Tribunal grants relief, treats earmarked funds as corpus donations under Income Tax Act

The Tribunal allowed the appeal partially, granting relief by treating earmarked funds as corpus donations under section 11(1)(d) of the Income Tax Act. Additionally, the Tribunal partially accepted the assessee's reconciliation regarding excess cash deposits, reducing the addition to Rs. 95,146 and deleting the balance of Rs. 2,85,511. The appeal was concluded on 16/06/2023.

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Issues Involved:
1. Denial of benefit of section 11(1)(d) on Rs. 51.38 lacs received as earmarked funds being corpus donation.
2. Addition of Rs. 2,00,000 received as unsecured loan.
3. Addition of Rs. 3,80,657/- being excess cash deposit into the bank.
4. Alternate plea regarding benefit of over application to absorb the additions.
5. Assessee's right to alter or vary grounds of appeal.

Summary:

Issue I: Denial of benefit of section 11(1)(d) on Rs. 51.38 lacs received as earmarked funds being corpus donation:
The assessee argued that the earmarked funds should be treated as corpus donations under section 11(1)(d) of the Income Tax Act. The Assessing Officer (AO) rejected this claim, stating that the trust deed did not specify these funds as corpus funds and lacked specific directions from donors. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision. However, the Tribunal found merit in the assessee's submission, noting that the nature and character of donations are determined by the donor's intention and specific directions. The Tribunal cited several precedents supporting the treatment of earmarked funds as corpus donations and allowed the assessee's claim, stating, "It is an established law that when a Trust receives a particular sum which is earmarked for a specific purpose, it constitutes nothing but capital receipt which needs to be treated as forming part of the corpus."

Issue II: Addition of Rs. 2,00,000 received as unsecured loan:
The assessee did not press this ground of appeal, and it was dismissed as not pressed.

Issue III: Addition of Rs. 3,80,657/- being excess cash deposit into the bank:
The AO added Rs. 3,80,657/- to the assessee's income, citing excess cash deposits over reported cash fees. The CIT(A) confirmed this addition. The Tribunal heard both parties and noted the difficulty in reconciling old records. The Tribunal partially accepted the assessee's reconciliation, reducing the addition to Rs. 95,146/- and deleting the balance of Rs. 2,85,511/-. The Tribunal stated, "Taking into account the reconciliation filed by the assessee before the Bench, we are of the view that addition to the tune of Rs. 95,146/- should be sustained, and balance addition of Rs. 2,85,511/- is directed to be deleted."

Issue IV: Alternate plea regarding benefit of over application to absorb the additions:
The assessee did not press this ground of appeal, and it was dismissed as not pressed.

Issue V: Assessee's right to alter or vary grounds of appeal:
The Tribunal did not specifically address this issue as it was a general plea.

Conclusion:
The appeal was partly allowed, with the Tribunal granting relief on the treatment of earmarked funds as corpus donations and partially reducing the addition for excess cash deposits. The final order was pronounced on 16/06/2023.

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