2017 (8) TMI 1245 - AT - Income Tax

Eligibility to claim benefits of section 11 and 12 - No claim was made in the original return nor any revised return was filed - registration was granted during the assessment proceedings - Held that - Similar issue has come up in assessee s own case for AY 2011-12 where we have taken a view that where during pendency of appeal before the ld CIT(A), the assessee was granted registration under section 12AA, it would be a case of pendency of assessment proceedings and the assessee would be eligible to claim benefits of section 11 and 12 of the Act. In the instant case, the facts are on a better footing as registration was granted during the pendency of assessment proceedings before the AO itself. Further, we agree with the view of the ld CIT(A) that the decision of Hon ble Supreme Court in case of Goetze India 2006 (3) TMI 75 - SUPREME Court relates to powers of the AO and not to the powers of the appellate authorities and hence, the said decision doesn t support the case of the Revenue. The assessee has made the necessary claim for exemption u/s 11 during the course of assessment proceedings and the ld CIT(A) has rightly allowed the same. Depreciation is held admissible to the assessee society registered under section 12AA and held eligible for exemption under section 11 and 12 of the Act. TDS u/s. 194C - defect in vouchers under the head building construction account which was not claimed as revenue expenses but capital expenses - Held that - It is assessee s contention that the expenses disallowed and partly sustained by the ld CIT(A) have not been claimed as revenue expenditure during the year. There is no finding recorded by the AO or ld CIT(A) in this regard. We accordingly set aside this matter to the file of the AO to examine the said contention of the assessee and decide the matter a fresh as per law. In the result, both the grounds of revenue and assessee are allowed for statistical purposes. Invoking the provisions of section 13(1)(c)(ii) r.w.s 13(2)(g) - Held that - What is relevant to examine is the year in which the money has been invested or shares have been brought otherwise than in the prescribed mode and income arising therefrom during the previous year. In absence of any finding of the AO in this regard, the matter is accordingly set-aside to the file of the AO to examine the same afresh taking into consideration the above discussions. Similarly, the matter relating to transaction with Nirmal Panwar Finance Pvt Ltd is also set aside to the file of the AO where the AO has invoked the similar provisions. In the result, ground no. 1 of the assessee s appeal is partly allowed for statistical purposes. Addition sustained u/s 40(a)(ia) - Held that - Since the assessee is held eligible for deduction u/s 11 and 12 of the Act as we have discussed above, the provisions of section 40(a)(ia) of IT Act are not attracted as the same are restricted to income chargeable under the head profit and gains from business or profession .

Issues Involved:
1. Deletion of addition made on account of corpus donations treated as revenue receipts.
2. Taxing of surplus amount by holding provisions of Sec. 11 & 12 applicable.
3. Disallowance of depreciation on capital assets.
4. Disallowance of charity/donation expenses.
5. Addition made out of expenses.
6. Sustaining additions on account of presumed interest.
7. Denial of statutory deduction under section 11.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made on Account of Corpus Donations Treated as Revenue Receipts:
The Revenue challenged the deletion of ?5,29,48,789/- made on account of corpus donations received in the form of a building fund. The AO treated these as revenue receipts, arguing that the building fund was part of the fee receipt and not voluntary. The CIT(A) deleted this addition, treating the building fund as corpus donations. The Tribunal noted that similar issues were dealt with in the assessee's case for AY 2011-12 and remanded the matter back to the AO for fresh examination, emphasizing the need to determine the intention of the donor and the treatment of the receipts by the donee trust.

2. Taxing of Surplus Amount by Holding Provisions of Sec. 11 & 12 Applicable:
The AO did not accept the assessee's claim of exemption under sections 11 and 12 due to the lack of a claim in the original or revised return. However, the CIT(A) allowed the exemption, citing the proviso to section 12A(2) which applies to pending assessments. The Tribunal upheld the CIT(A)'s decision, noting that the assessee made the necessary claim during assessment proceedings and the decision in Goetze India Ltd. does not apply to appellate authorities.

3. Disallowance of Depreciation on Capital Assets:
The AO disallowed depreciation of ?1,89,57,668/- on the grounds that the capital expenditure had already been allowed as application of income under section 11. The CIT(A) allowed the depreciation, referencing the Rajasthan High Court's decision in CIT vs. Krishi Upaj Mandi Samiti. The Tribunal affirmed this view, noting that the amendment to section 11(6) is prospective from 01-04-2015, and depreciation is allowable even if the capital expenditure has been claimed as application of income.

4. Disallowance of Charity/Donation Expenses:
The AO disallowed ?18,039/- for lack of evidence and because the exemption under section 11 was rejected. The CIT(A) allowed this claim. The Tribunal set aside the matter to the AO to verify if the expenses are within the 15% limit of gross receipts and directed the assessee to provide necessary evidence.

5. Addition Made Out of Expenses:
The AO made an addition of ?20,00,000/- for defects in vouchers under the building construction account, which was not claimed as revenue expenses but capital expenses. The CIT(A) reduced this to ?5,00,000/-. The Tribunal set aside the matter to the AO to verify if these expenses were claimed as revenue expenditure and to decide accordingly.

6. Sustaining Additions on Account of Presumed Interest:
The AO added ?42,13,871/- as presumed interest on advances to related parties, invoking section 13(1)(c)(ii) r.w.s 13(2)(g). The CIT(A) confirmed this addition. The Tribunal noted that no advances were made during the year except for ?8,00,000/- and set aside the matter to the AO to re-examine the applicability of sections 13(1)(c)(ii) and 13(2)(g).

7. Denial of Statutory Deduction Under Section 11:
The AO denied the deduction under section 11 on the sustained addition of ?42,13,821/- and ?26,260/- under section 40(a)(ia). The Tribunal set aside the matter to the AO for re-examination in light of the eligibility for deduction under sections 11 and 12, and noted that section 40(a)(ia) does not apply to income chargeable under the head "profits and gains from business or profession."

Conclusion:
The Tribunal remanded several issues back to the AO for fresh examination and upheld the CIT(A)'s decisions on others, ensuring that the facts and legal principles are thoroughly re-evaluated. The appeals filed by both the Revenue and the assessee were partly allowed for statistical purposes.

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