The Income Tax Officer(Exemptions)(i/c), , Rajamahendravaram V. Centre for Rural Reconstruction Through Social Action., Rajamahendravaram

ITA 124/VIZ/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0469 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 11; 143(3); 12AA

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृ ष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.124/Viz/2020 (निर्धारण वर्ा / Assessment Year : 2010-11) Income Tax Officer (Exemptions) Rajamahendravaram Vs. M/s Centre for Rural Reconstruction Through Social Action D.No.73-4-12/A, Prem Towers Near Municipal School Narayanapuram Rajamahendravaram [PAN : AAAAC1803C] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) CO No.25/Viz/2020 आयकर अपील सं./I.T.A.No.124/Viz/2020 (निर्धारण वर्ा / Assessment Year : 2010-11) M/s Centre for Rural Reconstruction Through Social Action, D.No.73-4-12/A Prem Towers Near Municipal School Narayanapuram, Rajamahendravaram [PAN : AAAAC1803C] Vs. Income Tax Officer (Exemptions) Rajamahendravaram (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) राजस्व की ओर से / Revenue by : Shri M.N. Murthy Naik, CIT (DR) निर्ााररती की ओर से/ Assessee by : Shri G.V.N Hari, AR सुिवधई की तधरीख / Date of Hearing : 24.05.2022 घोर्णध की तधरीख/Date of Pronouncement : 10.06.2022 2 ITA No.124/Viz/2020 & CO No.25/Viz/2020, A.Y.2010-11 M/s Centre for Rural Reconstruction through Social Action, Rajahmundry O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : This appeal is filed by revenue against the order of the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”], Vijayawada in Appeal No.10151/CIT(A)/VJA/2019-20 DIN : ITBA/APL/M/250/ 2019 - 20/1022609760(1) dated 18.12.2019 for the Assessment Year (A.Y.) 2010-11 and the cross objection is filed by the assessee in support of the order of the Ld.CIT(A) 2. Brief facts of the case are that the assessee is a society registered under Societies Registration Act, 1816. The assessee is registered as a charitable institution u/s 12AA of the Income Tax Act, 1961 (in short ‘Act’) and engaged in rendering community development services. The assessee filed it s return of income for the A.Y.2010-11 on 20.09.2010 admitting excess of expenditure over income of Rs.1,87,34,946/-. The assessment u/s 143(3) was completed on 31.03.2013 determining total income at Rs.3,90,51,200/-. In the assessment order, the Assessing Officer (AO) held that the assessee is not eligible for exemption u/s 11 of the Act and made various disallowances while computing the income chargeable to tax. 3 ITA No.124/Viz/2020 & CO No.25/Viz/2020, A.Y.2010-11 M/s Centre for Rural Reconstruction through Social Action, Rajahmundry 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the main contention of the assessee was that the AO is not correct in holding that the assessee is not eligible for exemption u/s 11 of the Act on account of the applicability of first proviso to section 2(15) to the micro finance activity carried out by the assessee. After considering the submissions of the assessee by relying on the decision of Hon’ble ITAT in assessee’s own case and also relying on the decision of Hon’ble High Court of Andhra Pradesh, the Ld.CIT(A) allowed the appeal of the assessee. 4. On being aggrieved, the revenue preferred appeal before us by raising the following grounds : 1. The Ld.CIT(A) erred both in law by allowing exemption u/s 11 of the Act despite the fact that an appeal before the Hon'ble Andhra Pradesh High Court is pending against the order of the ITAT in ITA No.589/Viz/2013, dated 2012.2017 and therefore the matter has not reached finality. 2. The Ld.CIT(A) erred in law by allowing exemption u/s. 11 of the Act in spite of the admitted fact that the activities of the assessee consists of Micro Finance Business which is an activity in the nature of trade, commerce or business, attracting the proviso to section 2(15) of the I.T.Act, thereby rendering it to be a non-charitable activity and therefore not eligible for exemption u/s.11. 3. The Id.CIT(A) erred in law in deleting the addition made by the AO amounting to Rs.5,55,00,000/- towards Capital Grant Expenses debited to profit and loss account by allowing the exemption u/s. 11 of the Act in spite of the admitted fact that the activities of the assessee consists of Micro Finance Business which is an activity in the nature of trade, commerce or business, attracting the proviso to section 2(15) of the l.T.Act which is an activity in the nature of trade, commerce or business, attracting the proviso to section 2(15) of the I.T.Act, thereby rendering it to be a non-charitable 4 ITA No.124/Viz/2020 & CO No.25/Viz/2020, A.Y.2010-11 M/s Centre for Rural Reconstruction through Social Action, Rajahmundry activity and therefore not eligible for exemption u/s.11. 4. The Ld.CIT(A) erred in law in deleting the addition made by the AO amounting to Rs.8,14,402/- towards loans written off on the fact that the assessee has not made any effort to recover the loan amounts relating to the deceased persons from the respective mutual guarantors. 5. The Ld.CIT(A) erred in Law in deleting the addition made by the AO amounting to Rs.2 I ,704/- towards Loss on sale of bus debited to Income and expenditure account in the nature of capital expenditure though not allowed as exemption u/s.11 is denied to the assessee-society. 6. The Ld.CIT(A) erred in law in deleting the addition made by the AO amounting to Rs.12,20,182/- towards Loss on valuation of fixed assets debited to income and expenditure account in the nature of capital expenditure though not allowed as exemption u/s 11 is denied to the assessee society. 7. The Ld.CIT(A) erred in law in deleting the addition made by the AO amounting to Rs.2,29,861/- towards software expenses debited to Income and expenditure account in the nature of' capital expenditure though not allowed as exemption u/s 11 is denied to the assessee-society. 5. It was the submission of the Ld.DR that the receipts from micro finance activity falls under the category of advancement of any other object of general public utility, if it exceeds the specified limit of Rs.10,00,000/- during the year, the said activity cannot be considered to be charitable activity. He further submitted that the Ld.AO held that the assessee is not eligible for exemption u/s 11 of the Act in terms of section 13(8) of the Act. The Ld.AO also relied on the decision of ITAT Bangalore in the case of Janalakshmi Social Services Vs. DIT(Exemption) (2009) 33 SOT 197 (Bang), wherein, it was held that micro financing is not charitable activity, if it is carried out on the commercial lines. Therefore, the Ld.AO passed the 5 ITA No.124/Viz/2020 & CO No.25/Viz/2020, A.Y.2010-11 M/s Centre for Rural Reconstruction through Social Action, Rajahmundry order relying on the decision of ITAT, Bangalore, hence, this Hon’ble Tribunal may be pleased to confirm the orders passed by the AO. 6. On the other hand, the Ld.counsel for the assessee submitted that the AO denied exemption u/s 11 of the Act to the assessee on the ground that the activity of micro financing carried out by the assessee falls under the scope of advancement of any other object of general public utility and not relief of the poor within the meaning of section 2(15) of the Act and also since the receipts from the said activity which is in the nature of trade, commerce or business exceeded the specified limit of Rs.10 lakhs, the first proviso to the said section laying down that advancement of any other object of general public utility will not be a charitable purpose, if it involves carrying on any activity in the nature of trade, commerce or business for a cess or fee. He further submitted that Hon’ble ITAT, Visakhapatnam held in the assessee’s own case by an order in ITA No.589/Viz/2013 dated 20.12.2017 that the micro finance activity of the assessee of borrowing and lending the monies to the rural poor is a charitable activity. The said decision was rendered while disposing off the appeal filed by the assessee against the order of the Ld.CIT, Rajahmundry dated 01.07.2013 cancelling the registration of the assessee u/s 12AA(3) of the Act. He further submitted that Hon’ble ITAT categorically held that micro finance activity 6 ITA No.124/Viz/2020 & CO No.25/Viz/2020, A.Y.2010-11 M/s Centre for Rural Reconstruction through Social Action, Rajahmundry of the assessee is charitable in nature. The said decision was rendered in the case of Spandana Rural and Urban Development Organisation Vs. ACIT 40 DTR 0153 which was upheld by the Hon’ble High Court of Andhra Pradesh. Therefore, the Ld.counsel for the assessee pleaded that the orders passed by the Ld.CIT(A) may be confirmed. 7. We have heard both the parties and perused the material placed on record. The Ld.CIT(A), by following the decision of ITAT in assessee’s own case as well as the decision of the Hon’ble High Court passed an order. Relevant part of the order of the Ld.CIT(A) is extracted as under : “17. Respectfully following the decision of the Hon’ble Tribunal in the assessee’s own case and the decision of CIT(A) in the assessee’s own case for A.Y.2009-10, it is held that the micro finance activity of the assessee falls under the category of ‘relief of the poor’ and not under the category of ‘advancement of any other object of general public utility’ within the meaning of sec.2(15) of the Act. It is accordingly held that the first proviso to sec.2(15) is not applicable to the case of the assessee. Consequently, it is held that the assessee is eligible for exemption u/s 11 of the Act. Hence, the AO is directed to allow exemption u/s 11 of the Act. These grounds of appeal are therefore allowed.” Considering the ratio laid down by the ITAT as well as the Hon’ble High Court of Andhra Pradesh, we hold that the Ld.CIT(A) has rightly passed the order and we do not find any infirmity in the order passed by the Ld.CIT(A), hence uphold the same. Accordingly dismiss the ground No.2 raised by the revenue. 7 ITA No.124/Viz/2020 & CO No.25/Viz/2020, A.Y.2010-11 M/s Centre for Rural Reconstruction through Social Action, Rajahmundry 8. So far as the other issues in ground No.3 to 7 are concerned, the AO disallowed the capital grant expenses, loans write off expenses, loss on sale of bus, loss on valuation of fixed assets and Gradatim software expenses debited to income and expenditure account in the nature of capital expenditure on the ground that the exemption u/s 11 is denied. The Ld.CIT(A) allowed all the above said five disallowances, since the assessee is entitled for exemption u/s11 of the Act and gave a direction to the AO to delete the additions made on account of the above said five disallowances. The Ld.CIT(A) further stated that, once the assessee is entitled for exemption u/s 11, these disallowances are not warranted. Therefore, we do not find any infirmity in the order passed by the Ld.CIT(A). Thus, we dismiss the ground Nos.3 to 7 raised by the revenue. 9. With regard to ground No.1, the main contention of the revenue is that the order passed by the Tribunal is pending before the Hon’ble High Court of Andhra Pradesh. But, that itself is not a valid ground to reverse the orders passed by the Ld.CIT(A) since the Tribunal as well as the High Court has taken a decision. 8 ITA No.124/Viz/2020 & CO No.25/Viz/2020, A.Y.2010-11 M/s Centre for Rural Reconstruction through Social Action, Rajahmundry 10. The assessee filed cross objection in support of the order of the Ld.CIT(A). Since the appeal of the revenue is dismissed, the cross objection filed by the assessee become infructuous, hence dismissed. 11. In the result, appeal of the revenue as well as the cross objection filed by the assessee are dismissed. Order Pronounced in open Court on 10 th June, 2022. Sd/- Sd/- (एस बालाकृ ष्णन) (द ु व्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयकसदस्य/JUDICIAL MEMBER Dated : 10.06.2022 L.Rama, SPS 9 ITA No.124/Viz/2020 & CO No.25/Viz/2020, A.Y.2010-11 M/s Centre for Rural Reconstruction through Social Action, Rajahmundry आदेश की प्रनतनिनि अग्रेनषत/Copy of the order forwarded to:- 1. रधजस्व/The Revenue – Income Tax Officer (Exemptions), 4 th Floor, Shiva Towers, Danavaipeta, Rajamahendravaram 2. निर्धाऩरती/ The Assessee– M/s Centre for Rural Reconstruction Through Social Action, D.No.73-4-12/A, Prem Towers, Near Municipal School, Narayanapuram Rajamahendravaram 3. प्रर्ाि आयकर आयुक्त / The Pr.Commissioner of Income Tax-2, Visakhapatnam 4. आयकर आयुक्त (अपील) / Commissioner of Income Tax (Appeals), Vijayawada 5. नवभधगीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, नवशधखधपटणम/ DR,ITAT, Visakhapatnam 6.गधर्ा फ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam