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Facts
The assessee, Salzer Educational Medical Research Trust, claimed a deduction of Rs.107 Lacs for donations to an orphanage home under Section 11. The Assessing Officer disallowed the claim because, at the time of issuing cheques in March 2018, the assessee lacked sufficient bank balance, and the cheques were encashed with a delay of over two months (in May 2018). The CIT(A) confirmed the disallowance.
Held
The Tribunal held that the assessee's claim for donation should be allowed. It noted that the drawer's responsibility is to ensure sufficient balance at the time of encashment, and the cheques were eventually honored within their three-month validity period. The Tribunal found no justification for denying the claim based on initial insufficient balance or delayed encashment.
Key Issues
Whether the disallowance of a donation claimed as application of funds under Section 11 is justified when the cheques were issued without sufficient bank balance but were subsequently honored upon presentation within their validity period.
Sections Cited
143(3), 143(3A), 143(3B), 11
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI MANU KUMAR GIRI, JM
आयकर अपीलीय अिधकरण “बी” "ायपीठ चे"ई म"। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHENNAI माननीय "ी मनोज कुमार अ"वाल ,लेखा सद# एवं माननीय "ी मनु कुमार िग'र, "ाियक सद# के सम(। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM आयकरअपील सं./ (िनधा)रण वष) / Assessment Year: 2018-19) Salzer Educational Medical ACIT (Exemption) बनाम Research Trust Coimbatore. 9/175-A, Railway Station Road, / Vs. P.N. Palayam, Coimbatore-641 020. "थायीलेखासं./जीआइआरसं./PAN/GIR No. AADTS-4099-L (अपीलाथ"/Appellant) : (" थ" / Respondent) अपीलाथ" कीओरसे/ Appellant by : Shri S. Sridhar (Erode) (Advocate)- Ld.AR " थ"कीओरसे/Respondent by : Ms. D. Komali Krishna (CIT) - Ld. DR सुनवाई की तारीख/Date of Hearing : 18-12-2024 घोषणा की तारीख /Date of Pronouncement : 09-01-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
Aforesaid appeal by assessee for Assessment Year (AY) 2018-19 arises out of an order passed by learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] on 05-08-2024 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the Act on 23-03- 2021. The sole grievance of the assessee is disallowance of donation of Rs.107.00 Lacs. Having heard rival submissions and upon perusal of case records, the same is adjudicated as under.
During assessment proceedings, it transpired that the assessee claimed application of fund for Rs.107 Lacs towards donation to an orphanage home. It transpired that the assessee issued two cheques for Rs.100 Lacs and Rs.7 Lacs bearing nos. 476205 and 476206 respectively on 02-03-2018. However, since the cheques were encashed on 15-05-2018, Ld. AO denied the claim of the assessee even though the assessee submitted the copies of the cheques before Ld. AO. The Ld. AO noted that on the date of issuance of cheques, there was not sufficient balance in assessee’s bank account and therefore, the assessee issued cheques with a sole aim to claim deduction u/s 11. The donee trust took 2 months and 13 days to produce the cheques for encashment. Therefore, the amount of Rs.107 Lacs was added to the income of the assessee. During appellate proceedings, the assessee submitted that it was having sufficient balance in the form of fixed deposits and balance in current and savings bank account and the same funds were available to honor the cheques at the time of issuance thereof. However, Ld. CIT(A) confirmed the stand of Ld. AO against which the assessee is in further appeal before us.
From the facts, it emerges that the assessee has made donations to lay claim on deduction u/s 11. It is quite clear that the cheques were issued during March, 2018 which is evident from the copies of cheques as filed by the assessee during the course of assessment proceedings. The genuineness of donation is also not in doubt. The only reason to reject the claim is that the assessee did not have sufficient bank balance on the date of issuance of cheques and the donee trust took 2 months and 13 days to encash the cheques. However, the validity of cheque, as per extant rules, is three months. It is also not necessary that the drawer should have sufficient bank balance at the time of issuance of cheques. The only responsibility of the drawer is to ensure sufficient balance at the time of encashment of cheques. Undisputedly, the cheques have ultimately been honored when they have been presented to bank for clearance. Therefore, the denial of claim is not justified. The Ld. CIT-DR, in the written submissions, has stated that the assessee want to enjoy the benefit of interest income out of fixed deposits till the date of maturity and thereafter, ensured outflow in succeeding year and treat the same s application in the year under consideration. However, in the absence of any contrary evidence that the cheques were not issued during March, 2018 as evidenced by the assessee, this argument cannot be accepted. The cheques have been encashed when they are presented to the bankers. Another argument is that the assessee has not able to substantiate that the recipient had not treated the same as corpus donation. However, no such doubt has been raised by Ld. AR. The only reason to deny the benefit is that the cheques have been encashed after lapse of 2 months and 13 days. Therefore, this argument also cannot be accepted. Finally, the Ld. AO is directed to accept the claim of the assessee. We order so.
The appeal stand allowed in terms of our above order. Order pronounced on 9th January, 2025 (MANU KUMAR GIRI) (MANOJ KUMAR AGGARWAL) "ाियक सद# / JUDICIAL MEMBER लेखा सद# / ACCOUNTANT MEMBER चे5ई Chennai; िदनांक Dated :09-01-2025 DS आदेशकी@ितिलिपअ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ"/Appellant 2. " थ"/Respondent 3. आयकरआयु>/CIT, Coimbatore 4. िवभागीय"ितिनिध/DR 5. गाडCफाईल/GF