THE BEEKEEPERS CO-OPERATIVE SOCIETY LTD.,,SAKALESHAPURA vs. DEPUTY COMMISSIONER OF INCOME-TAX, (CPC), BANGALORE

The Assessee is a Co-operative Society registered under the Khadi and Village Industries Commission, Bombay. In the return of income filed for Assessment Year 2016-17, the assessee claimed exemption under section 10(23B) of the Income Tax Act, 1961 (hereinafter called ‘the Act’), of a sum of Rs.9,33,308/-. In an intimation dated 29.3.2019 issued under section 143(1) of the Act, the said claim was rejected by the CPC.

Aggrieved by the aforesaid intimation dated 29.03.2019, assessee filed appeal before the CIT(A). A Specific submission made by the assessee before the CIT(A) that the Assessee is registered under the Khadi and Village Industries Commission, Bombay vide registration dated 29/08/1991 and the income derived from bee-keeping by the Assessee amounting to Rs. 9,33,308/- was exempt u/s. 10[23B] of the Act. It was submitted that the disallowance of the exemption u/s. 10[238] is debatable issue which ought to have been decided by way of a detailed scrutiny and inquiry u/s. 143[3] of the Act and the said disallowance cannot be made by way of mere processing of return u/s. 143 [1] of the Act. It was submitted that the assessing officer has wrongly appreciated the specific exemption claimed by the Assessee u/s. 10[23B] of the Act despite the fact that in Schedule BP - Computation of income from business or profession, in column no. 5[c] of the return, the Assessee had claimed exemption u/s. 10[23B] of the Act. It was submitted that the Act casts a duty on the assessing officer to find out as to under which clause the Assessee is entitled for exemption, if any and that cannot be done when the return is processed by the Computer (CPC). It was pointed out that the Assessee had specifically objected to the adjustment and therefore the adjustment ought not to have been made in an intimation u/s.143(1) of the Act. Reliance was placed on the following decisions for the proposition that adjustment cannot be made on debatable issues in an intimation u/s.143(1) of the Act:  M/s. Bharat Oman Refineries Limited, Mumbai v. ITO in [MP].  Bajaj Auto Finance Ltd v. CIT in ITR No. 25 of 2000 [Bom]

The First Appellate Authority (FAA), after referring to the provisions of section 10(23B) of the Act, directed the AO to verify whether the conditions stipulated in the aforesaid section are satisfied by the assessee and allow the claim of the assessee, after such verification. In effect, the FAA remanded the issue to the AO for fresh adjudication. Following were the relevant observations of the FAA:

“4.1 In this case, I have perused the submission made by the appellant. The appellant has claimed that it is registered under society registration act and solely existing for development of Khadi and not for the purpose of profit. Section 10(23B) laid down following condition which is reproduced as under:- "(23B) any income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (21 of 1860 ), or under any law corresponding to that Act in force in any part of India, and existing solely for the development of khadi or village industries or both, and not for purposes of profit, to the extent such income is attributable to the business of production, sale, or marketing, of khadi or products of village industries: Provided that- (i) the institution applies its income, or accumulates it for application, solely for the development of khadi or village industries or both; and (ii) the institution is, for the time being, approved for the purpose of this clause by the Khadi and Village Industries Commission: Provided further that the Commission shall not, at any one time, grant such approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted. Explanation.- For the purposes of this clause,-

Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. There is a delay of 109 days in filing this appeal after excluding the period during which the limitation was not applicable as per the order of the Hon’ble Supreme Court which order was passed owning to Covid-19 pandemic. The Principal Officer of the assessee has filed an affidavit in which it has been stated that by the impugned order, the issue was remanded to the AO and professional advise was given that no appeal need to be filed before the Tribunal. Subsequently, when the assessee met another professional in the second week of September, 2022, the discussion on the present appeal took place and the professional consultant advised that an appeal should be filed. It is only owing to the aforesaid facts, appeal has been belatedly filed. Learned DR opposed to the prayer for condonation for delay.

I am of the view that the assessee cannot be found fault on account of negligence. If the delay is not condoned, assessee will be put to great loss, hardship and injury. I am also of the view that procedural irregularity should not stand in the way of an assessee getting substantial justice especially in the matter of payment of tax. Keeping in mind the ratio laid down in the following decisions, I am of the view that the delay in filing the appeal deserves to be condoned and the same is accordingly condoned:

On merits of the appeal, I have heard the rival submissions. The first and the foremost aspect which I notice is that under section 251 of the Act, the CIT(A) does not have the power to remand a case to the AO for fresh consideration. Besides the above, the CIT(A) in the impugned order has not addressed the issue whether the impugned addition can be made in an intimation under section 143(1) of the Act.

In the circumstances, I am constrained to remand the case to the FAA with a direction to decide the issues raised by the assessee in the grounds of appeal on merits and without remanding the issue to the AO. The FAA will afford opportunity of being heard to the assessee. The Appeal of the assessee is accordingly treated as allowed for statistical purposes.

In the result, appeal of the assessee is allowed for statistical purposes.