2020 (1) TMI 445 - AT - Income Tax

Taxing surplus as per income and expenditure account - Withdrawal of the approval u/s 10(23C)(vi) as well as registration u/s 12AA - allegation of diversion of funds of the trust for personal purposes, non genuine scholarship expenses - Held that - the Co-ordinate Bench 2019 (4) TMI 1215 - ITAT JAIPUR and the approval u/s 10(23C)(vi) and registration u/s 12AA has since been restored, we do not see any infirmity in the findings of the ld. CIT(A) who has taken into consideration the restoration of approval so granted by the Tribunal and in absence of any other reasons/finding recorded by the Assessing officer, in granting the necessary relief to the assessee society wherein the surplus income was directed not to be brought to tax. Non genuine scholarship expenses - Held that - the matter relating to scholarship expenses has been dealt with at length by the Co-ordinate Bench 2019 (4) TMI 1215 - ITAT JAIPUR and which has been followed by the ld CIT(A) - Order of CIT(A) sustained. Depreciation on Building - test of ownership - Held that - the fact that a formal sale deed has not been executed in favour of the assessee society cannot be held as basis for denial of claim of depreciation Further, ld CIT DR has submitted during the course of hearing that where the assessee society has already claimed and allowed the capital expenditure on construction of building as an application of income, the assessee society cannot be allowed depreciation claim on the said building in view of specific embargo placed by virtue of section 11(6) of the Act. There is no dispute that these provisions introduced by the Finance, Act 2014 are applicable for both the years under consideration. Therefore, it is a matter of record and it can be examined by the Assessing officer as to whether the capital expenditure so incurred by assessee society has been claimed as an application of income in any of the years under consideration or in the earlier years. - Matter remanded back. Addition of unexplained cash u/s 69A - unexplained money - the same was not recorded in the books of Integral Bank nor entered in the cash books of accounts of the assessee society - fee was collected from students in old denomination - Held that - Undisputed and undeniable facts are that cash so found represents fees deposited by students with the assessee society as emerging from the statements of various persons recorded during the course of survey and even from the findings of the survey team. The cash so found is duly explained by the documentary evidence which is maintained in regular course by the assessee society. During the course of hearing, nothing has been brought to notice by the Revenue which controverts the said factual position. - CIT(A) rightly deleted the additions.

Summary

Issues Involved:
1. Taxing surplus as per income and expenditure account.
2. Non-genuine scholarship expenses.
3. Depreciation on building.
4. Addition of unexplained cash under section 69A.

Detailed Analysis:

1. Taxing Surplus as per Income and Expenditure Account (A.Y 2014-15 to A.Y 2017-18):
The Assessing Officer (AO) taxed the surplus of income over expenditure due to the withdrawal of approval under section 10(23C)(vi) and registration under section 12AA by the Principal Commissioner of Income Tax (Pr. CIT) on grounds of fund diversion for personal use, non-genuine scholarship expenses, and asset addition claims. The Tribunal restored the approval and registration, noting no credible evidence of fund diversion or non-genuine activities. The CIT(A) directed the AO not to tax the surplus, a decision upheld by the Tribunal, emphasizing the lack of independent findings by the AO and reliance on the Pr. CIT's withdrawn approval.

2. Non-Genuine Scholarship Expenses (A.Y 2014-15 to A.Y 2017-18):
The AO disallowed scholarship expenses based on the Pr. CIT's findings. The CIT(A), referencing the Tribunal's restoration of approval and registration, held that the scholarship payments were genuine. The Tribunal supported this, noting that the AO did not conduct an independent verification and relied solely on the Pr. CIT's findings. The Tribunal also highlighted that the scholarship payments were made through account payee cheques and were verified by student confirmations and affidavits.

3. Depreciation on Building (A.Y 2016-17 & A.Y 2017-18):
The AO disallowed depreciation on the building, arguing the assessee had no ownership of the land. The CIT(A) allowed the depreciation, referencing the Tribunal's findings that the land was in effective possession of the assessee society, which constructed the building and used it for educational purposes. The Tribunal upheld this, noting the legal precedents allowing depreciation even if the land is not formally registered in the assessee's name. However, the Tribunal remanded the issue to the AO to verify if the capital expenditure on the building was claimed as an application of income, as per section 11(6).

4. Addition of Unexplained Cash under Section 69A (A.Y 2017-18):
The AO added cash found during a search as unexplained money, suspecting it was not recorded in the books. The CIT(A) and the Tribunal found that the cash represented fees collected from students, supported by statements from bank employees and the assessee's accountants, and was duly recorded in the books of accounts. The Tribunal noted that the cash was found in the bank's possession and corroborated by documentary evidence, dismissing the AO's addition under section 69A.

Conclusion:
The Tribunal dismissed the Revenue's appeals for A.Y 2014-15 to A.Y 2017-18 regarding taxing surplus and non-genuine scholarship expenses, upheld the CIT(A)'s decision on depreciation for statistical purposes, and confirmed the deletion of the addition under section 69A for A.Y 2017-18.