Samarth Education Society Vs ITO (ITAT Pune)
Denial of Exemption Does Not Make Gross Receipts Taxable Income: Pune ITAT Directs Examination of Revenue Expenses
Case Details
In Shri Samarth Education Society v. ITO, Ward, Kolhapur, the Pune Bench of the Income Tax Appellate Tribunal held that an educational institution’s gross receipts could not simply be treated as taxable income without examining its claim for revenue expenditure allowable under the Income-tax Act.
The decision in ITA No. 927/PUN/2026, concerning Assessment Year 2017-18, was pronounced on 7 October 2026 by Shri Manish Borad, Accountant Member, and Shri Vinay Bhamore, Judicial Member.
The Tribunal set aside the CIT(A)’s order and restored the matter to the jurisdictional Assessing Officer to verify expenditure and determine taxable income, if any. The appeal was allowed for statistical purposes, without finally granting exemption or quantifying the allowable deductions.
Background: Entire Receipts Assessed as Income
The assessee was an educational institution whose gross receipts were below ₹1 crore. It filed its return declaring nil income after claiming exemption under section 11.
However, through a rectified intimation dated 15 July 2019, the CPC determined taxable income at ₹13,50,720, representing the entire gross receipts disclosed by the assessee.
The assessee challenged this treatment before the CIT(A). After considering its submissions, the appellate authority dismissed the appeal by order dated 18 February 2026.
The institution then approached the Tribunal, raising grounds concerning denial of exemption, non-furnishing of Form 10B, rectification, the correct exemption provision and computation of income. It also referred to technical difficulties concerning the return form and pleaded violation of natural justice.
Assessee’s Contentions
The assessee maintained that technical difficulties had prevented filing of the audit report in Form 10B. It argued that the CPC had incorrectly treated the whole of its receipts as income without allowing expenditure incurred in carrying out its activities.
Its alternative contention was that, even if exemption were unavailable, tax could be levied only on net commercial income, computed after considering permissible expenses.
The grounds also sought exemption under section 10(23C)(iiiad), contending that the institution’s eligibility should be considered under the provision applicable to educational institutions rather than rejecting the claim solely because section 11 requirements had not been met.
The decisive relief, however, arose from the alternative argument concerning deduction of expenditure and taxation of net income.
Coordinate Bench Decisions Considered
The assessee relied on Vir Savarkar Swimmers Club v. ITO, ITA No. 1462/PUN/2025, dated 12 August 2025, which the Tribunal considered to involve broadly similar circumstances.
In that case, the CPC had denied section 11 exemption and taxed gross income without allowing expenses. The Tribunal had accepted the alternative plea that revenue expenditure should be examined and only the resulting taxable income, if any, assessed.
The reproduced decision referred to Muslim Education Society v. ITO, ITA No. 1782/PUN/2024, dated 18 February 2025, and Dr. Sukumar J. Magdum Foundation v. ITO.
These decisions distinguished entitlement to exemption from the manner of computing income where exemption is unavailable. The reasoning reproduced from Dr. Sukumar J. Magdum Foundation emphasised that income tax is charged on income, rather than gross receipts, and that the regular provisions of the Act must govern computation when section 11 relief is unavailable.
The accounts and amounts discussed in those quoted decisions belonged to the respective precedent cases. They were not findings concerning Shri Samarth Education Society’s expenditure or registration history.
Tribunal’s Findings
Following Vir Savarkar Swimmers Club, the Tribunal found merit in the assessee’s argument against taxation of its entire receipts without examining deductible expenditure.
It set aside the CIT(A)’s order and remanded the matter to the jurisdictional Assessing Officer with a direction to examine revenue expenses incurred out of the receipts, determine whether they were allowable under the Income-tax Act, and then compute taxable income, if any.
The Assessing Officer was directed to provide a reasonable opportunity of hearing and pass an order according to the facts and law.
At the same time, the Tribunal expressly required the assessee to respond to notices and produce the relevant information, details, documents and evidence. It directed that the assessee should not seek adjournments under any pretext, failing which the Assessing Officer would be free to pass an appropriate order in accordance with law.
Decision and Scope of Relief
The appeal was allowed for statistical purposes. The operative direction was to verify expenditure and recompute taxable income.
The Tribunal did not expressly grant section 11 exemption, condone the Form 10B default, decide the return-form objection or finally allow exemption under section 10(23C)(iiiad). Although educational exemption was discussed within the quoted precedents, the specific remand direction in this case concerned examination of allowable revenue expenses.
Author’s Comments
The decision provides a useful alternative argument where an institution’s exemption claim fails: loss of exemption does not automatically convert every receipt into taxable income. The computation still requires examination of deductions available under the ordinary provisions.
However, an expenditure debit in the accounts does not establish deductibility by itself. The remand requires supporting evidence and verification of whether the expenditure is allowable under the Act.
The distinction between application of income for charitable purposes and expenditure deductible in an ordinary computation also deserves care. This order does not automatically preserve every benefit associated with section 11.
For the assessee, the immediate task is therefore to substantiate its revenue expenses through accounts and supporting documents. The Tribunal secured a fresh computation opportunity; the amount ultimately taxable remains open.
Cases Discussed
Vir Savarkar Swimmers Club v. ITO (ITAT Pune; ITA No. 1462/PUN/2025; 12/08/2025): The coordinate bench considered an alternative claim for revenue expenditure where the CPC had denied section 11 exemption and assessed gross receipts. The matter was restored for verification and computation of taxable income, if any. This was the principal precedent followed in the present appeal.
Muslim Education Society v. ITO (ITAT Pune; ITA No. 1782/PUN/2024; 18/02/2025): The Tribunal considered the alternative claim that, if exemption was unavailable, taxable income should be determined on commercial principles after examining expenditure rather than by taxing entire gross receipts. The decision was reproduced within Vir Savarkar Swimmers Club.
Dr. Sukumar J. Magdum Foundation v. ITO (ITAT Pune; citation not specified in the supplied order): The coordinate bench explained that income tax is charged on income rather than gross receipts and that, where section 11 exemption is unavailable, income must be computed under the ordinary provisions after considering deductible expenditure.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 18.02.2026 passed by Ld. Addl./JCIT(A), Ranchi [‘Ld. CIT(A)’] for the assessment year 2017-18.
2. The appellant has raised the following grounds of appeal:-
“1. General ground – order bad in law The learned CIT(A) erred in law and on facts in dismissing/confirming the action of the lower authorities and in sustaining the impugned demand, without proper appreciation of the provisions applicable to the Appellant and without granting appropriate relief.
2. Exemption – educational institution – section 10(23C)(iiiad)
The learned CIT(A) and the lower authorities erred in not allowing the exemption available to the Appellant as an educational institution under section 10(23C)(iiiad) and in taxing the receipts/income contrary to law.
3. Form 10B – denial of exemption merely for non- furnishing/technical issues The learned CIT(A) erred in sustaining the denial of exemption merely on the ground of non-furnishing of audit report in Form 10B / procedural conditions, despite the claim being otherwise eligible and/or curable and despite the Appellant having sought correction/rectification.
4. Rectification u/s 154- non-consideration of apparent mistake The learned CIT(A) erred in sustaining rejection/non-grant of relief under section 154 even though the mistake was apparent from record and the Appellant sought rectification/correction of the exemption claim and computation.
5. Correct exemption section – claim under 10(23C)(iiiad) vs 11 The learned CIT(A) erred in not directing the Assessing Officer/CPC to consider the correct exemption provision i.e., section 10(23C)(iiiad) (as applicable to educational institutions), instead of denying exemption under section 11 on procedural grounds.
6. Return form/technical issue – ITR-5 vs ITR-7 The learned CIT(A) erred in not granting relief despite the Appellant’s contention that the issue arose due to technical/return-form related constraints and that appropriate correction ought to have been permitted/considered.
7. Without prejudice – income cannot be assessed on gross basis Without prejudice, even if exemption is not allowed, the learned CIT(A) erred in not directing that income be computed in accordance with law by allowing all permissible deductions/expenditure and not assessing gross receipts, and by not applying settled principles laid down in judicial precedent relied upon by the Appellant.
8. Principles of natural justice The learned CIT(A) erred in not properly considering the Appellant’s submissions/documents and in passing the order in violation of principles of natural justice.”
3. Facts of the case, in brief, are that the assessee is an educational institution and its gross receipts are less than Rs.1 crore and has furnished its return of income by declaring income of Rs.Nil after claiming deduction u/s 11 of the IT Act. Vide order dated 15.07.2019, CPC issued rectified intimation by determining income of the assessee at Rs.13,50,720/- which is the gross receipts disclosed by the assessee.
4. Being aggrieved with the above intimation, the assessee preferred an appeal before Ld. CIT(A). After considering the reply and submissions of the assessee, Ld. CIT(A) dismissed the appeal.
5. It is the above order against which the assessee is in appeal before this Tribunal.
6. We have heard Ld. Counsels from both the sides and perused the material available on record. In this regard, we find that it is the claim of the assessee that due to technical difficulties the assessee could not file Form 10B Audit Report and CPC erred in treating whole of the receipts as taxable income instead of allowing the expenditure incurred by the assessee. It is also the claim of the assessee that tax can only be levied on real/net commercial income, and taxing gross receipts or turnover is illegal. In this regard, Ld. Counsel of the assessee placed reliance on various decisions of coordinate benches of this Tribunal including the case of Vir Savarkar Swimmers Club vs. ITO in ITA No.1462/PUN/2025 order dated 12.08.2025 wherein the Tribunal under more or less identical facts allowed the appeal of the assessee by observing as under:-
“7. We have heard Ld. counsels from both the sides and perused the material available on record including the factual and legal paper book filed by the Counsel of the assessee. In this regard, we find that the assessee furnished its return of income declaring Nil income after claiming exemption u/s 11 of the IT Act, since no details of registration u/s 12A of the IT Act were provided in the return of income and no Form 10B audit report was furnished along with return of income or prior to filing return of income, CPC mentioning both the above facts in the notice, sent email to the assessee and when no response was received, disallowed the exemption claimed u/s 11 of the IT Act and determined taxable income of Rs.47,77,268/- which was the gross income of the assessee without allowing deduction of expenses incurred by the assessee.
8. Admittedly, assessee applied for provisional registration u/s 12A of the IT Act on 10.02.2021 and the same was granted to the assessee w.e.f. assessment year 2021-22 vide order dated 27.05.2021. Prima- facie it appears that there is no mistake on the part of CPC since the details of 12A registration and Form 10B audit report was not there in the return of income, however form 10B claimed to be filed on 18-12- 2020. In this regard, we further find that the assessee has raised alternative plea in ground no.4 and 5 as under:-
“4. On the facts and in the circumstances of the case and in law and without prejudice to the above grounds of appeal the appellant society has reported a deficit in its Income and expenditure account and therefore even if the exemption u/s 11 is disallowed the appellant has a loss.
5. On the facts and in the circumstances of the case and in law and without prejudice to the above grounds of appeal the appellant is eligible for revenue expenses incurred out of its receipts and the same needs to be allowed to the appellant society.”
9. In support of above alternative grounds, Ld. AR relied on various decisions passed by coordinate benches of this Tribunal wherein it has been held that the assessee is eligible for revenue expenses incurred out of its receipt, and the surplus, if any, is only required to be taxed. In this regard, we find support from a recent decision passed by a coordinate bench of this Tribunal in the case of Muslim Education Society vs. ITO, ITA No.1782/PUN/2024 order dated 18-02-2025 wherein under more or less identical facts, appeal of the assessee was allowed by observing as under:-
“7. We have heard the Ld. Representatives of the parties and perused the material on record. The facts of the case are not disputed. The assessee trust got registration u/s 12A of the Act on 27.05.2021 and therefore it is apparent that the assessee trust was not a section 12A registered trust during the relevant AY i.e. AY 2020-21. Before us, the assessee has challenged the denial of exemption u/s 11 of the Act by the Ld. AO, CPC and confirmation of the same by the Ld. Addl./JCIT(A). However, we note that this ground was not pressed by the assessee before the Ld. Addl./JCIT(A) (para 5 of the impugned order refers). Ld. Counsel for the assessee has also contended that the assessee should alternatively, be granted exemption u/s 10(23C)(iiiad) of the Act as all the conditions for claim of exemption under the said section are satisfied by the assessee. The assessee has raised yet another ground claiming that without prejudice to the above claim, if exemption u/s 11/10(23C)(iiiad) of the Act is not granted, then the taxability of income of the assessee should be based on commercial principles i.e. only the net income should be taxed after allowing the expenses incurred by the assessee. The addition should, therefore, be restricted only to the net commercial income and not the entire gross receipts should be added to the Nil income returned by the assessee. We find that the Ld. Addl./JCIT(A) have confirmed the action of the Ld. AO in denying the exemption u/s 11 claimed by the assessee for the reason reproduced in para 3.1 above. Further, we also observe that the Ld. Addl./JCIT(A) has not adjudicated on the alternate claim of the assessee seeking exemption under the provisions of section 10(23C)(iiiad) of the Act and also the additional ground regarding the taxability of only net commercial income and not the gross receipts, raised by the assessee before him for the reason that these were not taken before the Ld. AO and restricted his decision only with respect to the claim of exemption u/s 11 as this was the only claim made by the assessee in its return of income which was processed u/s 143(1) of the Act.
7.1 Before us, the Ld. AR of the assessee has not seriously pressed ground Nos. 1 and 2 relating to claim of exemption by the assessee u/s 11 and/or section 10(23C)(iiiad) of the Act. In our considered view, the additional ground (ground No. 3) relating to taxability of only net commercial income being legal in nature and not requiring any fresh examination of the factual matrix is hereby admitted. We have perused the order of Co- ordinate Bench of the Pune Tribunal relied by the Ld. AR in the case of Dr. Sukumar J. Magdum Foundation (supra) wherein the Tribunal considered the issue of manner of assessment by the Ld. AO based on the fact that the assessee was not having any registration so as to qualify for exemption u/s 11 of the Act and held as under:
“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 incometax 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.”
8. On the facts and in the circumstances of the case and the legal position set out above and in the interest of justice, we deem it fit, in our considered opinion to set aside the impugned order of the Ld. Addl./JCIT(A) and restore the matter back to the file of the Ld. jurisdictional AO with a direction to verify whether the assessee is eligible for claim of exemption u/s 10/23(C)(iiiad) of the Act and grant relief to the assessee as per the provisions of law as a result of such verification thereof. In case the assessee is found to be not eligible for claim of exemption u/s 10/23(C)(iiiad) of the Act, the Ld. jurisdictional AO is hereby directed to examine/verify the claim of expenditure made by the assessee trust against the gross receipts for the relevant AY and modify the assessment accordingly as a result of such examination/verification as per the fact and law after giving adequate opportunity of hearing to the assessee. The assessee shall provide the requisite support in terms of submitting the relevant details/documentary evidence/submissions as may be required/called upon on the appointed date, failing which the Ld. AO shall be at liberty to pass appropriate order as per law. We direct and order accordingly.
9. In the result, the appeal of the assessee is treated as allowed for statistical purposes.”
10. Considering the totality of the facts of the case and also in the light of coordinate bench decision passed in the case of Muslim Education Society (supra), we find force in the above alternative grounds raised by the assessee and therefore deem it appropriate to set-aside the order passed by Ld. CIT(A) and remand the matter to the file of the Jurisdictional Assessing Officer with a direction to examine the claim of the assessee regarding eligibility of revenue expenses incurred out of its receipt if the same are allowable as per the Income Tax Act and then to determine taxable income, if any, and accordingly pass the order as per fact and law after providing reasonable opportunity of hearing to the assessee. In this regard, the assessee is also hereby directed to comply with the notices issued by the Jurisdictional Assessing Officer and to produce relevant information, details, documents and evidence in support of its claim without taking any adjournment under any pretext, otherwise the Jurisdictional Assessing Officer shall be at liberty to pass appropriate order as per law. Thus, ground no.4 and 5 are allowed for statistical purposes.
11. In ground no.6, the assessee has claimed that the credit of prepaid taxes is not allowed to him. In this regard, we find that the assessee has not produced any material in support of above ground, however in the interest of justice we deem it appropriate to consider the request made by assessee and accordingly direct the Jurisdictional Assessing Officer to verify the claim of assessee in this regard also, after providing reasonable opportunity of hearing to the assessee. Accordingly, ground no.6 is allowed for statistical purposes.
12. Since we have adjudicated alternative ground no.4 and 5 raised by the assessee and allowed the same for statistical purposes, ground no.1, 2 and 3 do not require any adjudication by us.
13. In the result, the appeal filed by the assessee in ITA No.1462/PUN/2025 for A.Y. 2019-20 is allowed for statistical purposes.”
7. Respectfully following the above decision of coordinate bench of this Tribunal passed in the case of Vir Savarkar Swimmers Club vs. ITO in ITA No.1462/PUN/2025 order dated 12.08.2025, we find force in the above argument of Ld. Counsel of the assessee and therefore, deem it appropriate to set-aside the order passed by Ld. CIT(A) and remand the matter to the file of the Jurisdictional Assessing Officer with a direction to examine the claim of the assessee regarding eligibility of revenue expenses incurred out of its receipt if the same are allowable as per the Income Tax Act and then to determine taxable income, if any, and accordingly pass the order as per fact and law after providing reasonable opportunity of hearing to the assessee. The assessee is also hereby directed to respond to the notices issued by the Jurisdictional Assessing Officer in this regard and to produce relevant information, details, documents and evidences in support of its claim without taking any adjournment under any pretext, otherwise the Jurisdictional Assessing Officer shall be at liberty to pass appropriate orders as per law. Thus, grounds of appeal raised by the assessee are allowed for statistical purposes.
8. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on this 07th day of October, 2026.
