2024 (10) TMI 71 - AT - Income Tax

Denial of exemption u/s 10(23C)(iiiad) - Addition of unexplained cash credit u/s 69A - HELD THAT - It is also observed that the assessee is granted registration u/s.12AA with effect from 23-02-2019 (i.e. A.Y. 2019-20), wherein the activities mentioned are Relief of the poor, Education, Medical Relief which indicates that the trust is not exclusively engaged in the education. AO has treated the status of the assessee as an Association of Persons (AOP) for the relevant assessment year, due to the lack of registration u/s 12A of the Act. The taxability of income arising from cash deposits in the bank account of the trust, in this context, becomes a crucial matter. In the absence of a valid registration u/s 12AA, the income of the trust is not eligible for exemption under Chapter III of the Act and, therefore, must be considered taxable. Assessee s contention that the cash deposits in the trust's bank account relate to hostel receipts attributable to third parties (i.e., the owners of Ideal Hostel and Naman Hostel) has not been adequately substantiated through documentary evidence or a formal agreement establishing the relationship between the trust and the hostel owners. In the absence of such documentation, the income relating to the cash deposits in the trust s account should be considered in the hands of the assessee, i.e., the trust, as per the provisions of the Income Tax Act. As imperative that the CIT(A) to re-examine the classification of the trust as an AOP and the tax implications arising from this classification. In particular, CIT(A) must ensure that any income deposited in the trust's account that is not backed by documentary evidence supporting its attribution to third parties is appropriately taxed in the hands of the trust. In conclusion, the order of the CIT(A) is set aside and the matter is remitted back for fresh adjudication in accordance with the law. CIT(A) shall pass a reasoned order after considering all facts, evidence, and submissions made by the assessee. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Denial of exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961.
2. Addition of Rs. 15,12,601/- as unexplained cash credit under Section 69A of the Income Tax Act, 1961.

Detailed Analysis:

1. Denial of Exemption under Section 10(23C)(iiiad):

Background:
The assessee, a charitable trust registered under the Bombay Public Trust Act, 1950, and primarily engaged in providing education, did not file the original return of income for AY 2011-12. The trust later filed its return in response to a notice under Section 148 of the Income Tax Act, 1961, declaring a total income of Rs. 21,530/-.

Assessee's Argument:
The assessee contended that it complied with all conditions under Section 10(23C)(iiiad) and should be granted the exemption.

Tribunal's Observation:
The Ld.CIT(A) did not adjudicate this ground, deeming it general and alternative in nature. The Tribunal noted that the assessee was granted registration under Section 12AA effective from AY 2019-20, indicating activities beyond education, which might affect the exemption eligibility.

Tribunal's Direction:
The Tribunal remitted the matter back to the Ld.CIT(A) for fresh adjudication, instructing a thorough verification of the trust's compliance with Section 10(23C)(iiiad) conditions.

2. Addition of Rs. 15,12,601/- as Unexplained Cash Credit under Section 69A:

Background:
The AO observed discrepancies in the assessee's bank deposits, leading to an addition of Rs. 15,12,601/- as unexplained cash credit under Section 69A.

Details of Discrepancies:
- Advance Fees of Rs. 10,46,141/-: Not reflected in the balance sheets of Ideal School or Ideal Hostel.
- Interest Income of Rs. 28,353/-: Not disclosed in the income for the year.
- Fixed Deposit Claim of Rs. 4,00,000/-: No supporting evidence or reflection in balance sheets.
- Cash Deposit of Rs. 38,107/-: No documentary evidence for redeposit of previously withdrawn cash.

Assessee's Explanation:
The assessee claimed the discrepancies were due to advance fees, interest income, fixed deposits, and redeposits, and provided some supporting documents. However, the explanations were deemed insufficient.

Ld.CIT(A)'s Decision:
The Ld.CIT(A) confirmed the addition of Rs. 15,12,601/- but deleted an additional Rs. 36,97,744/- related to hostel fees, as this income was reflected in the returns of the hostel owners.

Tribunal's Observation:
The Tribunal noted incomplete financial statements and insufficient explanations. It emphasized the need for clear documentation and relationships between the trust and hostel owners.

Tribunal's Direction:
The Tribunal remitted the matter back to the Ld.CIT(A) for fresh adjudication with specific instructions:
1. Re-examine the source and nature of cash deposits.
2. Verify the relationship between the trust and hostel owners.
3. Ensure adequate opportunity for the assessee to provide relevant documents and explanations.

Conclusion:
The Tribunal set aside the Ld.CIT(A)'s order and remitted the matter for fresh adjudication, emphasizing thorough verification of the exemption claim under Section 10(23C)(iiiad) and the nature of unexplained cash credits. The appeal was treated as allowed for statistical purposes.