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Income Tax Appellate Tribunal, PUNE “A” BENCH, PUNE
Before: HON’BLE SHRI S. S. VISWANETHRA RAVI & SHRI G. D. PADMAHSHALI
ORDER PER G. D. PADMAHSHALI; This appeal is instituted against order of National Faceless Appellate Centre [‘NFAC’ hereinafter] passed u/s 250 of the Income-tax Act, 1961 [‘the Act’ hereinafter] vide DIN & order No. ITBA/NFAC/S/250/2022-23/ 1051542715(1) dt. 29/03/2023. [‘Impugned Order’ hereinafter]
Briefly stated facts of the case are; 2.1 The assessee trust for assessment year 2018-19 [‘AY hereinafter] filed its return of income [‘ITR’ hereinafter] on 30/03/2019 declaring total income at ₹NIL after claiming exemption u/s 11 and 12 of the Act as against applicable due date 31/08/2018 as prescribed u/s 139(1) of the Act.
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Mahatma Phule Shikshan Prasarak Mandal 2.2 The ITR was summarily processed determining total income of the assessee at ₹2,58,95,389/- u/s 143(1) of the Act on account of denial of exemption in the absence of audit report i.e. Form No. 10B which was one of the condition precedent for claiming exemption u/s 11 & 12 of the Act.
2.3 Aggrieved assessee assailed said denial before first appellate authority u/s 246A(1) of the Act, which came to be dismissed owning to assessee’s failure to furnish audit report in Form No. 10B within the prescribed due date u/s 139(4A) r.w.s. 139(1) of the Act.
2.4 In the aforestated circumstance, the assessee brought up grievance in the present appeal before the Tribunal effectively on twin grounds viz; (i) Denial of exemption u/s 11 & 12 of the Act and (ii) Disallowance of revenue expenditure incurred against the total gross receipt earned.
Heard rival contentions and perused the material placed on record in light of rule 18 of ITAT-Rules 1963. We note that, for the purpose of claiming exemption u/s 11 & 12 of the Act, the assessee is subjected to comply certain pre-conditions laid in section 12A of the Act, which is worthy to note here; (i) Trust is registered u/s 12AB of the Act (ii) Trust maintains prescribed books of accounts and gets audited (iii) Trust furnishes audit report in Form No. 10B / 10BB (iv) Trust furnishes return of income u/s 139(4A) within the time allowed u/s 139(1)/139(4) of the Act.
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Mahatma Phule Shikshan Prasarak Mandal
To the extent applicable here, it is apt to note that, for claiming exemption u/s 11 & 12 of the Act, furnishing of audit report in Form No. 10B is mandatory where total income of the trust without giving effect to the provisions of sections 11 and 12 of the Act, exceeds Rupees Five Crore; and in Form No. 10BB where total income of the trust without giving effect to the provisions of sections 11 and 12 of the Act, is upto Rupees Five Crore;
In the extent case, admittedly the appellant filed its return after the expiry of time limit set in section 139(4A) of the Act on 30/03/2019 and has obtained the audit report thereafter on 18/03/2021 thus rendering substantive failure in complying with prerequisite fastened for exemption entitlement. In this facts and circumstance, ostensibly both the tax authorities below rightly vouched the violation of condition laid in 12AB(1)(ii) of the Act and have denied exemption to the appellant, consequently brought to tax aggregate income as reported by the assessee at Sr No. 3 of the ITR filed on record.
During the course of hearing however, the contentions about the late obtaining and filing of Audit report and the need for still granting exemption u/s 11 & 12 of the Act are withdrawn, hence same is taken as not pressed. However, the Ld. AR Ms Khare raised an additional ground to the effect that total income of the assessee ought to have been determined on commercial principles and not to tax entire gross receipts without allowing corresponding expenditure. This additional ground in the given facts and circumstance not requiring any fresh examination of factual matrix, is hereby stands admitted.
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Mahatma Phule Shikshan Prasarak Mandal
It goes without saying that, Income Tax is charged on income and not gross receipts, and such taxable income is to be determined by reducing allowable expenses under various provisions of the Act.
Since the benefit of exemption u/s 11 & 12 is not available to the assessee, the total taxable income in the extent case was to be computed in accordance with law and precisely u/c IV-D of the Act, which is amiss. For the reason, we set-aside the impugned order and remand the matter back to the file of Ld. NFAC with a direction to first determine income in accordance with the law after reducing allowable expenditure from the gross receipt earned by the assessee and compute taxable income u/c IV-D of the Act and tax accordingly without allowing any claim of exemption u/s 11 & 12 of the Act. Needless to say, the assessee shall be allowed effectively not more than three opportunities of hearing.
In result, the appeal is ALLOWED FOR STATISTICAL PURPOSE. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Friday, 01st day of September, 2023.