RANA EDUCATIONAL TRUST,THILLAINAGAR vs. ITO, EXEMPTIONS WARD, TRICHY

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ITA 1797/CHNY/2026Status: DisposedITAT Chennai10 September 2026AY 2024-258 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while the exemption under Section 11 might be unavailable due to non-compliance, the entire gross receipts cannot be taxed without considering admissible expenditure. The matter was restored to the AO for fresh examination of expenditure.

What were the facts?

The assessee, a trust running an educational institution, claimed exemption under Section 11 of the Income Tax Act. However, it failed to file Form 10B within the due date and did not have Section 12A registration. Consequently, the CPC taxed the entire gross receipts.

What were the issues?

Whether gross receipts can be taxed entirely without considering expenditure when exemption under Section 11 is denied. Whether the AO must determine taxable income by allowing admissible expenditure.

Which sections of the Income-tax Act were involved?

Section 11,Section 12A,Section 143(1),Section 119(2)(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI MANU KUMAR GIRI & SHRI S. R. RAGHUNATHA

Hearing: 13.08.2026Pronounced: 10.09.2026

आयकर अपीलीय अधिकरण, ‘बी’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI श्री मनु कुमार गिरर, न्याययक सदस्य एवं श्री एस. आर. रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1797/Chny/2026 ननिाारण वर्ा / Assessment Year: 2024-25 Rana Educational Trust The Income Tax Officer, A-10, Salai Road vs. Exemptions Ward Thillainagar – 620 018. Trichy.

[PAN: AABTR2367L] (प्रत्यथी/Respondent) (अपीलाथी/Appellant)

अपीलाथी की ओर से/Appellant by : Shri. Arjun Raj N, Advocate प्रत्यथी की ओर से/Respondent by : Shri. E.Elango, JCIT सुनवाई की तारीख/Date of Hearing : 13.08.2026 घोर्णा की तारीख/Date of Pronouncement : 10.09.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : The present appeal is filed by the assessee against the order dated 25.02.2026 passed by the learned Commissioner of Income Tax (Appeals) 1, Hyderabad (hereinafter referred to as “ld.CIT(A)”), dismissing the appeal filed by the assessee against the intimation u/s.143(1) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) passed by the CPC / Assessing Officer, Bangalore (hereinafter referred to as “the CPC, Bangalore”) dated 29.01.2025, pertaining to Assessment Year (A.Y.) 2024-25.

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2.

The brief facts of the case emanating from the records are that the assessee is a Trust, filed its return of income for the AY 2024-25 on 13.11.2024 in ITR-7 by claiming exemption u/s.11 of the Act. The return of income was processed by the CPC, Bangalore u/s.143(1) of the Act on 20.09.2025 by rejecting the exemption claimed u/s.11 of the Act, as the assessee had not filed Form No.10BB along with the return of income and brought to tax the entire receipts of Rs.1,04,01,040/- to tax without allowing any of the expenditure as deduction.

3.

Aggrieved by the order of the CPC, Bangalore, the assessee preferred an appeal before the ld.CIT(A). On perusal of the statement of facts, grounds of appeal, written submissions and material available on record, the ld.CIT(A) dismissed the appeal of the assessee by passing an order dated 25.02.2026, holding that the assessee has not furnished Form No.10B within the due date prescribed under the Act. Further, the ld.CIT(A) observed that the belated Form No.10B was filed on 13.11.2024 and the assessee has failed to seek the condonation of delay u/s.119(2)(b) of the Act. The ld.CIT(A) passed the order as detailed below:-

“The Pr. Commissioners of Income Tax (Pr. CsIT)/Commissioners of Income Tax (CsIT) to admit and deal with applications for condonation of delay in filing Form No. 9A/10/10B/10BB for Assessment Year 2018-19 and subsequent assessment years where there is a delay of upto 365 days. The Pr. Chief Commissioners of Income Tax (Pr. CCsIT)/Chief Commissioner of Income Tax (CCSIT)/Director Generals of Income Tax (DGsIT) to admit and deal with applications for condonation of delay in filing Form No. 9A/10/10B/10BB for Assessment Year 2018-19 and subsequent assessment years where there is a delay of more than 365 days. The Pr. CCsIT/CCsIT/CsIT while entertaining such applications for condonation of delay in filing Form No. 9A/10/10B/10BB shall satisfy themselves that the applicant was prevented by reasonable cause from filing of such forms before the expiry of time allowed and the case is genuine hardship on merits. In the present case, it is evident from the record that Form No. 10B was furnished on 13.11.2024. The return of income was also filed on 13.11.2024. However, as per the statutory requirement, the audit report was required to be furnished at least one month prior to the due date prescribed under section 139(1). Thus, the audit report was not filed within the time stipulated under the Act. Further, no order condoning the delay under section 119(2)(b) passed by the competent

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authority has been produced or is available on record. In the absence of such condonation, the belated furnishing of Form No. 10B cannot be given effect to for the purpose of allowing exemption. In the absence of such condonation, the appellate authority cannot ignore the explicit statutory requirement or treat the condition as substantially complied with. DEPART In view of the above factual and legal position, the denial of exemption under section 11 at the stage of processing under section 143(1) is found to be in accordance with law. The computation of total income at 1,04,01,040/- by CPC and the consequential demand do not suffer from any infirmity. The grounds raised by the appellant are accordingly rejected and the appeal stands dismissed.” 4. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The ld.AR for the assessee assailing the action of the ld.CIT(A), submitted that the ld.CIT(A) has erred in confirming the order of the CPC, Bangalore in denying the exemption claimed u/s.11 of the Act. The ld.AR filed a paper book containing 171 pages consisting of return of income, audit report, financials and the judicial precedents relied on. The ld.AR submitted that the assessee is running an educational institution, namely, Kaveri College of Engineering and Technology at Trichy district. During the impugned assessment year, the assessee did not have filed registration u/s.12A of the Act, however, claimed exemption u/s.11 of the Act. Admittedly, the assessee had not filed the audit report in Form 10B within the prescribed due date u/s.139(1) of the Act. However, the ld.AR contended that the CPC, Bangalore has erred in bringing the entire receipts of Rs.1,04,01,040/- to the tax net without allowing any deduction. Therefore, the action of the CPC, Bangalore cannot be sustained, and hence, the ld.CIT(A) has erred in confirming the additions stating that the assessee has failed to obtain a condonation approval from the concerned authorities. The ld.AR drew our attention to page Nos.105 and 106 of the paper book and submitted that the assessee’s gross collection was Rs.1,04,01,043/- and the corresponding expenditure spent during the year was Rs.15,21,493/- and has retained the excess of income over expenditure to the tune of Rs.88,79,550/-. Therefore, the ld.AR submitted that the only net income alone need to be taxed and not the gross income. Therefore, the ld.AR prayed for

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directing the AO to restrict the addition only to the net income. In support of the same the ld.AR relied on the decision of the Tribunal in the following cases:-

(i) Sree Venkateswara Educational Trust v. Exemptions Ward, Salem TCA No(s). 168 and 169 of 2020 (Madras HC)

(ii) Victoria Educational Trust v. ITO, Exemptions Ward-3, Chennai ITA No.946/Chny/2025 (Chennai Tribunal) (iii) Keystone Foundation v. The ACIT, Exemptions Ward, Coimbatore ITA No.1680/Chny/2025 (Chennai Tribunal) (iv) G.C.T. Alumni Association v. The ACIT (Exemptions), Coimbatore ITA No.3673/Chny/2025 (Chennai Tribunal) 5. Per contra, the ld.DR for the Revenue supported the orders of the authorities and stated that the assessee has not obtained the registration u/s.12A of the Act and hence there is no error in confirming the intimation by the ld.CIT(A).

6.

We have heard the rival submissions, perused the material available on record and carefully gone through the orders of the authorities below as well as the paper book and judicial precedents relied upon by the ld.AR. The controversy before us lies in a narrow compass. The assessee, a Trust running an educational institution, namely Kaveri College of Engineering and Technology, had claimed exemption u/s.11 of the Act. The CPC, while processing the return u/s.143(1) of the Act, denied the exemption and consequently brought the entire gross receipts of Rs.1,04,01,040/- to tax without allowing deduction towards the expenditure incurred by the assessee. The said action was affirmed by the ld.CIT(A).

7.

Before us, the ld.AR fairly submitted that, for the assessment year under consideration, the assessee did not possess registration u/s.12A of the Act and had also not furnished the prescribed audit report within the stipulated time. In these circumstances, the limited grievance canvassed before us is not

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essentially against the denial of exemption u/s.11 of the Act, but against the action of the CPC in treating the entire gross receipts of Rs.1,04,01,040/- as taxable income without considering the expenditure incurred for earning such receipts and for carrying on the activities of the assessee. On perusal of the financial statements placed at pages 105 and 106 of the paper book, we find that the assessee has disclosed gross receipts/collection of Rs.1,04,01,043/- and expenditure of Rs.15,21,493/- during the relevant previous year, resulting in excess of income over expenditure of Rs.88,79,550/-. The contention of the assessee is that even assuming that exemption u/s.11 of the Act is unavailable, the gross receipts cannot ipso facto be regarded as the taxable income of the assessee. According to the assessee, what could at best be brought to tax is the real/net income after allowing expenditure incurred wholly and exclusively for carrying on its activities, subject, of course, to verification and admissibility under the applicable provisions of the Act.

8.

We find considerable force in the aforesaid contention. There is a distinction between denial of exemption u/s.11 of the Act and determination of the income chargeable to tax after such denial. The consequence of denial of exemption cannot, by itself, be that every receipt credited in the books automatically assumes the character of taxable income without examining the expenditure incurred in connection with earning such receipts. Once exemption u/s.11 and 12 is unavailable, the income of the assessee is required to be determined in accordance with the other applicable provisions of the Act and on the basis of its real income, after considering such expenditure as is otherwise allowable in law. In other words, denial of the benefit available to a charitable or religious trust does not dispense with the exercise of computation of taxable income. Gross receipts and taxable income are conceptually distinct. Unless there is a specific statutory provision requiring a particular receipt to be taxed on a gross basis, the tax authorities are required to determine the income embedded in the receipts after considering legitimate and admissible

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expenditure incurred for the purposes of the activities from which such receipts have arisen. 9. We have also considered the decisions relied upon by the ld.AR, including the decision of the Hon'ble Madras High Court in Sree Venkateswara Educational Trust v. Exemptions Ward, Salem and the decisions of the Chennai Benches of the Tribunal in Victoria Educational Trust v. ITO, Keystone Foundation v. ACIT and G.C.T. Alumni Association v. ACIT. The principle canvassed by the assessee on the strength of the aforesaid decisions is that where exemption u/s.11 is not available, it would nevertheless be necessary to determine the taxable income in accordance with the provisions of the Act rather than treating the entire gross receipts as income without considering the corresponding expenditure. The said principle, in our considered view, deserves to be applied to the facts of the present case, subject to verification of the expenditure claimed by the assessee.

10.

In the present case, the CPC, while processing the return u/s.143(1) of the Act, has brought the entire receipts of Rs.1,04,01,040/- to tax consequent upon denial of exemption u/s.11 of the Act. The ld.CIT(A), while confirming the action of the CPC, has primarily proceeded on the failure of the assessee to furnish the prescribed audit report within the stipulated period and the absence of an order condoning such delay u/s.119(2)(b) of the Act. However, the ld.CIT(A) has not separately examined the assessee's contention that, notwithstanding the denial of exemption u/s.11 of the Act, the entire gross receipts could not be assessed as taxable income without allowing admissible expenditure incurred in carrying on the educational activities. In our considered opinion, the issue regarding the eligibility of the assessee for exemption u/s.11 of the Act and the issue regarding the computation of taxable income consequent upon denial of such exemption operate in different fields. Even where the assessee is not entitled to exemption u/s.11 of the Act, the Revenue is required to determine the taxable income in accordance with law. The denial

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of exemption cannot result in conversion of gross receipts into taxable income without undertaking the necessary computation. 11. At the same time, we are conscious of the fact that the expenditure claimed by the assessee and reflected in the income and expenditure account requires examination as to its nature, genuineness and admissibility under the relevant provisions of the Act. The appellate record before us does not indicate that such an exercise was undertaken either by the CPC or by the ld.CIT(A), apparently because the entire gross receipts were brought to tax consequent upon the denial of exemption. Therefore, in the interest of justice and having regard to the facts and circumstances of the case, we deem it appropriate to set aside the impugned order of the ld.CIT(A) on the limited issue of computation of taxable income and restore the matter to the file of the Jurisdictional Assessing Officer (JAO) for fresh examination.

12.

The JAO is directed to examine the books of account, income and expenditure account, financial statements and other supporting documents of the assessee and determine the net taxable income, instead of subjecting the entire gross receipts to tax merely on account of denial of exemption u/s.11 of the Act. While doing so, the JAO shall verify the expenditure claimed by the assessee and allow such expenditure as is found to be genuine and otherwise admissible in accordance with the applicable provisions of the Act. Our direction is confined to the proposition that the gross receipts of Rs.1,04,01,040/- cannot, merely because exemption u/s.11 of the Act is unavailable, be mechanically treated in their entirety as taxable income without examining the corresponding admissible expenditure. Needless to state, the assessee shall furnish all the necessary books of account, bills, vouchers and other documentary evidence in support of the expenditure claimed and shall fully cooperate with the proceedings before the JAO. The JAO shall afford reasonable opportunity of being heard to the assessee before determining the taxable income in accordance with law. In view of the above, the order of the ld.CIT(A) is set aside to the limited extent of computation of taxable income, and the issue is restored

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to the file of the JAO with the aforesaid directions. Accordingly, the grounds raised by the assessee are treated as partly allowed for statistical purposes. 13. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open court on 10th September, 2026 at Chennai.

Sd/- Sd/- (मनु कुमार गिरर) (एस. आर. रघुनाथा) (MANU KUMAR GIRI) (S. R. RAGHUNATHA) न्याययक सदस्य/Judicial Member लेखासदस्य/Accountant Member चेन्नई/Chennai, दिन ांक/Dated, the 10th September 2026 Devadas आदेश की प्रतिलिपि अग्रेपिि/Copy to: 1. अपीलाथी/Appellant 2. प्रत्यथी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. ववभागीय प्रनतननधि/DR 5. गार्ा फाईल/GF Digitally signed by DEVADAS DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.09.11 11:26:47 +05'30'

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