2012 (12) TMI 637 - AT - Income Tax

Tribunal allows Revenue appeal despite delay, emphasizes documentation for tax exemptions

The Tribunal condoned the delay in filing the Revenue's appeal and admitted it for disposal. The assessing officer disallowed the trust's exemption claim ... Violation of sec. 13(1)(c) - non application of Funds of Trust for Charitable purposes - diversion of funds - CIT(A) allowed the claim - Held that:- The claim of purchase of computers and equipments by the assessee could not have been accepted on its face value when it was not reflected in the books of accounts. Even the balance sheet forming part of the final accounts audited by a Chartered Accountant does not show the computers and other equipments as asset. A lapse of such magnitude cannot be wished away light heartedly as an oversight of the accountant. More so, when the assessee claims itself to be a trust promoted by the Government. The invoices raised by M/s Silicon Graphics (India) Pvt. Ltd., towards sale of computers and equipments were also in the name of Govt., of AP, Disaster Management Unit, Planning Deptt., and not in the name of assessee. These facts have not at all been examined by the CIT (A) while deciding the appeal. As decided in CIT vs. Durga Prasad More (1971 (8) TMI 17 - SUPREME COURT) that though apparent must be considered to be real until it is proved to be otherwise, a party who relies on a recital in a deed has to establish the trust of those recitals. The taxing authorities were entitled to look into the surrounding circumstances to find out the reality of the recitals made in the document. As the assessee has failed to prove that application of fund by the trust was for charitable purpose appeal of revenue allowed. Issues:1. Condonation of delay in filing appeal.2. Exemption claim under section 11 of the Income Tax Act.3. Alleged diversion of trust funds in violation of specific sections of the Act.4. Discrepancies in reflecting asset acquisition in books of accounts.5. Application of trust funds for charitable purposes.Condonation of Delay:The Revenue filed an appeal, which was time-barred by 10 days. The Tribunal, after considering an affidavit explaining the delay, condoned the delay and admitted the appeal for disposal.Exemption Claim under Section 11:The assessee, a trust registered under section 12 of the Act, claimed exemption under section 11 for the assessment year 2004-05. The assessing officer disallowed the claim as the funds were allegedly diverted without proper authorization and not utilized for charitable activities as per the trust deed.Alleged Diversion of Trust Funds:The assessing officer concluded that the trust had diverted funds in violation of specific sections of the Act, leading to the rejection of the exemption claim under section 11. The officer found unauthorized transfer of government grants and lack of proper authorization for payments made, indicating diversion of funds.Discrepancies in Reflecting Asset Acquisition:The assessing officer noted discrepancies in reflecting the acquisition of assets like computers and equipment in the trust's books of accounts and balance sheet. The absence of proper documentation and authorization raised doubts regarding the legitimacy of the claimed purchases.Application of Trust Funds for Charitable Purposes:The CIT (A) allowed the appeal of the assessee based on similar past decisions. However, the Tribunal found that the CIT (A) did not adequately consider the issues raised by the assessing officer. The Tribunal observed that the assessee failed to prove the charitable application of funds, leading to the setting aside of the CIT (A)'s order and restoration of the assessing officer's decision.The judgment highlighted the importance of proper documentation and adherence to legal requirements for claiming exemptions under the Income Tax Act. It emphasized the need for trusts to demonstrate the legitimate application of funds for charitable purposes and the consequences of unauthorized fund diversions. The decision underscored the significance of maintaining accurate financial records and ensuring transparency in financial transactions to uphold the integrity of trust operations under the Act.