ITAT upheld disallowance u/s 40(A)(ia) (of Income Tax Act, 1961) on payments made to workers

1. The assessee was a trust registered u/s.12A (of Income Tax Act, 1961) by Director of Income -tax (Exemption), Chennai. The assessee filed return of income admitting Nil income. The return was processed u/s.143(1) (of Income Tax Act, 1961) and the case was selected for scrutiny and notice u/s.143(2) (of Income Tax Act, 1961) was issued. In compliance to the notice, the assessee's Authorised Representative appeared from time to time and filed information and also produced various documents. In the assessment proceedings, the Assessing Officer found that Rs 10,00,000/- was shown as Corpus donation and claimed exempted u/s.11(1)(d) (of Income Tax Act, 1961). The Assessing Officer upon examination of correspondence with the donor and bank statements found that there is no specific direction for making corpus donation and denied exemption u/s.11(1)(d) (of Income Tax Act, 1961) passed assessment order u/s.143(3) (of Income Tax Act, 1961).

2. CIT(E) under revisionary powers issued notice for initiation of proceedings u/s.263 (of Income Tax Act, 1961). The ld.CIT(E) noticed that the assessee had shown contributions received towards Solid Waste Management Implementation Rs 2,05,43,133/- and also found that expenses were debited to the income and expenditure account on account of awareness expenses, project management expenses. It concluded that the assessee's objects are of general public utility and made distinction with the amended provisions u/s.2(15) (of Income Tax Act, 1961) effective from 01.04.2009 and relied on the decision of ITAT, Panaji Bench and concluded that the institution which was incorporated for charitable purpose cannot have profit motive and compared that the assessee trust has received big contribution and the same was not assessed u/s.143(3) (of Income Tax Act, 1961) and considered the assessment is erroneous and prejudicial to the interest of the Revenue. It cancelled the assessment order and directed the Assessing Officer redo the assessment.

3. On appeal, the ITAT held as under:

“We observed that there is no dispute about the genuiness of the trust and activities and compliance of legal provisions of the various laws and the activities are not against any public objective but in favour of the society. The trust being registered under the state laws and the Director of Income Tax (Exemption) granted Registration exemption under 12A and 80G and the accounts are Audited and accepted by the Income Tax Department for earlier years. The surplus generated is only incidental. It is apparent from the facts and evidence produced the assessee's main object is only waste solid management and other objects are incorporated for future prospects. Therefore, the contention of the CIT(E) on the ground of noncharitable purpose cannot be accepted. Further, procedure for applying tender is based on the contributor terms and such activities if considered a commercial activity there will not be any trust working in commerical atmosphere. Since the Assessing Officer has not verified on the grounds of commercial expediency, we are of the opinion that the matter has to be examined. So considering the facts and circumstances we set aside the Revision order u/s.263 (of Income Tax Act, 1961) of CIT(E) for limited purpose to the file of the Assessing Officer to verify the process of tender and applications and whether actions of the trust are in the nature of profit motive and the assessee should be provided adequate opportunity of being heard and file documents to support their contentions and the Assessing Officer shall pass the order on merits.”

Case Reference-Before S/Shri Kul Bharat, JM, & Manish Borad, AM. ITA No.384/Ahd/2012 Asst. Year: 2008-09 Casil Health Products Ltd. Vs. Dy. CIT, Range -1, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL

AHMEDABAD ''B" BENCH - AHMEDABAD