9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (9) TMI 148 - AT - Income TaxRevenue loss or capital loss - Embezzlement of funds by the employees of the assessee-society - CIT(A) has allowed relief in part on account of the recovery made against such embezzlement - HELD THAT - Undisputedly, the funds were embezzled on account of manipulation made by the employees of the society. The fact that the Police was able to recover some of the amount also leaves no doubt that the funds were embezzled. It is also a fact on record that although inflated expenditure had been claimed in the Income and Expenditure Account on account of these inflated bills, in the consolidated Income and Expenditure Account, whatever amount had been recovered has been disclosed as income, which in this case comes to Rs. 1,08,94,651/- out of the total embezzled funds of Rs. 1,58,03,11/-. Thus the embezzlement has occurred during the course of day to day carrying out of charitable activities by the assessee trust. Hon'ble Apex Court in the case of Nainital Bank Ltd 1964 (9) TMI 11 - SUPREME COURT held that the retention of money in the bank premises carries with it the ordinary risk of it being subjected to embezzlement, theft, dacoity or destruction by fire and such risk of loss is incidental to the carrying on of the operation of the business of banking and, therefore, the loss of cash by dacoity was an admissible deduction. Undisputedly, no doubt has been cast on the embezzlement of funds and we are of the considered view that loss is a revenue loss and the same deserves to be allowed. Therefore, this ground of the assessee s appeal stands allowed. Addition on account of difference in interest income as per Form-26AS and the income disclosed in the return of income - argument of assessee has declared higher interest income in earlier years, and, therefore, the same should be set off in this year does not find favour with us - HELD THAT - The argument of the AR that the assessee has declared higher interest income in earlier years, and, therefore, the same should be set off in this year does not find favour with us. All the same, as has been stated the assessee has moved application u/s. 154 of the Act for AYs. 2013-14 and 2014-15 before the Assessing Officer to assess the correct income/interest in accordance with Form-26AS, we direct the same may be considered sympathetically after due examination of the various evidences. However, for the captioned assessment year, we decline to interfere and we dismiss Ground No.2 raised by the assessee. Trust V/S AOP - as argued since the assessee Society continues to enjoy the benefit of registration u/s. 12A of the Act, i.e., the registration has not been cancelled, the assessee could not have been assessed to tax as an AOP - HELD THAT - As we have already deleted the addition on account of embezzled funds claimed as deduction and although we have confirmed the addition on account of difference in interest income, all the same, there is much more application of income by the assessee society and, therefore, the Assessing Officer was not justified in not allowing the benefit of exemption to the assessee u/s. 11 of the Act and taxing the assessee under the status of AOP. Accordingly, Ground stand allowed. Benefit of accumulation - Non utilization of funds - amount remained unutilized even after five years of accumulation of funds - main thrust of argument by the ld. CIT(DR) is that objects as mentioned in Form-10 are general in nature - HELD THAT - No doubt, Form-10 filed by the assessee did not specifically mention the object for which the funds were being accumulated. All the same,in the case of CIT vs. Market Committee, Tohana 2011 (1) TMI 1395 - PUNJAB AND HARYANA HIGH COURT has laid down that merely because the assessee had mentioned development work in a general manner in Form-10, it cannot be said that the condition of Section 11(2) of the Act has not been fulfilled. While coming on this conclusion, the Hon'ble Punjab and Haryana High Court also referred to the judgment of Director of Income Tax vs. Mitsui Co. ( 2007 (2) TMI 215 - DELHI HIGH COURT - Decided against revenue.
Issues Involved:
1. Embezzlement by employees and the resultant addition of Rs. 49,09,290/-. 2. Addition of Rs. 65,94,957/- due to the difference in interest income as per Form 26AS and books of accounts. 3. Application of income and exemption under Section 11. 4. Registration under Section 12A of the Income Tax Act. 5. Department's appeal regarding the non-utilization of Rs. 2 crores accumulated funds. Summary: 1. Embezzlement by Employees: The assessee challenged the addition of Rs. 49,09,290/- on account of embezzlement by employees. The Tribunal noted that the embezzlement was accepted by both the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)]. The Tribunal referred to various judicial precedents and the CBDT Circular No. 35D, which allows losses due to embezzlement as deductible. The Tribunal concluded that the loss of Rs. 49,09,290/- was a revenue loss and allowed the deduction, thus, allowing the assessee's appeal on this ground. 2. Difference in Interest Income: The assessee contested the addition of Rs. 65,94,957/- due to the difference in interest income reported in Form 26AS and the income declared. The Tribunal upheld the addition, noting that each assessment year is independent, and the income accrued must be taxed in that year. The Tribunal directed the AO to consider the assessee's application under Section 154 sympathetically for earlier years but dismissed the appeal for the current assessment year. 3. Application of Income and Exemption under Section 11: The Tribunal noted that the assessee society continued to enjoy registration under Section 12A. Given the significant application of income, the Tribunal held that the AO was not justified in taxing the assessee as an Association of Persons (AOP) and allowed the benefit of exemption under Section 11. 4. Registration under Section 12A: The Tribunal reiterated that the assessee society's registration under Section 12A was valid and thus, it should not be assessed as an AOP. 5. Department's Appeal on Non-Utilization of Rs. 2 Crores: The Department argued that the CIT(A) erred in deleting the addition of Rs. 2 crores, which remained unutilized after five years of accumulation. The Tribunal noted that the funds were accumulated for educational, religious, and charitable purposes and were used to purchase land for extending the college building, which aligns with the educational objectives. The Tribunal referred to judicial precedents, including the Hon'ble Punjab and Haryana High Court and the Hon'ble Supreme Court, which supported the assessee's position. Consequently, the Tribunal upheld the CIT(A)'s order and dismissed the Department's appeal. Conclusion: The assessee's appeal was partly allowed, granting relief on embezzlement and exemption under Section 11, while the addition due to interest income difference was upheld. The Department's appeal regarding the non-utilization of Rs. 2 crores was dismissed.
|
