2014 (4) TMI 523 - AT - Income Tax

Addition made u/s 68 of the Act Genuineness of the donations Benefit of exemption u/s 11 and 12 of the Act Applicability of section 115BBC of the Act - Held that - The receipts are to be governed by sec. 11 and 12 of the Act. The moment assessee has treated the donations as its income and it is deemed to be an income derived from the property held under the trust as per sec. 12(1) - the only aspect remained is to verify whether such amounts have been applied for the objects of the society to the extent of 85% or not Relying upon Director of Income-Tax (Exemption) Versus Keshav Social And Charitable Foundation 2005 (2) TMI 84 - DELHI High Court the benefit of sections 11 & 12 in computing the income received on account of donations from identified donors cannot be denied thus, the AO is directed to to verify the facts that assessee has applied 85% of its income during the year including these donations on its objects Decided in favour of Assessee.

Issues Involved:
1. Treatment of voluntary donations as anonymous under Section 115BBC read with Sections 68/69 of the Income-tax Act, 1961.
2. Confirmation of additions on protective and substantive basis by CIT(Appeals).
3. Enhancement of income by CIT(Appeals) based on certain donations.
4. Charging of interest under Sections 234B and 167B of the Income-tax Act, 1961.

Detailed Analysis:

1. Treatment of Voluntary Donations as Anonymous:
The primary issue revolves around the treatment of voluntary donations amounting to Rs.192,35,000 received by the assessee. The Assessing Officer (AO) classified these donations as anonymous, making them assessable as income under Section 115BBC read with Sections 68/69 of the Income-tax Act, 1961. The AO scrutinized the accounts and found discrepancies in the confirmation of donors, leading to the conclusion that the donations were not genuine and were essentially unexplained cash credits. The AO added Rs.196,86,000 to the assessee's income, treating it as anonymous donations.

The assessee argued that the donations were not anonymous as it had provided a list of donors with their addresses and income-tax particulars. The assessee contended that these donations should be treated as corpus donations or voluntary contributions under Sections 11 and 12 of the Act. The CIT(Appeals) agreed with the assessee, holding that Section 115BBC would apply only to anonymous donations. Since the donations were identifiable, they could not be treated as anonymous, and the provisions of Section 68/69 would apply instead.

2. Confirmation of Additions on Protective and Substantive Basis:
The assessee contested the confirmation of additions amounting to Rs.30 lacs received from Bharat Ekta Andolan and Nisadh Investments and Finance by CIT(Appeals) on a substantive basis. These additions were initially made on a protective basis by the AO. The CIT(Appeals) converted these to substantive additions, which the assessee argued was erroneous.

3. Enhancement of Income by CIT(Appeals):
The CIT(Appeals) further enhanced the income of the assessee by Rs.11 lacs, which included donations from three entities: Veena Bhatia (Rs.1 lac), Quitech India Pvt. Ltd. (Rs.5 lacs), and Allegiant Buil Mart Pvt. Ltd. (Rs.5 lacs). The assessee challenged this enhancement, arguing that these donations should not be treated as income.

4. Charging of Interest under Sections 234B and 167B:
The assessee also contested the charging of interest under Sections 234B and 167B of the Income-tax Act, 1961, which would be consequential to the main issues.

Tribunal's Findings:

The Tribunal held that the CIT(Appeals) correctly concluded that the donations were not anonymous, and therefore, Section 115BBC was not applicable. The Tribunal emphasized that the assessee maintained complete details of the donors, and the donations were identifiable. Consequently, the donations should be treated as income under Sections 11 and 12 of the Act, provided the assessee applied 85% of its income towards its charitable objects.

The Tribunal relied on various judicial precedents, including the judgment of the Hon'ble Delhi High Court in the case of DIT(Exemptions) vs. Keshav Social & Charitable Foundation, which held that once donations are disclosed as income and applied for charitable purposes, the benefit of Sections 11 and 12 cannot be denied.

The Tribunal directed the AO to verify whether the assessee had applied 85% of its income, including the donations, towards its charitable objects. If the assessee's claim of incurring Rs.533,22,266 towards its objects was verified, the income would be assessed at nil, considering the total expenditure exceeded the income.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes, directing the AO to verify the application of income towards charitable purposes. The charging of interest under Sections 234B and 167B would be consequential based on the final assessment.

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