VRAJ VISHWA PUBLIC CHARITABLE TRUST,VADODARA vs. THE ITO, WARD- EXEMPTION, VADODARA

The order passed by the Assessment Unit Income Tax Department ('the learned AD) is bad in law contrary to legal pronouncements and same be quashed.

The Learned AO erred in law by not considering the fact that once the trust has received valid registration certificates under section 12A and 80G of the Act, provisions of section 11 of the Income-tax Act, 1961 would be applicable.

Also, the Learned AO erred in Law and on facts of the case that once the exemption under section 11 is accepted no income of trust could be taxed under the provisions of the Act. Accordingly, the tax computation carried out by the learned AO are unwarranted and unjustified and same be deleted now. The Appellant craves leave to add to and/ or to alter, amend, rescind, modify the grounds herein above or produce documents before or at the time of hearing of this appeal.”

The brief facts of the case are that assessee is a charitable trust registered under Section 12A since 2007, was selected for compulsory scrutiny on account of cancellation of Form 10AB by the Commissioner of Income Tax (Exemption). The AO had issued various statutory notices under Sections 142(1) and 143(2) of the Act and passed an order under Section 143(3) on 05.03.2024. As per the assessment order, the AO, after consideration of the assessee's replies to the show cause notice and submission of records, accepted the genuineness of the activities and allowed exemption under Section 11. However, while computing income a mistake occurred in determining the taxable income at Rs. 1,66,542/-, resulting in erroneous computation of tax demand. During the appellate proceedings, the appellant submitted that it is a duly registered charitable trust since 2007, carrying out educational and medical relief activities. The temporary non-response to initial notices was attributed to the death of the managing trustee in December 2022. Upon receipt of the show cause notice, all required documents were timely submitted with attendance at the video conference hearing. The assessee argued that over 96% of the total donations and income received during the year Rs.7,20,226/- were applied toward charitable purposes, amounting to Rs.5,59,764/- in direct charitable assistance and Rs.1,32,140/- in investment in RBI Bonds, leaving negligible surplus. The assessee contended that the cancellation of registration in Form 10AD was only - 3– for statistical purposes and not a valid withdrawal affecting its eligibility for exemption. The trust had subsequently received valid registration certificates under Sections 12A and 80G. The assessee filed documentary evidences, including a detailed list of beneficiaries and supporting vouchers. The assessee, therefore, sought deletion of the tax computation and confirmation of eligibility for exemption under Sections 11 and 12. The issues arise whether the cancellation of registration in Form 10AD affects the appellant's eligibility for exemption under Sections 11 and 12. Whether the AO has correctly computed taxable income for AY 2022-23 and whether the order of assessment suffers from any legal or factual infirmity.

Aggrieved assessee filed an appeal before the Ld.CIT(A), who dismissed the appeal of the assessee by observing as follows: “…I have considered the submission of the appellant, assessment order and relevant documentary evidences filed. The AO, after issuing multiple notices and finally obtaining complete details on 05.02.2024 and 12.02.2024, has expressly recorded that no adverse inference is drawn and that exemption under Section 11 is allowable. Notwithstanding the reference to cancellation of Form 10AB, the AO has accepted the genuineness of activities and charitable application of funds exceeding statutory requirements. The appellant's grievance mainly relates to perceived adverse tax computation, however, the assessment order clearly reflects the allowance of exemption and no addition on account of alleged cancellation of registration. The appellant does not disclose any sustainable ground for variation, as the AO's order is consistent with the facts and submissions; no addition or disallowance prejudicial to the appellant has been made in substance.

On perusal of the records, we find that though the Assessing Officer has accepted the assessee's claim for exemption under section 11, the computation of income appears to require fresh verification with reference to the application - 4– of income towards charitable purposes, including the amount claimed to have been applied for charitable activities and the investment made in RBI Bonds. We further observe that the learned CIT(A), while dismissing the appeal, has not examined the correctness of the computation made by the Assessing Officer. In our considered view, the issue relating to the computation of exempt income and the application of funds requires proper verification and re-computation by the Assessing Officer. Accordingly, in the interest of justice, we deem it appropriate to set aside the impugned order on this limited issue and restore the matter to the file of the Assessing Officer. The Assessing Officer shall verify the computation of the application of income/funds in accordance with the provisions of sections 11 and 12 of the Act, after affording the assessee a reasonable opportunity of being heard and after considering all relevant documentary evidence that may be furnished by the assessee.

In the result, the appeal filed by the assessee is allowed for statistical purposes.

""थ"/ The Respondent. 3. संबंिधतआयकरआयु"/ Concerned CIT 4. आयकरआयु"(अपील) /The CIT(A)- 5. िवभागीय"ितिनिध, आयकरअपीलीयअिधकरण, अहमदाबाद/ DR, ITAT, Ahmedabad 6. गाड"फाईल /Guard file. आदेशानुसार/ BY ORDER,सहायकपंजीकार (Dy./Asstt.