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2018 (11) TMI 439 - AT - Income TaxClaim of exemption under section 11 - proof of charitable activities - AO rejected assessee s claim of exemption under section 10(23) - grievance of the Department is confined to allowance of assessee s claim of deduction in the face of disallowance of part of the expenditure claimed by the assessee - Specific allegation of violation of section 13(2)(b) - Held that - Admittedly, in the relevant assessment year, assessee was registered under section 12A of the Act. Therefore, the primary condition for availing exemption under section 11 of the Act was fulfilled. The next issue is, whether by disallowance of a part of expenditure, claim of exemption under section 11 of the Act can be disallowed on its entirety. In this context, it is necessary to examine the provisions of section 11 of the Act. A reading of section 11(1)(a) of the Act makes it clear that exemption under section 11 of the Act is allowable to the extent of income derived from property held for charitable or religious purposes is applied for charitable for religious purposes. Thus, as per the ordinary and plain meaning of the aforesaid provision, the assessee is entitled to claim exemption of income to the extent it is applied for charitable purpose. Of course, the provisions of section 11 is subject to the conditions / exceptions provided under section 13 of the Act. However, in the present case, there is no allegation by the Assessing Officer that the assessee has violated any of the conditions of section 13 of the Act. That being the case, the contention of learned Departmental Representative that assessee s claim of exemption under section 11 of the Act has to be disallowed entirely is not acceptable. violation of section 13(1)(d) of the Act will not lead to denial of exemption under section 11 of the Act on the total income of the assessee. Denial of exemption under section 11 of the Act should be limited to the amount disallowed under section 13(2)(b) of the Act. Thus assessee s claim of exemption under section 11 of the Act is allowable to the extent assessee has applied such income for charitable purposes. For claim of exemption under section 10(23) the assessee s application for issuance of notification under section 10(23) of the Act for the impugned assessment year is still pending before the appropriate authority. At least, till date the assessee has not received any communication from the Department intimating the fate of its application for grant of notification under section 10(23) of the Act. In view of the aforesaid, we direct the Assessing Officer to consider assessee s claim of exemption under section 10(23) of the Act in case a notification under section 10(23) of the Act is issued for the impugned assessment year by the appropriate authority. However, the claim of exemption under the aforesaid provision will be available to the assessee subject to fulfillment of all the conditions of section 10(23) of the Act. This ground is allowed for statistical purposes. Part disallowance out of travel expenditure of Shri P.M. Rungta, towards his visit to Delhi - Held that - During the remand proceedings, though, the assessee produced some evidence, however, as mentioned by the Assessing Officer in the remand report, no invoice was produced in respect of reimbursement of three air tickets for journey made on 3rd September 1998.The Assessing Officer has also mentioned that in addition to T.A./D.A. bill for ₹ 61,560, along with air fare charges, Shri P.M. Rungta has claimed hotel bill for ₹ 16,260, as well as enroute halts and entertainment and transport charges. Similar claim was made for journey undertaken during the period from 17th September 1998 and 1st September 1998. Thus, from the aforesaid observations of the Assessing Officer, it is clear that the assessee has failed to justify the expenditure claimed. In view of the aforesaid, we uphold the disallowance. 50% disallowance out of expenditure claimed towards purchase of tickets - Held that;- looking at the wide range of assessee s operation, a very small amount had been spent for purchase of tickets, however, he has disallowed 50% out of the expenditure claimed. Thus, when in the course of remand proceedings, the assessee furnished the details of tickets purchased with supporting evidence and the learned Commissioner (Appeals) has also given a factual finding that the amount spent by the assessee for purchase of tickets is very small having regard to the operations of the assessee, in our view, the expenditure claimed by the assessee should be allowed in full. Accordingly, we delete the disallowance sustained by the learned Commissioner (Appeals). Disallowance of ₹ 2 lakh out of foreign travel expenses - Held that - As could be seen from the impugned order of the learned Commissioner (Appeals), after perusing the material on record, he was convinced that there was a definite purpose for which all the foreign visits were undertaken by the concerned persons. In view of such finding of the learned Commissioner (Appeals), there is no need for ad hoc disallowance of ₹ 2 lakh out of the expenditure claimed. Accordingly, we delete the disallowance made. Disallowance of entertainment expenses - Held that - As could be seen, as per assessee s own admission, these expenses were incurred towards food, wine and gift for Government officials and other persons. The assessee has not furnished any evidence in support of such expenditure. Even, by very nature the expenditure claimed, in our view, is not allowable. Accordingly, we uphold the disallowance made by the Departmental Authorities. Extend the benefit of section 11(2) of the Act with regard to the additions / disallowances confirmed by the appellate authority - Held that - Assessing Officer did not consider assessee s claim under section 11(2) of the Act since he rejected assessee s claim of exemption under section 11 of the Act. However, the learned Commissioner (Appeals) has directed the Assessing Officer to allow the benefit of accumulation under section 11(2) of the Act if the assessee has claimed such benefit in the prescribed manner. In view of the aforesaid direction, we do not find the need for any further direction to the Assessing Officer. Suffice to say, the Assessing Officer must consider assessee s claim of benefit of section 11(2) of the Act subject to fulfillment of all the conditions of the said provisions. With the aforesaid observations, this ground is allowed for statistical purposes.
Issues Involved:
1. Exemption under Section 11 of the Income Tax Act, 1961. 2. Exemption under Section 10(23) of the Income Tax Act, 1961. 3. Disallowance of travel expenses. 4. Disallowance of expenses for purchase of tickets. 5. Disallowance of foreign travel expenses. 6. Disallowance of entertainment expenses. 7. Benefit under Section 11(2) of the Income Tax Act, 1961. Detailed Analysis: 1. Exemption under Section 11 of the Income Tax Act, 1961: The primary issue was whether the assessee, a registered charitable institution, was entitled to exemption under Section 11 despite partial disallowance of certain expenditures by the Assessing Officer (AO). The AO disallowed various expenditures, including travel and entertainment expenses, on the grounds that they were not incurred for charitable purposes. Consequently, the AO denied the exemption under Section 11. The Commissioner of Appeals (CIT(A)) partially upheld some disallowances but allowed the exemption under Section 11 for the income applied towards charitable purposes. The Tribunal upheld the CIT(A)’s decision, emphasizing that disallowance of part of the expenditure does not lead to a complete denial of exemption under Section 11, provided the primary conditions of Section 11 are met and there is no violation of Section 13. 2. Exemption under Section 10(23) of the Income Tax Act, 1961: The assessee's claim for exemption under Section 10(23) was rejected by the AO on the grounds that the conditions of the said provision were not fulfilled, and the application for issuance of notification under Section 10(23) was still pending. The CIT(A) held that the AO was not justified in making adverse comments since the application was pending. The Tribunal directed the AO to consider the exemption under Section 10(23) if the notification is issued, subject to the fulfillment of all conditions. 3. Disallowance of Travel Expenses: The AO disallowed travel expenses of office bearers and others due to lack of proper documentation. The CIT(A) sustained the disallowance for specific travel expenses of Shri P.M. Rungta but deleted other disallowances based on detailed evidence provided during remand proceedings. The Tribunal upheld the disallowance of Shri P.M. Rungta’s travel expenses due to insufficient evidence but allowed other travel expenses. 4. Disallowance of Expenses for Purchase of Tickets: The AO disallowed expenses for purchasing tickets for international matches, arguing that the assessee failed to provide details of ticket recipients. The CIT(A) reduced the disallowance to 50%. The Tribunal, considering the evidence provided during remand proceedings and the nature of the assessee’s operations, deleted the disallowance, allowing the expenditure in full. 5. Disallowance of Foreign Travel Expenses: The AO disallowed 50% of foreign travel expenses due to insufficient evidence of the trips being for ICC meetings. The CIT(A) reduced the disallowance to ?2 lakh. The Tribunal noted the CIT(A)’s finding of a definite purpose for the trips and deleted the ad-hoc disallowance. 6. Disallowance of Entertainment Expenses: The AO disallowed entertainment expenses on the grounds that they were not for charitable purposes. The CIT(A) upheld this disallowance. The Tribunal agreed, noting the lack of evidence and the nature of the expenses, which included food, wine, and gifts for government officials. 7. Benefit under Section 11(2) of the Income Tax Act, 1961: The assessee sought directions for the AO to extend the benefit of Section 11(2) for disallowed additions. The CIT(A) directed the AO to allow the benefit if claimed in the prescribed manner. The Tribunal upheld this direction, emphasizing that the AO should consider the claim subject to fulfilling the conditions of Section 11(2). Conclusion: The Tribunal dismissed the Revenue’s appeals and partly allowed the assessee’s appeals, providing detailed directions on the treatment of various disallowed expenditures and the conditions for exemptions under Sections 11 and 10(23) of the Income Tax Act, 1961. The Tribunal's decision emphasized the importance of proper documentation and the fulfillment of statutory conditions for claiming exemptions.
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