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Facts
The assessee filed its return declaring 'Nil' income claiming exemption under Section 11 of the IT Act. However, the necessary registration under Section 12A and Form 10B were not filed. The Assessing Officer (AO) denied the exemption and taxed the gross receipts. The CIT(A) upheld the AO's order.
Held
The Tribunal noted that the assessee's appeal was primarily against the denial of exemption under Section 11 and the taxation of gross receipts. The Tribunal admitted an additional ground regarding the taxability of net commercial income and set aside the impugned order, remanding the matter to the AO.
Key Issues
Whether exemption under Section 11 is allowable when registration and audit reports were not filed timely, and if not, whether income should be taxed on commercial principles (net income) instead of gross receipts.
Sections Cited
11, 12A, 10(23C)(iiiad), 143(1), 154, IV-D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI MANISH BORAD & SHRI VINAY BHAMORE
ORDER PER VINAY BHAMORE, JM: Both the above captioned appeals filed by the assessee are directed against the separate orders dated 31.03.2025 passed by Ld. Addl./JCIT(A)-1, Bengaluru [‘Ld. CIT(A)’] for the assessment years 2019-20 and 2020-21 respectively.
& 1463/PUN/2025 2. Since identical facts and common issues are involved in both the above captioned appeals of the assessee, therefore, we proceed to dispose of the same by this common order. 3. First, we shall take up the appeal of the assessee in 2019-20 as the lead case for adjudication.
A.Y. 2019-20 : 4. The appellant has raised the following grounds of appeal :-
1. On the facts and in the circumstances of the case and in law the ld CIT(A) erred in confirming the addition of Rs 47,77,268/- on the basis that the Form no. 10B for A.Y. 2019-20 has been filed beyond the time limit laid out under the Income Tax Act, 1961.
2. On the facts and in the circumstances of the case and in law the appellant society is eligible for exemption u/s 11 of the Income Tax Act, 1961 and therefore the same needs to be allowed to the appellant society.
3. On the facts and in the circumstances of the case and in law the income of the appellant society is wrongly assessed at Rs.47,77,268/-.
4. On the facts and in the circumstances of the case and in law and without prejudice to the above grounds of appeal the appellant society has reported a deficit in its Income and expenditure account and therefore even if the exemption u/s 11 is disallowed the appellant has a loss.
5. On the facts and in the circumstances of the case and in law and without prejudice to the above grounds of appeal the appellant is eligible for revenue expenses incurred out of its receipts and the same needs to be allowed to the appellant society.
6. On the facts and in the circumstances of the case and in law the appellant has not been given the credit for taxes paid for A.Y. 2019-20.
& 1463/PUN/2025 7. The appellant craves for leave to add, alter, amend, delete etc the above grounds of appeal in the interest of natural justice.”
5. Facts of the case, in brief, are that the assessee has furnished its return of income declaring total income at Rs.Nil after claiming exemption u/s 11 of the IT Act. The said return of income was processed vide order dated 16.02.2021 u/s 143(1) of the IT Act wherein exemption claimed u/s 11 was denied and the gross receipt of Rs.47,77,268/- was taxed, since neither the details of registration u/s 12A of the IT Act were filed nor the audit report in Form 10B was filed by the assessee along with return of income or prior to filing of return of income.
6. 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.
7. We have heard Ld. counsels from both the sides and perused the material available on record including the factual and legal paper book filed by the Counsel of the assessee. In this regard, we find that the assessee furnished its return of income declaring Nil income after claiming exemption u/s 11 of the IT Act, since no details of registration u/s 12A of the IT Act were provided in the & 1463/PUN/2025 return of income and no Form 10B audit report was furnished along with return of income or prior to filing return of income, CPC mentioning both the above facts in the notice, sent email to the assessee and when no response was received, disallowed the exemption claimed u/s 11 of the IT Act and determined taxable income of Rs.47,77,268/- which was the gross income of the assessee without allowing deduction of expenses incurred by the assessee.
Admittedly, assessee applied for provisional registration u/s 12A of the IT Act on 10.02.2021 and the same was granted to the assessee w.e.f. assessment year 2021-22 vide order dated 27.05.2021. Prima-facie it appears that there is no mistake on the part of CPC since the details of 12A registration and Form 10B audit report was not there in the return of income, however form 10B claimed to be filed on 18-12-2020. In this regard , we further find that the assessee has raised alternative plea in ground no.4 and 5 as under :- “4. On the facts and in the circumstances of the case and in law and without prejudice to the above grounds of appeal the appellant society has reported a deficit in its Income and expenditure account and therefore even if the exemption u/s 11 is disallowed the appellant has a loss.
& 1463/PUN/2025 5. On the facts and in the circumstances of the case and in law and without prejudice to the above grounds of appeal the appellant is eligible for revenue expenses incurred out of its receipts and the same needs to be allowed to the appellant society.”
9. In support of above alternative grounds, 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 & 1463/PUN/2025 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 assessee seeking exemption under the provisions of section 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.
4. 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 & 1463/PUN/2025 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 of 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."
8. 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.
& 1463/PUN/2025 9. 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 grounds 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 evidence 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, ground no.4 and 5 are allowed for statistical purposes.
& 1463/PUN/2025 11. In ground no.6, the assessee has claimed that the credit of prepaid taxes is not allowed to him. In this regard, we find that the assessee has not produced any material in support of above ground, however in the interest of justice we deem it appropriate to consider the request made by assessee and accordingly direct the Jurisdictional Assessing Officer to verify the claim of assessee in this regard also, after providing reasonable opportunity of hearing to the assessee. Accordingly, ground no.6 is allowed for statistical purposes.
Since we have adjudicated alternative ground no.4 and 5 raised by the assessee and allowed the same for statistical purposes, ground no.1, 2 and 3 do not require any adjudication by us.
In the result, the appeal filed by the assessee in A.Y. 2019-20 is allowed for statistical purposes.
A.Y. 2020-21 : 14. Since the facts and issues involved in the appeal of the assessee for the assessment year 2019-20 are identical to the facts of the case for assessment year 2020-21, therefore, our decision in ITA