ITO, EXEMPTION CIRCLE, GHAZIABAD vs. IDEAL INSTITUTE OF TECHNOLOGY, GHAZIABAD

The grounds as raised by revenue are reproduced below:- “1. The Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in allowing the appeal of the assessee on the issue of disallowance of depreciation of Rs.2,90,25,168/- ignoring the facts that depreciation on account of application of income for charitable purpose is not allowable as the capital expenditure on acquiring fixed assets has already been allowed in respective years. 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.6,49,00,000/- on account of unsecured loan. 3. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.93,16,000/- on account of cessation of liability.

On hearing both the sides, we find that primarily the ld. DR has relied the findings of the AO while the ld. AR has relied the findings of the ld.CIT(A). The ground wise findings are as follows.

Ground No.1: The ld. AO held that the capital expenditure is to be treated as application of income for exemption purposes and accordingly, depreciation on the same assets cannot again be allowed as deduction and the entire claim of depreciation was disallowed. The case of the assessee is that the source of capital outlay is 67% funded from secured loans and corpus donations and 18% is from accumulation, only 15% from current year income application. It is also the assertion that the Society has been claiming expenditure as application of income in earlier years. We find that the ld. CIT(A) has considered the decisions of the Hon’ble Delhi High Court in the case of DIT vs. Indraprasth Cancer Society of 2014 and Hon’ble Karnataka High Court in the case of CIT vs. Karnataka Reddy Jansangh 389 ITR 229 (2016) where they have held that depreciation claimed does not amount to double deduction in the case of a charitable registered u/s l2AA of the Income tax Act, 1961. Similar view has been expressed by the Hon’ble ITAT, Delhi in the case of Bhardwaj Welfare Trust (ITA No. 1979, 2564/Del/2013) dated 13-02-2015, Arihant Charitable Hospital Trust, Ghaziabad (ITA No.5019/Del/2015) dated 17-11-2015. We find that the ld.CIT(A) has set aside this issue to AO to examine the issue in the light of the aforesaid judgments and there is no reason to interfere in the same. 3

Ground No.2; Ground arises out of addition made by the AO by relying on report of the ADIT (Inv.), Meerut where the AO has held that five lenders to be accommodation entry providers lacking credit worthiness. Summons issued u/s 131 of the Act could not be served upon the said lenders and Inspector’s report dated 15.03.2013 was relied wherein it was stated that the parties were not found at the given address. The AO also noted cash deposit in lenders’ bank accounts and discrepancies between turnover declared to Income- tax and Commercial Tax Departments. It was also observed that Shri Madnesh Garg, Joint Treasurer of the assessee society was directly or indirectly connected with three of the lending entities. Concluding that the money represented the assessee’s own unaccounted funds routed back as loans, Rs.6.49 crore was added u/s 68 of the Act.

In this regard, we find that the following are the disputed deposits:- S.No. Name of the lender Amount of loan Documents filed in support of raised during the the claim year 1. Sh. Ajeet Singh Rs.15,00,000/- Copy of confirmation and bank statement 2. K.M. Garg Rs.5,50,000/- Copy of confirmation, bank statement and copy of ITR acknowledgement 3. Meerut Steel Rs.1,19,00,000/- Copy of confirmation, bank statement and copy of ITR acknowledgement 4. Sunder Traders and Rs.3,02,50,000/- Copy of confirmation, bank suppliers statement and copy of ITR acknowledgement 5. Sunder Engg. Works Rs.2,07,00,000/- Copy of confirmation, bank statement and copy of ITR acknowledgement

We find that the ld.CIT(A) has taken into consideration the evidences filed by the assessee including the additional evidences including remand report sought where the AO has admitted the genuineness of these transactions and found key documents like confirmation of repayment of loans and the transaction occurring from banking mode to delete the addition. The ld.CIT(A) has given a very detailed narration of all the evidences of the assessee. We find that the AO has primarily relied the Investigation Wing report only and, further, the Inspector’s Report. There is substance in the contention of the ld. AR that on the one hand the financials of these lenders show quantitative details of sales allegedly suppressed and on the other hand, the concerns were alleged to be non-existent. Merely because of Shri Madnesh Garg being the party to the lenders and also the assessee company that cannot be the basis to allege the transactions to be sham. Infact it is only when there is some credible reference a lender would advance money to any institution.

Examining the disputed entries specifically we find that in regard to the deposits of Rs.15 lakhs received from Mr. Ajeet Singh, apart from confirmation and the bank statement, the ld.CIT(A) has appreciated that the statements of account from the books of the assessee were filed where an amount of Rs.15 lakh was deposited on 23.04.2009 by way of cheque drawn on savings bank account with Canara Bank. This amount has been established to be transferred in the account of Shri Ajeet Singh on 20.04.2009 after being withdrawn from his deposits with Habitat Infrastructure Pvt. Ltd. The ld.CIT(A) has appreciated 5 that Shri Ajeet Singh had deposits of around Rs.60 lakhs with Habitat Infrastructure Pvt. Ltd. out of which Rs.15 lakhs were withdrawn on 16.04.2009. That being the source to make advances to assessee.

Ground No.3: The ground arises out of the conclusion of the ld. AO that course durations were two to four years old students who jointed upto AY 2006- 07 and they must have passed out before July 2009, yet, corresponding security deposits remained unpaid and treating the sums as liabilities that had ceased, AO taxed the entire balance u/s 41(1) of the Act. The ld. AR has relied the material on record to show that there were substantive refunds during the year and subsequent two years. Thus, the theory of cessation was not sustainable. The ld.CIT(A) has appreciated that every year there are fresh deposits and refunds for securities and a chart submitted in this regard was relied by the ld.CIT(A). The remand report from the AO was also considered where these were not disputed. The ld.CIT(A) also concluded that the assessee society is claiming exemption u/s 10(23C) and found eligible for the same. Thus, there was no reason to invoke the provisions of section 41 of the Act. We find no error in the findings of the ld.CIT(A). This ground no. 3 is accordingly stands rejected.

Ground No.4: This ground arises out of disallowance of cost of expenses of cars. Four luxury cars stand purchased in the name of the society/college. Holding that such vehicles were not required for charitable activities, the AO had disallowed their full cost as non-application of income and added 50% of vehicle running expenses to income of the assessee. The ld. AR has submitted that hospitality is one of the essential business need of the assessee society which has to cater to recruiters. We find that nowhere there is any allegation of any personal benefit being drawn by any office bearer or other persons. The case of the assessee is that the vehicles were used for faculty mobility, airport pick-ups, student industrial tours, placement drives, CEO/CXO campus recruitment heads, VIP guest lectures, AICTE inspection. We find that ld.CIT(A) has duly appreciated the expediency of the expenditures and appreciating same has rightly held that merely on presumption a disallowance cannot be made more particularly when the fact is that in other assessment years there was no such disallowance. The findings of the ld.CIT(A) require no interference. The ground no. 4 is rejected.