SREEKUMARA SAMAJAM,THRISSUR V. ITO, EXEMPTION WARD, THRISSUR

ITA 1116/COCH/2024

AI Insights

The case involves Sreekumara Samajam, a society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, and under Section 12A of the Income Tax Act, which filed an appeal against the order of the National Faceless Appeal Centre (CIT(A)). The dispute centered on the assessment year 2016-17, where the Assessing Officer (AO) reclassified the society's business income as 'Income from Other Sources' due to exceeding 20% of gross receipts, thus disqualifying it from charitable status under Section 2(15) of the Income Tax Act. The CIT(A) upheld the AO's decision without a personal hearing, leading to the society's appeal to the Tribunal, which found procedural improprieties in the CIT(A)'s handling of the case.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633574 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Laws Referred To: Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, Section 12A of the Act, Section 11, Section 147, Section 148, Section 142(1), Section 144, Section 2(15)
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL; SNR
• Assessee Lawyers: NIVEDITA A KAMATH
• Keywords: Set aside; Business income; Opportunity of being heard; Reasonable cause; Principle of natural justice
• Section: 147; 142(1); 11; 12A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Inturi Rama Rao, Accountant Member & Shri Sonjoy Sarma, Judicial Member ITA No.1116/Coch/2024 Assessment Years: 2016-17 Sreekumara Samajam XXI/230 S Paliyamthuruth Anapuzha, Kodungallur Thrissur-680667, Kerala. PAN : AAFTS2292H. v. ITO, Exemption Ward, Thrissur (Appellant) (Respondent) Appellant by : Smt. Nivedita A Kamath, Adv. Respondent by : Smt. Leena Lal, Snr AR. Date of Hearing : 05.06.2025 Date of Pronouncement : 12.06.2025 O R D E R Per Sonjoy Sarma: This appeal is filed by the assessee against the order dated 06.11.2024 by the National Faceless Appeal Centre (hereinafter referred to as ‘CIT(A)’] for the assessment year 2016–17. 2. Brief facts of the case are that the assessee is registered as a society under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, on 02.07.2009. It is also registered under Section 12A of the Act with the Commissioner of Income Tax, Thrissur, and claimed to function as a religious and charitable society. The assessee filed its return of income for A.Y. 2016–17 declaring ‘nil’ income. The assessee was engaged in conducting kuri Business and money-lending business, ITA No.1116/Coch/2024 Sreekumara Samajam 2 which had also resulted in income in the previous years A.Y. 2014– 15 and A.Y. 2015–16. For A.Y. 2016–17, the assessee claimed to have incurred a loss of ₹1,57,89,236 from its business activities and sought to set off the same against other income. The Assessing Officer (AO), upon examining the records, observed that the income from business activities exceeded 20% of gross receipts. Therefore, as per the proviso to Section 2(15) of the Act, the activity could no longer be treated as charitable in nature, and the trust could not avail exemption under Section 11. The AO was of the view that the income should be brought to tax under the head “Income from other sources,” and that the business loss could not be set off against such other income. Accordingly, the case was reopened under Section 147, with prior approval, by issuing notice under Section 148. The assessee failed to file a proper return in response, though a statement of computation of income and financials (P&L, balance sheet) were eventually furnished. However, the specific queries raised in the notices under Section 142(1) were not addressed. Dissatisfied with the incomplete compliance, the AO completed the assessment ex parte under Section 147 r.w.s. 144, making an addition of ₹42,73,425 under the head “Income from Other Sources,” and determined the total income accordingly. 3. Aggrieved by the above order, the assessee preferred an appeal before the CIT(A). The assessee submitted that the activities carried out were charitable in nature and within the permitted scope of Section 11 read with Section 2(15);The set-off of business loss was genuine and justifiable. The Assessing Officer erred in treating the business income as “other income” without affording proper opportunity. The CIT(A) denied the assessee a virtual hearing, even though a written request was made for the same. The CIT(A), however, dismissed the appeal, confirming the AO’s ITA No.1116/Coch/2024 Sreekumara Samajam 3 action without granting a personal hearing, and held that the income was rightly assessed under the head “Income from Other Sources” due to the violation of Section 2(15). 4. Dissatisfied with the above order, the assessee has come in appeal before us. Before us, the learned Authorized Representative (AR) of the assessee submitted that the CIT(A)’s order is bad in law as it was passed without granting reasonable opportunity of being heard, especially after a specific request was made for virtual hearing. The assessee was prevented by reasonable cause from making a full and proper representation before the lower authorities. The entire addition of ₹42,73,425 was unjustified, especially when the trust is still registered under Section 12A and carried out activities for public utility. The assessee is now ready to submit complete evidence and explanations on merits. 5. On the other hand, the learned Departmental Representative (DR) opposed the request and supported the orders of the lower authorities but had no serious objection if the matter was remanded for de novo consideration. 6. We have carefully considered the rival submissions and perused the material available on record. It is evident that the assessment was framed under Section 147 r.w.s. 144 due to non- compliance by the assessee, and the CIT(A) also decided the matter ex parte, allegedly without granting an opportunity for virtual hearing even after a specific request. In our considered view, where the assessee is a registered charitable society under Section 12A, and complex legal questions are involved concerning the application of Section 2(15) and eligibility of exemption, the authorities are expected to provide the assessee with a fair and effective hearing. As held in several judicial precedents, ITA No.1116/Coch/2024 Sreekumara Samajam 4 opportunity of being heard is integral to the principle of natural justice, and its denial renders the order unsustainable. In the present case, we find merit in the assessee’s plea that a proper opportunity was not granted before the CIT(A), particularly where the request for virtual hearing was ignored. In view of the above and in the interest of justice and fair play, we are inclined to set aside the order of the CIT(A) and remand the matter back to his file for de novo adjudication after granting the assessee a reasonable opportunity of being heard, including the option of virtual hearing if so requested. The assessee is directed to cooperate with the proceedings and furnish all necessary details, failing which the CIT(A) shall be at liberty to adjudicate based on material on record. 7. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced on 12.06.2025. Sd/- (Inturi Rama Rao) Sd/- (Sonjoy Sarma) Accountant Member Judicial Member Cochin, Dated: 12.06.2025. RS Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A), Concerned. 4. The CIT Concerned. 5. The DR, ITAT, Cochin. 6. Guard File. Asst. Registrar/ITAT, Cochin "