Case Law Details
Sampath Vinayagar Temple Trust Vs CIT (Exemptions) (ITAT Visakhapatnam)
No Section 12A Registration, No Capital Expenditure allowed: ITAT Visakhapatnam; Without 12A Registration, Temple Trust Loses 263 Battle on Capital expenditure Claims
Assessee, not registered u/s 12A, claimed exemption u/s 11 in returns. AO completed assessments treating it as an AOP, denying exemption but allowing the entire payments as revenue expenditure without verifying their nature.
CIT(E), in revision, noted that large portions of payments (₹75.83 lakh in AY 2011-12) were capital in nature & not allowable from revenue receipts.
Assessee argued that revision was invalid since appeals against AO’s orders were pending before CIT(A) (merger doctrine) & orders were neither erroneous nor prejudicial to revenue.
Tribunal ruled that appeals before CIT(A) concerned denial of exemption u/s 11 & 10(23BBA), while the 263 issue related to wrong allowance of capital expenditure as revenue expenditure, a distinct matter not in appeal. AO had not examined the nature of payments, making the order erroneous & prejudicial to revenue. Capital expenditure cannot be deducted when exemption u/s 11 is not available.
Tribunal ruled that Doctrine of merger is not applicable to issues not in appeal before CIT(A).CIT(E) rightly invoked section 263 & revision order is upheld.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
These appeals are filed by the assessee against the order of the Commissioner of Income Tax [Exemptions] [CIT], Hyderabad vide F.No.CIT(E)/Hyd/263/3/2015-16 dated 14.03.2016 for the assessment year 2011-12 and 2008-09. Since the issues involved in these appeals are common, the appeals are clubbed , heard together and disposed of in common order for the sake of convenience.
2. In the appeal the assessee filed the following grounds of appeal :
(i) The Order of the Learned Commissioner of Income Tax (Exemptions), Hyderabad, is contrary to Law mid facts of the ease.
(ii) The Order of the Learned Commissioner of Income Tax (Exemptions), Hyderabad, is not in accordance with law, as the order which was revised by the Commissioner of Income Tax (Exemptions) Hyderabad, was already an order subjected to appeal by the Commissioner of Income Tax (Appeals), Visakhapatnam.’ Hence, the order passed by the Learned Commissioner of Income Tax (Exemptions), Hyderabad, is not maintainable and maykindly be cancelled as voidab-initio.
(iii) The Learned Commissioner of Income Tax (Exemptions), Hyderabad, is also not justified in invoking the provisions U/s.263 of the I.T. Act, as the order passed by the Assessing Authority is not erroneous and not prejudicial to the Revenue – Hence, the Appellant Trust prays the Honourable Bench, to kindly cancel the order passed by the Learned Commissioner of Income Tax (Exemptions), Hyderabad, –
(iv) For these and other grounds that maybe urged at the time of Appeal hearing, the Appellant ‘prays the Hon’ble LT.A.T. Visakhapatnam, for relief.
3. Ground Nos. 1 and 4 are general in nature which do not require specific adjudication.
4. Ground No.2 is related to the validity of order passed by CIT (E) u/s 263 when the assessment order of the AO was a subject matter of appeal before the CIT(A). The assessee is of the view that the CIT is not empowered to take up the case for revision during the pendency of appeal before the CIT(A).
5. The assessee filed return of income declaring total income of Rs. Nil after claiming exemption u/s.11 of the I.T.Act. on 29.09.2011. The case was selected for scrutiny and the Assessing officer (AO) found that the assessee was not granted the registration u/s 12A and hence not entitled for exemption u/s 11 and 12. Accordingly, the AO has treated the assessee as AOP and completed the assessment for the AY 2011-12 on total income of Rs.73,60,760/-. The gross receipts of the assessee were Rs.2,07,26,908/-and the AO allowed the entire payments of Rs.1,33,66,150/- as deduction and assessed the balance as income.
5.1. In respect of assessment for the AY 2008-09 the assessment was completed on total income of Rs.46,45,640/-. The gross receipts of the assessee were Rs.1,17,14,097/- and the AO allowed the entire payments of Rs.70.68.459/- and assessed the balance amount for the purpose of income tax.
6. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and filed the appeal. During the pendency of appeal before the Ld.CIT(A), the CIT has taken up the case for revision u/s 263 and observed that out of the total payments allowed by the AO, a sum of Rs. 75,83,315/- was capital expenditure which is not allowable from the gross receipts and accordingly found the order of the AO was erroneous and prejudicial to the interest of the Revenue. Hence, the CIT has set aside the assessment order of the AO passed u/s 143(3) r.w.s. 147 dated 28.02.2014 and directed the AO to redo the assessment after verifying the details.
7. Aggrieved by the order of the CIT, the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR argued that the assessment in this case was completed by AO u/s 143(3) r.w.s. 147 and assessed the total income at Rs.73,60,760/- and the assessee filed appeal before the CIT(A) against the order of the AO. Since the appeal is filed before the CIT(A) and the same was pending, the Ld.AR was of the view that the order of the AO was merged with the CIT(A) and the CIT is being parallel authority, not empowered to take up the case for revision u/s 263. Hence, Ld.AR viewed that the order passed by the CIT u/s 263 is not maintainable and required to be quashed.
8. Per contra, Ld.DR argued that the CIT(E) is vested with the powers under section 263 to revise the orders passed by the AO. The only requirement is the order passed by the AO must be erroneous and prejudicial to the interest of the Revenue . There was no provision in the Act prohibiting the CIT to exercise powers under section 263, when the appeal is pending. The issues taken up by the CIT for revision u/s 263 were not examined by the AO and has not made any additions and were not agitated in appeal. The assessee has filed appeal before the CIT(A) with regard to granting of registration and to allow the exemption u/s 11 and 12 of the I.T.Act. The issue taken up by the CIT u/s 263 was relating to capital expenditure claimed by the assessee as revenue expenditure. Both the issues are different and independent. Therefore, the theory of merger is not applicable for the issues which are not pending in appeal. Since the issues raised by the CIT u/s 263 are not in appeal pending before the CIT(A), Ld.DR argued that there is no error in the order passed by the CIT(E) u/s 263 and no interference is called for.
9. We have heard both the parties and perused the material placed on record. The assessment in this case was completed u/s 143(3) r.w.s. 147 by an order dated 28.02.2014 for the A.Y 2008-09 and for the A.Y.2010-11 u/s 143(3). In the orders passed the AO has denied the exemption u/s 11 and 12 for assessee’s failure to produce evidences granting registration u/s 12A of I.T.Act. The assessee had received total receipts of Rs.2,07,26,908 and made the payments of Rs.1,33,66,150/-. The AO has allowed the entire payments without examining the nature of expenditure for both the years. There was no indication in the assessment order that the AO has verified the nature of payments. It was also evident from the assessment order that the AO has not made any verifications with regard to the payments. The assessee filed appeal before the CIT(A), agitating the denial of exemption and requested the CIT(A) to grant the exemption u/s 11 and 10(23BBA). The CIT during the revision proceedings found that the assessee had made the payments for capital expenditure and claimed as revenue expenditure which is not allowable. Hence, the CIT has taken up the case for revision and held that the order passed by the AO was erroneous and prejudicial to the interest of the revenue. The issue with regard to the allowability of capital expenditure out of the revenue receipts was not examined by the AO and the same was not pending before the CIT(A). Therefore, as per provisions of section 263, the CIT has rightly taken up the case for revision u/s 263. The Ld.AR did not bring any judgement or decision in support of his argument. Therefore, we do not find any infirmity in the order of the Ld.CIT and the same is upheld. The assessee’s appeal on this ground is dismissed.
10. Ground No.3 is related to the validity of invoking the provisions u/s 263 of I.T.Act. The assessee is of the view that the assessment passed by the AO is neither erroneous nor prejudicial to the interest of the revenue, hence, the Ld.CIT should not have taken up the case for revision.
11. On the other hand, the Ld.DR relied on the orders of the Ld.CIT.
12. We have heard both the parties and perused the material placed on record. As per the assessment order from the gross receipts the assessing officer allowed entire payments as revenue expenditure. The AO has allowed the entire payments without verifying nature of expenditure. During the revision proceedings, the CIT found that the assessee had made payments for capital expenditure and claimed the same as revenue expenditure which was an error and prejudicial to the interest of revenue. The Ld.AR did not place any evidence to establish that the payment was not incurred for capital purpose. The assessment is completed treating the assessee as AOP and taxable entity. The assessee is not enjoying exemption u/s 11 & 12. Hence the voluntary contribution received by the assessee is taxable income u/s 2(24)(iia) and only the revenue expenditure is allowable deduction. In the instant case, the AO allowed the entire payments as revenue expenditure without verifying the nature of expenditure which included the capital payments. Since the capital expenditure is not allowable, the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue, and the CIT has rightly invoked the provisions of section 263 of the Act and set aside the order of the AO. Therefore, we do not find any error in the order passed by the CIT and the same is upheld.
12. In the result, appeals of the assessee are dismissed.
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