2014 (10) TMI 926 - AT - Income Tax

Default by a society registered u/s 13(1)(c)/13(2) - whether that results in denying exemption u/s 11/12 qua the entire receipts of assessee society or to be restricted qua the amount to which default is attracted - Held that - We find that this issue is no more res integra and is covered by the decisions of various High Courts and the ITAT, holding that disallowance is to be restricted only qua amounts to which violation u/s 13(1)(c)/13(2) is attracted and the exemption in respect of other incomes cannot be forfeited. Difference between the market rate and lending rate of loan to director is to be included in total income. Ground raised by revenue is misconceived and stands dismissed accordingly. Negative cash balance - CIT(A) deleted the addition - Held that - The actual cash in hand and the cash balance, as reflected in the cash book, has not been altered. The department has not been able to controvert the findings of ld. CIT(A) as in the recasted cash book, filed by the assessee, on which remand report had been called for, from the AO, it is found that unexplained amount of ₹ 3,06,123/- had properly been explained and there is no scope of the addition on this account Addition on development fund - WHETHER consultancy fee to be recognized as corpus donation? - CIT(A) deleted the addition taking note of the fact that two employees voluntarily contributed with the specific direction that the amount shall become part of corpus of the institution - Held that - Having heard both the parties we do not find any reason to interfere with the finding of ld. CIT(A) because the voluntary donations had been received by the assessee trust with specific direction that the same would form part of corpus. Ground is dismissed. Addition of loan amount as income of respondent - Held that - Upholding the addition to the extent of 7.5% on account of difference of the interest portion as per market rate, we dismiss the ground taken by the assessee in its cross-objection.

Summary

Issues involved:
1. Exemption u/s 11 & 12 of the Income Tax Act, 1961.
2. Housing loan given to director @ 6% p.a. without security - violation of section 13(1)(c)/13(2).
3. Addition made u/s 69C of the Act for negative balance in cash book.
4. Consultancy fee treated as total income.

Analysis:

Issue 1: Exemption u/s 11 & 12
The appeal and cross-objection were against the order relating to A.Yr. 2009-10. The AO determined taxable income due to default u/s 13(1)(c)/13(2), leading to the denial of exemption u/s 11/12. However, the CIT(A) partly allowed the appeal, restricting the addition to the difference in interest rates. The department's appeal challenged this decision, but the ITAT upheld the CIT(A)'s order based on precedents stating that exemption forfeiture is limited to amounts violating section 13(1)(c)/13(2).

Issue 2: Housing loan violation
The AO noted a housing loan given to a director at 6% p.a. without security, violating section 13(1)(c)/13(2). The CIT(A) included the market rate difference in total income. The department's appeal on this ground was dismissed as the CIT(A)'s decision was upheld.

Issue 3: Addition for negative cash balance
The AO made an addition u/s 69C due to negative cash balance in the cash book. However, the CIT(A) deleted this addition after finding the amount properly explained in the recasted cash book, which was not challenged effectively by the department.

Issue 4: Treatment of consultancy fee
The AO treated consultancy fee as total income, but the CIT(A) deleted this addition as the fee was voluntarily contributed by employees with specific directions for corpus inclusion. The ITAT upheld this decision, dismissing the department's appeal.

In conclusion, the ITAT dismissed both the revenue's appeal and the assessee's cross-objection. The ITAT upheld the addition for the interest rate difference while rejecting the other grounds raised by both parties. The decision was pronounced on 10-10-2014.