Unreported Decisions – April 2022
By Ajay R. Singh, Advocate and CA Rohit Shah
1. Section 143(1) r w s 154-Claim disallowed by way of an intimation u/s. 143(1) – two views are possible – Debatable issue :
The assessee filed his return of declaring total income of ` 33,25,433/-. The return of the assessee was processed by CPC and intimation under section 143(1) communicated to the assessee. The CPC while processing the return of income disallowed assessee’s claim of expenditure towards Club membership, entrance fee and subscription fee aggregating to ` 35.00 lacs. The assessee filed rectification petition u/s. 154 of the Act before the CPC. The CPC rejected assessee’ s petition for rectification. Against the order passed by CPC u/s. 154 of the Act, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee holding that the disallowance sought to be rectified u/s. 154 of the Act is a debatable issue, hence, outside the purview of section 154 of the Act.
Hon’ble ITAT held: The Revenue cannot in unilateral proceedings disallow expenditure without affording an opportunity to the assessee. What cannot be done u/s. 154 of the Act on the ground of debatability cannot be done u/s. 143(1) of the Act to the assessee’s claim on which two views are possible A debatable issue cannot be a subject matter of adjustment u/s. 143(1) of the Act. Hon’ble ITAT also relied upon Jurisdictional High Court in the case of Bajaj Auto Finance Ltd. vs. CIT reported as 404 ITR 564(Bom) has held that debatable claim cannot be disallowed by way of an intimation u/s.143(1) of the Act.
Chetas Gulabbhai Desai v. Dy. Commissioner of Income Tax-CPC [ITA No. 1934/Mum/2021 ; dated 4/3/2022 ; Bench : C Mumbai ]
2. S. 11: Applicability of proviso to section 2(15)
The return of income was filed declaring Nil income. The Assessing Officer (AO) observed that there was excess of Income over Expenditure to the tune of ` 1,52,58,353/- (including income from mutual funds and dividends) that was claimed as exempt by the assessee u/s.11. AO observed that the assessee had shown income of ` 33.26 lakh from Cultural hall rent; Other income of ` 88.34 lakh and Interest from fixed deposits in banks and others at ` 1.09 crore. He noticed that the assessee had two halls which were let out by it from time to time on which rental income was earned totaling to ` 1.09 crore. He noted that the assessee had shown certain receipts of ` 93.95 lakh towards Amenity charges, DG set receipts, Electricity charges received etc. Invoking the mandate of the first proviso to section 2(15), the AO held that the assessee-trust was carrying out objects of general public utility and in view of the fact that it generated income from letting out of building and cultural hell etc., which was in the nature of business activity, was hit by the said proviso and hence ceased to have any ‘Charitable purpose’. He, therefore, declined the exemption of ` 1,46,97,602/- u/s.11 of the Act. The ld. CIT(A) confirmed the order of the AO on the denial of exemption on merits as discussed by the AO.
Before Hon’ble ITAT, assessee submitted that if a charitable trust is providing Relief to the poor or Education or providing Medical relief and for funding such activities, it is carrying on activity in the nature of trade, commerce or business etc., for which a cess or fees etc. is charged, the `charitable purpose’ will remain intact and the case will not be hit by the proviso and ex consequenti, the exemption will continue. It is only when the (d) category of section 2(15) as discussed above about advancement of any other object of general public utility is pursued that the disability enshrined in the proviso gets magnetized. Assessee also demonstrated through Object Clause of Trust Deed and Financials that assessee was engaged in providing Medical help, Relief to the poor and Education only and no other object was pursued. Assessee also submitted that even if Trust Deed has the objects of ‘advancement of any other object of general public utility’ in its trust-deed, but none of such objects was actually pursued during the year under consideration. Whereas the objects and activities of the trust are germane at the time of grant of registration u/s 12AA of the Act, what becomes relevant for consideration at the time of assessment is to see which of the objects, having charitable purpose, were actually carried out so as to decide the question of exemption. Assessee actually pursued only the objects as classified in categories (a) to (c). viz., Medical Relief to the poor patients, Education to the deserving students and Relief to the needy sections of the society and hence shied away from taking up any of the objects in category (d), viz., advancement of any other object of general public utility. Once this is the position, it becomes explicitly clear that the proviso to section 2(15), which attracts only when objects of the category (d) above are pursued, did not trigger in the instant case.
Thus the Hon’ble ITAT held that Assessee is entitled to exemption and thus allowed the appeal
Oswal Bandhu Samaj v. ITO Exemptions-1 Pune [ITA No.907/Pun/2017 AY 2010 -11 dated : 7//3/2022 Bench : B Pune]