M/s. Provincial House Sisters of charity, Mangalore V. The Assistant Commissioner of Income Tax (Exemptions), Circle - 1, Mangalore

ITA 1038/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6131 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 11-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR M
• Assessee Lawyers: GURUNATHAN V K
• Keywords: Capital asset; Charitable institution; Corroborative evidences
• Section: 143(3); 142(1); 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, BENGALURU BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.1038/BANG/2017 (ASSESSMENT YEAR: 2012 - 13 ) M/S. PROVINCIAL HOUSE SISTERS OF CHARITY, HOLY ANGELS CONVENT, 1-9, BELVEDERE, KANKANADY, NAGORI, MANGALURU. PAN:AAATP2945F VS. APPELLANT ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE-1, MANGALURU. RESPONDENT APPELLANT BY : SHRI GURUNATHAN, V.K., ADVOCATE. RESPONDENT BY : SHRI VIJAY KUMAR, M., ADDL.CIT(DR) DATE OF HEARING : 01/01/2019 DATE OF PRONOUNCEMENT : 25/ 01/2019 O R D E R PER PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDER OF THE CIT(A), MANGALORE, PASSED IN ITA NO.55/MNG/CIT(A)MN G/15-16 DATED 13/03/2017 FOR THE ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE RAISED THE GROUNDS OF APPEAL WHICH ARE AS UNDER: ITA NO.1038/BANG/2017 PAGE 2 OF 7 1. THE CIT (APPEALS) ERRED IN NOT TREATING THE FIXED DEPOSITS AMOUNTING TO RS.1,04,20,489/- KEPT AS DEPO SIT IN STATE BANK OF INDIA AS ACCUMULATION FOR APPLICAT ION OF INCOME AS PROVIDED UNDER SECTION 11(2) OF THE ACT THOUGH THE SAID AMOUNTS OF FIXED DEPOSITS WERE CLAI MED AS ACCUMULATION FOR APPLICATION OF INCOME IN THE RE TURN OF INCOME FILED ON 30.09.2012 UNDER SECTION I39(4A) OF THE ACT. 2. THE CIT (APPEALS) ERRED IN NOT APPRECIATING THAT TH E NOTICE OF ACCUMULATION FOR APPLICATION OF INCOME VIDE THE RETURN OF INCOME FILED FORMED SUFFICIENT COMPLIANCE WITH THE PROVISIONS OF SECTION 11(2)(A) OF THE ACT. 3. THE LEARNED CIT (APPEALS) ERRED IN NOT TREATING THE FIXED DEPOSITS AMOUNTING TO RS.1,04,20,489/- KEPT AS DEPO SIT IN STATE BANK OF INDIA AS ACCUMULATION FOR APPLICATION OF INCOME AS PROVIDED UNDER THE PROVISIONS OF SECTION 11(2)(B) READ WITH SECTION 11(5) OF THE ACT, THOUGH THE SAID DEPOSITS WERE FROM THE INCOME OF THE TRUST FOR USE OF THE OBJECTS OF THE TRUST. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEA L MAY BE ALLOWED. THE ASSESSEE ALSO RAISED ADDITIONAL GROUND WHICH IS AS UNDER: THE CIT(APPEALS) ERRED IN NOT TREATING THE INVESTM ENT MADE IN FIXED DEPOSITS AS APPLICATION OF INCOME FOR THE PURPOSES OF SECTION 11(1)(A) OF THE ACT, EVEN THOUGH THE MEMORA NDUM OF TRUST OF THE APPELLANT CONTAINED CLAUSES PROVIDING FOR SUCH INVESTMENT IN FIXED DEPOSITS AND ALSO THE FUNDS FRO M THE SAME WERE UTILIZED TOWARDS THE OBJECTS OF THE APPELLANT TRUST. 3. IN THE COURSE OF HEARING, THE LEARNED AR OF T HE ASSESSEE WITHDREW THE ADDITIONAL GROUND AND MADE AN ENDORSEM ENT IN THE GROUNDS OF APPEAL. ACCORDINGLY, WE DISMISS THE ADD ITIONAL GROUND OF APPEAL. ITA NO.1038/BANG/2017 PAGE 3 OF 7 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CHARITABLE INSTITUTION, OBTAINED REGISTRATION U/S 12AA OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] AND FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 WITH NIL INCOME. THE RETURN OF INCOME WAS PROCESSED U/S 143(1). SUBSEQUENTLY THE C ASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S 14 3(2) AND 142(1) WERE ISSUED ALONG WITH QUESTIONNAIRE. IN CO MPLIANCE, LEARNED AR OF THE ASSESSEE APPEARED FROM TO TIME AN D CASE WAS DISCUSSED. 5. AO, WHILE PERUSING THE FINANCIAL STATEMENTS OBSE RVED THAT THE ASSESSEE HAS INCOME WHICH INCLUDE AMOUNT RELATI NG TO COMMUNITY AND NOVICE MAINTENANCE FUND, PROMOTION OF EDUCATION FUND AND FOUND ACQUISITION OF FIXED ASSET S AND THE ASSESSEE HAS TREATED AS REVENUE WHEREAS THE AO IS O F THE OPINION THAT THEY ARE OF CAPITAL NATURE AND BALANCE -SHEET ITEMS. THE CONTRIBUTIONS TOWARDS THIS CORPUS DONATION WILL FALL UNDER PURVIEW OF SECTION 11(1)(D) AND THE CORPUS DONATION ACQUISITION OF FIXED ASSETS IS REQUIRED TO BE SET OFF TO THE FI XED ASSETS CLAIMED BY THE ASSESSEE THEREFORE, THE AO IS OF THE FIRM O PINION THAT ALLOWING THE COST OF CAPITAL ASSETS TO BE SET OFF A S APPLICATION OF INCOME IS DOUBLE DEDUCTION AND RECOMPUTED THE TOTAL INCOME AT RS.56,83,663/- AND PASSED THE ORDER U/S 143(3) DATE D 30/3/2015. ITA NO.1038/BANG/2017 PAGE 4 OF 7 6. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN AP PEAL WITH THE CIT(A). THE CIT(A) CONSIDERED THE GROUNDS, SUBM ISSIONS AND ALSO THE PROVISIONS OF LAW IN RESPECT OF SPECIFIED FUNDS AS CONTRIBUTION TOWARDS THE CORPUS FUND AND ALSO THE W RITTEN SUBMISSIONS WERE CONSIDERED IN PARA. 7.2 AND 7.4 OF THE ORDER AND PARTLY ALLOWED THE APPEAL OBSERVING AS UNDER IN PARAS.7.10 TO 7.12 : 7.10 IN THE INSTANT CASE AS BROUGHT OUT IN EA RLIER PARAS, THE INVESTMENT IN FDRS WAS NOT MADE IN PURSUANCE OF ANY SPECIFIC OBJECT OF THE TRUST AND NOT DONE IN CONFOR MITY WITH THE PROVISIONS OF SECTION 11(2) OF THE ACT. MERELY DEPOSIT OF SURPLUS FUNDS IN FDRS CANNOT BE TREATED AS APPLI CATION OF FUNDS FOR THE PURPOSES OF CHARITY. AS THE INVEST MENTS WERE MADE ONLY TO TAKE CARE OF THE SURPLUS FUNDS OF THE ASSESSE, IT WOULD NOT AMOUNT TO USING THE COME OF T HE ASSESSEE FOR CHARITABLE PURPOSES. IF THE INVESTMENT WAS MADE TO SET ASIDE FUNDS FOR FUTURE USE FOR SPECIFIC PURPOSE OF THE TRUST, THE SAME OUGHT TO HAVE BEEN DONE AS P ER THE PROVISIONS OF SECTION 11(2) BY FILING FORM NO. 10 A ND AUDIT REPORT IN FORM NO.10B TO THE AO, WHICH WAS NO T DONE IN THIS CASE. 7.11 IF THE INVESTMENT OF SURPLUS FUNDS IN FD RS IS ALLOWED AS APPLICATION U/S 11(1)(A) , THEN THE PROVISIONS O F EXPLANATION 2 TO SECTION 11(1) AND S.11(2) WILL BEC OME REDUNDANT. IF SUCH INTERPRETATION IS ALLOWED, NO ASSESSEE WILL FILE FORM NO.10 BEFORE THE AO AND WIL L CREATE FDRS YEAR AFTER YEAR AND CLAIM IT AS APPLICA TION OF INCOME. THIS LEADS TO THE MOCKERY OF THE SITUATI ON DEFEATS THE VERY PURPOSE OF THE EXEMPTION PROVISION S WHICH ARE MEANT TO PROVIDE EXEMPTION TO ONLY THE INCOME A PPLIED FOR CHARITABLE OBJECTS. ITA NO.1038/BANG/2017 PAGE 5 OF 7 7.12 THE AR'S ARGUMENT THAT INVESTMENT IN FDR'S IN EARLIER YEARS WAS ALLOWED AS APPLICATION IN ANOTHER ASSESSE E'S CASE IS WITHOUT MERIT AS EACH ASSESSMENT IS INDEPENDENT. KE EPING IN VIEW THE ABOVE DISCUSSION, THE ACTION OF THE AO IN REJECTING INVESTMENT OF RS.1,04,20,489/- IN FIXED DEPOSITS AS APPLICATION OF FUNDS IS UPHELD. THE GROUNDS ON THE ISSUE ARE REJECTED. 7. AGGRIEVED BY THIS ORDER, THE ASSESSEE HAS F ILED AN APPEAL WHERE LEARNED AR SUBMITTED THAT THE FIXED DEPOSITS IN THE STATE BANK OF INDIA HAVE TO BE TREATED AS ACCUMULATION OF INCOME UNDER THE PROVISIONS OF SECTION 11(2) AND THE CIT(A ) HAS NOT APPRECIATED THAT INVESTMENTS IN FIXED DEPOSIT IS AC CUMULATION AND APPLICATION OF INCOME. LEARNED AR SUBSTANTIATE D HIS ARGUMENT WITH PLETHORA OF DECISIONS AND PRAYED FOR ALLOWING OF THE APPEAL AND THE LEARNED AR ALSO REFERRED TO CBDT CIRCULAR NO.273(F.NO.180/57/80-IT(AI) DATED 3/6/1980. CONTRA, LD. DR SUPPORTED THE ORDER OF THE CIT (A) AND PRAYED FOR DISMISSAL OF THE APPEAL. 8. WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE SOLE CRUX OF THE DISPUTED ISSUE IS CON SIDERATION OF THE ACCUMULATION OF INCOME U/S 11(2) OF THE ACT IN RESPECT OF FIXED DEPOSITS WITH STATE BANK OF INDIA. THE LEARN ED AR HAS VEHEMENTLY SUPPORTED HIS STAND RELYING ON VARIOUS D OCUMENTS AND REFERRING TO PLETHORA DECISIONS AND THE PROVISI ONS OF LAW AND FINALLY THE CONTENTION OF THE LD. AR THAT THE DISPU TED MATTER ITA NO.1038/BANG/2017 PAGE 6 OF 7 NEEDS FURTHER EXAMINATION ON FACTS. WE FOUND THE A SSESSEE BEFORE THE FIRST APPELLATE AUTHORITY OR THE ASSESSI NG AUTHORITY WAS NOT ABLE TO SUBSTANTIATE AS TO HOW ACCUMULATION OF INCOME CAN BE TREATED AS APPLICATION OF INCOME U/S 11(2) O F THE ACT AND EVEN THE FINANCIAL STATEMENTS DO NOT REFLECT THE SE T APART OF INCOME. THE LEARNED AR DEMONSTRATED THE FINANCIAL S TATEMENTS AND WE FOUND THE ASSESSEE HAS NOT FILED FORM NO.10 FOR SETTING APART IN THE COURSE OF ASSESSMENT PROCEEDINGS OR IN THE APPELLATE PROCEEDINGS. THOUGH THE LEARNED AR EXPRESSLY MENTI ONED THAT THERE IS NO REQUIREMENT AND THE ASSESSEE SHOULD NOT BE PENALIZED. WE, CONSIDERING THE PROVISIONS OF LAW A ND FACTS FOUND THAT THE DISPUTED ISSUE OF ACCUMULATION OF INCOME H AS TO BE VERIFIED WITH SUPPORTING EVIDENCES AND ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE CIT(A) TO ADJUDICATE AFRES H WITH EVIDENCE FILED AND ASSESSEE SHALL CO-OPERATE IN SUBMITTING I NFORMATION EXPEDITIOUSLY FOR EARLY DISPOSAL OF THE APPEAL AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE FOR STATISTICAL PU RPOSES. 9. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2019. SD/- SD/- (A.K.GARODIA) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : BENGALURU DATED : 25/01/2019 SRINIVASULU, SPS ITA NO.1038/BANG/2017 PAGE 7 OF 7 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)- 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL BANGALORE