2014 (3) TMI 24 - AT - Income Tax

Society granted tax exemption, depreciation, and deductions; allegations dismissed.

Dy. Director of Income-tax (E) Versus Institute of Marketing and Management

Dy. Director of Income-tax (E) Versus Institute of Marketing and Management - TMI Issues Involved:1. Eligibility for exemption under Section 11 of the Income Tax Act.2. Allowance of depreciation as application of income.3. Alleged misuse of society's facilities and violation of Section 13(3).4. Alleged use of bogus bills for purchasing laptops.5. Alleged use of forged documents for claiming exemptions.6. Allowance of deduction for certain expenditures.Detailed Analysis:1. Eligibility for Exemption under Section 11 of the Income Tax Act:The CIT(A) examined the allegations of the AO regarding the violation of AICTE guidelines and found that these issues were related to the governance of the society and did not affect its charitable activities. The CIT(A) concluded that the society's activities fell within the definition of 'charitable purposes' under Section 2(15) of the Act, and the society had complied with the conditions prescribed under Section 12A. The CIT(A) held that the AO was not justified in denying the exemption under Section 11 based on these allegations.2. Allowance of Depreciation as Application of Income:The CIT(A) allowed the depreciation claimed by the society, following the judgment of the Hon'ble Delhi High Court in the case of 'Director of Income Tax vs. Vishwa Jagriti Mission'. The CIT(A) noted that depreciation is a normal expenditure incurred in the course of the activities and should be deducted while computing the income. This view was supported by other judgments, such as 'CIT vs. Tiny Tots Educational Society' and 'CIT vs. Market Committee, Pipli'.3. Alleged Misuse of Society's Facilities and Violation of Section 13(3):The CIT(A) addressed the AO's allegations regarding the misuse of society's facilities, such as cars and premises, by its office bearers. The CIT(A) found that these facilities were used for the purposes of the society, as clarified during the survey. The CIT(A) also addressed the issue of relatives holding positions in the society, stating that there is no provision in the Income Tax Act prohibiting such arrangements. The CIT(A) concluded that the AO's allegations were not substantiated and did not justify denying the exemption under Section 11.4. Alleged Use of Bogus Bills for Purchasing Laptops:The CIT(A) examined the AO's allegation that 260 laptops were wrongly claimed as fixed assets and found it untenable. The CIT(A) clarified that whether the laptops were considered as expenditure or fixed assets, the society was eligible to claim the amount as an application of its income. The CIT(A) found no merit in the AO's allegation.5. Alleged Use of Forged Documents for Claiming Exemptions:The CIT(A) addressed the AO's allegations regarding the use of forged documents and found that the society had complied with the conditions prescribed under Section 12A. The CIT(A) concluded that the AO's allegations were not substantiated and did not justify denying the exemption under Section 11.6. Allowance of Deduction for Certain Expenditures:The CIT(A) examined the AO's disallowance of certain expenditures, such as payments to suppliers and service providers, and found that these payments were made by account payee cheques. The CIT(A) noted that the AO had not brought any material evidence to substantiate the allegations. The CIT(A) concluded that the society was eligible for the deduction of these expenditures.Conclusion:The CIT(A) upheld the eligibility of the society for exemption under Section 11 of the Income Tax Act, allowed the depreciation claimed by the society, and rejected the AO's allegations regarding the misuse of facilities, use of bogus bills, and forged documents. The CIT(A) also allowed the deduction for certain expenditures, finding no merit in the AO's allegations. The Tribunal agreed with the CIT(A)'s findings and rejected the Department's grounds of appeal.