2017 (2) TMI 725 - AT - Income Tax

Tribunal upholds CIT(A) decision on source of funds for trust construction, dismisses Revenue's appeals

ACIT Central Circle Karnal Versus Galaxy Global Educational Trust

ACIT Central Circle Karnal Versus Galaxy Global Educational Trust - TMI Issues Involved:1. Deletion of addition under Section 69C of the Income Tax Act, 1961 for AY 2009-10.2. Deletion of addition under Section 69C of the Income Tax Act, 1961 for AY 2010-11.3. Alleged violation of provisions of Section 11(1)(d) of the Income Tax Act.4. Explanation of source of funds used for construction.5. Corpus donations and their applicability.6. Double taxation concerns.7. Credibility and timing of corpus donation claims.8. Discrepancies in balance sheets before and after the search.Detailed Analysis:1. Deletion of Addition under Section 69C for AY 2009-10:The Revenue questioned the deletion of Rs. 2,87,91,723/- added under Section 69C, arguing that the assessee admitted undisclosed income during a search and surrendered based on seized documents. The Tribunal noted that the CIT(A) found the expenditure towards construction was funded by corpus donations from Goel International Pvt. Ltd., which were used for the trust's objectives. The Tribunal upheld the CIT(A)'s decision, noting that the funds were applied for charitable purposes and the source of funds was explained satisfactorily.2. Deletion of Addition under Section 69C for AY 2010-11:Similar to the previous year, the Revenue contested the deletion of Rs. 3,21,88,455/- added under Section 69C. The Tribunal reiterated that the donations were made specifically for the construction of the building and were part of the corpus fund. The CIT(A) had correctly dismissed the addition as the funds were used for the trust's charitable objectives, and the source was adequately explained.3. Alleged Violation of Section 11(1)(d):The AO alleged that the trust violated Section 11(1)(d) by not properly accounting for voluntary contributions. The Tribunal found that the contributions were made with specific directions to form part of the corpus and were used for charitable purposes. The CIT(A) observed that the donations were received from credible sources and used as per the trust's objectives, thus no violation occurred.4. Explanation of Source of Funds:The AO contended that the trust failed to explain the source of funds used for construction. The Tribunal noted that the trust provided confirmation letters from donors, explaining the source of funds. The Tribunal highlighted that the AO did not make any addition in the case of Goel International Pvt. Ltd., which indicated acceptance of the donations as voluntary contributions to the trust.5. Corpus Donations and Their Applicability:The Tribunal emphasized that corpus donations with specific directions are exempt under Section 11(1)(d). The trust received donations with explicit instructions for building construction, which were part of the corpus fund. The Tribunal upheld the CIT(A)'s finding that these donations were used for the trust's objectives and were exempt from tax.6. Double Taxation Concerns:The Tribunal addressed the issue of potential double taxation, noting that the donations were taxed in the hands of the donor (Goel International Pvt. Ltd.) and could not be taxed again in the hands of the trust. The Tribunal held that taxing the same amount twice would be against the principles of tax jurisprudence.7. Credibility and Timing of Corpus Donation Claims:The Revenue argued that the trust's claim of corpus donations was an afterthought, made two years after the search. The Tribunal found that the trust provided credible evidence of donations and their use for charitable purposes. The CIT(A) correctly dismissed the AO's allegations, as the donations were documented and explained satisfactorily.8. Discrepancies in Balance Sheets:The AO pointed to discrepancies in the balance sheets before and after the search. The Tribunal noted that the trust explained the changes, and the funds used for construction were part of the corpus donations. The Tribunal concluded that the AO's reliance on balance sheet discrepancies was unfounded, as the source of funds was adequately explained.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the additions under Section 69C for both AY 2009-10 and AY 2010-11. The Tribunal found that the trust adequately explained the source of funds, which were used for charitable purposes. The Tribunal dismissed the Revenue's appeals, noting that the AO's additions were unjustified and lacked a valid basis. The Tribunal emphasized that the funds were part of the corpus donations and were exempt under Section 11(1)(d). The order was pronounced in February 2017, dismissing the Revenue's appeals.