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 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.

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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.

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