2022 (11) TMI 814 - AT - Income Tax

Trust's Appeal Allowed by ITAT Kolkata, Clarifies Asset Ownership Rules, Emphasizes Documentation

The ITAT Kolkata allowed the appeal of the assessee trust, overturning the addition of Rs. 16 lakhs as unexplained investment in the building. The ... Assessment of trust - unexplained investment by the assessee-trust justifying the addition of section 69 - HELD THAT:- The building was not constructed or owned by the trust/institute for the relevant assessment year A.Y 2011-12. We find that the ld. CIT(A) has also categorically made observation that the building was constructed by the trustees of the assessee and not by the assessee itself. Since the building was not constructed by the assessee-trust, there was no question of any addition on account of unexplained investment by the assessee-trust. There is no justification on the part of the CIT(A) in confirming the impugned addition especially when the CIT(A) himself has observed that the building was not constructed by the assessee-trust rather the same was constructed by the trustees of the assessee i.e. Smt. Mamata Mondal and Shri Aditya Mondal. Merely because the building was used by assessee-trust without consideration that cannot be said to be, in any way, any unexplained investment by the assessee-trust justifying the addition of section 69 of the Act. In view of this, the impugned order of the CIT(A) is set aside and the addition made by the Assessing Officer is hereby ordered to be deleted. - Decided in favour of assessee. Issues:1. Addition of unexplained cash deposits in the bank account.2. Addition of unexplained investment in building. Analysis:Issue 1: Addition of unexplained cash deposits in the bank accountThe Assessing Officer made an addition of Rs. 8 lakhs as unexplained cash deposits in the bank account of the assessee trust. However, in the appeal before the CIT(A), it was successfully explained that the amount was donated by the trustees, leading to the deletion of this addition. The CIT(A) found the explanation satisfactory and ruled in favor of the assessee on this issue.Issue 2: Addition of unexplained investment in buildingRegarding the addition of Rs. 16 lakhs as unexplained investment in a building, the CIT(A) upheld this addition made by the Assessing Officer. The CIT(A) noted that the building in question was constructed by the trustees of the assessee trust, Smt. Mamata Mondal and Shri Aditya Mondal, and was not part of the trust's assets. Despite the building being used by the trust without consideration, the value of the building was not reflected in the balance sheet. Therefore, the CIT(A) treated the assessee trust as the deemed owner of the building obtained without consideration, justifying the addition under section 69 of the Income Tax Act.In the subsequent appeal before the ITAT Kolkata, the counsel for the assessee argued that since the building was constructed by the trustees and not by the trust itself, there was no basis for the addition of unexplained investment by the trust. The ITAT Kolkata agreed with this argument, emphasizing that the building was not constructed by the assessee trust and, therefore, the addition was unwarranted. The ITAT Kolkata set aside the CIT(A)'s decision, ordering the deletion of the addition made by the Assessing Officer.In conclusion, the ITAT Kolkata allowed the appeal of the assessee trust, overturning the addition of Rs. 16 lakhs as unexplained investment in the building. The judgment clarified the distinction between assets owned by the trust and those held by individual trustees, highlighting the importance of proper documentation and accounting practices to avoid such disputes in the future.