2018 (1) TMI 9 - AT - Income Tax

Addition of sundry creditors - Held that - Since the factum of the assessee having filed the details of sundry creditors by way of written submissions (supra) dated 03.02.2014 before the AO stands accepted by the AO himself, there is no question of the assessee having improved its case at the stage of rejoinder to the AO s remand report. The ld. CIT(A) has clearly gone wrong in rejecting such details at the threshold without verifying/getting verified the same. The AO at the first instance, had erred in not verifying these details before making the addition. This issue is, thus, remitted to the AO for deciding it afresh in accordance with law, on making necessary verification of the sundry creditors as claimed by the assessee. The assessee shall be afforded adequate opportunity of hearing by the AO Addition made as surplus of Income over Expenditure - grant of registration u/s 12AA was rejected - Held that - The assessee was granted registration w.e.f. 01.04.2013. As per the said proviso to section 12A(2), in such a case, the provisions of section 11 and 12 of the Act shall apply in respect of any income derived from property held under the trust of any assessment year preceding the assessment year immediately following the financial year in which the application for registration is made (on or after 01.06.2007), for which, assessment proceedings are pending before the AO as on the date of registration and the objects and activities of the trust remain the same for such preceding assessment year. In the assessee s case, though the application for registration was initially rejected, the Tribunal restored the matter to the ld. CIT, vide order dated 05.02.2014. The CIT granted registration by allowing that very application. It is also undisputed that the objects and activities, which are educational in nature, remain unchanged. As such, the aforesaid proviso to section 12A(2) is squarely applicable. Therefore, as rightly held by the ld. CIT(A), the AO should have granted the benefit of sections 11 and 12 of the Act to the assessee. Addition on account of deemed interest on advance - Held that - Since the AO did not bring anything on record to establish that the assessee had actually earned interest on the advances made, the ld. CIT(A) has, while deleting the addition, rightly relied on CIT vs. Shoorji Vallabhadas (1962 (3) TMI 6 - SUPREME Court), wherein, it has been held that if income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a hypothetical income which does not materialize; and that where the income cannot be said to have resulted at all, there is, obviously, neither accrual, nor receipt of income, even though an entry to that effect might have been made in the books of account. Accordingly, on this issue also, the Department s grievance has no legs to stand on and it is rejected.

Summary

Issues Involved:
1. Admission of additional evidence regarding sundry creditors.
2. Exemption under sections 11 and 12 of the Income Tax Act.
3. Addition of deemed interest on advances.

Issue-Wise Detailed Analysis:

1. Admission of Additional Evidence Regarding Sundry Creditors:

The assessee contested the addition of ?19,90,604 made by the Assessing Officer (AO) for unverifiable sundry creditors. The AO claimed the assessee did not produce books of accounts or confirmations of sundry creditors during the assessment proceedings. The CIT(A) upheld this addition, stating that the assessee failed to provide necessary details at the assessment stage and thus, additional evidence could not be admitted under Rule 46A of the Income Tax Rules.

However, the tribunal noted that the assessee had indeed submitted the details of sundry creditors, including addresses and PAN numbers, before the AO via written submissions dated 03.02.2014. The AO's remand report did not refute these submissions. The CIT(A) erred by rejecting these details without verification, wrongly asserting that they were only submitted at the appellate stage. The tribunal remitted the issue back to the AO for fresh verification of the sundry creditors, ensuring the assessee is given a fair opportunity to present their case.

2. Exemption Under Sections 11 and 12 of the Income Tax Act:

The department appealed against the CIT(A)'s decision to grant the assessee exemption under sections 11 and 12, despite the assessee not having registration under section 12AA for the assessment year 2011-12. The AO had denied this exemption, noting that the assessee was granted registration only from 01.04.2013.

The CIT(A) allowed the exemption, referencing the amended proviso to section 12A(2) of the IT Act, which is retrospective for cases where registration is granted post-01.10.2014 if assessment proceedings are pending. The tribunal upheld this view, citing the Kolkata ITAT's decision in 'Sree Sree Ramkrishna Samiti, Siliguri vs. DCIT', which held that registration under section 12AA has retrospective effect. The tribunal confirmed that the AO should have granted the benefit of sections 11 and 12, considering the unchanged educational objectives of the trust and the retrospective applicability of the amendment.

3. Addition of Deemed Interest on Advances:

The AO added ?8,75,368 as deemed interest on advances of ?35,81,000, claiming the assessee did not show any interest income. The CIT(A) deleted this addition, observing that there was no evidence of interest being earned by the assessee and that income tax is levied on real income, not hypothetical income, as per the Supreme Court's ruling in 'CIT vs. Shoorji Vallabhdas'.

The tribunal agreed with the CIT(A), stating that the AO failed to provide any material evidence that the assessee earned interest on the advances. The tribunal emphasized that hypothetical income cannot be taxed unless it materializes. Therefore, the tribunal upheld the CIT(A)'s decision to delete the addition of deemed interest.

Conclusion:

The tribunal allowed the assessee's appeal for statistical purposes, remitting the issue of sundry creditors back to the AO for fresh verification. The department's appeal was dismissed, upholding the CIT(A)'s decisions on granting exemption under sections 11 and 12 and deleting the addition of deemed interest on advances. The order was pronounced in the open court on 21/11/2017.