2021 (10) TMI 1101 - AT - Income Tax

Assessment of trust - special fund received through donation treated as revenue receipt - Rectification of mistake u/s 154 - to consider expenditure for running of the trust but the Assessing Officer has left out the same and proceeded to consider the donations partly for specific purpose and others not for the specific purpose - HELD THAT - As the amount of donation has been given for the specific purpose. Assessing Officer has bifurcated three donations as specific purpose and left out other donations not being specific purpose without giving any reason. The donations are being specific purpose and being capital receipts are not coming within the ambit of definition of income as defined under section 2(24)(ii). It being a capital receipts, there is no necessity of routing through income and expenditure account, as claimed by the AO - some donations have been received for the special project undertaken by the trust and, therefore, same cannot be treated as revenue receipt. It is not the case that the assessee trust has not disclosed the donation and have not accounted for. The amount received clearly demonstrates for the purpose of various project development and building construction. In view of above, I am of the considered view that the amount received by the assessee trust for specific direction to use the same for different project undertaken by the assessee and is entitled for deduction u/s. 11 - decisions relied by assessee, support the case of the assessee, wherein, the corpus funds received by the trust are considered as capital receipts, not includible in income of the trust. - Decided in favour of the assessee.

Issues Involved:

1. Ex parte order passed by CIT(A) during COVID-19 lockdown.
2. CIT(A) passing order without calling for documents submitted in original proceedings.
3. CIT(A) not adjudicating the legal ground raised by the assessee.
4. AO treating specific fund as general fund and considering it as revenue receipt.

Issue-wise Detailed Analysis:

1. Ex parte order passed by CIT(A) during COVID-19 lockdown:

The assessee contended that the CIT(A) erred in passing an ex parte order on 20.4.2021 when the area was under lockdown due to COVID-19. This action was deemed against the principles of natural justice as it did not provide a proper opportunity for the assessee to be heard. The Tribunal acknowledged this procedural lapse, emphasizing the importance of fair hearing, especially under extraordinary circumstances like a pandemic.

2. CIT(A) passing order without calling for documents submitted in original proceedings:

The assessee argued that the CIT(A) passed the order without verifying documents submitted during the original proceedings. The Tribunal found merit in this argument, noting that the CIT(A) should have reviewed all relevant documents before making a decision. The absence of such verification rendered the order unjustified.

3. CIT(A) not adjudicating the legal ground raised by the assessee:

The assessee claimed that the CIT(A) failed to judiciously adjudicate the legal grounds raised. The Tribunal observed that the CIT(A) did not properly address the legal arguments presented by the assessee, which included the nature of the special fund and its treatment under the Income Tax Act. This oversight further weakened the CIT(A)'s order.

4. AO treating specific fund as general fund and considering it as revenue receipt:

The primary substantive issue was the AO's treatment of the special fund as a general fund, thereby considering it as revenue receipt. The assessee, a trust, argued that the special fund received from various donors was meant for specific purposes and should be treated as capital receipts, not revenue receipts. The Tribunal examined the details of the donations, noting that many were for specific projects such as renovation, construction, and project support.

The Tribunal found that the AO had arbitrarily bifurcated the donations, treating some as specific purpose and others not, without providing a rationale. The Tribunal held that donations for specific purposes are capital receipts and do not fall under the definition of income as per section 2(24)(ii) of the Income Tax Act. Consequently, these donations need not be routed through the income and expenditure account. The Tribunal also cited various judicial precedents supporting the treatment of such donations as capital receipts.

Conclusion:

The Tribunal concluded that the donations received by the assessee trust for specific purposes are capital receipts and not includible in the income of the trust. The appeal was allowed, and the AO was directed to delete the disallowance of ?1,64,44,237/-. The Tribunal's order emphasized adherence to principles of natural justice and proper verification of documents, alongside a substantive legal analysis of the nature of the funds received.

Order Pronounced:

The appeal of the assessee was allowed, and the order was pronounced on 20/10/2021.

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