2015 (12) TMI 1116 - AT - Income Tax

Revenue's Appeal Partially Allowed: Accumulated deficit disallowed, charity expenses upheld.

The Tribunal partially allowed the Revenue's appeal by disallowing the accumulated deficit adjustment and the claim for repayment of loans as application ... Disallowance of accumulated deficit - assessee failed to furnish the year-wise accumulation of deposit and no return was filed before A.Y. 2002-03 - CIT(A) delted the addition - Held that:- It is a fact that the Assessee did not file return of income before AY 2002-03. It is not the case of the Assessee that the accumulated deficit was determined in assessments completed after AY 2002-03 when from the Assessee started filing return of income. The accumulated deficit is claimed on the basis of Balance Sheet as on 31.3.1996 in which loans and advances received in cash or kind is shown at ₹ 9,29,50,000/-. As to what is the opening balance as on 1.4.1995 is also not found in this Balance Sheet. The accumulated deficit as per this balance sheet is shown at ₹ 8,63,10,133/-. The accumulated deficit is thereafter carried forward from AY 96-97 to AY 2004-05 and stands reduced to ₹ 8,54,16,519 as on 31.3.2005 which is sought to be set off against the income of AY 2005-06. It is also pertinent to note that the aforesaid claim was not made in the return of income filed by the Assessee nor in the proceedings before the AO. The claim was made for the first time before CIT(A). The CIT(A)’s findings on this aspect have already been given in the earlier part of this order. The evidence referred to in the findings of CIT(A) are relevant only with regard to the claim of the Assessee that ₹ 4,54,11,300/- was repayment of loans which had been taken by the Assessee in the earlier AYs and used for charitable purpose and repaid during the PY. There is no material on record to substantiate the claim of the Assessee that a sum of ₹ 8,54,26,519/- was accumulated deficit. Admittedly such accumulated deficit has not been determined in any assessment proceedings and therefore the claim of the Assessee in this regard was wrongly allowed by the CIT(A). - Decided against assessee Genuity of Repayments of loans - Held that:- The loans were stated to be availed between the year 1980 to June, 2003 when the Assessee did not have funds to carry out charitable activities. In the year in which the loans were availed, there was no scrutiny assessment. In fact the Assessee has started filing returns of income only after AY 2002-03. Therefore the factum of borrowing and the utilization of the funds borrowed were never subjected to scrutiny in the past. There is no evidence filed by the Assessee in this regard. The CIT(A) has referred to the following evidence in upholding the claim of the Assessee viz., (a) details of expenses along with evidence; (b) Loan confirmation; (c) balance sheet for last eight years; (d) Bank statements; ( e) list of repayment of loan, (f) write-up on purpose for acquiring loans. As already stated the Assessee has clearly admitted before the CIT(A) on its inability to produce evidence to prove borrowing and that the loans borrowed were spent for charitable activities and nature of those charitable activities. The mere assertion of the Assessee in this regard without evidence cannot be the basis to uphold the claim of the Assessee in this regard. We therefore do not agree with the conclusions of the CIT(A) in this regard. We therefore reverse the order of the CIT(A) and restore the order of the AO in this regard.- Decided against assessee Disallowance of charity and donation and administrative expenses - neither books of accounts nor the bills & vouchers were produced - Held that:- AO did not allow the claim of the Assessee for the reason that only a list of payments had been filed which was neither supported by any bills and vouchers nor any books of accounts sowing the actual expenditure. The bills and vouchers had been filed before the AO. A specific ground had been raised by the Assessee before CIT(A) in this regard. The CIT(A) has also held that the bills and vouchers evidencing expenses were filed before the AO. The details of charity and donations and the supporting vouchers are at page 75 to 91 of Assessee’s paper book. The details of administrative expenses are placed at page-92 of the paper book and the payments in question were made by cheques. The expenditure in question is reasonable and deserves to be accepted. We are of the view that the CIT(A) rightly deleted the addition made by the AO - Decided in favour of assessee. Issues Involved:1. Accumulated Deficit Adjustment2. Repayment of Loans as Application of Income for Charitable Purposes3. Charity and Donation Expenses4. Administrative ExpensesDetailed Analysis:Accumulated Deficit AdjustmentThe primary issue was whether the accumulated deficit of Rs. 8,54,16,519 could be set off against the income of AY 2005-06. The Assessee did not file returns before AY 2002-03, and the accumulated deficit was claimed based on the balance sheet as on 31.3.1996. The CIT(A) allowed the claim based on various documents provided by the Assessee. However, the Tribunal found no substantial evidence to support the claim of accumulated deficit and noted that it was not determined in any assessment proceedings. Therefore, the Tribunal reversed the CIT(A)'s decision and allowed the Revenue's ground, disallowing the accumulated deficit adjustment.Repayment of Loans as Application of Income for Charitable PurposesThe Assessee claimed that the repayment of loans amounting to Rs. 4,54,11,300, which were taken for charitable purposes, should be considered as application of income for charitable purposes and thus eligible for exemption under Section 11 of the Income Tax Act. The CIT(A) accepted this claim based on loan confirmations and other documents. However, the Tribunal found that the Assessee failed to provide sufficient evidence regarding the receipt and utilization of these loans for charitable purposes. The Tribunal reversed the CIT(A)'s decision and upheld the AO's disallowance of the claim.Charity and Donation ExpensesThe Assessee claimed expenses of Rs. 31,01,525 towards charity and donations. The AO disallowed this claim due to the lack of supporting bills, vouchers, and books of accounts. The CIT(A) found that the Assessee had submitted the necessary documents and allowed the claim. The Tribunal reviewed the documents, including bills and vouchers, and found the expenses reasonable. Thus, the Tribunal upheld the CIT(A)'s decision to allow the charity and donation expenses.Administrative ExpensesThe Assessee claimed administrative expenses of Rs. 39,340. The AO disallowed this claim due to the absence of supporting documents. The CIT(A) found that the Assessee had provided the necessary bills and vouchers and allowed the claim. The Tribunal reviewed the supporting documents and found the expenses reasonable. Therefore, the Tribunal upheld the CIT(A)'s decision to allow the administrative expenses.ConclusionThe Tribunal partly allowed the Revenue's appeal by disallowing the accumulated deficit adjustment and the claim for repayment of loans as application of income for charitable purposes. However, it upheld the CIT(A)'s decision to allow the charity and donation expenses and administrative expenses.