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M/s. Moogambigai Charitable and Educational Trust Versus The Addl. Director of Income Tax (Exemptions) , Range 17, Bangalore

2016 (7) TMI 1014 - ITAT BANGALORE

Depreciation disallowed to assessee trust - Held that:- The issue raised by the revenue in the ground of appeal is thus no longer res integra and has been decided in the case of CIT v. Market Committee, Pipli [2010 (7) TMI 374 - Punjab and Haryana High Court ] wherein held that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. - Addition o .....

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ade by the Assessing Officer based on the statement recorded under Section 133A and further by giving a reason that the assessee has used the advance fees received for revenue as well as capital expenditure is not justified and accordingly we set aside the orders of authorities below qua this issue and remit the same to the record of the Assessing Officer to re examine the issue from the record produced by the assessee and then decide the same as per law. - Addition on account of “retention .....

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Section 11(1)(a) on account of application of income would not be effected otherwise to the extent of the amount used from the retention money the claim would be reduced. Accordingly, we direct the Assessing Officer to verify all the relevant facts on this issue and then decide the same only on question of allowing the deduction of application of income and not treating the retention money as income. - Addition as income from pharmacy - Held that:- The entire amount cannot be treated as the .....

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maintained separate accounts for the pharmacy section. Maintaining accounts separately for pharmacy section does not decide the nature of the activities carried on by the assessee through running of the pharmacy. Separate accounts are maintained by the assessee for the purpose of proper accounting and internal control. Even in the case of charitable hospital, it is not possible to provide medicines to every patient, free of cost. It is only in very deserving cases, a charitable institution coul .....

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ulation on net income of the assessee instead of gross receipts as claimed by the assessee - Held that:- Following the decision of the co-ordinate bench of this Tribunal in Capuchin Friar Services of Society [2015 (12) TMI 448 - ITAT BANGALORE] we decide this issue in favour of the assessee and direct the Assessing Officer to consider the allowable accumulation of income at 15% of the gross receipts. - Disallowance of deduction being the liability for capital expenditure - Held that:- Assess .....

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f the assessee partly allowed. - I.T. A. No.1224/Bang/2015 - Dated:- 13-7-2016 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri M. Karunakaran, Advocate. For The Respondent : Shri Pramod Kumar Singh, CIT-II (D.R) ORDER Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.24.6.2015 of the Commissioner of Income Tax (Appeals) for the Assessment Year 2011-12. 2. There is a delay of 17 days in filing the .....

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, a search and seizure action under Section 132 of the Act was carried out in the premises of the assessee's trust on 6.8.2015. Therefore all the persons in-charge of the accounts section were completely involved in the post search proceedings. Since they were attending the income tax office every day to furnish verification and other details called for, the assessee could not take the necessary steps to file the appeal within the period of limitation. Therefore it is pleaded that the delay .....

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hat by filing the appeal belatedly by 17 days, the assessee would have achieved any ulterior object or purpose. Accordingly, we are satisfied that the assessee has explained sufficient reason for the delay of 17 days in filing the appeal. Hence in the facts and circumstances of the case and in the interest of justice we condone the delay of 17 days in filing the appeal. 6. The assessee is a charitable and educational trust established in the year 1992 by Trust Deed Dt.20.5.1992. The assessee was .....

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der Section 143(3) of the Act on 27.3.2014 determined the total income of the assessee at ₹ 7,63,80,700. The Assessing Officer disallowed the claim of depreciation as well as made other additions towards advance fee, income from pharmacy and also denied the deduction towards accumulation of income allowed @ 15% on gross receipts. Apart from this, the Assessing Officer also denied the setting off of excess application of income for the Assessment Year 2010-11 against the income for the Asse .....

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tax (Appeals) erred in relying on the amendment made by Finance Act, 2014 as it was effective only from 1/4/2015 and the same is amendatory and prospective in nature as held by the Madras High Court in the case of V.R.Karpagam (54F) and in the case of CIT vs. Coromandel Industries Ltd. (TCA No.443 of 2014 dated 16/12/14 uls 54EC) and therefore would not apply to the assessment year under consideration'. 3. The Commissioner of Income-tax (Appeals) erred in sustaining the addition of Rs. 1,27, .....

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ities ought to have seen that amount standing to the retention money account represent only opening balance and only a sum of ₹ 30.42.402 relate to the current assessment year and therefore the assessing officer was not justified in adding the entire sum of Rs. 1,10,25,8001- as income of the appellants-trust. 7. The Commissioner of Income-tax (Appeals) erred in sustaining the addition of ₹ 50,66,973/- as income from pharmacy as business income of the appellants- trust. 8. The lower a .....

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the lower authorities are contradictory to the decision of the Supreme Court in the case of CIT v. Programme for Community Organisation [2001] 248 ITR 1/116 Taxman 608 (Se) and also Board's Circulars and other case laws on the subject. 11. The Commissioner of Income Tax (Appeals) erred in not allowing set off of excess application of the assessment year 2010-11 against the income of the appellants trust for the assessment year 2011-12. 12. The Commissioner of Income-tax (Appeals) erred in d .....

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Satsang Sabha (25 ITR 472). 14. The lower authorities ought to have seer, rhat the appellants had offered the income on mercantile basis and part of the receipts are not at all received by the appellants-trust during the year and therefore the assessing officer should have allowed deduction on such income which was not received during the year while computing the quantum of application of income when he has not allowed the expenses on due basis. 15. The appellants therefore pray that the Hon .....

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he appellantstrust; f) To allow set off of excess application for the assessment year 2010-11 against the income computed for the assessment year 2011-12; g) To allow the liability for capital expenditure of ₹ 7,58,82,285 as application of income for capital expenditure; h) To direct the assessing officer to allow deduction of the fees receivable while computing the income of the appellants for application of income as the income was not received during the year . 7. Ground No.1 is general .....

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p; Others 199 ITR 43 (SC). The CIT (Appeals) confirmed the disallowance of depreciation made by the Assessing Officer by holding that the claim of depreciation along with application of money of capital expenditure amounts double deduction which is not envisaged under the Income Tax Act, 1961. The CIT (Appeals) has also referred to the amended provisions of Section 11(6) by Finance Act, 2014 w.e.f. 1.4.2015. 9. Before us, the learned Authorised Representative of the assessee has submitted that t .....

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lication of income is not provided under the provisions of the IT Act. He has relied upon the orders of the Assessing Officer and CIT (Appeals). 11. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that this issue has been considered by this Tribunal in a series of decisions. In the case of M/s. CMR Janardhana Trust (supra), the Tribunal has again considered and decided this issue in paras 15 to 17 as under : 15. We have heard the submis .....

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n and the AO denied depreciation on the ground that at the time of acquiring the relevant capital asset, cost of acquisition was considered as application of income in the year of its acquisition. The AO took the view that allowing depreciation would amount to allowing double deduction and placed reliance on the decision of Hon'ble Supreme Court in Escorts Ltd. (supra). The CIT(A), however, allowed the claim of assessee. On further appeal by the Revenue, the Tribunal held as follows:- 20. We .....

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ng such income. It was so held by the Hon ble Karnataka High Court in the case of CIT Vs. Society of Sisters of St. Anne 146 ITR 28 (Kar). It was held in CIT vs. Tiny Tots Education Society (2011) 330 ITR 21 (P&H) , following CIT vs. Market Committee, Pipli (2011) 330 ITR 16 (P&H) : (2011) 238 CTR (P&H) 103 that depreciation can be claimed by a charitable institution in determining percentage of funds applied for the purpose of charitable objects. Claim for depreciation will not amou .....

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ons on that issue and also the decision of the Hon ble Supreme Court in the case of Escorts Ltd. (supra), came to the conclusion that depreciation is allowable on capital assets on the income of the charitable trust for determining the quantum of funds which have to be applied for the purpose of trusts in terms of section 11 of the Act. The Hon ble Punjab & Haryana High Court made a reference to the decision of the Hon ble Supreme Court in the case of Escorts Ltd. (supra) and observed that t .....

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t in the case of CIT v. Society of Sisters of Anne, 146 ITR 28 (Kar), wherein it was held that u/s. 11(1) of the Act, income has to be computed in normal commercial manner and the amount of depreciation debited in the books is deductible while computing such income. In view of the aforesaid decision on the issue, we are of the view that the order of the CIT(A) on the above issue does not call for any interference. 22. Consequently, ground No.5 raised by the revenue is dismissed. 16. It is no dou .....

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of the Hon ble Karnataka High Court in the case of Society of Sisters of Anne (supra) cannot therefore be accepted. We may also add that the legal position has since been amended by a prospective amendment by the Finance (No.2) Act, 2014 w.e.f. 1.4.2015 by insertion of subsection (6) to section 11 of the Act, which reads as under:- (6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined wi .....

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is no dispute that the amendment of section 11(6) of the Act by the Finance Act, 2014 is prospective w.e.f. 1.4.2015 and therefore the said amended provision is not applicable for the assessment year under consideration. Following the earlier decisions of this Tribunal, we decide this issue in favour of the assessee and against the revenue. 12. Ground No.3 is regarding the addition on account of advance fee received treated as income of the assessee for the year under consideration. 12.1 The as .....

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ssing Officer has supported its finding by the statement recorded during the survey under Section 133A of the Act on 2.7.2010. The assessee challenged the action of the Assessing Officer before the CIT (Appeals) and contended that the document obtained during the survey did not pertain to the impugned assessment year. The CIT (Appeals) did not impress with the contention of the assessee and confirmed the addition made by the Assessing Officer on this account. 12.2 Before us, the learned A.R. of .....

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evenue expenditure and therefore it was treated as income. He has further submitted that the CIT (Appeals) has observed that the assessee has not deposited the advance fees in a separate account however there is no requirement for deposit advance fees in a separate bank account. He has further contended that the assessee produced sufficient evidence in support of the fact that the amount was only advance fees with full details from the persons whom the advance was received and the ledger copy of .....

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the assessee for the year under consideration. 12.3 On the other hand, the ld. D.R. has relied upon the orders of the authorities below and submitted that when the assessee has not maintained a separate bank account for the advance fees and it was also admitted during the survey that the assessee has received this amount as development fees from the students of the first year apart from the tuition fees fixed by the Government then the A.O. is justified to add this amount in the income of the a .....

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act that this amount has been duly recorded in the books of accounts as advance tuition fees. The assessee filed the ledger account wherein the details of the opening balance, the advance tuition fees received during the year as well as closing balance has been shown. The correctness of the accounts has not been examined or disputed by the Assessing Officer or the CIT (Appeals). It is pertinent to note that if an advance fees is received by the assessee for a particular academic year spread over .....

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support this statement recorded under Section 133A of the Act. In view of the above facts and circumstances, we find that the addition made by the Assessing Officer based on the statement recorded under Section 133A and further by giving a reason that the assessee has used the advance fees received for revenue as well as capital expenditure is not justified and accordingly we set aside the orders of authorities below qua this issue and remit the same to the record of the Assessing Officer to re .....

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nce Sheet as liability. The Assessing Officer made addition of the said amount on the ground that the amount was mixed with the other funds of the assessee and used for the purpose of meeting both revenue and capital expenditure. It was noted that the retention money was used for the purpose of purchasing other assets. Accordingly, the Assessing Officer held that the retention money held by the assessee of ₹ 1,10,25,800 would form part of income for the purpose of application under section .....

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subsequent year whenever the contract is completed and it is a clear liability of the assessee to repay the amount. Such amount due to others cannot be treated as income of the assessee. Alternatively the ld. AR has submitted that the amount of ₹ 1,10,25,800 standing in the retention money account and the assessed as income mainly represent the amount lying as opening balance of ₹ 79,83,398 in the said account and only a sum of ₹ 30,42,402 relates to the current assessment year .....

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elied upon the orders of the authorities below. 15.4 We have considered the rival submissions as well as the relevant material on record. As regards the question of treating the retention money as income of the assessee is concerned, on principle, we are of the view that when the retention money is retained by the assessee for refund in future on completion of project then it is only a liability in the hand of the assessee and therefore the same cannot be treated as income. However at the same t .....

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on this issue and then decide the same only on question of allowing the deduction of application of income and not treating the retention money as income. 16.1 Ground Nos.7 & 8 are regarding addition of ₹ 50,66,973 as income from pharmacy. The assessee runs pharmacy for the purpose of medical college and hospital attached to the medical college. The assessee does not maintain separate books of accounts for pharmacy and the transactions pertaining to it are recorded in the books of acc .....

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assessee. Thus the assessee contended that it is an incidental to the objectives of the trust. It was also contended that sales of the pharmacy is duly considered for the purpose of application of income. The CIT (Appeals) did not agree with the contention of the assessee and observed that the assessee has not furnished any evidence regarding the break up of the medicines purchased from the pharmacy by different categories of the patients and outside public. Accordingly, the CIT (Appeals) has co .....

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ding account for the pharmacy wherein all the charges and sales are duly accounted for and separate stock register was also maintained. Once the pharmacy attached to the medical college/hospital is not a business undertaking, the provisions of section 11(4) and 11(4A) are not applicable. He has referred the trading account maintained in respect of the pharmacy at page 16 of the paper book and submitted that though separate books are not maintained however separate accounts are maintained in resp .....

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e case of Franciscan Sisters of St. Joseph Society Vs. JCIT Dt.6.1.2014 in ITA No.1897/Ch/2013. 16.3 On the other hand, the learned Departmental Representative has submitted that the activity of the pharmacy is business in the nature and the Assessing Officer and CIT (Appeals) have rightly treated the same as business income of the assessee. 16.4 We have considered the rival submissions and the relevant material on record. The CIT (Appeals) has rejected the claim of the assessee on the ground th .....

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The necessity of the pharmacy cannot be ruled out as there are regular emergency situation requiring immediate medicines and other supply of pharmacy for emergency treatment as well as operation/surgery purposes. The Chennai Benches of the Tribunal in case of Franciscan Sisters of St. Joseph Society (supra) has held in paras 7 to 15 as under : 7. In the light of above observation, the Assessing Officer treated the above receipts accounted by the assessee as relating to business activities and ac .....

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onfirmed the order of the assessing authority and dismissed the appeal filed by the assessee. The assessee is aggrieved and therefore, the second appeal before the Tribunal. 9. The relevant grounds raised in the present appeal read as below:- (1.1) The Commissioner of Income Tax (Appeals) erred in confirming the order of assessment denying exemption u/s.11 of the Income-tax Act. (1.2) The Commissioner of Income Tax (Appeals) erred in observing that the assessee does not deny the carrying on acti .....

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es in a commercial manner, which finding is perverse; and in any event providing medical relief is covered in the first two limbs of Sec.2(15). (2.1) The Commissioner of Income Tax (Appeals) went confirming the disallowance of depreciation and that it amounts to double deduction. (2.2) The Commissioner of Income Tax (Appeals) failed to follow the various authorities cited before him and went wrong in relying on a decision which is not applicable to the facts of the case. 10. We heard Shri G. Bas .....

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-fledged general hospital at St. Thomas Mount. The assessing authority has, no doubt, accepted the charitable nature of activities carried on by the assessee-society in respect of that hospital. The assessee is also running a dispensary. Number of patients are visiting the hospital and dispensary on a daily basis. Patients are admitted as in-patients and they are also treated as out-patients. For all the inpatients undergoing treatment in the hospital, medicines are delivered from the pharmacy r .....

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sessee in running the pharmacy in its hospital premises. The pharmacy is not situated in any commercial area or outside the hospital compound with the intention to invite the public at large to purchase medicines from the pharmacy run by the assessee-society. The assessee-society is running the pharmacy within the premises of the hospital and as part of the hospital itself. It is clear that the pharmacy is run by the assessee-society only for the purpose of running the hospital. The hospital can .....

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y is a separate unit, running as a business. The Assessing Officer has observed that the assessee-society has maintained separate accounts for the pharmacy section. Maintaining accounts separately for pharmacy section does not decide the nature of the activities carried on by the assessee through running of the pharmacy. Separate accounts are maintained by the assessee for the purpose of proper accounting and internal control. Even in the case of charitable hospital, it is not possible to provid .....

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tances, we find that the collection received by the assessee from its pharmacy section cannot be excluded from computing the income eligible for exemption under Section 11 of the Income-tax Act, 1961. The pharmacy collection also forms part of the collections accounted by the assessee from its charitable activities. Therefore, Assessing Officer is directed to give exemption under Section 11 in respect of the pharmacy collection as well. 15. Once the pharmacy collection is treated as part of its .....

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not be considered for disallowing exemption under Section 11. In view of the above discussion as well as the decision of the Chennai Benches of the Tribunal (supra), we decide this issue in favour of the assessee. 17.1 Ground Nos.9 & 10 are regarding allowing the 15% accumulation on net income of the assessee instead of gross receipts as claimed by the assessee. 17.2 We have heard the ld. A.R. as well as the ld. D.R. and considered the relevant material on record. The ld. A.R. of the assesse .....

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Bench decision in the case of Jyothy Charitable Trust in ITA No.662/Bang/2015. The relevant extract is reproduced below:- 15. The third issue that arises for consideration in this appeal is as to whether 15% accumulation for application in future has to be calculated on gross receipts or net receipts after deduction of revenue expenditure. The Assessee claimed accumulation of income for application for charitable purpose at 15% of the gross receipts. The AO was of the view that accumulation wil .....

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r of the AO. Hence ground No-4 raised by the Assessee before the Tribunal. 17. The issue to be decided is therefore as to whether for the purpose of computing accumulation of income of 15% under section 11(1)(a) of the Act, one has to take the gross receipts or gross receipts after expenditure for charitable purpose i.e., the net receipts. This is issue is no longer res integra and has been decided by the Special Bench Mumbai in the case of Bai Sonabai Hirji Agiary Trust Vs. ITO 93 lTD 0070 (SB) .....

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cent, the important question which arose was as to whether for this purpose, the gross income earned by the assessee is relevant or the income as computed in accordance with the provisions of IT Act. In other words, whether outgoings from out of gross income which are in the nature of application of income, should be first deducted from the gross income and 25 per cent of only the remaining amount should be allowed to be accumulated or set apart. The Special Bench of the ITAT on the issue held a .....

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derived from property held under trust. For the present purposes, the donations the assessee received, in the sum of ₹ 2,57,376, would constitute its property and it is entitled to accumulate twenty-five per cent thereout. It is unclear on what basis the Revenue contended that it was entitled to accumulate only twenty five per cent of ₹ 87,010. For the aforesaid reasons, the civil appeal is dismissed." It is clear from the above that deduction of twenty-five per cent was held to .....

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property. The trust is required to be wholly for charitable or religious purposes, and the income is expected to have relation to the extent to which such income is applied to such purposes in India. It is thereafter the statutory provision proceeds further that such income is not to be understood to be in excess of 25 per cent of the income from such properties. In other words, the very language of the statutory provision under consideration sets apart 25 per cent of the income from the source .....

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f twenty-five per cent and this twenty-five per cent has to be understood as income of the trust under the relevant head of s. 11(1). In other words, income that is not to be included for the purpose of computing the total income would be the amount expended for purposes of trust in India. Their Lordships in the above case have emphasized on the clear and unambiguous language of s. 11(1)(a) and decided the matter on the basis of the same. It has been held that as per the statutory language of th .....

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the same has to be taken on "commercial" basis and not "total income" as computed under the IT Act. Their Lordships in the decided case rejected the contention of the Revenue that the sum of ₹ 1,70,369 which was spent and applied by the assessee for charitable purposes was required to be excluded for purpose of taking amount to be accumulated. Having regard to the clear pronouncement of their Lordships of the Supreme Court, it is difficult to accept that outgoings which .....

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this case for purposes of s. I 1(1)(a). The decision cited on behalf of the Revenue did not take into account the decision of the Supreme ITA No.367/Bang/2015 Page 10 of 11 Court referred to above. The circular of CBDT has also been considered by the Hon'ble Kerala High Court in its decision referred to above. Accordingly, the question referred to is answered in the affirmative and in favour of the assessee." 18. The aforesaid decision clearly supports the plea of the Assessee. Followi .....

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ts. 18.1 Ground No.11 is regarding setting off excess application of income of assessment year 2010-11 against the income of the assessment year 2011-12. 18.2 At the time of hearing, the learned Authorised Representative stated that the assessee does not press this ground and the same may be dismissed. 18.3 On the other hand, the learned Departmental Representative has not objected to dismissal of the ground. 18.4 Accordingly, we dismiss the ground No.11 as not pressed. 19.1 Ground Nos.12 & .....

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f ₹ 1,07,58,875 representing the advance payment made to the parties to be reduced from the loan funds. The authorities below did not accept the claim of the assessee on the ground that no evidence was submitted by way of details of those parties to whom advances have been given by the assessee. Further the purpose of advances and nature of transaction was also not supported by the evidence. Accordingly, they doubted the genuineness of the claim. 19.2 Before us, the learned Authorised Repr .....

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the Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Trustees of HEH The Nizam s Charitable Trust 131 ITR 497. The learned Authorised Representative has further contended that the assessee has offered the income on mercantile basis and part of receipts are not still received by the assessee trust during the year then the deduction aginst such income which was not received during the year should have been allowed in respect of computing the quantum of application of income on account .....

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