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Facts
The assessee, an Army school funded by the Army regimental fund, was assessed for AY 2019-20 after the AO reopened the case under Section 147 for alleged escaped income of Rs. 1,29,97,864. The assessee claimed exemption under Section 10(23AA) but did not file a return. The CIT(A) dismissed the appeal for non-prosecution.
Held
The Tribunal held that the CIT(A) improperly dismissed the appeal for non-prosecution without considering the facts and the assessee's claim for exemption. The case was restored to the AO to examine the exemption claim under Section 10(23AA) on merits.
Key Issues
Whether the CIT(A) was justified in dismissing the appeal for non-prosecution without examining the merits of the exemption claim, and whether the assessee is eligible for exemption under Section 10(23AA) and thus not required to file a return.
Sections Cited
147, 144, 148, 142(1), 10(2AA)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI
This appeal is filed by M/s. Army Base Workshop High School (the assessee/appellant) for the assessment year 2019-20 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 16.6.2025 wherein the appeal filed by the assessee against the assessment order passed u/s. 147 r.w.s. 144 of the Income-tax Act, 1961 [the Act] dated 27.3.2024 by the Assessment Unit [ld. AO] was dismissed for non-prosecution.
./Bang/2025 Page 2 of 6
The assessee is aggrieved and is in appeal before us.
Briefly stated the facts show that that assessee is running an Army school by the name of Army Base Workshop High School. The school was created by Army regimental fund of the Indian Army for the welfare of defence personnel. It was found that the assessee has deposited cash of Rs.1,09,97,864 with HDFC Bank Ltd and has also obtained time deposit with HDFC Bank Ltd. of ₹ 20 lakhs. Therefore the AO noted that this information suggest that income to the extent of Rs.1,29,97,864 chargeable to tax has escaped assessment for AY 2019-20. The learned assessing officer reopened the case of the assessee by issuing a notice under section 148 of the Act on 31/3/2023. Further intimation letters were also issued to the assessee. Subsequently a notice under section 142 (1) was also issued on 14/7/2023 and subsequently show cause notice was also issued on 11/3/2024. The assessee submitted the part reply submitting the bank statement, income and expenditure account, audited balance sheet etc. As the bank statement submitted by the assessee was not clear further statement was also submitted. The learned assessing officer examined the same. The assessee has submitted that cash deposited by the assessee is a tuition fee payment made by the students of the school which has been deposited in the HDFC bank account. The learned assessing officer examined the same that the assessee has not furnished its return of income and the excess of income over expenditure stated by the assessee is a sum of ₹ 1,639,251/–. Therefore the assessee was issued a show cause notice. The assessee reiterated the same ./Bang/2025 Page 3 of 6
submission and submitted that assessee trust is eligible for exemption under section 10(2AA) of the Act and requested to drop the proceedings. The learned assessing officer rejected the contention of the assessee as assessee has not filed any return of income and therefore he taxed the entire income of ₹ 1,639,251 as income of the assessee and further passed an assessment order on 27/3/2024.
The assessee aggrieved with the same preferred an appeal before the learned CIT – A. The assessee was issued three opportunities for hearing out of which one was attended to by the assessee by filing a request for adjournment and in subsequent notices no compliance was made. Accordingly the learned CIT – A dismissed the appeal of the assessee for non-prosecution holding that there is no infirmity in the assessment order passed by the learned assessing officer as there is no material on record to warrant interference. Accordingly the appeal of the assessee was dismissed.
The assessee is in appeal before us. The assessee has submitted a detailed written submission containing 15 pages along with the memorandum of Association, rules and regulation and certificate of registration of the school. It was submitted that the assessee is running a school and the whole income and expenditure is through bank account. The main source of revenue is the school fees collected from the students and the same is deposited in the bank account. With respect to the filing of the return of income it was submitted that the school is funded by the Army regimental fund and there is no ./Bang/2025 Page 4 of 6
permanent trustee but it is run only by the managing committee members of the Army personnel who changes periodically. He submits that the provisions of section 10 (23AA) squarely applies to the facts of the case of the appellant as such the funds are originally provided by the Army regimental fund and further the surplus also goes back to the regimental fund. Therefore the income of the assessee is exempt under section 10 (23AA) of the Act and no return is required to be filed. It was further stated that in view of the above facts the lower authorities did not consider the claim of the assessee without referring to the provisions. With respect to the order of the learned CIT – A it was submitted that the non-appearance before the learned CIT – A is because of the change in the management committee. It was further stated that if given an opportunity, the learned assessing officer may examine the claim of the assessee of exemption under section 10 (23AA) of the Act.
The learned DR vehemently supported the orders of the learned lower authorities and submitted that when the assessee has failed to substantiate the details before the learned assessing officer as well as before the learned CIT – A, there is no infirmity in the orders of the learned lower authorities.
We have carefully considered the rival contention and perused the orders of the learned lower authorities. As per the facts available before us it is found that the assessee is Army school which has been set up with the regimental fund of the Indian Army. The school is being ./Bang/2025 Page 5 of 6
managed by the management committee which are comprising of the Army personnel who are transferred at regular interval. We find that the assessee’s claim is also of exemption under section 10 (23AA) of the Act. As the issue has not been examined by the learned lower authorities whether the assessee is required to file the return of income in case the income of the assessee is exempt under section 10. Further the learned CIT – A has dismissed the appeal of the assessee for non- prosecution. In the statement of facts filed before the learned CIT – A it is specifically contested that that the income of the trust is exempt under section 10 (23AA) of the Act. The learned CIT – A has not at all considered the explanation furnished by the assessee in the statement of facts. The learned CIT – A is not empowered to dismiss the appeal of the assessee for non-prosecution. At least he should have looked into the facts of the case stated in the statement of the facts where the assessee has claimed that its income is exempt and it is not required to file an return of income. In view of the above facts, we do not approve the order passed by the learned CIT – A. Further as the assessee has claimed that its income is exempt under section 10 (23AA) of the Act, this exemption is not examined by the learned assessing officer. In view of the above facts we restore the appeal of the assessee back to the file of the learned assessing officer with a direction to the assessee to substantiate its claim that its income is exempt under section 10 (23AA) of the Act. The learned assessing officer may examine the same and then decide the issue on the merits of the case. If it is found that the assessee’s income is exempt, there could not be any addition in ./Bang/2025 Page 6 of 6 the hands of the assessee. Accordingly appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on this 29th day of September, 2025.