2018 (4) TMI 626 - AT - Income Tax

Addition made towards receipts collected but not shown as income - Held that - Admittedly, the addition has been made on adhoc basis, the basis of making addition is not specified by the AO - Decided against revenue Disallow the depreciation only in respect of assets acquired for the year in which benefit of Section 12A has been availed by the assessee - Held that - CIT(A) has rightly directed the AO to disallow the depreciation only in respect of the assets acquired for the year in which benefit of Section 12A of the Act had been first availed by the assessee. There is no dispute with regard to the fact that the assessee would be entitled for depreciation if he is not getting benefit of Section 12A of the Act. Under this fact, there is no infirmity in the order of the learned CIT(A). The same is hereby dismissed. Excess application of income for charitable purposes to be carried forward - Held that - CIT(A) was was justified in allowing the carry forward excess application of income as relying on Raghuvanshi Charitable Trust & Ors 2010 (7) TMI 158 - DELHI HIGH COURT Disallowance on account of expenses which cannot be treated as application of mind - Held that - There is no discussion on this addition in the assessment order. The AO has merely made addition without specifying ground on which the addition has been made. Under this fact, such approach of the AO cannot be sustained. Moreover, learned CIT(A) has called a remand report from the AO and no adverse material was placed before the learned CIT(A). Therefore, we do not see any merit in this ground of the Revenue hence the same is rejected.

Issues Involved:
1. Deletion of addition of ?2,00,00,000/- made towards receipts collected but not shown as income.
2. Direction to disallow depreciation only in respect of assets acquired for the year in which benefit of Section 12A was first availed.
3. Allowing excess application of income for charitable purposes to be carried forward.
4. Deletion of disallowance of ?16,95,46,061/- made by the AO on account of expenses which cannot be treated as application of income.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?2,00,00,000/- Made Towards Receipts Collected but Not Shown as Income:
The Revenue challenged the deletion of ?2,00,00,000/- by the CIT(A), arguing that the receipts collected by the assessee were not shown as income. The CIT(A) held that for immovable property, ownership passes on the execution of registration according to the Transfer of Property Act. The assessee's practice of recognizing income upon the registration of the property was deemed proper. The AO's addition was found to be adhoc without any specified basis, and the books of accounts were neither deficient nor rejected under section 145. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

2. Direction to Disallow Depreciation Only in Respect of Assets Acquired for the Year in Which Benefit of Section 12A Was First Availed:
The CIT(A) directed the AO to disallow depreciation only for assets acquired in the year the benefit of Section 12A was first availed. The CIT(A) referenced the case of Tiny Tots Education Society, distinguishing it from Escorts Ltd., noting that depreciation should be allowed as it is part of commercial principles of income computation for trusts. The Tribunal affirmed the CIT(A)'s direction, noting no infirmity in the order, and dismissed the Revenue's ground.

3. Allowing Excess Application of Income for Charitable Purposes to Be Carried Forward:
The Revenue contended that the CIT(A) erred in allowing the carry forward of excess application of income for charitable purposes. The CIT(A) followed the judgment of the Hon’ble Jurisdictional High Court in the case of Raghuvanshi Charitable Trust & Ors, which allowed such carry forward. The Tribunal found no reason to interfere with the CIT(A)'s finding and affirmed the decision, dismissing the Revenue's ground.

4. Deletion of Disallowance of ?16,95,46,061/- Made by the AO on Account of Expenses Which Cannot Be Treated as Application of Income:
The AO disallowed ?16,95,46,061/- on the basis that the expenses could not be treated as application of income, citing cheques presented but not cleared. The CIT(A) noted that the disallowance was made without any discussion in the assessment order and was against accepted mercantile principles of accounting. The CIT(A) also mentioned that the AO provided no specific comments in the remand report. The Tribunal upheld the CIT(A)'s decision, finding no merit in the Revenue's ground and rejecting it.

General Grounds:
Grounds 5 and 6 raised by the Revenue were general in nature and required no adjudication.

Conclusion:
The appeal of the Revenue was dismissed in its entirety. The Tribunal upheld the CIT(A)'s decisions on all contested grounds, finding no basis to interfere with the findings. The order was pronounced in the open court on 4.04.2018.

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