2004 (7) TMI 276 - AT - Income Tax

Issues Involved:
1. Addition of Rs. 71,77,500 for unaccounted donations.
2. Addition of Rs. 2,16,000 for unexplained expenditure on rent.
3. Addition of Rs. 59,449 for unexplained cash credits.
4. Addition of Rs. 28,08,900 for contributions credited to the trust fund.
5. Addition of Rs. 52,778 for income reflected in income and expenditure accounts.
6. Denial of exemption under Section 10(22)/10(23C).
7. Levy of interest for delay in filing the return of undisclosed income.
8. Validity of the block assessment under Section 158BD.
9. Surcharge levied under Section 113 of the IT Act.

Detailed Analysis:

1. Addition of Rs. 71,77,500 for Unaccounted Donations:
The AO added Rs. 71,77,500 based on a seized diary (BS-2) and statements from parents indicating donations for admissions. The assessee argued that the diary entries related to uniform sizes and not donations. The Tribunal found the explanation by the assessee unconvincing and upheld the addition but reduced it to Rs. 22,95,000, based on the actual figures in the diary.

2. Addition of Rs. 2,16,000 for Unexplained Expenditure on Rent:
The AO added Rs. 2,16,000 for rent not accounted for in the books. The CIT(A) allowed a set-off against unaccounted donations. The Tribunal deleted the addition on merits, noting that the lessors had waived the rent in the interest of charity, and the proviso to Section 69C, which prohibits allowance of unexplained expenditure, was not applicable retrospectively.

3. Addition of Rs. 59,449 for Unexplained Cash Credits:
The AO treated Rs. 59,449 as unexplained cash credits. The CIT(A) allowed a set-off against unaccounted donations. The Tribunal deleted the addition on merits, stating that the amounts credited to the trust fund were reflected in audited accounts and could not be the subject of a block assessment without evidence found during the search.

4. Addition of Rs. 28,08,900 for Contributions Credited to the Trust Fund:
The AO added Rs. 28,08,900 for amounts credited to the trust fund. The Tribunal deleted the addition, noting that these amounts were reflected in audited accounts and could not be treated as unexplained income in a block assessment.

5. Addition of Rs. 52,778 for Income Reflected in Income and Expenditure Accounts:
The AO added Rs. 52,778 for income reflected in various years' accounts. The Tribunal deleted the addition, holding that these amounts were reflected in audited accounts and could not be treated as undisclosed income.

6. Denial of Exemption under Section 10(22)/10(23C):
The AO denied exemption under Section 10(22), alleging mismanagement and misappropriation of funds. The Tribunal reversed the CIT(A)'s finding and granted the exemption, noting that the trust was registered, audited, and recognized by the Education Department. The Tribunal found no evidence of misappropriation that would justify denying the exemption.

7. Levy of Interest for Delay in Filing the Return of Undisclosed Income:
The CIT(A) did not decide on the levy of interest. The Tribunal remitted the issue back to the CIT(A) for adjudication after allowing the assessee an opportunity to be heard.

8. Validity of the Block Assessment under Section 158BD:
The ground regarding the validity of the block assessment under Section 158BD was not pressed by the assessee and was dismissed by the Tribunal.

9. Surcharge Levied under Section 113 of the IT Act:
The AO charged a surcharge of Rs. 6,22,117. The Tribunal upheld the CIT(A)'s deletion of the surcharge, following precedents that surcharge is not applicable for searches conducted prior to 1st June 2002.

Conclusion:
The Tribunal partly allowed the assessee's appeal, deleting several additions on merits and granting exemption under Section 10(22). The Revenue's appeal was dismissed, upholding the CIT(A)'s decisions on set-offs and deletion of the surcharge.

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