Facts of the Case

The assessee, an educational institution, had not filed its return of income. Information was received regarding cash deposits during the demonetization period. Notices under section 142(1) were issued, but compliance was inadequate, leading to a best-judgment assessment under section 144.

An enquiry conducted through the Income Tax Inspector confirmed that the institution was running a school with approximately 1,252 students and was registered under the Societies Registration Act. The Assessing Officer collected documents relating to receipts and expenditures but rejected them as being prepared after issuance of notices.

Observing that annual receipts exceeded ₹1 crore, the Assessing Officer denied exemption under section 10(23C)(iiiad) and, since the institution was not registered under section 12AA, treated the excess of fees over expenditure amounting to ₹23,35,100 as taxable income. This amount was taxed under section 115BBE.

Issues Involved

  1. Whether surplus of educational fees over expenditure can be taxed under section 115BBE.
  2. Whether application of section 115BBE without invoking sections 68–69D constitutes a mistake apparent from record.
  3. Whether rectification under section 154 is permissible in such circumstances.
  4. Whether rectification proceedings can address incorrect application of law in the assessment order.

Petitioner’s Arguments

The assessee contended that section 115BBE applies only to income assessed under sections 68, 69, 69A, 69B, 69C, or 69D. In the present case, the addition represented excess of fee receipts over expenditure of an educational institution, not unexplained income.

It was further argued that the Assessing Officer had himself acknowledged the nature of receipts as educational fees and had assessed the surplus as institutional income. Therefore, taxing the amount under section 115BBE was legally incorrect and constituted a mistake apparent from the record capable of rectification under section 154.

Respondent’s Arguments

The Revenue maintained that the assessee had not explained the credits appearing in bank accounts during assessment proceedings and that subsequent references to section 69A justified application of section 115BBE. It also argued that issues raised were beyond the scope of rectification and should have been addressed through an appeal against the assessment order.

Court Order / Findings (ITAT Allahabad)

The Tribunal examined the assessment order and observed that the Assessing Officer had clearly treated the amount as excess of fees or donations over expenditure of the educational institution. The addition was not made under any of the provisions specified in section 115BBE.

Important Clarification

The Tribunal clarified that section 115BBE is a special provision applicable only to unexplained income under specified sections. Surplus arising from identifiable sources such as educational fees cannot be subjected to the higher tax rate under this provision merely because exemption is denied.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771066484_SARSWATIVIDHYAMANDIRINTERCOLLGEHAMIRPURVS.ITOWARD225BANDA.pdf

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