2021 (11) TMI 1190 - HC - Income Tax

Addition on account of cash donation collected outside the books of accounts - presumption cast against the assessee u/s 292C r.w.s. 132(4A) to explain plethora of evidence seized during the search from residence of Principal Trustee of assessee society ? - HELD THAT - Question (i) is framed as under - Whether in the facts and the circumstances of the case, ITAT was right in deleting the addition as added by the AO relying on documents found during the search at the residence of Principal Trustee of Respondent Society ? Registrar (Judicial) / Registrar, High Court, Original Side, Bombay to ensure that the original record in relation to this Appeal is summoned from the Tribunal and offered for inspection of the parties. This paper book is treated sufficient for the purpose of admission of this Appeal. However, the Registry must further ensure preparation of complete paper book in accordance with the rules. The registry in the first instance must send intimation of admission of this Appeal enclosing therewith a copy of this order so as to enable the Tribunal to act accordingly. Assessment of trust - Violation of Section 13(1)(d) subjected to maximum marginal rate - ITAT holding that violation of conditions under Section 13(1)(d) would not result in denial of exemption on the whole income and denial be restricted to the income in violation of provisions of Section 13(1) - HELD THAT - We are not inclined to entertain the same inasmuch as by Finance Act, 1984 Circular No.387 dated 06/07/1984 issued by the Income Tax Department, Government of India, at 28.6, it is mentioned In other words, where such a trust contravenes the provisions of section 13(1) or (d) of the Act, the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provisions . Copy of the said circular that was tendered by the learned Senior Advocate appearing for Respondent is taken on record and marked X for identification.

Summary

Issues:
1. Whether the ITAT was right in deleting the addition of Rs.22,45,06,500 made on account of cash donation collected outside the books of accounts?
2. Whether the violation of conditions under Section 13(1)(c) would result in denial of exemption on the whole income or only on the income in violation of the provisions?

Analysis:
1. The appellant raised the issue of whether the ITAT was correct in deleting the addition of Rs.22,45,06,500 made on account of cash donation collected outside the books of accounts. The appellant argued that the ITAT ignored the presumption cast against the assessee under Section 292C read with Section 132(4A) to explain the evidence seized during the search from the residence of the Principal Trustee of the assessee society. The question framed for this issue was whether the ITAT was right in deleting the addition based on the documents found during the search at the residence of the Principal Trustee of the respondent society.

2. Regarding the second issue, the appellant contended that the violation of conditions under Section 13(1)(c) should result in the denial of exemption on the whole income, contrary to the ITAT's decision. The appellant referred to the interpretation of the Mafatlal decision and argued that the ITAT's decision was in direct contravention of earlier decisions of the Bombay High Court and the Apex Court. However, the court declined to entertain this issue based on Circular No.387 dated 06/07/1984, which states that the maximum marginal rate of income tax will apply only to the part of the income that has forfeited exemption under the provisions of Section 13(1)(c) or (d).

In conclusion, the High Court of Bombay addressed the substantial questions of law raised by the appellant regarding the deletion of the addition of cash donations and the denial of exemption on the whole income based on violations of Section 13(1)(c). The court examined the arguments presented by both parties and relied on relevant legal provisions and circulars to make its determinations.