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January 10, 2023

The Trust cannot be claimed to have made an inexplicable investment by simply using the building

by CA Shivam Jaiswal in Income Tax

The Trust cannot be claimed to have made an inexplicable investment by simply using the building

Fact and Issue of the case

The brief facts of the case is that the assessee is a charitable trust, however, not registered u/s 1 2A of the 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.

In appeal before the CIT(A), the ld. 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 ld. 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 The ld. CIT(A) further noted from the record that the said building was constructed by Smt. Mamata Mondal, trustee/settler of the assessee-trust and the building was not part of the gift deed. The ld. CIT(A) observed that however the said building was being used by the appellant without consideration. He observed that the value of the building was not incorporated in the balance sheet. He, therefore, treated the appellant as deemed owner of the building which was obtained without consideration. He, therefore, held that the Assessing Officer has rightly added the value of the building at Rs. 16 lakh u/s 69 of the Act.

Observation of the Tribunal

The counsel for the assessee has submitted that as observed by the CIT(A) the building was constructed by Shri Aditya Mondal and Smt. Mamata Mondal, trustees of the assessee-trust who have obtained house building loan from the banks for the purpose of construction of the aforesaid building. The building was not constructed or owned by the trust/institute for the relevant assessment year A.Y 2011-12. We find that the ld. 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. Therefore, there is no justification on the part of the CIT(A) in confirming the impugned addition especially when the ld. CIT(A) himself has observed that the building was not constructed by the assessee-trust rather the same was constructed by the trustees of the assessee i.e. Smt. Mamata Mondal and Shri Aditya Mondal. 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.

Conclusion

The Tribunal ruled in favour of the assessee and set aside and the addition made by the Assessing Officer is hereby ordered to be deleted.

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