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Income Tax Appellate Tribunal, “SMC - A” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 21.06.2023, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2018-19.
The grounds raised
read as follows:
1. The learned CIT[A] was not justified in upholding the taxation of gross receipts of Rs. 19,79,297/-, without allowing the revenue expenses incurred of 20,61,140/- in as much as only income can be taxed and not the gross receipts under the facts and in the circumstances of the appellant's case.
2. Without prejudice to the above, the learned CIT[A] is not justified in disposing off the appeal without considering all the submissions made by the appellant and hence, the impugned order passed requires to be cancelled.
3. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case and the same deserves to be cancelled.
4. For the above and other grounds that may be urged at the time of hearing of the appeal. your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
Brief facts of the case are as follows:
Assessee is a charitable trust. For the Assessment Year 2018-19, the return of income was filed on 25.10.2018 declaring Nil income. The CPC issued an intimation under section 143(1) of the Act wherein it had added a sum of Rs.19,79,297/- and raised a demand of Rs.7,58,694/-. The assessee filed rectification under section 154 of the Act and the same was rejected and the entire receipts were taken as income and taxed.
Aggrieved, assessee filed appeal before the First Appellate Authority (FAA). The CIT(A) issued various notices of hearing. In response to the same, assessee uploaded a reply on 12.05.2023. However, since assessee did not upload any order granting registration under section 12AA of the Act nor under section 10(23C) of the Act, the appeal of the assessee was dismissed.
Aggrieved, assessee has filed the present appeal before the Tribunal. Assessee has filed a Paper Book enclosing therein a copy of the acknowledgment of the return filed along with the computation of income, the audited report and the financial statement, copy of the written submissions filed along with annexures filed before the FAA and the case law relied on. The learned AR submitted that the CPC has taken the entire receipts as income and taxed the same even though the assesee trust has a deficit of Rs.81,843/- during the relevant Financial Year. It was submitted that only the net income can be brought to tax and not the gross. In this context, the learned AR relied on the order of the Bangalore Bench of the Tribunal in the case of M/s. H M V Educational Cultural and Social Trust Vs. ITO in (order dated 23.03.2023).
The learned Standing Counsel supported the order of the CIT(A).
I have heard the rival submissions and perused the material on record. During the course of hearing, on query by the Bench, it was mentioned by the learned AR that assessee does not have registration under section 12AA nor under section 10(23C) of the Act. In the absence of the registration under the aforesaid sections, there cannot be any application of income. However, the gross receipts cannot be taxed in the hands of the assessee trust. The income earned by the assessee and expenditure relatable to the earning of such income is to be allowed as a deduction. The Bangalore Bench of the Tribunal in the case of /s. H M V Educational Cultural and Social Trust Vs. ITO (supra) restored the matter to the AO with a direction to assess only the net income and not the gross. The relevant finding of the Bangalore Bench of the Tribunal reads as follows:
“7.3 The assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed (i.e., gross receipt minus allowable expenditure), this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the Hon'ble jurisdictional High Court in the case of Totagars Sale Co-operative Society Limited v. ITO [2015] 58 taxmann.com 35 (Karnataka). Accordingly, the issue of deduction u/s 57 of the I.T.Act is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head 'income from other sources'. If so, the same shall be allowed as deduction u/s 57 of the I.T.Act. The assessee is directed to co-operate with the department and furnish the necessary evidence for expeditious disposal of the matter. It is ordered accordingly.”
In light of the order of the Bangalore Bench of the Tribunal, I restore the matter to the AO. The AO is directed to examine the financials of the assessee and allow the expenditure which have been incurred for earning the income of the assessee. I make it clear that since in the absence of registration under section 12AA of the Act, there is no question of any application of income. It is ordered accordingly.
In the result, appeal filed by the assessee is partly allowed.
Pronounced in the open court on the date mentioned on the caption page.