2025 (11) TMI 1578 - AT - Income Tax

Tax exemption u/s 11 denied as trust failed to file Form 10B; entire receipts taxed as AOP

ITAT Raipur dismissed the assessee-trust's appeal and upheld the CPC/AO and CIT(A)/NFAC orders denying exemption u/s 11. The Tribunal noted that the ... Exemption u/s 11 - administrative /establishment expense disallowed - upholding action of CPC/A.O in bringing to tax entire receipts of assessee - HELD THAT:- As observed correctly by the Ld. CIT(Appeals)/NFAC that the CPC/A.O has mentioned 'no forms filed'. Further, at the end of intimation, the CPC/A.O has given the reasons for denying exemption stating that “The Trust or Institution registered u/s.12A/12AA/12AB has not E-filed the Audit Report in Form 10B one month prior to the due date for furnishing return u/s.139(1). Hence the exemption claimed in Sr.no.2 [exemption claimed u/s.11(1)(d)] and Sr.no. 4i to 4viii of Part B-TI is not allowable in accordance with the provisions of Section-12A(1)(b) of the Income tax Act.' Therefore, the said exemption has been disallowed to the assessee for not filing Form 10B. Regarding the contention of the assessee that only the surplus after reducing expenses from receipts should be charged to tax, it has been held by the CIT(Appeals)/NFAC that since the exemption u/s.11 of the Act is denied to the assessee for not satisfying the conditions prescribed for the same, therefore, no amount can be allowed as exempt as application of income towards charitable or religious purposes because the trust is no more considered charitable or religious and is assessed as AOP. Therefore, the claim of the assessee that the amount as expenses may be allowed, was dismissed by the Ld. CIT(Appeals)/NFAC. Accordingly, the action of the CPC/A.O denying exemption u/s.11 of the Act and charging tax on the entire income was upheld by the Ld. CIT(Appeals)/NFAC. Assessee could neither disprove these facts on record nor could demonstrate that audit report in Form 10B was filed as per provisions of the Act. It is further noted that the case laws relied by the Ld. Counsel are substantially different and therefore cannot come to the rescue since in those cases audit report in Form 10B were filed late before assessment whereas, in the present case the assessee has not filed Form 10B at all. No infirmity found in the view taken by the Ld. CIT(Appeals)/NFAC which is hereby upheld. Appeal of the assessee is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether exemption under section 11 could be denied to a trust registered under section 12A/12AA for assessment year 2022-23 on the ground of complete non-filing of audit report in Form No.10B as required under section 12A(1)(b). 1.2 Whether, upon denial of exemption under section 11 for non-compliance with section 12A(1)(b), the entire gross receipts could be brought to tax without allowing deduction of administrative/establishment expenses, treating the entity as an Association of Persons (AOP). 1.3 Whether the intimation under section 143(1) suffered from lack of reasons in denying exemption under section 11 and in taxing the entire gross receipts. --- 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Denial of exemption under section 11 for non-filing of Form 10B Legal framework (as discussed) 2.1 The Court noted that for assessment year 2022-23, section 12A(1)(b) required that the accounts of a trust or institution claiming exemption under section 11 be audited and that the audit report in Form No.10B be furnished one month prior to the due date for filing the return of income under section 139(1). Interpretation and reasoning 2.2 The assessee, being a society running educational institutions and registered under section 12A/12AA, filed an updated return in Form ITR-7 under section 139(8A), which, according to the revenue authorities, is applicable to persons claiming exemption under section 11, section 10(23C), etc. 2.3 The appellate authority recorded that the assessee did not furnish the audit report in Form No.10B at all, either within time or belatedly. The intimation under section 143(1) specifically mentioned 'no forms filed' and stated that the audit report in Form 10B had not been e-filed one month prior to the due date under section 139(1), and therefore exemption claimed in the relevant parts of ITR-7 was not allowable in accordance with section 12A(1)(b). 2.4 The contention that exemption was denied merely on account of delay in filing of return, or that no reason was provided by CPC, was rejected in view of the explicit reason recorded in the intimation-non-filing of Form 10B. 2.5 Case law cited by the assessee, where Form 10B was filed late but before completion of assessment, was distinguished on the ground that in the present case Form 10B was never filed at all; thus, the factual and legal matrix was materially different. Conclusions 2.6 Non-filing of audit report in Form 10B as mandated by section 12A(1)(b) rendered the assessee ineligible for exemption under section 11 for the year in question. 2.7 The action of the CPC/A.O and the appellate authority in denying exemption under section 11 on this ground was upheld. --- Issue 2: Taxability of gross receipts and disallowance of administrative/establishment expenses Legal framework (as discussed) 2.8 The appellate authority examined the scheme of sections 11, 12 and 13, which provide exemption in respect of income of charitable or religious trusts or institutions on the basis of application of income and subject to fulfilment of the conditions prescribed therein, inter alia through section 12A(1)(b). Interpretation and reasoning 2.9 The assessee contended that even if exemption under section 11 was denied, only the surplus after reducing expenses from receipts should be charged to tax, and that administrative/establishment expenses of Rs. 39,72,977/- ought to be allowed against gross receipts of Rs. 36,60,410/-. 2.10 The appellate authority reasoned that under section 11(1) exemption is linked to application of income for specified charitable or religious objects, and such exemption, including recognition of expenses as application of income, is available only when the entity satisfies the conditions prescribed in sections 11, 12 and 13. 2.11 Once exemption under section 11 is denied for non-compliance with section 12A(1)(b), the trust/institution is not to be treated as charitable or religious for that year and is instead assessed as an AOP. In such a situation, no amount can be allowed as exempt as 'application of income' towards charitable or religious purposes. 2.12 On the facts, the authority held that the claim of Rs. 39,72,977/- as expenses, premised on the scheme of exemption and application of income under sections 11-13, could not be allowed when exemption itself was denied due to non-filing of Form 10B. 2.13 Case law relied upon by the assessee was distinguished because those assessees were either not registered under section 12A/12AA or stood on a different factual footing; whereas here the assessee, being registered and having filed ITR-7 claiming exemption, failed to satisfy the mandatory audit condition. Conclusions 2.14 With denial of exemption under section 11, the assessee could not claim deduction of expenses as 'application of income' under the charitable trust scheme; the entire receipts of Rs. 36,60,410/- were liable to be taxed. 2.15 The action of CPC/A.O in treating the gross receipts as income without allowing the claimed expenses, and the appellate authority's confirmation of that action, were upheld. --- Issue 3: Adequacy of reasons in intimation under section 143(1) Interpretation and reasoning 2.16 The assessee argued that exemption under section 11 was denied without assigning any reasons in the intimation under section 143(1). 2.17 The appellate authority examined the intimation and found that it specifically recorded that no forms (i.e., Form 10B) were filed and, at the end, clearly stated that the audit report in Form 10B had not been e-filed one month prior to the due date under section 139(1), and therefore exemption claimed under section 11(1)(d) and related items of Part B-TI of ITR-7 was not allowable under section 12A(1)(b). 2.18 The Tribunal observed that this constituted a clear and adequate reason for denial of exemption and for taxing the entire receipts. Conclusions 2.19 The contention that the CPC/A.O did not provide reasons in the intimation for denial of exemption under section 11 was rejected. 2.20 The intimation under section 143(1), as supported and affirmed by the appellate authority, was held to be valid in law and on facts.