KALINGA INSTITUTE OF SOCIAL SCINCES(KISS),PATIA vs. CIT (EXEMPTION)- HYDERABAD, HYDERABAD

It was the submission by the ld. AR that the original assessment came to be completed u/s.143(3) of the Act on 26.02.2021 accepting the returned income. It was the submission that the assessee is an AOP/BOI with the sub status of TRUST and the assessee had registration u/s.12AA of the Act. It was the submission that the ld. Pr.CIT issued a show cause notice u/s.263 of the Act, wherein the ld. Pr.CIT took the stand that, “since the assessee trust was granted 12AAA registration, so it is construed that activity of the trust is not charitable and is a profit making nature, the expenditure on advertisement and publicity is nothing but a profit making nature. In view of the above, the expenditure amounting to Rs.4,93,70,440/- does not qualify for exemption and needs to be disallowed and added to the total income of the assessee”. It was the submission that the assessee has responded to the show cause notice vide reply dated 08.02.2023, which was extracted by the ld. Pr.CIT in his order at pages 3 to 6. It was the submission that after considering the reply and further reply filed on 14.03.2023, which has been extracted by the ld. Pr.CIT at page 7 of his order, held as follows :- 7. Though, the Assessing Officer during the course of assessment proceedings, has not verified the above claim of Rs 4,93,70,440/- towards Advertisement and Publicity under sub-head of Administrative and Establishment expenses of the head other expenses, from the written submissions and explanations given during the course of present revisionary proceedings, it is held that the 'Advertisement Expenses' are necessary to promote the programmes conducted in line with the objectives of the assessee- trust for the Asst. year 2018-19. 7.1. It is not correct to hold that advertisement is not required to the Assessee Trust/society, which is carrying out charity and not making profit. Even the institution carrying out the charity, needs to advertise its objectives and programmes to reach out to the beneficiaries to effective implementation of it's programmes, in a reasonable way. In the present case, the advertisement expenditure incurred is Rs 4,93,70,440/- out of the total application of funds of Rs.1 ,39,88,00,808/- which comes to 3.53% and is reasonable. 7.2. The assessee also stated that "Without prejudice to the submission made herein above, it is submitted that, your honour propose to make additions of the expenses incurred under the head "Advertisement & Publicity" which not correct. However, if it is presumed (but not accepted) the expenditure is disallowed then also the income of the assessee does not become taxable". It is noted that the assessee filed only written submissions. However, not furnished any other information, requisited vide this office notice dated 14.03.2023.

7.3. In view of the above, though the necessity for incurring the 'Advertisement expenses' are explained, the quantum of expenditure needs to be verified with reference to the bills/vouchers/ledger a/cs. It also requires verification in terms of compliance Provisions of Sec.40(a)(ia) and 40A(3) of the Act. 7.4. Therefore, the Assessing officer is directed to verify the correctness of 'Advertisement Expenses' and accordingly, recompute the total income, if necessary. The AO may call for the details as required .

It was submitted by the ld. AR that ld. Pr.CIT in para 7.3 has taken a view that, “in view of the above, though the necessity for incurring the „Advertisement expenses‟ are explained, the quantum of expenditure needs to be verified with reference to the bills/vouchers/ledger a/cs. It also requires verification in terms of compliance Provisions of Sec.40(a)(ia) and 40A(3) of the Act”. It was also submitted that the ld. Pr.CIT in para 7.4 directed the AO to verify the correctness of the „Advertisement Expenses‟ and accordingly, recomputed the total income, if necessary. It was also submitted that the show cause notice had been issued for the purpose of disallowing the advertisement expenses but after considering the reply of the assessee, the ld.Pr.CIT had himself found that advertisement expenses were necessary and on this point he changed his stand to hold that the advertisement expenses needed to be verified with reference to bills/vouchers/ledger accounts. It was submitted that this was not part of the show cause notice and the directions of the ld. Pr.CIT in para 7.3 exceeded the show cause notice and, consequently the finding of the ld. Pr.CIT is liable to be quashed.

In reply, ld. CIT-DR submitted that the Explanation to Section 263 provides that if there is inadequate enquiry by the AO, the ld. Pr.CIT