Income Tax Appellate Tribunal rules against treating trust’s gross receipts as income in entirety due to unconsidered expenditure and delays

The Pune bench of the Income Tax Appellate Tribunal has ordered a fresh hearing for a trust after ruling that its total receipts cannot be taxed without accounting for expenses, citing procedural delays and the importance of fair assessment.

The Pune bench of the Income Tax Appellate Tribunal has said an educational trust’s entire receipts cannot be brought to tax while ignoring the spending shown against them, and it has ordered the first appellate authority to hear the case afresh after condoning a delay of 1,679 days.

In a ruling involving a trust assessed for the 2019-20 tax year, the tribunal said the tax department had no basis in the Income Tax Act, 1961, for treating gross receipts as income without allowing the corresponding expenditure. The case arose after the Centralised Processing Centre in Bengaluru processed the trust’s return and assessed income of ₹6.14 crore, while refusing the exemption claimed under Section 11.

The dispute turned in part on the filing of audit reports. The trust said it had submitted Form 10BB on time and argued that this was the correct form for that assessment year. It also said the later CBDT notification of February 21, 2023, which clarified when Forms 10B and 10BB apply, could not be used to fault its earlier compliance. The tax department, however, had denied exemption on the ground that Form 10B had not been filed electronically before the return.

The trust did not appeal immediately after receiving the Section 143(1) intimation. Instead, it pursued rectification proceedings and later raised grievances on the income tax portal in December 2024 and January 2025. When those efforts did not lead to a response, it filed an appeal against the order of the additional or joint commissioner of income tax appeals, but by then the delay had stretched to 1,679 days. The appellate authority rejected the appeal at the threshold.

Before the tribunal, the trust said it had acted in good faith by first trying an alternative statutory remedy and also pointed to the disruption caused by the COVID-19 pandemic, during which the Supreme Court extended limitation periods. The tribunal accepted that explanation, saying those circumstances amounted to sufficient cause for the delay.

The bench also looked at the substance of the tax demand. It noted that roughly 96% of the trust’s receipts were government grants and that its accounts showed total receipts of ₹6,14,25,853 but a surplus of only ₹6,19,158. On that basis, it said refusing to condone the delay would cause grave injustice. The tribunal therefore set aside the appellate order and sent the matter back for a fresh decision on the merits, without finally ruling on the exemption claim itself.