SWAMI VIVEKANAND TRADING & EDUCATION CENTRE P.LTD,HYDERABAD vs. DCIT 4(3), MUMBAI

This appeal is filed by Swami Vivekanand Training and education center Private Limited for assessment year 2011 – 12 against appellate order passed by Commissioner of income tax (appeals) – 9, Mumbai (the learned CIT – A) dated 19/12/2016 wherein appeal filed by the assessee against the assessment order passed under section 143 (3) on 18/3/2014 by the deputy Commissioner of income tax – 4 (3), Mumbai (the learned AO) was dismissed.

Assessee has raised following grounds of appeal: –

Assessee was issued notices under section 142 (1) on 5/6/2013 which was not complied with. AO further issued several notices however, the same were not complied with and no information was provided. Thus, the AO held that numbers of opportunities were provided to the assessee to furnish the documentary evidences in support of its return of income however, assessee has not submitted anything. The learned AO noted that in the annual accounts there was a note that as there was no commercial operation for the company during the year, quantitative details of sales and information as required under paragraph 3 and 4C of part II of schedule VI to the companies act, 1956 is not applicable. Further, on verification of the profit and loss account the learned AO also observed that the assessee has not shown any income for the year under consideration. However it was noted that assessee has claimed various expenditure under various heads and depreciation of ₹ 4,831,712/–. In the computation of income they assessee has added back the depreciation under the companies act of ₹ 4,793,682/– against the said expenditure of ₹ 4,831,712 and the balance amount of ₹

The AO further noted that assessee has shown said application money of ₹ 46,434,698/– which has been shown under the head membership as on 31/3/2011 and the same figure as on 31/3/2010. However on verification of the return of income for assessment year 2000 – 11 he found that assessee has shown said application money of ₹ 4,890,000/– only as on 31/3/2010. However as per the return filed as on 31/3/2011, the said application money was shown at ₹ 46,434,698/–. Therefore according to him there is an increase in the share application

Aggrieved with the assessment order, appeal was preferred before the learned CIT – A which was disposed of per order dated 19/12/2016. The learned CIT – A considered claim of depreciation under section 32 of the income tax act but rejected it for the reason that according to the notes to accounts there was no commercial operation for the company during the year, in the profit and loss account there is no revenue therefore the assessee has not proved that the said assets were used for the business purpose during the relevant assessment year or not. With respect to the addition under section 68 of the income tax act of share application money and membership fees he considered the explanation of the assessee and confirmed the addition as assessee has not brought on record anything that this amount was genuinely received from genuine identifiable person/members through banking channel and and the members were contributing own funds towards subscription. As the assessee has failed to show the above

Assessee aggrieved with the appellate order preferred the appeal before us. The learned authorised representative referred to the 109 pages paper book submitted before us. With respect to disallowance of depreciation he submitted that there is an opening block of assets at the beginning of the year, no new assets were purchased during the year, therefore it is only claim of depreciation on the opening WDV. He submits that in such circumstances, it is not required to prove the claim of depreciation by establishing user of the assets for subsequent years. To support his proposition he relied on the decision of the coordinate bench in 87/HYD/2007 in case of Coromandal fertiliser. With respect to the addition made under section 68 of the income tax act he referred to the annual accounts of the company for the year. He referred to the balance sheet and submitted that as per shareholder funds the capital as on 31/3/2010 is ₹ 49,90,800 and the same capital remained as at 31/3/2011. He further submitted that in case of the membership fees as on 31/3/2010 ₹ 46,434,698/– is the opening balance which also remained as on 31/3/2011. Therefore according to him when there is no new credit appearing in the balance sheet, the provisions of section 68 of the income tax act does not apply. He submits that the above sums are outstanding in the books of the company for last several years. To show this fact he referred to the annual accounts for financial year 2007 – 08 also wherein the identical sum is

The learned departmental representative vehemently supported the orders of the lower authorities. He submits that the assessee has not furnished any information before the learned assessing officer and therefore the addition is made under section 68 of the income tax act with respect to the membership fees and said application money. With respect to the depreciation he submits that argument of the assessee is unsustainable because assessee is not carrying on any business during the assessment year. The assessee has not fulfilled the basic condition of the user of the asset. He submits that the depreciation is claimed by the assessee on all block of the assets therefore the argument of the assessee that user is to be seen only in the year in which the assets enter into the Block is not relevant in this case. He submits that the depreciation is claimed on all the blocks of the assets which have not been used during the year. It is not the case of the assessee that depreciation is denied on one of the assets forming part of one of the blocks of assets.

We have carefully considered the rival contention and perused the orders of the lower authorities. The facts clearly shows that during the course of assessment proceedings the assessee did not appear before the learned assessing officer despite issue of several notices. Even the notices for non-compliance were also issued.

There are only to substantive issues in this appeal. As per ground number 2 and 3 assessee has challenged the disallowance of depreciation under section 32 of the income tax act of ₹ 4,793,682/–. By ground number 4 – 7 assessee has challenged the addition of ₹ 41,544,689 towards unexplained sale application money.

On the first issue of the depreciation it is apparent that assessee has claimed depreciation of ₹ 12,201,055 during the year. The details of the depreciation is stated in the computation of total income is comprising of block of building, furniture and fittings, plant and machinery and computer. There is no addition or deletion during the year. It is also a fact that in the profit and loss account there is nil income shown. Assessee has stated revenue stream of income of guest accommodation, restaurants and banquets, subscription from members and others. There is no revenue for the year. The assessee has debited general expenses of profit and loss account of ₹ 27,000 and audit fees of ₹ 11,030. As per the companies act depreciation debited to the profit and loss account is ₹ 4,793,682 resulting into loss of ₹ 4,831,712/–. In the notes on accounts company has categorically stated that there were no commercial operations for the company during the year. Therefore admittedly there is no business activity carried on by the assessee. According to the provisions of section 32 (1) of the act depreciation is allowable on block

Coming to the second issue of the addition under section 68 of the income tax act it is apparent that share capital of the company does not have any increase during the year. The opening share capital was ₹ 4,990,800/– and the same remained at the close of the year. Further the

In the result, appeal filed by the assessee is allowed for statistical purposes.