2010 (8) TMI 1154 - AT - Income Tax

Summary

Issues Involved:
1. Enhancement of income by the Commissioner of Income Tax (Appeals).
2. Genuineness of donations received by the assessee.
3. Application of income for charitable purposes.
4. Legitimacy of expenses claimed by the assessee.
5. Procedural fairness and right to cross-examine witnesses.

Detailed Analysis:

1. Enhancement of Income by the Commissioner of Income Tax (Appeals):
The assessee challenged the enhancement of income by Rs. 1,86,83,248/- by the CIT(A), arguing it was unjustified, unwarranted, and excessive. The Tribunal noted that the CIT(A) had enhanced the income based on suspicion and without substantial evidence, relying on procedural irregularities and the lack of opportunity given to the assessee to cross-examine witnesses.

2. Genuineness of Donations Received by the Assessee:
The assessee, an NGO registered under the M.P. Societies Registration Act, 1973, and granted registration under section 12AA and approval under section 80G, received donations amounting to Rs. 1,86,83,248/-. During a survey under section 133A, the books of accounts and receipts were impounded. The CIT(A) doubted the genuineness of the donations, suggesting they were fictitious. However, the Tribunal found that the donations were supported by carbon copies of receipts and statements from donors, which were impounded during the survey, thus proving the genuineness of the donations.

3. Application of Income for Charitable Purposes:
The assessee claimed to have applied Rs. 1,94,42,849/- for charitable purposes. The CIT(A) disputed this, suggesting the expenses were bogus. The Tribunal noted that the assessee maintained regular books of accounts, which were audited, and the expenses were supported by bills and vouchers. The Tribunal emphasized that documentary evidence overrules oral evidence and found that the expenses were genuinely incurred for charitable purposes.

4. Legitimacy of Expenses Claimed by the Assessee:
The CIT(A) questioned the legitimacy of expenses towards purchases from suppliers like Ritesh Singh (cloth), Anuj Pratap Singh (tent house), Surya Prakash Sharma (medicines), and Mathura Prasad Gupta (kirana goods). The Tribunal found that the suppliers confirmed the transactions, and their statements were supported by their respective books of accounts and tax returns. The Tribunal concluded that the expenses were legitimate and duly supported by evidence.

5. Procedural Fairness and Right to Cross-Examine Witnesses:
The Tribunal observed that the CIT(A) recorded statements from suppliers and Sarpanchs behind the assessee's back without providing an opportunity for cross-examination. It was noted that the Inspector, who recorded some statements, was not authorized to do so. The Tribunal emphasized the importance of procedural fairness and the right to cross-examine witnesses, which was not adhered to in this case.

Conclusion:
The Tribunal concluded that the enhancement of income by the CIT(A) was unjustified and based on suspicion without substantial evidence. The donations received by the assessee were genuine, and the expenses claimed were legitimate and incurred for charitable purposes. The Tribunal also highlighted procedural lapses and the denial of the right to cross-examine witnesses, leading to the decision to allow the appeal in favor of the assessee. The enhancement made by the CIT(A) was deleted, and the appeal of the assessee was allowed.