2021 (4) TMI 1196 - AT - Income Tax

Exemption u/s 11 - registration granted by the CIT under Section 12AA of Act is validly in operation - CIT-A allowed exemption - HELD THAT - CIT(A) has followed the finding of the Hon ble Jurisdictional High Court in the case of the assessee in earlier year and held that the activity of authority of developing of land etc. are charitable in nature and eligible for registration under section 12AA of the Act. The Ld. CIT(A) has accordingly found the claim of the assessee for exemption under section 11 of the Act in order and also observed that assessee has applied more than 85% of the total income towards charitable purposes. The registration granted by the CIT under Section 12AA of Act is validly in operation in the relevant year and not withdrawn. Thus, the assessee was entitled for exemption under Section 11 subject to fulfilling the conditions contained therein. In view of binding precedent followed by the learned CIT(A), we do not find any error in the order of the Learned CIT(A) on the issue in dispute and accordingly we uphold the same. The additional ground and ground No. 1 of the appeal of the Revenue are accordingly dismissed. Addition of transfer to infrastructure development funds - claim of the Revenue is that amount has not been considered for application of funds and therefore this issue might be restored back to the file of the Assessing Officer as decided in the case of Khurja Development Authority - HELD THAT - Exemption under section 11 is allowed, if 85% of the funds received are applied for charitable purposes in the year under consideration and, if there is any short fall in application of such funds, the assessee has to follow the procedure prescribed for getting benefit of section 11 CIT(A) has noted that the assessee had produced before him prescribed form as laid down in the Rules, with the request for carry forward of the amount for utilization in subsequent years and, thus, has fulfilled the requirement as prescribed in Explanation I to Section 11 of the Act. Before us, the learned DR failed to controvert this finding of the Learned CIT(A). In our opinion, in the instant case before us, the assessee has fulfilled the requirement of law and we do not find any reason for restoring the matter to the Assessing Officer. We do not find any error in finding of the Learned CIT(A) on the issue in dispute and accordingly we uphold the same. The ground No.2 of the appeal of the Revenue is also dismissed.

Summary

Issues Involved:
1. Deletion of addition of ?6,35,39,809/- made by the AO.
2. Deletion of addition of ?23,36,84,304/- received towards Infrastructure Development Fund.
3. Deletion of disallowance of ?10,34,026/- claimed as depreciation.
4. Applicability of Section 11 benefits to the assessee engaged in trade, commerce, or business.

Detailed Analysis:

1. Deletion of Addition of ?6,35,39,809/-:
The Revenue challenged the deletion of the addition of ?6,35,39,809/- made by the AO, arguing that the assessee's activities were in the nature of trade, commerce, or business. The AO had assessed this surplus as business income, denying the exemption under Section 11 of the Income-tax Act, 1961. The CIT(A) relied on the jurisdictional Allahabad High Court's decision, which had held that the activities of development authorities are charitable in nature, and thus, eligible for registration under Section 12AA. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's activities were charitable, and the assessee had applied more than 85% of its income towards charitable purposes, fulfilling the conditions for exemption under Section 11. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.

2. Deletion of Addition of ?23,36,84,304/-:
The AO had added ?23,36,84,304/- to the total income, arguing that it was directly credited to the Infrastructure Development Fund without routing through the income and expenditure account. The CIT(A) observed that the funds were transferred as per government orders and were supervised by a state-nominated committee, falling under the "diversion of income by overriding title." The CIT(A) found that the assessee had utilized 85% of its total income towards charitable purposes and had filed the necessary form for carrying forward the shortfall for future utilization. The Tribunal upheld the CIT(A)'s findings, noting that the assessee had complied with the legal requirements, and dismissed the Revenue's appeal on this ground.

3. Deletion of Disallowance of ?10,34,026/- Claimed as Depreciation:
The AO had disallowed the depreciation claim of ?10,34,026/-. The CIT(A) deleted this disallowance, and the Tribunal upheld the CIT(A)'s decision, finding no error in the order.

4. Applicability of Section 11 Benefits:
The Revenue raised an additional ground, arguing that the assessee was engaged in trade, commerce, or business and thus not entitled to Section 11 benefits. The CIT(A) and the Tribunal both found that the assessee's activities were charitable in nature, as per the jurisdictional High Court's decision, and the assessee had applied more than 85% of its income towards charitable purposes. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's additional ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the assessee's activities were charitable in nature, and the assessee was entitled to exemption under Section 11 of the Income-tax Act, 1961. The Tribunal found no error in the CIT(A)'s deletion of additions and disallowances made by the AO.