SANT SHANKAR MAHARAJ ASHRAM,AMRAVATI vs. DEPUTY COMMISSIONER OF INCOME TAX, CPC, BANGALORE

Briefly stated facts of the case are that; 2.1 the assessee is engaged in the activities of imparting agricultural and other social welfare education and discourses etc., As against the due of filing expired on 07/11/2017, the assessee filed its return of income [‘ITR’ hereinafter] on

During the course of virtual hearing, without touching the merits of the case the Ld. AR adverting to impugned order submitted that, the appellant was issued only two notices during COVID-Pandemic which couldn’t be attended hence the claim of the appellant remained to be proved effectively. It is also averred that, in case of denial of exemption u/s 11 & 12 of the Act the income to be taxed is the only residue income and not the gross receipts, both the tax authorities however have erred in taxing the gross receipt without permitting deductions against allowable expenditure incurred in earning/generating the income. Per contra Ld. DR candidly submitted that, the Ld. NFAC after discussing applicable provisions of the Act has relied on Hon’ble Delhi High Court decision in ‘DDIT Vs Petroleum Sports Promotion Board’ [2014, 363 ITR 235 Delhi] and co-ordinate bench in ‘Sanatan Dharma Mandir Sabha Vs ITO’ [ITA No. 6761/Del/2019 dt. 13/04/2022] in confirming the assessment.

We have heard rival contentions, perused the material placed on record in light of rule 18 of ITAT-Rules 1963. The first two grounds of appeal are not arising out of the impugned order, third ground of appeal merely alleges the action in general hence these grounds calls for no adjudication. Balance two grounds of appeal assailed against violation of principle of natural justice.

At the outset we observed that, the appellant instituted appeal before Ld. NFAC on 19/04/2019 and the impugned order was passed on 25/08/2022. During the appellate proceedings Ld. NFAC issued first notice in March, 2020 & final notice in July, 2020. Both these notices admittedly were issued during nationwide lockdown owning to COVID-19, which could not be complied by the assessee.

Insofar as merits of the case is concerned, the appellant could hardly dispute the denial of exemption. However, we find strong force in challenging the action of the tax authorities in taxing entire gross receipts without allowing therefrom deduction for allowable expenditure. Moreover, so when the Revenue relied on the judicial precedents wherein action of taxing gross receipts is overturned. It is settled law that, it is open to the income-tax authorities to deny the exemption u/s 11 & 12 of the Act in the absence of registration or for such other reasons etc., and if they do so, then the assessment has to be completed in accordance with the provisions of the Act. If the income is assessed under residual head of ‘Income from Other Sources’ then full play must be followed by allowing deduction u/s 57 of the Act with a wider connotation as laid in the decision of Hon’ble Supreme Court in ‘CIT Vs Rajendra Prasad Moody’ [1978, 115 ITR 519 SC].

In our considered view where benefit of exemption u/s 11 & 12 of the Act denied to the assessee the only resort available to the Revenue is to compute the taxable income in accordance with the provisions of law as applicable. That is to say in arriving at taxable income of the assessee trust, from the gross receipts deduction towards allowable expenditure are to be permitted. If such expenditures are not allowed, it may amount to taxing the gross receipts and not the net income, which is impermissible under the Income Tax Laws. This stands fortified in ‘DDIT Vs Petroleum Sports Promotion Board’ (supra). This ratio is also found followed by co-ordinate benches in ‘Annadaneshwara Charitable Trust Vs ITO’ [2023, 156 taxmann.com 270], ‘Nirmal Agricultural Society Vs ITO’ [1998, 17 CCH 0358] and ‘DCIT Vs Shri Vaishnav Polytechnic College’ [2020, 122 Taxmann.com 287] etc. In the event, respectfully following former judicial precedent, without commenting on merits of expenditure to be allowed from the gross receipts in arriving the taxable income of the appellant, we deem it proper to remit the matter to the file of Ld. NFAC to deal therewith in accordance with law and pass a speaking order in terms of section 250(6) of the Act, ergo ordered accordingly.

In result, the appeal of the assessee is allowed for statistical purposes. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Friday, 22nd day of March, 2024.