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Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
Before: SHRI KUL BHARAT
O R D E R PER KUL BHARAT, JM:
This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals),Rohtak, dated 27.02.2019, pertaining to the assessment year 2014-15. The assessee has raised following grounds of appeal:
“1. That the learned CIT(Appeals) has erred in law as well as on facts of the case in sustaining the addition of Rs. 4357765/- made by Assessing Officer ignoring the fact that appellant is a registered society. Thus the Appellate order passed by CIT (Appeals) is totally wrong, illegal and excessive in nature. 2. That the learned CIT(Appeals) has wrongly confirmed addition of Rs.
Sir Chottu Ram Yuva Club Vs. ITO 3921347/- out of total receipt of Rs. 4901684/- from donation and grants for various social programs of government, by allowing as being estimated 20% administrative expenses out of Rs. 4901684/-. Thus the addition of Rs. 3921347/- is totally wrong, illegal and excessive in nature.
3. That the learned CIT(Appeals) has wrongly Confirmed addition of Rs. 436418/- shown as unsecured loans and liabilities without verifying the details of said unsecured loans and treating the same as bogus liabilities. Thus the addition of Rs. 436418/- is totally wrong, illegal and excessive in nature.
4. That the Ld CIT (Appeals) has erred in law in not considering both audit reports properly as the appellant has duly explained reason for not submitting second audit report before assessing officer. The appellant has duly maintained book of accounts on which basis Audit Reports were prepared. Thus the order passed by Ld CIT (Appeals) is totally wrong, Illegal and excessive in nature.
5. That the learned Authorities Below have wrongly treated whole of receipt of the registered society as total income of the society ignoring the fact that most of the grants and donations have been received for specific purpose relating to social program of government which is not part of income. Thus addition framed and confirmed as income from other sources is totally wrong, illegal and excessive in nature 6. That the Learned CIT(Appeals) has ignored the fact that the appellant was prevented by reasonable and sufficient cause to submit all the details and vouchers/bills before Assessing Officer. Thus the addition made and confirmed in violation of principles of natural justice is totally wrong and illegal.
7. That the learned Authorities Below have wrongly observed that the appellant has not maintained any books of accounts merely on basis of surmises and conjecture. Without any cogent reasons or concrete basis.
That the appellant craves leave to add, delete, alter or amend any ground/grounds of appeal at the time of hearing.”
Facts giving rise to the present appeal are that in this case the assessee had filed its return of income electronically on 13.9.2014 declaring income of Rs. 1,20,828/-. Thereafter, the case of the assessee was selected for scrutiny
Sir Chottu Ram Yuva Club Vs. ITO assessment and the Assessing Officer vide order dated 28.12.2016 assessed the income at Rs. 44,78,590/-. Thereby the Assessing officer made addition of gross receipts of the assessee after allowing 20% of administrative expenses of Rs. 9,80,337/-. Aggrieved against this the assessee preferred appeal before the learned CIT(Appeals), who after considering the submissions and perusing the remand report from the Assessing officer, dismissed the appeal. Aggrieved against this, the assessee is in appeal before this Tribunal.
The only effective ground in this appeal is regarding addition of Rs. 39,21,347/- and Rs. 4,36,418/- made on account of disallowance of the expenditure.
4. The learned counsel for the assessee vehemently argued that the authorities below were not justified in making the addition. He further reiterated the submissions as made in the written submissions. For the sake of clarity the written submissions of the assessee are reproduced herein below:
“Written Submissions Respected Sir, The Captioned appeal has been fixed for hearing before this hon’ble on 10.0$.2022. In this connection, the appellant submits as under:- 1. That the appellant society is a social welfare society which has been registered with registrar of societies vide Regn. No. 06/15-B/70 year 2005 which has been revised as Registration No. 000159 year 2013. Copy of Regn. certificate alongwith memorandum and bye-laws are attached herewith.
Sir Chottu Ram Yuva Club Vs. ITO 2. That during year under consideration, the appellant society has received total grant in aid and contribution by different institutes and government bodies amounting to Rs. 3944243. However by mistake it was shown as Rs. 4901684/- instead of correct figure of Rs. 3944243/- as grant in aid from AIDS control Society Panchkula amounting to Rs. 919975/- was credited twice while calculating total so the said difference arose.
3. However during assessment proceedings the assessing officer without verifying expenses from bank Account properly has wrongly made estimated disallowance of 80% of expenses from wrong and excessive total of Rs. 4901684/- and not from correct figure of Rs. 3944243/- further Assessing officer has wrongly made disallowance of Rs. 436418/- being credit/payable entry proof of which was given to the Assessing Officer. This addition of Rs. 436418/-has been wrongly made.
That during year under consideration the appellant society has received total grant in and contribution by different institutes amounting at Rs. 3944243/- but due to clerical mistake it was shown Rs. 4901684/- as grant in aid from AIDS Control Society Panchkula amounting to Rs. 919975/- was credited twice while calculating total.
That the appellant society has been formed by uneducated villagers who had no proper Knowledge of accounts and society laws. As this Hon’ble bench is well aware of the fact that grants in aid from Govt, bodies and institution does not come under definition of income and all grants in aid received by appellant society to be utilized for specific purpose is exempt from Income Tax.
6. That the appellant society has duly submitted bank A/c and ledger before C.I.T (Appeals) who has not considered it properly. Even Learned Assessing Officer during remand Report has not considered the fact that most of expenses have been made through banking channel. Moreover salary and other necessary expenses have been done through bank these are necessary expenses for which no benefit has been allowed. Thus estimated addition of Rs. 3921347/- being disallowance of 80% expenses are totally wrong and excessive in nature.
7. That the learned Assessing Officer has wrongly made addition of credit entry of Rs. 436418/- in Balance Sheet treating the same as bogus liability. In fact the appellant society unsecured loan of Rs. 207000/- from 17 ,e,bers and Rs. 229418/- is amount payable to Tent Wala OM Tent House. The appellant being social club who is organizing social programs in state by organizing various camps where tents are given and installed by OM Tent House. That copy of statement of account and Loan from members
Sir Chottu Ram Yuva Club Vs. ITO have already submitted before Assessing Officer.
The appellant society relies upon the following case laws on similar issue:-
A Similar issue of assessability of grants arose before the hon’ble Punjab and Haryana High Court in case of CIT Vs. State Urban Development Society (IT Appeal No. 2010 of 2011 dated 19.10.2011) wherein the Hon’ble High court held as under:- The Tribunal held that the Society is acting as a nodal agency receiving grant from Government of India and State Governments and distributes to district authorities for implementation of various Schemes of Government of Indian and supervising the execution of Schemes. It has no discretion to utilize the amount as per own requirements. It also found that in case of non utilization at the close of the Scheme, the funds are to be refunded along with interest to the Government of India and State Governments. The grants received by the asscssee do not belong to the assessee-Society. The grants do not form corpus of the asseesee nor it is of 2011 income of the assessee under Section 11 of the Act. Such grants are not the donations or voluntary contributions under Section 12 of the Act. Thus, the grants received by the asscssee should not be considered either as income or for ascertaining the amount expanded or amount to be accumulated. Provisions of Section 11 and j_2 of the Act are not applicable for grants received by the assessee under the Schemes It further held that the assessee is statutorily required to file its intention of expanding the accumulated funds in future by way of Form No.
A similar issue of assessability of grants in aid arose before Hon’ble ITAT Delhi in case of Addl. CIT Vs IMS Committees, Muzzafarnagr in ITA No. 1541/Del/2008/ for AY 2006-07. The Hon’ble ITAT vide order dated 04.04.2012 held as under:- We have heard the Id. DR and gone through the facts of the case. Indisputably, the Ansh Dan and fund for Nirman Yojna, were given to the assessee by the State Government & Sugar factories for specific projects of road construction and as pointed out by the ld.CIT(A), these funds have been spent also for those specific projects. There is nothing to suggest that the assessee is carrying on any business activities, generating income. Accordingly, the Id. CIT(A) concluded that there was no surplus with the assessee and therefore, there was no question of any taxable income.
Sir Chottu Ram Yuva Club Vs. ITO Admittedly, the grant-in-aid in question is a financial aid or subsidy given by the State Government of UP 85 Sugar factories for the specific purpose of construction of roads. In section 2(24) of the Act, it is declared that " 'income' includes" various items which arc enumerated therein in clauses (i) to (xv). In the said section 2(24), such a grant- in-aid has not been specifically included as an income or a revenue receipt. Therefore, considering the use of the word "include" in section 2(24), the word "income" shall be construed as comprehending not only those items which said section declares that these shall include but also such items as it signifies according to its natural import. Since section 2(24) has not declared that such a grant-in-aid shall be included in the income, the word "revenue" shall be construed as comprehending what it signifies according to its natural import. In relation to a business undertaking, the word "revenue" connotes incomings of the undertaking which are products of the normal working of the undertaking. The giving of financial aid or subsidy to the aforesaid committee, which admittedly is not carrying on any business, is at the discretion of the Government or Sugar factories. Thus, the grant-in- aid in question was not a product of the normal business activities of the assessee committee, assessed by the AO as a local authority. Therefore, such a grant- in-aid could not be termed as a revenue receipt so as to form part of the total income. As already pointed out, the Id. CIT(A) concluded that the aforesaid funds received by the assessee from State Government and sugar factories have been spent only for those specific projects and there was no surplus with the assessee. Since the Revenue have not placed before us any material, controverting these findings of facts recorded by the Id. CIT(A) so as to enable us to take a different view in the matter, there is no basis to interfere with his findings .Consequently, ground nos. l to 3 in the appeal are dismissed. In view of above facts and circumstances as well as case laws relied upon by the appellant society, it is prayed that wrong and excessive additions/ disallowances may be deleted in the interest of justice.”
5. Learned Sr. DR opposed the submissions and submitted that there is no infirmity into the order of the learned CIT(Appeals). He submitted that the learned CIT(Appeals) called for a remand report from the Assessing Officer. The Assessing officer had pointed out discrepancies in the submissions of the assessee.
Sir Chottu Ram Yuva Club Vs. ITO He contended that the submissions of the assessee are misplaced that grant-in-aid cannot be treated as income of the assessee. He further contended that it is incumbent upon assessee to prove that such grant-in-aid was utilized for the object it was given. The assessee failed to prove the incurrence of expenditure with supporting evidences.
I have heard rival submissions, perused the material available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee is a society and has been also given grant by the Government of India. It is seen from the record that the assessee has filed audit report in form no. 10B. It is the contention of the assessee that assessee got grant from the Government departments and the departments always got the accounts audited. It is not the case of a normal business man. In this case the source of funds is grant by the Government departments. Therefore, it cannot be presumed that the assessee is not maintaining proper books of accounts. The Assessing officer ought to have verified from the Government departments and the details of the expenses given by the assessee society to those departments. It is stated by the learned counsel for the assessee that due to certain typographical mistakes, there were two audit reports. He submitted that the assessee is ready to reconcile and explain the nature of expenditure with supporting evidence. Therefore, looking to the facts of the present case, in my considered view the Assessing officer should have given
Sir Chottu Ram Yuva Club Vs. ITO opportunity to the assessee to reconcile the discrepancy, if any, in the audit report in view of the fact that the society was receiving grant from the Government departments. It was not a case of receiving donations from public at large.
Therefore, the impugned order is set aside and the assessment is restored to the file of the Assessing Officer to frame the assessment afresh. The assessee is directed to reconcile the difference and furnish supporting evidences in respect of the expenditure. Grounds raised in this appeal are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in open court on 16th August, 2022.