Dr. Sukumar J. Magdum Foundation Vs ITO (ITAT Pune)
Summary: The Income Tax Appellate Tribunal, Pune Bench, considered the appeal of Dr. Sukumar J. Magdum Foundation against the denial of exemption under Section 11 of the Income-tax Act, 1961, for Assessment Year 2018-19. The assessee had filed its return declaring nil income, but the return was processed under Section 143(1) without allowing exemption because the audit report in Form No. 10B had not been furnished within the prescribed time. A subsequent rectification order dated 22 July 2021 recorded that neither the audit report nor an application for condonation of delay had been submitted. The Assessing Officer consequently determined taxable income at Rs.4,31,18,956 by treating gross receipts as income without allowing deductions for expenditure. The Commissioner (Appeals) upheld the denial of exemption, noting that Form No. 10B was signed on 27 August 2021 and uploaded on 5 March 2022, beyond the stipulated dates.
Before the Tribunal, the assessee did not seriously press the claim that exemption should nevertheless be allowed despite the delayed audit report. Instead, it raised an additional legal ground that its taxable income should be computed on commercial principles rather than by taxing its entire gross receipts. The Tribunal admitted this ground because it involved a question of law that did not require fresh factual examination. On examining the income and expenditure account, the Tribunal observed that gross receipts were approximately Rs.4.31 crore, while the accounts disclosed a surplus of Rs.2,87,153 and a transfer of Rs.9,54,000 to reserves or specific funds. The Assessing Officer’s computation of expenditure at approximately Rs.4.95 crore did not correctly reflect the expenditure side of the accounts.
The Tribunal held that income-tax is chargeable on income, not gross receipts. Even where exemption under Section 11 is unavailable, taxable income must be computed under the regular provisions of the Income-tax Act after considering admissible expenditure under Chapter IV-D. The denial of charitable exemption does not automatically permit the Revenue to tax all receipts without allowing eligible expenses. Accordingly, the Tribunal set aside the impugned order and restored the matter to the Assessing Officer for fresh computation of taxable income after examining the deductibility of expenses recorded in the income and expenditure account. The assessee was also directed to be given a reasonable opportunity of hearing. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee is directed against the order dt. 06-02-2023 passed by the CIT(A) in National Faceless Appeal Centre (NFAC) u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2018-19.
2. Briefly stated, the facts of the case are that the assessee e-filed its return declaring total income at Nil. The return was processed u/s.143(1) by observing that the assessee did not file audit report in Form No.10B, which was a condition precedent for claiming exemption u/s.11. Thereafter, a rectification order was passed on 22-07-2021, noting that Form No.10B was neither uploaded nor any application was filed for condonation of delay, and, as such, the benefit of exemption was rightly denied in the Intimation. In this order, the Assessing Officer (AO) observed that the Intimation u/s.143(1) determined the total income at Rs.4,31,18,956/- by not allowing deductions at Rs.4,95,86,799/-. The assessee appealed to the ld. CIT(A), claiming the benefit of exemption u/s.11, which was again jettisoned on the ground that the Audit report in Form No.10B was finally signed on 27-08-2021 and uploaded on 05-03-2022, which did not satisfy the conditions for exemptions u/s.12A, namely, that the Audit report should be signed before the specified date and the said Audit report in Form No.10B should be furnished before the stipulated date. This is how the assessee’s appeal came to be dismissed. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.
3. We have heard the rival submissions and gone through the relevant material on record. The contentions about the late filing of Audit report in Form No.10B and the need for still granting exemption, were not seriously pressed. The ld. AR has raised an additional ground to the effect that total income of the assessee ought to have been determined on commercial principles and not by charging the gross receipts to tax. The additional ground, being, legal in nature and not requiring any fresh examination of the factual matrix, is hereby admitted. As such, the only issue which survives for our consideration is the examination of the manner of assessment by the AO considering that it was not having any registration so as to qualify for exemption u/s.11.
4. The AO has recorded in the order u/s.154 that the gross receipts of the assessee were Rs.4,31,18,956/- and no deduction was allowed for expenses to the tune of Rs.4,95,86,799/-. We have gone through the Income and Expenditure account of the assessee, whose copy has been placed at page 18 of the paper book. Total of gross receipts on the Income side comes to Rs.4,31,18,955/-, which has been correctly considered by the AO. However, the amount of total deductions, as taken note of by the AO at Rs.4.95 crore, is not borne out from the Expenditure side. It appears that the AO took the amount of gross receipts at Rs.4.13 crore and added 15% at around Rs.64.00 lakh, to compute the total expenditure at Rs.4.95 crore. In fact, the assessee’s Income and Expenditure Account shows that “Surplus of Income over Expenditure” at Rs.2,87,153/-. In addition, there is “Amount transferred to Reserve or Specific Funds” to the tune of Rs.9,54,000/-. The assessee has claimed deduction for various expenses. It goes without saying that income-tax is charged on the income and not the gross receipts. Income is determined by reducing the expenses incurred, described under various sections in Chapter IV-D of the Act. If the benefit of exemption u/s.11 is not available, the total income needs to be computed in accordance with the regular provisions of the Act. In the given circumstances, where the AO has charged tax on gross receipts, we cannot countenance the same. The resultant impugned order also deserves to be set aside. We order accordingly and remit the matter to the file of the AO for deducing the total income in accordance with the law after considering the deductibility of various expenses noted in the Income and Expenditure Account. Needless to say, the assessee will be allowed a reasonable opportunity of hearing.
5. In the result, the appeal is allowed for statistical purpose.
Order pronounced in the Open Court on 14th August, 2023.
