2020 (8) TMI 87 - AT - Income Tax

Tax Tribunal Affirms Retrospective Benefits for Charitable Registration; Dismisses Income Disallowances for Lease and Compensation.

West Bengal Trade Promotion Organization Ltd. Versus ITO (Exemption), Ward-1 (3), Kolkata

The ITAT allowed the appellant's appeal, affirming the retrospective application of the first proviso to section 12A(2) of the Income Tax Act, thereby ... Exemption u/s 11 - appellant has been granted registration u/s 12AA - HELD THAT:- Similar/identical case of Shree Ramkrishna Samity [2015 (11) TMI 119 - ITAT KOLKATA] had examined the issue on the retrospectivity operation of the 1st proviso to Sub-section (2) of Section 12A as hold that the insertion of the proviso to section 12A(2) of the Act has to be construed as retrospective in operation.” As such the exemption claims in respect of the income for the assessment years 2003-04 to 2008-09, the assessments of which were pending on the date of registration under section 12AA of the Act on 29.10.2010 with effect from 01.04.2010, needs to be assessed under section 12A read with section 11 and 12 of the Act. As the issue is squarely covered in favour of the assessee by the decision of Coordinate Bench in the assessee’s own case and there is no change in facts and law and the Revenue is unable to produce any material to controvert the above said findings. Therefore, respectfully following the decision of Co-ordinate Bench we allow grounds of appeal raised by the assessee. Issues Involved:1. Reopening of assessment for the assessment year 2009-10.2. Denial of exemption under section 11 of the Income Tax Act.3. Merger of appeals.4. Limitation on reopening due to registration under section 12AA.5. Disallowance of compensation paid to encroachers.6. Disallowance of amortization of lease rent.Issue-wise Detailed Analysis:1. Reopening of Assessment for AY 2009-10:The appellant challenged the reopening of the assessment for the assessment year 2009-10. However, since the appeal was allowed on merits, the technical ground challenging the reopening under Section 147 of the Act was rendered academic and infructuous, and hence, did not require adjudication.2. Denial of Exemption under Section 11:The appellant argued that the CIT(A) erred in denying the exemption under section 11 of the Act. The Tribunal noted that the issue was covered by its earlier decision in the appellant’s own case for AY 2011-12, where it was held that the first proviso to section 12A(2) is retrospective in operation. The Tribunal affirmed that the registration under section 12AA granted to the appellant should be considered retrospective, thus allowing the exemption claims for the pending assessments. Consequently, the Tribunal upheld the CIT(A)’s decision to extend the benefit of registration under section 12AA to AY 2011-12.3. Merger of Appeals:The appellant contended that the appeal filed on 23 April 2015 against the order dated 31 March 2015 under section 144 should be merged with Appeal No. ITA No.122/CIT(A)-25/Kol./2015-16. The Tribunal did not specifically address this issue in detail, but the overall decision rendered it moot.4. Limitation on Reopening due to Registration under Section 12AA:The appellant argued that the reopening was barred by limitation as the registration under section 12AA was granted on 03.05.2013, and the notice for reopening was issued on 27.03.2014. The Tribunal, referencing the retrospective application of the first proviso to section 12A(2), held that the benefit of the registration should apply to the assessment years for which proceedings were pending, thus supporting the appellant’s position.5. Disallowance of Compensation Paid to Encroachers:The appellant challenged the disallowance of Rs. 2,35,00,000/- paid as compensation to encroachers. The Tribunal, following its earlier decision, held that since the appellant was eligible for exemption under section 11, the expenditure incurred for charitable purposes, including the compensation paid, should be treated as an application of income for charitable objects. Hence, this ground of appeal was allowed.6. Disallowance of Amortization of Lease Rent:The appellant contested the disallowance of amortization of lease rent paid in advance, spread over five years. The Tribunal noted that with the extension of the benefit of registration under section 12AA, the expenditure incurred by the appellant would be treated as an application of income for charitable purposes. Consequently, the disallowance of amortized lease rent was dismissed.Conclusion:The Tribunal allowed the appeal of the appellant on merits, affirming the retrospective application of the first proviso to section 12A(2) and extending the benefit of registration under section 12AA to the relevant assessment years. The technical ground challenging the reopening of the assessment was rendered academic and infructuous. The Tribunal also dismissed the disallowances related to compensation paid to encroachers and amortization of lease rent, treating them as application of income for charitable purposes.Order Pronouncement:The order was pronounced on 28.07.2020, with the Tribunal noting the extraordinary situation due to the Covid-19 pandemic and lockdown, thereby excluding the lockdown days from the pronouncement period.