2016 (6) TMI 1484 - AT - Income Tax

Unregistered trust treated as AOP, denied section 11 exemption, unexplained donations and loan credits added to income

Prahar Foundation Versus The Income Tax Officer

ITAT Chennai upheld assessment treating unregistered trust as AOP, denying section 11 exemption due to lack of section 12A registration. Court confirmed ... Exemption u/s 11 - addition of unproved donation, unproved loan credits - assessee has claimed exemption u/s 10(23C) of the Act - HELD THAT:- In this case, it is an admitted fact that the trust has not been registered u/s 12A of the Act and therefore, the assessee cannot claim any exemption under section 11 of the Act. Thus, the income received during the year by the assessee was assessed in the status of AOP. During the course of assessment proceedings, the assessee has furnished copies of ledger accounts of their bank account from Bank of India and Karur Vysya Bank. They also furnished details of corpus fund received during the year and the details of unsecured loan received by the assessee. It was stated that there was no activity of any kind in the trust. The loans and corpus donations received were stated to have been fully utilised towards purchase of land for the trust. As per the details filed, the Assessing Officer has observed that the assessee has received ₹ 18,90,000/- during the year as corpus fund from eight different individuals apart from the managing trustee's contribution of ₹ 40,000/-. On the basis of the details furnished by the assessee, summons was issue to various donors as well as the loan creditors who appeared before the AO and statements were recorded from them. The above, at Sl. No. 1, 7 and 8, i.e., D. Jayakumar has confirmed that he has given ₹ 2,00,000/- from his salary savings through his bank account and furnished details before the Assessing Officer; similarly, Shanmugam and Sundaram VN have also confirmed having given the donations of ₹ 50,000/- and ₹ 2,00,000/- from their salary savings through banking channel and therefore, the above three amounts cannot be brought under section 68 of the Act as unexplained credits. With regard to other donors, the donors are either related to the assessee or closely known to them. Concrete proof for giving these donations was not given by five donors and the sources explained by them are inadequate to support the payment of such donations. The income of a trust would not be exempt unless it has obtained registration u/s 12A of the Act. A conjoint reading of sections 11, 12 and 12A of the Act makes it clear that registration u/s 12A is a condition precedent for availing benefits under sections 11 and 12 of the Act. Unless and until an institution is registered under section 12A of the Act, it cannot claim the benefit of section 11(1)(a) of the Act. This being the situation, the assessee cannot take shelter of section 12 to claim that what has been received is corpus donation and subject the same to claim of exemption under sections 11 & 12 of the Act. Therefore it is held the credits appearing in the names of above five persons have not been satisfactorily explained as per the provisions of Section 68 of the Act. Accordingly, the donations stated to have been received from the five parties amounting to Rs. 14,40,000/- was rightly treated as income and taxed in the status of AOP. In view of the above, the amount of donations received from three parties as stated above in Sl. No. 1, 7 & 8 in para 5, which cannot be brought under section 68 of the Act. In view of the above the assessee could not prove the genuineness of the credits appearing in their books amounting to ₹ 70,00,000/-, in the names of above four parties. Moreover, we have also noticed that the assessee has indulged into fraudulence activity with the creditor, Shri S. Balamurugan, which is in the nature of criminal offense and subjected to judicial proceedings. Having credited the amounts in the books, the onus of proving the genuineness of the credits is on the assessee. The Assessing Officer has given sufficient opportunities to the assessee to prove the same. Inspite of this, the assessee was unable to adduce any evidence to substantiate the claim of existence of the loans. The explanation offered for the nature of the sources for these credits are mostly fabricated and not to the satisfaction of the AO, within the meaning of section 68 of the Act. Moreover, in this case, the Enquiries made with all the creditors revealed that the assessee Trust/Trustees have used their money and created the loans by using the names/bank accounts of the creditors. Therefore the total unproved loan credits in the above four names amounting to ₹ 70,00,000/- was the income of the trust and assessed under section 68 of the Act by the Assessing Officer was found to be rightly confirmed by the ld. CIT(A). Claim of exemption u/s 10(23) - The claim made as an afterthought in anticipation of disallowances cannot be accepted for the reasons as stipulated in the assessment order that it is unambiguously provided in section 10(23C) (iiiad) that the exemption is available to 'any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed'. From the details filed it can be seen that the assessee trust has utilised the funds brought in as discussed above only for procurement of lands as admitted by the assessee in its letter dated 20.10.2011. Evidently no other activities were found to have been seen or established. They also have stated that the trust has not commenced any activities. The assessee trust has also filed a copy of the trust deed before the Assessing Officer and on scrutiny of the trust deed, as per Clause 6 of the trust deed there are 42 items listed as objects of the trust and according to the Assessing Officer it is obvious that the trust is certainly not existing solely for the purpose of education, thereby disqualifying itself for the possible claim of exemption under section 10(23C) of the Act. We are unable to agree that the assessee can be termed as an institution existing solely for the purpose of education. Thus, we confirm the order passed by the ld. CIT(A) with regard to exemption under section 10(23C) of the Act and sustain the addition. The other addition towards unproved loan credits also hereby sustained. Appeal filed by the assessee is partly allowed. Issues Involved:1. Addition of Rs. 18.90 lakhs as unproved donation.2. Addition of Rs. 70.00 lakhs as unproved loan credits.3. Claim of exemption u/s 10(23C) of the Income Tax Act.Summary:1. Addition of Rs. 18.90 lakhs as unproved donation:The assessee trust received Rs. 18,90,000/- during the year as corpus fund from eight different individuals. The Assessing Officer (AO) issued summons to the donors and recorded their statements. Three donors confirmed their donations with proof, while the remaining five donors, who were related to the Managing Trustee, could not provide satisfactory evidence for their donations. The Tribunal held that the income of a trust would not be exempt unless it has obtained registration u/s 12A of the Act. Therefore, the donations from the five parties amounting to Rs. 14,40,000/- were rightly treated as income and taxed in the status of Association of Persons (AOP).2. Addition of Rs. 70.00 lakhs as unproved loan credits:The AO examined the loans received from Mr. Bhavesh Kumar Jain, Mr. Vasant Kumar Jain, Mr. S. Balamurugan, and M/s. Point Red Telecom P Ltd., totaling Rs. 70 lakhs. The creditors denied the existence of loans and provided sworn statements that the trust had used their names and bank accounts to create fictitious loans. The Tribunal agreed with the AO's findings that the assessee could not prove the genuineness of the loan credits and upheld the addition of Rs. 70,00,000/- u/s 68 of the Act.3. Claim of exemption u/s 10(23C) of the Income Tax Act:The assessee claimed exemption u/s 10(23C)(iiiad) of the Act, stating that the funds were utilized for the creation of infrastructure for an educational institution. However, the Tribunal noted that the trust had not commenced any educational activities and had not made any claim for exemption u/s 10(23C) while filing the return of income. The Tribunal held that the trust did not exist solely for educational purposes and thus disqualified itself from claiming exemption u/s 10(23C) of the Act. The Tribunal confirmed the order of the Commissioner of Income Tax (Appeals) [CIT(A)] denying the exemption.Conclusion:The Tribunal sustained the addition of Rs. 14,40,000/- as unproved donations and Rs. 70,00,000/- as unproved loan credits, while denying the exemption claim u/s 10(23C) of the Act. The appeal filed by the assessee was partly allowed.