2019 (2) TMI 787 - AT - Income Tax

Benefit of section 11 & 12 - conversion of loans to the corpus donations - Held that - There is not even an iota of adverse observation as to the nature of impugned donations not being in the nature of corpus donations. Therefore, these amounts having been accepted as genuine loans in A.Y. 2009-10 and having been accepted as corpus donations in the year under appeal, benefit of section 11(1)(d) cannot be denied. Addition u/s 68 - Cash Credit - Genuineness of loan - Held that - We find that assessee has brought sufficient material on record to prove that lenders have confirmed the amount of loans, which have been given through banking channel and the lenders were assessed to tax and that the loans have substantially been repaid back through banking channel. We would like to refer to various pages of the paper book relied upon by Ld. Counsel in the synopsis at page 8-9-10. We have gone through the various pages of the paper book as referred by Ld. Counsel and we are of the considered opinion that not only the identity and creditworthiness of the lenders stand proved but also the genuineness of the loans stands proved. In the present case there is no share capital involved nor is there any statement of accommodation entry having been given by any person. Therefore, addition made in the assessment order is hereby deleted in view of above mentioned factual evidences establishing the identity, capacity of the lenders and genuineness of the loans. Benefit of exemption u/s 10(23C)(iiiad) - Held that - The income of the assessee trust is exempt u/s 10(23C)(iiiad) and it is held accordingly. Income of the assessee trust is exempt u/s 10(23)(iiiad) and benefit of section 11 and 12 having been allowed.

Summary

Issues Involved:
1. Denial of benefit under sections 11 and 12 of the Income Tax Act.
2. Addition of ?1,63,00,000 on account of corpus donation.
3. Addition of ?1,61,20,000 on account of loans received.
4. Exemption under section 10(23C)(iiiad).
5. Reduction of deficit of ?88,85,091.

Detailed Analysis:

1. Denial of Benefit under Sections 11 and 12:
The appellant argued that the benefit of sections 11 and 12 should be granted since the registration under section 12AA was obtained effective from 01.04.2011. The Tribunal noted that the registration was granted after the initial refusal on technical grounds, and that the proviso to section 12A(2) should be considered retrospective as it is clarificatory in nature. The Tribunal concluded that the benefit of sections 11 and 12 should be extended to the assessee for the assessment year 2010-11, as the registration was in place when the current assessment order was passed. Thus, the Tribunal directed the AO to grant the benefit of sections 11 and 12 to the assessee.

2. Addition of ?1,63,00,000 on Account of Corpus Donation:
The AO added ?1,63,00,000 to the income of the assessee, stating that corpus donations cannot be exempt under section 11(1)(d) as the trust was not registered under section 12AA during the relevant year. The Tribunal noted that these amounts were initially loans, which were converted into corpus donations. Given the retrospective application of the proviso to section 12A(2) and the fact that the loans were accepted as genuine in the previous assessment year, the Tribunal held that these corpus donations are exempt under section 11(1)(d). The Tribunal also referenced judicial decisions supporting the non-taxability of corpus donations, even if the trust is not registered under section 12AA. Consequently, the addition was deleted.

3. Addition of ?1,61,20,000 on Account of Loans Received:
The AO added ?1,61,20,000, claiming the assessee failed to establish the ingredients of section 68. The Tribunal reviewed evidence including confirmations from lenders, bank statements, and tax returns of lenders, which established the identity, creditworthiness, and genuineness of the loans. The Tribunal found that the assessee had sufficiently proved the nature of these loans and referenced judicial decisions supporting the assessee’s case. Consequently, the addition of ?1,61,20,000 was deleted.

4. Exemption under Section 10(23C)(iiiad):
The Tribunal noted that the AO had already allowed the benefit of exemption under section 10(23C)(iiiad) in the assessment order. Therefore, the income of the assessee trust is exempt under this section.

5. Reduction of Deficit of ?88,85,091:
Since the income of the assessee trust was held to be exempt under section 10(23C)(iiiad) and the benefit of sections 11 and 12 was granted, the Tribunal found no substance in Ground No. 7 and dismissed it.

Conclusion:
The appeal filed by the assessee was partly allowed, with significant relief granted on the issues of corpus donations and loans received, and the benefit of sections 11 and 12, as well as section 10(23C)(iiiad), being affirmed.