ITAT Remands Sub-Lease Advance and Charitable Expenditure Claims for Verification:

The assessee is Bruhad Mumbai Gujarati Samaj which is a charitable trust registered under Section 12A of the Income Tax Act, 1961, and with the Charity Commissioner. The trust had undertaken construction of a building known as Gujarat Bhavan for carrying out its charitable objects. It filed its return of income declaring Nil income after claiming exemption under Section 11 of the Act.

During scrutiny assessment, the AO noticed that the assessee had credited Rs. 21.50 lakh received from Shri Praful Satra and Rs. 50 lakh received from Shri Harshad Mehta to its Building Fund Account without routing the amounts through the Income and Expenditure Account. The latter amount was originally received as a loan in an earlier year and was subsequently converted into a donation. The AO treated both amounts as general donations rather than corpus contributions, as the assessee failed to establish specific directions from the donors. The AO determined the total income at Rs. 44,55,150 after allowing certain construction expenditure and accumulation under Section 11(1)(a), while rejecting the claim of Rs. 2,27,839 towards other charitable objects for want of supporting evidence. The CIT(A) upheld the assessment order. 

With respect to the Rs. 21.50 lakh received from Shri Praful Satra, the Tribunal observed that the receipt merely recorded the condition relating to naming the building as suggested by the donor. It did not contain any specific direction that the contribution should form part of the trust's corpus. In the absence of any confirmation or other supporting material establishing such a direction, the Tribunal upheld its treatment as a general donation.

Similarly, regarding the Rs. 50 lakh received from Shri Harshad Mehta, the Tribunal noted that the amount was originally obtained as a loan in an earlier year and was subsequently converted into a donation subject to naming conditions for the fifth and sixth floors of the building. However, neither the naming arrangement nor the subsequent transfer of the amount to the Building Fund Account established the requisite corpus direction. Accordingly, the Tribunal upheld its treatment as a general donation.

On the addition of Rs. 88.29 lakh received from Satra Properties Ltd., the Tribunal took note of the assessee's contention that the proposed sub-lease transaction had been cancelled and that the amount received was merely an advance which was subsequently returned. It observed that the cancellation of the arrangement and actual repayment of the amount required factual verification. Accordingly, the Tribunal restored the issue to the AO with directions to examine the original arrangement, cancellation documents, accounts of both parties and bank statements evidencing repayment. It clarified that if the proposed sub-lease transaction was found to have been cancelled and the amount returned to Satra Properties Ltd., the advance of Rs. 88.29 lakh would not be included in the taxable income of the assessee for the relevant year.

Accordingly, the Tribunal dismissed the assessee's grounds concerning the two donations of Rs. 21.50 lakh and Rs. 50 lakh, while remanding the issues concerning the Rs. 88.29 lakh sub-lease advance and Rs. 2,27,839 charitable expenditure to the AO for fresh verification. The appeal was partly allowed for statistical purposes.