St. Judes Church Vs ITO (Exemptions) (ITAT Bangalore)
Charitable Trust Had Already Excluded TDS and Cash Payment Defaults: CPC Could Not Disallow Them Again
Bangalore ITAT deletes ₹15.99 lakh adjustment made while processing St. Judes Church’s return
When a charitable trust computes the application of its income, certain payments may have to be excluded because tax was not deducted at source or because they were made in cash beyond the prescribed limit. If the trust has already excluded those amounts from its application claim, can the Central Processing Centre add them again while processing the return? The Bangalore ITAT answered this question in St. Judes Church v. ITO (Exemptions), ITA No. 1830/Bang/2026, order dated 21 September 2026, for AY 2024–25.
The trust had excluded ₹10,80,887 relating to non-deduction of TDS and ₹5,18,678 relating to cash payments while arriving at its eligible application of income. The CPC nevertheless made adjustments for the same two amounts under sections 40(a)(ia) and 40A(3) in its section 143(1) intimation, computing taxable income at ₹15,99,570. The Tribunal held that this amounted to a double disallowance and deleted the adjustments.
How the trust computed its income
St. Judes Church was a public charitable trust registered under section 12A. For AY 2024–25, it filed its return on 23 September 2024, declaring nil taxable income. The order records gross income of ₹1,10,81,190, application of income of ₹94,19,421, and an amount of ₹16,60,769 accumulated or set apart within the permitted 15% under section 11(1).
The trust’s central point was that the application figure of ₹94,19,421 was a net eligible figure. In arriving at it, the trust had already taken account of the two disputed amounts. It had not sought exemption by treating the payments of ₹10,80,887 and ₹5,18,678 as qualifying application and then asked for those same amounts to be overlooked.
Despite this, the CPC’s intimation dated 15 December 2025 computed income of ₹15,99,570 by making a further adjustment of ₹10,80,887 under section 40(a)(ia) and ₹5,18,678 under section 40A(3). The Additional/Joint CIT(A) dismissed the trust’s appeal. Before the Tribunal, the trust argued that the processing adjustment had counted the same exclusion twice.
The Form 10BB and intimation were decisive
The Tribunal examined Form 10BB placed in the paper book. It found that the trust had computed its net application of ₹94,19,421 after excluding the disputed payments. It then examined the section 143(1) intimation and observed that the CPC had not altered the net application figure claimed by the trust. Even while leaving that figure undisturbed, the CPC had separately disallowed the same two amounts.
That was the defect in the computation. Once the ineligible payments had been removed in arriving at qualifying application, making another adjustment for those payments produced a duplicate tax effect. The Tribunal accepted the trust’s explanation, set aside the appellate order and directed deletion of both CPC adjustments. The trust’s appeal was allowed.
The decision did not rest on a finding that the payments complied with the TDS or cash payment provisions. Rather, it rested on the computation already adopted by the trust: the payments had been excluded from its claim for application of income, and the CPC had then adjusted them a second time.
Author’s comment
This order addresses a practical problem in the processing of ITR-7 returns. A payment excluded from qualifying application reduces the exemption claimed by a charitable institution. Where that reduction is already reflected in Form 10BB and the return computation, the same payment cannot be used once more to create taxable income through a processing adjustment.
The important exercise is therefore a reconciliation of the gross expenditure, the amounts excluded, the net application reported in Form 10BB, and the figures accepted in the section 143(1) intimation. In this case, the Tribunal found that trail in the record. The ruling should be read as protection against double counting, rather than as permission to treat TDS defaults or restricted cash payments as eligible application.
There is a minor difference in the gross-income figures appearing in the order: its narration of the return refers to ₹1,10,81,190, while its discussion of Form 10BB refers to ₹1,10,18,986. That difference does not affect the Tribunal’s stated reason for deleting the two adjustments, but the underlying return and audit form should be checked if the gross figure is to be reproduced in a filing.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. The assessee has filed the present appeal against the impugned order dated 28/02/2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Additional/Joint Commissioner of Income Tax (Appeals), Agra, [“learned Addl./Joint CIT(A)”], for the assessment year 2024-25.
2. In this appeal, the assessee has raised the following grounds: –
1. The order passed by the learned Additional/Joint Commissioner of Income Tax (Appeals), Agra (“CIT(A)”), under section 250 of the Income Tax Act, 1961 (“the Act”), insofar as it is against the Appellant, is opposed to law, weight of evidence, natural justice and preponderance of probabilities on the facts and circumstances of the Appellant’s case.
2. The Appellant denies itself liable to be assessed at a total income of Rs. 15,99,570/- against the returned income of Nil on the facts and circumstances of the case.
3. The adjustments made vide intimation issued under section 143(1) of the Act is non est and bad in law on the facts and circumstances of the case.
4. The learned CIT(A) erred in law and on facts in upholding the disallowance of Rs. 10,80,887/- on account of non-deduction of TDS on payments made to certain persons under section 40(a)(ia) of the Act on the facts and circumstances of the case.
5. The learned CIT(A) erred in law and on facts in upholding the disallowance of Rs. 5,18,678/- as expenditure paid in cash under section 40A(3) of the Act on the facts and circumstances of the case.
6. The authorities below erred in law and on facts in not considering that the disallowance under section 40(a)(ia) and 40A(3) of the Act has the effect of reduction of application of income on the facts and circumstances of the case.
7. The authorities below failed to appreciate that disallowance under section 40(a)(ia) and 40A(3) of the Act cannot be treated as income of the Appellant on the facts and circumstances of the case.
8. The authorities below failed to appreciate the fact that the Appellant has disallowed the deductions under section 40(a)(ia) and 40A(3) of the Act while computing its application of income and consequently, no further disallowance under section 40(a)(ia) and 40A(3) of the Act were warranted on the facts and circumstances of the case.
3. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is a public charitable trust registered under section 12A of the Act. For the year under consideration, the assessee filed its return of income on 23/09/2024, declaring gross income of ₹ 1,10,81,190 and, after claiming exemption on account of application of income amounting to ₹ 94,19,421 and amount accumulated or set apart not exceeding 15% of the total income amounting to 16,60,769 as per section 11(1) of the Act, the total income was declared at ₹ Nil. The return filed by the assessee was processed vide intimation dated 15/12/2025 issued under section 143(1) of the Act, computing the total income of the assessee at ₹ 15,99,570, after making a disallowance of ₹ 10,80,887 under section 40(a)(ia) of the Act and ₹ 5,18,678 under section 40A(3) of the Act.
4. The learned Addl./Joint CIT(A), vide impugned order, dismissed the appeal filed by the assessee.
5. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the disallowance of ₹ 10,80,887 under section 40(a)(ia) of the Act and ₹ 5,18,678 under section 40A(3) of the Act were already made by the assessee in computing the net application of income amounting to ₹ 94,19,421. The learned AR submitted that the disallowance of ₹ 10,80,887 under section 40(a)(ia) of the Act and ₹ 5,18,678 under section 40A(3) of the Act again by the CPC while processing the return under section 143(1) of the Act has resulted in double disallowance. The learned AR submitted that a similar plea of the assessee was rejected by the learned Addl./Joint CIT(A) without considering the documents placed on record.
6. On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.
7. Having considered the submissions of both sides and perused the material available on record, we find that during the year under consideration, the assessee claimed to have applied income to an extent of ₹ 94,19,421. From the perusal of Form No. 10BB, which forms part of the paper book from pages 69-79, we find that the said net application of income was computed after disallowing an amount of ₹ 10,80,887 under section 40(a)(ia) of the Act and ₹ 5,18,678 under section 40A(3) of the Act from the gross income of ₹ 1,10,18,986. From the perusal of the intimation issued under section 143(1) of the Act, we find that no adjustment was made regarding the net application of income by the assessee towards its objects. However, despite agreeing with the same, the CPC disallowed ₹ 10,80,887 under section 40(a)(ia) of the Act and ₹ 5,18,678 under section 40A(3) of the Act, which we find to be a double disallowance, as the said disallowance was already made by the assessee while computing its net application of income for the year under consideration. Thus, we find merit in the submissions of the assessee. Accordingly, the disallowance of ₹ 10,80,887 under section 40(a)(ia) of the Act and ₹ 5,18,678 under section 40A(3) of the Act made by the CPC vide intimation issued under section 143(1) of the Act is deleted. As a result, the impugned order is set aside, and the grounds raised by the assessee are allowed.
8. In the result, the appeal by the assessee is allowed.
Order pronounced in the open court on 21-Sept-2026.
