BHARTIYA JAN SEWA ASHRAM,JAUNPUR vs. INCOME TAX OFFICER (EXEMPTION), LUCKNOW

This is an appeal filed by the assessee against the order of the learned Commissioner Income Tax (Appeals)-II, Lucknow dated 06.02.2020, wherein the appeal of the assessee against the order of the Ld. Assessing Officer made u/s 144 of the Income Tax Act, 1961 (“Act”, for short), was partly allowed. The grounds of appeal

Aggrieved with the said assessment order, the assessee went in appeal to the Ld. CIT(A). Before the Ld. CIT(A), it was submitted that the society was registered u/s 12A of the Act and the same was mentioned in the return of income filed by it. It was further submitted, that e-assessment had been made mandatory for the first time and all the submissions made by the assessee had been sent to the registered e-mail Id of the AO. It was further Page 4 of 11 submitted that the complete list of grantors/donors along with copy of receipts and other details was furnished before the AO. The Ld. CIT(A) remanded the matter back to the AO and the AO submitted a remand report in this regard. In the said report, the AO noted that the assessee had claimed to have received grants of Rs.44,46,011/- and Rs.52,42,772/- from “IIMPACT”. However, the assessee could not produce any “Memorandum of Understanding” (“MOU”) with regard to the same laying down that the said donor was donating the said grants to the assessee. The Assessing Officer also submitted that the assessee had failed to specify the terms and conditions with regard to the manner and extent of utilization of the said amounts. Therefore, he concluded that the genuineness of the said transactions and the creditworthiness of the alleged donors remain unverified. The Assessing Officer further pointed out that the assessee had failed to produce any MOU with respect the grant of Rs.22,275/- received from, “PROACT”. The Assessing Officer also submitted that the list of donors contributing more than of Rs.4,500/- each contained only the name and generalized addresses. Hence, the alleged donors could not be identified and therefore the addition made by the Ld. AO u/s 144 of the Act was justified. The Ld. AO further pointed out that he was not in a position to verify the claimed expenditure since the vouchers submitted by the assessee did not bear VAT or TIN numbers. Therefore, since the vouchers were not verifiable, he held that the disallowance of 10% was justified. The Ld. CIT(A) offered the assessee a chance to rebut this report and the assessee submitted that it had filed all the details, including the registration u/s 12A of the Act before the Ld. AO during the remand proceedings. With regard to the issue of unexplained cash credits, it was submitted that all the details Page 5 of 11 had been submitted, verification had not been carried out of the books of accounts, bills and vouchers and the Ld. AO had not called for further information before framing the remand report. It was submitted that all the documents in support of grants, donations and membership fee received during the year, had been submitted by them on dated 03.12.2018 and with regard to the receipt from “IIMPACT”, it was submitted that the projects were executed strictly on the basis of approved budget from the grantor. Regular monitoring was being done by the grantor and utilization reports were duly submitted and accepted by the grantor. Fresh grants were duly sanctioned and projects were executed in the subsequent years as well. The Ld. AO had failed to appreciate, that all the credits in the bank accounts were direct by NEFT payments from the said party and the name of the party i.e. “IIMPACT”, were duly mentioned in the bank on the face of the statement. Furthermore, the Ld. AO had failed to appreciate, that email communication from the registered and valid email Id of “IIMPACT” sent by the Chief Executive Officer (CEO) of the grantor, towards budgets and towards confirmation of each bank NEFT transfers were duly submitted before the Assessing Officer. Thus, there was no reason for the Assessing Officer to fail to establish the genuineness of the said transactions and creditworthiness of the said donors. It was submitted that “IIMPACT”, was a reputed, not for profit organization, working towards transforming, through education and empowerment, of the girl child. It had been established in 2003 by alumni of the IIM, Ahmedabad and managed by them and complete contact details of this organization had been provided. With regard to the Ld. AO’s comments that the list of donors contributing sum of Rs.4,500/- contains only the name Page 6 of 11 and generalized addresses, it was submitted that the details furnished, included name, father’s name, address, mobile number, date of receipt, receipt number and amount. Thus, there was no reason for the Ld. AO to hold that the donors could not be identified. It was further submitted that invocation of Section 68 of the Act was wrong in the facts and circumstances of the case and reliance was placed on various judgments, which stated that the assessee could not be expected to prove the impossible and that the details and documents filed could not be rejected outright without cross-examination. It was, therefore, prayed that the addition made by the Ld. AO was fit to be deleted. With regard to the disallowance of Revenue expenditure of Rs.5,51,454/-, it was submitted that these additions have been made without reference to the assessee and furthermore merely because VAT or TIN number was not mentioned on the invoice, the genuineness of the same could not be doubted. Under the UPVAT Act, 2008, there were exemptions to certain categories of the dealers and service providers. Not everyone was required to be registered under Law. The Assessing Officer had not pointed out any particular item of expenditure which was inadmissible. Therefore, no ad hoc disallowance could be made. Accordingly, it was prayed that the disallowance may be quashed. The Ld. CIT(A) considered these submissions made by the assessee and held that while the assessee had submitted a copy of the funding agreement of the donor (M/s. IIMPACT) for the F.Y. 2016-17 and F.Y. 2017-18, it had failed to produce any such evidence in respect of period under consideration. He held that the email submitted by the assessee shows that the fund has been provided to the assessee, but did not mention the purpose of the fund. It did not mention any project – “Girls Child Education Page 7 of 11 Programme” as mentioned in the utilization certificate. Since the terms and conditions in respect of grant could not be verified, it could not be treated as a grant for charitable activities, due to which the addition made by the AO was fit to be upheld. With regard to the addition made in respect of, ‘unanimous donation’ of Rs.1,62,500/-, the Ld. CIT(A) said that the assessee had provided all the details it was required to provide and therefore that addition was deleted. With regard to the ad hoc disallowance of 10%, the Ld. CIT(A) held that the disallowance was on the higher side, and therefore he restricted the disallowance of Rs.2,50,000/-.

The assessee is aggrieved at this order of the Ld. CIT(A) and has accordingly come in appeal before us. Shri Abhishek Khanna, CA (hereinafter referred to as the Ld. AR) submitted that the order of the Ld. CIT(A) was full of contradictions. Sofar as the donations amounting to an aggregate of Rs.1,62,500/- was concerned, the Ld. CIT(A) had emphasized that full particulars of donations were available before the Assessing Officer himself, but even then no enquiry had been made from the donors concerned. However, insofar as the addition for sums aggregating to Rs.97,11,058/- was concerned, he had sustained the same simply on the grounds that the assessee had not produced the “Memorandum of Understanding” and other related information about the grantor/parties concerned, although the assessee had provided the complete details of the address of “IIMPACT” for communication to the AO. It was further submitted that the Ld. CIT(A) had concurred with the findings of the AO, that the assessee was eligible for grant of exemption. It was, therefore submitted that there was no reason to make addition of any Page 8 of 11 amount received from “IIMPACT” without rejecting the explanation submitted by the assessee regarding the nature and source of the said donations. Furthermore, it was submitted, by placing reliance on the decision of the Hon’ble Allahabad High Court in the case of CIT, Ghaziabad v Uttaranchal Welfare Society (2014) 364 ITR 398 (Alld), that where the assessee had disclosed donations as its income, section 68 of the Act had no application in the matter. It was submitted that these donations from “IIMPACT” were duly accounted in the income and expenditure account of the assessee and there was no dispute regarding either the source of the donation or the capacity of the donors to make the donations. Therefore, merely because MOU for the current year could not be produced, was not reason enough to hold that the grant had not been made or not been made for the purpose that was charitable. It was submitted that the fact of utilization of the grant for charitable purpose was evidenced by the utilization certificates that were submitted to the grantor from time to time. It was therefore prayed that the matter is covered by the ITAT Lucknow Bench in the case of ITO- II(3) v Saraswati Educational Charitable Trust (2016) 69 taxmann.com 64 (Lucknow Trib). On the issue of ad hoc disallowance of expenditure, the Ld. AR submitted that the Tribunal in the case of Mukesh Kumar Mahawar v The Income Tax Officer, Sitapur in for A.Y. 2009-10 had held that ad hoc disallowances were not permissible under law and if the Assessing Officer was not satisfied with a particular expense, he may make the necessary verification and also point out defect in the books of account, but ad hoc disallowance should not be made by making general observation. It was further submitted that in the case of V. C. Arunai Page 9 of 11 Vadivelan v CIT, Non-Company Circle-(11), Chennai (2021) 128 taxmann.com 195 (Mad) it had been held that if the Assessing Officer had any doubt with regard to the genuineness of any of the vouchers produced, he could have called upon the assessee to establish its genuineness. Without doing so, the Ld. AO was not justified in making an ad hoc disallowance. The Ld. AR pointed out that in this case also, the Ld. AO had not called upon the assessee to prove the expenditure and simply made the disallowance without reference to the assessee. The Ld. AR also referred to the decision of Hon’ble Allahabad High Court in the case of CIT, Central, Kanpur vs Anurag Agarwal (2015) 54 taxmann.com 75 (All), on the issue of disallowance u/s 68 of the Act and he prayed that the addition may kindly be quashed.

On the other hand, Shri Amit Kumar, Sr. DR pointed out that the assessee had not made proper compliance before the Assessing Officer and had not been able to produce the details regarding the receipt of donations from M/s. IIMPACT and M/s. PROACT and in the absence of these details, it was not possible to say that these were in the nature of voluntary grant for charitable purposes. In the circumstances, the Assessing Officer and the Ld. CIT(A) were justified in adding back the same as unexplained cash credits. Furthermore, the Ld. DR argued that as the vouchers of the assessee were not amenable to verification, the Ld. CIT(A) was justified in retaining the disallowance to cover for leakage on this account.

We have duly considered the facts and circumstances of the case. We notice that the assessee has furnished evidence before the AO that it was registered as a trust u/s 12A of the Act and this fact has been accepted by the AO. We also notice that Page 10 of 11 the amounts received from M/s. IIMPACT and M/s. PROACT have been duly incorporated by the assessee in the income and expenditure account and are not claimed to be donations towards the corpus of the trust. In the circumstances, considering the fact, that the identity of the donors was not in doubt, the creditworthiness of the donor had not been called into question and the genuineness of the transaction was evidenced from NEFT transfers, we fail to understand how the said donations offered in income by the assessee could be recorded as unexplained within the meaning of Section 68 of the Act merely because the ‘Memorandum of Understanding’ had not been produced for the relevant assessment year. The Ld. CIT(A) would have been justified insisting upon directions for the utilization of the grants, had the said grants being claimed towards corpus. However, since no such claim had been made, once those grants were brought into the income and expenditure account and charitable expenses were made out of them, there was no justification to uphold the addition made by the Assessing Officer u/s 68 of the Act. In the circumstances, we find that the addition of Rs.97,11,058/- u/s 68 of the Act is wholly devoid of merits and we, therefore, delete the same.

With regard to ad hoc disallowance of Rs.2,50,000/- that has been sustained by the Ld. CIT(A), we find that the Ld. CIT(A) has in fact noted that the AO has not pointed out any particular item of expenditure which was inadmissible and therefore any ad hoc disallowance should not be made. In the circumstances, we find no justification in retaining the disallowance of Rs.2,50,000/- after considering, that before making the disallowance, the AO had not called upon the assessee to prove Page 11 of 11 any part of its expenditure which he doubted. We, therefore, delete the ad hoc disallowance of Rs.2,50,000/- retained by the Ld. CIT(A) also. Accordingly, the appeal of the assessee is upheld.

In the result, the appeal of the assessee is allowed.