DY. CIT (E)-1(1), MUMBAI vs BHARAT DIAMOND BOURSE, MUMBAI

Income Tax Appellate Tribunal, B BENCH, MUMBAI

Per Pramod Kumar, VP:

These three appeals, filed by the Assessing Officer, are directed against the common order dated 1st April 2019 passed by the CIT(A) in the matter of assessments under section 143(3) of the Income Tax Act 1961 for the assessment years 2012-13, 2013-14 and 2014-15.

Grievances, which are common in all the three appeals raised by the Assessing Officer are as follows:-

“Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in relying only on the decision of Hon’ble ITAT in ITA No. 884/Mum/2012 dated 30.03.2017 in assessee’s own case upholding the cancelation of registration u/s. 12A of the I.T. Act despite the fact that for allowing exemption u/s. 11 and 12 of the I.T. Act, registration u/s. 12A/12AA is necessary but not sufficient condition .

ITA Nos. 4655 to 4657/Mum/2019 Assessment Years: 2012-13 to 2014-15 Page 2 of 6 of theI.T. Act, ignoring the fact that for allowing exemption u/s.11 and 12 of the IT. Act to theassessee, registration U/s.12A/ 12AA is necessary but not sufficient condition and alsoignoring the fact that the Hon'ble ITAT in the same order has partly allowed the appeal forA.Y.2009-10 by restoring the registration u/s.12AA but at the same time directing the AO toverify and determine the activities of the assessee that are hit by proviso to section 2(15) ofthe Act for applying provisions of section 13(8) of the I.T. Act. and uninfluenced by theprima facie finding as recorded earlier in the order."

"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) wasright in relying only on the decision of Hon 'ble ITAT in ITA No. 884/ Mum/2012 dated30.03.2017 in assessee's own case upholding the cancelation of registration u/s. 12A of theI.T. Act despite the fact that for allowing exemption u/s.11 and 12 of the IT. Act to the assessee, registration U/s.12A/ 12AA is necessary but not sufficient condition and alsoignoring detailed finding of the A.O. in the assessment order that the assessee trust receivedthe amounts from members and others by way of reimbursement of handling, carting,customs expenses, other expenses, and rent are in the nature of trade commerce or business or services in the of trade, business and commerce in lieu of fees. Therefore, at the most,they can be treated as activity for 'advancement of general public utility' to which theproviso to section 2/15) of the IT.act is applicable and the exemption is not allowableu/s.13(8) of the I.T. Act without deciding the issue on merits."

4 "The appellant prays that the order of the Commissioner of Income Tax (Appeals)-3, Mumbai be set aside and that of the Assessing Officer be restored".

To adjudicate on these appeals, it is necessary to take note of a few facts. The assessee before us is a company incorporated under section 25 of the companies Act 1956, duly registeredas a charitable institution under section 12A of the Income Tax Act, 1961. On 27th December2011, this registration was cancelled by the Director of Income Tax (Exemption) on the groundthat the activities carried out by the assessee are "in the nature of business". The assesseechallenged this cancellation of registration before us, and this challenges was upheld by acoordinate bench of this Tribunal, but with the rider that "we would like to clarify that due toamended section 2(15) of 1961 Act, the assessee shall not be entitled to claim tax exemption u/s.11 and 12 of 1961 Act if the activities of the assessee are found by the AO, during theassessment proceedings, to be hit by the amended provisions of Section 2(15) of 1961 Act'. Inthe meantime, the Assessing Officer proceeded with impugned assessments which, inter alia,held that "the provisions of proviso to section 2(15) are applicable to the assessee's case", andobserved, for example for assessment year 2012-13 as follows:-

3.7 As can be seen from the above, all the conditions laid down in section 2 (15) are fulfilled by the assessee to be hit by first proviso.

a) The object of the assessee falls under the category of advancement of any other object of general public utility,

ITA Nos. 4655 to 4657/Mum/2019 Assessment Years: 2012-13 to 2014-15 Page 3 of 6 b) The assessee is engaged in commercial activity for a fees and c) The commercial receipts are more than 25 Lakhs.

3.8 Further, as per the provisions of section 13 (8), if the assessee is covered by the proviso to clause (15) of section 2, then nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the assessee. Said sub- section was inserted by the Finance Act, 2012 w.e.f. 01.04.2009 i.e. applicable from A. Y.2009-10. As such, it can be safely concluded that the assessee is not eligible for exemption U/s.11 and 12 of the I.T. Act, 1961. The relevant portion of section 13 (8) is reproduced as under.

“Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous ear of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year."

3.9 In view of the above, I hold that the case of the assessee being hit by provision to section 2(15), the assessee loses its charitable character within the meaning of section 2(15) for the assessment year in question and is therefore not entitled to exemption U/s. 11 in view of the provision of section 13(8) of the I.T. Act. I therefore reject this claim of the assessee and the income of the assessee is calculated as in para 4 as follows.

4.0 From the Income & Expenditure Account, it is seen that the total receipts of theassessee are Rs. 56,02,17,647/-. As discussed above in paras the Business Income is computed taking into account receipts of Rs.10,77,41,767/-. The remaining Income of Rs.45,24,75,880/- Rs. 56,02,17,647/- minus Rs. 10,77,41,767/-). This balance income is to be taxed as 'Income from Other Sources"

4.1 Similarly, the total expenditure as per Income & expenditureAccount is Rs.93,51,96,405/- and deduction allowed as Business expenditure allowed in para 3.1.5 (e) is Rs.5,52,62,945/-. Therefore, the expenditure to be allowed towards 'Income from Other Sources' is Rs.87.99.33.460/-(Rs. 93,51,96,405/-minus Rs.5,52,62,945/-).In view of this, the income to be computed as 'Income from Other Sources' works out to Loss Rs. 42,74,57,580/- (Rs. 45,24,75,880/- minus Rs. 87,99,33,460/-)

4.2 From the above, the business income works out at Rs. 5,24,78,822/- and income fromother sources works out at a loss of Rs. 42,74,57,580/-.

Aggrieved, assessee carried the matter in appeal before the CIT(A) who deletedtheadditions so made by observing as follows:-

Decision:

I have considered the facts of the case, AO's contentions and the submissions of the appellant as well as the case laws relied upon by the appellant. The AO in the impugned order had denied appellant's claim of exemption u/s 11 of the Act.

ITA Nos. 4655 to 4657/Mum/2019 Assessment Years: 2012-13 to 2014-15 Page 4 of 6

The appellant stated that in view of judgment of ITAT (MUM) in I.T.A. 884 Mum/2012 dt:30.03.2017, denial of exemption u/s 11 to Bharat Diamond Bourse is not sustainable & exemption u/s 11 deserve to be granted. The relevant portion of the appellant's submissions is as under:

However, in AO's appeal to ITAT. Hon.ITAT-MUM in appeal no.ITA 884/Mum/2012 dt.30.03.2017 rejected the reasoning for cancellation of 12A registration of Bharat Diamond Bourse and after considering object of Bharat Diamond Bourse as well Hon. SC's observation & decision in assessee's own case of 259 IT 280, as to Bourse activity of 'Custodian Service' (Reimbursement of handling, carting & Custom Exp & other expense from gem and jewellery exporters members & other) restore the same, inter- alias observing as follows-

"The courts have taken a consistent view that learned Principal Commissioner or Commissioner shall have power to cancel the registration only on fulfillment of either of the conditions as stipulated by provisions of section 12AA(3) of 1961 Act that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution. Thus, the learned principal commissioner or commissioner can cancel the registration on fulfillment of the either of the above two conditions while in the instant case the such conditions are not being shown to have been fulfilled. There is also no change in nature of activities of the assessee as compared to immediately preceding year as Revenue could not brought on record any such findings. The decisions of Hon'ble Bombay High Court in the case of DIT (E) v. Maharashtra Housing and Area Development Authority (Supra) and DIT (E) v. Khar Gymkhana(Supra) have taken the similar view and said decision's of jurisdictional high Court are binding on us. Both the above decisions pertained to assessment year 2009-10 wherein the amendments to the provisions of section 2(15) of 1961 Act is brought w.e.f. assessment year 2009-2010. In the instant appeal, we are also concerned with assessment year 2009-2010. The learned DIT(E) has cancelled the registration of the assessee u/s 12AA of 1961 Act due to amended provisions of section 2(15) of 1961 Act which were amended by Finance Act,2008 and Finance Act, 2010 w.e.f. 01.04.2009 and not on the grounds as specified in Section 12AA(3) of 1961 Act. The Hon'ble Bombay High Court while adjusting the case of DIT(E) v. Maharashtra Housing and Area Development Authority (supra) has duly taken note of Amritsar - tribunal taking contrarian view on this issue in Jammu Development Authority (supra) case. Thus, in our considered view the registration u/s 12AA of 1961 Act of the assessee cannot be cancelled by learned DIT(E) and the same is hereby restored with effect from the date it was cancelled by learned DIT(E) vide improper order of learned DIR(E) which is under challenge before us."

In view of the above order of ITAT, Mumbai, I hold that appellant is entitled for claim of exemption u/s 11 of the Act, Grounds of appeal are allowed.

In the result, the appeal for AY 2012-13 is allowed.

ITA Nos. 4655 to 4657/Mum/2019 Assessment Years: 2012-13 to 2014-15 Page 5 of 6 7. Since, the issue of exemption u/s 11 of the act is common for 2013-14 and 14-15, grounds of appeals for these years also allowed.

The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

The plea of the Assessing Officer is indeed well taken. The reasoning adopted by the learned CIT(A) is that since a coordinate bench of this Tribunal has restored the registration of the assessee institution, the additions made in the impugned assessments are to be deleted. That is certainly an erroneous approach. As rightly pointed out in the ground of appeal, “registration under section 12A/12AA is necessary but not sufficient condition” for the grant of benefits of section 11. The matter was required to be examined on merits by the learned CIT(A) and the specific issues raised by him were required to be dealt with on merits. The mere fact of registration having been restored could not have been sufficient for granting the impugned relief. In our considered view, therefore, the basis on which relief has been granted is insufficient, and the learned CIT(A) ought to have examined the matter on merits and deal with the issues raised by the learned Assessing Officer. Learnedcounsel for the assessee, however, has addressed us at length on the reasons as to why, even on merits, the assessee has a case, and, the assessee ought to have succeeded for this reason anyway. However, we see no need to deal with these arguments at this stage as these aspects have not been examined at all by the learned CIT(A). In ourconsidered view, the matter should be remitted to the file of the learned CIT(A) for adjudication on merits.Let the learned CIT(A) deal with the contentions on merits in accordance with the law, by way of a speaking order, and after giving a fair and reasonable opportunity of hearing to the assessee. All contentions will remain open and the learned CIT(A) will adjudicate upon the contentions so raised by the assessee. 8. In view of the above discussions, as also bearing in mind the entirety of the case, we deem it fit and proper to the file of the CIT(A) for adjudication on merits in terms of our observations above. Ordered, accordingly. 9. In the result, the appeals are allowed for statistical purposes in the terms indicated above. Pronounced in the open court today on the 8th day of March, 2022.

Sd/xx Sd/xx Amarjit Singh Pramod Kumar (Judicial Member) (Vice President) Mumbai, dated the 8th day of March, 2022.

ITA Nos. 4655 to 4657/Mum/2019 Assessment Years: 2012-13 to 2014-15 Page 6 of 6

Copies to: (1) The Appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File

By orderetc True Copy Assistant Registrar/Sr.PS Income Tax Appellate Tribunal Mumbai benches, Mumbai

DY. CIT (E)-1(1), MUMBAI vs. BHARAT DIAMOND BOURSE, MUMBAI