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April 16, 2022

For feeding Orphanage kids Using Agricultural Produce is Charitable Activity

by CA Shivam Jaiswal in Income Tax

For feeding Orphanage kids Using Agricultural Produce is Charitable Activity

Facts and Issue of the case

This appeal filed by the assessee against the order of the Ld. CIT (Exemptions) [CIT (E)], Hyderabad vide DIN and Letter No.ITBA/COM/F/17/2020-21/1031926223(1), dated 30/03/2021 for the AY 2015-16. The assessee is a Registered Society under the Societies Registration Act and is  also  registered u/s.  12A of  the IT Act, 1961. The assessee is carrying  out  medical  and  educational activities and  conducting  pastoral  activities  in  the  name  and  style  of M/s. Roman Catholic Diocese  of  Eluru  Bishop  House.  The  assessee  filed its e-return of income admitting NIL income for the AY 2015-16 on 25/09/2015.   The case was selected for scrutiny and accordingly notices u/s. 143(2) and 142(1) of the Act along with a questionnaire served on the assessee. In response to the  notices  the  assessee’s  Ld.  AR  appeared and filed the information called for by the Ld. AO. The Ld. AO after verification of the  books  of  accounts  and  the  information  furnished  by the  assessee,  concluded  the  assessment  by  accepting  the  income returned by the assessee. The Ld. CIT (E) by invoking the provisions of section 263 of the Act observed that the assessment order passed by the Ld. AO is erroneous and prejudicial to the interests of the revenue. He therefore, issued notice U/s. 263 on 28/02/2020.   The assessee filed its reply on 24/03/2020j in  response  to the  show  cause notice  u/s. 263  of the Act. The Ld. CIT (E) observed that an amount of Rs. 11,56,800/- in respect of FCRA receipts was claimed as expenses under the head ‘agricultural activity’. The Ld. CIT (E) also observed that there is no such agricultural offered against expenditure claimed to be incurred. The Ld. CIT (E) also verified the objects of the society and observed that activity of agriculture is nowhere mentioned as  the  objects  of  the  assessee- society. Ld. CIT(E)  therefore  concluded  that  the  expenditure  is  not eligible for exemption u/s. 11 of the Act. The Ld. CIT(E) relied on  the decision of the ITAT, Chennai Bench in the case of SIFI  Software  Ltd  vs. ACIT and the decision  of  the  Hon’ble  Delhi  High  Court  in  the  case  of BSES Rajdhani Power Ltd. Vs. Pr. CIT reported in 399 ITR 228 (Delhi) in his order and considered the assessment order passed by the Ld. AO as erroneous and prejudicial to the interest of the revenue and thereby set- aside the assessment order with a direction to the AO to re-do the assessment after verification of the issues in accordance  with  law. Aggrieved by the order of the Ld. CIT(E), the assessee is in appeal before us.

The assessee has raised  the  following  grounds  in  its  appeal  and they extracted herein below for reference:

  • That under the facts and circumstances of the case  the orders passed under the provisions  of  section 263 of  the IT Act is contrary to the provisions of law.
  • The impugned order passed U/s. 263 of the IT Act  is barred by limitation in view of the provisions of sub- section 2 of section 263 of the IT Act. Therefore, the impugned order is to be quashed as not mainatainable.
  • The Ld. Pr. CIT ought to have known that the expenditure incurred towards agricultural activity relates to the produce raised and utilized for feeding the orphan boys & girls residing in the boarding home was not but expenditure incurred towards the objects of the Assessee Trust which cannot be objected in any manner.
  • The Ld. Pr. CIT ought to have known that similar agricultural expenditure was accepted by AO in the previous years, as well as in the current year, as it relates to the main objects of the society, under such circumstances when AO after due application of mind has allowed the expenditure, then such decision cannot be termed as erroneous causing prejudice to the revenue, to initiate action U/s. 263 of the IT Act.
  • For these and other reasons that are to be urged at the time of hearing of the appeal the appellant prays that the order passed by the Ld. Pr CIT is erroneous both on facts and as well as in law therefore the same needs to be set aside in the interest of justice.”

Before this court, the Ld. AR submitted that the agricultural activity is an incidental activity towards attaining the main objects by the assessee- society. He also vehemently argued that the FCRA expenses are verified by the Home Ministry based on the submissions made to the Home Ministry every year. The Ld. AR also argued that  the  agricultural produce from 44 Acres of land owned by the assessee in Utasamudram and Seethanagaram villages in West Godavari District was being used for feeding the boys and girls in the orphanages run by the assessee-society. Ld. AR also argued that if the own agricultural produce is not used for feed the boarding homes, the assessee should have purchased the required material for feeding the orphans in the orphanages. The Ld. AR also relied on the following cases viz., (1) Addl CIT vs. Surat Art Silk Cloth Manufacturers Association [1978] 121 ITR 1 (SC); (2) CIT vs. Social Service Centre [2001] 250 ITR 39 (Andhra Pradesh); The  Ld.  DR  argued that the places mentioned by the Ld. AR such as Utasamaduram and Seethanagaram villages are  not  appearing  in  the  table  in  paper  book page no.33. He therefore pleaded that the order of  the  Ld.  CIT(E)  be upheld.

Observation of the case

Court has heard the rival contentions and verified the records produced before us and the orders of the authorities below.  Court finds force in the arguments of the Ld. AR wherein he submitted a letter which is reproduced in page 51 of the paper book stating that the amount of Rs. 11 lakhs may be used for the cultivation of Paddy for cultivation of paddy for orphanage at Allipalli. We also observed from the paper book the arguments of the Ld. DR with respect to pages 33 and  34  of  the paper book where the agricultural income belongs to the Indian transactions and does not belong to the foreign transactions of the assessee. The observation of the Ld. CIT (E) is that no income is shown under the foreign transaction receipts and payments accounts furnished by the assessee.


Based on the submissions of the Ld. AR, court finds that the agricultural produce are being used for the feeding of boys and girls in  the orphanages. This being a social and charitable activity where the assessee is exploiting his own natural resources, court sets aside the order of the Ld. CIT (E) and allow the appeal of the asessee.

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