Trust society wins appeal after procedural violations found in exemption claim processing under sections 11 and 12

ITAT Delhi allowed the appeal of a trust society for statistical purposes after finding procedural violations in processing its exemption claim under sections 11 and 12. The society had inadvertently shown gross receipts under business income instead of charitable income due to CA error, though the return clearly indicated the amount was applied for charitable purposes. The CPC ignored relevant information during processing under section 143(1) and failed to provide mandatory intimation before making adjustments. Given the society's consistent exemption history in preceding and succeeding years and registration under section 12AA, ITAT restored the matter to AO for fresh verification and disposal after providing reasonable opportunity to the assessee.

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Issues involved:
The judgment involves issues related to the rejection of application for rectification of income tax return, denial of claim under section 11 and 12, treatment of gross receipts as income, disallowance of expenditure, and the correctness of the directions given by the CIT(A).

Rectification of Income Tax Return:
The assessee filed an application for rectification under section 154 of the Act, stating that the previous Chartered Accountant erroneously filed receipts under the wrong head. The AO rejected the rectification application, leading to an appeal before the CIT(A) who partially allowed the grounds taken by the assessee. The Tribunal acknowledged the inadvertent mistake and directed the AO to examine the case and grant appropriate relief as per law.

Claim under Section 11 and 12:
The assessee, a registered society under section 12AA of the Act, had claimed exemption under sections 11 and 12 for the Assessment Year 2015-16. However, the claim was denied by the authorities without proper examination. The Tribunal, considering the past history of the assessee's eligibility for exemption, set aside the orders of the AO and CIT(A) and directed a fresh examination of the exemption claim.

Treatment of Gross Receipts as Income:
The gross receipts of the assessee, including government aid and grants, were treated as income of the society by the authorities. The Tribunal noted that while the gross receipt was mistakenly shown under 'income from business or profession,' it was also declared as income under sections 11 and 12, applied to charitable purposes. The Tribunal highlighted the procedural lapses in the processing of the case and ordered a re-verification of the exemption claim.

Disallowance of Expenditure:
The entire expenditure, including capital expenditure, incurred by the society in pursuit of its charitable objects, was disallowed by the authorities. The Tribunal, after considering the facts and circumstances, directed the AO to verify the assessee's claim of exemption under sections 11 and 12 and decide the matter afresh, allowing a reasonable opportunity for explanation.

Correctness of Directions by CIT(A):
The grounds raised by the Revenue questioned the correctness of the directions given by the CIT(A) in allowing revenue expenditure and setting aside the order for further examination. The Tribunal, in the interest of natural justice, set aside the impugned orders and remanded the matter back to the AO for verification of the exemption claim under section 11 and 12, ultimately allowing the appeal of the assessee for statistical purposes and dismissing the appeal of the Revenue as infructuous.

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