INCOME TAX OFFICER, MUMBAI vs. THE RANPUR SARVAJANIK EDUCATION SOCIETY, MUMBAI

The assessee is a charitable trust registered under section 12A of the Act, engaged in the activity of imparting education through schools and colleges. The assessee filed its return of income for A.Y. 2017–18 on 09.10.2017 declaring total income at Nil along with audit report in Form No.10B. The case was selected for scrutiny and statutory notices under sections 143(2) and 142(1) were issued. During the course of assessment proceedings, the Assessing Officer examined the audit report and noted that in Form No.10B, at Sr. No.7, the auditor had reported that a sum of Rs.2,00,00,000/- was deemed income under section 11(1B). The Assessing Officer further observed that the assessee had also offered the said amount as deemed income in its computation, though adjusted against the deficit. The Assessing Officer issued a show cause notice proposing addition of Rs.2,00,00,000/- under section 11(1B). In response, the assessee submitted that the reporting in Form No.10B was an inadvertent error and that the amount represented accumulation under section 11(2) in earlier years, which was utilised during the year under consideration for payment of salary to staff. The assessee also 3 The Ranpur Sarvajanik Education filed a revised audit report dated 12.02.2019. The Assessing Officer, however, rejected the explanation on the grounds that the original audit report and return of income clearly reflected the amount as deemed income under section 11(1B), the revised audit report was not filed electronically, no revised return of income was filed within the prescribed time, and no satisfactory evidence of utilization was furnished. Accordingly, the Assessing Officer added Rs.2,00,00,000/- under section 11(1B) and assessed total income at Rs.2,00,00,000/-. Penalty proceedings under section 270A were also initiated.

Aggrieved, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) deleted the addition holding that the amount represented accumulation under section 11(2) which was actually utilised for charitable purposes during the year, and therefore, the provisions of section 11(1B) were not applicable. The Ld. CIT(A) also observed that the addition was made solely on the basis of erroneous reporting in Form No.10B and that the revised audit report and factual utilization of funds supported the claim of the assessee. Consequently, the addition of Rs.2,00,00,000/- was deleted and interest was also directed to be deleted.

The Revenue has raised following grounds, primarily challenging the deletion of addition of Rs.2,00,00,000/- made under section 11(1B) and the acceptance of revised audit report and explanation of the assessee:

The Ld. Departmental Representative relied upon the assessment order and submitted that the assessee had itself offered the amount as deemed income under section 11(1B) in the return of income based on the audit report filed along with the return.

The Ld. Authorised Representative, on the other hand, reiterated the facts and submitted that the Ld. CIT(A) has correctly appreciated the factual position that the amount in question represented accumulated income under section 11(2) of earlier years, which was duly utilised during the year under consideration for charitable purposes. It was contended that the reporting in Form No.10B was a bona fide mistake, which was subsequently rectified, and the addition was made without appreciating the actual utilisation of funds. The Ld. AR relied upon the order of the Ld. CIT(A).

We have heard the rival submissions and perused the material available on record. The core issue for consideration is whether the amount of Rs.2,00,00,000/- can be treated as deemed income under section 11(1B) merely on the basis of reporting in Form No.10B, despite the claim of the assessee that 6 The Ranpur Sarvajanik Education the same represents accumulation under section 11(2) of earlier years duly utilised during the year.

1 Upon careful consideration of the appellate order, we find that the Ld. CIT(A) has undertaken a detailed examination of both the factual and legal aspects of the issue before arriving at the conclusion. The Ld. CIT(A) has categorically recorded that the entire controversy emanates from an entry made in the original audit report in Form No.10B, wherein the auditor had mentioned a sum of Rs.2,00,00,000/- as deemed income under section 11(1B). However, the Ld. CIT(A) has taken note of the fact that the assessee, along with the auditor, consistently explained that the said reporting was an “inadvertent mistake” and that the amount in question was, in fact, accumulation under section 11(2) pertaining to earlier assessment years, which had been duly utilised during the year under consideration.

2 The Ld. CIT(A) has further recorded that the assessee furnished a revised audit report correcting the said error and also placed on record the resolution of the trustees dated 10.04.2016 evidencing utilisation of the accumulated funds for payment of salary to staff, which is one of the primary objects of the trust. Importantly, the Ld. CIT(A) has observed that the Assessing Officer rejected the revised audit report merely on technical grounds, namely that it was not filed electronically, without disputing either the correctness of the revised report or the actual utilisation of the funds for charitable purposes.

3 On this factual foundation, the Ld. CIT(A) has applied the provisions of section 11(1B) and held that the said deeming provision comes into operation only in a situation where the income accumulated under section 11(2) is not applied within the prescribed period. In the present case, the Ld. CIT(A) has given a clear finding that the accumulated funds were in fact utilised during the relevant previous year for the objects of the trust. Once such utilisation is established, the very condition precedent for invoking section 11(1B) ceases to exist.

4 We further note that the above finding of the Ld. CIT(A) is a pure finding of fact based on examination of records, including the utilization of funds and supporting evidences. The Revenue has not brought any material on record to controvert this finding or to demonstrate that the accumulated income remained unutilised so as to attract the provisions of section 11(1B). In the absence of any rebuttal to the factual findings recorded by the Ld. CIT(A), we find no reason to interfere with the conclusion arrived at by the Ld. CIT(A) on this issue.

5 The contention of the Revenue that the assessee is bound by the return of income and audit report cannot be accepted in isolation, particularly when the assessee has demonstrated that the reporting was erroneous and the underlying facts support the claim of application of income. It is a settled principle that taxation is to be based on real income and not on mere entries or technical errors. Further, the Assessing Officer has not conducted

Insofar as reliance on the decision of the Hon’ble Supreme Court in Goetze (India) Ltd. is concerned, the same restricts the powers of the Assessing Officer in entertaining fresh claims otherwise than by revised return; however, the appellate authorities are not so constrained and are empowered to consider the correct tax liability based on facts on record.

In view of the above, we find no infirmity in the order of the Ld. CIT(A) in deleting the addition of Rs.2,00,00,000/- made under section 11(1B). Accordingly, grounds raised by the Revenue are dismissed.

In the result, the appeal of the Revenue is dismissed.