2014 (1) TMI 979 - AT - Income Tax

Addition u/s 68 - Held that - The account for the assessee Trust shows that there was sufficient capital expenditure during the year which is much above the corpus donation received by the assessee - The assessee was conducting its business as per the aims and objects of the society - When there is no dispute that the assessee had disclosed the donations with the list of donors, the amount was paid by cheques and donations were applied for charitable purpose, there is no justification in making addition u/s 68 - The assessee has furnished evidences with regard to donations received - Some of the donors were produced before the Assessing Officer and many donors replied to the query of Assessing Officer - In respect of receipt of one of the major donations of Rs.45 lacs from SICPA India s Pvt. Ltd confirmation was filed form the donor - The amount was received by cheque and fresh certificate of incorporation with Ministry of Corporate Affairs was also filed - The assessee had complied the requirement of Assessing Officer with regard to donors - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of proceedings under section 147 of the Income-tax Act, 1961.
2. Denial of exemption under section 11 of the Income-tax Act, 1961.
3. Addition of corpus donations under section 68 of the Income-tax Act, 1961.
4. Principles of natural justice.

Detailed Analysis:

1. Reopening of Proceedings under Section 147:
The assessee challenged the reopening of proceedings under section 147, arguing that it was done without proper basis and that the reasons recorded did not meet the requirements of the section. However, these grounds were not pressed during the appeal and were dismissed as not prosecuted.

2. Denial of Exemption under Section 11:
The assessee, a registered educational institution under section 12AA, claimed exemption under section 11 for corpus donations received. The Assessing Officer (AO) denied this exemption, arguing that the donations were not genuine and included accommodation entries. The CIT (A) upheld this denial, stating that the assessee failed to prove the genuineness, identity, and creditworthiness of the donors. The assessee contended that the capital expenditure incurred on the objects of the Trust should be considered as an application of income, thus qualifying for exemption under section 11. The assessee provided confirmatory letters from donors, PAN details, and evidence of donations received by cheques.

3. Addition of Corpus Donations under Section 68:
The AO added the corpus donations to the income of the assessee under section 68, treating them as unexplained cash credits. The CIT (A) confirmed this addition, citing the failure of the assessee to prove the genuineness of the transactions. The assessee argued that the donations were voluntary and for the corpus of the Trust, supported by documentation and confirmatory letters. The assessee also cited various judicial precedents to support the claim that once a trust is registered under section 12AA, the AO cannot question the objects of the trust or deny the benefits of sections 11 and 12. The assessee highlighted that similar exemptions were granted in subsequent assessment years.

4. Principles of Natural Justice:
The assessee argued that the orders passed by the AO and CIT (A) violated the principles of natural justice. The CIT (A) confirmed the addition without specific findings or considering the documents submitted by the assessee. The assessee also pointed out that the AO failed to present the correct facts during the remand proceedings.

Judgment:
The Tribunal found that the assessee had complied with the requirements during the remand proceedings, and the AO was not justified in not presenting the correct facts to the CIT (A). The Tribunal noted that the assessee provided sufficient evidence, including confirmatory letters, PAN details, and evidence of donations received by cheques. The Tribunal also observed that the assessee continued to enjoy the benefits of registration under section 12A in subsequent years, and there was no allegation against the assessee for not conducting its activities as per the aims and objects of the society. The Tribunal concluded that the AO and CIT (A) were not justified in denying the benefit of section 11 and adding the corpus donations under section 68. The Tribunal set aside the orders of the authorities below and allowed the appeal in favor of the assessee.