SEVA BHARATHI TRUST,CHAMARAJANAGARA vs. INCOME TAX OFFICER, WARD-1, CHAMARAJANAGARA

Aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel reiterated the submissions made before the learned CIT(A) and submitted that filing of audit report within the due date as per the Act is not mandatory provision, it is directory in nature which is clear from the case of CIT vs. Hardeodas Agarwalla Trust (1992) 198 ITR 511 (Cal) and he also relied on the judgment of ITAT Mumbai Bench in and submitted that audit was completed by 20.08.2016 but due to mistake on the clerical staff of the CA, audit report in Form 10B could not be uploaded. As per section 12A(1)(b) of the Act, assessee is running an educational institutions and providing hospitality facilities to needy children. Assessee is complying with the income tax provisions every year regularly. Uploading of Form 10B belatedly was just technical mistake

On the other hand, learned DR relied on the Order of lower authorities and submitted that filing of Form 10B within due date as specified in the Income Tax Act is mandatory in nature to get the exemption under sections 11 and 12 of the Act. The provision is introduced in the income itself. Therefore, it cannot be said that it is directory in nature. It is mandatory. Assessee cannot shift its mistake to the professionals. Assessee should have been aware of income tax provisions compliance if the assessee wants to get benefit of any provisions of Income Tax Act. The learned DR also relied on the judgment of Co-ordinate Bench of ITAT Bangalore in ITA Page 4 of 7 No.49/Bang/2021 for the Assessment Year 2015-16, Order dated 15.07.2021 in the case of Navodaya Educational Trust. The case of the assessee is the same Assessment Year. He also submitted that if there was delay in filing Form 10B, he could have approached Commissioner under section 119 of the Act for condoning the delay. Even in the case on hand, assessee uploaded Form 10B after second rectification request.

Considering the rival submissions, we noted that some and substance of the entire grounds raised by the assessee are related to note granting exemption under sections 11 and 12 of the Act for not filing Form 10B within due date as specified in the Income Tax Act. However, as per section 12A(1)(b) of the Act, assessee was required to file Form 10B within due date. In this case on hand due date for filing return of income under section 139 of the Act was 17.08.2016. However, the return has been filed by the assessee on 08.11.2016 and Form 10B was uploaded electronically on 30.07.2018. In this case, assessee filed return of income as well as Form 10B belatedly. Therefore the case laws relied on by the learned Counsel are not applicable. Since there is mandatory provision inserted in the Income Tax Act as per sections 11 and 12, assessee is required to file Form 10B as specified in Income Tax Act but the assessee has not complied with the same. Accordingly, we reject the arguments of the ld. counsel that the filling of Form 10B is directory in nature. . The case law relied by the ld. DR supports our view. We also have gone through financial statements of the assessee. There is no doubt that the audit has been conducted on 20.08.2016 by CA and Form 10B is also signed on 20.08.2016, we noted from the Income and Expenditure A/c that total receipt shown by the assessee is Rs.26,66,748.59/- and the total expenditure incurred by the assessee is Rs.28,04,471.05/-. Accordingly, there is excess of expenditure over income i.e., assessee incurred loss during the year. However, CPC has determined entire receipts as income shown in the Page 5 of 7 income tax return and raised tax demand of Rs.7,64,148/- which is also not correct. Fundamental principle of Income Tax Act is to bring into tax to the real income earned by the assessee during the impugned Assessment Year but while processing return of the assessee, The CPC has not computed the real income and did not grant any benefit of expenditure which are incurred by the assessee during the year. The Hon’ble Apex Court has decided the issue in respect of taxation on real income theory in the case of Southern Technologies Vs.JCIT(2010) 187 Taxman 346 (SC) in which it has been held as under:

An interesting argument was advanced before us to say that a provision for NPA, under commercial accounting, is not an "income" hence the same cannot be added back as is sought to be done by the Department. In this connection, reliance was placed on "Real Income Theory".

We find no merit in the above contention. In the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521, this is what the Supreme Court had to say : ". . . Income-tax is a tax on the 'real income', i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act. The real profit can be ascertained only by making the permissible deductions. There is a clear cut distinction between . . . the real profits and statutory profits. The latter are statutorily fixed for a specified purpose." [Emphasis supplied] (p. 530) 36. To the same effect is the judgment of the Bombay High Court in the case of CWT v. Bombay Suburban Electric Supply Ltd. [1976] 103 ITR 384 , where it was observed as under : ". . . Income-tax is a tax on the real income, i.e., profits arrived at on commercial principles subject to the provisions of the Income-tax Act, 1961. The real profits can be ascertained only by making the permissible deduction. . . ". [Emphasis supplied] (p. 391) 37. The point to be noted is that the Income-tax Act is a tax on "real income", i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act. Therefore, if by Explanation to section 36(1)(vii) a provision for doubtful debt is kept out of the ambit of the bad debt which is written off then, one has to take into account the said Explanation in computation of total income under the Income-tax Act failing which one cannot ascertain the real profits. This is where the concept of "add back" comes in. In our view, a provision for NPA debited to P&L Account under the 1998 Directions is only a notional expense and, therefore, there would be add Page 6 of 7 back to that extent in the computation of total income under the Income-tax Act.

One of the contentions raised on behalf of NBFC before us was that in this case there is no scope for "add back" of the Provision against NPA to the taxable income of the assessee. We find no merit in this contention. Under the Income-tax Act, the charge is on Profits and Gains, not on gross receipts (which, however, has Profits embedded in it). Therefore, subject to the requirements of the Income-tax Act, profits to be assessed under the Income- tax Act have got to be Real Profits which have to be computed on ordinary principles of commercial accounting. In other words, profits have got to be computed after deducting Losses/Expenses incurred for business, even though such losses/expenses may not be admissible under sections 30 to 43D of the Income-tax Act, unless such Losses/Expenses are expressly or by necessary implication disallowed by the Act. Therefore, even applying the theory of Real Income, a debit which is expressly disallowed by Explanation to section 36(1)(vii), if claimed, has got to be added back to the total income of the assessee because the said Act seeks to tax the "real income" which is income computed according to ordinary commercial principles but subject to the provisions of the Income-tax Act. Under section 36(1)(vii) read with the Explanation, a "write off" is a condition for allowance. If "real profit" is to be computed one needs to take into account the concept of "write off" in contradistinction to the "provision for doubtful debt".

Respectfully following the above judgment of Hon’ble Apex Court, we are allowing benefit of expenditure as incurred by the assessee of Rs.28,0,47,105/- from the income determined by the CPC. The detail of expenditure at page 79 of the appeal set is as under:

In the result, appeal filed by the assessee is partly allowed.