THE FALAHE DARAIN EDUCATION SOCIETY,AHMEDABAD vs. DCIT, CIRCLE-1, EXMP., AHMEDABAD, AHMEDABAD

The Ld. CIT(A) has erred in confirming the additions without properly appreciating the detailed submissions, remand report, and evidences placed on record. The order suffers from non-consideration of material facts and lack of judicial reasoning. The findings are therefore contrary to law and facts of the case. It is respectfully submitted that the additions so confirmed deserve to be deleted in the interest of justice and equity. It is submitted that the same be held so now.”

Drawing our attention to the facts of the case from the orders of the authorities below, it was pointed out that the assessee was a trust formed for educational and charitable purposes registered u/s.12AA of the Act and also u/s.80G of the Act. During the impugned year, the assessee had received voluntary contribution forming part of corpus to the tune of Rs.48,38,779/-, which was claimed as exempt u/s.11(1)(d) of the Act. During assessment proceedings, the assessee failed to file any details with regard to the said corpus donation and, accordingly, the AO denied the assessee’s claim of exemption to the said donations and added the same to the income of the assessee.

Further, the AO noted the assessee to have deposited cash in two bank account in Bank of India and State Bank of India totaling to Rs.70,69,780/-. Again in the absence of any justification regarding the source of said cash, the AO treated the same as income of the assessee and made addition to the income of the Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 4 – assessee. Thus, against the return of income filed by the assessee declaring Nil income, addition to the tune of Rs.1,19,08,559/- (48,38,779 + 70,69,780) was made to the income of the assessee, thus, resulting in the total income being assessed at the said figure.

Before the Ld. CIT(A), the assessee filed all evidences to prove the genuineness of its claim and pleaded with the Ld. CIT(A) to admit the same for deciding its appeal. Ld. CIT(A) admitted the evidence filed by the assessee, forwarded the same to the AO directing him to submit a remand report on the same. The AO submitted his remand report justifying the addition made during the assessment proceedings. Copy of the remand report was forwarded to the assessee who, in turn, filed their rejoinder to the remand report. Thereafter, considering both the AO’s report and assessee’s reply to the same, Ld. CIT(A) confirmed the addition made by the AO finding merit in the remand report submitted by the AO justifying the addition made during assessment proceedings.

Aggrieved by the order of the Ld. CIT(A), the assessee has come up in appeal before us raising the above grounds.

Taking up Ground No.1 pertaining to the addition made of corpus donation received by the assessee, Ld. CIT(A) we have noted, has confirmed the addition made finding that the assessee Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 5 – failed to establish the identity of the actual donors and no written direction from any donor specifying that the amount is for corpus fund had been produced. Ld.CIT(A) held so after considering the remand report of the AO and the submissions filed by the assessee to him. His findings in this regard are contained at para 4.6 of the order as under:

During the course of hearing before us, Ld. Counsel for the assessee contended that the Ld.CIT(A) findings as above were factually incorrect, based solely on the AO’s remand report, ignoring material/documents and the reply filed by the assessee to the remand report before him, and completely misappreciating the facts.

In this regard he first drew our attention to the breakup of corpus donation of Rs.48,38,779/- disallowed in its case, which was filed during appellate proceedings and considered by the AO in his remand report. He drew our attention in this regard to paper book page nos. 64 to 67, which is reproduced hereunder:

Thereafter, he drew our attention to the remand report of the AO with respect to corpus donation, which is reproduced at page nos. 4 to 6 para 4.1 of the CIT(A)’s order as under:

Referring to the above, he pointed out that out of the total corpus donation of Rs.48.38 Lakhs received by the assessee, the AO in his remand report noted anomaly with respect to the donations listed at Sr. Nos. 8 to 55. He pointed out that there was no anomaly noted in the corpus donations listed at Sl. Nos.1 to 7 which in all amounted to Rs.42,33,543/-. He, therefore, contended that there was no case at all for disallowing assessee’s claim of exemption u/s.11(1)(d) of the Act with respect to these corpus donations.

Ld. DR was unable to controvert these factual contentions made by the Ld. Counsel for the assessee before us.

Thereafter, Ld. Counsel for the assessee pointed out that the AO noted discrepancy with respect to corpus donations listed at Sl. No.8 & 9 to the effect that the assessee had failed to submit any letter or correspondence from the parties listed therein to prove that the donation received was in the nature of corpus donation. That for the said reason he held that the said donation could not be treated as voluntary donation meant as corpus donation.

Ld. Counsel for the assessee pointed out that the above findings of the AO, confirmed by the Ld.CIT(A), were factually incorrect since the assessee as a matter of fact had placed on records letters / communications of the said parties clearly specifying the donation being given towards the corpus of the trust.

The Ld. DR was unable to controvert the factual contention of the assessee that with respect to donors listed at Sl. Nos. 8 & 9, the assessee had filed letters from the donors specifying their intent of having made the donations towards the corpus of the assessee trust. The Ld. DR was unable to support in any way the finding of the Ld. CIT(A) to the contrary that the assessee had been unable to produce any written direction from the donors specifying the amount towards the corpus fund of the assessee trust.

In view of the above, we agree with the Ld. Counsel for the assessee that with respect to corpus donation pertaining to that made by the donors listed at Sl. Nos. 8 & 9 of the detail of donors reproduced above, the findings of the Ld.CIT(A) of Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 13 – the assessee having not produced any evidence reflecting the intent of the donors to have made the donations towards the corpus of the assessee trust,based on which he has denied the assessee’s claim of exemption u/s.11(1)(d) of the Act, is factually incorrect. The assessee, we have noted, had filed letters from the said two donors clearly indicating the donations to have been made for towards the corpus of the assessee trust. Ld. CIT(A)’s order disallowing the assessee’s claim of exemption of corpus donation made by donors listed at S.No.8 & 9 of the list of donors reproduced above is, therefore, we hold, incorrect and the AO is directed to allow the said claim of exemption to the assessee.

Our attention thereafter was drawn to the remand report of the AO and it was pointed out therefrom that the AO had further noted anomaly with respect to donation listed at Sl. Nos. 10 to 49. He pointed out that the AO noted these donations to have been collected by the students of the School run by the assessee i.e. F.D. High School for Girls, Jamalpur Darwaja (E), Ahmedabad, of standard 11B. The AO, he pointed out noted the said fact from a letter dated 22.12.2015 signed by Smt. A. A. Shaikh, Principal of the said School. The AO found that the assessee had not submitted receipts issued in respect of the said donations received and noting that the amounts were collected by the students, he found that the identity of the real donors was not maintained by the assessee, the students having merely acted as medium through whom the Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 14 – donation has been received in cash from unknown donors. He further noted that besides the facts that donors were not identifiable, there was also no specific direction from unknown donors for treating the donation as corpus donation.

To this, Ld. Counsel for the assessee drew our attention to the reply filed by the assessee to the remand report reproduced at page 10 of the order as under:

Ld. Counsel for the assessee contended that the impugned donations amounted in all to Rs.2 lacs and even as per the AO this amount of Rs.2 Lakhs was collected by the students of Class 11B Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 16 – from various persons towards the corpus funds of the assessee trust. He stated that in the remand proceedings, the AO never asked the assessee to produce the receipts of the donations collected by the students. He, therefore, stated that the exemption in this case had been denied without giving the assessee due opportunity for proving the genuineness of its claim.

Ld. DR, on the other hand, countered by relying on the finding of the AO and the Ld. CIT(A) that the assessee had neither furnished the evidence of the identity of the donors nor any evidence proving that the donation was made for the corpus of the assessee trust.

Having heard the contentions of both the parties, we find that the quantum of donation in consideration is Rs.2 Lakhs out of the total corpus donation received by the assessee Rs.48,38,779/-. The fact that these donations were collected by the students of the School from various persons for corpus of the Trust is evidenced by the letter of the Principal of the School dated 22/12/2015 who, vide the said letter had handed over the amount collected to the trustees of the trust, submitting list of all the students from whom they had collected donations for the corpus of the assessee trust/ Building Fund. The AO /CIT(A) have not doubted the veracity of the letter of the Principal of the school. Therefore, the fact that the students had collected this amount for the corpus of the trust remains undisputed. Moreover, we have noted that the impugned Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 17 – donations constitute a miniscule portion of the total corpus donations received by the assessee, majority of which, has been accepted by the AO as constituting corpus donation. While the total corpus donations received by the assessee is 48.38 lacs, the AO has accepted as genuine 42.33 lacs noted in para 12-14 of our order above, constituting approx. 88% of the total corpus donations. The impugned donations being 2 lacs constitute barely 5% of the total donations. The AO having accepted 88% of the total corpus donations and the impugned donations being barely 5% of the total corpus donations with respect to which the fact of the same having been collected for the corpus of the assessee trust by students of the school run by the assessee trust is not disputed, we see no reason to disallow assesses claim of exemption to the said donation u/s 11(1)(d) of the Act.

In view of the above, we hold that the denial of grant of exemption u/s 11(1)(d) of the Act to donations collected in cash by students of the School run by the assessee trust amounting in all to Rs.2 Lakhs as unjustified. The AO is accordingly directed to grant exemption of the same.

Thereafter, Ld. Counsel for the assessee pointed out from the remand report of the AO that the AO treated the donation listed at Sl. No.50 as not qualifying for exemption due to discrepancy in respect of PAN.

He pointed out that in response to the remand report of the AO as above, the assessee furnished its reply pointing out the correct PAN number of donor therein. He drew our attention to the reply furnished by the assessee reproduced at page no.12 of the CIT(A) order as under:

Ld. Counsel for the assesse contended that having resolved the discrepancy pointed out by the AO in his remand report, there was no case for disallowing assesse’s claim of the exemption with respect to donation listed at Sl. No.50. Ld. DR was unable to controvert the factual contention made by the Ld. Counsel for the assessee as above.

In view of the above, since, the Ld. Counsel for the assessee has suitably demonstrated that the discrepancy noted by the AO with regard to the donation listed at Sl. No.50 of the list above was suitably resolved by the assessee in the appellate proceedings by furnishing the correct PAN number of the donor, we agree with the Ld. Counsel for the assessee that the Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 19 – disallowance of exemption with respect to the said donor listed at Sl. No.50 amounting to Rs. 50,000/- is unjustified. The AO is directed to allow the exemption to donation of Rs. 50,000/- u/s.11(1)(d) of the Act.

Lastly, Ld. Counsel for the assessee contended that the AO noted discrepancy in donations listed at Sl. Nos. 52 to 55, which was foreign contributions received by the assessee. He pointed out from the remand report of the AO that the AO noted the assessee to be duly registered under Foreign Contribution (Regulation) Act, 2010 (‘FCRA’). However, the AO noted the assessee to have failed to submit any letter or correspondence from the donor to prove that the foreign donation received was in the nature of corpus donation. In this regard, Ld. Counsel for the assessee drew our attention to the reply filed by the assessee, which was reproduced at page nos.12 & 13 of the order as under:

Referring to the above, he pointed out that the donation receipts of these donations carried a specific stamp that the donation was given for specific direction that they shall form corpus of the trust. He drew our attention to the copy of such donation receipts placed before us at paper book page no.86.

The Ld. DR, on the other hand, countered by stating that the Ld. CIT(A) had categorically noted that to qualify as corpus donation the donor must give a specific written direction that the contribution shall form part of the corpus and that merely classifying the receipt as corpus in the books did not meet the statutory requirement. He pointed out that the Ld. CIT(A) had noted with respect to the foreign contribution, there was no donor correspondence or corpus donation submitted and, therefore, Ld.DR contended that the denial of exemption with respect to the foreign contribution was justified.

We have heard the rival contentions. The denial of the exemption to the foreign donation received by the assesse is admittedly for the reason that there was no correspondence from the donors directing the donation to be treated as corpus donation.

It was common ground that the above were the only infirmities noted by the AO/CIT(A) in the corpus donation received by the assessee to disallow the entire corpus donation received by the assessee of Rs.48,38,779/-. Since, we have dealt with each anomaly noted by the Ld. CIT(A) and have found the same to be not sufficient or have found the denial of the exemption to be incorrect, we direct the AO to allow the assessee’s claim of exemption of corpus donation u/s.11(1)(d) of the Act to the entire extent claimed by it amounting to Rs.48,38,779/-.

Ground No.1 raised by the assessee is allowed.

Ground of appeal No.2 relates to the addition made by treating cash deposit in the bank account of the assessee as from unexplained sources. Drawing our attention to the facts of the case, Ld. Counsel for the assessee pointed out that the deposit of Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 23 – cash in two bank accounts managed by the assessee was treated as from unexplained sources; i. Rs.11,92,280/- deposited in Bank of India & Rs.58,77,500/- deposited in the State Bank of India.

In this regard, Ld. Counsel for the assessee pointed out that the AO in his remand report had contended that while the assessee had claimed the said cash deposits to be out of fees received in cash, however, the assessee had not been able to produce the receipts issued for fees to substantiate its claim. He drew our attention to the AO’s remand report in this regard reproduced at page no.13 and 14 of the order as under:

He, thereafter, drew our attention to the reply filed by the assessee to the same as under:

Ld. Counsel for the assessee pointed out from the above that the assessee had fairly submitted the entire list of students from Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 25 – whom fees had been received in cash supported with entry in the cash books of the respective School and tallied with the deposit of the said cash in the bank statement. He pointed out that the assessee had submitted its audited financial statement of both the Institutes in respect of which, the cash receipts were deposited in the two bank account noted. He, therefore, contended that the assessee had duly substantiated its explanation of the cash deposits pertaining to receipts of fees in the respective Institute run by the assessee.

Ld. DR, on the other hand, submitted that the assessee had failed to discharge its onus of proving the source and genuineness of the cash deposit. He drew our attention to the order of the Ld. CIT(A) holding so at page 18 of the order as under:

We have heard the rival contention. The issue is with respect to the cash deposited in the two bank accounts of the Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 26 – assessee, which, the assessee had claimed pertains to fees collected from two Schools/Educational Institutes run by it while the Revenue contends the source of the same having remained unexplained on account of unsustantiation of the explanation of the assessee with due evidences.

In support of its contention, we have noted, the assessee submitted a list of students from whom the fees were received alongwith the copy of cash book and even bank statement. The assessee also submitted its audited financial statement pointing out there was no adverse comments made by the Auditor with respect to any transaction carried out by the assessee. Undeniably, the assessee is running educational institutions. It has submitted the list of students from whom the fees have been collected in cash. The assessee has reflected the said receipts in cash in its cash book and the fees received have been duly accounted for as income of the assessee. The books of accounts of the assessee are duly audited and no discrepancy has been pointed out in the same. In the light of the above, we do not find any merit in the orders of the authorities below rejecting assessee’s explanation merely for the reason that the cash receipts of the fees were not submitted or even in one case the cash book was not produced. It is not disputed that the books of accounts of the assessee are audited and there is no reason pointed out by the AO to doubt the assessee’s explanation of fees have been received in cash especially when the assessee has exhibited/demonstrated the said fact in both the cases Falahe Darain Education Society vs. DCIT] A.Y. 2016-17 - 27 – by filing the list of students from whom the fees have been received in cash and also demonstrated in one case the fact of having accounted the said fees in its cash book. When no infirmity having been noted in these facts and evidences, produced by the assessee, we see no reason for doubting the explanation of the assessee and we, accordingly, hold that the orders of the authorities below treating the cash deposit as unexplained as not justified. We direct the AO, therefore, to delete the addition made on account of cash found deposited in the books of the assessee amounting to Rs.70,69,780/-. Ground of appeal No.2 raised by the assessee is allowed.

In the result, appeal filed by the assessee is allowed.