2023 (12) TMI 710 - AT - Income Tax

Assessment of trust - Rejecting the claim of the appellant society u/s 11 and 12 as claimed in the return of income - Rectification of income tax return rejected - AR was candid enough to accept that mistake did occur in the ITR filed by the assessee in as much as the entire gross receipt was shown under the head income from business or profession but it was an inadvertent mistake committed by the ex-CA of the assessee -None-the-less it is also a fact which cannot be denied by the Revenue that it was shown in the return that the said gross receipt was also the aggregate of income referred to in section 11 and 12 and that the entire said amount was applied to charitable purposes in India during the previous year. HELD THAT - Intimation under section 143(1) clearly reveals that the CPC ignored all other relevant information and proceeded to process the case by adopting the entire gross receipt as income of the assessee. We are of the view that even assuming that the case of the assessee falls u/s 143(1)(a)(ii) which is the view of the Ld. CIT(A), the provision of the First proviso to section 143(1)(a) has altogether been ignored by the CPC/AO/CIT(A) which provides that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. It is not a matter of dispute that the assessee which is registered u/s 12AA of the Act has been enjoying the benefit of section 11 of the Act in preceding AYs 2011-12, 2012-13 and 2014-15 as also in succeeding AYs 2016-17, 2017-18 and 2018-19 which is obvious from the chart giving the status of scrutiny assessment under section 143(3) of the Act appearing at page 52 of the Paper Book. There is thus material on record indicative of the fact that the assessee is eligible for exemption of its income in the AY 2015-16 as well but its claim of exemption for the AY 2015-16 presently under consideration has not been examined by the Ld. AO/CIT(A). On the facts and in the circumstances of the assessee s case both the Ld. AR and the Ld. CIT-DR conceded that the matter be sent to the Ld. AO to verify the assessee s claim of exemption under section 11 and 12 based on its past history and the material on records and to decide the matter afresh. We, therefore, restore the matter back to the file of the Ld. AO for verification of the assessee s claim of exemption under section 11 and disposal afresh in accordance with law after allowing reasonable opportunity to the assessee to explain its case. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues involved:
The judgment involves issues related to the rejection of application for rectification of income tax return, denial of claim under section 11 and 12, treatment of gross receipts as income, disallowance of expenditure, and the correctness of the directions given by the CIT(A).

Rectification of Income Tax Return:
The assessee filed an application for rectification under section 154 of the Act, stating that the previous Chartered Accountant erroneously filed receipts under the wrong head. The AO rejected the rectification application, leading to an appeal before the CIT(A) who partially allowed the grounds taken by the assessee. The Tribunal acknowledged the inadvertent mistake and directed the AO to examine the case and grant appropriate relief as per law.

Claim under Section 11 and 12:
The assessee, a registered society under section 12AA of the Act, had claimed exemption under sections 11 and 12 for the Assessment Year 2015-16. However, the claim was denied by the authorities without proper examination. The Tribunal, considering the past history of the assessee's eligibility for exemption, set aside the orders of the AO and CIT(A) and directed a fresh examination of the exemption claim.

Treatment of Gross Receipts as Income:
The gross receipts of the assessee, including government aid and grants, were treated as income of the society by the authorities. The Tribunal noted that while the gross receipt was mistakenly shown under 'income from business or profession,' it was also declared as income under sections 11 and 12, applied to charitable purposes. The Tribunal highlighted the procedural lapses in the processing of the case and ordered a re-verification of the exemption claim.

Disallowance of Expenditure:
The entire expenditure, including capital expenditure, incurred by the society in pursuit of its charitable objects, was disallowed by the authorities. The Tribunal, after considering the facts and circumstances, directed the AO to verify the assessee's claim of exemption under sections 11 and 12 and decide the matter afresh, allowing a reasonable opportunity for explanation.

Correctness of Directions by CIT(A):
The grounds raised by the Revenue questioned the correctness of the directions given by the CIT(A) in allowing revenue expenditure and setting aside the order for further examination. The Tribunal, in the interest of natural justice, set aside the impugned orders and remanded the matter back to the AO for verification of the exemption claim under section 11 and 12, ultimately allowing the appeal of the assessee for statistical purposes and dismissing the appeal of the Revenue as infructuous.