2024 (11) TMI 871 - AT - Income Tax

Denial of exemption u/s 11 - assessee society has violated the provisions of section 13(1)(c) on account of Loans and Advances to related parties and Transportation fees received by M/s. Ashram Educational and Consultancy Pvt Ltd (AECPL) - HELD THAT - In the present case, it is not disputed that the loans were advanced in earlier years and were not extended during the relevant assessment year. AO failed to demonstrate how any income of the assessee society was used to confer a benefit during A.Y. 2015-16. Assessee s claim that the loans were given out of advance received against proposed property sale and do not form income of the assessee, has merit. In our considered view the advances, being liabilities, do not constitute income of the society. Hence, the invocation of Section 13(1)(c) for AY 2015-16 is legally untenable. Transportation Fees involving AECPL the assessee drew our attention to the audited financial statements as on 31/03/2015 of the company AECPL showing that after deducting operating expenses and agreed amount of Rs. 40.00 Lakhs to the assessee Trust as vehicle lease charges, the net income of the Company from transportation fees was very nominal i.e. Rs. 2.46 Lakhs for the whole year. There is no evidence that the assessee conferred an undue benefit to AECPL. AO s conclusion that the lease arrangement was disadvantageous is based purely on a comparison of gross receipts, without considering the associated costs. Hence, the denial of exemption under Section 11 on this ground is not justified. There is no violation of section 13(1)(c) of the Act, by the assessee, we direct the AO to allow the exemption u/s.11 of the Act and direct the AO to delete the addition made on account of the Corpus donation received. Further, according to the submission of the Ld.AR section 40(a)(ia) is not applicable for the A.Y. 2015-16 to the institutions / funds eligible for exemption U/s.11 of the Act. On perusal of the provisions of section 40(a)(ia), the claim of the assessee is found correct and the disallowance of Rs. 24,95,469/- i.e. 30% of the Rent of Rs. 83,18,230/- is hereby deleted by allowing the grounds of the assessee. Exemption u/s.11 denied for violation of Section 13(1)(c) along with certain disallowances due to non-furnishing of details during the re-assessment proceedings - We note from the assessment order as well as impugned order, it is established that there was no opportunity for the assessee in prosecuting his case, but, however, on the undertaken given by assessee is ready to prosecute his case before the AO without fail, we deem it proper in the interest of justice to remand the matter back to the file of the AO - The assessee is at liberty to file evidence in support of his claim and the AO shall conduct the assessment proceedings de novo, by allowing the appeal of the assessee.

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Denial of exemption under Section 11 of the Income Tax Act.
3. Alleged violation of Section 13(1)(c) of the Income Tax Act.
4. Disallowance under Section 40(a)(ia) of the Income Tax Act.
5. Treatment of 'corpus donations' as income.
6. Disallowance of depreciation claim.

Issue-wise Detailed Analysis:

1. Condonation of Delay:

The appeal was filed with a delay of 25 days. The assessee submitted an affidavit explaining the reasons for the delay, which were found to be bona fide. Consequently, the delay was condoned for both assessment years.

2. Denial of Exemption under Section 11:

The assessee, a society registered for charitable purposes, claimed exemption under Section 11. The Assessing Officer (AO) denied this exemption, citing violations of Section 13(1)(c). The Tribunal found that the AO had not demonstrated how the income of the assessee society was used to confer a benefit during the assessment year 2015-16. It was noted that the loans in question were advanced in earlier years and were not extended during the relevant assessment year. Therefore, the invocation of Section 13(1)(c) for AY 2015-16 was deemed legally untenable. The Tribunal directed the AO to allow the exemption under Section 11.

3. Alleged Violation of Section 13(1)(c):

The AO alleged that loans and advances to related parties and transportation fees transactions violated Section 13(1)(c). The Tribunal observed that the loans were given out of advances received against a proposed property sale and did not constitute income of the society. Regarding transportation fees, the Tribunal noted that the net income from the related party transaction was nominal after deducting operational expenses. Thus, there was no evidence of undue benefit conferred to related parties, and the denial of exemption under Section 11 on this ground was not justified.

4. Disallowance under Section 40(a)(ia):

The AO disallowed 30% of the rent paid by the assessee, citing non-remittance of TDS into the government account. The Tribunal found that Section 40(a)(ia) was not applicable to institutions eligible for exemption under Section 11 for AY 2015-16. Therefore, the disallowance of Rs. 24,95,469/- was deleted.

5. Treatment of 'Corpus Donations' as Income:

The AO treated 'corpus donations' as income of the trust. The Tribunal held that 'corpus donations' are capital receipts and cannot be included in the income of the trust. The addition made on account of corpus donations was directed to be deleted.

6. Disallowance of Depreciation Claim:

The NFAC disallowed the assessee's claim of depreciation. However, the Tribunal did not find a specific discussion on this issue in the judgment, indicating that the disallowance might have been resolved in favor of the assessee as part of the broader relief granted.

Separate Judgment for AY 2011-12:

For AY 2011-12, the assessee's claim of exemption under Section 11 was denied due to alleged violations of Section 13(1)(c) and disallowances under Section 40(a)(ia) due to non-furnishing of details. The assessee failed to provide necessary details during re-assessment proceedings. The Tribunal, considering the lack of opportunity for the assessee, remanded the matter back to the AO for fresh assessment, allowing the assessee to present evidence in support of its claims.

Conclusion:

The appeals filed by the assessee for both assessment years were allowed, with the Tribunal directing the AO to grant exemption under Section 11 and delete the disallowances and additions made. The matter for AY 2011-12 was remanded for fresh consideration.

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