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Facts
The assessee, a charitable trust running educational institutions, filed its return of income for AY 2018-19 declaring Nil income. The Assessing Officer (AO) made an addition of Rs. 71,77,551/-. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's order. The assessee appealed against this decision.
Held
The Tribunal noted that the assessee had maintained books of accounts and filed a revised audit report and computation showing total income as Nil. The repayment of loan of Rs. 50,98,166/- was supported by audited financials and bank statements. The Tribunal followed the decision of the Hon'ble High Court of Madras and set aside the impugned order.
Key Issues
Whether the repayment of loan can be considered as application of income for charitable purposes, and whether the revised computation and claim could be considered despite not filing a revised return.
Sections Cited
Section 11(1)(a), Section 11(2), Section 11(6), Section 12A, Section 143(1), Section 143(2), Section 143(3), Section 144B
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal instituted by the assessee is against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2018-19, vide order dated 17.01.2024.
:-2-: ITA. No:575/Chny/2023 2. The assessee has not pressed ground nos. 1 to 3 and the same is treated as dismissed.
Application of income u/s 11 was not properly considered A. The CIT(A) failed to appreciate that the Respondent has not correctly invoked Section 11 (6) of the Income Tax Act, 1961. B. The CIT(A) ought to have appreciated that for AY 2018-19 the appellant claimed entire repayment of loans (as mentioned in Heading 5) including unsecured loans as an application of income on the ground that it is accordance with law C.The Lower Authorities should consider this aspect also along with the allowability of depreciation for and from the Ay 2014-15. D. Alternatively, since the lower authorities have considered AY 2014-15 in the proceedings relating to AY 2018-19 the depreciation allowable in law is to be considered in all fairness E. The CIT(A) and AO erred in holding that the option under Explanation to Section 11(2) is applicable instead of Section 11(1)(a) because appellant has not filed Form 10 /Form 9A as the case may be. F. The lower authorities should have considered that the appellant is entitled to 15% of gross receipts as a deemed application as per Section 1 l(l)(a) of the Income Tax Act, 1961. G. The CIT(A) ought to have appreciated that the Amendment to Sec.11 (6) of the Finance Act [No.2] of 2014, by introduction of a proviso with effect from 1.4.2015 clearly shows that prior to that date depreciation could be claimed by charitable trusts, and the explanatory notes also confirms the same by stating that this amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years :-3-: ITA. No:575/Chny/2023 5. Issue on Repayment of Loan not duly considered A. The CIT(A) erred in holding that the claim of application of income by way of repayment of secured bank loan of Rs. 50,98,166/- as a new claim is not allowable. B. The CIT(A) ought to have appreciated that for AY 2018-19 the appellant claimed entire repayment of loans (Rs. 98,21,957/- which includes interest wrongly claimed amounting to Rs.6,81,180/- on secured loans paid to Axis Bank) including unsecured loans (Rs.37,79,505/-) and disallowing the same. C. The lower authorities erred in stating that the building was not shown in the Balance sheet for AY 2014-15. This sentence is factually incorrect. The Appellant has shown the same in the Balance-sheet. D. The CIT(A) for the first time erred in rejecting the claim of repayment of loan on the ground that it was not claimed as application of income for the AY 2014- 15, when he has no jurisdiction to do so. E. As stated earlier, the CIT(A) erred in questioning the claim of capital expenditure and depreciation for the AY 2014-15 as the same has no relevance to AY 2018- 19. The CIT(A) has no jurisdiction at all. Alternatively, CIT(A) could have directed Assessing Officer to allow depreciation as the asset was shown in the Balance- sheet. F.The Appellant submits. that the confirmation letter from unsecured creditors to tune in of Rs.37,79,505/- were obtained only in January 2024 and the same may be directed to be considered afresh 6. Denial of Principles of Natural Justice A. The CIT(A) erred in not giving due credence made to the submissions and evidences produced before NFAC/ National Faceless Appeal Centre and the same amounts to violation of Principles of Natural Justice.
The Appellant craves leave to file additional grounds of appeal at the time of hearing.
:-4-: ITA. No:575/Chny/2023 3. The brief facts of the case are that, the assessee is a trust engaged in running educational institutions namely – Jenneys Academy of Tourism and Hotel Management, Jenneys College of Education (B.Ed), Jenneys College Nursing, JenneysCollege of Physical Education. The assessee is a trust registered u/s. 12A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), filed its return of income for the assessment year 2018-19 on 29.09.2018, declaring total income as Rs.Nil as it applied its income over 85% for the charitable purpose declared in its objects. The case was selected for scrutiny under CASS for verification of ‘receipts of trust’. The return of income filed was also processed u/s. 143(1) of the Act by rejecting the claim of deduction u/s. 11 of the Act and made an addition of Rs.71,77,551/-. Further, statutory notices were issued to proceed with the scrutiny assessment u/s. 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer found that the assessee made a wrong claim of exemption under the head ‘amount deemed to have been applied’ during the previous year as per Clause (2) of Explanation to section 11 of the Act amounting to Rs.71,77,551/- in assessee’s return of income filed for the year. While processing the return of income u/s. :-5-: ITA. No:575/Chny/2023 143(1) of the Act on 31.01.2020, the said amount had been denied as option exercised under the said section as the same was wrongly claimed by the assessee. In response to query raised during the assessment proceedings the assessee had submitted before the Assessing Officer that it had inadvertently claimed exemption u/s. 11(1)(a) and 11(1)(2) of the Act and accordingly, had furnished a revised working. In the said revised working submitted during the assessment proceedings the assessee trust stated that it wrongly withdrawn the exemption claimed u/s. 11 of the Act in the return of income filed. However, the assessee made a new claim on account of repayment of loan made during the year as capital expenditure of Rs.98,21,957/-. After considering the submissions by the assessee along with the revised computation of income, the Assessing Officer passed an order u/s. 143(3) of the Act on 23.04.2021 by holding as under: “3.7. Further, it is an undisputed fact in the case of the assessee that the assessee had made wrong claim under the head "amount deemed to have been applied during the previous year as per clause (2) of Explanation to Section 11(1) amounting to Rs.71,77,551/- in its Return of Income for A.Y.2018-19. As discussed in above para, the assessee has even filed its audit report in Form No. 10B by showing the alleged claim of Rs.71,77,551/-. Now, during the course of assessment proceedings, the assessee filed a revised working by making a fresh claim of Rs.50,98,166/- on account of repayment of loan and accordingly, the assessee has claimed in its written submission that it has applied over 85% of income arising from property held :-6-: ITA. No:575/Chny/2023 under the trust. However, unless the assessee files a revised return making its claim, the claim made in the course of assessment proceedings by way of letter and revised computation of income cannot be entertained. Therefore, relying on the ratio laid down by the Hon'ble Supreme Court in M/s. Goetze India Pvt. Ltd. Vs. CIT reported in 284 ITR 323 (SC), it is held that any claim could be allowed only when the assessee files revised return. Therefore, fresh claim made by the assessee, cannot be allowed merely on the basis of revised working. 3.8. In view of the above discussion, wrong claim made by the assessee under the head "amount deemed to have been applied during the previous year as per clause(2) of Explanation to Section 11(1) of the I.T.Act,1961 amounting to Rs.71,77,551/- in its Return of Income for A.Y.2018-19 is denied / disallowed and accordingly total taxable income of the assessee is assessed at Rs.71,77,551/- as per Intimation u/s143(1) of the I.T. Act, 1961 dated 31.01.2020.
Subject to above remarks and discussion. the total income of the assessee trust is computed as under:- Total Income as per Intimation u/s 143(1)of the Act dated 31.01.2020 Rs.71,77,551/- Assessed Income Rs.71,77,551/- Assessed under section 143(3) r.w.s. 144B of the Income-tax Act, 1961.Tax is calculated accordingly. Credit for prepaid taxes is given after due verification. Interest is charged accordingly. Demand notice and challan are issued.”
Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the ld.CIT(A).
Before the ld.CIT(A), the assessee filed a revised computation of income, revised audit report by correcting the :-7-: ITA. No:575/Chny/2023 error in the return filed and also claimed the repayment of loan of Rs.98,21,957/- as application of income and in support of the same, the assessee filed audited receipts and payments account, income and expenditure account and balance sheet pertaining to the assessment year 2018-19. After considering all the submissions made by the assessee, the ld.CIT(A) passed an order dated 17/01/2024 and dismissed the appeal by holding as under: “4.4 I have perused the assessment order and the contention of the appellant as quoted above carefully. I do not find any merit in the appellant's contention when it claimed that the wrong claim of option under clause (2) of the Explanation to section 11(1) of the Act had been made by the appellant inadvertently in the return of income filed for the reason that such a patent mistake for claiming exemption of unspent income could not be made inadvertently as the same was a crucial factor for determining the total income of the appellant and that too when the taxability of the surplus income had arrived, the deliberate claim of exemption had been made exercising option under the said provisions of the Act. Secondly, it was not a case of deliberate omission I mistake in the return of income filed only as for exercising option under clause (2) of the Explanation to section 11(1) of the Act a separate Form No. 9A [see rule 17(1)] was required to be filed in accordance with Rule 17(1) of I.T. Rules, 1962. The appellant also had got its accounts audited in pursuance to section 12A(b) of the Act and accordingly admittedly had filed Form No.10B wherein also the same claim of wrong option had been made which resulted into under assessment of income in the return and computation of total income filed by the appellant to the extent of Rs.71,77,551/-. Therefore, the first claim of appellant there was a mistake not deliberate in nature for claiming exemption under clause (2) of Explanation to Section 11(1) of the Act was baseless and no case could be accepted. Secondly, the appellant till the show- cause notice issued by the AO during assessment proceedings along with notice u/s. 142(1) and questionnaire, had not filed fresh claim of application of income towards repayment of loan to bank :-8-: ITA. No:575/Chny/2023 of Rs.98,21,957/-. It was only when the AO made a specific query as to why the claim made for such option wrongly as added in the Intimation u/s. 143(1) of the Act should not be denied to the appellant and such addition made in the Intimation should not be confirmed that, the appellant made a submission before the AO that there was wrong claim of exemption in the return of income filed of Rs.71,77,551/- and the same was withdrawn. Had this glaring patently wrong claim had not been detected by the CPC Bangalore while processing the return u/s. 143(1)(a) of the Act and such addition had not been made in the Intimation u/s. 143(1), perhaps, the case would not have been selected for scrutiny and all these aspects of wrong claim by the appellant could not be detected and appellant also would not volunteer to file a revised working during assessment proceedings claiming the repayment of loan of Rs.98,21,957/- as application of income u/s. 11(1)(a) of the Act. Therefore, the contention of the appellant in the grounds that the Assessing Officer had erred in making addition of Rs.71,77,551/- and he should have considered its claim that there was deliberate mistake is unfounded, baseless and not tenable on the factual and legal matrix in the case of the appellant as discussed above. 4.5 As regards the appellant's fresh claim of allowing application of income u/s. 11(1)(a) of the Act of Rs.98,21,957/- on account of repayment of loan, I find that the appellant made such claim contending in the submission dated 08.02.2021 before the AO that it had constructed a building to develop infrastructure in the year ended 31.03.2014 to the tune of Rs.298 Lakhs and the same had not claimed as application of income of the trust (AY 2014-15). The appellant could not adduce any explanation as to why the said amount had not been claimed as capital expenditure and further application of income in the said year. Had there been such claim, there could also be a negative amount of surplus and therefore the same was not allowable to carry forward and set off as per the provisions of section 11(1)(a) of the Act wherein the appellant was required to apply only 85% of its receipts income for any particular year of assessment. No data and details regarding the income earned and the application sought for with documentary evidences had been furnished by the appellant before the AO during assessment proceedings and also before the appellate authority during appellate proceedings. Secondly, it is also not explicit from the contention of the appellant during appellate proceedings and also the submission made before the AO as to whether the assets so acquired had been shown in the balance sheet for the said AY 2014-15and on which depreciation had been claimed by the :-9-: ITA. No:575/Chny/2023 appellant. In case of claim of deprecation on the said assets holding the same as capital assets acquired, the appellant could not claim the said amount as application of income u/s. 11(1)(a) of the Act, despite the fact that the said assets had been acquired from the borrowed loans for which repayment had been claimed, as application of income in the fresh working submitted during assessment proceedings before the AO ofRs.98,21,957/- For this reason. also the claim of, the appellant for allowing the repayment of loan as application of income in this year u/s.11(1)(a) of the Act was not acceptable. Thirdly, the appellant had not adduced any details and documentary evidences regarding the loan availed from the bank as to whether the same was for incurring capital expenditure or for revenue expenditure and which were the terms and conditions for availing such loan either before the AO during assessment proceedings or before the undersigned during appellate proceedings. Therefore, on this score also the claim of the appellant was not acceptable. The appellant could not furnish any details and working as to how the amount borrowed from the banks of Rs. 298Lakhs had been used from AY 2014-15 till this assessment year and which was the component of the loan repaid pertained to interest and the principal amount and how such amount has been claimed in the accounts. In absence of all such details and documentary evidences, merely because a fresh claim had been made by furnishing only the working for allowing the amount of repayment of loan of Rs.98,21,957/- could not be allowed as application of income u/s. 11(1)(a) of the Act. Fourthly, in para 3.6 of the assessment order, the AO further had pointed out the discrepancy in the claim of the appellant of Rs.98,21,957/- towards repayment of loan as exemption / application of income inter-alia contending that vide letter dated 20.12.2020 the appellant had claimed the said amount as exemption, while in the revised working submitted by the appellant dated 08.02.2021, the appellant had claimed an amount of Rs. 50,98,166/- on account of principal amount of loan repaid. Therefore, there was no consistency of the claim of repayment of loan even by the appellant and therefore unless such discrepancy had been clarified, such claim at all could not be considered. Though there was assessment order in the possession of the appellant for which appeal had been filed, neither in the SOF and GOA nor in the submission made before the appellate authority, the said issued had been cleared by the appellant. Lastly, the appellant had contended in the ground that the CIT(A) could consider the fresh claim of the appellant when the AO had not considered the same by referring to the decision of the Hon'ble Supreme Court in the case of Goetez India Limited (Supra). In :-10-: ITA. No:575/Chny/2023 principle, I do agree with the contention of the appellant since the CITA) is also a quasi-judicial authority and is empowered to consider any additional claim, additional ground and additional evidence filed by, the appellant during the appellate proceedings. I have already considered the appellant's claim with factual and legal matrix in its case and thereafter rejected such claim of the appellant being not acceptable and tenable as per Law. 4.6 In view of above, I am of the considered opinion that the AO had rightly added the amount of Rs.71,77,551/- as appellant's income for this year under consideration and so also had rightly denied the appellant's fresh claim of application of income on account of repayment of loan of Rs.98,21,957/- for the detailed reasons as stated above. No interference in AO's order is called for. The additions so made of Rs.71,77,551/- is hereby confirmed. Ground Nos. 1 to 7 raised by the appellant are accordingly dismissed.” Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us.
The ld.AR of the assessee stated that the ld.CIT(A) has erred in confirming the AO’s order in making an addition of Rs.71,77,551/- due to error in claiming the deduction in return of income without filing the revised return, the claim of the assessee cannot be considered. The ld.AR argued that a clerical error of showing an amount of Rs.71,77,551/- instead of Rs.Nil, u/s. 11(1)(2) of the Act in the return of income along with Form 10B filed on 29.09.2018 for the assessment year 2018-19 was not deliberate or willful but occasioned by oversight or skip of the computer operator. In support of the above, the ld.AR :-11-: ITA. No:575/Chny/2023 furnished the audited financials along with the computation of total income, computed in accordance with the provisions of section 11 of the Act, with corresponding revised Form 10B showing that correct revenue’s and eligible deductions u/s. 11 of the Act to arrive at total income as Rs.Nil (paper book page no. 11 to 16). Further, the revised Form 10B was filed on 04.10.2019 by rectifying the above clerical error and filed before the Assessing Officer during the assessment proceedings has not been considered and rejected the claim of the assessee which is affirmed by the Ld.CIT(A) and hence prayed for allowing the exemption. The ld.AR pointed out that, the assessee has made a repayment of loan during the year to the extent of Rs.50,98,166/- and the same has not been allowed as application of income of the trust by the lower authorities and prayed for allowing the same as application of income. The ld.AR filed a comparison statement of outstanding loan liability which was Rs.84,93,904/- as on 31.03.2017 and reduced to Rs.33,95,730/- as on 31.03.2018 and drew our attention to the audited balance sheet in page no. 11 of the paper book and pointed out that the assessee has made a repayment of Rs.50,98,166/- during the assessment year 2018-19. Since, both the issues are not considered and rejected the claim of :-12-: ITA. No:575/Chny/2023 exemption by the lower authorities, the ld.AR prayed for the setting aside the impugned order and allow the claim of the assessee.
Per contra, the Ld.DR stated that the orders of the lower authorities are to be upheld since the assessee trust has erred in claiming the exemption in accordance with law.
We have heard the rival contentions and gone through the orders of the lower authorities. It is admitted fact that the assessee is a trust having registration U/s.12AA of the Act and eligible for claiming exemption U/s.11 of the Act. The assessee has filed the audit report Form 10B along with return of income for the A Y 2018-19 by filling the form wrongly U/s.11(1)(2)as Rs.71,77,551/- instead of Rs.Nil. However, according the Ld.AR, the assessee has revised the Audit report in Form 10B on 15/02/2020 with revised computation of Income based on the audited financials as on 31.03.2018 and shown the total income as Rs.Nil.
However, the revised claim has been made without filing the revised return, the same has been rejected by the AO by :-13-: ITA. No:575/Chny/2023 relying on the decision of the Hon’ble Supreme court in the case of Goetz India Pvt.Ltd Vs.CIT 284 ITR 323(SC) and confirmed by the ld.CIT(A).
We note that, the assessee has maintained books of accounts and which was audited by the statutory auditors for the A.Y.2018-19 and filed the return of income along with audit report in Form 10B on 28/09/2018, which is within the due date prescribed under the Act. However, the certain errors have been made in filling the form 10B and hence, filed a revised computation before the AO during the assessment proceedings as detailed below: Income Amount Fees Rs.4,42,41,650 Miscellaneous Income Rs. 27,46,556 FDR Interest Accrued Rs. 8,62,135 ------------------ Rs.4,78,50,341 ------------------ Application of Income Revenue Expenses as claimed Rs.3,71,67,284 Capital Assets acquired Rs. 4,05,720 ------------------ Rs.3,75,73,004 ------------------ Bank loan repaid out of current year income Axis Bank (Loan Principal Repayment) Rs. 50,98,166 ----------------- Rs.4,26,71,170 ------------------ Percentage of application = Rs.4,26,71,170 /Rs.4,78,50,341 X 100 = 89% :-14-: ITA. No:575/Chny/2023 10. Further we note that, the assessee has made a repayment of loan during the year to the extent of Rs.50,98,166/- and prayed for considering it as application of income in the computation of income. On perusal of comparative statement of outstanding loan liability of Rs.84,93,904/- as on 31.03.2017 which has been reduced to Rs.33,95,730/- as on 31.03.2018, shows that the assessee has made a repayment of Rs.50,98,166/- during the assessment year 2018-19 (Refer audited balance sheet in page no. 11 of the paper book). Thus, we note that the assessee’s claim is supported by the audited financials, revised audit report, revised computation and also the bank statements reflecting the repayment of loan of Rs.50,98,166/-. Further, there is no fresh claim of the assessee in revised computation and hence by respectfully following the decision of the Hon’ble High court of Judicature at Madras in M/s. Perlo Telecommunication and Electronic Components India P Ltd Vs. CIT, Chennai, we are setting aside the impugned order by allowing the appeal of the assessee and direct the AO to accept the revised computation of total income filed by the assessee and allow the exemption U/s.11 of the Act.
:-15-: ITA. No:575/Chny/2023 11. In the result the assessee’s appeal is allowed Order pronounced in the open court on 14th August, 2024 at Chennai.