Delhi High Court upholds addition against Educational Trust as Donations were found to be Bogus [Read Judgment]

The Delhi High Court upheld the addition against the educational trust as the donations were bogus.

The Appellant, Brijbasi Education, and Welfare Society is an educational trust, duly registered under the provisions of Section 12AA of the Act and is enjoying exemption under Section 80 of the Income Tax Act.

The CBI reported that the Chairman of the Appellant Trust, along with other entities, had fraudulently and with the intent to evade tax, made huge cash deposits in the accounts of the Appellant.

It was further divulged that chairman gave Rs. 35 lakhs to one Shri Mahesh Garg, who deposited the said amount in different accounts, and issued cheques favouring Brijbasi Education & Welfare Society, amounting to Rs. 35 lakhs, thereby creating bogus donors and donations. It was also revealed that 22 witnesses were examined by the CBI, all of whom denied giving any donations to the Appellant Trust.

The Appellant had failed to explain the donation of Rs. 95,00,000 in terms of Section 68 of the Act. Accordingly, an addition of Rs. 60,00,000 was made on account of unexplained cash credit, thereby determining the total taxable income as Rs. 60 Lakhs.

The Assessee preferred an appeal before the CIT(A) on the issue of reopening of assessment as well as on the merits of the addition of Rs.60 lakhs on account of unexplained cash credit.

The CIT(A), upheld the reopening of the assessment. It was observed that while the Appellant has received Rs. 95,00,000 as donations during the year including Rs. 35,00,000/- received through Mahesh Garg, the amount of Rs. 35,00,000 added by the AO for AY 2006-07 had been deleted and held to be chargeable in AY 2007-08.

Hence, as a matter of fact, the Appellant had received a total donation of Rs.95,00,000 but AO had made an addition only of Rs. 60,00,000 for AY 2006-07. Accordingly, the income of the Appellant was enhanced to Rs. 95,00,000 under section 68 of the Act.

Mr. Bharat Rai Chandani, counsel appearing for the Appellant, submitted that the Tribunal has failed to appreciate the evidence in the nature of confirmation of the donations along with relevant bank statements reflecting bank transactions and other details which prove the genuineness, creditworthiness and identity of the donors.

The division bench of Justice Sanjeev Narula and Justice Manmohan noted that the genuineness of the donors could not be established , the Appellant failed to discharge the onus of proof cast upon it. No attempt was made to produce credible material to corroborate the transactions or to explain the contradictory evidence that it was confronted with.

Therefore, the court held that no attempt was made to produce credible material to corroborate the transactions or to explain the contradictory evidence that it was confronted with. Appellant also never took any steps to examine the witnesses and as a result, on the basis of the material on record, the tax authorities concluded that the genuineness, creditworthiness remained unsubstantiated. In wake of this factual position, the donations were treated as bogus, justifying the additions.

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