2022 (4) TMI 1405 - AT - Income Tax

Exemption u/s 11 - Corpus donation receipts - A.O. had treated the donations received for building fund as a revenue receipt by holding that the rent have been accounted in the guise of donation - whether corpus donations for building fund is a capital receipt and cannot be brought to taxHELD THAT - AO has not disclosed any documents to show that the hall rent have been accounted for in the guise of donation and how he arrived that there is direct nexus between the hall rent and the donations. The donors of the building fund are entirely different from booking of hall rent. AO summarily dismissed the books of account, which depict all the donation entries. AO after making local enquiries, came to an assumed conclusion that such donations were in the nature of revenue receipts. On confronted for the alleged local enquiry details to be examined by the assessee, the AO failed to furnish such local enquiry details nor during the appellate proceedings, the details were parted with the assessee. Therefore, in the context of the above, the assessee was deprived of all principles of natural justice and additions were made behind the back of the assessee. Statement of AO in the assessment order that AR has admitted that one has to make compulsory donation while taking hall on hire was denied by the AR and the same is made clear in the written submission filed before the CIT(A). Therefore, in the interest of justice and equity, we are of the view that the matter needs to be examined afresh by the AO. AO is directed to come out with the details how he has come to the conclusion that the hall rents have been accounted in the guise of donation. The assessee is directed to cooperate with the AO and furnish the necessary documents for expeditious conclusion of the assessment. Appeal filed by the assessee is allowed for statistical purposes

Summary

Issues:
- Appeal against CIT(A) orders for assessment years 2009-2010, 2010-2011, and 2011-2012.
- Treatment of corpus donations as revenue receipts.
- Violation of principles of natural justice in assessment proceedings.
- Applicability of Proviso to Section 2(15) of the Income-tax Act.

Analysis:
1. Treatment of Corpus Donations: The assessee, a trust recognized under section 12AA of the Income Tax Act, declared a loss for the assessment year 2009-2010. The AO treated the corpus donations towards a building fund as revenue receipts, alleging that the activities of letting out halls were accounted for as donations. The CIT(A) upheld this treatment, stating a lack of credible evidence that the amounts collected were used for charitable purposes. However, the ITAT held that corpus donations for the building fund should be considered capital receipts and not taxable. Citing precedents, the ITAT emphasized the need for specific directions for voluntary contributions, which need not be in writing. The ITAT directed the AO to reexamine the matter, emphasizing the importance of establishing a direct nexus between hall rents and donations.

2. Violation of Principles of Natural Justice: The ITAT noted that the AO's conclusions lacked proper documentation and failed to provide details of local enquiries or evidence linking hall rents to donations. This lack of transparency deprived the assessee of natural justice principles. The ITAT directed the AO to furnish details supporting the conclusion that hall rents were treated as donations and instructed the assessee to cooperate for a fair assessment process.

3. Proviso to Section 2(15) Applicability: The ITAT highlighted that the AO's treatment of donations as revenue receipts was not adequately supported by evidence. The ITAT also noted discrepancies in the AO's claims regarding compulsory donations for hall rentals. In light of these issues, the ITAT allowed the assessee's appeal for the assessment year 2009-2010 and remitted similar appeals for subsequent years to the AO for fresh consideration, emphasizing adherence to the Tribunal's directions.

In conclusion, the ITAT's judgment focused on the correct classification of corpus donations, ensuring procedural fairness in assessment proceedings, and scrutinizing the application of relevant tax provisions. The ITAT's decisions aimed to uphold the principles of natural justice and fair tax treatment for the assessee, emphasizing the need for clear evidence and proper assessment procedures.