Entire Receipts of Trust cannot be Taxed Solely on Filing of Wrong ITR: ITAT directs to Delete Additions [Read Order]

The assessee, though eligible for exemption as it was substantially financed by the Government of Gujarat, erroneously filed its return in Form ITR-5 instead of Form ITR-7, which is the prescribed form for entities claiming exemption under Section 10(23C) of the Act. In the return filed by the assessee on the declared total income as NIL after claiming exemption of ₹16,30,63,750/-. However, due to the incorrect form, the AO processed the return and treated the entire receipts as taxable income.

The assessee proceeded with an appeal before the CIT(A. It held that the assessee’s failure to comply with the mandatory return-filing format rendered its exemption claim untenable. Consequently, the appeal of the assessee was dismissed, and the tax demand of ₹6,51,13,960/- was upheld. Aggrieved by this order, the assessee proceeded with an appeal before the ITAT.

The Tribunal noted that while dealing with identical set of facts, ITAT Pune in the case of Shahu Shikshan Prasarak Mandal vs. ACIT held that where assessee, educational trust, filed its return in ITR-5 instead of ITR-7 but had evidently demonstrated that it was eligible for claim of exemption under section 10(23C) and all conditions laid therein had been duly satisfied by assessee trust, matter was to be remanded to Assessing Officer to verify claim of assessee afresh.

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Also the Tribunal quoted the case of Kathikode Charitable Trust vs. Income-tax Officer, ITAT held that where assessee-trust filed its return in Form 5 claiming a loss, which was meant for business income, however, it was a charitable trust working for the promotion of education, culture and philosophy, since returning income in the wrong Form could not result in converting loss into income, AO was to be directed to consider assessee's return as a rectification petition.

In view of the foregoing, and having regard to the facts and circumstances of the case, it is evident that the assessee was substantially financed by the Government of Gujarat during the relevant assessment year and had duly satisfied the conditions for claiming exemption under Section 10(23C)(iiiab). The only basis for denial of such exemption was the inadvertent filing of the return in Form ITR-5 instead of the prescribed Form ITR-7. The assessee had placed on record sufficient documentary evidence, including audited financials and Government grant orders,substantiating its eligibility for the exemption claimed.

The two-member bench of Annapurna Gupta (Accountant Member) and Siddhartha Nautiyal ( Judicial Member) held that the exemption under Section 10(23C)(iiiab) ought to have been allowed to the assessee.

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