2012 (4) TMI 306 - AT - Income Tax

Additions made for unaccounted donations entered in the four diaries recovered from the business premises of Shri A.K. Patil who was the Hon. Secretary of the trust - Shri Patil in one statement at the time of survey mentioned donations had been collected on the instructions of the trustees and later in statement that donations were collected in his personal capacity - Held that - confirming addition of unaccounted donations in case of the assessee - CIT(A) has given a clear finding that the assessee could not show any co-relation between entries and the summary and therefore claim was rejected. Assessee raised ground of applicability of provisions of section 13(1)(c) - applicability of provisions of section 13(1)(c) in assessment years 2000-01 to 2003-04 on ground of unaccounted donations having been used by Hon. Secretary and trustees of the trust. The ld. AR for the assessee has argued that provisions of section 13(1)(c) were not applied by AO and therefore the same cannot be applied by CIT(A), for the first time Held that - settled legal position that powers of CIT(A) are co-terminus with that of the AO and he can do what the AO can do and can also consider aspects which have been omitted to be considered by the AO. Allowability of deduction/exemption under section 11 of the IT Act for assessment years 2001-02 to 2006-07 Held that - assessee was not registered under section 12AA for the assessment year 2000-01 and, therefore, not entitled to exemption under section 11 - As regards assessment years 2004-05 to 2006-07, the registration of the assessee under section 12AA has been restored by the Tribunal and no violations of provisions of section 13(1)(c) have been found in these years and therefore, exemption under section 11 has to be allowed to the assessee. Assessee has challenged the assessment orders passed by the AO on the ground that the same were barred by limitation Held that - provisions of section 142(2A) were not applicable and the AO was not entitled to avail extended period and the assessments were thus barred by limitation. The ld. AR for the assessee, however, at the time of hearing of these appeals did not press this ground. This ground is therefore, dismissed as not pressed in all the assessment years. Assessee had treated these donations as capital receipts on the ground that the same were corpus donations - CIT(A) was convinced by the explanation given by the assessee Held that - There is no dispute that the assessee had issued receipts in each and every case on which it was specifically mentioned and that donations were received towards corpus - Assessee also filed confirmations from all donors giving name, address, PAN, mode of payment, etc. in which it was clearly mentioned that donations were towards corpus against revenue. Whether the voluntary contribution even if made with specific direction to form corpus of the trust could be assessed as income ? - Held that - For assessment year 2000-01 it was not registered, the voluntary contributions with direction to form corpus have to be treated as income - In assessment years 2001-02 to 2003-04 also provisions of sections 11 and 12 were not applicable due to violation of provisions of section 13(1)(c) and voluntary contributions towards corpus have to be treated as income - in assessment year 2004-05 to 2006-07 in which the assessee was registered under section 12AA, and in which no violation of section 13(1)(c) were found, voluntary contributions have to be treated as capital receipt, not taxable. Disallowance of depreciation - assessee had filed returns of income as trust and claimed capital expenditure as full deduction in the computation of income - Held that - allowing full deduction in respect of capital expenditure in relation to the provisions of section 11 only meant that expenditure incurred on acquisition of capital asset to be used for charitable /religious purposes has to be treated as application of income. The depreciation has to be allowed in respect of capital assets so acquired and used for charitable activity decided in case of CIT v. Institute of Banking Personnel Selection (2003 - TMI - 11526 - BOMBAY High Court) Disallowance of deduction claimed by the assessee on account of payment to Director of Technical Education Held that - The case of the assessee is that extra students had been admitted inadvertently in violation of administrative guidelines thus there was no infraction of law. The ld. DR, could not explain before us as to how there was any violation of statutory provisions in admitting students. Therefore, in our view the deduction claimed cannot be disallowed under the provisions of Explanation to section 37(1) against revenue

Summary

Issues Involved:
1. Addition on account of unaccounted donations.
2. Applicability of provisions of section 13(1)(c) of the Income Tax Act.
3. Benefit of deduction/exemption under section 11 of the Income Tax Act.
4. Time barring of assessments.
5. Influence of the order of CIT(C) on the assessment orders.
6. Disallowance of expenditure on account of payment of GPF interest.
7. Assessment of income from voluntary contributions.
8. Disallowance of depreciation.
9. Relief allowed by CIT(A) in relation to unaccounted donations.
10. Disallowance of deduction on account of payment to Director of Technical Education.

Detailed Analysis:

1. Addition on Account of Unaccounted Donations:
The main dispute was regarding the addition of unaccounted donations based on incriminating diaries found during a survey at the business premises of Shri A.K. Patil. The AO noted that the donations were collected on the instructions of trustees and not recorded in the trust's books. Despite Shri Patil's later denial, the AO and CIT(A) held that the donations were collected on behalf of the trust. The Tribunal upheld the CIT(A)'s order, confirming the addition of unaccounted donations as income of the trust.

2. Applicability of Provisions of Section 13(1)(c):
The AO did not initially apply section 13(1)(c), but CIT(A) examined its applicability. CIT(A) concluded that the trust violated section 13(1)(c) as donations were used by trustees and the secretary, disqualifying the trust from exemptions under section 11 for assessment years 2001-02 to 2003-04. The Tribunal upheld this decision, confirming that the trust was not entitled to any benefit of sections 11 or 12 for these years.

3. Benefit of Deduction/Exemption under Section 11:
For assessment years 2001-02 to 2003-04, the Tribunal upheld the denial of exemption under section 11 due to violations of section 13(1)(c). For assessment years 2004-05 to 2006-07, the Tribunal allowed exemption under section 11 as the trust's registration under section 12AA was restored, and no violations of section 13(1)(c) were found.

4. Time Barring of Assessments:
The assessee's ground regarding the time-barring of assessments due to special audit under section 142(2A) was not pressed during the hearing and was dismissed as not pressed.

5. Influence of the Order of CIT(C) on the Assessment Orders:
The assessee argued that the assessments were influenced by the CIT(C)'s order under section 12AA. The Tribunal found that the AO passed reasoned and speaking orders, dismissing this ground as infructuous.

6. Disallowance of Expenditure on Account of Payment of GPF Interest:
This ground, relevant only for assessment year 2000-01, was not pressed during the hearing and was dismissed as not pressed.

7. Assessment of Income from Voluntary Contributions:
The AO treated voluntary contributions as revenue receipts. CIT(A) held that these were corpus donations based on confirmations and receipts. For assessment years 2001-02 to 2006-07, the Tribunal upheld CIT(A)'s decision, treating these as capital receipts and not taxable. For assessment year 2000-01, the Tribunal held that voluntary contributions, including corpus donations, were income under section 2(24)(iia) as the trust was not registered under section 12AA.

8. Disallowance of Depreciation:
The AO disallowed depreciation on assets, treating the opening WDV as nil. CIT(A) allowed depreciation based on the actual WDV in the books, following the Supreme Court's ruling in Madeva Upendra Sinai. The Tribunal upheld CIT(A)'s order, allowing depreciation as claimed by the assessee.

9. Relief Allowed by CIT(A) in Relation to Unaccounted Donations:
CIT(A) provided relief by accepting that certain amounts were school fees and not donations. The Tribunal upheld CIT(A)'s decision, confirming the relief granted for assessment years 2000-01 and 2001-02.

10. Disallowance of Deduction on Account of Payment to Director of Technical Education:
The AO disallowed the deduction, treating it as a penalty. CIT(A) allowed the deduction, stating it was for violation of administrative guidelines, not statutory provisions. The Tribunal upheld CIT(A)'s decision, allowing the deduction for assessment year 2000-01.

Conclusion:
1. Appeals of Vidyavardhini for assessment years 2000-01 to 2003-04 are dismissed; for assessment years 2004-05 to 2006-07, they are partly allowed.
2. Appeals of the revenue in case of Vidyavardhini for assessment years 2000-01 to 2003-04 are partly allowed; for assessment years 2004-05 to 2006-07, they are dismissed.
3. Appeals of the revenue in case of Shri A.K. Patil for assessment years 2000-01 to 2003-04 are dismissed.