2012 (3) TMI 663 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 18,65,000/- as anonymous donation u/s 115 BBC.
2. Disallowance of depreciation of Rs. 1,36,57,327/- claimed as application of income.
3. Treatment of repayment of loan as application of income.

Summary:

Issue 1: Addition of Rs. 18,65,000/- as Anonymous Donation u/s 115 BBC
The assessee contended that they had maintained the names and addresses of the donors, thus complying with the requirements of section 115 BBC(3). The AO treated the amount as anonymous donation due to lack of confirmations. The CIT(A) upheld this addition. However, the Tribunal found that the assessee had maintained the required records and referred to "Hans Raj Samarak Society v. ADIT(E)" which supported the assessee's compliance with section 115 BBC(3). Consequently, the Tribunal deleted the addition of Rs. 18,65,000/-.

Issue 2: Disallowance of Depreciation of Rs. 1,36,57,327/- Claimed as Application of Income
The AO disallowed the depreciation on the grounds that it would amount to double deduction since the expenditure for acquiring capital assets had already been claimed. The CIT(A) upheld this disallowance, relying on "Escorts Ltd. v. Union of India". The Tribunal, however, referred to "CIT v. Tiny Tots Education Society" and "DIT (Exemp) v. Framjee Cawasjee Institute", which held that depreciation should be allowed for charitable institutions to preserve the corpus of the trust. The Tribunal accepted the assessee's claim and allowed the depreciation.

Issue 3: Treatment of Repayment of Loan as Application of Income
The AO did not treat the repayment of loan of Rs. 1,46,38,551/- as application of income, considering it a double deduction since interest on the loans was already claimed. The CIT(A) treated the repayment as application of income, referring to "DIT(Exemp) v. Span Foundation". The Tribunal upheld the CIT(A)'s decision, emphasizing that section 11(1)(a) focuses on the spending of income and not the source. The Tribunal found the CIT(A)'s order just and proper, thus rejecting the Department's appeal.

Conclusion:
The appeal of the assessee was partly allowed, deleting the addition of Rs. 18,65,000/- and allowing the depreciation of Rs. 1,36,57,327/-. The Department's appeal regarding the treatment of repayment of loan as application of income was dismissed.