2021 (6) TMI 862 - AT - Income Tax

Exemption u/s 11 - denying the benefits of registration u/s 12A - assessee has spent the amount as per the direction of the Director Marketing, thus, the claim of the assessee was allowed - HELD THAT - From the order of the AO, there is no dispute that the AO had accepted the claim of the assessee with regard to spending the sum and the same was allowed. On perusal of the statement of receipts and payments, it is seen that the total receipts of the assessee for the year under consideration and the total payments and the AO had accepted the claim of the assessee. Thus, the assessee has spent more than the actual receipts, accordingly, it is seen that the AO has not made out a case of violation of provisions of section 11(2). Once it is accepted that the expenditure is allowable against the total receipts of the year for charitable purpose it is established that the assessee has spent more than 85% of the receipts and thus there is no case for making further addition. We set aside the order of the Ld.CIT(A) and delete the addition made by the AO. The appeal of the assessee is allowed.

Summary

Issues involved:
Condonation of Delay, Denial of benefits of registration u/s 12A and exemption u/s 11 and 12 of the Income Tax Act, Mismatch of receipts for charitable purposes, Violation of section 11(2) of the Act, Assessment of total income, Appeal against AO's order, Compliance with spending requirements for charitable purposes.

Condonation of Delay:
The appeal was filed with a delay of 149 days due to the COVID-19 lockdown. The assessee requested condonation of delay, which was granted by the ITAT as the delay was beyond the assessee's control. The appeal was admitted for hearing after considering the reasons for the delay.

Denial of benefits of registration u/s 12A and exemption u/s 11 and 12 of the Act:
The grounds of appeal challenged the denial of registration benefits under sections 12A and exemptions under sections 11 and 12 of the Income Tax Act. The issues revolved around the utilization of income for charitable purposes and compliance with statutory requirements. The ITAT eventually allowed the appeal, emphasizing that the assessee had spent more than 85% of its income for charitable purposes, thereby meeting the statutory conditions.

Mismatch of receipts for charitable purposes:
The discrepancy between the income derived for charitable purposes and the amount applied during the year was a key issue. The appeal highlighted that more than 85% of the income derived was spent during the year, indicating no accumulation. The ITAT set aside the lower authorities' orders and deleted the addition made by the AO, ruling in favor of the assessee.

Violation of section 11(2) of the Act:
The violation of section 11(2) of the Income Tax Act was a central concern, particularly regarding the accumulation of income for charitable purposes. The ITAT analyzed the expenditure details provided by the assessee and concluded that there was no violation as the spending exceeded the income derived, leading to the deletion of the addition made by the AO.

Assessment of total income:
The assessment by the AO resulted in a total income determination of ?1,29,23,361, with specific additions relating to income over expenditure. However, the assessment order lacked detailed explanations for arriving at the taxable income figure. This aspect was challenged in the appeal, leading to a reevaluation by the ITAT.

Appeal against AO's order:
The assessee appealed against the AO's order, presenting arguments related to the computation of income, compliance with spending requirements, and the alleged violations of statutory provisions. The ITAT reviewed the submissions from both parties and made a decision based on the evidence and legal provisions presented during the proceedings.

Compliance with spending requirements for charitable purposes:
The compliance with spending requirements for charitable purposes under section 11(2) was a critical aspect of the case. The ITAT analyzed the expenditure details and the directions provided by the Director of Marketing, concluding that the assessee had met the spending obligations, leading to the allowance of the appeal and the deletion of the addition made by the AO.

This comprehensive analysis of the judgment covers the key issues addressed in the ITAT Visakhapatnam case, highlighting the legal arguments, factual findings, and the ultimate decision rendered by the tribunal.