2023 (8) TMI 1513 - AT - Income Tax

Revision u/s 263 - exemption u/s 11 wrongly allowed - donations made to Life Trust of India, ISKCON Food Relief Foundation, Population First and ApneAap Women s Collective Victoria - contribution to deserving NGOs who, even if working in collaboration with the assessee is nothing but donation and therefore, there was an error in law - donation, is not donation, but contribution in tandem with the deserving NGOs whose aims and objects matches with the objects of the trust and in collaboration with them, the said contribution was made, which the ld. CIT(E) is considering as donation, hit by the provisions of section 11(2) - HELD THAT - It is not in dispute that during the course of assessment proceedings itself, the assessee was asked to provide details of expenditure out of corpus fund, and it is also not in dispute that on perusal of the details, submitted by the assessee, the Assessing Officer found that the assessee has donated to Life Trust of India, ISKCON Food Relief Foundation, Population First and ApneAap Women s Collective - Victoria. It is also true that the assessee was asked to explain why the donations should not be disallowed in light of provisions of section 11(2) of the Act. The assessee explained that with deserving NGOs whose aims and objects that matches with objects of the trust, applies accumulated funds on the activities of the general public, utilities under the control and monitoring of the trustees. This reply of the assessee was accepted by the AO. we fail to understand any difference between contribution and donation. Admittedly, the assessee has accepted that the amounts given to above persons are donations out of the accumulated funds of the assessee. Therefore, there should not be any dispute in so far as applicability of provisions of Section 11(2) of the Act are concerned. There is no evidence brought on record by the assessee neither before the lower authorities nor before us to demonstrate how the alleged contribution was accounted for by the recipients and what treatment they have given in their books of account. Provisions of section 11(3) are very clear wherein it has been mentioned that donations given out of accumulated funds u/s 11(2) of the Act of earlier previous years are not allowable as application of income for charitable or religious purposes and the same shall be deemed to be income of the assessee. Therefore, in our considered opinion, an error has crept in the assessment order dated 27.12.2019, framed u/s 143(3) of the Act which has made the assessment order erroneous in law. Since there is a revenue leakage in so far as utilization of corpus fund of Rs. 41 lakhs, the assessment order is also prejudicial to the interest of the revenue. Thus, we do not find any error or infirmity in the assumption of jurisdiction by the CIT(E) u/s 263 of the Act. The appeal of the assessee is dismissed.

Summary

Issues:
Jurisdiction under section 263 of the Income-tax Act, 1961; Assessment order dated 27.12.2019; Barred appeal by limitation; Donations vs. Contributions; Interpretation of section 11(2) of the Act; Error in assessment order; Prejudicial to the interest of the revenue; Revenue leakage; Judicial decisions.

Analysis:

The appeal was filed against the order of the CIT(E) under section 263 of the Income-tax Act, 1961, for Assessment Year 2017-18. The main contention was the jurisdiction of the CIT(E) under section 263 and the assessment order dated 27.12.2019. The appeal was initially barred by limitation, but the delay was condoned after considering the reasons. The case records were carefully reviewed, and relevant documentary evidence was examined in light of Rule 18(6) of the ITAT Rules.

The crux of the matter revolved around whether certain donations made by the assessee to various organizations should be considered as donations or contributions. The Assessing Officer had accepted the explanation provided by the assessee during the assessment proceedings regarding these donations. However, the CIT(E) contended that the donations were not in line with the provisions of section 11(2) of the Act, which led to the assessment order being deemed erroneous and prejudicial to the interest of the revenue.

The provisions of section 11(2) of the Act were central to the dispute. The section specifies that amounts accumulated or set apart to any trust or institution shall not be treated as application of income for charitable or religious purposes if not applied. The debate centered on whether the donations made by the assessee fell under this provision. The Tribunal noted that there was no distinction between contribution and donation, and the amounts given were considered as donations from the accumulated funds of the assessee.

The Tribunal found that there was a lack of evidence to demonstrate how the alleged contributions were accounted for by the recipients. As per section 11(3) of the Act, donations given out of accumulated funds of earlier years are not allowable as application of income for charitable purposes and shall be deemed as income of the assessee. Consequently, the assessment order was deemed erroneous in law, leading to a revenue leakage and being prejudicial to the revenue's interest.

After considering all facts, the Tribunal concluded that there was no error in the CIT(E) assuming jurisdiction under section 263 of the Act. The appeal was dismissed, and the Tribunal emphasized that the judicial decisions cited by the assessee were not applicable to the current case. The order was pronounced on 17.08.2023, dismissing the appeal of the assessee in ITA No. 534/DEL/2023.