2024 (2) TMI 839 - AT - Income Tax

Assessment of trust - Disallowance of revenue expenditure - AO disallowed 10% of the revenue expenditure as the assessee has failed to prove the genuineness of the expenditure - HELD THAT - We find merit in the submission made on behalf of the assessee trust that disallowance of revenue expenditure would only inflate the surplus income of the assessee trust. Since the surplus income does not exceed 15% of the total receipts of the assessee trust, the same has to be carried forward for subsequent application of this income for charitable purposes. Therefore, no addition is called for. The additional ground of appeal filed by the assessee stands allowed.

Summary

Issues involved:
The issues involved in the judgment are the denial of exemption u/s 11 of the Income Tax Act, 1961 by the Assessing Officer, disallowance of 10% of revenue expenditure, and the appeal filed by the assessee before the Tribunal challenging the order of the National Faceless Appeal Centre (NFAC).

Denial of Exemption u/s 11:
The assessee, a charitable trust registered u/s 12A of the Act, filed a return of income for A.Y. 2016-17 claiming exemption u/s 11. However, the Assessing Officer completed the assessment u/s 144, denying the exemption on the ground that the trust did not have registration under 12A/12AA of the Act. The NFAC allowed the exemption u/s 11 but confirmed the disallowance of 10% of the revenue expenditure as the genuineness was not proven. The Tribunal admitted an additional ground of appeal related to the quantum of ad-hoc disallowance of expenses and surplus income, ultimately allowing the appeal partially.

Disallowance of Revenue Expenditure:
The AO disallowed 10% of the revenue expenditure as the genuineness was not proven by the assessee. The NFAC upheld this disallowance. The Tribunal, after considering submissions from both sides, found merit in the argument that disallowance of revenue expenditure would only inflate the surplus income of the trust. Since the surplus income did not exceed 15% of the total receipts, it was to be carried forward for subsequent charitable purposes, leading to no addition being called for. The additional ground of appeal was allowed, and other grounds were dismissed as infructuous.

Conclusion:
The Tribunal partially allowed the appeal of the assessee, emphasizing that the disallowance of revenue expenditure would only impact the surplus income of the trust, which could be carried forward for charitable purposes as it did not exceed 15% of the total receipts. The judgment was pronounced on 15th February 2024.