2025 (9) TMI 358 - AT - Income Tax

Rectification under s.154 orders deletion of Rs.7.66 crore addition; income already taxed earlier under s.11(1B) not double-taxable (1B)

Ahmedabad Textile Industry’s Research Association Versus The Deputy Commissioner of Income Tax, Circle-1, Exemption, Ahmedabad

Ahmedabad Textile Industry’s Research Association Versus The Deputy Commissioner of Income Tax, Circle-1, Exemption, Ahmedabad - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer has jurisdiction under Section 154 to rectify a mistake apparent on record pointed out by the assessee (raised but not finally decided in these appeals). 2. Whether expenditure shown as application of amounts accumulated under Section 11(1)(a)/11(2) in earlier years can be allowed as deduction in the current year where the earlier years' accumulation was disallowed and taxed (including where the assessee opted for deemed taxation under DTVSV for earlier years). 3. Whether activities of testing/calibration/sponsored projects qualify as charitable (exempt under Sections 11/12) or fall within the first proviso to Section 2(15) (and conversely whether they fall within the 'education' limb of Section 2(15)). 4. Whether additions made by the AO under Section 11(1B)/sub-section (8) of Section 13 and related additions constitute impermissible duplication (double taxation) where the same amounts were offered/taxed in earlier assessment years or included in the return of income for the same year. 5. Whether procedural requirements under the Faceless Appeal Scheme (provision of video conferencing) were complied with by the appellate authority. 6. Whether rectification applications and claims for allowance of actual current-year expenditure (as per Income & Expenditure account) should be processed/verified and whether assessed income must not exceed net income as per the Income & Expenditure account. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Jurisdiction of AO under Section 154 to rectify mistake apparent on record Legal framework: Section 154 provides power to rectify mistakes apparent on record in an order or intimation. Precedent Treatment: The point is pleaded by the assessee as a ground but the Tribunal's order does not finally decide the substantive correctness of AO's exercise of Section 154 in the impugned assessments; the Tribunal directs the AO to verify rectification applications where appropriate (see Issue 6). Interpretation and reasoning: The Tribunal records the ground and allows, in respect of certain assessment years, directions to the AO to process/verify rectification applications and to allow adjustments found correct. The Tribunal treated the rectification/process as a matter to be examined by the AO on verification rather than deciding jurisdiction outright. Ratio vs. Obiter: Obiter as to jurisdictional competence in the abstract; ratio to the extent the Tribunal directs factual verification of rectification claims by AO. Conclusions: AO should process and verify rectification applications and make adjustments if amounts claimed as rectification are substantiated; no overarching pronouncement denying or affirming Section 154 jurisdiction was made. Issue 2 - Allowability of current-year expenditure shown as application of earlier years' accumulation under Section 11(1)(a)/11(2) where accumulation was disallowed/taxed earlier Legal framework: Sections 11(1)(a) and 11(2) permit accumulation of income for application in future years subject to conditions; where such accumulation is disallowed and treated as income in earlier years, tax consequences follow. Deemed taxation under DTVSV (option exercised) results in the amount being taxed in the earlier years. Precedent Treatment: The Tribunal relied upon the factual matrix and the accepted position between parties that accumulation amounts were taxed in earlier years (including by opting DTVSV) and that the assessee had already paid tax on those amounts. Interpretation and reasoning: The Tribunal reasoned that once an amount set aside as accumulation under Section 11 was not accepted and had been subjected to tax in earlier assessment years, there was no requirement to show application of that accumulation in the current year to claim deduction. If the earlier accumulation was taxed, the same funds can be allowed as expenditure in the current year, subject to verification that the current-year expenditure was in fact shown as application out of those accumulated funds. The Tribunal accepted the assessee's working showing accumulation in AY 2012-13 and 2013-14 and applications in subsequent years (AY 2015-16 to 2017-18), found those workings not in dispute, and directed the AO to verify and allow the amounts where correctly shown. Ratio vs. Obiter: Ratio - where accumulation under Section 11 was disallowed and taxed in earlier years (including by DTVSV option), corresponding current-year expenditure shown as application out of those taxed accumulations should be allowed against current-year income upon verification. Obiter - broader implications for other fact patterns not before the Tribunal. Conclusions: The Tribunal allowed the additional grounds to the limited extent that the AO must verify and, if correct, allow the amounts (e.g., Rs. 7,01,65,527 for AY 2015-16 and analogous amounts for other years). Alternatively, the Tribunal directed that the net income as per the Income & Expenditure account should be the ceiling for assessed income (see cross-reference to Issue 6). Issue 3 - Characterisation of activities (charitable/exempt v. business under Section 2(15) proviso; education limb) Legal framework: Section 2(15) defines 'charitable purpose' and the first proviso excludes certain activities carried out for the benefit of specified persons or by charging fees/cess; the second limb contemplates education. Precedent Treatment: The assessee relied on earlier orders and an ITAT order in AY 2012-13 being set aside; the AO and CIT(A) treated the activities as falling within the first proviso. The Tribunal, however, did not exhaustively re-adjudicate the merits of charitable status across all years, because alternative reliefs were granted on accumulations/expenditure and net income computation. Interpretation and reasoning: The Tribunal noted that the authorities below found the activities to be business income under Section 2(15) proviso and that the assessee had been treated as earning taxable income from testing/calibration/sponsored fees. Given the alternative directions (allowances/verification and ceiling by net income), the Tribunal found other grounds (including merits of charitable status and education limb) academic and did not decide them on merits. Ratio vs. Obiter: Obiter - no definitive ratio on whether the activities qualify as charitable or fall within the proviso or education limb; the Tribunal left the substantive issue open where alternative relief made adjudication unnecessary. Conclusions: The question of applicability of the first proviso to Section 2(15) or coverage under the education limb was not finally decided; those grounds were rendered academic by the alternative reliefs directed (see Issues 2, 4 and 6). The AO/CIT(A) findings on charitable status were not disturbed as a matter of law in this order. Issue 4 - Duplication of additions and taxation (Section 11(1B)/Section 13(8)) Legal framework: Section 11(1B) deems certain amounts as income where accumulation conditions are not satisfied; Section 13(8) deals with deemed application to charitable purposes in certain circumstances; general principle that identical income should not be taxed twice in different years. Precedent Treatment: The Tribunal examined the factual position that amounts (e.g., Rs. 7,66,16,175 and figures of smaller amounts) had been both offered by the assessee in returns or taxed in earlier years and also added again by the AO in subsequent assessments. Interpretation and reasoning: The Tribunal accepted the assessee's submissions and documentary support that particular amounts were already offered/taxed in earlier years or included in returns for the impugned year. It directed deletion/reduction of duplicate additions after verification (e.g., deletion of AO's addition of Rs. 7.66 crores in AY 2016-17 and similar duplications in other years). The Tribunal emphasized that amounts once taxed in earlier years should not be again included in computing assessed income for subsequent years. Ratio vs. Obiter: Ratio - where an amount has been offered and taxed in an earlier year or already included in the return of the impugned year, the AO must not make a duplicate addition; duplication must be removed upon verification. Obiter - application to other distinct factual patterns. Conclusions: The AO was directed to reduce/delete duplicate additions and ensure assessed income does not include amounts already taxed in earlier years or already accounted for in the return; specifics were remitted to AO for verification and adjustment. Issue 5 - Procedural compliance with Faceless Appeal Scheme (video conferencing) Legal framework: Faceless Appeal Scheme provides for hearing mechanisms including video conferencing where applicable. Precedent Treatment: The assessee raised non-provision of video conferencing as a ground. Interpretation and reasoning: The Tribunal recorded the ground but, given the alternative reliefs granted and the remittal/verification directions, treated the video-conferencing grievance as academic and did not adjudicate it further. Ratio vs. Obiter: Obiter - no determination made on compliance with video conferencing requirement in these appeals. Conclusions: The Tribunal did not grant relief on the ground of lack of video conferencing; the point was rendered academic by other directions. Issue 6 - Rectification, allowance of actual current-year expenditure per Income & Expenditure account and ceiling on assessed income Legal framework: Assessment must be consistent with true income; Income & Expenditure account documents are primary records for computing net income of a trust/association of persons engaged in non-profit activities. Precedent Treatment: The Tribunal relied on the audited Income & Expenditure accounts produced by the assessee and accepted uncontested figures where AO/Ld. DR did not controvert them. Interpretation and reasoning: The Tribunal found that where the Income & Expenditure account shows a particular net expenditure (or net income), the assessed income for the year should not exceed the net income as per those accounts. It directed the AO to allow the correct figures of expenditure (e.g., allow Rs. 8,69,46,455 for AY 2018-19 instead of the reduced figure allowed by the AO) and to process rectification applications to give effect to verified adjustments. The Tribunal repeatedly emphasized that assessed income shall not exceed net income as per the Income & Expenditure account. Ratio vs. Obiter: Ratio - in the context of these appeals, the Tribunal directs that assessed income must not exceed the net income shown in the audited Income & Expenditure account and that the AO must verify and allow correct current-year expenditure and rectification claims where substantiated. Obiter - broader accounting implications beyond these facts. Conclusions: AO to verify and allow correctly substantiated current-year expenditure; process rectification applications; ensure assessed income does not exceed net income as per Income & Expenditure account; appeals partly allowed accordingly, with remaining grounds rendered academic.