2020 (6) TMI 296 - AT - Income Tax

Determination of income of trust - Ascertaining the taxable income of the assessee in absence of registration u/s.12A - Revenue taxing the entire amount of receipts without allowing claim of expenditure - assess only net income of the assessee and not the entire gross receipts - CIT(A) did not give the benefit of provisions of Section 11 - HELD THAT - In the case of Nirmal Agricultural Society vs ITO. 1998 (12) TMI 106 - ITAT HYDERABAD-B has held that even in absence of registration u/s.12A of the Act, the Assessing Officer could assess only net income of the assessee and not the entire gross receipts. Accordingly, we have no hesitation to hold that even in absence of registration u/s.12A AO could assess only net income of the assessee and not the entire receipts because in absence of registration u/s.12A assessee should be assessed in the capacity of AOP on the commercial principles, wherein, the total gross receipts cannot be treated as income of the assessee without allowing revenue expenditure incurred by the assessee during the relevant same period and thus, we are inclined to hold that the authorities below were not right in disallowing the claim of expenditure of the assessee. AO has framed assessment u/s.143(1) of the Act without verifying the quantum of expenditure claimed by the assessee and the CIT(A) has not verified the same during the relevant appellate proceedings. Therefore, we direct the Assessing Officer to verify the quantum of expenditure claimed by the assessee. If the AO finds that the expenditures have been incurred for the object of the society then the AO is directed to allow the same and decide the issue as per law. - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Calculation of income tax without considering expenses.

Analysis:
The appeal was filed by the assessee against the order passed by CIT(A)-1 for the assessment year 2014-2015. The assessee, a charitable trust, had filed a return of income electronically showing nil income, but the total income was determined at ?1,72,83,668 in the intimation under section 143(1) of the Act. The CIT(A) upheld this determination, leading to the appeal before the ITAT.

The main contention was that the assessing officer had calculated income tax on total receipts without considering expenses, which the assessee argued was not in accordance with tax law. The assessee, running an educational institute, claimed that the CPC had wrongly assessed only the total receipt as income without adjusting the expenditure incurred to earn that income. The assessee relied on a previous Tribunal order directing the AO to allow expenditure after due verification.

After considering the arguments, the ITAT found that the assessing officer had assessed the income based only on total receipts without considering expenditure. The CIT(A) observed that the trust was not registered under section 12A and did not satisfy the conditions for section 11 benefits. However, the ITAT held that the assessing officer should allow expenditure incurred by the assessee to ascertain the net income/surplus, even without registration under section 12A. The ITAT cited a previous case to support this stance.

The ITAT directed the assessing officer to verify the quantum of expenditure claimed by the assessee and allow it if found to be incurred for the society's object. The ITAT emphasized providing a reasonable opportunity for the assessee to be heard and cooperating for early case disposal. The sole ground of appeal by the assessee was allowed for statistical purposes, resulting in the appeal being allowed.

In conclusion, the ITAT's judgment highlighted the importance of considering expenses to determine net income, even in the absence of specific registrations under the Act. The assessing officer was directed to verify and allow the claimed expenditure, ensuring a fair assessment process.