LITTLE SCHOLARS ACADEMY,AMROHA vs. ACIT CENTRAL CIRCLE, MORADABAD

5. That the Ld. CIT(A) erred in law and on facts in ignoring the proof of construction of the building and the ledger accounts filed which disclose the para-wise detail of vendors from whom construction was effected where the majority of transaction were before the date of survey.

6. That the Ld. CIT(A) erred in law and on facts in not appreciating the duly explained construction/ improvement of building from the audited books of accounts which were duly accepted by the Ld. AO.

7. That the Ld. CIT(A) erred in law and on facts by confirming the addition of Rs. 1,49,91,294/- remained in terms of section 69 of the Act relying on an retracted statement and a make believe document.

8. That the Ld. CIT(A) erred in law and on facts by invoking section 115BBE of the Act to charge income tax on Rs. 75,00,000/- when such amount was duly disclosed as income of the assessee in the Income Tax Return.

9. That the Ld. CIT(A) has erred in law and on facts by confirming the Addition of Rs. 5,00,000/- on account of unexplained income under section 68 of the Act.

10. That the Ld. CIT(A) has erred in law and on facts in not providing the Appellant with the reasonable opportunity of being heard.

11. That the appellant reserves the right to add, modify, alter, amend or delete any of the grounds.”

3. Heard and perused the records. Ld. AR has submitted that ground no. 9 and 10 are not pressed and ground no. 1 is general in nature. Based on the same the relevant facts are that the Appellant had filed its Return of Income in ITR-7 on 30.10.2019 declaring total income at Rs. 75,00,000/- and subsequently revised return of income was filed on 03.03.2020 declaring total income Rs. 75,00,000/-. In this case, a survey action u/s 133A of the Act was carried out at the office premises of the trust on 11.02.2019 and documents were impounded. The case was selected for compulsory scrutiny and statutory notice u/s 143(2) of the I.T. Act was issued on 28.09.2020 by the then Assessing Officer, ACIT (Exemption) Circle, Lucknow, which was duly served upon the assessee. Thereafter the case was centralized with the ACIT (Central Circle), Moradabad vide order u/s 127 of the Act by the Ld. Commissioner of Income Tax (Exemption), Lucknow on 08.12.2020. Thereafter notices u/s 142(1) of the Act were issued.

3.1 During the assessment proceedings, it has been noted by the Assessing Officer that the assessee society has been constituted on 05.06.1990. The society is registered u/s 12AA of the Income Tax Act, 1961 vide order dated 11.12.2001 of the Ld. Commissioner of Income Tax, Moradabad and it has been renewed with effect from 05.06.2015 for further five years. The assessee has claimed exemption u/s 11 of the Income Tax Act, 1961. The Assessing officer noted that the society/trust has claimed depreciation on fixed asset amounting to Rs.91,01,832/- which was claimed at the time of purchase. So it is not allowable u/s 11(6) of IT Act, 1961. Therefore show cause notice dated 17.02.2021 was issued and the assessee society was required to explain the claim of depreciation amounting to Rs.91,01,832/-.

3.2 After considering the submission of the assessee, it has been held by the Assessing Officer that the assessee has already claimed deduction at the time of purchase of assets so as per section 11(6) of Act, depreciation is not allowable on such assets. Thus the depreciation amounting to Rs.91,01,832/- was disallowed and added to the income of the assessee society.

3.3 Further, during the assessment proceedings, it has been noted by the Assessing Officer that during survey operation conducted at the school premises as well as hospital building of the society on 11.02.2019 a loose sheet was impounded wherein monthly cash expenditure on school building as well as hospital building totaling to the amount of Rs.2,24,91,294/- was mentioned but was not reflected in the books of account maintained on the system by the society. It has also been noted by the Assessing Officer that during the survey action statement of Sri Girish Chandra Bansal (Manager) was recorded and in reply to the Q.No.20 he explained that “Yes, the paper which you are showing to me, pertains to F.Y. 2018-19 in which monthly details of expenditure on LSA 4 and hospital building has been mentioned. No bills and voucher pertaining to this expenditure is available in this time”. Further while giving answer to the Q.No. 21 he explained that “Said amount was anonymous donation received in cash during F.Y. 2018-19”.

3.4 Therefore after considering the assessee’s written submission, the assessing officer has treated Rs. 2,24,91,294/- as unexplained investment u/s 69 of the Act. Thus, the assessing officer has held that since the assessee trust has already disclosed the surrendered income of Rs. 75,00,000/- out of said unexplained investment in the return of income and hence remaining amount of Rs.1,49,91,294/- is added u/s 69 Act to its income.

3.5 During the assessment proceedings, it has been further noted by the Assessing Officer that assessee trust has shown unsecured loan of Rs.5,00,000/- from Shri Harvendra Singh, out of which unsecured loan of Rs.1,80,000/- has been claimed to be old and Rs.3,20,000/ has been raised during F.Y. 2018-19. On verification of the same it has been found by the Assessing Officer that cash of Rs.1,80,000/- was transferred in his account and 3,20,000/ was deposited also in his account and the same was transferred to the assessee trust. Since creditworthiness of the same was not proved and Shri Harvendra Singh has not filed his ITR, the same was surrendered by the assessee for tax. Therefore, the unsecured loan of Rs.5,00,000/- was treated unexplained income of the trust u/s 68 and added to its income of the trust. Therefore, assessment has been 5 completed at the total income of 2,29,91,294/- vide impugned order dated 06- 04-2021. The Appellant has filed the appeal before ld. CIT(A) against and had succeeded partly for which is in appeal raising aforesaid grounds.

4.1 Though ld. DR has relied and defended the impugned orders, it is undisputed that the contents of the impugned sheet were written at the time of the survey. Thus it was not a document in existence before the survey so cannot be considered to be some incriminating material discovered or impounded during the course of the survey proceedings to be made basis of some 6 conclusion of undisclosed transactions. This only forms part of the statement recorded during search and would have limitations of same nature as exist for a bare statement. No other material corroborated this statement and the calculation forming part of the statement. Thus the alleged cash amount of INR 2,24,91,294 mentioned in the seized material has no basis whatsoever, as nothing incriminating matter relating to alleged cash payments was found during the survey, and the manager who was pressured to write the same has retracted the contents within short span of just 17 days. The Appellant society has also filed a letter stating that the contents were written under pressure by the Manager and a voluntary surrender of anonymous donations of INR 75 Lacs was made in the ITR to buy peace of mind and avoid any hindrance to the activities of the Society.

4.2 Then ld. AR has established that the value of construction recorded in the books of account (available at pages 222 to 228 of the paper book) is in consonance with the valuation report (available at page no 204-211 of the paper book). Thus the said incriminating expenditure statement is not corroborated by finding any discrepancy or evidence from the books of assessee. In regard to relevance and admissibility of retracted statements, recorded during search or survey proceedings under the Act, the findings of Hon’ble High Court of Delhi in the matter of CIT vs Sunil Aggarwal, [2015] 64 taxmann.com 107 (Delhi) helps the case of assessee where Hon’ble high Court has held as follows:-

“14. Therefore, although the counsel for the Revenue may be right in his submission that a statement under Section 132(4) of the Act carries much greater weight than the statement made under Section 133A of the Act, a retracted statement under Section 132(4) of the Act would require some corroborative material for the AO to proceed to make additions on the basis of such statement. Of course, where the retraction is not for any convincing reason, or where it is not shown by the Assessee that he was under some coercion to make the statement in the first place, or where the retraction is not followed by the Assessee producing material to substantiate his defence, the AO might be justified in make additions on the basis of the retracted statement.”

4.3 In the light of aforesaid, where the statement was of an employee and the retraction was immediately made, the statement recorded during survey, not having same evidentiary value as one recorded during search, which too needs corroboration, we are inclined to hold that the very basis of making addition not being one that could be considered a legally admissible evidence, the addition deserves to be deleted. Ground no. 1 to 7 are sustained.