2022 (8) TMI 585 - AT - Income Tax

Exemption u/s 11 - violation of Section 13(1)(d) r.w.s. 11(5)(1) - AO held that although the assessee is registered u/s 12AA the trust is not doing any charitable activity - amount given us loan would be treated as taxable - AO held that the society has diverted its fund and invested in violation of 11(5) - HELD THAT - In the instant case, the assessee has neither deposited nor made investments by extending loan to the parties mentioned above. Hence, the provisions of Section 13(1)(d) and 11(5) are not applicable. To decide the issue, we have gone through the provisions of Section 11(1)(d) existing as on the Assessment Year applicable to the assessee which were brought by the amendment w.e.f. 01.04.1989 and also the further amendments brought out w.e.f. 01.04.2021. From the concurrent reading of the provisions as on 01.04.1989 and as on 01.04.2021, we find that there was no mandate that the corpus donations have to be necessarily invested or deposited one or more of the forms or modes specified in sub-section (5) maintained specifically for such corpus. Hence, the appeal of the assessee for the instant year is allowable. Decided in favour of assessee.

Summary

Issues:
1. Addition of Rs. 79,95,000 as income by invoking Section 13(1)(d) read with Section 11(5) of the Act.
2. Classification of advances made to unrelated parties as 'investment or deposit' under Section 13(1)(d).
3. Denial of exemption on entire income in case of any contravention of Section 13(1)(d).

Analysis:
1. The appeal was filed against the order of the ld. CIT(A) sustaining the addition of Rs. 79,95,000 as income. The assessee, a public charitable trust, had given advances to various parties. The AO invoked Section 13(1)(d) read with Section 11(5) of the Act, treating the advances as taxable income. The AO held that the trust diverted funds in violation of specified investment norms, resulting in the addition of the advanced amounts to the income of the assessee.

2. The AO specifically questioned the nature of the advances given to unrelated parties, suspecting them to be investments or deposits falling under Section 13(1)(d). The AO issued a show cause notice to the assessee regarding the diversion of funds. The assessee contended that the advances were not investments but were given against the purchase of land. However, the AO found the explanation unsatisfactory and held that the advances constituted taxable amounts under Section 13(1)(d).

3. The ld. CIT(A) upheld the AO's decision, confirming the violation of Section 13(1)(d) read with Section 11(5)(1) of the Act. However, the ITAT, after thorough examination of the provisions of Section 11(1)(d) applicable to the assessee, concluded that the assessee had not violated the investment norms specified under Section 11(5). The ITAT noted that there was no mandate for corpus donations to be invested or deposited in specific forms or modes. Therefore, the appeal of the assessee was allowed, overturning the previous decisions.

In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal and setting aside the addition of Rs. 79,95,000 as income. The judgment clarified the interpretation of Section 13(1)(d) in relation to investments and deposits made by charitable trusts, emphasizing the importance of adherence to specified investment norms under the Income Tax Act, 1961.