenue expenditure - assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts - HELD THAT - Respectfully following the aforesaid Tribunal s decision in Bhagwan Mahaveer Memorial Jain Educational Cultural Trust 2019 (8) TMI 1194 - ITAT BANGALORE hold that the accumulation u/s. 11(1)(a) of the Act should be allowed as claimed by the assessee. This ground of appeal of assessee is allowed. Disallowance u/s. 69C - Application of income for purchase of blankets as bogus - HELD THAT - We find force in the contention of the assessee that neither the statement of shri S L Dugar was recorded in the presence of the assessee nor opportunity to cross-examine shri Dugar was provided to the assessee by the AO. The AO ought to have given a copy of the statement recorded by him and provided adequate opportunity to the assessee to cross-examine the maker of the statement if it is adverse against him. However, it is noted that Shri S. L. Dugar became a director only on 01.02.2016 of the 2 companies from which assessee purchased blankets and distributed the same, and the assessment under consideration is AY 2013-14. So, the AO when verifing the facts of this AY 2013-14, ought to have summoned the director/manager of this AY 2013-14, who would be in a better position to throw light on the facts which he was enquiring. So, I set aside the impugned order of Ld. CIT(A) and remand this issue back to the file of AO to de novo adjudicate/assess the issue and give proper opportunity to cross-examine the concerned director/manager of three companies, if the AO is relying on their statement. Genuineness of the donation for a charitable activity - HELD THAT - The competent authority in the year 1974 has been pleased to grant the 12A registration. Among the objectives narrated above, it is noted that assessee is engaged for promoting education and for providing marriage expenses for the girls of the needy poor families and also for giving Sadabrat to the poor and giving donation to the poors and for establishing, takeover, grant, maintain, assistance, support, hospitals, charitable dispensaries, maternity homes etc. Here, we note that the assessee had given by way of donation to Lohia Matri Seva Sadan Maternity Charitable Organisation which is established for taking care of the pregnant women/ladies. Taking care of the poor ladies who are in labour and for running maternity ward for the poor women is a charitable activity and for which the assessee has lent its hands by giving donation of ₹ 7 lakhs and the evidence for giving donation has been filed along with supporting documents viz., bank statement etc. So, when the genuineness of the donation for a charitable activity could not be controverted by AO then the amount used as application of the income of the assessee is definitely an allowable expenditure. This ground of appeal of assessee is allowed.
Issues Involved:
1. Calculation of 15% accumulation for application in future under Section 11(1)(a) of the Income Tax Act. 2. Disallowance of ?4,76,250 under Section 69C of the Income Tax Act. 3. Application of provisions of Section 115BBE. 4. Allowance of ?4,76,250 as application of income under Section 11. 5. Coverage of assessee’s activities under Section 2(15) of the Income Tax Act. 6. Claim for application of ?7 lakh paid to Lohia Matri Seva Sadan. Detailed Analysis: Issue 1: Calculation of 15% Accumulation for Application in Future under Section 11(1)(a) The primary issue was whether the 15% accumulation for application in future should be calculated on gross receipts or net receipts after deduction of revenue expenditure. The assessee claimed accumulation based on gross receipts, while the AO and CIT(A) contended it should be on net receipts. The Tribunal referenced the Special Bench decision in Bai Sonabai Hirji Agiary Trust Vs. ITO, which supported the assessee's view that accumulation should be on gross receipts. Consequently, the Tribunal allowed the assessee's appeal on this ground, stating that the accumulation under Section 11(1)(a) should be allowed as claimed by the assessee. Issue 2: Disallowance of ?4,76,250 under Section 69C The AO disallowed ?4,76,250 claimed by the assessee as application of income for purchasing blankets, deeming it bogus. The AO's decision was based on discrepancies in bills and statements from directors of the companies involved, without allowing the assessee to cross-examine the witnesses. The Tribunal found merit in the assessee's contention that natural justice principles were violated, as the assessee was not given an opportunity to cross-examine the witnesses. The Tribunal set aside the CIT(A)'s order and remanded the issue back to the AO for a fresh adjudication, ensuring the assessee is given the opportunity to cross-examine the relevant directors or managers. Issue 3: Application of Provisions of Section 115BBE The assessee argued that the provisions of Section 115BBE were wrongly applied since Sections 68, 69, 69A, 69B, and 69C were not applicable. However, the Tribunal did not provide a separate detailed analysis on this issue, implying it was addressed within the context of the disallowance under Section 69C. Issue 4: Allowance of ?4,76,250 as Application of Income under Section 11 The assessee contended that the disallowed amount should be considered as application of income under Section 11. The Tribunal's decision to remand the issue of disallowance under Section 69C back to the AO for fresh adjudication inherently addressed this issue, as the determination of the legitimacy of the expense would affect its consideration as application of income. Issue 5: Coverage of Assessee’s Activities under Section 2(15) The CIT(A) had suo motto observed that the assessee’s activities were not covered under Section 2(15) without giving the assessee an opportunity to be heard. The Tribunal found this observation to be against the principles of natural justice, noting that the assessee enjoyed Section 12A registration, which had not been withdrawn. The Tribunal directed that this observation be expunged. Issue 6: Claim for Application of ?7 Lakh Paid to Lohia Matri Seva Sadan The assessee claimed the donation of ?7 lakh to Lohia Matri Seva Sadan as application of income. The AO and CIT(A) had disallowed this claim. The Tribunal noted that the assessee, a charitable trust registered under Section 12A, had objectives that included supporting hospitals and maternity homes. The donation to Lohia Matri Seva Sadan, a charitable organization established for taking care of pregnant women, was found to be in line with the assessee’s objectives. The Tribunal allowed this ground, recognizing the donation as an allowable expenditure. Conclusion: The Tribunal allowed the appeals of the assessee, directing the AO to reassess the disallowance under Section 69C with proper opportunity for cross-examination and recognizing the 15% accumulation on gross receipts and the donation to Lohia Matri Seva Sadan as allowable expenditures. The Tribunal also expunged the CIT(A)'s observation regarding the assessee's activities under Section 2(15).
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