2024 (9) TMI 140 - AT - Income Tax

Denial of exemption u/s 11 - JCIT invoked proviso to section 2(15) in respect of certain income which in her view were in the nature of trade and commerce and by denying the exemption - HELD THAT - We have heard the rival submissions and perused the records of the appeal files, written notes filed by assessee, orders of the lower authorities and judgment in the case of Ahemdabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT . We find that the ld.CIT(A) has proceeded ex-parte against the assessee considering for the first time the judgment in the case of Ahemdabad Urban Development Authority (supra). in appellate proceedings which is in complete violation of the principles of natural justice. CIT(A) could have remanded the appeals to AO for fresh adjudication in the light of Hon ble Supreme Court judgment referred supra. We accept the prayer the assessee that the AO should consider the claim of exemption u/s 11 of the Act in the light of the Judgment of the Hon ble Supreme Court in the case of Ahemdabad Urban Development Authority (supra). Hence, accordingly we set aside the all these four appeals to the file of AO to do denovo assessment with respect to the claim of exemption u/s 11 of the Act as per ratio laid down by the Hon ble Supreme Court in the case of Ahemdabad Urban Development Authority (supra). Consequently, we also set aside the other issues raised viz; issue of TDS, sundry creditors, depreciation, interest u/s 244A and issue of 234B arising in respective appeals to the file of AO to look into a fresh as per law.

Summary

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act, 1961.
2. Disallowance of depreciation claim.
3. Taxation of corpus donations.
4. Levy of interest under Section 234B.
5. Compliance with the principles of natural justice.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 11:
The primary issue in the appeals is the denial of exemption under Section 11 of the Income Tax Act, 1961. The appellant, a non-profit organization registered under the Societies Registration Act and approved under Section 12A of the Income Tax Act, aims to uplift artisans by providing them platforms to market their products. The Joint Commissioner of Income Tax (JCIT) invoked the proviso to Section 2(15) and denied the exemption under Section 11, charging the net surplus as business income. The CIT(A), relying on the Supreme Court judgment in ACIT (Exemptions) Vs Ahmedabad Urban Development Authority, upheld the denial of exemption, stating that the appellant's activities amounted to trade and commerce and exceeded the 20% threshold of total receipts.

2. Disallowance of Depreciation Claim:
The JCIT disallowed the depreciation claim of Rs. 1,09,198/-, reasoning that the investments in depreciable capital assets had already been allowed as a deduction in the year of investment. The appellant contended that the Supreme Court has held that profits of the trust should be determined on a commercial basis, allowing depreciation as a deduction until the amendment to Section 11(6) effective from 1.4.2015.

3. Taxation of Corpus Donations:
The JCIT taxed corpus donations amounting to Rs. 75,90,000/-, treating them as business profits. The appellant argued that these donations were from well-wishers with no connection to the sale or purchase of artisans' products and should not be considered business income.

4. Levy of Interest under Section 234B:
Interest under Section 234B amounting to Rs. 8,63,928/- was levied by the JCIT. The appellant did not specifically contest this issue in the appeals.

5. Compliance with Principles of Natural Justice:
The CIT(A) proceeded ex-parte against the appellant, considering the Supreme Court judgment in Ahmedabad Urban Development Authority for the first time during appellate proceedings, which the Tribunal found to be a violation of the principles of natural justice. The Tribunal held that the CIT(A) should have remanded the appeals to the AO for fresh adjudication in light of the Supreme Court judgment.

Tribunal's Decision:
The Tribunal set aside the four appeals to the file of the AO for a de novo assessment concerning the claim of exemption under Section 11, as per the ratio laid down by the Supreme Court in Ahmedabad Urban Development Authority. The Tribunal also set aside other issues, including TDS, sundry creditors, depreciation, interest under Section 244A, and Section 234B, for fresh consideration by the AO. The AO was directed to conduct the assessment after affording an adequate opportunity of hearing to the appellant, who was also directed to submit all possible financial evidence to substantiate its claims.

Conclusion:
The appeals for the assessment years 2011-12, 2013-14, 2015-16, and 2016-17 were allowed for statistical purposes, and the AO was instructed to perform a de novo assessment in compliance with the principles of natural justice and the Supreme Court's guidelines.

Order Pronouncement:
The order was pronounced in the open court on 14th August 2024 at Chennai.