2024 (10) TMI 344 - AT - Income Tax

Trust exemption under section 11 upheld after revenue authority improperly rejected entire claim over single donation issue

The ITAT Delhi dismissed the revenue's appeal regarding denial of exemption under section 11. The AO had rejected the entire exemption claim after ... Denial of Exemption u/s 11 - Charitable activity or not - as per AO some part of income was applied on objects which are not in compliance to the objects of the assessee - assessee trust is a trust registered u/s 12A - Case of the assessee was selected for 'Limited Scrutiny' and the notice u/s 143(2) of the Act was issued HELD THAT:- We observe that the revenue has allowed the same in the assessment years 2013-14 and 2014-15, may be without verification. This assessment year, on verification, it came to the notice of the AO that the above said trust is not registered under Income Tax and donating to such unregistered trust is not treated as valid donation. With the above findings, he has proceeded to reject the whole claim of exemption u/s 11, without bringing on record how the donation given to the unregistered trust is violation of objects and functions of the assessee trust. He has proceeded to grossly reject the claim over-looking the actual charitable activities carried on by the assessee during the impugned year. After careful consideration of the findings of CIT(A) and relief granted to the assessee trust in the subsequent assessment year, the AO himself has allowed the claim of the assessee u/s 11 and restricted the donation paid to AIMC alone for disallowance. Therefore, there is no merit in denying the benefit u/s 11 of the Act without considering the actual charitable activities of the assessee trust. With the above observations, we do not see any reasons to disturb the findings of the CIT(A). Accordingly, the grounds raised by the revenue are, accordingly, dismissed. Issues:- Whether the assessee trust is entitled to exemption under section 11 of the Income Tax Act for the Assessment Year 2015-16.- Whether the donation made by the assessee trust to an unregistered organization violates the conditions for granting registration under section 12A of the Income Tax Act.Analysis:1. The appeal was filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals) for Assessment Year 2015-16, challenging the exemption granted to the assessee trust under section 11 of the Income Tax Act.2. The Revenue raised grounds asserting that the assessee trust applied income on objects not compliant with its stated objectives and that the donations made were towards non-charitable objects, violating the conditions of registration under section 12A of the Act.3. The assessee trust, registered under section 12A, filed its return of income claiming exemption under section 11 for the impugned assessment year.4. During assessment proceedings, the AO questioned the funds applied for charitable purposes by the assessee trust.5. The AO raised concerns specifically regarding a donation of Rs. 6,60,000 made to an unregistered organization, AIMC, which led to the denial of exemption claimed by the assessee trust under section 11.6. The AO's denial was based on AIMC not being a registered society under the Income Tax Act, lack of charitable activities in AIMC's financial records, and non-filing of ITR by AIMC.7. The assessee trust defended its donation to AIMC, providing affidavits and explanations to support that the donation was used for charitable purposes.8. The AO's order denying exemption under section 11 was appealed by the assessee, leading to the Ld. CIT(A) allowing the appeal, emphasizing that the denial was not in accordance with the law.9. The Revenue challenged the Ld. CIT(A)'s decision, arguing that the donation to an unregistered trust contravened the conditions for registration and exemption under the Act.10. The Ld. AR for the assessee trust contended that the consistent donations to AIMC were in line with the trust's objectives and charitable activities, supported by resolutions and affidavits.11. The Tribunal observed that the Revenue had allowed similar donations in previous assessment years without verification, and the denial of exemption in the current year lacked merit.12. Considering the actual charitable activities of the assessee trust and the relief granted in subsequent assessment years, the Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decision to allow the exemption under section 11 for the assessee trust.