ITAT Mumbai Restores Accumulation Claim of Charitable Trust to CIT(A) for Fresh Adjudication
Overview of the Case
The Mumbai Bench of the Income Tax Appellate Tribunal has delivered a significant ruling concerning the powers of the Commissioner of Income Tax (Appeals) to entertain fresh legal claims raised during appellate proceedings. In the matter of Kutchi Lal Rameshwar Ashram and Annakshetra Trust Vs Income Exem., the Tribunal clarified that the first appellate authority possesses broader powers than the Assessing Officer and can examine legal claims even when such claims were not included in the original return of income.
The dispute centered around a charitable trust registered under Section 12A of the Income Tax Act, 1961, which sought exemption for accumulated funds under Section 11(1)(a) of the Act. Due to inadvertent errors in reporting, the claim was not properly reflected in the Income Tax Return (ITR) and Form 10B, resulting in denial during processing under Section 143(1).
Factual Background of the Appeal
Profile of the Assessee Trust
The assessee operates as a registered charitable trust under Section 12A of the Income Tax Act, 1961, engaged in carrying out charitable and religious activities. For the Assessment Year 2023-24, the trust maintained comprehensive records of its financial transactions and activities.
Financial Details for AY 2023-24
During the previous year relevant to Assessment Year 2023-24, the trust reported the following financial particulars:
- Total Gross Receipts: ₹7.48 crore
- Amount Applied for Charitable and Religious Purposes: ₹6.99 crore (approximately)
- Amount Accumulated and Set Apart: ₹48.79 lakh
The accumulated amount of ₹48.79 lakh represented less than 15% of the total gross receipts, thereby qualifying for exemption under the accumulation provisions of Section 11(1)(a) of the Income Tax Act, 1961.
The Reporting Error
While filing the return of income for the year under consideration, the assessee trust inadvertently failed to properly report the accumulated amount that was set apart for future application toward charitable or religious objectives. This inadvertent omission extended to Form 10B, where the auditor incorrectly mentioned "Nil" against clause 31(xxi), which specifically deals with amounts accumulated or set apart for charitable purposes.
The error remained unnoticed until the assessee received the intimation under Section 143(1) of the Act, which processed the return without allowing the benefit of accumulation under Section 11(1)(a).
Rectification Attempts
Upon discovering the error, the trust's auditor executed a sworn affidavit dated 27.07.2025, formally acknowledging the mistake that occurred during the reporting in Form 10B and certifying the accurate position with correct figures. The affidavit was submitted to substantiate that the trust had indeed accumulated the eligible amount within the permissible limit.
However, since there exists no provision to file a revised Form 10B, the assessee could not rectify the error through that route.
Assessment Proceedings
The assessment was subsequently completed under Section 143(3) of the Income Tax Act, 1961. During these proceedings, the Assessing Officer did not dispute the fundamental eligibility of the trust for exemption under Section 11 of the Act. The officer proceeded on the basis of the intimation issued under Section 143(1), which had not granted the accumulation benefit due to the reporting error.
The assessee realized the full impact of the inadvertent error only upon receipt of the final assessment order, which prompted the filing of an appeal before the Commissioner of Income Tax (Appeals).
Proceedings Before CIT(A)
Grounds Raised Before First Appellate Authority
The assessee trust raised the appeal before the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, on multiple grounds:
Ground One: The assessee contended that the CIT(A) possesses the authority to entertain a fresh claim even in the absence of a revised return of income being filed by the appellant. The trust argued that this power should have been exercised in the present circumstances.
Ground Two: The trust emphasized that neither the first appellate authority nor the Assessing Officer during the assessment proceedings under Section 143(2) had recorded any adverse findings regarding the income earned and applied during the previous year. The excess of income over expenditure amounting to ₹48,79,637 being less than 15% of gross receipts should be treated as exempt under the accumulation provisions.
Ground Three: The assessee objected to the denial of personal hearing through video conferencing, which prevented the making of oral submissions. The trust argued that such denial constitutes a violation of principles of natural justice and contravenes paragraph 13(2) read with paragraph 13(3) of the e-Appeals Scheme, 2023, notified under Section 246(5) of the Income Tax Act.