Addition cannot be made merely for mistake in ITR filing

Chinna Ponnu Ammal Trust Vs DCIT (ITAT Chennai)

After perusal of Form No.10B as placed on record, it could be seen that the assessee has applied an amount of Rs.5,55,57,015/- for the purpose of charitable trust. However, as per Explanation-3 to Sec.11(1), the disallowance of Rs.48,69,504/- u/s 40(a)(ia) would not be considered as application of income. Thus, the amount which has been applied for charitable purposes would be differential of two i.e., Rs.5,06,87,511/-. The assessee has earned income of Rs.5,17,39,216 out of which an amount of Rs.5,06,87,511/- (as computed above) has been applied for charitable purpose. The balance i.e., Rs.10,51,705/- would be the income of the assessee since as per Form No.10B, the assessee has not set-apart any amount for application is subsequent years. This income is the same which has been computed by the assessee in its computation of income and paid taxes thereon. Therefore, correctly applying the provisions of law, the assessee’s income is to be computed as Rs.10,51,705/-. Merely because there is mistake in filing the corresponding columns in the return of income, the same would not result into enhancement of the assessee’s income. Therefore, we direct CPC to rectify the intimation and compute the income as Rs.10,51,705/-as offered by the assessee to tax.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

1. Aforesaid appeal by assessee for Assessment Year (AY) 2019-20 arises out of the order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) [in short ‘CIT(A)] dated 25.08.2021 in the matter of intimation issued u/s 143(1) issued by CPC, Bangalore on 04.06.2020.

2. The Ld. AR, drawing attention to the computation of income and income as computed by CPC, submitted that Explanation 3 to Sec.11(1) has not been applied correctly and demand has been raised erroneously. The Ld. Sr. DR submitted that the return has been processed by CPC as filed by the assessee which has already been noted by Ld. CIT(A) in the impugned order.

Having heard rival submissions and after due consideration of orders of lower authorities, our adjudication would be as given in succeeding paragraphs. The assessee trust is duly registered u/s 12AA of the Act and is eligible to claim deduction as applicable to a charitable trust.

3. From computation of income (page 37 of paper-book), it could be seen that the assessee trust earned income of Rs.517.39 Lacs and incurred expenditure of Rs.555.57 Lacs for the object of the trust. The excess application of income, thus was Rs.38.17 Lacs. However, the assessee disallowed an amount of Rs.48.69 Lacs u/s 40(a)(ia) and computed net income of Rs.10.51 Lacs which has been offered to tax and due taxes have been paid thereon. The CPC, vide communication dated 20.03.2020, proposed an adjustment of Rs.38.17 Lacs (Rs.48.69 Lacs – Rs.10.51 Lacs) since the additions were on account on non-compliance of the provisions of the Act and therefore, the exemption as applicable to Trust on this income would not be available to the assessee. Accordingly, an intimation was issued to the assessee on 04.06.2020 raising a demand of Rs.14.26 Lacs on total income of Rs.48.69 Lacs. This demand has been rectified to Rs.14.38 Lacs vide rectified intimation dated 14.08.2020.

4. The assessee has preferred appeal before Ld. CIT(A) wherein Ld. CIT(A) noted that the assessee itself filled Column 5(vi) amount disallowable u/s 11(1) r.w.s. 40(a)(ia) and then failed to disallow the same. The CPC merely corrected the mistake by disallowing the amount while calculating the total amount eligible for exemption u/s 11. The assessment has been finalized based on assessee’s own return of income and the accompanying documents. The assessee’s plea that Explanation-3 to Sec.11(1) has not been considered correctly is not supported by his own return and the deduction u/s 11 has been computed on the basis of particulars reported by the assessee in his return of income. Thus, the appeal was dismissed against which the assessee is in further appeal before us.

5. We find that assessee trust is registered u/s 12AA and eligible to claim exemption as applicable to a registered trust. As per the provisions of Sec.11(1)(a), the income derived by the trust from property held under trust for charitable or religious purposes would not be included in its total income to the extent to which such income has been applied for charitable purposes in India. This sub-section also provide that the income accumulated or set apart for the charitable purposes which is not in excess of 15% of income shall also not be included in its total income. The Explanation-3 to Sec.11(1) as inserted by Finance Act, 2018 w.e.f. 01.04.2019 provide as under: –

For the purposes of determining the amount of application under clause (a) or clause (b), the provisions of sub-clause (ia) of clause (a) of section 40 and subsections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.

In other words, to compute the application of income, the disallowance as mentioned in Sec.40(a)(ia) or Sec.40A(3) / (3A) shall be added back and not considered as application of income.

6. After perusal of Form No.10B as placed on record, it could be seen that the assessee has applied an amount of Rs.5,55,57,015/- for the purpose of charitable trust. However, as per Explanation-3 to Sec.11(1), the disallowance of Rs.48,69,504/- u/s 40(a)(ia) would not be considered as application of income. Thus, the amount which has been applied for charitable purposes would be differential of two i.e., Rs.5,06,87,511/-. The assessee has earned income of Rs.5,17,39,216 out of which an amount of Rs.5,06,87,511/- (as computed above) has been applied for charitable purpose. The balance i.e., Rs.10,51,705/- would be the income of the assessee since as per Form No.10B, the assessee has not set-apart any amount for application is subsequent years. This income is the same which has been computed by the assessee in its computation of income and paid taxes thereon. Therefore, correctly applying the provisions of law, the assessee’s income is to be computed as Rs.10,51,705/-. Merely because there is mistake in filing the corresponding columns in the return of income, the same would not result into enhancement of the assessee’s income. Therefore, we direct CPC to rectify the intimation and compute the income as Rs.10,51,705/-as offered by the assessee to tax. We order so.

7. The appeal stands allowed in terms of our above order.

Order pronounced on 01st April, 2022