2014 (2) TMI 561 - AT - Income Tax

Rejection of application of renewal of approval u/s 80G(5)(vi) of the Act Held that - The renewal of approval was rejected on the ground that clause-7 of the trust deed gives unbridled power to the trustees to apply funds and income of the trust according to their own discretion Donation given to another registered charitable trust cannot be a ground for not granting approval u/s 80G (5)(vi) of the Act - approval u/s 80G(5) is to be granted to a charitable trust or institution if it fulfils the condition enumerated in clause(i) to(v) of section 80G(5) - the amount of Rs.5 lakh has been reflected in the income and expenditure account which forms part of balance-sheet it cannot be said that the assessee has not maintained regular accounts of its receipts and expenditure in terms of clause(iv) of section 80G(5) - at the time of granting approval u/s 80G(5)(iv) the authority concerned is only required to examine whether the trust and institution has fulfilled the conditions enumerated under clause (i) to (v) of section 80G(5) thus, the DIT (E) has to restrict himself within the limitation of statutory mandate and cannot travel beyond it here, nothing has been brought on record to show that the assessee has not fulfilled the conditions enumerated in clause (i) to (v) of section 80G(5). The material on record clearly proves that the alleged donation had been reflected in the accounts of the assessee thus, the conclusion reached by the DIT (E) that the assessee trust cannot be held to be a fully charitable organisation is totally unsubstantiated and based on mere imagination than facts thus, the DIT (E) was not correct in rejecting the assessee s application for renewal of approval u/s 80G(5) the DIT (E) is directed to renew the approval granted earlier u/s 80G (5) of the Act to the assessee Decided in favour of Assessee. Deletion made u/s 68 of the Act Unexplained cash credit Held that - The CIT (A) held that when there are both cash credits and repayments, the Assessing Officer cannot consider the cash credits alone ignoring the repayments - when there are both receipts and payments only receipts cannot be considered totally ignoring the repayments -In such situation only the peak amount is to be considered thus, there was no reason to interfere with the findings of the CIT (A) Decided against Revenue.

Summary

Issues Involved:
1. Rejection of renewal of approval under section 80G(5)(vi) of the Income Tax Act.
2. Allegations of non-charitable activities and improper maintenance of accounts.
3. Addition of unexplained cash credits by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Rejection of Renewal of Approval under Section 80G(5)(vi):
The appeal was directed against the order of the Director of Income-tax (Exemptions) [DIT (E)], Hyderabad, which rejected the assessee's application for renewal of approval under section 80G(5)(vi) of the Income Tax Act. The assessee, a trust registered under section 12A, had its last renewal of approval on 31-3-2004 for three years and applied for renewal before expiry. The DIT (E) initially rejected the application, citing unbridled power given to trustees and non-charitable nature of some objects. The Tribunal remitted the matter back to the DIT (E) for reconsideration. Upon reconsideration, the DIT (E) rejected the renewal again, noting issues with donations to other institutions and improper maintenance of accounts.

2. Allegations of Non-Charitable Activities and Improper Maintenance of Accounts:
The DIT (E) cited several reasons for rejecting the renewal:
- The trust deed did not stipulate making donations to other institutions, which the trust did.
- The trust did not truthfully maintain its receipts and expenditure, particularly with donations to Akshara Foundation not being reflected in the accounts.
- The trust advanced a loan of Rs. 5 lakh to Akshara Foundation after obtaining a loan from Prajna Technologies & Services Pvt. Limited, which was not shown in the statement of donations.

The assessee refuted these allegations, arguing that:
- Donations to Akshara Foundation, a charitable trust registered under section 12AA, were an application of income for charitable purposes.
- The trust maintained regular books of accounts, all audited, and the donations were reflected in the income and expenditure account.
- The advance to Akshara Foundation was a temporary advance for donation purposes, not a business advance, and was returned when not utilized.

3. Addition of Unexplained Cash Credits:
The department's appeal involved the deletion of an addition of Rs. 86,25,000 made by the Assessing Officer on account of unexplained cash credits. The CIT (A) held that only the peak credit of Rs. 47,50,000 could be considered for addition, as both cash credits and repayments were present. The Tribunal confirmed this finding, noting that the peak credits from the previous assessment year were available for telescoping.

In cross appeals, both the department and the assessee challenged the CIT (A)'s decision regarding the addition of Rs. 40,95,000. The CIT (A) had directed the Assessing Officer to retain the balance peak credits after considering the peak credits added in the previous assessment year. The Tribunal found no infirmity in the CIT (A)'s direction and dismissed both appeals.

Conclusion:
The Tribunal directed the DIT (E) to renew the approval granted earlier under section 80G(5) of the Act, as the assessee had satisfied the conditions enumerated in section 80G(5). The Tribunal also confirmed the CIT (A)'s findings regarding the addition of unexplained cash credits, emphasizing the consideration of peak credits and repayments. The appeals filed by the assessee were allowed, while the department's appeals were dismissed.