2023 (12) TMI 24 - AT - Income Tax

Assessment of trust - Allowance of expenditure incurred for earning the income of the assessee - net income v/s gross income - taxation of gross receipts without allowing the revenue expenses incurred - assessee did not upload any order granting registration under section 12AA of the Act nor under section 10(23C) - HELD THAT - Assessee does not have registration under section 12AA nor under section 10(23C) of the Act. In the absence of the registration under the aforesaid sections, there cannot be any application of income. However, the gross receipts cannot be taxed in the hands of the assessee trust. The income earned by the assessee and expenditure relatable to the earning of such income is to be allowed as a deduction. The Bangalore Bench of the Tribunal in the case of H M V Educational Cultural and Social Trust Vs. ITO 2023 (3) TMI 1151 - ITAT BANGALORE restored the matter to the AO with a direction to assess only the net income and not the gross. Thus restore the matter to the AO. The AO is directed to examine the financials of the assessee and allow the expenditure which have been incurred for earning the income of the assessee. We make it clear that since in the absence of registration under section 12AA of the Act, there is no question of any application of income.

Summary

Issues:
The appeal involves the taxation of gross receipts without allowing revenue expenses, disposal of the appeal without considering all submissions, denial of liability to be charged interest under specific sections, and seeking refund of costs.

Taxation of Gross Receipts:
The assessee, a charitable trust, filed a return of income for the Assessment Year 2018-19 declaring Nil income. The CPC added a sum to the income, leading to a demand. The rectification filed by the assessee was rejected, and the entire receipts were taken as income and taxed.

Disposal of Appeal:
The assessee's appeal before the First Appellate Authority was dismissed for not providing registration under relevant sections of the Income Tax Act, despite uploading a reply and other documents in response to hearing notices.

Interest Charges Denial:
The appellant denies liability to be charged interest under sections 234-A, 234-B, and 234-C of the Act, emphasizing that only net income should be taxed, not gross receipts.

Judgment Details:
The Tribunal noted that the assessee lacked registration under specific sections, indicating no application of income. The gross receipts cannot be taxed, and only the net income along with related expenditure should be assessed. Referring to a previous case, the Tribunal directed the AO to examine the financials of the assessee and allow the expenditure incurred for earning income. The matter was restored to the AO for further assessment.

Conclusion:
The appeal filed by the assessee was partly allowed, with the Tribunal emphasizing the need to assess only net income and allow deductions for related expenditure. The judgment was pronounced in open court on the specified date.