2025 (12) TMI 414 - AT - Income Tax

ITAT deletes unexplained expenditure addition u/s 69C, accepts inter-trust donation as valid application of income u/s 11

ITAT Mumbai allowed the assessee-trust's appeal and deleted the addition made u/s 69C. It held that the addition was based solely on statements of third ... Assessment of trust - Addition u/s 69C - seized material or documents have been relied upon - HELD THAT:- As undisputed fact that addition in the present case were sustained solely on the basis of statements of third person made during the search and in this regard “no seized material or documents have been relied upon”. There is nothing on record in the shape of bank trail or corroborative evidence to the effect that the donation made by assessee was returned back by the donor after deducting commission thereon. It would not be out of place to mentioned here that throughout assessment proceedings assessee was never confronted with any such statement of alleged Ram Bhawan Ojha and Tribhawan Ram Kalp Ojha despite specific request made by the assessee. It is a settled law that a statement recorded during the search, without supporting evidence has no independent evidentiary value. There is no seized documents on record evidencing any “cash back” or any accommodation entry has been brought on record thus in this way the additions were sustained only on the basis of suspicion without any independent corroborative evidences. Whereas it is a settled law that suspicion how so ever strong may be, but cannot take place of proof beyond reasonable doubt. After evaluation the evidences placed on record, we also found that the donation in this case was made undisputedly to registered charitable trust holding valid 12A and 80G certificates, and the entire donation was paid through banking channels which has been duly recorded in books of accounts. All above mentioned documents had already been submitted during the course of assessment proceedings thus in our view the assessee had already discharged his onus by furnishing primary evidences therefore the burden shifts upon the department to prove that the transactions were not genuine but in this case nothing has been placed on record to prove that the transaction was not genuine. Reliance in this regard is bring placed upon the decision in the case of CIT Vs. Chotatingrai Tea [2002 (10) TMI 3 - SUPREME COURT] CIT Vs. Stellar Investment [1991 (4) TMI 100 - DELHI HIGH COURT] and PCIT Vs. Abhisar Buildwell [2023 (4) TMI 1056 - SUPREME COURT] Provisions of Sec. 69C of the Act are attracted only when the source of the expenditure is unexplained whereas on the contrary as per the facts of the present case the source in this case is accounted bank funds Therefore Sec. 69C has no application. Lastly we have also considered the CBDT Circular No. 1132 dated 05.1.1998 which clarifies that donation by one charitable trust to another registered charitable trust is a valid application of money u/s 11 of the Act since the said circular is binding on the department and admittedly in the present case the donation was inter trust which has to considered as application of income. Thus no additions were warranted. In this regard reliance is being placed upon the decision in the case titled DCIT Vs. Divya Yog Mandir Trust [2019 (5) TMI 410 - ITAT DELHI] Additions made by the AO and sustained by Ld. CIT(A) are bad in law and not sustainable. Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether an addition under Section 69C in respect of a donation could be sustained when based solely on third-party statements recorded under Section 132(4), without any seized material, corroborative evidence, or opportunity of cross-examination to the assessee. 1.2 Whether a donation made by a registered charitable trust to another registered charitable trust, through accounted banking channels and duly recorded in the books, could be treated as unexplained expenditure under Section 69C in view of the statutory scheme and CBDT Circular No. 1132. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of addition under Section 69C based solely on uncorroborated third-party statements without cross-examination Legal framework (as discussed) 2.1 The Tribunal examined the evidentiary value of statements recorded under Section 132(4) in the absence of supporting incriminating material, relying on judicial precedents holding that such uncorroborated statements cannot, by themselves, form the sole basis for addition and that denial of cross-examination vitiates reliance on such statements. Interpretation and reasoning 2.2 The addition of Rs. 10,00,000 was made and sustained solely on the basis of statements of office-bearers of the donee trust recorded during search, wherein they admitted to providing accommodation entries and returning donations in cash after deducting commission. 2.3 The Tribunal noted that: (i) no seized documents or material evidencing 'cash back' or accommodation entries were brought on record; (ii) no bank trail or independent corroborative evidence was shown to demonstrate that the impugned donation was returned to the assessee; and (iii) despite specific request, the assessee was never confronted with the said statements nor afforded opportunity of cross-examination. 2.4 It was held, relying on the cited decisions, that a statement recorded under Section 132(4), without supporting evidence, has no independent evidentiary value and that uncorroborated statements cannot validly form the basis of an addition. The Tribunal also reiterated that suspicion, however strong, cannot take the place of proof. Conclusions 2.5 The Tribunal concluded that, in the absence of seized material, corroborative evidence, or opportunity of cross-examination, the addition under Section 69C based solely on third-party search statements was bad in law and unsustainable. Issue 2: Characterisation of inter-trust donation as unexplained expenditure under Section 69C and effect of CBDT Circular No. 1132 Legal framework (as discussed) 2.6 The Tribunal considered Section 69C, holding that it applies only where the source of expenditure is unexplained, and referred to CBDT Circular No. 1132 dated 05.01.1978 clarifying that donation by one charitable trust to another registered charitable trust constitutes proper application of income for charitable purposes under Section 11. Interpretation and reasoning 2.7 It was undisputed that: (i) the donee trust was a registered charitable trust holding valid Section 12A and Section 80G certificates; (ii) the donation of Rs. 10,00,000 was made through banking channels; (iii) the transaction was duly recorded in the assessee's books of account; and (iv) the donation was supported by a receipt. 2.8 On these facts, the Tribunal held that the assessee had discharged its onus by furnishing primary evidence demonstrating the genuineness of the transaction. The burden therefore shifted to the Revenue to prove that the transaction was not genuine. No material was brought on record by the Revenue to discharge this burden. 2.9 The Tribunal further held that, since the funds used for the donation were from accounted bank sources, the condition for invoking Section 69C-that the source of expenditure be unexplained-was not satisfied, and hence Section 69C could not be applied. 2.10 Referring to CBDT Circular No. 1132, which is binding on the Department, the Tribunal observed that an inter-trust donation between registered charitable trusts is to be treated as application of income under Section 11. As the donation in question fell squarely within this category, it was to be regarded as a valid application of income and not as unexplained expenditure. Conclusions 2.11 The Tribunal held that the donation by the assessee trust to another registered charitable trust, being through banking channels, duly recorded, and supported by documentary evidence, constituted a genuine transaction and a valid application of income under Section 11 in terms of CBDT Circular No. 1132. 2.12 The invocation of Section 69C was held to be legally untenable, as the source of expenditure was explained and accounted. The addition of Rs. 10,00,000 under Section 69C was therefore directed to be deleted. 2.13 In view of the deletion of the addition on merits, the challenge to the validity of the reassessment proceedings was treated as academic and was not adjudicated.