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Facts
Aslali Kelavni Mandal, a public charitable trust for education, filed Nil income for AY 2018-19 and AY 2019-20, claiming exemption under Section 10(23C)(iiiab). The Centralized Processing Centre (CPC) disallowed this exemption for both years, adding substantial amounts to tax, which the assessee challenged before the CIT(A). The assessee contended it was substantially financed by the Government.
Held
The CIT(A) had allowed the assessee's appeal, but the ITAT found that the relief was granted without a factual verification of whether the assessee was substantially financed by the Government and met other conditions of Section 10(23C)(iiiab). The ITAT, therefore, set aside the CIT(A)'s order and remanded the matter to the jurisdictional Assessing Officer for fresh factual verification after providing an adequate hearing opportunity to the assessee for both assessment years.
Key Issues
Whether the CPC can disallow exemption under Section 10(23C)(iiiab) via Section 143(1)(a) without factual verification, specifically regarding the condition of the assessee being substantially financed by the Government.
Sections Cited
10(23C)(iiiab), 143(1), 143(1)(a), 143(3), 12AA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: DR. BRR KUMAR & SHRI SIDDHARTHA NAUTIYAL
O R D E R
PER SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:
These appeals have been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT(A)-10, Mumbai vide order dated 26.06.2025 passed for A.Ys. 2018-19 & 2019-20.
The Department has raised the following grounds of appeal:
(A.Y. 2018-19) “1. Whether on the facts and in circumstances of the case, Ld. Jt. CIT(A), NFAC is justified in deleting the addition of Rs.1,40,13,226/- made by the CPC on account of disallowance of exemption u/s.10(23C)(iiiab) of the I.T. Act, 1961.”
The brief facts of the case are that the assessee, Aslali Kelavani Mandal, a public charitable trust engaged solely in the field of education, filed its return of income for A.Y. 2018-19 declaring Nil income after &1622/Ahd/2025 ITO(E) Vs. Aslali Kelavni Mandal Asst. Years–2018-19 & 2019-20 - 2– claiming exemption of ₹1,40,13,226/- under section 10(23C)(iiiab) of the Income-tax Act, 1961 (the “Act”). The return of income filed by the assessee was processed by the Centralized Processing Centre (CPC) under section 143(1) of the Act on 30.09.2019 wherein the CPC made an adjustment by disallowing the exemption claimed under section 10(23C)(iiiab) of the Act. As a result, the entire gross income of ₹1,40,13,226 was brought to tax and a demand of ₹61,22,172/- was raised.
Before the CIT(Appeals), the assessee filed detailed written submissions explaining that more than 71% of its income was received as grants from Government of Gujarat and hence it was substantially financed by the Government, satisfying the requirements of section 10(23C)(iiiab). It was further contended that CPC could not have made an adjustment under section 143(1)(a) in respect of such a debatable claim and that the adjustment made was beyond the scope of the said provision. The assessee submitted that the assessment order of CPC contained no reasoning for the disallowance and merely proceeded to deny the exemption claimed in the return. The assessee, a trust registered under the Bombay Public Trusts Act and also holding registration under section 12AA, had consistently been allowed exemption under section 10(23C) in earlier years, including in assessments completed u/s 143(3) for A.Y. 2016-17 and u/s 143(1) for A.Y. 2017-18. The assessee, therefore, filed an appeal before the CIT(Appeals). The assessee submitted audited accounts, grants statements, registration certificates and past assessment orders to &1622/Ahd/2025 ITO(E) Vs. Aslali Kelavni Mandal Asst. Years–2018-19 & 2019-20 - 3– substantiate that it was solely an educational institution and had always been treated as eligible for exemption under section 10(23C) of the Act.
The CIT(Appeals), after considering the submissions, held that CPC had mechanically denied the exemption without assigning any reason. Relying on the decision of the Hon’ble ITAT Ahmedabad Bench in Packers (India) v. ITO (99 ITD 383), the CIT(A) held that powers under section 143(1) are restricted to making prima facie adjustments and that a claim of exemption under section 10(23C) could not be denied without factual verification. The CIT(A) therefore allowed the appeal of the assessee and directed the Assessing Officer to grant exemption under section 10(23C)(iiiab) as claimed in the return.
The Department is in appeal before us against the order passed by the CIT(Appeals) allowing the appeal of the assessee.
We have heard the rival contentions and perused the material on record. Before us, Ld. DR contended that the CIT(Appeals) has erred in summarily allowing the exemption under section 10(23C)(iiiab) of the Act without proper verification of the facts and without calling for a remand report from the jurisdictional Assessing Officer. On the other hand, the Counsel for the assessee relied upon its past assessments and the documentary evidence furnished before the CIT(A).
On examination of the appellate order, we find that although the CIT(Appeals) has referred to the written submissions of the assessee and &1622/Ahd/2025 ITO(E) Vs. Aslali Kelavni Mandal Asst. Years–2018-19 & 2019-20 - 4– the decision of the Hon’ble ITAT Ahmedabad in Packers (India) v. ITO, the relief has been granted without a factual verification of whether the assessee was substantially financed by the Government during the year under consideration, whether more than 50% of the receipts are Government Grants and whether the assessee has satisfied the conditions prescribed under section 10(23C)(iiiab) of the Act . We are of the considered view these are matters of factual determination, which could not have been adjudicated without calling for a remand report or making independent inquiries.
In the interest of justice, we deem it appropriate to set aside the order of the CIT(Appeals) and restore the matter to the file of the jurisdictional Assessing Officer. The Assessing Officer shall verify the factual aspects relating to Government financing, the nature of activities carried out by the assessee, and its eligibility under section 10(23C)(iiiab) of the Act, after providing adequate opportunity of hearing to the assessee.
In the result, the appeal of the Department is allowed for statistical purposes.
Now we shall come to the Department’s appeal in for A.Y. 2019-20
The Department has raised the following grounds of appeal:
ITA No. 1622/Ahd/2025 (A.Y. 2019-20)
&1622/Ahd/2025 ITO(E) Vs. Aslali Kelavni Mandal Asst. Years–2018-19 & 2019-20 - 5–
“1. Whether on the facts and in circumstances of the case, Ld. CIT(A)-10, Mumbai is justified in deleting the addition of Rs. 1,53,21,639/- made by the CPC on account of disallowance of exemption u/s. 10(23C)(iiiab) of the I.T. Act, 1961.”
Since common facts and issues for consideration are involved for both the years under consideration before us, the appeal of the Department is allowed for statistical purposes for both the assessment years before us.
In the combined result, the appeals filed by the Department are allowed for statistical purposes for both the assessment year under consideration. This Order pronounced in Open Court on 17/11/2025