Krishi Upaj Mandi Samiti , Jaipur 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 No. 188/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2007-08 Krishi Upaj Mandi Samiti, Itawa, cuke A.C.I.T. district- Kota. Vs. Circle-2, Kota.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAALK 0390 D 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.

This is an appeal filed by the assessee against the order dated

29/12/2011 passed by the learned CIT (A), Kota for A.Y. 2007-08. The

effective grounds of appeals are as under:-

"1) Under the facts and circumstances of the case and in law, the learned CIT(A) Kota has erred in denying the benefit of exemption u/s 11 of the Income Tax Act, 1961 to the assessee to the extent of Rs.

2 ITA 188/JP/2012_ KUMS, Itawa, Kota Vs. ACIT

21,58,715/- and upholding the computation of income by the A.O. to such extent.

2) Under the facts and circumstances of the case and in law, the learned CIT(A), Kota has erred in 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 Ld. CIT(A), Kota is bad in law.

3) Under the facts and circumstances of the case and in law, the learned CIT(A), Kota has erred in upholding the levy of interest u/s 234A, 234B and 234C of the Income Tax Act, 1961."

2. Both the grounds of appeal are interlinked and against denying

the benefit of exemption U/s 11 of the Income Tax Act, 1961 (in short

the Act) and not complied the requirements of Section 11(2) of the Act.

The assessee is a Krishi Upaj Mandi Samiti and providing services

related to agricultural produce. The assessee filed return on 31/10/2007

declaring total income of Rs. NIL. The assessee's case was scrutinized

U/s 143(3) of the Act. The ld Assessing Officer observed that the books

of account of the Samiti had not been maintained as per any formal

Accounting Standard. No balance sheet of the Samiti had been filed as

on 31/3/2007. The only income and expenditure account had been

filed. It has been observed by the Assessing Officer that the assessee is

not a charitable institution as the necessary element of altruism is

missing from its activities. As per intent of legislature, such institutions 3 ITA 188/JP/2012_ KUMS, Itawa, Kota Vs. ACIT

were never meant to be treated as Charitable Institutions and due to

misuse of the provisions by some institutions, the necessary

amendment in Section 2(15) has been brought in through Finance Act,

2008. As per facts on record, the provisions of Section 11 do not apply

in this case and during the assessment proceedings, assessee was not

able to furnish any such evidence which makes the assessee entitled for

the exemption u/s 11 the grant of registration U/s 12AA of the Act. It is

further observed that on the direction of the Hon'ble ITAT, the

registration U/s 12AA had been granted but the department had

challenged the Hon'ble ITAT's order before the Hon'ble Rajasthan High

Court. The assessee submitted reply before the Assessing Officer, which

were not found convincing to him. Further the case law relied upon by

the assessee was also not found applicable to this case as the facts of

this case are clear and distinguishable. The assessee Samiti had earned

income of Rs. 4,38,786/- from building rent, which is to be assessed as

income from house property. While taxing the same U/s 22, Mandi yard

contract expenses amounting to Rs. 4,49,986/- were disallowed

because the same prima facie appears to be excessive considering the

mandi running exp. of Rs. 10.95 lacs and office running expenses of Rs.

3.26 lacs. However, standard deduction u/s 24 @ 30% on the same is 4 ITA 188/JP/2012_ KUMS, Itawa, Kota Vs. ACIT

allowed. The assessee had earned interest income on deposit of Rs.

17,48,188/- was required to be assessed U/s 56 as income from other

sources. Similarly, the other income of Rs. 27,848/- in the name of

recovery and misc. also required to be assessed under the head income

from other sources. During the year under consideration, the assessee

Samiti had declared a surplus of Rs. 21,58,715/- as per Assessing

Officer this is business income of the Samiti. The assessee had debited

Rs. 14,73,580/- in income and expenditure account under the head

contribution as pe Assessing Officer it is nothing but appropriation of

profit/income which cannot be allowed as deduction. Accordingly, he

enhanced the business income of Rs. 14,73,580/-, besides above the

following expenses are capital in nature:

i) Road up gradation project expenses of Rs. 22,00,000/-.

ii) Construction of link road of Rs. 41,66,172/-.

iii) S/R of boundary wall and buildings of Rs. 8,16,947/-.

iv) Farmer life welfare fund of Rs. 7,36,078/-

v) Agriculture scheme of Rs. 14,900/-. vi) Payment to XEN Kota Rs. 5,30,110/-.

The ld Assessing Officer observed that these expenses were not

allowable being capital in nature. The assessee had claimed

depreciation @ 15% on auction platform, electrical installation and

water supply of Rs. 1,13,268/-, Rs. 6,018/- and Rs. 26,773/-

5 ITA 188/JP/2012_ KUMS, Itawa, Kota Vs. ACIT

respectively on which depreciation @ 10% is allowable. Therefore, he

also made addition under this head. The ld Assessing Officer finally

assessed, the Samiti's income at Rs. 1,60,98,480/- against the NIL

income.

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

assessee carried the matter before the learned CIT(A), who had held

that registration U/s 12A is justified and Assessing Officer was not

justified to deny status of charitable institution to the appellant. The ld

Assessing Officer was not justified in completing the assessment

without granting exemption U/s 11 and 12 of the Act. He directed the ld

Assessing Officer to compute the income accordingly and include these

receipts in the total receipt of the assessee for the purposes of Section

12A and not to tax separately. He further observed that contribution to

Kisan Kalyan Kosh had been made mandatory by the Rajasthan State

Agriculture Marketing Board. The directions of the Board are binding on

the assessee. The ld CIT(A) held that same are allowable following the

rational given by Hon'ble Jurisdictional High Court in the case of CIT Vs.

Krishi Upaj Mandi Samiti, Gajsinghpur 227 CTR 79 in relation to

contribution to Rajasthan State Agriculture Marketing Board. However, 6 ITA 188/JP/2012_ KUMS, Itawa, Kota Vs. ACIT

the ld CIT(A) held that as per income and expenditure account, a sum

of Rs. 21,58,715/- appears as surplus. 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. He further held that the

assessee had not given any notice to the Assessing Officer in the

prescribed form (Form No. 10) and manner (as per Rule 17) as

prescribed U/s 11(2)(a). Therefore, he denied benefit U/s 11(2) of the

Act.

4. During the course of hearing, the assessee has also taken

additional ground 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."

4.1 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 Act. Therefore, the assessee's 7 ITA 188/JP/2012_ KUMS, Itawa, Kota Vs. ACIT

additional ground is simply repetition of the same ground. However, the

ld AR for the assessee has argued that 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.

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

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.

5. 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.

8 ITA 188/JP/2012_ KUMS, Itawa, Kota Vs. ACIT

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. 2007-08 Total income as per Audited Income & 1,66,39,418/- Expenditure Account

Expenses and application as per Audited Income and Expenditure account Less: Expenses and application as per Audited 1,44,80,703/- Income & Expenditure Account Surplus as per Income & Expenditure Account (B) 21,58,715/- Less: Fixed Assets addition as per chart of -

depreciation annexed with the audit report (after deducting depreciation related to such addition) Surplus after application of expenses incurred 21,58,715/- during relevant assessment year (C) Surplus after total application (D) 21,58,715/- Permissible Accumulation (@ 15%) 24,95,913/-

9 ITA 188/JP/2012_ KUMS, Itawa, Kota Vs. ACIT

He further submitted that in the light of the discussion above, it is clear that the appellant samiti has applied more than 85% 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.

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) deserves to be deleted.

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

the lower authorities.

7. 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 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.

8. The 3rd ground of appeal is consequential to the above finding,

therefore, same is not required to be adjudicated.

10 ITA 188/JP/2012_ KUMS, Itawa, Kota Vs. ACIT

9. In the result, the assessee's appeals is allowed.

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, Itawa, district- Kota.

2. izR;FkhZ@ The Respondent- The ACIT, Circle-2, Kota.

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. 188/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar