2023 (1) TMI 26 - AT - Income Tax

Addition u/s 68 - tax was levied u/s 115BBE and 115BBC of the Act on the ground that the said entities are being presently struck off record of registered companies - Registrar of companies have struck off their names and taken action for non compliance under the Companies Act, whereas the said entities are continued to be regularly assessed under the Income Tax and are recognized entities - HELD THAT - Existence of the donors are in question. The counsel for the assessee had failed to file the effective date of striking off the companies and also placed reliance on the judgment of the Hon ble Apex Court and the ITAT, Delhi, supra . As in case of Patanjali Yogpeeth 2017 (2) TMI 781 - ITAT DELHI to support the proposition that corpus donation is nature of capital receipt, which are not liable for tax as income. In the case of Hon able Apex Court 2019 (3) TMI 703 - SUPREME COURT held that Appeal proceedings can continue even in case of company whose name has been struck off from Register of Company under section 560(5) of the Companies Act, 1956. But in factual matrix both the judgments are not similar with assessee s fact. Section 68 is governed by the four necessary ingredients and one of them is existence of the party. In any case the existence of the party in question. In the companies act there are different process to restore the companies removal of strike off. The assessee was unable to produce any documents in support of their action to restore the donor-company before the judicial authority. Accordingly, the question was unanswered related to the identity of the corporate bodies to prove the existence related the transaction of assessee. We find no infirmity in the order of the ld. CIT(A). So, the addition made by the ld. AO is upheld. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Justification of additions made under Section 68 read with Sections 115BBE and 115BBC of the Income Tax Act.
2. Determination of whether the assessee discharged its onus regarding the identity, financial capability, and sources of funds of the donor companies.
3. Treatment of corpus fund donations as income under Section 2(24)(ii)(a) of the Income Tax Act.
4. Validity of the donations received from companies struck off by the Registrar of Companies (ROC).

Issue-wise Detailed Analysis:

1. Justification of Additions under Section 68 read with Sections 115BBE and 115BBC:
The assessee appealed against the addition of Rs. 8 lakhs made under Section 68 read with Sections 115BBE and 115BBC of the Income Tax Act, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The primary contention was that the donor companies were struck off by the ROC, leading to the questioning of their identity. The revenue authorities treated these entities as "Shell Companies." Despite the verification of transactions through banking channels and submission of financial statements, the ROC's action under Section 248 of the Companies Act, 2013, led to the rejection of the corporate bodies' existence.

2. Discharge of Onus by the Assessee:
The assessee argued that it had provided all necessary documents, including PAN details, bank statements, and income tax returns of the donor companies, to prove the genuineness of the transactions. However, the CIT(A) and the Assessing Officer (AO) found that mere filing of paper evidence did not establish the genuineness of the donations, especially since the companies were struck off. The CIT(A) emphasized that the corporate entities' existence was in question, and the assessee failed to establish any relationship between the donor companies and itself.

3. Treatment of Corpus Fund Donations as Income:
The assessee contended that the corpus fund donations should be treated as capital receipts and not income, citing the ITAT Delhi Bench's decision in Patanjali Yogpeeth vs. Addl. CIT. However, the CIT(A) and AO treated the donations as income under Section 2(24)(ii)(a) of the Income Tax Act. The CIT(A) noted that the judicial decisions cited by the assessee were not applicable due to differences in the factual matrix, and the donations' genuineness was not established.

4. Validity of Donations from Struck-off Companies:
The CIT(A) and AO highlighted that the donor companies were struck off by the ROC, questioning their existence. Under Section 248 of the Companies Act, 2013, a company's name can be removed from the register if it fails to commence business or is not carrying on any business for two consecutive financial years. The assessee failed to provide the effective date of the companies being struck off or any action taken to restore the companies. The CIT(A) upheld the addition made by the AO, concluding that the assessee could not prove the identity of the corporate bodies related to the transactions.

Conclusion:
The Tribunal dismissed the assessee's appeal, upholding the CIT(A)'s order and the AO's addition of Rs. 8 lakhs. The Tribunal found no infirmity in the CIT(A)'s decision, emphasizing the necessity of proving the existence of the donor companies, which the assessee failed to do. The addition made under Section 68 read with Sections 115BBE and 115BBC was thus upheld. The appeal was dismissed, and the order was pronounced in the open court on 20.12.2022.