2024 (6) TMI 726 - AT - Income Tax

Tax exemption denied for interest-free advance to specified person for agricultural land purchase under Section 13(1)(c)(ii)

Society for Human Transformation & Research Versus ITO Ward-2 (2), Delhi

The ITAT Delhi remitted the case back to the AO for fresh adjudication after the assessee's exemption under Section 11 was denied due to violation of ... Denial of Exemption u/s 11 holding that there is a violation u/s 13(1)(c) (ii) - interest free advance had been made to Divine Real-build Pvt. Ltd. which was ‘specified person’ within the meaning of Section 13(3) - It was the case of the assessee that the assessee had entered into an agreement with Divine Real Build Pvt. Ltd. for purchase of plot of land in respect of which land documents which was an agriculture land and the assessee had applied for increasing FAR to DDA which was delayed and advance given for construction was received back in installments - AO brought on record that the plot of the land for which the advanced has been made was an agricultural land on which there is no permission for construction of building or any allied activities which could be undertaken by the Assessee for the year under consideration. HELD THAT:- AR made a plea before us that the documents relied to support the argument that the Assessee’s intention were not produced before the lower authorities as they were not available at that point of time and sought for consideration of the above documents to support the argument of the Assessee's Representative, which are very much necessary to render justice. Accordingly, prayed that these evidences to be admitted and appreciated in the interest of justice. In our opinion, these documents are not available at the time of proceedings before lower authorities and these are very much required for fair adjudication of dispute between the parties. Accordingly, these documents are admitted for adjudication. Since these documents are filed for the first time before this Tribunal and the lower authority have no occasion to examine these documents on earlier occasions, while the proceedings are going on, hence, it is appropriate to remit the entire issue in dispute to the file of ld. AO to consider these documents and decide the issue afresh in the light of above. Accordingly, the issue in dispute is remitted to the file of ld. AO in both assessment years for fresh adjudication. Assessee appeal partly allowed for statistical purpose. Issues Involved:1. Confirmation of assessed income against NIL income returned.2. Denial of exemption u/s 11 due to alleged violation u/s 13(1)(c)(ii).3. Consideration of binding judgments by higher courts.4. Taxation of entire income at the maximum marginal rate.5. Legality and arbitrariness of the impugned order.Summary:Issue 1: Confirmation of Assessed IncomeThe Assessee contested the confirmation of assessed income of Rs. 74,49,530/- against NIL income returned. The Tribunal noted that the case was selected for scrutiny, and the Assessee, a registered society, had given interest-free loans/advances to a specified person, Divine Real Build Pvt. Ltd., leading to the denial of exemption u/s 11.Issue 2: Denial of Exemption u/s 11The Tribunal examined whether the CIT(A) was correct in confirming the denial of exemption u/s 11 due to a violation u/s 13(1)(c)(ii). The Assessing Officer (AO) had denied the exemption, citing interest-free advances to Divine Real Build Pvt. Ltd., a specified person u/s 13(3). The Assessee argued that the advances were for construction purposes and that delays in project approval led to the return of funds. The Tribunal found that the AO had concluded the advances were without consideration and interest-free, thus violating section 13(1)(c). The CIT(A) upheld this view, referencing the Delhi High Court's decision in Director of Income-tax (Exemption) vs. Charanjiv Charitable Trust, which held that any benefit to a specified person results in the loss of exemption.Issue 3: Consideration of Binding JudgmentsThe Assessee claimed that the CIT(A) failed to consider binding judgments from higher courts. The Tribunal noted that the CIT(A) had referenced relevant case law, including Charanjiv Charitable Trust, which supported the denial of exemption due to the violation of section 13(1)(c).Issue 4: Taxation at Maximum Marginal RateThe AO taxed the entire income of Rs. 74,49,530/- at the maximum marginal rate as per section 164(2), which was confirmed by the CIT(A). The Tribunal did not find any error in this approach, given the violation of section 13(1)(c).Issue 5: Legality and Arbitrariness of the OrderThe Assessee argued that the impugned order was arbitrary and illegal. The Tribunal, however, found that the lower authorities had followed due process and legal principles in denying the exemption and taxing the income.Remand for Fresh Adjudication:The Tribunal admitted new documents presented by the Assessee, which were not available during the lower proceedings, and remitted the issue back to the AO for fresh adjudication in light of these documents.Conclusion:The Tribunal partly allowed the appeals for statistical purposes, remitting the matter to the AO for fresh consideration based on the newly admitted documents. The order was pronounced on 29th April 2024.