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2016 (7) TMI 1014 - AT - Income TaxDepreciation disallowed to assessee trust - Held that - The issue raised by the revenue in the ground of appeal is thus no longer res integra and has been decided in the case of CIT v. Market Committee, Pipli 2010 (7) TMI 374 - Punjab and Haryana High Court wherein held that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. Addition on account of advance fee received treated as income of the assessee trust - Held that - it is well settled law that the statement recorded under Section 133A cannot be sole basis for making an addition or disallowance without corroborating evidence. In this case, the authorities below have not shown in their findings that any corroborating evidence was found to support this statement recorded under Section 133A of the Act. In view of the above facts and circumstances, we find that the addition made by the Assessing Officer based on the statement recorded under Section 133A and further by giving a reason that the assessee has used the advance fees received for revenue as well as capital expenditure is not justified and accordingly we set aside the orders of authorities below qua this issue and remit the same to the record of the Assessing Officer to re examine the issue from the record produced by the assessee and then decide the same as per law. Addition on account of retention money - Held that - When the retention money is retained by the assessee for refund in future on completion of project then it is only a liability in the hand of the assessee and therefore the same cannot be treated as income. However at the same time the assessee cannot be allowed to take the benefit of the said amount being used for expenses and investment being application of income. Therefore if the assessee is having sufficient fund to cover this amount then the claim of the assessee under Section 11(1)(a) on account of application of income would not be effected otherwise to the extent of the amount used from the retention money the claim would be reduced. Accordingly, we direct the Assessing Officer to verify all the relevant facts on this issue and then decide the same only on question of allowing the deduction of application of income and not treating the retention money as income. Addition as income from pharmacy - Held that - The entire amount cannot be treated as the income earned by the assessee from the sale of medicines to the outside public when the pharmacy is within the premises of the hospital and attached to the hospital. It is pertinent to note that a dispensary/pharmacy is inevitable and indispensable facility for the hospital. The assessing authority has erred both on facts and in law in holding that the pharmacy run by the assessee-society is a separate unit, running as a business. The Assessing Officer has observed that the assessee-society has maintained separate accounts for the pharmacy section. Maintaining accounts separately for pharmacy section does not decide the nature of the activities carried on by the assessee through running of the pharmacy. Separate accounts are maintained by the assessee for the purpose of proper accounting and internal control. Even in the case of charitable hospital, it is not possible to provide medicines to every patient, free of cost. It is only in very deserving cases, a charitable institution could provide medicines free of cost. Thus we find that the collection received by the assessee from its pharmacy section cannot be excluded from computing the income eligible for exemption under Section 11 of the Income-tax Act, 1961. The pharmacy collection also forms part of the collections accounted by the assessee from its charitable activities. Therefore, Assessing Officer is directed to give exemption under Section 11 in respect of the pharmacy collection as well. Allowing the 15% accumulation on net income of the assessee instead of gross receipts as claimed by the assessee - Held that - Following the decision of the co-ordinate bench of this Tribunal in Capuchin Friar Services of Society 2015 (12) TMI 448 - ITAT BANGALORE we decide this issue in favour of the assessee and direct the Assessing Officer to consider the allowable accumulation of income at 15% of the gross receipts. Disallowance of deduction being the liability for capital expenditure - Held that - Assessing Officer as well as the CIT (Appeals) has doubted the expenditure laid out by the assessee whether by the payment or of credit. Therefore we are of the considered opinion that this issue require a proper verification on production of the relevant evidence and details by the assessee. Accordingly, this issue is set aside to the record of the Assessing Officer for proper verification and examination of the record to be produced by the assessee and then decide the same as per law. Appeal of the assessee partly allowed.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Claim of depreciation. 3. Addition of advance fee received as income. 4. Addition on account of retention money. 5. Addition of income from pharmacy. 6. Allowing 15% accumulation on net income. 7. Set off of excess application of income from previous year. 8. Deduction of liability for capital expenditure. Detailed Analysis: 1. Condonation of Delay in Filing the Appeal: The assessee filed the appeal 17 days late due to a search and seizure action under Section 132 of the Act, which involved the accounts section in post-search proceedings. The Tribunal found the delay justified and condoned it, noting no ulterior motive behind the delay. 2. Claim of Depreciation: The assessee claimed depreciation of ?10,73,00,124, which the Assessing Officer disallowed, citing it as a double deduction. The CIT (Appeals) upheld this view, referencing the amended Section 11(6) effective from 1.4.2015. However, the Tribunal sided with the assessee, referencing previous Tribunal decisions and the prospective nature of the amendment, allowing the depreciation claim. 3. Addition of Advance Fee Received as Income: The Assessing Officer added ?1,27,67,530 as income, considering it advance fees. The assessee argued that part of this amount was an opening balance and not income for the current year. The Tribunal found that the authorities did not dispute the recording of this amount as advance fees and remitted the issue back to the Assessing Officer for re-examination with the provided records. 4. Addition on Account of Retention Money: The Assessing Officer added ?1,10,25,800 as income, arguing the retention money was used for expenses. The Tribunal held that retention money is a liability and not income but directed the Assessing Officer to verify if the assessee had sufficient funds to cover this amount and adjust the application of income accordingly. 5. Addition of Income from Pharmacy: The Assessing Officer treated ?50,66,973 from the pharmacy as business income, which the CIT (Appeals) upheld. The Tribunal, referencing a similar case, concluded that the pharmacy, being part of the hospital, should not be treated as a separate business unit. The Tribunal ruled in favor of the assessee, recognizing the pharmacy as integral to the hospital. 6. Allowing 15% Accumulation on Net Income: The Tribunal decided in favor of the assessee, allowing the 15% accumulation on gross receipts, referencing a previous Tribunal decision which supported the assessee's claim. 7. Set Off of Excess Application of Income from Previous Year: The assessee did not press this ground, and the Tribunal dismissed it accordingly. 8. Deduction of Liability for Capital Expenditure: The Assessing Officer disallowed ?7,58,82,285 claimed for capital expenditure, doubting its genuineness due to lack of details. The Tribunal acknowledged the need for proper verification and remitted the issue back to the Assessing Officer for examination of the relevant records and details to be produced by the assessee. Conclusion: The appeal was partly allowed, with several issues remitted back to the Assessing Officer for further examination and verification. The Tribunal emphasized the need for detailed scrutiny of the records and upheld the principles of fair application of income and proper accounting practices.
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