SPARSH,RAYAGADA vs. CIT(EXEMPTIONS), HYDERABAD

Per Bench

This is an appeal filed by the assessee against the order of

Commissioner of Income Tax (Exemptions), dated 24.3.2015.

Income Tax (Exemptions) was not justified in refusing the approval u/s.80G

of the Act.

(Exemptions) observed from the Income & Expenditure a/c of the assessee

2 SPARSH, At: J.K. Paper Mills, Jaykapur, Rayagada society for the accounting year 2012-13 and for the accounting year 2013-

14 that under 'Income side', it has shown receipts from grants from

different authorities and interest received from bank aggregating to

Rs.4,24,158/- and Rs.7,09,690/- for both the years respectively. Under

the expenditure side after debiting expenditure under different heads

aggregating to Rs.72,69,954/- for the year 2012-13 and aggregating to

Rs.1,05,19,622/- for the year 2013-14, it has deducted Rs.68,72,844/- and

Rs.98,61,142/-, respectively from both the years mentioning as

“reimbursement received from J.K.Paper Ltd., against expenditure and

thereafter has shown excess of income over expenditure ‘ of Rs.29,048/-

and Rs.51,210/- , respectively for the accounting years. He observed that

in the face of such statement of account, showing first expenses incurred

by the assessee society when there was no supporting prior income for

meeting expenses to that extent during such period, on a query to the AR

of the assessee during the course of hearing to explain as to why the

assessee society has met such expenditure at the first instance, it was

submitted that the same were met out of monies received from J.K.Paper

Ltd. From such submission, it shows that the assessee has received funds

constituting its income, first during that period from that company, from

which it has met such expenditure for different charitable purposes during

such years. The CIT(Exemptions) further observed that as per the income

and expenditure account furnished by the assessee with the application in

Form 10G, it shows the assessee, after incurring such expenditure for

different purposes, later, has reimbursed such amounts by that company.

3 SPARSH, At: J.K. Paper Mills, Jaykapur, Rayagada Since that income and expenditure account (audited income and

expenditure account) furnished by the assessee showing receipt of funds

by way of reimbursement from that company later, contradicts the

submissions made by the AR during the proceedings before him regarding

receipt of money in advance from that company, it shows that the assessee

was not correctly maintaining regular accounts of its actual receipts and

expenditure during such period. He further observed that even on verifying

the balance sheet of the assessee for the said period, it is noticed that for

the year 2012-13 under liability side, the assessee has shown advance

received from J.K.Paper Ltd., against expenditure of Rs.4,06,655/- only.

Under 'Expenditure side', It shows that the assessee is not maintaining

regular accounts of its actual receipts and expenditure and thereby as it

does not fulfill the condition stipulated in clause (iv) to sub-section (5) of

Section 80G of the Act, having regard to the provisions contained in sub-

rule (5) to Rule 12AA of the income Tax Rules, 1962, the assessee society,

in his view, cannot be granted approval u/s.80G (5)(vi) of the Act.

authorities and materials available on record. The undisputed facts of the

case are that the assessee is a charitable society registered under section

12AA of the I.T.Act,1961 vide order dated 25.9.2010 passed by the

Commissioner of Income Tax (Exemptions), Hyderabad and its objects are

for charitable purpose. The assessee vide its application dated 22.9.2014

made an application for grant of approval u/s.80G of the Act. Vide the

impugned order, the Commissioner of Income Tax (Exemptions),

4 SPARSH, At: J.K. Paper Mills, Jaykapur, Rayagada Hyderabad refused to grant approval u/s.80G of the Act against which the

assessee is in appeal before us.

rejecting the application of the assessee for approval u/s.80G of the Act

was that, he on perusal of audited income and expenditure account and

balance sheet of the assessee for the assessment years 2012-13 and 2013-

14, was of the opinion that the assessee was not correctly maintaining

regular accounts for its actual receipts and expenditure during such period.

The CIT(Exemptions) written the above finding merely on the basis of

perusal of audited income and expenditure account and balance sheet of

the assessee. The CIT(Exemptions) observed that the assessee has on his

expenditure side shown the gross amount of expenditure and thereafter

deducted therefrom an amount as reimbursement of expenditure received

from J.K.Paper Ltd.,

Rs.4,06,655/- as its liability in the balance sheet as on 31.3.2013 under

the head “ advance receipt against expenditure”.

maintained by the assessee could be pointed out. The CIT(A) could not

point out any receipt or expenditure of the assessee society, which was not

recorded in the regularly maintained books of account. The

CIT(Exemptions) has brought no material on record to show that the

5 SPARSH, At: J.K. Paper Mills, Jaykapur, Rayagada amount which was shown as liability in the balance sheet was not the actual

liability or obligation of the assessee of that date.

from J.K.Paper Ltd., Thereafter, the assessee incurred certain expenses

and said J.K.Paper Ltd., reimbursed part of those expenditures by way of

adjusting the advance amount with reimbursable amount. We do not find

any contradiction in the explanation of the assessee. The CIT(Exemptions)

has brought no material on record to show that the assessee could not

explain the source of any specific expenditure or the amount claimed as

reimbursement was incorrect or false. In absence of any such material

being brought on record, we find the inference drawn by the

CIT(Exemptions) merely on perusal of audited statement about the

regularity of accounts of the assessee is incorrect and arbitrary.

section (5) of Section 80G, which reads as under:

80G – In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section.: “ (5) This section applies to donations to any institution or fund referred to in sub-clause (iv) of clause (a) of sub-section (2) only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely: (i)…. (ii)…. (iii)…. (iv) the institution or fund maintains regular accounts of its receipts and expenditure.”

6 SPARSH, At: J.K. Paper Mills, Jaykapur, Rayagada 10. We find that no error in any specific receipt or expenditure of the

assessee could be pointed out by the CIT(Exemptions). Thus, no error in

compliance of the above provisions is found. Further, the CIT(Exemptions)

has also referred to sub-rule (5) to Rule 12AA of the Income tax Rules,

1962. We have not been able to find any such Rule in the Income tax

Rules. Thus, we find that no sustainable reason could be stated by the

CIT(Exemptions) in rejecting the application of the assessee for grant of

approval u/s.80G of the Act. We, therefore, set aside the order of the

CIT(Exemptions) and direct him to allow approval u/s.80G to the assessee

society and allow the ground of appeal of the assessee.

Sd/- sd/- ( Aby T. Varkey) (N.S Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER

Cuttack; Dated 28 /02/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : SPARSH, At: J.K. Paper Mills, Jaykapur, Rayagada 2. The respondent: CIT (Exemptions), Hyderabad 3. The CIT(A) 4. Pr.CIT, 5. DR, ITAT, Cuttack 6. Guard file. BY ORDER, //True Copy//

SR.PRIVATE SECRETARY ITAT, Cuttack