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Facts
The assessee, a registered trust, filed a NIL income return for AY 2017-18. The case was selected for e-assessment, focusing on trust receipts. The AO denied exemption under Section 11, taxed surplus as AOP, and made various additions due to non-compliance and failure to provide evidence.
Held
The Tribunal held that while the assessee was negligent in pursuing the appeal before the CIT(A), the right of appeal is a statutory right and the principle of Audi Alteram Partem should be followed. The matter was restored to the CIT(A) for fresh adjudication.
Key Issues
Whether the assessee's non-compliance before the lower authorities should lead to dismissal of the appeal, or if an opportunity to be heard on merits should be granted.
Sections Cited
11, 11(4A), 13(1)(c), 13(3), 143(3), 144B, 270A
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िनधा"रती की ओर से/Assessee by : Shri Ashray Sarna, CA(Virtual Mode) राज" की ओर से/ Revenue by : Shri Manav Bansal, CIT, DR सुनवाई की तारीख/Date of Hearing : 08/12/2025 उदघोषणा की तारीख/Date of Pronouncement : 10/12/2025 आदेश/Order PER LALIET KUMAR, J.M:
This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/NFAC, Delhi dt. 17/02/2024 pertaining to Assessment Year 2017-18. 2. In the present appeal Assessee has raised the following grounds:
1. That the order passed by the Hon'ble CIT(A) dated 17.02.2024 is against the law and facts of the case.
2. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AOin framing the impugned assessment order u/s 143(3) r.w.s. 144B of the Act and without complying instructions and norms under the e-assessment scheme, 2019 and without considering the mandatory conditions u/s 143/144 as envisaged under the Income Tax Act, 1961.
3. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of L.d. AOin passing order without giving adequate opportunity of hearing.
4. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in denying benefit of exemption u/s 11 of the Act and assessing the trust as AOP and making an addition of Rs.8,35,76,594.11/-, without considering the facts of the case and without observing the principles of natural justice.
5. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in disallowance of interest amounting to Rs.3,78,144.35/-, without considering the facts of the case and without observing the principles of natural justice.
That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in disallowing the expenses of Rs.3,84,000/- on account of salaries paid, without considering the facts of the case and without observing the principles of natural justice. 7. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an addition of Rs.17,05,082/- on account of alleged difference in Interest received as reflected in Form 26AS and as declared in ITR, without considering the fact the entire interest income has duly been accounted in the books of assessee. 8. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an addition of Rs.4,65,047.23/- on account of miscellaneous receipts, without considering the facts of the case and without observing the principles of natural justice. 9. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in disallowing exemption on account of repayment of loan amounting to Rs.2,46,02,962/-, without considering the facts of the case and without observing the principles of natural justice. 10. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.
3. Briefly, the facts of the case are that the assessee, CT EDUCATIONAL SOCIETY , a registered TRUST , filed its Return of Income on 28/10/2017 declaring NIL income. The case was selected for Complete Scrutiny assessment under the E-assessment Scheme, 2019, focusing on the "Receipts of trust". The total receipts shown by the assessee amounted to Rs. 53,98,79,869.87/- , including various fees beyond tuition/admission, and income from the sale of books, stationery, uniform, swimming accessories, hostel charges, and transportation. The assessee denied carrying out any business but failed to submit Trading and P&L accounts for activities like the sale of books, stationery, uniforms, swimming accessories, and running a hostel/transportation services. The assessee also paid salaries to specified persons: JASRAJ SINGH-EXECUTIVE (Rs. 3,84,000) and HARVINDER SINGH JOINT SECRETARY (Rs. 6,00,000). The assessment was completed under section 143(3) read with section 144B.
3.1 The AO concluded that the assessee was existing for profit and functioning on commercial principles, leading to the denial of the benefit of exemption under Section 11 of the Income-tax Act. The original surplus of Rs. 8,35,76,594.11/- was consequently taxed as an Association of Persons (AOP).
3.2 The key findings and resulting financial actions were: i. Denial of Exemption u/s 11(4A): Exemption was denied because the assessee failed to prove that activities like selling books, stationery, uniform, swimming accessories, running a hostel, and other miscellaneous receipts were incidental to the main objects of the educational trust, and also failed to maintain separate books of accounts for these business activities. ii. Disallowance of Salary to Specified Person: Salary of Rs. 3,84,000/- paid to JASRAJ SINGH-EXECUTIVE was disallowed, as he was showing other business income ("COMMISSION INCOME FROM PROPERTY"), indicating a diversion of energy and making the salary payment unreasonable under Section 13(1)(c) r.w.s. 13(3). iii. Disallowance of Loan Repayment: Repayment of loan amounting to Rs. 2,46,02,962/- was denied as an application of income because the assessee could not submit proof that the loan amount was included in its income in the year of its receipt. iv. Additions for Unreconciled Receipts: The following amounts were added to the income due to failure to reconcile differences with Form 26AS data: a. Difference in Interest Income of Rs. 17,05,082/-. b. Difference in Miscellaneous Receipts of Rs. 4,65,047.23/-. v. Other Disallowances: a. Interest on capital work-in-progress (restricted to total finance cost) of Rs. 3,78,144.35/- was disallowed. b. Depreciation disallowed (difference between claimed and restricted amount) of Rs. 36,83,779.02/-.
3.3 The AO's order noted the assessee's non-compliant and casual attitude despite being given ample opportunities. The final Assessed Income was computed at Rs. 11,11,11,830/-. Penalty proceedings u/s 270A were initiated separately.
Against the order of the AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed all the grounds of appeal filed by CT Educational Society for the Assessment Year 2017-18, thereby confirming the additions made by the Assessing Officer. The Ld. CIT(A)’s finding was primarily based on the assessee’s persistent non-compliance and failure to discharge the onus of proof. Despite being served with six hearing notices, the assessee failed to file the required evidence or written submissions. Consequently, the Ld. CIT(A) found no cogent reason to differ with the AO's original findings, which had resulted in the disallowance of the exemption benefit under Section 11 of the Income Tax Act, 1961, and the assessment of the assessee’s status as an Association of Persons (AOP) for tax purposes. By confirming the AO's action, the Ld. CIT(A) upheld the assessed income of Rs. 11,11,11,830/-.
5. Against the order of the CIT(A) the assessee preferred in appeal before the Tribunal.
6. Before us, the Ld. Counsel for the assessee submitted that the non- compliance before the Ld. CIT(A) was not intentional but due to unavoidable circumstances/reasonable cause. It was argued that the assessee possesses the necessary documents to substantiate its claim regarding the charitable nature of activities and the reconciliation of receipts. The Ld. Counsel prayed that in the interest of natural justice, one more opportunity be granted to the assessee to present its case before the Ld. CIT(A).
The Ld. DR relied on the orders of the lower authorities. He argued that the Ld gave the assessee ample opportunities (six notices). CIT(A), which were ignored. However, he left the matter to the discretion of the Bench regarding the restoration of the appeal.
We have heard the rival submissions and perused the material on record. It is an admitted fact that the assessee failed to appear before the Ld. CIT(A), despite multiple notices, leading to an ex parte order confirming high-pitched additions and the denial of exemption u/s 11. We are of the considered view that the right of appeal is a valuable statutory right. The principle of Audi Alteram Partem requires that no one should be condemned unheard. Substantial tax liability has been fastened upon the assessee, and the issues involve the Trust's fundamental status and the denial of charitable exemption. We believe that the assessee should be given an opportunity to explain its case on merits rather than being dismissed on technical non-compliance.
8.1 However, we cannot lose sight of the fact that the assessee has been negligent and lethargic in pursuing the appellate proceedings before the Ld. CIT(A), causing a waste of time and resources of the Revenue. The statutory notices were disregarded without apparent cause.
8.2 Therefore, in the interest of justice and fair play, we deem it appropriate to set aside the order of the Ld. CIT(A) and restore the entire matter to the file of the Ld. CIT(A) for adjudication de novo. This restoration is subject to the condition that the assessee deposits a cost of Rs. 1,50,000/- (Rupees one lac Fifty Thousand Only) in the Prime Minister's Relief Fund.
8.3 The assessee is directed to submit the proof of payment of the said cost to the Ld. CIT(A) before the commencement of the hearing. The assessee is further directed to appear before the Ld. CIT(A), file all necessary paper books/evidence, and cooperate in the proceedings without seeking unnecessary adjournments. The Ld. CIT(A) shall pass a speaking order after providing a reasonable opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.