2016 (9) TMI 1029 - AT - Income Tax

Applicability of section 11(1A) - investments in new capital asset - investments out of advance of sale receipts being eligible for deduction u/s 11(1A) - Held that - The provisions of Section 11(1A) are clearly applicable in facts and circumstances as neither the assessee has been held to be noncharitable entity nor the new assets have been held to be purchased for purposes other than charitable nor it has been held that the new assets are not qualified for such deduction. It reveals that the assessee society has sold two properties on 31.3.2010 but claiming to have received advance against these sales, the assessee has claimed to have made investments in new capital asset in form of FDs and New Building at Shalimar Garden-II, Village Pasonda to be used for running school and has claimed deduction u/s. 11(1A) out of capital gains arising on sale of assets. The case of assessee is covered squarely by the decision of Mumbai ITAT decisions in the case of Shri Ramnagar Trust vs. Third ITO (1985 (2) TMI 75 - ITAT BOMBAY-E ) and ITAT as regards investments out of advance of sale receipts being eligible for deduction u/s 11(1A). Also find that Ld. CIT(A) has rightly held that when the advance was given for new capital asset and FDs were purchased, the assessee had not received commensurate advance out of sale consideration. It is noted that when assessee paid advance of ₹ 21 Lacs for purchase of new asset, it had received only ₹ 6 lacs towards sale consideration. Similarly, when FDs were purchased for ₹ 30 Lac, it had received another sum of only ₹ 20 Lacs advance out of sale consideration. Thus only ₹ 26 Lacs could be said to have been invested out of advance received out of sale consideration. As per provisions of Section 11(1A)(a), the capital gain deemed to applied for charitable purposes would be the sum invested (Rs. 26 lacs in this case). The cost of asset sold (which is ₹ 551000/- in this case). Hence, the allowable deduction is only ₹ 20,49,000/- which the Ld. CIT(A) has rightly deleted and addition of ₹ 13,26,400/- was rightly sustained as per provisions of Section 11(1A)(a)

Summary

Issues:
1. Department's appeal against deletion of capital gain addition by CIT(A).
2. Maintainability of Department's appeal based on CBDT circular.
3. Assessee's cross objection regarding deduction under Section 11(1A) of the Act.

Issue 1: Department's Appeal:
The Department filed an appeal against the CIT(A)'s deletion of a capital gain addition. However, the Tribunal found that the tax effect in the Revenue's Appeal was less than the prescribed limit of ?10,00,000 as per CBDT Circular No. 21/2015. The Circular stated that appeals should not be filed solely based on exceeding monetary limits, and the Department should withdraw appeals falling below the specified tax limits. As the tax effect in this case was below the limit, the Tribunal dismissed the Revenue's Appeal.

Issue 2: Maintainability of Department's Appeal:
The Tribunal emphasized that the CBDT's instructions are binding on income-tax authorities. As the tax effect in the Department's appeal was less than ?10,00,000, the Department should have withdrawn the appeal in line with the Circular. The Tribunal held that the CBDT's instructions applied retrospectively to pending and future appeals in Tribunals. Consequently, the Revenue's Appeal was dismissed for not meeting the prescribed tax limit.

Issue 3: Assessee's Cross Objection:
The Assessee raised a cross objection regarding the deduction under Section 11(1A) of the Act. The CIT(A) partially allowed the Assessee's appeal, leading to the cross objection. The Tribunal analyzed the facts and held that the provisions of Section 11(1A) were applicable as the Assessee remained a charitable entity and the new assets were intended for charitable purposes. The Tribunal agreed with the CIT(A)'s decision to allow a deduction of ?20,49,000 and sustain an addition of ?13,26,400 based on the investments made by the Assessee. The Tribunal upheld the CIT(A)'s well-reasoned order and dismissed the cross objection.

In conclusion, both the Revenue's Appeal and the Assessee's Cross Objection were dismissed by the Tribunal, with detailed analysis provided for each issue raised in the judgment.