VAGDEVI EDUCATIONAL SOCIETY,KODAD vs. INCOME TAX OFFICER, WARD-1, SURYAPET

Aggrieved by the order of the Ld.CIT(A), the assessee is now in appeal before the Tribunal.

The learned counsel for the assessee, Shri G.V.N.Hari, Advocate, submitted that the Ld.CIT(A) erred in dismissing the appeal filed by the assessee against the order passed by the A.O. u/s 154 of the Act, without appreciating the fact that the order passed by the A.O. u/s 143(1)(a) of the Act, without considering relevant material on record suffers from mistake, which is glaring, patent and discernible from the face of the assessment order and thus, the A.O. ought to have rectified the mistake u/s 154 of the Act. The learned counsel for the assessee further submitted that the assessee is a society, running educational institutions is not registered u/s 12A of the Act for the year under consideration. Although the assessee is not entitled for claiming exemption u/s 11 of the Act, but, by oversight, the appellant has filed ITR Form No.7 instead of ITR Form No.5 and the A.O.(CPC) on the basis of incorrect ITR Form filed by the assessee has rejected the exemption claimed u/s 11 and also not allowed deduction towards various expenditure, even though the said expenditure is part of return of income filed by the assessee. Therefore, he submitted that the order of the Ld.CIT(A) should be set aside and the A.O. may be directed to assess the income of the assessee on commercial principles and profit or loss if any from the financial statements furnished by the assessee should be assessed to tax. In this regard, he relied upon the decision of coordinate Bench in the case of Saroj Gopal Educational Society Vs. ITO (Exemption) in dated 21.08.2023.

Ms.Aditi Goyal, the Ld.Sr.AR for the Revenue, on the other hand, supporting the order of the Ld.CIT(A) submitted that there is no dispute with regard to the fact that once the exemption is denied u/s 11 of the Act, the income of any Trust or Institution should be assessed as AOP like any other entity, however, fact remains that the assessee has filed an incorrect Form ITR 7 as against ITR Form No.5 and the A.O., after considering the relevant Form filed by the assessee and also for not filing Form No.10B, has rejected the application of income or expenditure incurred by the assessee against income and determined the total income on the basis of gross receipt of the assessee. The Ld.CIT(A), after considering the relevant facts has rightly sustained the additions made by the A.O. Therefore, she submitted that the order of the Ld.CIT(A) should be upheld.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the appellant society, running educational institution has filed Form ITR 7 and claimed exemption u/s 11 of the Act, even though the appellant society does not possess valid registration u/s 12A of the Act. The A.O.(CPC) processed the return of income filed by the assessee and issued intimation u/s 143(1)(a) of the Act and assessed gross receipts as income of the assessee, without allowing deductions for various expenditure. The A.O. had also rejected the petition filed by the appellant society u/s 154 of the Act on the ground that the said application is not maintainable, because there was no prima facie mistake apparent on record in the order of the A.O.

We have given our thoughtful consideration to the reasons given by the A.O. to reject the petition filed by the assessee u/s 154 of the Act and upheld by the Ld.CIT(A), in light of various arguments of the counsel for the assessee and we do not ourselves subscribe to the reasons given by the Ld.CIT(A) for the simple reason that, the intimation issued by the ITO/CPC u/s 143(1)(a) of the Act, assessing the gross receipts of the assessee as its income, without allowing deductions for various expenditure claimed by the assessee, suffers from mistake apparent on record, which needs to be rectified u/s 154 of the Act. Because although the assessee has reported gross receipts and corresponding expenditure incurred for running the educational institution, which is available in the return of income filed by the assessee, the A.O. has conveniently rejected the exemption u/s 11 of the Act for not filing audit report in From No.10B and not getting registration u/s 12A of the Act has denied deduction towards various expenditure, even though it is the obligation of the A.O. to assess the income of the appellant society in line with commercial principles once the exemption claimed u/s 11 has been denied. Therefore, in our considered view, assessing the gross receipts of assessee society by the A.O. suffers from mistake, which is glaring, patent and apparent from the record and thus, the A.O. ought to have rectified the said mistake on petition filed by the assessee u/s 154 of the Act. The Ld.CIT(A), without considering the relevant facts simply upheld the order passed by the A.O.

Having said so, let us come back to the correct legal position. There is no dispute with regard to settled position of law that once, exemption claimed u/s 11 has been denied for any reason, including non-registration of relevant society u/s 12A of the Act or non-filing of relevant audit report on or before the due date, then the law is very clear, in as much as the income of the said society or institution should be assessed in line with commercial principles and only profit or loss if any for relevant assessment year should be brought to tax. In the present case, the A.O, having denied the benefit of exemption u/s 11 of the Act has erred in not computing the income of the assessee on commercial principles, even though the financial statements filed by the assessee along with return of income filed in ITR Form No.7, clearly shows the gross receipts of the assessee and corresponding expenditure incurred for running educational institution. Although the assessee has reported various expenditure, the A.O. has not considered the relevant expenditure incurred by the assessee and assessed gross receipts for taxation, contrary to the settled position of law. Therefore, we are of the considered view that the A.O. has completely erred in assessing the gross receipts for taxation without allowing deductions towards various expenditure.

In view of this matter and considering the facts and circumstances of the case, we are of the considered view that the Ld.CIT(A) without considering relevant facts simply rejected the contention of the assessee and upheld the additions made by the A.O. Thus, we set aside the order of the Ld.CIT(A) and restore the issue back to the file of A.O. and direct the A.O. to assess the income of the assessee in line with commercial principles, after considering relevant books of accounts and financial statements filed by the assessee. The A.O. is directed to verify the expenditure claimed by the assessee and bring to tax only excess of income over expenditure or profit or loss earned by the assessee for the year under consideration.

In the result, appeal filed by the assessee is allowed for statistical purpose. to 1578/Hyd/2025, A.Y.2019-20 & 2020-21

The facts and issues involved in these appeals filed by the assessee are identical to the facts and issues, which we had considered in A.Y.2018-19. But for the figures, the issues are identical. The reasons given by us in preceding paragraph Nos. 9 to 11 shall mutatis mutandis apply to these appeals as well. Therefore, for similar reasons, we set aside the order of the Ld.CIT(A) and restore the issue back to the file of the A.O.. The A.O. is directed to assess the appellant society in the status of AOP and also in line with commercial principles, after allowing deduction towards various expenditure incurred by the assessee and bring to tax only excess of income over expenditure or profit or loss earned by the assessee for the years under consideration.

In the result, both the appeals filed by the assessee are allowed for statistical purpose.