2013 (5) TMI 943 - AT - Income Tax

Summary

Issues Involved:
1. Estimation of the cost of construction and addition on account of unexplained investment.
2. Treatment of anonymous donations and their taxability.
3. Denial of exemption u/s 11 based on the nature of the institution.
4. Validity of reopening assessments u/s 147 based on the DVO's report.

Summary:

Issue 1: Estimation of Cost of Construction and Unexplained Investment
The Revenue challenged the CIT(A)'s decision regarding the estimation of the cost of construction of a college building. The Assessing Officer (AO) had rejected the assessee's books of account u/s 145(3) and estimated the cost using CPWD rates, adding a difference of Rs. 4,14,19,828 as unexplained investment u/s 69B. The CIT(A) considered the DVO's report, which showed a nominal difference of 6.58% between the declared investment and the estimated cost, and deleted the addition. The Tribunal upheld the CIT(A)'s decision, noting that differences below 10% are typically ignored in judicial pronouncements.

Issue 2: Treatment of Anonymous Donations
The AO treated Rs. 75 lakhs received as anonymous donations as capitation fees, denying exemption u/s 11. The CIT(A) observed that the assessee paid tax on these donations u/s 115BBC and utilized the funds for charitable purposes. The Tribunal confirmed that the assessee, being registered u/s 12A, should be granted exemption u/s 11, as the donations were used for educational activities.

Issue 3: Denial of Exemption u/s 11
The AO denied exemption u/s 11, alleging the institution was profit-oriented. The CIT(A) ruled that the assessee, registered u/s 12AA, was eligible for exemption as it utilized funds for charitable purposes. The Tribunal supported this view, stating that surplus income below 15% of total receipts does not negate the charitable nature of the institution.

Issue 4: Validity of Reopening Assessments u/s 147
The Revenue contested the CIT(A)'s annulment of assessments reopened based on the DVO's report. The CIT(A) found that reopening assessments solely on the DVO's report without independent application of mind by the AO was invalid. The Tribunal upheld this decision, citing judicial precedents that the DVO's report alone cannot justify reopening assessments u/s 147.

Conclusion:
The Tribunal dismissed all appeals by the Revenue, confirming the CIT(A)'s decisions on all issues. The order was pronounced in the open court on 28/05/2013.