Facts of the Case

The assessee, Maa Bhagwati Charitable Trust, filed its return of income for Assessment Year 2016-17 declaring Nil income. The case was selected for scrutiny by the Assessing Officer (AO). The trust was engaged in running an Industrial Training Institute (ITI) in the name of Bhagwati Private Industrial Training Institute.

During assessment proceedings, the AO observed that the trust was not registered under Section 12AA of the Income-tax Act, 1961 during the relevant assessment year. Therefore, according to the AO, the trust was not eligible for exemption under Section 11.

The AO further noted that the assessee had declared income consisting of donations and fee receipts but claimed expenditure exceeding its income. The AO also noticed that the trust had shown a corpus fund balance of ₹33,32,646, which included both opening balance and donations received during the year.

Since the donations were allegedly received in cash and the trust did not have registration under Section 12AA during the relevant year, the AO treated the amount as anonymous donation and added the entire amount of ₹33,32,646 to the income of the assessee.

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the addition. Thereafter, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT).

Issues Involved

  1. Whether exemption under Section 11 can be denied merely because the trust was not registered under Section 12AA during the relevant assessment year.
  2. Whether the corpus fund amount including opening balance could be treated as income of the assessee.
  3. Whether the authorities erred in not considering the evidences and explanations furnished by the assessee regarding corpus donations. 

Petitioner’s Arguments

The assessee contended that the lower authorities failed to properly consider the submissions and evidences placed on record.

It was submitted that the trust had subsequently been granted registration under Section 12AA, and since the assessment proceedings for the relevant year were pending at the time of grant of registration, the benefit of Section 11 exemption should be allowed in accordance with the provisions of the Act and CBDT Circular No. 1/2015 dated 21.01.2015.

The assessee further argued that only ₹5,21,275 was received as corpus donation during the relevant year, whereas the remaining ₹28,11,371 represented opening balance of the corpus fund, which had already been disclosed in the earlier returns.

Therefore, addition of the entire amount of ₹33,32,646 as income of the trust was unjustified and contrary to law. 

Respondent’s Arguments

The Departmental Representative supported the orders passed by the Assessing Officer and the CIT(A).

It was argued that since the assessee did not possess registration under Section 12AA during the relevant assessment year, it was not entitled to claim exemption under Section 11. Accordingly, the addition made by the Assessing Officer was justified. 

Court Findings

The Income Tax Appellate Tribunal examined the records and noted that the assessee had placed certain evidences before the CIT(A). However, while passing the impugned order, the CIT(A) failed to adequately consider the contentions and evidences furnished by the assessee.

The Tribunal further observed that the assessee had subsequently been granted registration under Section 12AA and that the assessment proceedings were pending at the time of grant of such registration.

Considering the principles of natural justice and the overall facts of the case, the Tribunal held that the matter required fresh examination by the Assessing Officer after proper verification of the evidences and claims made by the assessee. 

Court Order

The ITAT set aside the order of the CIT(A) and restored the matter to the file of the Assessing Officer for fresh adjudication.

The Assessing Officer was directed to verify the claim of the assessee and pass a fresh assessment order in accordance with law after providing adequate opportunity of being heard to the assessee.

Accordingly, the appeal of the assessee was allowed for statistical purposes.

Important Clarification

The decision highlights that when registration under Section 12AA is granted during the pendency of assessment proceedings, the claim for exemption under Section 11 cannot be rejected outright without proper verification.

The authorities must consider the evidences and apply the provisions of law in accordance with the principles of natural justice before making additions to income. 

Sections Involved

  • Section 11 – Income from property held for charitable or religious purposes
  • Section 12A – Conditions for applicability of Sections 11 and 12
  • Section 12AA – Procedure for registration of charitable or religious trust or institution
  • CBDT Circular No. 1/2015 dated 21.01.2015

 Link to download the order - https://itat.gov.in/public/files/upload/1703231722-ITA%202123%20of%202023%20Maa%20Bhagwati%20Charitable%20Trust.pdf

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