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Facts
The assessee, an educational society without Section 12A registration, inadvertently filed ITR-7 instead of ITR-5 for AY 2020-21. The CPC, in its Section 143(1) intimation, disallowed school expenses totaling Rs.1.75 crore due to the late filing of the audit report (Form 10B/10BB), leading to a tax demand of Rs.75.94 lakh. An application under Section 119(2)(b) to rectify the error and file ITR-5 was rejected as time-barred.
Held
Citing a Madras High Court judgment, the Tribunal held that the CPC/CIT(A) erred in taxing the entire gross receipts without allowing corresponding expenses. It ruled that only the net income, after deducting legitimate expenses, should be brought to tax, irrespective of the incorrect ITR form or lack of Section 12A registration. The assessment was restored to the AO/CPC with a direction to tax only the net income.
Key Issues
Whether an educational society without Section 12A registration, which filed an incorrect ITR form and delayed its audit report, can be denied legitimate expenses, leading to taxation of gross receipts instead of net income.
Sections Cited
12A, 143(1), 119(2)(b), 11, 12, 12A(a), 12AA, 139(4)
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R PER ABY T. VARKEY, JM:
These are appeals preferred by the assessee against the two separate orders of the Learned Commissioner of Income Tax (Appeals)- /NFAC, Delhi (hereinafter in short ‘the Ld.CIT(A)’), both dated 13.08.2024 for the Assessment Years 2020-21 & 2021-22 (hereinafter in short ‘AY’). Since both parties agreed that issues are similar and there is no change in facts or law, the decision in one appeal i.e. AY 2020-21 will decide the fate of the other AY 2021-22. Therefore, AY 2020-21 is taken as the lead case & 2596/Chny/2024 (AYs 2020-21 & 2021-22) M/s. Sri Annamalai Educational Society and adjudicated which decision would apply mutatis mutandis for AY 2021- 22.
The brief facts are that the assessee filed its return of income for AY 2020-21 on 10.03.2021 admitting income of Rs.2,730/-. The assessee is noted to be running a school in rural areas for the benefit of students from under privileged society in Periyapanmutulu Village, Anchoor Post, Krishnagiri with a total strength of 600 boys and girls coming from a rural background; and assessee society claims to be solely engaged in running of schools and it does not have any other activity for the last 18 years.
However, the assessee does not enjoy registration u/s.12A of the Income Tax Act, 1961 (hereinafter the “Act”), but the assessee inadvertently filed ITR-7, which is supposed to be filed by a trust which enjoys 12A registration. And it is noted that the assessee instead of filing ITR in Form 7 ought to have filed ITR-5, since it has to be treated as an AOP. Since assessee filed inadvertently ITR-7 instead of ITR-5, the CPC while processing its return of income in its intimation u/s.143(1) of the Act dated 11.10.2021, disallowed the expenditure incurred for running of school amounting to Rs.1,75,31,978/- on the ground that Audit Report in Form 10B/10BB was not filed within the stipulated date; and thus, raised a tax demand of Rs.75,94,844/-.
& 2596/Chny/2024 (AYs 2020-21 & 2021-22) M/s. Sri Annamalai Educational Society 3. In order to rectify the inadvertent mistake as noted (supra), the assessee filed application before the Ld.CIT(E) seeking sanction u/s.119(2)(b) of the Act on 27.03.2024 since the time for filing return has lapsed and prayed for permission/allowing the assessee to file ITR-5 and the said application was rejected citing the reason that there is no provision in the Act to update the return after two years.
Be that as it may be, the main grievance of the assessee before us is against the action of the CPC/Ld CIT(A) in bringing to tax the gross receipts without allowing the corresponding expenses for earning of income.
According to Ld.AR, the CPC erred in taxing the gross receipts without allowing the expenses and 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 wherein the Hon’ble High Court had an occasion to deal with an identical issue based on similar factual scenario, wherein that case, the CPC passed intimation u/s.143(1) of the Act denying not only the exemption claimed u/s.11 of the Act, but also, made addition of gross receipts (without allowing the expenses), 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 & 2596/Chny/2024 (AYs 2020-21 & 2021-22) M/s. Sri Annamalai Educational Society would be available to it, even if it is treated as an AOP. The Hon’ble High Court in the said case i.e., 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.
& 2596/Chny/2024 (AYs 2020-21 & 2021-22) M/s. Sri Annamalai Educational Society 5. In the light of the aforesaid binding decision of the Hon’ble Madras High Court (supra), we find that CPC/CIT(A) erred in considering the entire receipt as income of assessee and taxed it, whereas only the net income after deducting the corresponding expenses only could have been brought to tax. Therefore, the hyper technical approach by CPC to tax the entire receipt without deducting the expenses, cannot be accepted, and therefore, 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 2020-21 as well as AY 2021-22 as per the respective income & expenditure account filed by the assessee
In the result, the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced on 05th March, 2025 at Chennai.