2012 (9) TMI 843 - HC - Income Tax

Capital expenditure incurred out of anonymous donation - ITAT grant the benefit of exemption to undisclosed income to the assessee - Held that - The donations received by the assessee are not anonymous donations. The details in respect of the name and address are available in possession of the AO in the form of the name and address are available in possession of the AO in the form of donation receipts, which were impounded in the course of survey - The discrepancy in respect of the amount of Rs.2,49,000/- has occurred on account of computer malfunctioning, but the details as above are available in the donation receipts. Therefore, no donation can be said to be anonymous. The income tax authorities were not right in holding that the amount received by the assessee as donations was not anonymous donations within the meaning of Section 11(3) because the receipts issued by the assessee trust were still in the custody of the department as the receipt books were impounded in the course of the survey and no confirmations were required to be filed by the assessee. In these circumstances the Tribunal held that Section 68 cannot be applied as the amount has already been shown by the assessee as income - no substantial question of law arises out of the order of the Tribunal - in favour of assessee.

Summary

Issues:
1. Grant of benefit of application of income in respect of capital expenditure incurred from anonymous donation.
2. Grant of benefit of exemption to undisclosed income of the assessee.

Analysis:
1. The first issue revolves around the capital expenditure of Rs.14,53,112 incurred from an anonymous donation received by the assessee. The Income Tax Appellate Tribunal allowed the deduction under section 11(1)(a) for the expenditure on purchase of capital assets. The Tribunal held that the expenditure should be allowed as an application of income, despite the revenue's argument that the provision of section 13(7) prohibits such deduction in case of anonymous donations. The Tribunal concluded that the donations received were not anonymous as the details were available with the assessing officer. The Tribunal also rejected the revenue's claim that the amounts were taxable under section 68, relying on previous tribunal decisions. Consequently, the High Court upheld the Tribunal's decision, dismissing the revenue's appeal.

2. The second issue pertains to the benefit of exemption given to the undisclosed income of the assessee. The Tribunal found that the income tax authorities were incorrect in treating the donations received as anonymous donations under Section 11(3) of the Act. The Tribunal held that since the receipts issued by the assessee were in the custody of the department, Section 68 could not be applied. The Tribunal referred to a previous judgment to support its decision. The High Court noted that accepting the revenue's appeal would subject the assessee to income tax, but the capital expenditure would still have to be allowed as a deduction. As the donations were not assessable as income under Section 68, the Court found no substantial question of law arising from the Tribunal's order and dismissed the appeal.

In conclusion, the High Court upheld the Tribunal's decision in both issues, emphasizing that the capital expenditure should be allowed as an application of income and the donations could not be treated as income under Section 68 due to the availability of details with the assessing officer.