Ekadantha Charitable Trust Vs DCIT (ITAT Bangalore)
No Section 11 Exemption, but Can CPC Tax Every Rupee a Trust Receives?
The Centralised Processing Centre (CPC) denied a charitable trust’s section 11 exemption and treated its entire receipts of ₹31,35,158 as taxable income. The trust could not produce its registration certificate even before the Tribunal, and there was a dispute about the timing of its audit report. At the ITAT, however, it pressed a narrower point: if exemption is unavailable, must tax still be computed after considering allowable expenses?
The Bengaluru ITAT answered that question in the trust’s favour. It held that denial of section 11 exemption does not automatically justify disallowing every legitimate expense. The Tribunal sent the matter to the Assessing Officer (AO) to examine the revenue expenditure claimed and allow expenses found to have been incurred for earning the income. It did not restore section 11 exemption or determine the trust’s final taxable income.
How the entire receipts came to be taxed
Ekadantha Charitable Trust filed its return for assessment year 2023–24 on 31 October 2023, declaring nil taxable income. Its gross receipts were ₹31,35,158. In the return, it claimed ₹29,39,482 as application towards its objects and ₹1,95,676 as accumulation.
The CPC processed the return on 23 December 2024. It denied the claims and assessed the full ₹31,35,158 as taxable income. One reason given in the intimation was that, according to the data available to the CPC, no registration had been granted to the trust. The CPC also raised an objection concerning the required audit report and its filing deadline.
The trust appealed to the Additional/Joint CIT(A), Thane. The first appellate authority recorded that the audit report had been filed on 31 October 2023, the return due date, instead of one month before that date. While describing the delay as a technical default, the appellate authority held that it could not itself condone it and dismissed the appeal.
A distinction in the order deserves attention: the CPC’s stated objection referred to Form 10BB, while the discussion before the first appellate authority and the Tribunal refers to Form 10B. The ITAT did not resolve that difference or decide the appropriate audit-report form. Its operative decision concerned the computation of income assuming section 11 exemption was not available.
The argument made before the ITAT
The trust’s representative submitted that the CPC had taxed gross receipts without allowing the expenditure incurred in connection with them. He asked that the trust’s income be computed on commercial principles and that only any resulting net income be brought to tax.
The department relied on the audit-report default and also pointed out that the trust had not produced its section 12AB registration certificate. The Tribunal itself noted that, although the first appellate order referred to the trust’s claim of registration, no certificate was produced before the ITAT.
The trust therefore did not obtain a ruling establishing its eligibility for section 11 exemption. Its effective argument was different: failure to qualify for an exemption should not turn receipts into profits without examination of the costs of earning them.
Why the Tribunal ordered a fresh computation
The ITAT held that where sections 11 and 12 are unavailable because their conditions have not been met, only the trust’s net income is liable to be assessed after allowable expenditure is considered. If gross receipts are taken into account, expenses relating to those receipts must also be examined under the applicable provisions and accounting principles.
The Bench found that the CPC had not considered the expenses at all. It held that the first appellate authority should have dealt with the trust’s alternative computation plea. In the Tribunal’s view, a finding that the trust was ineligible for section 11 exemption did not, by itself, establish that it was ineligible to claim revenue expenditure incurred exclusively to earn its income.
The ITAT also referred to depreciation, if any, as an item to be considered under the relevant provisions. It sent the issue to the AO to examine the revenue expenses claimed and allow those found to have been incurred for earning the income. The appeal was partly allowed for statistical purposes.
What remains open
The Tribunal did not accept the ₹29,39,482 claimed as application of income as an automatic deduction. Application of income under section 11 and expenditure allowable in computing taxable income are different inquiries. Nor did the order allow the ₹1,95,676 accumulation under section 11 as an ordinary expense.
The AO must examine the nature, evidence and allowability of the claimed expenses. The amount, if any, ultimately taxable will depend on that examination. The questions about proof of registration and the audit-report requirement were not decided in the trust’s favour.
Author’s comment
This order is most useful for its alternative plea. A trust may fail to establish section 11 eligibility, yet still have a genuine dispute over the amount of income chargeable to tax. The CPC’s denial of exemption does not answer whether the trust incurred allowable costs in earning the receipts that it has taxed.
For the remand, the trust will need to identify which payments were revenue expenses connected with earning income, support them with its accounts and vouchers, and distinguish them from amounts claimed solely as charitable application or permitted accumulation. The decision gives it that examination; it does not convert the entire section 11 claim into a deduction under ordinary computation principles.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT BANGALORE
1. This appeal at the instance of the assessee is directed against the order of the ld. Addl./JCIT(A), Thane, dated 03.09.2025 vide DIN & Order No. ITBA/APL/S/250/2025-26/1080309140(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2023-24.
2. The assessee has raised the following grounds of appeal: –
1. The order of the learned CIT(A) concluded under the provisions of section 250 of the Act in as is against the Appellant, is opposed to law, weight of evidence, natural justice, probabilities on facts and circumstances of case.
2. The Appellant denies itself liable to be assessed at Rs.31 ,35, 158/- as against the returned nil income on facts and circumstances of case.
3. The learned CIT(A) erred in law in not holding that the intimation issued by CPC in grave violations of principles of natural justice and is liable to be quashed in toto under the facts and circumstances of the case.
4. The learned CIT(A) erred in law in upholding the act of the CPC in denying the Appellant’s claim towards the application of sum of Rs.29,39,482/- towards the objectives of the trust without affording the Appellant a reasonable opportunity of being heard under the facts and circumstances of the case.
5. The learned CIT(A) erred in law in upholding the act of the CPC in denying the claim of the Appellant towards the accumulation Rs.1,95,676/- under the facts and circumstances of the case.
6. The learned CIT(A) erred in law in upholding the act of the CPC in determining the tax liability of the Appellant at Rs.9,87,170/- under the facts and circumstances of the case.
7. Without prejudice and without conceding anything contrary to the law the learned CIT(A) erred in law in not holding that the CPC ought to have calculated the taxable income of the Appellant on commercial lines after providing the Appellant the expenditure w.r.t the activities undertaken by the Appellant along with deduction legally due to the Appellant on account of capital expenditure i.e., depreciation under the facts and circumstances of the case.
8. The learned CIT(A) erred in law in upholding the act of the CPC in levying interest under the provisions of section 234B and 234C of the Act at 1,48,789/- and Rs.39,547/- respectively under the facts and circumstances of the case. The Appellant without prejudice submits that the calculation of interest is not correct as the rate, interest, period and the amount on which the interest has been levied are not discernible from the intimation. It is important that the assessee be given the basis of levy of interest.
9. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
10. In view of the above and other grounds as may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.
3. The brief facts of the case are that the assessee being a public charitable trust filed its return of income u/s 139(1) of the Act for the A.Y. 2023-24 on 31.10.2023 declaring ‘Nil’ Taxable income. Thereafter, the said return was processed and accordingly an intimation u/s 143(1) of the Act was passed on 23.12.2024 by treating the entire gross receipts amounting to Rs.31,35,158/- as taxable income of the assessee without granting deduction towards the legitimate expenditures/applications amounting to Rs.29,39,482/- and the amount accumulated to the extent it does not exceed 15% of the gross receipts amounting to Rs.1,95,676/- on the following grounds:-
(i) The exemption has been claimed u/s 11 of the Act, however as per the data available no registration has been granted and hence the exemption claimed is not allowable.
(ii) The total income of the trust claiming exemption u/s 11 of the Act exceeds the maximum amount which is not chargeable to tax under the Act but less than or equal to Rs.5 crore. The assessee is required to file audit report in Form 10BB at least one month prior to the due date of furnishing the returns u/s 139(1) of the Act. However, the assessee has not e-filed the audit report in Form 10BB and hence the income chargeable to tax will be recomputed as per the provision of Section 13(10) of the Act.
4. Aggrieved by the intimation passed by the CPC u/s 143(1) of the Act dated 23.12.2024, the assessee preferred an appeal before the ld. Addl./JCIT/CIT(A).
5. The ld. Addl./JCIT(A) dismissed the appeal of the assessee by observing that the audit report in Form 10B was filed by the assessee trust on 31.10.2023 i.e., on the due date of filing the return and not one month prior as required under the Act. Further, the ld. Addl./JCIT(A) admitted that this is a technical default under the amended law (since Rule 17B requires filing a month before ROI due date). The ld. Addl./JCIT(A) also admitted that the courts and CBDT Circulars have consistently taken the view that exemption should not be denied for a procedural lapse if the audit report is filed before completion of assessment. However, the ld. Addl./JCIT(A) held that the power to condone the delay in filing Form 10B lies with the Commissioner (Exemptions) u/s 119(2)(b) of the Act if reasonable cause exists and hence this appeal cannot be allowed automatically since the trust failed to comply with the technical requirement of filing Form 10B one month prior.
6. Again, aggrieved by the order of ld. Addl./JCIT(A), Thane dated 03.09.2025, the assessee has filed the present appeal before this Tribunal.
7. Before us, the Ld. AR of the assessee vehemently submitted that the CPC while passing the intimation u/s 143(1) of the Act had taxed the entire gross receipts declared by the assessee without allowing the deduction towards the legitimate expenditures incurred by the assessee trust for earning such Income and accordingly prayed that only the Net Income after granting the deduction toward the expenses incurred by the assessee trust in accordance with commercial lines should only be taxed.
8. The Ld. DR on the other hand heavily relied upon the order of the Ld. Addl/JCIT(A) and vehemently submitted that as the assessee had not filed the Form No. 10B one month prior to the due date of filing the Return of Income which is mandatory for claiming deduction u/s 11 of the Act, the Learned Authority below have rightly taxed the entire Gross Receipts without allowing any application/utilization of funds. Furthermore, the ld. DR submitted that now before the Tribunal the assessee is making a fresh claim of taxing only the Net Income after allowing the deduction towards the expenses incurred by the assessee without providing the copy of the Registration granted u/s 12AB of the Act and accordingly prayed to dismiss the appeal of the assessee.
9. We have heard the rival submissions and perused the materials available on record. On perusal of the order of the Ld. Addl/JCIT(A), we take note of the fact that the Ld. Addl/JCIT(A) observed that as per the submission of the assessee trust, it is a charitable trust registered u/s 12A of the Act. On perusal of the intimation passed u/s 143(1) of the Act, we observed that one of the ground for taxing the entire gross receipts by the CPC was that as per the data available no registration has been granted to the assessee. Before us also the ld. AR of the assessee could not produce/submit any registration certificate granted in favour of the assessee trust. On further perusal of the order of the Ld. Addl/JCIT(A), we observed that as the assessee had also not filed the Form No.10B one month prior to the due date of filing the Return of Income, the claim of deduction u/s 11 of the Act was denied on the ground that the power to condone the delay in filing Form 10B lies with the Commissioner (Exemptions) u/s 119(2)(b) of the Act if reasonable cause exists & not with the Ld. Addl/JCIT(A). Further, we take note of the fact that the Ld. Addl/JCIT(A), also admitted that this is a technical default under the amended law and the courts and CBDT Circulars have consistently taken the view that exemption should not be denied for a procedural lapse if the audit report is filed before completion of assessment. However, before us, the main contention of the Ld. AR of the assessee is that in the absence of non-filing of Form No.10B within the due date, the income of the assessee should be taxed on commercial basis by allowing the deduction towards the expenses incurred by the trust and tax only the Net Profit. Thus, the Ld. AR of the assessee is not praying to allow the deduction claimed u/s 11 of the Act instead the prayer of the ld. AR of the assessee is primarily on allowing the deduction towards the expenditures incurred by the assessee for earning such income as per the commercial lines.
9.1 We are also of the considered opinion that the denial of exemption u/s 11 of the Act would not amount to disallowance of entire legitimate expenditures incurred by the assessee trust. In our considered opinion, once it is found that the assessee trust did not comply with the conditions for applicability of sections 11 & 12 of the Act as enumerated u/s 12A of the Act, even though the registration u/s 12AB of the Act is granted, only the net income of the assessee is liable to be assessed. Once the gross receipts of the assessee trust are being considered, then obviously the expenses incurred in relation to such receipts would also have to be considered as per the provisions of the Act and as per the accounting principles. We are of the considered opinion that it is the basic principle for the levy of income tax that the taxes are to be levied on the net income after deduction of expenditures from the total receipts. Therefore, we find merits in the arguments of the ld. AR of the assessee that the disallowance of entire expenses in processing the return u/s 143(1) of the Act is not only against the accounting principle but also against the provisions of the Act & therefore, the non-consideration of ground of the assessee by the first appellate authority is bad in law. We are of the considered view that the finding in the impugned order that the assessee trust is not eligible to claim exemption u/s 11 of the Act does not mean that the assessee trust is not eligible to claim the revenue expenditures incurred exclusively to earn such income. We are also of the view that at most, the income embedded in the gross receipts can only be taxed and not the entire gross receipts. Consequently, the revenue expenditures incurred wholly & exclusively to earn the income along with the depreciation if any have to be allowed as expenditures as per the provisions of the Act. Thus, since the fundamental principle under the income tax Act being that only net income has to be taxed (i.e. gross receipts minus allowable expenditures), this plea of the assessee has to be necessarily entertained. This being so, as the CPC had not considered the expenses claimed by the assessee at all, we deem it fit & appropriate to remit this issue to the file of the AO for examination of revenue expenses claimed by the assessee and if it is found that the expenditures are incurred for the purposes of earning the income, the same are liable to be allowed. It is ordered accordingly.
10. In the result, the appeal of the assessee stands partly allowed for statistical purposes.
Order pronounced in the open court on 24th Sept, 2026
