2012 (4) TMI 744 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of addition made u/s 68 regarding unexplained cash credits.
2. Disallowance of interest on loans considered unexplained u/s 68.
3. Entitlement to depreciation on assets.
4. Carry forward of excess application of income.

Summary:

1. Deletion of Addition Made u/s 68:

The Revenue contended that the CIT(A) erred in deleting additions made u/s 68 for unexplained cash credits. The Tribunal noted that the assessee provided confirmation letters, PAN cards, and bank statements to substantiate the identity and genuineness of the creditors, including Rakesh Singhvi and entities from the Lunkad Group. The CIT(A) observed that the Lunkad Group had confirmed the loans, and no cash deposits were made before issuing cheques to the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing that the identity and genuineness of the creditors were established, and the loans were genuine.

2. Disallowance of Interest on Loans:

The Revenue challenged the deletion of disallowance of interest on loans considered unexplained u/s 68. The Tribunal found that the CIT(A) correctly deleted the disallowance, noting that the assessee provided sufficient evidence, including interest payments and TDS deductions, to substantiate the genuineness of the loans and the interest thereon.

3. Entitlement to Depreciation on Assets:

The Revenue argued that allowing depreciation on assets resulted in double deduction since the cost of assets was already treated as application u/s 11. The Tribunal referred to the decision of the Jurisdictional High Court in the case of Shri Gujarati Samaj and the Punjab and Haryana High Court in Desh Bhagat Memorial Trust, which held that depreciation is allowable to determine the percentage of funds applied for charitable purposes. The Tribunal upheld the CIT(A)'s decision to allow depreciation, distinguishing it from the Supreme Court ruling in Escorts Ltd.

4. Carry Forward of Excess Application of Income:

The Revenue contended that no provision existed for carrying forward excess application of income. The Tribunal referred to the I.T.A.T. Indore Bench's decision in the case of Gujarati Samaj and the Bombay High Court's ruling in Institute of Banking Personnel Selection, which allowed the carry forward of excess expenditure incurred towards the objects of the trust. The Tribunal upheld the CIT(A)'s decision, allowing the carry forward of excess expenditure for application against future income.

Conclusion:

The Tribunal upheld the CIT(A)'s decisions on all issues, affirming the deletion of additions made u/s 68, disallowance of interest on loans, entitlement to depreciation on assets, and carry forward of excess application of income. The appeals of the Revenue were allowed in part, with directions to the Assessing Officer for fresh consideration in line with the Tribunal's observations.