The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, has recently, in an appeal filed before it, while granting relief to Ride a Cycle Foundation, held that the applicability of S. 2(15) of the Income Tax Act, shall not be based on the default of parties.
The aforesaid observation was made by the Bangalore ITAT, when an appeal was preferred before it by the assessee, M/s. Ride A Cycle Foundation, as against the order dated 10.10.2022 of NFAC, Delhi, relating to Assessment Year 2017-18.
The facts of the case were that the assessee was a registered trust, who enjoyed the benefit of registration under section 12A of the Income Tax Act, 1961, by the CIT(A), Karnataka II, Bengaluru. And the main objects of the trust were creating awareness for the society about the virtues of using cycle as well as to make cycle as a popular mode of transportation that would lessen global warming and air pollution. The assessee also had the object of making people understand, the need for uncontaminated environment which in turn will lead to good quality of health.
It so happened that the assessee had filed its return of income declaring Nil income after claiming exemption under section 11 of the Income Tax Act, while it was so noticed by the AO that the assessee organizes trips and camps by way of “Cycle Rally”, to tourist places such as Kalapetta, Ooty, Palakkad, Valparai, Mysore, etc., and that the participants pay for the cycle rides and for food and lodgings at designated places.
According to the AO, the assessee was doing an activity which was akin to trade or business, for even though the receipts from the participants were taken as donation by the assessee, but in reality, they were fees for participation in rallies disguised as donations. The AO therefore, concluded that the assessee was hit by the proviso to section 2(15) of the Income Tax Act, that the excess of receipts over expenditure was liable to be taxed, and therefore that the assessee was not entitled to the benefit of exemption under section 11 of the Income Tax Act.
Accordingly, the AO brought to tax the excess of receipts over expenditure as income of the assessee, and the assessee preferred an appeal before the CIT(A), contending that its receipts were in the nature of donation and voluntary, and that there was nothing brought on record by the AO to show that the donations were not in fact voluntary.
However, the CIT(A), having noticed that the case was fixed for hearing on 8 occasions and that the assessee did not respond or participate in the proceedings before CIT(A), he, after setting out various dates in para 5.1 of the impugned order, thus, decided to proceed the appeal ex-parte, by observing that the assessee failed to explain as to how the activity undertaken by the assessee was not commercial or charitable.
Accordingly, the appeal of the assessee was dismissed by the CIT(A), and it is being aggrieved by the same that the assesee has preferred the instant appeal before the Bangalore ITAT.
Hearing the opposing contentions of either sides as presented by Shri. Prashanth G. S, CA, on behalf of the assessee, and by Shri. Ganesh R. Ghale, the Standing Counsel, on the Revenue’s behalf, as well as perusing the materials available on record, the ITAT Panel consisting of N. V. Vasudevan, the Vice- President, observed:
“In so far as the merits of the appeal is concerned, it is no doubt true that notices were issued to the assessee on several occasions. The assessee had requested for adjournment in the hearing fixed on 25.05.2022 and the case was adjourned to 10.08.2022. On that date also, the assessee did not appear before CIT(A) and the case was adjourned to 16.10.2022 on which date also neither the assessee nor his Authorized Representative appeared before CIT(A). I am of the view that the order of the CIT(A) has to be set aside and the issue remanded to CIT(A) for a decision on merits.”
“The applicability of the proviso to 2(15) of the Act cannot be on the basis of the default of the parties but should be on the basis of facts and circumstances of each case. In the present case, the donations received by the assessee which was taken as receipts were prima facie donations and there is no material to show that the donations were not voluntary. Both the AO and the CIT(A) have called upon the assessee to demonstrate as to how the donations were voluntary and thereby the assessee was called upon to prove a negative fact. In the circumstances, I am of the view that the assessee should have an opportunity of hearing before the CIT(A) who can appreciate as to how the proviso to section 2(15) of the Act will operate on the facts and circumstances of the given case”, the ITAT Bench further added.
Thus, allowing the assessee’s appeal the Bangalore ITAT concluded:
“In this regard, the contentions that the assessee may put forth should also be considered by the CIT(A) rather than deciding the appeal on the basis of default of parties. For the above reasons, I set aside the order of the CIT(A) and remand the issue of applicability of proviso to section 2(15) of the Act, to the CIT(A) for fresh consideration, after affording the assessee opportunity of being heard.”
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