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Facts
The assessee, an association of persons, wrongly filed its return in ITR-7 instead of ITR-5 for AY 2020-21, declaring Nil income despite gross receipts of Rs. 1,04,62,244/- and expenses of Rs. 1,11,27,637/-. The CPC disallowed all expenses and taxed gross receipts, which was upheld by the CIT(A) due to the filing of a revised return not being done.
Held
The Tribunal held that the error in filing the return form should not lead to the disallowance of all legitimate expenses. Following judicial precedents, it was decided that the assessee is entitled to claim deductions for expenses incurred wholly and exclusively to earn income, and the matter was remitted to the AO for fresh consideration.
Key Issues
Whether the incorrect filing of the return form (ITR-7 instead of ITR-5) can lead to the disallowance of all expenses claimed by the assessee, and whether the assessee is entitled to claim deductions for expenses incurred to earn income.
Sections Cited
143(1), 143(3), 139, 12AA, 11, 139(4), 134, 12A(a), 254
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K, HON’BLE & SHRI S.R. RAGHUNATHA, HON’BLE
आदेश /O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), Addl/JCIT(A)-8, Mumbai, dated 29.11.2024 and pertains to assessment year 2020-21.
Page 1 of 10 :-2-: ITA. No: 3115/Chny/2024 2. The assessee has raised the following grounds of appeal:
1. The order of the NFAC, Delhi dated 29.11.2024 vide DIN & Order No. ITBA/APL/S/250/2024-25/1070749008(1) for the assessment year under consideration is contrary to law, facts and in the circumstances of the case.
2. The NFAC, Delhi erred in sustaining the adjustment made in terms of Section 143(1) of the Act in adding back a sum of Rs.1,04,62,244/- being the gross receipts as taxable total income of the appellant in the computation of taxable total income without assigning proper reasons and justification.
3. The NFAC, Delhi failed to appreciate that the disputed adjustment made s was outside the purview of the scope of adjustment contemplated in Section 143(1) of the Act, there by vitiating the impugned adjustment made in the intimation order dated 30.11.2021.
4. The NFAC, Delhi failed to appreciate that in any event, the action in adding back the entire receipts earned / received during the assessment without taking into consideration the related expenditure incurred in relation to earning of such receipt, i.e. surplus / deficit as per the receipts and payments account, the consequential re-computation of taxable total income was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
5. The NFAC, Delhi failed to appreciate that the mere error in filing of return of income in ITR 7 as against the "correct Form" in ITR 5 could not automatically result in taxation of the entire gross receipts, there by vitiating the passing of the impugned order.”
3. The assessee is an association of persons, not having registration u/s.12AA of the Act, for the A.Y.2020-21 filed its return of income on 31.12.2020 by declaring a Nil Income. The assessee had wrongly filed the return in Form ITR – 7 instead of ITR – 5. However no deduction under section 11 were claimed by the assessee. The gross receipts of the assessee for the Page 2 of 10 :-3-: ITA. No: 3115/Chny/2024 assessment year 2020-21 was Rs.1,04,62,244/- and the revenue expenses were Rs.1,11,27,637/-. In the intimation made under section 143(1)(a) of the Act dated 30.11.2021 the gross receipts of Rs.1,04,62,244/- taken as the taxable income of the assessee without allowing the entire revenue expenses of Rs.1,11,27,637/- being the amount spent for earning such income and brought to tax. Aggrieved by the Order of the CPC, Bengaluru the assessee preferred an appeal before Ld.CIT(A) NFAC, Delhi.
4. Before the ld.CIT(A) the assessee submitted the entire facts of the case and also stated that the assessee’s PAN was with ITO – Exemptions, Ward 3, Chennai and hence the assessee with the bonafide belief that the return of income should be filed in ITR Form 7 relating to exemption ward. The assessee also submitted that in the intimation u/s.143(1)(a) of the Act, the CPC has considered the entire details of expenses of Rs.1,11,27,637/- spent by the assessee as given in the return of income both under the head “as provided by the taxpayer” and “as computed u/s.143(1)”. Further, the assessee claimed that the income to be taxed is the real income i.e. gross receipts less expenses incurred wholly and exclusively to earn such income.
Page 3 of 10 :-4-: ITA. No: 3115/Chny/2024 5. After considering the submissions made by the assessee, the ld.CIT(A) was not convinced and dismissed the appeal of the assessee stating that the assessee should have filed the revised return of income, after the issue of intimation u/s.143(1) of the Act and passed the order dated 29.11.2024 as detailed below: “4.2 Against the said intimation, the appellant has filed appeal stating that the appellant is a AOP and not registered under section 12AA of the Income Tax Act. It is further stated that as per the website, the PAN of the appellant was lies with ITO, Exemption ward-3, Chennai and hence, the appellant has filed ITR- 7 and claimed exemption under section 11 of the Act. The contention of the appellant is not acceptable. Every assessee is required to file the correct ITR as per their status, source of income etc. Further, the appellant could have file revised return immediately after came to know the mistakes in filing the return and could opt other remedy as per the provisions of the Act. But the appellant failed to do so. The taxpayer has to file a return correctly after due verification of the facts mentioned in the ITR filed. The appellant was required to verify the information submitted in the return before submitting verification which is very crucial to avoid further litigation. Intimation under section 143(1) of the Income tax Act is a summary of the detailed submitted to the department and the AO passes the intimation after adjustment allowable under section ¢43(1)(a) of the Act. The provisions of the section 139 clearly states that any person who has filed the original ITR on or before the due date can file a revised ITR before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. 4.3 Choosing the correct ITR form for filing the return is crucial and the appellant was required to fill the information correctly. It is undisputed fact that the appellant is not registered under section 12AA of the Act. The appellant has claimed exemption under section 11 and mentioned an amount of Rs.1,04,62,244/- clearly against the col. Provided for claiming exemption under section 11 though the appellant was not entitled for such exemption. The AO passed the intimation as per the information Page 4 of 10 :-5-: ITA. No: 3115/Chny/2024 provided by the appellant and the adjustment allowable under the provisions of the section 143(1)(a) of the Act. 4.4. I have carefully considered grounds of appeal of the appellant. The AO passed intimation on the basis of information provided in the Income tax return. In the facts and circumstances of the case, the issues and grounds appeal of the appellant are hereby dismissed.” Aggrieved by the Order of the Ld.CIT(A), the assessee preferred an appeal before us.
6. The ld.AR for the assessee submitted that the return of income has been filed before the due date by showing a gross receipts of Rs.1,04,62,244/- and the revenue expenses of Rs.1,11,27,637/-and claimed a loss of Rs.6,65,423/-. The assessee had wrongly filed the return in Form ITR – 7 instead of ITR –
5. However, no deduction under section 11 were claimed by the assessee.
7. The ld.AR stated the CPC, Bengaluru has disallowed the entire expenses and taxed the gross receipts of the assessee as total income. The same has been confirmed by the ld.CIT(A) without considering submissions of the assessee stating that the revised return in correct ITR has not been filed by the assessee.
8. Further, the ld.AR pointed out that the intimation u/s.143(1)(a) of the Act, the CPC has considered the entire details of expenses of Rs.1,11,27,637/- spent by the assessee Page 5 of 10 :-6-: ITA. No: 3115/Chny/2024 as given in the return of income both under the head “as provided by the taxpayer” and “as computed u/s.143(1)”, but while computing the net income the entire expenditure has been disallowed.
9. Further, the ld. AR argued that the income of the assessee to be taxed is the real income i.e. gross receipts less expenses incurred wholly and exclusively to earn such income and hence the impugned order is erroneous and needs to be set aside. Further, in support of the claim of allowing expenditure the ld.AR relied on the latest decision of the Hon’ble Madras High Court in the case Sree Venkateswara Educational Trust Vs. ITO, Exemption Ward, Salem (Madras HC) – TCA No.168 & 169 of 2020 dated 02.09.2024, wherein their lordship held that “if assessments are to be completed, deductions and applicable exemptions that are otherwise available to an assessee ought to have been extended by the AO to an assessee before finalizing the assessment.” In light of the above submissions the ld.AR prayed for setting aside the order of the ld.CIT(A) and allow the expenditure of the assessee to arrive at the total income.
10. Per contra the ld.DR supported the order of the ld.CIT(A) and submitted that the revised return in the correct ITR form Page 6 of 10 :-7-: ITA. No: 3115/Chny/2024 has not been filed by the assessee and hence prayed for confirming the order of ld.CIT(A).
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the assessee has filed the return of income on or before the due date in Form ITR 7, even though the assessee does not have registration u/s.12AA of the Act. However, we note that the assessee has not claimed deduction u/s.11 of the Act. On perusal of the ld.CIT(A) order, it is found that the intimation u/s.143(1) was confirmed for the only reason that the assessee has not filed the revised return in form ITR 5. It is pertinent to note that the CPC, Bengaluru has accepted in its intimation u/s 143(1) the details of expenditure claimed by the assessee in the return of income along with expenditure. Therefore, we do not agree with the ld.CIT(A) to tax the gross receipts as total income of the assessee without allowing corresponding expenditure spent towards earning such income. Further, the claim of the assessee to allow the expenditure it is relevant to take the support of the decision of the Hon’ble Madras High Court in the case Sree Venkateswara Educational Trust Vs. ITO, Exemption Ward, Salem (Madras HC) – TCA No.168 & 169 of 2020 dated 02.09.2024, wherein their Page 7 of 10 :-8-: ITA. No: 3115/Chny/2024 lordship after considering the decision of the Hon’ble Supreme court in Goetze(india) Pvt Ltd. Vs. CIT (2006) 284 ITR 323 (SC) held as detailed below: “18. A reading of the decision of the Hon'ble Supreme Court in Goetze (India) Ltd., (cited supra) makes it clear that it restricts the power of the Assessing Authority and does not impinge on the power of the Income Tax Appellate Tribunal (ITAT) under Section 254 of the Act. The Hon'ble Supreme Court has clearly held that limited to the power of the Assessing Authority and does not impinge on the power of the Income Tax Appellate Tribunal under Section 254 of the Income Tax Act, 1961.
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 after 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 134 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.
Page 8 of 10 :-9-: ITA. No: 3115/Chny/2024 24. 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, the 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 under Section 143(3) 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.”
Page 9 of 10 :-10-: ITA. No: 3115/Chny/2024 12. In the present factual matrix and respectfully following the judicial decision of the Hon’ble Madras Court (supra) we are inclined to set aside the order of the ld.CIT(A) and direct the AO to allow the revenue expenditure as shown in the Income and expenditure account of the assessee from the Gross receipts to compute the total income of the assessee for the impugned assessment year 2020-21 by allowing the appeal of the assessee.
In the result the appeal of the assessee is allowed. Order pronounced in the court on 6th , March, 2025 at Chennai.