SAI SHANTI SHIKHAN SAMITI, BHILAI,BHILAI vs. DCIT, CIRCLE-1(1), BHILAI, BHILAI

These appeals for Assessment Years (‘AYs’) 2017-18 and 2018-19 filed by the assessee are directed against orders dated 29.09.2025 and 30.09.2025 of the Additional/Joint Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (‘NFAC’), Delhi [‘Addl. CIT(A)’] passed under section 250 of the Income Tax Act, 1961 (‘Act’), respectively.

Vide two effective grounds of appeal in each case, the assessee has challenged the taxability of gross receipts as income under section 143(1) of the Act and denial of netting of expenses debited in Income & Expenditure accounts of these years.

This appeal is taken as a lead case. The relevant facts giving rise to this appeal are that the assessee, a registered society under Societies Registration Act, 1860, runs a school. It does not have any registration under section 12A/12AA of the Act. It filed its Income Tax Return (‘ITR’), in ITR-7 Form, of the relevant year on 21.11.2017 declaring income of Rs.1,13,100/-. The Assessing Officer-Central Processing Centre (AO-CPC), Bangalore processed the ITR under section 143(1) of Act, wherein the claim of exemption under section 11 of the Act was rejected on the reasoning that the audit report in Form No. 10B had been filed after the filing of the ITR/31.03.2019. Hence the case was not covered by the CBDT Circular No. 10/2019 dated 22.05.2019. After rejection of the claim of exemption under section 11 of the Act, the AO-CPC taxed the entire gross receipts of Rs.1,37,53,281/- as income. Thereafter, the assessee filed its petition for rectification under section 154 of the Act. However, the same was rejected. Aggrieved with the order passed under section 154 of the Act, the assessee filed appeal before the Ld. Addl. CIT(A), who dismissed the appeal by holding that the denial of claim of exemption under section 11 of the Act in processing of the ITR under section 143(1) of the Act was justified as there was a delay in filing/uploading the audit report in form 10B. The relevant finding of the Ld. Addl. CIT(A) is reproduced hereunder:

Shri Ravi Agrawal, CA, Ld. Authorized Representative (‘AR’) of the assessee, at the outset, submitted the brief facts of the case and contended that the assessee had wrongly filed its ITR in Form ITR-7 instead of Form ITR-5. The ITR-7 is the income tax return for persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) of the Act. This ITR-7 is specifically for scientific research institutions, political parties, universities, and colleges. Further, he submitted that ITR-5 is Income Tax Return for entities other than individuals, Hindu Undivided Families (HUFs), and companies. The ITR-5 is for entities such as Partnership Firms, Limited Liability Partnerships (LLPs), Association of Persons (AOPs), Body of Individuals (BOIs), and Trusts. He further submitted that filing of the audit report in Form-10B was not mandatory as the assessee did not have any registration under section 12A/12AA of the Act. However, the assessee had wrongly filed its ITR in ITR-7, which was not a valid ITR. The Ld. AO-CPC did not allow the claim of exemption under section 11 of the Act on the reasoning that the audit report in Form No. 10B had been filed after the filing of the ITR/31.03.2019. He admitted that the assessee was not entitled to claim exemption under section 11 of the Act because the assessee was not a registered trust under section 12A/12AA of the Act. It was contended that the AO, at most, had treated the said ITR as a defective ITR under section 139(9) of the Act if the audit report was not available online along with the ITR on the Income Tax Portal or non-availability of registration under section 12A/12AA of the Act. By the notice under section 139(9) of the Act, the Ld. AO-CPC should have provided an opportunity the assessee to rectify the said defect/deficiency in the ITR. However, the Ld. AO-CPC did not do the needful as per the provisions of section 139(9) of the Act.

The Ld. AR further submitted that the Ld. AO-CPC was not justified in taxing the entire gross receipts without allowing the expenditure incurred out of gross tuition/school fee, etc. He contended that the expenditure was incurred for running the school by the assessee and thus, the expenditure was allowable as it was not a case of application of income out of donations. The said expenditure was revenue in nature and incurred for running school out of gross tuition/school fee, etc. He therefore, prayed for relief by allowing the netting of expenditure against the gross receipts. He placed reliance on the decision of ITAT, Delhi in the case of New Surya Public School (in ITA No. 5082/Del/2025 dated 24.12.2025) reported in 2026 (1) TMI 603, ITAT Delhi, Sankulp Welfare Society 303 ITR 64 and National Horticulture Board 176 taxmaan167. 7. On the other hand, Shri Piyush Tripathi, Ld. Sr. DR, contended that there was no prima facie mistake in Ld. AO-CPC’s order; hence, the assessee’s rectification application filed under section 154 of the Act was rightly rejected. He contended that the assessee filed its ITR in Form ITR-7; therefore, the Ld. AO-CPC had not allowed netting of the expenditure on the reasoning that the expenditure in case of a trust were application of income rather than to earn income. Hence, he assailed that the netting of expenditure could not be allowed as the said expenditure was not like business expenditure. He, placing reliance on various paras of the impugned appellate order, prayed for dismissing this appeal as the Ld. Addl. CIT(A) had rightly rejected the appeal of the assessee on the reasoning that there was no prima-facie mistake in the order passed under section 154 of the Act.

We have heard both parties at length and have perused the material available on record. The only question for determination here is that whether the filing of ITRs in Form No.7 instead of Form No. 5 would automatically result into disallowance of the entire expenditure, when the assessee has no registration under section 12A/12AA of the Act. It is an admitted fact that the assessee has filed its ITR in wrong Form ITR-7 and has wrongly claimed exemption under section 11 of the Act even without having registration under section 12A/12AA of the Act. Had these facts pointed out by issuing notice under section 139(9) of the Act to the assessee, the same would have been rectified. In view of the facts brought for the first time that the assessee has not filed its ITR in valid Form ITR-7 as it has no registration under section 12A/12AA of the Act; therefore, filing of the audit report in Form-10B does not arise in this case, we without offering any comment on merit of the case, find impugned order deem fit to set aside and remand the matter back to the file of the Ld. CIT(A)/Addl. CIT(A) for deciding the case afresh/denovo, in accordance with the law after considering the above mentioned facts and provisions of section 139(9) of the Act. We therefore, order accordingly. Needless to say that the appellant assessee has to cooperate in remitted appellate proceedings. Before parting out, we make it clear that an assessee cannot be taxed solely because it/she/he filed the ITR in the wrong form as the tax liability arises on income determinable as per the Act and not from the type of form used to report it.

In the result, this appeal of assessee is allowed for statistical purposes as above. ITA No. 679/RPR/2025:

The above finding shall apply mutatis mutandis in this appeal also.

In the result, this appeal of assessee is allowed for statistical purposes as above. ITA No. 678 & 679/RPR/2025:

Both appeals of the assessee are allowed for statistical purposes as above.

""थ"/ The Respondent

The Pr. CIT, Raipur (C.G.) 4. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, Raipur 5. गाड" फाईल / Guard file.