Additional Evidence Admitted with Costs in the Interest of Substantial Justice, Despite Assessee's Casual Approach.

On Admission of Additional Evidence (Section 68)

Additional Evidence Admitted with Costs in the Interest of Substantial Justice, Despite Assessee’s Casual Approach.

Issue

Whether additional evidence, having a material bearing on the issue of unsecured loans, should be admitted at the Appellate Tribunal stage under Rule 29, even when the assessee’s failure to produce it earlier demonstrated a casual and callous approach.

Facts

The Assessing Officer (AO) made an addition of ₹3.07 crore under section 68 of the Income-tax Act, 1961, treating an increase in unsecured loans as unexplained.
The Commissioner (Appeals) [CIT(A)] provided partial relief, sustaining an addition of ₹1.82 crore while deleting ₹1.24 crore.
Before the Income Tax Appellate Tribunal (ITAT), the assessee filed an application to admit additional evidence (loan confirmations, bank statements), arguing they were not properly advised earlier.
It was noted that while some documents were produced before the lower authorities, this new set of documents was withheld until the Tribunal stage.

Decision

The matter was remanded to the AO.

The Tribunal acknowledged the assessee’s casual approach but held that in the interest of substantial justice, crucial evidence could not be ignored.
The additional evidence was admitted, but conditional upon the assessee paying a cost of ₹3,000 to the State Legal Services Authority.
The case relating to the sustained addition of ₹1.82 crore was remitted to the AO for fresh examination in light of the new evidence.
Importantly, the relief of ₹1.24 crore already granted by the CIT(A) was to remain undisturbed.

Key Takeaways

Substantial Justice Over Procedural Lapses: Courts often prioritize delivering a just outcome based on all material facts, even if it means condoning a party’s earlier procedural negligence.
Discretion, Not a Right: Admission of additional evidence at a late stage is a discretionary power of the Tribunal, not an absolute right of the assessee.
Costs for Casual Conduct: To discourage negligence, Tribunals can impose costs on the defaulting party as a condition for accepting delayed evidence.
Protecting Earned Relief: When a matter is remanded, the appellate body can specifically protect the relief already granted in earlier stages, ensuring the assessee is not put in a worse position on issues already won.

On Interest Paid to Related Parties (Section 13)

Disallowance of Interest Paid to Related Parties Remanded as it is Linked to the Genuineness of Loans.

Issue

Whether the disallowance of interest paid to related parties under section 13 should be independently decided when the genuineness of the underlying loans, on which the interest was paid, has been remanded for fresh verification.

Facts

The AO disallowed ₹19.82 lakh claimed as interest paid to related parties, and the CIT(A) upheld this decision.
The Tribunal observed that the issue of interest disallowance was inextricably linked with the primary ground of appeal concerning the unsecured loans.
Since the matter of unsecured loans was already remitted back to the AO for fresh consideration with additional evidence, the foundation for the interest disallowance was now subject to re-examination.

Decision

The matter was remanded to the AO.

The AO was directed to re-examine the claim for interest expenditure after verifying the genuineness of the loans using the newly admitted evidence.
The assessee was given a fresh opportunity to prove that the interest paid was not excessive, did not violate section 13, was commensurate with market conditions, and did not provide an unjust benefit to specified persons.

Key Takeaways

Interconnected Issues: When multiple grounds of appeal are factually linked, a decision on one (e.g., remanding the primary issue) necessitates a similar decision on the consequential issues.
Burden of Proof on Assessee: In transactions with related parties, the onus is on the assessee to demonstrate the arm’s length nature and legitimacy of the expenditure.
Comprehensive Re-examination: Remanding interconnected issues ensures a holistic and consistent re-evaluation by the AO, preventing contradictory outcomes.

On Corpus Donations (Section 11)

Donation Claimed as Corpus Disallowed Due to the Absence of a Specific Written Direction from the Donor.

Issue

Can a charitable trust treat a voluntary contribution as a “corpus donation” and claim exemption under section 11(1)(d) if it lacks a specific written directive from the donor for this purpose?

Facts

The assessee, a charitable trust, received a donation and accounted for it as a “corpus donation” in its balance sheet.
However, there was no written instruction from the donor specifying that the contribution was intended for the trust’s corpus.
The AO and CIT(A) held that the donation did not qualify as corpus and made an addition to the trust’s income.

Decision

The decision was in favour of the revenue.

The Tribunal upheld the addition, stating that section 11(1)(d) contains a clear and mandatory condition that a donation can be treated as corpus only if there is a specific direction from the donor.
As this essential condition was not met, the assessee’s claim was invalid.

Key Takeaways

Strict Compliance for Exemptions: Tax exemptions are not automatic. The conditions prescribed in the statute must be strictly and explicitly fulfilled.
Donor’s Intent is Key: For a corpus donation, the intent must come from the donor, not the donee. This intent must be documented in writing.
Book Entries are Not Conclusive: Simply recording an amount as “corpus” in the books of account is insufficient to satisfy the legal requirement of section 11(1)(d).

On Denial of Overall Trust Exemption (Sections 11 & 13)

Denial of Trust’s Overall Tax Exemption Remanded as it Relies on Issues Already Sent for Re-examination.

Issue

Whether the complete denial of a trust’s exemption under section 11 (by invoking section 13(1)(c)) should be upheld when the foundational grounds for the denial—unexplained loans and improper interest payments—have been remanded for fresh consideration.

Facts

The AO denied the assessee trust’s entire exemption under section 11, invoking section 13(1)(c), which deals with benefits to specified persons.
This denial was based on the adverse findings regarding the genuineness of loans and the allowability of interest paid to related parties.
The CIT(A) confirmed the denial of the exemption.

Decision

The matter was remanded to the AO.

The Tribunal noted that the denial of the overall exemption was intrinsically connected to the loan and interest issues.
Since those primary issues were already restored to the AO’s file for a fresh decision, the Tribunal found it appropriate, in the interest of justice, to also remit this consequential ground back to the AO.

Key Takeaways

Foundation and Superstructure: If the foundation of an addition (e.g., genuineness of a loan) is sent for re-examination, the superstructure built upon it (e.g., denial of overall exemption) must also be re-examined.
Holistic Adjudication: Remanding all connected issues prevents piecemeal litigation and allows the AO to pass a comprehensive and legally consistent order after considering all facts and evidence.
Justice Requires Consistency: It would be unjust to uphold a penalty or disallowance when the very basis for that action is still pending a final decision.

IN THE ITAT CHANDIGARH BENCH ‘B’

Smt. Ramanandi Anangpuria Charitable Trust

Deputy Commissioner of Income-tax (Exemptions)

Laliet Kumar, Judicial Member
and Manoj Kumar Aggarwal, Accountant Member

IT Appeal No. 239 (Chd.) of 2024
[Assessment year 2016-17]

SEPTEMBER 3, 2025

Akul Agarwal, C.A for the Appellant. Smt. Tarundeep Kaur, CIT DR for the Respondent.

ORDER

Laliet Kumar, Judicial Member.- This appeal by the assessee is directed against the order dated 16.01.2024 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, for the assessment year 2016-17 arising out of the order dated 26.12.2018 passed by the Assessing Officer under section 144 of the Income Tax Act, 1961.

2. Briefly the facts of the case are that the assessee trust is registered under section 12AA since 2006 and also enjoys approval under section 80G. It filed its return of income declaring nil income. The case was selected for scrutiny and statutory notices under sections 143(2) and 142(1) were issued. According to the Assessing Officer, despite opportunities the assessee did not satisfactorily substantiate its claims. The Assessing Officer, therefore, proceeded to complete the assessment ex parte under section 144 and assessed total income at Rs.3,57,13,220/-.

2.1 The Assessing Officer noted that the assessee had shown unsecured loans aggregating to Rs. 4,79,20,000/- as on 31.03.2016, compared to Rs.1,71,86,550/- as on 31.03.2015. The difference of Rs 3,07,33,450/- was treated as unexplained and added to income. In support of this conclusion, the Assessing Officer reproduced the details of loans and interest as under:

Table 1: Loan Movement

S. No.	Name of Lender	Loan Received during year (Rs.)	Closing Balance (Rs.)
1	Amir Chand	50,00,000	0
2	Anju Gupta	74,00,000	22,00,000
3	O. P. Gupta	50,00,000	50,00,000
4	Saroj Gupta	0	0
5	Bal Kishan Sethi	50,00,000	0
6	Shobha Gupta	45,00,000	45,00,000
7	V. P. Gupta	95,00,000	95,00,000
8	Anubha Gupta	34,00,000	34,00,000
9	Manju Gupta	45,00,000	45,00,000
10	Nitesh Gupta	20,00,000	20,00,000
11	C. L. Pardesi	0	47,50,000
12	Manorama Arora	0	35,60,000
13	Rahul Gupta	30,50,000	30,50,000
14	Usha Rani	5,00,000	5,00,000
15	Vidya Devi	30,00,000	30,00,000
Total Loan Received during year: Rs.4,79,20,000 \| Closing Balance: Rs.4,79,20,000

Table 2: Interest Payments

S. No.	Name of Lender	Interest Paid (Rs.)	Rate of Interest (%)
1	Amir Chand	2,00,495	12%
2	Anju Gupta	3,08,942	12%
3	O. P. Gupta	0	0%
4	Saroj Gupta	0	0%
5	Bal Kishan Sethi	3,24,292	8%
6	Shobha Gupta	0	0%
7	V. P. Gupta	0	0%
8	Anubha Gupta	2,48,318	12%
9	Manju Gupta	2,41,935	12%
10	Nitesh Gupta	35,172	12%
11	C. L. Pardesi	0	0%
12	Manorama Arora	0	0%
13	Rahul Gupta	1,62,322	12%
14	Usha Rani	3,118	8%
15	Vidya Devi	2,36,219	12%
Total Interest Paid: Rs.19,82,813

2.2 The Assessing Officer examined the ITRs and bank accounts of these lenders, many of whom were trustees or relatives with modest incomes, and concluded that the funds represented rotation of money routed through related concerns. He therefore treated the net increase of Rs. 3,07,33,450/-as income of the assessee. As the loans themselves were held non-genuine, the claim of interest payment of Rs. 19,82,813/- was also disallowed.

2.3 The Assessing Officer further observed that a donation of Rs. 5,00,000/-had been received from two individuals, but no evidence was available to treat it as corpus under section 11(1)(d). Accordingly, the same was treated as a voluntary contribution and added to income.

2.4 Finally, the Assessing Officer held that by paying interest and allowing benefits to trustees/relatives, the assessee had violated provisions of section 13(1)(c). Consequently, exemption under section 11 was denied, and the surplus of Rs. 24,96,956/- was assessed as income in the status of an AOP.

3. Feeling aggrieved by the order passed by the Assessing Officer, the assessee preferred the appeal before the Ld. CIT(A). The learned CIT(A), after considering submissions, substantially confirmed the action of the Assessing Officer.

4. On the issue of unsecured loans, the CIT(A) analysed the individual cases of lenders and held that the money was merely rotated among trustees, family members, and related concerns. He observed that several lenders had meagre incomes and lacked creditworthiness. After detailed examination, the CIT(A) confirmed the addition to the extent of Rs.1,82,50,000/- and deleted Rs.1,24,83,450/-.

5. On the interest disallowance, the CIT(A) held that the assessee had paid Rs.19,82,813/- to trustees and their relatives, which attracted section 13(3). By virtue of section 11 read with section 13, such payments could not be allowed as expenditure of the trust. The addition was therefore upheld. Regarding the corpus donation of Rs.5,00,000/-, the CIT(A) noted that no specific direction in writing was furnished from the donors to treat the sum as corpus. Since section 11(1)(d) requires a specific direction, he upheld the addition.

6. Finally, in respect of the denial of exemption under section 11, the CIT(A) endorsed the AO’s finding that the trust had extended benefits to specified persons by taking loans from them and repaying with interest at rates as high as 12%. He held that section 13(1)(c) was clearly attracted, disentitling the assessee from exemption under section 11. The surplus of Rs. 24,96,956/- was therefore correctly taxed as income of an AOP. The Ld. CIT(A), as mentioned hereinabove, has partly granted the relief to the assessee.

7. Now the assessee is in appeal before us on the grounds mentioned in the present appeal.

8. At the outset, the Ld. The AR submitted that an application filed under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, seeking admission of additional evidence. It was submitted that during the assessment proceedings, the Assessing Officer did not call for the requisite certificate documents, nor was a sufficient opportunity given to the assessee to file them. The assessee, due to a lack of proper professional guidance, was unable to produce the necessary confirmations, bank statements, and supporting documents from lenders at the relevant time.

9. It was further contended that the additional evidence now filed in the form of a paper book running into 66 pages includes confirmation of accounts, bank statements, and certificates from entities such as M/s VRP Buildtech Pvt. Ltd., M/s Lotus Exotica LLP, and other related parties. These documents, according to the assessee, are crucial to establish the identity, creditworthiness, and genuineness of the loans appearing in its books.

10. Per contra, the Ld. DR had opposed the application and submitted that the assessee failed to produce the evidences before the lower authorities and the fresh opportunity cannot be granted to the assessee.

11. We have heard the rival contention of the parties and perused the material available on the record. The assessee has moved an application for admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. It has been explained that the non-production of the said evidence before the lower authorities was on account of lack of proper advice. It is true that the assessee may not have been properly advised at the relevant time to place all the material evidence on record. However, it cannot be ignored that the assessee had partly produced documents before the Assessing Officer and the CIT(A), while the present set of documents was withheld and filed only before us. Such conduct reflects a casual and callous approach on the part of the assessee in the matter of compliance with statutory proceedings.

11.1 At the same time, we are mindful that the ultimate object of adjudication is to do substantial justice. If relevant evidence having a material bearing on the determination of the issue is kept out of consideration, it may result in a miscarriage of justice. Therefore, balancing both aspects, we are of the considered opinion that the additional evidence now filed by the assessee deserves to be admitted, though not without conditions.

11.2 Accordingly, we direct that the additional evidence filed by the assessee shall be admitted subject to the payment of cost of Rs.3,000/- to be deposited with the State Legal Services Authority, Haryana (High Court). The assessee shall furnish proof of such deposit before the Assessing Officer, who shall verify compliance and thereafter proceed to consider the additional evidence in accordance with law.

12. We are also mindful that the relief already granted by the learned CIT(A) to the extent of deletion of Rs. 1,24,83,450/- should not be disturbed. Therefore, for the limited purpose of examining the genuineness of the loans sustained by the CIT(A) at Rs.1,82,50,000/-, the matter is remitted back to the file of the Assessing Officer. The AO shall examine the additional evidence, allow the assessee due opportunity, and decide afresh. Needless to say, the assessee shall cooperate in the remand proceedings.

13. Accordingly, ground no. 2 relating to unsecured loans is partly allowed for statistical purposes, with the issue remitted to the AO for limited examination.

14. Ground No. 3 – Disallowance of Interest

14.1 It was the submission of the learned AR that no undue benefit had been passed to the related parties to attract the mischief of section 13(1)(c) read with section 13(3) of the Act. The assessee argued that the payment of interest was a genuine expenditure incurred for raising funds, and merely because such interest was paid to persons connected with the trustees, the disallowance should not follow. It was further submitted that the prevailing interest rate at the relevant time was much more than 18% and therefore the payment of interest of 12% cannot be said to be exorbitant.

15. Per contra, the learned DR drew our attention to the tabulated details showing the various rates of interest paid by the assessee to related parties. It was submitted that while some loans were interest-free, in other cases the assessee paid interest at 8%. According to the DR, such payments of interest of 12% to related parties were clearly excessive, particularly when the assessee had access to interest-free funds from certain parties and also availability of loan at the interest of 8%. It was therefore contended that the disallowance sustained by the lower authorities was justified.

16. Having heard the rival contentions, we are of the considered opinion that the issue of interest disallowance is inextricably linked with ground no. 2 concerning unsecured loans. Since we have already remanded the matter relating to unsecured loans back to the file of the Assessing Officer for fresh consideration in the light of additional evidence, we consider it appropriate also to remit this ground.

16.1 Accordingly, we direct the Assessing Officer to re-examine the claim of interest expenditure after verifying the additional evidence and after allowing the assessee a reasonable opportunity to substantiate that the interest paid to related parties was neither excessive nor in violation of section 13. The assessee shall demonstrate that the interest paid was commensurate with market conditions and did not confer an unjust benefit on specified persons. In light of the above, Ground No. 3 is allowed for statistical purposes.

17. Ground No. 4 – Corpus Donation of Rs.5,00,000/

17.1 The learned AR submitted that the assessee had received a sum of Rs.5,00,000/- as corpus donation. According to him, the contribution was in the nature of voluntary donation, and the assessee treated the same directly in the Balance Sheet as corpus. The Assessing Officer, however, made the addition on the reasoning that there was no specific written direction from the donors, and therefore, it did not qualify as corpus within the meaning of section 11(1)(d).

17.2 The learned AR further contended that even assuming the donation was not corpus, it would then partake the character of a voluntary revenue receipt of the assessee. In such circumstances, the donation should be brought to tax in accordance with law after considering the provisions applicable to charitable trusts.

18. The learned DR, on the other hand, strongly supported the orders of the lower authorities. He argued that the assessee itself had not offered this donation as a revenue receipt in its return of income. Therefore, the AO was justified in treating the same as income in the absence of evidence to prove corpus-specific directions from the donors.

19. We have heard the rival contentions and perused the material available on record. Section 11(1)(d) clearly mandates that for a voluntary contribution to be treated as corpus, there must be a specific direction from the donor to that effect. In the present case, no such written directions were produced either before the AO, the CIT(A), or even before us. The assessee has only claimed it as corpus in the Balance Sheet without supporting confirmation from the donors. In such circumstances, we find no infirmity in the finding of the authorities below that the donation of Rs.5,00,000/- does not qualify as corpus.

19.1 As regards the plea that the donation, if not treated as corpus, should be regarded as voluntary revenue receipt, we note that the assessee did not offer the same as income in its return of income, nor has it substantiated its application towards charitable purposes. Therefore, this argument cannot be accepted at this stage.

19.2 Accordingly, the addition of Rs.5,00,000/- sustained by the CIT(A) is upheld. Thus, ground no. 4 is dismissed.

20. Ground No. 5 – Denial of Exemption under Section 11

20.1 The learned AR argued that the assessee is a duly registered charitable trust under section 12AA and also enjoys approval under section 80G. It was contended that the income of the trust ought to be exempt under section 11, and the lower authorities erred in denying such benefit. According to the AR, the mere fact that interest was paid on loans raised from trustees and relatives does not amount to conferring undue benefit upon specified persons, particularly when the borrowing was for the legitimate purposes of the trust. It was thus submitted that the surplus of Rs.24,96,956/- should not have been taxed in the hands of the assessee.

21. In reply, the Ld. DR strongly relied upon the orders of the Assessing Officer and the CIT(A). He submitted that the details on record clearly establish that the assessee trust had availed loans from its trustees and their family members, and interest aggregating to Rs.19,82,813/- was paid thereon at rates as high as 12%. By paying interest to trustees and their relatives, the assessee conferred direct benefit upon persons specified in section 13(3). Once such violation is established, section 13(1)(c) squarely applies, disentitling the assessee from the benefit of exemption under section 11.

22. We have considered the rival contentions and perused the record. The Assessing Officer as well as the CIT(A) held that the assessee by paying interest to trustees and relatives conferred direct benefit upon specified persons, thereby attracting section 13(1)(c). On that basis, the exemption under section 11 was denied, and the surplus of Rs.24,96,956/- was taxed in the status of an AOP.

23. The learned AR contended that once the genuineness of loans and the allowability of interest is examined afresh in ground nos. 2 and 3, the determination of whether there is any violation of section 13(1)(c) would directly depend upon the findings in those grounds. Thus, the matter is interlinked and cannot be adjudicated independently at this stage. The learned DR, however, supported the orders of the lower authorities.

24. Having heard both sides, we are of the considered opinion that the issue of denial of exemption under section 11 is intrinsically connected with the genuineness of loans (ground no. 2) and the allowability of interest (ground no. 3). Since those issues have been restored to the file of the Assessing Officer, we deem it appropriate, in the interest of justice, to also remit ground no. 5 back to the file of the Assessing Officer for fresh consideration. The Assessing Officer shall re-examine the applicability of sections 11 and 13 after deciding grounds 2 and 3, and pass a speaking order thereon. Thus, ground no. 5 is also allowed for statistical purposes.

25. In the result, appeal of the Assessee is partly allowed for statistical purposes.