2015 (11) TMI 988 - AT - Income Tax

Entitlement for depreciation on assets - CIT(A) allowed the claim - as per revenue assessee has already claimed as application of income or that the complete amount spent on purchase of the said assets and as such correctly claimed 100% deduction in the initial stage itself and by doing so, Ld. CIT(A) has in fact granted double benefit to the assessee - Held that - Keeping in view the fact that the income of the appellant is exempt u/s 11 of the Act and when certain assets purchased by the assessee was claimed to be the part of application of income for charitable purposes, and the same has been sold, the income thereof has been disclosed, the addition cannot be made for the reason that the application of income is not computation of income and the provisions of calculating the income applied for charitable purpose is attracted only after the income eligible for exemption is determined. Since the entire amount of ₹ 70,395/- used for purchasing fixed assets, is application of income for charitable purpose, the income earned on the sale of such assets is part of income even for taxation purposes. So, Ld. CIT(A) has rightly deleted the addition of ₹ 70,395/- - Decided in favour of assessee. Addition made u/s 68 in respect of corpus donation - Held that - When the assessee has provided the complete details of corpus donors in the form of individual confirmations from such donors, their names and addresses as well as PAN, it was for the A.O. to confirm the same. Merely issuance of notices by the A.O. to the corpus donors u/s 133(6) of the Act is not enough to discharge the onus. The A.O. has not even disputed the existence, genuineness and creditworthiness of the said donors nor he has disputed the individual confirmations filed by them. It appears that the A.O. has not made any effort whatsoever to verify the genuineness of the corpus donors as per letters filed by the assessee and arbitrarily proceeded to add the corpus donation to the income of the assessee. So, consequently, the amount spent by the assessee towards charitable cause, during the year under consideration, is more than the income earned if the allegation of the A.O. is taken as correct. So, under these circumstances, no addition can be made u/s 11(1A) of the Act. Even otherwise, when the amount of ₹ 25,32,000/- has been added in the income again, making addition u/s 68 of the Act would amount to double addition/taxation. When the corpus donations received by the assessee is specifically exempted u/s 11(1D) of the Act, Ld. CIT(A) has rightly deleted the addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Entitlement to depreciation on assets when full amount spent on purchase was claimed as application of income.
2. Treatment of income on sale of capital assets.
3. Addition under Section 68 of the Act in respect of corpus donations.
4. Treatment of corpus donations as income.

Issue-wise Detailed Analysis:

1. Entitlement to Depreciation on Assets:
The primary issue was whether the assessee, a registered trust under Section 12A of the Act, could claim depreciation on assets for which the full purchase amount had already been claimed as application of income. The CIT(A) allowed the depreciation, stating that application of income is not the same as computation of income. The total income must be computed as per the Act, and depreciation is a recognized deduction. The CIT(A) distinguished this from the Supreme Court's decision in Escorts Ltd. vs. Union of India, which dealt with Section 35(2)(iv) and disallowed double deductions under specific provisions not applicable here. The Tribunal upheld this view, citing consistent judicial consensus, including decisions from the Punjab & Haryana High Court and the Delhi High Court, which supported the allowance of depreciation for charitable trusts without it being considered a double benefit.

2. Treatment of Income on Sale of Capital Assets:
The second issue was whether the entire sale proceeds of Rs. 84,000 should be taken as income when the assessee had already claimed capital expenditure. The CIT(A) ruled that since the income of the trust is exempt under Section 11, and the assets were part of the application of income for charitable purposes, only the profit of Rs. 13,605 should be considered, not the entire sale proceeds. The Tribunal agreed, noting that the application of income is not computation of income and the income from the sale of assets used for charitable purposes should not be added entirely as income.

3. Addition under Section 68 of the Act in Respect of Corpus Donations:
The third issue was whether the CIT(A) erred in holding that no addition could be made under Section 68 for corpus donations amounting to Rs. 25,32,000, despite the assessee's failure to prove the genuineness of the donations. The CIT(A) found that the assessee had provided confirmation letters, names, and addresses of donors, shifting the onus to the AO to verify these details. The Tribunal upheld this, referencing the Supreme Court's decision in CIT vs. Orissa Corporation Ltd., which established that once the assessee provides sufficient details, the burden shifts to the Revenue to verify the information. The AO's failure to pursue further verification meant the addition was unjustified.

4. Treatment of Corpus Donations as Income:
The fourth issue was whether corpus donations should be treated as income, considering they were not accounted for in the Income & Expenditure Account. The CIT(A) held that corpus donations, being capital receipts, are exempt under Section 11(1D) and should not be added to income. The Tribunal supported this, stating that adding the corpus donations as income would lead to double taxation, which is not permissible. The total expenditure by the assessee exceeded the income, including corpus donations, further justifying the CIT(A)'s decision to delete the addition.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order on all grounds. The decisions were based on established judicial principles, proper interpretation of the Income Tax Act, and relevant case laws, ensuring the assessee's compliance with the statutory provisions and judicial precedents.