2015 (9) TMI 1709 - AT - Income Tax

Exemption u/s 11 - disallowance made on account of vehicle running expenses and depreciation of car in terms of Section 13(2)(b) - CIT-A deleted the additions - HELD THAT - AO has not brought any material on record as to how he has given his finding that the cars have been purchased for the benefit of the Chairman. AO was also not justified in holding that the assessee trust has no requirement to maintain luxury car. The expenses should be considered from the point of view of the assessee and not for the point of view of the AO. In the absence of any material brought on record against the assessee, the order of the AO could not be sustained. Further, it is not in dispute that Shri Anoop Garg, Chairman is looking after the activities of the assessee trust whole time and has to visit various Government Departments in connection with the activities of the assessee trust. No incriminating material was found during the course of search if the Chairman has used the cars for personal purposes. Therefore, it appears that addition has been made wholly on adhoc basis which could not be sustained in law - The findings of the Assessing Officer have no basis what-so-ever, therefore, ld. CIT(Appeals) was justified in deleting the addition - Decided against revenue. Addition on account of discrepancies in two set of trial balances found at the time of search - HELD THAT - The assessee has given complete details of complete trial balances and incomplete trial balances and the remarks and the reasons for difference in the figure. These figures have been reconciled and is supported by all the entries made in the books of account. The difference in both the trial balances was thus, due to certain missing entries which have been even reconciled before us during the course of arguments. When all these reconciliations were submitted to the AO for his comments, the explanation of the assessee was not rebutted by the AO in any manner. CIT(Appeals) on the basis of material on record, was rightly satisfied with reconciliation done between incomplete trial balance and complete trial balance. Thus, ld. DR failed to point out any error in order of ld. CIT(Appeals) in deleting the addition. When assessee prepared the balance sheet on the basis of complete data available in the trial balances, the figure came to more as compared to the lesser figure taken by the Assessing Officer from the incomplete trial balance. Therefore, this itself would show that there were no basis what-so-ever for making addition against the assessee. It was merely a mistake in not making certain entries in incomplete trial balance, thus could not be termed as undisclosed income of the assessee. The ld. CIT(Appeals) on proper appreciation of facts and reconciliation statement filed before him, was justified in deleting the addition. Addition of salary paid to Chairman u/s 13(2)(b)(c) - amount so paid to the Chairman was excess of what may be reasonably paid for such services - HELD THAT - It is not in dispute that the Chairman has rendered services to the assessee trust/institution on whole time basis. The assessee trust maintained three institutions, one at Moga and two at Panchkula. Therefore, Chairman shall have to visit these distant places and has also to visit several government organizations in connection with the activities of the assessee trust. When the salary to the Chairman is paid less than ₹ 84,000/- per month in assessment year 2006-07, it could not be said to be unreasonable. In those years, even the persons in Govt. managerial capacity would be getting salary more than ₹ 85,000/- per month. The Assessing Officer has not brought any evidence of comparable institution to show that any excess salary has been paid to the Chairman. In the absence of any adequate evidence or material on record, particularly when during the course of search, admittedly no incriminating material was found regarding excess salary paid to the Chairman, addition is wholly unjustified. Therefore, we do not subscribe to the views of the authorities below in making and sustaining the addition. We, therefore, set aside the orders of authorities below and delete the addition. Addition based upon the rough notings in the diary seized during the course of search - HELD THAT - No propriety in filing Department appeal on same issue in parts. The reasons for deletion of addition is same for which huge addition was deleted by ld. CIT(Appeals) and that too on the basis of comments received from the Assessing Officer during remand proceedings. DR during the course of arguments, have not been able to point out any infirmity in the order of ld. CIT(Appeals) in deleting the addition - On going through the material on record, we find that ld. CIT(Appeals) was justified in deleting the addition in respect of duplicate entries/double additions made by the Assessing Officer and part of the amount which was not recorded. From the above discussion in the light of the findings of the ld. CIT(Appeals), we do not find any justification to interfere with the order of ld. CIT(Appeals). The departmental appeal, thus, stands dismissed on ground Nos. 1 2. Addition on the same issue based on rough notings in the seized diaries - HELD THAT - The entries contained in the diary itself are not corroborated by any material or evidence on record. The ld. CIT(Appeals) also in his findings in column No. 5, as reproduced above, has mentioned that the students who have not taken admission during the year but maintained addition of ₹ 28,25,000/- on the reasons that the remand report mentioned specific dates with amount against the students. The findings of the authorities below are wholly unjustified because when the students whose names have been mentioned in column No. 5 as per the seized diary have admittedly not taken admission in the institution of the assessee trust, where is the question of those students in paying any amount by way of capitation fees or fee to the assessee trust. Therefore, there was no justification to make addition of such students who have not taken admission in the Institution of the assessee trust merely because their names were mentioned in the seized diary. The addition is liable to be deleted. Addition in respect of the amount out of the balance amount which have been recorded in the books. - HELD THAT - When the findings of the ld. CIT(Appeals) based on the remand report of the Assessing Officer says that the amount of ₹ 1.66 Cr has been recorded in the books of account of the assessee trust, where is a question of making addition against the assessee trust. The ld. CIT(Appeals), on the basis of the remand report noted that the dates appearing in the seized diary do not match with the ledger account, therefore, addition was made. As is noted above, since seized diary was the estimated figures made by the Chairman Shri Anoop Garg, therefore, there is no question of matching the dates with the entries contained in the regular books of account maintained by the assessee. Since the diary was found from the possession of Shri Anoop Garg, therefore, it is probable that the same may be his personal notings which may not be directly connected with the assessee's affairs. It is not explained as to how the entries contained in the diary relate to the assessee trust. The entries contained in the diary relates to four types of entries of the fees on which substantially the ld. CIT(Appeals) deleted the addition and others also liable to be deleted. The assessee also filed affidavit of some of the students before the authorities below stating that they have not paid any amount as mentioned in the diary to the assessee trust but none of the deponents have been examined by the authorities below. Whatever NRI students were admitted, their fees was found recorded in the books of account. Since some of the students were not admitted, the authorities below were not justified in adding the amount against their names whose names were mentioned in the diary. If the dates of the fees recorded in the books of account do not match with the diary, the authorities below failed to explain as to from where the assessee has received the fees and how they have been recorded in the books of account. Therefore, the amounts, even if do not match with the seized diary, when have been recorded in the regular books of account even prior to the search, there was no justification for the authorities below to make the addition of ₹ 1,66,40,072/-. Similarly, the students who have not admitted to the assessee trust, there is no question of receipt of fees of ₹ 28,25,000/- from them, therefore, addition of ₹ 28,25,000/- was wholly unjustified. For the sake of argument, even if it is believed that Shri Anoop Garg has received any alleged amount but there is no evidence on record to prove that Shri Anoop Garg has handed over the alleged amount to the assessee trust. The amount of ₹ 75.80 lacs, once accepted by Shri Anoop Garg of his own, therefore, same can not come to the assessee in any manner and therefore, the balance amount of ₹ 80.48 Cr in the hands of the assessee in respect of column No. 7 which is balance amount left, which is the estimation by Shri Anoop Garg, could not be added in the hands of the assessment trust. This amount could only be considered in the case of Shri Anoop Garg, Chairman of the assessee trust and sine surrendered amount of ₹ 75.80 lacs has already been made in the case of Chairman and his appeals have been dismissed separately, there was no justification to make double addition of ₹ 80.48 lacs in the hands of the assessee trust. Addition u/s 68 - HELD THAT - There is no mention of any date against these names. Even no name of assessee is mentioned in seized paper. The statement of the Chairman Shri Anoop Garg was recorded in which also he has not made any allegation against assessee trust of taking any loan or passing the same loan to the assessee trust. There are no entries of the said loans recorded in the books of account of the assessee. The addition under section 68 of the Act could be made if any sum is found credited in the books of account of the assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer as satisfactory, the sum so credited could be charged to income tax as income of the assessee of that previous year. Since there is no sum found credited in the books of account of the assessee in assessment year under appeal and no reliable evidence was found during the course of search, that these were genuine loans taken by assessee in assessment year under appeal, no addition could be made with the help of Section 68 of the Act of the rest of amount. In the case of the assessee also in the seized paper in the names of other persons, only 3, 5, 15, 15, 7 and 36 are mentioned. It would not indicate whether these are in rupees or in lacs. No material is produced before us to support findings of the authorities below. Considering the above discussion, we are of the view that authorities below were wholly unjustified in making and sustaining the addition of the authorities below are, therefore, set aside and the entire addition is deleted.

Summary

Issues Involved:
1. Disallowance of vehicle running expenses and depreciation of car.
2. Addition on account of discrepancies in two sets of trial balances.
3. Disallowance of salary paid to the Chairman under Section 13(2)(b)(c).
4. Addition based on rough notings in a seized diary.
5. Addition under Section 68 for unexplained cash credits.

Issue-wise Detailed Analysis:

1. Disallowance of Vehicle Running Expenses and Depreciation of Car:
The revenue challenged the deletion of disallowance made on account of vehicle running expenses and depreciation of luxury cars used by the Chairman of the assessee trust. The Assessing Officer disallowed 50% of the expenses, considering them as personal benefits to the Chairman. However, the CIT(A) deleted the addition, noting that the Chairman was solely engaged in running the institution and used the cars for official purposes. The Tribunal upheld this view, stating that the disallowance was made on an ad hoc basis without any incriminating evidence, and the expenses should be considered from the point of view of the assessee.

2. Addition on Account of Discrepancies in Two Sets of Trial Balances:
The revenue challenged the deletion of an addition made due to discrepancies in two sets of trial balances found during a search. The Assessing Officer noted a difference of Rs. 1,86,87,381/- between two trial balances. The CIT(A) deleted the addition after the assessee reconciled the differences, explaining that one trial balance was incomplete. The Tribunal upheld the CIT(A)'s decision, noting that the reconciliation was supported by the books of account and the Assessing Officer did not rebut the explanation provided by the assessee.

3. Disallowance of Salary Paid to the Chairman under Section 13(2)(b)(c):
The assessee challenged the disallowance of salary paid to the Chairman, arguing that the salary was reasonable given the Chairman's responsibilities. The Assessing Officer had disallowed part of the salary, considering it excessive. However, the CIT(A) and the Tribunal found that the Assessing Officer did not provide a basis for determining what constituted a reasonable salary. The Tribunal noted that the salary paid was less than Rs. 84,000/- per month, which was not unreasonable for the duties performed by the Chairman.

4. Addition Based on Rough Notings in a Seized Diary:
The revenue and the assessee both appealed against the additions made based on rough notings in a seized diary. The Assessing Officer had made an addition of Rs. 4 Crores, assuming the diary recorded capitation fees. The CIT(A) deleted part of the addition, noting that some entries were duplicate or already recorded in the books. The Tribunal further deleted the remaining addition, stating that the diary contained estimated amounts, and there was no corroborative evidence to prove that the assessee trust received any capitation fees. The Tribunal also noted that the Chairman had already surrendered Rs. 75.80 lacs in his individual case, which covered any alleged undisclosed income.

5. Addition under Section 68 for Unexplained Cash Credits:
The assessee challenged the addition of Rs. 1.67 Crores under Section 68, arguing that the amounts were either recorded in the books or were mere estimates. The CIT(A) deleted part of the addition related to bank loans but sustained the rest. The Tribunal deleted the entire addition, noting that the loans were recorded in the books of the previous assessment year and there was no evidence to support the Assessing Officer's findings. The Tribunal emphasized that Section 68 applies only to sums credited in the books of the assessee, which was not the case here.

Conclusion:
The Tribunal dismissed all departmental appeals and allowed the assessee's appeals, providing detailed reasons for each decision. The Tribunal emphasized the importance of corroborative evidence and proper reconciliation in making additions, and it found the Assessing Officer's disallowances and additions largely unjustified.