2019 (11) TMI 999 - AT - Income Tax

Claim of exemption u/s 10(23C)(vi) - Allegation of diversion of Funds to relatives - D.R.argued that CIT(A) is not justified in allowing the claim without giving opportunity to the A.O - HELD THAT - It is true that it is a settled position of law that the revenue authority should not deny claim of exemption, if it is available under the facts of a particular case. In such a case, the assessee is required to demonstrate that he is eligible for the benefit available under the law. A.O. is not expected to allow each and every claim in a casual manner. For the purpose of availing benefit of exemption u/s 10(23C) the assessee is required to prove that all the conditions as set out in the letter granting registration has been fulfilled and also the assessee conducted its affairs in accordance with the statutory obligation as mandated under the law. In the present case, the A.O. has noticed that the assessee Trust had diverted its funds for the benefit of the related person. As the assessee Trust has not claimed any interest in respect of the advances given to the related person for purchase of her property, this inference is drawn on two grounds. One that there is inordinate delay for registration of sale deed of the property and secondly in the interregnum period i.e. the date when the advance was given and sale deed was executed, no interest was charged on the amount so advanced. The fact that no interest was charged on advance made to Smt. Urmila Jain is not disputed by the assessee Trust. A.O. in fact had noted the fact that the assessee Trust is registered u/s 10(23C) of the Act. Despite having recorded this fact, the A.O. did not give any specific finding as to why the assessee would not be entitled for exemption u/s 10(23C) of the Act. We therefore, under these undisputed facts, do not see any reasons to interfere into the finding of Ld. CIT(A). The grounds raised in this appeal are dismissed.

Summary

Issues Involved:

1. Validity of exemption under Section 10(23C)(vi) of the Income Tax Act.
2. Applicability of the 13th proviso to Section 10(23C) regarding the diversion of funds to related parties.
3. The procedural requirement of claiming exemption in the return of income or during assessment proceedings.

Detailed Analysis:

1. Validity of Exemption under Section 10(23C)(vi):

The primary issue was whether the CIT(A) was justified in allowing the exemption under Section 10(23C)(vi) of the Income Tax Act, despite the Assessing Officer (A.O.) finding that the income was used for the benefit of interested persons, which contravenes the 13th proviso of Section 10(23C). The A.O. observed that the assessee Trust had given an advance of ?4 crores to Smt. Urmila Jain, W/o President of the Trust, for land purchase, which was not registered until 31.3.2013, and no interest was charged on this advance. This was seen as a diversion of funds to related parties. The CIT(A) allowed the exemption, noting that the Trust was registered under Section 10(23C) and had applied its income towards its educational objectives.

2. Applicability of the 13th Proviso to Section 10(23C):

The revenue argued that the Trust violated the 13th proviso to Section 10(23C) by not applying its income solely for educational purposes and instead benefiting related parties. The CIT(A) and the Tribunal found that the A.O. did not provide specific reasons for denying the exemption under Section 10(23C), despite the Trust being registered under this section. The Tribunal noted that the A.O.'s findings were based on the delay in registering the sale deed and the lack of interest charged on the advance, but these did not conclusively prove that the Trust's income was not applied for educational purposes.

3. Procedural Requirement of Claiming Exemption:

The revenue contended that the exemption under Section 10(23C)(vi) was not claimed in the return of income or before the A.O., citing the Supreme Court's decision in Goetze (India) Ltd Vs CIT. The Tribunal, however, upheld the CIT(A)'s decision, referencing CBDT Circular No. 14 dated 11.04.1955, which instructs tax authorities to allow all benefits to the assessee, even if not claimed. The Tribunal emphasized that the purpose of tax law is to make a correct assessment and collect the legitimate tax, and denying rightful deductions or exemptions would defeat this purpose. The Tribunal also noted that similar grounds had been decided in favor of the assessee in previous years.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the exemption under Section 10(23C)(vi). The Tribunal found no change in the facts and circumstances from previous years where similar decisions were upheld. The A.O.'s failure to provide specific reasons for denying the exemption and the reliance on procedural technicalities were insufficient to overturn the CIT(A)'s decision. The Tribunal reiterated that tax authorities should assist taxpayers in securing all due reliefs and benefits under the law.