IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH: ‘A’ NEW DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
[Through Video Conferencing]
ITA No.7806/Del/2017
Assessment Year: 2014-15
DCIT, Vs. Aligarh Development
Exemption Circle, Authority (ADA),
Ghaziabad Ramghat Road,
Aligarh UP
PAN: AAALA0082G
(Appellant) (Respondent)
Appellant by Sh. Ashok Gautam, Sr. DR
Respondent by Sh. Deepak Singh, Advocate
Date of hearing 23.03.2021
Date of pronouncement 27.04.2021
ORDER
PER O.P. KANT, AM:
This appeal by the Revenue is directed against order dated
06/09/2017 passed by the Learned Commissioner of Income-tax
(Appeals)-Aligarh [in short ‘the Ld. CIT(A)’] for assessment year
2014-15 raising following grounds:
1. The Ld. Commissioner of Income Tax (Appeal) has erred
in law and facts in deleting addition in respect if surplus of
Rs.6,35,39,809/- made by the AO.
2. The Ld. Commissioner of Income Tax (A) has erred in
law and facts in deleting addition made by the AO in respect of sum
of Rs. 23,36,84,304/- received towards infrastructure Development
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Fund directly credited to the fund account without crediting the
same towards income.
3. The Ld. CIT(A) has erred in law and facts in deleting
disallowance of Rs.10,34,026/- claimed as depreciation by the
assessee.
4. The order of Ld. CITA() be cancelled and the order of the
AO be restored.
2. The Revenue has also preferred following additional ground
of appeal:
“The Ld. Commissioner of Income Tax (Appeal) has erred in law and
on facts by allowing the benefit of section 11 to the assessee
ignoring the facts that the assessee is engaged in activity in nature
of trade, commerce or business.”
3. Briefly stated facts of the case are that the assessee being a
development authority, filed its return of income for the year
under consideration on 29/09/2014, declaring nil income. In the
return of income, profit (surplus) declared of ₹ 6,35,39,809/- was
claimed as exempt under the provisions of sections 11 and 12 of
the Income-tax Act, 1961 (in short ‘the Act’). In the scrutiny
assessment proceedings, the Assessing Officer examined, the
activity of the assessee and concluded that its activities are in the
nature of trade, commerce or business in view of the dominant
activity of acquisition and sale of immovable properties. The
Assessing Officer also observed that activity of the authority were
being carried out with the motive for profit and thus the assessee
was not entitled for exemption under section 11 of the Act. He,
accordingly, assessed the surplus of ₹ 6,35,39,809/- as income
from business. Further, he also observed that ₹ 23,36,84,304/-
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received for ‘infrastructure fund’, was directly credited to a
separate account of fund, without crediting the same towards
income of the assessee. Therefore, the Assessing Officer also
added this amount to the total income. Further, the Assessing
Officer also made addition of ₹ 10,34,026/- by way of making
disallowance for depreciation.
3.1 Aggrieved with the addition/disallowances made, the
assessee filed appeal before the Learned CIT(A) who allowed the
appeal of the assessee. Aggrieved with the finding of the Ld.
CIT(A), the Revenue is in appeal before the Income Tax Appellate
Tribunal (in short ‘the Tribunal’) raising the grounds and
additional ground as reproduced above.
4. Before us, the parties appeared through Video Conferencing
facility and the learned counsel of the assessee filed a paper-
book.
5. The Learned DR relied on the order of the Assessing Officer
and submitted that order of the Tribunal in the case of Khurja
Development Authority (ITA No.4290 and 4291/Del/2014 and
5103/del/2016 might be followed.
6. On the contrary, Learned Counsel of the assessee submitted
that finding of the Ld. CIT(A) might be upheld as he has followed
orders of the Hon’ble Jurisdictional High Court in the case of the
assessee itself.
7. We have heard rival submission of the parties on the issue
in dispute and perused the relevant material on record. As far as
the additional ground and ground No. 1 of the appeal are
concerned, the finding of the Learned CIT(A) are reproduced as
under:
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“5.2 These grounds relate to the issue of holding the activities of
the appellant authority as charitable or otherwise. Similar issue
was raised in the appeal for A.Y.2012-13 which was decided by me
vide order passed u/s. 250 on 01.03.2017 in appeal No.09/2015-
16/ Aligarh as under :-
“These grounds relate to the AO’s decision of not holding the
appellant’s activities as activities towards charitable purposes. The
AO has relied upon the decision of Hon’ble ITAT Amritsar Bench in
the case of M/s Jalandhar Development Authority (supra). On the
other hand, the appellant has relied upon the decision of
jurisdictional Allahabad High Court in the case of CIT V/s Lucknow
Development Authority (2014) 265 CTR (All) 0433. In the LDA case,
the AO while passing the assessment order u/s 143(3) observed
that the assessee was not eligible for the benefit of section 11 of the
Act and assessed the entire income as business income. However,
this finding was rejected by Hon’ble Allahabad High Court and the
activities of the development authorities were held to be charitable in
nature. This ruling of Hon’ble Allahabad High Court was followed by
the same High Court in Income Tax Appeal No. 657 of 2007 in the
case of Hapur Pilkhwa Development Authority and other authorities.
Incidentally, the appellant was also one of the authorities for which
the said order has been passed. Relying upon the aforesaid decision
in the case of LDA, the Hon’ble court held that the activities of the
developing authorities are of charitable nature and the authority is
eligible to be registered u/s 12AA. As the Hon’ble Allahabad High
Court upheld the Tribunal’s decision of allowing registration u/s
12AA for the appellant authority, no question can be raised to doubt
the charitable character of the activities which the authority has
undertaken. Since the appellant enjoys benefit of registration u/s
12AA, it can be presumed that the objects of the appellant are of
charitable character.”
In view of the above, as the activities in the relevant previous year
are similar to the activities undertaken during the previous year
relevant to A.Y. 2012-13, it is prudent to hold that the appellant is
engaged in the activities which are of charitable nature. Therefore,
the appellant would be entitled to get the benefit of registration u/s
12AA. As such, in the assessment, the Assessing Officer’s only is to
see whether the actual activities undertaken during the year are in
accordance with the objects with regard to which the authority was
granted registration u/s. 12 AA. There is no finding in the
assessment order that the appellant authority has deviated from its
charitable objects during the course of the activities performed
during the relevant previous year. Since the appellant is registered
u/s. 12 AA, it is automatically entitled for exemption u/s. 11 if other
conditions are fulfilled. Since the appellant’s application of income
plus accumulation of income for charitable purposes is more than the
85% of the total income, the whole income would get exempted u/s.
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11. Thus, the income would have to be assessed at Nil as claimed
in the return of income.
In light of the observations as narrated above, these grounds
are being allowed.”
7.1 We find that Ld. CIT(A) has followed the finding of the
Hon’ble Jurisdictional High Court in the case of the assessee in
earlier year and held that the activity of authority of developing of
land etc. are charitable in nature and eligible for registration
under section 12AA of the Act. The Ld. CIT(A) has accordingly
found the claim of the assessee for exemption under section 11 of
the Act in order and also observed that assessee has applied more
than 85% of the total income towards charitable purposes. The
registration granted by the CIT under Section 12AA of Act is
validly in operation in the relevant year and not withdrawn. Thus,
the assessee was entitled for exemption under Section 11 subject
to fulfilling the conditions contained therein. In view of binding
precedent followed by the learned CIT(A), we do not find any error
in the order of the Learned CIT(A) on the issue in dispute and
accordingly we uphold the same. The additional ground and
ground No. 1 of the appeal of the Revenue are accordingly
dismissed.
8. As far as ground No. 2 of the appeal is concerned, the Ld.
CIT(A) has observed as under:
“The AO has alleged that an amount of Rs. 23,36,84,304/- has been
transferred directly to infrastructure development funds and has not
been routed through the income and expenditure account. For this
reason, separate addition of the same amount was made. In this
regard, the appellant has submitted that as per government order,
the appellant society has to transfer the major percentage of receipts
under various heads to infrastructure development fund and it has
no discretion to spend any part of the said fund on its own. The
expenditure from the said fund is supervised by a committee
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nominated by the state government. It has been explained that this
income falls under “ diversion of income by overriding title” and is
not includible in the total income. In my opinion, since the appellant
is entitled for exemption u/s 11, the only relevant point is that 85%
of the total income should be utilized towards charitable objects.
Total income during the year including the income received towards
infrastructure development fund is Rs. 33,37,97,968/- out of which
Rs. 12,95,28,302/- has been utilized during the relevant previous
year. In accordance with the provisions of section 11, 85% of the
total receipts i.e. Rs. 28,37,28,272/- should have been utilized
during the year. Thus, there is a shortfall of Rs. 15,41,99,970/-. The
appellant has produced a copy of form-10 filed on 30.09.2014 which
shows that an amount of Rs. 15,41,99,970/- has been requested to
be carried forward for utilization in subsequent years. Thus, all the
requirements for claiming exemption u/s 11 have been fulfilled.
'Also, it is observed that the income received towards the
infrastructure development fund has been considered for working
out the utilization u/s 11. Hence, the AO’s conclusion that the
income received under infrastructure development fund has not been
considered is without any basis.
In view of the above, there is no justification for making any
separate addition for the amount received towards infrastructure
development fund and the AO is being directed accordingly. These
grounds are therefore allowed.”
8.1 The claim of the Revenue is that amount of ₹ 23,36,84,304/-
has not been considered for application of funds and therefore
this issue might be restored back to the file of the Assessing
Officer as decided in the case of Khurja Development Authority
(supra). The Tribunal in the case of Khurja Development
Authority (supra) restored this issue to the AO with following
observations:
“15. After considering the rival submissions, we are of the view that
this issue also requires reconsideration at the level of the AO. The
assessee has now been granted registration u/s 12AA of the Act
and thus, assessee is entitled for exemption from income u/s 11 of
the Act as per law. Even if the infrastructure reserve fund ITA Nos.
4290, 4291/Del/2014 & 5103/Del/2016 maybe treated as income
of assessee, it will have to be examined, whether,- assessee is
entitled for exemption u/s 11 of the Act on the same income.
Therefore, it would depend upon fundings with regard to exemption
u/s 11 of the Act. We have already restored the issue of exemption
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u/S 11 of the Act to the AO for fresh decision as per law. Further,
the authorities below have not. appreciated the fact that assessee
claimed that infrastructure fund was received for development
activities from the State Authorities, the assessee has to spend the
amount on the same as per approval of the State Authorities. Thus,
there may not be any profit element out of the same sources. It may
also be noted here that whatever amount has been spent by
assessee on the same issue, the AO has accepted that assessee
spent the same amount as per the directions of the State Authorities.
Then in that event it is difficult to believe that part amount is capital
receipt and part would be Revenue in nature. Therefore, there was
no justification for Ld. CIT(A) to hold that the impugned receipt is
Revenue in nature. This issue also requires reconsideration in view
of the fact that assessee is entitled for exemption u/s 11 of the Act.
We, accordingly, set aside the orders of the authorities below on the
issue of infrastructure fund as well and restore the issue to the file
of AO with direction to redecide the issue as per law by giving
reasonable opportunity of being heard to the assessee.”
8.2 However, we find that the Ld. CIT(A) has followed the
provisions of the Act and Rules, 1962 (in short ‘the Rules’).
According to the provisions of the Act, exemption under section
11 is allowed, if 85% of the funds received are applied for
charitable purposes in the year under consideration and, if there
is any short fall in application of such funds, the assessee has to
follow the procedure prescribed for getting benefit of section 11 of
the Act. The relevant Explanation-1 below section 11(1)(d) is
reproduced as under:
“Income from property held for charitable or religious purposes.
11. (1) ………………
Explanation 1.—For the purposes of clauses (a) and (b),—
(1) in computing the fifteen per cent of the income which may be
accumulated or set apart, any such voluntary contributions as are
referred to in section 12 shall be deemed to be part of the income;
(2) if, 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—
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(i) for the reason that the whole or any part of the income has not
been received during that year, or
(ii) for any other reason,
then—
(a) in the case referred to in sub-clause (i), so much of the income
applied to such purposes in India during the previous year in which
the income is received or during the previous year immediately
following as does not exceed the said amount, and
(b) in the case referred to in sub-clause (ii), so much of the
income applied to such purposes in India during the
previous year immediately following the previous year in
which the income was derived as does not exceed the said
amount,
may, at the option of the person in receipt of the income (such
option to be exercised before the expiry of the time allowed under
sub-section (1) of section 139 for furnishing the return of income,
in such form and manner as may be prescribed) be deemed to be
income applied to such purposes during the previous year in which the
income was derived; and the income so deemed to have been applied
shall not be taken into account in calculating the amount of income
applied to such purposes, in the case referred to in sub-clause (i), during
the previous year in which the income is received or during the previous
year immediately following, as the case may be, and, in the case referred
to in sub-clause (ii), during the previous year immediately following the
previous year in which the income was derived.”
8.3 The Ld. CIT(A) has noted that the assessee had produced
before him prescribed form as laid down in the Rules, with the
request for carry forward of the amount for utilization in
subsequent years and, thus, has fulfilled the requirement as
prescribed in Explanation –I to Section 11 of the Act. Before us,
the learned DR failed to controvert this finding of the Learned
CIT(A). In our opinion, in the instant case before us, the assessee
has fulfilled the requirement of law and we do not find any reason
for restoring the matter to the Assessing Officer. We do not find
any error in finding of the Learned CIT(A) on the issue in dispute
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and accordingly we uphold the same. The ground No.2 of the
appeal of the Revenue is also dismissed.
9. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 27th April, 2021
Sd/- Sd/-
(BHAVNESH SAINI) (O.P. KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 27.04.2021 Asst. Registrar, ITAT, New Delhi
RK/- (D.T.D.S.)
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
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