United Way Of India vs DCIT, Circle Exemption 2(1)

PER S. RIFAUR RAHMAN, AM :

This appeal is filed by the assessee against the order of the Ld. Addl./JCIT (A)-1, Noida [hereinafter referred to as ‘ld. JCIT(A)] dated 20.01.2025 for the Assessment Year 2021-22.

The short issue involved in the appeal is whether the addition/adjustment made by the CPC vide order under section 143(1) of the Income-taxAct, 1961 (for short ‘the Act’) is beyond jurisdiction.

Brief facts of the case are that the assessee was registered on 28^th July 2009 under the Societies Registration Act, 1860, with the objective of undertaking charitable and other welfare related activities and is a registered charitable society, holding valid registration under section 12AA of the Income-tax Act, 1961 (for short ‘the Act’). To carry out its charitable activities, assessee accepts voluntary donations, grants, contributions etc. from any person or entity in or outside India and utilizes such funds for wide range of human service programmes such as education, health, relief of the poor, relief of people effected by natural or other calamities or advancement of any other objects of general public utility.

For Assessment Year 2021-22, the assessee filed its return of income on 05.03.2022 declaring NIL income under the normal provisions of the Act. Since the assessee was not liable for any tax payment, refund amounting to Rs.40,702/- was claimed in the return of income. The CPC proposed the adjustment vide following intimation issued u/s143(1)(a) of the Act on 01.07.2022 and 08.09.2022 :-

In response, the assessee submitted that the proposed adjustment is not warranted as amount of Rs.18,32,75,079 represented donations received for a specific purpose/project and cannot be considered as income from property held under the trust. After considering the reply of the assessee, CPC issued the order dated 27.10.2022 u/s 143(1) of the Act wherein proposed adjustment of Rs.18,32,75,079 mentioned in clause (a) above was made by CPC.

On appeal, after going through the submissions and decisions relied upon by the assessee, the Ld. JCIT(A) held that the addition made by the AO/CPC is due to a mere mismatch which shall not lead to absolute denial of the claims without verification and directed the AO to verify the amount in question i.e. Rs.18,32,75,079/- and if there is no doubt over the applicability of the corpus then the addition shall be deleted.

Aggrieved with the above order, assessee is in appeal before us stating that the ld. JCIT (A) accepted the contentions of the ld. AR of the assessee and allowed the appeal, however set aside the issue to the file of AO which is without jurisdiction, bad in law and liable to be quashed and also on the ground that the order passed by the CPC is without jurisdiction.

Ld. DR of the Revenue relied on the orders of the authorities below.

Considered the rival submissions and material placed on record. We observed that the assessee has raised multiple grounds, the crux of which is that the addition/adjustment under section 143(1) was beyond jurisdiction. We observed that ld. CIT (A) rightly observed that addition made by the AO/CPC is due to a mere mismatch which shall not lead to absolute denial of the claims without verification, however set aside the issue to the AO to verify the amount and if there is no doubt over the applicability of the corpus then the addition shall be deleted. It is an undisputed fact that the assessee holds valid registration under section 12A. Once such registration is in force, the income of the trust is eligible for exemption under section 11, subject to verification of application of income, which necessarily requires examination of facts/books. The scope of adjustment under section 143(1) is limited to prima facie and apparent errors. The Hon’ble Supreme Court in the case of DCIT v. Zuari Estate Development and Investment Co. Ltd. (373 ITR 661) has clearly held that no debatable or interpretational issue can be adjudicated while processing a return under section 143(1). In the present case, the addition/adjustment made on the basis of mismatch/schedules, as mentioned above, is not a mere arithmetical or clerical error; it directly involves examination of the assessee’s claim of application of income u/s.11, which is a substantive issue require verification. The Hon’ble Supreme Court in CIT v. Rajasthan and Gujarati Charitable Foundation, Poona (402 ITR 441) has held that where a trust is registered under section 12A, expenditure incurred for charitable purposes have to be allowed unless specifically hit by sections 11(5) or 13. Such determination cannot be undertaken in summary proceedings. Further, the Hon’ble Delhi High Court in DIT (Exemptions) v. Mehta Charitable Prajnalay Trust (354 ITR 250) has categorically held that application of income u/s.11 must be verified during regular assessment and cannot be summarily disallowed by CPC. Further we observed that ld. CIT (A) has no power to set aside the issue to the AO.

In view of the above judicial precedents and facts, we find that the adjustment/addition u/s.143(1) was not sustainable in law and CPC exceeded its jurisdiction and accordingly, the adjustment/addition is deleted and we allow the grounds raised by the assessee.

In the result, the appeal filed by the assessee is allowed.