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Explanation 3 to section 11(1) read with section 40(a)(ia)

DHANYA.G (Practicing Chartered Accountant) (41 Points)

28 November 2024

A Trust has not deducted TDS for certain expenses. However these expenses are not treated as application. However Assessing Authority has proposed addition of 30% of such expenses based on Explanation 3 to section 11(1) read with section 40(a)(ia) treating 30% of such expenses as addition. Is this correct?Since the Trust has not considered such expense as application whether the proposed addition is tenable in law?

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1 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (178215 Points)
Replied 28 November 2024

In the case of Mahatma Gandhi Seva Mandir vs. DDIT(Exemp) reported in 21 com321 the Hon’ble ITAT has held that the exception in Section 40 is carved out, only for the purpose of Section 28 and not for computing the exemption of income of a charitable trust under Section 11. The disallowance made under Section 40(a) will only go to enhance the business profit of an assessee whose income is assessable under Section 28 and not otherwise. Hence, provisions of Section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of Section 11