2022 (7) TMI 896 - AT - Income Tax

Exemption right u/s 11 12 - assessee society is registered u/s 12A - Addition u/s 69 - undisclosed income/Investment - AO in the order passed u/s 143(3) made an addition on the ground that the assessee failed to apply 85% of its income towards charitable purposes as mandated by section 11 - HELD THAT - We find the in the case of DIT (E) vs. Raunaq Education Foundation 2007 (4) TMI 61 - HIGH COURT, DELHI has decided somewhat similar issue as to whether the assessee who is entitled to exemption u/s 10(22) can claim the benefit thereof for the purpose of income deemed to be chargeable to tax u/s 68 - In that case, the Assessing Officer held that the undisclosed income could not be exempted u/s 10(22) of the Act and the CIT (A) upheld the view taken by the AO. Tribunal considered the provisions of section 4 5 of the Act r.w.s. 2(24) and 2(45) as well as section 10(22) of the Act and came to the conclusion that the use of word income in sub-section (22) of section 10 of the Act is wide enough to include deemed income u/s 68. Since the revised balance sheet, duly signed by the auditors filed by the assessee has not been rejected and the balance sheet shows loans given to inter societies and the ledger a/c clearly shows the amount as advance for Nandigama land, therefore, addition of the same u/s 69 in our opinion, cannot be made. It has been held in various decisions that section 69 of the I.T. Act does not apply to transactions recorded in the books of account. The various decisions relied on by the learned Counsel for the assessee to the above proposition support his case. We therefore, hold that the addition u/s 69 cannot be made since the amount is already recorded in the books of account. Even otherwise also, it is an admitted fact that the assessee society is registered u/s 12A of the I.T. Act and the benefit of deduction u/s 11 denied by the Assessing Officer has been restored by the CIT (A) by holding that the assessee has spent more than 85% of its gross receipts towards its object and is entitled to the benefit of exemption u/s 11 and the Revenue is not in appeal before the Tribunal. Therefore, once the assessee society is eligible for benefit u/s 11 no addition u/s 68 69 can be made since additional income will be treated as deemed income entitled to exemption u/s 11/12/12A of the I.T. Act. We find the Hon'ble Delhi High Court in the case of DIT (E) vs. Raunaq Education Foundation 2007 (4) TMI 61 - HIGH COURT, DELHI has decided somewhat similar issue as to whether the assessee who is entitled to exemption u/s 10(22) of the I.T. Act, 1961 can claim the benefit thereof for the purpose of income deemed to be chargeable to tax u/s 68 - In that case, the AO held that the undisclosed income could not be exempted u/s 10(22) and the CIT (A) upheld the view taken by the AO. Tribunal considered the provisions of section 4 5 of the Act rws 2(24) and 2(45) as well as section 10(22) of the Act and came to the conclusion that the use of word income in sub-section (22) of section 10 of the Act is wide enough to include deemed income u/s 68. Addition u/s 68 and 69 will be treated as deemed income eligible for benefit u/s 11 of the I.T. Act. In this view of the matter, the learned CIT (A), in our opinion, is not justified in sustaining the addition made by the Assessing Officer u/s 69 of the I.T. Act as unexplained investment in Nandigama land by invoking the provisions of section 69 of the I.T. Act. Accordingly, the order of the learned CIT (A) is set aside and the Assessing Officer is directed to delete the addition. The grounds raised by the assessee are accordingly allowed.

Summary

Issues Involved:
1. Legality of proceedings initiated under section 153A of the Income Tax Act.
2. Justification of addition of Rs. 11,00,06,345/- as unexplained investment under section 69 of the Income Tax Act.
3. Applicability of exemption under sections 11 and 12 of the Income Tax Act to the alleged unexplained investment.

Detailed Analysis:

1. Legality of Proceedings Initiated Under Section 153A:
The assessee argued that the initiation of proceedings under section 153A was invalid as no warrant of search under section 132 was executed, and no panchanama was drawn. The Tribunal did not specifically address this argument in the final decision, focusing instead on the substantive issue of the addition under section 69.

2. Justification of Addition of Rs. 11,00,06,345/- as Unexplained Investment Under Section 69:
The Assessing Officer (AO) made an addition of Rs. 11,00,06,345/- as unexplained investment based on seized documents indicating that the assessee had paid a total of Rs. 18,05,92,500/- for land at Nandigama, out of which Rs. 6,62,50,000/- was paid in cash. The assessee contended that the amount was recorded in the books of account under the head "Advances for Nandigama Land," but the AO rejected this explanation due to lack of supporting evidence. The CIT (A) upheld the AO's addition, stating that the balance amount was not reflected in the books and the explanation was an afterthought.

The Tribunal found merit in the assessee's argument that the amount was recorded in the books of account. It noted that the revised balance sheet showed loans given to inter societies, including the advance for Nandigama land. The Tribunal held that section 69 does not apply to transactions recorded in the books of account and cited various judicial precedents supporting this view. Therefore, the addition under section 69 was not justified.

3. Applicability of Exemption Under Sections 11 and 12:
The assessee argued that since it enjoyed exemption under sections 11 and 12, any addition should also be exempt. The Tribunal agreed, noting that the CIT (A) had allowed the benefit of section 11 for other additions and the Revenue had not appealed this decision. The Tribunal cited several judicial decisions, including those from the Delhi High Court and ITAT Pune, which held that deemed income under sections 68 and 69 is eligible for exemption under sections 11 and 12. Consequently, the Tribunal held that no addition under section 69 could be made as the assessee was entitled to exemption.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT (A) and directing the AO to delete the addition of Rs. 11,00,06,345/-. The Tribunal emphasized that the amount was recorded in the books of account and that the assessee was eligible for exemption under sections 11 and 12, making the addition under section 69 unjustified.