CHHEDANAGAR NAGAR EDUCATION SOCIETY,MUMBAI vs. ITO, EXEMPTION WARD 1(2), MUMBAI

On the contrary, the Ld. Departmental Representative (DR) supported the orders of the tax authorities.

We have heard the rival contention and perused the record. The reconciliation statement furnished by the assessee treated as under:

It is well settled principle of law that all receipts cannot be considered as income. All receipts are classified into two categories, viz., Capital receipts and Revenue receipts. Capital receipts are not considered as income unless the Statute provides so by legal fiction. Similarly all revenue receipts are considered as income unless the Statute provides specific exemption. However, the AO has considered all receipts credited into the bank accounts as income of the assessee in the instant case, which is contrary to the above said principles. It is the submission of the assessee that the receipts to the tune of Rs.8,40,01,474/- are not in the nature of income. We shall examine each of the above said receipts.

First item of receipt is Rs.4,66,03,749/-. Since the assessee has maintained bank accounts, there has been inter bank transfer between various bank accounts aggregating to Rs.4,66,03,749/-. These inter bank transfers are neither revenue receipts nor capital receipts, since it is a transfer of assessee’s own funds from one of his bank accounts to another bank account. Hence the above said amount cannot be considered as income of the assessee.

Second item of receipt is Rs.3,37,00,525/-. The assessee has maintained “Rainbow FD” account with Karur Vysya Bank. The Ld A.R submitted that, in the above said account, there will be automatic transfer from SB account to FD account whenever the SB account balance exceeds the pre-prescribed limit. Whenever funds are required, the FD account shall be closed pre-maturely and the proceeds will be transferred to the SB account. Hence it is also a case of transfer of money belonging to the assessee between SB account and FD account. Such transfers are called “Sweep transfers”. Such types of credits are neither revenue receipts nor capital receipts and hence they cannot be considered as income of the assessee. The aggregate amount of such sweep transfers are Rs.3,37,00,525/-, which cannot be considered as income of the assessee.

The next item is Advance receipts amounting to Rs.29,97,200/-. As per the mercantile system of accounting, these receipts shall be considered as income of the year to which it pertains to. In the reconciliation statement extracted above, we have seen that the assessee has offered income of Rs.1,85,54,657.00, which inter alia, included advance receipts, meaning that the advance receipts received in the earlier year has been transferred to income account during the year under consideration. Hence, as per the method of accounting followed by the assessee, the above said advance receipts of Rs.29,97,200/- cannot be considered as income of the assessee.

The remaining amount is sports grant of Rs.7,00,000/-. The assessee has treated the same capital receipts and hence it was not offered as income.

The foregoing discussions would show that the aggregate amount of Rs.8,40,01,474/- cannot be treated as income of the assessee. On the other hand, the assessee has offered a sum of Rs.1,85,54,657/- as income, even though the above said amount was not routed through the bank accounts. The difference between Rs.8,40,01,474/- and Rs.1,85,54,657 amounting to Rs.6,54,46,817/- has been treated as income by the assessing officer. We have earlier noticed that the above said receipt aggregating to Rs.8,40,01,474/- cannot be considered as income of the assessee. Hence, there is no rationale in treating the amount of Rs.6,54,46,347/- as income of the assessee, as there is no suppression of income as presumed by the tax authorities. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the above said addition.

In the result, the appeal of the assessee is allowed.