2017 (1) TMI 446 - AT - Income Tax

Benefits of exemption u/s. 11 denied - Withdrawal of registration granted to the assessee u/s. 12AA - CIT has recorded a finding that the assessee is operating like a commercial tour operator and there is no element of charitable activity involved in the assessee activities - Held that - As decided in assessee s own case 2016 (12) TMI 1420 - ITAT DELHI CIT(E) has not brought out any allegation to show that the receipt/income of the assessee s trust was not used for the educational purposes and the same was used for other purposes beyond the objectives of the applicant trust. CIT dismissed application of the assessee for grant of registration under section 12A of the Act by recording incorrect and irrelevant facts and circumstances and the assessee successfully established that it was created for the charitable purposes including education activity and it used its funds for the purpose of educational activities and therefore the applicant trust is eligible for registration under section 12A of the Act. - Decided in favour of assessee Disallowance of expenses on account of valuation of section 40A(3) - Held that - CIT(A) has observed that the assessee has not filed any submission either before the AO or before the Ld. CIT(A) to explain the reasons for the infringement of section 40A(3), hence, the appeal on this ground was dismissed. In my considered opinion, this ground needs to be examined by the AO afresh, because no document was filed before him. Accordingly, the AO is directed to decide the issue in dispute afresh under the law, after giving adequate opportunity of being heard to the assessee. The Assessee is also directed to produce its submissions, evidences/ documents in support of its claim before the AO.

Summary

Issues:
Appeal against withdrawal of exemption u/s. 12AA, Addition of income, Disallowance of expenses under section 40A(3)

Withdrawal of Exemption u/s. 12AA:
The case involved an appeal against the withdrawal of exemption u/s. 12AA by the Ld. CIT, Dehradun, leading to the denial of benefits under section 11 of the I.T. Act. The AO observed discrepancies between the society's activities and its stated charitable objectives. The AO assessed the income at ?6,34,440, which was confirmed by the Ld. CIT(A). The Ld. CIT(A) noted that the registration under section 12AA was withdrawn due to the society's commercial operations, leading to the taxation of surplus as business profits. However, the Tribunal's order dated 25.10.2016 in a related case highlighted that the registration under section 12AA was restored, indicating that the addition made was not sustainable. Consequently, the addition of ?6,01,755 was deleted.

Addition of Income:
The AO had made an addition of ?6,34,440 based on the withdrawal of exemption u/s. 12AA. The Ld. CIT(A) upheld this addition citing the withdrawal of registration and the society's commercial tour operations. However, the Tribunal's subsequent order restoring the registration under section 12AA led to the deletion of this addition, as the society became eligible for exemption u/s. 11 of the I.T. Act.

Disallowance of Expenses under Section 40A(3):
The Ld. CIT(A) confirmed the disallowance of expenses amounting to ?32,685 under section 40A(3) as the assessee failed to provide any submissions or explanations regarding the infringement of the section. However, the ITAT directed the AO to re-examine this issue, allowing the assessee an opportunity to present its case and supporting documents. The AO was instructed to decide the matter afresh after considering the assessee's submissions.

In conclusion, the appeal was allowed for statistical purposes, with the addition of income being deleted due to the restoration of registration under section 12AA. The issue of disallowance of expenses under section 40A(3) was remanded back to the AO for fresh consideration.