Gross receipts of Trust not registered u/s 12AA can’t be taxed without allowing expenses

Entire gross receipts of the Trust not registered u/s 12AA can not be taxed without giving allowance of expenditure incurred. 

In a recent judgment, ITAT Visakhapatnam in a case where the assessee trust was not registered u/s 12AA and not entitled for the benefit u/s 11 remitted the case to consider the assessee trust as an AOP giving allowance of expenditure from the gross receipts holding that technical mistake of the assessee cannot deny it the benefit of allowance of expenditure claimed by it.

ABCAUS Case Law Citation:
4430 (2025) (02) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the intimation u/s 143(1) of the Income Tax Act, 1961 (the Act) taxing the entire gross receipts.

The assessee was a Chruch. It filed its return of income admitting NIL income for the relevant Assessment Year. However, the assessee had filed its return of income after the due date. 

The return was summarily processed under section 143(1) of the Act bringing to the tax, entire gross receipts of the trust after disallowance of the claim of exemption under section 11 of the Act since assessee was not registered under section 12AA of the Act.

On first appeal, the CIT(A) considering the written submissions and by relying on the Memorandum to Finance Bill, 2008 & 2016 upheld the intimation issued under section 143(1) of the Act by Centralized Processing Centre (CPC) dismissed the appeal of the assessee.

Before the Tribunal, the assessee inter alia contended that the CIT(A) ought to have held that even when the assessee trust not registered u/s 12AA and not entitled for the benefit u/s 11 of the Act even in such situation also the entire receipts of the assessee society should not suffer to tax. Instead, the normal provisions of the computation of tax should be applied to tax the excess of income or expenditure.

It was also contended that the Assessing Officer was obligated to have considered its claim for deduction of expenses as per expenditure account while arriving taxable income as income received co-exists with corresponding expenditure and when these two are correlated with each other there remains net gain or net loss and in the event of gain such amount would be subjected to tax.

As an alternative plea, it was submitted that assessee to be taxed as an AOP and only the net income shall be subjected to tax. To support this contention, the assessee relied upon the judgment of the Co-ordinate Bench of the Tribunal and ITAT Delhi.

The Tribunal observed that the intimation under section 143(1) of the Act is being processed based on the returns filed by the assessee and it does not constitute assessment proceedings as contemplated under section 143(3) of the Act.  Accordingly, CPC had observed that the assessee does not have Registration under section 12AA of the Act based on the return of income filed by the assessee and thereby sought to add the gross receipts as total income of the assessee. 

Regarding the alternative plea that the CPC ought to have treated the assessee as an AOP and recompute the income after allowing the entire expenditure, the Tribunal observed that this process of examining of such alternate plea cannot be made under section 143(1) of the Act unless otherwise the claim is validly made in the return of income.  Section 143(1)(a)(ii) of the Act disallows an incorrect claim which is apparent from any information in the return of income either from the audit report or some other information was provided by the assessee while filing the return of income.

The Tribunal on the alterative plea of the assessee that expenditure shall be allowed from the gross receipts and assessee be treated as an AOP opined that the assessee ought to have claimed as such while filing return of income. 

However, at the same time the Tribunal observed that this technical mistake of the assessee cannot deny it the benefit of allowance of expenditure claimed by it.  The Tribunal opined that the expenditure shall be allowed to the assessee from the gross receipts and accordingly directed the AO to examine the expenditure and allow the same in accordance with law.

In the result, appeal of the assessee was allowed.

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