TaxTMI 
TaxTMI 
2025 (9) TMI 1830
X X X X Extracts X X X X
X X X X Extracts X X X X
....e fact that the Hon'ble ITAT, Mumbai has fully deleted the said disallowances and reasons assigned by him for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Act and Income Tax Rules, 1962 ("the Rules") made thereunder. The appellant prays that the penalty u/s. 270A of the Act of Rs. 293,63,60,258/- be deleted. The appellant craves leave to add, amend, alter, modify and/or delete all or any of the above grounds of appeal, on or before the date of hearing." 2. Briefly stated, the facts of the case are that the assessee trust registered u/s. 12A filed its return of income for the year under consideration claiming exemption under section 11 of the Act. The return of income was selected for scrutiny and necessary information/documentation was called for. The submissions so filed by the assessee trust were considered but not found acceptable and by following the earlier assessment order for AY. 2016-17 & 2017-18, the AO proceeded to hold that the assessee's case is covered by proviso to section 2(15) of the Act and thereby rejected the claim of exemption under section 11 of the Act and whole of income amounting to Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tivity is undertaken bielertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;" 11. Undisputedly to ameliorate the difficulties being faced by the small scale industries in getting credit from primary lending institutions, namely banks, state finance corporation, state industrial development corporation and regional rural banks for want of collateral security and/or third party guarantee, the Government of India has introduced a credit guarantee fund for small industry. It is also not in dispute that the initial fund as well as further contribution to the trust are made by the Government of India and SIDBI. It is also not in dispute that the assessee trust was granted registration under section 12A of the Act on 18.10.2001, which was withdrawn vide order dated 07.12.2011 by the Director of Income Tax (Exemption) [DIT(E)], Mumbai. It is also not in dispute that order of withdr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is not into any charitable activities and (2) that he has invoked proviso to section 2(15) of the Act also. 14. The Ld. A.R. for the assessee challenging the denial of benefit of section 11 & 12 of the Act by invoking the proviso to section 2(15) of the Act contended inter-alia that proviso to section 2(15) of the Act cannot be invoked in case of the assessee it being a charitable trust granted registration under section 12A of the Act and identical issue has already been decided in favour of the assessee in assessee's own case for A.Y. 2010-11, 2011-12 & 2014- 15; that there is no change of activities undertaken by the assessee during the year under consideration vis-a-vis earlier years; that assessee's trust has no profit motive whatsoever so as to hit by proviso to section 2(15) of the Act, rendering of services to trade, commerce or business; that services rendered by the assessee trust are purely institutional or subservient to the main objects of the trust which are "charitable purposes"; that objects of the trust are to be considered for the benefit of underprivileged class of people and also falls within the meaning of relief to poor referred to in secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hit by proviso to section 2(15) of the Act. Now the sole question arises for determination in this case is as to whether: "The claim of the assessee under section 11 & 12 of the Act is hit by proviso to section 2(15) of the Act?" 18. We are of the considered view that the answer to this question is in negative for the reasons given here under: (i) that in A.Y. 2010-11, 2011-12 & 2014-15 the AO did invoke the proviso to section 2(15) of the Act, which order was upheld by the Ld. CIT(A). However, the Tribunal vide its orders overturned the findings returned by the AO/Ld. CIT(A) by holding that the assessee is a charitable trust and since it does not have any profit motive, the proviso to section 2(15) of the Act cannot be invoked. (ii) that it is undisputed fact that there is no change in the facts of the year under consideration vis-à-vis A.Y. 2010-11, 2011-12 & 2014-15, order of which has already been attained finality. The AO in A.Y. 2016-17 & 2017-18 has taken a diverse view that the assessee is pursuing the activity of advancement of general public utility and is in activity of trade, commerce or business of charging fee for services, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 2016-17 597,44 1,027.86 (430.42) 4. 2017-18 728.04 1132.76 (404.72) 5. 2018-19 830.79 1322.76 (491.98) 6. 2019-20 936.16 1617.60 (681.44) 7. 2020-21 1,161.11 1,920.86 (759.76) 8. 2021-22 1,442.79 2,082.88 (640.08) 9. 2022-23 1,728.92 2,333.08 (604.16) (vi) that when we take the figure of receipt by the assessee trust from collecting the guarantee fee and its expenditure for the year under consideration i.e. 2018-19, it is apparently clear that the assessee trust has received amount of Rs.830.79 crores whereas incurred the expenses in providing guarantees to the recipient of loan for setting up small scale industry is Rs.1322.76 crores and faced with the deficit of Rs. 491.98 crores. (vii) that right from A.Y. 2014-15 till 2022-23 the assessee trust is constantly running deficit from the activities of providing guarantee. These facts go to prove that there is no profit motive or trading activity in running this trust. Had there been any such profit motive the activities would have been discontinued long back because of consistent loss. (viii) that when w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase of Ahmedabad Urban Development Authority (Supra) while replying the question of law framed therein, which are extracted as under for ready perusal: "A. General test under Section 2(15) A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other consideration"); A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or business are connected ("actual carrying out..." inserted w.e.f. 01.04.2016) to the achievement of its objects of GPU; and (ii) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs. 10 lakhs w.e.f. 01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of total receipts of the previous year, w.e.f. 01.04.2016); A.3. Generally, the charging....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding guarantee fees for the small scale industries who are unable to arrange for collateral security and/or third party guarantee and as such not hit by section 2(15) of the Act. (xiv) that the assessee trust being a statutory body being run by Government of India has the only object of general public utility without having any element of trade, commerce or business in providing services to the small scale industries. (xv) that the contention raised by the Ld. D.R. for the revenue trust that assessee is catering to commercial activities of the banks is not sustainable because banking institutions are running their business as per the rules and regulations formulated by the Reserve Bank of India and they are not giving any preferential treatment to the small scale industries rather insisting upon providing credit guarantee by the assessee trust in case of providing credit to the small scale industries, so element of commercial activities is not there (xvii) that the nature of the activities being carried out by the assessee trust being charitable and for advancement of general public utility are further proved from the legislative changes carried out by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epreneurs who are otherwise unable to arrange for collateral security and/or third party guarantee. 20. In view of what has been discussed above and as a sequel to the findings returned in the preceding paras, we are of the considered view that assessee trust having been established by the Government of India with the object and purpose of ameliorating the difficulties of the small scale industries and micro enterprises in availing credit facilities from financial as well as banking institutions without having collateral security and/or third party guarantee which is being provided by the assessee trust with cost to cost or with a small mark up is pursuing the activity of advancement of general public utility without having an iota of activity of trade, commerce or business. So in other words mere charging of guarantee fees for services by the assessee trust ipso facto is not sufficient to invoke the proviso to section 2(15) of the Act, that too without establishing that the object and purpose of the assessee is profit motive. Had it been so the assessee trust would not have been running into deficit of about Rs.400 crores every year. So in these circumstances the impugned....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the head note of the assessment order under the head method of accounting (mercantile is recorded) so it is proved that the assessee is following mercantile system of accounting qua its receipts as well as payments. 25. The Ld. A.R. for the assessee drew our attention towards explanation added to section 11 of the Act w.e.f. 01.04.2022 which reads as under: "Explanation.- For the purpose of this section, any sum payable by any trust or institution shall be considered as application of income in the previous year in which such sum is actually paid by it (irrespective of the previous year in which the liability to pay such sum was incurred by the trust or institution according to the method of accounting regularly employed by it)." 26. When we peruse the explanation to section 11 it has come on record that w.e.f. 01.04.2022 any some payable by the trust shall be considered as application of the previous year in which the payment is made irrespective of the year of incurring of expenditure. The AO proceeded on the wrong premise that the amount spent on the object of the trust is considered as application of the income in the case of trust "by holding that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct. Since the assessee is found to be entitled for benefit of claim under section 11 of the Act as per findings returned under ground No.2 in the preceding paras, this ground has become consequential. The AO is directed to process the claim of accumulation under section 11(2) of the Act accordingly these ground Nos.4 & 5 being consequently in nature. So ground no. 4 & 5 are decided in favour of the assessee for statistical purpose. Ground No.6 31. The Ld. Lower Revenue Authorities have also denied the claim of "set off" of brought forward deficit of the previous years against the current year income, due to the denial of benefit of section 11 & 12 to the assessee. Since the assessee is found to be entitled for benefit of section 11 & 12 as per findings returned under the head ground No.2 in the preceding paras the AO is directed to process the claim of "set off" of the assessee trust accordingly, this ground being consequential in nature. So ground No.6 is also determined in favour of the assessee." 4. The penalty proceedings were also initiated by the AO separately u/s. 270A r.w.s. 274 as the assessee has under-reported the income in consequence of misreportin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of fund claimed during the year under consideration. The applicability of the amendment from 1/4/2024 needs a closer look. Earlier assessee drew our attention towards explanation added to section 11 of the Act w.e.f. 01.04.2022 which reads as under: "Explanation. For the purpose of this section, any sum payable by any trust or institution shall be considered as application of income in the previous year in which such sum is actually paid by it (irrespective of the previous year in which the liability to pay such sum was incurred by the trust or institution according to the method of accounting regularly employed by it)." 4.1 When we peruse the explanation to section 11 it has come on record that w.e.f. 01.04.2022 any some payable by the trust shall be considered as application of the previous year in which the payment is made irrespective of the year of incurring of expenditure. Only the actual payment made can be allowed as expenditure even if mercantile system is followed. In effect only the actual warranty paid can be allowed as expenditure towards application of income. Considering this the penalty levied u/s. 270A is also kept alive. Moreover the introducti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as referred to the amendment applicable from 1st April, 2024. It was submitted that even though the Revenue is in appeal in the earlier years, in the quantum proceedings, however, as far as the levy of penalty is concerned, the Ld.CIT(A) has to either confirm or delete the levy of penalty basis appreciation of facts in the present case, however, there is no basis for the Ld.CIT(A) to keep the penalty order in abeyance for the reason that the quantum proceedings are sub-judice before the Hon'ble High Court. It was further submitted that he has referred to certain amendment in law with effect from 1st April, 2024 and how the same are relevant for the impugned assessment year, no finding has been recorded by the Ld.CIT(A) except stating that said amendments need a closer look. It was further submitted that at one place, the Ld.CIT(A) is stating that by virtue of the order of the Tribunal in the quantum proceedings, matter relating to levy of penalty is weakened and at the same time, he has confirmed the levy of penalty which shows complete non-application of mind on part of the ld CIT(A). It was accordingly submitted that given the fact that in the quantum proceedings, the matter has ....