[FAQs] on Disclosure & Reporting of Common Clauses in Annexure to Form 10B/10BB

When filing the Forms 10B and 10BB, it is essential to adhere to the following instructions:

(a) Denomination of Currency: Ensure that all amounts entered in the utility are in Indian Rupees only.

(b) Date Format: Utilize the standard date format, which is DD-MM-YYYY. For instance, dates should be input as 06-MAR- 1990.

(c) Nil Value: When there is no value to report (i.e., a Nil value), auditors should enter “0” in the amount fields, as these fields are mandatory and must be filled.

In our opinion, a charitable or religious institution should consider the date of commencement of activity from the day it starts applying its Income towards charitable purposes. Whether a business has been commenced or not is a question of fact. However, what activities constitute the commencement of business is a mixed question of law and fact, and it has to be decided on the facts of each case. Where the business consists of a continuous course of activities, for commencement of business, all the activities that make up the business need not be started simultaneously. As soon as an activity, which is the essential activity in the course of carrying on the business, is started, the business must be said to have commenced [CIT v. Sponge Iron India Ltd. (1993) 67 Taxman 437 (AP)¹]. With regard to charitable trusts, the same ratio may be construed as the initiation of activities related to the objectives for which the trust has been registered.

Clause 13 of Form 10B and clause 10 of Form 10BB specifically seek information about the commencement of activities by trusts or institutions that have been granted provisional registration or approval.

The auditor should see the commencement of activity declared by the organisation at the time of filing Form 10AB because a provisionally registered organisation was required to file for regular registration within 6 months of the commencement of the activity. However, many organisations have treated the date of issue of the Provisional Registration Certificate even though they had already commenced activity prior to that. The auditor may provide a suitable clarificatory audit note in this regard in the main audit report.

Clause 14 of Form 10B and clause 11 of Form 10BB require information on whether the auditee has maintained the books of account and other documents in the form and manner prescribed under Rule 17AA². These clauses also require to report whether books of account are maintained at registered office and if the answer is negative, the auditor must provide the address of the respective location, the date when the management decided to maintain records at that location, and the date when the Assessing Officer was informed of this address.

Rule 17AA requires that the books of account and other documents shall be kept and maintained by the trust or institution at its registered office. Such books of account and other documents may be kept at such other place in India as the management may decide if the following conditions are satisfied:

(a) A resolution is passed for such purposes;

(b) An intimation is given to the jurisdictional Assessing Officer in writing within 7 days;

(c) In such intimation, the full address of that other place is mentioned; and

(d) The intimation is duly signed and verified by the person who is authorised to verify the return of income under section 140.

The auditor should obtain a list of books of account and addresses and locations of the books of account duly certified by management and verify the books of account given in the list. If these books are maintained at a location other than the registered office, it is imperative to get a copy of the resolution passed by management and a copy of the intimation submitted to the Assessing Officer about this location.

In such instances, we understand that the auditors should make relevant disclosures in the observations/qualifications section of the audit report.

In such situations, we understand that the auditors should include suitable disclosures in the observations/qualifications section of the audit report.

The address should be the same as has been communicated by the assessee to the Income-tax Department as on the date of signing of the audit report. The auditor should verify the relevant details of the assessee from the available income tax records or from the profile of the assessee on the Income Tax portal. In case of difference, the same should be given as an observation in the audit report.

As per note 3 to Form 10B and 10BB, the auditor has to provide the address which has been decided by the management by way of a resolution and which has been intimated to the jurisdictional Assessing Officer in writing within seven days of such resolution as per the proviso to sub-rule (3) of rule 17AA.

Clause 14 of Form 10B and clause 11 of Form 10BB require the disclosure of whether the auditee has kept and maintained the books of account and other documents in the form and manner as stipulated in Rule 17AA.

Rule 17AA prescribes the books and other documents to be kept and maintained by entities approved under section 10(23C) or registered under section 12AB. Here is a list of the books and documents to be maintained by the trust or institution:

(a) Books of account; [Rule 17AA(1)(a), (b) & (c)]

• • • Cash Book.
    • Ledger.
    • Journal.
    • Copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the assessee, and copies or counterfoils of machine numbered or otherwise serially numbered receipts issued by the assessee.
    • Original bills wherever issued to the assessee and receipts in respect of payments made by the assessee.
    • Any other book that may be required to be maintained in order to give a true and fair view of the state of the affairs of the person and explain the transactions effected.
    • Books of account, as referred to above, for a business undertaking referred to in section 11(4) of the Act.
    • Books of account, as referred to above, for business carried on by the assessee other than the business undertaking referred to section 11(4) of the Act.

(b) Record of all the projects and institutions run by the person containing details of their name, address and objectives; [Rule 17AA(1)(d)(i)]

(c) Record of income of the person during the previous year; [Rule 17AA(1)(d)(ii)]

(d) Record of application of income, etc., out of income during the previous year; [Rule 17AA(1)(d)(iii)]

(e) Record of application of income out of the income of any previous year preceding the current previous year; [Rule 17AA(1) (d)(iv)]

(f) Record of voluntary contribution made with a specific direction that they shall form part of the corpus; [Rule 17AA(1)(d)(v)]

(g) Record of contribution received for the purpose of renovation or repair of temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G which is being treated as corpus; [Rule 17AA(1)(d)(vi)]

(h) Record of loan and borrowings; [Rule 17AA(1)(d)(vii)]

(i) Record of properties; [Rule 17AA(1)(d)(viii)]

(j) Record of specified persons; [Rule 17AA(1)(d)(ix)]

(k) Any other documents containing any other relevant information; [Rule 17AA(1)(d)(x)]

To ensure that the books of account have been maintained at the address specified in Form 10B, the auditor should perform the necessary audit procedures. This involves obtaining a certified list of books of account and their respective addresses and locations, as provided by the management. If any discrepancies arise, or if it is discovered that the books of account are not maintained at the address mentioned in Form 10B, the auditor must appropriately report this fact in his report.

It is important to note that rule 17AA provides that the books of account and other documents may be kept in the following forms:

(a) Written;

(b) Electronic form;

(c) Digital form;

(d) Print-outs of data stored in electronic or digital form; or

(e) Any other form of electromagnetic data storage device.

Considering the flexibility provided by this Rule, if the books of account are maintained in electronic or digital form, the auditor should obtain from the assessee the details of the address of the place where the server is located or the principal place or registered office by whatever name called and mention the same accordingly. If the books of account are stored on the cloud or online, a unique IP address of the same may be reported. The auditor should also specify which books of account have been maintained in the computer system and which records have been maintained in hard copy form.

The maintenance of books of account and documents is a mandatory condition of registration under section 12A(1)(b) and the Tenth proviso to section 10(23C) which provides that if the total income of the trust or institution, without giving effect to an exemption under sections 11/12 or section 10(23C), exceeds the maximum amount which is not chargeable to tax, such trust or institution shall keep and maintain books of account³ and other documents in such form and manner and at such place, as may be prescribed.

If the trust or institution has not maintained the books of account, in such case, the income shall be computed under special provisions of section 13(10) and 13(11) or the twenty-second proviso to section 10(23C). In such case, the income chargeable to tax shall be computed after allowing a deduction for expenditure incurred for the objects of the institution as specified in these sections.

Furthermore, the auditor’s role extends to reporting in clause 39 of Form 10B, whether the provisions of section 13(10) or the twenty-second proviso to section 10(23C) are applicable. If affirmative, a detailed computation of the income subject to taxation under section 13(10) is required to be reported.

Yes, the auditor is required to report on the maintenance of specified documents in accordance with rule 17AA, even if the books of account are being maintained. If, during the audit process, it is found that the specified documents, as required by rule 17AA, are not being maintained despite the books of account being in order, the auditor should report such information in clause 14 of Form 10B. However, if the specified documents are substantially maintained that is most of the specified documents are available then the auditor may consider the requirement has been complied with and simultaneously give audit observation in the main report.

It is important to note that while clause 14 of Form 10B requires the list of both books of account and specified documents, clause 11 of Form 10BB seeks confirmation whether the books of account and other documents have been maintained in accordance with the form, manner, and place prescribed under rule 17AA by the auditee. Therefore, in cases where this specific issue arises, it can be disclosed as an appropriate observation or qualification in the main audit report in Form 10B/Form 10BB.

In our opinion, the application claimed against sources other than Income, i.e., against corpus or loan is also subject to the same disallowances. There seems to be an error in both Form 10B and 10BB. It is recommended that the auditor under the notes to the audit report should separately report the disallowances against application claimed against sources other than Income, i.e., against corpus or loan. For example, cash payment above ` 10,000 or non-deduction of TDS etc.

The auditor should see the categorisation of expenses under various limbs as per the past ITR 7 returns, and the same consistency should be followed unless there is an error in such reporting. Further, the auditor may also have a look at Forms 10A and 10AB filed at the time of registration where it is necessary to disclose the specific limb of charitable purposes. Generally, most of the expenses are reported under the dominant limb of activity. It may also be noted that sometimes expenses such as salary, travel etc., pertaining to the programme are treated as administrative expenses which also results in incorrect reporting.

An entity with a charitable object is eligible for exemption from tax under sections 11 and 12 of the Income-tax Act. The definition of a charitable purpose under the Income-tax Act is provided in section 2(15), which is inclusive rather than exhaustive. The definition outlines seven distinct categories of charitable purposes. As per the definition in section 2(15), the charitable purpose includes the following:

(a) Relief of Poor.

(b) Education.

(c) Yoga.

(d) Medical Relief.

(e) Preservation of environment (including watersheds, forests and wildlife).

(f) Preservation of monuments or places or objects of artistic or historic interest.

(g) Advancement of any other object of general public utility.

However, the Income-tax Act does not provide specific definitions for these purposes. For instance, it does not define what constitutes ‘relief of the poor’ or ‘education.’ In such cases, both the taxpayer and the auditor should refer to judicial precedence to define and interpret these terms.

It is important to recognise that for charitable or religious trusts, the scope of ‘income’ includes capital income and the scope of ‘application’ includes applications of capital nature.

Therefore, the term ‘application’ has a broad enough scope to encompass capital expenditures. The acquisition of a capital asset, when directed toward furthering the trust’s objectives, qualifies as an application of income. Consequently, expenditures incurred for acquiring capital assets can be claimed as deductions under section 11(1)(a).
For instance, when reporting purpose-specific expenditures, expenses related to capital nature such as buildings and infrastructure should be categorised as capital expenses, and further, they should be treated as utilised for advancement of the dominant limb of charitable purpose such as ‘education’, ‘relief to poor’ etc.

The provisions of section 40(a)(ia), section 40A(3) and section 40A(3A) shall also apply to application/payment made against provisions made in the earlier year but not claimed as the application of income.

Clause 41 of Form 10B and clause 28 of Form 10BB mandate that the auditor must provide information regarding the individuals mentioned in section 13(3). These clauses require reporting their Name, PAN, Aadhaar Number, and address.

The specified persons to be reported in these clauses include the following:

(a) Author of the trust or the founder of the institution;

(b) Any person who has made a substantial contribution to the trust or institution (contribution exceeding ` 50,000 up to the end of the relevant previous year);

(c) Where such author, founder or person is a HUF, a member of the family;

(d) Any trustee of the trust or manager of the institution;

(e) Any relative of any such author, founder, person, member, trustee or manager as aforesaid;

(f) Any concern in which any of the persons referred above have a substantial interest.

The CBDT’s Circular No. 143, dated 20-8-1974, states that an auditor can accept a list of persons covered under section 13(3) and consider it correct while certifying Form No. 10B along with its annexure. Hence, the auditor should collect a certified list of persons covered by section 13(3) from the chief functionary, the managing trustees of the organisation, or the trust.

Furthermore, Rule 17AA mandates that the trust or institution maintain records containing the Name, Address, Permanent Account Number, and, if available, the Aadhaar number of such specified persons.

Therefore, the auditor should procure the specified persons list outlined in section 13(3) from the organisation and the documentation maintained under rule 17AA.

Any individual related to the author, founder, substantial contributor, member, trustee, or manager falls under the category of specified persons according to section 13(3). Consequently, the auditor must report the relatives’ details, including their name, PAN, Aadhaar Number, and address.

The auditor may report the information based on the list of specified persons provided by the management.

The relative in relation to an individual means:

(a) Spouse of the individual;

(b) Brother or sister (and their spouses) of the individual;

(c) Brother or sister (and their spouses) of the spouse of the individual;

(d) Any lineal ascendant or descendant (and their spouses) of the individual;

(e) Any lineal ascendant or descendant (and their spouses) of the spouse of the individual;

(f) Any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.

Any person whose total contribution up to the end of the relevant previous year exceeds ` 50,000 is a substantial contributor. Therefore, if a person has made a cumulative donation of ` 50,000 or more since the trust’s inception, they are deemed a substantial contributor. Once a person becomes a substantial contributor and an interested person within the meaning of section 13(3), he shall remain so in future⁴.

The auditor is obligated to report their details, including their name, PAN, Aadhaar Number, and address. Furthermore, the auditor must also specify the amount of their contribution to the auditee. It may be noted that the auditor may not have access to details of donors of all the past years therefore he may rely on the list provided by the management with suitable audit observation in the main report. However, the auditor should ensure that the relevant donor list of the year under audit is duly reflected.

The CBDT has issued a clarification on reporting of Substantial Contributors in Form 10B/10BB vide Circular No. 17/2023, dated 09- 10-2023. It has been clarified that only those substantial contributors whose contributions during the relevant previous year exceed
` 50,000 need to be reported in Form 10B/10BB.

Therefore, for reporting in Form 10B/10BB, there is no need to verify whether the contribution by any person has crossed ` 50,000 since the inception of the trust. Now, only those substantial contributors whose contribution during the relevant reporting period surpasses Rs. 50,000 are required to be reported.

Any person who has made a substantial contribution to a trust or institution is an interested person. According to section 13(3)(d), even the relatives of substantial contributors are considered interested persons. Therefore, it is also necessary to report the details of the relatives of substantial contributors.

The CBDT has issued a clarification on reporting of Substantial Contributors in Form 10B/10BB vide Circular No. 17/2023, dated 09-10-2023. It has been clarified that the details of relatives of such contributors and concerns in which these contributors hold substantial interests should also be reported, if available.

In ITR-7, there is a specific request in PART A – GEN for disclosing the “Name(s) of the person(s) who has/have made substantial contributions to the trust/institution in terms of section 13(3)(b) during the previous year.” Here, the focus is on reporting individuals who have made substantial contributions during the particular previous year.

On the other hand, Form 10B/10BB places a broader obligation on the auditor. The auditor is mandated to provide a list of all substantial contributors in accordance with section 13(3), without the restriction of reporting contributions made only during the previous year. As per the Income-tax Act, a substantial contributor is defined as any person whose total contribution, up to the end of the relevant previous year, exceeds ` 50,000. In Form 10B, the auditor is required to furnish comprehensive details of these substantial contributors, including their name, PAN, Aadhaar Number, and address, along with specifying the exact amount of their contributions to the auditee. This reporting encompasses cumulative contributions made since the inception of the trust or institution.

However, this anomaly between ITR-7 and Form 10B/10BB has been removed through the clarificatory Circular No. 17/2023, dated 09-10-2023, issued by the CBDT. The CBDT has clarified that only those substantial contributors whose contributions during the rel- evant previous year exceed Rs. 50,000 need to be reported in Form 10B/10BB. The details of relatives of such contributors and concerns in which these contributors hold substantial interests should also be reported, if available.

The auditor should verify the transactions involving specified persons to ascertain whether any benefit has been conferred upon them. This evaluation may involve obtaining management representation in addition to exercising professional judgment.

It is crucial to understand that reporting the list of specified persons and reporting benefits to specified persons are separate clauses. Therefore, even if no benefits are conferred upon specified persons, the reporting of the list remains mandatory.

Further, a question arises regarding when to report benefits to specified persons as “YES” and when to report them as “NO” in Clause 42 of Form 10B or Clause 29 of Form 10BB. The benefits should be indicated as “YES” when there is a clear and evident element of benefit to specified persons. In all other cases, it should be reported as “NO.”

Also, if the benefit is reported as “YES”, the amount of benefit shall get taxed under section 115BBI and shall be reported in Clause 33 of Form 10B or Clause 25 of Form 10BB, as the case may be.

Clause 21 specifically asks the information regarding income other than voluntary contributions that originate from property held under a trust covered by section 11. It may be noted that all income other than voluntary contributions should be reported under this clause. The auditor may also refer to ‘Schedule AI’ of last year’s ITR-7.

Clause 43 of Form 10B and Clause 30 of Form 10BB impose a responsibility on auditors to report specific violations as outlined in Explanation 2 to the fifteenth proviso to section 10(23C) or the Explanation to section 12AB(4).

The following are the specified violations that auditors are obligated to report:

(a) The income of the auditee has been applied other than for the objects of the trust or institution;

(b) Whether the auditee has income from profits and gains of business which is not incidental to the attainment of its objectives;

(c) Whether separate books of account are not maintained by the auditee in respect of the business which is incidental to the attainment of its objectives;

(d) Whether the auditee has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public;

(e) Whether the auditee has applied any part of its income for the benefit of any particular religious community or caste;

(f) Whether any activity carried out by the auditee is not genuine or is not being carried out in accordance with all or any of the conditions subject to which it was registered;

(g) Whether the auditee has not complied with the requirement of any other law, for the time being in force, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality.

Violations of laws mentioned in (a) to (f) are those violations which auditor can come across in the normal course of audit. Violation of any other law mentioned in (g) above relates to any other law. Violation of any other law cannot be detected in ordinary course of audit. Moreover, auditor is not a legal expert and cannot say whether such a violation has taken place. That is why clause (f) of Explanation to section 12AB(4) as well as clause 30/43 of Annexure to Form No. 10BB/10B respectively limit the auditor’s responsibility to report on such violations based on whether order, direction or decree, by whatever name called, holding that such non-compliance has occurred has been made and the same has either not been disputed or has attained finality. Where such order, direction or decree has been made but disputed, the auditor may furnish suitable note referring to clause 30/43 Annexure to Form No. 10BB/10B respectively in the fourth para of Form 10BB/Form 10B respectively.

In order to detect violations of “any other law”, auditor will have to rely on management representations and procedures outlined in Standard of Auditing, SA 501, as regards Litigations and Claims.

Paras 9 and 10 of SA 501 require that the auditor shall design and perform audit procedures in order to identify litigation and claims involving the entity which may give rise to a risk of material misstatement, including:

(a) Inquiry of management and, where applicable, others within the entity, including in-house legal counsel;

(b) Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel;

(c) Reviewing legal expense accounts; and

(d) Seek direct communication with assessee-trust’s legal counsel.

The auditor should remember that the scope and ambit of the enquiry under the Act in this matter is limited.

For example, a charitable institution is running a school. It requires registration for the same under the State Law, and if it is not obtained, the institution can be wound up under the said law. Accordingly, it may not be able to achieve its objective of education. In such circumstances, the auditor shall consider it a fit case of specified violation.

Therefore, if the auditor is of the opinion that approval/permission is required from competent authorities, then he should specify the relevant laws, the reasons why such other laws are material and the authorities from which permissions/approval are required.

In view of the foregoing, the auditor should limit his liability/responsibility in respect of detection of specified laws covered by clause (f) of section 12AB(4) by adding suitable remarks in the 4th Paragraph/5th Paragraph of main audit report in Form 10B/Form 10BB. The remarks can be along the following lines:

“Based on audit procedures required to be followed by Standards of Auditing SA 250 and SA 501 and based on management representations obtained, we have not come across any order, direction or decree, by whatever name called, holding that such non-compliance has occurred which has not been disputed or attained finality.”

Clause 43 of Form 10B necessitates auditors to disclose specified violations as delineated in Explanation 2 to the fifteenth proviso to section 10(23C) or the Explanation to section 12AB(4). Moreover, it mandates the quantification of the financial implications stemming from these violations.

However, it is important to acknowledge that quantifying the monetary aspects of such violations may be practically unfeasible in some instances. For instance, consider the scenario where the auditee has failed to adhere to the requirements of another prevailing law. The auditor may find it challenging to provide a precise monetary assess- ment since receipts may not be directly applied in such cases. Instead, non-compliance might manifest as the failure to obtain registration under the pertinent law.

In such circumstances, it is advisable for the auditor to report this fact as an observation in the audit report. If feasible, the auditor may also include details regarding the punitive consequences prescribed under that specific law for non-compliance.

The auditor should check whether the auditee has received any notice or order from the Principal Commissioner or Commissioner regarding the occurrence of specified violations under section 12AB(4). This includes reviewing any submissions or appeals made by the auditee in response to such notices or orders.

The auditor should also request a management representation letter from the management regarding the non-occurrence of any specified violation. The findings should then be included in the observations or qualifications section of the report.

Project grants are classified as specific or restricted contributions since their use is constrained by the conditions outlined in the project or grant agreement. The grant is not freely available to the recipient organisation for charitable purposes. The organisation is bound by the contractual obligations associated with the project or grant agreement. A restricted grant or legal obligation is not a part of the Income of the organisation. However, all project grant may not be treated as legal obligation based on the conditions of the grant agreement. Further, under the current ITR-7 there is no mechanism to report legal obligations which do not form a part of the Income.

Schedule VC of Form ITR-7 requires reporting of CSR grants and other specific grants as Voluntary Contributions. Hence, they may be reported as Voluntary Contributions in Form 10BB and Form 10B. If it is not reported as a Voluntary Contribution, the fact may be disclosed as an observation in the main report about the treatment of restricted grants in Form 10B or Form 10BB.

If an NGO gives an advance to a vendor under contract, then it essentially makes a part payment against goods or services to be delivered. All such advance which are the nature of a part payment should be treated as applications. However, any advance which is cash equivalent, i.e., recoverable at the discretion of the organisation, then such amount may not be treated as application.

It is imperative for auditors to review the documentation. It is also essential to differentiate between partial payments and advances. Advances are funds held by someone else on behalf of the organisation, much like cash in hand.

Clause 23 of Form 10BB and clause 31 of Form 10B explicitly require the auditor to report any amounts that should be disallowed if donations are made to entities other than funds, institutions, trusts, universities, educational institutions, hospitals, or medical institutions as specified in sub-clause (iv), (v), (vi) or (via) of section 10(23C), or trusts or institutions referred to in section 11 or 12. In other words inter charity grant should be excluded if it is not given to aforesaid registered or approved organisations.

The Income-tax Act does not prohibit donations to institutions not registered under section 12AB or approved under section 10(23C). In a significant legal precedent, the High Court, in the case of CIT (Exemptions) v. Maria Social Service Society [2018] 99 taxmann.com 381 (Kar.), determined that the transfer of foreign contributions to an organisation lacking section 12AA registration or FCRA compliance did not constitute an ultra vires or illegal activity. Furthermore, the court ruled that the cancellation of section 12AA registration was not justified. Similarly, the Hyderabad ITAT, in the case of Asstt. DIT v. Dharmavana Arboretum [ITA No. 1512/HYD/2011], affirmed that inter-charity donations to non-12AA societies were permissible, provided the funds were utilised for legitimate charitable purposes. In this case, the society disbursed grants from FCRA funds to nine different societies lacking section 12AA registration.

However, even if the organisation adopts a different stance on this matter such grants cannot be treated as valid application for the purposes of reporting in clause 23 of Form 10BB and clause 31 of Form 10B. In such cases, the suitable disclosure shall be made as an observation in main audit report in Form 10B/10BB.

Any reasonable amount to an indigent or deserving beneficiary should indeed be regarded as an application of income if it is directly contributed toward the stated objectives of the NGO.

For example, Charitable institutions provided cash contributions of ` 3,000 to each family in a village during the pandemic to purchase essential items, especially to low-income households that were unable to secure regular income due to their status as wage earners, among other factors. In essence, this is not a conventional donation. The term “donation” is used when an individual receives funds in the capacity of a trustee to be utilised for a specific purpose. Therefore, if the amount is reasonable and the recipient is indeed deserving, it can be treated as an application of funds.

Any such donations to organisations having different objectives will not be treated as valid applications. The mandatory 85% utilisation can be done by the trust or institution itself or by donating to trusts with similar objectives. Inter-charity donation is treated at par with direct application for section 11(1)(a).

Hence, inter charity grant cannot be made to organisations with different objects even if such objects are otherwise permissible under section 2(15) for both organisations. The objects should be common as per their memorandum of association or other constitutional documents. It may be noted that spending income towards objects other than the stated objects is a specified violation under section 12AB(4).

The organisation should treat the accrued of ` 11 lakhs as Income and the expenditure of ` 10 lakhs as application irrespective of the source of fund. The organisation may file Form 9A if funds are not available. The organisation may also follow the policy of recognising income on cash basis, which generally is not recommended in such cases because of the mismatch and reconciliation issues with TDS and Form 26AS.

Section 12(1) used the term ‘received’ instead of ‘derived.’ Consequently, voluntary contributions should always be treated as income on a receipt basis when preparing income computations under the Income-tax Act.

The Finance Act, 2022 inserted an Explanation after section 11(7). This Explanation explicitly provides that any sum payable by any trust shall be considered an application of income in the previous year in which such sum is actually paid. Thus, the application of income shall be allowed only on a payment basis. This is irrespective of the previous year in which the liability to pay such sum was incurred by such trust according to the method of accounting regularly employed.

Explanation 1 to section 11(1) gives an option to be exercised when income has not been received. Therefore, NGOs should predominantly use a cash basis of accounting. However, income which is subject to TDS can be accounted for on an accrual basis.

For instance, if an NGO has accrued interest but no cash available and has spent from other funds, it is important to note that cash flow matching is not required. So, if an NGO has declared an income of ` 11 lakhs and spent ` 10 lakhs, it has already applied more than 85% of the income and hence is not obligated to file Form 9A.

If the name and address of the donee are available then it should not be treated as an anonymous donation even if PAN/Aadhaar is not available. Section 115BBC(3) requires that a donation will not be treated as an “anonymous donation” only if a record of donors is maintained indicating:

(a) The identity indicating the name and address of the donor; and

(b) Such other particulars as may be prescribed (No particulars have been prescribed by CBDT so far under section 115BBC(3)).

Where assessee-trust provided details of donors along with names and addresses and furthermore confirmation letters from donors were also provided to Assessing Officer in respect of donation received, mere absence of PAN in confirmation letters of donors would not give rise to suspicion that they were anonymous donations; maintenance of name and address details of contributors would be a sufficient document to establish identity of donors as prescribed under section 115BBC [Asstt. CIT v. Siddhartha Academy of General & Technical Education [2022] 141 taxmann.com 287 (Visakhapatnam – Trib.)]

Assessee-society was formed with object of running an educational institution. It received corpus donations for construction of building. During course of search, donor’s receipts were found which contained names, addresses and PAN of donors along with details of mode of donations. Assessing Officer issued notice under section 133(6) to donors. It was found that said donations had been duly accounted for in regular books of account of assessee which had not been rejected by Assessing Officer. Further, amounts of donations was very small in case of donors who had failed to confirm and they had made payments mostly by cheques or drafts. On facts, all donations were to be accepted as genuine and, therefore, impugned addition made by Assessing Officer could not be sustained. [Dy. CIT v. Indo Global Education Foundation [2015] 62 taxmann.com 159 (Chd. – Trib.)]