ADHAR PROJECT WELFARE SOCIETY,SANGLI vs. ITO EXEMPTION, KOLHAPUR

Briefly stated, the facts of the case are that the assessee is a public trust registered under Bombay Public Trust Act, 1950. It is engaged in the charitable activities. The trust has been granted registration u/s 12AA of the Income Tax Act, 1961 (the “Act”) w.e.f. 20.12.2018. For AY 2016-17, the assessee filed its return of income on 30.11.2016 in Form No. 7 declaring total income of Rs. Nil and claiming exemption u/s 11 of the Act. During the relevant AY, the assessee disclosed gross receipts of Rs.12,52,178/- from the properties of trust, out of which it claimed application for the purpose of trust amounting to Rs.12,24,343/- and setting apart a sum of Rs.27,835/- for future application. The return was processed by the Centralized Processing Center, Bangalore (“CPC”) u/s 143(1) of the Act considering the assessee as non-charitable trust and therefore denying exemption claimed u/s 11 of the Act. The assessee filed rectification application before the Jurisdictional Assessing Officer (“JAO”) which was rejected by the JAO holding it to be the mistake beyond the purview of section 154 of the Act.

Aggrieved with such order of the JAO, the assessee preferred an appeal before the Ld. Addl./JCIT(A). The Ld. Addl./JCIT(A) dismissed the appeal of the assessee by observing as under : “5.1 I have gone through the order of the JAO and submissions of the appellant. I do not find any infirmity in the order of the JAO holding that the mistake allegedly committed by the CPC as not being apparent from record and thus, does not fall within the purview of section 154 of the Act. The JAO, after having gone through information available, concluded that the appellant was not eligible to avail exemption u/s 11 of the Act for the AY 2016-17 as necessary approval u/s 12AA of the Act was not obtained by it. The appellant filed return of income in ITR 7 which is applicable for an institution eligible for exemption u/s 11 of the Act and, therefore, the appellant was lawfully obligated to furnish details of approval accorded at the specified places in the return of income. It was also incumbent upon the appellant to file audit report and that too within the due date as prescribed, but no such audit report was field either before filing of return of income or simultaneously with filing of return. Thus, the appellant has violated the mandatory provisions of the Act the fulfillment of which renders a person eligible for exemption u/s 11 of the Act. Exemption u/s 11 of the Act is not automatic but subject to satisfaction of conditions provided in the Act. 5.2 In its 'statement of fact the appellant has accepted that it had not been accorded approval u/s 12AA of the Act as per which it could have claimed exemption for the AY 2016-17. The appellant has stated that choosing ITR 7 instead of ITR 5 for the impugned year is only because of mistake by its tax consultant. Thus, the appellant accepts that it was not eligible for availing exemption u/s 11 of the Act for the impugned year and therefore the appropriate form of return of income for the impugned year was ITR 5, which is applicable to 'Association of Persons' (AOP). The appellant is also seen to have filed application seeking rectification before the JAO under the status 'AOP', not trust. I do not find force in this contention of the appellant that choosing of ITR 7 was the result of mistake of tax consultant. Perusal of return of income shows that the details of approval u/s 12A/12AA of the Act have been reported. It is reported that the approval was granted on 31/03/2016 by Commissioner of Income Tax, Kolhapur. Further, the appellant has reported Rs. 12.24.343/- to have been applied for the purpose of trust and set apart a sum of Rs. 27.835/- for future application. The supply of above details may not be a result of casual approach. It shows the intention of the appellant to avail exemption. Further, necessary provisions are there in the Act to rectify the mistake committed in the return of income within a specified time period. The appellant could have rectified the same with choosing of applicable form of ITR within the time allowed by the Act. In view of the above, the order of the JAO is just and lawful. 5.3 The appellant has contended that while the JAO has not disputed the genuineness of gross receipt, he should have accepted the genuineness of expenses claimed and if so, it would have resulted in taxable income of Rs. 27,835/- only. This contention of the appellant does not appear convincing. It would have been accepted if report of auditor had been filed. The appellant in its submission has also furnished computation of income arrived at Rs. Nil and the same is derived at taking into account profit from business at Rs. 27,835 and adjustment of depreciation as per books of account and as per provisions of the Act. There is no merit in contention of the appellant. The appellant was intentionally avoiding paying tax by claiming exemption u/s 11 of the Act even though it was not eligible for it, and upon being caught it has been resorting to recourses available under the provisions of the Act which might go favoring it in reduction of tax to nil. The contention of the appellant would have been accepted, if the same was claimed in the return of income filed as applicable to AOP. In view of the above, the ground of appeal is rejected.”

Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.

The Ld. AR submitted that during the relevant AY 2016-17, the assessee’s application for registration u/s 12A of the Act were under processing. The assessee obtained registration u//s 12A of the Act subsequently. The assessee is not claiming exemption under section 11 of the Act for the relevant AY under consideration. However, treating the assessee’s income taxable in the status of an AOP, the Ld. AR that only the net income of Rs.27,835/- which should be brought to tax at the normal rate of tax applicable to AOP as against the entire gross receipts of Rs.12,52,178/- .

The Ld. DR relied on the order of the Ld. JAO and Ld. Addl./JCIT(A).

We have heard the Ld. Representatives of the parties, perused the material on record and the paper book filed by the Ld. AR on behalf of the assessee. The facts of the case are not in dispute. The Ld. Counsel for the assessee has admitted that the assessee trust is not eligible for availing exemption u/s 11 of the Act for the relevant AY 2016-17. The return of income was mistakenly filed in ITR-7 instead of ITR-5 applicable in case of AOP. The Ld. JAO has therefore rejected the rectification application as falling outside the scope of section 154 of the Act which has been upheld by the Ld. Addl./JCIT(A) foe the reasons reproduced above. It is the contention of the Ld. Counsel for the assessee that the genuineness of gross receipts has not been disputed by the Ld. JAO. After claiming application of income for the purpose of trust (expenditure incurred) only the net income of Rs.27,835/- should be taxed. We find that the Ld. Addl./JCIT(A) has rejected this contention of the assessee for the reason that the auditor’s report was not furnished by the assessee in support of its claim. Referring to pages 1 to 6 and pages 24 to 32 of the paper book, the Ld. AR has demonstrated that the audit report was duly furnished before the Ld. Addl./JCIT along with other relevant documents such as receipt & payment account, computation of total income, bank statement etc, however, these were not taken into consideration by the Ld. Addl./JCIT(A) while passing the impugned order. The Ld. Addl./JCIT(A) has also observed that the contention of the assessee would have been accepted, if the assessee had filed its return as applicable to AOP. In our view this reasoning of the Ld. Addl./JCIT(A) is not justifiable as the assessee cannot be deprived of its rightful claim merely on account of technical mistake committed by the assessee. Also, it is a well settled principle of law that only net income should be taxed after allowing claim of the expenditure as per the relevant provisions of the Act. However, it is noted that both the Ld. JAO as well as the Addl./JCIT(A) have not examined and verified the said claim of the assessee.

Considering the totality of the facts and in the circumstances of the case enumerated above, we deem it fit, in the interest of justice, to set aside the order of the Ld. Addl./JCIT(A) and restore the issue back to his file with a direction to decide the issue afresh on merits after verification of the expenses claimed by the assessee as per fact and law and reassess the income of the assessee on net basis as a result of such verification thereof. Both the Ld. JAO as well as the assessee shall be allowed reasonable opportunity of being heard and represent the case by the Ld. Addl./JCIT(A). Needless to say, the Ld. Addl./JCIT(A) shall to take into cognizance the audit report and other submissions/documents filed by the assessee which are already available on records of the Department and the assessee shall also provide the requisite support in terms of submitting the any further relevant documents/evidence as may be required/called upon, on the appointed date without seeking any adjournment under any pretext unless required for a sufficient cause, failing which the Ld. Addl./JCIT(A) shall be at liberty to pass appropriate order as per law. We direct and order accordingly. The grounds of appeal raised by the assessee are therefore allowed for statistical purposes.

In the result, the appeal of assessee is treated as allowed for statistical purposes.