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2015 (3) TMI 967 - AT - Income TaxEntitlement to the benefit of section 11 - assessee advanced monies to other trusts and this is in violation of section 13(1)(d) of the Act - CIT(A) allowed the exemption - Held that - The monies advanced by the assessee to the other trusts which are registered under section 12A and having similar objects cannot be said to be in violation of provisions of section 13(1) of the Act. Therefore, we direct the Assessing Officer to examine whether other organizations to whom the assessee has lent monies are registered under section 12A and in case, such organizations are registered under section 12A, the exemption under section 11 cannot be denied on this ground. Assessee deriving substantial income from letting out of its auditorium, Esplanade hall, rooms at Vepery and Royapettah ground as held by DR - violated provisions of section 11(4A) of the Act as no separate books of accounts were maintained by the assessee - Held that - As far as violation under section 11(4A) is concerned, the same can be applied only in case the assessee is engaged in business activities. It is the contention of the assessee that income from letting out of the properties is income from house property and therefore such income is exempt under section 11 of the Act. Application of section 11(4A) arises only when the assessee carries on business. Therefore the question of maintaining separate books of accounts comes only when the assessee is carrying on business activity. Hence, it is the contention of the assessee that it is not carrying on any business activity and the income earned on letting out of property is only incidental and is income from property and exempt under section 11 of the Act. Therefore, the question of maintaining separate books of account does not arise when the assessee is earning income from letting out of property and when such income is exempt under section 11 of the Act, as income from house property. Since we have already directed the Assessing Officer to examine the nature of activity and its income i.e. whether the income is derived as incidental to the objects of the assessee or as a separate business, this can be examined by the Assessing Officer in the light of our above observations. - Decided in favour of revenue for statistical purposes. Enhancement of income - CIT(A) directing the Assessing Officer to treat the cash credits of ₹ 1.00 crore as income from other sources - Held that - As could be seen from the order of the Commissioner of Income Tax (Appeals) that the assessee has introduced ₹ 1.00 crore in its books of accounts as credits from unknown persons. As the assessee could not explain the source for the said credits or the persons from whom the loans were taken, the same were treated as unexplained credits assessable under the head 'income from other sources'. The Commissioner of Income Tax (Appeals) also held that the said ₹ 1.00 crore introduced by the assessee as credits also cannot be considered as application of income since this amount is not received by the assessee by way of any donation. This income is treated as deemed income under section 68 of the Act.On going through the above observations of the Commissioner of Income Tax (Appeals), we find no good reason to interfere with the order of the Commissioner of Income Tax (Appeals) in sustaining the addition. - Decided against assessee. Penalty levied under section 271D / 271E - CIT(A) deleted the levy - AO while completing the assessment assessed the cash loans as unexplained credit under section 68 - Held that - On going through the submissions of the assessee and the order of the Commissioner of Income Tax (Appeals), we find there is no good reason to interfere with the order of the Commissioner of Income Tax (Appeals) in deleting the penalty levied under section 271D / 271E especially when the Assessing Officer has treated the cash loans as unexplained credits and at the same time, invoking the provisions of section 269SS / 269T of the Act. This view is also supported by the Hon'ble Delhi High Court in the case of CIT Vs. Standard Brands Ltd., (2006 (7) TMI 126 - DELHI High Court ), wherein the Hon'ble High Court has held that when the cash deposits were treated as undisclosed income of the assessee, the Assessing Officer could not resort to proceedings under section 269SS read with section 271D of the Act. - Decided in favour of assessee. Penalty levied under section 271D - cash loan from Smt. Meenakshi - CIT(A) deleted the penalty - Held that - The assessee has obtained cash loan from Smt. Meenakshi, who is an assessee, the identity is proved, the genuineness of the transaction is proved, therefore, it cannot be said that the loan amount of ₹ 25,00,000/- is unaccounted income of the assessee. We also notice from the assessment order that the cash loans introduced by the assessee from other than Smt. Meenakshi have been considered as unexplained credits by the Assessing Officer which shows that the cash loans obtained from Smt. Meenakshi is genuine loan and no such treatment was given to this loan of ₹ 25,00,000/- by the Assessing Officer while completing the assessment. We also find that the assessee was forced to avail cash loans in order to meet the requirements of payments to bank for reducing the credit limit and to honour the cheques already issued. The Department has not filed any evidence to rebut the findings of the Commissioner of Income Tax (Appeals). In the circumstances, we sustain the order of the Commissioner of Income Tax (Appeals) in deleting the penalty levied under section 271D of the Act and no interference is called for. - Decided in favour of assessee.
Issues Involved
1. Entitlement to exemption under Section 11 of the Income Tax Act. 2. Treatment of rental income as business income or income from house property. 3. Violation of Section 13(1)(d) due to advancing monies to other trusts. 4. Treatment of cash credits under Section 68 of the Act. 5. Levy of penalty under Section 271D and 271E for violation of Section 269SS and 269T. Detailed Analysis 1. Entitlement to Exemption under Section 11 The primary issue was whether the assessee was entitled to the benefit of Section 11 of the Income Tax Act. The Assessing Officer denied this exemption, arguing that the assessee was conducting business by renting out properties and advancing money to other trusts, violating Section 13(1)(d). The Commissioner of Income Tax (Appeals) reversed this decision, stating that rental income should be assessed as income from house property, not business income, and that advancing money to other registered trusts did not violate Section 13(1)(d). 2. Treatment of Rental Income The Department contended that the rental income should be considered business income, as the properties were let out systematically. The Commissioner of Income Tax (Appeals) disagreed, ruling that the rental income was from house property and thus eligible for exemption under Section 11. The Tribunal directed the Assessing Officer to re-examine whether the income was incidental to the assessee's charitable activities or constituted a separate business. 3. Violation of Section 13(1)(d) The Assessing Officer argued that advancing money to other trusts violated Section 13(1)(d). However, the Commissioner of Income Tax (Appeals) found no violation, as the recipient trusts were also registered under Section 12A. The Tribunal upheld this view, referencing a similar case where advancing money to another registered charitable institution was not considered a violation. 4. Treatment of Cash Credits For the assessment year 2008-09, the Commissioner of Income Tax (Appeals) ruled that Rs. 14,60,000 could not be considered unexplained cash credits as they were loans from the General Secretary, Mr. G. Ebinesan, and had been repaid. For the assessment year 2009-10, out of Rs. 1,16,18,000, only Rs. 16,18,000 was considered explained for the same reason, while Rs. 1 crore from unknown persons was treated as unexplained credits and assessed as income from other sources. The Tribunal directed the Assessing Officer to re-examine the nature of these transactions. 5. Levy of Penalty under Section 271D and 271E The Assessing Officer imposed penalties under Section 271D and 271E for receiving and repaying loans in cash, violating Sections 269SS and 269T. The Commissioner of Income Tax (Appeals) deleted these penalties, stating that once the cash credits were treated as unexplained under Section 68, the provisions of Sections 269SS and 269T could not be invoked. The Tribunal upheld this decision, citing precedents where treating amounts as undisclosed income precluded penalties for cash transactions. Conclusion The Tribunal remanded the matter back to the Assessing Officer for re-examination of the nature of the income and transactions. The penalties under Sections 271D and 271E were deleted, and the exemption under Section 11 was upheld, provided the transactions with other trusts were verified as compliant with Section 12A registration. The Tribunal's directions emphasized a detailed re-evaluation of whether the income was incidental to the charitable activities or constituted a separate business.
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