GUJRATI MAHAMANDAL HATI BHATA, AJMER V. INCOME TAX OFFICER (EXEMPTION), AJMER

ITA 811/JPR/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2262 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 10-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANKUR SALGIA
• Keywords: Capital asset; Reasonable cause; Capital expenditure
• Section: 154; 11; 143(3); 10B; 139(1); 13

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’A’ JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 811/JP/2018 fu/kZkj.k o"kZ@Assessment Year :2014-15 M/s Gujrati Mahamandal Hati Bhata, Ajmer cuke Vs. ITO (Exemption), Ajmer LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAATG 0756 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Ankur Salgia jktLo dh vksj ls@ Revenue by : Smt. Monisha Choudhary (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 11/05/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 28/06/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. This appeal is filed by the assessee aggrieved from the order of the Commissioner of Income Tax (Appeal)- Ajmer [ Here in after referred as Ld. CIT(A) ] for the assessment year 2014-15 dated 19.03.2018 which is arising out of an assessment order passed by the ITO (Exemption), Ajmer under section 143(3) of the Income Tax Act [ here in after referred as Act ] on 08.12.2016. ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 2 2. The hearing of the appeal was concluded through audio- visual medium on account of Government guidelines on account of prevalent situation of Covid-19 Pandemic, both the parties have placed their written as well as oral arguments during this online hearing process. 3. The grounds raised by the assessee in ITA No. 811/JPR/2018 are as under:- “In the facts & circumstances of the case the ld. CIT(Appeals), Ajmer has erred in not admitting the appeal for order passed u/s 143(3) I.T. Act. 1. The assessee has filed an appeal with ld. CIT(appeals) Ajmer against the order dated 08/12/2016 passed 143(3) IT. Act ITO (Exemption), Ajmer denying the benefit of Section 11(1)(2) of the IT Act 1961. 2. That the ld. CIT(appeals) has erred in conforming the order of the learned ITO (Exemption) Ajmer making addition of Rs. 22,03,990/- in total income, by including FDR’s interest Rs. 1927022/- not received during the year & hence could not applied as per provision of sec 11, without appreciating the full facts & circumstances of the case, Thus he made total addition of Rs.2203090/- in total returned income which is quite wrong & unjustified. 3. That the ld. CIT(Appeals) has erred in not following the Board itself in Circular No. 52 dated December 30,1970 which has accepted fixed deposit for duration of more than six months as a capital asset. Similar view has been taken in CIT vs. Hindustan Welfare Trust (1994) 206 ITR 138 (Cal). The CBDT circular No. 52 dated December 30,1970 has accepted fixed deposit for duration of more than six month as a capital asset. Fixed deposits (FDs), debentures and bonds are ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 3 ordinarily capital assets Hence Investment in Fixed Deposit should be treated as Capital Expenditure. 4. That order passed by the Ld. CIT(Appeals) Ajmer is erroneous and contrary to law and facts, against the weight of evidence and probabilities of the case. 5. That any other relief or reliefs deemed fit in the facts and circumstances of the case may be granted. 6. That the order is bad in law. The income not actually received during the year can be applied in subsequent year or when the same actually received. There was proper option & report 10B showing full facts of the case & application of money. 7. That the order is bad in law. 8. The Appellants Prays to add/amend/alter/substitute any one or more grounds of appeal in connection with the aforesaid grounds before or at the time of hearing of appeals with your kind permission. (i) The Gross Receipts Consolidated taken is also wrong Rs. 12579952/- as It will be 11189977.00, as fees received for the Financial year 2014-15 also taken as receipt, however clearly shown as advance in Income expenditure a/c. The above ground was not taken by assessee in Ld. CIT (Appeals). 9. The appellant carves leave to add, amend, alter, vary or withdraw any or all the above grounds of appeal with the prior permission of the chair.” 4. The facts as culled out from the records is that the assessee filed its return of income declaring nil income. The case was selected under compulsory scrutiny. Notice was issued to the assessee. The assessee is registered as a society. The assessee is also registered under section 12A(a) of the Act and engaged in providing education to students along with running a guest house at Ajmer. During the year total receipt of the society was at Rs. 1,25,79,952/- inclusive of receipt from society, the school and guest ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 4 house run by the society. During the course of scrutiny assessment proceeding, before the AO assessee has contended that as per xplantion 11(1) of the Act, the assessee did not received accured interest of Rs. 19,27,022/- but may deemed applied next year. For clamming exemption under Explanation (2)(i) below section 11(1), the assessee must exercise option before the due date u/s. 139(1) of the Act before the AO. In the instance case, the assessee failed to exercise the option and therefore, treated as not eligible for treating the income deemed to be income applied to such purposes during the previous year in which the income was derived. Therefore, in absence of option, the AO did not allowed the benefit of Explanation (2)(i) below section 11(1) of the Act and the same was taxed in the hands of the assessee. 5. Aggrieved from the said order of the assessing officer the assessee has filed an appeal before the ld. CIT(A), Ajmer but did not succeed. The relevant findings of the ld. CIT(A) is extracted here in below for the sake of brevity: “4.3 I have gone through the assessment order, statement of facts, grounds of appeal, written submission, remand report and rejoinder carefully. It is seen that the appellant had not applied 85% of its income nor had it filed Form No. 10 before the AO as required u/s 11(2) before ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 5 the due date of filing return of income u/s 139(1). Therefore, it is held that the AO has rightly denied the benefit of 11(1) to the appellant. Accordingly, all these grounds of appeal are dismissed.” 6. During the course of hearing the ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below; “Issue -1: That the Ld. CIT(Appeals), Ajmer wrongly confirmed the order of A.O. in which the A.O. has not allowed deduction of deemed application for capital expenditure for investment in FDR for calculation of taxable Income: Where income is applied for purchase of a capital asset, it would still be application of income to the charitable purpose, however during the F.Y. under consideration the appellant/assessee has invested Rs. 21,11,000/- in FDR for period more than 6 months, and the same being capital investment as per CBDT circular No. 52 dated December 30, 1970 which has accepted fixed deposit for duration of more than six months as a capital asset. ( Form 10B Exabit 1, & Financials Exabit- 2, Exabit-3 Copy of CBDT Circular are enclosed herewith for ready reference) (Instruction No. 883-CBDT F.N. 180/54/72-IT(AI) dated 24-9- 1975-CBDT Bulletin XXI/1/74, page 157.) Also, CBDT Circular dated 24-9-1975, declaring that deposits for a period of six months or more could be considered as capital assets for the purpose of section 11(1A), is not in consonance with the general principles of law and it cannot hold the field. Once a deposit is accepted to be an asset, the larger or lesser duration of the term is an immaterial consideration. Hence Investment in Fixed Deposit should be treated as Application of Income. Similar view was also taken in the following judgements: (i) CIT v Hindusthan Welfare Trust (1994) 206 ITR 138 (Cal). (ii) Trustees Of Harikishandas ... vs Eighth Income-Tax Officer (1985) 13 ITD 648 (Mum). ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 6 Issue-2: That the Ld. CIT(Appeals), Ajmer has confirmed the A.O. move of not providing deduction of the interest accrued but not received on FDR for Rs. 19,20,250/- due to non-submission of form 9A/10 i.e. application for exercise of option under clause (2) of the Explanation to sub-section (1) of section 11 of the Income-tax Act, 1961 on and before time allowed u/s 139(4). That the appellant/assessee trust have investment in FDR's and interest has been accrued on the same during the period under consideration for Rs.19,27,022/-, which was not received by trust only book entry has been made. The bank has a system of making accrued interest on quarterly basis. The above interest was only a hypothetical income to which right to receive had not accrued so it cannot be applied as not available, also explanation (i) of section 11(2) provides deduction of income " in the previous year, the income applied to charitable or religious purposes in India falls short of eighty five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount- (i) for the reason that the whole or any part of the income has not been received during that year," The said facts and circumstances were examined and verified by the A.O. during the assessment proceedings u/s 143(3), however denied the claim only on technical ground that form 9A/10 was not filed before the time period for filing return u/s 139(4), and the same has been upheld by Ld. CIT(Appeals), Ajmer, however the said mistake is only procedural breach and higher courts and Honorable ITAT in various decisions has held that, the procedural mistake should be treated as a technical breach and the AO was duty bound to ask it before denying claim the appellant/assessee has requested the assessee had informed the said fact to the AO. Issue-3:- The Total of Gross Receipts calculated as Rs. 12579952/- instead of Rs. 11189977.00, resulting over addition of Rs. 1389975/-. (The above ground was not taken by assessee in ld. CIT(Appeals) ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 7 The rectification u/s 154 of it act for such correction is already being Pending with ITO. In addition to the above written argument the ld. AR of the assessee submitted that interest income accrued and not received is again applied as invested in the FDR as the same is not received by the assessee. For exercising this option only an intimation is required to be given. For the year under consideration this intimation is required to be given. The said intimation form was not active on the online portal and the same was not given at that particular time. The ld. AR of the assessee drawn our attention to the report of the AO in remand proceeding at page 4 of ld. CIT(A) order which reads as under:- “(ii) The written submission filed by the appellant were forwarded to the AO. The AO has submitted the remand report as under: ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 8 "Kindly refer to your letter No. C1T(A)/AJM/2017-18/6054 dated 29.11.2017 on the above narrated subject. In this regard, it is submitted that the submissions made by the A/R of the assessee Trust in support of the Grounds raised before your honour have been gone through carefully. The assessee Trust was given an opportunity of being heard on 08.12.2017 vide this office letter No..1TO(Exemption)/ Ajm/Remand/2017-18/454 dated 04.12.2017. On behalf of the assessee Trust, Shri O.P. Maheshwari, CA attended, filed Power of Attorney executed by the assessee Trust in his favour and submitted the combined reply (Appeal No. 501 for A.Y. 2009-10, Appeal No. 502 for A.Y. 2014-15 & Appeal No. 275 for A. Y. 2013-14) in support, of its claim. The reply filed by the A/R has been gone through and comments (Appeal No. 502 for A.Y. 2014-15) before your honour are offered as under - The A/R has stated in Point No. 3 of its reply that the benefit of section 1(23C)(iiiad) cannot be denied as an exempted income and it not form part of total income as per law. in Point No.4, he stated that there was full information before the then AO as per Audit Report in Form No. 10B about accumulation of income as per resolution in support thereof also. Further, in Point No. 5, the A/R stated that the reinvestment made in fixed deposits with Bank is also to be treated as application of income as per section 11 of the Income at Act. During the course of scrutiny assessment proceedings before the then AO, A/R of the assessee has contended that as per explanation 11(1) of the Income Tax Act, the assessee Trust did not received accrued interest of Rs. 19,27,022/- but may be deemed applied next year. For claiming exemption under Explanation (2)(0 below section 11(1), the assessee must exercise option before the due date u/s 139(1) before the AO. In the instant case, the assessee Trust failed to exercise option and therefore not eligible for treating the income deemed to be income applied to such purposes during previous year in which the income was derived. Therefore, in absence of option, the then AO did not allowed the benefit of Explanation (2)(i) below section 11(1) of the Income Tax Act to the assessee and rightly taxed the gross receipts. In View of the above facts the then AO was within the spirit of the statute. I humbly pray before your good self not to entertain or accept the arguments put forth by the assessee Trust before your honour during the Appeal proceedings." ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 9 In response the assessee has submitted the rejoinder to the remand report and the same is extracted here in below “(iii) The assessee has submitted the rejoinder to the remand report as under: "(1) That corpus donation is not revenue income & is exempted u/s 11(d) & hence as admitted by you there is no denial of our corpus donation & hence it should have been treated as capital asset. (2) That the benefit of Sec 10 (23C) (iii ad) cannot be denied as an exempted income & it not form part of total income as per law. (3) That there was full information to your honour as per Audit report in form JOB about accumulation of income as per resolution in support there of also: (4) That the reinvestment made in fixed deposits with Bank is also to be trated as application of income as per Sec. 11 of IT Act. In addition to above the Capital' asset purchased & dep. Charged thereon is also allowable expenses in view of following Judgments. ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 10 Kindly accept our Appeal & oblige.” 7. On the other hand, the ld. DR has filed the clarification dated 05-10-2020 received from the Assessing Officer and the observations of the Assessing Officer on this issue is extracted herein below. ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 11 ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 12 The ld. DR also submitted that during the assessment proceeding assessee has not exercised the option of filling the intimation of such option of applying the income in the next year in the requisite form and thus, as per provision of the Act the assessee is not eligible to claim the benefit of such provision and heavily relied upon the findings of the lower authorities. 8. We have heard the rival contentions, perused the material placed on record and also the decisions relied upon. It is not disputed by the ld. DR that the intimation required to be given in ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 13 the requisite form was not prescribed and therefore was not submitted. He has also not disputed the arguments of the ld. AR that the relevant information is already appended in the form no. 10B at column no. 5 where in the details of accumulation is already intimated and filed before the AO merely the specific intimation and that was not active on the port was not made available before the AO but the same is very well evident from the column no. 5 of form no. 10B filed with the AO which is not disputed by the ld. DR. In our considered view since the assessee has already incorporated the information at the appropriate form no. in 10B this may be considered as intimation under section 11(2) and the benefit cannot be denied to the assessee merely the separate intimation was not filed and for that the assessee contended the same was not active on the portal and therefore, they have reasonable cause of not filling the same but at the same time the said information of accumulation is already available on record in the Form no. 10B filed by the assessee. In terms of our observation the Ground no. 1 to 7 are allowed and the AO is directed to grant the benefit u/s. 11 (1) of income deemed to be applied. 9. As regards the ground no. 8 since the assessing officer has already granted the benefit u/s. 154 of the Act the same is treated as not pressed and ground no. 9 is academic and therefore, not required to be adjudicated. In the result the appeal of the assessee is allowed. ITA No. 811/JP/2018 Gujrati Mahamandal Hati Bhata vs. ITO(E), Ajmer 14 Order pronounced in the open Court on 28/06/2022. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/06/2022 *Ganesh Kr. vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Gujrati Mahamandal Hati Bhata, Ajmer 2. izR;FkhZ@ The Respondent- ITO (Exemption), Ajmer 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File {ITA No. 811/JP/2018} vkns'kkuqlkj@ By order, lgk;d iathdkj@ Asst. Registrar