2022 (12) TMI 1089 - AT - Income Tax

Exemption u/s 11 - assessee could not produce its books of account during the assessment proceedings without appreciating that the books of account could not be produced before the Ld. AO as the same were impounded by the DGIT(Exemption) under section 131(3) - AO traversed beyond the direction of the Tribunal to verify whether expenses incurred by the assessee were utilized for the purpose of the Trust, and all other conditions relating to allowability of deduction under section 11 were satisfied or not which has been upheld by the Ld. CIT(A) - On examination of the books of account and comments/opinion of FSL, the Ld. AO came to the conclusion that books have not been written on day to day basis but in a few sittings - HELD THAT - The above allegation alone is not sufficient to make ad hoc disallowances of 50% of expenses in the absence of any adverse finding even after examining the books duly supported by the bills and vouchers. Not even single instance has been brought on record to suggest that expenses were incurred for purposes other than the purposes to fulfill the objects of the assessee Trust. There is clear cut finding that payments were made through account payee cheques. No defect has been found in any item of receipts and expenditure. Explanation as to why income from all centers showed vast difference in comparison to expenditure was given by the assessee which explanation has not been considered nor adversely commented by the Ld. CIT(A). We, therefore, delete the ad hoc 50% disallowances out of the expenses in both the years. There is nothing in the order of the Ld. AO to show that the conditions for claiming exemption under section 11 have not been satisfied in the AYs under consideration. Moreover in CIT vs. Indian Institute of Engineering Society 2012 (11) TMI 1243 - ALLAHABAD HIGH COURT and Indian Institute of Banking and Finance 2018 (4) TMI 197 - BOMBAY HIGH COURT have held that benefit under section 11 cannot be denied on the ground that the assessee has not obtained exemption from prescribed authorities under section 10(23C) of the Act. Denial of exemption under section 11 of the Act to the assessee Trust in these two AYs is not justified. Exemption under section 11 of the Act deserves to be allowed to the assessse in both the years. Accordingly, the assessee succeeds in all its effective grounds of appeals in both the AYs involved i.e. AYs 2006-07 and 2008-09 relating to denial of exemption under section 11 and disallowances out of expenses claimed. - Decided in favour of assessee.

Issues Involved:

1. Denial of exemption under Section 11 of the Income-Tax Act, 1961.
2. Jurisdiction of the Assessing Officer (AO) concerning Tribunal directions.
3. Validity of the assessment order under principles of natural justice.
4. Rejection of books of accounts as non-genuine.
5. Ad hoc disallowance of 50% of expenses.
6. Levy of interest under Sections 234B, 234D, and withdrawal of interest under Section 244A.
7. Additional ground regarding exemption of dividend income under Section 10(34) of the Income-Tax Act, 1961.

Detailed Analysis:

1. Denial of Exemption under Section 11:
The Tribunal found that the AO and CIT(A) erred in denying the exemption under Section 11 of the Income-Tax Act, 1961, for the assessment years 2006-07 and 2008-09. The AO's disallowance was based on the claim that the books of accounts were not genuine and were written in a few sittings. However, the Tribunal noted that the books were duly supported by bills and vouchers, and payments were made through account payee cheques. No adverse findings were recorded regarding the expenses incurred for the purposes of the Trust. The Tribunal concluded that the denial of exemption under Section 11 was not justified and allowed the exemption.

2. Jurisdiction of the AO:
The Tribunal observed that the AO exceeded his jurisdiction by traversing beyond the Tribunal's directions. The Tribunal had directed the AO to verify whether the expenses incurred by the assessee were utilized for the purpose of the Trust and whether all conditions for allowability of deduction under Section 11 were satisfied. The AO's findings regarding the writing of books in a few sittings did not align with the Tribunal's directions. The Tribunal emphasized that the AO should have confined his assessment to the Tribunal's specified directions.

3. Validity of the Assessment Order:
The assessee argued that the assessment order was void ab initio due to a violation of the principles of natural justice, as adequate opportunity of being heard was not provided. The Tribunal did not explicitly address this issue but implicitly resolved it by focusing on the substantive grounds of appeal.

4. Rejection of Books of Accounts:
The Tribunal found that the AO's rejection of the books of accounts as non-genuine was not substantiated by any adverse findings. The books were audited, and bills and vouchers were produced and verified. The Tribunal noted that the AO had acknowledged that most of the bills and vouchers were authentic and that payments were made via account payee cheques. The Tribunal concluded that the rejection of books of accounts was not justified.

5. Ad Hoc Disallowance of 50% of Expenses:
The Tribunal held that the ad hoc disallowance of 50% of expenses by the AO was not justified. The AO had not provided any specific instances of expenses incurred for purposes other than the Trust's objectives. The Tribunal emphasized that the expenses were consistent with those incurred in previous years and were supported by bills and vouchers. The Tribunal deleted the ad hoc disallowance of 50% of expenses in both assessment years.

6. Levy of Interest:
The Tribunal noted that the ground relating to the levy of interest under Sections 234B, 234D, and withdrawal of interest under Section 244A was consequential to the main grounds of appeal. Since the main grounds were decided in favor of the assessee, the issue of interest was also resolved accordingly.

7. Additional Ground - Exemption of Dividend Income under Section 10(34):
The Tribunal admitted the additional ground raised by the assessee regarding the exemption of dividend income under Section 10(34) of the Income-Tax Act, 1961. The Tribunal relied on the decision of the Hon'ble Bombay High Court in DIT(E) Vs. Jasubhai Foundation, which held that income exempt under Section 10 should be excluded in computing the income of charitable institutions exempt under Section 11. The Tribunal followed this decision and allowed the exemption of dividend income for both assessment years.

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2006-07 and 2008-09, granting exemption under Section 11 and deleting the ad hoc disallowance of expenses. The additional ground regarding the exemption of dividend income under Section 10(34) was also decided in favor of the assessee. The levy of interest was resolved consequentially.

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