Shri Saibaba Charitable Trust Claimed Nil Income but Faced Tax on Rs. 49,321 Donation Expense; ITAT Rules Section 115BBE Tax Rate Cannot Apply

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has held that the provisions of Section 115BBE of the Income Tax Act, 1961, are attracted only in cases where additions are made under Sections 68, 69, 69A, 69B, 69C, or 69D and cannot be extended to every addition or disallowance made during assessment proceedings.

The assessee is Shri Saibaba Charitable Trust, which is engaged in charitable and educational activities and had filed its return of income for assessment year 2019-20, declaring nil income after claiming exemption under Sections 11 and 12 of the Act. During scrutiny proceedings under Section 143(3), the AO noticed that the trust’s application for registration under Section 12AA had been rejected. Consequently, exemption under Sections 11 and 12 was denied. The AO further disallowed expenditure of Rs 49 thousand incurred towards charitable purposes and completed the assessment by determining total income at Rs 50.38 thousand against the nil income returned by the assessee. The said addition was also subjected to tax under Section 115BBE. The National Faceless Appeal Centre (NFAC) upheld the action of the AO.

Before the Tribunal, the assessee contended that the expenditure is a genuine charitable payment and that Section 115BBE could not be applied, as the addition had not been made under Sections 68 to 69D of the Act. The Revenue submitted that in the absence of registration under Section 12AA, the assessee was not entitled to claim exemption under Sections 11 and 12.

After examining the assessment order, the Tribunal observed that the addition had not been made under Sections 68, 69, 69A, 69B, 69C, or 69D. There was no finding that the amount represented unexplained cash credits, unexplained investments, unexplained money, or unexplained expenditure. Rather, the addition had arisen solely because the exemption claimed by the assessee had been denied.

The Bench held that the scope of Section 115BBE cannot be enlarged to cover every addition made during assessment proceedings. The Tribunal held that the AO was not justified in applying the special rate of tax prescribed. Accordingly, the Tribunal directed the AO to recompute the tax liability in accordance with the normal provisions of the Income Tax Act, 1961, without invoking Section 115BBE and partly allowed the appeal for statistical purposes.