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TMI Blog2020 (6) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee is an application of income, hence, addition cannot be made - See assessee's own case [ 2016 (7) TMI 1577 - ITAT VISAKHAPATNAM] relying on TRUSTEE OF H. EH THE NIZAM S SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST [ 1978 (2) TMI 7 - ANDHRA PRADESH HIGH COURT] Disallowance of various expenses in absence of registration u/sec. 12A - HELD THAT:- We find that when the Assessing Officer passed the assessment order the assessee was not having 12A registration. Subsequently, on [ 2015 (5) TMI 1210 - ITAT VISAKHAPATNAM] has restored 12A registration to the assessee. Therefore, the ld. CIT(A) by considering the same is of the opinion that these are the expenditure incurred by the assessee are in the nature of application of income, hence, allowed. We find no infirmity in the order passed by the ld.CIT(A). Rejection of books of account and estimation of income - AO estimated the income at 12% - CIT(A) deleted the addition on the ground that assessee is following consistently cash system of accounting - HELD THAT:- As decided in own case [ 2016 (7) TMI 1578 - ITAT VISAKHAPATNAM] we are of the view that the assessee is following Cash System of accounting for determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted for scrutiny and was reopened and assessment was completed u/sec. 143(3) r.w.s. 147 of the Act, dated 13/03/2015. In the assessment order, the Assessing Officer has noted that assessee has refunded an amount of ₹ 3,51,90,879/- to M/s. SICL, out of which an amount of ₹ 1,57,47,623/- had been refunded in A.Y. 2008-09 and the remaining balance was refunded in the A.Ys. 2009-10 2010-11. According to the Assessing Officer, the assessee refunded an amount of ₹ 1,57,47,623/- to M/s. SICL was out of income for the year under consideration. The said payment was reflected as an outgoing in the receipt and payment of the assessee and refund was made by the assessee on the basis of resolution passed by the trust at the instance of the authors or founders and therefore same is hit by the provisions of section 13(1)(c) 13(2)(g) r.w.s. 13(3) of the Act. Accordingly, the same amount is added to the total income of the assessee. 6. On appeal, ld. CIT(A) by following the decision of the ITAT, Visakhapatnam Bench in ITA No.269/VIZ/2013 dated 22/05/2015 deleted the addition made by the Assessing Officer. 7. On appeal before us, ld. counsel for the assessee has submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(1)(c) 13(2)(g) r.w.s 13(3) of the Act. The relevant portion of the order is reproduced below: 16. The last question is whether the assessee has violated the provisions of S.13(3)(g) r.w.s. 13(cc) of the Act. At the outset the violation has to be looked into at the time of the assessment and not for applying the provisions of S.12AA(3) of the Act. Sec.12AA(3) does not permit the CIT to examine violation u/s 13 etc. 16.1. Be it as it may, on facts we find that the Representative of M/s South India Corporation Ltd. was not a trustee of the assessee trust, during the period when excess fee collected was refunded. This factual position, as already stated, was not controverted by the Ld.CIT, D.R. Thus prima facie, invocation of S. 13(2)(g) of the Act r.w.s. 13(3)(cc) is bad in law. 16.2. Even otherwise, the fee to be charged by the assessee trust is fixed by the Visakhapatnam Port Trust through the Visakhapatnam Dock Labour Board, in the case on hand, it is the Visakhapatnam Dock Labour Board, which found that fee charged from MIs South India Corpn. Ltd. for a particular period was excessive. - This amount was refunded by the Dock Labour Board to the assessee on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made by the assessee for the A.Ys. 2004-05 2005-06 amounting to ₹ 9,11,880/- and ₹ 91,16,768/- which comes to ₹ 1,00,28,648/- is not allowable deduction, therefore added the same to the total income of the assessee. 13. On appeal, ld. CIT(A) allowed these payments by following the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Trustees of H.E.H. the Nizams Supplemental Religious [(1981) 127 ITR 378 (A.P.)] as an application of income. 14. Before us, ld. counsel for the assessee has submitted that coordinate bench of the tribunal in assessee s own case in ITA No. 525/VIZ/2014 by common order dated 01/07/2016 has considered the issue and held that income-tax payment made by the assessee is an application of income, hence, addition cannot be made. For the sake of convenience, the relevant portion of the order is extracted as under:- 19.1. We have heard both the parties and perused the material available on record. The AO disallowed income tax while computing income available for application for charitable purposes. The AO was of the opinion that income tax is not allowable as deduction while computing income available for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame is of the opinion that these are the expenditure incurred by the assessee are in the nature of application of income, hence, allowed. We find no infirmity in the order passed by the ld.CIT(A). Thus, this ground of appeal raised by the department is dismissed. ITA No. 313/VIZ/2016 18. The grounds of appeal raised by the department are as follows:- 1. The order of the ld. CIT(A) is erroneous both on facts and in law. 2. ld. CIT(A) erred in facts and in law in directing the AO to allow the exemption u/sec. 11 to the assessee society basing on the ITAT order without going into the fact that assessee has violated the provisions of section 13(1)(c) for the present A.Y. i.e. 2011-12 3. ld. CIT(A) has erred in allowing benefit of section 11 to the assessee ignoring the fact that AO has the authority to verify whether activities of the assessee are as per the objects or not. In the case of the assessee, the AO has rightly held that assessee is in the business of providing labour services as assessee is charging fees for the same and it is in violation of objects of the trust. 4. ld. CIT(A) erred in considering the fact that the assessee society violated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly following cash system of account the same is accepting by the Assessing Officer. Therefore, the action of the Assessing Officer in rejecting the books of account without finding any defects in the account cannot be upheld. Accordingly, directed the Assessing Officer to delete the addition. 23. On appeal before us, ld. counsel for the assessee has submitted that the issue involved in this appeal i.e. method of accounting system has been considered by the coordinate bench of the tribunal in assessee s own case in ITA No. 690 691/VIZ/2013 by common order dated 22/07/2016, therefore requested to follow the same. 24. On the other hand, ld.DR relied on the grounds of appeal. 25. We have heard both the sides, perused the material available on record and orders of the authorities below. 26. In this case, the Assessing Officer rejected the books of account and also method of accounting followed by the assessee and estimated the income at 12%. On appeal, ld. CIT(A) deleted the addition on the ground that assessee is following consistently cash system of accounting, the same is accepting by the Assessing Officer, but rejecting the same in the year under consideration is inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 12%. According to Ld AR, since the impugned loans are covered by adequate security and adequate interest, there is no violation of section 13(1)(c) r.w.s. section 13(2) of the Act. In this regard, Ld AR has placed reliance on the decision of the Hon ble Jurisdictional AP High Court in the case of Polisetty Somasundaram Charities, supra. The relevant observations of the Hon ble High Court are extracted below: Section 13(2)(a) provides that the exemption under section 11 cannot be denied in the event of lending the amount jacked up by interest or adequate security or both. The lending as such is not prohibited if adequate interest and security are taken care of. Section 13(2) (h) interdicts investment and the act of investment alone is sufficient to deny the exemption. In view of this seminal distinction, the Revenue endeavoured to bracket the transaction under investment so as to attract the denial of exemption under clause (h). The amount is advanced on an agreed rate of interest and, therefore, the transaction is within the fold of lending and it cannot be considered as an investment. The lending in clause (a) should be supported by adequate interest or security. The Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24-03-2008 Principal amount received 10,00,000.00 46,60,451.86 30,00,000.00 76,60,451.86 NIL VISAKHAPATNAM CUSTOMS CLEARANCE FORWARDING AGENTS ASSOCIATION Date Rs. Ps. 03-04-2005 Loan amount granted 5,00,000.00 Interest accrued on loan 3,62,137.00 8,62,137.00 Less 26-02-2001 Principal amount received 5,00,000.00 15-05-2002 Interest amount received 3,62,137.00 8,62,137.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are dismissed. Ground No.2 relates to deletion of addition of ₹ 15,96,89,694/-. 30. Facts of this issue in brief are that assessee is a charitable trust and was registered u/sec. 12A of the Act. Accordingly, assessee has been claiming exemption u/sec. 11 over the years and the same was allowed by the department. However, the Commissioner of Income Tax-1, Visakhapatnam had cancelled the registration of the trust u/sec. 12AA(3) w.e.f. 01/04/2009 vide his order dated 06/02/2013. During the course of assessment proceedings, Assessing Officer has observed that assessee has claimed the following expenditure:- a) Voluntary Retirement Scheme to the staff / workers 10,14,92,293 b) Payment to PWP workers 67,29,257 c) Retrenchment compensation 2,18,66,837 d) Gratuity payment 2,96,01,351 Total 15,96,89,738 The Assessing Officer disallowed the above amount on the ground that assessee is not having 12A regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The registration of a trust under section 12A of the Income-tax Act, 1961, once done is a fait accompli and the Assessing Officer cannot thereafter make further probe into the objects of the trust. The decision of the High Court in the Hiralal Bhagwati v.CIT (2000) 246 ITR 188 (Guj) attained finality on this point also since that decision also covered this point and the Department had not challenged that decision before the Supreme Court We notice that the assessing officer has dealt in detail to state that the objects of the trust are not charitable in nature. In view of the decision of the Hon ble Apex Court, the Assessing Officer is not right in law in probing into the objects of the Trust during the course of the assessment proceedings. Accordingly the denial of exemption u/s 11 is also not in accordance with law. 10. The next question that comes for consideration is whether the activities carried on by the assessee trust can be termed as business activity as per the view of the AO. It is now well settled preposition that the term Business denotes continuous and systematic exercise of an occupation or profession with the object of making income or profit. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that cancellation of registration u/sec. 12A is bad in law. For the sake of convenience, the relevant portion of the order is extracted as under: 15.5 Applying these propositions to the facts of the case on hand, we hold as follows:- (a) The finding of the ld. CIT(A), Visakhapatnam is that the assessee falls under the category advancement of any other object of general public utility u/s 2(15) of the Act. Hence is a charitable organization. The only issue is whether the assessee falls within the ken of the provisos inserted to s.2(15) of the Act by the Finance Act, 2010 w.e.f. 1.4.2009; When the finding of the ITAT is that the assessee activities are not with any profit motive and when it is held that the assessee is not carrying on any business, then the provisions to sec.2(15) of the Act are not attracted in the case on hand and exemption cannot be withdrawn. (b) In this case the fee / labour charge that has to be charged, are fixed by Visakhapatnam Port Trust through the Visakhapatnam Dock Labour Board and this fee is charged for supply of labour, which is in turn paid to the labour force. Such charge of fee, cannot in our opinion be construed as commercial a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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