TaxTMI 
TaxTMI 
2025 (2) TMI 325
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.... jurisdictional notice under section 143(2), for initiating the assessment related proceedings had been issued without there being any of expression of opinion by the Assessing Officer, a mandatory requirement, should have held that assessment order dated 19.12.2017 itself, was void ab-initio. (2) On a due consideration of the facts and circumstances of the case, NFAC/ld. CIT(A) should have quashed the reassessment order dated 19.12.2017, on the grounds that Accumulation of 15% was to be computed on the basis of gross receipts and not net income. (3) In any case, the NFAC/ld. CIT(A) has erred in law and on facts, in upholding the validity of method adopted by the ld. Assessing Officer, in computing 'accumulation' under section II, as the same was not based on methodology as laid down in Act; (4) the authorities below have erred in law and on facts in holding/upholding that (i) loans aggregating Rs. 22,00,00,000/ - as had been received by the appellant under ADIP Scheme, from Banks, were applied for Charitable Purposes and were taken as part of "Receipt" when the same had been raised; (ii) repayment of the same was taken as "Application" in subsequent years as....
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....ed the computation of income submitted by the assessee and he noticed that the assessee has computed claim of deduction u/s 11(1) of the Act on the total sales receipts, grants received from the Government and other income earned by the assessee in the form of interest etc. He found that the above method of computation was not correct and observed that the assessee is required to compute deduction on the income derived from its properties and grants etc. The Assessing Officer reproduced income and expenditure for the year ended on 31.03.2015 as under :- S. No. Particulars Note No. For year ended 31.03.15 For year ended 31.03.14 Continuing operations A Income (i) Revenue from Operations 14 16270.26 16,507.62 (ii) Less : Discount 14 55.66 55.24 (iii) Revenue from Operations 16,214.60 16,452.38 (iv) Other income 15 1,070.79 772.22 Total Revenue 17,285.39 17.224.60 B Expenses (i) Cost of material consumed 16a 8372.30 8424.77 (ii) Changes to inventories of finished goods & work in progress 16b 1.19 (530.18) (iii) Employee benefits expenses ....
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....cial statements, it is noted that "in accordance to ADIP Scheme of Government of India, a loan of Rs. 22 crores was taken by the corporation and receipts of such loan which was repaid from the ADIP Funds released in the Financial Year 2015-16 was considered as receipts against the receivable grant-in-aid to be released by Ministry and has been disclosed as liability accordingly." The AO observed that the assessee has itself clarified that this amount of Rs. 22 crores was loan and not the grant which can be included in the income for the purpose of claim of deduction of 15%. 9. Further he observed that from the plain reading of section 11(1) of the Act that the assessee should compute 15% on entire turnover of the activities as carried out by it but the same is needed to be recomputed on the income derived from the properties held by the assessee as well as voluntary donations/grants etc.. Therefore, the computation of 15% deduction was recomputed by the AO as under:- S. No. 1 Income as per Income Expenditure account 31,65,38,000 Addition (i) Depreciation 1,54,88,000 (ii) Provision against bad and doubt....
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....rder at para 6.1. After considering the detailed submissions, ld. CIT (A) sustained the additions made by the AO with the following observations :- "I have perused the penalty order and other relevant orders, grounds of appeal and submissions filed by the appellant. I find from the assessment order that the AO has computed the 15% amount eligible for deduction i.e. allowable accumulation Rs. 15,83,43,300/- whereas the appellant has computed the same at Rs. 40,02,92,460/-. I find that the AO has computed the allowable accumulation amount on the profit and gains derived from the incidental business of the charitable trust whereas the appellant has computed the same on the gross receipts of the trust. I find that the approach adopted by the AO is as per the provisions of section 11(1)(a) of the IT Act and is found to be correct. In this regard I find that Hon'ble ITAT Ahmadabad in the very recent decision dated 13.02.2023 in the case of Shree Bhartimaiya Memorial Foundation Vs ACIT (ITA No.369/Ahd/2020) for AY 2016-17 held that only profit and gains derived from the incidental business of charitable-trust would qualify as income for computing statutorily allowed accumulation of 15% ....
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.... thereof shall be paid or transferred directly or indirectly to its members (100% share holding in the company is that of the Central Government). It filed its return under section 139(1), in time, showing income at Rs. NIL, after claiming exemption under section 11 of the Act, on the strength of the registration u/ s. 12AA granted by the Ld. Commissioner of Income-tax-II, Kanpur vide certificate dated OS.12.2008 w.e.f. 30.11.1972 in pursuance of an order dated1S.09.2008 passed by the Hon'ble Tribunal in ITA No.579jLUC/2008. It is stated that said order of Hon'ble ITAT has since been affirmed, on revenue's appeal, by the Hon'ble Allahabad High Court also, vide judgment and order dated 06.11.2017. 5. The appellant was set up with a noble and benevolent objective which fall in the category of "relief to the poors", "medical relief", and "education" as explained hereinafter. 6.1 Relief to the poors: The ALIMCO was established by the Government of India with the facility of production of artificial limbs and components and rehabilitation aids and associated appliance for disabled people to rehabilitate them on low cost and by providing quality products. Such p....
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....s movement on the parallel bar platform. If minor correction is required in the prepared assistive device then medical officer will do otherwise he will be provided next date for device to be fitted. As per norms the patient will move for registration and complete the required informations etc. for free cost appliances on the basis of income group:- i) Patient ID and proof of address; ii) Income certificate; iii) Disability certificate issued by Chief Medical Officer of related district; and iv) 2 Nos. photograph showing disability. 6.4 Income certificate is being considered to provide the modern assistive devices for all categories of patients both physical and mental and multiple disability of patient on free of cost. The amount of assistance will be as follows accordingly to the scheme 'Assistance to Disabled Persons' (ADP), for purchase/fitting of aids/ appliance of Government of India, Ministry of Social Justice and Empowerment, New Delhi. Total Income Amount of Assistance a) Upto Rs. 15,000/- per month Full cost of aid/appliance b) Rs. 15,000/- to Rs. 20,000/- per month 50% of the cost of aid/appliance 7.1 Rehabilitation (Medi....
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....individuals with hearing impairments Advice about environmental aids Lip reading instructions Tinnitus management. Further 'aids' would include matters relating to Balance Rehabilitation. Cochlea Implants, working with people with hearing disabilities or Dual Sensory Loss. THE BASIC AND OVERALL OBJECTIVE OF PROVIDING ALL THESE AIDS AND APPLIANCES IS TO COVER ALL THE AREAS OF REHABILITATION - SOCIAL VOCATIONAL AND MEDICAL, THUS MAKING THE QUALITY OF LIFE SIGNIFICANTLY BETTER AND BETTER FOR THE PATIENTS. 7.2 To meet the objective of Rehabilitation, a branch of 'Medical Science', a manufacturing facility was established at 13 Km stone at G.T. Road, Kanpur and the factory was equipped with sophisticated plant and machinery required for manufacture. The production was planned in a scientific manner. A Quality Control department adequately equipped with testing facilities ensured that the products of the company were in keeping with the specifications laid down by the Bureau of Indian Standards (BIS) and other International agencies. For attainment of the said objects, it has been manufacturing following products:- Sl. No. Name of the product (i) Tricycle ....
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....t with effect from March 01, 1978, no tax under the Sales Tax Act would be payable on the sale of Artificial Limbs and Rehabilitation aids by the Artificial Limbs Manufacturing Corporation of India, Kanpur. (b) Similarly, the aids and appliances manufactured by the company are not liable to levy of excise duty under the Excise Law. (c) A scheme of Assistance to Disabled Persons" ADIP" for short for purchase/ fitting of aids/appliances (popularly named "ADIP") was launched by - the Central Government through ALlMCO as one of its implementing agency. The main objective of this scheme was to assist the needy disabled person in procuring durable, sophisticated and scientifically manufactured, modern, standard aids and appliances that can promote their physical, social and psychological rehabilitation by reducing the effects of disabilities and enhance their economic potential. (d) The following agencies were given entitlement for implementing the ADIP scheme:- (i) Societies registered under the Societies Registration Act; Registered Charitable Trusts District Rural Development Agencies, Indian Red Cross Societies and other autonomous bodies headed by District Collector/Chief Ex....
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....g Officer in para 6.1 of the assessment order after reproducing the Income and Expenditure Account of the appellant for the year ended on 31.03.2015 observed that - "The assessee has itself shown its income derived from the activities of manufactures and supplies of the artificial limbs at Rs. 3165.38 lacs this year." Further, in para 6.3 of the assessment order after reproducing the provisions of section 11(1), the Assessing Officer observed as under: "From the plain reading of the above section, it is clear that the assessee should not compute 15% on entire turnover of the activities as carried out by it, but the same is needed to be computed on the income derived from the properties held by the assessee as well as the voluntary donations/grants etc." 12.2 Thus, Assessing Officer held that the accumulation of 15% as provided in the Act should be computed on the net income of Rs. 33,26,52,000 (Table in para 6.3 at page 6 of assessment order) instead of gross revenue from operation of Rs. 172,85,39,401 . (162,14,59,947 + 10,70,79,454) at page 12 of PB. Consequently, the Assessing Officer ignored the application of income towards expenditure of Rs. 139,58,8....
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....relied upon by the ld. CIT(A) has no application in the facts of the present case. Wherein, the manufacturing and distribution activity of the appellant is inextricably linked up and intertwined with 'medical relief', 'education' and 'relief to the poors' and not an incidental activity. 12.5 It will not be out of place to mention that more than 90% of appellant's revenue from operation is from State/Central Government agencies only and only a very small fraction is through dealers who pursued and procure the orders from the States where the appellant is not able to reach. 12.6 Further, in support of appellant's contention reliance is placed on the decision of Hon'ble Apex Court in the case of CIT vs. Programme for Community Organization [2001] 248 ITR 1 (SC) wherein the issue at hand was explained very lucidly in para 3 & 4 as under: "3. The question that really requires consideration is whether, for the purposes of section 11(1)(a) of the Income-tax Act, 1961 ('the Act'), the amount for the grant of exemption of twenty-five per cent should be the income of the trust or it should be its total income determined for the purposes of as....
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....ision of Kerala High Court in CIT vs. Programme for Community Organization [1997] 228 ITR 620 (Ker.) which was upheld by the Hon'ble Supreme Court since reported in [2001] 248 ITR 1 (SC), it was observed and held in para 9 as under: "9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon'ble Supreme Court in the case of Programme for Community Organization (supra). In the decision, Their Lordships, after taking note of provisions of section 11(1)(a) have held as under: "Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty five per cent of its income derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of Rs. 2,57,376, would constitute its property and it is entitled to accumulate twenty five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent of Rs. 87,010. For the aforesaid reasons, the civil appeal is dismissed." It is clear from the above that deduction of twenty five per ....
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....e to go to the stage of income before application thereof and take into account 25% of such income. Their Lordships have pointed that the same has to be taken on "Commercial" basis and not "total income" as computed under the Income-tax Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs. 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of Their Lordships of the Supreme Court it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the present case is Rs. 3,42,174. Twenty five per cent of the above income is to be allowed as a deduction. Similar view has also been taken by the Hon'ble Madhya Pradesh High Court in Parsi Zorastrian Anjuman Trust v. CIT [1987] 163 ITR 8321. No reason on whatsoever has been given by the revenue authorities for deducting Rs. 2,17,126 in this case for purposes of section 11(1)(a). The decision....
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....ed to accumulate or set apart up to 25 per cent of its income, which was subject to fulfillment of other conditions. While calculating the aforesaid 25 per cent, the important question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the IT AT on the issue held as follows:- "9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11 (1)( a), have held as under: "Having regard to the plain language of the above provision, it is clear that a charitable or religious trust is entitled to accumulate twenty-five per cent of its income derived from property held under trust. For....
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....n held that as per the statutory language of the above section the income which is to be taken for purpose of accumulation is the income derived by the trust from property. If both the decisions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11 (1), we are to go to the stage of income before application thereof and taken into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on "commercial" basis and not "total income" as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs. 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are in the nature of application of income are to be excluded. The income available to the assessee before it was applied is directed to be taken and the same in the pres....
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....ation of income to the extent of 15% of the income is to be calculated on the gross receipts. We therefore see no reason to interfere in the order passed by the Ld. CIT(A) holding so. The decision referred to by the Ld.DR in the case of Escorts Ltd. (supra) , we find has been dealt with by the Ld.CIT(A) pointing out that it pertained to a different issue relating to deduction u/s 35(2)(iv) of the Act. Ld.DR did not controvert this finding of the Ld.CIT(A) before us. Therefore the case law relied upon by the Ld.DR merits no consideration. 10.1 The grounds of appeal raised by the Revenue are therefore dismissed." 12.12 It is also significant to mention here that in a recently completed assessment order passed under section 143(3) r.w.s. 254 of the Act relating to AYs 2013-14 and 2014-15 dated 11.12.2019 & 12.12.2019 (page 67-68 & 69-70 of PB) respectively, the Assessing Officer himself computed and allowed the benefit of exemption under section 11(1)(a) on gross income of the appellant. 12.13 Similarly, even in the regular assessment order for the AY 2017-18 passed under section 143(3) on 10.12.2019 (after the passing of assessment orders in the present appeal), the Assessing O....
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....s grant and has shown as its income while filing its return. However, in the assessment order Assessing Officer has held that such loan cannot be considered as income. With utmost respect it is submitted that the treatment given by the appellant is correct particularly when the government itself has disbursed the funds in the next financial year on this score by terming it as "For recoupment loan taken during 2014-15: Rs. 2200.00 Lakh" vide letter dated 12.06.2015. Accordingly, no fault should have been found in the treatment given by the appellant during the year under appeal. 13.3 In any case, while reducing receipts on account of aforesaid loan of Rs. 22 crores, Assessing Officer also reduced the utilization of grant/ application of funds, without appreciating that under such circumstances the actual application for charitable purposes will not be affected, as the application for charitable purposes would be out of loan funds instead of grant. Besides, Assessing Officer failed to consider the ADIP interest transferred of Rs. 1,28,66,998/- while computing 'Revenue Application' in the Table given in para 6.4 at page 7 of the assessment order. 13.4 Aft....
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....and arithmetical infirmities in the working made for application of income. 15.1 As regards (i) of para 14 above, while passing assessment order for AY 2016-17 the Assessing Officer in para 7.1 at page 4-5 of the assessment order after reproducing the Income and Expenditure Account of the appellant for the year ended on 31.03.2016 observed that- "The assessee has itself shown its income derived from the activities of manufactures and supplies of the artificial limbs at Rs. 4619. 94 lacs this year." Further, in para 7.3 at page 6-7 of the assessment order after reproducing the provisions of section 11(1), the Assessing Officer observed as under: "From the plain reading of the above section, it is clear that the assessee should not compute 15% on entire turnover of the activities as carried out by it, but the same is needed to be computed on the income derived from the properties held by the assessee as well as the voluntary donations/grants etc." 15.2 Thus, Assessing Officer held that the accumulation of 15% as provided in the Act should be computed on the net income of Rs. 59,72,82,000 (Table in para 7.3 at page 8 of assessment order) instead of gross revenue from o....
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....cal officers having good knowledge of fitting of limbs and training to patients is an integrated process and cannot be said to be business incidental to charity. Therefore, the decision relied upon by the ld. CIT(A) has no application in the facts of the present case. Wherein, the manufacturing and distribution activity of the appellant is inextricably linked up and intertwined with 'medical relief', 'education' and 'relief to the poors' and not an incidental activity. 15.5 It will not be out of place to mention that more than 90% of appellant's revenue from operation is from State/Central Government agencies only and only a very small fraction is through dealers who pursued and procure the orders from the States where the appellant is not able to reach. 15.6 Further for the sake of brevity, submission made in para 12.6 to 12.14 above, are reiterated and relied upon here. 16.1 As regards (ii) of para 14 above, while passing assessment order for AY 2016- 17 the Assessing Officer failed to allow the benefit of accumulation and set apart Rs. 8.00 crores for which Form No. 10 stood filed by the appellant (page 56-58 of PB). 16.2 The aforesaid i....
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.... framed by the Government, and the loan raised was specifically recouped by the Government in the next year i.e., in F.Y. 2016-17. Under such circumstances appellant assessee in a very bona fide manner treated the said loan as grant and has shown it as its income while filing its return. However, in the assessment order Assessing Officer has held that such loan cannot be considered as income. With utmost respect it is submitted that the treatment given by the appellant is correct particularly when the government itself has disbursed the funds in the next financial year on this score by terming it as "For recoupment loan taken during 2015- 16. Accordingly, no fault should have been found in the treatment given by the appellant during the year under appeal. 17.3 In any case, while reducing receipts on account of aforesaid loan of Rs. 21.63 crores, Assessing Officer also reduced the utilization of grant/ application of funds, without appreciating that under such circumstances the actual application far charitable purposes will not be affected, as the application for charitable purposes would be out of loan funds instead of grant. Besides, Assessing Officer failed to consider t....
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.... Buyer Category Sales of 2014-15 %age share 2014-15 Sales of 2015-16 %age share 2015-16 National Institute 11.13 6.84% 5.93 3.13% ADIP & Cochlear 65.21 40.08% 84.45 44.60% SSA (60%) 31.79 19.54% 35.65 18.83% SSA (40%) 21.79 13.02% 22.83 12.06% State Govt. Direct Purchases 9.47 5.82% 7.09 3.74% Dealers, Fabrication 7.63 4.69% 12.74 6.73% CSR Export, Bilateral, Scrap & Others 16.28 10.01% 20.67 10.91% %TOTAL 162.70 100.00% 189.36 100.00% 16. On the other hand, ld. DR for the Revenue objected to the submissions of the ld. AR for the assessee and he submitted and supported the findings of lower authorities. In this regard, he relied on the decision of ITO vs. Secretary, Agriculture Produce Marketing Committee (2011) 128 ITD 166 (Bang.) and he submitted that the facts in the above case are that assessee has computed income available for accumulation u/s 11(1)(a) of the Act on gross receipts. Further the AO recomputed the gross receipts with reference to income computed in commercial basis/sense and not with reference to gross receipts. Accordingly, he computed the income available for accumulation u/s 11(1)(a) on commercial principles and ac....
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....rust/institution. For the purpose of section 11(1) of the Act, the various courts have held that the direct revenue generated by the institution and net income from the incidental activities has to be considered for the purpose of applying provisions of section 11(1) of the Act. Therefore, from the various decisions rendered by the various courts, the controversy of determining the eligible income for the purpose of section 11(1) is settled. However, the same cannot be applied universally and it will change according to the relevant facts in the particular case. 18. In the given case, we observed that the main activities and purpose of establishing the institution is to serve the disabled persons with affordable prices of various artificial limbs. If that be the case, the whole operation carried on by the assessee and the revenue generated is to be considered as applied for the charitable purpose. We observe that the Special Bench of ITAT Mumbai Bench in the case of Bai Sonabai Hirji Agiary Trust (supra) in which the Special bench has relied on the decision of Hon'ble Supreme Court in the case of Programme for Community Organization (supra) held that the donations received by the ....
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....2050.00 Lakhs Grants from SIPDA Scheme Rs. 24.85 Lakhs Grants from ADIP Awareness Camp Rs. 4.08 Lakhs Total Income as per Section 11(1) Rs. 24515.09 Lakhs 15% allowable accumulation Rs. 3677.26 Lakhs The Application of income: (extracted from Profit and loss Statement) Cost of material and establishment Rs. 14120.01 Lakhs Less: Depreciation Rs. 154.88 Lakhs Net cost of production Rs. 13965.13 Lakhs ADIP Scheme Rs. 5492.83 Lakhs ADIP-SSA Scheme Rs. 1878.73 Lakhs Addition of Fixed assets Rs. 193.98 Lakhs Addition in CWIP Rs. 47.04 Lakhs Total Application of Income Rs. 21577.71 Lakhs Net Accumulation for the year Rs. 2937.38 Lakhs From the above it is clear that the assessee has actually utilized the income of trust more than the 85% of the income earned by the assessee during the year. The stand of the lower authorities on this issue is not as per the various judicial precedents. In our view, the above view was supported by the decision of ITAT Bangalore Bench in B S & G Foundation (ITA No. 884/Bang/2016). The relevant ratio is reproduced below: "4.3.1 We have heard the rival contentions and perused and carefully considered the material on record; includ....
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....prevailed at that point of time, the assessee had to apply 75 per cent of its income for the objects and purposes of the trust and the assessee was permitted to accumulate or set apart up to 25 per cent of its income, which was subject to fulfillment of other conditions. While calculating the aforesaid 25 per cent, the important question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held as follows:- "9. Coming to the merits of the issue, we are of the view that the same is clearly covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. Programme for Community Organization (supra). In the decision, their Lordships, after taking note of provisions of s. 11(1)(a), have held as under: "Having regard to the plain language of the above provision,....
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....eir Lordships in the above case have emphasized on the clear and unambiguous language of s. 11(1)(a) and decided the matter on the basis of the same. It has been held that as per the statutory language of the above section the income which is to be taken for purpose of accumulation is the income derived by the trust from property. If both the decisions are carefully read, it becomes evident that any expenditure which is in the shape of application of income is not to be taken into account. Having found that trust is entitled to exemption under s. 11(1), we are to go to the stage of income before application thereof and taken into account 25 per cent of such income. Their Lordships have pointed that the same has to be taken on "commercial" basis and not "total income" as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of Rs. 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which are....