The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ), ruled that use of building by assessee-trust without consideration is not unexplained investment.
The assessee, Abhodh Memorial Trust is a charitable trust, however, not registered under section 12A of the Income Tax Act for the relevant assessment year under consideration. During the assessment proceedings, the Assessing Officer noticed that as per the balance sheet of the assessee, the assessee does not own any building but the fact was that an institution namely Abodh Institution was being run and owned by the Trust in a building.
However, the building was not reflected under the asset side of the trust but only a piece of land was reflected in the balance sheet. The Assessing Officer also observed that the land, in question, was gifted to the trust by the settlers.
The Assessing Officer further observed that the assessee had even failed to explain the source of cash deposits totalling Rs.8 lakhs in its bank account. The Assessing Officer therefore, made the addition of Rs.8 lakh as unexplained cash deposits and another amount of Rs.16 lakh as unexplained investment in building.
The CIT(A) deleted the addition made by the Assessing Officer of Rs.8 lakh on account of unexplained cash deposits, holding that the assessee had successfully explained that the said amount was donated by its trustees. However, the CIT(A) confirmed the addition of Rs.16 lakh made by the Assessing Officer in respect of building on the land received by the trust as gift from its settlers.
The building was not constructed or owned by the trust for the relevant assessment year 2011-12. The CIT(A) has also categorically made observation that the building was constructed by the trustees of the assessee and not by the assessee itself. Since the building was not constructed by the assessee-trust, there was no question of any addition on account of unexplained investment by the assessee-trust.
A Bench consisting of Sanjay Garg, Judicial Member and Dr. Manish Borad, Accountant Member observed that “Merely because the building was used by assessee-trust without consideration that cannot be said to be, in any way, any unexplained investment by the assessee-trust justifying the addition of section 69 of the Act. In view of this, the impugned order of the CIT(A) is set aside and the addition made by the Assessing Officer is hereby ordered to be deleted.”
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