Anbu Educational Trust Vs ITO (ITAT Chennai)
Source-of-Source Cannot Be Examined Prior to 01-04-2023—Unsecured Loans & Student Caution Deposits Held Genuine; Additions Deleted, Except TDS Issue Remanded
The Assessee, an educational trust, filed return declaring ₹6,82,010 for AY 2013-14. Due to repeated non-compliance, the AO passed an ex-parte assessment, making additions of ₹4,11,30,000 towards alleged unproven credits, ₹10,90,366 u/s 40(a)(ia), and treating security caution deposits collected from students as unexplained. The AO also denied exemption u/s 11.
Before the CIT(A), the Assessee filed confirmations, bank statements, ROI of lenders and student-wise details. The CIT(A), relying heavily on remand report, granted partial relief—deleting ₹80.50 lakh from unsecured loans and ₹13.36 lakh from student deposits, but sustained major additions of ₹1,27,40,000 (loans), ₹1,08,15,280 (caution deposits), and ₹10,90,366 (TDS default). The CIT(A) also allowed exemption u/s 11.
Before the Tribunal, the Assessee produced a detailed paper book (page 1–12) showing that lenders were identifiable, funds came through banking channels, and no adverse material existed except AO’s suspicion that lenders had cash deposits prior to issuing loans. The Tribunal held that the power to question “source of source” under section 68 exists only from 01-04-2023, after the Finance Act 2022 inserted the first proviso. For earlier years, once identity, genuineness & creditworthiness are shown, addition cannot be made in the borrower’s hands—if at all, action must be taken in the lender’s case.
Thus, the Tribunal deleted the entire loan addition of ₹1,27,40,000.
On interest-free caution deposits, the Tribunal held that such deposits are routine in educational institutions, refundable after course completion. From page 9 of the record, it noted that closing balance dropped from ₹2.03 crore (31-3-2014) to ₹69,000 (31-3-2015), proving that deposits were actually refunded. The AO had sent enquiry letters to only 100 out of 949 students—too small a sample—of which 10 responded and 8 confirmed payments. The Tribunal held the CIT(A)’s conclusion unsustainable and deleted the entire addition of ₹1,08,15,280.
On disallowance u/s 40(a)(ia) of ₹10,90,366, new evidence was filed for the first time showing that payments were either below threshold or not liable to TDS. As this required factual verification, the Tribunal remanded this issue to the AO.
On the cross-appeal (ITA 332/Chny/2019), the Tribunal reversed the CIT(A)’s grant of exemption u/s 11, following Madras High Court in Soundaram Chokkanathan Educational & Charitable Trust (125 taxmann.com 340) which held that pendency before CIT(A) is not equivalent to pendency before AO for purposes of s.11/s.11A. Hence, the Revenue’s appeal was allowed.
Result
Assessee’s appeal partly allowed: additions u/s 68 and caution deposits deleted; TDS issue remanded.
Revenue’s appeal allowed: exemption u/s 11 denied.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
