2019 (9) TMI 1713 - AT - Income Tax

Assessment of trust income - Exemption u/s 11 rejected - return was processed u/s 143(1) - admittedly registration was not available u/s 12AA - HELD THAT - Admittedly, registration u/s 12AA of the Act was not available to the assessee during the year under consideration. Therefore, income of the assessee has to be computed commercially by allowing all the expenditure for earning the income. In other words, the total expenditure incurred by the assessee for earning the income has to be reduced and whatever remains has to be brought for taxation. As rightly submitted by assessee, the corpus donation has also to be taken as income / receipt. Since such an exercise was not done, this Tribunal is of the considered opinion that the matter needs to be re-examined by the AO. Accordingly, orders of both the authorities below are set aside and the AO is directed to take the net income after reducing the expenditure and levy tax thereon. We are conscious that proceeding arises for considering is u/s 143(1) - This is prima facie adjustment, therefore, the AO while considering the matter, has to keep in mind the provisions of Section 143(1) of the Act which enables him to make prima facie adjustment. Both the appeals filed by the assessee are allowed for statistical purposes.

Summary

Issues:
Appeal against orders of Commissioner of Income Tax (Appeals) for assessment year 2013-14, delay in filing appeal, claim of exemption under Section 11 of the Income-tax Act, rejection of claim due to lack of registration, petition under Section 154, computation of income commercially, treatment of corpus donation, direction to Assessing Officer for re-examination, setting aside of lower authorities' orders, consideration under Section 143(1) of the Act.

Analysis:
The judgment deals with two appeals by the assessee against the Commissioner of Income Tax (Appeals) orders for the assessment year 2013-14. The delay of 24 days in filing one of the appeals was condoned after finding sufficient cause. The assessee claimed exemption under Section 11 of the Income-tax Act but faced rejection due to lack of registration. The counsel argued that without registration, income should be computed commercially by deducting expenditure. The matter was remitted back to the Assessing Officer for reconsideration.

The Tribunal acknowledged the absence of registration under Section 12AA of the Act for the assessee during the relevant year. Consequently, it directed the income to be computed commercially by allowing all expenditure incurred for earning income. The Tribunal agreed that corpus donation should be treated as income/receipt. As this exercise was not done previously, the Tribunal set aside the lower authorities' orders and instructed the Assessing Officer to determine the net income after reducing expenditure and levy tax accordingly. The Tribunal reminded the Assessing Officer to consider the provisions of Section 143(1) of the Act for prima facie adjustments.

In conclusion, both appeals were allowed for statistical purposes, emphasizing the need for the Assessing Officer to re-examine the matter by considering all relevant factors, including the commercial computation of income and treatment of corpus donation. The judgment was pronounced in Chennai on 5th September 2019.