2024 (6) TMI 1421 - AT - Income Tax

Rectification of mistake - CPC Bangalore has taxed the entire excess income over expenditure instead of taxing the excess amount of 15% of the gross receipts as 15% is statutorily available to the assessee - mistake apparent from the record or not? - HELD THAT - From the perusal of the order passed u/s.154 of the Act i.e. the impugned order, we find that there was no claim with respect of the set off of excess claim made during the preceding years nor is borne out from the records. No such claim was made in the return of income filed by the assessee. Therefore, this claim being out of the purview of mistake apparent from record, should not be accepted. We find that CPC has made an error while taxing the residuary figure i.e. Rs.76,26,863/- being the excess of income over expenditure without allowing deduction of 15% as statutorily available with the assessee. Further, by Finance Act, 2023, Section 115BBI has been inserted to the statute which provides a special rate of tax at the rate of thirty percent on the aggregate of such specified income accumulated or set apart in excess of fifteen per cent of the income where such accumulation is not allowed under any specific provision of this Act. Thus the legislature is of the opinion that only the amount in excess of 15% which is not applied and otherwise not allowed to be exempted is only taxed. In view of this discussions, the application of the assessee for rectification for allowing deduction of the amount of 15% of the gross receipts out of total amount of income i.e. Rs.76,26,863/- is a mistake apparent from record and, therefore, we direct the AO to allow that deduction of 15% of the gross receipts and charge the tax on the shortfall of Rs.9,43,500/- only. Appeal of the assessee is partly allowed.

Summary

Issues:
- Appeal against order of ld. CIT(A) at National Faceless Appeal Centre for assessment year 2017-2018.
- Taxation of entire excess income over expenditure claimed exempt by the educational society.
- Set off of excess application in preceding years or restriction of taxable income to a specific amount.

Analysis:
The judgment involves an appeal by an educational society against the order of the ld. CIT(A) at the National Faceless Appeal Centre for the assessment year 2017-2018. The primary issue pertains to the taxation of the entire excess income over expenditure claimed exempt by the assessee. The assessee, an educational society, had filed its return of income declaring total income and claiming exemption u/s.12A of the Act. The CPC Bangalore processed the return and created a demand by not allowing the exemption available to the assessee. Subsequently, an application u/s.154 of the Act was filed for rectification of the order, which was rejected by the ld. AO. The appeal before the ld. CIT(A) was dismissed, leading to the current appeal before the ITAT.

During the hearing, the assessee contended that it had applied almost 85% of the receipts and requested a set off of excess application against preceding years or alternatively a restriction of taxable income to a specific amount. The Revenue, however, supported the lower authorities' orders, arguing that the remaining amount should be taxed at the maximum marginal rate. The ITAT considered the rival submissions and observed that the assessee had made two claims: set off of excess application from preceding years and taxation of only the shortfall in application of 85%. The ITAT found that while the set off claim was not supported by the records, there was an error in taxing the excess income over expenditure without allowing the statutory deduction of 15% available to the assessee.

The ITAT referred to Circular No.387 dated 6.7.1984, which clarified the taxation provisions for charitable trusts. Additionally, it noted the insertion of Section 115BBI by the Finance Act, 2023, providing a special tax rate on specified income accumulated in excess of fifteen percent. Based on these provisions, the ITAT held that only the amount in excess of 15% not applied or exempted should be taxed. Therefore, the ITAT directed the AO to allow the deduction of 15% of the gross receipts and tax only the shortfall amount. Consequently, the appeal of the assessee was partly allowed.

In conclusion, the ITAT's judgment addressed the taxation issue concerning the excess income over expenditure claimed exempt by the educational society, emphasizing the statutory provisions and circulars to determine the correct taxable amount in line with the legislative intent.