Income Tax Appellate Tribunal - Ahmedabad
Nandesari Industries Association,, vs The Pr.Cit,(Osd), (Exemption),, ... on 31 December, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "A" BENCH
(BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT
& SHRI MAHAVIR PRASAD, JUDICIAL MEMBER)
ITA. No: 1109/AHD/2015
(Assessment Year: 2010-11)
Nandesari Industries V/S Pr. CIT (OSD),
Association, Plot No. 134/1, (Exemptions), Ahmedabad
Opp. Shopping Centre,
Nandesari-390340
(Appellant) (Respondent)
PAN: AAATN 6770E
Appellant by : Shri T. P. Hemani & P.B. Parmar, A.R.
Respondent by: Shri Kishan Vyas, CIT/ D.R.
(आदे श)/ORDER
Date of hearing : 26 -09-2018
Date of Pronouncement : 31 -12-2018
PER MAHAVIR PRASAD, JUDICIAL MEMBER
1. This appeal by the Assessee is directed against the order of the Ld. Pr. CIT(A), Ahmedabad dated 27.03.2015 pertaining to A.Y. 2010-11 and following grounds have been taken:
2 ITA No. 1109/Ahd/2015. A.Y. 2010-11
1. The learned Pr. CIT has grossly erred in law and on facts in assuming jurisdiction u/s 263 of the Act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue.
2. The Learned Pr. CIT has erred in law and on facts in treating expenditure aggregating to Rs.2,85,05,353/-which were in the nature of contributions as capital expenditure and thereby erred in directing the Assessing officer to make a de-nova assessment for the year under consideration.
3. The Learned Pr. CIT has erred in law and on facts in directing AO to make a de nova assessment after holding that the appellant has applied 66.55% instead of 85% of income towards objects and further erred in holding that the differential amount of Rs.2,05,00,000/- deserved to be disallowed in absence of Form No. 10.
4. The Learned Pr. CIT grossly erred in not appreciating that in order to invoke S. 263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, Id. AO has passed the reasoned assessment order after analyzing all details and therefore there was no error in the impugned assessment order so as to justify action u/s 263 of the Act. Under the ' circumstances, the very assumption of power u/s 263 of the Act is unjustified and bad in law and therefore, order u/s 263 of the Act deserved to be quashed.
5. The Id. CIT has further erred in law in not coming to any concrete conclusion and without conducting any inquiry or investigating the issue, merely directed the AO to frame the assessment order afresh. Without there being any positive finding about order being erroneous and prejudicial to the interest of the revenue, the action of Id. CIT is without jurisdiction and illegal and hence deserves to be deleted.
6. Ld. CIT has erred in not considering various facts, submissions, explanations and clarifications as given by the appellant and further erred in not appreciating the facts and law in their proper perspective.
2. In this case the return of income for A.Y.2010-11 was filed on by the assessee on 31/03/2011 declaring NIL taxable income. The assessment was completed u/s 143(3) of the I.T. Act on 07/02/2013 determine total income of Rs.7,41,130/-.
3 ITA No. 1109/Ahd/2015. A.Y. 2010-11
3. However, from perusal of record it was noticed that AO has forfeited the exemption u/s 13(8) of the I.T. Act, 1961 on the following grounds:
a) The assessee was doing work of water treatment and effluent services for the industries situated in the Nandesari area, so assessee was rendering services in relation to trade, commerce or business.
b) Association was charging fees for these services from various industries.
c) The total receipts was far beyond Rs.25 Lacs.
d) From the record it is noticed that during the course of hearing assessee has stated that they were trade association and working on the principle of mutuality which was disproved as assessee was dealing with the non members outside the group and negating the principle of mutuality.
e) The activities of the assessee is of advancement of any other objects of general utility these cannot be of a charitable purpose, it involves the carrying on of activity rendering any services in relation to any trade, commerce or business for a cess or fee or any other consideration beyond Rs. 25 Lacs, irrespective of the use or application or retention, of the income from such activity.
3. The AO has forfeited the exemption u/s 13(8] of the I.T. Act, 1961, but has allowed the following expenditure which was in nature of capital expenditure.
Particulars Amount (Rs.) Infrastructure Project Margin a/c provision 2,05,00,000/-
Contribution for infrastructure project 34,00,000/-
Infrastructure project 3,49,377/-
ECP contribution 42,55,976/-
4 ITA No. 1109/Ahd/2015
. A.Y. 2010-11
Total 2,85,05,353/-
4. However, it is seen that the assessment was completed without disallowing these capital expenditure. Prima facie the order of the assessing officer seems to be erroneous and prejudicial to the interest of Revenue.
5. At the outset, ld. A.R. submitted a copy of Co-ordinate Bench in assessee's own case for the same assessment year in an appeal in the matter of assessment u/s. 143(3) of Income Tax Act. ITAT already granted relief to the appellant and concerns of the Pr. CIT have also been discussed in the said judgment and relevant para of the judgment is reproduced:
3. The material facts are not in dispute. The assessee before us is a trust looking after welfare and well being of industries situated in Nandesari. Te trust is also providing infrastructure facility to industries of Nandesari. During the relevant previous year the trust has provided water treatment services and effluent services to all members having factories in and around Nandesari Industrial area. In the course of assessment proceedings, the Assessing Officer noted that the water treatment and effluent services provided to the trustees situated in Nandesari were provided in consideration of "fees or cess" and that the receipts, in respect of the same crossed the limit of Rs.25 lakhs. It was in this backdrop the Assessing Officer required the assessee to show cause as to why he should not be treated as assessee being covered by fist proviso to section 2(15) and accordingly declined the status of charitable institution. Upon considering the submissions made by the Assessing Officer, the Assessing Officer was of the view that the assessee is rendering services in relation to trade, commerce or business in consideration for a fees that the receipts of the assessee from such services exceeds the threshold limit of Rs.35 lakhs and accordingly in the light of proviso to section 2(15) read with section 13(8) notwithstanding the registration granted to the assessee as charitable institution the benefit of section 11 & 12 are to be declined to the assessee. While computing so, the Assessing Officer observed as follows :-
"6. Facts of the case 5 ITA No. 1109/Ahd/2015 . A.Y. 2010-11
1. Assessee is doing wok of water treatment and effluent services for the industries situated in the Nandesari area. So assessee is rendering services in relation to trade, commerce or business.
2 Association is charging fees for these services from the various industries. So assessee is providing services for a cess or fees.
3. The total amount of receipts coming from various industries by charging fees, is far beyond the 25 lakhs. So the receipts of the assessee is exceeding 25 lakhs.
4. Assessee is claiming that they are trade association and are working on the principle of mutuality, but this contention is disproved in the discussion in the para 4 as they are dealing with the non-members that is to say outside the group, hence negating the principle of mutuality. This results into the fact that they fall under the first proviso of section 2(15).
Above stated facts are giving sufficient ground to me , to take the opinion that assessee is hit by the first proviso of the subsection 15 of section 2, which was introduced by the Finance Act, 2008 (w.e.f. 1.4.2009), according to which the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any services in relation to any trade, commerce or business, for a cess or fee or any other consideration beyond Rs.25 lakhs, irrespective of the use or application or retention, of the income from such activity. And this led to the forfeiture of exemption u/s 13(8)."
4. Aggrieved, assessee carried the matter in appeal before the ld. CIT(A) but without any success. Ld. CIT(A) while upholding the order of the Assessing Officer on this point inter alia observed as follows :-
"3.3.1. I have considered the submissions of the learned Authorized Representative and the order of the Assessing Officer. There is no dispute that the assessee is rendering services to its clients (entrepreneurs) which in turn engage in manufacturing or other business activities against payment of fee. The fee collected by the assessee is in lieu of services rendered to the industrialists, which by no stretch of imagination can be termed as charitable activity especially after the insertion of proviso to section 2(15) with effect from 1.4.2009. The assessee relied on the judgment of ICAI Accounting 6 ITA No. 1109/Ahd/2015 . A.Y. 2010-11 Research Foundation v. DGIT (Exemptions) [2009] 183 Taxman 462 (Delhi) but the facts of that case are different. The ratio laid down by the Hon'ble Delhi High Court in the aforesaid case is not applicable in the facts and circumstances of the present case.
3.3.2. The activities of the assessee are aimed at earning profit as it is carrying on activity in the nature of trade, commerce or business. Further, profit making by the assessee is not mere incidental or byproduct of the activity of the assessee. The main pre-dominant purpose of assessee is making profit, it is real object of the assessee and also there is no spending of the income exclusively for the purpose of charitable activities and profits of the assessee not used for charitable purpose under the terms of the object and there is no obligation on the part of the assessee to spend it on 'charitable purposes' only. The activities can be considered as trade, business or commercial activity because providing water treatment services and effluent services to all members having factories in and around Nandesari Industrial area involves charging of such fees. As per the amended definition of charitable purpose under Section 2(15) of the Act, w.e.f. 01.04,2009, advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activities in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess of fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.
3.3.3. As discussed above, since the applicant is engaged in the activity in the nature of trade, commerce and business and is engaged in the trade of real estate business predominantly with a profit motive, its engagement in any of the activities as stated above will not affect its character as such since the proviso provides that the advancement of any other object of general public utility shall not be regarded as charitable purpose if it involves in carrying on any activity in the nature of trade, commerce or business or rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application, or retention, of the income from such activity. Assessing Officer has dealt in details all objections of the appellant and passed the order considering various case laws cited by him. There is no infirmity in the order of the Assessing Officer and the same is upheld."
5. Assessee is aggrieved and is in appeal before me. When this appeal was called out for hearing, my attention was invited to a division bench order of this Tribunal in the case of DDIT vs. 7 ITA No. 1109/Ahd/2015 . A.Y. 2010-11 Naroda Enviro Projects Ltd. ITA No.546/Ahd/2013, order dated 29.01.2015, wherein on materially identical facts of the case, similar action of the Assessing Officer was held to have been correctly reversed by the CIT(A) on the basis of following reasons:
"4. After going through rival submissions and material on record, we find that main object of assessee company was converted as per Section 25 of Companies Act clarifies that assessee company is in area of environmental protection, abetment of pollution of water, air, solid, etc. generated by industrial units in and around Vatva and Odhav area of Ahmedabad. Accordingly, Assessing Officer has not disputed the fact that assessee is doing basic activity of treatment of various pollutants generated by industrial units. It is also not disputed by Assessing Officer that surplus generated is not distributed to its members/shareholders, etc. The assessee cannot loose exemption merely on the ground that it has made surplus as long as assessee is not generating surplus for private profit of the settler or any other person. In this situation, Assessing Officer was not justified in holding that assessee was generating surplus or profit making was the predominant object of assessee. Assessee company was incorporated with a sole object to comply with directions of Hon'ble High Court of Gujarat in a PIL for industries of Naroda GIDC for establishment in running of Common Effluent Treatment Plant and its storage and disposal facility at Odhav, Ahmedabad. The project was setup under the directions and guidelines of Hon'ble High Court of Gujarat and various local and state level agencies viz. Collector, GIDC, AMC, GPCB, etc. As per directions of Hon'ble High Court of Gujarat, it was sine-qua-non for industrial units to become member of assessee company for meeting the pollution control parameters laid down by GPCB. The amount collected from the members varied depending upon the quantum of effluent, nature of effluent to be treated as well as other factors pertaining to pollutant of different kind coming from the industrial units. Thus, assessee is engaged in the activity of preservation of environment by abetment and controlling pollution of environment i.e. land, water and air. For this objective, assessee is providing pollution control treatment for disposal of liquid and solid industrial waste. It is undisputed that assessee was incorporated u/s. 25 of the Companies Act. Assessee was duly registered u/s. 12AA and also u/s. 80G(5) of the Income-tax Act. The said certificates were issued after due verification by concern authorities. Assessing Officer has ignored modified objects of assessee's MOU after its conversion as Company u/ s. 25 of the Companies Act. The plain reading of objects of company reveals that main object is protection of environment by abetment of pollution of various kinds like water, air, soil, etc. In this background, activities of assessee company squarely falls u/ s. 2(15) of 8 ITA No. 1109/Ahd/2015 . A.Y. 2010-11 the Income-tax Act. The proviso to Section 2(15) is applicable to objects of general public utility. The same was also clarified vide CBDT Circular No. 11 dated 19.12.2008. Since assessee company is directly engaged in preservation of environment as per Section 2(15), the proviso as pointed by Assessing Officer is not applicable in the instant case. Accordingly, Assessing Officer was not justified to conclude that assessee is not doing any charitable activity. With regards to Assessing Officer's contention that assessee is carrying out business activity and is in the nature of profit making, we find that benefit of exemption cannot be denied on the ground that it had made surplus/ profits as long as it is not meant for private profit of seller. Profit making is not predominant object of activity. Under the facts and circumstances, CIT(A) was justified in holding that assessee is doing charitable activity as per Section2(15) of the Income-tax Act, benefit of Section 11 & 12 of the Income-tax Act is available to it. Accordingly, CIT(A) was justified in directing Assessing Officer to treat the activity of assessee company as charitable and further rightly directed to delete the addition of Rs.2,53,21,438. This reasoned finding of CIT(A) needs no interference from our side. We uphold the same."
6. I have also noted that on somewhat similar material facts, in case of a regulatory body i.e. Himachal Pradesh Environment Protection & Pollution Control Board vs. CIT, 9 ITR (Trib) 604, Chandigarh 'B' Bench of the Tribunal held as follows:-
"8. We have noted that the learned Commissioner has proceeded on the assumption that the scope and connotations of "regulatory function" and "charitable purposes under the Income-tax Act"
are mutually exclusive. While holding that the assessee was not engaged in an activity for charitable purposes, the learned Commissioner has held that since the assessee was engaged in a regulatory function, it could not be said that the assessee was engaged in an activity which could be said to be for charitable purposes. We must, therefore, consider whether or not merely because an assessee is engaged in a regulatory activity, could it be said that the assessee is not involved in activity for charitable purposes.
9. We are unable to see any conflict in an assessee being a regulatory body and its pursuing an "object of general public utility" which qualifies to be a charitable activity under section 2(15) of the Act. The scope of expression "any other object of general public utility" is indeed very wide, though it would indeed exclude the object of private gain such as an undertaking for commercial profit even as 9 ITA No. 1109/Ahd/2015 . A.Y. 2010-11 the undertaking may sub serve general public utility. The hon'ble courts have taken a very broad view of the connotations of "objects of general public utility". In the case of CIT v. Bar Council of Maharashtra [1981] 130 ITR 28 (SC), the hon'ble Supreme Court has held that a State Bar Council, which is clearly a regulatory body under the Advocates Act, is primarily and predominantly for the purposes of "advancement of an object of general public utility within the meaning of section 2(15)". It is not appropriate to proceed on the basis, as the learned Commissioner has chosen to proceed, that regulatory functions are not activities for charitable purposes, for the elementary reason that the expression "charitable purposes", under section 2(15), includes "any other objects of the general public utility" which, as we have noted above, is an expression of wide import. In the scheme of things which operate in the contemporary society, many of these regulatory functions are entrusted to the bodies independent of the Government and the object of the bodies so entrusted with the regulatory functions are, in our humble understanding, clearly pursuing objects of general public utility. We must emphasize once again that the connotations of "charitable purposes", in view of specific provisions of the Act, are significantly wider than connotations of this expression in common parlance."
7. Ld. Departmental Representative's main contention is (1) that so far as the decision in the case of Himachal Pradesh Environment Protection & Pollution Control Board (supra) is concerned, it is in the case of a regulatory body whereas the case before me is of a voluntary association industries and; secondly that if the same activity was to be carried out by a commercial unit, it would have been resulted in taxable income and, therefore, just because several entities are doing it together, it cannot result in tax exempt income. None of these contentions, however, merit acceptance. As for the first point made by the ld. Departmental Representative, it is not the fact of a regulatory body, which is decisive to hold whether or not the proviso to section 15 are satisfied on the nature of activities which are carried out govern that. There is no dispute, that the nature of activities is exclusively the same as carried out by the regulatory body. The limited issue before me is whether in such a situation the proviso to section 2(15) will come into play or not. I, therefore, see no reasons to come to a different conclusion in the case of this assessee just because it is not a government or regulatory body because of the fact which are material. The question before me is pari matria.
10 ITA No. 1109/Ahd/2015. A.Y. 2010-11
8. As regards the second point by the ld. Departmental Representative, once again it is important to bear in mind that undisputedly the assessee trust before me is having common cause and it is not even the case of the Assessing Officer that it involves any commercial venture. The limited objection of the Assessing Officer which has been upheld by the ld. CIT(A) is that proviso to section 2(15) is hit in the present case. That aspect of the matter, as I have noted earlier, has been decided in favour of the assessee by the two division bench decisions of this Tribunal. Hon'ble Telangana and Andhra Pradesh High Court in the case of CIT (Exemptions) vs. Water Land Management Training and Research Institute [2017] 398 ITR 283 (T&AP) has also held so in the context of proviso to section 2(15) of the Act.
9. In the light of the above discussions and respectfully following the binding judicial precedents of the Division Bench as also of the Hon'ble Telangana and Andhra Pradesh High Court in the case of CIT (Exemptions) vs. Water Land Management Training and Research Institute (supra), I uphold the plea of the assessee and conclude that it was indeed not a fit case for invoking proviso to section 2(15) merely because the assessee was charging the fee for the services rendered to the industrial unit.
6. Now appellant is before us.
7. We have gone through the relevant record and impugned order. Assessee is a trust looking after the welfare and well-being of industries situated at Nandesari. The Managing Committee of the assessee-trust also represents problems of industries based in Nandesari at State, Central and Local authority level. The assessee also provides water treatment services and effluent treatment services to all the members having their factories in and around Nandesari Industrial Area.
8. As we can see, Ld. CIT invoked revisionary jurisdiction u/s 263 on following two counts:
11 ITA No. 1109/Ahd/2015. A.Y. 2010-11
1) Certain expenses aggregating to Rs.2,85,05,353/- debited to P&L a/c were "capital" in nature and hence, the same could not have been allowed as revenue expenditure u/s 37;
2) Assessee has applied income to the extent of Rs.4,07,92,391/- which is 66.55% of total income and hence, assessee has not applied 85% of income as provided u/s
11. Further, assessee was required to file Form No. 10 to AO for accumulation of Rs.2,05,00,000/- in stating the purpose and period which has not been done and hence, sum of Rs.2,05,00,000/- is disallowable u/s 11(2); At the outset, issue in original assessment proceedings u/s 143(3) travelled right upto Hon'ble IT AT and Hon'ble IT AT, vide order dated 28.11.17 in "Nandesari Industries Association vs. ACIT - ITA 1704/Ahd/2014 - AY 10-11"
(Annexure "A"), held that proviso to S.2(15) cannot be invoked in assessee's case. CIT invoked jurisdiction u/s 263 for treating certain expenses as "capital" in nature and for non-filing of Form 10 for accumulation u/s 11(2).
As regards treating expenses as capital in nature, once exemption u/s 11 is allowed, it is immaterial whether expenditure is "revenue" or "capital" in nature since all expenses would be treated as "application of income"
• As regards non-filing of Form 10 for accumulation of profits, we can see that no such funds have been accumulated. Rather, the fact is that assessee has applied Rs.6,11,60,3647- (i.e. Total income Rs.6,12,92,391 - Excess of income over expenses Rs.1,32,027) i.e. 99.78% (more than prescribed 85%) as is evident from audited accounts (Pgs.1-11 @ 4-5 of P/B).
9. In support of its contention, ld. AR cited an order of ITAT Kolkata Bench in the case of Poonam Bhotika vs. ITO wherein it has been held:
Provision of Section 263 of the Act does not give any power whatsoever to the Ld. CIT to remit the issue to the file of AO without finding that the order of AO is erroneous in so far as prejudicial to the interest of revenue. Hon'ble Delhi High Court in the case of CIT vs. Sunbeam Auto Limited reported in 332 ITR 167 (Del) held as under:-
"One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate, that would not, by itself, give occasion to the Commissioner to pass orders under section 263 merely because he has different opinion in the matter.12 ITA No. 1109/Ahd/2015
. A.Y. 2010-11 It is only in cases of 'lack of inquiry' that such a course of action would be open."
As there is no doubt that the necessary enquiry, was conducted by the AO and all the relevant documents were available on record as evident from the order of AO as well as Ld. Pr. CIT, we are of the view that there is no error in the order passed by AO and accordingly revisionary proceedings initiated by Ld. PR. CIT u/s. 263 of the Act is not sustainable.
10. As we can see assessee has applied a sum of Rs. 61160365/- (i.e. total income Rs.61292391/- excess of income over expenses Rs. 132026/- and details have been given as follows and same are part of the paper book.
Expenses STP Rs. NIA Rs. Total Rs. Income STP Rs. NIA Rs. Total Rs.
Consent fees 30000.00 0.00 30000.00
Service Tax 4119.00 0.00 4119.00
Infrast. 0.00 349377.00 349377.00
Project Exp.
Insurance 52733.00 4763.00 57496.00
Exp.
Contrn. For 3400000.00 0.00 3400000.00
Infrst. Proj.
Cultural 0.00 148750.00 148750.00
Activity Exp.
Infrast. 20500000.00 0.00 20500000.00
Margin
amount
TDS on Cess 571456.00 0.00 571456.00
TDS on 43315.00 74594.00 117909.00
Interest
ESIC 26927.00 0.00 26927.00
Depreciation 722000.00 83367.00 805367.00
Excess of 389073.34 521100.00 132026.66
Income over
Exp.
Total Rs. 59330322.00 1962069.00 61292391.00 Total Rs. 59330322.00 1962069.00 61292391.00
13 ITA No. 1109/Ahd/2015
. A.Y. 2010-11
11. Above is duly verified by the A.O. and audited by the assessee auditor these details were submitted before the lower authorities same are part of paper book page no. 1 to 11.
12. We just fail to understand when assessee has applied a sum of Rs. 6116035/- how Principal CIT has invoked section263.
13. In support of its contention, ld. A.R. cited in the case of Gujarat Power Corporation Ltd. vs. ACIT 350 ITR 266 has held that the Hon'ble Gujarat High Court, the second question referred to was regarding the issue as to once the Assessing Officer examines a certain claim of the assessee in the original assessment proceedings, raises queries, receives replies, but thereafter makes no additions or disallowances, without giving reasons, it would not be permissible to reopen the assessment.
14. The Gujarat High Court once again in the case of Ganesh Housing Corporation Ltd. vs. DCIT 214 Taxmann 18 expressed an opinion that merely because the assessing officer has not given any opinion regarding allowability or other of deduction, after due verification of the same, cannot be ground for reopening of the assessment.
15. Thus, in this case, assessee has given each and every detail with the lower authority with regard to issues raised by the Principal CIT and Jurisdictional High Court has held in the case of Gujarat Power Corporation Ltd. and Ganesh Housing Corporation Ltd., Vs. DCIT 214 Taxmann.com 18 section 263 cannot be invoked. It is held that merely because the A.O. has not given any opinion regarding allowability or other of deduction, after due verification of the same, cannot be framed for reopening of the assessment. We consider 14 ITA No. 1109/Ahd/2015 . A.Y. 2010-11 that present case assessee has discharged its onus and respectfully following the aforesaid judgments, we quash the order of Pr.CIT U/s. 263.
16. In the result, appeal filed by the assessee is allowed.
Order pronounced in Open Court on 31- 12- 2018
Sd/- Sd/-
(PRAMOD KUMAR) (MAHAVIR PRASAD)
VICE PRESIDENT True Copy JUDICIAL MEMBER
Ahmedabad: Dated 31/12/2018
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad