Krishi Upaj Mandi Samiti , Baran vs Assessee

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA Nos. 193, 194 & 195/JP/2012 fu/kZkj.k o"kZ@Assessment Years : 2005-06, 2006-07 & 2008-09

Krishi Upaj Mandi Samiti, Atru, cuke The I.T.O. district- Baran. Vs. Baran.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAALK 0871 M vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rahul Lakhwani & Shri Nikhil Totuka (C.A.)

jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT)

lquokbZ dh rkjh[k@ Date of Hearing : 12/05/2015 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17/07/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

The present three appeals filed by the assessee are against the

order dated 29/12/2011 and 30/12/2011 passed by the learned CIT(A),

Kota for A.Ys. 2005-06, 2006-07 and 2008-09. The effective grounds of

appeals are as under:-

2 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

Grounds in ITA No. 193/JP/2012 "1) Under the facts and circumstances of the case and in law, the learned CIT(A) Kota has erred in/is not justified in upholding the rejection of books of accounts of the appellant as done by the Assessing Officer.

2) Under the facts and circumstances of the case and in law, the learned CIT(A), Kota has erred in:-

i. Denying the benefit of exemption U/s 11 of the Income Tax Act, 1961 to the appellant to the extent of Rs. 35,36,967/- and upholding the computation of income by the A.O. to such extent. ii. Holding that the assessee has not complied with the requirements of section 11(2) of the Income Tax Act, 1961 and to such extent the order of the learned CIT(A), Kota is bad in law. iii. Denying the benefit of carry forward and set off of losses and depreciation claimed by the appellant.

3) Under the facts and circumstances of the case and in law, the Ld CIT(A), Kota has erred in upholding the levy of interest u/s 234A, 234B and 234C." Grounds in ITA No. 194/JP/2012 "1) Under the facts and circumstances of the case and in law, the learned CIT(A) Kota has erred in/is not justified in upholding the rejection of books of accounts of the appellant as done by the Assessing Officer.

2) Under the facts and circumstances of the case and in law, the learned CIT(A), Kota has erred in upholding the addition of Rs. 16,00,000/- being expenses towards advance given to RSAMB for construction of missing link roads.

3 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

3) Under the facts and circumstances of the case and in law, the learned CIT(A), Kota has erred in :-

i. Denying the benefit of exemption U/s 11 of the Income Tax Act, 1961 to the appellant to the extent of Rs. 51,36,026/- and upholding the computation of income by the A.O. to such extent. ii. Holding that the assessee has not complied with the requirements of section 11(2) of the Income Tax Act, 1961 and to such extent the order of the learned CIT(A), Kota is bad in law. iii. Denying the benefit of carry forward and set off of losses and depreciation claimed by the appellant.

4) Under the facts and circumstances of the case and in law, learned CIT(A), Kota has erred in upholding the levy of interest U/s 234A, 234B and 234C." Grounds in ITA No. 195/JP/2012 "1) Under the facts and circumstances of the case and in law, the learned CIT(A) Kota has erred in/is not justified in upholding the rejection of books of accounts of the appellant as done by the Assessing Officer.

2) Under the facts and circumstances of the case and in law, the learned CIT(A), Kota has erred in upholding the disallowance of depreciation amounting to Rs. 94,968/- on business assets.

3) Under the facts and circumstances of the case and in law, the learned CIT(A), Kota has erred in :-

i. Denying the benefit of exemption U/s 11 of the Income Tax Act, 1961 to the appellant to the extent of Rs. 25,76,992/- and upholding the computation of income by the A.O. to such extent.

4 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

ii. Holding that the assessee has not complied with the requirements of section 11(2) of the Income Tax Act, 1961 and to such extent the order of the learned CIT(A), Kota is bad in law.

4) Under the facts and circumstances of the case and in law, learned CIT(A), Kota has erred in upholding the levy of interest U/s 234A, 234B and 234C."

2. During the course of hearing, the assessee also taken additional

ground for all the assessment years. The additional ground for all the

three assessment years are common and the same are reproduced as

under:-

"Under the facts and circumstances of the case and in law, Ld. CIT(A), Kota has erred in denying the exemption U/s 11 and 12 of the Act to the appellant on the ground that the appellant did not comply with the requirements of Section 11(2) relating to submission of Form 10, without appreciating the fact that the Income and Expenditure Account and other relevant documents were available with the Ld. CIT(A), Kota to establish the fact that provisions of Section 11(2) were not applicable on appellant."

2.1 The ld DR objected that there is no reason to admit the additional

ground at this stage as the assessee already had challenged the

disallowance made U/s 11(2) of the Income Tax Act, 1961 (in short the

Act. Therefore, the assessee's additional ground is simply repetition of

the same ground. However, the ld AR for the assessee has argued that 5 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

this ground is question of law and legal ground going to the root of the

assessment and first appellant proceedings and there was no willful

omission of the above ground from form of appeal filed by the

appellant. It is further submitted that the additional ground specifically

covering the issue or reasons for exemption. The ld AR placed reliance

on the decision of Hon'ble Supreme Court in the case of National

Thermal Power Co. Ltd. Vs. CIT (1999) 157 CTR (SC) 249 and Jute

corporation of India Ltd. Vs. CIT (1990) 88 CTR (SC) 66.

2.2 After considering both the sides, we admit the additional ground

for all the three assessment years raised by the appellant as the ground

raised by the assessee is legal ground and is going to the root of the

assessment. Therefore, we admit the additional ground raised by the

appellant in all the assessment years.

3. Ground No. 1 in all the three years is against rejecting the book

account U/s 145(3) of the Act. The assessee is a Krishi Upaj mandi

Samiti, filed the return for A.Y. 2005-06 on 08/2/2006, A.Y. 2006-07 on

31/10/2006 and A.Y. 2008-09 on 30/09/2008 at NIL income claiming

that surplus of income over expenditure is exempt. The cases were

scrutinized U/s 143(3) of the Act by the Assessing Officer. The ld

Assessing Officer observed that the books of account of the samiti had 6 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

not been maintained as per any formal accounting standard. No

balancesheet of the samiti as on 31/3/2005, 31/3/2006 and 31/3/2008

were prepared and not filed before him. The only income and

expenditure account had been prepared and that too had not been

maintained as per formal accounting practices. The Assessing Officer

further observed that audit report U/s 44AB of the Act dated 06/2/2006

in form No. 3CA was furnished in A.Y. 2005-06 alongwith return. In A.Y.

2006-07, it was alleged that audit report filed by the assessee was not

supported by properly audited income and expenditure account as per

norms and requirements of Rajasthan State Agricultural Produce Market

Act nor a balance sheet as on 31/3/2006 was drawn. The auditor had

made following observations in the audit report in all the years, which

are reproduced as under:-

"(a) The un-audited income and expenditure account for the year ended on 31/3/2006.

(b) As per norms and requirements of the Rajasthan Agricultural Produce Market Act, 1961 only income and expenditure account is prepared which is yet to be audited by the dept. of local fund and as per their norms no such Balance Sheet as on 1/3/2006 is drawn and audited.

7 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

(c) Documents declared by the said Act could not be annexed to the Income and Expenditure account and balance sheet being the audit is yet to be carried by the department.

(d) On request of the mandi samiti the Audit under the provision of Section 12AA of the I.T. Act is also carried and signed on the even date by us."

The ld Assessing Officer after considering the audit report had held that

no proper auditing as per provisions of Section 44AB of the Act was

carried out and incomplete accounts had been prepared and furnished.

Therefore, the books of account of the assessee samiti are not reliable

and the claim for exemption and correctness/genuineness of the related

expenses based on such books are not free from doubts. Therefore, he

rejected the books of account and decided the case on the basis of

above observations made by the Assessing Officer in all the assessment

years.

4. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A). The ld CIT(A)

has held that even before him, it was not clear that audit U/s 44AB was

carried out and P&L account and balance sheet were prepared. It was

also not claimed that audit as per Rajasthan State Agricultural product 8 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

Market Act were carried out, therefore, he upheld the finding given by

the ld Assessing Officer on correctness and genuineness of the books of

account maintained by the assessee in all the assessment years.

5. Now the assessee is in appeal before us. The learned A.R. for the

assessee submitted that the samiti maintains regular and proper books

of account on cash system of accounting. All supporting records are

kept. The accounts/vouchers and supporting are maintained as required

under the Act. The assessee is not carrying on the activity for profit. It

was under bonafide belief that no return need to be filed U/s 139(1) of

the Act. No notice U/s 142(1) of the Act was received up to the

assessment year 2002-03. The assessee being under bonafide belief

that it is State functionary performing the judicial, legislative and

executive functions, without any motive of earning any income/profit

and existing for public purposes, is not amenable to the provisions of

the Income Tax Act. However, the return of the income for the year

under appeal filed on different dates alongwith audited income and

expenditure accounts. However, the ld Assessing Officer in an arbitrary

manner had computed the total income in all the years. He further

drawn our attention on audit report placed in the paper book and

argued that in A.Y. 2005-06 the audit was completed on 06/2/2006, in 9 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

A.Y. 2006-07 on 29/10/2006 and in A.Y. 2008-09 on 25/09/2008. The

audit for A.Y. 2005-06 was delayed due to bonafide belief that the

assessee samiti was not to furnish the return under the Act. However,

the assessee had made full compliance of Rajasthan State Agricultural

Produce Market Act and income and expenditure had been prepared

within the time for the purposes of that Act. Therefore, the observations

made by the lower authorities may please be deleted.

6. The learned DR vehemently supported the order of the learned

CIT(A).

7. We have heard the rival contentions of both the parties and

perused the material available on record. The audit report for A.Y.

2005-06 is delayed but made as per law by the C.A.. In other two

years, the audits were made within time. As such, as per audit report,

no adverse comment has been given by the auditor in the audit report.

Therefore, there is no justification in doubting the correctness and

genuineness of the income/expenses of the samiti on the basis of return

furnished by it in all the years. Accordingly, we reverse the order of the

ld CIT(A) in all the three years.

8. Ground No. 2 in appeal for A.Y. 2005-06 and ground No. 3 in the

appeals for A.Y. 2006-07 and 2008-09 are against denying the benefit 10 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

U/s 11 and not following the requirement U/s 11(2) of the Act as well as

denying the benefit of carry forward and set off of losses and

depreciation claimed by the appellant. The ld Assessing Officer had not

allowed the application of fund U/s 11(2) of the Act and made addition

under various heads after considering the amendment made in Section

2(15) of the Act in all the years. The assessee challenged these

additions before the ld CIT(A) but who deleted the additions. However,

it has been held that as per income and expenditure account, a sum of

Rs. 45,36,967/- appeared as surplus in A.Y. 2005-06, Rs. 51,36,026/- in

A.Y. 2006-07 and Rs. 25, 76,992 in A.Y. 2008-09. In the audit report,

the auditor has not mentioned any accumulation or setting apart of any

sum for specified purposes U/s 11(2) of the Act. The assessee had also

not given any notice to the Assessing Officer in prescribed form (form

No. 10) and manner (as per Rule 17) as prescribed U/s 11(2)(a) of the

Act.

9. Now the assessee is in appeal before us. The learned A.R. for the

assessee submitted as under:-

"The finding of the Ld. CIT(A) that the appellant samiti has not complied with the conditions of Section 11(2) of the Act and hence, not eligible for exemption U/s 11(1) is perverse and bad in law.

11 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

He drawn our attention towards Section 11(2) of the Act. He also submitted that from reading of Section 11(2) of the Act, it is clear that the pre-condition for the applicability of the provisions of Section 11(2) is that:

a) the assessee has applied less than 85% of income for the relevant financial year towards charitable or religious purposes:

and

b) such assessee wishes to accumulate or set apart the surplus in excess of 15% of the income to be applied towards charitable or religious purposes in the following assessment years.

He further submitted that in the relevant assessment year under consideration, the appellant samiti has applied more than 85% of the relevant assessment year's income. The detail of the overall application of income is as under:-

Particulars A.Y. 2005- A.Y. 2006- A.Y. 2007-08 06 07 Amount (in Rs.) Total income as per 73,50,061 1,13,77,024 99,53,764 Income & Expenditure Account Expenses and application as per recasted income and expenditure account submitted before Ld. CIT(A).

Less: Capital Expenditure 9,411 - 50,83,023 Account Less: Other expenses and 38,13,094 62,40,998 73,76,773 application 12 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

Surplus as per recasted 35,27,556 51,36,026 (-)25,06,031 I&E A/c (B)

Excess application of earlier years Less: Brought forward 35,36,967 13,86,036 -

losses set off as per Return of Income Less: Brought forward - 24,42,357 -

deprecation set off as per Return of Income Surplus after total (-) 9,411 13,07,633 (-)25,06,031 application (D) Permissible Accumulation 11,02,509 17,06,554 14,93,065 (@ 15%)

He further submitted that in the light of the discussion above, it is clear that the appellant samiti has applied more than 100% of total income of the relevant assessment year in the said assessment year. Hence, the provisions of Section 11(2) are not applicable on the appellant.

He further submitted that the return of income of the assessment years 2003-04 and 2004-05, i.e. the assessment years from which such losses were carried forward. It is humbly submitted that the contention of the ld CIT(A) that such returns were not submitted is incorrect. The appellant through its authorized C.a. VAG & Co. had submitted a reply dated 21/10/2010 addressed to the ld ITO, Baran in reply to the letter dated 11/10/2010 issued by the department U/s 148/143(3). In the said reply dated 21/10/2010, the authorized representative had provided written submissions on the various 13 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

queries raised by the department and had also provided copies of the ITR submitted by the appellant samiti for assessment year 2003-04 and 2004-05 for ready reference. The copy of the said reply dated 21/10/2010 is available in the paper book at page No. 1 to 22 and the copies of the ITR of assessment year 2003-04 and 2004-05 are available in the paper book on page No. 23 to 30. He also relied on the various case laws, which is reproduced hereunder:

1. CIT Vs. Maharana of Mewar Charitable Foundation (1987) 164 ITR 439 (Raj).

2. CIT vs. Shri Gujrati Samaj (Regd) (2010) 349 ITR 559 (MP).

3. CIT Vs. Matriseva Trust (2000) 242 ITR 20 (Mad).

4. Gonvindu Naicker Estate Vs. Asst. Director of Income Tax (2001) 248 ITR 368 (Mad).

5. CIT Vs. Shri Plot Swetamber Murti Pujak Jain Mandal (1995) 211 ITR 293 (Guj).

He further submitted that it is clear that once it has been concluded that the appellant samiti will be eligible for exemption U/s 11 as against U/s 10 of the Act, it shall be eligible to set off the excess application of previous years against current year income. It is a settled principle of law that an assessee shall not be deprived of a benefit available to him 14 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

under the Act due to a bona fide mistake. For this he relied on the decision of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. vs. CIT 196 ITR 188 (SC).

In view of the above submissions, it is humbly submitted that the additions made by the ld CIT(A) on account of treating the appellant to be in default of Section 11(2) and further by not allowing the set off of the amount of excess application of income of earlier year against deficiency of current year deserves to be deleted.

10. At the outset, the learned DR vehemently supported the order of

the lower authorities.

11. We have heard the rival contentions of both the parties and

perused the material available on record. The samiti had applied more

than 85% of total income of the relevant assessment year. As per

Section 11(2) of the Act, the procedure in form No. 10 and as per Rule

17 of Section 11(2)(a) is to be followed where the application of total

income is less than 85%. The ld DR had not disputed the application of

fund statement submitted in written reply, therefore, we are of the

considered view that the ld CIT(A) was not right in denying the

exemption U/s 11(2) of the Act.

12. In A.Y. 2005-06 and 2006-07, the Assessing Officer as well as ld

CIT(A) denying the carry forward loss as well as depreciation. The ld 15 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

CIT(A) has observed that in A.Y. 2005-06 and 2006-07, the assessee

has claimed carry forward losses which has been disallowed by the

Assessing Officer in absence of any proof of furnishing of invalid return.

The ld CIT(A) verified the record from A.Y. 2003-04 onwards and came

to conclusion that the assessee did not have un-absolved loss and

depreciation to be set off against the income of current year. Even on

law, the assessee was not entitled for carry forward of losses and

depreciation. Similar findings were given in A.Y. 2006-07.

13. Now the assessee is in appeals before us. The assessee has

drawn our attention on the paper book and return filed by the assessee

and has drawn our attention on page No. 71 of paper book wherein the

assessee has claimed brought forwarded losses to be carry forwarded at

Rs. 13,86,036/- and depreciation at Rs. 24,42,357/-. Similarly on page

141 of the paper book, the assessee had adjusted the brought

forwarded losses against the income for the A.Y. 2006-07 and

depreciation also can finally brought forwarded losses as well as

depreciation shown NIL. Therefore, Assessing Officer is directed to

verify the figures from the return and take decision as per law as this

matter is required verification from the record.

16 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

13.1 In A.Y. 2006-07, the assessee in ground No. 2 has

challenged the upholding the addition of Rs. 16 lacs being expenses

towards advance given to Rajasthan State Agricultural Marketing Board

(RSAMB) for construction of missing link road. The ld Assessing Officer

as well as ld CIT(A) disallowed these expenses by observing that this

ground is directly covered by item No. 6 of the decision mentioned in

ITA No. 560/JP/2010 in assessee's own case wherein the Hon'ble ITAT

has held that these expenses are for the object of the samiti and are

allowable. However, in the case of assessee out of Rs. 21,16,393/- a

sum of Rs. 16 lacs has been given to RSAMB as advance. In their

opinion, no advance can be treated as spent/applied for the purpose of

samiti till it is not actually spent. Therefore, ld CIT(A) confirmed the

addition of Rs. 16 lacs. Now the assessee is before us and has drawn

our attention on the decision of this Bench in the case of KUMS,

Chhabra, district Baran Vs. ITO in ITA No. 190 & 191/JP/2012 dated

04/03/2015 wherein identical issue has been decided by this Bench in

ground No. 3 at page 8 and argued that these payments were for

charitable purposes of the samiti under the Rajasthan State Agricultural

Produce Marketing Act wherein the Hon'ble ITAT has decided this issue

by following the order Hon'ble Jurisdictional High Court in the case of 17 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

CIT Vs. Krishi Upaj Mandi Samiti, Gajsinghpur 227 CTR 79, therefore, it

is a covered issue.

14. At the outset, the ld DR has vehemently supported the order of

the Assessing Officer.

15. We have heard the rival contentions of both the parties and

perused the material available on the record. This issue has been came

before this Bench in various mandi samitis cases wherein these

advances were held as allowable and paid for achieving the object of

the samiti. In the hands of Samiti even giving the amount to the RSAMB

as advance is treated as spent which has to be paid as per this Act to

the mother board by the samiti. Therefore, we reverse the order of the

ld CIT(A). Accordingly, assessee's appeals are allowed on this ground.

16. Ground No. 2 in A.Y. 2008-09 is against not allowing the

deprecation at Rs. 94,968/-. The Assessing Officer had not allowed

depreciation and claimed in the income and expenditure account at Rs.

94,968/- on the basis of fact that the assessee is a charitable institution.

Therefore, depreciation is not allowable, which was confirmed by the ld

CIT(A) by observing that depreciation on auction platform is allowed @

10% instead of 15% claimed by the assessee. The assessee argued

that similar depreciation on auction platform @ 15% has been allowed 18 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

in the case of KUMS, Baran in A.Y. 2007-08. Therefore, it is prayed that

same may be allowed in A.Y. 2008-09 in assessee's case.

17. The ld DR supported the order of the ld CIT(A).

18. We have heard the rival contentions of both the parties and

perused the material available on the record. This identical issue has

been allowed by this Bench in the case of KUMS, Chhabra, Baran in ITA

No. 190&191/JP/2012 order dated 04/3/2015, therefore, it is a covered

issue and depreciation @ 15% is allowable. Accordingly, we allow the

appeal of the assessee on this ground.

19. The other grounds of appeals are consequential to the above

finding, therefore, same are not required to be adjudicated.

20. In the result, all the assessee's appeals are allowed partly.

Order pronounced in the open court on 17/07/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 17th July, 2015 *Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- Krishi Upaj Mandi Samiti, Chhabra, district- Baran.

19 ITA 193, 194 & 195/JP/2012_ KUMS, Atru, Baran Vs. ITO

2. izR;FkhZ@ The Respondent- The I.T.O., Baran.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 193, 194 & 195/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar