SANVEDNA EDUCATIONAL AND CHARITABLE TRUST,MUMBAI vs. ITO, EXEMPTION, WARD, , THANE

The Ld ADDL/JCIT(A)-7, Kolkata, erred in not appreciating that the Ld AO, CPC, while processing the return under section 143(1) had erred in making variation in the total income returned which was beyond the scope of section 143(1) of the IT Act.

The Ld ADDL/JCIT(A)-7, Kolkata, erred in not appreciating that the Ld AO declined to consider the fact that the assessee could not upload Form No. 12AB for renewal/ continuation of exemption under section 11 because of general problems and also because the website of the Department was not working properly.

Without prejudice to Ground Nos. 1, 2 and 3, the Ld ADDL/JCIT(A)-7, Kolkata, erred in not appreciating that the Ld AO, CPC, had ignored the audited books of account and Balance Sheet and had determined income at Rs.3,70,22,240/- being gross receipt denying the deduction for the genuine expenses claimed in the accounts.

The Ld ADDL/JCIT(A)-7, Kolkata, erred in not appreciating that the Ld AO, CPC, had adopted gross receipt at Rs.3,70,22,240/- though the gross receipt as per books of account was Rs.3,25,22,719/-.

The above grounds of appeal are without prejudice to one another.

The appellant craves leave to furnish Additional Evidence which may be relevant to the above Grounds of Appeal in course of the appeal proceedings.”

The assessee is an educational and charitable trust engaged in running educational institutions. The assessee was registered as Charitable Institution under section 12AA of the Act and its income was exempt under section 11 of the Act. The assessee filed the return of income for AY 2023-24 on 30.11.2023 declaring Nil income after claiming exemption under section 11 of the Act. The return was processed under section 143(1) denying the exemption under section 11 which resulted in the gross receipts of the assessee being brought to tax. The reason for denying the exemption under section 11 is that the assessee is not registered as Charitable Institution under section 12A since the assessee did not file the Form- 10AB for renewing/continuation of registration under section 12AB of the Act. Aggrieved the assessee filed further appeal before the CIT(A). Before the CIT(A) the assessee contended the denial of exemption under section 11 stating that due to technical issues Form 10AB could not be submitted. The assessee without prejudice raised the grounds that the CPC has erred in bringing to tax the gross receipt of the assessee without allowing any deduction towards expenses incurred. The CIT(A) dismissed the grounds raised by the assessee by holding that “5. DECISION:- 5,1 and submission made by the appellant in this regard. Briefly stating facts of the case is that the appellant filed return of income which was processed u/s 143(1) by CPC making certain adjustments over and above the returned income. The only issue involved in this case is that the appellant which is a charitable trust had claimed exemption u/s 11 against its income which was disallowed in the Intimation u/s 143(1).

2 Ground of appeal number 1 and 2 are against adjustment made in the returned income without giving any opportunity to the appellant and against the provisions of sec. 143(1) of the Act. Facts involved in the issue is that the appellant had filed return of income claiming exemption u/s 11 of the I.T. Act against the income earned. As per the provisions of sec. 12AB of the Act as introduced with effect from assessment year 2021-22, every assessee, irrespective of whether granted registration u/s 12AA of the Act earlier is required to obtain fresh registration in order to be eligible for exemption u/s 11 of the Act. The present case of the appellant is for AY-2023-24. It was therefore required to obtain fresh registration as per the provisions of sec. 12AB. However, the appellant in its submission has admitted that it had not done so and also stated that it was prevented for applying for fresh registration due to technical glitches in the e-filing portal of the income tax department. The appellant argued that any adjustment u/s 143(1) of the Act can be done only after giving prior intimation to the assessee as per 1st proviso below the said section. However, no such prior intimation was given to it by CPC. In this regard, it is to be stated that by notice u/s 250 dated 31.12.2024, the appellant was specifically asked to reply to some queries CPC or not. But the appellant failed to submit any reply to any of the said queries although it submitted reply on many other issues subsequent to issue of the notice on 31.12.2024. It is therefore not verifiable as to whether any prior intimation was given to the appellant or not. These grounds of appeal are therefore dismissed.

3 Ground no. 3 is not against any issue but only stating the reasons for non application of fresh registration u/s 12AB. Ground no. 4, 5 and 6 are against CPC's action of charging tax on gross receipts of Rs.3,70,22,240/- without allowing deduction on account of expenses claimed by it. In this regard, I would like to highlight the heading of chapter III of Income Tax Act. It is "Incomes which do not form part of total income. Both sections 10 and 11 are included within this chapter. Moreover, first line of section 10(23C) starts with the words "any income received by any person on behalf of Intention of the legislature is clear. If the conditions of sec. 10(23C) are satisfied, then the entire income or receipts of the Institute or the Organisation will be exempt Vice-versa if the conditions are not satisfied then the entire income or receipts shall be taxed. Similar is the case with the provisions of sec. 11, which starts with "Income derived from property held under trust....... Here I would also like to highlight the distinction between Chapter III and Chapter VIA of the Act. Chapter III as already stated above is regarding 'exemption of incomes' whereas Chapter VIA is regarding deductions in respect of certain payments / incomes. In Chapter VIA, all the sections are related to deductions against income / receipts of an assessee. The difference is clear. Chapter III does not mention anything about expenses incurred against income whereas Chapter VIA is solely in respect of expenses incurred against income. I am therefore of the opinion that AO, CPC rightly brought to tax the entire receipts after claim of exemption u/s 11 claimed in ITR was denied. This ground of appeal is therefore dismissed.”

During the course of hearing the ld AR did not press for Ground No.1 to 3 with regard to denial of exemption under section 11. Hence these grounds are dismissed as not pressed. The ld. AR submitted that the Ground No.4 & 5 pertain to the issue of the gross receipt being brought to tax while denying the benefit under section 11 of the Act. The ld. AR submitted that the Co-ordinate Bench of the Tribunal has considered a similar issue in the case of SCMS Maritime Training Institute (ITO) (2025) 175 taxmann.com 373 (Mum. Trib.) and has held that it is the net receipt that has to be brought to tax. The ld. AR argued that the facts in assessee's case being identical the ratio laid down in the said decision of the Co- ordinate Bench should be applicable to assessee's case also.

The ld. DR on the other hand relied on the orders of the lower authorities.

We heard the parties and perused the material on record. We notice that the assessee while filing the return of income has declared gross receipts of Rs. 3,70,22,238/- and after deducting the application of funds towards the objects of the Trust declared the taxable income as Nill. We further notice that the CPC while processing the return of income did not allow the claim of application of funds for the reason that the assessee has not filed the relevant form for renewal / continuation of registration under section 12AB of the Act. We also notice that in the Income & Expenditure A/c for the year ended 31.03.2023 (page 5 of the PB) the assessee has incurred various expenses and the copy of the Income & Expenditure A/c is extracted below: 6. The issue before us for consideration is whether the gross receipts have to be taxed in the hands of the assessee or the net receipts after allowing the expenses have to be considered for the purpose of taxation. In this regard we notice that the Co-ordinate Bench has considered a similar issue in the case of SCMS Maritime Training Institute (supra) where it has been held that “6. We have heard both the parties and perused the material available on record. We note that Ld. CIT(A) has passed an ex-parte order without dealing with the merits of the case. Admittedly, it is a fact on record that assessee does not have the renewed registration u/s.12A of the Act for the year under consideration. Ld. Counsel for the assessee admitted that in absence of such registration for the year under consideration, claim of exemption u/s 11 of the Act, is not available, but at the same time what can be brought to tax is the net income for the year after allowing expenditure and depreciation for caring out its activities during the year.

1. Taking into account the facts of the case, we hold that gross collection for the year cannot be taxed as income as done by CPC while processing the return of the assessee. Commercial prudence requires to allow deduction for matching expenditure incurred by the assessee in caring out its activities during the year. Accordingly, we find it appropriate to remit the matter back to the file of ld. Juri ictional Assessing Officer (JAO) for the purpose of verification of records and details of the assessee to allow claim of expenditure and deprecation made by it so as to bring to tax the net surplus for the year. Needless to say that assessee be given reasonable opportunity of being heard and make any other submission as required to substantiate its claim. Accordingly, grounds raised by the assessee are allowed for statistical purposes.

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

The facts in assessee's case are identical and therefore respectfully following the above decision of the Co-ordinate Bench, we remit the issue back to the AO to examine the records and the details pertaining to the expenses debited to the Income & Expenditure A/c and bring to tax only the net surplus for the year in accordance with law. 8. In result, appeal of the assessee is allowed for statistical purposes.