2021 (9) TMI 883 - AT - Income Tax

Exemption u/s 11 - addition of the Corpus Donation and considering that the same was not for specific purposes and was a revenue receipt - registration under section 12A was not available at the time of assessment proceedings - HELD THAT - It is an admitted fact that the A.O. disallowed the claim of the assessee for the reasons that the assessee did not furnish the evidence relating to the registration under section 12AA - He also mentioned that he had not examined the details and also did not call for specifically the same, in the absence of registration under section 12AA. In the present case, CIT(A) pointed out that the assessee had not furnished the confirmation of donors regarding donation for specific purpose. On the contrary the claim of Assessee was that the details were furnished before the A.O. and the assessee was having the registration under section 12AA - therefore we deem it appropriate to remand this issue back to the file of the A.O. to be adjudicated afresh in accordance with law after providing due and reasonable of being heard to the assessee. Amount spent on construction of the capital funds claimed to be application of receipts which was not allowed - HELD THAT - In the present case it is an admitted fact that the assessee reduced the amount of the assessee's paper book and if the assessee had not reduced the said amount then it could have been shown separately on the asset side and the capital funds was to be increased by the same amount. Objection of the Department that the assessee was not having any land, the Ld. CIT(A) mentioned that the assessee has filed a copy of certificate mentioning therein that the land being used by school belonged to the society Hindu Shiksha Samiti, Haryana and the land and building thereon will devolve to the Hindu Shiksha Samiti without any payment on closure of the school which clearly shows that the assessee was the owner of the building till the closure of the school and the said building would be handed over to Hindu Shiksha Samiti without any payment only on closure of school. This fact was not appreciated either by the A.O. or by the Ld. CIT(A) - We deem it appropriate to set aside this issue back to the file of the A.O. for proper verification. Appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Classification of corpus donation and specific funds as revenue receipts.
2. Entitlement to exemption under section 10(23C)(iiiad) and section 12AA.
3. Allowance of amount spent on construction as application of receipts.

Issue-wise Detailed Analysis:

1. Classification of Corpus Donation and Specific Funds as Revenue Receipts:
The primary issue was whether the corpus donation of ?17,57,837 and specific funds of ?2,61,838 should be treated as revenue receipts. The assessee argued that these amounts were meant for specific purposes and should not be considered as revenue receipts. However, the Assessing Officer (A.O.) deemed these funds as recurring in nature and thus categorized them as revenue receipts, requiring them to be routed through the Income & Expenditure Account. The A.O. also noted that the corpus donation was not explicitly mentioned in the balance sheet and lacked specific directions from donors, leading to its disallowance.

2. Entitlement to Exemption under Section 10(23C)(iiiad) and Section 12AA:
The assessee contended that the corpus donations and specific funds should not be included in the revenue receipts for the purpose of determining eligibility under section 10(23C)(iiiad). The A.O. disallowed the claim due to the absence of registration under section 12AA during the assessment proceedings. However, the CIT(A) acknowledged the subsequent registration under section 12AA but upheld the A.O.'s decision, stating that the total receipts exceeded ?1 crore, disqualifying the assessee from exemption under section 10(23C)(iiiad). The CIT(A) also noted the lack of donor confirmations for the corpus donations.

3. Allowance of Amount Spent on Construction as Application of Receipts:
The assessee claimed an expenditure of ?18,29,342 towards the construction of a school building, asserting it as an application of receipts. The CIT(A) rejected this claim, observing that the building was not part of the fixed assets and the land and building belonged to Hindu Shiksha Samiti, Haryana. The CIT(A) concluded that the expenditure on the building did not qualify as an application of funds for the school.

Judgment:
The Tribunal found merit in the assessee's arguments and remanded the issues back to the A.O. for fresh adjudication. The Tribunal emphasized the need for proper verification of the corpus donations, specific funds, and the application of construction expenses. The A.O. was directed to reconsider these issues in light of the registration under section 12AA and provide the assessee with a reasonable opportunity to present their case.

Conclusion:
The appeal was allowed for statistical purposes, with instructions for the A.O. to re-evaluate the classification of corpus donations and specific funds, the entitlement to exemptions, and the allowance of construction expenses, ensuring compliance with the relevant legal provisions and principles of natural justice.

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