2011 (10) TMI 637 - AT - Income Tax

Benefit for exemption u/s 11 - Held that - more than 85% of the income has been utilized for charitable purposes - Held that - Interest of justice will be served, if the matter remitted to the file of the Assessing Officer to consider the issue as to whether after taking into account the donations as the income of the assessee 85% has been utilized for charitable purposes or not. If more than 85% has been utilized for charitable purposes, assessee shall be entitled to benefit u/s. 11 of the IT Act. In that case the addition of the donations as unexplained deposits will be liable to be set aside. Accordingly, issue stands remitted to the files of the Assessing Officer.

Summary

Issues:
Appeal against order of Commissioner of Income Tax (Appeals) for assessment year 2006-07 regarding addition of donation as unexplained deposits, denial of exemption under section 11, and confirmation of Assessing Officer's action.

Analysis:
1. The Assessing Officer treated a donation of Rs. 74,05,400 as unexplained deposits due to lack of credible evidence. The Commissioner of Income Tax (Appeals) upheld this decision.
2. The appellant argued that even if the donation is treated as income, exemption under section 11 should apply as over 85% of the income was used for charitable purposes, citing a relevant High Court decision.
3. The appellant contended that Assessing Officer's assessment of Rs. 74,05,400 as income in isolation was legally untenable since the trust was eligible for exemption under section 11. Detailed computations showed the income was less than the application for charitable purposes.
4. The Tribunal found the appellant's arguments supported by the High Court decision and remitted the matter to the Assessing Officer to determine if over 85% of the income was used for charitable purposes. If so, the appellant would be entitled to exemption under section 11, and the addition of donations as unexplained deposits would be set aside.
5. The appeal was allowed for statistical purposes, emphasizing the need for a thorough assessment of charitable utilization before denying exemption under section 11.

This judgment highlights the importance of demonstrating the utilization of income for charitable purposes to avail exemptions under section 11 of the Income Tax Act, emphasizing the need for proper documentation and compliance with legal provisions.