2024 (6) TMI 794 - AT - Income Tax

Society's interest-free advances to specified persons for educational land purchase don't violate section 13(1)(c) provisions

ITAT Raipur held that advances extended by assessee society to specified persons for land purchase without interest or security did not violate section ... Exemption u/s 11 - Non-charging of interest on advance paid for the purchase of property - certain advances were extended by the Assessee’s society to specified person covered u/s 13(3) of the Act for the purchase of land without any interest or security, which according to Ld. AO was in the nature of transaction attracting provisions of section 13(1)(c) r.w.s. 13(2)(a) - HELD THAT:- Since the advances extended to specified person, pertaining to transaction of purchase were accepted as genuine business deal, no adverse inference was drawn by the CIT(E) and proceedings for cancellation of 12AA were dropped, the same cannot be treated as a transaction in violation of sec. 13(1)(c). Regarding adequate security and interest as mandated by provisions of section 13(2)(a), since the transaction pertains to purchase of land on which the assessee society has proposed to conduct its educational activities, the same does not fall under the category of money lent to a specified person, the provisions of sec. 13(2)(a) thus cannot be triggered on such transactions. Thus when the advances made towards purchase of land has been accepted by the revenue in earlier year and also in the relevant year and no addition qua the advances was proposed in the assessment in impugned orders. Impugned advances were further held as genuine and normal business transaction by the Ld CIT(E), Bhopal by dropping the proceedings of cancellation of registration u/s 12AA. Addition on account of notional interest is uncalled for, much less, on the basis of such addition denial of exemption claimed u/s 11 is a farfetched application of mind which cannot be permitted under the law. Set aside the findings of Ld. CIT(A) on the issue and direct the AO to vacate the additions made - Decided in favour of assessee. Issues Involved:1. Denial of exemption claimed u/s 11 of the Income Tax Act, 1961.2. Non-charging of interest on advance paid for the purchase of property.3. Validity of the impugned order in law and facts.Summary:Issue 1: Denial of exemption claimed u/s 11 of the Income Tax Act, 1961The assessee, a charitable institution registered u/s 12A and 80G, filed a return of income for AY 2016-17 declaring NIL income after claiming exemption u/s 11. The Ld. Assessing Officer assessed the total income at Rs. 2,36,88,981/- by denying the exemption claimed u/s 11 and made an addition of Rs. 1,82,62,151/-. The Ld. Commissioner of Income-tax (Appeals) confirmed this addition. The Tribunal observed that the advances for land purchase were accepted in earlier years and subsequent years, and the Ld. CIT(E), Bhopal, had dropped proceedings for withdrawal of registration u/s 12AA, treating the transactions as genuine. Hence, the Tribunal concluded that the denial of exemption u/s 11 was not justified.Issue 2: Non-charging of interest on advance paid for the purchase of propertyThe Ld. Assessing Officer added Rs. 45,26,830/- as notional interest on the outstanding advance paid to a specified person u/s 13(3) for the purchase of land, considering it a violation of section 13(1)(c) r.w.s. 13(2)(a). The Tribunal noted that the transaction was commercial in nature, and the Ld. CIT(E), Bhopal, had accepted it as genuine, dropping the proceedings for withdrawal of registration u/s 12AA. The Tribunal held that the calculation of notional interest and its addition to the income was unjustified and directed the AO to vacate this addition.Issue 3: Validity of the impugned order in law and factsThe Tribunal found that the observations of the Ld. CIT(A) and the findings of the Ld. AO were not sustainable. The advances for land purchase were genuine business transactions, and the denial of exemption u/s 11 based on notional interest was incorrect. The Tribunal set aside the findings of the Ld. CIT(A) and allowed the appeal of the assessee.Conclusion:The Tribunal allowed the appeal of the assessee, directing the AO to vacate the additions made and uphold the exemption claimed u/s 11 of the Income Tax Act, 1961. The order was pronounced in the open court on 02/01/2024.