2016 (10) TMI 1381 - AT - Income Tax

ITAT rules for Assessee on exemption & interest income dispute, citing mutuality principle. AO to reconsider expense disallowance.

The ITAT ruled in favor of the Assessee regarding the disallowance of exemption under section 11 and interest income, citing the principle of mutuality ... Exemption u/s 11 - Registration u/s 12AA - Doctrine of Mutuality - Addition to the income of the assessee, the interest received from Bank, interest received on IT refund and interest received from Cable Operator simply because the interest income was received from 3rd parties - HELD THAT:- We find that assessee has been granted exemption u/s. 11 by virtue of registration u/s. 12AA granted by the CIT, Ghaziabad w.e.f. 24.4.2007 and principle of Doctrine of Mutuality has been accepted by the ITAT in assessee’s own case relying on ALL INDIA ORIENTAL BANK OF COMMERCE WELFARE SOCIETY [2003 (1) TMI 704 - DELHI HIGH COURT] as directed to grant the assessee the exemption in respect of the interest on the bank by applying the principle and doctrine of mutuality.Therefore find considerable cogency in the contention of the Assessee’s AR that the issue involved in ground nos. 1 and 2 are squarely covered by the ITAT decision as aforesaid. Allowance of expenses which were in. the nature of recurring, office and administrative expenses incurred in the course of earning income - Both the revenue authorities have not discussed this issue in their respective orders, therefore, the ground is remitted back to the file of the AO for fresh consideration, as per law, after giving adequate opportunity of being heard to the assessee. Issues:1. Disallowance of exemption u/s 11 and Doctrine of Mutuality2. Addition of interest income from bank, IT refund, and cable operator3. Disallowance of expenses amounting to Rs. 28,70,532Issue 1: Disallowance of exemption u/s 11 and Doctrine of Mutuality:The Assessee appealed against the disallowance of exemption u/s 11 by the Assessing Officer and CIT (A). The Assessee argued that exemption was not granted despite registration u/s 12AA and the Doctrine of Mutuality was accepted by the ITAT in a previous order. The ITAT referred to previous judgments, including one from the Hon'ble High Court of Karnataka, to establish that income earned from outside agencies is not covered under the principle of mutuality. However, the ITAT also cited a decision from the Hon'ble Jurisdictional High Court of Delhi, which held in favor of the Assessee, directing the AO to grant exemption on interest income from bank F.D.Rs. Consequently, the ITAT decided in favor of the Assessee based on the principle of mutuality established in previous cases.Issue 2: Addition of Interest Income:The Assessing Officer added interest income from bank, IT refund, and cable operator to the Assessee's income. The Assessee contended that the interest income was erroneously added as it was received from third parties. The ITAT analyzed the issue and found that the interest income was indeed received from third parties. However, based on the principle of mutuality and previous judgments, the ITAT decided in favor of the Assessee, directing the AO to grant exemption on the interest income from bank F.D.Rs.Issue 3: Disallowance of Expenses:The Assessee raised a ground regarding the disallowance of expenses amounting to Rs. 28,70,532 by the lower authorities. The ITAT observed that the revenue authorities did not discuss this issue in their orders. Consequently, the ITAT remitted the matter back to the AO for fresh consideration, providing the Assessee with an adequate opportunity to present their case. The ITAT allowed the appeal of the Assessee for statistical purposes.In conclusion, the ITAT ruled in favor of the Assessee on the grounds of exemption u/s 11 and interest income based on the principle of mutuality established in previous judgments. The issue of disallowance of expenses was remitted back to the AO for reconsideration.