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2024 (4) TMI 835 - AT - Income TaxReopening of assessment of assessee trust - denial of exemption u/s. 11 on the ground of Trust as violates provisions of Sec. 13(1)(c) - failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment in respect of rental income received on let out of premise which is clearly evident from Form No.10B filed by the assessee for all assessment years where the assessee has not disclosed the details with regard to income or properties of the Trust was made or continued to be made available for the use of any such persons during the previous year referred to u/s. 13(3) of the Act. HELD THAT - Re-opening of assessments for AYs 2012-13 to 2014-15 is bad in law and are liable to be quashed because the assessments have been re-opened without there being any allegation as to failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment year and for that assessment years. The Ld.CIT(A) without appreciating relevant facts simply upheld re-opening of assessment. For AYs 2015-16 2016-17 assessments have been re-opened for these two assessment years on the basis of fresh tangible material which suggest escapement of income on account of under assessment rental income and said escapement of income was noticed during the course of survey conducted u/s. 133 of the Act. In our considered view new tangible materials found during the course of survey constitute a fresh material and as per said material there is escapement of income. The AO has formed reasonable belief of escapement of income and thus in our considered view re-opening of assessments for AYs 2015-16 2016-17 are valid. Denial of exemption u/s. 11 - Charitable activity u/s 2(15) - The assessee objects and activity of running Kalyanamandapam is incidental to the attainment of main objects and is covered by provisions of Sec. 11(4) of the Act. Since the assessee Trust is maintaining separate books of accounts for the activity of running of Kalyanamandapam and said activity is in the nature of attainment of main objects in our considered view provisions of Sec. 11(4A) of the Act is not applicable to the assessee and thus the AO and the Ld.CIT(A) erred in rejecting exemption u/s. 11 of the Act. Thus we reversed the findings of the Ld.CIT(A) on this issue and direct the AO to allow the benefit of exemption u/s. 11 of the Act to the assessee for the AY 2012-13 to 2018-19. Addition towards difference between the rental income received by the assessee from M/s.CFD a partnership firm and rental income received by the partnership firm M/s.CFD from three tenants - Assessee has filed financial statement of partnership firm to prove that the firm has spent huge amount for re-construction/renovating the building from time to time since 1975 onwards and if you consider the amount of money spent by the partnership firm to make the schedule of property for let out in our considered view the rent received by the partnership firm from three tenants is commensurate with what was let-out by the partnership firm. Assessee has also filed relevant evidences to prove that the prevailing market rate of rent for all these assessment years is comparable with Fair Market Value of the property as per municipal authorities where the municipal authorities have determined the Fair Market Value of the property for the purpose of municipal taxes which is lesser than the amount of rent received by the assessee from the partnership firm. As it was not the case of the AO that the prevailing market rate of rent for similar kind of property for these assessment years is higher than the rent received by the assessee from the partnership firm. In fact the AO has not made any attempt to find out the fair market rent of the property in the adjoining areas during relevant period. But the AO simply took rent received by the partnership firm and compared with rent received by the assessee from the partnership firm and held that rent received by the assessee from partnership firm is lesser than the fair market rent only on the ground that partnership firm is related to the assessee as per the provisions of Sec. 13(3) of the Act. In our considered view provisions of Sec. 13(1)(c) r.w.s.13(2) of the Act will come into operation only in a case where any Trust or Institution allows the income or property of a Trust to the benefit of persons referred to u/s. 13(3) of the Act without any adequate consideration or compensation. In case said property has been allowed to use by any person by paying consideration or compensation which is commensurate with prevailing market rent then provisions of Sec. 13(1)(c) r.w.s13(2) of the Act cannot be applied. Therefore we are of the considered view that the AO and the Ld.CIT(A) are completely erred in invoking provisions of Sec. 13(1)(c) r.w.s.13(2) of the Act and made additions towards difference between rental income. Disallowance of depreciation on fixed assets the cost of which has been claimed as application of income - Since the assessee Trust is a registered u/s. 12AA of the Act and also claiming exemption u/s. 11 of the Act in our considered view depreciation on fixed assets should be allowed as application of income up to AY 2014-15. Thus we direct the AO to delete additions made towards disallowance of depreciation on fixed assets for AYs 2012- 13 to 2014-15. In so far as AYs 2015-16 to 2018-19 the law has been amended by the Finance Act 2014 to provisions of Sec. 11(6) of the Act and as per said provisions where any income required to applied or accumulated or set part for application then for such purpose the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset acquisition of which has been claimed as application of income under this section in the same or in any other previous year. From the amendment provisions of Sec. 11(6) of the Act by the Finance Act 2014 which is applicable from AY 2015-16 onwards depreciation on fixed assets cannot be allowed as application of income in case the cost of acquisition of said fixed assets has been allowed as application of income in the same year or in any earlier year. Thus we are inclined to uphold the findings of the Ld.CIT(A) for AYs 2015-16 to 2018-19 and reject ground taken by the assessee.
Issues Involved:
1. Reopening of assessment u/s 147. 2. Denial of exemption u/s 11. 3. Addition towards difference in rental income. 4. Disallowance of depreciation on fixed assets. Summary: 1. Reopening of assessment u/s 147: The assessee challenged the reopening of assessments for AYs 2012-13 to 2016-17 on the grounds that it was based on a "change of opinion" without fresh tangible material suggesting escapement of income, and it was reopened beyond four years without any failure on the part of the assessee to disclose fully and truly all material facts. The Tribunal held that the reopening of assessments for AYs 2012-13 to 2014-15 was bad in law and quashed the reopening as it was done without any allegation of failure to disclose material facts. For AYs 2015-16 and 2016-17, the Tribunal upheld the reopening as these assessments were completed u/s 143(1) and were based on fresh tangible material found during a survey u/s 133A. 2. Denial of exemption u/s 11: The AO denied the exemption u/s 11 on the grounds that the activity of running Kalyanamandapam was in the nature of trade and commerce, which is hit by the proviso to Sec. 2(15) of the Act. The Tribunal, following its earlier decision, held that the activity of running Kalyanamandapam is incidental to the attainment of the main objects of the Trust and is covered by Sec. 11(4) of the Act. The Tribunal directed the AO to allow the benefit of exemption u/s 11 for AYs 2012-13 to 2018-19. 3. Addition towards difference in rental income: The AO added the difference between the rental income received by the assessee from M/s CFD and the rental income received by M/s CFD from subletting the property to three tenants, invoking provisions of Sec. 13(1)(c) r.w.s. 13(2) of the Act. The Tribunal held that the property let out by the assessee to M/s CFD and the property sublet by M/s CFD were different due to significant renovations and improvements made by M/s CFD. The Tribunal found the AO's addition to be based on suspicion and surmise and directed the deletion of the addition. 4. Disallowance of depreciation on fixed assets: The AO disallowed the depreciation on fixed assets, arguing that allowing depreciation on assets whose cost was already claimed as application of income amounts to double deduction. The Tribunal, following the decision of the Hon'ble Supreme Court in CIT v. Rajasthan & Gujarati Charitable Foundation, Poona, allowed the depreciation on fixed assets as application of income up to AY 2014-15. For AYs 2015-16 to 2018-19, the Tribunal upheld the disallowance of depreciation due to the amendment to Sec. 11(6) by the Finance Act, 2014, which disallows depreciation on assets whose cost was claimed as application of income. Conclusion: - Appeals for AYs 2012-13 to 2014-15 were allowed. - Appeals for AYs 2015-16 to 2018-19 were partly allowed.
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