2022 (10) TMI 120 - AT - Income Tax

Exemption u/s. 11 12 - appellant was granted registration U/s. 12AB - benefit of Fourth proviso to section 12A - Whether income of the appellant is eligible for exemption u/s. 11 12 of the Income Tax Act, 1961 since the appellant was granted registration U/s. 12AB of the Act vide order dated 21/3/2022 and as per the provisions of section 12A of the Act the benefit shall extend to all pending assessment proceedings? - HELD THAT - In the instant case, the assessment / reassessment has been completed much earlier to the date of registration u/s.12AB of the Act which is dated 21/3/2022 and therefore the benefit of Fourth proviso to section 12A of the Act was not available to the pending appeal proceedings before the Tribunal. Therefore, the Additional Ground raised by the assessee is dismissed. Validity of initiation of proceedings U/s. 147 - HELD THAT - In the instant case, the Ld. AR could not provide the notice U/s. 142(1) issued by the Ld. AO while framing the assessment U/s. 143(3) of the Act. It is also noted from the submissions made by the Ld. AR that the assessee has filed a petition under Right to Information Act (RTI Act)requesting for the details, notices issued U/s. 143(2) and 142(1) of the Act by the AO to the assessee. The application was rejected by the ACIT, Circle-3(1), Vijayawada stating that the information sought by the assessee was already available with the assessee and there is no necessity of furnishing the same to the assessee under the RTI Act. In the absence of any material evidence with regard to the enquiry by the Ld. AO and the submissions or required information by the assessee with respect to Sinking Fund account, we are of the considered view that the reopening of the assessment U/s. 147 is valid in law and accordingly, ground raised by the assessee is dismissed. Debiting of 85% of the development charges received by the assessee to the Sinking Fund account - It is normal accounting practice under the Accrual System of Accounting any future expenditure needs to be provided in the books of accounts in the relevant assessment year. It is not necessary that deduction shall be permissible only in case of amounts actually expended or paid. Further, it is also noticed that the assessee is supposed to expend 85% of the amount to developmental activities as approved by the Government of Andhra Pradesh in accordance with the Master Plan revised. It can be concluded that the assessee as formed under the Andhra Pradesh Urban Areas (Development) Act is bound by the directions of the Government in the collection and execution of development charges. It is also found that the assessee after getting necessary approvals and permissions from the Government of Andhra Pradesh has to expend 85% of the Development Charges collected by them to implement the provisions of the Master Plan. In view of the above discussions, we are of the considered view that the assessee being a non-profit oriented organization established for the purpose of implementing the provisions of the Master Plan is not carrying on any business activity and is only an organ of Government of Andhra Pradesh. Since the assessee could not expend 85% of the development charges during the relevant assessment year it does not warrant disallowance of the same as the expenditure shall be incurred in future years for the purpose of general public utilities. Accordingly, we allow the ground raised by the assessee and hereby set aside the order of the Ld. Revenue Authorities.

Summary

Issues Involved:
1. Eligibility for exemption under Section 11 & 12 of the Income Tax Act, 1961.
2. Validity of initiation of proceedings under Section 147 of the Income Tax Act.
3. Treatment of 85% of the Development Charges/Fee as income.
4. Levy of interest under Sections 234A, 234B, and 234D of the Income Tax Act.

Detailed Analysis:

1. Eligibility for Exemption under Section 11 & 12 of the Income Tax Act, 1961:
The assessee filed a petition for the admission of an additional ground, questioning whether its income is eligible for exemption under Sections 11 & 12 due to the grant of registration under Section 12AB. The Tribunal noted that the Fourth Proviso to Section 12A, which allows the benefit of Sections 11 and 12 to apply retrospectively if assessment proceedings are pending, was not applicable. This is because the assessments were completed in 2017, while the registration was granted in 2022. Thus, no assessment proceedings were pending as required by the proviso. Consequently, the additional ground raised by the assessee was dismissed.

2. Validity of Initiation of Proceedings under Section 147 of the Income Tax Act:
The assessee contended that the initiation of proceedings under Section 147 was invalid since all material facts were available during the original assessment under Section 143(3). However, the Tribunal observed that there was no mention of the verification of the Sinking Fund account in the original assessment. The assessee could not provide evidence of inquiries made by the Assessing Officer (AO) regarding this account. Thus, the Tribunal upheld the validity of the reopening of the assessment under Section 147.

3. Treatment of 85% of the Development Charges/Fee as Income:
The core issue was whether 85% of the Development Charges collected by the assessee should be treated as income. The assessee argued that as per G.O.Ms. No. 530, it is mandated to spend 85% of its income on implementing the Master Plan, and thus, this amount should be debited to the Sinking Fund account for future expenditure. The Tribunal agreed with the assessee, noting that the organization is a non-profit entity established for urban development and bound by government directions. The Tribunal concluded that the unspent 85% should not be disallowed as it would be incurred in future years for public utilities. Therefore, the Tribunal set aside the orders of the Revenue Authorities and allowed the grounds raised by the assessee.

4. Levy of Interest under Sections 234A, 234B, and 234D:
The Tribunal noted that the levy of interest under Sections 234A, 234B, and 234D is consequential. Since the main grounds raised by the assessee were allowed, no separate adjudication on the levy of interest was necessary.

Conclusion:
The appeals for the assessment years 2009-10, 2010-11, and 2011-12 were partly allowed, while the appeals for the assessment years 2012-13 and 2013-14 were fully allowed. The Tribunal pronounced the judgment in the open court on 30th September 2022.