SAHAYEEKA,BHUBANESWAR vs. DCIT (CPC), BANGALORE

This is an appeal filed by the assessee against the order of

the Commissioner of Income Tax(Appeals)-1, Bhubaneswar dated

30.5.2018 for the assessment year 2014-15.

Assessing Officer and Commissioner of Income Tax(Appeals)-1,

Bhubaneswar have committed gross error of law in determining

the income and in not giving the credit of the application of funds

for charitable purposes. Thus, the impugned determination of

income is illegal, arbitrary and not sustainable in the eye of law

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and the consequential demand raised therein is liable to be

deleted.

carefully perused the relevant materials placed on the record of

the Tribunal. Ld AR of the assessee submitted that the Assessing

Officer as well as the CIT(A) are not justified in not allowing the

income generating expenditures while determining the income of

the appellant society. Ld A.R. vehemently pointed out that the

authorities below should not have treated the entire receipts as

income of the assessee as the revenue expenditure incurred by

the society should be allowed to the appellant before ascertaining

the taxable income of the assessee in absence of registration

u/s.12A of the I.T.Act, 1961 (in short ‘Act’). Ld A.R. of the

assessee has placed reliance on the decision of Hyderabad

Benches of the Tribunal in the case of Nirmal Agricultural Society

vs ITO, (1999) 71 ITD 0152 (Hyd) to submit that even in absence

of registration u/s.12A of the Act, the Assessing Officer could

assess only net income of the assessee and not the entire gross

receipts. He further submitted that for ascertaining the net

income/surplus, the Assessing Officer has to allow expenditure

incurred by the assessee out of gross receipts. Therefore, the

Assessing Officer may kindly be directed to allow the entire

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amount of expenditure incurred by the assessee during the

relevant financial period.

has not been registered u/s 12A of the Act, the amount of income

applied for charitable purposes during the relevant previous year

cannot be considered to be exempt u/s.11 of the Act. Ld D.R.

vehemently pointed out that the entire income of Rs.20 lakhs is

liable to be taxed and the Assessing Officer has exactly done same

and determined the taxable total income of the same amount. Ld

D.R. submitted that the application of funds for charitable

purposes cannot be taken into consideration while processing the

return u/s.143(1) of the Act and as the assessee itself has

mentioned in the return of income that it has not been registered

u/s.12AA of the Act. Ld D.R. lastly submitted that the claim of the

assessee pertaining to incurring of expenditure and it allowability

out of total gross receipts is not based on sound legal footing,

therefore, same was rightly rejected by the authorities below.

Assessing Officer should have allowed expenditures, which were

required to be incurred to earn the income/receipts because once

the assessee does not have registration u/s.12A of the Act,

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exemption u/s.11 is also not available and the taxable income of

the assessee is required to be determined on the principle of

commercial accounting which provides that the expenditure

actually incurred by the assessee for its objects/business are

allowable amount out of total receipts received by the assessee

during the financial period. Ld A.R. vehemently pointed out that

allowability of application of funds/incurring of expenditure for

charitable purposes cannot be taken into consideration while

processing return of income u/s.143(1) of the Act but this claim of

the assessee could have been allowed by the CIT(A) after

considering the submission of the assessee and following the

proposition laid down by the ITAT Hyderabad Benches in the case

of Nirmal Agricultural Society (supra). Ld A.R. also submitted that

the jurisdictional Assessing Officer in this case is Income Tax

Officer, Ward 1(2), Bhubaneswar.

parties, first of all, I may point out that for the relevant financial

period, the appellant was not having registration u/s.12A of the

Act, which is required for the purpose of granting exemption

u/s.11 of the Act. In absence of registration u/s.12A of the Act,

the assessee deserves to be assessed as an Association of Person

(AOP)and the Assessing Officer could assess and tax the only net

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income of the assessee and not the entire gross receipts. The

purpose and activity of the assessee society being charitable has

not been disputed by the authorities below and thus, the

expenditure incurred by the assessee and shown in the income

and expenditure account are presumed to be incurred towards

such charitable activities and whatever amount has been spent on

those programmes/projects , they were spent in the usual course

of carrying on its acclaimed objects and hence, those expenses

are revenue expenses which should have been allowed to the

assessee out of total amount of gross receipts during the relevant

financial period.

the Assessing Officer u/s.143(1) of the Act and the impugned

order passed by the CIT(A), I observe that in para 3 of the first

appellate order, the CIT(A) has noted that during the relevant

previous year, the assessee has claimed Rs.22,29,460/- on

revenue account and in the same para, subsequently, the CIT(A)

upheld the action of the Assessing Officer taxing the entire

amount of receipts without allowing claim of expenditure.

the principles laid down by the Hyderabad Benches of the Tribunal

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in the case of Nirmal Agricultural Society (supra), I have no

hesitation to hold that even in absence of registration u/s.12A of

the Act, the Assessing Officer could assess only net income of the

assessee and not the entire receipts because in absence of

registration u/s.12A of the Act, the assessee should be assessed in

the capacity of AOP on the commercial principles, wherein, the

total gross receipts/income cannot be treated as income of the

assessee without allowing revenue expenditure incurred by the

assessee during the relevant same period and thus, I am inclined

to hold that the authorities below were not right in disallowing the

claim of expenditure of the assessee. However, I may point out

that the Assessing Officer has framed assessment u/s.143(1) of

the Act without verifying the quantum of expenditure claimed by

the assessee and the CIT(A) has not verified the same during the

relevant appellate proceedings. Therefore, I direct the Assessing

Officer to allow the claim of expenditure of the assessee pertaining

to the relevant financial period after due verification of purpose

and quantum of expenditure. Hence, the case is restored to the

file of the Jurisdictional Assessing Officer i.e. Income Tax Officer,

Ward 192), Bhubaneswar for the limited purpose for verification

and examination as directed above.

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purposes in the terms indicated above.

Order pronounced on 06 /02/2019. sd/- (Chandra Mohan Garg) JUDICIALMEMBER Cuttack; Dated 06 /02/209 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Sahayeeka, Plot No.270(P), Bapuji Nagar, Bhubaneswar

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