GRAMA VIDYODAYA SANGHA (REGD),MYSURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CPC, BANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against order of CIT(A), NFAC, Delhi dated 16.12.2021 for the assessment year 2018-19. The assessee has raised following grounds of appeal:-

“Being aggrieved by the order of the Commissioner of Income Tax (Appeals) - NFAC, this appeal petition is being submitted on the following grounds which it is prayed may be considered without prejudice to one another.

ITA No.345/Bang/2022 M/s. Grama Vidyodaya Sangha (Regd), Mysuru

Page 2 of 11 2. The Learned Commissioner of Income Tax (Appeals) ought to have given a specific finding as to whether the appellant is entitled for exemption u/s 10(23C)(iiiad) or not.

ITA No.345/Bang/2022 M/s. Grama Vidyodaya Sangha (Regd), Mysuru

Page 3 of 11 was not registered under section 12A of the Income Tax Act, 1961. The assessee got registered u/s 12AA of the Act on 31.01.2020 relevant to A.Y. 2020-21.

2.1 The assessee filed its return of income for the assessment year 2018-19 in Form No ITR- 7 in the status of Association of Persons electronically on 9.10.2018. In the said ITR-7, the assessee had declared Aggregate Annual Receipts of the Schools and Colleges in Part A - GEN at Page 1 of ITR-7. Since Aggregate Annual Receipt in any of the Schools and Colleges had exceeded the prescribed limit of Rs 1 Crore under Section, the entire income from Other Sources amounting to Rs 78,31,804/- was claimed as exemption under Section 10(23C)(iiiad) of the Act by mentioning the claim at SI. No. 9(c) of Part B -TI of ITR 7. Hence the total income was arrived at as Rs. Nil. Since no income tax was payable, TDS of Rs 2,21,230 was claimed as refund.

2.2 The Deputy Commissioner, Centralized Processing Center, Bengaluru - sent an Intimation under section 143(1) of the Act for the relevant assessment year dated 26.06.2019. In the said Intimation, assessee's claim of entire income as exempt u/s 10(23C)(iiiad) of the Act was disallowed. The depreciation of Rs. 10,11,146/- was also disallowed. The Computation was finalized by determining the total income of the assessee at Rs. 88,42,950/- Further, he levied income tax thereon at normal rates amounting to Rs. 24,65,385/- and education cess thereon amounting to Rs. 73,962/-. Besides, he levied Interest under sections 234A, 234B and 234C of the Act amounting to Rs 46,342/-, Rs. 3,47,565/- & Rs 1,17,014/- respectively. Thus, the total demand made towards income tax education cess and interest amounted to Rs. 28,33,043/-. The learned Deputy Commissioner has stated that the Institutions claiming exemption under section 10 referred to in

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Page 4 of 11 sections 139(4D), 139(4D) or 139(4E) are required to file return in FIR - 7.

Rs.10,11,146/- claimed by assessee u/s 10(23C)(iiiad) of the Act

is justified on the reason that as per the provisions of section

11(2)(c) of the Act, if the statement referred to in clause (a) of

section 11(2) of the Act is not furnished on or before the due date

specified in Section 139(1) of the Act, the income not so applied for

a charitable and religious purpose in India under clause (2) to

explanation to section 11(1) of the Act shall be deemed to be income

of the person. According to the Ld. CIT(A), assessee lost the

opportunity to avail exemption provided in section 11 of the Act by

not filing the return within the due date specified u/s 139(1) of the

Act. Against this assessee is in appeal before us.

materials available on record. In this case, the return of the

assessee has been processed u/s 143(1) of the Act by CPC vide

their intimation dated 28.6.2019, wherein the AO disallowed the

claim of depreciation at Rs.10,11,146/- and thereby the claim of

the assessee for exemption u/s 10(23C)(iiiad) of the Act has been

denied on the following reasons, which has been mentioned in the

communication of proposed adjustment sent u/s 143(1)(a) of the

Act vide letter dated 1/3/2019, which is as follows:-

ITA No.345/Bang/2022 M/s. Grama Vidyodaya Sangha (Regd), Mysuru

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ITA No.345/Bang/2022 M/s. Grama Vidyodaya Sangha (Regd), Mysuru

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As per Rule 2BC of Income Tax Rules Exemtions claimed under section 10(23C)(iiiad) or 10(23C)(iiiae) is not allowed if the aggregate annual receipts shown in Schedule Part-A General (1) Details of the Projects/institutions run by you is more than R.1 crore.”

4.1. The above adjustment has been done by CPC under the provisions of section 143(1) of the Act. For better understanding, we proceed to go through the above provisions, which reads as follows:- “143(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142:- (i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub- section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to th assessee: Provided that except as otherwise provided in this sub-section, the acknowledgement of the return shall be deemed to be an intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him: Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made: Provided also that where the return made is in respect of the income first assessable in the assessment year commencing on the 1st day of April, 1999, such intimation may be sent at any time up to the 31st day of March, 2002”. The above section is substituted with effect from 1.6.1999 by Finance Act, 1999. The analysis of the section is as under:- It enacts that where a return has been made under section 139, or in response to a notice under section 142(1),-- - any tax deducted at source. - any advance tax paid, - any tax paid on self-assessment and - any amount paid otherwise by way of tax or interest, then without prejudice to the provisions of section 143(2),-- - an intimation shall be sent to the assessee specifying the sum so payable, and

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Page 7 of 11 - such intimation shall be deemed to be a notice of demand issued under section 156; and - all the provisions of this Act shall apply accordingly; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee.”

4.2. The cumulative effect of this section substituted and omission w.e.f. 1.6.1999 of section 143(1A), 143(1B) & 143(5) of the Act is that neither prima facie adjustments can be made nor any levy of additional income tax can be made on or after 1st, June, 1999. Thus, the power of AO under this section are very limited and restricted only to the returned income filed by the assessee. The A.O. cannot visit beyond the return except to compute tax or interest after adjustment of pre-paid tax as mentioned above. Therefore, according to the clear provisions of section 143(1) of the Act, it would be beyond the jurisdiction of AO to compute income by denying exemption u/s 10(23C)(iiiad) of the Act on the reason that aggregate annual receipts shown in Schedule Part-A General (1) details of the projects/institutions run by the assessee is more than Rs.1 crore. In our opinion, the issue of determining the exemption u/s 10(23C)(iiiad) of the Act or 10(23C)(iiiae) is very debatable. More so, the said issue was came for consideration before the Hon’ble High Court in the case of CIT Vs. Children Education Society (2013) 358 ITR 373, wherein the Hon’ble Karnataka High Court has held as under:-

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Page 8 of 11 activity providing course in various subjects at various levels and for that purpose they have established more than one educational institution. Each educational institution is a separate entity controlled under various statutes for various purposes. May be the Management of these educational institutions would be in the hands of the Societies or the Trust, but for all other purposes they are different, independent entities. That is the reason why Section 10 (23) (c) is worded as under:

"Any income received by any person on behalf of..." Here "any person" refers to the assessee and "on behalf of refers to such institutions. It may be an Universityr, it may be an educational institution, it may be a hospital or other institutions of similar nature. As all such institutions are independent entity and they generate income and when that income is received by the assessee, it becomes the income in the hand of the assessee and it is such income which is sought to be excluded while computing the total income of the assessee under Section 10. The test prescribed under the aforesaid provision is not the income of the educational education. It is the aggregate annual receipts of such educational institution that is prescribed at Rs.1 crore. Therefore, irrespective of the expenditure incurred by those institutions, the exemption is based on the total receipts. Even if the word "aggregate" has to be understood as suggested by the Revenue as the annual receipts of such educational institutions put together, probably, the said provision regarding exemption would be of no use at all. Especially, if the society is running a medical college or any engineering college or other professional courses, then the annual receipt of each institution would run to few crores and therefore, the very object of granting exemption to such genuine institution would be lost. Therefore, the word "aggregate annual receipt" has to be understood with the context m which it is used and the purpose for which the said provision was inserted, keeping in mind, the Scheme of the Act. Therefore, if an assessee is running several educational institutions, if any of them is wholly or substantially financed by the Government, then the income from such educational institution received by the assessee is not included while computing his total income. Similarly, income from each educational institution if they are not receiving any aid from the Government wholly or substantially in respect of which the aggregate annual receipt do not exceed Rs. 1 crore received by the assessee, is also not included while computing annual total income of the assessee. 24. Clause (vi) makes it clear that if educational institution do not fall under either of those two categories and still such educational institutions are also entitled to the exemption, provided such institutions

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Page 9 of 11 are approved by the prescribed authority. Therefore, all these three provisions apply under three differed spheres. Otherwise, there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference. Therefore, the substantial questions of law No.2. and 3 is answered in favour of the assessee and against the revenue.”

4.3 In the case of Deputy Commissioner of Income-tax (Exemption), Bhopal Vs. Shri Vaishnav Polytechnic College Govn by VSK Market Tech Educational Society reported in (2021) 186 ITD 378, the Coordinate bench of ITAT Indore Tribunal has held as under:-

“5. For the purposes of adjustments under cl. (Hz) to the first proviso to s. 143(1)(a), a deduction claimed must be inadmissible on the face of the return; documents and accounts accompanying it without any scope for doubt or debate; question of prima facie adjustment under s. 143(1)(a) has to be considered with reference to the position on the date on which the return is filed and not with reference to the events subsequent thereto. [Samtel Color Ltd v. Union of India [2002] 177 CTR (Delhi) 289: [2002] 258 ITR 1 (Delhi)].

Section 143(1)(a) contemplates that power could be exercised only : (a)(i) in respect of loss carried forward, (a)(ii) deduction, or (a)(iii) allowance, and (a)(iv) relief claimed; (b) the power in respect of the above four items should be on the basis of information available in the return, accounts or "documents; (c) that these items are prima facie inadmissible. There may be a case where the rate of tax is not disputed but while calculating the tax there is an error which could be corrected under this clause, ie., while calculating the tax on the normal rate or maximum marginal rate there is a mistake which could be corrected and will fall in the category of ar- ithmetical mistake, but whether maximum marginal rate is to be applied or the normal rate is applicable is not covered by any of the two clauses of the proviso of section 143(1)(a) of the Act. The matter has also to be considered from another angle that the words `prima facie' which has been used therein means on the face of and refers to the items, on which there cannot be two opinions. If the matter is arguable one or debatable then same cannot be disallowed under the proviso referred to above. Thus, on the proper interpretation of this section, the rights of the ITO are restricted with regard to the disallowances which are prima facie inadmissible. Whether the provisions of a particular section [section 167B in this case] are applicable or not, will not be covered under this section. [JKs Employees Welfare Fundy. ITO [1992] 107 CTR (Raj.) 161 : [1993] 199 ITR 765 (Raj.). See also CIT v. Orbit Travel & Tours (I?) Ltd [1999] 238 ITR 931 (AP).

In Tata Yadogawa Ltd v. CIT [2011] 335 ITR 53 (Jharkhand), it was held that as prima facie adjustment is permissible only in respect of claims, the incorrectness

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Page 10 of 11 of which is apparent from any information in the return and debatable claims are not liable to such prima facie adjustments, AO was not justified in making prima facie adjustments in respect of the deduction claimed under s. 35AB towards income-tax paid by the assessee as part of the lump sum consideration for acquiring the know-how. In Amiruddin Vs. ITO [2001] 240 ITR 550 (MP) it has been held that while passing an order under s. 143(1)(a) the AO cannot change the nature of income or exemption. In CIT v. McDowell & Co. Ltd. [2006] 204 CTR (Kar.) 353 in which decision in God Granites v. CBDT [1996] 218 ITR 298 (Kar.) was followed and decision in Madan Gopal Bagla v. CIT [1956] 30 ITR 174 (SC) was distinguished, it was held that only a claim which is prima facie admissible or inadmissible can be considered under s. 143(1)(a) and not a matter that rewires a detailed consideration; assessee having made out a prima facie case in respect of deduction of 'corporate guarantee obligation' as there was an agreement and also a guarantee obligation, claim for deduction of corporate guarantee obligation could not be disallowed by way of prima facie adjustment under s. 143(1)(a).

Following types of disallowances/additions/alterations have been held to be not permissible by resort to section 143(1)(a):

Corpus donations received by a trust-SRF Charitable Trust v. Union of India (1991) 100 CTR (Delhi) 160/(1992) 193 ITR 95(Delhi)

Amount claimed non-taxable in the relevant year-Bank of America NT & S.A. v. Dy. CIT (1993) 200 ITR 739 (Bom)

Creating tax demand by invoking section 167B-JKs Employees Welfare Fund v. ITO (1992) 107 CTR (Raj.) 161/(1993) 199 ITR 765 (Raj.)”

4.4. In our opinion, the issue which is very much debatable that which cannot be done while processing the return u/s 143(1) of the Act. Further, the Ld. CIT(A) not addressed the issue properly. Hence, the lower authorities committed error in disallowing the claim of assessee as claimed in the return of income while processing return of income u/s 143(1) of the Act. Accordingly, we allow all the grounds taken by the assessee in this appeal from ground Nos.2 to 5. 4.5 The ground Nos.1 & 8 are general in nature, which do not require any adjudication. The ground Nos.6 & 7 are academic in nature which do not require adjudication in view of our findings in ground Nos.2 to 5.

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Page 11 of 11 5. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 6th Sept, 2022

Sd/- Sd/- (George George K.) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 6th Sept, 2022. VG/SPS

Copy to:

Asst. Registrar, ITAT, Bangalore.