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Facts
The assessee, a charitable trust, filed a return of income declaring nil income and claimed exemption under Section 11 & 12. The AO made an addition of Rs. 1,89,64,378/- for disallowing expenditure claimed as application of income. The CIT(A) confirmed the addition.
Held
The Tribunal held that the addition made by the AO was illegal, as the assessee had applied its funds in accordance with its objects and through agreements with other organizations, not as donation without specific utilization instructions. The CIT(A) had failed to appreciate the documents and evidence filed by the assessee.
Key Issues
Whether the disallowance of expenditure claimed as application of income by a charitable trust is justified, and whether the additions made by the AO and confirmed by the CIT(A) were legally tenable.
Sections Cited
143(3), 143(2), 142(1), 250, 11, 12, 11(2), 11(3), 2(15), 12A, 80G(5)(vi), 270A, 234B, 13, 260A
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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
ORDER
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal filed by the assessee is against order dated 30.10.2024 of Learned Commissioner of Income Tax (Appeals)/National Faceless Assessment Centre (NFAC), Delhi (hereinafter referred as “the Ld. CIT(A)”) under Section 250 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) arising out of Order dated 27.12.2019 of the Learned Assessing Officer/Income Tax Officer, Ward Exemption 1(3), New Delhi (hereinafter referred as “the Ld. AO”) under Sections 143(3) of the Act for assessment year 2017-18.
Brief facts of the case are that return of income was filed on 03.11.2017 declaring nil income. The case was selected for scrutiny under CASS. Notice under Section 143(2) of the Act was issued on 17.08.2018. Notice u/s 142(1) of the Act along-with questionnaire was issued on 02.09.2019 asking the assessee to file details online electronically and specific details have also been asked for vide issue of notice u/s.142(1) on various dates online electronically. The assessee filed details in response to notices issued through E-proceeding facility. The details were examined. The assessee was accorded Registration under Section 12A of the Act vide letter dated 15.07.1999. The assessee was granted certificate under Section 80G(5)(vi) by the DIT(E). Delhi vide letter dated 10.03.2010 from assessment year 2010-11 onwards. The main objects of the assessee trust, as per trust deed, are to establish, maintain relief centers, first aid facilities, hospitals, convalescent homes, food, medicines, clothing financial assistance and other needs to those who deserve it on merit, to give aid to construct, re-construct, repair and make hospitable dwellings and other structures for those who are in need. The activities of the assessee trust during the accounting period fall within the ambit of "Charitable purpose” as per the definition contained in Section 2(15) of the Act. So, the benefit of exemption of income under the provisions of Section 11 & 12 was being allowed to the assessee.
On perusal of Schedule I of ITR giving details of amount accumulated/set apart within the meaning of section 11(2), it is noted that during the year under consideration, the assessee claimed to have applied amount of Rs.1,89,64,378/- for charitable purpose. Vide notice under Section 142(1) dated 19.12.2019, explanation to specific queries raised was sought. The assessee filed his replies accordingly. On completion of proceeding, Ld. AO vide order dated 27.12.2019, made addition of Rs.1,89,64,378/- as deemed income.
Against order dated 27.12.2019 of Ld. AO, the appellant/assessee preferred appeal before the Ld. CIT(A) which was dismissed vide order dated 30.10.2024.
Being aggrieved, the appellant/assessee preferred present appeal with following Grounds of Appeal:
1. That the learned Commissioner of Income Tax (Appeals) has grossly erred in law and on facts in confirming the addition of a sum of Rs 1,89,64,378/- under section 11(3) of the Act which disallowance is unjustified and untenable in law and thus, should be deleted as such. 1.1 That while doing so, the Commissioner of Income Tax (Appeals) has arbitrarily brushed aside the replies, evidences furnished by the assessee appellant and further, the learned Commissioner of Income Tax (Appeals) has confirmed the said addition on irrelevant and extraneous considerations without there being any adverse material and as such, the addition so made is purely on surmises and conjectures, is wholly untenable on facts and in law and needs to be deleted.
1.2 That further, the learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the assessee-appellant has applied all its funds in accordance with its objects and as prescribed under Income Tax laws and the addition so made by learned assessing officer is without pointing out any deficiency or discrepancy in the said application of the Income of the assessee appellant and as such, the addition so made should be deleted. 1.3 That further and without prejudice to the above, the Commissioner of Income Tax (Appeals) has further confirmed in disallowing a sum of Rs 1,89,64,378/- under section 11(3) of the Act on the assumption that the said amount has been given by the assessee appellant to other Trusts whereas the assessee -appellant has spent 8,04,409/- itself out of Rs. 1,89,54,855. So, the Commissioner of Income Tax (Appeals) has gone wrong in confirming the disallowance of a sum of Rs. 1,89,64,378/- without giving effect of claim of direct expenditure by Assessee trust. 1.4 That the Ld. Commissioner of Income Tax (Appeals) has further gone wrong in confirming the disallowance of Rs.18964378/-by ignoring the fact that the donations which are given by donors for the specific purposes are not to be treated as application of income u/s 11(3).
2. That on the facts and circumstances of the instance case learned Assessing Officer has erred in initiating the penalty proceedings under section 270 A of the Income Tax Act 1961.
3. That the learned Assessing Officer has erred both in law and on facts in levying interest under section 234B of the Act which interest is not loveable on the facts and circumstances of the case of the appellant”.
Learned Authorized Representative for the appellant/assessee submitted that the Ld. CIT(A) erred in confirming addition of Rs.1,89,64,378/- under Section 11(3) of the Act which disallowance has unjustified and untenable. Ld. CIT(A) failed to appreciate all the documents filed by the assessee. Written submissions filed by the assessee along with application, an additional evidence have not been properly considered. The documents showed that the assessee had applied its funds in accordance with its objects only by using the services and has not paid any donation or grant to any trust or institution under Section 12AA. Assessee Trust has entered into agreements with organizations for providing repairs and maintenance of Educational Institutions and construction of Bio-degradable Toilets in various areas and other charitable activities. In support of our claim, we had filed a copy of agreements with Anchal Charitable Trust and Bal Raksha Bharat before the assessing officer and made a request that in case if he wants all such agreements, we shall be pleased in providing the same immediately (and in case if your honor wants, we can produce the same before your good self also). The said agreements were filed along with reply dated 26.12.2019 to AO at pages 59 to 86 of the paper book. On bare perusal of the terms of agreement with Anchal Charitable Trust it is quite evident that these repairs work has been done by Anchal Charitable Trust and under the supervision of the Assessee Trust [Care today] and the Anchal Charitable Trust was also supposed to provide monthly report of the work done to Care Today, certificate of CA was also obtained with regards to the work so done by the said trust. It is also mentioned in the agreement with Anchal Charitable Trust that Care today Staff will have full access to the financial records of this project. The same terms of the agreement were also with Bal Raksha Bharat. Now, further similar terms have also been agreed by Care Today with other Trust/Institutions and it is quite evident from the above-mentioned facts and documents that the Assessee Trust has not paid any donation or grants without any specific utilization instructions to any trust or Institution but has only utilized/applied its funds for providing repairs and maintenance of Educational Institutions and construction of Bio-degradable Toilets in various areas and other charitable activities. The Assessee Trust has applied for all its funds in accordance with its objects only and has not paid any donation or grant to any trust or institution registered under section 12AA. Reliance was placed on CIT vs Hps Social Welfare Foundation (Delhi HC) reported in 329 ITR 310.
Learned Authorized Representative for the Revenue relied on the orders of Departmental Authorities.
From examination of record in light of aforesaid rival contentions, it is crystal clear that the Ld. CIT(A) confirmed addition of Rs.1,89,64,280/- made by the Ld. AO for disallowing expenditure. Undisputedly, the assessee is a charitable trust. The assessee had filed copies of agreement with organization providing repairs and maintenance of educational institutions and construction of Bio-degradable Toilets in various areas and other charitable activities. The said agreement along with reply dated 26.12.2019 are at pages 59 to 61 of paper books. The assessee-trust has not paid any donation or grant without any specific utilization instructions to any trust or Institution. 8.11 Hon'ble High Court of Delhi in CIT vs. Hps Social Welfare Foundation (Delhi HC) reported in 329 ITR 310 held as under: “ There was absolutely no material before the AO to show that the funds given to these NGOs/institutions were used for personal benefit of HCL Perot System or any of its directors. Therefore, it cannot be said that the finding of fact recorded by CIT(A) and Tribunal upholding genuineness of the donations is perverse, calling for intervention by this Court. No contravention of section 13 of IT Act having been made out and the genuineness of the donations having been accepted by CIT(A) as well as by the Tribunal, there is no ground for interference by this Court under section 260A of IT Act. No substantial question of law arises for our bra consideration in this case. The appeal as well as CM No. 3907 of 2010 for condonation of delay are hereby dismissed.”