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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Ms. Annapurna Gupta & Shri Siddhartha Nautiyal
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This assessee’s appeal for A.Y. 2011-12, arises from order of the National Faceless Appeal Centre (NFAC), Delhi dated 29-01-2023, in proceedings under section 250 of the Income Tax Act, 1961; in short “the Act”.
Page No 2 Shree Mangrol Vanik Dasha Shrimali Gnati Shapur Darwaja vs. ITO (Exemption)
The assessee has raised the following grounds of appeal:-
“1. That the learned A.O. has grievously erred in assessing the returned income of Rs. Nil at a taxable income of Rs. 6,47,480/- whilst processing the return u/s. 143(1). 2. That the adjustment so done by the learned A.O. is beyond the jurisdiction vested u/s. 143(1) of the Act. 3. That the appellant craves for leave to add, amend and/or modify the grounds of appeal.”
3. The brief facts of the case are that the assessee is a public charitable trust duly registered with the office of the Charity Commissioner, Junagadh in accordance with the provisions of the Bombay Public Trust Act, 1950. For the assessment year under consideration, the assessee filed return of income on 08-06-2012 declaring net taxable deficit of � 1,74,512/-. The assessee had filed return in ITR-5 as an Association of Persons (AOP) in absence of registration under section 12A of the Act and offered tax at normal rate as applicable to individual/non-specific trust. Thereafter, the assessee received information under section 143(1) dated 04-03-2014 vide which the assessee was sought to be taxed on gross income of � 6,47,480/-. In the said intimation, AO disallowed all the expenses of � 8,22,889/- incurred towards the objects of the Trust, without assigning any specific reason.
4. In the filed appeal by the assessee before Ld. CIT(Appeals), the assessee submitted that the adjustment made u/s 143(1) of the Act does not fall within the ambit of either section 143(1)(a)(i) or (ii), since disallowance Page No 3 Shree Mangrol Vanik Dasha Shrimali Gnati Shapur Darwaja vs. ITO (Exemption) of entire expenditure claimed by the assessee is not an arithmetical error and further, in order to invoke sub-clause (ii), such incorrect claim must be apparent from any information in the return of income. Even otherwise, it was submitted that disallowance of the entire expenditure of the assessee under section 143(1) and thereby assessing the income of the assessee at its gross income levels, is even otherwise clearly beyond the jurisdiction vested u/s 143(1) of the Act. However, Ld. CIT(Appeals) dismissed the appeal of the assessee, with the following observations:
“5.3.3 Coming to the facts of this case, in this case, the Appellant has submitted that "For the assessment year under consideration, the appellant has filed ITR-5 as an AOP in absence of registration u/s 12A of the Act and charged tax at normal rate as applicable to individual / non-specific trust. As is evident from the SOI that the appellant has not claimed any deduction u/s. 11 of the Act.”
In view of the above statement, the Appellant was bound to file Audit report in the prescribed Form 3CA and 3CD and not Form 10B. Since the same was not done, it appears that the Appellant has been hit by the Explanation (a)(ii) to Section 143(1)(a) of the Act and adjustment u/s. 143(1) of the Act has been made for the reason that the Audit report has not been submitted in the prescribed Forms 3CA and 3CD of the Income Tax Rules, 1962.
Furthermore, all the case laws cited by the Appellant pertain to assessment years prior to AY 09-10 when the Section 143(1)(a) was substantially amended w.e.f. 1-4-2008. Therefore, they are not directly applicable to the facts of the case.
5.3.4 Thus the A.O. is correct in making the said adjustment under section 143(1)(a) which is apparent from the absence of the tax audit report in the prescribed format. In view of the above discussion, I Page No 4 Shree Mangrol Vanik Dasha Shrimali Gnati Shapur Darwaja vs. ITO (Exemption) find that the adjustment made under section 143(1)(a) of the Income Tax Act is sustainable. Hence, no relief can be given to the appellant in respect of the above adjustment made under section 143(1) of the Income Tax Act.
5.3.5 Thus the Appeal fails on merits with respect to Ground 1 and 2 and hence Dismissed.
6. Ground No. 3 is general in nature and no such occasion arose during the course of appellate proceedings. Hence it is infructuous and therefore dismissed.
7. In the result, the Appeal is Dismissed for statistical purposes.”
The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals). Before us, the counsel for the assessee submitted that in the 143(1) adjustments made by the AO, he disallowed all the expenses claimed by the assessee without assigning any reasons whatsoever, which is clearly beyond the scope of adjustments contemplated under section 143(1) of the Act. In response, the Ld. DR placed reliance on the observations made by Ld. CIT(Appeals) and submitted that in the instant facts, the assessee had made an apparently incorrect claim and therefore such disallowance was within the scope of section 143(1) adjustments, by treating the assessee as an AOP and thereby disallowing the entire claim of expenses.
We have heard the rival contentions and perused the material on record. On going to the facts of the case and the arguments put before us, we are of the considered view that unless the inadmissibility of deduction was evident and obvious from the return of income and annexures filed thereto by the assessee along with the return of income, the assessing officer cannot Page No 5 Shree Mangrol Vanik Dasha Shrimali Gnati Shapur Darwaja vs. ITO (Exemption) proceed to disallow the entire claim of expenditure by way of adjustments in an intimation under section 143(1) of the Act. In the instant facts, the assessee had filed ITR-5 as an AOP in absence of registration under section 12A of the Act and offered tax at normal rate as applicable to individual/non-specific trust. The assessee did not claim any deduction under section 11 of the Act. Therefore, if the AO wanted to disallow all the expenses claimed by the assessee, then the proper procedure was to issue notice under section 143(2) of the Act, and after giving due opportunity of hearing to the assessee, the claim of expenditure could be disallowed in accordance with law. However, the AO proceeded to disallow the entire claim of expenditure incurred by the assessee, by taking recourse to adjustments under section 143(1) of the Act. Even otherwise, we see that the adjustments in question are not on account of any apparent error from the face of the return since income cannot be taxed on gross income basis and the question of allowance/disallowance of an expenditure can only be considered under section 143(2) of the Act. The disallowance of entire claim of expenditure, when the assessee has not claimed benefit under section 11 of the Act, is in our view a debatable proposition, and such disallowance cannot be made by way of adjustment section 143(1) of the Act. In the case of Shri Vaishnav Polytechnic College 122 taxmann.com 287 (Indore - Trib.), the ITAT held that where income of assessee charitable educational institution was brought to tax as 'income from other sources' for reason that assessee was not registered as charitable trust under section 12AA, all incidental expenditures laid out by assessee wholly or exclusively for purpose of making or earning such income were also to be allowed under section 57(iii) of the Act. Therefore, looking into the facts of the instant Page No 6 Shree Mangrol Vanik Dasha Shrimali Gnati Shapur Darwaja vs. ITO (Exemption) case, we are of the considered view that the disallowance of the entire claim of expenditure is clearly beyond the scope of adjustments made by way of intimation under section 143(1) of the Act. In the result, the order passed by Ld. CIT(Appeals) is directed to be set aside and the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 16-06-2023