Tribunal upholds exemption under Income Tax Act, remands depreciation issue, and upholds Section 40A(3) addition.

The Tribunal upheld the CIT(A)'s decision to allow exemption under Section 11 of the Income Tax Act, dismissing the Revenue's challenge. Regarding the disallowance of depreciation, the Tribunal remanded the issue back to the AO for verification despite the CIT(A)'s deletion of the disallowance. The addition under Section 40A(3) was also upheld by the Tribunal, rejecting the Revenue's argument and citing previous consistent decisions. The appeal was partly allowed for statistical purposes, with no costs ordered.

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Issues Involved:
1. Exemption under Section 11 of the Income Tax Act, 1961.
2. Disallowance of depreciation.
3. Addition under Section 40A(3) of the Income Tax Act, 1961.

Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act, 1961:
The Revenue challenged the CIT(A)'s decision to allow exemption under Section 11, arguing that payments made to Rambagh Polo Club for corporate membership were not aligned with the society's objectives and were for personal benefit. The CIT(A) had allowed the exemption, holding that only the income portion violating provisions should be taxed at the Maximum Marginal Rate (MMR). The Tribunal upheld the CIT(A)'s decision, citing legal precedents that only the income violating Section 13 should be taxed at MMR, not the entire income. The Tribunal found no reason to interfere with the CIT(A)'s order, thus dismissing the Revenue's grounds.

2. Disallowance of Depreciation:
The Revenue contested the CIT(A)'s deletion of disallowance of depreciation amounting to Rs. 1,23,30,183/-, arguing that the assets had already been claimed as application of income in earlier years, and the amendment in Section 11(6) effective from AY 2015-16 disallowed such claims. The CIT(A) had relied on the Supreme Court judgment in CIT vs Rajasthan and Gujarati Charitable Foundation, which allowed depreciation claims despite the amendment. However, the Tribunal restored the issue to the AO for verification of whether the cost of fixed assets had been claimed as application of income in previous years, directing a fresh assessment.

3. Addition under Section 40A(3) of the Income Tax Act, 1961:
The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 89,37,519/- under Section 40A(3) for cash payments made to contractors. The CIT(A) had observed that the payments were for capital expenditure, not revenue, and thus Section 40A(3) did not apply, citing CBDT Circular No.34. The Tribunal upheld the CIT(A)'s decision, noting that similar disallowances in previous years had not been contested further by the Revenue and that no new facts were presented to challenge the CIT(A)'s findings.

Conclusion:
The Tribunal dismissed the Revenue's appeal regarding the exemption under Section 11 and the addition under Section 40A(3), while remanding the issue of depreciation disallowance back to the AO for verification. The appeal was partly allowed for statistical purposes, with no order as to costs.

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