2024 (6) TMI 1358 - AT - Income Tax

Exemption u/s 11 - non utilization of 85% of the total grants-in-aid received during the year - assessee invested an amount in the equity shares and continuing the investment so made and thereby contravened the provisions of section 13(1)(d) read with section 11(5) - HELD THAT - Assessee is a statutory body and a registered society assessee is a statutory body and a registered society AND has been following the accounting procedure as defined in GFR 230(5) of the Government of India and the directions of the Integrated Financial Division of Ministry of Agriculture Government of India (IFD) over the years and treating all the grans as liabilities and only when the grants are utilised by the implementing agencies they are treated as income and when utilisation certificates are received they are treated as expenditure. Case of AO that the claim of expenses incurred out of grant released in earlier years and the corresponding claim of receipt cannot be allowed in the current year failed to appreciate what exactly the amount the assessee has been treating as income and what the amount the assessee is treating as expenditure. Assessee has been treating only such part of grants that are utilized by the implementing agencies as income and only such part of the funds released to the implementing agencies in respect of which the utilization certificates are received as expenditure. This method of accountancy followed by the assessee in treating the income and expenditure irrespective of the year of receipt of grant has not been appreciated or referred to by the learned Assessing Officer so as to find out any defects or reasons to reject the same. No illegality or irregularity in the method of accountancy followed by the assessee in treating the funds utilized by the implementing agencies as income and the funds covered by the utilization certificate as expenditure. According to us learned CIT(A) was right in his approach in holding that on an incorrect appreciation of the accounting policies followed by the assessee the learned Assessing Officer rejected the books without actually bringing on record any defect in the audited accounts of the assessee. Principle of Res judicata - It is true that the principle of res judicata is not applicable to the income tax proceedings and every year is a separate and independent and merely because the learned Assessing Officer has not made any addition or rejected the claim of exemption under section 11 of the Act preferred by the assessee in the earlier years such an erroneous order of the learned Assessing Officer cannot be made to be perpetuated. Since the assessee in the instant case is consistently treating the grants received from the Government of India and utilised by the implementing agencies as income and the grants released to the State Government as and when the utilization certificates are received as expenditure in compliance with the accounting procedure defined in GFR 230(5) of Government of India and the directions of IFD we are of the considered opinion that the assessee in the instant case has spent 85% of the income in the current assessment year also. Investment in equity shares contravenes the provisions of section 13(1)(d) - As aspect of 13(1)(d) of the Act there is no contradiction to the plea taken by the assessee that such an investment was made in Sasoon Dock Matsya Shakari Samstha Ltd. in the financial year 2008-09 and not during the current year and never in the earlier years any objection on that aspect is taken. It is also not in dispute that registration u/s 12AA granted by the authorities in favour of assessee is continuing. In these circumstances the ground raised by the Revenue cannot be countenanced and is liable to be rejected. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Whether the assessee complied with the conditions under section 11 of the Income Tax Act to avail the benefit thereunder.
2. Whether the grants received by the assessee constitute its income.
3. Whether the investment in equity shares contravenes the provisions of section 13(1)(d) read with section 11(5) of the Act.

Issue-wise Detailed Analysis:

1. Compliance with Section 11 Conditions:
The Revenue challenged the assessee's compliance with section 11 of the Income Tax Act, arguing that the assessee did not utilize 85% of the total grants-in-aid received during the year. The assessee contended that it applied more than 85% of its income towards its objectives, based on its accounting principles. The CIT(A) found that the assessee maintained its accounts on sound commercial principles and followed statutory guidelines, rejecting the Assessing Officer's view. The Tribunal upheld CIT(A)'s decision, noting that the assessee's method of accounting, which treated grants utilized by implementing agencies as income and those covered by utilization certificates as expenditure, was consistent and compliant with government regulations.

2. Nature of Grants Received:
The Revenue argued that the grants received by the assessee should be treated as income, while the assessee maintained that these were specific-purpose grants and not its income. The CIT(A) supported the assessee's view, noting that the grants were received, kept, and disbursed according to government instructions without the assessee holding any right to utilize them otherwise. The Tribunal agreed, emphasizing that treating all grants as receipts and allocations as expenditure was not scientific, as there was no income element in the grants received from the Central Government. The Tribunal concluded that the assessee's method of accounting was correct and consistent with government directives.

3. Investment in Equity Shares:
The Assessing Officer contended that the assessee's investment in equity shares of Sasoon Dock Matsya Shakari Samstha Ltd. contravened section 13(1)(d) read with section 11(5) of the Act. The assessee argued that the investment was made in the assessment year 2009-10 for implementing its objectives and that no objection had been raised in previous years. The CIT(A) found that the investment did not affect the assessee's exemption under section 11, as the registration under section 12AA was still valid. The Tribunal upheld this view, noting that the investment was not made in the current year and that the exemption claim was consistent with past assessments.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order. The Tribunal found that the assessee complied with section 11 conditions, correctly accounted for grants, and did not violate section 13(1)(d) provisions. The appeal was dismissed, and the CIT(A)'s decision to allow the exemption under section 11 was upheld.