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Facts
The assessee, a society engaged in charitable activities, filed its return of income for AY 2019-20. The CPC processed the return and added the entire voluntary contribution as taxable income without allowing for expenses. The assessee faced a significant delay in filing an appeal before the CIT(A) due to circumstances including the COVID-19 pandemic.
Held
The Tribunal condoned the delay in filing the appeal before the CIT(A) due to the circumstances. It was held that the CPC erred in taxing the entire voluntary contribution without considering the expenses incurred for charitable activities, and that only the net income should have been taxed. The case was restored to the CIT(A) for fresh adjudication on merits.
Key Issues
Whether the entire voluntary contribution can be taxed without considering the application/expenses for charitable purposes, and if the delay in filing the appeal can be condoned due to pandemic-related issues.
Sections Cited
12A, 12AA, 143(1), 250(6), 139(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeal)/Addl./JCIT(A), (hereinafter referred to as “the Ld.CIT(A)”), Thiruvananthapuram, dated 27.08.2024 for the Assessment Year (hereinafter referred to as "AY”)
2019-20.
At the outset, the Ld.AR of the assessee drawing our attention to the impugned action of the Ld.CIT(A) submitted that the Ld.CIT(A) has passed a cryptic order by noticing that the appeal was preferred belatedly by 875 days and has dismissed it by alleging that the assessee couldn’t show any valid reason for the cause of delay [in filing of appeal]. In this regard, the Ld.AR brought to our notice that assessee is a society registered under the Societies Registration Act, 1860 on 05.09.2018 and its object was to carry out philanthropic/charitable activities, and that it filed Form 10A for grant of registration u/s.12A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) before the Ld.CIT(E), Chennai, which according to the Ld.AR was granted to it, pursuant to the order passed by the Tribunal in the assessee’s own case [refer dated 22.06.2022]. According to the Ld.AR, the CPC had processed the return filed by the assessee and passed the intimation on 25.06.2020, which was in the midst of Covid Pandemic and therefore, the period up to 31.03.2022 needs to be excluded [as directed by the Hon’ble Supreme Court in this respect] and excluding Covid period, only 150 days survive which was because, the assessee’s office bearers, are situated at Nilgiris working for the Welfare of poor tea-garden workers had difficulty in contacting the Tax Practitioner to file the appeal. And the delay was not deliberate, prayed for condoning the same and filed affidavit of the Secretary explaining the delay.
Meanwhile, according to the Ld.AR, its return of income (RoI) filed on 24.02.2020 for AY 2019-20 which was processed by the CPC u/s.143(1) of the Act dated 25.06.2020 wherein the CPC added the entire voluntary contribution of Rs.2,89,47,194/- as taxable income. According to the Ld.AR, assessee society has carried out free community marriages to ‘174’ couples belonging to various religious/caste and languages and each newly married couple were given a gift of eight (8) grams of jewellery and cash gift of Rs.25,000/- at a total cost of Rs.2,72,02,290/-.
Therefore, according to the Ld.AR, the action of the CPC to tax the entire voluntary contribution of Rs.2,89,47,194/- was per-se arbitrary and so, erroneous, because, at any rate, the entire receipts/entire voluntary contributions couldn’t have been brought to tax, even if assessee is not enjoying section 12A registration. In order to buttress such a submission, he cited the decision of this Tribunal in the case of University of Madras vs & 2170/Chny/2024 order dated 13.12.2024 wherein it was held that entire receipt/income shouldn’t be brought to tax even though assessee doesn’t have sec.12A registration. For ready reference, we have extracted the relevant portion of the Tribunal Order as under:
5. Before us, the Ld.AR has first of all assailed the impugned action of the CPC/CIT(A) taxing the gross receipts without allowing the corresponding expenses which according to him is per-se erroneous; and according to him, even if the assessee is treated as an AOP, still only the net income ought to have been brought to tax rather than the whole gross receipts which action of the CPC/CIT(A) is arbitrary, whimsical and unjust. According to him, even if assessee is treated as an AoP, or not granted benefit under Chapter-III of the Act, for any reason viz due to belated filing of RoI or for non-filing of the condonation of delay in respect of belated filing of Audit Report, etc, still the assessee University’s gross receipts can’t be brought to tax and the corresponding expenses for earning income needs to have been allowed. And for such a proposition, he cited the decision of the Hon’ble Madras High Court in the case of Sree Venkateswara
Educational Trust v. ITO order dated 02.09.2024 in a similar factual scenario, wherein that case, the CPC passed intimation u/s.143(1) of the Act denying not only the exemption u/s.11 of the Act but also made addition of gross receipts, which impugned action was interfered by the Hon’ble High Court by holding that the AO couldn’t have taxed the entire gross receipts but should have only taxed the net income. In other words, assessee can’t be denied the legitimate deduction that would be available to it, even if it is treated as an AOP. The Hon’ble High Court in Sree Venkateswara Educational Trust supra held as under:
The facts of this case are not in dispute. The appellant/assessee had claimed exemption-cum-payment under the Act without actually filing application under Section 12A(a) of the Act as it stood then during the period in dispute.
The appellant/assessee obtained registration under Section 12AA of the Act only on 02.03.2016. The case pertains to the Assessment Year 2013- 2014. Therefore, in terms of the decision of the Division Bench of this Court in M/s.Soundaram Chokkanathan Educational and Charitable Trust case (cited supra), the benefit of registration would not enure in favour of the appellant/assessee before registration.
At the same time, the appellant/assessee cannot be denied all the legitimate deductions that would have been available, if the returns were filed either as a “Regular Assessee” or as an “Association of Person”.
The purpose of assessment is to recover just tax and not subject an assessee to unjust tax by holding that no return was filed either as a “Regular Assessee” or as an “Association of Person” merely because revised return was not filed under Section 139(4) of the Act, within a time specified under Section 139 of the Act.
The last date for filing the returns under Section 139(4) of the Act would have expired on 31.03.2015 which was just few days before the return was processed on 12.03.2015 under Section 143(1) of the Act.
The Hon'ble Supreme Court in Formica India Division, Bombay, Burma Trading Corporation Limited Vs. Collector of Central Excise and others, 1995 Supp (3) SCC 552/1995 (77) ELT 511, had held as under:-
“When it was found that they were liable to pay duty on the intermediary product and had not paid the same, but had paid the duty on the end product, they could not ordinarily have complied with the requirements of Rule 56A. Once the Tribunal took the view that they were liable to pay duty on the intermediary product and they would have been entitled to the benefit of the notification had they met with the requirement of Rule 56A, the proper course was to permit them to do so rather than denying to them the benefit on the technical ground that the point of time when they could have done so had elapsed and they could not be permitted to comply with Rule 56A after that stage had passed. We are, therefore, of the opinion that the appellants should be permitted to avail of the benefit of the notification by complying at this stage with Rule 56A to the satisfaction of the Department.”
In our view also, if assessments are to be completed, deductions and applicable exemptions that are otherwise available to an assessee ought to have been extended by the Assessing Officer to an assessee before finalizing the assessment. Since the appellant/assessee was not entitled to exemption as a Trust under Sections 11, 12 and 12A of the Act in absence of registration under the Act as it stood Section 12AA of the Act, benefit of other deductions under the Act ought to have been given. The Assessing Officer is not expected to act mechanically to confirm the liability to fasten an unjust tax liability on an assessee.
Therefore, we are inclined to set aside the Impugned Common Order dated 30.12.2019 and remit the case back to the Assessing Officer to pass a fresh order deleted under Section 143(1) of the Act.
These appeals stand disposed of with the above observations. The substantial questions of law are partly answered in favour of the appellant/assessee. No costs. Connected Civil Miscellaneous Petitions are closed.
In the light of the aforesaid decision of the Hon’ble Madras High Court (supra), we set aside the impugned orders of the First Appellate Authority and restore the assessment back to the file of the AO/CPC with a direction to tax only the net income of the assessee for AY 2019-20 as well as AY 2020-21 as per the respective income & expenditure account filed by the assessee. In this regard, the Ld.AR brought to our notice that for AY 2019-20, the excess expenditure over income is to the tune of Rs.22,31,78,628/- which may be verified by the AO/CPC and pass order u/s143(1) of the Act in accordance to law. Likewise for AY 2020-21, the excess expenditure over income as per the income and expenditure account is of Rs.2,06,32,878/- which may be verified by the AO/CPC and pass order u/s.143(1) of the Act accordingly.
In the light of the aforesaid decision of the Tribunal, the Ld.AR submitted that that the CPC erred in adding the entire receipt in the form of voluntary contribution of Rs.2.89 Cr., when the application of income was more than Rs.2.72 Cr and prayed for relief to the assessee. Per contra, the Ld.DR for department submitted that since there was considerable delay of more than ‘800’ days, the Ld.CIT(A) rightly dismissed the appeal, which impugned action need not be interfered by us.
Having heard both parties and after perusal of records, we note that the Ld.CIT(A) has dismissed the appeal noticing more than ‘865’ days delay in filing appeal before him. In this regard, the Ld.AR brought to our notice that the RoI was filed by the assessee on 13.12.2019 for AY 2019- 20, which was processed by CPC which passed the intimation on 25.06.2020 adding the entire receipt of voluntary contribution of Rs.2.89 Cr. when assessee had shown to have applied more than Rs.2.72 Crs. for philanthropic activities, and it was brought to our notice that CPC made such an adjustment, without serving any notices to assessee, which action of CPC, according to the Ld.AR was in gross-violation of natural justice. Further, it was brought to our notice that CPC’s intimation was in the midst of Covid-19 Pandemic and due to which there were numerous restrictions in movements, due to lock-down etc., which prevented the assessee from opening its office & downloading the intimation order. And it eventually led to delay in contacting the counsel for preparation of appeal, etc., and the assessee was able to file the appeal after ‘865’ days and out of which ‘720’ days was hit because of Covid-19 Pandemic and pointed out that the Hon’ble Supreme Court has relaxed the time up to 31.03.2022. Thus, according to the Ld.AR, excluding the Covid period, delay was only ‘150’ days which may be condoned. Taking note that assessee is a charitable organization, working at Nilgiris for the downtrodden plantation/tea garden workers and having noted the aforesaid relevant facts, and also taking note that intimation order of CPC was dated June 2020, which was in the midst of Covid-19 Pandemic, period of time up to 31.03.2022, needs to be excluded; and noticing that delay after that is less than ‘150’ days, considering the overall facts noted (supra), we condone the delay in filing appeal before the Ld.CIT(A); and further note that even though assessee doesn’t enjoy in this relevant AY 2019-20, section 12A registration, the CPC couldn’t have added the entire receipt of voluntary contribution of Rs.2.89 Crs. when assessee had shown to have applied/spent more than Rs.2.72 Crs. for philanthropic activities. Therefore, we find considerable force in the submission of the Ld.AR and note that the CPC erred in adding the entire voluntary contribution of Rs.2,89,47,194/- as taxable income when the assessee had applied/incurred expenditure of Rs.2,72,02,290/- and only net income could have been taxed, therefore, the action of CPC taxing the entire voluntary contribution of Rs.2.89 Crs. was per se erroneous as held by the Hon’ble Madras High Court in the case of Venkateswara Educational Trust v. ITO order dated 02.09.2024 (supra).
6. Be that as it may, we having condoned the delay of ‘875’ days in filing of appeal before the Ld.CIT(A), noticing that the Ld.CIT(A) has not decided the grounds of appeal raised by the assessee as contemplated under sub-section (6) of section 250 of the Act, we set aside the impugned order and restore the appeal back to his file and direct the Ld.CIT(A) to admit the appeal, and after considering the binding decision of the Hon’ble Madras High Court in the case of Venkateswara Educational Trust (supra) and also decision of the Tribunal in the case of University of Madras (supra) to adjudicate the grounds of appeal raised by the assessee in accordance to law after hearing the assessee, untrammeled by the observation made by us (supra).
In the result, appeal filed by the assessee allowed for statistical purposes.