2021 (9) TMI 241 - AT - Income Tax

Rectification u/s 154 - Exemption u/s 11 - accumulation of income for charitable purpose - mistake apparent from the record - whether accumulation at 15% has to be computed on the gross receipts in terms of section 11(1)(a) of the Act and not on the net receipts as computed by the AO? - Whether Computer Processing Centre (CPC) was not competent to make the adjustment under section 143(1) ? - debatable issue - HELD THAT - We find no basis for the AO to have made the impugned adjustment under section 143(1) of the Act. The law is well settled that the accumulation of 15% under section 11(1)(a) of the Act has to be computed on the income (gross receipts) before application i.e., on the gross receipts and not on the amount remaining after expenditure for charitable purpose (net income). Case followed PROGRAMME FOR COMMUNITY ORGANISATION 2000 (11) TMI 4 - SUPREME COURT In the CBDT s Circular No.68 dated 17.11.1971 supports the plea of the assessee that an interpretation of law by the Supreme Court if not followed in an assessment could constitute a mistake apparent from the record and therefore rectifiable under section 154 of the Act. In this background of facts, we are of the view that there was a mistake apparent on the face of the record which ought to have been rectified under section 154. It is clear from the order passed under section 154 of the Act that the AO has computed accumulation of 15% on the net revenue after reducing all the expenditures in the form of application of income for charitable purpose. This approach of the AO was clearly contrary to the decision of the Hon ble Supreme Court cited by the learned Counsel of the assessee. In these circumstances, we are of the view that the mistake sought to be rectified by the assessee ought to have been rectified by the Revenue authorities - Decided in favour of assessee.

Summary

Issues:
Calculation of accumulation under section 11(1)(a) of the Income Tax Act for Assessment Year 2014-15.

Analysis:
The appellant, a trust providing education in Karnataka, filed an appeal against the CIT(A)'s order regarding the accumulation of income for charitable purposes for the relevant assessment year. The appellant claimed accumulation of 15% of gross receipts as permitted under section 11(1)(a) of the Income Tax Act. However, the AO allowed accumulation based on net income, leading to a discrepancy in the amount claimed versus allowed.

The AO issued an intimation under section 143(1) disallowing the claimed accumulation and computed it based on net income, contrary to the appellant's claim based on gross receipts. The appellant filed an application under section 154 pointing out the error, which was dismissed by the AO. Subsequently, the CIT(A) also dismissed the appeal, stating the mistake was not apparent on the face of the record.

The appellant contended that accumulation under section 11(1)(a) should be computed on gross receipts before application, citing relevant Supreme Court decisions and CBDT circulars. The Tribunal agreed with the appellant, noting that the accumulation should indeed be based on gross receipts, as supported by the financial statements and Form 10B filed by the appellant. The Tribunal found a clear mistake in the AO's approach and directed the AO to allow accumulation as claimed by the appellant under section 154 of the Act.

In conclusion, the Tribunal allowed the appeal by the appellant, emphasizing the correct computation of accumulation under section 11(1)(a) based on gross receipts before application for charitable purposes. The decision highlighted the importance of adhering to legal provisions and relevant judicial interpretations in determining tax liabilities, rectifying errors that are apparent on the face of the record.