2023 (1) TMI 900 - AT - Income Tax

Denial of the benefit u/s 11 and 12 - appellant has violated the provision of Section 13(1)( c), 13(1)(d) - HELD THAT - The submission of the assessee is that there is no such violation of provisions of the Act as alleged by the AO.As submitted that there is no violation of Section 11(5) as making investment in immovable property is one of the modes prescribed under the Act and further, the investment in agricultural land, though made in the name of his employees and others, yet the assessee is actually the beneficial owner of the land. It was also contended that the income that is falling within the violations of Act alone could be subjected to tax instead of rejecting the claim for exemption in respect of entire income of the assessee. It is also the contention of the assessee that the addition made by the AO with regard to notional interest and addition made u/s 40A(3) of the Act are liable to be deleted, once the assessee is held to be eligible for exemption u/s 11 of the Act. However, it is the contention of the ld. DR that various submissions and contentions raised by the Ld A.R require fresh examination. In the rejoinder to the submissions made by Ld D.R, the counsel of the assessee agreed that all the matters may be restored to the file of Ld CIT(A), as they involve examination of legal and factual aspects.Accordingly, we set aside the order passed by the ld. CIT(A) in respect of the addition confirmed by him and restore all those issues to his file for adjudicating them afresh. The assessee should be provided adequate opportunity of being heard. Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Denial of benefit under sections 11 and 12 for alleged violations of Section 13(1)(c) and 13(1)(d).
2. Addition under section 40(A)(3) of the Income Tax Act.
3. Addition of notional interest on investment in land.
4. Restriction of addition to income based on violation of provisions and granting pro-rata benefit.

Analysis:

Issue 1: Denial of Benefit under Sections 11 and 12
The appellant, a charitable trust, contested the denial of exemption under sections 11 and 12 for alleged violations of Section 13(1)(c) and 13(1)(d). The Assessing Officer (AO) observed violations due to investments in a company's shares and land in the names of trustees/employees. The appellant argued that the shares were received as a gift and the land was purchased due to legal constraints. The appellant claimed beneficial ownership of the land despite the names in which it was purchased. The appellant also contended that only income falling under violations should be taxed, not the entire amount. The appellant cited relevant case laws to support their position. The matter was referred back to the CIT(A) for a fresh examination of legal and factual aspects.

Issue 2: Addition under Section 40(A)(3)
The AO made an addition under Section 40(A)(3) for alleged violations, which the appellant argued should be deleted if granted exemption under section 11. The matter was referred back for reevaluation.

Issue 3: Addition of Notional Interest
The AO imputed interest on investments made in the names of individuals, which the appellant argued should be deleted if granted exemption under section 11. This issue was also referred back for fresh examination.

Issue 4: Restriction of Addition to Income
The appellant contended that additions made should be restricted based on violations and pro-rata benefit should be granted under section 11. The matter was set aside for the CIT(A) to reconsider all issues and provide the appellant with a fair opportunity to be heard.

In conclusion, the appeal was treated as allowed for statistical purposes, and the case was remanded for further examination by the CIT(A) considering the legal and factual aspects involved.