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2021 (8) TMI 745 - AT - Income TaxExemption u/s 11 - assessee is registered u/s 12A - grants received by donating the same to other societies engaged in similar objects - payment to other partner NGOs - HELD THAT - We find that the Assessing Officer, in his order, itself has mentioned the fact of having incurred expenses towards payment to other partner NGOs. AO has further noted that these NGOs were also registered u/s 12A of the Act. The only reason for disallowing these expenses was that the assessee had not produced evidence which could prove that those NGOs, to whom assessee had made payments, had filed their respective returns of income. The other reason for disallowing these expenses was that the Assessing Officer, in earlier paragraph, had held that the assessee had not spent any expenditure on the objects stated in the Memorandum of Association. How the assessee got funds through grant received from reputed national and international organizations and how the assessee had spent on the objects through other various organizations engaged in similar activities. We further find that in assessment year 2013-14, similar denial of exemption u/s 11 of the Act was made and the Tribunal vide order 2018 (11) TMI 1864 - ITAT LUCKNOW had confirmed the findings of learned CIT(A). We find that learned CIT(A) while deciding the above ground has considered various judicial pronouncements and has exhaustively dealt with the issue which needs no interference from our side - Decided against revenue.
Issues Involved:
1. Whether the benefit of section 11 should be allowed, thereby deleting the addition of surplus of ?83,78,034/-. 2. Whether the addition made on account of excess salary paid of ?50,000/- should be deleted. 3. Whether the addition of ?97,98,616/- related to the claim of application of income/deduction of expenses incurred by partner NGOs should be deleted. Issue-wise Detailed Analysis: 1. Benefit of Section 11 and Deletion of Surplus Addition: The Revenue contested the CIT(A)'s decision to allow the benefit of section 11, which resulted in the deletion of the addition of ?83,78,034/-. The Assessing Officer (AO) had disallowed the benefit under section 11 on the grounds that the activities of the society were not in accordance with its aims and objects. However, the CIT(A) found that the society was registered under section 12A and had utilized the grants received by donating them to other societies engaged in similar objects. The CIT(A) noted that the AO had not produced evidence proving that the recipient NGOs had not filed their returns. The CIT(A) held that the projects funded by reputed national and international organizations were in line with the society's objectives and that the AO's sweeping remarks lacked cogent reasoning. The Tribunal upheld the CIT(A)'s decision, citing that the AO cannot decide the necessity of activities for fulfilling the society's aims and objects. The Tribunal referenced previous decisions, including the Hon'ble Jurisdictional High Court's ruling in J.K Charitable Trust, which supported the application of income for charitable purposes through donations to other registered entities. 2. Deletion of Addition for Excess Salary Paid: The AO had disallowed ?50,000/- from the salaries paid to certain members of the society, deeming them excessive. The CIT(A) deleted this addition, referencing an earlier order for assessment year 2013-14, which found that the AO's disallowance was based on general comments without any specific basis or comparative analysis. The CIT(A) noted that the salaries were fixed as per service terms and conditions, and the AO had not demonstrated that the salaries were excessive compared to market value. The Tribunal agreed with the CIT(A), emphasizing that the AO had not provided any findings to justify the disallowance and that a general comment was insufficient for such a decision. 3. Deletion of Addition Related to Application of Income by Partner NGOs: The AO had disallowed ?97,98,616/- claimed as application of income, arguing that the amounts paid to partner NGOs were not allowable since those NGOs were also registered under section 12A. The CIT(A) deleted the addition, citing established legal principles that donations to other entities carrying out similar objects and registered under section 12A are considered proper application of income for charitable purposes. The Tribunal upheld this view, referencing multiple judicial pronouncements, including the Hon'ble Jurisdictional High Court's decision in J.K Charitable Trust and CBDT Instruction No. 1132, which supported the application of income through donations to other registered charitable entities. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The benefit of section 11 was rightly allowed, the addition for excess salary was correctly deleted, and the application of income through partner NGOs was valid. The Tribunal's decision was based on thorough analysis and supported by relevant judicial precedents, affirming the CIT(A)'s findings and reasoning.
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