2023 (6) TMI 169 - AT - Income Tax

Tribunal remits assessment for corpus fund verification under section 10(23C)

The Tribunal remitted the matter back to the assessing authority for further verification of the corpus fund received by the appellant, emphasizing the ... Exemption u/s 11 and 12 - Assessment of trust - violation of Section 12AA - whether assessee is eligible to take corpus donation without availing the registration U/s 12AA? - AR submitted that the assessee is eligible the exemption u/s 10(23C) as the gross receipt is below the Rs.1 crore during impugned assessment year - HELD THAT:- From the factual matrix and considering the order of the revenue authorities, it is found that the grievance of the revenue is related to unverified corpus donation. The entire corpus donation was taken in the total income and was taxed accordingly. There is no point that the assessee cannot take the corpus donation without availing the registration u/s 12AA. But the unverified corpus donation is the moot point of the grievance of the revenue. The assessee filed a written submission with details of the payment and assessee is also interested re verification of the evidence before the ld. assessing authority. DR had not made any strong objection against this assessee’s submission. Accordingly, the matter is remitted back to the ld. AO for further verification of the corpus donation received by the assessee for this impugned assessment year. Appeal of the assessee allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether corpus donations of Rs.97,42,782 received by an educational society are exigible to income-tax where the receipts were not satisfactorily verified by the assessing officer. 2. Whether an educational society whose gross receipts are below Rs.1 crore is entitled to claim exemption under section 10(23C)(iiiad) without registration under section 12A/12AA, and the legal effect of non-registration on receiving corpus donations. 3. Whether additions under section 68 (or analogous additions) are sustainable where donors' affidavits were furnished but documentary proof of payment was not produced and the assessing officer treated donations as unexplained. 4. Appropriate remedy where the assessing officer has made additions for lack of verification - whether remand for verification is warranted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability of corpus donations where verification is lacking Legal framework: Corpus donations are generally capital receipts; however, if receipts are not satisfactorily explained or verified, the assessing officer may treat them as income/add back to total income. The assessing officer's power to add is guided by the requirement to verify genuineness of transactions under the Income Tax Act and relevant provisions (e.g., section 68 principles and the rules for claiming exemptions). Precedent treatment: The Tribunal noted, and the parties relied on, authority holding that corpus donations are capital receipts and may be permissible for exemption purposes where conditions are met. Conversely, taxing authorities may add unverified receipts. Interpretation and reasoning: The Tribunal found that the revenue's primary grievance was non-verification of the corpus donations. The assessing officer recorded that only affidavits (36) were filed without documentary evidence of payment, leading to a conclusion of non-genuineness. The Tribunal accepted that corpus donations are not per se taxable but emphasised that genuineness must be established by the assessee through verifiable evidence. Where the AO is dissatisfied after investigation, addition may be justified. Ratio vs. Obiter: Ratio - Unverified corpus donations can be treated as income by the assessing authority; the genuineness of donations is a factual matter requiring verification. Obiter - General observations that corpus donations are capital receipts when satisfactorily proved. Conclusions: The Tribunal held that the core problem was lack of verification; therefore, rather than sustaining the addition outright, the matter should be remitted for further verification by the assessing officer. The Tribunal did not finally uphold the addition on the record but required verification and appropriate action thereafter. Issue 2 - Entitlement to exemption under section 10(23C)(iiiad) without registration under section 12A/12AA Legal framework: The exemption under section 10(23C)(iiiad) applies to educational institutions meeting statutory conditions. Registration under section 12A/12AA confers recognition for exemption under sections 11 and 12, but separate jurisprudence addresses 10(23C) claims. Precedent treatment: The assessee relied on a jurisdictional High Court decision holding that an institution with gross receipts below Rs.1 crore is not barred from taking corpus donations for claiming exemption under 10(23C) merely for want of registration under section 12A/12AA. The Tribunal acknowledged and relied upon that principle. Interpretation and reasoning: The Tribunal accepted that where gross receipts are below the statutory threshold, non-registration under 12A/12AA does not automatically preclude claiming exemption under 10(23C)(iiiad). However, entitlement to the exemption still depends on factual compliance and verifiable proof of donations and application of funds in accordance with objects. Ratio vs. Obiter: Ratio - An educational society with gross receipts below Rs.1 crore can claim exemption under section 10(23C)(iiiad) notwithstanding non-registration under section 12A/12AA, subject to satisfaction of other statutory conditions. Obiter - Non-registration alone is not determinative if the receipts and application of funds are verifiable. Conclusions: The Tribunal held that the assessee could, in principle, claim corpus donations without 12A registration since gross receipts were below Rs.1 crore, but the claim remained subject to verification of the donations' genuineness and application as per objects. Issue 3 - Sustenance of additions under section 68 (or analogous treatment) where only affidavits were produced Legal framework: Section 68 and related principles require the assessee to satisfactorily explain unexplained cash credits or receipts and to produce evidence establishing the identity, genuineness and creditworthiness of the creditors/donors. Precedent treatment: Authorities have consistently held that mere affidavits without corroborative documentary evidence of payment (bank statements, receipts, confirmations, ledger entries) may be insufficient to discharge the burden of proof. Interpretation and reasoning: The AO noted absence of documentary payment evidence and concluded that the society failed to prove genuineness. The CIT(A) sustained the AO's addition in part, also referencing the absence of registration as a ground. The Tribunal observed that affidavits alone were weak evidence and that the AO's skepticism concerning unexplained receipts was a factual finding warranting further verification rather than immediate confirmation of addition. Ratio vs. Obiter: Ratio - Affidavits without documentary corroboration may not discharge the burden to explain receipts; evidence must be verifiable. Obiter - The Tribunal's direction to allow re-verification indicates a preference for factual inquiry rather than mechanical additions. Conclusions: The Tribunal treated the lack of documentary evidence as a legitimate basis for the AO's concern but remitted the issue for thorough verification rather than endorsing a conclusive addition on the existing record. Issue 4 - Appropriate remedy: remand for verification where primary grievance is unverified receipts Legal framework: Where factual disputes as to genuineness of receipts exist and the record affords opportunity for further inquiry, appellate fora may remit to the assessing officer for verification and factual determination. Precedent treatment: Remand is an appropriate course when factual verification has not been completed or the assessing authority is directed to examine additional material that the assessee offers to produce. Interpretation and reasoning: The Tribunal found that the assessee offered detailed lists of donors and indicated willingness for re-verification; the revenue did not strongly oppose re-verification. Given that corpus donations are not per se taxable and the central factual issue was verifiability, the Tribunal concluded that remand to the assessing officer for further verification of the Rs.97,42,782 corpus donations was the correct remedy. Ratio vs. Obiter: Ratio - Where genuineness of receipts is unresolved and the assessee offers to produce verifiable evidence, remand for verification is appropriate. Obiter - The Tribunal's instruction to AO to take 'appropriate action in other years, after due verification' is guidance contingent on results of verification. Conclusions: The Tribunal remitted the matter to the assessing officer for verification of the corpus donations and allowed the appeal for statistical purposes, thereby vacating the finality of the previous addition pending fresh verification. Cross-reference The conclusions on Issues 1-3 converge: corpus donations may be allowable (and exemption under section 10(23C)(iiiad) may be available even without 12A registration when gross receipts are below Rs.1 crore), but entitlement depends on factual verification of donations. Consequently, the Tribunal's remedial direction (Issue 4) to remit for verification is the operative outcome synthesising legal principle with factual necessity.