Gondal Education Society Vs ITO Exemption (ITAT Rajkot)
Summary: The Gondal Education Society, a public charitable trust registered under Section 12AA and engaged in education, filed its return for AY 2017-18 on 16.08.2017 declaring nil taxable income. It disclosed gross total income of Rs. 80,44,713/- and claimed application of income of Rs.82,35,575/- under section 11(1). On processing the return, the CPC rejected the claim towards application of income and treated Rs. 80,44,713/- as taxable. The Commissioner of Income Tax (Appeals) dismissed the society’s appeal.
Before the Tribunal, the society attributed the denial to an inadvertent error in selecting the return column. It said that its return-preparation software had not been suitably updated for changes to ITR-7 from AY 2017-18, causing income to be reported under “Income from Other Sources” instead of Schedule “AI”, while the application of income appeared in the relevant schedules. It also pointed to its application dated 28.03.2024 before the Principal Chief Commissioner of Income Tax (Exemption), seeking condonation of delay under section 119(2)(b) to file a revised return. That application remained pending. The Department supported the orders below and argued that relief could not be granted while the condonation application was undecided.
The Tribunal held that the claim warranted examination on its merits in light of the return, audited financial statements and other supporting material. It did not decide the pending condonation application or determine whether the Section 11 claim was allowable. Setting aside the appellate order, it restored the issue to the Jurisdictional Assessing Officer to verify the accounts, expenditure and supporting documents in accordance with law. The Assessing Officer must consider the outcome of the condonation application and, if a revised return is permitted, consider that return and its claim in accordance with law. The society must provide the necessary documents and explanations, and the Assessing Officer must give it a reasonable opportunity of being heard. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2017-18, is directed against the order under section 250 of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] passed by the Commissioner of Income Tax(Appeals) [hereinafter referred to as ‘Ld. CIT(A)’], dated 26.02.2024, which in turn arises out of an order passed by assessing officer u/s. 143(1) of the Act, dated 26.03.2019.
02. Brief facts of the case are that the assessee, a public charitable trust registered under section 12AA of the Income-tax Act, 1961, is engaged in the field of education. For the assessment year 2017-18, the assessee filed its return of income on 16.08.2017 declaring nil taxable income. In the return, the assessee disclosed gross total income of Rs. 80,44,713/- and claimed application of income of Rs.82,35,575/- under section 11(1) of the Act. The return was processed by the Centralised Processing Centre (CPC), wherein the claim of the assessee towards application of income towards expenses was not accepted and the gross total income of Rs. 80,44,713/- was treated as taxable income.
03. Aggrieved by the intimation/order passed by the CPC, the assessee preferred an appeal before the Ld. CIT(A), who dismissed the appeal and sustained the action of the CPC. Hence, the assessee is in appeal before the Tribunal.
04. At the time of hearing, the Ld. AR submitted that the order passed by the Ld.CIT(A) was not sustainable in law and on facts. He submitted that the claim of the assessee was denied by the CPC on account of an inadvertent clerical error committed while filing the return of income, particularly in selecting the appropriate column for claiming the application of income. It was submitted that there was no dispute regarding the actual expenditure/application of income incurred by the assessee.
05. The Ld. AR further submitted that the assessee had filed an application dated 28.03.2024 before the Ld. Pr.CCIT (Exemption) seeking condonation of delay for filing a revised return under section 139(5) of the Act so as to rectify the inadvertent mistake. The said application was stated to be pending for adjudication. He submitted that, in the preceding and succeeding assessment years, similar claims made by the assessee had been accepted. It was accordingly prayed that the matter may be restored to the file of the Jurisdictional Assessing Officer for verification of the assessee’s claim.
06. The Ld. DR, on the other hand, supported the orders of the authorities below. He submitted that the application for condonation of delay in filing the revised return was still pending and, therefore, no relief could be granted to the assessee at this stage.
07. We have heard the rival submissions and perused the material available on record. We have also carefully considered the petition dated 28.03.2024 filed by the assessee before the Ld. Pr. CCIT (Exemption) under section 119(2)(b) of the Act seeking condonation of delay to enable it to file a revised return of income for the assessment year under consideration. From the material placed before us, it is evident that the assessee had originally filed its return of income on 16.08.2017 declaring nil taxable income. In the said return, the assessee disclosed gross income of Rs.80,44,713/- and claimed application of income of Rs.82,35,575/- under section 11 of the Act. The assessee has explained that the return was prepared through the software “Kitret” and that, owing to the software not having been suitably updated consequent upon the changes introduced in ITR-7 from assessment year 2017-18, the income was inadvertently reported under the head “Income from Other Sources” instead of the prescribed Schedule “AI” relating to “Aggregate Income”. According to the assessee, the expenditure/application of income was, however, duly reflected in the relevant schedules of the return. The return was subsequently processed by the CPC under section 143(1) of the Act on 26.03.2019. While processing the return, the CPC did not allow the claim towards application of income and treated the gross income of Rs.80,44,713/- as taxable income, resulting in the demand as stated in the petition. Thus, the dispute essentially arose on account of the manner in which the income and application thereof were reflected in the return. It is further evident that, much thereafter, the assessee filed an application dated 28.03.2024 before the Ld. Pr. CCIT (Exemption) under section 119(2)(b) of the Act seeking condonation of delay for filing a revised return so as to rectify the aforesaid inadvertent error. The said application, as submitted before us, is pending adjudication. We find considerable force in the contention of the Ld. AR that the issue requires examination on merits, particularly when the assessee has placed on record the relevant return, audited financial statements and other supporting material evidencing the income and expenditure/application claimed by it. The petition filed under section 119(2)(b) of the Act also specifically explains the circumstances in which the mistake occurred and seeks an opportunity to rectify the same by filing a revised return. At the same time, we are conscious of the fact that the application seeking condonation of delay is pending before the competent authority and that the tribunal, in the present proceedings, is not called upon to decide the said application. Further, the actual allowability of the assessee’s claim under section 11 of the Act requires verification by the Jurisdictional Assessing Officer with reference to the accounts, supporting documents and the applicable statutory provisions. In these circumstances, and in the interest of substantial justice, we are of the considered view that the assessee should be afforded an opportunity to have its claim examined on merits rather than allowing the claim to fail merely on account of an inadvertent error in the manner of reporting the income. Therefore, in order to examine the issue is restored to the file of the Jurisdictional Assessing Officer. Accordingly, the impugned order of the Ld. CIT(A) is set aside to Jurisdictional Assessing Officer for fresh examination. The Assessing Officer shall examine the assessee’s claim of application of income under section 11 of the Act in accordance with law, after verifying the books of account, audited financial statements, details of expenditure/application and other supporting documents furnished by the assessee. The Assessing Officer shall also take into consideration the outcome of the application dated 28.03.2024 filed by the assessee before the Ld. Pr. CCIT (Exemption) under section 119(2)(b) of the Act. If the competent authority condones the delay and permits the assessee to file a revised return, the Assessing Officer shall consider such revised return and the claim made therein allow in accordance with law. Needless to say, the assessee shall furnish all necessary documents and explanations before the Jurisdictional Assessing Officer and shall cooperate in the proceedings. The Jurisdictional Assessing Officer shall provide reasonable opportunity of being heard to the assessee before passing the consequential order. Accordingly, the appeal of the assessee is allowed for statistical purposes.
08. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on this 8th day of September, 2026.
