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Facts
The assessee, a charitable trust, filed its return claiming exemption under Section 11. The CPC disallowed the exemption and taxed the gross receipts as the audit report in Form 10B was filed belatedly. The CIT(A) confirmed this.
Held
The Tribunal set aside the order of the CIT(A) and remanded the matter to the AO. The AO is directed to examine the eligibility for exemption under Section 10(23C)(iiiad) and if not eligible, to verify the claim of expenditure against gross receipts and compute the taxable income accordingly.
Key Issues
Whether the gross receipts can be taxed without allowing deduction of expenses when exemption under Section 11 is denied due to belated filing of audit report, and whether the assessee is eligible for exemption under Section 10(23C)(iiiad).
Sections Cited
11, 143(1), 10(23C)(iiiad)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI MANISH BORAD & SHRI VINAY BHAMORE
Assessment Year : 2018-19 Iqra Education Society, Vs. ACIT, Exemption Sagar Nagar Mehrun, Circle, Aurangabad. Jalgaon- 425001. PAN : AAATI0900R Appellant Respondent Assessee by : Shri Vinay V. Kawadia (Virtual) Revenue by : Shri Amol Khairnar Date of hearing : 04.08.2025 Date of pronouncement : 03.09.2025 आदेश / ORDER
PER VINAY BHAMORE, JM:
This appeal filed by the assessee is directed against the order dated 10.12.2024 passed by Ld. Addl./JCIT(A)-2, Chandigarh [‘Ld. CIT(A)’] for the assessment year 2018-19.
The appellant has raised the following grounds of appeal :- “1) Under the facts and circumstances of the case and in law the learned CIT(A). NFAC has erred in confirming the addition of Rs. 9,64,09,885/- made by CPC. Bengaluru by disallowing the claim of exemption u/s 11 while processing ITR u/s 143(1) of the Act simply on the technical ground that audit report in form 10B AY 2018-19. The appellant is entitled for exemption u/s 11 which has been wrongly denied. 2) Under the facts and circumstances of the case and in law and without prejudice to Ground No. 1, the learned CIT(A), NFAC has erred in confirming the action of CPC, Bengaluru in taxing the gross receipts of Rs. 9,64,09,885/- without allowing the revenue expenditure incurred of Rs. 9,61,79,029/- in as much as only income can be taxed and not the gross receipts under the facts and in the circumstances of the appellant's case. 3) The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal
, if deemed necessary at the time of hearing of the appeal.”
3. Facts of the case, in brief, are that the assessee is a charitable trust registered u/s 12AA of the IT Act. The assessee furnished its return of income on 29.09.2018 declaring total income at Rs.2,30,856/- after claiming expenses of Rs.9,61,79,029/- out of gross receipts of Rs.9,64,09,885/-. The said return of income was processed vide order dated 28.01.2021 u/s 143(1) of the IT Act wherein exemption claimed u/s 11 of the IT Act was denied and whole of the gross receipt of Rs.9,64,09,885/- was taxed, since the audit report in Form 10B was not filed by the assessee either along with return of income or prior to filing of return of income. However, Form 10B Audit Report was filed by the assessee on 23.01.2021 before processing return of income u/s 143(1) of the IT Act.
4. Against the above intimation passed u/s 143(1) of the IT Act, the assessee preferred an appeal before Ld.CIT(A). After considering the reply of the assessee, Ld. CIT(A) dismissed the appeal filed by the assessee, against which the assessee is in appeal before this Tribunal.
We have heard Ld. counsels from both the sides and perused the material available on record including the paper book filed by the assessee. In this regard, we find that the assessee furnished its return of income claiming exemption u/s 11 of the IT Act, since the Audit Report in Form 10B was filed belatedly i.e. on 23.01.2021. CPC disallowed the exemption claimed u/s 11 of the IT Act and determined taxable income of Rs.9,64,09,885/- which was the gross receipts of the assessee without allowing deduction of expenses incurred by the assessee. In this regard, we find that the assessee has raised alternative plea in ground no.2 as under :- 2) Under the facts and circumstances of the case and in law and without prejudice to Ground No. 1, the learned CIT(A), NFAC has erred in confirming the action of CPC, Bengaluru in taxing the gross receipts of Rs. 9,64,09,885/- without allowing the revenue expenditure incurred of Rs. 9,61,79,029/- in as much as only income can be taxed and not the gross receipts under the facts and in the circumstances of the appellant's case.
6. In support of above alternative ground, Ld. AR relied on various decisions passed by coordinate benches of this Tribunal wherein it has been held that the assessee is eligible for revenue expenses incurred out of its receipt, and the surplus, if any, is only required to be taxed. In this regard, we find support from a recent decision passed by a coordinate bench of this Tribunal in the case of Muslim Education Society vs. ITO, order dated 18-02-2025 wherein under more or less identical facts, appeal of the assessee was allowed by observing as under :- “7. We have heard the Ld. Representatives of the parties and perused the material on record. The facts of the case are not disputed. The assessee trust got registration u/s 12A of the Act on 27.05.2021 and therefore it is apparent that the assessee trust was not a section 12A registered trust during the relevant AY i.e. AY 2020-21. Before us, the assessee has challenged the denial of exemption u/s 11 of the Act by the Ld. AO, CPC and confirmation of the same by the Ld. Addl./JCIT(A). However, we note that this ground was not pressed by the assessee before the Ld. Addl./JCIT(A) (para 5 of the impugned order refers). Ld. Counsel for the assessee has also contended that the assessee should alternatively, be granted exemption u/s 10(23C)(iiiad) of the Act as all the conditions for claim of exemption under the said section are satisfied by the assessee. The assessee has raised yet another ground claiming that without prejudice to the above claim, if exemption u/s 11/10(23C)(iiiad) of the Act is not granted, then the taxability of income of the assessee should be based on commercial principles i.e. only the net income should be taxed after allowing the expenses incurred by the assessee. The addition should, therefore, be restricted only to the net commercial income and not the entire gross receipts should be added to the Nil income returned by the assessee. We find that the Ld. Addl./JCIT(A) have confirmed the action of the Ld. AO in denying the exemption u/s 11 claimed by the assessee for the reason reproduced in para 3.1 above. Further, we also observe that the Ld. Addl./JCIT(A) has not adjudicated on the alternate claim of the 10(23C)(iiiad) of the Act and also the additional ground regarding the taxability of only net commercial income and not the gross receipts, raised by the assessee before him for the reason that these were not taken before the Ld. AO and restricted his decision only with respect to the claim of exemption u/s 11 as this was the only claim made by the assessee in its return of income which was processed u/s 143(1) of the Act. 7.1 Before us, the Ld. AR of the assessee has not seriously pressed ground Nos. 1 and 2 relating to claim of exemption by the assessee u/s 11 and/or section 10(23C)(iiiad) of the Act. In our considered view, the additional ground (ground No. 3) relating to taxability of only net commercial income being legal in nature and not requiring any fresh examination of the factual matrix is hereby admitted. We have perused the order of Co-ordinate Bench of the Pune Tribunal relied by the Ld. AR in the case of Dr. Sukumar J. Magdum Foundation (supra) wherein the Tribunal considered the issue of manner of assessment by the Ld. AO based on the fact that the assessee was not having any registration so as to qualify for exemption u/s 11 of the Act and held as under : "3. We have heard the rival submissions and gone through the relevant material on record. The contentions about the late filing of Audit report in Form No.10B and the need for still granting exemption, were not seriously pressed. The ld. AR has raised an additional ground to the effect that total income of the assessee ought to have been determined on commercial principles and not by charging the gross receipts to tax. The additional ground, being, legal in nature and not requiring any fresh examination of the factual matrix, is hereby admitted. As such, the only issue which survives for our consideration is the examination of the manner of assessment by the AO considering that it was not having any registration so as to qualify for exemption u/s.11.
The AO has recorded in the order u/s.154 that the gross receipts of the assessee were Rs.4,31,18,956/- and no deduction was allowed for expenses to the tune of Rs.4,95,86,799/-. We have gone through the Income and Expenditure account of the assessee, whose copy has been placed at page 18 of the paper book. Total of gross receipts on the Income side comes to Rs.4,31,18,955/-, which has been correctly considered by the AO. However, the amount of total deductions, as taken note of by the AO at Rs.4.95 crore, is not borne out from the Expenditure side. It appears that the AO took the amount of gross receipts at Rs.4.13 crore and added 15% at around Rs.64.00 lakh, to compute the total expenditure at Rs.4.95 crore. In fact, the assessee's Income and Expenditure Account shows that "Surplus Income over Expenditure" at Rs.2,87,153/-. In addition, there is "Amount transferred to Reserve or Specific Funds" to the tune of Rs.9,54,000/-. The assessee has claimed deduction for various expenses. It goes without saying that incometax is charged on the income and not the gross receipts. Income is determined by reducing the expenses incurred, described under various sections in Chapter IV-D of the Act. If the benefit of exemption u/s.11 is not available, the total income needs to be computed in accordance with the regular provisions of the Act. In the given circumstances, where the AO has charged tax on gross receipts, we cannot countenance the same. The resultant impugned order also deserves to be set aside. We order accordingly and remit the matter to the file of the AO for deducing the total income in accordance with the law after considering the deductibility of various expenses noted in the Income and Expenditure Account. Needless to say, the assessee will be allowed a reasonable opportunity of hearing."
On the facts and in the circumstances of the case and the legal position set out above and in the interest of justice, we deem it fit, in our considered opinion to set aside the impugned order of the Ld. Addl./JCIT(A) and restore the matter back to the file of the Ld. jurisdictional AO with a direction to verify whether the assessee is eligible for claim of exemption u/s 10/23(C)(iiiad) of the Act and grant relief to the assessee as per the provisions of law as a result of such verification thereof. In case the assessee is found to be not eligible for claim of exemption u/s 10/23(C)(iiiad) of the Act, the Ld. jurisdictional AO is hereby directed to examine/verify the claim of expenditure made by the assessee trust against the gross receipts for the relevant AY and modify the assessment accordingly as a result of such examination/verification as per the fact and law after giving adequate opportunity of hearing to the assessee. The assessee shall provide the requisite support in terms of submitting the relevant details/documentary evidence/submissions as may be required/called upon on the appointed date, failing which the Ld. AO shall be at liberty to pass appropriate order as per law. We direct and order accordingly.
In the result, the appeal of the assessee is treated as allowed for statistical purposes.”
Considering the totality of the facts of the case and also in the light of coordinate bench decision passed in the case of Muslim Education Society (supra), we find force in the above alternative ground raised
by the assessee and therefore deem it appropriate to set-aside the order passed by Ld. CIT(A) and remand the matter to the file of the Jurisdictional Assessing Officer with a direction to examine the claim of the assessee regarding eligibility of revenue expenses incurred out of its receipt if the same are allowable as per the Income Tax Act and then to determine taxable income, if any, and accordingly pass the order as per fact and law after providing reasonable opportunity of hearing to the assessee. In this regard, the assessee is also hereby directed to comply with the notices issued by the Jurisdictional Assessing Officer and to produce relevant information, details, documents and evidences in support of its claim without taking any adjournment under any pretext, otherwise the Jurisdictional Assessing Officer shall be at liberty to pass appropriate order as per law. Thus, alternative ground no.2 is allowed for statistical purposes.
8. Since we have adjudicated ground no.2 raised by the assessee and allowed the same for statistical purposes, ground no.1 does not require any adjudication by us.