2019 (11) TMI 392 - AT - Income Tax

Addition on account of donations - whether anonymous donations are subjected to tax as per the provisions of Section 115BBC - whether the donation received by the assessee can be treated as anonymous donation? - HELD THAT - Conditions and prerequisite for addition u/s 68 and 115BBC of the Act are different. For the purpose of addition u/s 68 of the Act, the assessee has to prove the identity, genuineness and creditworthiness of the person from whom the monies had been received whereas for the purpose of Section 115BBC of the Act, the Act clearly defines that a donation can be treated as anonymous where a person receiving such contribution does not maintain the record of the identity indicating name and address. In the instant case, there is no dispute about the name and address of the parties who have given the donation. The ITRs and the letters from the donors stating that the donation has been given for the trust for conference, and towards the corpus fund. Hence, they cannot be treated as anonymous donations within the provisions of the Act liable to be taxed u/s 115BBC(1) of the Act. Disallowance of the claim of depreciation - Revenue has disallowed the claim on the grounds that the amount utilized for acquiring the assets have already been claimed and allowed u/s 11(1) - HELD THAT - Hon ble Supreme Court in the case of Rajasthan and Gujarat Charitable Foundation Pune 2017 (12) TMI 1067 - SUPREME COURT held that income of a Charitable Trust derived from building, plant and machinery and furniture was liable to be computed in normal commercial manner although the Trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, section 32 of the Income-tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the Trust is required to be computed under section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. - Decided in favour of the assessee.

Summary

Issues:
1. Whether the donations received by the assessee can be treated as anonymous donations under Section 115BBC of the Income Tax Act?
2. Whether the disallowance of the claim of depreciation by the Revenue is justified?

Analysis:

Issue 1:
The primary issue in this case revolves around determining whether the donations received by the assessee can be classified as anonymous donations under Section 115BBC of the Income Tax Act. The provisions of Section 115BBC specify that donations are considered anonymous if the recipient does not maintain records of the donor's identity and address. The Assessing Officer (AO) considered the donations as anonymous due to various discrepancies in the confirmation letters provided by the assessee. These included identical letter formats, lack of telephone numbers, incomplete bank account details, inconsistencies in signatures, and discrepancies in financial information provided. Despite the assessee's claims of transactions through bank accounts, the AO found insufficient evidence to verify the legitimacy of the donations.

The Commissioner of Income Tax (Appeals) (CIT(A)) upheld the addition of donations under Section 115BBC, emphasizing that while the requirements of Section 68 were met, the donations should be taxed under Section 115BBC due to their anonymous nature. However, the Income Tax Appellate Tribunal (ITAT) disagreed with this assessment. The ITAT observed that the donations were not truly anonymous as the donors' names and addresses were known, and the purpose of the donations was specified. Therefore, the donations did not fall under the purview of Section 115BBC, which applies to truly anonymous contributions. The ITAT concluded that the donations could not be taxed under Section 115BBC and ruled in favor of the assessee.

Issue 2:
The second issue pertains to the disallowance of the claim of depreciation by the Revenue. The Revenue contended that depreciation could not be claimed as the assets' costs had already been allowed under Section 11(1) of the Act. In addressing this issue, the ITAT referred to a Supreme Court judgment in the case of Rajasthan and Gujarat Charitable Foundation, Pune, which clarified the treatment of depreciation on assets whose costs had been treated as application of income in previous years. The Supreme Court held that depreciation could be considered a legitimate deduction under general principles or Section 11(1)(a) of the Income Tax Act, even if Section 32 specifically deals with depreciation.

Drawing from this precedent, the ITAT allowed the depreciation claimed by the assessee, emphasizing that depreciation should be permitted as a legitimate deduction in computing the assessee's real income. By aligning with the Supreme Court's ruling, the ITAT overturned the Revenue's disallowance of depreciation and ruled in favor of the assessee on this issue as well.

In conclusion, the ITAT allowed the appeal of the assessee, rejecting the addition of donations under Section 115BBC and permitting the claim of depreciation disallowed by the Revenue.

(Order Pronounced in the Open Court on 05/09/2019).