2015 (8) TMI 881 - AT - Income Tax

Addition u/s 68 - whether donations cannot be included for the purpose of application of funds as required u/s 11? - CIT(A) deleted additions - Held that - The assessee received donation of ₹ 75 lakh which were added by the AO to the returned income of the assessee u/s 68 of the Act and the said addition has also been upheld by the first appellate authority while passing the impugned order and with the conclusion as reproduced hereinabove. Turning to the issue of requirement of section 11 of the Act, we note that the Director of Income-tax (exemption) Vs Raunaq Education Foundation 2007 (4) TMI 61 - HIGH COURT, DELHI explicitly held that to obtain the benefit of the exemption u/s 11 of the Act, the assessee is required to show that the donations were voluntary. Their lordships further held that the fact that the complete list of donors was not filed or that the donors were not produced, does not necessarily lead to the inference that the assessee was trying to introduce unaccounted money by way of donation receipts. It was also held by Hon ble Jurisdictional High Court that it is not in dispute that the objects and activities of the assessee were charitable in nature and it was duly registered u/s 12A of the Act, then in the situation of full disclosure of income by the assessee and also application of the donations for charitable purposes entitles the assessee to obtain benefit of exemption u/s 11 of the Act. In the present case, the assessee had not only disclosed the donations but also submitted names, confirmations along with PAN No., address of the donors before the AO during the assessment proceedings. However, the AO and the CIT(A) concluded that the creditworthiness of the donation could not be established, therefore, the impugned amount was added u/s 68 of the Act. At the same time, it cannot be ignored that the assessee is enjoying registration u/s 12A of the Act and the AO has not brought out any fact to controvert that the objects of the assessee charitable trust are charitable in nature and the assessee applied more than 85% of its income including impugned donations towards charitable purposes during the financial period under consideration. In this situation, the CIT(A) was right in following the ratio laid down in the case of DIT(E) vs Keshav Social and Charitable Foundation (2005 (2) TMI 84 - DELHI High Court) and we are unable to see any ambiguity, perversity or any other valid reason to interfere with the same, accordingly ground of the revenue being devoid of merits is dismissed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Application of Section 68 of the Income Tax Act to anonymous donations.
2. Consideration of corpus donations as part of total income for application towards charitable objects.
3. Applicability of Section 115BBC to the assessment year in question.
4. Reopening of assessment and its legal objections.

Detailed Analysis:

1. Application of Section 68 of the Income Tax Act to Anonymous Donations:
The primary issue revolves around whether the provisions of Section 68 of the Income Tax Act can be applied to anonymous donations amounting to Rs. 75 lakhs received by the assessee. The Assessing Officer (AO) added this amount to the income of the assessee, citing that the creditworthiness of the donors could not be established due to the absence of profit and loss accounts, balance sheets, and income tax return acknowledgments of the donors. The CIT(A) upheld this addition, stating that the assessee failed to produce the donors or their directors, thus failing to establish the genuineness of the donations. The Tribunal noted that the assessee had disclosed the donations and provided names, confirmations, PAN numbers, and addresses of the donors, but the AO and CIT(A) still concluded that the creditworthiness was not established.

2. Consideration of Corpus Donations as Part of Total Income for Application Towards Charitable Objects:
The CIT(A) directed that the impugned addition of Rs. 75 lakhs should be considered as part of the total income for application towards charitable objects, as required under Section 11 of the Act. The Tribunal observed that the assessee applied more than 85% of its income, including the impugned donations, towards charitable purposes, thus justifying the application of the income. The Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's rulings in cases such as DIT(Exemption) vs Keshav Social and Charitable Foundation, which stated that anonymous donations disclosed as part of income should not lead to the inference of unaccounted money.

3. Applicability of Section 115BBC to the Assessment Year in Question:
The Tribunal acknowledged that Section 115BBC, which deals with the taxation of anonymous donations, is applicable from 1.4.2007 and does not apply to the assessment year 2003-04 under consideration. This was accepted by both the Departmental Representative (DR) and the assessee's counsel.

4. Reopening of Assessment and Its Legal Objections:
The assessee's counsel submitted that if the departmental appeal is decided in favor of the assessee, the legal objections towards the reopening of the assessment would become academic. Since the Tribunal dismissed the departmental appeal, the issues raised by the assessee regarding the reopening of the assessment were considered academic and were dismissed without further deliberation.

Conclusion:
The Tribunal dismissed both the revenue's appeal and the assessee's appeal. The revenue's grounds were dismissed on the basis that the CIT(A) correctly applied the law and judicial precedents in considering the donations as part of the total income for charitable purposes. The assessee's appeal was dismissed as academic following the dismissal of the revenue's appeal. The order was pronounced in the open court on 14.8.2015.