JIVDAYA SEVA TRUST PALANSAVA ,PALANSVA vs. ITO EXEMPTION WARD 1, RAJKOT , RAJKOT

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ITA 1001/RJT/2026Status: DisposedITAT Rajkot29 October 2026AY 2022-235 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the expenses incurred for preservation of environment, even if not allowable under Section 11 as charitable purpose, could be allowed under Section 37(1) if the assessee were treated as carrying on a business. The Tribunal referred to the principle that expenditure for preservation of business interests can be allowed. Citing the Delhi High Court in Petroleum Sports Promotion Board, the Tribunal noted that even if a trust is denied registration and its income is taxed as 'income from other sources', relevant expenditures should be allowed under Section 57(iii). The Tribunal emphasized that Section 57(iii) requires expenditure to be wholly and exclusively for the purpose of making or earning income, not necessarily that income is actually earned. The Tribunal found that the assessee had submitted necessary documents for the expenses, which were not rebutted by the AO. The AO's disallowance without rejecting books of account was deemed impermissible. Therefore, the AO was directed to allow these expenses as if the assessee were running a business, by following normal rates of income.

What were the facts?

The assessee, Jivdaya Seva Trust, filed its return for AY 2022-23 declaring NIL income. The trust received Rs. 20,36,678/- as donations for 'Preservation of environment'. The case was selected for scrutiny due to issues with registration/approval under various sections of the Act. During assessment, the Assessing Officer (AO) noted the receipt of Rs. 20,36,678/- for environmental preservation. The assessee could not provide documentary evidence for these funds. The AO rejected the trust's status and disallowed the expenses of Rs. 20,36,678/-, making an addition to the income as AOP/BOI. The CIT(A) confirmed the AO's action. The assessee appealed to the ITAT.

What were the issues?

1. Whether the AO erred in assuming jurisdiction under section 143(3) by issuing a notice under section 143(2)? 2. Whether the CIT(A) erred in confirming the AO's action of not allowing exemption under section 11? 3. Whether the CIT(A) erred in confirming the AO's action of disallowing expenses of Rs. 20,36,678/- for preservation of environment? 4. Whether the CIT(A) erred in confirming the AO's action of taxing the expenses of Rs. 20,36,678/- for preservation of environment? Assessee's Contentions: - All expenditures were genuine and incurred towards preservation of environment. - If not allowed as charitable intent, expenses should be allowed under general provisions like business income or income from other sources, as they were for environmental preservation. Revenue's Contentions: - The Revenue primarily reiterated the stand taken by the Assessing Officer.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144B,Section 250,Section 11,Section 143(2),Section 142(1),Section 37(1),Section 57(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC”

Before: Dr. Arjun Lal Saini

For Respondent: Shri Ganesh Iyer, Ld. Sr. DR
Hearing: 22/10/2026

आयकरअपीलीयअिधकरण,राजकोट �ायपीठ,राजकोट। In The Income Tax Appellate Tribunal, “SMC” Rajkot Bench, Rajkot Before Dr. Arjun Lal Saini, Accountant Member आयकरअपीलसं./ITA No. 1001/RJT/2026 (�नधा�रणवष�/Assessment Year: (2022-23) Jivdaya Seva Trust Palansava ITO Exemption Ward 1, Rajkot Survey No. 1175/3 Palansva, Vs. Aayakar Bhawan, Race Course Ring Kutch (Gujrat) 370755 Road, Rajkot Rajkot - 360001 �ायीलेखासं./जीआइआरसं./PAN/GIR No.: AADTJ8673K (अपीलाथ�/Appellant) (��यथ�/Respondent)

Appellant by : Shree Fenil H. Mehta, Ld. AR Respondent by : Shri Ganesh Iyer, Ld. Sr. DR Date of Hearing : 22/10/2026 : 29/10/2026 Date of Pronouncement

ORDER Per, Dr. Arjun Lal Saini, AM:

Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2022- 23, is directed against the order under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the National Faceless Appeal Centre (NAC) Delhi/Commissioner of Income-tax (Appeals) [in short ‘NFAC/Ld.CIT(A)’], dated 06.05.2026, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) read with section 144B of the Act, dated 23.02.2024.

2.

Grounds of appeal raised by the assessee, are as follows; 1. That the learned A.O. has grievously erred in law and on facts in assuming jurisdiction under section 143(3) of the Income Tax Act, 1961 by way of issuing notice under section 143(2) of the Income Tax Act, 1961.

ITA No.1001/Rjt/2026 Jivdaya Seva Trust Palansava 2. That the learned CIT(A) has grievously erred in law and on facts in confirming the action of Ld. A.O. in not allowing exemption u/s 11 of the Act. 3. That the learned CIT(A) has grievously erred in law and on facts in confirming the action of learned A.O. in disallowing the expenses expended under the head preservation of environment of Rs. 20,36,678/-. 4. That the learned CIT(A) has grievously erred in law and on facts in confirming the action of learned A.O. in taxing the expenses expended under the head preservation of environment of Rs. 20,36,678/-. 5. That the appellant craves leave to add, amend, alter, vary and/or withdraw above ground of Appeal. 3. Brief facts qua the issue are that the assessee (Jivdaya Seva Trust ) is a Trust and filed its ROI (Return Of Income) on 27.09.2022 declaring total income at NIL. The assessee received grant of Rs. NIL and other donations of Rs. NIL, and assessee received Donation (to trust or institution registered u/s 12AA/12AB or approved u/s 10(23C) (iv)/(v)/(vi)/(via)- Other than Corpus as Preservation of environment of Rs.20,36,678/- during the year under consideration. The case was selected for scrutiny under CASS for the following reason, viz: “Cases related to registration/approval under various sections of the Act, such as 12A, 12AB, 35(1)(ii)/(iia)/(iii), 10(23C), etc, Cases where registration/approval under various sections of the Act, such as section 12A, 12AB, 35(1)(ii)/(iia)/(iii), 10(23C), etc, have not been granted or have been cancelled/withdrawn by the Competent Authority, yet the assessee has been found to be claiming tax exemption/deduction in the return. However, where such orders of withdrawal of registration/approval have been reversed/set-aside in appellate proceedings, those cases will not be selected under this clause.

4.

During the assessment proceedings, assessing officer issued notices u/s 143(2) & 142(1) to the assessee on various dates. The assessee submitted reply along-with Bank Book and Cash Book, Balance Sheet, Bank Statement and Copy of Form 10AC. On perusal of the submission filed by the assessee, the assessing officer noted that the assessee has received Rs. 20,36,678/- as Preservation of environment. The case was selected for rejection of Form 10AB, which is for the registration of trust. The assessee 2

ITA No.1001/Rjt/2026 Jivdaya Seva Trust Palansava was categorically requested to submit details in respect of funds received Rs. 20,36,678/-, as Preservation of environment during the year under consideration, in respect of that assessee could not provide any documentary evidence. The status of the trust has been rejected and expenses done for preservation of environment is not an allowable expense which is done for charitable purpose. However, the assessee has pleaded that such amount which is spent for preservation of environment should be allowed as it is for charitable purpose only. However, the assessing officer rejected the above contention of the assessee and noted that expenses cannot be allowed for the purposes of calculation of income tax as it is not a trust for income tax calculation purposes. Hence, addition of Rs.20,36,678/- was made to the income of the assessee, as AOP/BOI.

5.

Aggrieved by the order of assessing officer, the assessee carried the matter in appeal before Ld. CIT(A) who has confirmed the addition made by assessing officer, therefore, assessee is in further appeal before this Tribunal.

6.

Being aggrieved by the said order of the Assessing Officer, the assessee filed an appeal before the Ld.CIT(A), but remained unsuccessful. Therefore, assessee is left with no other alternative but to knock on the doors of the Tribunal with this appeal praying for justice. Learned Counsel for the assessee argued that all expenditures were genuine and incurred towards preservation of environment. If such expenditure is not allowed as a charitable intent, then expenses may be allowed under general provisions of the Act, such as under the head of business income or under the head of income from other sources, because, after all, these expenses were incurred towards preservation of environment. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which I have already noted in my earlier para and is not being repeated for the sake of brevity. I note that Section 37(1) is relevant where the assessee carries on business or profession. It permits

ITA No.1001/Rjt/2026 Jivdaya Seva Trust Palansava deduction of expenditure, other than capital expenditure, personal expenditure and expenditure covered by sections 30 to 36, provided it is laid out or expended wholly and exclusively for the purposes of business or profession. The Hon’ble Supreme Court in CIT v. Malayalam Plantations Ltd., (1964) 53 ITR 140 (SC) laid down the broad principle that the expression “for the purposes of the business” is wider than “for the purpose of earning profits”. Expenditure may qualify where it is incurred for the preservation of the business, protection of its assets or otherwise for furtherance of business interests. Accordingly, if, for example, expenditure towards pollution control, environmental compliance, treatment of industrial effluents, restoration of land used in the business, or other environmental measures is incurred because of the assessee's business operations and is necessary for continuing or protecting that business, section 37(1) may legitimately be invoked.

7.

I find that Hon’ble High Court of Delhi, in the case of Petroleum Sports Promotion Board, [2014] 44 taxmann.com 322 (Delhi), on identical facts, observed that even though in the case of assessee, sports promotion board was denied registration as charitable trust and its income was brought to tax as 'income from other sources', and all relevant expenditures were also to be allowed under section 57(iii) of the Act. The Co-ordinate Bench of Income Tax Appellate Tribunal Delhi, in the case of Intazamiya Kameti Shri Hastinapur Teerth Shetra vide ITA No. 5892/DEL/2025 AY 2022-23 and ITA No. 5893/DEL/2025 AY 2023-24 held that section 57 (iii) requires that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It does not say that the expenditure shall be deductible only if any income is made or earned. The Supreme Court in the case of CIT v. Rajendra Prasad Moody (supra) held that deduction under Section 57(iii) depends on the purpose of expenditure, not on whether income is actually earned. It is sufficient that the expenditure was incurred for earning income. Further, the hon’ble Delhi High Court in the case of DDIT (E) v.Petroleum Sports Promotion Board (supra) held that where 4

ITA No.1001/Rjt/2026 Jivdaya Seva Trust Palansava

expenses are supported by books and documents and incurred wholly for the object of the assessee, disallowance under Section 57(iii) is impermissible. Denial would result in taxation of gross receipts, which is contrary to law. In the instant case, the assessee has submitted before the AO all the necessary documents/evidence to substantiate the claim of expense which has never been rebutted by the AO. In fact, we feel that the AO has arbitrarily disallowed the expenses claimed without providing any cogent reasons or rejecting the books of account, an act impermissible in law as held by the hon’ble Delhi High Court in the case of PCIT v. R.G. Buildwell Engineers Ltd [99 taxmann.com 283], wherein it was held that ad-hoc disallowance of expenditures by the Assessing Officer (AO) without rejecting the books of accounts is invalid. Accordingly, I direct the assessing officer to allow these expenditure to the assessee, in the status of businessman, as if, the assessee is running business, by following the normal rate of income.

8.

In the result, appeal of the assessee, is allowed, in above terms.

Order is pronounced in the open Court Today on 29/10/2026.

Sd/- [ Dr. Arjun Lal Saini ] Accountant Member राजकोट/Rajkot िदनांक/ Date: 29/10/2026 Copy of the order forwarded to : 1. The assessee 2. The Respondent 3. CIT 4. The CIT(A) 5. DR, ITAT, RAJKOT 6. Guard File By order Assistant Registrar/Sr. PS/PS ITAT, Rajkot

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