2019 (6) TMI 695 - AT - Income Tax

Tribunal Overturns CIT(A) Decisions, Emphasizes Consistency & Precedents

The Tribunal allowed both appeals filed by the assessee, overturning the CIT(A)'s decisions on all grounds. It emphasized the principles of consistency, ... Exemption u/s 11 - contribution / donation to ADTA has been made without any prior agreement - HELD THAT:- Donations are never made with prior agreement and it is solely governed by the will and capabilities of the donor. It is also seen that no amount has been paid for the benefit of any person specified u/s. 13 (3) for which benefit of section 11 and 12 may be denied to the assessee. CBDT vide instruction No.1132 dated 05.01.1978 has held that the payment of a sum by one charitable trust to another for utilization by the donee trust towards its charitable objects is proper application of income for charitable purpose in the hands of the donee trust, and the donor trust will not lose exemption u/s 11 merely because the donee trust did not spent the donation during the year of receipt itself. The order of the CIT(A) upholding the action of the AO is not justified. Disallowance on account of EPF contribution of employees u/s 36(l)(va) rws 2(24)(x) - HELD THAT:- In view of the decision of Hon’ble Supreme court in the case of CIT Vs. Alom Extrusions [2009 (11) TMI 27 - SUPREME COURT] and various other decisions payments made prior to due date of filing of return as prescribed u/s. 139 (1) cannot be disallowed u/s. 36 (1) (va) r.w.s. 2 (24) (x). Since in the instant case admittedly the deposits towards EPF has been deposited prior to the due date of filing of return u/s. 139 (1) therefore, following the consistent view of the coordinate benches of the Tribunal no disallowance u/s. 36 (1) (va) r.w.s. 2 (24) (x) can be made. The ground raised by the assessee is accordingly allowed. Benefit of deemed application on account of interest accrued but not received under clause 2 of explanation to section 11 (1) - HELD THAT:- The amount of accrued interest of FDR is the income derived during the impugned assessment years but not received shall be treated as deemed to be applied. I find merit in the above arguments of the assessee. A perusal of the computation of income for the A.Y.2013-14 shows that the net surplus of ₹ 73,93,794/- includes the income of ₹ 2,81,769/- which has not actually been received. The assessee in its form No.10B in clause No.2 of annexure containing statement of particulars, has clearly mentioned that the assessee has exercised the option of clause 2 of the explanation to section 11 (1) according to which the amount of income is the income deemed to have been applied to charity/ religious purpose in India. Since the amount of interest accrued but not received is the deemed application of income under clause 2 of explanation to section 11 (1) the CIT(A) is not justified in denying the benefit of deemed application. The ground No. 4 raised by the assessee is accordingly allowed. Depreciation claim of assessee trust - HELD THAT:- Hon’ble Supreme Court in the case of CIT Vs. Rajasthan & Gujarati Charitable Foundation Poona [2017 (12) TMI 1067 - SUPREME COURT] has held that income of trust was required to be computed u/s 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of trust. Since, the issue stands decided in favour of the assessee by the decision of Hon’ble Supreme Court cited (supra) therefore, ground No. 5 of appeal raised by the assessee and additional grounds raised by the assessee are allowed. Issues Involved:1. Disallowance of development fees paid to the parent body as application of income.2. Disallowance on account of delayed deposit of Employees Provident Fund (EPF) contributions.3. Denial of benefit of deemed application of income for interest accrued but not received.4. Non-allowance of depreciation as application of income.Issue-wise Detailed Analysis:1. Disallowance of Development Fees Paid to the Parent Body as Application of Income:The assessee, a society registered under the Society Registration Act and granted registration u/s 12AA of the IT Act, filed returns declaring nil income. The AO disallowed the development fees of Rs. 20,00,000/- paid to Agra Diocesan Trust Association (ADTA), claiming the payment lacked an agreement and was a means to siphon off funds. The CIT(A) upheld this disallowance, noting that the objectives of ADTA were not proven to be the same as the assessee’s and the donation was not towards the corpus of ADTA. The Tribunal, however, found merit in the assessee's argument that such payments had been consistently allowed in previous years without disallowance. It emphasized the principle of consistency and noted that donations do not typically require prior agreements. Following the CBDT instruction No.1132, the Tribunal allowed the assessee’s appeal, overturning the CIT(A)’s decision.2. Disallowance on Account of Delayed Deposit of Employees Provident Fund (EPF) Contributions:The AO disallowed Rs. 1,39,581/- u/s 36(1)(va) r.w.s. 2(24)(x) due to delayed deposit of EPF contributions. The CIT(A) sustained the disallowance, stating the payments were made after the due date under the EPF Act. The Tribunal, referencing the Supreme Court’s decision in CIT Vs. Alom Extrusions and other judicial precedents, held that payments made before the due date of filing the return u/s 139(1) should not be disallowed. Consequently, the Tribunal allowed the assessee’s appeal on this ground.3. Denial of Benefit of Deemed Application of Income for Interest Accrued but Not Received:The AO and CIT(A) denied the benefit of deemed application of Rs. 2,81,769/- for interest accrued but not received, under clause 2 of explanation to section 11(1) of the IT Act. The Tribunal found that the assessee had exercised the option under clause 2 of explanation to section 11(1) for the accrued interest, which should be treated as deemed application of income. The Tribunal allowed the assessee’s appeal on this ground, recognizing the interest as deemed application of income.4. Non-allowance of Depreciation as Application of Income:The AO did not allow depreciation of Rs. 18,38,087/- as application of income. Although this issue was not raised before the CIT(A), the Tribunal admitted the additional ground based on the Supreme Court’s decisions in NTPC Limited Vs. CIT and Singhad Technical Education Society, which support the allowance of depreciation as application of income for charitable trusts. The Tribunal allowed the assessee’s appeal, citing the Supreme Court’s ruling in CIT Vs. Rajasthan & Gujarati Charitable Foundation Poona, which upheld the deduction of depreciation from the gross income of the trust.Conclusion:The Tribunal allowed both appeals filed by the assessee, overturning the CIT(A)’s decisions on all grounds. It emphasized the principles of consistency, the non-requirement of prior agreements for donations, and the judicial precedents supporting the allowance of EPF contributions, deemed application of income for accrued interest, and depreciation as application of income. The order was pronounced in the open court on 29.03.2019.