2023 (8) TMI 272 - AT - Income Tax

Rectification u/s 154 - Computation of Tax - assessment of trust - denying exemption u/s 11 and computed the income of the assessee u/s 115BBE - AO added certain unaccounted capitation fee alleged to have been received - A.R. submitted that during the search, no unaccounted investment or sum of money or any other article or thing or bullion etc. was found. In the assessment order also, there was no discussion of any amount being added u/s 68, 69, 69A, 69B, 69C 69D - HELD THAT - The reading of the assessment order passed u/s 143(3) r.w.s. 153A/153D of the Act shows that the assessee has collected unaccounted capitation fees which was brought to tax and the same is taxed at the higher rate as per provisions of section 115BBE of the Act. In our opinion, there is no infirmity in the action of the AO on this issue and even if there is a mistake, it is debatable and the remedy lies with the assessee elsewhere and not by way of proceedings u/s 154 of the Act. Also brought to our notice at the time of haring that the assessee has filed appeal against the assessment order passed u/s 143(3) r.w.s. 153A/153D before the ld. CIT(A) and the same are pending before the ld. CIT(A). Being so, if the assessee has any grievance, it can agitate it before the first appellate authority and the first appellate authority shall not be influenced by our findings on this issue in this appeal and he shall take independent view on this subject on merit in accordance with law while disposing the appeal before him for all these assessment years. This ground of appeals of the assessee is dismissed in all appeals. Depreciation claim - When the income of the assessee is assessed as business income by rejecting the exemption claimed by assessee u/s 11 and the assessee is entitled for all usual deductions under the provisions of the Act while computing the income of the assessee under the head business , more so deduction u/s 30 to 38 of the Act to be granted and not the gross income to be taxed. When the exemption u/s 11 of the Act is rejected, the income of the assessee has to be computed in normal commercial manner. Even if there is no claim of deduction towards depreciation, the same to be granted as this is the mandatory deduction to be granted u/s 32 if the assessee owns and puts the assets to use. Accordingly, we direct the AO to grant the allowable deduction towards depreciation to the assessee. Ordered accordingly. This ground of appeals of the assessee is allowed in all appeals. Denial of exemption u/s. 11 - AO held that exemption u/s 11 cannot be granted because the issue of cancellation of registration is still pending before PCIT and also on the ground that the exemption is denied as per fresh findings of the second search carried out on 10.10.2019 - HELD THAT - The assessee is claiming exemption u/s 11 of the Act by filing application u/s 154 of the Act. In our opinion, this is debatable issue and the AO has given reasons in the assessment order passed u/s 143(3) r.w.s. 153A/153D of the Act. This issue cannot be dealt under proceedings u/s 154 of the Act as it is very much debatable. However, we make it clear that the ld. CIT(A) while disposing the appeals before him against the order passed u/s 143(3) r.w.s. 153A/153D of the Act, he should take independent view of the matter without influencing by our this finding herein. Ordered accordingly. This ground of appeals of the assessee is dismissed in all appeals. Appeals of the assessee are partly allowed.

Issues Involved:

1. Denying exemption under Section 11 of the Income-tax Act.
2. Computation of tax under Section 115BBE.
3. Non-granting of depreciation.
4. Denial of exemption under Section 11 due to pending cancellation of registration.

Summary:

Issue 1: Denying exemption under Section 11 of the Act

The assessee contended that the exemption under Section 11 was denied without invoking provisions of Section 68, 69A, 69B, and 69D. The AO quantified undisclosed capitation fees and taxed it under Section 115BBE. The Tribunal held that the AO's action was correct and any mistake was debatable, suggesting that the assessee should seek remedy through appeal rather than rectification under Section 154. The appeals on this ground were dismissed.

Issue 2: Computation of Tax

The assessee argued that the tax computation was incorrect and filed an application under Section 154 for rectification. The AO had taxed part of the income under Section 115BBE and the balance at normal rates. The Tribunal found no error in tax computation and held that the issue was disputable, not a mistake apparent from the record. The appeals on this ground were dismissed.

Issue 3: Non-granting of Depreciation

The assessee claimed that once exemption under Section 11 was denied, depreciation should be allowed. The AO and CIT(A) had denied this claim as it was not made in the return of income. The Tribunal held that when income is assessed as business income, usual deductions, including depreciation, should be granted. The AO was directed to allow depreciation, and the appeals on this ground were allowed.

Issue 4: Denial of exemption under Section 11 due to pending cancellation of registration

The assessee argued that exemption under Section 11 should be allowed as the order canceling registration under Section 12AA(3) was set aside. The AO denied exemption due to pending cancellation proceedings and findings from a second search. The Tribunal noted that this issue was debatable and not suitable for rectification under Section 154. The appeals on this ground were dismissed, but the CIT(A) was instructed to take an independent view in the pending appeals.

Conclusion:

The appeals were partly allowed, with the Tribunal directing the AO to grant depreciation but dismissing other grounds as debatable issues not suitable for rectification under Section 154. The CIT(A) was advised to independently consider the pending appeals without being influenced by the Tribunal's findings.

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