Word & Deed India, Hyderabad, Hyderabad V. A.D.I.T. (Exemptions)_I, Hyderabad, Hyderabad

ITA 702/HYD/2015

• Counselvise Citation: 70222514 RSA 2015
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 31-08-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 25-05-2015
• Court: TRIBUNAL
• Department Lawyers: SESHA SRINIVAS
• Assessee Lawyers: A V RAGHURAM
• Keywords: Revenue expenditure
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 702/HYD/2015 ASSESSMENT YEAR: 2011-12 WORD & DEED INDIA, PEDDA AMBERPET, HAYATHNAGAR MANDAL, R.R. DISTRICT [PAN: AAAAW0059J] VS THE A.D.I.T. (EXEMPTIONS)-I, AAYAKAR BHAVAN, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHU RAM, AR FOR REVENUE : SHRI SESHA SRINIVAS, DR DATE OF HEARING : 03-09-2015 DATE OF PRONOUNCEMENT : 09-09-2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-9, HYDERABAD DATED 13-03-2015 HOLDING THAT ASSESSEE IS NOT ELIGIBLE FOR CLAIM U/S. 11 OF THE I NCOME TAX ACT [ACT] AND DIRECTED THE ASSESSING OFFICER (AO) TO COMPUTE THE INCOME OF ASSESSEE ON COMMERCIAL PRINCIPLES UNDER REGULAR PROVISIONS OF T HE ACT. 2. BRIEFLY STATED, THE ASSESSEE-SOCIETY IS REGISTER ED U/S. 12A OF THE ACT. ASSESSEE FILED ITS RETURN OF INCOME ON 31-10- 2011 ADMITTING NIL I.T.A. NO. 702/HYD/2015 WORD & DEED INDIA :- 2 -: TOTAL INCOME AFTER CLAIMING EXEMPTION U/S. 11 OF TH E ACT. AS PER THE BALANCE SHEET, ASSESSEE INTER ALIA HAD THE FOLLOWING LIABILITIES: I. TSUNAMI RELIEF FUND RS. 8,02,346/- II. GUJARAT EARTHQUAKE RELIEF AND REHABILITATION RS. 53,10,448/- III. EMERGENCY RELIEF NELLORE FLOODS PROJECT RS. 5,82,500/- 2.1 THE AO NOTED THAT THESE PROJECTS FOR WHICH THE FUNDS HAD BEEN SHOWN AS OUTSTANDING HAD ENDED MUCH EARLIER, THAT T HE TSUNAMI RELIEF FUND PROJECT HAD ENDED IN SEPTEMBER, 2006, THAT THE GUJARAT EARTHQUAKE RELIEF AND REHABILITATION PROGRAM AND EN DED IN JUNE, 2005 AND THAT THE EMERGENCY RELIEF NELLORE FLOODS PROJEC T WAS ONLY FOR NOVEMBER, 2007. THE AO NOTED THAT DESPITE BEING AS KED TO DO SO, ASSESSEE HAD FAILED TO SUBMIT THE INSTRUCTION OF TH E DONOR AGENCY TO TRANSFER THE DESIGNATED FUNDS TO OTHER PROJECTS. T HE AO, THEREFORE, TREATED THE LIABILITY AS PER THE BALANCE SHEET FOR EACH OF THE THREE PROJECTS AS THE INCOME OF ASSESSEE, SINCE THE PROJE CT HAD BEEN CONCLUDED AND THE LIABILITY TO THE DONOR HAD CEASED TO BE IN EXISTENCE. 2.2 THE AO HELD THAT EVEN IF ASSESSEES CONTENTION THAT THESE WERE TIED UP GRANTS WERE TO BE ACCEPTED, THE STANDARD ACCOUNT ING PROCEDURE SHOULD HAVE BEEN AS FOLLOWS: I. ASSESSEE SHOULD HAVE PREPARED SEPARATE FINANCIALS F OR ALL DESIGNATED FUNDS AND THE EXCESS OF INCOME SHOULD HA VE BEEN BROUGHT TO THE CONSOLIDATED FINANCIALS OF THE SOCIETY. II. AS THESE ARE TIED UP GRANTS AND ASSESSEE IS NOT SUP POSED TO HAVE CONTROL OVER THE FUNDS, THE SAME CANNOT BE SPE NT BY ASSESSEE FOR OTHER REVENUE EXPENDITURE AND HENCE TH EY WILL BE AGAIN SHOWN AS SURPLUS. I.T.A. NO. 702/HYD/2015 WORD & DEED INDIA :- 3 -: III. THE SURPLUS THUS ARRIVED AT SHOULD HAVE BEEN TAKEN TO BALANCE SHEET UNDER LIABILITIES IN DIFFERENT PROJEC T NAMES, AS PER THE BALANCES, BY EXERCISING OPTION U/S. 11(2) A ND FILING FORM NO. 10 INDICATING THE BALANCE AMOUNTS ACCORDIN G TO THE PROJECTS. THE AO THEREFORE, BROUGHT THESE SUMS TO TAX AND ASS ESSED THE TOTAL INCOME AT RS. 66,95,294/-. 3. BEFORE THE CIT(A), IT WAS SUBMITTED THAT UN-SPEN T BALANCES OF THE TIED UP FUNDS WERE LIABILITIES TO ASSESSEE AND THES E FUNDS ARE REQUESTED FOR OFFSET TO DIFFERENT FUNDS IN LATER YEARS. ASSE SSEE FURNISHED COPY OF THE LETTER GIVEN BY THE PARENT ORGANIZATION WOORD DAAD AND OTHER EVIDENCE BEFORE THE CIT(A). CIT(A) ACCEPTED ASSESSEES CONTE NTIONS STATING THAT THE PROJECTS HAD BEEN HELD TO BE TIED UP GRANTS FOR THE AY. 2006-07 AND THEREFORE, AOS VIEW THAT ASSESSEE WAS REQUIRED TO FURNISH FORM 10 FOR ACCUMULATION OF THESE FUNDS IS NOT CORRECT, ACCORDI NGLY ADDITION OF RS. 66,95,294/- WAS DELETED ON WHICH REVENUE HAS NOT PR EFERRED ANY APPEAL. HOWEVER, IN DOING SO, LD. CIT(A) FOLLOWING HER OWN ORDER FOR AY. 2006-07, HELD THAT ASSESSEE WAS IMPARTING CHRISTIAN EDUCATION AT WORD AND DEED SCHOOL, CANAAN, BEGUMPET AND THIS BEING A RELIGIOUS ACTIVITY, ASSESSEE CLAIM FOR EXEMPTION CANNOT THEREFORE BE AC CEPTED EITHER U/S. 11 OR U/S. 10(23C) AND ACCORDINGLY AO WAS DIRECTED TO COMPUTE THE INCOME OF COMMERCIAL PRINCIPLES UNDER THE REGULAR PROVISIO NS OF THE ACT. ASSESSEE IS AGGRIEVED ON THE ISSUE AND RAISED THE F OLLOWING GROUNDS: 2. THE LEARNED COMMISSIONER ERRED IN HOLDING THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 11 ON T HE GROUND THAT IT IS TEACHING EVANGELISM BASED ON AN ORDER FOR THE AY. 2006-07 THAT IS PASSED WITHOUT ANY MATERIAL. 3. THE LEARNED COMMISSIONER ERRED IN NOT CONSIDERIN G THE EVIDENCES AND SUBMISSIONS THAT ARE MADE IN THIS ASS ESSMENT YEAR WHICH WERE NOT BEFORE THE LEARNED CIT(A) WHILE PASSING I.T.A. NO. 702/HYD/2015 WORD & DEED INDIA :- 4 -: ORDER FOR THE AY. 2006-07 TO PROVE THAT THERE IS NO TEACHING OF EVANGELISM IN THE SCHOOLS RUN BY THE ASSESSEE BY SI MPLY STATING THAT ALL PRIMARY SUBMISSIONS WERE ADDRESSED IN THE ORDER FOR THE AY. 2006-07 THOUGH THERE IS NO FINDING ON THESE SUB MISSIONS AND EVIDENCES AND THEREBY ERRED IN HOLDING THAT THE ASS ESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 11. 4. BOTH PARTIES FAIRLY AGREED THAT THE ISSUE IS COV ERED IN FAVOUR OF ASSESSEE BY THE ORDER OF THE ITAT IN ITA NO. 1554/H YD/2014 FOR AY. 2006-07 DT. 08-04-2015 REVERSING THE CIT(A) DECISIO N IN THAT YEAR ON THE BASIS OF WHICH, CIT(A) TOOK CONSEQUENTIAL VIEW IN T HIS YEAR ALSO. THE ORDER OF ITAT IS AS UNDER: 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES. AS CAN BE SEEN, THER E IS NO DISPUTE TO THE FACT THAT DURING THE YEAR UNDER CONS IDERATION ASSESSEE HAS RECEIVED AN AMOUNT OF RS. 8,40,57,250 FROM DONOR AGENCY IN HOLLAND WITH REGARD TO CERTAIN PROJ ECTS, OUT OF WHICH, THE UNSPENT BALANCE REMAINING WITH ASSESS EE AT THE END OF THE YEAR WAS TO THE TUNE OF RS. 3,76,10, 671. IT IS ALSO ESTABLISHED ON RECORD THAT THE FOREIGN CONTRIB UTIONS RECEIVED FROM THE DONOR AGENCY ARE IN THE NATURE OF TIED UP GRANTS AS THEY ARE TO BE UTILIZED STRICTLY IN ACCOR DANCE WITH THE DIRECTIONS OF DONOR AGENCY. LD. CIT(A) HAS ALSO ACCEPTED THIS FACT. THEREFORE, IN OUR VIEW, TIED UP GRANTS C ANNOT BE CONSIDERED TO BE FORMING PART OF ASSESSEES INCOME. FURTHER, LD. CIT(A) HAS REFERRED TO THE WEBSITE OF DONOR AGENCY AS WELL AS PROJECT AGREEMENT AND FORMED AN O PINION THAT ASSESSEE IS IMPARTING CHRISTIAN EDUCATION, HEN CE, THE SAME BEING RELIGIOUS ACTIVITY, ASSESSEE IS NOT ELIG IBLE FOR EXEMPTION U/S 11 OF THE ACT. HOWEVER, ON A PERUSAL OF THE FACTS AND MATERIALS BROUGHT ON RECORD, WE ARE OF TH E VIEW THAT OBSERVATIONS MADE BY LD. CIT(A) ARE NOT SUSTAI NABLE. AS CAN BE SEEN, ASSESSEE HAS BEEN PERMITTED BY GOVT. AUTHORITIES TO IMPART EDUCATION FROM CLASS-I TO X I N ENGLISH MEDIUM FROM 1998-99 BY COMPETENT AUTHORITIES, WHICH IS EVIDENT FROM TEMPORARY RECOGNITION GRANTED BY DIST RICT EDUCATIONAL OFFICER, HYDERABAD AND REGIONAL JOINT D IRECTOR OF SCHOOL EDUCATION, HYDERABAD, COPIES OF WHICH ARE AT PAGES 240 & 242 OF ASSESSEES PAPER BOOK. SIMILARLY , THE I.T.A. NO. 702/HYD/2015 WORD & DEED INDIA :- 5 -: FACT THAT ASSESSEE IS RUNNING EDUCATIONAL INSTITUTI ONS AND IMPARTING EDUCATION FROM CLASS I TO X IS ALSO VER Y MUCH EVIDENT FROM THE LIST OF STUDENTS FURNISHED IN THE PAPER BOOK. FURTHER, ASSESSEES CLAIM THAT 90% OF THE STU DENTS ARE NON-CHRISTIANS HAS ALSO NOT BEEN CONTROVERTED BY DEPARTMENTAL AUTHORITIES. FURTHER, ON A PERUSAL OF INCOME AND EXPENDITURE ACCOUNT, A COPY OF WHICH IS AT PAGE 212 OF THE PAPER BOOK REVEALS THAT NO AMOUNT HAS BEEN SPEN T ON ANY RELIGIOUS ACTIVITY. IN THE AFORESAID FACTS AND CIRCUMSTANCES, WHEN THERE IS NOTHING ON RECORD TO P ROVE THAT ASSESSEE IS EITHER IMPARTING CHRISTIAN EDUCATION OR INDULGED IN ANY OTHER RELIGIOUS ACTIVITY, ONLY BECAUSE THE W EBSITE OF THE DONOR AGENCY SPEAKS OF EVANGELISTIC ACTIVITIES OR IMPARTING CHRISTIAN EDUCATION, IT CANNOT BE INFERRE D THAT ASSESSEE HAS ACTUALLY INDULGED IN SUCH ACTIVITIES. WHEN NO EVIDENCE IS AVAILABLE ON RECORD TO SUGGEST THAT ASS ESSEE HAS APPLIED ITS INCOME/FUNDS TOWARDS ANY ACTIVITY OF RE LIGIOUS NATURE MERELY ON CONJECTURES AND SURMISES, IT CANNO T BE SAID THAT ASSESSEE HAS ENGAGED ITSELF IN RELIGIOUS ACTIVITIES, HENCE, NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT . AS A MATTER OF FACT, AO WHILE COMPLETING THE ASSESSMENT HAS NOT FOUND ANYTHING TO SUGGEST THAT ASSESSEE HAS INDULGE D IN RELIGIOUS ACTIVITIES. EVEN LD. CIT(A) APART FROM TH E WEBSITE CONTENT OF THE DONOR AGENCY AND SOME REFERENCE MADE IN THE PROJECT AGREEMENT HAS NOT FOUND ANY OTHER EVIDENCE WHICH CAN CLINCHINGLY ESTABLISH THAT ASSESSEE HAS IMPARTE D CHRISTIAN EDUCATION OR INDULGED IN RELIGIOUS ACTIVI TIES TO ADVANCE CHRISTIAN RELIGION. IN THE AFORESAID FACTS AND CIRCUMSTANCES, IN OUR VIEW, LD. CIT(A) WAS NOT JUST IFIED IN HOLDING THAT ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT. WHEN THERE IS NOTHING ON RECORD TO SHOW TH AT ASSESSEE HAS CARRIED OUT ACTIVITIES NOT IN ACCORDAN CE WITH ITS OBJECTS, CLAIM OF EXEMPTION U/S 11 OF THE ACT C ANNOT BE DENIED TO IT AS THERE IS NO VIOLATION OF ANY PROVIS IONS CONTAINED U/S 11 TO 13 OF THE ACT. IN THE AFORESAID VIEW OF THE MATTER, WE SET ASIDE THE DIRECTIONS OF LD. CIT (A) IN THIS REGARD AND HOLD THAT ASSESSEE IS ELIGIBLE FOR EXEMP TION U/S 11 OF THE ACT. 5. IN VIEW OF THE DETAILED ORDER IN AY. 2006-07, RE SPECTIVELY FOLLOWING THE SAME, WE HOLD THAT ASSESSEE IS ELIGIBLE FOR EXE MPTION U/S. 11 OF THE ACT. IN VIEW OF THE ABOVE, WE SET ASIDE THE DIRECT ION OF CIT(A) IN THIS REGARD AND HOLD THAT ASSESSEE IS ELIGIBLE FOR EXEMP TION U/S. 11 OF THE ACT. I.T.A. NO. 702/HYD/2015 WORD & DEED INDIA :- 6 -: 6. BEFORE PARTING, WE WOULD LIKE TO OBSERVE THAT TH E ORDER OF AO ITSELF IS NOT ACCORDING TO THE PROVISIONS OF THE ACT. ASS ESSEE HAS FILED AN INCOME AND EXPENDITURE STATEMENT, IN WHICH ASSESSEE HAS SHOWN INCOME AS PER INCOME AND EXPENDITURE ACCOUNT AT RS. 87,64,283/- AND INCOME APPLIED AS PER THE PROVISIONS AT RS. 1,03,77 ,453/-, IN THE PROCESS CLAIMED NET DEFICIT OF RS. 16,13,170/-. AO WHILE B RINGING TO TAX THE SO CALLED LIABILITIES IN THE BALANCE SHEET AS THE INCO ME OF THE YEAR, IGNORED THE COMPUTATION FILED BY ASSESSEE AND HAS NOT GIVEN ANY FINDING ON ASSESSEES ELIGIBILITY OR OTHERWISE OF THE COMPUTAT ION FILED. AO HAS SIMPLY TAKEN THE AMOUNTS CONSIDERED AS INCOME IN HIS ORDER AND COMPUTED THE TAX. AO IS BOUND TO DETERMINE THE INCOME AND ITS A PPLICATION WHILE COMPLETING ASSESSMENTS OF THE TRUSTS AS PER THE PRO VISIONS OF THE ACT. WE ARE SURPRISED TO NOTICE THAT AO HAS NOT FOLLOWED THE PROCEDURE AS PRESCRIBED UNDER THE ACT. THEREFORE, WHILE GIVING EFFECT TO THIS ORDER, WE DIRECT AO TO COMPUTE THE INCOMES AND ELIGIBLE EXEMP T AMOUNTS ON THE BASIS OF COMPUTATION AND STATEMENTS FILED BY ASSESS EE AND ALLOW THE BENEFIT OF EXCESS EXPENDITURE OVER INCOME AS CLAIME D IN THE COMPUTATION. WITH THESE DIRECTIONS, ASSESSEES GROUNDS ARE CONSI DERED ALLOWED. 7. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER, 2015 SD/- SD/- (P. MADHAVI DEVI) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 9 TH SEPTEMBER, 2015 TNMM I.T.A. NO. 702/HYD/2015 WORD & DEED INDIA :- 7 -: COPY TO : 1. WORD & DEED INDIA, PLOT NO. 1, PEDDA AMBERPET, HAYATHNAGAR MANDAL, R.R. DISTRICT. C/O. K. VASANT KUMAR, A.V. RAGHU RAM, P. VINOD, ADVOCATES, 610, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD. 2. THE A.D.I.T. (EXEMPTIONS)-I, AAYAKAR BHAVAN, HYD ERABAD. 3. CIT (APPEALS)-9, HYDERABAD. 4. CIT (EXEMPTIONS), HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.