2010 (7) TMI 1092 - AT - Income Tax

Issues Involved:
1. Deduction eligibility under Section 11.
2. Disallowance of income application in fixed assets acquisition.
3. Addition of advance fee received.
4. Addition of refundable deposits.
5. Disallowance of Building Development Fund (Corpus Fund).
6. Disallowance of depreciation claimed.
7. Disallowance of deduction under Section 11(1)(a).
8. Excess payment of rent.
9. Excess remuneration paid to persons covered under Section 13(2).
10. Payment of personal telephone and mobile bills.

Detailed Analysis:

1. Deduction Eligibility under Section 11:
The Revenue contended that the assessee was ineligible for deduction under Section 11 due to violations of Sections 13, 11(3), and 11(5). The AO found that the assessee's depreciation claim was not allowable as the cost of assets had already been allowed as an application of income. The AO also noted that advance fees and refundable deposits were not shown in the income and expenditure statement, violating Sections 11 and 12A. The CIT(A) quashed the AO's findings, holding that there was no violation of Sections 13, 11(3), or 11(5), and the assessee was eligible for deduction under Section 11.

2. Disallowance of Income Application in Fixed Assets Acquisition:
The AO disallowed the claim of Rs. 40,26,264/- towards the application of income in acquiring fixed assets. The CIT(A) allowed the claim, stating that the acquisition of fixed assets was an application of income for charitable purposes.

3. Addition of Advance Fee Received:
The AO added Rs. 13,10,639/- as income, stating that advance fees were not shown in the income and expenditure statement. The CIT(A) deleted the addition, noting that the advance fees were correctly bifurcated and shown as income in the respective years.

4. Addition of Refundable Deposits:
The AO added Rs. 9,49,039/- on account of refundable deposits, treating them as income. The CIT(A) deleted the addition, holding that refundable deposits could not be treated as income.

5. Disallowance of Building Development Fund (Corpus Fund):
The AO treated Rs. 1,17,20,800/- received for the Building Development Fund as taxable. The CIT(A) deleted the addition, stating that the amount was part of the corpus fund and could not be taxed as income.

6. Disallowance of Depreciation Claimed:
The AO disallowed Rs. 18,10,894/- claimed as depreciation, arguing that the cost of assets had already been allowed as an application of income. The CIT(A) allowed the depreciation claim, citing judicial precedents that depreciation is an application of income even if the cost of assets has been treated as an application of income.

7. Disallowance of Deduction under Section 11(1)(a):
The AO disallowed Rs. 18,61,261/- claimed under Section 11(1)(a). The CIT(A) allowed the deduction, following the Supreme Court's decision that Section 11(2) does not restrict the operation of Section 11(1).

8. Excess Payment of Rent:
The AO found that the assessee paid excessive rent of Rs. 2,94,000/- to Shri K.L. Thakral's proprietary concern, M/s. Alka Industries. The CIT(A) deleted the addition, holding that the rent of Rs. 50,000/- per month was reasonable considering the size of the land used by the assessee society.

9. Excess Remuneration Paid to Persons Covered under Section 13(2):
The AO disallowed Rs. 1,75,000/- as excessive remuneration paid to Shri K.L. Thakral, Shri Praveen Thakral, and Shri Arun Sachdeva. The CIT(A) deleted the addition, stating that the remuneration was reasonable considering the services rendered by these individuals.

10. Payment of Personal Telephone and Mobile Bills:
The AO disallowed Rs. 16,732/- for telephone and mobile bills, treating them as personal expenses of Shri K.L. Thakral. The CIT(A) deleted the addition, holding that there was no evidence of personal use, and the expenses were for the society's purposes.

Conclusion:
The appeals filed by the Revenue were dismissed, with the Tribunal upholding the CIT(A)'s decisions on all issues. The Tribunal found that the assessee was eligible for deductions under Section 11, the application of income in acquiring fixed assets was valid, and the additions made by the AO were unwarranted. The Tribunal also held that the remuneration and rent paid were reasonable, and there was no evidence of personal use of telephone bills.

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