Loading judgment…
Facts
The assessee, a trust registered under Section 12A, filed its return declaring nil income. Due to a technical glitch, the gross receipts of Rs. 62,09,270 were taxed without allowing the application of income of Rs. 69,42,825. The AO initially allowed credit in the computation sheet but later initiated rectification proceedings to withdraw it.
Held
The Tribunal held that the revenue was not justified in taxing the entire gross receipts without giving credit for the application of income. The income element is to be taxed after reducing expenses. The assessee had applied more than its gross receipts, resulting in a deficit eligible for carry forward.
Key Issues
Whether the assessee was justified in claiming deduction for application of income while computing exemption under Section 11 of the Act.
Sections Cited
154, 143(3), 11, 12A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2017-18, arises out of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. ITBA/NFAC/S/250/2023-24/105715593(1) dated 17.10.2023 against the order of assessment passed u/s 154 r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 06.04.2021 by the Assessing Officer, ITO(Exemption), Ward-2(2), Delhi (hereinafter referred to as ‘ld. AO’).
The only issue to be decided in this appeal is as to whether the Learned 2. CITA was justified in not allowing the sum of Rs 69,42,825/- as application of income while computing exemption under section 11 of the Act in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available 3. on record. The Assessee is a trust duly registered under Section 12A of the Act. Accordingly, the Assessee Trust is eligible for exemption under Section 11 of the Act. The return of income for the assessment year 17-18 was filed by the Assessee Trust on 31-10-2017 declaring nil income effectively. But due to technical glitch, the taxable income of Rs. 62,09,270/- was picked up being the gross receipts of the Assessee without giving deduction on account of application of income to the tune of Rs. 69,42,825/-. The breakup of the application of income is as under :-
Revenue Expenses – Rs. 46,41,079 Capital Expenses – Rs. 23,01,746 Total Rs. 69,42,825 If the said application of income of Rs. 69,42,825/- is reduced from the gross receipts of Rs 62,09,265/-, then the same would result in excess of expenditure over income resulting in deficit of Rs. 7,33,560/-. The Assessee had uploaded the computation of income wherein the correct workings after due deduction of application of income was claimed by the Assessee. This computation of income was uploaded by the Assessee along with the return of income. The audit report from the auditor in Form No. 10B also specifies the application of income figure of Rs. 69,42,825/-. The audit report in Form No. 10B was uploaded by the Assessee along with the return of income which is enclosed in pages 12 to 16 of the paper book. During the course of scrutiny assessment proceedings, the Assessee Trust had also furnished the entire audited financial statements which duly considered the application of income of Rs. 69,42,825/-. Despite filing of all these documents, the Learned AO simply ignored all the documentary evidences submitted by the Assessee and framed the assessment under Section 143(3) of the Act on 22-12-2019 determining the taxable income of Rs. 62,09,270/- being the gross receipts of the Assessee Trust. It is pertinent to note that the tax computation sheet enclosed by the Learned AO along with the assessment order duly gave credit for the application of income as claimed by the Assessee in the computation of income. Hence, this is a case wherein the Learned AO in the assessment order had not given credit for the application of income, but had given credit for the application of income in the tax computation sheet. Accordingly, a rectification notice under Section 154 of the Act was issued by the Learned AO on 11-2-2021 seeking to pass the corrigendum order for withdrawing the credit given in the tax computation sheet for the application of income. The Assessee filed its reply vide letter dated 18-2-2021 for the rectification notice under section 154 of the Act again enclosing the computation of income, audited financial statements and audit report in Form 10B. Considering the reply of the Assessee, the rectification proceedings initiated under section 154 of the Act were dropped and withdrawn by the Learned AO vide order dated 11-3-2021. This order is enclosed in Page 27 of the Paper Book.
The Learned AO issued another notice under section 154 of the Act on 16- 4. 3-2021 on the same footing. The Assessee filed its submission on 19-3-2021. Later the Learned AO passed an order under section 154 read with section 143(3) of the Act on 6-4-2021 rejecting the contentions of the Assessee.
We find that there is nothing wrong in Assessee claiming deduction on 5. account of application of income in the sum of Rs 69,42,825/- from the gross receipts of Rs 62,09,270/-. We hold that the revenue was not justified in taxing the entire gross receipts without giving credit for application of income in the sum of Rs 69,42,825/-. Only the income element is to be taxed and income is determined after reducing the expenses from the gross receipts. In the instant case, the Assessee had applied more than the gross receipts resulting in a deficit of Rs 7,33,560/- which is eligible to be carried forward to subsequent years. We direct the Learned AO accordingly to recomputed the income of the Assessee in the abovementioned terms. Accordingly, the grounds raised by the Assessee are allowed.
In the result, the appeal of the Assessee is allowed. 6.
Order pronounced in the open court on 18/08/2025.