2017 (3) TMI 205 - HC - Income Tax

Application of the income for charitable purpose under section 11 - repayment of loan - Held that - In this case the appreciation of facts is based only on the evidence furnished by the assessee. It is not a case where the assessee did not disclose the identities of the persons who had given the loan and had received the repayments as claimed. The fact that the books and bank account of the assessee stood seized in the relevant period cannot be lost sight of in adjudicating whether the assessee had prima facie proved its claims. AO, however, had come to a finding that this was really transfer of trust funds to the trustees or their relatives, for their benefit, and hit by the mischief of section 13(1)(c). This was an adverse finding against the assessee. AO being an investigator and adjudicator, when coming to an adverse finding against the assessee, was required to record such finding adequately as duly supported by material and evidence taking into account that principles of preponderance of probabilities applies. He did not discharge his role of investigator by relying upon any material or evidence to support his adverse finding. We, therefore, answer the first question in the negative, in favour of the assessee. Accumulated deficit shown - Held that - We think it proper to also remand this claim to the Assessing Officer for adjudication. In that view of the matter the question need not be answered. The impugned order is accordingly set aside.

Issues Involved:

1. Whether the Tribunal was correct in reversing the CIT(A)'s order and restoring the Assessing Officer's conclusion that repayment of loan amounting to ?4,54,11,300/- did not amount to an application of income for charitable purposes under section 11 of the I.T. Act and violated section 13(1)(c) of the I.T. Act.
2. Whether the Tribunal acted perversely in finding that there was no material on record to substantiate the claim of the assessee trust that a sum of ?8,54,26,519/- was the accumulated deficit of earlier years.

Detailed Analysis:

1. Repayment of Loan as Application of Income for Charitable Purposes:

The first issue revolves around whether the repayment of a loan amounting to ?4,54,11,300/- can be considered an application of income for charitable purposes under section 11 of the Income Tax Act, 1961, and whether it violated section 13(1)(c) of the Act. The assessee, a registered charitable trust, claimed that the loan repayments were legitimate and supported by evidence such as bank statements. The Assessing Officer disallowed the claim, arguing that the repayments were effectively transfers of trust funds to trustees or their relatives, violating section 13(1)(c).

The CIT(A) found that the assessee had provided sufficient evidence to support the claim, including bank statements and loan confirmations. The CIT(A) concluded that the repayment of loans, originally taken to fulfill charitable objectives, should be treated as an application of income as per CBDT Circular no.100 dated 24th January 1973.

However, the Tribunal reversed the CIT(A)'s decision, stating that the assessee failed to provide concrete evidence of the loans' origins and their utilization for charitable activities. The Tribunal emphasized that mere assertions without evidence could not substantiate the claim.

The High Court observed that the Assessing Officer did not adequately investigate or provide material evidence to support the adverse finding against the assessee. Given that the assessee’s books and bank accounts were seized from 1980 to 2003, the High Court found that the assessee had prima facie proved its claims. The High Court answered the first question in the negative, in favor of the assessee, and remanded the claim to the Assessing Officer for fresh adjudication based on any new evidence.

2. Accumulated Deficit of Earlier Years:

The second issue concerns the Tribunal's finding that there was no material on record to substantiate the assessee's claim of an accumulated deficit of ?8,54,26,519/- from earlier years. The Assessing Officer disallowed the adjustment of the surplus against this accumulated deficit, noting that the assessee failed to provide detailed accounts and evidence.

The CIT(A) disagreed, stating that the assessee had submitted all necessary documents, including High Court orders, expense details, loan confirmations, and balance sheets. The CIT(A) referenced case law from the Rajasthan High Court and Gujarat High Court, which supported the view that deficits incurred in earlier years could be adjusted against subsequent years' income for charitable purposes.

The Tribunal, however, maintained that the assessee did not provide sufficient evidence to substantiate the accumulated deficit claim and that such a claim had not been determined in any previous assessment proceedings.

The High Court noted that the Assessing Officer did not adjudicate on the accumulated deficit claim, as pointed out by the CIT(A). Consequently, the High Court found it appropriate to remand this claim to the Assessing Officer for proper adjudication. Therefore, the second question was not answered, and the impugned order was set aside.

Conclusion:

The High Court remanded both issues to the Assessing Officer for fresh adjudication, emphasizing the need for a thorough investigation and evidence-based conclusions. The appeal and application were disposed of accordingly.

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