Case Law Details

Case Name : ITO (E) Vs M/s Calorex Foundation (ITAT Delhi)
Appeal Number : Income tax (Appeal) Nos. 2876 of 2010
Date of Judgement/Order : 04/11/2015
Related Assessment Year : 2006-07
Courts : All ITAT (4877) ITAT Delhi (1074)

Brief of the Case

ITAT Delhi held In the case of ITO (E) vs. M/s Calorex Foundation that application of income is not computation of income and the provisions of application of income would come into play after only the income chargeable to tax is determined and the income has to be in its general sense and depreciation is one of the deductions availed under law and there is no reason for disallowing of the same. There is no specific exclusion which disallows the deduction u/s 32 while claiming exemption u/s 11 & 12.

Facts of the Case

The assessee is a trust registered u/s 12A (a) w.e.f. 27.02.1996 to avail exemption u/s 80G valid up to 31.03.2005. The trust is running a school in the name and style of Delhi Public School at Ahmedabad for providing education, research, relief to poor, medical relief and advancement of any other objects of general public utility, also to open, run and continuous schools for the education of children to promote human welfare and to support institution such as orphanage, old age home etc. The assessee claimed depreciation to the extent of Rs.2,07,88,207/- and claimed utilization of funds, for purchase of fixed assets to the extent of Rs.10,58,55,279/- which would amount to double deduction while computing exemption u/s 11 whereas, on the same assets, the assessee was granted application of capital expenditure on this account and the assessee has further claimed application of depreciation amounting to Rs.2,07,88,207/- which is not allowable. The A.O. after examining the submissions made by the assessee in the light of law laid down by Hon’ble Supreme Court in the case of Escorts Ltd. Vs. Union of India (1993) 199 ITR 43 and Hon’ble High Court, disallowed the depreciation of Rs.2,07,88,027/- claimed by the assessee.

 Addition u/s 68

The assessee also received corpus donation of Rs.25,32,000/- during the year under consideration has filed confirmation letter in respect of corpus donors with their addresses. In order to verify the genuineness and creditworthiness of the corpus donations, notices were issued to 20 persons / parties duly described in the order of the A.O. and in all the cases, no reply has been received till date and thereafter, assessee was asked to prove the genuineness and creditworthiness of corpus donors but he has not brought out any evidence to support this fact till date and as such an amount of Rs.25,32,000/- amounted to undisclosed income and consequently made the addition.

Contention of the Assessee

The ld counsel of the assessee contended that the assessee’s case is duly covered by the judgement delivered by Hon’ble Jurisdictional High Court cited as Director of Income Tax Vs Vishwa Jagriti Mission, 73 DTR (Del.) 195 and the judgement delivered by Hon’ble Punjab & Haryana High Court entitled as ACIT Vs Tiny Tots Education Society in I.T.A.No. 3182/Del/2008.

Addition u/s 68

The ld counsel of the assessee submitted that since during the assessment proceedings, assessee has filed complete evidence lying at pages 50-145 in the paper book, the onus stands shifted to the A.O. to verify the genuineness and creditworthiness of corpus donors and relied upon the judgement of CIT Vs Orissa Corporation Ltd. 159 ITR 78 (S.C.).

Contention of the Revenue

The ld counsel of the revenue contended that this is a case of double deduction claimed by the assessee and relied upon the order passed by AO.

Held by CIT (A)

CIT (A) allowed appeal of the assessee. It was held that “the assessee was not claiming double deduction on account of depreciation. The income of the assessee being exempt, the assessee was only claiming that depreciation should be reduced from the income for determining the percentage of funds which had to be applied for the purposes of the trust. It could not be held that double benefit was given in allowing the claim for depreciation for computing income for purposes of section 11.

Held by ITAT

It is clear that the assessee is a trust registered u/s 12A and has been granted exemption u/s 80G meaning thereby appellant’s income is exempted under the provisions of Section 11.The assessee had purchased some fixed assets in the earlier year and claimed it to be exempted u/s 11 as application of income for charitable purposes on the ground that the same was used for charitable purposes. During the year under assessment, the assessee has claimed an amount of Rs.2,07,88,207/- as depreciation on the same assets.

Identical issue came up before the Hon’ble Jurisdictional High Court in the case of Director of Income Tax Vs Vshwa Jagariti Mission 73 DTR (Del.) 195 where, the Hon’ble High Court vide order dated 29th March 2012 held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes.

Also as per the amended provisions contained u/s 10(23C) it is specifically provided that income required to be applied for application in the case of a charitable trust /institution, shall be determined without any deduction of allowance by way of depreciation in respect of assets and cost of which has been claimed as an application of income in the same year or in the earlier year.

By applying the law laid down by Hon’ble High Court as well as amended provisions of Section 10(23C) and Section 11, CIT(A) has rightly determined the issue in favour of the assessee by holding that application of income is not computation of income and the provisions of application of income would come into play after only the income chargeable to tax is determined and the income has to be in its general sense and depreciation is one of the deductions availed under law and there is no reason for disallowing of the same.

 It is important to note that the judgment of Escorts Ltd. Vs UOI (1993) 199 ITR 43 is with related to Section 35(2)(iv) as relied upon the A.O. during assessment proceedings, which specifically disallow the deduction u/s 32 whereas there is no such provision in respect of exemption claimed u/s 11 and 12 of the Act, hence, not applicable to the facts and circumstances of the present case.

Addition u/s 68

It is settled principle of law that in case any amount is credited in the account of the assessee, the onus is on the assessee to prove the source, genuineness and creditworthiness of the same u/s 68. Undisputedly, the assessee received corpus donation of Rs.25,32,000/- during the Assessment Year under consideration and filed the confirmation letter in respect of corpus donors with their addresses. The A.O. in his order dated 30.12.2008, categorically recorded that despite issuance of notice u/s 133(6) to 20 donors claimed by the assessee, no reply / confirmation has been filed by them. The assessee failed to prove the genuineness and creditworthiness of the corpus donation despite specific directions. The assessee contended that since during the assessment proceedings, assessee has filed complete evidence, the onus stands shifted to the A.O. to verify the genuineness and creditworthiness of corpus donors.

The issue in controversy in the present appeal is duly covered by the judgment of CIT Vs Orissa Corporation Ltd. 159 ITR 78 (S.C.) because when the assessee has provided the complete details of corpus donors in the form of individual confirmations from such donors, their names and addresses as well as PAN, it was for the A.O. to confirm the same. Merely issuance of notices by the A.O. to the corpus donors u/s 133(6) is not enough to discharge the onus. The A.O. has not even disputed the existence, genuineness and creditworthiness of the said donors nor he has disputed the individual confirmations filed by them. It appears that the A.O. has not made any effort whatsoever to verify the genuineness of the corpus donors as per letters filed by the assessee and arbitrarily proceeded to add the corpus donation amount of Rs.25,32,000/- to the income of the assessee. When the corpus donations received by the assessee is specifically exempted u/s 11(1D), CIT (A) has rightly deleted the addition.

 Accordingly appeal of the revenue dismissed.

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