2020 (12) TMI 12 - AT - Income Tax

Eligibility for exemption u/sec. 11 - Denial of exemption as activities of the local authorities as commercial in nature because the assessee is engaged in the activities of sale of plots, constructed houses, collection of various fees etc. - as per revenue assessee is carrying out sale of sites and houses and earning profits on such real estate activities - HELD THAT - On appeal this tribunal has considered the above issues in detail in its order dated 20/03/2020 and held that the assessee is carrying on the activities in accordance with the objects and purpose for which it was established and there is no commercial activities. Accordingly, restored the registration and directed the AO to grant exemption u/sec. 11 to the assessee. Orders passed for the A.Ys. 2005-06 to 2007-08 2010-11 are covered by the order of this tribuna 2020 (3) TMI 1018 - ITAT VISAKHAPATNAM hence, we set aside the orders of the lower authorities and direct the AO to allow the exemption u/sec. 11 and compute the income as per secs. 11 to 13 of the Act. Accordingly, appeals of the assessee are allowed.

Summary

Issues Involved:
1. Reopening of assessment under Section 148.
2. Denial of exemption under Section 11.
3. Validity of cancellation of registration under Section 12AA.
4. Revision of assessment under Section 263.
5. Set-off and carry forward of losses.

Issue-wise Detailed Analysis:

1. Reopening of assessment under Section 148:
The assessee's returns for A.Ys. 2005-06 and 2006-07 were reopened by the AO, who issued notices under Section 148, claiming that the assessee's activities were commercial in nature, thus disqualifying them from exemption under Section 11. The AO cited income from entry fees, rents, and sale of plots and houses as commercial activities. The assessee argued that the reopening was based on previously examined information and lacked fresh evidence, thus the notice under Section 148 should be quashed. The Tribunal did not find it necessary to adjudicate this technical issue, as the appeals were allowed on merits.

2. Denial of exemption under Section 11:
The AO denied the exemption under Section 11, treating the assessee's activities as commercial. The CIT(A) upheld this view. The Tribunal, however, referenced its previous order (ITA No. 295/VIZ/2012) which restored the assessee's registration under Section 12AA, concluding that the activities were in line with the assessee's charitable objectives and not commercial. Consequently, the Tribunal directed the AO to allow the exemption under Section 11 and compute the income according to Sections 11 to 13 of the Act.

3. Validity of cancellation of registration under Section 12AA:
The AO and CIT(A) relied on the cancellation of the assessee's registration under Section 12AA by the CCIT (OSD). The Tribunal, in a prior order dated 20/03/2020, had restored the registration, determining that the assessee's activities were charitable. This decision was pivotal in allowing the appeals for the relevant assessment years, as it invalidated the basis for treating the assessee's income as taxable business income.

4. Revision of assessment under Section 263:
For A.Y. 2007-08, the CIT(E) revised the assessment under Section 263, finding that the AO had erroneously applied provisions related to the set-off and carry forward of losses. The Tribunal upheld the CIT(E)'s revision but directed the AO to redo the assessment while examining the claim of the assessee. However, the AO denied exemption under Section 11, which the Tribunal found to be beyond the AO's jurisdiction. For A.Ys. 2005-06, 2006-07, and 2010-11, the CIT(E) revised assessments due to the cancellation of registration under Section 12AA. The Tribunal set aside these revisions, directing the AO to compute the income as per Sections 11 to 13, following the restoration of the registration.

5. Set-off and carry forward of losses:
For A.Y. 2007-08, the CIT(E) found the AO's application of set-off and carry forward of losses incorrect for trusts. The Tribunal noted that the AO, while redoing the assessment, should examine this aspect. However, since the appeals were allowed on merits, this technical issue was not adjudicated separately.

Conclusion:
The Tribunal allowed the appeals for A.Ys. 2005-06, 2006-07, 2007-08, and 2010-11, directing the AO to grant exemption under Section 11 and compute the income according to Sections 11 to 13. The revisions under Section 263 were set aside, and the AO was instructed to follow the Tribunal's previous order restoring the assessee's registration under Section 12AA. The technical issues regarding reopening under Section 148 and set-off of losses were deemed unnecessary to adjudicate separately.