2014 (11) TMI 256 - AT - Income Tax

Denial of exemption u/s 11 Held that - In CIT vs. Hardeodas Agarwalla Trust 1991 (7) TMI 22 - CALCUTTA High Court it has been held that a procedural provision, ordinarily, should not be construed as mandatory, if the defect in the act done in pursuance of it can be cured by permitting appropriate rectification to be carried out at a subsequent stage and having regard to the object of section 12A, it cannot be that the legislature intended that even where the trust has got its accounts audited and the certificate obtained in Form No.10B before the assessment is completed, merely because such report could not be filed in the course of assessment proceedings, it would deprive a trust from getting the exemption if it is otherwise entitled to it in law - the CIT (A) was not justified in confirming the denial of exemption u/s 11 of the Act only for the reason that the audited report was not submitted along with the return of income but during the assessment proceedings - the assessee deserves to exemption u/s 11 in the year. Treatment of expenses on dismantling of huts as capital expenditure Held that - The assessee has incurred this expenditure by dismantling the temporary structure which was constructed during construction of school building at Vasant Kunj - Since the CIT (A) has upheld this addition as capital expenditure but we note that the order is not a speaking order on the issue the matter is remitted back to the CIT(A). Various expenses claimed by the assessee disallowed - Held that - Simply payment made through cheque shall not justify the claim of the assessee - The expenditure has been debited in the books of account of assessee - It was for assessee to establish that the expenditure was genuine and was spent wholly and exclusively for the business purposes of the assessee - The genuineness of expenditure remains unverified. Depreciation on building at Virendra Gram disallowed Held that - The assets in the form of building were used for educational purposes - The buildings were shown in the balance sheet of the society while the other assets are shown in the balance sheet of the school - The AO himself has allowed depreciation in respect of the assets which have been shown in the balance sheet of school - It is only because of accounting convenience that the assessee society has chosen to disclose the buildings in its own balance sheet but that does not mean that such buildings are not used for the purpose of business - The claim of the assessee cannot be disallowed merely on the ground that such depreciation is claimed in the income and expenditure account of society the order of the CIT(A) is upheld Decided in favour of assessee. Deletion of addition Held that - It is not a case of cessation of liabilities which can be covered by section 41(1) of the Act - The company had taken over the liability to refund the caution money as and when required - The AO has accepted the sale of land and building of the school on which the capital gain has been computed - The AO also accepted the sale of movable assets Decided against revenue.

Issues Involved:
1. Denial of exemption under section 10(23C)(vi) of the IT Act.
2. Denial of exemption under section 11 of the IT Act.
3. Disallowance of Rs. 7,44,802/- by treating expenditure on dismantling huts as capital expenditure.
4. Disallowance of Rs. 70,000/- on account of professional fees paid.
5. Disallowance of Rs. 2,58,905/- under various heads.
6. Disallowance of Rs. 19,65,425/- on account of depreciation on building.
7. Charging of interest under section 234B of the IT Act.
8. Deletion of addition of Rs. 25,50,231/- by the CIT (A).

Detailed Analysis:

1. Denial of Exemption under Section 10(23C)(vi):
The assessee did not press this ground during the pleadings, and hence it was dismissed for non-prosecution.

2. Denial of Exemption under Section 11:
The assessee, registered under section 12A since 1979, claimed exemption under section 11 but was denied due to the non-filing of the audit report with the return of income. The tribunal found that the audit report in Form No.10B was submitted during the assessment proceedings. Citing precedents from the Madhya Pradesh High Court and Calcutta High Court, it was held that the procedural lapse of not filing the report with the return should not deprive the assessee of the exemption if the report was filed during assessment. Additionally, the tribunal found that the denial of exemption based on investments in buildings on land owned by related parties was not justified, as each assessment year should be evaluated independently. The tribunal allowed the exemption under section 11 for the year under consideration.

3. Disallowance of Rs. 7,44,802/- on Dismantling Huts:
The expenditure on dismantling temporary huts was treated as capital expenditure by the Assessing Officer and CIT (A). The tribunal noted that the CIT (A) did not provide a speaking order on this issue. Hence, the matter was remanded back to the CIT (A) for a detailed speaking order.

4. Disallowance of Rs. 70,000/- on Professional Fees:
The professional fees paid to Shri P.K. Agarwal for a court case related to the building at Virendra Gram was disallowed by the CIT (A). The tribunal found that since the building was shown in the balance sheet and used for educational purposes, the expenditure was legitimate. The tribunal allowed this ground of appeal.

5. Disallowance of Rs. 2,58,905/- under Various Heads:
The disallowance was made due to the non-verification of payments to certain parties. The tribunal upheld the disallowance, stating that the genuineness of the expenditure remained unverified despite payments being made by cheque. The tribunal dismissed this ground of appeal.

6. Disallowance of Rs. 19,65,425/- on Depreciation:
The depreciation on the building at Virendra Gram was disallowed due to lack of evidence of ownership. The tribunal found that similar claims had been allowed in other cases and that the building was used for educational purposes. The tribunal allowed the depreciation claim.

7. Charging of Interest under Section 234B:
The tribunal noted that charging of interest under section 234B is consequential and mandatory. Hence, this ground of appeal was dismissed.

8. Deletion of Addition of Rs. 25,50,231/-:
The revenue's appeal challenged the deletion of the addition related to the sale of fixed assets and the transfer of caution money liability. The tribunal found that the sale of assets and transfer of liability were genuine and supported by a written agreement. The tribunal upheld the CIT (A)'s deletion of the addition.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, and the revenue's appeal was dismissed. The tribunal provided detailed reasoning for each issue, ensuring that procedural lapses did not unjustly deprive the assessee of legitimate exemptions and deductions.

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