2020 (7) TMI 159 - AT - Income Tax

Exemption u/s 11 - proof of charitable activity - Assessee was granted registration under section 12AA by order dated 20/06/1988 - non applicability of provisions of sec.2(15) - HELD THAT - As decided in assessee's own case 2015 (7) TMI 169 - KARNATAKA HIGH COURT referring to the provisions of the KIDA Act Karnataka Industrial Areas Development Act, 1966 , and principle laid down in the aforesaid decision of the HonbIe Delhi High Court in the case of India Promotion Organization 2015 (1) TMI 928 - DELHI HIGH COURT in our view, will clearly show that the Assessee does not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. The assessee is operating on no profit basis. This is substantiated by the actual income received on operations of the Assessee and the expenditure incurred set out in the earlier paragraphs of this order. Proviso to Sec 2(15) of the Act is therefore not applicable to the case of the Assessee. We therefore hold that the Assessee is entitled to the benefits of Sec.11 of the Act. The AO has not disputed the conditions necessary for allowing exemption u/s.11 of the Act, except the applicability of proviso to Sec.2(15) of the Act. In view of our conclusions that the said proviso is not applicable to the case of the Assessee, we hold that the Assessee's income is not includible in-the total income and therefore the income returned by the Assessee is directed to be accepted. We therefore hold that income of assessee will be eligible to claim exemption under section 11 - Decided in favour of assessee. Surplus arises due to interest income and other income in the nature of penalty and other charges, and not from activity of acquisition of land and providing infrastructure facilities for industrial development - HELD THAT - As we note that Ld.AO has not verified whether, assessee satisfies provisions of section 11 so far as application of income is concerned, for availing exemption under section 11 of the Act. We accordingly, direct Ld.AO to verify the same and to consider claim in accordance with law. Depreciation on assets of trust - double deduction - HELD THAT - Both sides submits that this issue stands squarely settled in favour of assessee by decision in case of CIT vs Rajasthan and Gujarat Charitable Foundation Poona 2017 (12) TMI 1067 - SUPREME COURT wherein as noted that, amendment to section 11 (6) of the Act introduced by Finance Act No.2/2014 is prospective in nature, and will be effective from assessment year 2015-16 onwards. Hon ble Supreme Court upheld the observations of ITAT Mumbai, which was confirmed by Hon ble Bombay High Court in case of DIT (E) vs Framjee Cawasjee Institute 1992 (7) TMI 331 - BOMBAY HIGH COURT wherein it was held that if amount has been spent on acquiring assets and has been treated as application of income in the year. - Decided against revenue.

Summary

Issues Involved:
1. Depreciation on assets already allowed as application of income.
2. Status of the appellant as 'Association of Persons'.
3. Eligibility for exemption under section 11 of the Income Tax Act, 1961.
4. Additions under slum improvement cess, labour welfare fund, and KST tender/application.
5. Treatment of EMD/Security Deposit as income.
6. Addition of unaccounted water supply charges.
7. Addition under section 69A for unexplained credits.
8. Addition under section 69A for unexplained amounts credited in bank accounts.
9. Levy of interest under sections 234A, 234B, and 234D.

Issue-wise Detailed Analysis:

1. Depreciation on Assets Already Allowed as Application of Income:
The revenue's appeal questioned the allowance of depreciation on assets that had already been considered as application of income in earlier years. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling in CIT vs Rajasthan and Gujarat Charitable Foundation Poona, which clarified that the amendment to section 11(6) introduced by Finance Act No.2/2014 is prospective and applicable from assessment year 2015-16 onwards. Thus, depreciation can be claimed even if the asset's cost was treated as application of income in the acquisition year.

2. Status of the Appellant as 'Association of Persons':
The assessee contested the CIT(A)'s decision to assess it as an 'Association of Persons' (AOP). The Tribunal noted that the assessee is a statutory body constituted under the Karnataka Industrial Areas Development Act, 1966 (KIADA). It was established to promote industrial development in Karnataka and operates under the direct control of the State Government. The Tribunal found that the assessee's activities align with the objectives set out in the KIADA, and it should not be assessed as an AOP.

3. Eligibility for Exemption under Section 11:
The core issue was whether the assessee was eligible for exemption under section 11, given the proviso to section 2(15) regarding 'charitable purpose'. The Tribunal referred to previous orders for assessment years 2009-10 and 2010-11, which established that the assessee’s activities are not commercial in nature and are aimed at promoting industrial growth, a recognized charitable purpose. The Tribunal concluded that the proviso to section 2(15) does not apply to the assessee, making it eligible for exemption under section 11.

4. Additions under Slum Improvement Cess, Labour Welfare Fund, and KST Tender/Application:
The assessee argued that these amounts were not claimed as deductions or application of income, hence should not be added under section 43B. The Tribunal directed the AO to verify whether the provisions of section 11 regarding the application of income were satisfied and to consider the claim accordingly.

5. Treatment of EMD/Security Deposit as Income:
The AO treated the EMD/Security Deposit as income, which the assessee contested, claiming it as a capital receipt. The Tribunal directed the AO to verify the nature of these receipts and reconsider the addition based on the verification.

6. Addition of Unaccounted Water Supply Charges:
The AO added ?15,16,633 as unaccounted water supply charges. The Tribunal allowed the deduction in the year when the accounting entry is rectified by the assessee.

7. Addition under Section 69A for Unexplained Credits:
The AO added ?26,06,141 under section 69A, which the assessee explained as revenue items accounted for in the subsequent period. The Tribunal directed the AO to exclude the amount from income or allow it as a deduction in the year it was accounted for.

8. Addition under Section 69A for Unexplained Amounts Credited in Bank Accounts:
The AO added ?9,50,93,431 under section 69A, questioning the nature and source of credits. The Tribunal found that the majority of these amounts were consideration for land allotment, a capital receipt, and directed the AO to reconsider the addition based on proper appreciation of the explanation offered by the assessee.

9. Levy of Interest under Sections 234A, 234B, and 234D:
The Tribunal noted that the assessee denied liability to pay interest under these sections and found that the issue was consequential, requiring no separate adjudication.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to verify certain claims and reconsider additions based on the verifications. The revenue's appeal was dismissed, upholding the allowance of depreciation on assets already treated as application of income.