2020 (4) TMI 735 - AT - Income Tax

Exemption u/s 11 - corpus fund received - AO noted that all the persons denied having given any donation to the assessee thus addition proposed u/s 68 - HELD THAT - Assessing Officer accepted the genuineness of the transactions in respect of seven persons out of the said 17 persons from whom loan was received - evidences produced in respect of 6 persons as detailed at S.Nos. 3,5,7, 8, 12 14 . The Ld. DR could not point out any discrepancy in the findings of the CIT(A) on this issue. The observations made by the Tribunal in the circumstances of the case of the assessee in respect of some of the unexplained corpus donations can not be applied in respect of unexplained loans. In a loan case, the assessee has to establish beyond reasonable doubt the identity and creditworthiness of the creditor and genuineness of the transaction. Application of income does not change the character of receipt. If the receipt is not from the property held for charitable purposes, the same will not be eligible for exemption u/s 11, irrespective of its application for charitable purposes or otherwise. In view of this, the addition made by the Assessing Officer in respect of alleged loans received from remaining four persons at Serial No. 2, 6, 10 and 16 as given on the chart forming part of the order of CIT(A) amounting to ₹ 85,88,616/- is confirmed. Revenue's Ground is partly allowed.

Summary

Issues Involved:

1. Deletion of additions amounting to ?9,10,37,838/- by the CIT(A).
2. Deletion of addition amounting to ?3,21,33,538/- on account of unexplained unsecured loans.
3. Deletion of addition amounting to ?5,89,04,300/- of unexplained corpus fund.
4. Acceptance of assessee's plea regarding corpus donation and unsecured loans affecting taxability.

Detailed Analysis:

Issue 1: Deletion of Additions Amounting to ?9,10,37,838/- by the CIT(A)

The first ground of appeal by the Revenue was general in nature, contesting the action of the CIT(A) in deleting the total addition of ?9,10,37,838/- made by the Assessing Officer (AO). As this total addition was separately contested under grounds 2 and 3, it did not need separate adjudication.

Issue 2: Deletion of Addition Amounting to ?3,21,33,538/- on Account of Unexplained Unsecured Loans

The CIT(A) discussed the issue in detail. The AO had noted that the assessee raised unexplained loans amounting to ?6,76,12,313/- from several individuals. Upon providing identity, ITRs, and bank statements for some lenders, the AO was not satisfied with the details of 17 persons, leading to an addition of ?6,76,12,313/- as income from undisclosed sources.

During the appeal, the assessee furnished additional evidence, prompting a remand report from the AO. The CIT(A) noted that the AO accepted the genuineness of transactions for seven persons totaling ?2,41,89,776/-. For the remaining 10 creditors, the CIT(A) found sufficient evidence for six persons totaling ?3,48,33,922/- but not for four creditors totaling ?85,88,616/-.

The CIT(A) deleted the addition of ?5,90,23,698/- (?6,76,12,314 - ?85,88,616) but upheld the addition for the unexplained loans from the four creditors. The Tribunal found no discrepancy in the CIT(A)'s findings and dismissed Ground No. 2 of the appeal.

Issue 3: Deletion of Addition Amounting to ?5,89,04,300/- of Unexplained Corpus Fund

The AO observed that the assessee showed ?5,89,04,330/- as a Corpus Fund received during the year but failed to provide complete details for verification. The AO made an addition of ?5,89,04,300/- as deemed income under Section 68 of the Act.

The CIT(A) deleted the addition, relying on a previous Tribunal decision in the assessee's case for AY 2010-11. The Tribunal had held that the AO could not make additions based on sample transactions and that the assessee had provided sufficient evidence for the corpus donations.

The CIT(A) noted that for the year under consideration, the assessee submitted a list of corpus donors with names and addresses, and an amount of ?2.48 crores was received through cheques. The Tribunal found no distinguishing facts or propositions of law to justify interference with the CIT(A)'s findings and dismissed Ground No. 3 of the appeal.

Issue 4: Acceptance of Assessee's Plea Regarding Corpus Donation and Unsecured Loans Affecting Taxability

The CIT(A) observed that even if the loans received from the remaining four persons were treated as unexplained income and added under Section 68, the application of income for charitable purposes would still exceed 85% of the revenue receipts, making it exempt from taxation. The CIT(A) relied on a previous Tribunal decision in the assessee's case.

However, the Tribunal disagreed with this finding, stating that the application of income does not change the character of the receipt. If the receipt is not from the property held for charitable purposes, it is not eligible for exemption under Section 11, irrespective of its application. The Tribunal confirmed the addition of ?85,88,616/- for the unexplained loans from the four creditors and partly allowed Ground No. 4.

Conclusion:

The appeal of the Revenue was partly allowed, with the Tribunal confirming the addition of ?85,88,616/- for unexplained loans but dismissing the other grounds of appeal. The order was pronounced in the Open Court on 29.01.2020.