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TMI Blog2025 (5) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... tiny under CASS for the reason "large deduction claimed u/s 57 (Business ITR)". Statutory notices u/s 142(1) and 143(2) of the Income Tax Act, 1961 (the "Act") along with questionnaire were issued and served upon the assessee. In response thereto, the assessee vide its online submission dated 11-12-2021, inter alia stated that the main object of the trust is educational and social welfare and not for the purpose of profit, educational schools are run by the trust in Latur District at Udgir and Ahmedpur in rural areas and that the income from other sources includes salary grant received from Government against salary paid to teaching and non-teaching staff is claimed as deduction from other sources. The Ld. Assessing Officer ("AO") noted that the assessee did not file any documents indicating grant of approval u/s 10(23C)(vi) or section 12AA of the Act and hence not eligible to claim its receipts/income as exempt from taxation. Vide notice u/s 142(1) of the Act dated 25.11.2021, the Ld. AO issued a detailed questionnaire asking the assessee to furnish and explain nature and source of income, computation of deduction claimed u/s 57 and also to explain how it qualifies for such deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of the Ld. AO recorded by him in para 6 of the assessment order. The relevant portion of the submission before the Ld. CIT(A) is reproduced below : "4.00 The learned AO in his assessment order dated 21/09/2022 has made variation/ addition of Rs 6,69,44,047/- by disallowing the claim of assessee u/s 57 of the Income Tax Act, 1961 mainly on following grounds (refer para 6 of assessment order dt. 21/09/2022) and our submission on grounds raised by learned AO for addition of Rs 6,69,44,047/- by disallowing the claim of assessee u/s 57 of the Income Tax Act, 1961 is as under: - 1) Though assessee has stated in his letter many times that the Institution is covered u/s 10(23C)(iiiab) of the IT. Act. 1961 However, no documents to substantiate its claim has been provided. No document showing the grant allowed to the Institution by the government has been produced. Except for enclosing the Paysheet prepared by each School of the Trust. In reply to SCN issued on 26/08/2022 assessee submitted copy of grant dating back to the year 1997 and 2000 and that in respect of 6 schools out of 10 schools of the assessee. (Para No. 6. 1 of Assessment Order dt. 21.09.2022) The institutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared and signed by respective schools heads are being submitted to Pay and Provident Fund Unit, Zilha Parishad, Latur (not to the EPF Department), After verification of pay sheets submitted by schools the same is signed by Superintendent, Pay and Provident Fund Unit, Zilha Parishad, Latur (and not the Secretary Pay and Employees Provident Fund)). The name of department looking after the salary grants is "Pay and Provident Fund Unit" and not Provident Fund Department. It seems that the word "Pay" is remained to be observed by learned AO and has concluded that the pay sheets are submitted to EPF Department for Provident Fund purpose. 3) If assessee is claiming exemption u/s 10(23Ciabl, it was required to file return of income in ITR-7. However, the ROI for the relevant assessment year has been filed in ITR-5. When assessee was confronted, he has merely submitted a copy of condonation filed u/s 119(2)(b) before CIT(E), Pune. The outcome of the said application in silent. Further, on verification of E filing portal as on date, it is seen that no return has been filed by the assessee in ITR-7. (Para No. 6.3 of Assessment Order dt. 21.09.2022). As a procedural matter and with the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution for quashing the said notices. The defense of the Revenue was that the particulars of profits and gains of business had not been submitted with the returns and that, further, one of the returns was not properly verified. Therefore, all the returns were invalid in law. c) On the aforesaid facts, it was held by a Division Bench of this court that the returns could not be held to be invalid and non-existent. It was held further that there was a distinction between non-filing of a return and filing of an incorrect and incomplete return. d) The Income-tax Act did not provide for rejection of an invalid return but under Section 143, a duty was cast on the Income-tax Officer to assess the total income after notice to the assessee and considering the evidence that might be produced. It was observed that there could be cases where the returns were incomplete to such an extent that they could not be regarded as returns in law, for example, where the return was not signed by the assessee at all or where a blank return was filed. But where returns had been signed and verified by the assessee and the only defect in the returns was that the particulars of the profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a provisional assessment under Section 141 and had levied interest on the basis that the return was actually filed earlier. The court answered the reference in favour of the assessee. Sir, considering the aforesaid decision of the Hon. Madras High Court, your assessee trust would like to state that, the correct form of return i.e. ITR-7 may please be accepted. Since the ITR-5 submitted has been processed already u/s 143(1) by the CPC vide intimation, dt.: 29.03.2021 and CPC DIN CPC/2021/A5/159114926. Your honour, your assessee trust would like to state that; a) The correct ITR-7 was required to be submitted, but inadvertently ITR-5 was submitted. It is only a technical or procedural mistake. b) A return of income submitted under ITR-5 is processed and intimation u/s. 143(1) is issued on 29.03.2021 and DIN is CPC/2021/A5/159114926. c) As a result of the said mistake, neither the assessee trust is benefitted nor there was loss of revenue to the Government. d) All the particulars in ITR-5 have been filled in ITR-7. No new material or data is furnished in ITR-7. This shows that, there is a technical mistake in submission of ITR-5. e) The aforesaid mistake was resulted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s likely to result into demands and in effecting their recovery, they are lethargic and indifferent in granting refunds and giving reliefs due to assessees under the Act. Dilatoriness or indifference in dealing with refund claims (either under s. 48 or due to appellate, revisional, etc., orders) must be completely avoided so that the public may feel that the Government are actually prompt and careful in the matter of collecting taxes and granting refunds and giving reliefs. 3. Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way. particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run. benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 88,18,568 3,49,173 91,67,741 Abdul Hamid Urdu Prathmik Ahmedpur 62,23,614 5,36,528 67,60,142 Keshavrao Patil Vidyalaya Bothi 98,22,346 1,22,207 99,44,553 Mahatma Phule 32,58,697 28,325 32,87,022 Prathmik Keshavrao Patil Vidyalaya Bothi Andhori Sant Sadghuru Prathmik Ujana 29,11,560 37,321 29,48,881 Sant Sadghuru Vidyalaya Ujana 1,04,13,812 1,55,520 1,05,69,332 Rokdoba Vidyalaya Takalgaon 68,93,372 72,581 69,65,953 Balkjrushna Vidyalaya Ujalamb Chatrapati Shahu Vidyalaya Nitur 60,27,896 3,91,738 64,19,634 Chatrapati Shahu Vidyalaya 1,01,18,510 5,13,767 1,06,32,277 TOTAL Rs. 6,44,88,375 22,07,160 6,66,95,535 Thus, during the Fin. Yr.: 2019-20, the total grant received from the Government was Rs. 6,66,95,535. The grant received is already proved by submission of sanction letters and certificates of the Education Department. Kindly note that, the credit side of the Income and Expenditure Account for the year ended 31.03.2020 shows credit Rs. 6,69,05,746, which includes grant received from Government Rs. 6,66,95,535, which works out to 99.68% of the total collection. The break up of the same is as under: Sr. No. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a result, it is beyond doubt that, payment of salary, which works out to Rs. 6,44,88,372 Le. 96% of the total expenditure. The remaining expenditures, which are incidental to the object. The brief details of the amounts expended during the Fin. Yr.: 2019-2020. Sr. No. Particulars Amount 1 2 3 01 Payment salaries of the to teaching and non teaching staff of ten institutions. 6,44,88,372 02 Audit Fees 59,800 03 Depreciation on assets 76,614 04 Expenditure other on purposes, but incidental to the main purpose, such as building rent etc., 23,19,261 05 Total (01 to 04): 6,69,44,047 Your honour, from the aforesaid details, it is very clear that, none of the aforesaid expenditure is "capital expenditure", "personal expenses of the assessee trust". Moreover, it is beyond doubt that, the entire expenditure is incurred wholly and exclusively for the purpose for which the income or earnings were made. Further, whole of the expenditure is incurred in the Fin. Yr.: 2019-20 relevant to the asst. year: 2020-21. Hence, the assessee trust would like to state that, the said expenditure is neither prior period or after period expenditure. In short, the assessee trust has fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context, we draw your kind attention to the following judicial precedents: * Eastern Investment Ltd., v. CIT (1951) 20 ITR 0001 (SC) Relevant Para No.: 9 and 10 are reproduced below: * On a full review of the facts it is clear that this transaction was voluntarily entered into in order indirectly to facilitate the carrying on of the business of the company and was made on the ground of commercial expediency. It therefore falls within the purview of s. 12(2) of the IT Act, 1922, before its amendment. * This being an investment company, if it borrowed money and utilised the same for its investments on which it earned income, the interest paid by it on the loans will clearly be a permissible deduction under s. 12(2) of the IT Act. * Whether the loan is taken on an overdraft, or is a fixed deposit or on a debenture makes no difference in law. The only argument urged against allowing this deduction to be made is that the person who took the debentures was the party who sold the ordinary shares. It cannot be disputed that if the debentures were held be a third party, the interest payable on the same would be an allowable deduction in calculating the total income of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Section 57(iii) does not require this purpose must be fulfilled in order to qualify the expenditure for deduction. * It does not say that, expenditure shall be deductible only, if any income is made or earned. There is in fact nothing in the language u/s. 57(iii) to suggest that, the purpose for which the expenditure is made should fructify (make fruitful or productive) into any benefit by way of return in the shape of income. * Based on the aforesaid principles, it was decided by the Hon. Supreme Court that, interest paid on money borrowed for investment in shares is deductible under s. 57 (iii) even though the shares did not yield any dividend. Sir, on the basis of the aforesaid principles of Hon. Supreme Court in the case of Rajendra Prasad Moody, the assessee trust would like to state that, it has earned income by way of Government Grant and other source and also incurred the expenditure for the purpose for which income was earned. Therefore, whole of the expenditure incurred is allowable deduction u/s. 57(iii) of the Act. In view of the facts stated above, your appellant pray that, all the grounds of appeal may please be allowed and appellant may please be granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings in response to the show cause notice, the AO had noted that the claim of receipt of income and expenses incurred for earning the said income was not supported by any documentary evidences and the even the submission filed was found incomplete as far as the expenses are concerned like salary and wages and other expenses incurred for running the schools. Even during appellant proceedings also the appellant failed to demonstrate its claim with proper supporting evidences. Therefore the addition made by the AO is confirmed and the grounds of appeal raised by the appellant are dismissed." 5. Dissatisfied, the assessee is in appeal before the Tribunal raising the following grounds of appeal : "1. The learned CIT (Appeals), NFAC, Delhi erred in law and on facts in confirming the additions made by the A.O. U/Sec. 143(3) r.w.s. 144B of the Income Tax Act, 1961. 2. The learned CIT (Appeals), NFAC, Delhi has erred in not appreciating the contention of the Appellant that Appellant is eligible for exemption u/s 10(23C)(iiiab) of the Act and confirming the addition of Rs. 6,69,44,047/- made by the AO by disallowing the deduction claimed u/sec. 57 of the Act by the Appellant, on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a procedural technical mistake and as a result of this mistake neither the assessee trust is benefitted nor there was any loss of revenue to the Government. 6.2 The Ld. AR then referred to the details of income u/s 56 of the Act and the amount claimed as deduction u/s 57 of the Act as per ITR-5 placed at page 131 of the paper book filed before the Ld. CIT(A) which is reproduced below : 6.3 Reiterating the submissions made before the Ld. CIT(A), the Ld. AR submitted that from the details reproduced above that none of the expenditure is in the nature of capital expenditure because the Government grant which was received specifically for payment of salary has been used for the same purpose which works out to Rs. 6,44,88,372/- i.e. 96% of the total expenditure includes payment of salaries to the teaching and non-teaching staff of ten institutions. The remaining expenditure, which are incidental to the object includes audit fees of Rs. 59,800/-, depreciation on assets of Rs. 76,612/- and expenditure on other purposes, but incidental to the main propose, such as salary arrears bills, nutritious food expenses, exam expenses, building rent and other expenses etc. amounts Rs. 23,19,26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grant received by the assessee has been substantiated by the sanction letters and certificates of the School Education Department, Government of Maharashtra (pages 21 to 26 of the paper book refers). These documents were available with the Ld. AO/CIT(A). However, the same have not been considered while adjudicating upon the impugned issue. We observe that the Ld. CIT(A) as well as Ld. AO has rejected the claim of the assessee for the reason that it was claimed under incorrect Form i.e. ITR-5 instead of the correct Form i.e. ITR-7. The Ld. Counsel for the assessee has submitted that the said error has occurred inadvertently due to mistake of the assessee's Tax Consultant which has been accepted by him in his affidavit (page 27 of the paper book refers) which was filed before the Ld. CIT(A) giving the month end pressure of work as the reason for the said mistake. The Ld. CIT(A) instead observed in his appellate order that the assessee failed to file the return in the correct Form without any valid reason. The assessee in order to rectify this irregularity, made an application u/s 119 of the Act to the Ld. CIT (Exemption), Pune requesting for granting permission to file revised Form ..... X X X X Extracts X X X X X X X X Extracts X X X X
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