Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-2, NEW DELHI
Before: SHRI H.S. SIDHU
order dated 28.2.2014 of Ld. CIT(A)-ROHTAK pertaining to assessment year 2010-11. The grounds raised in the revenue’s appeal reads as under:-
On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in allowing the exemption u/s. 10(23C)(iiiad) of the I.T. Act, 1961 claimed by the assessee without appreciating the facts o the case.
On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in allowing the capital nature
expense as revenue nature expense claimed by the assessee without appreciating the facts of the case. 3. That the appellant craves for the permission to add, delete or amend the ground of appeal before or at the time of hearing of appeal.
2. The brief facts of the case are that the assessee had filed the Return of Income on 15.10.2006 declaring NIL income and the same was processed u/s. 143(1) of the Income Tax Act. Later on, the case was selected for scrutiny and notice u/s. 143(2) of the Act was issued and served upon the assessee. Further, statutory notice u/s. 142(1)/143(2) of the Act alongwith questionnaire were issued. In response thereto the Assessee’s Chairman attended the proceedings and furnished the requisite details / information as called from time to time. The same were examined. Books of accounts were produced and examined on test check basis. The assessee is an educational society registered under Registration of Societies Act, 1980 in the name of Vivek Shiksha Samiti, Mahendergarh. During the year under consideration, assessee has shown gross receipts of Rs. 98,79,561/- and claimed expenses of Rs. 73,37,135/- and excess of income over expenditure comes to Rs. 25,43,426/-.
Assessee claimed exemption u/s. 10(23C)(iiiad)/11(1)(a) of the Income Tax Act, 1961. AO has made the allegations that motive of the assessee is to earn the profit and not to provide education and profit earned by the society comes to 25.73% which is on very higher side. AO also observed that the assessee does not maintain proper books of account, particularly bill/ vouchers and doubted genuineness of the expenditure. AO further observed that Memorandum of Society does not contain any clause regarding distribution of assets on dissolution of society. Thereafter, the AO withdrew the exemption of Rs. 25,43,426/- claimed by the assessee and made various additions by assessing the total income at Rs. 42,82,650/- vide his order dated 28.3.2013 passed u/s. 143(3) of the I.T. Act, 1961.
Aggrieved with the aforesaid order, assessee preferred an appeal before the Ld. CIT(A), who vide his impugned order dated 28.2.2014 has partly allowed the appeal of the assessee.
Now the Revenue is aggrieved against the impugned order and filed the present appeal before the Tribunal.
Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in the grounds of appeal.
6. On the contrary, Ld. Counsel of the Assessee has relied upon the order of the Ld. CIT(A). He stated that Ld. CIT(A) has passed a well reasoned order which does not need any interference on my part, hence, the same may be upheld and accordingly, the appeal of the Revenue may be dismissed.
7. I have heard both the parties and perused the records, especially the impugned order passed by the Ld. CIT(A). I find that Ld. First Appellate Authority has elaborately discussed the issues in dispute by considering the submissions of the assessee and adjudicated the issues at page no. 3 to 4 of the impugned order.
The said relevant paras are reproduced as under:-
“The 2nd ground of appeal according to the appellant is against not considering the fact that the appellant society is covered u/s 10(23C)(iiiad) of the Act. The gross receipts of the appellant society during the year under appeal is less than Rs. one crore. Section 10(23C)(iiiad) of the Act is reproduced here under for ready reference:-
10(23C)(iiiad) any university or other education institution existing solely for educational purpose and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed; One Crore rupees under rule 2BC(1) Thus the income of the society is totally exempt under above section. The AO has taken the plea that memorandum of the society does not contain any clause relating to distribution of assets on dissolution of the society. This observation of the AO is factually incorrect. The bye laws of the society clearly contains that in the event of dissolution the assets will be transferred to any registered institution having similar objects. I have examined the submissions of the assessee. It is a fact that as stated in the assessment order show that the total receipts are less than a crore. Hence, this income is exempt u/s 10 (23C) (iiiad) of the Act. The AO is not correct in treating this income as not being exempt in view of the objects and bye laws which are clear about the treatment of assets on dissolution. Therefore, this ground of appeal is allowed.
Without prejudice to above, the other ground of appeal related to disallowance of expenses which are discussed as under:-
The 3rd ground of appeal is against addition of Rs. 25,43,426/- out of expenses claimed by the appellant and duly shown in the Income & Expenditure A/ c duly audited and filed with the return of income. The Ld. AO has observed that the appellant society is having gross receipts of Rs. 98,79,561/- and out of which expenses have been claimed at Rs. 7337135/- and the difference of Rs. 2543436/- has been added by observing that profit earned by the society comes to 25.73%. The AO has totally ignored the computation of income attached with the return of income (photocopy of computation is attached here with). As per the computation the surplus is less than 15% of gross receipts including bank interest of Rs. 535017/- which in fact is not he receipts but income as has been held by the Hon'ble ITAT Delhi Bench in the case of Param Hans Swami Uma Bharti Mision vs ACIT reported at 154 TT J page 531. The AO has not brought on record as to how he has arrived at the conclusion that the income/expenditure account reveals a profit motive and that the expenses incurred were for not charitable purposes. I, therefore, delete the addition of Rs 25,43,426). This ground of appeal is allowed.
The 4th ground of appeal is against addition of Rs.16,73,757/-. The expenses incurred for repair and renovation of the school building. The expenditure incurred on renovation of the building is revenue expenditure. This view has been taken by the Hon'ble Punjab & Haryana High Court in the case of Pine Grove International charitable Trust reported at 2 Saral e- Taxation 102.
In view of the citation supporting the assessee’s claim, I delete the impugned addition. This gorundo appeal is allowed.”
7.1 After going through the findings of the Ld.CIT(A) and the provisions of law on the issue in dispute, with regard to allowing the exemption raised vide ground no. 1 by the Revenue is concerned, I find that the income of the society is totally exempt under section 10(23C)(iiiad). The AO has taken the plea that memorandum of the society does not contain any clause relating to distribution of assets on dissolution of the society. This observation of the AO is factually incorrect. The bye laws of the society clearly contains that in the event of dissolution the assets will be transferred to any registered institution having similar objects. I have examined the submissions of the assessee. It is a fact that the total receipts are less than a crore. Hence, this income is exempt u/s 10(23C) (iiiad) of the Act. The AO is not correct in treating this income as not being exempt in view of the objects and bye laws which are clear about the treatment of assets on dissolution and exemption cannot be withdrawn on the ground that such clause is not present in the memorandum. Accordingly, I am of the view that the Ld. CIT(A) has passed a well reasoned order, which does not need any interference on my part, hence, I uphold the order of the Ld. CIT(A) on the issue in dispute. Accordingly, the issue in dispute is decided against the Revenue.
7.2 With regard to disallowance of Rs. 16,73,757/- incurred for building and maintenance treating the same as capital expenditure.
I find that the expenditure has been incurred for the purpose of maintenance of school building is the part of application under section 11 and 10(23C) of the Act. It does not matter in the case of trust registered under section 12AA/10(23C) whether the expenditure is revenue in nature or capital expenditure. If the application is made towards the objects and activities of the trust the same are to be allowed as has been used in Pinegrove International Charitable Trust reported at 2 Saral e-Taxation 102 by the Hon’ble Punjab and Harayana High Court. In view of the above, I am of the view that the Ld. CIT(A) has passed a well reasoned order on the issue in dispute, which does not need any interference on our part, hence, I uphold the order of the Ld. CIT(A) on the issue in dispute. Accordingly, the issue in dispute is decided against the Revenue.
In the result, the appeal of the Revenue is dismissed.