School Fees Deposited in Bank Account Treated as Unexplained Income: ITAT Remits Matter to AO to Examine Exemption u/s 10(23C)(iiiad) [Read Order]

The Bangalore Bench of the Income Tax Appellate Tribunal ( ITAT ) remitted the matter to the Assessing Officer (AO) to examine the exemption under section 10(23C)(iiiad) of Income Tax Act,1961, in relation to school fees deposited in the bank account, which were earlier treated as unexplained income.

Shobha Welfare Society,appellant-assessee, was registered under the Karnataka Society Registration Act, 1960 and was engaged in providing formal education to economically weaker students through “Max Muller High School,” which was permanently recognised by the Government of Karnataka.

During the financial year 2015-16, relevant to the assessment year 2016-17, the appellant collected school fees from 349 students and incurred various expenses for running the institution. Its books of account were duly audited by a Chartered Accountant.

Based on information received, the department noticed cash deposits of ₹64,98,470 in the appellant’s HDFC Bank account. However, the assessee did not file its return of income under section 139 of the Act.

Notices under sections 148 and 142(1), along with a show-cause notice under section 144, were issued. Since there was no compliance or submission of any explanation, the AO treated the entire cash deposit of ₹64,98,470 as unexplained money under section 69A and added it to the total income while completing the assessment under sections 147 read with 144 of the Act on 23.02.2024.

The assessee challenged this order before the Commissioner of Income Tax(Appeals)[CIT(A)]. However, despite being given several opportunities, there was no response or compliance. Observing that the appellant was not interested in pursuing the matter, the CIT(A) dismissed the appeal.

The assessee, aggrieved by the dismissal, filed the present appeal before the tribunal.

The assessee counsel stated that the society was running a school and had deposited the fees collected from 349 students during the financial year 2015-16 into its bank account. It was submitted that the society, being a non-profit organisation, had total gross receipts of ₹79,85,331 and spent ₹79,10,268 on running the school for the assessment year 2016-17.

The counsel explained that the return of income was not filed under a genuine belief that the income was exempt under section 10(23C)(iiiad) since the gross receipts were below ₹1 crore.

The departmental representative argued that the assessee had not responded during the assessment or appellate proceedings and that the authorities had correctly treated the entire cash deposits as unexplained income under section 69A of the Act.

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The two member bench comprising Keshav Dubey( Judicial Member) and Waseem Ahmed(Accountant Member) noted that the assessee society was a non-profit running “Max Muller High School” for economically weaker students and had failed to represent its case before the lower authorities. The assessee counsel explained that frequent management changes had caused the non-representation.

The appellate tribunal observed that the school’s gross receipts were below ₹1 crore and that the income could be eligible for exemption under section 10(23C)(iiiad). Since these facts were not examined earlier, the matter was remitted to the AO for fresh consideration.

The assessee was directed to provide all relevant records, accounts, bills, vouchers, and documents, and to be given an opportunity of being heard. The tribunal cautioned that no leniency would be granted in case of further default.

The appeal was partly allowed for statistical purposes.

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