2020 (1) TMI 445 - AT - Income Tax

Tribunal dismisses Revenue's appeals on surplus, scholarship expenses. CIT(A)'s decision on depreciation upheld. Addition under section 69A deleted.

Assistant Commissioner of Income Tax, Central Circle-03, Jaipur Versus M/s St. Wilfred Education Society

Assistant Commissioner of Income Tax, Central Circle-03, Jaipur Versus M/s St. Wilfred Education Society - TMI Issues Involved:1. Taxing surplus as per income and expenditure account.2. Non-genuine scholarship expenses.3. Depreciation on building.4. Addition of unexplained cash under section 69A.Detailed Analysis:1. Taxing Surplus as per Income and Expenditure Account (A.Y 2014-15 to A.Y 2017-18):The Assessing Officer (AO) taxed the surplus of income over expenditure due to the withdrawal of approval under section 10(23C)(vi) and registration under section 12AA by the Principal Commissioner of Income Tax (Pr. CIT) on grounds of fund diversion for personal use, non-genuine scholarship expenses, and asset addition claims. The Tribunal restored the approval and registration, noting no credible evidence of fund diversion or non-genuine activities. The CIT(A) directed the AO not to tax the surplus, a decision upheld by the Tribunal, emphasizing the lack of independent findings by the AO and reliance on the Pr. CIT's withdrawn approval.2. Non-Genuine Scholarship Expenses (A.Y 2014-15 to A.Y 2017-18):The AO disallowed scholarship expenses based on the Pr. CIT's findings. The CIT(A), referencing the Tribunal's restoration of approval and registration, held that the scholarship payments were genuine. The Tribunal supported this, noting that the AO did not conduct an independent verification and relied solely on the Pr. CIT's findings. The Tribunal also highlighted that the scholarship payments were made through account payee cheques and were verified by student confirmations and affidavits.3. Depreciation on Building (A.Y 2016-17 & A.Y 2017-18):The AO disallowed depreciation on the building, arguing the assessee had no ownership of the land. The CIT(A) allowed the depreciation, referencing the Tribunal's findings that the land was in effective possession of the assessee society, which constructed the building and used it for educational purposes. The Tribunal upheld this, noting the legal precedents allowing depreciation even if the land is not formally registered in the assessee's name. However, the Tribunal remanded the issue to the AO to verify if the capital expenditure on the building was claimed as an application of income, as per section 11(6).4. Addition of Unexplained Cash under Section 69A (A.Y 2017-18):The AO added cash found during a search as unexplained money, suspecting it was not recorded in the books. The CIT(A) and the Tribunal found that the cash represented fees collected from students, supported by statements from bank employees and the assessee's accountants, and was duly recorded in the books of accounts. The Tribunal noted that the cash was found in the bank's possession and corroborated by documentary evidence, dismissing the AO's addition under section 69A.Conclusion:The Tribunal dismissed the Revenue's appeals for A.Y 2014-15 to A.Y 2017-18 regarding taxing surplus and non-genuine scholarship expenses, upheld the CIT(A)'s decision on depreciation for statistical purposes, and confirmed the deletion of the addition under section 69A for A.Y 2017-18.