DCIT (EXEMPTIONS), CIRCLE 1(1), HYDERABAD vs. NATIONAL INSTITUTE OF RURAL DEVELOPMENT AND PANCHAYATI RAJ, HYDERABAD

5. The learned CIT(Appeals) erred on the facts and in the circumstances of the case and in law in not appreciating that fact that assessee cannot use proceedings under section 148 of the Income-tax Act, 1961 as a means to claim exemption in order to evade payment of taxes. 6.1 The learned CIT(Appeals) erred on the facts and in the circumstances of the case and in law in holding that exemption under sec.11 of the Income-tax Act, 1961 is allowable even when the Form 10B is filed belatedly. 6.2 The learned CIT(Appeals) erred circumstances of the case and in law in allowing the exemption under on the facts and in the sec.11 of the Income-tax Act, 1961 when there was delay in filing audit report in Form 10B, when the CBDT when the CBDT empowered the ITO concerned to condone the delay in filing Form 10B as per Instruction No.F.No.267/482/77-IT(part) dated 09.02.1978.

Therefore, the A.O. passed the order under Section 148A(d) of the Income-tax Act on 20.04.2022. Along with the said order, notice under Section 148 of the Act, dated 21.04.2022 was issued. In response to the notice u/s 148 of the Act, the assessee has filed its return of income on 18.05.2022 declaring nil total income after claiming exemption under Section 11 of the Income-tax Act, 1961.

5. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has filed detailed written submissions on this issue, which have been reproduced at para 5 on pages 3 to 6 of the Ld. CIT(A)’s order. The assessee has also challenged the notice issued by the A.O. i.e. contrary to Section 151A r.w. Section 144B of the Act and argued that, the notice issued by the Jurisdictional Assessing Officer (JAO) is bad in law and consequently the assessment order passed by the A.O. in pursuant to the invalid notice is liable to be quashed. The sum and substance of the arguments of the assessee before the Ld. CIT(A) are that the assessee is a charitable trust or institution registered under Section 12A of the Income-tax Act, 1961 and is eligible for claiming exemption under Section 11 of the Income-tax Act. The assessee further submitted that, although it has not furnished its return of income on or before the due date provided under Section 139(1) of the Act, but has filed its return of income in response to notice under Section 148 of the Act, within the time specified thereon and also claimed exemption under Section 11 of the Act, after satisfying all the conditions. Therefore, the A.O. has erred in denying the exemption claimed under Section 11 of the Act only on the ground that, the assessee has not furnished its return of income on or before the due date provided under Section 139(1) of the Act, and also for not filing the audit report in Form No. 10B on or before the specified date, even though as per the provisions of Section 12A(1)(b) of the Act, there is no condition for filing the return of income along with the audit report in Form No. 10B on or before the due date provided for filing the return of income under Section 139(1) of the Act, for claiming exemption under Section 11 of the Act. The assessee has also referred to the amendment to Section 12A of the Act, by the Finance Act, 2017 and the Finance Act, 2020, making it mandatory for filing return of income on or before the due date provided under Section 139(1) of the Act, for claiming exemption under Section 11 of the Act, and submitted that, the said amendment is clarificatory in nature and cannot be retrospectively applied for the assessment year under consideration.

6. The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of certain judicial precedents, including the decision of the ITAT Jaipur Bench in the case of Mukesh Kumar Agarwal vs. ITO, reported in 143 taxmann.com 139 (2022), quashed the assessment order passed by the A.O. by holding that, initiation of reopening proceedings under Section 147 of the Act and the notice issued under Section 148 of the Act by the non-jurisdictional officer, i.e., ITO, Ward–8(1), Hyderabad, is bad in law and liable to be quashed.

5.3 I am totally in agreement with the contentions of the appellant that the non-jurisdictional Assessing officer has no powers to initiate proceedings u/s 147 of the Act and issue notice u/s 148 of the Act. In the present case show-cause notice u/s 148A(b) of the Act dt. 22.03.2022, consequent order 148A(d) of the Act dt. 20.04.2022 and notice u/s 148 of the Act dated 21.04.2022 were issued by the ITO, Ward-8(1), Hyderabad who is not the jurisdictional Assessing officer of the case. Rather, ACIT (Exemption), Circle-1(1), Hyderabad is the jurisdictional Assessing officer of the case. While dealing with the objection of the appellant on the issue raised by the appellant, the I passing the impugned assessment order has commented on the jurisdiction of the JAO and the FAO of NFAC and not the exact issue of jurisdiction raised by the appellant. I also find that in the case of Mukesh Kumar Agarwal Vs. ITO [2022] 143 taxmann.com 139 (Jaipur – Trib.), Hon’ble ITAT, Jaipur has held that Notice issued u/s 148 and reassessment proceedings consequent to such notice by a non- jurisdictional Assessing officer was void ab initio. Operational portion of the ITAT order is at para no. 2.7 which is as under – The Bench feels that there are lapses on the part of the Assessing Authority to decide the jurisdiction of the case. When the case of the assessee falls under the jurisdiction of the ITO, Ward 1(2), Jaipur then as to how the other Assessing Officer, (ITO, Ward 5(2), Jaipur having no jurisdiction can issue the notice u/s 148 of the Act. An order passed by an officer without recording reasons has no relevance which is void ab initio and deserves to be annulled. The defect in the order is not curable and it cannot be rectified even by sending the matter back to the concerned officer. Further since the notice u/s 148 is issued solely on the basis of information received from DDI, Wing, Jaipur without making any further enquiry and without referring the matter to the Jurisdictional Officer and non jurisdictional officer has issued notice u/s 148 of the Act, therefore, reopening of the assessment is not valid. Hence, the reassessment proceedings consequent to notice issued by non-jurisdictional Assessing Officer is ab initio void. Taking into consideration the above facts and circumstances, the order passed by the ld. CIT(A) is quashed. In the case of Nishi Kapoor v. ITO [IT Appeal No. 1556 (Delhi) of 2019, dated 2-9- 2019] wherein similar issue was raised and Hon’ble ITAT, Delhi has dealt in the issue as under – “4. He has submitted that these reasons are recorded by ITO, Ward 2(3), Noida and thereafter, he has written a letter dated 07.09.2017 PB 10 to the Assessing Officer (ITO, Ward 2(1), Faridabad) stating therein that the notice u/s 148 of the Act was issued on 30.03.2017. As per acknowledgement of return for assessment year submitted by the assessee on 07.09.2017, assessee comes under the jurisdiction of ITO, Ward 2(1), Faridabad. The ITO, Ward 2(3), Noida therefore, transferred this case to ITO, Ward 2(1), Faridabad. Ld. Counsel for assessee submitted that the ITO, Ward 2(3), Noida who has recorded reasons for reopening of the assessment was not having jurisdiction over the case of assessee and that the ITO, Ward 2(1), Faridabad who has further issued notice u/s 148 and 142(1) of the Act and completed the reassessment order who was having jurisdiction over the case of the assessee did not record reasons for the reopening of the assessment. Therefore, initiations of reassessment proceedings are illegal, bad in law and liable to be quashed. In support of which contention he has relied upon order of ITAT Agra Bench in the case of S.N. Bhargawa v. ITO 147 ITD 306 in which it was held us under: “IT: Where Assessing Officer, Agra initiated reassessment proceedings against assessee anal subsequently he transferred case to Assessing Officer, Mathura, who was having jurisdiction over assessee, and thereupon Assessing Officer, Mathura, without recording fresh reasons and on the basis of reasons recorded by Assessing Officer, Agra issued on assessee a fresh notice u/s 148. Assessing Officer, Mathura had not validity assumed jurisdiction to initiate reassessment proceedings against assessee.

7. The Ld. CIT(A) had also deleted the additions made by the A.O. by not allowing the exemption claimed under Section 11 of the Act, by holding that, there is no provision in the Act stating that in case the return is not filed by the charitable society under Section 139(4A) of the Act, its income cannot be computed in 11 and 1211/Hyd/2025 & C.O. Nos.27 and 28/Hyd/2025 National Institute of Rural Development & Pranchayati Raj accordance with the provisions of the Act, the provisions of the Act shall apply as if such a return required to be furnished under Section 139(1) of the Act, and further, the audit report as contemplated under clause (b) of Section 12A(1) of the Act is required to be furnished within the time prescribed with reference to the specified date under Section 44AB of the Act. Therefore, the Ld. CIT(A) held that, once the assessee files a return of income in response to notice under Section 148 of the Act, on or before the dates specified thereon and makes a claim for exemption under Section 11 of the Act, then the A.O. is bound to allow the exemption as claimed by the assessee, if other conditions are satisfied. Since there is no mandatory condition for filing the return of income on or before the due date provided under Section 139(1) of the Act for claiming exemption under Section 11 of the Act, prior to the amendment to Section 12A of the Act by the Finance Act, 2017, the A.O. has erred in denying the benefit of exemption under Section 11 of the Act, and therefore, directed the A.O. to allow the exemption as claimed by the assessee under Section 11 of the Act. The relevant findings of the Ld. CIT(A) are as under :

“6.2 The issues involved are whether the exemption u/s 11 of the Act is allowable if there is failure on the part of the appellant to file the return of income u/s 139(4A) and also audit report in Form 10B was not filed within the time stipulated in section 139(4)/139(1) of the Act. 6.2.1 The first issues have been addressed by the Hon’ble ITAT, Delhi in the case of United Educational Society Vs. JCIT [2019] 107 taxmann.com 127 (Delhi - Trib.) wherein it has been held as under – A. Whether the computation of income of the assessee-society should be in accordance with section 11 or not and whether the filing of audit report along with the return filed in response to notice under section 148 will entitle the assessee for benefit of computation of section 11? The AO has denied to compute the income in accordance with the provisions of section 11 on the reasoning that assessee had not filed the return under section 139(4A) read with section 12A(b). • The assessee is a society, who has been granted registration under section 12A by Commissioner looking to its objects of charitable purpose, i.e., it is engaged in imparting education and running various educational institutions. Thus, the registration under section 12A is fait accompli and, consequently, the computation of income has to be in accordance with sections 11 to 13. The assessee-society had not filed its return of income and it was only in response to notice issued by the Assessing Officer under section 148 that the assessee has filed its return of income along with the audited Balance Sheet and Profit & Loss Account. Section 139 falls under Chapter XIV – ‘Procedure for assessment’ which provides procedures and conditions for filing of return of income. Section 139(1) mandates every person having income exceeding the maximum amount not chargeable to tax to file return of income. Similarly, section 139(1)(4A) mandates that every person in receipt of income derived from property held under trust, i.e., charitable trust, etc., to file its return of income in case its total income exceeds the maximum amount not chargeable to tax without giving effect to the provisions of sections 11 & 12 of the Act. In case of failure to file such return of income under this section 139, penalty has been prescribed. In case of failure to file return by any person under section 139(1) penalty has been prescribed under section 271F. Similarly, in case of failure to file return by charitable society under section 139(4A) penalty has been prescribed under section 272A(2)(e). On a plain reading of the relevant provisions, failure to file the return under section 139(4A) cannot be interpreted to mean that income cannot to be computed in the case of a charitable trust under section 11. During the relevant assessment years, there is no such provision in the Act that in case return is not filed by charitable society under section 139(4A), then its income cannot be computed in accordance with the provision of the Act. [Para 20] • Further, on going through the provisions of section 148, once the return has been filed in response to the notice issued under section 148, the provisions of this Act shall apply as if such return were a return required to be furnished under section 139. Thus, return filed under section 148 is treated as return filed under section 139, which will include sub-section (4A) of section 139. Once such return is treated as return filed under section 139, then all the provisions of Act shall apply which will include section 11 of the Act. The phrase “so far as may be” in section 148 has to be interpreted in the manner that wherever conditions of applicability of any procedure prescribed in any section of the Act is required, then same has to be applied. If a return has been filed under section 148, then the relevant provisions of section 139 have to be applied and also the procedure of assessment and computation of income; and it cannot be interpreted in a restrictive manner to exclude any procedure. [Para 21] • Thus, whether it is a case of a regular assessment or it is a case of an assessment consequent to issue of notice under section 148, not only the procedure of return as given in section 139 has to be applied, but also such income has to be computed on the basis of such return in accordance with the provision of the Act, which of course will be subject to any specific provision in the Act which itself bars a claim or an exemption. Thus, section 148 provides that all the provision of the Act has to apply on such return furnished in response to notice under section 148. The department has referred to the words “so far as may be” to canvass the proposition that all the provisions will not apply. This contention of the department is not correct. The meaning of these words “so far as may be” will not mean to exclude provision of section 11. It is only such provision which are inconsistent with the provision of section 148 as compared to section 139 regarding procedure for assessment will not be applicable so far as may be. In reassessment proceedings even the income which has escaped assessment has to be computed in accordance with the provisions of the Act which will include section 11 as is in the present case. It will not be correct to say that while computing income under section 148 the entire gross receipts are to be taxed. Further, it is not the case of the assessee that it is reagitating or seeking review of the issue or the deduction for which determination has already taken place. The case of the assessee is that while computing income which has escaped assessment, the computation has to be done in accordance with the provision of the Act which include section 11. It is a case of a determination of correct escaped income as per the provision of the Act. [Para 22] B. Whether there is any such bar or limitation in the Act for claiming exemption under section 11 in the case of an assessment proceeding consequent to issue of notice under section 148. As per clause (b) of section 12A where the total income of the trust/institution without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income tax, a return has to be furnished along with the audit report obtained from an accountant as prescribed under the Act. However no time limit has been prescribed in this clause (b) of section 12A for furnishing of such return and the audit report in the Act. The Assessing Officer is trying to read a condition in clause (b) itself to hold that such return has to be filed before the due date of filing of return in this clause for claiming benefit of sections 11 & 12. On going through clause (b) of section 12A, the Assessing Officer is not correct in reading such condition. All that clause (b) mandates is that provision of sections 11 & 12 shall not apply unless the accounts are audited and a return is filed along with the audited accounts. Thus, as and when computation is to be done these conditions need to be complied with. The issue whether return has been filed in time or not is not relevant for clause (b) of section 12A. [Para 23] • The amendment made by the Finance Act, 2017 inserted clause (ba) imposing a further condition that such return of income is to be furnished in terms of section 139(4A), within the time allowed under that section. Firstly, this requirement was not there before this amendment; and secondly, this insertion of additional clause clearly shows that such condition was not there in existing clause (b) of section 12A. Had such condition being there in clause (b) itself, then there was no need to insert a further clause (ba) by the Legislature for denying benefit of sections 11 & 12 in case return is not filed in time as per provision of section 139(4A). It is relevant to note that clause (b) has not been amended, but a new clause (ba) has been inserted by the Finance Act, 2017 to put a further condition with effect from 1-4-2018, which was not there for the assessment years under consideration. It is also important to note that this condition of furnishing the return within the time allowed under section 139(4A) has been made applicable from assessment year 2018-19 as has been specifically stated in the Finance Act, 2017 and not for the assessment year under consideration. One does not agree with the contention of the department that this amendment is clarificatory in nature. As rightly pointed out by the assessee that this amendment has been made by the Finance Act, 2017 effective from assessment year 2018-19, meaning thereby that this clause has not been made applicable even for the assessment year 2017- 18, the return of which were still to be filed. Thus, the Legislature has thought fit to make this amendment applicable from next assessment years onwards and not even to the current assessment year 2017-18. [Para 25] . The Assessing Officer was not justified in denying the benefit of the exemption under section 11 and the Assessing Officer is directed to compute the same in accordance with the provisions of section 11. [Para 27] Thus, the crux of the judgement of United Educational Society Vs. JCIT (Supra) is that – i. There is no provision in the Act stating that in case return is not filed by charitable society u/s 139(4A), then its income cannot be computed in accordance with the provision of the Act. ii. Once the return has been filed in response to the notice issued u/s 148, the provisions of Act shall apply as if such return were a return required to be furnished u/s 139. iii. No time limit has been prescribed in clause (b) of section 12A for furnishing of such return and the audit report in the Act. Thus, in view of the judgement in the case of United Educational Society Vs. JCIT (Supra), exemption u/s 11 of the Act cannot be denied for failure of the appellant to file return of income u/s 139(4A). 6.2.2 Regarding the second issue whether the exemption u/s 11 of the Act is allowable if there is failure on the part of the appellant to file audit report in Form 10B within the time stipulated in section 139(4)/139(1) of the Act. The appellant relied upon several decisions in the matter. This issue has also been addressed by the Hon’ble ITAT, Bangalore in the case of Sarvadeivatha Education Trust Vs. ITO [2024] 166 taxmann.com 524 (Bangalore - Trib.) wherein it has been held that there are ample decisions of this Tribunal, wherein it is observed that filing of Form 10B is not mandatory but directory, when the audit report is available while passing the intimation under section 143(1)(a) and, when the requirement of law are complied with, exemption under section 11 cannot be denied. [Para 8]. In the case of B.R. Hospital Research Institute Vs. ITO [2024] 167 taxmann.com 389 (Delhi - Trib.), Hon’ble ITAT Delhi held that conditions of filing Form 10B for availing benefit under section 11 are directory in nature and not mandatory; therefore, where assessee had not filed audit report in Form 10B along with return of income, however filed same later on before Commissioner (Appeals), claim of assessee for exemption under section 11 was to be allowed.

Thus, in view of the aforesaid judgements, exemption u/s 11 of the Act cannot be denied for failure of the appellant to file audit report in Form 10B within the time limit stipulated in section 139(4)/139(1) of the Act. 6.3 In view of the above discussion, it is apparent that exemption u/s 11 of the Act cannot be denied for failure of the appellant to file return of income u/s 139(4A) and also failure to file audit report in Form 10B within the time limit stipulated in section 139(4)/139(1) of the Act. The exemption u/s 11 of the Act is also allowable in case wherein the return of income has been filed in response to notice u/s 148 of the Act. Accordingly, Ground Nos. 2 to 4 are allowed.”

C.O. No.27/Hyd/2025 for A.Y. 2015-16

“1. That the Learned Assessing Officer has grossly erred in holding that the assessee has not questioned the jurisdiction as per the provisions of section 124(3) of the Income Tax Act, 1961 even though the assessee has brought it to the notice of the Income Tax Officer during the course of 148A proceedings itself that the assessee is a non-profitable organization registered u/s 12AA of the Act.

3. That on the facts and circumstances of the case and in law, the impugned notice issued u/s 148 of the Act dt. 21-04-2022 by the Income Tax Officer (ITO, Ward-8(1), Hyderabad) for reopening the assessment proceedings for the AY 2015-16 is bad-in-law as the same was issued without following the automated allocation procedure specified by the CBDT vide its notification no.18/2022 dated 29th March, 2022 and hence the impugned assessment order is also bad-in-law and is liable to be quashed.

4. That on the facts and circumstances of the case and in law, the Learned Faceless Assessing Officer(FAO) has erred in making an addition of Rs.23,46,79,812/- by exceeding the jurisdiction and the said action of the FAO is not in accordance with the settled position of law.

7. The Learned Assessing Officer erred in not considering the fact that furnishing the return within the time allowed under section 139(4A) has been made applicable from assessment year 2018-19, as has been specifically stated in the Finance Act, 2017 and not for the assessment year under consideration.

8. The appellant craves leave to add/alter/ modify the grounds for cross objections as may be required for proper adjudication of the case.

“1. That on the facts and circumstances of the case and in law, the notice issued u/s 148 of the Act dt. 21-04-2022 for the AY 2015-16 is barred by limitation, since the last date to issue the said notice is 31-03-2022 only as per the first proviso to section 149(1)(b) of the Act and hence the impugned assessment order dt.01-03-2024 is also bad-in-law and is liable to be quashed.

2. That on the facts and circumstances of the case and in law, the notice issued u/s 148 of the Act dt. 21-04-2022 for the AY 2015-16 is bad-in- law as the same was issued without taking separate prior approval of the PCCIT, AP & Telangana for passing the order u/s. 148A(d) of the Act.”

Order pronounced in the Open Court on 19th December, 2025. श्री विजय पाल राि (मंजूनाथ जी) (VIJAY PAL RAO) (MANJUNATHA G.) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER Hyderabad, dated 19.12.2025. TYNM/sps