2023 (1) TMI 474 - AT - Income Tax

ITAT Upholds Exemptions & Expenses: Income Tax Act Sections 11, 12, 40A(7)

The DCIT (Exemptions) Pune Versus Maharashtra Academy of Engineering and Educational Research

The ITAT dismissed the Revenue's appeals, upholding the appellant's claims for exemption under sections 11 & 12 of the Income Tax Act and allowing the ... Assessment of trust - Disallowance of Provision for Gratuity u/s. 40A(7) - Revenue seeking to revive sec. 40A(7)(b) disallowance - the said provisions were not applicable to the assessee as its income was chargeable to tax under the head 'Income from other sources' - HELD THAT:- As decided in assessee own case [2017 (3) TMI 79 - ITAT PUNE], [2017 (5) TMI 1408 - ITAT PUNE] and [2017 (5) TMI 1364 - ITAT PUNE] while computing the total income of the appellant u/s. 11 of the Act, the claim of the appellant in regard to provision for gratuity should be allowed. Suffice to say, it has already on record that this tribunal's various coordinate bench's (supra) have already rejected Revenue's identical contentions in preceding assessment years in assessee's cases itself. There is no distinction on facts or law raised from the Revenue side before us. We thus adopt judicial consistency to uphold the CIT(A)'s above extracted findings deleting sec. 40A(7)(b) disallowance in very terms. The Revenue fails in its sole substantive ground. Issues:- Disallowance of exemption u/s. 11 & 12 of the Income Tax Act- Treatment of the assessee as 'Association of Persons' (AOP)- Validity of registration u/s. 12A(a)- Activities of 'World Peace Centre' and charitable nature- Disallowance of Provision for Gratuity u/s. 40A(7)Analysis:1. Exemption u/s. 11 & 12: The Revenue challenged the Assessing Officer's determination of the net taxable income and denial of exemption u/s. 11 & 12. The Revenue contended that the appellant was entitled to claim the benefit of exemption. The Assessing Officer's decision was based on cancellation of registration u/s. 12A(a), which was later restored by the ITAT. The Revenue's arguments were rejected as the appellant's registration was valid, and no violations under section 13 were found.2. Treatment as 'Association of Persons' (AOP): The Revenue erred in treating the assessee as an AOP despite valid registrations u/s. 12A(a) and 10(23C)(vi). The Assessing Officer's decision was deemed incorrect, and the appellant's eligibility for exemption u/s. 11 & 12 was upheld.3. Validity of Registration u/s. 12A(a): The Assessing Officer's decision to disallow the exemption based on the cancellation of registration u/s. 12A(a) was challenged. The ITAT's previous decisions favored the appellant, emphasizing that income for charitable trusts should be computed on a commercial basis, not as per normal tax provisions. The disallowance was overturned, and the appellant's claim for exemption was allowed.4. Activities of 'World Peace Centre' and Charitable Nature: The Assessing Officer's contention that the activities of 'World Peace Centre' were not charitable was disputed. The appellant argued that the nature of activities was charitable, and any changes in objectives were known to the authorities. The Assessing Officer's decision was found unjustified, and the appellant's eligibility for exemption u/s. 11 & 12 was confirmed.5. Disallowance of Provision for Gratuity u/s. 40A(7): The Revenue sought to disallow the provision for gratuity u/s. 40A(7), claiming it was not applicable as the income was from other sources. The CIT(A) reversed the assessment findings, allowing the provision for gratuity as expenditure. The ITAT upheld this decision, citing previous rulings and emphasizing that the income should be computed commercially for charitable trusts. The disallowance was deleted, and the Revenue's appeal failed.In conclusion, the ITAT dismissed the Revenue's twin appeals, upholding the appellant's claims for exemption u/s. 11 & 12 and allowing the provision for gratuity as expenditure under sec. 40A(7). The judgments were based on legal precedents and the commercial computation of income for charitable trusts.