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TMI Blog2025 (1) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant is eligible to claim deduction of depreciation which has not been allowed. Ground No.3: Without prejudice to above ground, Ld. CIT(A) erred in making enhancement of Rs. 5,43,493/- to the income of appellant without appreciating facts of the case properly. The enhancement made by Ld. CIT(A) is illegal inasmuch as the enhancement is without any opportunity to the appellant. Ground No.4: The appellant reserves the right to add, amend or alter any ground/s of appeal." 2. Succinctly stated, the AO gathered information that the assessee society had during the demonetization period though made cash deposits of Rs. 10,18,050/- in Specified Bank Notes (SBNs) in its bank account No.936020110000203 held with Bank of India but had not filed its return of income for the year under consideration, i.e A.Y 2017-18. The AO issued notice u/s 142(1) of the Act, dated 09.03.2018 calling upon the assessee society to file its return of income for the subject year. As the assessee society failed to file its return of income in compliance to the aforesaid notice, therefore, the AO was constrained to proceed with and frame the assessment to the best of his judgment u/s 144 of the Act. 3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal Tender Character of old bank notes in denomination of Rs. 500/- and Rs. 1000/- w.e.f. 8th November, 2016, through Specified Bank Notes (cessation of liabilities) Act, 2017 and specified Bank Notes (deposit of confiscated notes) Rules, 2017. * The legal tender character of the bank notes in denominations of Rs. 500 and Rs. 1000 issued by the Reserve Bank of India till November 8, 2016 (Specified Bank Notes) were withdrawn. * As per details provided by the bank, the assessee had deposited Cash in old currencies of denomination of Rs. 500/- and 1000/- valued to Rs. 10,18,050/- in Bank of India. * The pay-in-slip were obtained from the banks and were examined which clearly show that the assessee has deposited old currency notes (SBNs). * The sources of deposits of old currency notes (SBNs) were not explained. * It is apparently clear that the cash deposits made in the bank accounts of the assessee during F.Y. 2016-17 relevant to A.Y. 2017-18, during demonetization period, are unexplained and from undisclosed sources and the same were not offered for taxation purposes. * In this case, provisions of section 69A of I.T. Act, 1961 is clearly attracted. Section 69A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urplus/income from the tuition receipts at Rs. 23,06,282.79. The CIT(A) further observed that as the assessee society had disclosed gross receipts (tuition receipts) of Rs. 1,86,45,939/- which exceeded the threshold amount prescribed u/s 10(23C)(iiiad) of the Act, therefore, it was not entitled to seek exemption under the said statutory provision. As regards the claim of the assessee society that it was eligible to get benefit as per "1st proviso" to sub- section (2) of Sec. 12A of the Act, which contemplated that where registration has been granted to the trust or institution under Sec.12AA or Sec. 12AB then, the provisions of section 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid year for which assessment proceedings are pending before the AO as on date of such registration, subject to the conditions that the objects and activities of such trust or institution remain the same for such preceding assessment year, the CIT(A) did not find favor with the same. It was observed by him that as the assessee society was granted registration u/s 12AA of the Act on 29.09.2020 whereas the assessment was comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, the AO noted that the appellant had accepted old notes of Rs. 500 and Rs. 1000 (SBN) during the demonetization period, even though no relaxation was granted by the Government. In view of the above, the AO concluded that the appellant could not explain the nature and source of his cash deposits and accordingly added the above amount u/s.69A r.w.s115BBE of the Income tax Act. It was also noted that the appellant had deposited cash amounting to Rs. 62,74,700/- in the period other than demonetization period and received amount other than cash of Rs. 29,39,301/- during the F.Y.2016-17 in its bank account. The appellant explained the above amounts also as being fees received from its students. However, in the absence of supporting documents regarding claim of exemption u/s. 10(23C), and failure to furnish books of accounts maintained for F.Y.2016-17, copy of Form 10B etc, the AO did not accept the appellant's explanation. Accordingly, the total amount received during the relevant financial year excluding the cash deposits during demonetization i.e Rs. 1,762790/- (1,86,45,939-10,18,050) was treated as business receipts of the assessee and profit @10% of the amount of Rs. 1,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification of the Government of India in the Ministry of Finance, number S.O. 3407(E), dated the 8th November, 2016, issued under subsection(2) of section 26 of the Reserve Bank of India Act, 1934, shall cease to be liabilities of the Reserve Bank under section 34 and shall cease to have the guarantee of the Central Government under sub-section (1) of section 26 of the said Act." From the above, it is clear that use of Specified Bank Notes (SBN) pursuant to 8th November, 2016 upto 31st December, 2016 was always allowed. It was never the intention of the Law to prohibit its use for transaction upto 31st December, 2016. This view was accepted by Bangalore ITAT in Prathamika Krushi Pattina (ITA No. 593/Bang/2021) and Bhageeratha Pattina Sahakara Sangha Niyamitha (ITA No.646/Bang/2021 dated 18-02-2022) and Anantpur Kalpana Vs ITO (ITA No.541/Bang/2021) wherein it was held that, in this case both the AO and CIT(A) accepted the fact that the cash receipts are nothing but sale proceeds in the business of the assessee. Since the sale proceeds for which cash was received from the customers was already admitted as income and if the cash deposits are added under section 68 of the Act that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution remain the same for such preceding assessment year." In the present case, the appellant was granted 12AA registration on 29.09.2020 whereas the assessment was completed on 26.11.2019, hence it cannot take the benefit of the above proviso. Accordingly, it is not eligible to claim exemption u/s 11 and 12 of the I.T Act. It is further noted as per the income and expenditure account for the F.Y 2016- 17 the appellant had shown net surplus of Rs. 2306282.79. The A.O. had accepted the gross receipts on account of tuition fees less the cash deposited during demonetization as the business receipts of the appellant and estimated profit at 10% of such receipts. It is pertinent to note that the appellant was maintaining books and the same were not rejected. In fact, the gross receipts forming the basis for estimation of profit have also been taken from its audited accounts. Hence, there is no rationale for estimating the profit. Accordingly, the surplus as declared by the appellant in its income and expenditure account is to be treated as its taxable income for the relevant A.Y. in the absence of any exemption u/s 10(230) or 12A. Thus, the appellant's taxable income for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption u/s 11 & 12 of the Act. The Ld. AR to support his claim that the proceedings before the CIT(A) are to be construed as continuation of the assessment proceedings had pressed into service the order of the Tribunal in the case of Prem Prakash Mandal Sewa Trust vs. ITO (2022) 192 ITD 109 (Raipur). The Ld. AR in his attempt to fortify his aforesaid claim had placed on record the "Notes to clauses" of the Finance Act, 2014 wherein the purpose for incorporating the "1st proviso" to section 12A(2) of the Act was explained. Alternatively, the Ld. AR submitted that in case of the assessee society claim of exemption u/ss 11/12 of the Act was not to be accepted, then, the AO be directed to allow depreciation on the "fixed assets" of the assessee society, though a claim for the same was raised in the "Income and expenditure account" The Ld. AR to buttress its entitlement for claim of depreciation on fixed assets had relied upon the "Explanation 5" of Sec. 32(1) of the Act. 10. Per contra, Dr. Priyanka Patel, Learned Senior Departmental Representative (for short, Sr. DR) relied upon the orders of the lower authorities. 11. I have heard the learned authorized representatives of both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-condition that where the total income of the trust or institution as computed under this Act without giving effect to the provisions of Sec. 11 and Sec. 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the "Explanation" below sub- section (2) of Sec. 288 [and the person in receipt of the income furnishes alongwith the return of income for the relevant assessment year] the report of such audit in the prescribed form duly signed and verified by such accountant as setting forth such particulars as may be prescribed. Accordingly, Sec. 12A(b) [as was available on the statute during the year under consideration i.e AY 2017-18] had for claiming of exemption under Sec. 11 or Sec. 12, inter alia, set out a pro- condition, as per which the trust or institution was statutorily required to cumulatively satisfy two conditions, viz. (i) to get its accounts audited by an accountant defined in the "Explanation" below sub-section (2) of Sec. 288; and (ii). to furnish alongwith the return of income for the relevant assessment year the report of audit in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the eligible profits. In fact, I find that the ITAT, Vishakapatnam in the case of Arthi Nursing Home Vs. ITO (2009) 309 ITR (AT) 269 (Vishakapatnam), had observed, that in a case where the income is recomputed by allowing the assessee the mandatory deprecation, which he has not claimed, the consequential adjustment by way of reduction of interest to partners with reference to the revised income is justified. Rather, the CBDT vide its Circular No. 29D(XIX) of 1965, F.No. 45/239/65-ITC, dated 31st March, 1965, had, inter alia, observed that even where best judgment assessment is made and the income of the assessee is proposed to be estimated, then, in case the prescribed particulars have been furnished by the assessee, the depreciation allowance should be separately worked out. I, thus, in the backdrop of my aforesaid observations, am of a firm conviction, that though the assessee society is not entitled for claiming exemption under Sec. 11 and Sec. 12 of the Act, but, at the same time, as per "Explanation 5" to Sec. 32(1) of the Act, the deduction for depreciation on the "fixed assets", though not claimed, ought to be allowed while computing its income in a commercial manner. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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