The ITO (exemption), Calicut V. M/s.Sree Anjaneya Medical Trust, Calicut

ITA 125/COCH/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8444 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 17-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A DHANRARAJ
• Assessee Lawyers: G SURENDRANATH RAO
• Keywords: Capital asset; Charitable institution; Opportunity of being heard
• Section: 143(3); 12A; 194C; 201(1); 28

Judgement Text

ITA NO. 125/COCH/2016 & C O NO. 22/COCH/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH KOCHI BEFORE S/ SHRI B P JAIN , AM & GEORGE GEORGE K, JM ITA NO . 125/COCH/2016 (A SST YEAR 2009 - 10 ) & CROSS OBJECTION NO. 22/COCH/2016 THE INCOME TAX OFFICER(EXEMPTION) KOZHIKODE VS M/S SREE ANJANEYA ME DICAL TRUST RAJAJI ROAD KOZHI K ODE ( APPELLANT /RESPONDENT ) (RESPONDENT /CROSS OBJECTOR ) PAN NO. AAHTS3844B ASSESSEE BY SH G SURENDRANATH RAO REVENUE BY SH A DHANRARAJ, SR DR DATE OF HEARING 4 TH JULY 2016 DATE OF PRONOUNCEMENT 5 TH , J U LY 2016 OR DER PER GEORGE GEORGE K, JM; THIS APPEAL, AT THE INSTANCE OF THE REVENUE AND THE CROSS OBJECTION PREFERRED BY THE ASSESSEE ARE DIRECTED AGAINST THE CIT(A)S ORDER DATED 15.11.2015. THE RELEVANT ASSESSMENT YEAR IS 2009 - 10. 2 BRIEFLY STATED THE FACTS OF THE C ASE ARE AS FOLLOWS: THE ASSESSEE IS A PUBLIC CHARITABLE TRUST. THE MAIN OBJECT OF THE TRUST IS TO RUN EDUCATIONAL INSTITUTIONS. FOR THE RELEVANT ASSESSMENT YEAR, THE RETURN OF INCOME WAS FILED ON 23 . 03 . 2010 DECL ARING A LOSS OF RS. 8,97.601/ - . THE ASSES SMENT ITA NO. 125/COCH/2016 & C O NO. 22/COCH/2016 2 WAS COMPLETED UNDER SECTION 143(3) R .W.S 147 ON 28.02.2013. THE ASSESSEE T RUST HAD MOVED AN APPLICATION FOR REGISTRATION OF THE TRUST UNDER SECTION 12A OF THE INCOME TAX ACT ON 12 . 12.2008. THE APPLICATION WAS REJECTED BY THE COMMISSIONER. WHILE COMPLETING THE ASSESSMENT THE A O TREATED THE ASSESSEE TRUST AS UNREGISTERED TRUST . T HE AO ALLOWED DEDUCTION OF ONLY THE ADMINISTRATIVE EXPENSES FROM THE GROSS RECEIPTS AND LEVIED TAX ON THE BALANCE INCOME OF THE ASSESSEE . 3 AGGRIEVED BY THE DISALLOWANCE OF EXPENDITURE, THE ASSESSEE HAS PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) ALLOWED THE APPEAL. THE CIT(A) DIRECTED THE AO TO GRANT DEDUCTION OF THE ENTIRE EXPENDITURE DEBITED TO THE I NCOME AND E XPENDITURE ACCOUNT AND NOT JUST OF THE ADMINISTRATIVE EXPENSES . THE REVENUE BEING AGGRIEVED BY THE SAID ORDER OF THE CIT(A) , IS IN APPEAL BEFORE U S BY RAISING THE FOLLOWING GROUNDS: I) THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EXPENSES FOR THE RE ASON THAT CIT(A) WHILE COMPUTING THE ASSESSEES INCOME UNDER THE HEAD BUSINESS OUGHT TO HAVE DISALLOWED THE EXPENSES U/S 40A(IA) OF THE I T ACT SINCE NO TDS HAS BEEN DEDUCTED FROM CONTRACT AMOUNT PAID TO SH NARAYAN MAITHY AND FROM LEGAL/PROFESSIONAL CHA RGES/ADVERTISEMENTS BY THE ASSESSEE. II) THE DECISION OF THE CIT IS NOT ACCEPTABLE AS THE AO HAS RIGHTLY POINTED OUT AT PARA 10 OF ASSESSMENT ORDER THAT NO TDS HAS BEEN DEDUC TED FROM CONTRACT AMOUNT PAID T O SH NARAYAN MAITHY AND FROM LEGAL/PROFESSIONAL C HARGES/ADVERTISEMENTS BY THE ASSESSEE. 4 THE ASSESSEE HAS ALSO PREFERRED CROSS OBJECTION . THE F OLLOWING GROUNDS ARE RAISED IN THE CROSS OBJECTION : ITA NO. 125/COCH/2016 & C O NO. 22/COCH/2016 3 I) THE ASSESSING AUTHORITY IS NOT JUSTIFIED IN OBJECTING TO THE ORDERS OF THE COMMISSIONER (APPEALS) ON THE GROUND THAT THE HE OUGHT T O HAVE DIRECTED DISALLOWANCE OF SOME EXPENDITURE ON WHICH TAX HAS NOT BEEN DEDUCTED AT SOURCE. THE ASSESSING AUTHORITY SHOULD HAVE APPRECIATED THAT THE HONBLE KERALA HIGH COURT HAS VIDE ITS ORDER DATED 11 - 02 - 2016 HELD THAT THE RESPONDENT TRUST BE GRANTE D REGISTRATION UNDER SECTION 12A AND ONCE THE TRUST IS REGISTERED UNDER SECTION 12A THEN, THE ONLY CONDITION TO BE CONSIDERED BY THE ASSESSING AUTHORITY FOR GRANTING EXEMPTION FROM LEVY OF TAX IS THAT THE TRUST SHOULD HAVE APPLIED 85% OF THE GROSS RECEIPT S DURING THE YEAR TOWARDS THE FURTHERANCE OF THE OBJECTS OF THE TRUST AND IF THAT CONDITION IS SATISFIED THE NORMAL PROVISIONS OF COMPUTATION OF INCOME S.28 TO 44D ARE NOT APPLICABLE AND HENCE ARE NOT RELEVANT . II) EVEN OTHERWISE, THE ASSESSING AUTHORITY SHOULD HAVE APPRECIATED THAT NO DISALLOWANCE OF ANY AMOUNT OF EXPENDITURE WAS EFFECTED BY INVOKING SECTION 40A(IA) AT THE TIME OF COMPLETION OF THE ORIGINAL ASSESSMENT AS PRESUMABLY THE NON DEDUCTION OF TAX PERTAINED TO CONTRACTS WHICH RELATED TO ACQUISITI ON AND CONSTRUCTION OF CAPITAL ASSETS AND THE COMMISSIONER (APPEALS) IS FULLY JUSTIFIED IN NOT DIRECTING THAT A PART OF THE EXPENDITURE INCURRED SHOULD BE DISALLOWED FOR NON - DEDUCTION OF TAX. 5 AT THE VERY OUTSET, THE LD COUNSEL FOR THE ASSESSEE HAS SUBM ITTED THAT SUBSEQUENT TO THE COMPLETION OF THE ASSESSMENT , THE HONBLE JURISDICTIONAL HIGH COURT HAD GRANTED THE ASSESSEE TRUST REGISTRATION U/S 12 A A OF THE ACT. THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IS REPORTED IN382 ITR 399)(KER). IT WAS SUBMITTED THAT SINCE THE ASSESSEE TRUST HAS BEEN GRANTED REGISTRATION U/S 12A, THE TAX LIABILITY WOULD HAVE TO BE DETERMINED UNDER SECTION 11,12 AND 13 OF THE ACT AND CHAPTER - IVD HAVING SECTION 28 TO 44D WOULD NOT HAVE ANY APPLICATION ON THE FACTS O F THE INSTANT CASE . IT WAS CONTENDED THAT AS PER SECTION 11 , 12 AND 13 OF THE ACT, THE ONLY PRE - CONDITION IS THAT THE 85 % OF THE GROSS RECE I PTS OF THE A SSESSEE TRUST SHOULD BE APPLIED DURING THE YEAR FOR THE PURPOSES OF OBJECTS OF THE TRUST . IT WAS ARGUED ITA NO. 125/COCH/2016 & C O NO. 22/COCH/2016 4 THAT THERE CAN BE NO DISALLOWANCE US 40A(IA) OF THE ACT AS THERE IS NO SUCH PROVISION U/S 11,12 AND 13. FOR THE ABOVE PROPOSITION THE LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MAHATMA GANDHI SEVA MANDI R VS DDIT IN ITA NO. 4138/MM/2011. 6 ALTERNATIVELY, IT WAS CONTENDED BY THE LD COUNSEL FOR THE ASSESSEE THAT THE INCOME AND EXPENDITURE TO WHICH THE DISALLOWANCE U/S 40A(IA) APPLIES IS ONLY RS. 40,000/ - BEING AUDIT FEES. THE RELEVANT PORTION OF THE WRITTEN SUBMISSIONS REGARDING THE ALTERNATIVE PLEA , READ AS UNDER: DURING THE YEAR AN ORDER UNDER SECTION 201(1) READ WITH SECTION 194C AND 201(A) WAS PASSED BY THE ASSESSING OFFICER ON 30.08.2013 AS PER WHICH THE IT WAS HELD THAT APPELLANT WAS IN DEFAULT FOR NON DEDUCTION OF TAX ON CERTAIN PAYMENTS. THE TOTAL DEMAND WAS ARRIVED AT AS F OLLOWS: SECTION AMOUNT CREDITED /PAID TOTAL DEMAND TO PROFIT &LOSS ACCOUNT 194C 7926180/ - 126480/ - 192B 4694523/ - 175263/ - 194J 40000 6160/ - TOTAL 307903/ - THE CONTRACT PAYMENTS WAS PART OF BUILDING CONSTR UCTION AND NO PART OF THIS PAYMENT HAS BEEN DEBITED TO PROFIT AND LOSS ACCOUNT. S.192 WAS OUTSIDE THE PURVIEW OF S . 40A(IA) DURING THE RELEVANT TIME AND HENCE NO PART OF SALARY PAYMENT COULD BE DISALLOWED FO R NON DEDUCTION OF TAX ON SUCH PAYMENTS. THUS IF AT ALL ANY AMOUNT WAS TO BE DISALLOWED U/S 40A(IA), ONLY RS 40000/ - AUDIT FEES COULD HAVE BEEN DISALLOWED. MOREOVER , WHILE COMPLETING THE ASSESSMENT U/S 143(3) THE AO HAD NOT DISALLOWED ANY AMOUNT BY INVOKING SECTION 40A(IA). HENCE IF AT ALL ANY DISALLO WANCE WAS TO BE EFFECTED THE AMOUNT TO BE DISALLOWED WAS ONLY RS 40,000/ - 7 THE LD DR PRESENT WAS DULY HEARD. ITA NO. 125/COCH/2016 & C O NO. 22/COCH/2016 5 8 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WHILE COMPLETING THE ASSESSMENT U/S 143(3) R.W.S 147, THE AO H AD ALLOWED DEDUCTION OF ONLY THE ADMINISTRATIVE EXPENSES AMOUNTING TO RS. 42,36,383/ - FROM THE GROSS RECEIPTS OF THE ASSESSEE TRUST. THE CIT(A) HAD DIRECTED THE AO TO ALLOW T HE ENTIRE EXPENDITURE DEBITED TO THE INCOME AND EXPENDITURE ACCOUNT. ON PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT THERE IS NO SPECIFIC DISALLOWANCE BY INVOKING THE PROVISION S OF SECTION 40A(IA) OF THE ACT . T HEREFORE, THE REVENUES GROUND , WITH REGARD TO DISALLOWANCE OF EXPENDITURE U/S 40A(IA ) , IS MISPLACED. MOREOVER, WE NOTICE THAT THE ASSESSEE HAS BEEN GRANTED REGISTRATION BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE JUDGMENT REPORTED IN 382 ITR 399. SINCE THERE IS NO CLARITY WITH REGARD TO THE NATURE OF EXPENDITURE DISALLOWED BY THE AO AND ALSO REGARDING THE FACT THAT THE ASSES SEE HAS BEEN GRANTED REGISTRATION, IN THE INTEREST OF JUSTICE AND EQUITY, WE ARE OF THE VIEW THAT THE MATTER NEEDS RECONSIDERATION BY THE AO ON BOTH THE REVENUES APPEAL AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE. THE AO SHALL TAKE INTO ACCOUNT THE DIC TUM LAID DOWN BY THE HONBLE COORDINATE BEWNCH OF THE MUMBAI TRIBUNAL IN THE CASE OF MAHATMA GANDHI SEVA MANDI R (SUPRA) AND SHALL TAKE A DECISION IN ACCORDANCE WITH LAW AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS ORDERED ACCORDINGLY. ITA NO. 125/COCH/2016 & C O NO. 22/COCH/2016 6 9 IN THE RESULT, THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF JULY 2016 . SD/ - SD/ - B P JAIN GEORGE GEORGE K (ACCOUNTANT MEMBER ) (JUDICIAL MEMBER ) COCHIN: DATED 5 TH JULY 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) - KOZHIKODE 4 . CIT, KOZHIKODE 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN