Vishwabharathi Charitable Trust Vs ITO (ITAT Bangalore)
AO Cannot Treat Recorded Educational Expenses as ‘Unexplained’ u/s 69C- Charitable Trust Running Nursing College To Be Assessed as AOP/BOI If Exemption Denied- Bang Trib
Assessee, a newly established charitable trust running Sri Sharda Nursing College, filed its return of income in ITR-7 declaring NIL income. It had receipts of ₹22.23 lakh (mainly student fees) & expenditure of ₹30.45 lakh, resulting in a deficit of ₹8.22 lakh. The trust was not registered u/s 12AA/12AB or u/s 10(23C).
Assessment Proceedings
- CPC initially disallowed the claimed expenditure of ₹30.45 lakh on the ground that no registration under section 12A/10(23C) existed & no audit report in Form 10B was filed.
- The case was picked for scrutiny for “large receipts from incidental business.”
- Assessee did not respond to notices. AO completed assessment u/s 144 (best judgment) & invoked section 69C (unexplained expenditure), adding ₹30.45 lakh to total income.
First Appeal
Before NFAC/CIT(A), the Assessee argued that:
- Assessment violated principles of natural justice.
- Expenditure was wrongly disallowed u/s 69C.
- The trust should be assessed as AOP/BOI & deficit carried forward.
NFAC rejected all contentions & upheld addition.
Arguments before Tribunal
- Assessee explained that the managing trustee, a senior citizen, relied on a tax practitioner who erroneously filed ITR-7 instead of ITR-5.
- Claimed that receipts being below ₹5 crore & solely for educational purposes, it was eligible for exemption u/s 10(23C)(iiiad).
- Alternatively, income should be computed in AOP status, treating deficit as carry forward loss.
- Revenue supported orders of lower authorities.
Tribunal’s Findings
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