2022 (1) TMI 890 - AT - Income Tax

Appeal Dismissed, Assessee Prevails: Section 11 Exemption Upheld, Additions Deleted

The Dy. Commissioner of Income Tax (EX) -1 (1), Mumbai Versus The Lohar Chawl Dawoodi Bohra Merchants’ Association

The Dy. Commissioner of Income Tax (EX) -1 (1), Mumbai Versus The Lohar Chawl Dawoodi Bohra Merchants’ Association - TMI Issues Involved:1. Admission of additional evidence by CIT(A) under Rule 46A.2. Denial of exemption under Section 11 of the Income Tax Act due to alleged violation of Section 36A(3) of the Bombay Public Trust Act.3. Addition of Rs. 15,95,82,806/- under Sections 69A and 69B of the Income Tax Act.4. Applicability of Section 13(1)(b) regarding benefit to a particular religious community.5. Applicability of Sections 13(1)(c) and 13(2) regarding benefits to trustees.6. Rejection of books of accounts under Section 145 of the Income Tax Act.Issue-wise Detailed Analysis:1. Admission of Additional Evidence by CIT(A) under Rule 46A:The CIT(A) admitted additional evidence submitted by the assessee, which included confirmations from members regarding transactions. The AO did not raise any serious objections to the admission of these evidences. The Tribunal found that the CIT(A) was within his rights to admit additional evidence, especially since the AO was given an opportunity to examine the same, and the evidence supported the original claim of the assessee. Thus, the Tribunal upheld the CIT(A)'s decision to admit the additional evidence.2. Denial of Exemption under Section 11 of the Income Tax Act Due to Alleged Violation of Section 36A(3) of the Bombay Public Trust Act:The AO denied the exemption under Section 11, claiming that the assessee violated Section 36A(3) of the Bombay Public Trust Act by taking interest-free loans without the Charity Commissioner’s permission. However, the CIT(A) found that no loans were taken during the relevant year and no property of the trust was utilized for the advantage of the trustees. The Tribunal agreed with the CIT(A) that there was no violation of Section 36A(3) and upheld the exemption under Section 11.3. Addition of Rs. 15,95,82,806/- under Sections 69A and 69B of the Income Tax Act:The AO added Rs. 15,95,82,806/- under Sections 69A and 69B, attributing it to undisclosed bank accounts. The CIT(A) found that these sums were related to self-help activities of the trust, where contributions were made by members and loans were given to members without interest. The AO, in the remand report, confirmed that these activities did not generate any income. The Tribunal upheld the CIT(A)'s decision to delete the addition, noting that the contributions and loans were genuine and verified.4. Applicability of Section 13(1)(b) Regarding Benefit to a Particular Religious Community:The AO argued that the trust benefited a specific religious community, violating Section 13(1)(b). The CIT(A) found that the trust’s membership was open to any person carrying on business in a specific area, irrespective of caste. Relying on the Supreme Court’s decision in the case of Dawoodi Bohra Jamat, the Tribunal upheld the CIT(A)'s finding that the trust did not benefit a particular religious community and thus did not violate Section 13(1)(b).5. Applicability of Sections 13(1)(c) and 13(2) Regarding Benefits to Trustees:The AO claimed that the trust violated Sections 13(1)(c) and 13(2) by providing benefits to trustees. The CIT(A) found that loans were given to trustees on the same terms as other members, with no special benefits. The Tribunal upheld the CIT(A)'s decision, noting that the self-help loans did not generate income and were provided equally to all members, including trustees, without any special benefit.6. Rejection of Books of Accounts under Section 145 of the Income Tax Act:The AO rejected the books of accounts under Section 145 due to undisclosed bank accounts. The CIT(A) did not specifically adjudicate this issue. The Tribunal found that since the exemption under Section 11 was upheld and the contributions were verified, the rejection of books of accounts became academic. Thus, the Tribunal dismissed this ground.Conclusion:The Tribunal dismissed the appeal filed by the AO, upholding the CIT(A)'s order in favor of the assessee on all grounds. The exemption under Section 11 was allowed, and the additions under Sections 69A and 69B were deleted. The Tribunal also found no violation of Sections 13(1)(b), 13(1)(c), and 13(2).