CITY INSTITUTE,B D ROAD, CHITRADURGA V. INCOME-TAX OFFICER, CHITADURGA

ITA 774/BANG/2025

AI Insights

The City Institute, a club, appealed against the order of the National Faceless Appeal Centre (NFAC), which had upheld the assessing officer's decision treating certain cash deposits as unexplained income and taxing the club's income at 10% of gross receipts. The club argued that it operated on principles of mutuality, exempting it from income tax, and that the cash deposits were from regular activities, not unexplained sources. The tribunal found that the club needed to demonstrate the mutuality and the nature of the deposits to substantiate its claims.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 777462 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2017-2018
• Appeal Filed On: 31-03-2025
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SREERAKSHA
• Assessee Lawyers: GANESH R. GHALE; STANDING COUNSEL
• Section: 144; 12; 10

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT ITA No. 774/Bang/2025 Assessment year : 2017-18 City Institute, City Club, Near District Library, B D Road, Chitra Durga – 577 501. PAN: AAAAC 4563D Vs. The Income Tax Officer, Ward 1, Chitradurga. APPELLANT RESPONDENT Appellant by : Ms. Sree Raksha, CA Respondent by : Shri Ganesh R. Ghale, Advocate, Standing Counsel. Date of hearing : 24.09.2025 Date of Pronouncement : 30.09.2025 O R D E R 1. This appeal is filed by City Institute (the assessee/appellant) for the assessment year 2017-18 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 13.1.2025 wherein the appeal filed by the assessee against the assessment order passed u/s. 144 of the Income-tax Act, 1961 [the Act] dated 30.92019 by the ITO, Ward 1, Chitradurga [ld. AO] was dismissed. Printed from counselvise.com ITA No.774/Bang/2025 Page 2 of 6 2. The brief facts of the case show that assessee these are club covered under the principles of mutual 80 since it deals only with the members. Assessee is assessed with the income tax officer Ward – 1 Chitradurga. Assessee did not file the return of income for the assessment year 2017 – 18 on the presumption that the income of the club is exempt under the principle of mutuality. Assessee has received a notice under section 142 (1) of the income tax act 1961 for filing the return of income and explain the source of cash deposit of ₹ 1 1,19,44,070 in various banks account maintained by the assessee. The assessee filed later on 5/9/2019 enclosing the copy of profit and loss account declaring a deficit of ₹ 13,77,209 and further filed the balance sheet, bank passbook and copy of the cash book. The learned AO found that assessee has deposited the money in old currency ₹ 1,267,500 when the cash balance as on 9 November 2016 was only ₹ 69,164/–. Therefore the learned assessing officer treated the excess cash deposit of ₹ 1,198,500/– as unexplained money under section 69A of the act. Further the assessee was not registered under section 12 A of the act the learned assessing officer computed the 10% of the amount of gross receipts from club and bar section was determined as income of the assessee amounting to ₹ 1,513,362/–. Accordingly assessment order under section 144 of the act was passed on 30 September 2019. 3. The assessee aggrieved with the same preferred an appeal before the learned CIT – A. It was noted that assessee was given five opportunities of hearing but assessee has merely submitted the statement of facts along with the appeal memo and therefore in Printed from counselvise.com ITA No.774/Bang/2025 Page 3 of 6 response to the notice assessee remained unresponsive. Therefore the learned CIT – A decided the appeal on the merits of the case as per information available on record. It was stated that the onus is on the appellant assessee to prove that the source of the cash deposited into the bank account are accounted for in the books of the trust/club and has not escaped the provisions of the income tax act. Moreover, the appellant had not demonstrated that club is exclusively for members and cash received in demonetized currency belong to members to have benefit of mutuality. In other words the learned CIT – A held that appellant could not demonstrate that there is no sales to non-members and AO has rightly treated it as normal Association of persons. The appellant has turnover requiring audit of books of accounts and it is the assessee who has to file the return of income as an exemption on which mutuality can be claimed in the return and it is not correct to say that the club is not required to file the return as no such exemption is provided under section 10 of the Act. Further the detail submitted by the assessee have already been examined by the learned assessing officer and therefore no further scrutiny at the appellate level is required. Accordingly the order of the learned assessing officer was confirmed. 4. Assessee aggrieved with the same is in appeal before us. The contention of the learned authorised representative is that the sum of ₹ 1,198,500/– deposited in the bank account is out of the regular books of accounts of the club and therefore same could not have been considered as an unexplained income under section 69A of the act. It was also Printed from counselvise.com ITA No.774/Bang/2025 Page 4 of 6 submitted that there is no discrepancy in the cash book. Further it was stated that the addition made by the learned assessing officer of ₹ 1,513,362/– despite the assessee is having a deficit is not proper. It was stated that the assessee is a club where only it is a mutual concern for the member and the income of the assessee is not chargeable to tax on the principles of maturity. Therefore as the amount is also deposited out of the funds of the members are available in the books of the assessee club and further the assessee has incurred a deficit, the addition made by the learned AO and confirmed by the learned CIT – A is not proper. 5. The learned departmental representative vehemently supported the orders of the learned lower authorities and submitted that assessee has failed to file the return of income, it did not substantiate that the cash deposited is out of the books of accounts regularly maintained by the assessee and further as it has not filed its return of income, 10% of its gross receipt was considered as income by the learned assessing officer. It was submitted that if it is the claim of the assessee that it is a mutual concern, the assessee has to establish that the contributor of the funds and the beneficiaries are the same. In absence of that there is no infirmity in the order of the learned lower authorities. 6. We have carefully considered the rival contention and perused the orders of the learned lower authorities. It is undisputed that the assessee is a members club. If it is a members club, it is covered by the principles of mutuality. However it is for the assessee to show that the Printed from counselvise.com ITA No.774/Bang/2025 Page 5 of 6 contributors to the fund and the beneficiaries of the club are the members only. If the assessee is a mutual concern, it is not required to get itself registered under section 12 A of the act. For the simple reason that the assessee is selling food products as well as running a bar which cannot be considered as a charitable object at all. Therefore the finding of the learned assessing officer that assessee has not filed the return of income, the benefit of section 12 A of the act as it is not registered under that section, cannot be granted. In fact assessee is not required to and also is not eligible for registration under section 12 A of the act. It is the claim of the assessee that the sum of ₹ 1,198,500/– is deposited out of the regular books of accounts of the assessee and therefore they cannot be considered as unexplained income under section 69A of the act. The learned assessing officer were shown the books of accounts, cashbook, bank passbook and it was also demonstrated that the money is deposited in the bank account which was available in the books of accounts of the assessee. Further, the addition made by the learned assessing officer at the rate of 10% of the gross receipt is also comprising of the cash deposited in the bank account therefore to that extent there is also a double addition. In view of the above facts we restore the whole issue back to the file of the learned assessing officer with a direction to assessee to demonstrate before the assessing officer that assessee is a mutual concern and its income is not chargeable to tax under section 4 itself. To show the same the learned assessing officer must examine about the who are the contributors to the fund and who are the beneficiaries of the fund. If the ld. AO is satisfied that it is a Printed from counselvise.com ITA No.774/Bang/2025 Page 6 of 6 mutual concern, then its income is not chargeable to tax. Further the assessee is also directed to show before the assessing officer the amount of cash deposited in the bank account of the assessee is from the regular books of accounts. The learned assessing officer may examine the same, may also enquire with the banks by issuing notice under section 133 (6) of the act and thereafter decide the issue afresh. In view of the above facts the ground number 2 – 12 of the appeal are allowed as indicated above. 7. In the result appeal of the assessee is allowed for statistical purposes. Pronounced in the open court on this 30th day of September, 2025. Sd/- ( PRASHANT MAHARISHI ) VICE PRESIDENT Bangalore, Dated, the 30th September, 2025. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. Printed from counselvise.com "