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Facts
The assessee, Karnataka Cashew Development Corporation Ltd. Employees Gratuity Fund Trust, filed a return declaring Nil income. The CPC processed the return and denied exemptions claimed under Section 10(12) & 10(25) of the Act, raising a demand. Both the CIT(A) and the Assessing Officer dismissed the assessee's claims.
Held
The Tribunal observed that the assessee had not submitted proof of approval before it. Considering the facts and the principle of real income theory, the Tribunal remitted the issue to the Assessing Officer for fresh decision.
Key Issues
Whether the assessee is eligible for exemption under Section 10(12) & 10(25) of the Act, and whether the denial of exemption by the revenue authorities was justified.
Sections Cited
10(12), 10(25), 143(1), 234A, 234B, 234C, 12AB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member
This appeal of the assessee is filed against the order passed by the Addl/JCIT(A)-5, Kolkata dated 27.12.2024 with DIN ITBA/APL/S/250/2024-25/1071623771(1) relating to assessment year 2021-22 for not giving exemption u/s. 10(12) & 10(25) of the Act.
The assessee has raised the following grounds of appeal:-
“1. The Learned CITIA) erred in dismissing the appeal of the appellant for the assessment year 2021-22.
2. The Learned CIT(A) ought to have appreciated that the appellant was accorded Approval/Recognition on 31-03-1994 u/s.10(12) of the Act as per the Fourth Schedule Part A (Recognized provident funds) as such provisions of section 11 or 12 of the Act are not applicable.
The Learned CIT(A) in view of Approval/Recognition granted by the Commissioner of Income Tax, Karnataka-3, Bangalore on 31-03-1994 and which has not been cancelled, ought to have deleted the adjustment made by the Learned Assessing Authority, CPC unit, Bangalore against which an appeal was filed.
4. The Learned CIT(A) ought to have held the claim is not a prima facie inadmissible and one of debatable issue and therefore the addition is not justified.
5. The Learned CIT(A) ought to have considered the claim of exemption liberally and having held section 11 or 12 not applicable to the facts of the case, ought to have considered the claim u/s.10(12) & 10(25) of the Act, which generally excludes from total income all the incomes in cases where approval/ recognition is granted under IV Schedule to Income Tax Act.
6. The ld. CIT(A) ought to have held the Appellant by inadvertent mistake has made an application as per the provisions of section 12AB of the Act and registration having granted by the appropriate authority could not have held 11 & 12 of the At are not applicable to the appellant’s case.
7. The ld. CIT(A) ought to have set aside the intimation made u/s. 143(1)(a) of the Act since the same is passed without noticing the amendment is not applicable for the assessment year 2020-21.
8. The ld. CIT(A) erred in not considering the expenditure of Rs.1,25,09,432/-, which are related to the gratuity fund and the object of the Trust itself is for payment of gratuity out of gratuity fund.
The ld. CIT(A) ought not to have confirmed the levy of interests u/s.234A, B & C of the Act, which are on account of rejection of claim for exemption and on account of an exemption which the appellant is not entitle to.
The Learned CIT(A) ought to have held 234B is not applicable as to reject the exemption is taken after the completion of the financial year.
The Learned CIT(A) ought to have cancelled interest levied u/s.234C of the Act as there was no tax liability as per the returned income, as the income returned is NIL. 12. Appellant craves leave of this Hon’ble Tribunal to add/delete/modify any ground/s at the time of hearing.” 3. Briefly stated the facts of the case are that appellant filed return of income on 29.3.2022 declaring total income as Nil. The CPC processed the return and intimation u/s. 143(1) dated 23.8.2022 was generated denying certain exemptions claimed by the assessee and raised demand of Rs.52,02,920. Aggrieved from the above intimation, the assessee filed appeal before the ld. CIT(Appeals).
The ld. CIT(Appeals) also dismissed the appeal of the assessee by not giving exemption u/s. 10(25) of the Act. Even the benefit of expenses incurred by the assessee of Rs.1,25,09,432 against the gross against the total gross receipts of Rs.1,26,27,036. Aggrieved from the order of CIT(Appeals), the assessee filed appeal before the ITAT.
The ld. AR reiterated the submissions made before the ld. CIT(Appeals) and submitted that assessee is eligible for exemption u/s. 10(12) and 10(25) of the Act since it is approved gratuity fund. Approval/recognition was granted on 31.3.1994 as per amended provisions w.e.f. 1.4.2020. Amendment in section 12AB w.e.f. 1.4.2021 is not applicable to the assessee. However, the CPC while processing the return has not given the benefit of exemption to the assessee. Alternatively he submitted that only net income may be brought to tax and not on the gross receipt of the assessee which is completely against the provisions of the Act. The CIT(A) has not considered the concept of income which is completely against the principle of natural justice for giving benefit u/s. 10(25) to the assessee.
The ld. DR relied on the order of the lower authorities.
Considering the rival submissions, the assessee filed return of income on 29.3.2022 claiming exemption u/s. 10(25). While processing the return, the entire gross receipts has been considered as income of the assessee. The expenditure of Rs.1,25,09,432 has not been allowed as deduction from gross receipts of Rs.1,26,27,036. As per submission of the assessee the assessee is eligible for exemption u/s. 10(25) of the Act. Even during the arguments the assessee has not submitted the proof certificate of approval before us. In the income tax proceedings while calculating income tax of the assessee there is a fundamental rule of law that real income theory should be considered. But in this case this principle is missing. Considering the facts of the case, we remit this issue to the AO for fresh decision as per law. Assessee is directed to produce all relevant documents and cooperate in the proceedings for early disposal of the case.
In the result, accordingly, the appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on this 28th day of March, 2025.