2018 (3) TMI 1079 - AT - Income Tax

Tribunal allows appeals for AY 2008-09 to 2010-11, rejects Section 153A additions, exempts hostel income under Section 11.

The Tribunal allowed the appeals for Assessment Years (AY) 2008-09 to 2010-11, ruling that additions under Section 153A were invalid due to the absence of ... Assessment u/s. 153A - Held that:- Apparently in this case the search took place at the premises of the assessee society on 31.07.2013. As on that dated for impugned assessment year 2008-09 the return of income was filed by the assessee on 12.03.2009 and time limit for issue of notice u/s 143(2) of the Act was expired on 30.09.2009. In view of this the assessment year 2008-09 was not pending on the date of search. Further notice u/s 153A was issued on 26.03.2015 in response to which the return of income was filed on 30.04.2015. Hon'ble Delhi High Court in case of CIT Vs. Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] has held that in case of completed assessment the addition can be made only on the basis of incriminating material found during the course of search. In the present case while looking at the order passed by the ld AO we do not find that addition is based on any „incriminating material‟ found during the course of search. No such reference is also made of such documents. The ld DR also could not produce any material to show that these additions are based on incriminating material. - Decided in favour of assessee Determination of alleged surplus on account of hostel and mess facilities treated as business income of the assessee - provisions of section 11(4A)applicability - Held that:- The hostel, mess facility and transport facility etc carried out by the society are incidental to the main object of the assessee trust of education and therefore, provisions of section 11(4A) of the Act do not apply to the assessee as it cannot be said that by running the hostels or transport facility for student its educational activities is a separate business altogether. In view of this ground No. 1 to 3 of the appeal of the assessee are allowed and consequently, the ld AO is directed to grant the assessee benefit of section 11 and 12 of the Income Tax Act with respect to the all income of the trust including hostel and transportation receipts. Claim of the deprecation disallowed to assessee trust - double deduction - Held that:- The above issue has already been decided by Hon'ble Supreme Court in case of CIT Vs. Rajasthan and Gujarati Charitable Foundation [2017 (12) TMI 1067 - SUPREME COURT] wherein it has been held that up to the assessment year 2015-16 the assessee is entitled to claim the cost of acquisition of fixed assets as application of income and further deprecation thereon in subsequent years. In view of this we direct the ld Assessing Officer to delete the disallowance on account of depreciation.- Decided in favour of assessee Issues Involved:1. Validity of assessment under Section 153A without incriminating material.2. Taxability of income from hostel activities under Section 11.3. Disallowance of depreciation claimed on assets.Detailed Analysis:1. Validity of Assessment under Section 153A without Incriminating Material:The appeals primarily contested the validity of assessments framed under Section 153A of the Income Tax Act, 1961, for the Assessment Years (AY) 2008-09 to 2010-11. The core argument was that no incriminating material was found during the search, and hence, the additions made were not justified.- AY 2008-09: The Tribunal noted that the assessment year was not pending on the date of search and relied on the Delhi High Court's ruling in CIT vs. Kabul Chawla, which mandates that additions in completed assessments can only be based on incriminating material found during the search. Since no such material was found, the additions were deleted, and the appeal was allowed.- AY 2009-10: Similar to AY 2008-09, the Tribunal found that the assessment was completed, and no incriminating material was found during the search. Following the precedent set in Kabul Chawla, the additions were deleted, and the appeal was allowed.2. Taxability of Income from Hostel Activities under Section 11:The second issue was whether the income generated from hostel activities is exempt under Section 11 of the Income Tax Act, 1961.- AY 2010-11: The Assessing Officer (AO) treated the hostel activities as a separate business and disallowed the exemption under Section 11, arguing that the assessee should have maintained separate books of accounts as per Section 11(4A). The Tribunal, however, noted that the hostel facilities were provided only to students of the educational institution and were integral to the educational activities. Citing the Karnataka High Court's ruling in Karnataka Lingayat Education Society and the ITAT's decision in Krishna Charitable Society vs. ACIT, the Tribunal held that the hostel activities were incidental to the main objective of education and thus, the income was exempt under Section 11. Consequently, the AO was directed to grant the benefit of Section 11 and 12 for the hostel and transportation receipts.3. Disallowance of Depreciation Claimed on Assets:The third issue pertained to the disallowance of depreciation on assets under the argument of double deduction.- AY 2010-11: The AO disallowed the depreciation claimed on the grounds that the cost of the assets had already been treated as application of income. The Tribunal referred to the Supreme Court's decision in CIT vs. Rajasthan and Gujarati Charitable Foundation, which allows the claim of depreciation on assets even if their cost had been treated as application of income in earlier years. Therefore, the Tribunal directed the AO to delete the disallowance of depreciation.Conclusion:The Tribunal allowed the appeals for AY 2008-09 to 2010-11, holding that:1. Additions made under Section 153A were invalid in the absence of incriminating material.2. Income from hostel activities was exempt under Section 11 as it was incidental to the educational objectives.3. Depreciation on assets was allowable despite the cost being treated as application of income in earlier years.