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TMI Blog2016 (2) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The assessee is a Trust registered u/s 12A of the Income Tax Act, 1961 (in short, 'the Act'), as a charitable Trust. It is governed by its Memorandum and Rules and Regulations and is also registered under the Societies Registration Act. The assessee is having religious, educational and charitable nature of activities. For the year under consideration, it declared an income of Rs. 20,76,010/-, which was claimed as exempt u/s 11 of the Act. 3. The AO noticed that the assessee had incurred expenses of Rs. 17,31,291/-, debited as 'Maintenance Expenses' of religious nature. Out of these expenses, the assessee was found to have incurred expenses of Rs. 12,40,475/- on Community Centres which were not run by the assessee Trust. These expenses were held to be expenses incurred on Centers out of the working area of the assessee Trust, since these Centers were under the control of other charitable Trusts. The AO opined that by incurring these expenses, the assessee had infringed the provisions of section 11(3)(d) of the Act. It was observed that the assessee had given its no objection to the disallowance of expenses to the extent of Rs. 12,40,475/-. As such, the AO treated the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeal. The addition made by the AO u/s 11(3)(d) of the Act was deleted. 12. The Department preferred an appeal before the ITAT against the aforesaid order dated 30.01.2009 passed by the ld. CIT(A). 13. The ITAT, vide order dated 21.07.2009, restored the appeal to the file of the ld. CIT(A), observing as follows: "This appeal filed by the Revenue for the assessment year 2003-04 is directed against the order dated 30-1-2009 passed by the learned CIT(A), Jalandhar on the following grounds of appeal:- "1. That, on the facts and in the circumstances of the case, the ld. CIT(A) has erred in law in condoning the delay in furnishing the appeal without appreciating the assessee's persuasion of alternative remedies was not a sufficient and bonafide cause of delay in furnishing the appeal. 2. That, on the facts and in the circumstances of the case, the ld. CIT(A) has erred in not appreciating the addition of Rs. 12,40,375/- had been made by the AO on good ground but on erroneous invocation of the provisions of section 11(3)(d) of the Income tax Act, 1961. The power of the ld. CIT(A) being coterminous with those of AO, the ld. CIT(A) ought to have held that the expenditure of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order but in the interest of justice we are of the view that the matter requires thorough re-examination at the level of the CIT(A). We direct him to pass a detailed order on the delay of 17 months in filing the appeal before him and then pass the order under the law on the issue in dispute." 14. The ld. CIT(A), vide order dated 13.12.2013 once again condoned the delay in the filing of the appeal. On merits, the addition of Rs. 12,40,475/-, made by the AO u/s 11(3)(d) of the Act, was deleted. 15. It is the aforesaid order dated 13.12.2013 passed by the ld. CIT(A), which brings the department in appeal again before this Bench in this second round. 16. The first issue raised by the Department by way of Ground no.1 is that the ld. CIT(A) has erred in condoning the delay in the filing of the assessee's appeal without appreciating that pursuing alternative remedies was not a sufficient and bona fide cause for condoning such delay in the filing of the appeal. 17. Challenging the impugned order, the ld. DR has contended that the law favours the diligent and in the present case, if the assessee was not diligent and was lackadaisical in filing the appeal before the ld. CIT(A), unsuc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of "Collector, Land Acquisition vs. MST Katiji and others", 167 ITR 471 (SC), it has been held that an appeal should be disposed of on merits for meeting the ends of justice. Moreover, the assessee cannot be said to stand to gain anything by filing the appeal after a long delay. Rather, by intentionally filing the belated appeal, the assessee has invited the consequences arising therefrom, i.e., protracted litigation which, at the present stage is in the form of this second appeal in its second round. Now, obviously, the assessee cannot be attributed any malafide intention or ulterior motive in intentionally delaying in the filing of the appeal, in the circumstances. Moreover, even lack of due diligence cannot be ascribed to the assessee, as the assessee, in filing and pursuing the two rectification applications before the AO, acted in good faith on legal advise, which fact has not been disputed. Since the addition in the assessment order was based on the misplaced admission of the assessee, the assessee cannot be said to have erred in filing the rectification applications before the AO rather the filing an appeal before the ld. CIT(A), on legal advice. 22. In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.2009 and reproduced at pages 14-15 of the impugned order; that once the expenditure is religious in nature, it cannot, obviously, be said to be charitable expenditure and the ld. CIT(A) has failed to take this aspect of the matter into account; and that, therefore, the order under appeal on this score is not sustainable in the eye of law and the same be set aside and the addition be restored. 26. On the other hand, while placing strong reliance on the impugned order in this regard, the ld. counsel for the assessee has contended that there is no error in the action of the ld. CIT(A) in taking into account the earlier order dated 30.01.2009 and adopting the reasoning taken therein by his predecessor CIT(A). It has been contended that it remains undisputed that as per the income and expenditure statement furnished by the assessee alongwith the return of income, the total income of the assessee for the year under consideration, from all sources of income, amounted to Rs. 1,66,11,541/-. However, the expenditure of Rs. 12,40,475/- was not incurred out of any accumulate income. It has been submitted that as noted by the AO himself, the amount of Rs. 12,40,475/- was included as amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition was made by invoking the provisions of section 11(3)(d) of the Act. Now, section 11(3)(d) of the Act is applicable in respect of any income referred to in section 11(2) of the Act, which deals with the application of accumulated income of the assessee. Section 11(2) reads as follows: "(2) Where eighty-five per cent, of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:- (a) such person specifies, by notice in writing given to the Assessing Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart, which shall in no case exceed ten years; (b) the money so accumulated or set apart is invested or deposited in the forms of mode' specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication of income accumulated or set apart for application for charitable or religious purposes. 31. In the present case, it has nowhere been the case of the department that there was any accumulation or setting apart of income by the assessee. It remains undisputed that the expenditure was incurred out of the current income of the assessee, since it had not accumulated any income. It was duly taken into consideration by the ld. CIT(A) in para 3.2 of the order dated 30.01.2009, which was followed in the impugned order, that the income and expenditure account of the assessee showed current year's income on account of interest, school fees and miscellaneous income. The expenditure on account of payment to other religious institutions or trusts stood debited against the current year's income only. This remained and remains undisputed. Hence, the ld. CIT(A) cannot be said to have committed any error whatsoever in adopting the line of reasoning taken by the ld. CIT(A) in passing the order dated 30.01.2009, in framing the impugned order. Rather, it would not be inappropriate to reproduce here the aforesaid para 3.2 of the order dated 30.01.2009: "3.2 The income and expenditure accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any income referred to sub-section (2) of the said section, is paid or credited to any trust or institution registered u/s 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or (v) or (vi) or (via) of clause (23C) of section 10, such payment or credit shall be deemed to be the income of the person making such payment or credit, of the previous year in which such payment or credit is made." It has been clarified above that only payments out of accumulated income would not be treated as application of income of the charitable institution and that such payments out of accumulated income would alone be deemed to be income of the trust. In para 21.1 of this Circular, it has been clarified that payments to other trusts and institutions out of income of the current income of the trust would continue to be treated as application of income. The facts in the case of the appellant show that the payment to other trusts/institutions was out of the current income of the trust. Expenditure head of the expenses of the Income and Expenditure account. Thus, as per the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haritable stands accepted by the department in all the subsequent years. The assessee has not been shown to have carried out any activity which is not in consonance with its charitable objects. As such, there is no force in the argument that the expenditure was not incurred for charitable purposes. This issue was never raised before the ld. CIT(A) by the AO, though the AO has a dual capacity, i.e., not only of adjudicator, but also of investigator, and he is a party before the ld. CIT(A). Be that as it may, as discussed, no case stands made out of the expenditure having not been incurred by the assessee for charitable purposes. It has not been shown that the purpose of education of the Fathers, who serve in the various schools of the assessee as teachers, supervisors and principals, etc., is not a purpose towards education. The ld. DR has referred to the chart/table at pages 14-15 of the impugned order, giving details of the expenses. The third column therein narrates the recipient in each case. The ld. DR contends that this narration shows the recipient to be religious Community Centre, religious Ashram and monastery. Thus, as per the ld. DR, expenditure has been incurred towards ..... X X X X Extracts X X X X X X X X Extracts X X X X
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