SRISHTI RESIDENT WELFARE ASSOCIATION,NOIDA vs. ACIT, CIRCLE- 3, NOIDA

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ITA 3028/DEL/2018Status: DisposedITAT Delhi06 November 2018AY 2012-138 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the CIT(A) exceeded his jurisdiction by commenting on the validity of the 12AA registration granted by the CIT(Exemptions). It is the prerogative of the CIT(Exemptions) to decide on the allowability of such registration. The CIT(A) should have confined himself to the issues raised in the appeal and could have enhanced the addition made by the AO, which is within his powers, but not by questioning the authority of another tax authority. Therefore, the CIT(A)'s findings on this aspect were set aside. Regarding the AO's action, the Tribunal found that the AO doubted the surplus without examining each item of income. Consequently, this issue was restored to the AO for fresh examination of each income item, allowing the assessee a reasonable opportunity of being heard. The enhancement made by the CIT(A) was set aside, and the AO's order was restored to his file for de novo adjudication. The appeals were allowed for statistical purposes.

What were the facts?

The assessee, Srishti Resident Welfare Association, is appealing two orders from the CIT(A)-1, Noida, dated February 28, 2018, for Assessment Years 2012-13 and 2014-15. The assessee is registered under the Registrar of Societies and also has registration under Section 12AA of the Income Tax Act, 1961. During scrutiny assessment, the Assessing Officer (AO) noted gross receipts of Rs. 2.24 crores, with a surplus of Rs. 6,39,591/- earned from commercial activities. The AO doubted the assessee's eligibility for exemption under Section 11 on this surplus. The assessee appealed to the CIT(A), who issued a notice for enhancement. The CIT(A) opined that the assessee wrongly claimed 12AA registration, that the society could not claim the benefit of mutuality, and that the entire receipts should be taxed. The assessee subsequently withdrew its 12AA registration.

What were the issues?

1. Whether the CIT(A) erred in deciding the issue of the Assessee's entitlement to registration U/s.12-AA, which was outside his appellate jurisdiction, concerning the Income Tax Act, 1961. 2. Whether the CIT(A) erred in taxing the Assessee's gross receipts on the reasoning that a society registered U/s.12-AA cannot claim the benefit of mutuality, concerning the Income Tax Act, 1961. 3. Whether the CIT(A) erred in enhancing the income without proper notice to the Assessee regarding the applicability of Section 57 and the intent to tax gross receipts, concerning Section 251(2) of the Income Tax Act, 1961. Assessee's contentions: The CIT(A) lacked jurisdiction to comment on the 12AA registration granted by the CIT(Exemptions). The CIT(A) should not have questioned the grant of registration. The order of the CIT(A) is bad in law. The assessee also argued that for many years, the benefit of the Doctrine of Mutuality was allowed. Revenue's contentions: The learned DR strongly supported the findings of the AO and relied on the observations of the CIT(A) regarding enhancement.

Which sections of the Income-tax Act were involved?

Section 12AA,Section 11,Section 13,Section 251(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI ‘SMC’ BENCH,

Before: SHRI N.K. BILLAIYA

Hearing: 05.11.2018Pronounced: 06.11.2018

PER N.K. BILLAIYA, ACCOUNTANT MEMBER:

1.

These two separate appeals by the assessee are preferred against the order of the Commissioner of Income Tax [Appeals] – 1, Noida dated 28.02.2018 pertaining to assessment years 2012-13 & 2014-15. Since the first appellate authority has disposed off both the appeals by 2 a consolidated order and since the underlying facts in issues are identical, both these appeals were heard together and are being disposed of by this common order for the sake of convenience and brevity, though the quantum may differ.

2.

The substantive grievances of the assessee in both the A.Ys read as under:

“1. The CIT(A) erred in returning findings and deciding the issue of the Assessee's entitlement to registration U/S.12-AA, which was completely out of his jurisdiction in appeal.

2. The CIT(A) erred in putting the Assessee's gross receipts to tax on the peculiar reasoning that a society registered U/S.12-AA of the Act cannot claim the benefit of mutuality.

3. The CIT(A) erred in enhancing the income in appeal without putting the Assessee to notice of the issues therein - the aspect of applicability of section 57, as also the intent to put gross receipts to tax. The notice u/s.251(2) therefore, is only technical compliance of the mandate in the provision.

4. The CIT(A) erred in confirming additions made by the AO without even applying his mind to averments & evidence placed before him in this regard, and passing a speaking order.”

3.

Briefly stated, the facts of the case are that the assessee is a Resident Welfare Association and registered under the Registrar of Societies, Meerut vide Certificate No. 1573 dated 25.02.2009. The assessee is also registered u/s 12AA of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] by the CIT, Ghaziabad.

3. Return for the year was selected for scrutiny assessment and during the course of scrutiny assessment proceedings and on perusal of income and expenditure account, the Assessing Officer noticed that the assessee has shown gross receipts of Rs. 2.24 crores and claimed entire receipt exempt u/s 11 of the Act. On perusal of income and expenditure account, the Assessing Officer noticed that gross receipts includes surplus amount of Rs. 6,39,591/-, which was earned from commercial activities. The Assessing Officer was of the firm belief that the activities of the assessee do not fit in the definition of the words ‘Charitable Purposes’ and, therefore, is not entitled for exemption on surplus of Rs. 6,36,591/-.

4.

The assessee carried the matter before the CIT(A) but, to its surprise, received notice for enhancement.

5.

The first appellate authority was of the opinion that the assessee has wrongly claimed registration u/s 12AA of the Act, and therefore, the entire receipt of the assessee-society should be treated as income of the assessee. The CIT(A) further observed that the assessee is not entitled for the benefit of Doctrine of Mutuality. The CIT(A) further observed that the assessee has admittedly violated the provisions of section 13 of the Act in as much as, the entire expenditure of the assessee society is for the benefit of the members of the association or persons and their relatives.

6.

On the observation made by the first appellate authority, the assessee-society was forced to withdraw the registration granted to it u/s 12 of the Act. The CIT(A) not only confirmed the action of the Assessing Officer but also treated the entire receipts as income of the assessee.

7.

Aggrieved by the action of the first appellate authority, the assessee is in appeal before me.

8.

The ld. AR vehemently stated that since past many years, benefit of Doctrine of Mutuality was allowed to the assessee-society. It is the say of the ld. AR that the CIT(A) has no jurisdiction to comment upon the action of the CIT(Exemptions]. The ld. AR further stated that the first appellate authority should not have questioned the grant of registration u/s 12A of the Act by the CIT(Exemptions]. The ld. AR concluded by stating that the order of the first appellate authority is bad in law.

9.

Per contra, the ld. DR strongly supported the findings of the Assessing Officer and on the point of enhancement, she relied upon the observations of the CIT(A).

10.

I have given thoughtful consideration to the orders of the authorities below. I have also gone through the contents of the affidavit filed by the Secretary of the appellant- society. The undisputed fact is that the appellant society was enjoying the registration granted to it by the CIT(E), Ghaziabad u/s 12AA of the Act. I fail to understand how can the CIT(A) question the authority of the CIT(Exemptions) for granting registration u/s 12AA of the Act. It is for the CIT(Exemptions) to decide the allowability or otherwise of the registration u/s 12A of the Act. In my considered opinion, the CIT(A) should not have made any observation on that aspect and should have restricted himself to the issues raised before him. At the most, the CIT(A) could have enhanced the addition made by the Assessing Officer, which is within his powers. But by no stretch of imagination it can be accepted that the first appellate authority is making enhancement while commenting on the powers of the CIT(Exemptions). In my humble opinion, the first appellate authority has crossed his powers in deciding the appeal and, therefore, his findings have to be set aside. I direct accordingly.

11.

Coming to the action of the Assessing Officer, I find that the Assessing Officer has doubted the surplus Rs. 6,36,591/- without examining each and every item of income. I, therefore, restore this issue to the file of the Assessing Officer. The Assessing Officer is directed to examine each and every item of income and decide the issues afresh after allowing reasonable opportunity of being heard to the assessee. Accordingly, the enhancement is set aside and the order of the Assessing Officer is restored back to his file.

12.

In the result, the appeals filed by the assessee in & 3029/DEL/2018 are allowed for statistical purpose.

The order is pronounced in the open court on 06.11.2018.

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