2022 (11) TMI 1018 - AT - Income Tax

Exemption u/s 11 - proceedings were pending before the AO - appellant Trust is continuing the charitable work in Leh region in India and duly granted registration u/s 12AA(1) - exemption to be granted for the year under consideration - AR argued that that the appellant trust having been granted registration u/s 12A therefore, the benefit of such exemption should be granted for the year under consideration also, in view of the amendment in section 12A(2) vide finance Act, 2014 - HELD THAT - As decided in Sansthan Shree Eknath Maharaj Vishwastha Mandal 2022 (2) TMI 227 - ITAT PUNE assessment proceedings for the year under consideration, which commenced with the filing of return on 17.01.2017, were pending on the date of grant of registration by the ld. CIT(E) on 16.05.2017. Therefore, hold, in principle, that the assessee is eligible for exemption u/s 11 On similar facts, the coordinate Bench in the case of Dera Bhai Gurdas Ji Udasin Trust (Regd.) Mansa 2022 (10) TMI 386 - ITAT AMRITSAR directed the Assessing Officer to grant the benefit of Section 11 12 to the appellant trust. Judgement in the case of CIT vs. Shiv Kumar Sumitra Shikshan Sansthan, 2019 (9) TMI 55 - ALLAHABAD HIGH COURT relied by the DR is distinguishable on facts as in that case the proceeding were pending before the Tribunal and not before the AO, whereas in the present case the proceedings were pending before the AO. Thus we hold that the assessee is eligible for deduction u/s 11 and 12 for A.Y. 2010-11 under the first Proviso to section 12A. Accordingly, we delete the disputed addition by granting the benefit of Section 11 12 to the appellant trust. Appeal of the assessee is allowed.

Issues Involved:
1. Legality of assessment under section 143(3) and addition of Rs. 1,13,26,754.
2. Treatment of Receipts & Payments Account.
3. Recognition of the appellant as an NGO and the nature of its operations.
4. Consideration of specific grants/donations received.
5. Historical treatment of the appellant's accounts by the Income Tax Department.
6. Applicability of section 12A registration and its retrospective benefits.

Issue-wise Detailed Analysis:

1. Legality of Assessment under Section 143(3):
The appellant contested the assessment under section 143(3) and the addition of Rs. 1,13,26,754 as income from other sources without rejecting the books of accounts. The appellant argued that they should not be treated as a Public Limited Company.

2. Treatment of Receipts & Payments Account:
The appellant argued that the addition of Rs. 1,13,26,754 was wrongly based on the Audited Receipts & Payments Account, which is merely a summarized Cash and Bank book and does not reflect profits.

3. Recognition as an NGO:
The appellant emphasized that they are an NGO, maintaining a "Receipts & Payment A/c" and acting as a "Postman" for various projects with specific grants. They argued that there is no surplus of Rs. 26,75,553 available for taxation as they do not create assets or incur revenue expenditure on their own.

4. Consideration of Specific Grants/Donations:
The appellant contended that the CIT(A) failed to consider certificates indicating unspent amounts in the Receipts & Payments A/c, which would be adjusted towards grants-in-aid payable in the next assessment year. The total unspent amount was Rs. 49,35,623, which should not be part of the appellant's income.

5. Historical Treatment by Income Tax Department:
The appellant highlighted that no additions were made by the Income Tax Department on this issue since the inception of the NGO.

6. Applicability of Section 12A Registration:
The appellant argued that they were granted registration under section 12A on 21-07-11, and hence, the benefit of such exemption should be granted for the year under consideration (2010-11) in view of the amendment in section 12A(2) by the Finance Act, 2014. The appellant relied on various case laws, including Sansthan Shree Eknath Maharaj Vishwastha Mandal vs. ITO, which supported the retrospective application of section 12A benefits if the assessment proceedings were pending at the time of registration.

Judgment:
The tribunal acknowledged that the appellant trust was engaged in charitable activities and had been granted registration under section 12AA. It was held that the benefit of exemption under sections 11 and 12 should be granted for the year under consideration, as the assessment proceedings were pending when the registration was granted. The tribunal relied on the judgment of the Hon'ble Supreme Court in Auto & Metal Engineers And Ors. Vs. Union of India & Ors., which clarified that assessment proceedings commence with the filing of the return.

The tribunal distinguished the case from the judgment of the Hon'ble Allahabad High Court in CIT vs. Shiv Kumar Sumitra Shikshan Sansthan, as in the present case, the proceedings were pending before the AO and not the Tribunal.

Conclusion:
The appeal of the assessee was allowed, and the disputed addition was deleted by granting the benefit of sections 11 and 12 for the assessment year 2010-11 under the first proviso to section 12A. The order was pronounced in the open court on 16.11.2022.

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