2025 (1) TMI 370 - AT - Income Tax

Denial of Exemption u/s 11 and 12 - audit report in the instant case was not filed on or before the specified date referred to in section 44AB - CIT(A) confirming the appellant's income assessed by the AO instead of returned income of Nil as declared by appellant - HELD THAT - We find that the assessee is a public trust filed its return of income belatedly but within the time limit allowed u/s 139 of the IT act claiming exemption u/s 11/12 of the IT Act. Return was processed by CPC u/s 143(1) without allowing exemption claimed u/s 11/12 of the IT Act and whole of the receipt was determined as taxable income without allowing deduction of expenditure which was claimed in the return of income. We also find that no notice for proposed adjustments u/s 143(1)(a) was issued to the assessee by the Assessing Officer/CPC. Apparently the adjustments u/s 143(1)(a) was made without any prior notice to the assessee. We also find that Ld. Addl./JCIT(A), Thiruvanantpuram dismissed the appeal of the assessee by observing that audit report was not furnished before the specified date. We find some force in the arguments of assessee that Ld. Addl./JCIT(A), Thiruvanantpuram failed to take note of ground no.2 and alternative ground no.3 which were specifically raised in grounds of appeal in Form No.35 of first appeal memo and since each and every ground raised by the assessee has not been specifically dealt/decided/adjudicated by Ld. Addl./JCIT(A), Thiruvanantpuram, the order becomes bad in law. We deem it fit to set-aside the order passed by Ld. Addl./JCIT(A), Thiruvanantpuram and remand the matter back to him with direction to decide the appeal afresh deciding all the grounds raised in the appeal memo - Appeal filed by the assessee is allowed for statistical purposes.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are as follows:

Whether the confirmation of the appellant's income assessment by the CIT(A) instead of the declared "Nil" income was justified.
Whether the CIT(A) failed to appropriately address the contentions raised by the appellant, thereby not passing a speaking order.
Whether the order passed under section 143(1) of the Income Tax Act, 1961, without issuing a notice for proposed adjustment and without granting the appellant an opportunity to respond, violated the principles of natural justice.
Whether the Assessing Officer correctly computed the appellant's income without granting deductions for genuine expenses incurred for the trust's objectives.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Confirmation of Income Assessment

Relevant Legal Framework and Precedents: The assessment of income is governed by the Income Tax Act, 1961, particularly sections 11 and 12, which provide exemptions for charitable trusts.
Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) confirmed the assessment based on the absence of an audit report filed within the due date as prescribed under section 44AB.
Key Evidence and Findings: The appellant's return was filed belatedly but within the time allowed under section 139. The audit report was not filed by the specified date.
Application of Law to Facts: The Tribunal considered whether the late filing of the audit report justified the denial of exemptions under sections 11 and 12.
Treatment of Competing Arguments: The appellant argued that the CIT(A) erred in not considering all grounds of appeal, while the Revenue supported the CIT(A)'s decision.
Conclusions: The Tribunal found merit in the appellant's argument that not all grounds were adjudicated, necessitating a remand for fresh consideration.

Issue 2: Failure to Pass a Speaking Order

Relevant Legal Framework and Precedents: A speaking order is required to address all contentions raised by the appellant.
Court's Interpretation and Reasoning: The Tribunal observed that the CIT(A) did not adjudicate ground numbers 2 and 3 raised in the appeal memo.
Key Evidence and Findings: The Tribunal noted the absence of specific findings on these grounds.
Application of Law to Facts: The Tribunal determined that the lack of a speaking order rendered the CIT(A)'s decision incomplete.
Treatment of Competing Arguments: The appellant's counsel emphasized the omission, while the Revenue did not contest this procedural lapse.
Conclusions: The Tribunal concluded that the CIT(A)'s order was procedurally deficient and required remand for proper adjudication.

Issue 3: Violation of Natural Justice

Relevant Legal Framework and Precedents: Section 143(1)(a) mandates notice for proposed adjustments, allowing the taxpayer an opportunity to respond.
Court's Interpretation and Reasoning: The Tribunal found that no notice was issued before making adjustments, violating principles of natural justice.
Key Evidence and Findings: Adjustments were made without prior notice, impacting the appellant's ability to contest the assessment.
Application of Law to Facts: The Tribunal held that the lack of notice invalidated the adjustments under section 143(1).
Treatment of Competing Arguments: The appellant's argument of procedural unfairness was uncontested by the Revenue.
Conclusions: The Tribunal determined that the order under section 143(1) was flawed due to the absence of notice.

Issue 4: Deduction for Genuine Expenses

Relevant Legal Framework and Precedents: Income tax law permits deductions for expenses incurred for charitable purposes.
Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) failed to consider the appellant's claim for deductions.
Key Evidence and Findings: The appellant claimed expenses exceeding the assessed income, which were not considered.
Application of Law to Facts: The Tribunal noted the necessity of considering genuine expenses in computing taxable income.
Treatment of Competing Arguments: The appellant argued for deductions, while the Revenue's position was based on procedural grounds.
Conclusions: The Tribunal concluded that the matter required reevaluation to consider the appellant's expense claims.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Considering the totality of the facts of the case and without going into the merits of the case we deem it fit to set-aside the order passed by Ld. Addl./JCIT(A), Thiruvanantpuram and remand the matter back to him with direction to decide the appeal afresh deciding all the grounds raised in the appeal memo as per fact and law after providing reasonable opportunity of hearing to the assessee."
Core Principles Established: The necessity of a speaking order addressing all grounds; the requirement of notice for adjustments under section 143(1); and the consideration of genuine expenses in income assessment.
Final Determinations on Each Issue: The appeal was allowed for statistical purposes, with the matter remanded to the CIT(A) for fresh adjudication on all grounds, ensuring compliance with procedural and substantive legal requirements.

← Previous Next →