The Nimar Educational Society, Khandwa V. The Exemption Circle, Bhopal

ITA 162/Ind/2022

AI Insights

The Nimar Educational Society appealed against the order of the Commissioner of Income Tax (Appeals), which had denied them certain tax exemptions and allowed some additions to their income for the Assessment Year 2016-17. The main issues revolved around the society's claim of registration under section 12A of the Income Tax Act, which was allegedly destroyed in a fire, and the denial of deductions for expenses related to their educational institutions. The Tribunal found that the issue of the society's registration under section 12A and the corresponding exemptions needed re-evaluation and remanded the matter back to the AO for a fresh decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130447 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-04-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 25-05-2022
• Other Referred Cases: DCIT(E) vs. Petroleum Sports Promotion Board, DCIT(E) Bhopal vs. Shri Vaishnav Polytechnic College, Kund Kund Kahan Digamber Jain vs. ITO(E), Kota Chhawani
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S.N. AGRWAL
• Keywords: Competent authority; Set aside; Bogus
• Section: 56; 12; 154; 11; 143(3); 80G; 12A; 143(1); 13; 10(23C)

Judgement Text

Page 1 of 13 आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No.162/Ind/2022 (Assessment Years:2016-17 ) The Nimar Educational Society Harsud Road, Civil Lines East Nimar, Khandwa Vs. CIT(E) Bhopal (Appellant / Assessee) (Revenue) PAN: AABTT 1409 K Assessee by Shri S.N. Agrwal, AR Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 12.04.2023 Date of Pronouncement 14.06.2023 O R D E R Per Vijay Pal Rao, JM: This appeal by the assessee is directed against the order dated 30.03.2022 of Commissioner of Income Tax(Appeal), National Faceless Appeal Centre, Delhi for Assessment Year 2016-17. The assessee has raised following grounds of appeal: “1.That on the facts and in the circumstances of Legal the case and in law, the Ld CIT(A) erred in holding that the assessee society is not registered under section 12A of the Income- tax Act, 1961 even when the said society is duly registered under section 12A of the Income Tax Act. 2. That on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in maintaining the addition of Rs. 1,51,15,325/- to the total income of the appellant on account of surplus of Rs. ITA No.162/Ind/2022 Nimar Educational Society Page 2 of 13 Page 2 of 13 57,18,672/- from M/s Arvind Kumar Nitin Kumar Montassory School and Rs. 93,96,653/- from M/s Poonamchand Gupta Vocational College without allowing the deduction of common/ indirect expenses as claimed by the appellant in the consolidated income and expenditure account. 3. That on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in maintaining the disallowance of proportionate interest on account of interest free loans given to M/s Gupta Trading Company without properly appreciating the facts of the case and submission made before him even when the said loan was given by the appellant out of interest free funds as available with the appellant. 4.That on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in [Tax at t disallowing the interest of Rs. 1,28,781/- as claimed by the appellant without properly appreciating the facts of the case. 5.The appellant reserves the right to add, alter and modify the grounds of appeal as taken by it.” 2. The assessee society filed its return of income on 26.03.2016 declaring total income at nil after claiming exemption u/s 11 & 12 as well as u/s 10(23C)(iiiad) of the Act. During the course of assessment the AO noted that the assessee is not registered u/s 12A nor was granted approval u/s 10(23C)(vi) of the Act but the assessee has claimed exemption. The AO accordingly denied the claim of exemption claimed by the assessee u/s 11 & 12 as well as u/s 10(23C)(iiiad) of the Act. Further the AO noted that the assessee has shown secured loan from bank on which interest was claimed whereas the assessee has also given loan to Gupta Trading Company (a relative concern) and sum of Rs.118,87,306/- is outstanding as on 31.03.2016 but no interest has been charged from the relative concern. Accordingly, the AO made proportionate disallowance on account of interest expenditure. The AO while passing the scrutiny assessment order u/s 143(3) of the Act dated 05.12.2018 assessed the total income of Rs.2,94,84,953/-. The assessee challenged the action of the AO before the Ld. CIT(A) who has granted part relief of exemption u/s 10(23C) (iiiad) of the Act in respect of four educational institutions where the gross receipt was less than of Rs.1 cr each. Aggrieved by the order of Ld. CIT(A) the assessee has filed the present appeal. ITA No.162/Ind/2022 Nimar Educational Society Page 3 of 13 Page 3 of 13 3. Ground no.1 is regarding denial of the benefit of section 11 & 12 for want of registration certificate u/s 12A of the Act. Ld. AR of the assessee has submitted that the assessee was granted registration u/s 12A vide registration No.Khandwa 1/83 dated 07.03.1983. The said registration no. has been duly available with the assessee and used in every receipt issued by the assessee society. He has pointed out that the certificate of registration granted u/s 12A of the Act was destroyed due to the incident of fire as occurred in the premises of the assessee and was not available with the assessee. However, the assessee requested the AO to collect the information directly from the office of the CIT(Exemption) for the year 1983. He has referred to the letter dated 14.09.1988 issued by the ACIT- Circle 2(2) Khandwa in respect of the approvale u/s 80G and submitted that the approval u/s 80G cannot be granted in the absence of registration u/s 12A of the Act. He has also referred to the registration granted by the Pr. CIT u/s 12A(1)(ac)(i) of the Act in form No.10AC dated 24 th September 2021 placed at page no.113 to 115 of the paper book. Ld. AR has referred to the sub-clause (i) to clause (ac) of section 12A and submitted that the registration under this sub-clause is granted only when the trust or institution is already registered u/s 12A. Thus, the department has accepted the fact that the assessee was already granted registration u/s 12A(1) and this fresh registration granted in form No.10AC corroborates the claim of the assessee that the assessee was already granted registration u/s 12A vide order dated 07.03.1983. 4. On the other hand, Ld. DR has submitted that the assessee has failed to produce the registration certificate before the AO in support of its claim of exemption u/s 11 & 12 and therefore, the AO has rightly denied the claim of exemption u/s 11 & 12 of the Act. He has further submitted that the onus is on the assessee to produce relevant details and registration certificate for claiming exemption u/s 11 & 12 of the Act. The assessee has admittedly not produced alleged registration certificate ITA No.162/Ind/2022 Nimar Educational Society Page 4 of 13 Page 4 of 13 granted u/s 12A and explained the reasons that the same was destroyed in fire incident. The assessee has not produced or given any details of the fire incident i.e. the date of incident, any report or FIR of the incident etc. In these facts and circumstances the claim of the assessee cannot be accepted. He has relied upon the order of the assessing officer. 5. We have considered the rival submission as well as relevant material on record. Since the assessee has not produced the registration certificate u/s 12A nor the assessee was granted approval u/s 10(23C(vi) of the Act therefore, the AO refused to entertain the claim of exemption u/s 11 & 12 as well as u/s 10(23C)(iiiad) of the Act. So far as the claim of exemption u/s 11 & 12 is concerned no details are discussed by the AO in the assessment order regarding the reason of non-availability of the certificate u/s 12A. Further the Ld. CIT(A) has not even adjudicated this issue while passing the impugned order. We find that the assessee has not even produced the details of registration granted u/s 12A before the AO and this claim of earlier registration u/s 12A was first time taken by the assessee before the Ld. CIT(A), however, the Ld. CIT(A) has not adjudicated this issue. We find that now the assessee has been granted registration u/s 12A(1)(ac)(i) of the Act in form no.10AC on 24.09.2021. The said order of registration is produced as under: ITA No.162/Ind/2022 Nimar Educational Society Page 5 of 13 Page 5 of 13 ITA No.162/Ind/2022 Nimar Educational Society Page 6 of 13 Page 6 of 13 ITA No.162/Ind/2022 Nimar Educational Society Page 7 of 13 Page 7 of 13 6. From this order of registration dated 24.09.2021 it is manifest that the registration was granted u/s 12A(1)(ac)(i) of the Act which means that the registration is granted in the category where the assessee was already granted registration u/s 12A of the Act. Therefore, this subsequent registration granted by the competent authority corroborates the claim of the assessee that the assessee was already granted registration. Since this issue is neither adjudicated by the AO nor by the Ld. CIT(A) therefore, in the facts and circumstances of the case, we set aside this issue to the record of the AO for considering the claim of the assessee u/s 11 & 12 of ITA No.162/Ind/2022 Nimar Educational Society Page 8 of 13 Page 8 of 13 the Act as per law. Needless to say assessee be given an appropriate opportunity of hearing before passing the fresh order. Ground No.2 is regarding additions sustained by the Ld. CIT(A) in respect of surplus received from M/s Arvind Kumar Nitin Kumar Montessori English School as well as M/s. Poonamchand Gupta Vocational College without allowing the deduction of expenses as claimed by the assessee. The Ld. AR of the assessee has submitted that the AO has assessed the gross receipts without allowing the expense. The AO has not disputed the genuineness of the various expenses as claimed by the assessee against the gross receipt. Therefore, the expenses claimed by the assessee in the consolidated profit and loss account is required to be allowed against the gross receipt while taxing income of the assessee so far as not eligible for deduction us/s 10(23C)(iiad) of the Act. The Ld. CIT(A) has though allowed the claim of exemption u/s 10(23C)(iiiad) in respect of four educational institutions where the gross receipt was less than Rs.1 cr. However, in respect of two educational institute M/s Arvind Kumar Nitin Kumar Montessori English School as well as M/s. Poonamchand Gupta Vocational College where the addition made by the AO of gross receipt has been confirmed. 7. Ld. AR has relied upon the decision of Hon’ble Delhi High Court in the case of DCIT(E) vs. Petroleum Sports Promotion Board 362 ITR 235 and submitted that once the exemption u/s 11 is denied, the assessment has to be completed in accordance with provision of Income Tax Act and the expenditure incurred by the assessee for the purpose of its activities is to be allowed. He has also relied upon the decision of Coordinate Bench of this Tribunal in case of DCIT(E) Bhopal vs. Shri Vaishnav Polytechnic College 186 ITD 378 and submitted that in case the assessee is not eligible for exemption u/s 10(23C)(iiiad) of the Act the income of the assessee has to be assessed as per the provision of the Act after allowing the expenditure incurred for the purpose of earning the said income. He has also relied upon the decision in the case of Kund Kund Kahan Digamber Jain vs. ITO(E), Kota Chhawani dated 29.05.2019 ITANo.165 & ITA No.162/Ind/2022 Nimar Educational Society Page 9 of 13 Page 9 of 13 others/JP/2019 The Ld. AR has submitted that the income of the assessee is required to be assessed after allowing corresponding expenditure incurred by the assessee as the genuineness of which is not disputed by the AO. 8. On the other hand, Ld. DR has relied upon the orders of authorities below. 9. We have considered the rival submissions as well as relevant material on record. It is settled proposition of law that even if the claim of exemption u/s 11 & 12 as well as section 10(23C(iiiad) is denied the income of the institution or trust is required to be assessed as per the provision of the Act and the expenditure incurred wholly and exclusively for the purpose of earning income of the trust which is not eligible for exemption is required to be allowed while computing total income of the assessee. The Hon’ble Delhi High Court in case of DCIT(E) vs. Petroleum Sports Promotion Board (supra) has held as under: “ 7. The learned standing counsel for the revenue submitted that the order of the Tribunal is untenable since it indirectly confers the benefit of Section 11 upon the assessee. We are, however, not inclined to accept the contention. The CIT (Appeals) has actually not held so. He never examined the question whether the assessee was eligible for the exemption under Section 11 since there was no ground before him, taken by the assessee, to that effect. All that the assessee claimed before the CIT (Appeals) was that the entire expenditure should be allowed as a deduction since it was incurred for the very objects for which the assessee was established in 1979 i.e. promotion of sports and, therefore, the assessing officer was not justified in restricting the allowance of expenditure to Rs.1,20,000/- only for all the three years. It was this claim that was accepted by the CIT (Appeals). The objection of the learned standing counsel for the revenue that since the grants were assessed under the residual head, there was no scope for allowing the expenditure incurred on the promotion of the sports activities is not acceptable since even under Section 57(iii), any expenditure incurred for the purpose of making or earning the income is allowable as a deduction. It is open to the income-tax authorities to deny the exemption under Section 11 of the Act in the absence of registration under Section 12A and if they do so, then the assessment has to be completed in accordance with the provisions of the Income Tax Act; if the income is assessed under the residual head full play must be allowed to Section 57(iii). ITA No.162/Ind/2022 Nimar Educational Society Page 10 of 13 Page 10 of 13 Though prima facie it would appear that the phraseology employed in Section 57(iii) is different from Section 37(1), it has been held by the Supreme Court in CIT vs. Rajendra Prasad Moody, 115 ITR 519 that Section 57(iii) must be construed broadly and the somewhat wider language of Section 37(i) should not affect the interpretation of Section 57(iii). The assessee in the present case was created in 1979 with the object of promoting sports; there was no other object and all its constituents were giving grants/ funds only for that purpose. In truth and reality the assessee was merely acting as a custodian or conduit to the constituents for the purpose of promoting sports activity inside and outside the country. The expenditure incurred by the assessee is only for the purpose of promoting the sports events and activities and in this respect there is no challenge to the finding of fact recorded by the Tribunal. If such expenditure is not allowed, it may amount to taxing the gross receipts of the assessee and not the income, which is not permissible under the income tax law. Moreover, upto the assessment year 2002-03 the assessee was exempt from tax under Section 10(23C); from the assessment year 2006-07 it has been granted registration or a charitable institution under Section 12A making it eligible for the exemption under Section 11.” 10. The Honble High Court has held that in case the exemption u/s 11 of the Income Tax Act is denied in the absence of registration u/s 12A the assessment has to be completed in accordance with provision of the Act and income is to be assessed u/s 56 of the Act after allowing the expenditure as per the section 57(iii) of the Act. Therefore, the expenditure incurred by the assessee only for the purpose of activities are to be allowed. The Coordinate Bench of this tribunal in case of DCIT(E) Bhopal vs. Shri Vaishnav Polytechnic College (supra) has considered this issue as under: “10. We will first take up the second issue raised by the revenue regarding the allowability of the expenses claimed in the return of income. We find that the assessee filed its return of income on 14.8.2014 showing gross total income at Rs.5,98,24,898/- and claiming expenditure of Rs.7,27,11,645/- as an amount applied to charitable or religious purposes in India during the previous year.The net income for the year is a loss of Rs.1,28,86,747/-. The ITA No.469/Ind/2018 Shri Vaishnav Polytechnic College return was processed u/s 143(1) of the Act and a communication was sent to the assessee denying the claim of expenses of Rs.7,27,11,645/- on the ground that the assessee is not registered u/s 12 A of the Act and ITA No.162/Ind/2022 Nimar Educational Society Page 11 of 13 Page 11 of 13 thus the amount applied to charitable or religious purposes are disallowed. Against this intimation assessee filed rectification applications u/s 154 of the Act which were rejected and assessee also tried to file revised return of income within the statutory time limit provided in the Act but the same could not be uploaded due to technical error. It was also brought to our notice that in the return form there is no specific column to claim the exemption u/s 10(23C)(iiiab) of the Act. Assessee's case was not selected for scrutiny u/s 143(3) of the Act. Books of accounts and expenditure details were never called for examination. There is no observation of the revenue authorities at any stage of the proceedings to show that the expenditure claimed by the assessee were not genuine. It is also not disputed that the books of accounts of the assessee were audited and major portion of the grant is received from Madhya Pradesh Government and the Chairman of the governing body of the society is Collector, District, ITA No.469/Ind/2018 Shri Vaishnav Polytechnic College Indore. As provided in the bye laws funds received by the society are to be deposited in any such bank or invested in such manner as approved by the State Government and the fund to be applied only towards meeting the expenses of the society. All these facts are sufficient enough to show that the assessee's claim of expenses of Rs. 7,27,11,645/- has not been found to be bogus or excessive at any stage and looking to the constitution of governing body and the control of the State Government for realizing and spending of funds prime facie no doubt can be raised for the genuineness of the expenses incurred. Even for a while it is presumed that the assessee is not eligible for exemption u/s 10(23C)(iiiab) of the Act then also in view of the judgment of Hon'ble High Court of Delhi in the case of Petroleum Sports Promotion Board (supra) if the income is assessed under the residual head as the A.O denied exemption u/s 11 of the Act full play must be allowed to Section 57(iii) of the Act towards any expenditure incurred for the purpose of making or earning income.” 11. The Tribunal following the judgment of Hon’ble Delhi High Court in the case of DCIT(E) vs. Petroleum Sports Promotion Board (supra) held that in case the assessee is denied the exemption u/s 11 or u/s 10(23C)(iiiad) of the Act the income of the assessee is required to be assessed after allowing the expenditure incurred for the purpose of earning the said income. A similar view has been taken by the Jaipur Bench of the Tribunal in case of Kund Kund Kahan Digamber Jain vs. ITO(E), (supra). Accordingly, we direct the AO to allow the expenditure incurred by the ITA No.162/Ind/2022 Nimar Educational Society Page 12 of 13 Page 12 of 13 assessee wholly and exclusively for the purpose of earning income which is not eligible for deduction u/s 11 & u/s 10(23C)(iiiad) of the Act. 12. Ground No.3 & 4 are regarding disallowance of proportionate interest on account of interest free loan given to M/s. Gupta Trading Company sister concern of the assessee. 13. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The Ld. AR has vehemently contended that the assessee was having its own interest free fund sufficient for giving the interest free advances, therefore, no disallowance of interest is called for on this ground. This issue arises only when the claim of exemption u/s 11 & 12 of the Act is denied in toto to the assessee otherwise it would be taken care of by section 13 of the Act. Since we have set aside the issue of exemption u/s 11 and 12 of the Act to the record of the AO for fresh adjudication, therefore this issue is also set aside to the record of the AO for fresh adjudication after deciding the issue of claim of exemption u/s 11 & 12 of the Act as well as after considering the relevant facts regarding the availability of non-interest bearing fund with the assessee for advance interest free loan to the sister concern. Needless to say the assessee shall be given an appropriate opportunity of hearing before passing the fresh order. 14. In the result, the appeal of assessee is partly allowed for statistical purposes. Order pronounced in the open court on 14.06.2023. Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member Indore, 14.06.2023 Patel/Sr. PS ITA No.162/Ind/2022 Nimar Educational Society Page 13 of 13 Page 13 of 13 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore