2021 (8) TMI 291 - AT - Income Tax

Exemption u/s 11 - registration u/s 12A denied - accounts of the assessee were defective as the assessee failed to incorporate receipts from Government grant account - expenditure against specified grants - HELD THAT - CIT held that no amount of grant has been received by the Assessee and grant is still to be received as are certain enquiries pending against the Assessee the sanction of the grant has lot of conditions. This also evident from the letter shown by the ld AR. There is no certainty of the grant to be received by the Assessee in view of the pending enquiries against the Assessee which is also takes report of Controller and Auditor General of India. He also noted that legal income raised by the central account office and the branches of the Assessee has been correctly accounted for by the Assessee. He further held that the Assessee has incurred expenditure and therefore, in absence of any grant received by the Assessee during the year the grant income could not have been accounted for as it neither accrued nor received. This fact is shown by the letter of the Govt. of India as well as the utilization certificate issues by the Chartered Accountant - we do not find any infirmity in the order of the LD CIT (A) in holding that the disallowance made in the hands of the Assessee of the expenditure is not sustainable. - Decided against revenue.

Summary

Issues:
Appeal against addition made by AO under section 143(3) for Assessment Year 2009-10 - Disallowance of grant income and expenditure - Violation of conditions of registration under section 12A of the Act.

Analysis:
The appeal was filed by the ITO(Exemption) against the order of the ld CIT(A) for Assessment Year 2009-10, challenging the deletion of an addition of ?11,13,54,150 made by the AO under section 143(3) of the Act. The grounds of appeal raised by the AO included the failure to incorporate receipts from the "Government grant account," the incorrect reflection of expenditure against specified grants, and the discrepancy in accounts maintained by branches and the Head Office.

The Assessee, a charitable trust registered under section 12A of the Act, received grants from various government departments. The AO found that the Assessee did not reflect the grants received in its income and expenditure account. The Assessee contended that the grants were distributed to its branches and not treated as income. However, the AO disallowed a sum of ?11,13,54,150, alleging violation of registration conditions under section 12A.

The ld CIT(A) deleted the addition after considering the facts presented. The Assessee had not received the grants due to pending inquiries and stringent conditions. The ld CIT(A) noted that the Assessee had correctly accounted for legal income and incurred only a minimal expenditure. The Assessee's claim that no grant was received during the year was supported by documentation, including a utilization certificate issued by a Chartered Accountant.

After reviewing the contentions, the Tribunal upheld the ld CIT(A)'s decision, emphasizing that the Assessee had not received the grants, and the pending inquiries cast uncertainty on their receipt. The Tribunal found no fault in the ld CIT(A)'s conclusion that the disallowance of expenditure was unjustified. Consequently, the appeal of the revenue was dismissed, affirming the deletion of the addition by the ld CIT(A).

In conclusion, the Tribunal's decision highlighted the importance of accurately reflecting income and expenditure, considering the specific circumstances of pending inquiries and stringent grant conditions. The judgment underscored the necessity for compliance with registration conditions under section 12A and the significance of supporting documentation to substantiate claims and expenditures.