2022 (6) TMI 644 - AT - Income Tax

Exemption u/s 11 - applicability of first proviso to section 2(15) to the micro finance activity carried out by the assessee - submission of the Ld.DR that the receipts from micro finance activity falls under the category of advancement of any other object of general public utility, if it exceeds the specified limit of Rs.10,00,000/- during the year, the said activity cannot be considered to be charitable activity - HELD THAT - CIT(A), by following the decision of ITAT in assessee s own case 2017 (12) TMI 1218 - ITAT VISAKHAPATNAM as passed an order held that the micro finance activity of the assessee falls under the category of relief of the poor and not under the category of advancement of any other object of general public utility within the meaning of sec.2(15) of the Act. It is accordingly held that the first proviso to sec.2(15) is not applicable to the case of the assessee. Consequently, it is held that the assessee is eligible for exemption u/s 11 of the Act. Hence, the AO is directed to allow exemption u/s 11 of the Act. These grounds of appeal are therefore allowed. Disallowance of capital grant expenses, loans write off expenses, loss on sale of bus, loss on valuation of fixed assets and Gradatim software expenses debited to income and expenditure account in the nature of capital expenditure on the ground that the exemption u/s 11 is denied - HELD THAT - CIT(A) allowed all the above said five disallowances, since the assessee is entitled for exemption u/s11 of the Act and gave a direction to the AO to delete the additions made on account of the above said five disallowances. The Ld.CIT(A) further stated that, once the assessee is entitled for exemption u/s 11, these disallowances are not warranted. Therefore, we do not find any infirmity in the order passed by the Ld.CIT(A). Thus, we dismiss the ground Nos.3 to 7 raised by the revenue.

Summary

Issues:
1. Eligibility for exemption u/s 11 of the Income Tax Act.
2. Disallowance of capital grant expenses, loans write off expenses, loss on sale of bus, loss on valuation of fixed assets, and Gradatim software expenses.

Analysis:

Issue 1: Eligibility for exemption u/s 11 of the Income Tax Act:
The appeal was filed by the revenue against the order of the Commissioner of Income Tax (Appeals) regarding the eligibility of the assessee, a charitable institution, for exemption u/s 11 of the Income Tax Act for the Assessment Year 2010-11. The Assessing Officer (AO) had disallowed the exemption, citing that the micro finance activity carried out by the assessee was not charitable due to exceeding the specified limit of Rs.10 lakhs and being in the nature of trade, commerce, or business. The CIT(A) allowed the appeal of the assessee based on previous decisions by the ITAT and the High Court of Andhra Pradesh, holding that the micro finance activity was indeed charitable in nature. The Tribunal upheld the CIT(A)'s decision, emphasizing that the micro finance activity qualified as "relief of the poor" and not "advancement of any other object of general public utility," making the assessee eligible for exemption u/s 11.

Issue 2: Disallowance of capital grant expenses, loans write off expenses, loss on sale of bus, loss on valuation of fixed assets, and Gradatim software expenses:
The AO had disallowed various expenses, including capital grant expenses, loans write off expenses, and losses on different transactions, on the grounds that exemption u/s 11 was denied to the assessee. However, the CIT(A) allowed these disallowances, stating that once the assessee is entitled to exemption u/s 11, such disallowances are not warranted. The Tribunal upheld the CIT(A)'s decision on these disallowances, concluding that since the assessee was eligible for exemption u/s 11, the disallowed expenses should be deleted. Therefore, the Tribunal dismissed the revenue's grounds related to these disallowances.

In conclusion, the Tribunal upheld the CIT(A)'s order, confirming the eligibility of the assessee for exemption u/s 11 of the Income Tax Act and dismissing the revenue's appeal and the cross objection filed by the assessee. The Tribunal emphasized the importance of previous decisions by the ITAT and the High Court of Andhra Pradesh in determining the charitable nature of the assessee's activities and the consequent eligibility for tax exemption.