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Facts
The assessee, a charitable trust, claimed a deduction of Rs. 53,18,248/- for capital expenditure for charitable purposes. The CPC disallowed this claim, assessing total income at Rs. 47,62,568/-. The assessee's rectification application and appeal to the CIT(A) were rejected.
Held
The Tribunal noted that the assessee claimed the expenditure as capital account application under Section 11. The CIT(A) rejected the claim based on no sale of capital asset and no explicit claim in the return. The Tribunal restored the matter to the AO for verification.
Key Issues
Whether capital expenditure incurred for charitable purposes is deductible under Section 11, even if no capital asset was sold, and if the claim was properly made in the return of income.
Sections Cited
11, 11(1A), 143(1), 154
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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
(Assessment Year: 2020-21) The Uttar Gujarat Muslim Vs. Income Tax Officer Education Society, (Exemption), Ikra School, Muslim Boarding, Palanpur Visnagar, Mehsana, Gujarat-384315 [PAN No.AAAAT1449F] (Appellant) .. (Respondent) Appellant by : Shri Vipul Gohil, C.A. Respondent by: Ms. Bhavnasingh Gupta, Sr. DR 01.05.2025 Date of Hearing Date of Pronouncement 18.06.2025 O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 16.12.2024 passed for A.Y. 2020-21.
The Assessee has taken the following grounds of appeal:-
“1. The Lrd. CIT(A) has erred in confirming the Assessing Officer's (AO's) decision to disallow the deduction of Rs. 53,18,248/- for capital expenditure incurred for charitable purposes. The appellant submits that the expenditure was correctly applied for charitable purposes on the capital account, and the same should be allowed under Section 11 of the Income Tax Act, 1961.
2. The Lrd. CIT(A) erred in confirming the disallowance of the capita! expenditure and failing to recognize the clear mistake apparent from the record, despite the Trust's repeated efforts to rectify it. The appellant submits that the AO's denial of the Rs. 53.18.248/- claim constitutes a "Mistake Apparent from the Record"
The Uttar Gujarat Muslim Education Society vs. ITO(E) Asst.Year –2020-21 - 2– under Section 154 of the Income Tax Act, 1961. The Trust had properly claimed the expenditure under Section 11, and there was no valid reason for its disallowance. The rectification applications filed by the appellant were wrongly rejected.
3. The Lrd, CIT(A) has erred in holding that the appellant is not eligible for the deduction under Section 11(1A) on the grounds that no capital asset was sold during the relevant assessment year. The appellant submits that the expenditure was incurred for charitable purposes on the capital account, and therefore, it should be allowed as an application of income, irrespective of the sale of capital assets.
4. The Lrd. CIT(A) has failed to appreciate that the capital expenditure of Rs. 53,18,248/- was indeed applied for the objects of the Trust, which is a recognized charitable purpose. The disallowance of the claim for such expenditure is contrary to the previsions of the Income Tax Act, 1961, and established legal principles regarding the application of income for charitable purposes.
5. The Lrd, CIT(A) has erred in holding that no claim for deduction under Section 11(1) was made in the return of income. The appellant had duly filed (he return claiming deductions under Section 11 for both revenue and capital expenditure' and the claim should have been allowed in full.
6. The Lrd. CIT(A) has erred in confirming the actions of the AO, which were contrary to the principles of natural justice. No reasonable opportunity was granted to the appellant to justify the capital expenditure claim. Furthermore, no communication was made to the appellant regarding the rejection of the claim for capital expenditure before passing the rectification orders.
The Lrd. CIT(A) erred in confirming the addition of Rs. 47,62,568/- as income, by not allowing the deduction for the capital expenditure applied for charitable purposes. The Trust’s income should have been treated as NIL, as the entire amount was applied for charitable pruposes.”
The brief facts of the case are that the assessee is a charitable trust registered under The Bombay Public Trusts Act, 1950, and under Sections 12AA and 80G of the Income Tax Act, 1961 (Act). For the Assessment Year 2020–21, the assessee trust filed its income return on 29.12.2020, declaring NIL income after claiming a deduction of Rs. 85,95,660/-, which included Rs. 32,77,412/- towards revenue account charitable purposes and Rs. 53,18,248/- towards capital account charitable purposes. The CPC passed order under Section 143(1) of the Act on 26.12.2021 in which the Assessing Officer disallowed the capital expenditure claim of Rs. 53,18,248/-, thereby The Uttar Gujarat Muslim Education Society vs. ITO(E) Asst.Year –2020-21 - 3– assessing the total income at Rs. 47,62,568/-. The assessee trust filed rectification application under Section 154 of the Act on 30.12.2021, which was rejected by the AO vide order dated 22.04.2022, disallowing the capital expenditure claim made by the assessee. Aggrieved, the assessee filed appeal before CIT(A), who upheld the AO’s decision with the following observations:
5.3 On careful perusal of schedule-EC, filed along with the return of income it is seen that the appellant has purchased new asset an claims exemption u/s 11(1A) of IT Act. However, on going through the schedule AI filed along with return which gives details of income excluding voluntary contribution it is seen that the appellant has not declared any receipt from sake of any capital asset. Therefore, there is no evidence of sale of any asset during the year which is declared as income from the property of the trust. In such a situation claim under section 11(1A) is not admissible. Therefore, there is an incorrect claim which is apparent from the information available in the return of income. In the given situation, I do not see any mistake in the action of the AO, CPC when he denied the claim of deduction u/s 11(1A). Accordingly, ground no. 1 and 2, are decided against the appellant. 5.4 So far as ground no. 3 is concern no claim for deduction u/s 11(1) has been made by the appellant in the return of income. It is trite that for availing any deduction under IT Act, the appellant is required to make such claim in the return of income. No such claim can otherwise be allowed. Particularly, in an application made u/s 154 as in absence of the claim no mistake can be attributed to the action of the AO, CPC. Therefore, this ground is also dismissed.
Before us, the Counsel for the assessee submitted that the assesee, while filing return of income has shown cost of new assets amounting to Rs. 53,18,248/- at Sr. No. 3 of “Schedule EC”. This amount was wrongly reported by the asssessee at Sr. No. 3, instead of Sr. No. 2, which is an apparent / inadvertent mistake committed by the assessee while furnishing return of income. The Counsel for the assessee submitted that this should have been reported in Sr. No. 2 – “Acquisition of Capital Asset”. Further, the Counsel for the assessee submitted that the assessee has shown net consideration on sale of capital assets as Rs. Nil at Sr. No. 8 of Schedule AI, The Uttar Gujarat Muslim Education Society vs. ITO(E) Asst.Year –2020-21 - 4– which is correct since there was no sale / transfer of capital asset during the year under consideration. Finally, the Counsel for the assessee submitted that the assessee had correctly shown a sum of Rs. 53,18,248/- under the head “Application of Income – Capital Account” at Sr. No. ii at Page 25 of the ITR Form. Accordingly, the Counsel for the assessee submitted that in light of these facts, capital expenditure claim of Rs. 53,18,248/- should not have been disallowed by CPC, looking into assessee’s set of facts.
On going through the facts of the instant case, in the interest of justice, the matter is hereby restored to the file of Jurisdictional Assessing Officer to verify whether the assessee had correctly claimed capital expenditure amounting to Rs. 53,18,248/- under Section 11 of the Act. In case the claim of the assessee is found to be correct after due verification, appropriate relief may be afforded to the assessee, in accordance with law.
In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 18/06/2025