HARYANA STATE AGRICULTURAL MARKETING BOARD,PANCHKULA vs. DCIT, PANCHKULA

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘A’, CHANDIGARH

BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.230/Chd/2012 (Assessment Year : 2004-05) & ITA No.158/Chd/2013 (Assessment Year : 2004-05)

Hayana State Agricultural Vs. The D.C.I.T., Marketing Board, Panchkula Circle, Panchkula. Panchkula. PAN: AAALH0016R (Appellant) (Respondent)

Appellant by : Shri Harish Nayar, Adv. Respondent by : Smt.Chanderkanta, Addl.CIT DR Date of hearing : 20.03.2018 Date of Pronouncement : 23.03.2018

ORDER PER ANNAPURNA GUPTA, A.M.:

Both the above appeals have been filed by the same

assessee challenging separate orders passed by the Ld.

Commissioner of Income Tax(Appeals), Panchkula in

quantum proceedings and in penalty proceedings dated

2.12.2011 and 5.12.2012 respectively relating to

assessment year 2004-05.

We shall first be dealing with the quantum appeal in

ITA No.230/Chd/2012.

ITA No.230/Chd/2012: A.Y 2004-05

determining the taxable income of the assessee which has

claimed exemption as a charitable trust u/s 11 of the Act,

on account of non-application of its income upto the

statutorily prescribed limit of 85% of the income as

specified u/s 11(1)(a) of the Income Tax Act, 1961 (in short

‘the Act’).

At the outset, it may be pointed out that this issue has

come up before us in the second round. The brief facts of

the case are that the assessee being a charitable

organization registered u/s 12AA of the Act, had filed

return for the impugned assessment year claiming

exemption u/s 11 of the Act. Original assessment was

framed u/s 143(3) of the Act at an income of

Rs.11,03,11,164/- which was reduced to Rs.17,31,089/- by

the CIT(Appeals). Both the assessee and the Revenue went

in appeal before the I.T.A.T. against the order of the

CIT(Appeals) and the Hon'ble I.T.A.T. dismissed the appeal

of the Revenue while in the case of the assessee’s appeal,

the matter was set aside to the file of the Assessing Officer

to verify the claim of the assessee that even when the

disputed incomes are liable to be assessed as normal

income, the application of income to the extent of 85% and

above is still to be examined and exemption of income

determined accordingly. The Assessing Officer in the second

round before it, after verification of the claim of the

application of 85% of the income of the assessee for

charitable purposes, determined the shortfall in such

application to the extent of Rs.83,45,989/- and added back

the same of the income of the assessee.

Ld.CIT(Appeals) who enhanced the shortfall in the

application of income to Rs.1,53,72,368/- by not treating

the income tax paid of earlier years as application of

income. The calculation of the shortfall at para 4.8 of the

order is as under:

Particulars Amount (Rs.) 1) Receipt Receipt & payment statement filed during appeal including contribution from MCs Rent interest recovered and other misc. receipts, sale of tender forms and Enlistment fee of contractors 51,81,19,610/- 2) 85% of above 44,04,01,668/- 3) Income applied for the objectives excluding income for tax of previous years 42,50,29,300/-

4) Shortfall in the application of income (2-3) 1,53,72,368/-

appeal before us, raising the following effective grounds of

appeal:

“2. That the CIT(A) has erred both on facts and law in making enhancement of income by Rs. 15372368 on the ground that the appellant had not complied with the conditions laid down under section 11(2) requiring the assessee to apply the income during the year under question or accumulate the same for next five years. The CIT(A) has erred in adopting incorrect figure of amount actually utilized during the year at Rs.425029300 instead of Rs.436945097 which has actually been utilized during the year under question.

It is prayed that suitable directions in the matter may be given to the AO/ CIT(A) for recalculating the amount utilized out of the total income towards objectives of the institution. 3. That the CIT(A) has erred both on facts and law in not considering the sum of Rs.76645786 paid as income tax as utilization of income towards the objective by the appellant. It is prayed that the action of the CIT in not considering the amount of Rs.76645786 paid as income tax as utilization towards objectives may be ordered to be quashed and necessary directions in the matter may be given to recalculate the income as per provisions of the Act. 4. That the CIT(A) has erred both on facts and law in not considering the sum of Rs.3218001 as utilization of income towards the objects by the appellant which was validly and duly spent by the appellant on acquisition of capital assets. The action of the CIT(A)in not considering the capital expenditure as utilization towards objectives for which the assessee was set up is incorrect, unjust, not in consonance of law. It is prayed that the action of the CIT in not considering the amount of Rs.3218001 paid as income tax as utilization towards objectives may be ordered to be quashed and necessary directions in the matter may be given to recalculate the income as per provisions of the Act. 5. That the action of the Ld. CIT(A) in not quashing the action of AO of rejecting Form No.10 filed by the appellant to give notice of accumulation in respect of unspent amount for which option of accumulations under Section 11(2) of Income tax Act was exercised is unjust and unwarranted. It is prayed that the necessary directions may be given to the C!T(Appeals)/AO for taking into consideration the notice given under section 11(2) of the Income tax Act 1961 and allow relief accordingly.” 5. In ground Nos.2 & 3 raised before us, the assessee has

challenged/contested the determination of shortfall in

application of income of the assessee to the extent of

Rs.1,53,72,368/-, by the CIT(Appeals), on two grounds;

a) by incorrectly adopting the figure of amount

actually utilized during the year at Rs.42,50,29,300/-

instead of Rs.43,69,45,097/- and;

b) by not treating the income tax paid of previous

years amounting to Rs.7,66,45,786/- as

application/utilization of income for the year.

figures of income of the assessee and its utilization during

the year submitted to the lower authorities and which have

been accepted and considered by the lower authorities for

the purpose of calculating 85% application of income by the

assessee, the application of income excluding income tax

paid of previous years amounted to Rs.43,69,45,097/-.

The Ld. counsel for assessee drew our attention to the

calculation submitted to the CIT(Appeals) in this regard,

placed at Paper Book No.7 and which is reproduced as

under:

------------------ -------------- -------------- PARTICULARS ANNEXURE AMOUNT(RS.) --------------------------- ------------------ ---------------- RECEIPT REVENUE HEAD I CONTRIBUTION FROM M.Cs 448846458.65 RENT 5174790.00 INTEREST RECOVERED 61772654.81 OTHER MISC. RECEIPTS 594618.00 ------------------- 516388521.46 CAPITAL HEAD SALE OF TENDER FORMS II 982809.00 ENLISTMENT FEES OF CONTRACTRS III 748280.00 ------------------- 518119610.46 -------------------

PAYMENT REVENUE HEAD SALARY GENERAL ESTABLISHMENT IV 226784951.00 SALARY WORKS ESTABLISHMENT V 137486923.00 TRAVELLING ALLOWANCE VI 6342931.00 CONTINGENCIES RECURRING VII 20193798.02 MISC. EXPENDITURE VIII 21798077.00 INCOME TAX IX 24338417.00 INCOME TAX PREVIOUS YEAR X 76645786.00 ------------------- 513590883.02 -------------------

calculation of the CIT(Appeals) at para 4.8 of the order as

under:

Particulars Amount (Rs.) 1) Receipt Receipt & payment statement filed during appeal including contribution from MCs Rent interest recovered and other misc. receipts, sale of tender forms and Enlistment fee of contractors 51,81,19,610/- 2) 85% of above 44,04,01,668/- 3) Income applied for the objectives excluding income for tax of previous years 42,50,29,300/- 4) Shortfall in the application of income (2-3) 1,53,72,368/-

receipts of the assessee amounted to Rs.51.81 crores as per

the above calculation which was the same figure adopted by

the CIT(Appeals). The Ld. counsel for assessee thereafter

pointed out that considering the detail submitted by the

assessee and excluding therefrom the income tax paid of

earlier years amounting to Rs.7.66 crores, which is the only

item which has been excluded by the CIT(Appeals) from the

application of income, the resultant application comes to

Rs.43.69 crores as under:

Total payment reflected by assessee Rs.51.35 crores Less:Income tax paid of earlier years Rs. 7.66 crores not allowed as application by CIT(A) Balance application allowed by CIT(A) Rs.43.69 crores

Ld.CIT(Appeals), on the other hand, has given benefit of

only of Rs.42.50 crores for no apparent reason. The Ld.

counsel for assessee submitted that this was an error on

the part of the CIT(Appeals) and application of income to

this extent needed to be corrected and reduced from the

shortfall of Rs.1.53 crores calculated by the

Ld.CIT(Appeals). The Ld. counsel for assessee further

pointed out that while levying the penalty u/s 271(1)© for

the impugned year, correction to this effect had been

granted by the Assessing Officer, who had given the benefit

of utilization to the extent of Rs.43.69 crores. The Ld.

counsel for assessee drew our attention to the penalty order

passed u/s 271(1)(c) at para 4.1 wherein the calculation of

penalty was worked out by the Assessing Officer as under:

“4.1. The appellant is not eligible for credit of income tax of previous years claimed at Rs.7, 66,45,786/- as last item in the table (supra). The appellant has to apply 85% of the receipts of current year as under. Following picture emerges after excluding income tax of previous years from payments:- i) Receipts as per table above 51,63,88,521/- (excluding receipts under capital head on account of sale of tender forms + Enlistment fee) ii) 85% of receipts at (i) 43,89,30,243/-

iii) Payments as per table (supra) 51,35,90,883/- iv) Less : Income tax of previous years 7,66,45,786/- v) Balance application 43,69,45,097/- ( Shortfall II - V) [43,89,30,243-43,69,45,097] = 19,85,146/- Add : Utilization towards capital 3 2, 18, 001/ : Total shortfall Rs.52,03,147/-

Ld Counsel for the assessee therefore sought relief on

account of the purported mistake made by the CIT(A).

Ld.CIT(Appeals) had erred in not granting benefit of the

income tax paid of earlier years amounting to Rs.7.66

crores as application of income for the year. The Ld.

counsel for assessee drew our attention to the order of the

Hon'ble Delhi High Court in the case of Director of Income

Tax (Exemptions) Vs. National Association of Software &

Services Companies reported in 345 ITR 362 and pointed

out therefrom that the Hon'ble High Court on an identical

issue had held that the taxes paid are to be treated as

application of income for charitable purposes.

of the Ld.CIT(Appeals).

perused the orders of the authorities below. As stated

above, the dispute before us is vis-à-vis calculation of

shortfall of 85% of the application of income for the purpose

of claiming exemption u/s 11 of the Act wherein the same

has been determined in the present case to the extent of

Rs.1.53 crores.

assessee that the Ld.CIT(A) has erroneously taken the figure

of application of income, excluding taxes paid of earlier

years ,at Rs.42.50 crores as against the actual figure of

43.69 crores, we find merit in the same. The Ld.Counsel for

the assessee has demonstrated the said facts from the

documents which were there before the lower authorities

also and the Ld.DR has not controverted the same ,nor has

been able to give any explanation for the said discrepancy.

Moreover, as pointed out by the Ld. counsel for assessee

even the Assessing Officer while levying penalty had treated

the application to the extent of Rs.43.69 crores only. We,

therefore, agree with the Ld. counsel for assessee that the

actual utilization of income excluding income tax paid of

earlier years should be taken at Rs.43.69 crores as against

Rs.42.50 crores taken by the Ld.CIT(Appeals) and direct

that the shortfall in application of income to the extent of

85% of the receipts be reduced to this extent.

for the purpose of treating as application of income of the

current year, we are in agreement with the contention of the

Ld. counsel for assessee that the same ought to be treated

as application of income of the current year. It is well

settled that for the purpose calculating the

application/utilization of income for the purpose granting

exemption u/s 11 of the Act, it is the commercial profit

which has to be taken into consideration and the income

need not to be calculated as per the provisions of the Act.

Therefore, there is no reason at all for not treating the tax

paid of earlier years as application income of the impugned

year. The reliance placed by the Ld. counsel for assessee

on the decision of the Hon'ble Delhi High Court in the case

of National Association of Software & Services Companies

(supra) is apt, wherein the Hon'ble High Court on an

identical issue has held that there is consensus of judicial

view on the question whether the payment of taxes can be

considered as a proper deduction while determining the

income available to a trust for application to charitable

purpose as required by section 11(a) of the Act. The

Hon'ble High Court has held that the word “income” used in

section 11(1)(a) must not be assigned the same meaning as

in section 2(45) of the Act, which has been accepted by the

department also vide a circular issued by the CBDT and

payment of taxes are to be deducted before arriving at the

commercial income of the assessee trust i.e. available for

application of income. The relevant findings of the Hon'ble

High Court at para 12 of its order are as under:

“12. Thus, it appears that there is a consensus of judicial view on the question whether payment of taxes can be considered as a proper deduction while determining the income available to a trust for application to charitable purposes as required by Section 11(1)(a) of the Act. The question is not whether taxes are allowable while computing the business income of an assessee under the provisions of the Act. The question is whether the word "income" used in Section 11(1)(a) of the Act must be assigned the same meaning as the words "total income" as defined in Section 2(45) of the Act. The CBDT itself

has opined in the circular cited above that it would be incorrect to assign to the word "income" used in Section 11(1)(a) the same meaning as "has been statutorily assigned to the expression "total income" under Section 2(45) of the Act. Having regard to the authorities noticed above and keeping in view the fact that the long-settled position, which has also been accepted by the CBDT, should not be upset, particularly where the statute which we are dealing with is an all India statute, we express our agreement with the judicial trend and hold that the payment of taxes under the VDIS is to be deducted before arriving at the commercial income of the assessee-trust that is available for application to charitable purposes. We are thus in agreement with the view taken by the Tribunal on this point.” 15. In view of the above, we hold that the assessee is

entitled to claim the benefit of tax paid of earlier years as

application of income for the year amounting to Rs.7.66

crores.

application of income to the extent of 85% of the income for

claiming exemption u/s 11 of the Act and amounting to Rs

1,53,72,368/- is wiped off .Thus we hold that the assessee

is entitled to exemption of its entire income u/s 11 of the

Act and the addition made to the same to the extent of Rs.

1,53,72,368/- is deleted. Ground Nos. 2 and 3 raised by

the assessee are, therefore, allowed.

pressed before us and, therefore, the same are treated as

dismissed.

ITA No.158/Chd/2013:

action of the Ld.CIT(Appeals) in confirming the penalty

levied on account of an addition made in quantum

proceedings on account of non-application of income to the

extent of 85% thereof. Since the entire addition made in

this regard has been deleted by us vide our order passed in

quantum proceedings above in ITA No.230/Chd/2012 at

para 11, the penalty no longer survives and the appeal of

the assessee, therefore, stands allowed.

No.230/Chd/2012 is partly allowed and the appeal of the

assessee in ITA No.158/2013 is allowed.

Order pronounced in the open court.

Sd/- Sd/-

(SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 23rd March, 2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A)s 4. The CIT 5. The DR Assistant Registrar, ITAT, Chandigarh