The Raipur Bench of Income Tax Appellate Tribunal (ITAT) has upheld the penalty under Section 271B of the Income Tax Act holding that the charitable institution would be liable for tax audit under Section 44AB of the Income Tax Act for activities prior to the registration under Section 2(15) of the Income Tax Act.
The assessee, Vakrangee Foundation was a society registered under Chhattisgarh Firms & Societies Act on 31.07.2010, running a school under the name “Academic World School” which was situated in Lolesara district Bemtara, Chhattisgarh. Return of income was e-filed on 15.03.2018 for the relevant AY 2017-18. For the year under consideration assessee society has a receipt of Rs. 12,13,08,84/-, therefore it was the view of the AO that assessee was liable for Tax Audit under Section 44AB of the Income Tax Act.
During the assessment proceedings assessee submitted that it was a educational institution running a CBSE Affiliated school since inception and imparting education was an activity for charitable purpose under Section 2(15) of the Income Tax Act therefore provision of Section 44AB of the Income Tax Act which related to persons carrying on Business would not be apply in assessee’s case. Therefore, no penalty under Section 271B of the Income Tax Act would be initiated and levied on the assessee.
However, AO had not found the explanation of the assessee satisfactory who believed that the assessee was earning profit, registration under Section 12AA of the Income Tax Act was granted to the assessee from AY 2018-19, therefore provision of Section 2(15) of Income Tax Act as claimed by the assessee was not applicable during the year under consideration. AO with such observation, imposed penalty under Section 271B of the Income Tax Act on the assessee.
G.S.Agarwal, on behalf of the assessee submitted that the assessee had shown its income for the relevant year 2017-18 under the head Income from Other Sources as the assessee was granted with registration under Section 12AA of the Income Tax Act effective from AY 2018-19. The same was treated as business income by the AO which was incorrect since the assessee was involved in educational activities, having been involved in no other activities and was an educational institution since beginning.
Satya Parakash Sharma, on behalf of the revenue on the other hand strongly supported the order of revenue authorities.
The two-member Bench of Ravish Sood, (Judicial Member) and Arun Khodpia, (Accountant Member) observed that certain conduct of the assessee in filing of return in form ITR5, showing itself as an AOP/BOI, offering the surplus as taxable income. It was also a fact that the assessee was in position of registration under Section 12AA dated 18/12/2017 when the return for AY 2017-18 was filed on 15-03-2018.
And during the hearing when it was queried whether the assessee which had receipt of more than Rs. 12.00 crores whether the assessee had got its accounts audited under the provisions of income tax act applicable on charitable organisation and report in form 10B was furnished, it was answered that the assessee was not having 12AA for the relevant year thus such audit was not conducted.
The Bench dismissed the appeal filed by the assessee and upheld the penalty imposed under Section 271B of the Income Tax Act.
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