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Facts
The assessee, a charitable trust, filed its return declaring Nil income after claiming exemption under Section 11. The AO made additions for disallowance of Rs. 3,14,00,000 on account of application of unutilized accumulation and Rs. 8,70,00,000 for capital expenditure. The CIT(A) deleted these additions. The revenue is in appeal before the Tribunal.
Held
The Tribunal noted that the amount invested in fixed assets (solar panels and water treatment plants) should be considered as application of income. The AO erred in considering gross receipts instead of net surplus for exemption calculation. The CIT(A) rightly corrected the computation error made by the AO. The grounds raised by the revenue were dismissed.
Key Issues
Whether the CIT(A) was correct in deleting the additions made by the AO regarding application of unutilized accumulation and capital expenditure claimed by the assessee trust.
Sections Cited
11(2), 11(1)(a), 11(3), 2(15), 143(3), 12A, 11, 12
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of order dated 22.02.2024 passed by NFAC, Delhi for A.Y. 2016-17 on following grounds of appeal.
1. The order of the Ld.CIT(A) is opposed to facts and circumstances of the case.
The Ld.CIT(A) has erred in deleting the addition of Rs.3,14,00,000/- on account of application of unutilized accumulation made u/s.11(2) of the Income Tax Act, 1961 for earlier assessment year despite the fact that the assessee had failed to furnish the correct details of the purpose for which the accumulation was utilized? 3. The Ld.CIT(A) has erred in giving a finding as to whether the assessee had produced any documentary evidence in support of its claim that the addition to fixed assets i.e. construction of building during the current year, was financed by the funds accumulated u/s.11(2) of the Income Tax Act, 1961 in the preceding financial years; 4. The Ld.CIT(A) has erred in coming to the conclusion that the assessee had applied the funds accumulated in the earlier years for construction of the building in the current financial year in the absence of specific documentary evidence produced by the assessee in support of its claim; 5. The Ld.CIT(A) has erred in holding that the accumulation made by the assessee u/s.11(2) of the Income Tax Act, 1961 for earlier assessment year, is for a specific purpose and cannot be added to the total receipts of the current financial year, by ignoring the provisions of Section 11(3) of the Income Tax Act, 1961 6. The Ld.CIT(A) has erred in deleting the addition of Rs.8,70,00,000/- by ignoring the fact that the assessee had not given any details regarding commissioning of the RO water treatment plant during the current financial year and the list of beneficiaries of the solar lamp project while in the absence of such details, it cannot be proved that the assessee had actually applied funds for the stated objects of the trust 7. The appellant craves leave to add, alter or amend all or any of the Grounds of Appeal
before or at the time of the hearing of the appeal.
8. The order of the learned CIT(A), NFAC may be set-aside and the order of the AO may be confirmed.”
2. Brief facts of the case are as under: 2.1 The assessee is a charitable trust which is run by Canara Bank. The assessee trust was granted registration u/s. 12A by Page 3 of Director of Income Tax (Exemptions), Bangalore vide Certificate in F.No. 718/10A/VOL./B1/C-58 on 06.01.1982.
2.2 The return of income for A.Y. 2016-17 was filed by the assessee on 29.09.2016 declaring ‘NIL Income’ after claiming exemption u/s. 11 of the Act. The case was selected for scrutiny by CASS. The assessment u/s. 143(3) of the Act was completed on 25.12.2018 by determining the total income at Rs. 8,93,02,628/-. In the assessment order, the Ld.AO made the following additions: a) Disallowance of Rs.3,14,00,000/- claimed to have been utilized out of accumulation from previous year; and b) Disallowance of Rs.8,70,00,000/- being Capital Expenditure in nature.
Aggrieved by the order of the Ld.AO, assessee preferred appeal before the Ld.CIT(A).
The Ld.CIT(A) considering the objects of the trust and the financials filed by the assessee found that, the Ld.AO made addition as assessee had not furnished complete details in respect of the amount accumulated and carried forward as well as the amount applied for revenue expenses during the year under consideration.
3.1 The Ld.CIT(A) was of the opinion that the accumulation calculated by the Ld.AO u/s. 11(2), 11(1)(a) of the act is wrong. The Ld.CIT(A) observed that, the accumulation made u/s. 11(2)
Page 4 of Rs.3,14,51,045/- for earlier assessment year is for specific purpose which cannot be added to the total receipt of the current year. It is observed by the Ld.CIT(A) that the investment is already shown in the depreciation table as current capital expenditure for construction of building apart from Rs. 2,89,32,104/- investment made out of current year’s income. He noted that Form 10B filed for the previous assessment year was available before the Ld.AO and also filed during the appellate proceedings however the Ld.AO has mixed up the capital and revenue expenses.
3.2 The Ld.CIT(A) further observed that, the Ld.AO invoked the provisions of section 2(15) of the act as the assessee supported only poor people as an object of general public utility. The Ld.CIT(A) observed that, the Ld.AO wrongly opined that the assessee did not advance any activity that is charitable in nature or towards the advancement of any other object of public utility. The Ld.CIT(A) categorically observed that it is not the case of the Ld.AO that, the expenditure are not incurred at all. The Ld.CIT(A) thus deleted the disallowance of Rs. 3.40 crores.
3.3 On the issue of the revenue expenditure incurred towards purchase of solar lanterns to rural areas and water treatment plant set up to supply drinking water to drought area in Kolar and Chikkaballapur districts. The Ld.CIT(A) rejected the Ld.AO’s contention that, the beneficiaries to the facilities setup by the assessee is not known, due to which, the deduction claimed was denied. The Ld.CIT(A) was of the opinion that the beneficiaries
Page 5 of are all backward people in the remote village and the welfare of this section of the public, amounts to charitable activity, which is as per the objects of the trust and as per section 2(15) of the act. The Ld.CIT(A) thus deleted the disallowance of Rs. 8,70,00,000/- made by the Ld.AO as not tenable. Aggrieved by the order of the Ld.CIT(A), revenue is in appeal before this Tribunal.
The Ld.DR relied on the orders passed by the Ld.AO.
4.1 On the contrary, the Ld.AR submitted that assessee carrying on with charitable activity run by Canara Bank. It is submitted that main object is to develop the rural areas, nutrition programmes for school children, establishment and running of educational and formal / informal vocational training centers, construction and maintenance of drinking water projects such as wells, tubewells etc. and cleaning of wells and ponds, rural electrification that is provision of street lighting in villages and electrification of Harijan / Tribal homes.
4.2 He submitted that for the year under consideration, the assessee incurred expenditure towards solar lamps projects and RO water treatment project amounting to Rs. 30 Lakhs and Rs. 8.40 crores respectively. It was also submitted that, the assessee carried forward the accumulation of capital expenses to the next year amounting to Rs. 2,89,32,104/-, which was disallowed by the Ld.AO. He submitted that, the assessee provided necessary facilities as per Form 10B to the rural areas for which the Page 6 of Ld.AO only for the reason that, beneficiaries of the facilities were not detailed by the assessee.
4.3 He supported the order of the Ld.CIT(A) and submitted that assessee is providing facility to the entire village and that the beneficiaries cannot be independently identified by names. The Ld.AR in support furnished bank statements, audited balance sheet for the year under consideration as well as the immediately preceding assessment years to ascertain the fact that the expenditure was actually incurred by the assessee that forms part of the block of the assets.
We have perused the submissions advanced by both sides in the light of records placed before us.
We note that in the balance sheet for the year under consideration, the assessee added to the fixed assets, equipment that has been set up by way of solar panel and water treatment plants in the paper book filed before us.
5.1 The total addition made to the fixed assets are identifiable from the balance sheet as under: 1) More than 180 days – Rs. 36196595 2) Less than 180 days – Rs. 67773022 ______________________ Total – Rs. 103969617 ______________________
Page 7 of It is noted that the above amount invested as fixed assets has to be considered as application of income for the year under consideration. Further, the Ld.AO is to consider the net surplus and not the gross receipts for determining the income of the assessee for purposes of computation of exemption u/s. 11 and 12. From the assessment order, we note that the Ld.AO in the computation wrongly considered gross receipts, which is not in accordance with law.
5.2 In respect of the carried forward of capital expenses, we note that, the Ld.CIT(A) rightly recorded the computation error made by the Ld.AO in para 7.1. It is also noted that the Ld.DR could not justify the manner in which additions were made by the Ld.AO. We therefore do not find any infirmity in the view taken by the Ld.CIT(A) in deleting the additions made by the Ld.AO on both these issues raised by the revenue. Accordingly, the grounds raised by the revenue stands dismissed. In the result, the appeal filed by the revenue stands dismissed. Order pronounced in the open court on 30th July, 2024.