9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (1) TMI 755 - AT - Income TaxApproval granted u/s 10(23C)(iv) revoked - assessee is a society registered under the Societies Registration Act, 1860, w.e.f, 18.06.1980 - assessee has not maintained separate books of account for its business and charitable activities, thereby, has violated 7th proviso to section 10(23C)(iv) - difference in foreign contribution shown in the income and expenditure account and the FCRA return in Form FC-4 - HELD THAT - On a perusal of the statutory audit report for the year ended 31st March, 2016, it is observed, in a note forming part of the financial statements, the auditor has specifically stated that donations/grants received, other than the grants for specific purposes, are regarded as income when it is reasonably expected that the ultimate collection will be made during the year - as observed that the income/fund shown in the income and expenditure account is on accrual basis, as, the assessee was reasonably certain that it will receive the grant/fund. From the details available on record, it is observed that in FCRA return filed in Form FC-4, the assessee has shown foreign contribution of Rs. 93,45,00,516/-, whereas, in the income and expenditure account, the assessee has shown such figure at Rs.107,61,69,730/-. Thus, the explanation of the assessee that the foreign contribution in FCRA return has to be shown on receipt basis is acceptable. Allegation of the Special Auditor that the assessee has not maintained separate books of account for the purpose of foreign contribution under the Foreign Contribution Regulation Act, 2010 , is equally unacceptable. The only requirement in law is, the assessee must maintain separate bank accounts for foreign contribution, which the assessee has complied. It is noteworthy, before the departmental authorities, the assessee has specifically submitted that its accounts are maintained in ERP software, viz., Lawson to record transaction. It is understood, ERP software can be used to compute figures of any segment of the entity. Further, we have noted, in case of Ranbaxy Laboratories Ltd. 2016 (5) TMI 157 - ITAT DELHI while considering the issue whether separate books of account are required to be maintained where the accounts are maintained on SAP ERP System, has observed that SAP based ERP system of accounting tantamount to maintenance of separate books of account - we have to accept assessee s plea that there is no necessity of maintaining separate books of account, once the accounts are maintained in ERP system. Thus, in view of the aforesaid, the allegation of the CIT (Exemption) that due to non-maintenance of separate books of account the condition of 7th proviso to section 10(23C) of the Act is violated, deserves to be rejected. Whether it can be said that the assessee is not carrying out charitable activity as envisaged in section 2(15) read with section 10(23C)(iv)? - While alleging that the assessee earned profit from sale of these products, the departmental authorities have not taken note of the various costs incurred by the assessee, such as, distribution cost, advertisement cost, warehousing cost and other administrative cost. The departmental authorities have also ignored the fact that a substantial part of the contribution received was utilized for promotion and spreading awareness and increasing acceptance of an alternative method of family planning alien to the target population. Allegation made by the departmental authorities is unilateral. There is nothing on record to suggest that either the parent organization or the Government Authorities have made any allegation regarding the diversion of foreign contribution received for any other purpose, except the purpose for which it was given or it was utilized for the business gain of the assessee. Even, there is no violation, as alleged, under the Foreign Contribution Regulation Act. Thus, in absence of any contrary material brought on record by the Revenue, it cannot be said that the assessee has utilized the foreign contribution received in respect of Pehel Project for its own commercial gain. Assessee has earned profit by selling products, viz., Masti Brand of condoms in NACO project - No adverse material has been brought on record by the Revenue to demonstrate that the assessee has violated the pricing of the products, as per the Government mandate. Moreover, there is no allegation by any of the Government agencies, be it Central or State, regarding promotion of assessee s own brand at the cost of Government brand of condoms. That being the factual position emerging on record, it cannot be said that the assessee has derived any undue benefit by promoting its own brand. In any case of the matter, the assessee was granted approval under section 10(23C)(iv) of the Act for the first time in the year 1991. At the time of grant of approval under section 10(23C)(iv) of the Act, the competent authority was satisfied that the assessee has fulfilled the threshold conditions for approval under section 10(23C)(iv) of the Act. Once the assessee satisfies the threshold conditions of section 10(23C)(iv) of the Act, the approval granted cannot be withdrawn, that too, with retrospective effect, alleging violation of certain compliance conditions. The Departmental Authorities have failed to differentiate between the threshold conditions and compliance conditions. The compliance conditions have to be examined in each assessment year and, in case, there is any violation in compliance conditions in any assessment year, assessee s claim of exemption for the said assessment year can be rejected. However, that cannot be a reason to revoke the approval granted under section 10(23C)(iv) of the Act. One more factor which needs consideration is, till date, assessee s registration under section 12A of the Act as a charitable institution subsists. In fact, approval granted under section 80G of the Act is still continuing. These facts reflect the dichotomy in the stand of the revenue. For the purpose of section 12A and 80G of the Act the assessee is recognized as charitable institution, whereas, for the purpose of section 10(23C)(iv) assessee loses its charitable status. This approach of the revenue is unacceptable. Approval under section 10(23C) of the Act cannot be revoked, more so, when the objects of the assessee have remained same. We, for a moment, do not say that the competent authority under no circumstances can revoke the approval granted under section 10(23C)(iv) of the Act. However, for doing so, the revenue must bring on record cogent material to demonstrate that the assessee has deviated from the core objects based on which approval under section 10(23C)(iv) was initially granted to the assessee. It is also a fact on record that the activities of the assessee are in the category of medical relief to the poor. Thus, if we interpret the provisions of section 2(15) of the Act strictly, the proviso would not apply. Thus we hold that the impugned order passed by learned CIT (Exemption) withdrawing the approval granted under section 10(23C)(iv) of the Act is unsustainable. Decided in favour of assessee.
Issues Involved:
1. Revocation of approval under section 10(23C)(iv) of the Income-tax Act, 1961. 2. Alleged discrepancies in foreign contributions. 3. Maintenance of separate books of account. 4. Nature of activities - charitable vs. commercial. 5. Retrospective withdrawal of approval. Issue-wise Detailed Analysis: 1. Revocation of Approval under Section 10(23C)(iv): The appeal was filed by the assessee against the order revoking the approval under section 10(23C)(iv) of the Income-tax Act, 1961. The revocation was based on the grounds that the assessee violated the conditions of approval by engaging in activities that were not charitable as defined under section 2(15) of the Act. 2. Alleged Discrepancies in Foreign Contributions: The Assessing Officer found discrepancies between the foreign contributions reported in the FCRA audited accounts and the annual financial statements. The assessee explained that the difference arose because the FCRA accounts were maintained on a receipt basis, while the income and expenditure account was on an accrual basis. The Tribunal accepted this explanation, noting that the statutory audit report confirmed the accrual basis of accounting for donations/grants. 3. Maintenance of Separate Books of Account: The authorities alleged that the assessee did not maintain separate books of account for its business and charitable activities, violating the 7th proviso to section 10(23C). The assessee contended that it maintained accounts using ERP software, which can segregate financial data for different activities. The Tribunal agreed with the assessee, referencing the decision in Ranbaxy Laboratories Ltd. vs. ACIT, which accepted ERP systems as equivalent to maintaining separate books. 4. Nature of Activities - Charitable vs. Commercial: The core issue was whether the assessee's activities were charitable or commercial. The authorities argued that the assessee promoted its own contraceptive brands under the guise of charitable projects, thus engaging in commercial activities. The Tribunal found that the assessee's activities, including the 'Pehel Project' and 'NACO Project,' were aligned with its charitable objectives. The Tribunal noted that the assessee followed government pricing regulations and did not generate undue profits. The Tribunal also emphasized that no government or donor agency had alleged misuse of funds or deviation from charitable purposes. 5. Retrospective Withdrawal of Approval: The Tribunal held that the approval under section 10(23C)(iv) could not be withdrawn retrospectively. The Tribunal cited various judicial precedents supporting the view that retrospective withdrawal of approval is not permissible. The Tribunal noted that the assessee's registration under sections 12A and 80G, which recognize its charitable status, was still valid, highlighting the inconsistency in the revenue's stance. Conclusion: The Tribunal concluded that the revocation of approval under section 10(23C)(iv) was unsustainable. The Tribunal set aside the order of the CIT (Exemption), restoring the assessee's approval under section 10(23C)(iv). The appeal was allowed, and the order was pronounced on 30th November 2022.
|
