2024 (7) TMI 24 - AT - Income Tax

Denial of Exemption claimed U/s 11 12 - assessee violated the provision of section 17 of FCRA (Foreign Contribution Regulation Act) 2010 - as argued no provision of Income Tax Laws related to the Trust can exemption be denied alleging violation of the provision of FCRA 2010 HELD THAT - The provisions of section 13 of the Act nowhere stated that the AO can deny the exemption to any assessee s claim u/s 11 12 of the Act. AO has in any case finds that section 13(1) of the Act was violated. In such a case only that appropriate remedy before the AO is to disallow such proportionate expenses from application of income. See case of Kammavari Sangham vs DDI (Exemptions) 2022 (11) TMI 672 - KARNATAKA HIGH COURT wherein it has been held that the AO has no jurisdiction to deny the benefits of section 11 12 until the certificate u/s 12A was in force. Similarly in the case of CIT vs Mullers Charitable Institutions 2014 (2) TMI 1033 - KARNATAKA HIGH COURT has held that perusal of section 13(1)(d) of the Act makes it clear that it is only the income from such investment or deposit which has been made in violation of section 11(5) of the Act that is liable to be taxed and violation of section 13(1)(d) does not result in denial of exemption under section 11 to the total income of the assessee trust. Thus AO could not have denied the benefit u/s 11 of the Act. In the case of assessee certificate was continued in force therefore the view taken by the ld. AO is not correct. However we after examining the facts of the case and direct the AO to allow the claim of assessee u/s 11 12 of the Act and the expenditure which could not be treated as an application income is in violation u/s 13 of the Act can be assessed to the income of the assessee. In terms of the above the appeal of the assessee is partly allowed.

Summary

Issues:
Violation of provisions of FCRA 2010 and IT Act, denial of exemption under sections 11 and 12, alleged violations of section 13 of the IT Act, denial of exemption by AO, appeal before CIT(A), appeal before ITAT, jurisdiction of AO to deny exemptions.

Analysis:
The appeal before the ITAT Ranchi involved the denial of exemption claimed under sections 11 and 12 of the Income Tax Act, 1961 due to alleged violations of the Foreign Contribution Regulation Act (FCRA) 2010 and sections 13(1) and 13(3) of the IT Act for the assessment year 2016-17. The AO found that the assessee transferred foreign contributions to an unauthorized bank account, leading to contravention of FCRA 2010. Additionally, the AO raised concerns about payments made by the society and the lack of supporting documents for donations received, resulting in the denial of exemptions and assessing the income at Rs. 3,55,53,212. The CIT(A) upheld the AO's decision, prompting the assessee to appeal to the ITAT.

The main contention raised by the assessee before the ITAT was that the AO exceeded jurisdiction by denying exemptions under sections 11 and 12 based on alleged violations of section 13 of the IT Act. The assessee argued that if any violation of section 13 occurred, only proportionate expenses should be disallowed, citing relevant case laws. The ITAT considered various decisions of the High Courts and Tribunals, emphasizing that the AO cannot deny exemptions under sections 11 and 12 unless the certificate under section 12A is not in force. The ITAT concluded that the AO's denial of benefits under section 11 was incorrect, directing the AO to allow the assessee's claim under sections 11 and 12 while assessing any expenditure violating section 13 as income.

Ultimately, the ITAT partially allowed the appeal, setting aside the CIT(A)'s decision and directing the AO to allow the assessee's claim under sections 11 and 12. The ITAT clarified that only expenditure violating section 13 should be assessed as income. The ITAT's decision highlighted the importance of jurisdictional limits of the AO in denying exemptions and the need to follow legal provisions while assessing income and expenditures in such cases.

In conclusion, the ITAT's judgment provided relief to the assessee by partially allowing the appeal and emphasizing the correct application of provisions under the IT Act regarding exemptions and violations. The case serves as a reminder of the importance of adhering to legal requirements and jurisdictional boundaries in tax assessments and exemptions.