SAMARTHAN CENTRE FOR DEVELOPMENT SUPPORT,BHOPAL vs. DCIT(EXEMPTION), BHOPAL
Facts
The assessee, a trust registered under Section 12A, filed its return for AY 2018-19 claiming exemption under Sections 11/12. The AO denied exemption for receipts totaling Rs. 1,88,17,012/-, categorized by the assessee as "incidental objects", treating them as business income and making an addition of Rs. 1,22,30,061/-. The CIT(A) upheld the AO's decision.
Held
The Tribunal found that the true nature of the 'incidental objects' receipts was not adequately examined by the lower authorities, noting conflicting claims by the assessee regarding their nature (grants vs. professional services with invoices). While rejecting the 'rule of consistency' argument, the Tribunal decided to remand the matter to the AO for a fresh adjudication with necessary opportunities for the assessee.
Key Issues
Whether receipts classified as "incidental objects" by a charitable trust constitute business income, thereby disentitling the trust to exemption under Sections 11/12, and if the lower authorities adequately examined the true nature of such receipts.
Sections Cited
143(3), 11, 12, 12A, 270A, 194J, 194C, 2(15)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI UDAYAN DAS GUPTA
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 06.03.2024 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 31.03.2021 passed by learned National e-Assessment Centre, Delhi [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2018-19, the assessee has filed this appeal on following grounds:
“1. On the facts and circumstances of the case, the order passed by the Ld. CIT(A) as well as the Ld. AO is bad in law, void ab initio, illegal, contrary to the facts and circumstances of the case and is liable to be annulled. Page 1 of 10
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That the Ld. CIT(A) has erred in law and facts by not adjudicating the ground no. 2, 3 and 4 of grounds of appeal, raised before him and to that extent, the order of the CIT(A) is incomplete and vitiated. Not adjudicating those grounds violates the principles of natural justice, and hence, the impugned order of the CIT(A) is contrary to the legal provisions and is liable to be annulled. 3. That the order of Ld. CIT(A) suffers from contradiction as the entire analysis/ discussion made by him supports the appellant's contentions on the issue under consideration, but in final para 4.6, the CIT(A) takes an abrupt turn, and infers against the appellant without giving any reasoning basis whatsoever and to that extent, the order of CIT(A) is non-speaking, and violates the principles of natural justice. 4. That the Ld. CIT(A) failed to appreciate that the impugned receipts aggregating to Rs. 1,88,17,012/-, even if categorized as "Receipts from Incidental Objects", were all clearly receipts from appellant trust's avowed objectives, as per consistent nature of activities for past all years and thus, in that sense, the ld. CIT(A) and the AO has grossly erred in treating the receipts of Rs. 188,17,012/- as business receipts and in denying deduction/ exemption of provisions of section 11 and 12 of the Income Tax Act, 1961. 5. The ld. CIT(A) was not justified in confirming the addition of Rs. 1,22,30,060/-without considering the facts and circumstances of the case. 6. The Ld. CIT(A) failed to appreciate that the TDS, if any, deducted by the payer does not determine/alter the basic nature of services rendered or objectivities performed by the appellant trust/deductee. 7. That the Ld. CIT(A) has erred in law and facts in confirming the initiation of penalty under section 270A of the Income Tax Act, 1961. 8. That the appellant craves leave to add to, alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before the final hearing, if necessity so arises.” 2. The background facts leading to present appeal are such that the
assessee is a trust registered u/s 12A of Act from 10.04.1996. For AY 2018-
19, the assessee filed its return declaring income of Rs. 11,10,81,622/- with
deduction of exemption of equivalent amount u/s 11/12 based on strength
of registration available u/s 12A and thereby reporting total income of Rs.
Nil. The case of assessee was selected for scrutiny. During scrutiny
proceeding, the AO observed that the assessee has declared receipts from
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“incidental objects” at Rs. 1,88,17,012/- in Schedule AI of ITR. The AO
treated these receipts as coming from business activities of providing
professional and technical services in pursuance of contracts made with
parties. The AO further observed that the assessee has claimed expenses of
Rs. 65,86,951/- under the head Administration, Assignment and Training
Centres. Accordingly, the AO worked net profit of Rs. 1,22,30,061/- [Rs.
1,88,17,012 (-) Rs. 65,86,951] and treating the same as income from
business denied exemption u/s 11/12 to that extent and accordingly made
addition. Aggrieved, the assessee carried matter in first appeal but did not
get success. Now, the assessee has come in next appeal before us.
Ld. AR for assessee raised following contentions citing them as
without prejudice to each other:
(i) The AO did not give any show-cause notice to assessee qua the
impugned addition made and that the AO’s order is perverse as the
same is passed without considering assessee’s submission. Further,
the CIT(A) has also not adjudicated Ground No. 1 & 3 of assessee in
first-appeal raising these very grievances. According to Ld. AR, the
CIT(A) has given a consolidated adjudication of Ground No. 1 to 4
raised before him without giving adjudication to these grievances of
assessee.
(ii) That neither the AO nor the CIT(A) has discussed the facts of the
impugned receipts from incidental objects.
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(iii) That the impugned receipts are in the nature of “grants” received by
assessee from parties. Simply because the parties have deducted TDS
u/s 194J / 194C out of a part of those receipts, the AO cannot
conclude that the receipts were towards professional or technical
services. Ld. AR quoted the decision of Hon’ble Delhi High Court in
Aroh Foundation Vs. CIT(Exemption) WP(c) 4365/2021 dated
05.02.2024 wherein it was held that mere deduction of TDS by the
givers cannot make the receipts in the nature of business receipts and
the exemption u/s 11/12 cannot be denied.
(iv) That the impugned receipts are very much part of assessee’s core
activities/objects as mentioned in Mission No. 1, 4 and Specific Object
No. 1 / Page No. 7 & 8 of asessee’s trust-deed (Paper-Book Page 9-10).
However, the assessee has wrongly classified those receipts as coming
from “incidental objects” for compilation of return of income. Ld. AR
submitted that the requirement to report “receipts from incidental
objects” in the return of income had come in effect for the first time
from AY 2018-19 under consideration and hence such mistake
occurred.
(v) That the impugned receipts fall within specific purposes mentioned in
the definition of “Charitable Purpose” u/s 2(15). They do not fall in the
residual category of “the advancement of any other object of general
public utility”, therefore the restrictive proviso to section 2(15) is not
attracted. Alternatively, even if they are held to fall in the residual
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category of “the advancement of any other object of general public
utility”, then also the assessee has benefit of exclusion from restrictive
proviso because the twin-conditions prescribed therein are satisfied,
namely (i) the activities from which the impugned receipts were made,
were undertaken in the course of actual carrying out of advancement
of any other object of general public utility, and (ii) the impugned
receipts did not exceed 20% of the total receipts of previous year.
(vi) That there was no “profit motive” in the impugned receipts and in any
case the margin does not exceed 20% limit as permitted by Hon’ble
Supreme Court in ACIT Vs. Ahmedabad Urban Development
Authority (2022) 143 taxmann.com 278 (Para No. 172).
(vii) That the assessments of earlier AYs 2013-14 and 2014-15 of assessee
were also finalized by way of scrutiny u/s 143(3) and the AO has
accepted all activities of assessee as charitable without drawing any
adverse inference of business activity and granted exemption u/s
11/12 as claimed by assessee, the copies of assessment-orders are
filed in Paper-Book. Therefore, following the rule of consistency, the
AO should not have taken any different view in current year.
Per contra, Ld. DR for revenue raised following contentions:
(i) In Para 4 of assessment-order, the AO has clearly mentioned that a
notice dated 18.12.2020 was given to assessee. Therefore, it cannot be
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said that the AO has not invited any explanation from assessee qua
the impugned receipts.
(ii) In Para 4.3 & 4.4 of assessment-order, the AO has categorically
mentioned that the impugned receipts are fee from providing
professional and technical services and for carrying out work in
pursuance of contracts. The AO’s observation cannot be said to be
baseless or in air. The AO has very much considered the facts from
assessee’s reply and reached at such a conclusion.
(iii) The CIT(A) has also given a vehement adjudication in Para 4.3 to 4.6
of impugned order.
We have considered rival contentions of both sides and perused the
orders of lower-authorities as well as the material held on record to which
our attention has been drawn. The controversy in present case relates to the
denial of exemption u/s 11/12 by the AO to the receipts of Rs.
1,88,17,012/- from “incidental objects”. The assessee’s objects, as noted by
Ld. AO in Para 2 of assessment-order, are developing community
participation in sustainable management of water resources, enhancing
livelihood opportunities of women in sanitation and construction sector,
engaging with adolescent on reproductive health and life skills, preparing
boys and girls on reproductive health, community based wash for open
defecation-free status, strengthening service delivery system in health and
nutrition, operation and maintenance of school toilets, developing climate
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resilient water structures through MGNREGS and integrated watershed
management, etc. We appreciate such activities undertaken by assessee for
charitable purpose. The AO has also allowed exemption u/s 11/12 to
assessee considering charitable purpose of activities but the denial of
exemption is partial qua the receipts from “incidental objects”. Admittedly,
the assessee has himself reported the impugned receipts from incidental
objects in the return of income filed. Further, before lower authorities, the
assessee has also given a detailed Statement running over 4 pages giving
party-wise details of all receipts with break-up under headings “main
objectives” and “incidental objectives” (Paper-Book Page 132-135). Thus, the
receipts from "incidental objects” are self-reported and self-admitted by
assessee. Ld. AR though submitted repeatedly that the impugned receipts
were in the nature of “grants” from givers and the assessee had wrongly
classified the same as receipts from “incidental objects” but when we
examined the detailed Statement during hearing, on a bare perusal we
found that the receipts from many of the givers were in odd amounts.
Generally, the grants are given in round figures, therefore we tried to dig
further from Ld. AR as to why there were odd figures? Immediately, Shri
Yogesh Kumar, office-bearer of assessee-trust who was also available with
Ld. AR during hearing, intervened and explained that the assessee-trust had
to make cogent estimates; submit proposal of estimates to givers, negotiate
exact terms as well as amounts with the givers and ultimately arrive at
concrete amounts with the givers; that is why there are odd amounts
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received from givers. Thus, on one hand it is claimed that a wrong figure of
receipts from incidental objects was reported in the return of income but on
other hand there is a submission that the assessee received concrete
amounts from givers after discussions and negotiations. During
deliberations, it also surfaced that the assessee had also issued Invoices to
the givers for collecting receipts. Shri Yogesh Kumar invited our attention to
three sample Invoices dated 30.03.2018, 28.02.2018 and 25.01.2018 issued
by assessee to the givers in an attempt to show that the receipts were not in
the nature of business or commercial receipts. These Invoices are not a part
of Paper-Book filed in terms of ITAT Rules, 1963 but produced separately
during deliberations. When we asked Ld. AR as to whether these Invoices
were available before AO, Ld. AR made a submission that there was no
occasion to submit the same in absence of show-cause notice from AO. Ld.
AR narrated that the AO has made impugned addition without looking into
the documents of impugned receipts. Thus, from the deliberations took
place during hearing, we found that the nature of impugned receipts had
not been adequately examined at assessment level for whatever reason. We
expressed this finding during hearing itself. Ld. AR also echoed our finding,
although contending in favour of assessee for deletion of addition made by
AO, that the AO has treated the impugned receipts as business receipts only
because of reporting in assessee’s return and because of deduction of TDS
by givers but the AO has not examined the true nature of receipts. Being so,
we are of the considered view that there is a strong need to examine the
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nature of receipts aptly and also to give benefit of contentions raised by Ld.
AR as noted in Para 4(iv)/(v)/(vi) above. Therefore, we remand this matter to
the file of AO for a fresh adjudication. The AO shall give necessary
opportunities to assessee and the assessee shall make detailed submission
to AO qua the impugned receipts from incidental objects to enable the AO to
reach a proper conclusion. Ordered accordingly.
Before parting we would like to address a technical issue raised by Ld.
AR. It is claimed before us, as noted earlier, that since there was no denial of
exemption in scrutiny assessments of earlier years, the AO is prohibited
from taking a different view in current year because of “rule of consistency”.
This contention raised by Ld. AR is not acceptable to us. This is so because
as argued by Ld. AR himself the separate reporting requirement of receipts
from incidental objects had come into effect from AY 2018-19 for the first
time. Moreover, the assessee has himself given a detailed Statement showing
break-up of receipts attributable to “main objectives” and “incidental
objectives”. Hence, the AO is not prevented by “consistency rule” from
examining the nature of “incidental objects” and take a call in accordance
with law. The AO is well within his power to examine the nature of
“incidental objects” self-reported and self-admitted by assessee and
thereafter take a decision of making any addition as per law, if the facts
warrant so. Hence, this technical contention is rejected.
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Resultantly, this appeal is allowed for statistical purpose.
Order pronounced in open court / by putting up on notice board as per Rule 34 of ITAT Rules, 1963 on 31/01/2025
Sd/- Sd/-
(UDAYAN DAS GUPTA) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Indore
िदनांक/Dated : 31/01/2025
Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore
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