SAHAYOG COMMUNITY COORDINATION NETWORK,VISAKHAPATNAM vs. COMMISSIONER OF INCOME TAX (EXEMPTION), HYDERABAD

Before proceeding to adjudicate the appeal, it was found that the appellant Trust filed this appeal with a delay of 346 days. The main reason mentioned by the Ld.AR of the appellant in his petition for condonation of delay is that the assessee Trust was pursuing an alternate remedy. After getting the copy of order of Ld.CIT(A), the assessee Trust was advised to file a petition to the Ld.CIT(E), requesting him to condone the delay with regard to Form 9A. Accordingly, the assessee Trust filed a petition before the Ld.CIT(E) to condone the delay in filing Form 9A. But the Ld.CIT(E) did not condone the delay and rejected their petition. Then only, an appeal was filed before the ITAT. Thus, the assessee society was pursuing an alternate remedy and once they received the rejection order from the Ld.CIT(E), an appeal is filed now before the ITAT. Thus, there is “sufficient cause” in filing the appeal with delay.

After hearing both the sides and perusing the material on record, the Bench decides to condone the delay, as the assessee was prevented by “sufficient cause” for filing the appeal before ITAT with the delay, as the assessee was pursuing an alternate legal remedy. It is a settled law that where the assessee is following an alternate remedy, the delay in filing of appeal can be condoned. Hence, the delay is condoned and the matter is being adjudicated on merits.

In the above cited appeal, the assessee is a society registered under Registration of Societies Act, 1860. For the A.Y.2016-17, the assessee Trust filed return of income declaring Nil income after claiming exemption u/s 11 of the Act. The assessee Trust was also granted registration u/s 12A of the Act by the Income Tax Department earlier. During the year under consideration, the appellant Trust claimed Rs.1.04 crore as amount applied for charitable purposes on revenue account within the meaning of section 11(1)(a) and Rs.2.41 core as amount deemed to have been applied for charitable purposes in India as per clause (2) of explanation to section 11 (1). The assessee claimed the same as “application of income” within the meaning of section 11(1)(a). In the present case, the Ld.AO observed that the assessee has not furnished Form 9A for accumulation and spending in subsequent year till completion of assessment order. In the absence of the same, a show cause notice was issued by the Ld.AO, requesting the assessee to show cause as to why the claim of deemed application should not be rejected. In response to the same, the assessee Trust has stated that they are in receipt of specific and restricted grant of Rs.2.41 crore in the month of March, 2016 and these amounts represent unspent project grants received from funding agencies like NABARD and SERP-MKSP. During the assessment proceedings, the assessee has argued that an amount of Rs.2.41 crores which was termed as “specific and restricted grant” by the assessee cannot be treated as “income” for the purposes of section 11 (1) as these grants are tied up with specific purposes and they are not available at the discretion of the society and hence should not be treated as income for the purpose of section 11(1). The Ld.AO was not satisfied with the explanation furnished by the assessee Trust, because the funds were not received with any specific direction to be made part of corpus. Moreover, the Income Tax Act, 1961 does not contain the words specific/restricted grant. After perusing the MoUs entered into by the assessee Trust with NABARD etc., the Ld.AO came to conclusion that there is no clause restricting the assessee to spend the same for any specific purpose like construction of building etc., and hence, these grants are freely available to the assessee society to spend on charitable activities delineated in the MoUs. The Ld.AO further held that if the assessee could not spend the funds during the year under consideration, it had an option to spend in a subsequent year. Finally, the Ld.AO held that in the absence of Form 9A, the claim of Rs.2.41 crore as amount deemed to have applied for charitable purposes in India cannot come to the rescue of appellant Trust and hence, rejected. As regards the criteria of 85% of funds to be utilized for charitable purposes, the Ld.AO computed the incomes to be utilized for charitable purposes and the difference between the mandatory application and actual application was taxed as income of the Trust in the current year.

Aggrieved by the addition made by the Ld.AO, disregarding the benefit of section 11, an appeal was filed before Ld.CIT(A). Before the Ld.CIT(A), the assessee Trust has stated that the report required u/s 11(1) in Form 9A was uploaded electronically on 25.12.2018, i.e. after the due date of furnishing of return of income u/s 139(1) and after the assessment proceedings before the Ld.AO. In the course of appellate proceedings, the appellant has explained the reasons for delay in uploading the report is due to the fact that filing of this Form 9A has come into existence only from the current year and the regular Chartered Accountant/Assessee Society were not familiar in the beginning and once they came to know about the filing of Form 9A, the same was filed electronically. Moreover, the appellant has stated that they were under the bonafide impression that the amounts received were to be spent for specific purposes and these restricted grants cannot be construed as “income”. The appellant has fairly admitted that there has been a procedural delay in furnishing Form 9A and the delay in filing of the report cannot be fatal for the purpose of claiming exemption. The appellant has further stated that filing of report is only a technical or procedural compliance and if Form 9A is filed at the later stage, either before the AO/appellate authority, still it would be sufficient compliance with regard to requirements of section 12A(1)(b), as these requirements are only directory in nature and not mandatory. After taking into consideration all the facts and circumstances and arguments of appellant society, the Ld.CIT(A) concurred with the view of the Ld.AO and upheld the addition for the following reasons :

Aggrieved by the orders of Ld.AO and Ld.CIT(A), an appeal was filed before ITAT, stating that the appellant is legally and contractually bound by the actionable contracts, where both the donor agency and the appellant have to act specifically as per the project terms and conditions, which were mutually agreed upon by them. Since this particular amount has to be spent towards specified objects, the same cannot be treated as “income” of the assessee Trust. Before the Bench, the Ld.AR of appellant has stated that the assessee Trust has filed application, seeking condonation of delay and filed Form 9A subsequently. This application seeking condonation of delay was submitted before the Ld.CIT(E) on 25.12.2018 and a copy of the application filed before the concerned authority was also enclosed. As these funds were received on 28.03.2016, the same could not be spent within the period of 3 days. It was mentioned that these funds were in fact spent for the specified objects in the subsequent years, as per the MoU entered into by the Trust with donor agencies like, NABARD and SERP society for elimination of rural poverty. The Ld.AR of the appellant during the appeal proceedings stated that the appellant society filed revised grounds of appeal and the same are reproduced below:

The Ld.DR heavily relied on the orders of Ld.AO and Ld.CIT(A). The Ld.DR has also stated that the Ld.CIT(E) has denied the petition of appellant by stating that there is no sufficient reason for condoning the delay in filing Form 9A. Hence, the Ld.DR submitted that the orders of lower authorities should be upheld and the appeal of the assessee is to be dismissed.

Head both sides. There is sufficient merit in the argument of the Ld.AR of the appellant. Ld.CIT(A) did not take into consideration the fact that the grants were received during the fag end of the financial year and also the fact that the procedure for filing Form 9A was introduced from this financial year itself. Moreover, the Ld.CIT(A) did not adjudicate the issue raised by the appellant society that these amounts were spent for the specific purposes as mentioned in the MoUs in subsequent year. In proof of the same, the appellant society has filed a copy of bank statement, to demonstrate that the funds were utilised for the purposes, for which grants were received from NABARD and State Government. Since the grants were received from governmental agencies, there are always checks and balances to see that the funds are spent properly for the objects, for which the grants were given to the assessee society. The Ld.CIT(A) did not adjudicate on any of these issues while rejecting the appeal of the assessee Trust. Hence, the issue is remitted back to the file of the Ld.CIT(A) with a direction to take into consideration all these arguments of the appellant society and pass an order afresh after giving an opportunity to the appellant Trust. Accordingly, the appeal of the assessee is allowed for statistical purpose.

In the result, appeal filed by the Assessee is allowed for statistical purpose.