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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’, NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
ORDER PER O.P. KANT, AM:
This appeal by the assessee is directed against order dated 18/11/2016 passed by the learned CIT(Appeals), Karnal [in short ‘the Ld. CIT(A)’] for assessment year 2011-12 raising following grounds:
1. That the appellant is an educational charitable society which activities are conducted as per mutual arrangements of the members. The A.O. has merely assumed & on surmises rejected the exemption u/s 11 of the Act 1961 which is wrong.
2. That the appellant society is liable to exemptions u/s 11 read with section 10(23c)(iii)(ad) of the act being an educational institutions and whole of the surplus is not liable to tax.
That only that part of the surplus liable to tax which alleged violated the provisions and whole of the surplus Rs. 679116 is not liable to be charged.
4. That neither the appellant society nor any of its members are doing any business or having any personal benefits. The A.O. arbitrarily & without any substantial material rejected the claim u/s 11 of The IT Act and wrongly treated Rs. 679116/- as business income. 5. That on the facts & in the circumstances of the case interest at 12% as interest u/s 36(1 )(iii) amounting to Rs. 164562/- for the alleged advances made to the members have wrongly & arbitrarily been added. 6. That interest paid as per income & expenditure account are to the time of Rs. 124064/-and A.O. has wrongly worked out the disallowances.
Briefly stated facts of the case are that the assessee has claimed to be a charitable organization and filed return of income on 29/09/2011 declaring taxable income at nil. The case was selected for scrutiny assessment and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. The Assessing Officer during the scrutiny assessment observed that society has made interest-free advances to its members in violation of the provisions of section 13(3) r.w.s. 13(1)(c) of the Act and accordingly, he rejected the exemption of ₹ 6,79,116/- under section 11 to 13 of the Act and assessed income of the assessee in the status of Association of Person (AOP). The Assessing Officer also made addition for disallowance of the interest of ₹ 1,64,562/- and depreciation of ₹ 2,24,196/-. In further appeal, the Ld. CIT(A) upheld the rejection of exemption of ₹ 6,79,116/-, but allowed the disallowance of the interest partly.
3. Before us, the learned Counsel of the assessee submitted that the registration under section 12A of the Act was rejected by the learned CIT, however, on further appeal by the assessee, the matter has been restored back to the Ld. CIT, with the direction to reconsider the assessee’s application and pass the appropriate order, which is still pending.
The learned DR accordingly submitted that issue in dispute may be decided once the registration is granted to the assessee. 5. We have heard the rival submission of the parties and perused the relevant material on record. The relevant finding of the Tribunal in restoring the matter of registration under section 12A of the Act to the CIT is reproduced as under: “4. Having heard the Ld. Counsel as well as the Ld. CIT DR on the issue, we note that Modern College of Education is part of the assessee society and the society runs this college. This fact is duly mentioned in the assessment order for assessment year 2013-14. Therefore, it cannot be said that the society has transferred its asset to some other entity without consideration. It is also seen that the assessee society has advanced less than 5% of its gross receipts to its members and the same is evident from the chart filed before us and available on paper book page 5 wherein the gross receipts for assessment years 2011-12, 2012-13 and 2013-14 are indicated. Thus, the provisions of section 13 of the Act do not stand violated. We also note that the Ld. CIT has refused registration on the ground that the genuineness of the activities would not be satisfactorily proved by the assessee. We have perused the Memorandum of Objectives of the assessee society and note that the Ld. CIT has not given any specific finding regarding the non-genuineness activities of the trust vis-à-vis the objectives as mentioned in the Memorandum of Association but has rather relied on the report of the Assessing Officer in this regard. On the facts of the case and after duly considering the averments of both the parties, it is our considered opinion that the matter should be reexamined by the Ld. CIT. Accordingly, we restore the issue to the office of the Ld. CIT with the direction to reconsider the assessee’s application, keeping in mind our observations in the preceding paragraphs and pass
appropriate order as per law after giving due opportunity to the assessee.”
We find that the registration application of the assessee is still pending before the learned CIT and the fate of the exemption under section 11 to 13 of the Act is dependent on the granting of registration by the learned CIT under section 12A of the Act. In view of the above facts and circumstances, we set aside the order of learned CIT(A) and restore this appeal to the Ld. CIT(A) with the direction to the decide the issue in dispute afresh after passing of the order by the learned CIT pursuant to the order of the Tribunal (supra). It is needless to mention that the assessee shall be afforded adequate opportunity of being heard.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 28th February, 2020.