New Mangalore Port Trust, V. ACIT,

ITA 1753/BANG/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80711 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-09-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 12-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SHANKAR PRASAD K JT
• Assessee Lawyers: V SRINIVASAN
• Keywords: Charitable institution; Earning of tax free income; Reasonable cause; Condonation of delay
• Section: 14A; 12A; 12AA; 263; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS.1753 & 1754/BANG/2013 ASSESSMENT YEARS : 2007-08 & 2008-09 M/S. NEW MANGALORE PORT TRUST, PANAMBUR, MANGALORE. PAN: AAALN 0057A VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), MANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI V. SRINIVASAN, C.A. RESPONDENT BY : DR. SHANKAR PRASAD, K., JT. CIT(DR) DATE OF HEARING : 22.9.2014 DATE OF PRONOUNCEMENT : 26.9.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THESE ARE APPEALS BY THE REVENUE AGAINST THE COM MON ORDER DATED 28.8.2013 OF THE CIT(APPEALS), MYSORE RELATING TO A SSESSMENT YEARS 2007- 08 & 2008-09. ITA NOS. 1753 & 1754/BANG/2013 PAGE 2 OF 6 2. THERE IS A DELAY OF TWO DAYS IN FILING BOTH THES E APPEALS BY THE ASSESSEE. THE AFFIDAVIT OF FA&CAO OF THE ASSESSEE, ONE CHIVKULA RAMANI, HAS BEEN FILED. IN THE SAID AFFIDAVIT, REA SONS FOR THE DELAY HAVE BEEN EXPLAINED. IT HAS BEEN MENTIONED IN THE AFFID AVIT THAT THE IMPUGNED ORDER HAS BEEN PASSED, CONSEQUENT TO ORDER PASSED U /S. 263 OF THE ACT. THE AR OF THE ASSESSEE DIRECTED THE ASSESSEE TO M/S . S. VENKATESAN & CO., C.AS., BANGALORE FOR FILING APPEAL AGAINST THE IMPUGNED ORDER WHICH ARISES OUT OF THE PROCEEDINGS U/S. 263 OF THE ACT. M/S. S. VENKATESAN & CO. ADVISED THAT AN APPEAL SHOULD BE FILED AGAINST THE ORDER U/S. 263 OF THE ACT ALSO. THEREAFTER APPEALS AGAINST ORDER U/S.263 OF THE ACT AS WELL AS IMPUGNED ORDERS WERE ALSO FILED. THE AR OF THE ASS ESSEE WHO WAS TO FILE THE APPEAL WAS OUT OF TOWN AT THE POINT OF TIME WHE N THE LAST DATE FOR FILING THE APPEAL EXPIRED AND THEREFORE DELAY OF TWO DAYS OCCURRED IN FILING THE APPEAL. 3. WE HAVE CONSIDERED THE AVERMENTS IN THE AFFIDAVI T FOR CONDONATION OF DELAY AND ARE OF THE VIEW THAT THE DELAY WAS OCC ASIONED ON ACCOUNT OF REASONABLE CAUSE AND THEREFORE THE SAME IS CONDONED . 4. AS FAR AS THE MERITS OF THE APPEALS ARE CONCERNE D, IT IS NOTICED THAT THE PRESENT PROCEEDINGS ARISES CONSEQUENT TO ORDER PASSED U/S. 263 OF THE ACT. 5. THE ASSESSEE IS A TRUST CONSTITUTED UNDER THE MA JOR PORT TRUST ACT, 1963. THE ASSESSEE IS A GOVERNMENT UNDERTAKING CARR YING ON COMMERCIAL ITA NOS. 1753 & 1754/BANG/2013 PAGE 3 OF 6 ACTIVITIES COMPRISING OF PROVIDING SERVICES OF A PO RT AND ALLIED FACILITIES RELATING TO MARITIME TRADE AND COMMERCE. THE ASSESS EE WAS A LOCAL AUTHORITY AND ITS INCOME WAS EXEMPT U/S.10(20) OF T HE INCOME-TAX ACT, 1961 (ACT) UPTO ASSESSMENT YEAR 2002-03. CONSEQUENT LY REGULAR RETURNS OF INCOME WERE NOT FILED BY THE ASSESSEE UP TO THE SAI D ASSESSMENT YEAR. BY THE FINANCE ACT, 2002 W.E.F. 0L.04.2003, AN EXPLANA TION WAS INSERTED IN SEC.10(20)OF THE ACT DEFINING THE TERM LOCAL AUTHO RITY. CONSEQUENT TO SUCH AMENDMENT, THE ASSESSEE COULD NO LONGER ENJOY THE B ENEFIT OF EXEMPTION U/S. 10(20) OF THE ACT AND ITS INCOME BECAME TAXABL E. THE ASSESSEE, HOWEVER, APPLIED FOR REGISTRATION U/S. 12A OF THE A CT AS A CHARITABLE TRUST, ON 27.03.2006. THE CIT, MANGALORE BY ORDER DATED 28.08 .2006 DENIED REGISTRATION TO THE ASSESSEE. THE ASSESSEE FILED AN APPEAL BEFORE THE ITAT AGAINST THE AFORESAID ORDER. THE ITAT IN ITA N O.924/BANG/2007, DIRECTED THE CIT TO GRANT REGISTRATION TO THE ASSES SEE U/S. 12AA OF THE ACT, W.E.F. 01.04.2003. THE CIT, PURSUANT TO THE ORDER O F THE TRIBUNAL, GRANTED REGISTRATION TO THE ASSESSEE AS A CHARITABLE TRUST BY HIS ORDER DT. 27.07.2009. 6. FOR A. Y. 2007-08, THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.97,74,81,480/-. AN ORDER OF ASSE SSMENT DT. 29.12.2009 WAS PASSED BY THE ASSESSING OFFICER U/S.143(3) OF T HE ACT, AFTER MAKING CERTAIN ADDITIONS AND DISALLOWANCES. FOR A. Y. 2008 -09, THE ASSESSEE FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.132 ,82,42,160/-. AN ORDER OF ASSESSMENT DT 27.12.2010 WAS PASSED U/S.143(3) O F THE ACT AFTER ITA NOS. 1753 & 1754/BANG/2013 PAGE 4 OF 6 MAKING CERTAIN ADDITIONS AND DISALLOWANCES. IN BOTH THE ASSESSMENT YEARS, NEITHER THE ASSESSEE CLAIMED NOR THE AO CONSIDERED THE QUESTION OF EXEMPTION OF INCOME OF THE ASSESSEE U/S.11 & 12 OF THE ACT, CONSEQUENT TO THE GRANT OF REGISTRATION TO THE ASSESSEE U/S. 12AA OF THE ACT. 7. THE CIT, MANGALORE WAS OF THE OPINION THAT THE A FORESAID ORDERS OF ASSESSMENT PASSED BY THE ASSESSING OFFICER U/S.143( 3) OF THE ACT, DT. 29.12.09 FOR A.Y. 2007-08 AND DT. 27.12.10 FOR A.Y. 2008-09 WERE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. IN THIS REGARD, THE CIT NOTICED THAT THE ASSESSEE HAD EARNED TAX-FREE I NCOME OF RS.2,29,32,000/- IN A Y 2007-08 FROM INVESTMENTS I N G SEC FUND AND RS.2,61,41,000/- IN A.Y. 2008-09 FROM INVESTMENTS I N UNITS OF MUTUAL FUNDS. BOTH THESE ITEMS OF INCOME WERE EXEMPT U/S. 10(35) OF THE ACT. ACCORDING TO THE CIT, AS PER THE PROVISIONS OF SEC. 14A OF TH E ACT, WHERE THE ASSESSEE HAS EARNED INCOME WHICH IS NOT CHARGEABLE TO TAX UNDER CHAPTER III OF THE ACT AND CONSEQUENTLY DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, THE EXPENSES INCURRED IN EARNING SUCH EXEM PT INCOME HAD TO BE DISALLOWED AND ADDED TO THE TOTAL INCOME. ACCORDING TO THE CIT, THE ASSESSING OFFICER DID NOT MAKE ANY SUCH DISALLOWANC E U/S. 14A OF THE ACT THEREBY RENDERING HIS ORDER ERRONEOUS AND PREJUDICI AL TO THE INTERESTS OF REVENUE. ACCORDINGLY A SHOW CAUSE NOTICE WAS ISSUED BY THE CIT TO THE ASSESSEE. ITA NOS. 1753 & 1754/BANG/2013 PAGE 5 OF 6 8. IN RESPONSE TO THE SHOW-CAUSE NOTICE, THE ASSESS EE SUBMITTED THAT NO EXPENDITURE WHATSOEVER WAS INCURRED BY THE ASSES SEE IN EARNING THE EXEMPT INCOME AND THEREFORE, PROVISIONS OF SEC. 14A OF THE ACT WERE NOT ATTRACTED. THE ASSESSEE ALSO POINTED OUT THAT RULE 8D OF THE IT RULES, 1962, WAS INSERTED IN THE IT RULES ONLY W.E.F. 24.0 3.2008 AND THEREFORE NO DISALLOWANCE INVOKING THE SAID RULES COULD BE MADE FOR A.Y. 2007-08. 9. THE CIT, HOWEVER, WAS OF THE VIEW THAT RULE 8D, THOUGH IT WAS INSERTED W.E.F. 24.03.2008 WAS APPLICABLE RETROSPEC TIVELY FROM THE INSERTION OF SEC. 14A OF THE ACT W.E.F. 1.4.1962. ACCORDING TO THE CIT, THE ASSESSING OFFICER OUGHT TO HAVE DISALLOWED EXPENDITURE INVOKI NG THE PROVISIONS OF SEC. 14A OF THE ACT, R.W. RULE 8D OF THE RULES AND HIS FAILURE TO DO SO RENDERED THE ORDER OF ASSESSMENT ERRONEOUS AND PREJ UDICIAL TO THE INTERESTS OF THE REVENUE. THE CIT, THEREFORE, SET ASIDE THE O RDER OF ASSESSMENTS PASSED BY THE ASSESSING OFFICER FOR BOTH THE ASSESS MENT YEARS AND DIRECTED THE ASSESSING OFFICER TO DETERMINE THE EXP ENDITURE IN RELATION TO EXEMPT INCOME IN ACCORDANCE WITH RULE 8D(2) OF THE RULES. 10. PURSUANT TO THE ABOVE ORDERS OF THE CIT, THE A SSESSMENT WAS COMPLETED BY THE AO FOR BOTH THE ASSESSMENT YEARS A GAINST WHICH THE ASSESSEE FILED APPEALS BEFORE CIT(A) WHO PASSED THE ORDERS THAT ARE IMPUGNED IN THESE APPEALS. IN THE MEANWHILE THE AS SESSEE FILED APPEALS BEFORE THE TRIBUNAL CHALLENGING THE CORRECTNESS OF THE ORDERS PASSED U/S.263 OF THE ACT BY THE CIT. ITA NOS. 1753 & 1754/BANG/2013 PAGE 6 OF 6 11. THE ORDER U/S. 263 OF THE ACT WAS CHALLENGED BY THE ASSESSEE BEFORE THE TRIBUNAL IN ITA NOS.135 & 565/BANG/2013 FOR THE A.YS. 2007-08 & 2008-09 AND THIS TRIBUNAL BY ITS ORDER DATED 4.7. 2014 QUASHED THE ORDERS U/S. 263 OF THE ACT. IN VIEW OF THE ABOVE, THE IM PUGNED ORDERS, WHICH ARISE CONSEQUENT TO THE ORDERS U/S. 263 OF THE ACT WILL N O LONGER SURVIVE AND DESERVES TO BE ANNULLED AND ARE HEREBY ANNULLED. C ONSEQUENTLY, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(AP PEALS) WILL NO LONGER SURVIVE FOR BOTH THE ASSESSMENT YEARS. 12. IN THE RESULT, THE APPEALS BY THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF SEPTEMBER , 2014 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 26 TH SEPTEMBER , 2014 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.