2016 (4) TMI 512 - AT - Income Tax

Tribunal clarifies rules on administrative expenses, upholds exemption under Section 11, remits back for fresh review.

The Tribunal partially allowed the Revenue's appeal, emphasizing the need for the assessee to produce books of accounts and supporting vouchers for ... Entitlement for exemption u/s.11 - violation u/s.13(1)(d) & 13(1)(c) - Held that:- The investment of ₹ 30,00,000/- during the F.Y.2006-07, in the shares of JFSL, which is within the limits of 15% of the income, is deemed to have been made out of the 15% of the income of the trust exempted u/s. 11(1)(a) of the Act. This is the only investment made in F.Y. 2006-07 and continued during the F.Y.2007-08, which the Assessing Officer treated as a violation u/s. 13(1)(d) r.w.s. 11(5) of the Act. There are no other investments made in violation of sec. 13(1)(d) w.r.s. 11(5), brought on record by the Assessing Officer. Hence the said investments in the shares of JFSL cannot be considered as a violation u/s.13(1)(d) r.w.s. 11(5) of the Act for the purpose of denying exemption of income u/s. 11 of the Act. Therefore the Assessing Officer is not justified in denying exemption of income u/s. 11 of the Act to the assessee on this account. -Decided in favour of assessee Unaccounted loan disbursed - Held that:- Since the advances mentioned in the MIS data base are already reflected in the regular books of the assessee, if the Assessing Officer feels that the loans (based on the blank promotes/ application forms) are actually disbursed as contained in the MIS data base, the said disbursement stands explained and accounted in the books. If the Assessing Officer feels that the amounts in the MIS data base are different loans, then there is no evidence to show that the assessee actually advanced loans to the said SHGs, based on the blank pronotes / application forms. Further, even if it is presumed that there were loans advanced to the said SHGs based on the said blank pronotes/application forms, whether accounted in the books or not, still the same will not amount to violations u/s. 13(l)(c) of the Act as none of the self help groups or SHGs are the persons specified u/s. 13(3) of the Act. Thus, the Assessing Officer in not justified in coming to the conclusion that there were unaccounted loans disbursed to the SHGs etc., and treating the same as a violation u/s. 13(l)(c) of the Act. - Decided in favour of assessee Disallowance of 10% of administrative expenditure - 80% made by the AO - Held that:- Whatever assessee claimed for expenditure, the burden is on the assessee to produce necessary documents to prove the expenditure that was incurred wholly and exclusively for the purpose of carrying out the objectives of the Trust or for the purpose of business of assessee. Since the assessee has failed to produce books of accounts, the AO forced to estimate the disallowance of administrative expenditure at 80%. The CIT(A) reduced to 10% without any basis. The CIT(A) observed that disallowance of 10% is sufficient in view of the facts of the case. In our opinion, this findings of the CIT(A) is not based with any material brought on record and it is appropriate to remit the issue to the file of AO with a direction to the assessee to produce necessary books of accounts and supporting vouchers and bills to prove the expenditure incurred by the assessee and AO would decide the issue afresh. Issues Involved:1. Exemption under Section 11 of the Income Tax Act.2. Violation of Sections 13(1)(d) and 13(1)(c) of the Income Tax Act.3. Disallowance of administrative expenses.Detailed Analysis:1. Exemption under Section 11 of the Income Tax Act:The Revenue's appeal contested the CIT(A)'s decision to grant exemption under Section 11, arguing violations under Sections 13(1)(d) and 13(1)(c). The assessee, a registered trust engaged in micro-financing, filed its return for AY 2008-09, claiming exemption under Section 11. The AO denied this exemption, citing investments in shares of M/s. Jagannath Financial Services Ltd. (JFSL) as a violation of Section 13(1)(d) read with Section 11(5). The CIT(A) observed that the trust had applied 85% of its income for its objects, and the remaining 15% was exempt under Section 11(1)(a), not requiring investment in specified modes under Section 11(5). Thus, the investment of Rs. 30,00,000 in JFSL shares was within the exempted 15% and did not violate Section 13(1)(d).2. Violation of Sections 13(1)(d) and 13(1)(c) of the Income Tax Act:The AO noted that the trust failed to collect referral charges from JFSL, a violation under Section 13(1)(c). However, the CIT(A) found that the blank signed pronotes and application forms did not constitute actual loan disbursements due to a lack of funds. The MIS data reflected previous loans properly accounted for in the books. Even if loans were presumed based on blank pronotes, they did not amount to violations under Section 13(1)(c) as the self-help groups (SHGs) were not specified persons under Section 13(3). Regarding the referral fee, the CIT(A) noted that the trust collected the correct amount based on average loans outstanding, not the year-end balance, thus no short collection occurred.3. Disallowance of Administrative Expenses:The AO disallowed 80% of the trust's administrative expenses, citing a lack of detailed evidence. The CIT(A) found this disallowance unreasonable, reducing it to 10% due to the nature of the trust's activities. The CIT(A) directed the AO to exclude Rs. 15,46,124 from the application of income while computing the 85% under Section 11(1). The Tribunal noted the assessee's failure to produce books for examination and remitted the issue back to the AO, directing the assessee to provide necessary documentation to substantiate the expenses.Conclusion:The Tribunal partially allowed the Revenue's appeal, emphasizing the need for the assessee to produce books of accounts and supporting vouchers for administrative expenses. The Tribunal upheld the CIT(A)'s decision on exemption under Section 11, rejecting the AO's contention of violations under Sections 13(1)(d) and 13(1)(c). The matter of administrative expenses was remitted back to the AO for fresh consideration.