ITR-7 Reporting Error Requires Fresh Examination of Section 11 Claim: ITAT Rajkot

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.