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Facts
The assessee, a Section 12AA registered charitable trust, declared nil income, but the AO found significant excess expenditure over income. This excess was treated as unexplained under Section 69C, and exemption under Section 11 was denied, a decision upheld by the CIT(A). The assessee contended it was a reporting error, with the expenditure met from previous year's tied-up funds, for which reconciliation was presented to the Tribunal.
Held
The Tribunal acknowledged the mismatch and the assessee's new reconciliation. Noting that the AO had not properly verified the claim of using earlier year's funds, the Tribunal, in the interest of justice, remanded the matter to the AO for fresh examination and verification of the assessee's submissions and documentary evidence.
Key Issues
Whether the excess expenditure incurred by a charitable trust, purportedly from prior year's funds, constitutes unexplained expenditure under Section 69C and consequently leads to denial of exemption under Section 11, warranting a remand for fresh verification.
Sections Cited
12AA, 69C, 11
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This appeal by the assessee is directed against the order passed by the NFAC, Delhi vide order dated 17/03/2025 in DIN No.ITBA/NFAC/S/250/2024-25/1074590716(1) for the assessment year 2018-19.
The assessee is a charitable trust registered under section 12AA of the Act. For the year under consideration, it filed its return of income declaring Nil income. The case was selected for scrutiny on the issue of accumulation and application of income. The Assessing Officer noticed that the assessee had shown total expenditure of ₹1,61,28,787 as against total income of ₹44,70,224. Since the source of excess expenditure amounting to ₹1,16,58,563 was not explained to his satisfaction, the AO treated it as unexplained expenditure under section 69C of the Act and denied exemption under section 11 of the Act.
On appeal, the ld. CIT(A) confirmed the order of the AO mainly on the ground that the assessee had not furnished proper reconciliation, donor agreements or proof that the funds were tied-up for specific purposes.
Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us.
The learned Authorised Representative (AR) submitted that the addition arose mainly because of a reporting error in ITR. The tied-up funds from earlier year (AY 2017-18) were wrongly shown as income in the ITR for AY 2018-19. To this effect, a reconciliation statement and fund-flow chart for FY 2017-18 to FY 2018-19 has now been prepared, showing that the so-called “unexplained expenditure” was actually met out of earlier year’s funds. The trust had maintained separate books for domestic and FCRA accounts which were duly audited. Therefore, the addition under section 69C of the Act was not justified.
On the other hand, the learned Departmental Representative (DR) supported the orders of the lower authorities. He submitted that despite several opportunities, the assessee did not file proper details before the .
AO. Only at this stage before the Tribunal, additional reconciliation is being filed. He contended that the matter may be remanded back to the AO for verification, if the Bench thinks fit.
We have carefully considered the rival submissions. It is seen that the main reason for the addition is the mismatch between income declared and expenditure claimed. The assessee has now filed a reconciliation statement and fund flow showing that the expenditure was incurred out of earlier year’s available funds. These details were not properly verified by the AO. Thus, in the interest of justice, we are of the view that the matter requires fresh examination. The AO shall verify whether the funds carried forward from AY 2017-18 were available for application in AY 2018-19. Whether such funds were correctly reflected in the books and audited statements, and whether the expenditure claimed is duly supported by documentary evidence.
7.1 We make it clear that the assessee shall place all necessary reconciliation, financials, and supporting documents before the AO, and the AO shall decide the issue afresh after giving due opportunity of hearing to the assessee.