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Facts
The assessee, a society registered under Section 12A, engaged in kuri and money-lending business, claimed a business loss for AY 2016-17 and sought to set it off against other income. The Assessing Officer reopened the assessment under Section 147, disallowing exemption under Section 11 due to business income exceeding 20% of gross receipts (proviso to Section 2(15)), and made an ex-parte addition of ₹42,73,425. The CIT(A) dismissed the assessee's appeal, allegedly without granting a virtual hearing despite a specific request.
Held
The Tribunal found that the assessment and appellate orders were passed ex parte, denying the assessee a proper opportunity of being heard, especially concerning complex legal questions related to Sections 2(15) and 12A. Emphasizing natural justice, the Tribunal set aside the CIT(A)'s order and remanded the case back for fresh adjudication, directing the CIT(A) to provide a reasonable hearing opportunity, including a virtual hearing if requested.
Key Issues
1. Whether the assessee's charitable status and exemption under Section 11/12A were correctly denied under the proviso to Section 2(15) due to business income exceeding 20% of gross receipts. 2. Whether the principles of natural justice were violated by denying the assessee a proper opportunity of being heard, including a virtual hearing, before passing ex-parte assessment and appellate orders.
Sections Cited
2(15), 11, 12A, 147, 148, 142(1), 144
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Sonjoy Sarma
Assessment Years: 2016-17 Sreekumara Samajam ITO, Exemption Ward, v. Thrissur XXI/230 S Paliyamthuruth Anapuzha, Kodungallur Thrissur-680667, Kerala. PAN : AAFTS2292H. (Appellant) (Respondent) Appellant by : Smt. Nivedita A Kamath, Adv. Respondent by : Smt. Leena Lal, Snr AR. Date of Hearing : 05.06.2025 Date of Pronouncement : 12.06.2025 O R D E R Per Sonjoy Sarma: This appeal is filed by the assessee against the order dated 06.11.2024 by the National Faceless Appeal Centre (hereinafter referred to as ‘CIT(A)’] for the assessment year 2016–17.
Brief facts of the case are that the assessee is registered as a society under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, on 02.07.2009. It is also registered under Section 12A of the Act with the Commissioner of Income Tax, Thrissur, and claimed to function as a religious and charitable society. The assessee filed its return of income for A.Y. 2016–17 declaring ‘nil’ income. The assessee was engaged in conducting kuri Business and money-lending business, Sreekumara Samajam which had also resulted in income in the previous years A.Y. 2014– 15 and A.Y. 2015–16. For A.Y. 2016–17, the assessee claimed to have incurred a loss of ₹1,57,89,236 from its business activities and sought to set off the same against other income. The Assessing Officer (AO), upon examining the records, observed that the income from business activities exceeded 20% of gross receipts. Therefore, as per the proviso to Section 2(15) of the Act, the activity could no longer be treated as charitable in nature, and the trust could not avail exemption under Section 11. The AO was of the view that the income should be brought to tax under the head “Income from other sources,” and that the business loss could not be set off against such other income. Accordingly, the case was reopened under Section 147, with prior approval, by issuing notice under Section 148. The assessee failed to file a proper return in response, though a statement of computation of income and financials (P&L, balance sheet) were eventually furnished. However, the specific queries raised in the notices under Section 142(1) were not addressed. Dissatisfied with the incomplete compliance, the AO completed the assessment ex parte under Section 147 r.w.s. 144, making an addition of ₹42,73,425 under the head “Income from Other Sources,” and determined the total income accordingly.
Aggrieved by the above order, the assessee preferred an appeal before the CIT(A). The assessee submitted that the activities carried out were charitable in nature and within the permitted scope of Section 11 read with Section 2(15);The set-off of business loss was genuine and justifiable. The Assessing Officer erred in treating the business income as “other income” without affording proper opportunity. The CIT(A) denied the assessee a virtual hearing, even though a written request was made for the same. The CIT(A), however, dismissed the appeal, confirming the AO’s Sreekumara Samajam action without granting a personal hearing, and held that the income was rightly assessed under the head “Income from Other Sources” due to the violation of Section 2(15).
Dissatisfied with the above order, the assessee has come in appeal before us. Before us, the learned Authorized Representative (AR) of the assessee submitted that the CIT(A)’s order is bad in law as it was passed without granting reasonable opportunity of being heard, especially after a specific request was made for virtual hearing. The assessee was prevented by reasonable cause from making a full and proper representation before the lower authorities. The entire addition of ₹42,73,425 was unjustified, especially when the trust is still registered under Section 12A and carried out activities for public utility. The assessee is now ready to submit complete evidence and explanations on merits.
On the other hand, the learned Departmental Representative (DR) opposed the request and supported the orders of the lower authorities but had no serious objection if the matter was remanded for de novo consideration.
We have carefully considered the rival submissions and perused the material available on record. It is evident that the assessment was framed under Section 147 r.w.s. 144 due to non- compliance by the assessee, and the CIT(A) also decided the matter ex parte, allegedly without granting an opportunity for virtual hearing even after a specific request. In our considered view, where the assessee is a registered charitable society under Section 12A, and complex legal questions are involved concerning the application of Section 2(15) and eligibility of exemption, the authorities are expected to provide the assessee with a fair and effective hearing. As held in several judicial precedents, Sreekumara Samajam opportunity of being heard is integral to the principle of natural justice, and its denial renders the order unsustainable. In the present case, we find merit in the assessee’s plea that a proper opportunity was not granted before the CIT(A), particularly where the request for virtual hearing was ignored. In view of the above and in the interest of justice and fair play, we are inclined to set aside the order of the CIT(A) and remand the matter back to his file for de novo adjudication after granting the assessee a reasonable opportunity of being heard, including the option of virtual hearing if so requested. The assessee is directed to cooperate with the proceedings and furnish all necessary details, failing which the CIT(A) shall be at liberty to adjudicate based on material on record.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced on 12.06.2025.