2014 (2) TMI 419 - AT - Income Tax

ITAT upholds exemption and accumulation claim for AY 2009-10

Asst. CIT Gandhinagar Circle Versus Industrial Extension Bureau

The ITAT dismissed the Revenue's appeal and allowed the assessee's appeal for the Asst. Year 2009-10. The ITAT upheld the exemption u/s.11(1) and allowed ... Exemption u/s 11(1) of the Act – Interest income not shown in P&L account – Accumulation of income under Explanation-2 of section 11of the Act allowed – Held that:- There is no dispute that the mistake was committed while exercising option for allowing accumulation of income – assessee contended that such mistake is bona fide and the assessee cannot be deprived of legal claim on the basis of that the claim was not made within time, since the requirement of exercising option is directory in nature - CIT(A) ought to have considered the submissions of the assessee that the requirement of exercising option is being directory in nature, therefore a liberal approach to have been adopted – Relying upon Trustees Of Tulsidas Gopalji Charitable And Chaleshwar Temple Trust Versus Commissioner Of Income-Tax [1993 (9) TMI 75 - BOMBAY High Court] – the issue has been decided on wrong basis – Decided against Revenue and in favour of Assessee. Issues:1. Disallowance of exemption u/s.11(1) of the IT Act.2. Disallowance of accumulation claim under Explanation-2 of section 11.Issue 1: Disallowance of exemption u/s.11(1) of the IT Act:The case involves cross-appeals by the Revenue and the Assessee against the CIT(A)'s order for the Asst. Year 2009-10. The Revenue's appeal challenges the allowance of exemption u/s.11(1) of Rs.66,68,812, including interest income not shown in the Profit & Loss account. The contention was that the CIT(A) should have upheld the Assessing Officer's order disallowing the claim. However, the assessee cited a previous decision by the ITAT in favor of the assessee, which was not contested by the Departmental Representative. Consequently, the first ground of the Revenue's appeal was dismissed.Issue 2: Disallowance of accumulation claim under Explanation-2 of section 11:The second ground of the Revenue's appeal concerned the disallowance of accumulation of income of Rs.59,17,000 under Explanation-2 of section 11. The Revenue argued that the assessee did not exercise the option within the prescribed time, thus not entitled to the exemption. In response, the assessee claimed a mistake was rectified subsequently, citing legal precedents to support their argument. The ITAT analyzed the requirement of exercising the option under Explanation-2 of section 11(1) and found that the assessee had indeed exercised the option, albeit with a mistaken amount. The ITAT referred to judgments by the High Courts of Jammu & Kashmir and Bombay, stating that the requirement of exercising the option is directory in nature. The ITAT concluded that the AO had erred in deciding the issue and rejected the Revenue's ground, allowing the accumulation claim of the assessee.Final Decision:The ITAT dismissed the Revenue's appeal and allowed the assessee's appeal. The ITAT held that the Revenue's grounds lacked merit based on legal interpretations and precedents cited. The ITAT emphasized the directory nature of the requirement to exercise the option under Explanation-2 of section 11(1) and adopted a liberal approach in favor of the assessee. The judgments by the High Courts of Jammu & Kashmir and Bombay supported the ITAT's decision to reject the Revenue's grounds and uphold the accumulation claim of the assessee.This comprehensive analysis of the legal judgment covers the issues involved and the detailed reasoning provided by the ITAT in arriving at its decision.