MUSLIM EDUCATION SOCIETY,RATNAGIRI vs. INCOME TAX OFFICER, KOLHAPUR

11.2021 by the Ld. Assistant director, CPC (“AO”) determining the total income at Rs.2,15,77,799/-.

1 During the year under consideration, the trust derived gross income from charitable activities amounting to Rs.2,15,77,799/- and the total expenditure which is application of income u/s 11 of the Act amounted to Rs.2,16,19,901/- resulting into deficit of Rs. 42,102/-. It was thus, claimed that the surplus is less than 15% of the gross income which is evident from the audited accounts of the assessee’s trust. The assessee has been allowed exemption u/s 11 in the past AYs. The assessee trust also received grant in aid from the Government of Rs.68,57,108/-. It is running various school sectors such as pre-primary, primary, secondary and junior college and each having gross receipts less than Rs.1 Crore. The Ld. Assessing Officer-CPC however disallowed the entire amount of application of income on the revenue account which resulted into the tax demand of Rs.81,83,840/-.

Aggrieved, the assessee preferred an appeal before the Ld. Addl./JCIT(A) as the case was transferred to the Ld. Addl./JCIT(A), Prayagraj under the E- appeal Scheme, 2023 notified by the CBDT. Before the Ld. Addl./JCIT(A), the assessee challenged the action of the Ld. AO in not allowing exemption u/s 10(23C)(iiiad) of the Act as the gross receipts of each unit is less than Rs.1 Crore. During the appellate proceedings, the assessee submitted that the assessee trust is solely engaged in providing education and has been running five different institutions and none of these institutions exceed the gross receipts from more than Rs. 1 Crore which is the threshold given u/s 10(23C)(iiiad) of the Act for claiming exemption. The entire expenditure incurred by the trust is for educational purposes and thus the entire income of the trust is otherwise exempt, if not u/s 11 but u/s 10(23C)(iiiad) of the Act. There is no requirement of filing of ITR or Form 10B in order to claim exemption u/s 10(23C)(iiiad) of the Act. The assessee further submitted that these are the additional grounds/arguments taken before the Ld. Addl./JCIT(A) for the first time by the assessee and were not taken before the Ld. AO. The assessee made detailed legal submission on admissibility of the additional claim made by it which has been incorporated by the Ld. Addl./JCIT(A) in para 4 of his appellate order (page 4 and 5 of the appellate order refers). Without prejudice, the assessee also raised an additional ground that only the net

1 In support of his above contention(s), the assessee relied on various judicial precedents reproduced by the Ld. Add./JCIT(A) on pages 7 to 9 of his appellate order. After considering the facts of the case and legal submission of the assessee, the Ld. Addl./JCIT(A) confirmed the order of the Ld. AO in disallowing the assessee’s claim for exemption u/s 11 and 12 of the Act while processing the return u/s 143(1) of the Act for the reason that the assessee failed to furnish Form 10B as per the required provisions under the Act. As regards the additional claim of exemption u/s 10(23C)(iiiad) of the Act and the additional ground regarding the taxability of net commercial income as against the gross receipts of the trust, the Ld. Addl./JCIT(A) observed that the assessee has taken entirely new claim during the appellate proceedings to claim exemption u/s 10(23C)(iiiad) of the Act in order to take the benefit of the expenses incurred for earning the income. He observed that the assessee failed to revise its ROI u/s 139(5) of the Act inspite of it having an opportunity to do so. Consequently, he considered only the claim made in the original ROI or before the Ld. AO and dismissed the fresh claim/additional ground taken up by the assessee before him, relying on the decision of the Hon’ble Supreme Court

2 The appellant has pressed only one ground of the appeal ie, related to the disallowance of Exemption available u/s 10(23C)(iiiad) of the Act. The appellant has taken an additional ground during the appellate proceeding ie, regarding Taxability of only commercial income and not the gross receipts.

3 The appellant submitted that these two grounds were not taken before the AO. It is pertinent to note that this appeal pertains to the order under section 143(1) of the Act, which is based on the particulars furnished by the appellant in its return.

4 On perusal of the return filed u/s 143(1) of the Act dated 28.03.2021, it is noted that the appellant has claimed deduction u/s 11 of the Act. The appellant has been denied exemption u/s 11 since Form 108 was not filed on time.

5 In this context, it's important to note that according to Section 12A(1)(b) and Rule 178. Trusts are obligated to file Form 108, which is mandatory. Form 108 can only be accessed and submitted online and must be filed no later than the specified date mentioned in Section 44AB of the Act, which is one month before the due date for submitting the Income Tax Return under Section 139(1) of the Act.

6 In the present case, the appellant did not submit Form 108. Hence, Form 108 was not filed within the time frame outlined by the Act.

7 In view of the above, I find no error in the AO's decision to disallow the appellant's claim for exemption under Section 11 and 12 of the Act when processing the return under Section 143(1) of the Act.

8 The appellant has the option to approach the juri ictional Commissioner of Income Tax, Chief Commissioner of Income Tax, or Principal Chief Commissioner of Income Tax for the condonation of the delay in filing Form 10B as per the circular issued by the Central Board of Direct Taxes (CBDT) Circular No. 16/2022 (2006), where it was held that it is imperative for an assessee to revise its income tax return to raise any new claim not previously submitted in the original return.”

Dissatisfied, the assessee is in appeal before the Tribunal by raising the following grounds of appeal : “1. On the facts and circumstances of the case and in law the Additional CIT(A)-2, Gurugram, NFAC erred in confirming the action of the 'AO', CPC of 5

On the facts and circumstances of the case and in law the Additional CIT(A)-2, Gurugram, NFAC erred in not accepting the claim of the appellant of exemption u/s 10(23C) (iiiad) made before her in the appeal filed.

On the facts and circumstances of the case and in law the Additional CIT(A)-2, Gurugram, NFAC erred in not accepting the claim of the appellant, that the addition, if any, ought to have been restricted only to the Net commercial income and not the entire Gross Receipts.

The Ld. AR submitted that the Ld. Addl./JCIT(A) did not consider the additional claim of the assessee that the assessee trust is eligible for claim of exemption u/s 10(23C)(iiiad) of the Act in case the exemption u/s 11 is not granted to the assessee. Without prejudice to his above contention, he further submitted that an additional ground was raised before the Ld. Addl./JCIT(A) claiming that the addition, if any, should be restricted only to the net commercial income and not the entire gross receipts i.e. the expenses incurred by the trust ought to have been allowed by the Ld. Addl./JCIT(A) which has not been considered by him. He, therefore, requested that the matter may be set aside to the file of the Ld. juri ictional AO for verification of the claim of the assessee and decide the issue afresh in light of result of such verification. The Ld. AR submitted that the impugned issue is covered by the favourable order of the Co-ordinate Bench of Pune Tribunal in the case of Dr. Sukumar J. Magdum Foundation Vs. ITO in ITA No. 320/PUN/2023 for AY 2018-19, dated 14.08.2023, a copy of which was placed before us, wherein the Tribunal under the similar set of facts had set aside the matter to the file of the Ld. AO holding that the total income needs to be computed in accordance with the regular provisions of the Act in case the benefit of exemption u/s 11 is not available.

The Ld. DR supported the order of the Ld. Addl./JCIT(A). However, he had no objection to the above request of the Ld. AR, if the matter is restored to the file of the Ld. juri ictional AO for verification of the issues involved.

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

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

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. juri ictional 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. juri ictional 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 8

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

अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 5. ग र्ड फ़ इल / Guard File.