TMI Blog2017 (10) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... ismissed. Claim of provision for bad & doubtful debts - Held that:- We find that the assessee has shown other receipts of ₹ 70,49,240/- which includes provision for bad and doubtful debt of last year (Schedule 11 & 14) of ₹ 53,60,345/-. The assessee in its written submission stated that cost of recovery is very high and the possibility of bad debt is also high as the loans were advanced without any surety or guarantee. We find from the record that the assessee has shown a provision of bad and doubtful debt in the last year for a sum of ₹ 53,61,345/-, which is more than the amount in the year under consideration and the AO has already deducted the same while computing the income of the assessee for the year under consideration. The assessee, therefore, cannot be said to have any grievance of the assessee on this issue. - I.T.A No. 2826/Kol/2013 - - - Dated:- 13-10-2017 - Shri P.M. Jagtap, Accountant Member And Shri S.S. Viswanethra Ravi, Judicial Member For the Appellant : S/Shri K.M. Roy P.S. Gupta, ld.ARs,ADvocate For the Respondent : Shri Sallong Yaden, Addl.CIT, ld.Sr.DR ORDER Shri S.S.Viswanethra Ravi, JM: This appeal by Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of poor persons in their villages, towns etc. for income generation and to help them and their family to rise out of poverty the Assessee was engaged in activities of promoting micro finance services during the year, 2000 as permitted from time to time by the Reserve Bank of India. The assessee was providing micro financial services as per the guide lines given by the Reserve Bank of India. Further the assessee had made application for financial assistance under micro scheme to United Bank of India. State Bank of India, SIDBI, AXIS Bank, CARE NABARD who sanctioned to the Assessee loan for financing the project under Micro Credit Scheme with certain conditions and stipulations which had been duly complied with by the Assessee. There was a surplus of ₹ 74,70,327.00 as disclosed by you in your show cause notice of Micro Finance Activity which was not distributed amongst the members but have been utilized towards exclusively to large number of poor persons in their villages, town etc. for income generation and thus to help them and their fan Lily to rise out or poverty, not with motive of Profit. However Micro Finance Activity is a charitable activity as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sement/ advancement of loan to poor or weaker sections of the society in which the assessee has to incur a lot of expenditure. Moreover, when a loan was given to the poor women, they do not have any surety or guarantee to stand and most of the times the loan could not be recovered from them and that aspect is also to be taken into account by the assessee while granting a loan to the poor woman. No doubt assessee is that charging higher rate of interest from the poor women or the downtrodden or socio-economically weaker section of the society. The reason behind is that most of the time the assessee could not recover the loan from these poor and weaker sections of the society, besides incurring heavy expenditure in maintaining the organized sector. These poor and weaker sections happily agreed with the assessee for loan at higher rate, assessee has accomplished its object of microfinance to the socio-economically weaker sections of the society and also to alleviate poverty beside collecting the interest on the advancement loan. Moreover, this fund was advanced for a shorter period and the assessee has also earned an interest thereon which was utilized in micro financing activity to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the beneficiaries and done only with the motive of providing relief to the poor, can be considered as business at all. It may further be noted that micro finance as an incidental business activity and a charitable activity are two different issues. An NGO shall be exempted only if it is engaged in microfinance as a charitable activity. If an NGO is engaged in microfinance as an incidental business activity, then it will be subjected to the recent amendments to section 2 (15) and such microfinance activity should be only a small portion of its overall activities. From the above clarification and from the recent Income Tax cases, it is clearly stated that the Microfinance activities of the Assessee is a charitable activities and surplus earned is exempted u/ s.1I of the Act and the assessee has not lost the status of charitable organization. So no question of charging of tax on the surplus of the Microfinance activities is arise. The Assessee has maintained proper books of accounts which have been Audited regularly. As per Schedule 15 of the Audited Statement of Accounts, the expenditure was financial expenses that is interest on borrowings which have been c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der is quoted as under :- We have carefully perused the aforesaid decision in the case of Janalakshmi Social Services (Supra). In this case, we find that the assessee was providing finance to a particular section of society i. e. traders dealing in vegetables and fruits, and making purchases from Safal. The assessee was availing of loan facility from Banks/Financial Institution at interest rates ranging from 8.5 per cent to 9 per cent and such loan facility was extended to so called poor people in urban areas at rates ranging between 18% to 24% per annum in addition to burden of processing and service charges between 1 to 2 per cent. It was also found in that case that the assessee company was not reaching to individual beneficiaries directly but was doing so through NGOs and SHGs from whom it charges high interest rate. It was thus, held that the assessee was undertaking only business of micro financing and had not done any activity to show that it had been done as a charitable act. This case is totally distinguishable on facts from the facts of the present case. In the present case, it is not a case, where the assessee has been providing finance to a particular section of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. Thus to be covered under the definition of relief to poor, the micro-financing should be incidental to the attainment of the objectives of the entity. In this case as seen from the Audited accounts, micro financing is the predominant activity. 8. Before us the ld.AR submits that the assessee is a charitable institution and conducting its business in providing loans to weaker sections. Without considering the same, the AO arbitrarily denied the allowances in view of amendment to section 2(15) of the Act. He further submits that the assessee was registered under the Society s Registration Act in the year 1972 and the assessee was granted registration u/s. 12A of the Act. Since then the assessee was engaged in charitable activities which includes relief of the poor, education, medical relief and other object of general public utility with the own finance i.e. donations and grants received foreign contribution and Govt. of India. The ld. AR submits that the assessee introduced self help group (SHG) as a corner stone of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities as per CBDT Circular No.11/2008 dt. 19-12-08. The CIT-A failed to understand the restriction of the amount of ₹ 10,00,000/- in relation of the advancement of any other object of general public utility . The ld.AR argued that the claim of the assessee having charitable activities was denied completely as bad in law and void an initio and the registration u/s. 12AA of the Act is in operation and should be treated as a society having charitable activity like relief of the poor and the expenses toward charitable activities should be considered and allowed as application of income towards charitable activities and placed his reliance. In support of the contention, he relied on the order of Visakhapatnam Tribunal in the case of Spandana (Rural Urban Development Organisation) Vs. ACIT reported in (2010) 40 DTE 153 (Viskha-Trib) and argued that micro finance activity is a charitable activity and socio-economically weaker sections of the society. He further submits that the AO has no power to deny the right of claim of exemption u/s. 11 of the Act, in view of the fact that the assessee trust obtained registration u/s. 12AA of the Act and income of the assessee should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object without any protest. 20. In view of above, the ld.AR of the assessee prayed that the principles laid down by the Hon ble SC/High Courts in the cases of supra above the determining the income to the tune of ₹ 59,05,970/- should be deleted in full by application of exemption u/s. 11 of the Act. 21. On the other hand, the ld.DR submits that the assessee is not giving loans directly to the beneficiaries and the AO found lending of finances to self help group was a pre-dominant activity and taking advantage of the poor families the assessee charged interest @ 24%. The CIT-A has rightly held that it is a commercial activity. The ld.DR relied on the orders of the AO CIT-A. 22. Heard rival submissions and perused the record and considered the written submission. We find that the assessee declared in its audited accounts excess income over expenditure, but being charitable institution not offered the same to tax. The AO show caused the assessee by finding that the assessee earned interest income on money lending to small help group, which is not object of the assessee trust and why the said income should not be treated as income of the assessee trust and taking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignored the registration of the assessee granted u/s. 12AA of the Act in denying the claim of exemption. The ld.AR also argued that rule of consistency should be followed by placing his reliance on the decision of the Hon ble SC in the case of Radha Swamty Satsang supra, which held that the AO should not interfere with the fundamental aspect permitting through the difference assessment years. In our opinion that prior to adding proviso to section 2(15), the entities which got registration u/s. 12AA engaged in commercial activity claimed exemption on the ground that such activities were for advancement of objects of general public utility in terms of 4th limb of definition to section 2(15) of the Act. We find that the said benefit was taken away by adding proviso to section 2(15) of the Act, wherein it explains that the advancement of any other object, general pubic utility shall not be charitable purpose. In our opinion that the AO and the CIT-A opined that the assessee conducted its activities on commercial line in the nature of trade, commerce or business. Therefore, they rightly denied the exemption by following statutory provisions. We do not find any infirmity in the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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