The Ahmedabad Bench of the Income Tax Appellate Tax ( ITAT ) allowed the write-off of Rs.4.94 lakhs for non-recoverable dues from terminated trust members citing it as a non-refundable deposit in nature.
The Maharaja Pratapsinh Coronation Gymkhana, the assessee is an institution registered under Section 12A/12AA of the Income-tax Act. The assessee collected fees from both members and non-members for providing facilities and services.
The assessee claimed exemptions under Sections 11 and 12 for the assessment years 2010-11, 2011-12, and 2012-13. The revenue denied exemptions and disallowed an amount of Rs. 4.94 lakhs claimed as a write-off by the assessee.
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The revenue denied it stating the dues could be recovered from non-refundable security deposits taken as corpus.
On appeal, the Commissioner of Income Tax (Appeals) upheld the disallowances. Aggrieved, the assessee approached the ITAT arguing that the security deposits collected from members were non-refundable and had been transferred into the corpus of the Gymkhana treated as capital receipts.
Further, argued that these amounts were not available to adjust against the outstanding dues. The dues in question had already been recognized as income in the respective financial years when they accrued. So, the write-off was necessary and explained that the dues were genuinely non-recoverable.
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The two-member bench comprising Dr. B.R.R. Kumar (Vice President) and Suchitra Kamble (Judicial Member) observed the assessee’s argument that the security deposits were non-refundable and had been taken into the corpus of the Gymkhana.
The tribunal observed that the dues had already been shown as income in the respective earlier years when they were accrued. So, the write-off did not result in any undue benefit to the assessee but was necessary to clean up the irrecoverable balances.
Therefore, the tribunal held that the write-off of Rs. 4.94 lakhs was valid and justified and the disallowance made by the Revenue Authorities was incorrect. The assessee’s appeal was allowed.
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