TaxTMI 
TaxTMI 
TaxTMI 
2020 (4) TMI 393
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....l, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under. I.T.A. 376/Viz/2019, A.Y.2013-14 2. Brief facts of the case are that in this case, the assessments were completed originally u/s 143(3) of the Income Tax Act, 1961 (in short 'Act') by an order dated 31.03.2016. The assessee filed the returns of income admitting Nil income claiming deduction u/s 10(23C) of the Act. The Assessing Officer (AO) has taken up the case for scrutiny u/s 143(3) and rejected the assessee's claim of exemption u/s 10(23C), 11,12&13 and made the following additions to the returned income : (a) Excess income over expenditure - Rs. 5,96,56,184 (b) Disallowance of depreciation - Rs. 6,99,55,960 3. Against which the assessee went on appeal before the CIT(A) and the Ld.CIT(A), in appeal No.10290/CIT(A)/VJA/2016-17 dated 01.03.2018 held that the assessee is entitled for exemption and the AO was directed to allow the exemption u/s 11,12,&13 and 10(23C)(iv) of the Act. However, in respect of assessee's claim for depreciation u/s 32, the Ld.CIT(A) directed the AO to allow the claim of the assessee on whose value of assets the assessee did not cl....
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....he application of judgement of Hon'ble Supreme Court. The Ld.CIT(A) observed that since, the appeal is against the consequential order, the decision of Hon'ble Supreme Court in the case of CIT Vs. Rajasthan and Gujarathi Charitable Foundation Poona (supra) has no application. The Ld.CIT(A) has reexamined the entire issue of exemption u/s 10(23C),11, 12 and 13 and observed that when the assessee is entitled for exemption u/s 11 there would be no taxable income, if the assessee applies the income to the extent of 85% of the revenue, even if the depreciation is not taken as application of income. The Ld.CIT(A) during the appeal verified the receipts and application of income during the year and found that against the receipts of Rs. 29.43 crores, the assessee had applied the income to the extent of Rs. 23.25 crores and shortfall was only Rs. 1.76 crores as under : Particulars Amount (Rs.) Total receipts as per Income and Expenditure account 29,43,29,724 Application of income required to the extent of 85% of the above for being eligible for the exemption 25,01,80,265 Application of income during the year : Revenue expenditure debited to Income & Expenditure account incl....
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....s of accounts and furnished the entire information required before the AO. The assessee also claimed exemption u/s 10(23C) which was granted by the CCIT, Hyderabad III vide letter dated 27/02/2009 with effect from 2008-09 and subsequently no order was passed by the Ld.CIT withdrawing the benefit allowed u/s 10(23C), therefore argued that the assessee continued to enjoy the exemption u/s 10(23C). Even though, there was no cancellation order withdrawing the benefit u/s 10(23C),11 and 12, the AO held that the assessee is not entitled for exemption u/s 11, 12 and 10(23C) and passed the order rejecting the assessee's claim. On appeal before the CIT(A), the Ld.CIT(A) partly allowed the appeal and directed the AO to allow exemption u/s 11, 12 and 10(23C) and directed the AO to restrict the depreciation on assets which were not claimed as application of income. The Ld.AR argued that even if the depreciation is not allowed on assets which were claimed as application of income, the assessee is entitled for exemption u/s 10(23C), 11 and 12, since, the assessee had applied the income to the extent of 85% of the income and taxable income works out to Nil. Therefore, without verifying the fact ....
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....of income declaring Nil income, the AO has assessed the income of Rs. 6,99,55,960/- without giving finding on exemption allowed u/s 10(23C), 11, 12 and the depreciation. Therefore, we observe that the consequential order passed by the AO is without application of mind and without applying the provisions of the law. The Ld.CIT(A) while giving the finding that the AO has not carried out the directions of the Ld. CIT(A), examined the issue with regard to allowability of exemption u/s 10(23C), section 10, 11, 12 and 13 and given a finding that the assessee has fulfilled the requirement of application of 85% of income during the year, even if the depreciation claim of the assessee is not taken in to consideration for application of income and held that the taxable income would work out to Rs.Nil. For the sake of clarity and convenience, we extract relevant part of the order of the Ld. CIT(A) which reads as under : para 23, 28, 29, 30, 31, 34, 37, 38 and 39. "23. It was also contended by the assessee that the AO failed to note that when exemption u/s 11is allowed as per the directions of the CIT(A), there can be no taxable income if there is application of income to the extent of 85% o....
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....erefore become final. The subject matter of the present appeal is the correctness of the consequential order passed by the AO in pursuance of the said direction of the CIT(A) and not the said direction itself. Hence, this contention of the assessee is held to be without any merit. 29. In view of the discussion above, it is held that the extent of depreciation to be treated as application of income for the year, while working out the exemption to be allowed to the assessee u/s. 11 and sec. 10(23C)(iv), is required to be adopted at Rs.Nil only. 30. The next issue for examination is the extent of eligible exemption u/s. 11 of the Act, when the depreciation of Rs. 6,99,55,950/- is not considered as application of income. As per the provisions of sec. 11(1)(a) of the Act, the entire income is exempt if there is application of income to the extent of 85% of the income during the year. In the assessee's case, the aggregate receipts during the year as per the Income & Expenditure account amounted to Rs. 29,43,29,724/-. Hence, the application of income required to be made being 85% of the same works out to Rs. 25,01,80,255/-. The application of income made by the assessee during the....
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..... 6,18,11,369/-. It is therefore evident that the funds accumulated by the assessee, including the accumulation made in excess of 15%, have been invested/ deposited in the specified modes. In view of this, it is seen that the assessee has fulfilled the conditions laid down in third proviso to Sec. 10(23C) for claiming exemption With regard to its entire income. Accordingly, it is held that the assessee is eligible for exemption of its entire income u/s. 10(23C)(iv) of the Act. 39. As can be seen from the foregoing discussion, the income of the assessee is taxable to the extent of Rs. 1,76,61,910/-, if the provisions of sec. 11 are invoked. On the other hand, the entire income of the assessee is eligible for exemption, if the provisions of sec. 10(23C)(iv) are invoked. Since the assessee was held to be eligible for the benefit of exemption both under section 11 and section 10(23C)(fv) by the CIT(A) in the appellate order dated 01.03.2018, the exemption section which is more beneficial to the assessee is required to be invoked. Consequently, the provisions of section 10(23C)(iv) are required to be invoked. On applying the said provisions, it is held that the entire, income of the a....
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....f Rs. 61,21,693/- in the application of income by the assessee in relation to the requirement of application of 85% of the income, as already discussed earlier. The said amount of shortfall can be considered to have been accumulated by the assessee for application in the subsequent five years, provided the assessee has invested the said funds in the specified modes. One of the modes specified in sec. 11(5) is making of deposits in banks. However, on perusal of the balance sheets of the assessee as On 31.03.2014 and 31.032013, it is seen that the fixed deposits held by the assessee in banks amounted to Rs. 56,64,81,675/- as on 31.03.2014 as against the fixed assets of Rs. 61,42,88,746/- as on 31.03.2013. Thus, it is seen that there is net increase in the fixed deposits held by the assessee to the extent of Rs. 4,78,07,071/- during the year. Hence, it cannot be considered that the assessee has deposited the accumulated funds of Rs. 61,21,693/-, over and above the normal accumulation of 15% of the income, in the mode specified in sec. 11(5) of the Act. In view of this, it is seen that the assessee has not fulfilled the condition laid down in third proviso to Sec. 10(23C) for claiming ....