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Facts
The assessee, a trust, filed its return for AY 2018-19 declaring a loss. The case was selected for scrutiny, and the assessment was completed under Section 143(3) by disallowing donation expenses of Rs. 68,612/- and capital expenditure of Rs. 6,35,450/- under Section 57. The CIT(A) upheld these disallowances.
Held
The Tribunal condoned a 188-day delay in filing the appeal due to the Managing Trustee's mother's illness. Citing the proviso to Section 12A(2) and a prior Chennai Bench decision, the Tribunal remanded the matter to the Assessing Officer. The AO is directed to examine if the trust's objects and activities remained unchanged between AY 2018-19 and 2019-20; if so, the benefit of exemption under Sections 11 and 12 for AY 2018-19 should be extended.
Key Issues
Whether a trust, granted registration under Section 12AA during the pendency of assessment for a preceding year, is entitled to exemption under Sections 11 and 12 for that year as per the proviso to Section 12A(2), subject to unchanged objects and activities.
Sections Cited
250, 143(2), 143(3), 57, 12A, 12AA, 11, 12
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND SHRI S.R. RAGHUNATHA
आदेश /O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal at the instance of the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi dated 31.03.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2018-19.
2. There is a delay of 188 days in filing this appeal. The assessee has filed a condonation application supported by the affidavit of the authorized signatory of assessee’s trust. The reasons stated in the condonation petition for belated filing is that, the mother of the Managing Trustee fell ill and was admitted in the hospital, due to which the Managing Trustee was not available in office and failed to follow with the Chartered Accountant. The Managing Trustee only on recovery of the mother returned to the office and took steps to file the appeal. Therefore, the assessee submits that the delay in filing the appeal was due to the circumstances beyond the control of the assessee on account of unavoidable circumstances and pleaded for condoning the delay in filing the appeal before the Tribunal. On perusal of the same, we find there is sufficient reason for delay in filing this appeal before the Tribunal. Hence, we condone the delay in filing the appeal and proceed to dispose off the appeal on merits.
The grounds raised
read as follows:
1. The order of the NFAC, Delhi dated 31.03.2024 vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1063795146(1) for the above mentioned Assessment Year is contrary to law, fact and in circumstances of the case.
2. The NFAC, Delhi erred in sustaining the disallowance of the claim of expenditure to the tune of Rs. 68,612 /- incurred in relation to the donations and consequently erred in sustaining the addition of such sum in the computation of taxable total income without assigning proper reasons and justification.
3. The NFAC, Delhi erred in sustaining the disallowance of the claim of certain expenses / purchase equipment at Rs. 6,35,450/- and consequently erred in sustaining the addition of such sum in the computation of taxable total income without assigning proper reasons and justification.
4. The NFAC, Delhi failed to appreciate that the claim of deduction made in terms of Section 57 of the Act was correct on various facets and ought to have appreciated that the arbitrary recomputation of such valid claim of deduction by the Assessing Officer should accordingly be reckoned as bad in law.
The NFAC, Delhi failed to appreciate that the mere filing of return of income in ITR -5 instead of filing said return of income ITR- 7 would not disentitle the claim of tax exemption computation benefit in terms of Section 11 of the Act and ought to have appreciated that the said return of income filed in ITR - 5 was on account of pendency of registration initiated under Section 12A of the Act, there by vitiating the impugned order passed in its entirety.
Brief facts of the case are as follows: The assessee a trust, had filed its return of income on 24.08.2018 declaring loss of Rs.50,496/-. The case was selected for scrutiny and notice u/s.143(2) of the Act was issued on 28.09.2019. The assessment was completed u/s.143(3) of the Act vide order dated 02.03.2021 by assessing the total income at Rs.6,53,570/-. The AO in the assessment completed u/s.143(3) of the Act disallowed the donation expenses of Rs.68,612/- and capital expenditure of Rs.6,35,450/-.
5. Aggrieved by the assessment completed u/s.143(3) of the Act, the assessee filed appeal before the First Appellate Authority. The CIT(A) after extracting the reasons for the disallowance made by the AO, confirmed the order of assessment in denying the deduction claimed u/s.57 of the Act. The relevant finding of the CIT(A) reads as under:- “6.2 Ground No.1 & 2 are raised against the AO's action in disallowing Capital Expenditure and donation expenditure claimed as deduction u/s section 57 respectively. "Deductions.
The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely- 1.----- 2. 3. any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income.
In view of the above, the AO disallowed the capital expenditure claimed.
Further, the AO rejected the claim of the assessee for disallowance of capital expenditure and donation expenditure claimed as deduction u/s 57 due to the following reasons: i. The contention of the assessee that while filing the ITR, the income figure was wrongly computed in a manner applicable to 12AA registered trusts, through the trust was in the process of being registered and subsequent working of taxable income submitted by the assessee being surplus as per I & E alc., is not acceptable as the same is an after-thought and grossly incorrect. The assessee has not filed return of income in ITR-7 which is applicable in the case of a trust, but has filed ITR-5 on 24.08.2018 showing 'Other income' of Rs. 71,37,174/- under the head income from other sources and has claimed deduction us. 57 of Rs.71,87,670/- il. The audited financials submitted by the assessee along with depreciation schedule, is nothing but an after-thought. On perusal of return of income filed by the assessee, it is noticed that in Audit Details column, the assessee has mentioned ‘No' for Whether liable to maintain accounts as per section 44AA?' and ‘No' for Whether liable for audit under section 44AB?'. ii. The assessee's claim that the amount of Rs. 68,612/-, though classified as 'Donation', actually represents amounts paid for supporting educational initiatives for the students of the school run by the assessee is also an after- thought. On perusal of the details of donation expenses of Rs. 68,612/- submitted by the assessee, it is noticed that it consists of Charity of Rs.
64,112/- and Donation of Rs. 4.500/-. Further, on perusal of ledger account of charity, it is noticed that the assessee has claimed payments in this regard on various dates and has submitted documents in respect of payments of Rs.12,112/-, which is a voucher for payment made to 'St. John's Church' and payment of Rs. 10,000/- has been made to 'Indian Association for the Blind'. Further, on perusal of ledger account of Donation, t is noticed that the assessee has claimed payment of Rs. 4,500/- which is supported by receipt from Missionaries of Charity'. Further, even during the present appellate proceedings, the assessee has failed to rebut the findings of the AO. The assessee has not filed return of income in ITR-7 which is applicable in the case of a trust, but has filed ITR- 5 on 24.08.2018 showing 'Other income' of Rs. 71,37,174/- under the head income from other sources and has claimed deduction u/s. 57 of Rs. 71,87,670/-. Therefore, I am of the considered opinion that the AO rightly disallowed the Capital Expenditure and donation expenditure claimed as deduction u/s section 57. Further the contention of the assessee with regard to the applicability of Section 12A(2) of the Act cannot be accepted as the assessee neither filed Return of Income in ITR-7 for the year under consideration nor fulfilled the conditions laid down as per the provisions of Section 11 and 12 of the Act. Thus grounds raised by the assessee on these issues are dismissed.”
Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The Ld.AR for the assessee filed a paper-book enclosing therein Form 10A filed by the assessee, the return of income filed for the assessment year 2018-19, the order granting registration u/s.12AA of the Act, the notice issued u/s.143(2) of the Act and the case laws relied on. The Ld.AR submitted that in view of the proviso to section 12A of the Act (at the relevant point of time) since the assessment for the assessment year 2018-19 was pending when the order granting registration u/s.12AA of the Act was passed on 07.02.2019, the assessee is entitled to the benefit of exemption u/s.11 of the Act for the relevant assessment year also. In support of his contention, the Ld.AR relied on the order of the Chennai Bench of the Tribunal in the case of M/s. Josephs Educational Trust vs. ITO (order dated 03.02.2021).
Per contra, the Ld.DR supported the orders of the AO and the CIT(A).
We have heard rival submissions and perused the material on record. The proviso to section 12A(2) of the Act (concerning AY 2018-19) reads as follows:- “Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year”
In the instant case, for the relevant assessment year namely 2018-19, the assessee has not filed the return of income in ITR 7 (return filed for claiming exemption u/s.11 of the Act) but filed the return of income in ITR 5 since at the time of filing the return of income, the assessee had only filed Form 10A for granting registration u/s.12AA of the Act. The order of registration u/s.12AA of the Act was granted to the assessee vide order dated 07.02.2019 2019-20 onwards. However, the assessment for the relevant assessment year namely 2018-19 was pending and notice u/s.143(2) of the Act was issued only on 20.09.2019 i.e., subsequent to the grant of registration u/s.12AA of the Act. Hence, proviso to section 12A of the Act will have application to the facts of the instant case provided the objects and activities of the assessee trust remains the same for such preceding assessment year namely the relevant assessment year i.e., AY 2018-19. In taking the above view, we have fortified by the order of the Chennai Bench of the Tribunal in the case of M/s.Josephs Educational Trust, supra, wherein it has been held as follows:- 11. In this case, the Assessing Officer has completed the assessment on 27.12.2017 and therefore it is a pending assessment. Once the assessment is pending, as per the 2nd proviso to Section 12AA of the Income Tax Act, 1961 which provides that “where the registration has been granted to the Trust or Institution u/s.12AA of the Income Tax Act, 1961, then, the provisions of Section 11 & 12 of the Income Tax Act, 1961, shall apply in respect of any income derived from the property held under the Trust of any assessment year preceding the aforesaid assessment year, for which the assessment proceedings are pending before the Assessing Officer, as on the date of such registration and the objects and activities of the Trust or institution remain the same for such preceding assessment year.”
In light of the aforesaid reasoning, provision at the relevant point of time and the order of the Chennai Bench of the Tribunal in case of M/s. Josephs Educational Trust, we restore the matter to the files of the AO. The AO is directed to look into the objects and activities of the assessee trust and if the same has not been changed from that of the relevant assessment year i.e.,AY 2018-19 to that of the assessment year 2019-20, the benefit of the above stated proviso to section 12A of the Act ought to be extended to the assessee. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 11th June, 2025 at Chennai.