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Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY]
आदेश / O R D E R
PER INTURI RAMA RAO, ACCOUNTANT MEMBER
This is an appeal filed by the Assessee directed against the order of the Commissioner of Income Tax (Appeals)-17, Chennai (‘CIT(A)’ for short) dated 31.01.2019 for the Assessment Year (AY) 2015-2016.
ITA No.567 /2019 :- 2 -:
The Assessee raised the following grounds of appeal:
‘’1. The order of the learned Commissioner of Income-tax (Appeals) is arbitrary, contradictory to the facts and circumstances of the case and without application of mind.
2. The learned Commissioner of Income-tax (Appeals) erred in holding that no deduction of expenditure was claimed. The claim of expenditure is apparent from the return of income where only the net receipts of Rs. 3,56,850 (being gross receipts of Rs. 2,04,19,678 less expenditure of Rs. 2,00,62,828) was admitted as total income.
The learned Commissioner of Income-tax (Appeals) erred in not allowing the deduction of expenditure incurred wholly and exclusively for running the school.
The learned Commissioner of Income-tax (Appeals) has co- terminus powers as that of assessing officer and thus should have considering the effect of first proviso to sub-section 2 of section 12A of the Income Tax Act, 1961.
Even assuming that the benefit of sections 11 and 12 are not available for AY 2015-16, the character of the amount claimed as applied for charitable purpose changes into that of expenditure. Therefore, what can be taxed is only the net income and not the gross receipts of the trust.
Such other grounds as may be raised before or during the course of appeal’’.
The brief facts of the case are as under: 3.
The appellant namely Kingston Educational Trust is a charitable trust running Kingston Matric Higher Secondary School in Vandavasi.
The return of income for the assessment year 2015-2016 was filed on 26.11.2015 in the status of ‘’AOP’’. In the return of income filed,
ITA No.567 /2019 :- 3 -: assessee had shown gross receipts received for running of schools as income from other sources. Admittedly, no expenditure was shown to have claimed in the return of income. However, the return of income was filed in ITR-7 applicable to assessee enjoying exemption u/s.11 of the Act. However, assessee was granted exemption u/s.12AA of the Act w.e.f. 01.04.2016. In the return of income, assessee claimed expenditure of �2,00,62,800/- against gross receipt of �2,04,19,680/- thereby showing excess income of �3,56,880/- on which tax was paid. The Assessing Officer processed the assessment u/s.143(1) of the Act vide intimation dated 29.03.2017 assessing gross receipts at maximum marginal rate of tax without allowing expenditure as the trust was not registered u/s.12AA of the Act.
Being aggrieved by the above intimation, assessee filed 4. petition u/s.154 of the Act for rectification to be undertaken by allowing the expenditure incurred to earn income which was rejected by the Assessing Officer.
Being aggrieved, an appeal was preferred before the 5. ld.CIT(A), who vide impugned order confirmed the action of the Assessing Officer (AO).
ITA No.567 /2019 :- 4 -:
6. Being aggrieved by the order of the CIT(A), the appellant is in appeal before us in the present appeal. It is submitted before us that the Assessing Officer ought to have considered the expenditure incurred wholly and exclusively to earn the income and the Assessing Officer cannot consider only information which is convenient to him in the return of income and ignoring the information containing in the return of income which is against the Revenue. On any event, he submitted that the action of the Assessing Officer is outside the domain of Section 143(1) of the Act.
On the other hand, the ld. Sr. Departmental Representative 7. placed reliance on the orders of lower authorities.
We heard the rival submissions and perused the material on 8. record. While processing the return of income under the provisions of Section 143(1) of the Act, the Assessing Officer is expected to carry on adjustment in respect of items which are prima facie inadmissible. In the present case, though the assessee does not enjoy exemption u/s.12AA of the Act, he filed return in ITR 7, he offered to tax net income earned from running of school. The Assessing Officer treated gross receipts as taxable income and levied tax at maximum marginal rate of tax. The approach of the Assessing Officer is totally untenable as the word ‘’taxable income’’ does not mean gross income. The ITA No.567 /2019 :- 5 -:
Hon’ble Lahore High Court in the case of Nagin Chand Shiv Sahai vs. CIT, Punjab (1938) 6 ITR 534w (Lah) had held that the word ‘’income’’ is not used in the meaning of money received but is used in much wider sense and it connotes the assessable figure arrived at after accounting for all the legitimate deductions and exemption. This view was reiterated by Hon’ble Madhya Pradesh High Court in the case of Kaluram Ganeshram (HUF) vs. CIT, (1988) 172 ITR 154.
Therefore in the present case, when the Assessing Officer considered the gross receipts as income, he should also have considered the expenditure claimed to be incurred in connection with earning of gross receipts. In the event, he feels that it requires verification whether or not, the expenditure was incurred for earning gross receipts then the only option available to the Assessing Officer is to convert the case into scrutiny assessment. The Assessing Officer cannot ignore the information contained in other part of return of income which is against him. The taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner.
Although it is part of their duty to ensure that no tax which is legitimately due from the assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. It is impossible to subscribe to the view that unless those authorities exercise the power in a ITA No.567 /2019 :- 6 -: manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed to have exercised it in a proper and judicious manner. In any event the Assessing Officer should have acted fairly in disposing the petition filed u/s.154 of the Act, which he failed to do so and we highly deprecate the practice adopted by the Assessing Officer and the ld. CIT(A) had also not applied his mind and upheld the order of the Assessing Officer. We reverse the orders of the lower authorities and allow the appeal of the assessee.
In the result, the appeal filed by the assessee stands 9. allowed.
Order pronounced on 21st day of November, 2019, at Chennai.