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ITO, Ward-1, Eluru Versus Agricultural Market Committee Polavaram

2016 (3) TMI 546 - ITAT VISAKHAPATNAM

Denial of benefit of exemption u/s 11(2) - Held that:- It was not a case of A.O. that there was no form at all. If at all, any defects in the form, they are procedural defects and which can be rectified. There is no specific bar prohibiting the assessee from modifying the figures of accumulation as held by the Hon’ble High Court of Punjab & Haryana in the case of CIT vs. Simla Chandigarh Diocese Society (2009 (8) TMI 103 - PUNJAB AND HARYANA HIGH COURT) . In any case period of accumulation canno .....

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d u/s 11 of the Act.

Depreciation claim - Held that:- Depreciation on assets, the cost of which was allowed has application of income in earlier year is to be allowed while computing the income available for application for charitable purpose. The CIT(A) rightly directed the A.O. to allow the depreciation. We do not see any error or infirmity in the order passed by the CIT(A).

Application of income towards release of funds to Horticulture department - Held that:- The assess .....

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ity, which is coming under one of the objects of the assessee. Therefore, we are of the opinion that the amount spent for the welfare of farmers and paid through horticulture department as directed by the Govt. is application of income for charitable purpose. The CIT(A) has rightly deleted the addition subject to verification by the A.O. We do not see any error or infirmity in the order passed by CIT(A). Hence, we inclined to upheld the order of CIT(A) and set aside the issue to the A.O. for the .....

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MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Smt. D. Komali Krishna, DR For The Respondent : Shri G.V.N. Hari, AR ORDER PER Bench: These cross appeals filed by the assessee s as well as revenue are directed against the separate, but identical orders of CIT(A), Guntur for the assessment year 2005-06 and 2008-09. Since, the facts are identical and issues are common, these appeals are clubbed, heard together and disposed off by way of this common order for the sake of convenience. 2. The brie .....

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the Act dated 16.11.2010. In response to notice u/s 148 of the Act, the assessee filed a letter on 28.12.2010 and requested to treat the return filed on 14.10.2010 as return filed in response to notice u/s 148 of the Act. The case was selected for scrutiny and accordingly, notice u/s 143(2) of the Act was issued on 5.7.2011. In response to notice, the Authorised Representative of the assessee appeared on 3.8.2011 and produced books of accounts, audit report and bills & vouchers and the case .....

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Assessment Year 2004-05 had held that section 10(26AAB) of the Act is prospective in nature and accordingly applicable from Assessment Year 2009-10 onwards. Therefore, issued a show cause notice dated 28.11.2011 and asked to explain why the exemption claimed u/s 10(26AAB) of the Act should not be denied. The assessee neither appeared nor filed any explanations to the show cause notice issued by the A.O. objecting the proposed rejection of exemption. The A.O. further noticed that there was an ex .....

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ome was accumulated or set apart. (3) the income was set apart or accumulated for the purpose of development of markets for agricultural committees, protection of interest of farmers/sellers and providing godown facility to farmers for storage of commodities which is general in nature and not specific. Therefore, for these reasons, the Assessing Officer was of the opinion that the form no.10 filed by the assessee along with return of income was defective in nature and non-est in the eyes of law. .....

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e of Director of Income Tax (Exemption) Vs. Trustees of Singhania Charitable Trust reported in 199 ITR 819. 4. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee challenged the denial of benefit of exemption u/s 11(2) of the Act and also challenged the disallowance of depreciation claimed by the assessee. As for as first issue of rejection of form no. 10 and denial of exemption under sec. 11, the assessee submitted that the form no .....

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ble ITAT, Visakhapatnam bench in the case of AMC Bhimadole, in ITA No.247/Vizag/2009 dated 8.11.2012, under similar facts and circumstances allowed the assessee appeal and held that form no.10 filed with one or more objects of the assessee is valid. Therefore, considering the facts and circumstances of the case and also considering the fact that the assessee is enjoying registration under sec. 12A of the Act, allowed to file revised form no. 10 rectifying the said defects and allow the benefit .....

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g it invalid. The CIT(A), further observed that section 11(2) of the Act, stipulates that the income sought to be accumulated and the period of accumulation should be specified. Since, the same have not been done I hold that accumulation of income cannot be permitted as sought by the appellant. 5. As far as the issue of depreciation is concerned, the assessee submitted that the Assessing Officer should have allowed the depreciation as a deduction while computing the income available for applicat .....

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er considering the explanations furnished by the assessee directed the A.O. to allow the depreciation. Aggrieved by the CIT(A) order, the assessee as well as revenue are in appeal before us. 6. The first issue came up for our consideration is rejection of revised form no.10 and denial of exemption u/s 11 of the Act. During the course of hearing, the ld. A.R. of the assessee submitted that the issues involved in these appeals is squarely covered by the decision of ITAT, Visakhapatnam bench in the .....

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sment proceedings. Since, appellate proceeding is extension of assessment proceedings, the form can be filed before appellate authority. The CIT(A) erred in denying the revised form no. 10. The assessee has already filed form along with return of income. In case any defects in form no. 10, which is procedural defect which can be rectified at any time. The A.R. further submitted that the fact remain unchanged that the assessee is enjoying benefit of exemption under sec. 11. If exemption is denied .....

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D.R., further submitted that once the whole expenditure incurred towards acquisition of capital asset is allowed as deduction as application of income, further deduction towards depreciation amounts to double deductions, the same cannot be allowed in computing the income available for application u/s 11 of the Act. 8. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The Assessing Officer denied the benefit of exemptio .....

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d in the form no 10 filed along with return. The Assessing Officer further observed that as per rule 17 of Income Tax Rules, 1962 when assessee claims exemption u/s 11(2) of the Act, it has to file form no.10 specifying in writing the purpose for which the income is being accumulated or set apart and the period for which the income is to be set apart and also the amount of income accumulated or set apart and the manner in which the income accumulated was invested u/s 11(5) of the Act. In the pre .....

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e the completion of assessment. But, the Assessing Officer has not given any opportunity to rectify the form at the time of assessment proceedings, therefore, the CIT(A) should have allowed to file the revised form no.10 before the appellate proceedings. 9. The Ld. Authorized Representative, at the time of haring submitted that the issue is squarely covered by the decision of ITAT, Visakhapatnam bench in ITA No.226/Vizag/2009. We have gone through the case law referred by the Ld. A.R. in the lig .....

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benefit for accumulation of income as the relevant form no.10 was filed belatedly. The Ld. CIT(A) following the principles laid down by the Hon ble Supreme Court in the case of CIT Vs. Nagpur Hotel Owners Association 247 ITR 20(SC), wherein it was held that the notice for accumulation of income could be given any time before the conclusion of the assessment proceedings, allowed the assessee s contention with a direction to accept the form no.10. However, the Ld. CIT(A) upheld the assessing offic .....

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so far as failing to indicate specific purpose for accumulation of its income. 4. It was fairly admitted that this issue was covered by the decision of the coordinate bench in similar group of cases, wherein the matter was set aside to the file of the assessing officer by observing as under: 6. The first defect pointed out by the Assessing Officer is with regard to the purpose of accumulation of funds. In the Form No. 10, these assessees have stated the purpose of accumulation as under:- For be .....

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haritable Trust, we notice that the assessee therein had listed all the charitable objects for which it was created as the purpose of accumulation. Definitely that is not the case in the instant appeals. It is a settled position of law that the purpose of accumulation should be precise and specific and further, the plurality of purposes is also not prohibited. In this view of the matter, this issue requires fresh examination at the end of the Assessing Officer, as he has considered the "pur .....

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rust deed requires the trust to utilize its funds for charitable purposes which are medical relief, education and relief to the poor. In the application seeking exemption, the assessee has specified these three objects. It was not required for the assessee to be more specific with regard to the utilization of the funds. Plurality of purposes is permitted and if it so happens that an assessee has only three objects or purposes, it may well utilize the funds for all the three objects and purposes. .....

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ntion all its objects without being specific. 6. Further, Hon ble Punjab & Haryana High Court in the case of CIT Vs. Market Committee 201 Taxman 235 also considered similar issue and held as under: Where in the application for accumulation of income, the assessee had stated that accumulation of the funds has been made for development of works and Tribunal clearly found that the purpose stood specified and it was statutory purpose for utilizing the amount i.e. development as per s. 28 of Punj .....

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conditions under s. 11(2) of the Act. On appeal the said addition was deleted by the CIT(A) holding that the accumulation was as per the statutory provisions. The said view has been upheld by the Tribunal as follows : "Merely because the assessee has mentioned development works in general manner, in Form No. 10, it cannot be said that the primary condition of s. 11(2) has not been fulfilled as so observed by the Hon'ble Delhi High Court in the case of Director of IT vs. Mitsui & Co. .....

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Agriculture Produce Marketing Act, 1961. The purposes listed in s. 28 of Punjab Agriculture Produce Marketing Act, 1961 are undoubtedly in the nature of development works. Therefore, the order of learned CIT(A) in directing the AO to allow the exemption in respect of the fund accumulated for development works is justified." We have heard learned counsel for appellant. 3. The condition for excluding accumulated income of a charitable institution from total income is specification of the purp .....

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(b) of sub-s. (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 : ( .....

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ncome as per provisions of section 11(2) is restored to the file of the assessing officer with a direction to examine and allow the claim after affording due opportunity of being heard to the assessee. 10. Considering the facts and circumstances of the case, we are of the opinion that the Assessing Officer and the CIT(A) was erred in rejecting the revised form no. 10 and denied the benefit of exemption u/s 11(2) of the Act. On perusal of facts, we noticed that the assessee has filed form no.10 a .....

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Owner s Assocation (2001) 247 ITR 201 held that form no. 10 can be filed any time before completion of assessment. The Hon ble Gujarat High Court in the case of CIT vs Mayur Foundation (2005) 274 ITR 562, held that where the assessment is in appeal, the assessment should be treated as pending, so that it could be filed even at the appellate stage by way of additional ground. In the present case on hand, from the facts it was clear that the assessee has filed for no 10 along with return. It was .....

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the period of accumulation is five years. Therefore, we are of the opinion that the CIT(A) should have allowed the assessee to file the revised form no.10 rectifying the defects pointed out by the A.O., which was not done. Therefore, we deem it appropriate to remit the issue back to the file of the A.O. and direct the A.O. to allow the assessee to file revised form no.10 and consider the exemption claimed u/s 11of the Act. 11. The next issue, came up for our consideration is whether the CIT(A) .....

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ted by applying commercial principles, therefore, depreciation being a permissible deduction, while computing the income under the commercial principles, the same should be allowed as deduction. The assessee further contended that the decision of Escorts Limited (supra) is rendered under different context, which cannot be made applicable to the facts of present case. 12. We have considered the rival contentions, perused the materials available on record and gone through the case laws. The Ld. A. .....

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im of depreciation not allowed for want for details. There is no dispute with reference to the issue that assessee is eligible for depreciation. Various judicial authorities have considered the issue of claim of depreciation on capital assets from the income of charitable trust for determining the quantum of funds which have to be applied for the purpose of trust in terms of section 11 of the Act. The Hon ble High Court of Punjab & Haryana in the case of CIT Vs. Market Committee, Pipli has c .....

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2) 105 CTR (Guj) 303 : (1992) 198 ITR 598 (Guj), CIT Vs. Institute of Banking Personnel Selection (2003) 185 CTR (Bom) 492 : (2003) 131 Taxman 386 (Bom), CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485 (Mad), CIT vs. Society of the Sisters of St. Anne (1984) 39 CTR (Kar) 9 : (1984) 146 ITR 28 (Kar) and CIT vs. Raipur Pallottine Society (1989) 80 CTR (MP) 127 : (1989) 180 ITR 579 (MP) concurred with; Escorts Ltd. vs. Union of India (1992) 108 CTR (SC) 275 : (1993) 199 ITR .....

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. In view of the above and respectfully following the coordinate bench decision in ITA No.226/Vizag/2009, we are of the opinion that depreciation on assets, the cost of which was allowed has application of income in earlier year is to be allowed while computing the income available for application for charitable purpose. The CIT(A) rightly directed the A.O. to allow the depreciation. We do not see any error or infirmity in the order passed by the CIT(A). Hence, we inclined to uphold the order pa .....

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donates its income to another trust having similar objects, the provisions of section 11(1)(a) of the Act said to have been met by such donor trust/institution and the donor trust can be said to have applied its income for charitable objects. But, in the present case, the assessee diverted its funds to other department/organizations which are not charitable trust/institution, therefore, the payments made to other departments is not eligible for exemption u/s 11 of the Act. It was the contention .....

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ovt. organization, constituted under sec. 15 of Andhra Pradesh (Agricultural Produce and Livestock) Market Act, 1966 is authorized to spend funds specified by the Government through general or special orders. Therefore, when the Government is directed to spend amount for particular purpose as per the said Act, the assessee is bound to follow the instructions of the Government. The amount is paid to farmers in the form of horticulture subsidy for establishment of cold storage facility, which is c .....

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se or not. 15. The Ld. D.R. argued that the amount paid to other department/organization is not amounts to application of income u/s 11 of the Act. The Ld. D.R. further argued that the assessee has made the payment without any purpose, therefore, the A.O. has rightly disallowed the amount and his order should be upheld. On the other hand, the Ld. A.R. of the assessee submitted that the issue is squarely covered by the decision of ITAT, Visakhapatnam bench in the case of ITA No.226/Vizag/2009. Th .....

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he directions of Director of Marketing which assessing officer did not allow and the Ld. CIT(A) sustained the addition on the reason that the directions of the Director of Marketing were not filed. It was the submission of the assessee that at the relevant point of time the directions could not be located but they are filed as additional evidence before us. However, allowance of the expenditure consequent to the directions of Director of Marketing has already been decided in a way by Hon ble Jur .....

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under: 17. The decision of the Supreme Court in Sreenivasa General Traders vs. State of A.P., AIR 1983 SC 1246 : (1983) 4 SCC 353, contains an overview of the AMC Act in paras 11 to 15. Instead of this Court again giving an overview of the Andhra Pradesh AMC Act, it is useful to extract these paras hereunder : "11. The object and purpose of the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 as reflected in the long title is to consolidate and amend the law relating t .....

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. 2 is the definition clause and defines the expression 'agricultural produce' in cl. (i) to mean anything produced from land in the course of agriculture or horticulture and includes forest produce or any produce of like nature either processed or unprocessed and declared by the Government by notification to be agricultural produce for the purposes of this Act. The term 'market' as defined in s. 2(vi) means a market established under sub-s. (3) of s. 4 and includes market yard a .....

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e objections and suggestions, if any, the State Government is authorised to publish a final notification under sub-s. (3) thereof declaring such area to be a notified area. By sub-s. (1) of s. 4, the State Government is empowered to constitute a market committee for every notified area which shall be a body corporate having perpetual succession and a common seal. The duty of enforcing the provisions of the Act and the rules and byelaws is entrusted to a market committee under sub-s. (2) thereof. .....

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by notification the market area and such other area adjoining thereto as may be specified in the notification, to be a notified market area for the purposes of the Act. . . . . . . 12. Under the scheme of the Act, the market committee is enjoined by sub-s. (1) of s. 14 to pay into a fund called the 'Market Committee Fund' all moneys received from the traders as market fee on transactions of sale or purchase of agricultural produce taking place within the notified market area and they ar .....

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Government with their consultation. Where such additional staff is employed for the purposes of one or more market committees, the State Government has to apportion the cost of such special or additional staff among the market committees concerned in such manner as they think fit. Under sub-s. (3), the market committee may grant loans to another market committee out of its surplus funds, with the previous sanction of the State Government, at such rates of interest as may be prescribed. The purpo .....

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) the pay, pensions, leave allowance, gratuities, compassionate allowances and contribution towards leave allowances, pensions or provident fund of officers and servants employed by the market committee; (vi) the payment of interest on loans that may be raised for purposes of the market and the provisions of a sinking fund in respect of such loans; (vii) the collection and dissemination of information regarding all matters relating to crop statistics and marketing in respect of notified agricult .....

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he expenses of, and incidental to, the conduct of elections; (xi) the promotion of grading services; (xii) measures for the preservation of food grains; (xiii) such other purposes as may be specified by the Government by general or special order; 13. Sub-s. (1) of s. 16 of the Act provides that there shall be formed for the whole of the State a fund to be called the 'Central Market Fund'. Every market committee is required to contribute 10 per cent of its annual income to the Central Mar .....

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tee for a period not exceeding three years; (iii) grant of loans to the market committees at such rates of interest as are charged on loans granted by the Government for development purposes; and (iv) such other similar or allied purposes as may be specified by the Government by general or special order.' 14. In exercise of the powers conferred by s. 33 of the Act, the State Government of Andhra Pradesh have framed the Andhra Pradesh (Agricultural Produce and Livestock) Markets Rules, 1969. .....

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gricultural produce, livestock and products of livestock in the State of Andhra Pradesh. We are here concerned with Chapter V 15. Marketing legislation which seeks to enable producers to get a fair price for the commodities by eliminating middlemen and providing a regulated market, cannot be said to impose 'unreasonable restriction' on the citizens right to do business unless it is clearly established that the provisions are too drastic to achieve the object for which it was enacted. In .....

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ltural produce. Sec. 12 empowers the market committee to levy fees on agricultural produce, purchase or sale in the notified market area. These monies form the market committee fund and shall have to be spent in accordance with the provisions of s. 14 and the Andhra Pradesh (Agricultural Produce and Livestock) Markets Rules, 1969 (the Rules, for brevity). 19. It may, therefore, be taken as well accepted that the AMCs discharge an important duty and function of protecting the interest of a large .....

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sion and a common seal with power to acquire, hold and dispose of the property and may by its corporate name sue and be sued. It is required to establish as many number of markets as the Government may direct for the purchase and sale of notified agricultural produce and shall provide such facilities as may be prescribed by the Government [s. 4(3)(a) of the AMC Act]. There is no dispute that all the AMCs provide platforms, godowns, necessary infrastructural facilities like roads, rest houses, wa .....

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ects only. Therefore, the issue is no longer res integra as the State Government has power to grant/sanction amounts for any other purpose by a general or specific order. These funds are to be utilized for the purpose of objects only. Accordingly, the amounts involved and paid as per the orders of the Director, Marketing are to be allowed as expenditure/application for the purpose of objects of the assessee. In view of this, the A.O. is directed to allow such claims, subject to verification of t .....

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