2022 (1) TMI 86 - AT - Income Tax

Tribunal denies tax exemption, treats corpus fund receipts as income, and rejects retrospective benefits claim.

The Tribunal upheld the CIT(A)'s decision, denying the assessee exemption under Section 11 of the Income Tax Act, treating corpus fund receipts as taxable ... Exemption u/s 11 - application in form No. 10A seeking registration u/s 12AA was pending before the CIT(E) - Addition of corpus fund receipts/donations as income - HELD THAT:- On the assets side of the balance sheet, we find that the assessee has invested in different assets and from the fixed assets, the assessee has charged depreciation in the P&L Account. If the corpus has been received by the assessee for a designated purpose, the same should have utilized for that purpose only and if depreciation is charged, depreciation should be reduced from the corpus fund as well as from the fixed assets. Whereas the assessee has reduced from the current year’s receipts as per the P&L Account submitted at page 4 of paper book. Since the society is not registered u/s 12A/12AA of the Act, in our considered view, the AO/CPC has right in making the addition treating the corpus fund receipts/donations as income and the CIT(A) has confirmed the same by analyzing the issue elaborately. Therefore, we uphold the order of the CIT(A) and dismiss the grounds raised by the assessee on this issue. Issues Involved:1. Eligibility for exemption under Section 11 of the Income Tax Act.2. Treatment of Corpus Fund receipts as income.3. Application of Section 12A(2) regarding pending assessment proceedings.4. Validity of adjustments made under Section 143(1) of the Income Tax Act.Detailed Analysis:1. Eligibility for exemption under Section 11 of the Income Tax Act:The assessee argued that it should be eligible for exemption under Section 11 of the Income Tax Act, as it was granted registration under Section 12AA by the CIT (Exemptions) on 01/08/2019. However, the CIT(A) observed that the assessee was not registered under Section 12AA during the relevant assessment year (AY 2014-15) and thus was not eligible for exemption under Section 11. The CIT(A) noted that the assessee had not been approved under Section 10(23C) either, which further disqualified it from claiming the exemption. The Tribunal upheld this view, emphasizing that without registration under Section 12A/12AA, the assessee could not claim benefits under Sections 11 and 12.2. Treatment of Corpus Fund receipts as income:The assessee contended that the corpus fund receipts amounting to Rs. 31,90,180/- were capital receipts and should be exempt from tax. The CIT(A) and the Tribunal both disagreed, noting that since the assessee was not registered under Section 12A/12AA, it could not claim exemption for the corpus fund under Section 11(1)(d) of the Act. Furthermore, the Tribunal observed that the corpus fund receipts were not disclosed in the profit and loss account but were shown under the capital account in the balance sheet, which led to their inclusion in the taxable income. The Tribunal upheld the CIT(A)'s decision to treat the corpus fund receipts as taxable income.3. Application of Section 12A(2) regarding pending assessment proceedings:The assessee argued that it should benefit from the proviso to Section 12A(2), which allows for retrospective application of Sections 11 and 12 if registration is granted during the pendency of assessment proceedings. The Tribunal, referencing the judgment of the Hon'ble Madras High Court in the case of Soundaram Chokkanathan Educational & Charitable Trust, held that the appeal before the CIT(A) against an order under Section 154 did not qualify as 'assessment proceedings pending before the Assessing Officer.' Thus, the assessee could not claim the benefits of Sections 11 and 12 retrospectively for the assessment year 2014-15.4. Validity of adjustments made under Section 143(1) of the Income Tax Act:The assessee argued that the adjustments made by the CPC under Section 143(1) were not justified. However, the Tribunal observed that the adjustments were in line with Section 143(1)(a)(ii), which allows for disallowance of incorrect claims apparent from the return. Since the assessee had claimed exemption under Section 11 without being registered under Section 12A/12AA, the CPC was justified in making the adjustments. The Tribunal upheld the CPC's action and the CIT(A)'s confirmation of the same.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the CIT(A)'s order that denied exemption under Section 11, treated corpus fund receipts as taxable income, and validated the adjustments made under Section 143(1). The Tribunal also rejected the applicability of the proviso to Section 12A(2) for retrospective benefits due to the nature of the pending proceedings.