2025 (7) TMI 586 - AT - Income Tax

Addition u/s 68 - assessee has failed to provide any satisfactory explanation regarding the nature and source of donation - HELD THAT - Admittedly by arriving at such an adverse finding the AO has not brought any material on record suggesting that the claim of the assessee is not genuine. It appears ex-facie that no attempt to verify the correctness of such claim was made. The finding is purely based on surmises without being supported by any credible evidence. AO should have given clear findings about the veracity of such donations. It is not the case of the AO that the name and addresses mentioned in the list is imaginary or fictitious. In the absence of such finding we do not see any reason to disturb the finding of the Ld. CIT(A). So far the addition of Rs. 25, 57, 790/- is concerned such figure is not discussed in the assessment order. The Assessing Officer had discussed only a sum of Rs. 20, 50, 000/- in para no. 8 of its order. It is not discernible from the assessment order as where from such figure is taken therefore on this point as well finding of the Ld. CIT(A) is justified. The grounds of appeal of the Revenue are hereby dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal in this matter include:

• Whether the Assessing Officer (AO) was justified in treating 3% of the donations received by the assessee trust as anonymous donations under Section 115BBC of the Income Tax Act, 1961, due to incomplete addresses of certain donors, thereby disallowing such amounts as unexplained income under Section 68.
• Whether the entire cash donation amounting to Rs. 1,70,51,600/- received by the trust could be accepted as genuine income, given that the assessee had furnished names and addresses of donors.
• Whether the provisions of Section 68 of the Income Tax Act, 1961 are applicable to donations received and shown as income by the trust.
• Whether the AO's addition of Rs. 25,57,790/- without discussion or explanation in the assessment order is sustainable.
• Whether the delay in submission of donor details by the assessee and the nature of addresses provided justified the AO's reliance on Section 115BBC for disallowance.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 115BBC and Section 68 to Donations Received by the Trust

Relevant legal framework and precedents: Section 115BBC of the Income Tax Act, 1961, deals with taxation of anonymous donations received by charitable trusts. Anonymous donations are defined as voluntary contributions where the recipient does not maintain records indicating the name and address of the donor. Section 68 addresses unexplained cash credits, requiring the assessee to satisfactorily explain the nature and source of such credits.

Court's interpretation and reasoning: The Tribunal examined the definition of anonymous donations under Section 115BBC(3) and noted that the only prescribed particulars required to be maintained are the name and address of the donor. Since no other particulars have been prescribed, the obligation on the trust is limited to maintaining these two details.

The AO had disallowed donations aggregating Rs. 51,04,68/- (3% of total donations) on the ground of incomplete addresses. The Tribunal observed that while some addresses were incomplete, such cases constituted only approximately 3% of the total donors. For these, invoking Section 115BBC was justified. However, for the remaining 97%, the assessee had furnished names and addresses as required, and the AO had not conducted any verification or brought evidence to dispute their genuineness.

Key evidence and findings: The assessee had submitted a list of donors with names and addresses, albeit some addresses were generalized. The AO did not verify the donors or challenge the authenticity of the list beyond stating incompleteness of some addresses. The CIT(A) found that the AO's addition was based on surmises and conjecture without credible evidence.

Application of law to facts: The Tribunal held that since the assessee maintained the required records for 97% of donors, those donations could not be treated as anonymous or unexplained income under Section 68 or 115BBC. Only the small portion with incomplete addresses could be treated as anonymous donations subject to taxation under Section 115BBC.

Treatment of competing arguments: The Revenue argued that the addresses were generalized and incomplete, and the delay in submission prevented verification. The assessee contended that the list was submitted and accepted by CIT(A). The Tribunal sided with the assessee on the basis that the AO failed to verify or rebut the genuineness of the donors and donations.

Conclusions: The Tribunal upheld the CIT(A)'s partial deletion of addition, restricting disallowance to 3% of donations with incomplete addresses and deleting the rest.

Issue 2: Whether the Entire Cash Donation Should be Accepted as Income

Relevant legal framework and precedents: Under the Income Tax Act, donations received by a trust are considered income unless proven otherwise. Section 68 requires the assessee to explain the source of cash credits satisfactorily.

Court's interpretation and reasoning: The Tribunal noted the assessee had disclosed the donations as income and furnished donor details. The AO did not dispute the genuineness of the donors but relied on incomplete addresses and delay in submission to treat the donations as unexplained.

Key evidence and findings: The assessee submitted a letter dated 20.12.2019 enclosing the donor list. The AO did not make any finding that the list was fictitious or imaginary. The CIT(A) found that the AO's addition was not based on any material questioning the genuineness of donors.

Application of law to facts: Without any evidence to the contrary, the Tribunal held that the donations should be accepted as genuine income except for the small portion with incomplete addresses.

Treatment of competing arguments: The Revenue's argument of delay and incomplete addresses was rejected as insufficient to disallow the entire donation amount.

Conclusions: The Tribunal confirmed acceptance of the majority of donations as income.

Issue 3: Applicability of Section 68 to Donations Received and Shown as Income

Relevant legal framework and precedents: Section 68 applies to unexplained cash credits where the assessee fails to satisfactorily explain the source. Donations received and disclosed as income with proper records may not attract Section 68 if genuineness is established.

Court's interpretation and reasoning: The Tribunal observed that the AO invoked Section 68 without verifying the donor details or challenging their authenticity. The AO's reliance on surmises without evidence was held to be improper.

Key evidence and findings: No adverse findings on the genuineness of donors or donations were recorded by the AO.

Application of law to facts: The Tribunal concluded that Section 68 could not be applied merely on the basis of incomplete addresses or delay in submission if the assessee maintained records and the AO failed to disprove them.

Treatment of competing arguments: The Revenue's contention that donations from far-flung areas without satisfactory explanation justified Section 68 invocation was not accepted due to lack of evidence.

Conclusions: Section 68 was not applicable to the donations except for the small portion treated as anonymous donations under Section 115BBC.

Issue 4: Addition of Rs. 25,57,790/- Without Discussion in Assessment Order

Relevant legal framework and precedents: Additions to income must be based on reasons recorded in the assessment order. Arbitrary additions without explanation are not sustainable.

Court's interpretation and reasoning: The Tribunal noted that the AO's assessment order did not discuss or explain the addition of Rs. 25,57,790/-. The only discussed addition was Rs. 20,50,000/- related to unexplained fees.

Key evidence and findings: Absence of any reason or basis for the addition in the assessment order.

Application of law to facts: The Tribunal held that such addition could not be sustained in absence of any discussion or explanation.

Treatment of competing arguments: The Revenue did not provide any explanation or materials to justify the addition.

Conclusions: The addition of Rs. 25,57,790/- was deleted.

Issue 5: Delay in Submission of Donor Details and Nature of Addresses

Relevant legal framework and precedents: Timely submission of documents is important for verification. However, delay alone does not justify disallowance if genuineness is not disproved.

Court's interpretation and reasoning: The Tribunal acknowledged the delay in submission but noted that the AO did not verify the donor details or dispute their authenticity. The addresses, though generalized in some cases, were mostly complete.

Key evidence and findings: Donor list submitted on 26.12.2019, just before the limitation period. Majority of addresses were acceptable.

Application of law to facts: The Tribunal held that delay and generalized addresses could not be the sole basis for disallowance without evidence of fictitious donors.

Treatment of competing arguments: The Revenue's reliance on delay and incomplete addresses was rejected due to lack of verification.

Conclusions: Delay and address issues justified disallowance only for a minor portion of donations.

3. SIGNIFICANT HOLDINGS

The Tribunal established the following core principles and final determinations:

• "Anonymous donations are those donations in which a person receiving the donation does not maintain record as per the requirement, prescribed in the Act. However, the only requirement of the Act respect to the maintenance of record of identity is the name and the address of the contributor and nothing else has been prescribed till date."
• "Addition cannot be made on conjecture and surmise as held by the Hon'ble Courts in plethora of cases."
• "The AO has not made any verification in respect of the donors list submitted by the appellant. The AO in his assessment order has mentioned that the addresses were incomplete. ... The number of such cases is approximately 3% of the total number or donors. Such donors can be construed as anonymous donors in the appellant's case. Thus invoking of provision of Section 115BBC in respect of these 3% donors is justified."
• "The presumption of the AO regarding the balance donors is legally and factually not tenable the appellant provided names and addresses of all these donors as per the provision of Section 115BBC."
• "No attempt to verify the correctness of such claim was made. The finding is purely based on surmises without being supported by any credible evidence."
• "The addition made by the AO in respect of above non corpus donors, except for the 3% donors whose addresses and incomplete, as discussed above, u/s 115BBC is deleted and partial relief is allowed to the appellant."
• "The addition of Rs. 25,57,790/- is not discussed in the assessment order. ... In view of the addition made by the AO cannot be sustained, accordingly, the same is directed to be deleted."

The Tribunal dismissed the Revenue's appeal and allowed partial relief to the assessee by restricting disallowance to 3% of donations with incomplete addresses. The cross objection by the assessee was dismissed as withdrawn.