Tribunal grants appeal, deems Rs. 1 crore payment as income application under Income-tax Act

The tribunal allowed the appeal, determining that the payment of Rs. 1 crore made by Demand Draft on 30-03-2011 constituted an application of income within the stipulated period under Section 11(2) of the Income-tax Act, 1961. The tribunal found in favor of the assessee, ordering that the benefit of income application be granted, thereby resolving the issues in favor of the assessee.

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Issues Involved:
1. Sustaining the addition of Rs. 51,50,000 due to alleged non-application of funds accumulated under Section 11(2).
2. Disregarding the payment of Rs. 1,00,00,000 made by the appellant to the builder and considering it as an application of funds accumulated under Section 11(2).
3. Validity of the Assessing Officer's finding that payments were made to the builder only after 31/03/2011 despite sufficient documentary evidence provided by the assessee.

Detailed Analysis:

Issue 1: Sustaining the Addition of Rs. 51,50,000
The AO observed that the assessee had accumulated Rs. 51,50,000 during AY 2005-06, which should have been utilized by 31-03-2011 as per Section 11(2) of the Income-tax Act, 1961. The assessee claimed to have utilized the amount by making a payment of Rs. 1 crore to M/s. Deal-Well Developers for constructing a new school building. The AO, however, noted that the payment was made via Demand Draft on 30-03-2011, and the builder received the payment in August 2011. The AO concluded that the amount was not utilized within the stipulated period and added Rs. 51,50,000 to the income of the assessee.

Issue 2: Disregarding the Payment of Rs. 1,00,00,000
The assessee argued that the payment of Rs. 1 crore was made as an advance for booking three floors and a terrace in a building to be constructed by the builder, which was adjacent to the existing school. The AO questioned the timing and method of payment, suggesting that the use of Demand Draft instead of a cheque indicated an attempt to manipulate the application of income. The AO also noted that the builder confirmed no transaction took place in FY 2010-11, and the payment was credited in FY 2011-12. The CIT(A) upheld the AO's decision, leading to the appeal before the tribunal.

Issue 3: Validity of the AO's Findings
The tribunal examined whether the payment made by Demand Draft on 30-03-2011, which was debited from the assessee's bank account before 31-03-2011, could be considered as an application of income. The tribunal noted that while the builder received the payment in August 2011, the drafts were issued and debited from the assessee's account on 30-03-2011. The tribunal found the AO's argument that the payment should have been made by cheque instead of Demand Draft to be without merit, as the method of payment is at the discretion of the assessee.

The tribunal also noted that the enquiry conducted by the AO under Section 133(6) and the inspector's report were not made available to the assessee, denying them the opportunity to cross-examine the builder. The tribunal emphasized that the benevolent provisions of Section 11(2) should be construed liberally and that the assessee's bona fides were not in question, as there was no evidence of the drafts being canceled or the booking being fraudulent.

Conclusion:
The tribunal allowed the appeal, accepting the assessee's contention that the payment of Rs. 1 crore made by Demand Draft on 30-03-2011 constituted an application of income within the stipulated period. The tribunal ordered that the benefit of an application of the income be allowed to the assessee, thereby resolving the issues in favor of the assessee.

Order Pronounced:
The appeal of the assessee is allowed. Order pronounced in the open court on 27.03.2018.

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