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2020 (6) TMI 531 - AT - Income TaxExemption u/s 11 - addition made towards refund of excess made to M/s. SIC - as per AO Assessee ought not to have refunded to M/s. SICL and he was of the opinion that the refund is hit by the provisions of section 13(1)(c) 13(2)(g) r.w.s. 13(3) - HELD THAT - As decided in own case 2016 (7) TMI 1578 - ITAT VISAKHAPATNAM excess amount refunded to M/s. South India Corporation Ltd. does not amount to diversion of funds as defined u/s 13(2)(g) of the Act. The assessee has refunded excess amount collected from the party by way of anonymous decision of the Board of Directors of the Trust further supported by proof of payment. Therefore, we are of the view that the A.O. was not correct in holding that the assessee has violated the provisions of section 13(1)(c) 13(2)(g) r.w.s 13(3) of the Act. Hence, we direct the A.O. to allow the exemption as claimed by the assessee and delete the additions made towards refund of excess amount. Payment of income-tax as an allowable deduction while computing income of trust - HELD THAT - Income-tax payment made by the assessee is an application of income, hence, addition cannot be made - See assessee's own case 2016 (7) TMI 1577 - ITAT VISAKHAPATNAM relying on TRUSTEE OF H. EH THE NIZAM S SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST 1978 (2) TMI 7 - ANDHRA PRADESH HIGH COURT Disallowance of various expenses in absence of registration u/sec. 12A - HELD THAT - We find that when the Assessing Officer passed the assessment order the assessee was not having 12A registration. Subsequently, on 2015 (5) TMI 1210 - ITAT VISAKHAPATNAM has restored 12A registration to the assessee. Therefore, the ld. CIT(A) by considering the same is of the opinion that these are the expenditure incurred by the assessee are in the nature of application of income, hence, allowed. We find no infirmity in the order passed by the ld.CIT(A). Rejection of books of account and estimation of income - AO estimated the income at 12% - CIT(A) deleted the addition on the ground that assessee is following consistently cash system of accounting - HELD THAT - As decided in own case 2016 (7) TMI 1578 - ITAT VISAKHAPATNAM we are of the view that the assessee is following Cash System of accounting for determination of income for the purpose of application of income for charitable purpose. Therefore, we direct the A.O. to compute the income as per the method of accounting followed by the assessee.
Issues Involved:
1. Condonation of delay in filing appeals. 2. Deletion of addition under Section 13(1)(c). 3. Applicability of provisions of Section 164(2) and Circular 387. 4. Deletion of additions towards advancing loans and other expenditures. 5. Rejection of books of account and estimation of income. 6. Deletion of addition due to lack of 12A registration. 7. Verification of actual payments made by the assessee. Issue-wise Detailed Analysis: 1. Condonation of Delay in Filing Appeals: The Revenue filed affidavits for condonation of a 10-day delay in ITA Nos. 312 & 314/VIZ/2018. The Tribunal found sufficient cause to condone the delay and accordingly, the delay was condoned. 2. Deletion of Addition under Section 13(1)(c): The assessee, a trust, had refunded an amount to M/s. SICL, which the Assessing Officer (AO) considered as hit by the provisions of Section 13(1)(c) & 13(2)(g) r.w.s. 13(3) of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition by following the decision of the ITAT in the assessee’s own case. The Tribunal upheld this deletion, noting that the refund was made in the normal course of business and did not amount to diversion of funds as defined under Section 13(2)(g). 3. Applicability of Provisions of Section 164(2) and Circular 387: The AO disallowed income-tax payments made by the assessee, considering them not allowable deductions. The CIT(A) allowed these payments as an application of income by following the decision of the Hon'ble Andhra Pradesh High Court in CIT Vs. Trustees of H.E.H. the Nizams Supplemental Religious. The Tribunal upheld this view, noting that income-tax payable is an outgo from the income of the trust and thus allowable as a deduction. 4. Deletion of Additions towards Advancing Loans and Other Expenditures: The AO disallowed various expenditures, including building security deposits, canteen equipment, computer systems, loans to staff, and vehicle loans, due to the absence of 12A registration. The CIT(A) allowed these expenditures, noting that the ITAT had restored the 12A registration to the assessee. The Tribunal found no infirmity in the CIT(A)'s decision and upheld the deletion of these additions. 5. Rejection of Books of Account and Estimation of Income: The AO rejected the books of account and method of accounting followed by the assessee, estimating the income at 12%. The CIT(A) deleted the addition, noting that the assessee consistently followed the cash system of accounting, which was accepted by the AO in other years. The Tribunal upheld this decision, referencing its earlier ruling in the assessee’s own case that supported the cash system of accounting. 6. Deletion of Addition Due to Lack of 12A Registration: The AO disallowed various expenditures on the ground that the assessee was not having 12A registration. The CIT(A) allowed the appeal, following the ITAT’s order that restored 12A registration to the assessee. The Tribunal noted that the CIT(A) had allowed the appeal based on submissions without verifying actual payments. The Tribunal remitted the issue back to the AO for verification of actual payments and computation of income as per sections 11 to 13, considering the restored 12A registration. 7. Verification of Actual Payments Made by the Assessee: The Tribunal found that the CIT(A) had allowed various expenditures without verifying whether the payments were actually made. It remitted the issue back to the AO to examine the evidence of payments and compute the income of the assessee as per sections 11 to 13, given the restored 12A registration. Conclusion: The appeals filed by the Revenue in ITA Nos. 312 and 313/VIZ/2018 were dismissed, while ITA No. 314/VIZ/2018 was allowed for statistical purposes, with directions to the AO for further verification and computation of income as per the provisions of the Income Tax Act.
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