The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has held that the entire gross receipts of an educational trust cannot be taxed by completely ignoring the expenditure claimed by it and directed the Commissioner of Income Tax (Appeals) to condone a delay of 1,679 days and decide the trust’s appeal afresh on its merits.

The Bench of Pavan Kumar Gadale (Judicial Member) and Dr Dipak P. Ripote (Accountant Member) observed that the Income Tax Act, 1961, contains no provision permitting the tax department to assess the entire receipts of an institution without considering the corresponding expenditure.

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The appellant/assessee challenged the order passed by the Additional/Joint Commissioner of Income Tax (Appeals)-1, Hyderabad, under Section 250 of the Income Tax Act for the Assessment Year 2019-20.

The trust filed its return of income under Section 139(1) on August 31, 2019. The return was subsequently processed by the Centralised Processing Centre (CPC), Bengaluru, and an intimation under Section 143(1) was issued on June 17, 2020.

Through the intimation, the CPC assessed the trust’s income at ₹6.14 crore. It did so without allowing the expenditure claimed in the return and without granting the exemption sought by the trust.

The CPC denied the exemption on the ground that the institution, though registered under Section 12A or Section 12AA, had not electronically filed the audit report in Form 10B on or before filing its income tax return. Consequently, the exemption claimed under Section 11 was disallowed.

The trust contended that the denial of exemption and taxation of its entire receipts were legally unsustainable. It argued that even if Form 10B had not been filed, there was no statutory provision permitting the authorities to tax the gross receipts without considering the expenditure incurred to earn or utilise those receipts.

It further maintained that there was no procedural default in its case because it had filed the audit report in Form 10BB within the prescribed time. According to the trust, Form 10BB was the applicable audit report for Assessment Year 2019-20.

The trust submitted that the revised criteria governing the applicability of Forms 10B and 10BB were introduced subsequently through a Central Board of Direct Taxes notification dated February 21, 2023. Under those criteria, Form 10B applies in specified cases, including where the total income exceeds ₹5 crore, foreign contributions are received, or income is applied outside India. Form 10BB applies in other cases.

After receiving the Section 143(1) intimation, the trust pursued rectification proceedings instead of immediately filing an appeal. As it did not receive a response from the CPC, it also raised grievances on the Income Tax Portal on December 26, 2024, and January 12, 2025.

When the rectification request and portal grievances did not yield a response, the trust filed an appeal before the Additional/Joint Commissioner of Income Tax (Appeals). However, the appeal was delayed by 1,679 days.

The appellate authority dismissed the appeal at the threshold without examining the underlying tax dispute, holding that the substantial delay had not been satisfactorily explained.

Before the ITAT, the trust filed a detailed affidavit seeking condonation of the delay. It submitted that it had been bona fide pursuing an alternative statutory remedy through its rectification application. It also relied on the disruption caused by the COVID-19 pandemic and the Supreme Court’s orders extending limitation periods during that time.

The Revenue, on the other hand, relied upon the orders passed by the assessing authority and the first appellate authority.

After examining the chronology of events, the ITAT found that the trust had been pursuing an alternative remedy by filing a rectification application. The Tribunal also took note of the fact that part of the relevant period coincided with the COVID-19 pandemic, during which the Supreme Court had extended statutory limitation periods.

The Bench held that these circumstances constituted sufficient cause for the delay in filing the appeal.

The Tribunal also examined the consequences of refusing to condone the delay. It noted that approximately 96% of the trust’s receipts consisted of grants received from the government. As per its income and expenditure account, the trust had total receipts of ₹6,14,25,853, while its actual surplus was only ₹6,19,158.

Despite this, the CPC had treated the entire receipts of more than ₹6.14 crore as taxable income without allowing any expenditure.

“Under the Income Tax Act, there is no provision where entire receipts can be taxed ignoring expenditure claimed,” the Tribunal observed.

The ITAT further recorded that the trust had filed its audit report in Form 10BB within the time permitted under Section 139(1). Therefore, according to the Tribunal, there was no delay on the trust’s part in filing the audit report.

Considering the government grants received by the institution, the small surplus shown in its accounts, the timely filing of Form 10BB and the trust’s pursuit of rectification proceedings, the Tribunal held that refusal to condone the delay would cause grave injustice.

The ITAT accordingly set aside the appellate order and directed the Additional/Joint Commissioner of Income Tax (Appeals) to condone the delay of 1,679 days. The appellate authority was instructed to decide the appeal afresh on its merits after permitting the trust to file all necessary documents and providing it with a proper opportunity of hearing.

The Tribunal clarified through the nature of its directions that it had not finally adjudicated the trust’s claim for exemption. The underlying dispute concerning the exemption and computation of taxable income will now be examined afresh by the first appellate authority.

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