TaxTMI 
TaxTMI 
2025 (8) TMI 1501
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....eby, bringing the assessee within the purview of proviso to section 2(15) of the Income Tax Act, 1961 and the assessee is not eligible for exemption u/s.11; III. The CIT(A) has erred in allowing the prior period expenses debited by the assessee to the Income & Expenditure account while the prior period expenses do not pertain to the application of funds during the current financial year i.e. 2015-16 and cannot be allowed as application of income for the A.Y.2016-17; IV. The CIT(A) has erred in allowing "assets written off" debited by the assessee to the Income & Expenditure account while "assets written off" do not qualify as application of funds during the current financial year i.e. 2015-16 and cannot be allowed as application of income for the A.Y.2016-17; V. The CIT(A) has erred in allowing payments towards electrical deposits and expenditure towards accommodation of various committees while the assessee is not eligible for exemption u/s.11 by virtue of proviso to section 2(15) r.w.s.13(8) of the Income Tax Act, 1961 for the A.Y.2016-17 and the Gross Receipts of the assessee have to be taxed C, 30% and no expenditure is allowable; VI. The CIT....
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.... g 30% and no expenditure ought to be allowed; IV. The CIT(A) has erred in allowing the prior period expenses debited by the assessee to the Income & Expenditure account while the prior period expenses do not pertain to the application of funds during the current financial year i.e. 2016-17 and cannot be allowed as application of income for the A.Y.2017-18; V. The CIT(A) has erred in allowing Workers' Welfare Cess payable to the State Government as an allowable expenditure despite the fact that the amount in question had not been paid during the F.Y.2016-17 and cannot be considered as application of income for the A.Y.2017-18; VI. The appellant craves leave to add, alter or amend all or any of the Grounds of Appeal before or at the time of the hearing of the appeal; VII. The order of the Ld.CIT(A) may be set-aside and the order of the AO may be confirmed." ITA No. 242/Bang/2024 "I. The order of Ld.CIT(A) is opposed to facts and circumstances of the case; II. The CIT(A) has erred in holding that the assessee is not covered by the proviso to section 2(15) r.w.s.13(8) of the Income Tax Act, 1961 and is eligible to claim exem....
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....e common question involved are whether the assessee was eligible for deduction u/s. 11 of the Act by treating the activities carried out by the assessee as a charitable activity. 4. The brief facts of the case are that the assessee is an authority created for the development of the Bangalore and came into existence from 1976. Their main purpose is to promote and secure the development of Bangalore Metropolitan area in addition to providing infrastructure facility as a general public utility. The assessee also developed various layouts and sold the said plots to the public as well as to the economically weaker sections of the society at the concessional rates. Therefore the assessee claimed that they are doing the charitable activities and not doing any trade or business to subject the assessee to tax under the provisions of the Income Tax Act. The assessee initially claimed deduction u/s. 10(20A) of the Act upto the A.Y. 2002-03 and after the deletion of the said provision, the assessee had opted for exemption u/s. 11 and 12 from the A.Y. 2004-05. The assessee also initially granted registration u/s. 12A which was later on cancelled pursuant to the amendment made to the definiti....
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....sing the assessment order. The Ld.AR also relied on the decision of the Coordinate Bench of this Tribunal in the case of Magadi Planning Authority vs. ITO in ITA Nos. 1056, 1352 & 1353/Bang/2024 dated 22/01/2025 and prayed to dismiss the appeals filed by the revenue insofar as the exemption claimed u/s. 11 and 12 of the Act. 8. The other issues raised by the department will be dealt with separately since the common issue involved in all the three appeals are initially decided. 9. The Ld.DR appearing for the revenue / appellant contended that the order of the AO is a detailed order and therefore the finding of the Ld.CIT(A) is not correct. The Ld.DR also relied on the various grounds raised in respect of the claim of exemption made u/s. 11 of the Act since the assessee is not doing any charitable activities as per section 2(15) r.w.s. 13(8) of the Act. The Ld.DR further submitted that the assessee is doing the business activities and therefore earned income out of the said business and therefore the provision 2(15) first proviso would apply to the assessee and therefore the benefit of exemption would not be available to the assessee. 10. Now let us consider the issue that w....
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....s. In coming to the above conclusion, the Tribunal found that from the financial statements of the assessee it was evident that it has expended an amount of Rs. 2095.24 lakhs on planting of one crore seedlings in the green belt area for improvement of the environment. The Assessee has expended a sum of Rs. 2997.42 lakhs towards development of lakes. The Tribunal therefore held that the Assessee carried out the activity of preservation of environment and water bodies and that the conclusion of the revenue authorities that these activities were done only to enhance the commercial value of the layout developed is untenable. 2. The Tribunal held that allotment of sites and flats to the economically weaker sections of society constitutes relief for the poor and that relief to the poor does not necessarily mean giving something free of cost to the poor. It also includes providing them things at a concessional rate. The Tribunal also embarked upon an enquiry as to whether the word "poor" can mean only those who are below the Page official poverty line or does it include all those who are economically weaker, but not necessarily below the poverty line. The Tribunal concluded that ....
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....le Apex Court went on to observe that every Association requires funds for expanding the range of its activities (for example; an Educational Institution may require additional infrastructure under which more class rooms can be set up / created). If profits are generated to support and expand these activities, then it cannot, in the view of the Hon'ble Apex Court, be held that there is a profit motive involved to deny the exemption. From the above ratio of the decision of the Hon'ble Apex Court, it is clear that it is the basic motive behind the activity, which is important to be considered; whether it is one with profit motive or not. Merely because surplus is generated from a particular activity, it cannot be said that such activity is in the nature of trade, commerce or business. What needs to be seen is, what the intent and purpose of starting such activity is. The tribunal found that BDA's embarkation of the activity of setting up of residential layouts, including the activity of sale of sites and flats, is definitely not with a view to earn profit, but to ensure planned urban development and also to accomplish a social objective of providing an opportunity to econ....
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....ority Vs. ACIT (Exemptions) (2017) 396 ITR 323 (Guj.); (ii) Jaipur Development Authority Vs. CIT (2014) 52 taxmann.com 25 (Jaipur - Trib.) (iii) Haridwar Development Authority Vs. CIT (2015) 57 taxmann.com 6 (Delhi - Trib.) (iv) CIT Vs. Lucknow Development Authority (2013) 38 taxmann.com 246 (Allahabad) (v) CIT Vs. Jodhpur Development Authority (2017) 79 Taxmann 361 (Raj.). 6. The Tribunal also held that the AO's reliance on the following decisions in support of his conclusion that the Assessee does not exist for "Charitable Purpose" was not correct because the issue involved in those cases were with regard to cancellation of registration u/s.12A of the Act. The cases referred to by the AO in this regard were as follows: (i) Jammu Development Authority Vs. UOI in ITA No.164/2012, CMA/2/2012 (J & K High Court); (ii) Punjab Urban Planning and Development Authority (103 TTJ 98) (ITAT - Chandigarh); (iii) Indore Development Authority - ITA No.366/Ind/2008 (ITAT - Indore). (iv) Improvement Trust Vs. CIT, Bhatirda (41 Taxmann.com 403) (ITAT - Amritsar). 10. In view of the aforesaid decision of t....
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....13.4 We further observe that the assessee operates under stringent Government regulation. All its receipts and expenditures are deposited into the Magadi Planning Authority Fund, and the budget is subject to approval by the State Government. The assessee's accounts are audited annually by Government agencies, and any surplus or assets, upon dissolution, revert to the State Government. These factors unequivocally demonstrate the non-commercial character of the assessee's activities. We, accordingly, concur with the assessee's argument that the imposition of income tax on its operations would contradict statutory mandate and undermine its role as a state instrumentality serving public welfare. 13.5 The AO's invocation of Section 13(8) of the Act, citing that the assessee's fee-earning activities constitute trade or business, lacks sufficient merit. The activities cited by the AO--such as layout plan approvals, betterment fees, and lake conservation fees--are intrinsic to the assessee's statutory responsibilities and do not exhibit the characteristics of a profit-driven enterprise. These fees are charged to ensure accountability and fund public welfare....
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....Gujarat High Court and also the orders of this Tribunal in the assessee's own case in respect of the A.Ys. 2012-13, 2013-14 and 2014-15 had given the following findings: 4.1.3 I have carefully perused facts of the case and arguments of both the AO and the appellant. The only issue here is whether the receipts from activities of development & sale of sites to general public by way of auction can be termed as an activity of trade/commerce/business, carried out with the intent of making profits and consequently, can the limit of 20% as per clause (ii) of proviso to section 2(15) be applied to take the appellant out of the scope of exemption u/s 11 of the Act. It is noted here that there is no doubt that the appellant is carrying out functions of General Public Utility while maintaining and constructing public roads/bridges and flyovers etc. The AO has not made out a case that the appellant is not carrying out such activities of general public utility. It is also not under contention that appellant is not functioning as per BDA 1976 (an act of State of Karnataka). The AO has not made any case that the Karnataka State had formed the appellant- trust to carry out activi....
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....lant fall under the proviso to section 2(15) of the Act. On this issue, judicial position as below is also to be noted: (a) In a very elaborate order in (2019) 104 Taxmann.com 266 (Bangalore-Trib.), Hon'ble ITAT in appellant's own case for AY 2012-13 (ITA No. 1087 & 1104/Bang/2017), vide decision dated 22/03/2019, has dealt this very issue striking down the order of CIT(A). It has been held by Hon'ble Tribunal that the fact of surplus or shortfall in income/expenditure account should not be the test for deciding the applicability of proviso to section 2(15) of the Act. It has also been held the intention to embark upon the activities undertaken by the appellant is very important factor & the case of the appellant does not fall under the proviso to section 2(15) of the Act. In the assessment order or in the remand report dated 07/09/2023, the AO has not brought out that this decision of Hon'ble ITAT has been reversed by any higher judicial forum. (b) As has been mentioned in the assessment order itself, in para 5.29 therein, Hon'ble ITAT had upheld the granting of registration u/s 12A of the Act to the appellant and thus, the a....
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.... by the AO. 4.3.1 The AO had made disallowances of Rs. 6,79,96.833/- noting that the appellant follows accrual method of accounting and hence the same had to be claimed only in the year of incurring these expenses irrespective of when the actual payment was made. The AO had also made disallowance of Rs. 9,97,86.686/- also claimed by the appellant as prior period expenses since the bills pertaining to these expenses did not carry the dates and these should have been claimed in the year of accrual and not in the year of payment. 4.3.2 The appellant submitted that it undertakes various activities and projects the implementation of which extends to several years and consequently certain expenses get carried over to subsequent years for want of acceptance and approval by the competent authority and this is the consistent practice followed by the appellant over the past many years. It was also submitted that these expenses being part of ongoing projects were debited to Work-in-Progress (WIP) and did not adversely affect revenues of this AY 2016-17 as these were not debited to the income and expenditure account of this AY 2016-17 The appellant did not f....
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....(1)(a) of the Act does not prescribe that income of the year should have been applied only in the year in which income has arisen. Therefore, we hold that the pre-operative expense of Rs.1,26,807/- should be allowed as deduction." Respectfully following the decisions of Hon'ble Tribunals, it is held that prior period expenses of Rs. 6,79,96,833/- (in case of which there is no doubt about the dates) are allowable to the appellant. AO is directed to grant relief to the appellant accordingly. However, regarding the amount of Rs. 9,97,86,686/-, the appellant has offered no explanation before the AO or during these appeal proceedings regarding the undated bills. In the absence of the dates, it cannot be ascertained as to which period these pertained to. The AO is directed to verify as to whether dates of bills for these expenses are supported by any other evidences viz. work order, financial sanction order, delivery challan etc. If the dates are found to be in order for a prior period, then the expenses are to be allowed either as being debited to WIP or to income/expenditure account, as the case may be. If the AO finds that during such verificati....
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....m that the AO should not have added back a sum of Rs. 12,88,014/- paid as electrical deposits to BESCOM as this was not refundable till surrender of power connections/meters. 4.5.1 The AO had disallowed this sum holding these to be deposits to electricity utility, BESCOM, which were refundable. 4.5.2 The appellant submitted that these deposits were made towards providing power supply to the prospective allottees and, as a policy, were recovered from them as and when the properties were sold/allotted. It was further submitted that since such collections from the allottees were treated as revenue income, the payments also should be allowed as expenditure. 4.5.3 It is seen here that the expenses were incurred by the appellant to make the properties habitable and without electricity connections, it would not have been possible to sell the properties. Further, the appellant has been consistently following the practice of showing the same as income as and when recovered from the prospective allottees. It is also noted that in the case of Chaman Vatika Educational Society [2013] 37 taxmann.com 299 (Chandigarh - Trib.), Hon'ble Tribunal had held that....
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....clear finding that the assessee is not involved in trade or commercials and claimed its income as exempt u/s. 11 of the Act and therefore held that when the assessee is eligible for exemption u/s. 11 of the Act, the disallowance made u/s. 43B would not arise. As already stated, the revenue had not placed any materials before us to take a different view and also in view of the fact that, the assessee is entitled for exemption u/s. 11 of the Act. The question of disallowance would not arise in this year also. 22. We, therefore, uphold the order of the Ld.CIT(A) and dismiss the ground raised by the revenue. 23. Insofar as the ground no. 7 raised by the revenue for the A.Y. 2016- 17, the revenue had objected the remitting of the issue of disallowance of expenditure for verification and allow the same if the same is eligible for deduction, after verification. The revenue also raised the plea that since the assessee is not eligible for exemption u/s. 11, the order passed by the Ld.CIT(A) by remitting the said issue requires to be reconsidered and subjected to tax at 30%. 24. The Ld.CIT(A) had remitted the issue since the assessee had not provided the corroborative documents towa....
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....appeal is allowed subject to such verification by the AO. 27. Therefore the above said finding given by the Ld.CIT(A) is a reasonable one. Further, we have already held that the assessee is entitled for exemption u/s. 11 of the Act and therefore this ground raised by the revenue on the premise that the assessee is not eligible for exemption u/s. 11 of the Act does not hold good. We, therefore, dismiss this ground raised by the revenue. 28. In respect of ground no. 3 raised by the revenue in the A.Y. 2017-18, the revenue had found fault with the allowing the claim of expenditure debited by the assessee in their income and expenditure account on account of refund of deposit receipts when the assessee is not entitled for exemption u/s. 11 of the Act. 29. The Ld.CIT(A) had considered the issue and gave the following finding: 5.3 Ground no. 9: It pertains to the plea that the AO was not justified in adding back Rs. 1,97,00,000/- in respect of refund of deposit receipts for allotment of sites as a bogus expenditure based upon only the observation of the Comptroller & Auditor General of India (C & A G). 5.3.1 The AO had treated this amount as inadmissible expend....
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....ied in adding sum of Rs. 7.99,00,000/- u/s 43B of the Act on account of workers welfare cess payable to the State Government. 5.6.1 The AO had disallowed this sum holding that this sum was outstanding as on 31/03/2017, that the proof of payment was not filed by the appellant and hence it was disallowable u/s 43B of the Act since the income of appellant was assessed under the head 'business and profession' & this sum had not been remitted to the concerned authorities before 31/03/2017 or within due date of filing return of income. 5.6.2 The appellant stated that since the appellant was not involved in a trade/commerce and its income was claimed as exempt u/s 11 of the Act, hence the disallowance should not have been made by the AO u/s 43B of the Act. It was also submitted that this sum was not debited to the income and expenditure account and had not been claimed as expenditure but it was part of the 'current liabilities' in the balance sheet. 5.6.3 It is noted that as held in previous paras of this order, the appellant is eligible to claim exemption u/s 11 of the Act and hence section 43B of the Act is not applicable to it. Even o....
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....ount (Rs, In Lakhs) Outstanding rent lie, opening balance as on 01/04/2017 2364.18 Add: Rental income for the year (on accrual basis) 1047.03 Total 3411.21 3411.21 Less: Rent received during the year 556.31 Balance receivable 2855.00 6.5.2 The appellant submitted. as had also been submitted before the AO in response dated 25/05/2021, that the income under the head 'rent' recognized by the appellant under schedule 15 of audited financial statements was Rs. 3522.88 lakhs and not Rs. 556.21 lakhs which the AO, incorrectly, had taken from 'receipts and payments account', instead of taking correct figure of Rs. 3522.88 lakhs. It was also stated that the rental income has been correctly recognized in the income and expenditure account at Rs. 3522.88 lakhs. 6.5.3 It is noted here that schedule 15 of the income and expenditure account shows rental income of Rs. 3522.88 lakhs while schedule 8 (sundry debtors) of balance sheet shows amount of Rs. 153.08 lakhs outstanding receivable both as on 31/03/2018 & 31/03/2017 under the head CA sites & Shop rent & others receivable from ....