2023 (1) TMI 894 - AT - Income Tax

Exemption u/s 11 - addition of corpus fund donation /contribution - AR argued that the corpus donation is not taxable - HELD THAT - The assessee is not clear in its stand, whether, they received corpus donation.First, the assessee must clarify whether or not they received any such corpus donation, then if received if it is exempted under which provisions of law, particularly in absence of registration under section 12AA, which is condition precedent for seeking such exemption after amendment in section 12A by Finance Act 2007 applicable w.e.f. 01.06.2007. Thus, we do not find any merit in the stand of the assessee. The ratio of case laws relied by the ld AR for the revenue is not helpful to the assessee after the decision of Hon ble Supreme Court in U.P. Forest Corporation 2007 (11) TMI 303 - SUPREME COURT The Hon ble Apex Court clearly held that conjoint reading of section 11,12 12A makes it clear that registration under section 12A is a condition precedent for availing benefit under section 11 12. Similar view was taken by Chennai Tribunal in Veeraval Trust 2021 (7) TMI 1084 - ITAT CHENNAI holding that where assessee trust charitable trust was not registered under section 12AA, voluntary donation received by it with a specific direction to be formed part of corpus of trust would fall within the ambit of Income of trust. In the result, ground No.2 of the appeal is dismissed. Addition of unexplained unsecured loan - HELD THAT - We find that, though the assessee has proved the identity of the lenders and their capacity by filing the record of agriculturists holding, showing sufficient land holding in their names. However, the entire transaction of unsecured loan is received in cash. Not a single instance of receiving loan through banking transaction is shown to us, the assessee has shown alleged unsecured loan on daily basis. From the figure of unsecured loan ranging from Rs. 10,000/- to 19,000/- on more than 50 occasions is shown only to avoid the rigorous of section 269SS, therefore, such transaction dos not inspire our confidence, hence, we are in agreement with the submission of ld. CIT-DR for the revenue that the genuineness of transaction is doubtful. Thus, all three conditions of Section 68 are not substantiated simultaneously by the assessee. Disallowance of expenses - assessee urged that the disallowance of 10% on limited item are on higher side and may be reasonably restricted - HELD THAT - We have perused each and every item of expenses, in our view, the ld. CIT(A) after considering each and every item of expenses has already granted sufficient relief and reasonably restricted the disallowance only those expenses which are not verifiable, thus we do not find any justification for further reducing the disallowance. Thus, ground No. 4 is also dismissed.

Summary

Issues Involved:
1. Addition of Rs. 8,34,700/- towards corpus fund.
2. Addition of Rs. 17,61,257/- for unexplained unsecured loans.
3. Ad hoc disallowance of 10% of total expenses.

Detailed Analysis:

1. Addition of Rs. 8,34,700/- towards corpus fund:

The assessee argued that the addition was based on an erroneous comparison of audited balance sheets for the years ending 31/3/2012 and 31/3/2013. The correct audited balance sheet filed with the Charity Commissioner showed no increase in the corpus donation fund. The assessee contended that the corpus donation is not taxable and cited various decisions to support this claim. However, the Tribunal noted that the assessee was inconsistent in its stance regarding the receipt of corpus donations and lacked clarity in its submissions. The Tribunal upheld the addition, emphasizing that registration under Section 12AA is a condition precedent for availing benefits under Sections 11 and 12. The Tribunal cited the Supreme Court decision in U.P. Forest Corporation Vs DCIT, which reinforced the necessity of registration under Section 12A for exemption claims. Consequently, the ground of appeal was dismissed.

2. Addition of Rs. 17,61,257/- for unexplained unsecured loans:

The assessee provided details of lenders, including their PAN, land records, and confirmations. However, the Tribunal observed that all transactions were in cash, with amounts ranging from Rs. 10,000/- to Rs. 19,000/- on more than 50 occasions, raising suspicions about the genuineness of the transactions. The Tribunal agreed with the revenue's contention that the cash transactions were likely structured to avoid the provisions of Section 269SS and lacked credibility. The Tribunal concluded that the assessee failed to substantiate the creditworthiness and genuineness of the transactions, thus upholding the addition. This ground of appeal was also dismissed.

3. Ad hoc disallowance of 10% of total expenses:

The Assessing Officer made an ad hoc disallowance of 10% of total expenses, citing that most expenses were incurred in cash with self-made vouchers. The CIT(A) granted partial relief by restricting the disallowance to specific expenses that were not fully verifiable, amounting to Rs. 3,24,355/-. The Tribunal reviewed the detailed ledger accounts and bills/vouchers provided by the assessee and agreed with the CIT(A)'s assessment. The Tribunal found no justification for further reducing the disallowance, concluding that the CIT(A) had already granted sufficient relief. Consequently, this ground of appeal was dismissed.

Conclusion:

The appeal was dismissed in its entirety, with the Tribunal upholding the additions and disallowances made by the lower authorities. The order was pronounced in the open court on 16th January 2023.