2023 (11) TMI 194 - AT - Income Tax

Trust denied rent deduction under Section 24(a) but wins on FCRA penalty and unexplained deposits

Amalsad Vibhag Kelvani Mandal, C/o-H. D.S.M. High School, Amalsad Versus I.T.O., Exemption Ward, Surat.

The ITAT SURAT-AT addressed four issues concerning a trust's tax assessment. First, the tribunal denied the statutory deduction under Section 24(a) for ... Statutory deduction u/s 24(a) denied to assessee trust - rent income earned from the properties of the trust - AO was of the view that Section 11, 12 and 13 are special provisions, though, deals with the benefit of tax exemption and these provisions override the general provisions of Income Tax Act and not required the assessee to follow normal accounting or commercial principle to determine income - HELD THAT:- As decided in Improvement Trust, Fatehabad [2020 (2) TMI 709 - ITAT DELHI] deduction @ 30% being standard deduction u/s 24(a) cannot be allowed as the income of assessee is subject to application under Section 11 and 13 of the Act. Section 11, the income of trust is exempt. Thus, respectfully following the decision of Division Bench of Delhi Tribunal in the case of Improvement Trust Fatehabad Vs ITO(E) (supra) and Nandlal Tolani Charitable Vs ITO(E) [2019 (4) TMI 762 - ITAT MUMBAI] no merit in this ground of appeal raised by the assessee. Disallowance of amount paid to FCRA - penalty was paid for violation of provision of Foreign Contribution (Regulation) Act, 2010 - addition made as expenses were incurred by way of penalty for breach of law which cannot be considered as incurred wholly and exclusively for the purpose of business - HELD THAT:- Assessee vehemently submitted that such expenses were incurred wholly and exclusively for the purpose of regularization of foreign remittance. To support his submission, assessee relied upon the decision of Master Capital Services Ltd. [2007 (2) TMI 241 - ITAT CHANDIGARH-A] wherein it was held that “wherein some violation of conditions prescribed by National Stock Exchange but such violation occurred in the regular course of business which cannot be considered as infringement of any statutory law, so the expenses incurred by the assessee in regular course of business were allowable.We do not find that the assessee has incurred expenses for regularization of foreign remittance, thus the same is allowed for the purpose of business. In the result, ground No. 2 of the appeal is allowed. Addition on account of foreign contribution - AO made addition by taking a view that the assessee has not shown the donation either in the income and expenditure account or in the computation of total income - CIT(A) confirmed the action of AO by holding that there is discrepancy in the statement of the assessee - HELD THAT:- The assessee is claiming to have received the donation for earlier years but as per letters were given to FCRA for registration of foreign contribution, the assessee admitted that they have received amount in FY 2013-14. Before us, assessee vehemently argued that no funds were received in impugned assessment year, so no addition can be made and has shown the details of such contributions received in this regards. Thus, if the contribution is not received in the assessment year under consideration no addition is warranted, therefore principles agreed that that no such addition be sustained against the assessee. As there is some discrepancy in explaining facts before ld CIT(A), direct the assessing officer to verify the fact and allow relief to the assessee. In the result, this ground of appeal is allowed for statistical purpose. Unexplained deposits in bank - assessee not furnished required details to him rather reply was sent through courier - CIT(A) confirmed the action of AO by relying of the Schedule-H of profit and loss account of the assessee-trust - HELD THAT:- We find that the assessee has furnished complete bifurcation of all the credit in the impugned bank account with Central bank of India. The assessee has filed complete statement of bank account as well as the ledger of fees of student. The books of the assessee are duly audited. The bank account is not undisclosed account. The said bank account is regularly used and maintained by the assessee for the purpose of its primary wing of school. In the bank account the assesse has mentioned the PAN of assessee- trust. Thus, the bank account is not the undisclosed bank account. The assessing officer made addition solely on the basis of AIR information without actual verification of facts. Hence, I do not find any justification of making addition on account of credit as unexplained credit. The assessing officer is directed to delete the entire addition. In the result, this ground of appeal is allowed. Issues Involved:1. Deduction under Section 24(a) of the Income Tax Act.2. Disallowance of penalty paid under FCRA.3. Addition of voluntary contributions as income.4. Addition of deposits in bank as unexplained cash credit.Summary:1. Deduction under Section 24(a) of the Income Tax Act:The assessee appealed against the disallowance of a standard deduction under Section 24(a) for rent income. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed the deduction, holding that Sections 11, 12, and 13 of the Act, which govern trust income, override general provisions and do not allow for such deductions. The Tribunal upheld this view, citing previous decisions, and dismissed the appeal.2. Disallowance of penalty paid under FCRA:The AO disallowed Rs. 2,86,530 claimed as educational expenses, noting it was a penalty for violating the Foreign Contribution (Regulation) Act (FCRA). The CIT(A) upheld this decision, considering the penalty as not incurred for the trust's objectives. The Tribunal, however, allowed the appeal, accepting the assessee's argument that the penalty was compensatory and incurred for regularizing foreign remittance, citing a similar case from the Chandigarh Tribunal.3. Addition of voluntary contributions as income:The AO added Rs. 18,96,725 as income, arguing the donations were not shown in the income and expenditure account. The CIT(A) confirmed this, noting discrepancies in the assessee's statements about when the donations were received. The Tribunal found merit in the assessee's claim that the donations were received in earlier years and directed the AO to verify the facts, allowing the appeal for statistical purposes.4. Addition of deposits in bank as unexplained cash credit:The AO added Rs. 16,73,830 as unexplained cash credits, noting the deposits in a bank account not reflected in the profit and loss account. The CIT(A) confirmed this. The Tribunal, however, found that the deposits were from tuition fees and other educational receipts, duly accounted for and audited. It directed the AO to delete the addition, allowing the appeal.Conclusion:The appeal was partly allowed, with the Tribunal upholding the disallowance of the standard deduction under Section 24(a) but allowing the appeals on the penalty under FCRA, the addition of voluntary contributions, and the unexplained cash credits.