9911796707
TMI Blog2024 (10) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., the owners of Ideal Hostel and Naman Hostel) has not been adequately substantiated through documentary evidence or a formal agreement establishing the relationship between the trust and the hostel owners. In the absence of such documentation, the income relating to the cash deposits in the trust s account should be considered in the hands of the assessee, i.e., the trust, as per the provisions of the Income Tax Act. As imperative that the CIT(A) to re-examine the classification of the trust as an AOP and the tax implications arising from this classification. In particular, CIT(A) must ensure that any income deposited in the trust's account that is not backed by documentary evidence supporting its attribution to third parties is appropriately taxed in the hands of the trust. In conclusion, the order of the CIT(A) is set aside and the matter is remitted back for fresh adjudication in accordance with the law. CIT(A) shall pass a reasoned order after considering all facts, evidence, and submissions made by the assessee. Appeal of the assessee is treated as allowed for statistical purposes. - SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asked to explain the sources. In reply thereto, the assessee submitted the details which are summarized as follows 1. The assessee trust, which manages a school, entered into an arrangement with two hostel owners, namely, Thakorbhai Manubhai Patel, who runs the Ideal Hostel, and Shakuntalaben Rajibhai Patel, who operates the Naman Hostel. These hostels provided accommodation to students enrolled in the school. 2. The trust collected both school fees and hostel fees from students at a single point, which were credited into the trust s bank account with Dena Bank, Vadodara, under the name Ideal Education Trust. The account (No. 055910007557) received fees through both cash and cheque deposits. 3. During the relevant financial year, total deposits into the account amounted to Rs. 1,07,80,265/-, while total withdrawals amounted to Rs.1,01,65,453/-. Cash deposits totalled Rs. 72,73,050/-, with cash withdrawals amounting to Rs. 19,55,750/-. Cheque/clearing deposits amounted to Rs. 35,07,215/- (net of Rs. 2,36,500/- in returned cheques). It was clarified that the total cash deposits were inaccurately reported as Rs.79,13,984/- in the notice instead of Rs.72,73,050/-. 4. The assessee prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crepancy of Rs.15,12,601/- in the reconciliation. As explained by the assessee, the discrepancy was on account of i) Rs. 10,46,141/- as advance fees for FY 2011-12. ii) Rs. 28,353/- as interest income credited to the bank account. iii) Rs. 4,00,000/- as a fixed deposit amount. iv) Rs. 38,107/- as a redeposit of cash withdrawn earlier. 3.2.1. Summary of AO s findings and addition is given below (i) Advance Fees of Rs.10,46,141/-:- Upon verification of the balance sheets of both Ideal School and Ideal Hostel, the AO found that no such advance fees or liabilities were reflected as on 31.03.2011. Since the balance sheets did not indicate any advance fees or liabilities, the AO rejected the assessee's claim and treated the amount of Rs.10,46,141/- as unexplained cash/cheque credit under section 69A of the Act, thereby adding it to the total income of the assessee. (ii) Interest Income of Rs.28,353/-:- The assessee had shown an amount of Rs.28,353/- as interest income credited into the bank account. However, on examining the Income Expenditure Account and the computation of income, the AO observed that this interest income was not disclosed as income for the year under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Dena Bank account for business purposes, it should have been disclosed in his books of accounts. Furthermore, the balance-sheet did not show any capital account or sundry creditors, rendering it unreliable. As a result, the AO concluded that the cash/cheque deposits of Rs.36,97,744/- into the Dena Bank account constituted undisclosed income. The entire amount was added to the total income of the assessee under section 69A of the Act. 4. The assessee preferred an appeal before the Ld.CIT(A), who in his order dated 26.02.2024, partly allowed the appeal by deleting the addition of Rs.36,97,744/- but confirmed the addition of Rs.15,12,601/-. While deleting the addition of Rs.36,97,744/-, the Ld.CIT(A) observed that the primary issue pertains to the addition made by the AO concerning the hostel fees received from students residing at IDEAL Hostel. The assessee had argued that the income from the hostel fees was reflected in the Income Tax Return (ITR) of Shri Thakorbhai Patel, the actual owner of the hostel and, therefore, the addition made by the AO in the assessee's hands was unjustified. The AO, however, added this amount to the income of the assessee due to the absence of a De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive (AR) of the assessee explained that the assessee-trust has prepared separate financial statements for Ideal School / Trust, Ideal Hostel and Naman Hostel. The Ld.AR further stated that the Income as well as profit from Ideal Hostel and Naman Hostel is disclosed in the return of income of Shri Thakurbhai Manubhai Patel and Smt. Shakuntalaben Ravjibhai Patel respectively. The Ld.AR also explained that the discrepancy relating to advance fee of Rs.10,46,141/- is disclosed as liability in the balance-sheet of Naman Hostel i.e. in the hands on Smt.Shakuntalaben Ravjibhai Patel. About the Fixed Deposit of Rs.4,00,000/- the Ld.AR submitted the copy of ledger account of the same in the books of Ideal School/Hostel. However, the same fixed deposit was not reflecting the balance sheet of Ideal School which the Ld.AR could not explain. The Ld.AR could not explain the other amounts. The Ld.AR was also asked to provide the documentary evidence relating to arrangements with the hostel owner and why the amounts relating to hostel was deposited in the trust account, but the Ld.AR could not provide the explanation, or the documentary evidence asked for. 7. The Ld.Departmental Representative (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust is not eligible for exemption under Chapter III of the Act and, therefore, must be considered taxable. 8.4. The assessee s contention that the cash deposits in the trust's bank account relate to hostel receipts attributable to third parties (i.e., the owners of Ideal Hostel and Naman Hostel) has not been adequately substantiated through documentary evidence or a formal agreement establishing the relationship between the trust and the hostel owners. In the absence of such documentation, the income relating to the cash deposits in the trust s account should be considered in the hands of the assessee, i.e., the trust, as per the provisions of the Income Tax Act. 8.5. Furthermore, it is imperative that the Ld.CIT(A) to re-examine the classification of the trust as an AOP and the tax implications arising from this classification. In particular, the Ld.CIT(A) must ensure that any income deposited in the trust's account that is not backed by documentary evidence supporting its attribution to third parties is appropriately taxed in the hands of the trust. 8.6. In light of the above, we set aside the impugned order of the Ld.CIT(A) and restore the matter back to the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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