2013 (8) TMI 331 - AT - Income Tax

Deduction u/s 10(23C)(iiiad) - Assessee claimed deduction u/s 11 and 12 but CIT allowed deduction u/s 10(23C)(iiiad) also - Held that - The assessee submitted the complete details before the authorities below and made a claim that it was running school - The assessee also claimed that the assessee exists solely for educational purpose.Claim of the assessee was not disputed by the AO. It is also not in dispute that total receipts of the assessee in the assessment year under appeal were less than ₹ 1 crore. Therefore, the claim of the assessee for exemption u/s. 10(23C)(iiiad) on additional ground was correctly raised. The issue was legal in nature, therefore, the ld. CIT(A) correctly admitted the additional ground for the purpose of hearing - assessee has been able to prove that apart from claiming deduction u/s. 11 & 12 of the IT Act, the assessee would be entitled for exemption u/s. 10(23C) of the IT Act. The ld. CIT(A) has given specific finding that the conditions of above provisions are fulfilled in the case of assessee - Following decision of Bar Council of Uttar Pradesh vs. CIT 1982 (9) TMI 37 - ALLAHABAD High Court and CIT vs. Mayur Foundation 2004 (12) TMI 48 - GUJARAT High Court - Decided against Revenue. Condonation of delay u/s. 11(2) - Failure to spend 85% of its total income - Held that - The assessee has produced sufficient evidences and material on record to show that the assessee made full compliance of provisions of section 11(2) & (5) of the IT Act because resolution was passed to the effect of accumulation of surplus fund in the assessment year under appeal by way of converting the amount into FDR with Nationalized Bank, which was to be used for the purpose of construction of school building. Copies of the resolution, balance sheet and auditreport are filed to indicate the intention of the assessee to accumulate the funds for the purpose of making construction in the subsequent assessment year. The assessee also later on made a request for condonation of delay in filing Form No. 10 belatedly before the AO as well as CIT. Therefore, in the facts and circumstances of the case, particularly when surplus funds were accumulated and deposited with the Nationalized Bank, the delay in filing Form No. 10 should have been condoned - Decided against Revenue.

Summary

Issues Involved:
1. Deletion of addition due to failure to spend 85% of total income and delay in filing Form No. 10 under Section 11(2) of the IT Act.
2. Admission of additional evidence regarding exemption under Section 10(23C)(iiiad) of the IT Act.

Detailed Analysis:

Issue 1: Deletion of Addition Due to Failure to Spend 85% of Total Income and Delay in Filing Form No. 10

The assessee, a society running a school, declared total income at Rs. Nil, supported by an auditor's report. The AO found that the assessee spent Rs. 45,94,241/- out of a total income of Rs. 65,74,356/- on charitable activities, failing to meet the 85% expenditure requirement under Section 11(1)(a). The AO noted a shortfall of Rs. 9,93,962/-, which was liable to tax, and observed that the assessee did not file Form No. 10 for accumulation of surplus. The assessee argued that a resolution was passed on 27.03.2006 to invest Rs. 18 lacs in FDRs for future expansion, which was reflected in the balance sheet and utilized in the subsequent year for constructing a school building. The assessee filed Form No. 10 belatedly on 04.07.2008, seeking condonation of delay.

The CIT(A) admitted the additional ground and evidence, noting that the assessee's intention to accumulate funds was evident from the records. The CIT(A) found the AO's objections too narrow and technical, emphasizing that the accumulation was mentioned in the auditor's report and balance sheet. The CIT(A) relied on the Gujarat High Court's decision in CIT vs. Mayur Foundation, which allowed condonation of delay in filing Form No. 10. The CIT(A) concluded that the assessee fulfilled the requirements of Section 11(2) and allowed the appeal.

Issue 2: Admission of Additional Evidence Regarding Exemption Under Section 10(23C)(iiiad)

The assessee claimed exemption under Section 10(23C)(iiiad), asserting that it existed solely for educational purposes and had annual receipts below Rs. 1 crore. The CIT(A) admitted this additional ground, finding it relevant and supported by facts on record. The AO's objection that the assessee did not raise this ground during assessment was dismissed, as the CIT(A) noted that the assessee's bona fide belief in its entitlement to exemption justified the delay.

The CIT(A) found that the assessee met the conditions of Section 10(23C)(iiiad), as it solely engaged in educational activities and had receipts below Rs. 1 crore. The CIT(A) rejected the AO's objections and allowed the additional ground, granting the exemption.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. It affirmed that the assessee fulfilled the requirements of Sections 11(2) and 10(23C)(iiiad), and that the delay in filing Form No. 10 should have been condoned. The Tribunal emphasized that the assessee's intention to accumulate funds was clear and supported by evidence, and that the technical objections raised by the AO were insufficient to deny the exemption. The appeal was dismissed, and the CIT(A)'s order was upheld.