2019 (12) TMI 261 - AT - Income Tax

Addition u/s 68 - Corpus donation received from 54 members on the ground that the assessee was unable to file any confirmation of any of the parties - CIT(A) rejected the additional evidences filed before him in shape of affidavits of all members giving corpus donation - HELD THAT - Addition on account of advances given to six parties it is an admitted fact that the assessee had filed the copy of confirmation and the bank statement of the assessee. It was also submitted before the AO that the advances were returned back in the subsequent year. However, in absence of copy of the bank account of the relevant period, the AO did not accept the same. Before the CIT(A), the assessee had filed all the details and the CIT(A) had called for a remand report from the AO. The availability of funds with the assessee to the tune of ₹ 53 lakhs is not in dispute. It is also not the case of the Revenue that there is any misappropriation of funds since had there been any misappropriation of funds, the AO would have disallowed the claim of exemption u/s 11/12 and 12A which has not been done in the instant case. Addition made by the AO and sustained by the CIT(A) is not justified. However, since the allegation of the AO is that the assessee had not given any bank statement of the subsequent year to substantiate that the amount had been refunded back, therefore, we restore the issue to the file of the Assessing Officer with a direction to verify the bank account of the assessee of the subsequent year and once the assessee proves that the amounts were, in fact, returned by those parties in subsequent year, the Assessing Officer is directed to delete the addition. So far as the decision relied on by the ld.CIT(A) in the case of CIT vs. Shree P. Subramoniam Religious Trust 2008 (12) TMI 374 - KERALA HIGH COURT is concerned, the same, in our opinion, is not applicable to the facts of the present case since, in that case, the Hon'ble High Court has observed that the advance is only siphoning off funds and even after a gap of 5-6 years of expiry of the assessment year when the appeal was heard before the CIT(A), it was not proved that the advances so made were utilized for the purpose for which it was advanced. In the instant case, the advances which were given for purchase of plot for construction purpose were returned back immediately in the subsequent year and, therefore, the decision relied on by the CIT(A) is distinguishable and not applicable to the facts of the present case. The ground of appeal No.2 and 3 filed by the assessee are accordingly allowed for statistical purposes. Addition being corpus donation received from the members of the society are concerned, we find the Assessing Officer disallowed the same on the ground that the assessee did not file any confirmation from the said persons. We find the ld.CIT(A) did not accept the additional evidences in the shape of affidavits filed before him and sustained the addition so made by the Assessing Officer. We find merit in the submission of the ld. counsel for the assessee that corpus donation from members cannot be treated as income of the assessee. However, the same needs to be substantiated in the shape of confirmations from the member donors of the society. We, therefore, restore this issue to the file of the Assessing Officer with a direction to grant opportunity to the assessee to file the confirmations of the said donors and, in case the assessee is able to furnish the confirmations of the donors, the Assessing Officer shall consider the allowability of the same as per law. We hold and direct accordingly.

Summary

Issues Involved:
1. Addition of ?13,53,600/- on account of corpus donation.
2. Addition of ?53,00,000/- on account of advances given.
3. Rejection of additional evidence under Rule 46A.
4. Initiation of penalty proceedings under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Addition of ?13,53,600/- on account of corpus donation:
The Assessing Officer (AO) observed that the assessee, a society running a school, introduced corpus donation of ?13,53,600/- in its balance sheet but failed to provide documentary evidence such as confirmations from donors. Consequently, the AO added this amount to the total income. On appeal, the CIT(A) upheld this addition, rejecting additional evidence filed by the assessee under Rule 46A of the Income-tax Rules, 1962. However, the Tribunal found merit in the assessee's argument that corpus donations from members should not be treated as income but noted that proper confirmations were necessary. The Tribunal restored the issue to the AO to allow the assessee to file confirmations from the donors and directed the AO to reconsider the allowability based on this evidence.

2. Addition of ?53,00,000/- on account of advances given:
The AO noted that the assessee had shown loans and advances totaling ?60 lakhs, out of which ?53 lakhs were given to non-employee parties without proper justification or written agreements. The AO added this amount to the total income, suspecting misappropriation of funds. The CIT(A) upheld this addition, citing the lack of evidence for the purpose of the loans and referring to the Kerala High Court decision in CIT vs. Shree P. Subramoniam Religious Trust (2009) which dealt with similar issues. The Tribunal, however, found that the assessee had filed confirmations and bank statements indicating that the advances were returned in the subsequent year. The Tribunal restored the issue to the AO to verify these bank statements and directed that if the amounts were indeed returned, the addition should be deleted.

3. Rejection of additional evidence under Rule 46A:
The CIT(A) rejected the additional evidence filed by the assessee under Rule 46A, which included confirmations from donors and details of advances. The Tribunal noted that the CIT(A) had called for a remand report from the AO but still did not admit the additional evidence. The Tribunal found this rejection unjustified and restored the issues to the AO to reconsider the additional evidence.

4. Initiation of penalty proceedings under section 271(1)(c):
The CIT(A) dismissed the ground of appeal related to the initiation of penalty proceedings under section 271(1)(c), stating that an appeal lies only against an order levying penalty, not against its initiation. The Tribunal did not provide a separate analysis for this issue, implying agreement with the CIT(A)'s position.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO to verify the bank statements for the advances and to consider the confirmations for corpus donations. The decision emphasizes the necessity of proper documentation and substantiation for financial transactions to avoid additions to income.