2023 (4) TMI 1091 - AT - Income Tax

Exemption u/s 11 - CIT(E) held that since exemption under section 11 is not to be allowed to the assessee as per the decision of the Hon ble Delhi High Court in appellant s own case, the said income has to be taxed under the head Income from other sources and while computing income under the head Income from other sources any expenditure (not been in the nature of capital expenditure) laid out or expended for the purpose of making or earning such income is to be allowed as deduction as per the provisions of section 57(iii) - HELD THAT - As seen that no income has been earned for some of the expenses incurred Sl. Nos. 7 to 15 of the table. Hence, expenditure incurred on these counts cannot be allowed in computing income from other sources. Since income from agricultural activity is exempt from tax, expenditure incurred on such activity is also not be allowed as expenditure. From the details it is also seen that the appellant has received donation against which expenses on account of donation paid have been shown. Since donation is a voluntary contribution, no expenditure can be allowed for earning such income. However, in case of donations paid, the said amount is to be allowed as deduction u/s 80G in case donations paid are to entities which are approved for the purpose of section 80G. Accordingly, the Assessing Officer is directed to- i. assess the income of the assessee with respect to activities categorized as charitable activities in the assessment order as income from other sources after verifying the expenditure incurred against SI. No. 1 to 4; ii. no expenditure is to be allowed with respect to items at Sl. No. 7 to 15 since no income has been earned as per of section 57(iii); iii. allow deduction tinder section 80G for donations paid amounting to Rs. 20,15,171/- after verifying that the entities to whom donations have been given are approved for the purpose of section 80G and to the extent of donations paid to entities approved under section 80G as per the relevant provisions of the Income Tax Act. iv. not allow expenditure on agricultural activity since the said income is exempt from tax; and v. allow set off of business income with loss computed under the held Income from sources after examining the applicability of the same as per the provisions of the Income Tax Act. Revenue authorities have duly allowed the depreciation and other expenses as directed to be considered by the Hon ble High Court. The revenue authorities have also allowed to set off of the business income with loss computed under the head income from other sources which is in tune with the provisions of the Income Tax Act. Since, exemption u/s 11 is not to be allowed as per the orders of the Hon ble High Court, the expenditure on which is unrelated to the earning of the income only has been disallowed. We decline to interfere with the order of the ld. CIT(E). The appeal of the revenue stands dismissed.

Summary

Issues:
1. Allowance of expenditure under different heads directed by CIT(A) - High Court's directions.
2. Allowance of deduction under section 80G directed by CIT(A) - High Court's directions.
3. Appreciation of High Court's direction on allowance of expenditure narrowing its scope by CIT(A).

Issue 1: Allowance of Expenditure under Different Heads
The Revenue filed an appeal against the order of the ld. CIT(A)-40, New Delhi, questioning the direction to assess and allow expenditure under different heads. The Revenue argued that the High Court did not specify details about different heads of income and expenditure in its decision regarding the denial of benefits under sections 11 & 12. The High Court had simply instructed the AO to examine the allowability of expenditure and depreciation in accordance with the law. The case history revealed that exemption under section 11 was previously denied for certain assessment years based on the decisions of the Delhi High Court. The ld. CIT(E) directed the AO to assess the income from charitable activities under the head "Income from other sources" and disallowed certain expenditures not related to income generation. The Revenue authorities had allowed depreciation and other expenses as per the High Court's directions, leading to the dismissal of the Revenue's appeal.

Issue 2: Allowance of Deduction under Section 80G
Another ground raised by the Revenue was the direction of the ld. CIT(A) to allow deduction under section 80G after verification, even though the High Court did not specifically address this issue. The ld. CIT(E) instructed the AO to allow deductions under section 80G for donations paid, provided they were made to entities approved under section 80G. The Revenue's appeal was dismissed as the expenditure unrelated to income generation was disallowed, and the Revenue authorities had correctly allowed the set off of business income with losses computed under the head "Income from other sources."

Issue 3: Appreciation of High Court's Direction
The ld. CIT(A) was criticized for not fully appreciating the High Court's direction, especially regarding the allowance of all expenditures, as the ld. CIT(E) narrowed the scope to only a few heads. However, the Tribunal found that the Revenue authorities had appropriately followed the High Court's directions by disallowing expenditures unrelated to income generation and allowing set off of business income with losses under the Income Tax Act. The Tribunal declined to interfere with the ld. CIT(E)'s order, leading to the dismissal of the Revenue's appeal. Additionally, the Tribunal allowed the assessee's application to treat the income earned as business income and set off expenses and depreciation accordingly.

In conclusion, the Tribunal upheld the ld. CIT(E)'s order, emphasizing the correct application of the law in disallowing expenditures not related to income generation and allowing set off of business income with losses. The Tribunal dismissed the Revenue's appeal and allowed the assessee's application regarding the treatment of income as business income.