2023 (10) TMI 1055 - AT - Income Tax

Assessment of trust - Unexplained expenditure incurred u/s 69C - excess income applied - Assessee prays that excess expenditure is from out of previous surplus balance and 15% balance accumulation as per section 11 and 12 - HELD THAT - It is pertinent to note that the Current Liabilities mentioned in the annexure-5/schedule of the audited balance sheet of the assessee trust clearly mentioned the name of the said two parties. Thus, the observation of the CIT(A) that the said parties are not mentioned in balance sheet in respect of the borrowing is not correct. Besides this, the assessee trust has also given the details of statement of return of income as well as confirmation of those parties where it appears that the creditworthiness and genuineness has been established by the assessee trust CIT(A) has totally ignored these evidences. Therefore, the addition confirmed by the CIT(A) as relates to Section 69C does not survive. The appeal of the assessee trust is allowed.

Summary

Issues:
The appeal involves the confirmation of excess income applied as unexplained expenditure under Section 69C of the Act and the treatment of excess expenditure from previous surplus balance under sections 11 and 12 of the Act.

Confirmation of Excess Income as Unexplained Expenditure:
The appellant, a public trust registered under the Bombay Public Trust Act and the Income Tax Act, filed an appeal against the order passed by the National Faceless Appeal Centre for the assessment year 2016-17. The Assessing Officer made an addition of Rs. 28,25,819/- as unexplained expenditure under Section 69C of the Act, based on discrepancies in the educational expenses claimed by the trust. The CIT(A) partly allowed the appeal, leading to further submissions by both parties.

Treatment of Excess Expenditure from Previous Surplus Balance:
During the appellate proceedings, the appellant trust provided necessary documents and submissions regarding the source of the excess application. The appellant argued that the addition under Section 69C was unwarranted as the expenses were duly recorded in the books of accounts and matched accordingly. Citing relevant case law, the appellant demonstrated that the borrowed funds from two individuals were genuine and creditworthy, as evidenced by ledger accounts, confirmations, and acknowledgments. The appellant contended that the CIT(A) erred in confirming the addition, emphasizing the presence of the borrowed amounts in the audited Balance Sheet.

Decision and Reasoning:
After considering the arguments and evidence presented by both parties, the Tribunal noted that the names of the two parties from whom funds were borrowed were indeed mentioned in the audited Balance Sheet under "Current Liabilities." The Tribunal found that the appellant had provided sufficient details, including statements of return of income and confirmations, to establish the creditworthiness and genuineness of the borrowed amounts. Consequently, the Tribunal held that the addition confirmed by the CIT(A) under Section 69C was not justified and allowed the appeal of the appellant trust. The Tribunal emphasized that the CIT(A) had overlooked crucial evidence and therefore ruled in favor of the appellant.

Outcome:
In conclusion, the Tribunal allowed the appeal of the appellant trust, setting aside the addition of Rs. 28,25,819/- as unexplained expenditure under Section 69C of the Act. The decision was pronounced in open court on 13-10-2023.