2013 (8) TMI 809 - AT - Income Tax

Revenue's Appeals Dismissed Upholding CIT(A) Decisions

The revenue's appeals were dismissed, affirming the CIT(A)'s decisions. The ITAT upheld that the assessee qualified for exemption under section 10(23FB) ... Exemption u/s 10(23FB) - Conditions laid by SEBI not fulfilled - CIT granted exemption - Held that:- assessee has filed consent application and the alleged violation of provisions of regulations has been settled according to the consent terms and the fact remains that the approval granted by the SEBI has not been withdrawn - AO is duty bound to enquire whether the assessee trust is registered under the Registration Act, 1908 and has been granted certificate of registration by SEBI under SEBI (Venture Capital Funds) Regulations, 1996. But his role is confined to satisfy himself with such certificates granted and not beyond - entries made in the register of independent body should be accepted as true and they should not be questioned while deciding the issue relating to the matters concluded by the entries made in such registers - Following decision of ITO Vs. Gujarat Information Technology Fund [2011 (5) TMI 572 - ITAT AHMEDABAD] - Decided against Revenue. Amendment to Section 10(23FB) - restriction or requirement regarding the source of income for grant of exemption u/s. 10(23FB) - Held that:- There is no restriction or requirement regarding the source of income for grant of exemption u/s. 10(23FB). It is only by Finance Act, 2007, w.e.f. 1 s t April, 2008, an amendment to section 10(23FB) was brought about restricting the exemption under that section to income from Investment by the Venture Capital Fund in a venture capital undertaking. For this purpose, the said clause (c) of Explanation 1 has also been amended to define 'Venture Capital Undertaking'. This amendment was made effective from 1.4.2008. By no stretch of imagination can this amendment can be considered as clarificatory applicable to earlier Assessment Year. - Decided against the revenue. Disallowance of Trusteeship and Management Fees - Non fulfillment of Venture Capital Fund Regulations - CIT deleted addition - Held that:- assessee has incurred expenditure as per the terms of the Deed and the AO has not brought out any material on record to prove that the assessee has not incurred genuine expenditure - Decided against Revenue. Issues Involved:1. Reopening of assessment under section 148.2. Denial of exemption under section 10(23FB).3. Disallowance of Trusteeship and Management Fees.Detailed Analysis:1. Reopening of Assessment under Section 148:The assessee filed its return of income for AY 2006-07, declaring a loss. The assessment was completed under section 143(3). Subsequently, the AO found that the assessee did not fulfill conditions under section 10(23FB), leading to the issuance of a notice under section 148 for income escapement. The assessee appealed against the reopening, arguing it was based on a fresh application of mind to the same facts. The CIT(A) upheld the AO's action, stating that the AO had 'reason to believe' that income had escaped assessment based on findings from AY 2007-08. The CIT(A) found no infirmity in the AO's action, deciding against the appellant.2. Denial of Exemption under Section 10(23FB):The AO denied the exemption under section 10(23FB) for AY 2007-08, citing violations of SEBI Venture Capital Fund Regulations, specifically sections 12(c) and 12(d). The CIT(A) disagreed, noting that the assessee was a registered contributory trust under the Indian Trust Act, 1882, and had a valid SEBI registration. The CIT(A) referenced the ITAT Ahmedabad decision in ITO Vs. Gujarat Information Technology Fund, which held that the assessee is entitled to exemption until SEBI withdraws the registration. The CIT(A) emphasized that the AO's view alone could not deny the exemption and that SEBI had not withdrawn the registration despite being informed of alleged violations. Therefore, the CIT(A) held the assessee eligible for exemption under section 10(23FB).The revenue appealed, arguing that the assessee did not fulfill SEBI conditions. The ITAT found no merit in this argument, noting that the alleged violations were settled according to consent terms with SEBI, and the approval had not been withdrawn. The ITAT referenced the ITAT Ahmedabad decision, which stated that the AO's role is limited to verifying the existence of SEBI registration certificates and not questioning their validity. The ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeal.3. Disallowance of Trusteeship and Management Fees:For AY 2007-08, the AO disallowed Rs. 1,50,71,080/- in Trusteeship and Management Fees, arguing that the assessee was not a true Venture Capital Fund, making these payments a diversion of funds. The CIT(A) disagreed, noting the valid SEBI registration and the lack of evidence from the AO proving the expenses were not genuine or in terms of the deed. The CIT(A) deleted the disallowance. The revenue appealed, but the ITAT upheld the CIT(A)'s decision, noting the AO failed to prove the expenses were not genuine. The ITAT dismissed the revenue's appeal.Conclusion:Both appeals by the revenue were dismissed, upholding the CIT(A)'s decisions on all issues. The ITAT confirmed that the assessee was eligible for exemption under section 10(23FB) until SEBI revoked the registration and that the disallowed expenses were genuine.