2017 (1) TMI 936 - AT - Income Tax

ITAT affirms CIT(A) decision on Section 11 exemption & Section 11(2) benefits, validates action under Section 147.

The ACIT (Exemption) Circle, Jaipur Versus M/s Jaipur Development Authority

The ITAT upheld the CIT(A)'s decision to grant exemption under Section 11, allow benefits under Section 11(2), and validate action under Section 147. The ... Eligibility of the assessee to claim exemption under section 11 and 12 - non-registration under section 12AA - Held that:- As decided by this very Bench for A.Y. 10-11, 2011-12 & 2012-13 nothing has been brought on record to suggest that besides non-registration under section 12AA, the assessee has failed to fulfil any other conditions as envisaged u/s 11, 12 and 13 of the Act by virtue of which it shall be denied the exemption under section 11 & 12 of the Act. Revenue has not disputed any of the expenses as application of income for want of fulfilment of any of the conditions specified under section 11, 12 and 13 of the Act. Regarding applicability of section 13(8), we have already held above that in view of proviso to section 2(15) not applicable in the case of the assessee, provisions of section 13(8) would not be applicable. - Decided in favour of assessee. Issues Involved:1. Exemption under Section 11 of the Income Tax Act.2. Benefits of set apart under Section 11(2) of the Income Tax Act.3. Validity of action under Section 147 of the Income Tax Act.Detailed Analysis:1. Exemption under Section 11 of the Income Tax Act:The Revenue challenged the decision of the CIT(A) allowing the exemption under Section 11 by holding that the activities of the appellant authority are charitable despite the amended provisions of Section 13(8) read with the first and second proviso of Section 2(15) of the Act. The AO initially denied the exemption under Sections 11, 12, and 13 based on the amended definition of 'charitable purposes' under Section 2(15) and the withdrawal of registration under Section 12AA by the CIT, Jaipur. However, the ITAT, Jaipur Bench restored the registration under Section 12AA effective from A.Y. 2009-10, which the AO did not accept, citing a pending appeal before the Rajasthan High Court. The CIT(A) referenced the ITAT's decision and held that the benefits under Sections 11 and 12 should be granted despite the pending departmental appeal. The ITAT upheld this view, noting that the Coordinate Bench had already examined the eligibility for exemption under Sections 11 and 12 for the relevant assessment year and subsequent years, consistently deciding in favor of the assessee.2. Benefits of set apart under Section 11(2) of the Income Tax Act:The Revenue also contested the CIT(A)'s decision to allow the benefits of set apart under Section 11(2) and the deletion of the addition of Rs. 79,76,39,913 as unspent amount. The AO argued that since the assessee was not granted exemption under Section 11, the accumulated balance should be taxed under Section 11(3)(c). The CIT(A) disagreed, referencing the ITAT's order restoring the registration under Section 12AA, and held that the benefits under Section 11(2) should be allowed. The ITAT supported this conclusion, emphasizing that the AO's reassessment proceedings occurred before the ITAT's decision restoring the registration, and no further conditions under Sections 11, 12, and 13 were unmet by the assessee.3. Validity of action under Section 147 of the Income Tax Act:The CIT(A) found the AO's action under Section 147 justified at the time of issuing the notice under Section 148, as the assessee's registration under Section 12A had been withdrawn. However, the ITAT observed that the Coordinate Bench had already determined the eligibility for exemption under Sections 11 and 12 during the original assessment proceedings and subsequent years. The reassessment proceedings were completed before the ITAT's decision restoring the registration, which the AO did not consider. Consequently, the ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal and confirming the assessee's eligibility for exemption under Section 11 and the benefits of Section 11(2).Conclusion:The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision to grant the exemption under Section 11, allow the benefits of set apart under Section 11(2), and validate the action under Section 147 based on the restored registration under Section 12AA and consistent favorable decisions for the assessee in subsequent years. The judgment emphasized the charitable nature of the assessee's activities and the consistent application of legal provisions favoring the assessee's eligibility for exemptions.