CITY INSTITUTE,B D ROAD, CHITRADURGA vs. INCOME-TAX OFFICER, CHITADURGA

The assessee aggrieved with the same preferred an appeal before the learned CIT – A. It was noted that assessee was given five opportunities of hearing but assessee has merely submitted the statement of facts along with the appeal memo and therefore in response to the notice assessee remained unresponsive. Therefore the learned CIT – A decided the appeal on the merits of the case as per information available on record. It was stated that the onus is on the appellant assessee to prove that the source of the cash deposited into the bank account are accounted for in the books of the trust/club and has not escaped the provisions of the income tax act. Moreover, the appellant had not demonstrated that club is exclusively for members and cash received in demonetized currency belong to members to have benefit of mutuality. In other words the learned CIT – A held that appellant could not demonstrate that there is no sales to non-members and AO has rightly treated it as normal Association of persons. The appellant has turnover requiring audit of books of accounts and it is the assessee who has to file the return of income as an exemption on which mutuality can be claimed in the return and it is not correct to say that the club is not required to file the return as no such exemption is provided under section 10 of the Act. Further the detail submitted by the assessee have already been examined by the learned assessing officer and therefore no further scrutiny at the appellate level is required. Accordingly the order of the learned assessing officer was confirmed.

Assessee aggrieved with the same is in appeal before us. The contention of the learned authorised representative is that the sum of ₹ 1,198,500/– deposited in the bank account is out of the regular books of accounts of the club and therefore same could not have been considered as an unexplained income under section 69A of the act. It was also submitted that there is no discrepancy in the cash book. Further it was stated that the addition made by the learned assessing officer of ₹ 1,513,362/– despite the assessee is having a deficit is not proper. It was stated that the assessee is a club where only it is a mutual concern for the member and the income of the assessee is not chargeable to tax on the principles of maturity. Therefore as the amount is also deposited out of the funds of the members are available in the books of the assessee club and further the assessee has incurred a deficit, the addition made by the learned AO and confirmed by the learned CIT – A is not proper.

The learned departmental representative vehemently supported the orders of the learned lower authorities and submitted that assessee has failed to file the return of income, it did not substantiate that the cash deposited is out of the books of accounts regularly maintained by the assessee and further as it has not filed its return of income, 10% of its gross receipt was considered as income by the learned assessing officer. It was submitted that if it is the claim of the assessee that it is a mutual concern, the assessee has to establish that the contributor of the funds and the beneficiaries are the same. In absence of that there is no infirmity in the order of the learned lower authorities.

We have carefully considered the rival contention and perused the orders of the learned lower authorities. It is undisputed that the assessee is a members club. If it is a members club, it is covered by the principles of mutuality. However it is for the assessee to show that the contributors to the fund and the beneficiaries of the club are the members only. If the assessee is a mutual concern, it is not required to get itself registered under section 12 A of the act. For the simple reason that the assessee is selling food products as well as running a bar which cannot be considered as a charitable object at all. Therefore the finding of the learned assessing officer that assessee has not filed the return of income, the benefit of section 12 A of the act as it is not registered under that section, cannot be granted. In fact assessee is not required to and also is not eligible for registration under section 12 A of the act. It is the claim of the assessee that the sum of ₹ 1,198,500/– is deposited out of the regular books of accounts of the assessee and therefore they cannot be considered as unexplained income under section 69A of the act. The learned assessing officer were shown the books of accounts, cashbook, bank passbook and it was also demonstrated that the money is deposited in the bank account which was available in the books of accounts of the assessee. Further, the addition made by the learned assessing officer at the rate of 10% of the gross receipt is also comprising of the cash deposited in the bank account therefore to that extent there is also a double addition. In view of the above facts we restore the whole issue back to the file of the learned assessing officer with a direction to assessee to demonstrate before the assessing officer that assessee is a mutual concern and its income is not chargeable to tax under section 4 itself. To show the same the learned assessing officer must examine about the who are the contributors to the fund and who are the beneficiaries of the fund. If the ld. AO is satisfied that it is a mutual concern, then its income is not chargeable to tax. Further the assessee is also directed to show before the assessing officer the amount of cash deposited in the bank account of the assessee is from the regular books of accounts. The learned assessing officer may examine the same, may also enquire with the banks by issuing notice under section 133 (6) of the act and thereafter decide the issue afresh. In view of the above facts the ground number 2 – 12 of the appeal are allowed as indicated above.

In the result appeal of the assessee is allowed for statistical purposes.