2024 (6) TMI 1363 - AT - Income Tax

Rejection exemption u/s 11 - as the assessee has not filed the registration certificate u/s 12A of the Act and observing that assessee is not a registered Trust - HELD THAT - Even though the assessee has claimed exemption u/s 11 without proper documentation and it is admitted fact that assessee is not registered u/s 12A of the Act, therefore, the claim of the assessee in its return of income u/s 11 are rejected by the tax authorities. As per the records submitted before us, the assessee is a non profit-no loss company registered under the Companies Act, 1913. This institution is in existence since then and no records were filed before us relating to previous method of accounting and claim made by the assessee. However, as per the fact available on record, as observed that the AO has rejected the claim made by the assessee in return of income claiming exemption u/s 11 of the Act and proceeded to make the addition only the gross receipts earned by the assessee as their income, however, as per law the gain/profit earned by the assessee alone should be brought to tax and not the gross receipts. Thus we are inclined to remit this issue back to the file of Jurisdictional Assessing Officer to re-do the assessment denovo after giving proper opportunity of being heard. We direct the AO to bring on to tax only net profit/margin earned by the assessee from the operation and not the gross receipts. Even, the Assessing Officer may consider the concept of mutuality in this case as per law considering the fact that it is non profit-no loss entity, serving its own members. Accordingly, ground No.3 raised by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Rejection of claim for exemption u/s 11 of the Income Tax Act due to lack of registration certificate u/s 12A.
2. Disallowance of exemption based on principle of mutuality.
3. Dispute regarding taxability of income and application of income.
4. Alleged errors in the assessment by the authorities.

Issue 1: Rejection of Claim for Exemption u/s 11:
The appellant filed an appeal against the order rejecting the claim of exemption u/s 11 due to the absence of a registration certificate u/s 12A. The Commissioner of Income Tax (Appeals) upheld the rejection, emphasizing the importance of proper documentation. The appellant argued for the benefit of mutuality but failed to provide necessary material like forms 10B/10BB. The ITAT observed that the appellant, a non-profit company, lacked registration under section 12A. Citing a similar case, the ITAT directed the Assessing Officer to tax only the net profit earned, not the gross receipts, and remitted the issue back for reassessment.

Issue 2: Disallowance of Exemption Based on Mutuality:
The appellant contested the disallowance of exemption based on the principle of mutuality. The ITAT acknowledged the appellant's status as a non-profit entity but emphasized the need for proper registration under the Income Tax Act. Referring to a precedent, the ITAT directed the Assessing Officer to assess only the net income and expenditure related to income generation, not the gross receipts. The ITAT allowed the appellant's appeal on this ground for statistical purposes.

Issue 3: Dispute Regarding Taxability and Application of Income:
The dispute revolved around the taxability of income and application of income. The appellant argued that only the net income should be taxed, not the gross receipts. The ITAT agreed and directed the Assessing Officer to re-assess the income, considering the concept of mutuality and the appellant's non-profit status. The ITAT emphasized the need for proper documentation and registration under the relevant sections of the Income Tax Act.

Issue 4: Alleged Errors in Assessment:
The appellant raised multiple grounds alleging errors in the assessment by the authorities. However, during the hearing, the appellant chose to press only one ground, related to the determination of taxable income. The ITAT directed the Assessing Officer to re-do the assessment denovo, focusing on the net profit earned by the appellant and considering the principle of mutuality. Other grounds raised by the appellant were dismissed as not pressed.

In conclusion, the ITAT partially allowed the appeal, remitting the issue back to the Assessing Officer for reassessment in line with the principles of taxing net profit and considering the appellant's non-profit status and the concept of mutuality. The judgment emphasized the importance of proper registration and documentation under the Income Tax Act.