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Facts
The assessee, a registered charitable society running an educational institution, filed its return for AY 2019-20 declaring NIL income. The CPC processed the return under section 143(1) and disallowed revenue expenditure of Rs. 5,10,46,521/-, leading to a tax demand of Rs. 2,13,54,603/-. Subsequent rectification petitions were also rejected.
Held
The CIT(A) held that the adjustment made under section 143(1) was beyond jurisdiction, deleted the disallowance, and quashed the demand. The Tribunal upheld the CIT(A)'s order, finding that the disallowance was not a mere arithmetical error but involved substantive examination of the assessee's claim, which is not permissible in summary proceedings.
Key Issues
Whether the disallowance of revenue expenditure made by CPC under section 143(1) for alleged inconsistency in schedules was beyond its jurisdiction.
Sections Cited
12A, 80G, 11, 143(1), 154, 143(1)(a)(ii), 11(5), 13
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & SHRI S.R. RAGHUNATHA
आदेश / O R D E R
PER MANU KUMAR GIRI, JUDICIAL MEMBER:
The captioned appeal filed by the Revenue is directed against order of the Ld. Commissioner of Income Tax (Appeal), ADDL/JCIT (A) Ranchi [‘CIT(A)’ in short] dated 26.06.2025 for Assessment Year 2019-20.
ITA No.2395/Chny/2025 :- 2 -: 2. Brief facts of the case are that the assessee is a registered charitable society, holding valid registration under section 12A and approval u/s.80G of the Income-tax Act, 1961. The assessee runs an educational institution at Kovilpatti. For A.Y. 2019-20, the assessee filed its return of income on 30.09.2019 declaring NIL income, having applied its income towards charitable purposes in accordance with section 11 of the Act. The return was processed by CPC under section 143(1), wherein the revenue expenditure amounting to Rs.5,10,46,521/- was disallowed on the alleged ground of inconsistency between Schedule TI and Schedule ER, resulting in a tax demand of Rs.2,13,54,603/-. Subsequent rectification petitions filed under section 154 were also rejected by CPC by reiterating the same adjustment.
On appeal, the Ld. CIT(A) held that the adjustment made under section 143(1) was beyond jurisdiction, deleted the disallowance and quashed the consequential demand.
Aggrieved, the Revenue is in appeal before this Tribunal.
ITA No.2395/Chny/2025 :- 3 -: 5. The Revenue has raised multiple grounds, the crux of which is that the Ld. CIT(A) erred in holding that the adjustment under section 143(1)(a) was beyond jurisdiction. He further contended that the Ld. CIT(A) erred in holding that the issue involved interpretation and examination of section 11 and was a debatable issue. Ld.DR submitted that the Ld. CIT(A) erred in holding that CPC was not empowered to disallow the claim which allegedly arose due to internal inconsistency in schedules of the return. The Ld.DR submitted that the inconsistency in Schedule TI and Schedule ER was apparent from the return itself and constituted an incorrect claim, which CPC was empowered to adjust u/s.143(1)(a)(ii). It was argued that the assessee’s own error led to the adjustment and that the Ld. CIT(A) failed to appreciate this aspect.
The Ld. AR, on the other hand, supported the order of the Ld. CIT(A). It was submitted that the assessee is a registered charitable institution under section 12A and the application of income under section 11 cannot be examined or disallowed at ITA No.2395/Chny/2025 :- 4 -: the stage of section 143(1). Any alleged inconsistency required verification and examination, which is impermissible in summary processing.
We have carefully considered the rival submissions, perused the material on record, and examined the impugned order. It is an undisputed fact that the assessee holds valid registration under section 12A. Once such registration is in force, the income of the trust is eligible for exemption under section 11, subject to verification of application of income, which necessarily requires examination of facts. The scope of adjustment under section 143(1) is limited to prima facie and apparent errors. The Hon’ble Supreme Court in DCIT v. Zuari Estate Development and Investment Co. Ltd. (373 ITR 661) has clearly held that no debatable or interpretational issue can be adjudicated while processing a return under section 143(1). In the present case, the disallowance of the entire revenue expenditure on the ground of inconsistency between Schedule TI and Schedule ER is not a mere arithmetical or clerical error. It directly involves examination of the ITA No.2395/Chny/2025 :- 5 -: assessee’s claim of application of income u/s.11, which is a substantive issue requiring verification. The Hon’ble Supreme Court in CIT v. Rajasthan and Gujarati Charitable Foundation, Poona (402 ITR 441) has held that where a trust is registered under section 12A, expenditure incurred for charitable purposes has to be allowed unless specifically hit by sections 11(5) or 13. Such determination cannot be undertaken in summary proceedings. Further, the Hon’ble Delhi High Court in DIT (Exemptions) v. Mehta Charitable Prajnalay Trust (354 ITR 250) has categorically held that application of income u/s.11 must be verified during regular assessment and cannot be summarily disallowed by CPC.
We also note that even during rectification proceedings u/s.154, no verification or opportunity of proper examination was undertaken, and the disallowance was mechanically repeated, which reinforces the finding that the CPC acted beyond its jurisdiction. In view of the above judicial precedents and facts, we find no infirmity in the order of the Ld. CIT(A) in holding that the adjustment u/s.143(1) was not ITA No.2395/Chny/2025 :- 6 -: sustainable in law and CPC exceeded its jurisdiction and the disallowance of Rs.5,10,46,521/- and the consequential demand of Rs.2,13,54,603/- deserved to be deleted.
The order of the Ld. CIT(A) is upheld. All grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on 19th day of January, 2026 at Chennai.
Sd/- Sd/- (एस. आर. रघुनाथा) (मनु कुमार �ग�र) (S.R. Raghunatha) (Manu Kumar Giri) लेखा सद�य /Accountant Member �या�यक सद�य / Judicial Member चे�नई/Chennai, �दनांक/Dated: 19th January, 2026. RSR, Sr.PS