Facts of the Case

The assessee, a society registered under the Societies Registration Act, filed its return declaring income of ₹2,39,350. The return was processed under Section 143(1), wherein the Centralized Processing Centre (CPC) enhanced the taxable income to ₹13,41,461 by disallowing expenses of ₹3,22,837 incurred on religious activities such as Gurupurab and Kirtan Darbar.

Additionally, the assessee was taxed at the maximum marginal rate under Section 167B. The CIT(A) and subsequently the ITAT upheld the CPC’s view, except partial relief regarding building fund receipts.

Issues Involved

  1. Whether gross receipts can be taxed without allowing corresponding expenses, or only surplus income is taxable.
  2. Whether Section 167B (maximum marginal rate) is applicable to a society registered under the Societies Registration Act.
  3. Whether adjustments made under Section 143(1) were permissible in absence of apparent errors.
  4. Whether exemption under Sections 11 and 12 could be claimed for the relevant assessment year.

Petitioner’s Arguments

  • The assessee contended that only net income (surplus) should be taxed and not gross receipts.
  • It argued that being a registered society, the provisions of Section 167B were wrongly applied.
  • It was further submitted that adjustments made under Section 143(1) were beyond its permissible scope, as they were not apparent errors.
  • The authorities failed to consider alternate grounds raised before appellate forums.

Respondent’s Arguments

  • The Revenue argued that the assessee itself declared its status as AOP/BOI, thereby attracting Section 167B.
  • It contended that exemption under Sections 11 and 12 was not available since registration under Section 12AA was obtained later (from AY 2016–17).
  • The Revenue supported the orders of CIT(A) and ITAT, stating that gross receipts were rightly taxed.

Court’s Findings / Order

  • The Court held that since the assessee was a registered society, Section 167B could not be applied for taxing it at maximum marginal rate.
  • It observed that CIT(A) and ITAT failed to adjudicate key grounds, including taxability of surplus vs gross receipts.
  • The Court emphasized that only real income (surplus after expenses) should be taxed and not gross receipts.
  • It further held that issues requiring examination could not be decided through Section 143(1) summary processing without scrutiny.
  • Accordingly, the orders of CIT(A) and ITAT were set aside, and the appeal was decided in favour of the assessee.

Important Clarifications

  • A registered society is excluded from the applicability of maximum marginal rate under Section 167B.
  • Gross receipts cannot be taxed as income; only surplus after allowable expenses is taxable.
  • Section 143(1) cannot be used for debatable issues requiring detailed examination.
  • Authorities must adjudicate all grounds raised by the assessee before passing orders.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS13122022ITA7552019_162223.pdf


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