2022 (9) TMI 872 - AT - Income Tax

Exemption u/s 11 - advance paid for purchase of land be investment referred to u/s.11(5) - assessee is a public charitable trust registered u/s.12AA - assessee has made investments in the mode other than mode as specified u/s.11(5) of the Act, and further, there is violation provisions of section 13(1)(d) - HELD THAT - Assessee could not file any evidence - unless the assessee proves its claim with evidence, arguments of the counsel for the assessee cannot be accepted. Therefore, we set aside the issue to file of the AO with a direction to re-examine claim of the assessee that loans advances shown in the balance sheet is for purchase of land. In case, the assessee files necessary evidence to prove its claim, then the AO is directed to allow benefit of exemption claimed u/s.11 for both the assessment years. In case, the assessee is unable to prove its case with necessary evidence, then the AO is right in denying benefit of exemption u/s.11 for both the assessment years. However, fact of the matter is that even if, there is violation referred to u/s. 13(1)(c) / 13(1)(d) of the Act, then tax can be levied only on the income which is in violation of provisions of section 13(1)(d) of the Act, as held by the Hon ble High Court of Madras in the case of DIT Vs. Working Women s Forum 2015 (9) TMI 1447 - SC ORDER - In case, there is violation as referred to u/s.13(1)(d) of the Act, then the Assessing Officer is directed to tax income which is in violation of provisions of section 13(1)(d) of the Income Tax Act, 1961 for both the assessment years. Additions made on notional interest on loans advances - AO has imputed notional interest @ 12% on loans advances for both the assessment years - HELD THAT - First of all, concept of notional interest on loans advances does not arise, because it is not case of the assessee that loans advances were given by the assessee to third party. Even if it is a loan, then also question of imputing notional interest does not arise, because there is no contractual obligation between the assessee and third party. AO has completely erred in imputing notional interest on loans advances. As the argument of the assessee that said loans advances paid for purchase of land. In case, the assessee succeeds in its argument on this ground also, question of imputing notional interest does not arise. Both counts, additions made by the AO towards notional interest on loans advances cannot survive - we direct the AO to delete additions made towards notional interest on loans advances for both the assessment years. Appeals filed by the assessee for both the assessment years are allowed for statistical purposes.

Summary

Issues:
Appeal against rejection of exemption u/s.11 of the Income Tax Act, 1961 and addition of notional interest on loans & advances.

Analysis:
1. The appeals were filed against the order passed by the Commissioner of Income Tax (Appeals) regarding assessment years 2016-17 & 2017-18, where the assessee's exemption u/s.11 was rejected, and notional interest on loans & advances was added.

2. The Assessing Officer treated the loans & advances as a violation of section 13(1)(d) of the Act, rejected the exemption u/s.11, and added notional interest. The assessee contended that the advance for land was not an investment u/s.11(5) and challenged the addition of notional interest.

3. The learned CIT(A) upheld the Assessing Officer's decision, stating that the loans & advances violated section 13(1)(d) and imputed interest was justified. The assessee argued that the advance for land did not violate the Act and relied on a High Court decision.

4. The ITAT found that the advance for land was not an investment under u/s.11(5) and directed the Assessing Officer to re-examine the claim with evidence. It clarified that even if there was a violation of section 13(1)(d), tax could only be levied on the income in violation.

5. Regarding the notional interest, the ITAT ruled that the concept did not apply as there was no contractual obligation for interest on loans & advances. It directed the Assessing Officer to delete the additions of notional interest for both assessment years.

6. Consequently, the appeals were allowed for statistical purposes, and the orders were pronounced on 14th September 2022.