2014 (9) TMI 491 - AT - Income Tax

ITAT grants registration under section 12A of Income Tax Act, imposes costs on DIT(E) for misconduct.

Agricultural Market Committee Versus Director of Income Tax (Exemptions)

Agricultural Market Committee Versus Director of Income Tax (Exemptions) - TMI Issues Involved:1. Rejection of registration under section 12A of the Income Tax Act.2. Compliance with procedural requirements for registration.3. Determination of 'charitable purpose' under section 2(15) of the Act.4. Applicability of jurisdictional High Court decisions.5. Conduct of the Director of Income Tax (Exemptions) in processing applications.Detailed Analysis:1. Rejection of registration under section 12A of the Income Tax Act:The core issue in this case is the rejection of the assessee's application for registration under section 12A of the Income Tax Act. The assessee, an Agricultural Market Committee (AMC), had initially applied for registration on 30.05.2007. The application was rejected by the Director of Income Tax (Exemptions) [DIT(E)] due to the assessee's failure to furnish complete replies and produce necessary financial documents.2. Compliance with procedural requirements for registration:The ITAT had previously set aside the DIT(E)'s order due to procedural irregularities, specifically that the order was not signed by an authorized officer. The matter was remitted back to the DIT(E) with instructions to pass an order on merits after giving the assessee a reasonable opportunity. Despite this, the DIT(E) again rejected the application, citing the incomplete submission of financial statements and the inability to verify the actual activities of the AMC.3. Determination of 'charitable purpose' under section 2(15) of the Act:The DIT(E) argued that the AMC's activities did not qualify as 'charitable' under section 2(15) of the Act, as they were primarily aimed at providing marketing facilities to agriculturists, which could be seen as a commercial activity. The DIT(E) also referenced a judgment by the Andhra Pradesh High Court, which held that the activities of an Agricultural Market Committee do not fall within the ambit of 'charitable purpose'.4. Applicability of jurisdictional High Court decisions:The assessee contended that the jurisdictional High Court had previously directed the Revenue to grant registration under section 12A to similar entities. The ITAT noted that the DIT(E) had relied on a later judgment concerning a different issue (approval under section 10(23C)) and not directly related to the registration under section 12A. The ITAT emphasized that the High Court's judgment in CIT vs. Agricultural Market Committee, which supported the registration under section 12A, should be followed.5. Conduct of the Director of Income Tax (Exemptions) in processing applications:The ITAT criticized the DIT(E) for rejecting the registration based on extraneous considerations and not adhering to the jurisdictional High Court's directives. The ITAT observed that the DIT(E) had a pattern of exceeding his jurisdiction and not following judicial directions, which led to unnecessary appeals. Consequently, the ITAT imposed a cost of Rs. 2000 on the DIT(E), to be recovered from his salary and paid to the assessee.Conclusion:The ITAT concluded that the DIT(E) erred in rejecting the registration under section 12A and directed the Assessing Officer to grant the registration. The appeal of the assessee was allowed, and costs were imposed on the DIT(E) for procedural misconduct.Order Pronounced:The order was pronounced in the open court on 05.09.2014.