2017 (11) TMI 1587 - AT - Income Tax

Correctness in granting exemption u/s.10(23C) in respect of the additions made u/s.68 - Held that - The words used in the section is any income received by any trust is exempt. Therefore, the income of the appellant trust assessed by the A.O. by making addition u/s 68 shall also qualify for exemption. This proposition of law is supported by following decisions. See Sri Krishna Educational and Social Trust Vs. ITO (2013 (2) TMI 209 - Madras High Court). Consider 10% of the donations as anonymous and tax the same u/s 115BBC - such direction is not within the powers of the Ld. CIT(A) because it amounts to assessing new source of income - Held that - Merely writing some names and their addresses, in our opinion, falls short of the legal requirement. Therefore, in our view, the names and addresses taken for verification on test check basis, goes to cast of doubt about the genuineness of the such records, name of donors, donations etc., From that point of view, considering the assessee s failure to maintain the fool-proof records on the identity of the donors, we are of the opinion that the principle of adhocism adopted by CIT(A) is the only method available in this case for taxing donations as Anonymous Donations . As such, the CIT(A) fairly restricted such charge of taxation only to 10% of the entire donations in both the years. All the verifiable identity of the donors, if any will fall in the balance 90% of the entire donors in both the years. From this point of view, we are of the opinion, order of the CIT(A) is fair and reasonable and it does not call for any interference. AO initiated the enquiry into the said donations. He also gathered the adverse evidence against the assessee from a donor named Shri Balu Shivaji Pawar vide letter dated 26.12.2012. Therefore, the counsel s argument before us regarding the creation of new source by the CIT(A) for the first time in his order of enhancement of the assessment, is not sustainable. Accordingly, the only ground raised by the assessee in both the C.O s are dismissed.

Summary

Issues Involved:
1. Exemption under section 10(23C) for additions made under section 68.
2. Disallowance of donations under section 115BBC.
3. Jurisdiction of CIT(A) in creating a new source of income.

Issue-Wise Analysis:

1. Exemption under section 10(23C) for additions made under section 68:
The primary issue raised by the Revenue was whether the CIT(A) was correct in holding that additions made under section 68 of the Income-tax Act, 1961, would be entitled to exemption under section 10(23C). The assessee, a Trust engaged in educational activities, claimed exemption under section 10(23C) r.w.s 12A. The Assessing Officer (AO) made various additions and determined the assessed income at ?1,09,79,320. The CIT(A), however, granted the benefit of exemption under section 10(23C)(v) for these additions, relying on judicial pronouncements including the Madras High Court judgment in Sri Krishna Educational and Social Trust, the Delhi High Court judgment in Raunaq Education Foundation, and the Cochin Bench of the Tribunal in ACIT vs. Muslim Education Society. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not initiated any action to revoke the exemption granted under section 10(23C)(v), and the Trust's income, including additions under section 68, qualified for exemption.

2. Disallowance of donations under section 115BBC:
The CIT(A) made a disallowance of 10% of the donations received by the Trust, invoking section 115BBC, which deals with anonymous donations. The AO had investigated the identity of donors, and some donors denied giving donations. The CIT(A) issued a notice of enhancement and treated 10% of the donations as anonymous, as the identity of these donors could not be verified. The Tribunal upheld this decision, stating that the CIT(A)'s approach of taxing 10% of the donations as anonymous was fair and reasonable, given the inability to verify the donors' identities.

3. Jurisdiction of CIT(A) in creating a new source of income:
The assessee contended that the CIT(A) exceeded his jurisdiction by creating a new source of income by taxing 10% of the donations as anonymous. The Tribunal dismissed this argument, noting that the AO had already scrutinized the issue of donors and donations during the assessment proceedings. The Tribunal found that the AO had initiated an enquiry into the donations and gathered adverse evidence, thus the CIT(A)'s action did not constitute creating a new source of income.

Conclusion:
The Tribunal dismissed both the Revenue's appeals and the assessee's cross objections for the A.Y. 2010-11 and A.Y. 2011-12. The CIT(A)'s decisions to grant exemption under section 10(23C) for additions made under section 68 and to disallow 10% of the donations as anonymous under section 115BBC were upheld. The Tribunal found no merit in the argument that the CIT(A) had created a new source of income.