Income Tax Officer (Exemptions)-1, Hyderabad V. Bethel Gospel Church, Hyderabad

ITA 2062/Hyd/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4199 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Next Hearing Date: 07-03-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 07-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KOMALI KRISHNA
• Assessee Lawyers: Y V BHANU NARAYAN RAO
• Keywords: Additional evidence; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 12A; 205; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ITA NO.2062/HYD/2017 ASSESSMENT YEAR: 2012-13 THE INCOME TAX OFFICER (EXEMPTIONS)-1, HYDERABAD. VS. BETHEL GOSPEL CHURCH, HYDERABAD. PAN- AAATB7810P (APPELLANT) (RESPONDENT) REVENUE BY : SMT., KOMALI KRISHNA, DR ASSESSEE BY : SHRI Y.V. BHANU NARAYAN RAO, AR DATE OF HEARING : 07-03-2019 DATE OF PRONOUNCEMENT : 13-03-2019 ORDER PER D.S. SUNDER SINGH, A.M: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-9, HYDERABAD DATED 28.08.2017 FOR THE A.Y 2012-13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. IN THE ABSENCE OF REGISTRATION U/S 12A, WHETHER THE CAPITAL EXPENDITURE ARE TO BE ALLOWED AS UTILIZATION. 3. LD. CIT(A) ERRED IN ALLOWING THE EXPENDITURE WHILE TREATING THE CAPITAL EXPENDITURE AS REVENUE EXPENDITURE BESIDES CONFIRMING THAT THE ASSESSEES ACTIVITIES ARE COMMERCIAL IN NATURE. 4. LD. CIT(A) ERRED IN CONSIDERING THE ASSESSEES SUBMISSIONS WITHOUT PROPER VERIFICATION BY A.O AS REQUIRED UNDER RULE 46A OF IT RULES, THAT THE DONATIONS RECEIVED ARE 2 ITA NO. 2062/HYD/2017 BETHEL GOSPEL CHURCH, HYD. SPECIFIC IN NATURE AND SAME WERE UTILIZED FOR THE RESPECTIVE PURPOSED BY THE ASSESSEE SOCIETY. 5. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE DEDUCTION OF CAPITAL EXPENDITURE FROM THE INCOME OF THE TRUST TREATING THE SAME AS REVENUE EXPENDITURE. THE REVENUE ALSO HAS RAISED THE ISSUE WITH REGARD TO ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 46A OF IT RULES IN GROUND NO.4. IN THE INSTANT CASE THE REVENUE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) STATING THAT THE CIT(A) HAS ERRED IN CONSIDERING THE ASSESSEE SUBMISSIONS OF THE ASSESSEE WITHOUT PROPER VERIFICATION BY THE A.O AS REQUIRED UNDER RULE 46A OF IT RULES, RELATING TO DONATIONS RECEIVED AND USED FOR SPECIFIC PURPOSE.. 3. DURING THE APPEAL HEARING THE LD. DR DID NOT FURNISH THE DETAILS OF THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE BEFORE THE CIT(A). AS EVIDENCED FROM THE ASSESSMENT ORDER AND THE LD. CIT(A)S ORDER THAT ALL THE DETAILS WERE PLACED BEFORE THE A.O WHICH WAS CONSIDERED BY THE CIT(A) AND NO ADDITIONAL EVIDENCE WAS FURNISHED. IN PROPER VERIFICATION OF DETAILS AND SUBMISSION CANNOT BE HELD TO BE ADDITIONAL EVIDENCE WHICH IS COVERED UNDER RULE 46A. SINCE THE REVENUE DID NOT ESTABLISH THAT THE ADDITIONAL EVIDENCE WAS PRODUCED BY THE ASSESSEE BEFORE THE LD. CIT(A), WE DO NOT FIND ANY REASON TO ENTERTAIN THE GROUND AND ACCORDINGLY GROUND NO.4 IS DISMISSED. 4. GROUND NO. 2 IS RELATED DEDUCTION OF CAPITAL EXPENDITURE FROM THE INCOME OF THE ASSESSEE, OUT OF TIED UP GRANTS AND THE GROUND OF APPEAL NO. 3 IS RELATED TO TREATING 3 ITA NO. 2062/HYD/2017 BETHEL GOSPEL CHURCH, HYD. OF CAPITAL EXPENDITURE AS REVENUE EXPENDITURE, IN THE EVENT OF ASSESSEES CASE IS TREATED AS COMMERCIAL ORGANIZATION. 4.1 THE ASSESSEE SOCIETY IS REGISTERED WITH REGISTRAR OF SOCIETIES BUT NOT REGISTERED U/S 12A OF THE ACT. IT IS ALSO REGISTERED UNDER FCRA AND FILED ITS RETURN OF INCOME DECLARING RS. NIL. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CREDITED THE INCOME OF RS. 1,65,05,309/- AND DEBITED EXPENDITURE OF RS. 1,72,81,972/- RESULTING IN EXCESS OF EXPENDITURE OVER THE INCOME TO THE EXTENT OF RS. 7,13,763/-. IN THIS CASE THE ASSESSMENT WAS COMPLETED ORIGINALLY U/S 143(3) OF THE ACT ON 25.03.2015, DISALLOWING THE EXPENDITURE @ 5% ON GROSS RECEIPTS IN THE ABSENCE OF REGISTRATION U/S 12A OF THE ACT. SUBSEQUENTLY, A.O REOPENED THE ASSESSMENT U/S 147 OF THE ACT, BY ISSUE OF NOTICE U/S 148. SINCE, THE ASSESSEE HAS DEBITED VARIOUS EXPENSES TO THE INCOME AND EXPENDITURE ACCOUNT, WHICH ARE CAPITAL IN NATURE, THE A.O CALLED FOR THE DETAILS AND ISSUED SHOW CAUSE NOTICE AS TO WHY THE CAPITAL EXPENDITURE SHOULD NOT BE DISALLOWED AND ADDED BACK TO THE ASSESSED INCOME. THE ASSESSEE FILED EXPLANATION STATING THAT THE EXPENDITURE WAS SOLELY INCURRED FOR THE BENEFIT OF BENEFICIARYS COMMUNITIES UNDER SOCIETIES NO PERSONAL BENEFIT WAS DERIVED BY THE ASSESSEE. THE ASSESSEE FURTHER STATED THAT IN THE EVENT OF TREATING THE INCOME AS CAPITAL RECEIPT, THE CORRESPONDING EXPENDITURE INCURRED ALSO IS REQUIRED TO BE ALLOWED AS REVENUE EXPENDITURE, SINCE, THE RECEIPTS WERE SPENT FOR THE PURPOSE FOR WHICH IT WERE RECEIVED. NOT BEING CONVINCED WITH THE EXPLANATION OF THE 4 ITA NO. 2062/HYD/2017 BETHEL GOSPEL CHURCH, HYD. ASSESSEE THE A.O DISALLOWED THE CAPITAL EXPENDITURE AND BROUGHT TO TAX. 5. AGGRIEVED BY THE ORDER OF THE A.O THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE, OBSERVING THAT THE ASSESSEE SOCIETY HAD RECEIVED THE GRANTS FOR MAINTENANCE OF ORPHANAGE HOMES, CONSTRUCTION OF CHURCHES, DIGGING OF BOREWELLS AND CONDUCT OF MEDICAL CAMPS AND THE ASSESSEE HAS SPENT THE AMOUNTS RECEIVED FOR THE PURPOSE FOR WHICH THE DONATIONS WERE RECEIVED AND THEREFORE HELD THAT EVEN IN THE ABSENCE OF REGISTRATION U/S 12A OF THE ACT, THE TIED UP GRANTS ARE REQUIRED TO BE ALLOWED AS DEDUCTION. THE CIT(A) FURTHER HELD THAT EVEN IF THE ASSESSEE SOCIETY IS TREATED AS A COMMERCIAL ORGANIZATION ENGAGED IN THE BUSINESS OF CONSTRUCTION OF CHURCHES AND ORPHANAGE HOMES, THE EXPENDITURE INCURRED ON SUCH ACTIVITIES HAS BE TREATED AS REVENUE EXPENDITURE, IF, THE AMOUNTS ARE RECEIVED FOR SUCH PURPOSES. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THE INSTANT CASE THE ASSESSEE HAS NO REGISTRATION U/S 12A OF THE ACT. HOWEVER THE TRUST IS REGISTERED UNDER SOCIETIES ACT AS WELL AS UNDER FCRA AND RECEIVED THE DONATIONS. IT IS OBSERVED THAT THE ASSESSEE HAS RECEIVED THE SUMS FOR THE SPECIFIC PURPOSE SUCH AS CONSTRUCTION OF CHURCHES, ORPHANAGE HOMES, CONDUCTING MEDICAL CAMPS, DIGGING BOREWELLS AND TRAINING OF PASTORS ETC. THE QUESTION IS THAT WHEN THE ASSESSEE TRUST HAS RECEIVED THE GRANTS/DONATIONS FOR SPECIFIC PURPOSE AND 5 ITA NO. 2062/HYD/2017 BETHEL GOSPEL CHURCH, HYD. SPENT FOR SAME PURPOSE FOR WHICH THE GRANTS WERE RECEIVED, WHETHER SAME REQUIRED TO ALLOWED AS DEDUCTION OR NOT? ANSWER IS YES. IF THE ASSESSEE RECEIVES THE GRANTS OR DONATIONS FOR SPECIFIC PURPOSE AND THE EXPENDITURE WAS INCURRED AS PER THE INTENTION OF THE DONOR, THOUGH IT IS A CAPITAL EXPENDITURE, THE SAME IS REQUIRED TO BE ALLOWED AS DEDUCTION FROM THE INCOME. THE TIED UP GRANTS ARE FOR SPECIFIC PURPOSES AND THE ASSESSEE IS NOT PERMITTED TO USE FOR ANY OTHER PURPOSES.THE COORDINATE BENCH OF ITAT BENGALURU IN THE CASE OF ITO VS. VOKKALIGARA SANGHA, REPORTED IN [2015] 44 CCH 0504, HELD THAT VOLUNTARY CONTRIBUTIONS RECEIVED FOR SPECIFIC PURPOSES CANNOT BE REGARDED AS INCOME U/S 2(24) OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. SOCIETY FOR DEVELOPMENT ALTERNATIVES, 205 TAXMAN 0373 HELD THAT IF THE ASSESSEE FAILS TO UTILIZES THE GRANTS FOR THE PURPOSE FOR WHICH IT WAS SANCTIONED, THE AMOUNTS SO UNUTILIZED IS REQUIRED TO BE BROUGHT TO TAX IF IT IS NOT REFUNDED BACK TO THE FUNDING AGENCIES. IN THE INSTANT CASE THE ASSESSEE HAS RECEIVED THE DONATIONS FOR A SPECIFIC PURPOSES FOR ACQUIRING THE FIXED ASSETS OR FOR INCURRING CAPITAL EXPENDITURE AND ACCORDINGLY THE ASSESSEE HAD SPENT THE AMOUNTS FOR WHICH IT WAS RECEIVED I.E DIGGING BOREWELLS, CONSTRUCTION OF CHURCHES AND ORPHANAGE HOMES, MILK MACHINE, CHAFFER CUTTER, DOUBLE COT BEDS, AIR CONDITIONS WATER HEATER, RICKSHAW, MILKING MACHINE ETC. THE CIT(A) HAS GIVEN FINDING THAT THE ASSESSEE HAD SPENT THE AMOUNTS FOR THE SPECIFIC PURPOSE FOR WHICH THE DONATIONS WERE RECEIVED. THERE WERE NO SURPLUS FUNDS AVAILABLE FROM THE DONATIONS 6 ITA NO. 2062/HYD/2017 BETHEL GOSPEL CHURCH, HYD. RECEIVED AND THE ASSESSEE HAS SPENT MORE THAN WHAT IT HAD RECEIVED. THE DEPARTMENT DID NOT BRING ANY MATERIAL TO CONTROVERT THE FINDING GIVEN BY THE LD.CIT(A) THAT THE AMOUNTS WERE SPENT FOR THE PURPOSE FOR WHICH IT WAS RECEIVED. THEREFORE WE HOLD THE ASSESSEE IS ENTITLED FOR DEDUCTION OF CAPITAL EXPENDITURE FROM THE INCOME OF THE ASSESSEE AND DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) AND THE SAME IS UPHOLD. 5. THE SECOND ISSUE IS WITH REGARD TO THE DEDUCTION OF CAPITAL EXPENDITURE IN THE EVENT OF TREATING THE SOCIETY AS COMMERCIAL ORGANIZATION. IN GROUND NO.2 WE HAVE ALREADY HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION OF CAPITAL EXPENDITURE FROM THE INCOME OF THE ASSESSEE IN RESPECT OF TIED UP GRANTS. THEREFORE THIS ISSUE IS ONLY OF ACADEMIC INTEREST AND HAS NO IMPACT ON THE COMPUTATION OF INCOME. HENCE WE CONSIDER IT IS NOT NECESSARY ADJUDICATE THIS GROUND. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 13 TH MARCH, 2019 SD/- SD/- (P. MADHAVI DEVI) (D.S. SUNDER SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 13 TH MARCH , 2019. KRK 7 ITA NO. 2062/HYD/2017 BETHEL GOSPEL CHURCH, HYD. 1 M/S. BETHEL GOSPEL CHURCH, 2-3-692/A/2, ANNAPURNA NAGAR, AMBERPET, HYDERABAD. 2 INCOME TAX OFFICER (EXEMPTIONS)-1, HYDERABAD. 3 CIT(A)-9, HYDERABAD. 4 THE ADDL. CIT (EXEMPTIONS), HYDERABAD. 5 THE DR, ITAT HYDERABAD 6 GUARD FILE