ASSISTANT COMMISSIONER OF INCOMETAX, EXEMPTIONS, CIRCLE,PUNE, PUNE V. SHREE WARANA VIBHAG SHIKSHAN MANDAL , WARNANAGAR

ITA 987/PUN/2024

AI Insights

The case involves the Assistant Commissioner of Income Tax, Exemptions, Circle, Pune as the appellant and Shree Warana Vibhag Shikshan Mandal as the respondent. The dispute centers on the disallowance of expenditure amounting to Rs.8,74,57,590 made by the AO, which was later deleted by the CIT(A). The AO had initially disallowed 20% of the expenditure claimed by the assessee due to non-submission of documents to substantiate the genuineness of the expenditures. The CIT(A) allowed the appeal of the assessee, leading to the current appeal by the Revenue before the Tribunal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126395 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: PCIT vs R.G. Buildwell Engineers Ltd [2018] 99 taxmann.com 284 (SC), Experion Developers Private Limited Versus Himanshu Dewan And Sonali Dewan And Others in CIVIL APPEAL NO. 1434 OF 2023, COMMISSIONER OF INCOME TAX - III VERSUS M/S.CALCUTTA KNITWEARS, LUDHIANA in CIVIL APPEAL NO. 3958 OF 2014
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR KESHARI
• Assessee Lawyers: NIKHIL S. PATHAK
• Keywords: Additional evidence; Reasonable cause; Onus to prove; Charitable institution; Benefit of exemption; Grounds of appeal; Disallowance of expense; Judgment; Commissioner; Commissioner of Income Tax; Statistical purposes; Transfer; Ad hoc; Rule 46A of the Income Tax Rules; Exempt; Deleted; Department; Status of AOP; Explanation
• Section: 144; 142(1); 143(2); 143(1); 11; 12AA; 12A; 12; 80G

Judgement Text

" आयकर अपीलीय अधिकरण “बी” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, PUNE BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA No.987/PUN/2024 धििाारण वर्ा / Assessment Year : 2017-18 Assistant Commissioner of Income Tax, Exemptions, Circle, Pune Vs. Shree Warana Vibhag Shikshan Mandal, Panhala, Warnanagar, Maharashtra, Pin Code - 416113 PAN : AADTS0996E अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Shri Nikhil S. Pathak Department by : Shri Ajay Kumar Keshari Date of hearing : 21-01-2025 Date of Pronouncement : 21-04-2025 आदेश / ORDER PER ASTHA CHANDRA, JM : The appeal filed by the Revenue is directed against the order dated 07.03.2024 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] pertaining to Assessment Year (“AY”) 2017-18. 2. The Revenue has raised the following grounds of appeal :- “01. On the facts and in the circumstances of the case the CIT(A) has erred in law and on merits in deleting the disallowance of expenditure of Rs.8,74,57,590/- made by A.O without discussing the genuineness of the expenditures solely based on the trust being registered under section 12A/AA, which is just a pre condition for claiming exemptions. 03. On the facts and in the circumstances of the case the CIT(A) has erred in law and on merits in placing reliance on the judgment of Hon'ble Supreme Court in the case of PCIT vs R.G. Buildwell Engineers Ltd [2018] 99 taxmann.com 284 (SC) and treating the same as ratio decidendi without appreciating the ratio laid by the judgment of Hon'ble Supreme Court in the case of Experion Developers Private Limited Versus Himanshu Dewan And Sonali Dewan And Others in CIVIL APPEAL NO. 1434 OF 2023 regarding treating the cases for 'res judicata' and 'ratio decidendi'. 2 ITA No.987/PUN/2024, AY 2017-18 04. On the facts and in the circumstances of the case the CIT(A) has erred in law and on merits in not appreciating the ratio laid by Hon'ble Supreme Court in the case of COMMISSIONER OF INCOME ТAX - III VERSUS M/S.CALCUTTА KNITWEARS, LUDHIANA in CIVIL APPEAL NO. 3958 OF 2014, distinguishing the use of tools of interpretation for taxing statute whereby a clear distinction has been laid in interpreting a charging provision and a machinery used for upholding the purpose of a charging provision and thereby erring in deleting the additions which appears to be against the soul of the charging provisions under section 11 of the IT Act. 05. On the facts and in the circumstances of the case the CIT(A) has erred in law and on merits in not appreciating the fact that in the instant case the AO applied his discretionary powers to disallow the 20% of the expenditure which was derived from non-furnishing of the genuineness of the expenses and failure on the part of the assessee to draw a link for the expenditures to have been incurred with expediencies related to achievement of objects of the trusts and inspired by assessing fare and reasonable income of the asseesee based on his wisdom and facts of the case and circumstances created by the assessee. 06. The Appellant craves leave to add, alter or amend any or all the grounds of appeal.” 3. Briefly stated, the facts are that the assessee is trust established under the Bombay Trust Act, 1950 since 13.07.1964. It is also registered under the Societies Registration Act, 1860 and has been granted registration certificate u/s 12A of the Income Tax Act, 1961 (the “Act”) by the Commissioner of Income Tax, Kolhapur on 01.04.2003. It is also holds an exemption certificate u/s 80G of the Act w.e.f. 01.04.2011. The main object of the assessee trust is to provide education to people from all strata of the society. For AY 2017-18, the assessee filed its return of income on 13.11.2017 declaring total income at Rs. Nil. The assessee’s case was selected for scrutiny under CASS. In response to the first notice issued by the Office of Exemptions-Ward, Kolhapur dated 13.08.2018, the assessee duly furnished its response by submitting all the documents before the Assessing Officer, Kolhapur, Exemption-Ward. Initially, the return of the assessee was processed u/s 143(1) on 11.03.2019 accepting the exemption u/s 11 claimed by the assessee with refund. Meanwhile, there was a change in the incumbent office and the assessee was transferred to Exemption Circle, Pune and accordingly subsequent notice u/s 142(1) r.w.s. 129 of the Act along with annexures were issued by the Office of the Exemption Circle, Pune requiring the assessee to furnish certain details/ information contained therein. The notice was duly served on the assessee. However, the assessee failed to file its response to the said notice. Since, the assessee remained non-compliant and the case was 3 ITA No.987/PUN/2024, AY 2017-18 getting time barred, the Ld. Assessing Officer (“AO”) proceeded to complete the assessment ex-parte u/s 144 of the Act on the basis of material available on record. As per the return of income filed by the assessee, the Ld. AO observed that the assessee has shown gross receipts of Rs.41,83,82,043/- against which it has claimed application of income to charitable purposes (expenditure) of Rs.43,72,87,949/-. The Ld. AO observed that the assessee has not submitted any documents to substantiate it claim of expenditure and even audited financial statements have not been filed by the assessee. Since, the genuineness of the expenditure remained unproved and unestablished for which burden of proof lied on the assessee, the Ld. AO at his best judgment disallowed 20% of the expenditure i.e. Rs.8,74,57,590/- (20% of Rs.43,72,87,949/-) claimed by the assessee and added the same back to the total income of the assessee. Further, in the absence of any explanation by the assessee regarding the charitable activity carried out by it or any evidence being furnished to prove the genuineness of the activity of the assessee trust during the relevant AY, the Ld. AO denied the exemption claimed by the assessee u/s 10(20) or section 11 of the Act. He, also observed that as per the available office record, the assessee’s case was not scrutinized by the Department in the past and therefore it could not be ascertained whether trust is actually registered u/s 12AA of the Act or not. In view of this, the Ld. AO denied the benefit of exemption u/s 11 and 12 of the Act to the assessee and assessed the income of the assessee trust in the status of AOP at Rs.6,85,51,684/- vide his order dated 14.12.2019 passed u/s 144 of the Act. 4. Aggrieved, the assessee challenged the ex-parte order of the Ld. AO before the Ld. CIT(A) wherein the Ld. AO had made impugned addition of Rs.8,74,57,590/- in respect of disallowance of exemption u/s 11 and section 12 of the Act. Before the Ld. CIT(A), the assessee vehemently objected to the observations made by the Ld. AO alleging that the entire assessment has been based on incorrect facts and circumstances. The assessee claimed that all the necessary documents were submitted within time by the assessee and were available with the Ld. AO at the time of assessment. It was further submitted that the assessee had duly furnished its reply in response to the notice(s) issued by the Ld. AO. The assessee also submitted that it had filed submission before the predecessor 4 ITA No.987/PUN/2024, AY 2017-18 of the Ld. AO who has passed the impugned assessment order. The predecessor AO has passed an order u/s 143(1) of the Act wherein the assessee’s return of income was accepted by allowing the claim of exemption u/s 11 based on the submission made by the assessee before him. However, the Ld. AO failed to consider the same and disallowed the exemption u/s 11 claimed by the assessee. It was also brought to the notice of the Ld. CIT(A) that the assessee held a valid certificate of registration u/s 12AA of the Act during the relevant AY under consideration. The assessee had applied 104.51% of its income received during the year towards the objects of the trust and there is a deficit of Rs.1,89,05,905/-. The accounts of the assessee have been audited u/s 33 of the Bombay Public Trust Act and the audit report has been duly furnished by the assessee within the stipulated time. Hence, the ad hoc disallowance of Rs.8,74,57,590/- @ 20% of the expenditure incurred by the assessee is completely unwarranted. 4.1 The Ld. CIT(A) incorporated the above written submissions of the assessee in para 5 of his appellate order and after considering the same allowed the appeal of the assessee by recording his findings and observations in para 6 of his order which is reproduced below : “6. The appellant is a charitable institution approved under section 12AA. The appellant claims its income as exempt u/s 11. In the previous year, the appellant claimed application in excess of its income. The AO held that the appellant had not produced evidence in support of the exemption claimed. Therefore the AO completed the assessment u/s 144 and disallowed 20% of the expenditure and also disallowed deduction u/s 11(1). 6.1 According to the appellant there was compliance to the notices issued but the replies went to the wrong officer. The appellant has argued that (1) it had filed replies with ITO, Exemption Kolhapur who had issued notice u/s 143(2). It is also argued that transfer of case to ACIT (exemption), Pune had not come to the attention of the assessee. (2) It is also argued by the appellant that he did not get any notice u/s 129, when the officer changed. I find that there is merit in this argument of the appellant as 143(2) notice is issued by the ITO, Exemptions, Kolhapur and assessment order has been framed by the ACIT, Exemption Circle, Pune. 6.2 During appellate proceedings the appellant submitted various details including order of approval u/s 12AA and 80G and written submission. Since these were not submitted during assessment stage, a remand report was called for from the AO under Rule 46A of the IT Rules vide order dated 22.02.2024. The remand report was due by 04.03.2024. However the report has not been received. 6.3 When an appellant does not respond to notices calling for information, the AO is entitled to make best judgment assessment. However an assessment under section 144 cannot be arbitrary. It has to be reasonable and wellinformed. An adhoc disallowance of expenses is not justified even 5 ITA No.987/PUN/2024, AY 2017-18 under a best judgment assessment. Such a disallowance is a spiteful act and not a fair assessment of income. Therefore disallowance of Rs.8,74,57,590, being ad hoc disallowance of 20% of the revenue expenses, is deleted, Reliance is placed on the decision of the Hon. Supreme Court of India in PCIT vs R.G. Build well Engineers Ltd [2018] 99 taxmann.com 284 (SC). 6.4 Since the appellant is approved u/s 12AA, as evidenced by the copy of approval furnished, it is entitled to exemption u/s 11. 7. In the result, appeal is allowed.” 5. Dissatisfied, the Revenue is in appeal before the Tribunal and all the grounds of appeal relate thereto. 6. The Ld. DR vehemently argued that the Ld. CIT(A) has passed a cryptic order without verifying any details/documents/submissions made by the assessee. He submitted that since the assessment order has been passed by the Ld. AO ex-parte qua the assessee, the genuineness of the activity of the trust remained unproved. The assessee has also failed to substantiate its claim of exemption u/s 10(20) of the Act being a local authority. The Ld. AO did not get the records which are claimed to be available before the predecessor AO (at Kolhapur) by the assessee. The Ld. CIT(A) called for the remand report from the Ld. AO but no response was submitted by him. The Ld. AO had not been given adequate opportunity to verify the claim of the assessee. These circumstances led to the ex-parte order passed by the Ld. AO. He submitted that the Ld. CIT(A) has controverted the provisions of Rule 46A of the Income Tax Rules, 1962 by admitting the additional evidence filed by the assessee before him. In support thereof, the Ld. DR placed reliance on the following decisions : i. Pravir Polymers Private Limited Vs. ITO in Writ petition No. 2440 Of 2023 (Bom.); ii. Haji Lal Mohd. Biri Works Vs. CIT (2005) 275 ITR 496 (All.); iii. ITO Vs. Prem Kumar Jindal (2009) 27 SOT 228 (ITAT). 7. The Ld. AR, on the other hand, supported the order of the Ld. CIT(A) and reiterated the submissions made by the assessee before him. The Ld. AR submitted that the assessee holds a valid certificate of registration u/s 12 of the Act since the year 2003. The assessee is also having a valid registration certificate u/s 80G of the Act. Referring to page 7 of the paper book filed on behalf of the assessee, the Ld. AR submitted that the notice issued by the Ld. AO u/s 143(2) on 13.08.2018 had a detailed questionnaire to which the assessee submitted its reply on 12.09.2018 6 ITA No.987/PUN/2024, AY 2017-18 which is placed on page 11 of the paper book. He, further submitted that the assessee’s claim of exemption u/s 12A of the Act has been allowed in the preceding AY and also in the succeeding AY. He also submitted that even during the relevant AY under consideration, the assessee’s claim of exemption was earlier allowed u/s 143(1) of the Act. The Ld. AR submitted that no additional evidence has been filed before the Ld. CIT(A) by the assessee. All the documents/details /evidence filed by the assessee were already available on record with the Ld. AO. The Ld. CIT(A) had called for the remand report from the Ld. AO however the same remained un- responded by him. He submitted that all the relevant documents such as section 12A and 80G registration certificate, return of income, balance sheet etc. were all available on the records of the Department (Kolhapur AO) and therefore the Ld. AO was completely unjustified in making an ad hoc disallowance of 20% of the expenditure incurred by the assessee amounting to Rs.8,74,57,590/-. He submitted that the case laws relied upon by the Ld. DR are all distinguishable on facts as in these cases the Assessing Officer were present but no specific remand report were called for. 8. We have heard the Ld. Representatives of the parties and perused the material on record, various judicial precedents relied upon by the Ld. DR as well as the paper book filed by the assessee. The facts are not in dispute. Admittedly, the assessee is holding a valid section 12A and 80G registration certificate during the AY 2017-18 under consideration. The Ld. AO has passed an ex-parte order u/s 144 of the Act by making ad hoc disallowance @ 20% of the expenditure amounting to Rs.8,74,57,590/- (20% of Rs.43,72,87,949/-) incurred by the assessee during the relevant AY mainly for the reason that the assessee failed to substantiate its claim before him by filing the requisite details/documents/evidence/ submissions before him. Before the Ld. CIT(A) the assessee submitted various details including the order of approval u/s 12AA and 80G and also filed its detailed written submissions. Since, these were not submitted during the assessment proceedings the Ld. CIT(A) called for a remand report from the Ld. AO under the provisions of Rule 46A of the Rules. However, the Ld. AO failed to furnish the remand report within the stipulated time. We notice that the Ld. CIT(A) has observed in his appellate order that the assessee has complied to the notice(s) issued, 7 ITA No.987/PUN/2024, AY 2017-18 however, its response went to the wrong officer. The assessee filed replies with ITO, Exemption, Kolhapur who had issued notice u/s 143(2). The assessee’s case was transferred to ACIT (Exemption), Pune which had not come to the attention of the assessee as the assessee did not get any notice u/s 129 of the Act regarding the change of the officer. The Ld. CIT(A) has categorically recorded his finding of fact that as 143(2) notice is issued by the ITO, Exemption, Kolhpuar and the assessment order has been framed by the ACIT (Exemption), Pune the assessee has duly complied to the notice(s) issued by the Ld. AO and therefore under these circumstances the denial of exemption u/s 11 of the Act by the Ld. AO making an ad hoc disallowance of Rs.8,74,57,590/- @ 20% of the expenditure incurred by the assessee is completely unjustifiable. Relying on the decision of the Hon’ble Supreme Court in the case of PCIT Vs. R.G. Build Well Engineers Ltd. (2018) 99 taxmann.com 284 (SC), the Ld. CIT(A) deleted the ad hoc disallowance of 20% of Rs.8,74,57,590/- made by the Ld. AO and held that since the assessee is approved u/s 12AA it is entitled to exemption u/s 11 of the Act. Before us, the Ld. Counsel for the assessee has contended that no new additional evidence was filed before the Ld. CIT(A) and all the records such as section 12A and 80G registration certificate, return of income, balance sheet etc. for the relevant AY were already available on record of the Department. The Ld. DR, on the other hand has contended that the Ld. AO had not been given any opportunity to examine and verify the claim of the assessee and therefore he prayed for restoring the matter back to the file of the Ld. AO. We find some force in the arguments of the Ld. DR. We observe that the Ld. CIT(A) had called for a remand report by the Ld. AO on 22.02.2024 which was due by 04.03.2024. The Ld. CIT(A) passed the impugned order on 07.03.2024. It can therefore be seen that the Ld. AO was not given adequate opportunity to file his response. No doubt, the assessee trust is registered u/s 12A of the Act since 2003 and as submitted by the Ld. AR it has been allowed the claim of exemption u/s 11 of the Act in the return processed u/s 143(1) of the Act for the preceding, succeeding as well as the relevant AY under consideration. However, during the scrutiny assessment for the relevant AY 2017-18, the assessee’s claim of application of income (expenditure) has not been verified either by the Ld. AO and/or the Ld. CIT(A). Considering the totality of the facts and circumstances of the case, we deem it fit, in the interest of justice and fair play, to restore the matter to the file of the Ld. 8 ITA No.987/PUN/2024, AY 2017-18 AO to decide the issue afresh on merits in accordance with the facts and law after giving due opportunity of hearing to the assessee. The assessee is also hereby directed to substantiate its case before the Ld. AO by filing the requisite documents/evidence in support of its claim on the appointed date without seeking any adjournment under any pretext unless there is a reasonable cause, failing which the Ld. AO shall be at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the Revenue are accordingly allowed for statistical purposes. 9. In the result, the appeal of Revenue is treated as allowed for statistical purposes. Order pronounced in the open court on 21st April, 2025. Sd/- Sd/- (R.K. Panda) (Astha Chandra) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; दिन ांक / Dated : 21st April, 2025. रदि आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “बी” बेंच, पुणे / DR, ITAT, “B” Bench, Pune. 5. ग र्ड फ़ इल / Guard File. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune "