Trust's Corpus Donation Exclusion Upheld by ITAT

The Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income Tax (Appeals)'s decision to delete the addition of Rs. 7,12,60,000 on account of corpus donation. The ITAT affirmed that the trust's accounts were authentic, and the Assessing Officer failed to conduct a proper inquiry. The ITAT dismissed the Revenue's appeal, upholding the deletion of the addition and holding the interest received on the corpus donation as taxable income of the trust. The decision was pronounced on 24th November 2021.

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Issues Involved: Deletion of addition of Rs. 7,12,60,000 on account of corpus donation and denial of exemption under sections 11 and 12A of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Corpus Donation:
The primary issue in this appeal was whether the Ld. Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition of Rs. 7,12,60,000 made by the Assessing Officer (AO) on account of corpus donation. The AO had initially made this addition because the assessee trust did not obtain the audit report in the prescribed Form 10B within the prescribed time, as required under section 12A(1)(b) of the Income Tax Act. The AO argued that the trust failed to submit the requisite audit report along with the income tax return, thereby justifying the denial of exemption under sections 11 and 12.

The CIT(A), however, deleted the addition, observing that the filing of the audit report along with the return of income is not mandatory and is a curable defect. The CIT(A) noted that the assessee could not have submitted the Form 10B report before the grant of registration under section 12A, which was granted on 07.01.2014, effective from 01.04.2010. The CIT(A) also referenced various judicial pronouncements and a CBDT circular which stated that the exemption should not be denied merely because of a delay in furnishing the audit report if the delay was due to reasons beyond the control of the assessee.

2. Exemption under Sections 11 and 12:
The AO denied the exemption under sections 11 and 12, arguing that the trust violated provisions of section 13(1)(c)(ii) read with section 13(2)(b) and 13(2)(g) of the Act by using or applying income or property for the benefit of trustees. The CIT(A), however, found no factual basis for these allegations in the AO's assessment. The CIT(A) emphasized that the AO did not provide any specific findings or evidence to support the claim of such violations during the de novo assessment proceedings. The CIT(A) also noted that the trust was granted registration under section 12A, and if there had been any violations, the registration would not have been granted.

3. Interest Received on Corpus Donation:
The CIT(A) upheld the addition of Rs. 66,199, which was the interest received on the corpus donation, as taxable income of the trust. The CIT(A) noted that no argument was advanced by the assessee's counsel against this addition during the hearing.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s detailed and well-reasoned order, noting that the AO did not point out any specific defects in the assessee's accounts. The ITAT agreed that the accounts, although audited post-grant of registration under section 12AA, were authentic and that the AO failed to conduct a proper enquiry regarding the accounts. Consequently, the ITAT affirmed the CIT(A)'s findings and dismissed the Revenue's appeal.

Final Decision:
The appeal of the Revenue was dismissed, and the deletion of the addition of Rs. 7,12,60,000 on account of corpus donation was upheld. The interest received amounting to Rs. 66,199 was held as taxable income of the trust. The decision was pronounced on 24th November 2021.

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