2021 (7) TMI 248 - AT - Income Tax

Exemption u/s.10(23) denied - anonymous donations received by any assessee or entity u/s.115BBC - HELD THAT - Since the assessee trust is enjoining registration u/s.12A as well as u/s.80G(vi) of the Act, which entitles the trust exempt from tax u/s.11 to 13 of the Act and also benefit of Section 10(23). Books of accounts including ledger shows entry of receipt of donations and counter entry of cancellations of transactions on the very same date and all original receipts along with counterfoil are also available with the trust in its record and original photocopy of which have been placed on record. If any decision has been taken by the trust in the interest of students dropping its idea of receiving donations from the weaker section of the society living in the tribal area and consequently entries were made neutralizing and nullifying the transaction of receipt of the donation, then it has to be presumed that no amount was received by the trust and entries made in the books of accounts and availability of the original receipts alongwith counterfoil also supports the explanation and stand of the assessee. I As during the course of hearing a specific query by the bench, ld. DR in all fairness accepted that neither the AO nor the CIT(A) has made any exercise to verify from the so-called donors as to whether they actually gave any donation to the assessee trust or not. When the assessee trust is submitting all the receipts, relevant books of accounts and documentary evidence before the revenue authorities and without verifying the same objectively selecting some entries and leaving aside the other entries and documentary evidence even without verifying the actual receipt of donation from the so-called donors, if the revenue authorities proceeds to make any addition treating the same as anonymous u/s.115BBC of the Act, then have no hesitation to hold that the addition made is without any basis and keeping aside the sound principles of tax jurisprudence, the same cannot be held as sustainable - Appeal of the assessee are allowed and the AO is directed to delete the addition.

Summary

Issues:
Appeal against order dated 30.08.2019 passed by CIT(A) for assessment year 2011-2012. Addition of donation amount under Section 115BBC of the Income Tax Act. Verification of donation receipts and cancellation entries. Exemption under Section 12A and Section 80G(vi) of the Act. Failure to verify donations with donors. Legality and arbitrariness of assessment.

Analysis:
The appeal was filed by the assessee against the CIT(A)'s order regarding the addition of a donation amount under Section 115BBC of the Income Tax Act. The assessee, an educational trust, derived income from an institution providing industrial training. The AO found discrepancies in donation entries in the books of accounts, leading to the addition of the amount as anonymous donation income. The CIT(A) upheld this decision, stating that the donations were from undisclosed sources. The assessee contended that the donation entries were reversed immediately after being made due to concerns about students' financial hardships. The assessee provided canceled donation receipts and argued that no actual donation was received. The tribunal noted that the trust held registrations under Section 12A and Section 80G(vi) of the Act, entitling tax exemptions. The tribunal found that the entries of donations and cancellations on the same day, along with original receipts, supported the assessee's explanation. It was observed that the revenue authorities failed to verify donations with donors. The tribunal held that without establishing actual receipt of anonymous donations, the addition made under Section 115BBC lacked basis and was unsustainable. Consequently, the tribunal allowed the appeal, directing the deletion of the addition.

This judgment highlights the importance of thorough verification and objective assessment by revenue authorities in tax matters. It emphasizes the need to consider all relevant evidence and entries in books of accounts before making additions to income. The tribunal stressed the significance of establishing actual receipts, especially in cases of anonymous donations, to ensure the legality and sustainability of tax assessments. The decision also underscores the entitlement to tax exemptions under specific sections of the Income Tax Act for eligible entities, such as trusts with proper registrations. In this case, the tribunal found in favor of the assessee due to the lack of verification of donations and the presence of supporting evidence contradicting the addition made by the revenue authorities.