2018 (8) TMI 1630 - AT - Income Tax

Additions on account of unsecured loan - Held that - As considering the fact that the Revenue has been accepting the loan creditors in the earlier years and also in the subsequent years as envisaged by the ld AR, we are of the opinion that the loan creditors have substantiated their sources in affidavits which was not disputed and was accepted by the lower authorities. - Considering the activities of the society, objects and the utilization of the funds of the society, we are of the substantive opinion that the addition in respect of three loan creditors cannot be sustained. - Additions deleted - Thus, the ground of appeal of the assessee is partly allowed.

Issues Involved:
1. Addition of unsecured loans under Section 68 of the Income Tax Act, 1961.
2. Application of Section 115BBC of the Income Tax Act, 1961.
3. Exemption under Sections 12A and 10(23C) of the Income Tax Act, 1961.
4. Utilization of funds for charitable purposes.

Detailed Analysis:

1. Addition of Unsecured Loans under Section 68:
The assessee, a registered society under the Society Act, 1860, and exempt under Sections 12A and 10(23C) of the Income Tax Act, 1961, filed its return for the assessment year 2010-11. The Assessing Officer (AO) made additions of unsecured loans totaling ?11,42,000/-, which the CIT(A) partially upheld. The assessee argued that the loans were utilized for charitable activities and provided affidavits from three creditors confirming loans totaling ?4,90,000/-. The Tribunal noted that both lower authorities did not dispute the utilization of funds for charitable purposes. Given the affidavits and the acceptance of similar loans in subsequent years, the Tribunal deleted the addition of ?4,90,000/- and sustained the remaining ?6,52,000/-.

2. Application of Section 115BBC:
The CIT(A) applied Section 115BBC, which deals with anonymous donations. The assessee contended that the identity of the loan creditors was established, making Section 115BBC inapplicable. The Tribunal did not find sufficient grounds to apply Section 115BBC, given the established identities of the creditors.

3. Exemption under Sections 12A and 10(23C):
The assessee is registered under Section 12A and approved for exemption under Section 10(23C). The AO's addition of unsecured loans did not affect the society's exempt status. The Tribunal noted that the society's activities were charitable and its registration under Section 12A was not withdrawn, thus maintaining its exemption status.

4. Utilization of Funds for Charitable Purposes:
The assessee demonstrated that the loans were used for its charitable activities across 12 units. The Tribunal observed that the funds were duly accounted for in the audited financial statements and used for purposes aligned with the society's objectives. The Tribunal emphasized that the AO and CIT(A) did not dispute the charitable utilization of the funds.

Conclusion:
The Tribunal partially allowed the appeal, deleting the addition of ?4,90,000/- based on affidavits and confirming the remaining ?6,52,000/-. The decision underscored the importance of demonstrating the identity, genuineness, and creditworthiness of loan creditors and the utilization of funds for charitable purposes. The Tribunal's reliance on judicial precedents further strengthened the assessee's position.

Order Pronounced:
The appeal was partly allowed, and the order was pronounced in the open court on 20/08/2018.

← Previous Next →