2017 (10) TMI 43 - AT - Income Tax

Exemption u/s 11 - Charitable purpose u/s 2(15) - registration u/s 12AA providing infrastructure facilities including handling, storage and clearance of import and export cargo of diamonds, precious, semi-precious stones, etc. - Held that - the registration under section 12AA of the 1961 Act of the assessee cannot be cancelled by the learned Director of Income-tax (Exemption) and the same is hereby restored with effect from the date it was cancelled by the learned Director of Income-tax (Exemption) vide the impugned order of the learned Director of Income-tax (Exemption) which is under challenge before us. - Disallowance of outstanding liability of IAAI handling charges - Held that - Contention of the assessee that it has written back the outstanding liability towards handling charges payable to IAAI in the financial year 2010-11 i.e. the assessment year 2011-12 on the grounds that IAAI has divested and transferred its operations to Mumbai International Airport Limited and hence the liability of the assessee ceased, does not inspire confidence unless positive and cogent evidence is brought on record to that effect as normally when the operations are transferred/divested, then adequate provisions are made in the agreements to preserve all rights in existing agreements which are either taken over by successor or are retained by transferor but to say that the liability has ceased just because IAAI divested its operations in favour of the Mumbai International Airport Limited cannot be accepted unless positive cogent evidence is brought on record to that effect to prove the said contention. Thus matter need to be set aside to the file of the Assessing Officer for de novo determination. Outstanding liability of Cost recovery customs - Held that - The assessee once agreed to bear these costs, thereafter, cannot interfere with the Government of India in discharging its duties, obligation and responsibilities towards performance of the sovereign functions of the State under the Customs Act, 1962, unless it is brought on record that decision of the Government of India in deploying additional staff and officers is unconscionable or is suffering from perversity. Nothing of that sort is emanating from records and pleadings before us. These functions under the Customs Act, 1962 to be performed by the Government of India are sovereign functions of State and it is the responsibility of the Government of India to properly discharge its duties, obligations and responsibilities as mandated under the Customs Act, 1962. Further, it has now come on record that the outstanding amount payable by the assessee to the Government of India is now recovered by the Government of India through encashment of bank guarantee, the disallowance made by the Assessing Officer, thus, cannot be sustained. For limited verification of the claim of the assessee that the entire liability towards customs stood discharged, we are remitting the matter back to the file of the Assessing Officer for limited verification. Thus, the additions sustained by the learned Commissioner of Income-tax (Appeals) is ordered to be deleted, while relief granted by the learned Commissioner of Income-tax (Appeals) is hereby confirmed, subject to the limited verification by the Assessing Officer as indicated above. Principles of mutuality applicability - Held that - Both the parties fairly agreed that this matter be restored to the file of the learned Commissioner of Income-tax (Appeals) for fresh adjudication of the issue on the merits after giving opportunity to the Assessing Officer for necessary examination, enquiry and verification of the additional claim of application of the principles of mutuality as well of evaluation of additional evidences filed by the assessee, and thereafter the submission of the Assessing Officer s remand report to the learned Commissioner of Income-tax (Appeals). As no opportunity was granted to the Assessing Officer to submit his remand report, we are inclined to set aside the issues in the appeal to the file of the learned Commissioner of Income-tax (Appeals) for fresh adjudication of the issues on the merits after granting opportunity to the Assessing Officer in terms of rule 46A(3).

Summary

Issues Involved:
1. Cancellation of registration under Section 12AA(3).
2. Disallowance of outstanding liability of IAAI handling charges.
3. Disallowance of provision for outstanding liability of cost recovery customs.
4. Application of principles of mutuality.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3)
The assessee challenged the cancellation of its registration under Section 12AA(3) by the Director of Income-tax (Exemption) (DIT(E)) for the assessment year 2009-10. The DIT(E) cancelled the registration, stating that the assessee’s activities were in the nature of trade, commerce, or business, thus not qualifying as charitable under the amended Section 2(15) of the Income-tax Act, 1961. The assessee argued that its activities were charitable, citing a Supreme Court decision in its favor (DIT v. Bharat Diamond Bourse [2003] 259 ITR 280 (SC)). The Tribunal restored the registration, noting that the DIT(E) did not prove the activities were non-genuine or not in accordance with the trust’s objects. The Tribunal also mentioned that the Assessing Officer should determine the applicability of the amended Section 2(15) during assessment proceedings.

2. Disallowance of Outstanding Liability of IAAI Handling Charges
The Assessing Officer disallowed ?4,38,34,270, treating it as income since the liability was not paid for over 20 years. The assessee contended that the liability arose from an agreement with MMTC and was provided for on a cost recovery basis. The Tribunal found that the authorities did not verify the latest status of the liability or the terms of the agreement between MMTC and IAAI. The matter was remanded to the Assessing Officer for a de novo determination after verifying all relevant documents and giving the assessee an opportunity to present its case.

3. Disallowance of Provision for Outstanding Liability of Cost Recovery Customs
The Assessing Officer added ?24,58,567 as income, stating the liability was inflated. The assessee argued the liability was for additional customs staff deployed by the government, which it contested but provided for in its books. The Tribunal noted that the government’s deployment of additional staff was due to increased trade volume, and the assessee agreed to bear these costs. The Tribunal remanded the matter to the Assessing Officer for verification of the claim that the liability was settled through encashment of a bank guarantee.

4. Application of Principles of Mutuality
The Revenue appealed against the Commissioner of Income-tax (Appeals) (CIT(A)) applying the principles of mutuality without the assessee claiming it during assessment. The Tribunal noted that the CIT(A) did not call for a remand report from the Assessing Officer, violating Rule 46A(3) of the Income-tax Rules, 1962. The Tribunal set aside the issue to the CIT(A) for fresh adjudication after giving the Assessing Officer an opportunity to examine the additional claim and evidence.

Conclusion:
The Tribunal restored the assessee’s registration under Section 12AA, remanded the issues of IAAI handling charges and cost recovery customs to the Assessing Officer for fresh verification, and set aside the mutuality principle issue to the CIT(A) for fresh adjudication. The appeals were partly allowed, allowed for statistical purposes, or dismissed as indicated in the respective judgments.