NAVODAYA EDUCATION TRUST,RAICHUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, BELLARY

On the basis of facts and the circumstances of the case and in law, the CIT (A) has not adjudicated the additional ground for set off of accumulated deficit or t application for previous years before making the addition of Rs. 6,99,58,902/-. The total carry forward accumulated deficit or application of earlier years funds amounts to Rs. 49,03,75,799/-.

The appellant craves leave to add, amend, and alter any or withdraw any grounds of appeal

Prior to this, the Tax Audit Report in Form 10B, was filed electronically, on 28th August 2015. In para 5 and 6 of the audit report, it was mentioned by the auditor that an amount of Rs 6,99,58,902/- has been set apart as per provisions of section 11(2) and such amount has been invested with a scheduled bank as required under section 11(5). It is stated that the Income Tax (IT) portal as available for AY 2015-16 did not provide any facility/utility for online filing of Form 10 (u/rule 17(2) of IT Rules).

The CPC Bengaluru, processed the return u/s 143(1) on 24.12.2016, wherein, the above mentioned set apart amount of Rs 6,99,58,902/- was added to the income on the ground that Form 10 for the relevant assessment year was not filed on-line, thereby raising a demand of Rs 2,67,22,030/-. However, it is submitted that neither a hard copy of the intimation order u/s 143(1) dated 24.12.2016, was served on the appellant, nor was the appellant trust intimated of the same, electronically through email.

It is submitted that in the month of December 2017, that the appellant trust, while logging on to the Income Tax portal, came to know that demand amounting to Rs 2,67,22,030/- was outstanding for AY 2015-16. The appellant trust, immediately sent a request for a copy of the Intimation u/s 143(1) to the CPC Bengaluru, on 24.12.2017. Simultaneously, on 25.12.2017, an online grievance was filed (UID 201712250466458), with a request to the CPC Bengaluru, to delete the outstanding demand raised, since investment of Rs 6,99,58,902/- has been made as the provisions of section 11(5). In reply to the grievance filed, the CPC informed that "rectification rights have been transferred to the jurisdictional assessing officer".

On 11.01.2018, the appellant trust filed a rectification application u/s 154, before the jurisdictional AO, namely, the DCIT Central Circle, Bellary, along with the following enclosures:-

The AO passed an order u/s 154 dated 16.02.2018, rejecting the claim of the appellant holding that there was no mistake in the intimation u/s. 143(1).

Against this order of the AO, the appellant trust preferred an appeal before the CIT(Appeals) on 14.03.2018. Prior to this, the appellant had also electronically filed Form 10 for AY 2015-16 on 17.02.2018. It is submitted that w.e.f. assessment year 2016-17, the Income Tax portal had been suitably modified to accept Form 10 electronically. An application for condonation of delay in electronically filing Form 10, was filed before the Principal Commissioner of Income Tax (Central) Bengaluru on 19.02.2018. No response has been received to this application till date.

Before the CIT(Appeals), it was argued that filing of form 10 electronically was made applicable w.e.f. 1.04.2016, and as such it was not required to file it electronically for the year under appeal, i.e., AY 2015-16. It was also submitted by the appellant that Form 10B filed along with the return of income, provided details of investments made u/s 11(5), and the return of income itself mentioned the details of investments, based on which the claim u/s 11(2) was made. In view of the same, the CPC Bengaluru, ought not have disallowed the appellant's claim. The appellant also relied upon CBDT Circular No 7/ 2018, which allows condonation of delay in filing Form 10. A copy of resolution passed by The Board of Trustees, authorising setting aside of an amount of Rs 6,99,58,902 for purpose of expansion and renovation of the trust buildings, was filed before the CIT(Appeals).

The appellant relied on the decision of the Hon Rajasthan High Court in CIT v. Anjuman Moinia Fakharia [1994] 208 ITR 568 (Raj) wherein it was held that "the requirement to prescribe the time limit is only directory and not mandatory. Non-compliance within the stipulated time should not disentitle an assessee from the exemption to which he is otherwise entitled". The appellant cited the decision of the Hon Madras High Court in the case of Shri Chandraprabhuji Maharaj Jain v DCIT (Exemption), wherein it has been held that "where no assessment order under section 143(3) has been passed and the assessee has separately filed Form 10 along with Board Resolution, it is a fit case where the assessing officer should be directed to take note of Form 10 and take decision on merits". Reliance was also placed on the decision of the Mumbai High Court in the case of Nagpur Hotel Owners Association v CIT (Appeal) case No 1662 of 2019, wherein it was held that "if Form 10 is filed electronically before completion of assessment proceedings, then the exemption u/s 11(2) cannot be denied merely because the form was filed after the due date of filing of return of income u/s 139(1)".

The appellant also drew attention of the CIT(Appeals) to CBDT Circular No 10 of 2019 [F.No 197/ 55/ 2018-ITA-I] dated 22.5.2019, wherein Commissioners of Income Tax have been directed to condone delay in filing Form 10 for charitable and religious trusts for years prior to assessment year 2018-19.

The appellant also raised an additional ground before the CIT(Appeals) stating that the appellant trust had been incurring expenditure on the aims and objects of the trust in excess of 100% of receipts. Thus, the appellant trust had accumulated excess expenditure in its books of accounts, over and above, the receipts, and it was pointed out that the accumulated excess application of funds upto assessment year 2015-16 was Rs 55,29,49,749/ - which should have been taken into account while processing the return. In support of its claim, reliance was placed on the decisions in the cases of CIT v Matriseva Trust (2000) 242 ITR 20 (Mad), CIT v Maharana of Mevar Charitable Foundation [1987] 164 ITR 439 (Raj), Padanilam Welfare Commissioner Trust v DCIT Chennai 2010, as well as CIT v Institute of Banking Personnel [2003] 131 taxmann 386 (BOM).

The CIT (Appeals) however, dismissed the appeal on both the grounds vide his impugned order observing as follows:-

Against this order of the CIT(Appeals), the assessee trust is in appeal before us.

In the first ground of appeal, the appellant challenges the decision of the CIT (Appeal) in holding that a rectification application u/s 154 was not maintainable, against the order u/s 143(1), issued by the CPC Bengaluru. The ld. AR submitted that the AO had rejected the application u/s 154 on the grounds that Form 10 had not been filed electronically and hence the CPC Bengaluru was correct in adding back the amount set apart under the provisions of sections 11(2) and 11(5) of the Act. The CIT(Appeals) was of the view that the decision of the CPC could only have been challenged in appeal and not by means of a rectification application u/s 154, since the issue required fresh investigations of facts. It was hence, held by him that the rectification application was not maintainable, and consequently, an appeal against its rejection is also not maintainable.

The ld. AR referred to the judicial pronouncements on the scope of and powers vested under section 143(1). The power to make an adjustment by disallowing a deduction or relief claimed in the return can be invoked only when the claim is prima facie inadmissible (Bank of America v DCIT 200 ITR 739). Prima facie in this sub-section means clear or self-evident, meaning thereby that the claim must constitute an error on the part of the assessee which is apparent on the face of the record. In cases where an assessee files a note along with the return of income explaining certain facts, such note should be considered before making any prima facie adjustment (Chandrakant N Tolia v ACIT 316 ITR 312). The deduction claimed must be inadmissible on the face of the return and the documents accompanying it (Khatau Junker v Pathania 196 ITR 55, CIT v Sitaram Textiles 248 ITR 139). A debatable issue cannot be decided by the assessing officer under the guise of making an adjustment under section 143(1)(a) (Coates v DCIT 214 ITR 498, CIT v Shikhar Chand Jain 263 ITR 221, CIT v Manubhai M Patel 296 ITR 143).

Thus, the scope of section 143(1) is restricted to adjustment of prima facie mistakes and omissions, which are apparent from what is available on record. In such case record would be constituted by the return of income as well as other data such as brought forward losses etc. The assessing officer carrying out processing of a return of income u/s 143(1) cannot initiate investigation into the facts of the case, nor presume the existence of facts and circumstances which are not brought by the records of the case.

Further, what falls within the scope of rectification as visualized under the provisions of section 154, is the case of a mistake, and such mistake should be apparent from record. Judicial pronouncements on the subject have laid down the line of reasoning that the mistake should be obvious, clear, and patent and should not involve two opinions (CIT v PK Bhardwaj 279 ITR 326, CIT v Gujarat State Export Corporation Ltd 279 ITR 477).

We are not here concerned with a case where, under any specific section of the Income-tax Act, a certain deduction or allowance cannot be granted unless certain specified documents are annexed to the return. In such a case, it may be possible to say that, in the absence of such a document, the deduction cannot be granted because the section of the Income-tax Act itself says so. We, however, have not examined this aspect of the matter as it does not arise in the cases which are before us. But, in any event, in the absence of any specific provision in the Income-tax Act which disallows a deduction because a specific document specified in that section is not annexed to the return, the Income- tax Officer cannot, under clause (iii) of the proviso to section 143(1)(a), disallow a claim or a deduction because, in his view, adequate evidence in support of such a claim or deduction is not before him. He can disallow a claim for deduction only if he is satisfied, on the basis of the material which is before him, that the assessee is not entitled to such a deduction.

It was submitted that in the present case the adjustment made by the CPC Bengaluru, was on account of non-filing of Form 10 electronically. It is an admitted fact that the portal of the Income Tax Department did not contain any facility for online filing of Form 10, in AY 2015-16 and it was only with effect from 1.04.2016 that this facility was made available for tax filers. The CIT (Appeals) has admitted the same in para 4.2 of his impugned order. It is submitted that the CIT (Appeals) has failed to address the issue at hand. The record available before the CPC Bengaluru, was the return of income for assessment year 2015-16 and the tax audit report in Form 10B both of which had been filed by the appellant trust prior to the due date. As mentioned earlier, para 9(vi) of the Return of Income shows that an amount of Rs 6,99,58,902/- is set apart for application towards specified purposes as per provisions of section 11(2) of the Act. In Schedule-I details of amounts accumulated or set apart of the return of income, details of investments made in the scheduled bank, as per provisions of section 11(5) were mentioned. Further, the Tax Audit Report in Form 10B, notes that an amount of Rs 6,99,58,902/- has been set apart as per provisions of section 11(2) and such amount has been invested with a scheduled bank as required u/s. 11(5). Whether, the appellant trust has filed Form 10 manually before the jurisdictional assessing officer, was neither known to the CPC Bengaluru, nor was it within its remit to know. The issue for decision hence was that once it is accepted that an electronically filed Form 10 was neither technically feasible nor mandated by law, then did the CPC Bengaluru have any record before it, wherein it could on the basis of such record arrive at a finding that Form 10 had not been filed manually before the jurisdictional assessing officer and that the impugned adjustment could be made. As shown by the discussion above, based on records available before it, the CPC Bengaluru, could not have made the impugned adjustment by disallowing an amount of Rs 6,99,58,902/-. In case the appellant trust had failed to file Form 10 manually, it was for the jurisdictional assessing officer to take the necessary remedial action as per law. For the limited purpose of this appeal, it is clear that the CPC Bengaluru has made an adjustment based on the mistaken notion that Form 10 was to be filed electronically. It has neither considered the fact of manual filing of Form 10 nor could it have been aware of the same. This is hence an error apparent on record, and eligible for rectification under section 154.

The Hon Mumbai ITAT, has addressed similar issues in two recent decisions. In Pane Hindu Devalaya Mandal Vs DCIT (ITAT Mumbai), order dated 04.03.2020 for AY 2015-16, wherein while processing the return of income filed by the assessee, the CPC denied assessee’s claim of exemption under section 11(2) of the Act since the declaration in Form no.10 was not filed electronically along with the return of income. That being the case, the Tribunal held that assessee’s claim of exemption under section 11(2) of the Act cannot be rejected only for the reason that Form no.10 was not filed electronically. The issue was restored to the AO with a direction to verify Form no.10 filed by the assessee manually, as stated by the learned Counsel for the assessee and allow assesses claim of exemption under section 11(2) of the Act.

The ITAT Mumbai in Shree Dadar Jain Paushadhshala Trust Vs. ITO (E) vide order dated 19.08.2019 for AY 2014-15 wherein the assessee company had failed to submit form 10 before filing of return u/s 139(1) of the Act. The assessee company duly submitted manual Form 10 during the assessment proceedings and electronically submitted Form 10 during the appellate proceedings. The Tribunal observed that in supersession of earlier Circular/Instruction issued in this regard, with a view to expedite the disposal of applications filed by trusts for condoning the delay and in exercise of the powers conferred u/s. 119(2)(b) of the Act, the Central Board of Direct Taxes authorized the Commissioners of Income-tax, to admit belated applications in Form No. 9A and Form No.10 in respect of AY 2016-17 where such Form No. 9A and Form No.10 are filed after the expiry of the time allowed under the relevant provisions of the Act. Considering the view in totality of the entire factual matrix and circumstances of the case, the Tribunal held that the assessee is entitled for deduction u/s 11(2) of the Act to the tune of Rs. 6.50 crores towards accumulation of income.

In light of the above, it is submitted that the action of the CPC Bengaluru in making the adjustment u/s 143(1) on account of non-filing of Form 10 electronically was not based on the records available to it, and hence was erroneous, and fell within the purview of mistake apparent from record, as visualised in section 154. The CIT(Appeals) order is therefore unsustainable on this ground alone.

On the other hand, the ld. DR submitted that as regards the issue of deduction under Section 11(2)/11(5) of the Act, the adjustment has been made by DCIT, CPC on the basis of information available in the return of income. If the assessee was aggrieved by the same, it was free to challenge the said order by filing an appeal against the same. Apparently, the appellant has chosen not to do so. However later on it has filed an application under Section 154 of the Act and claimed that the said disallowance was a mistake apparent from record. In rectification the most important aspect which needs to be looked into is whether the claim of the appellant would fall within the scope of Section 154 or not. Scope of rectification is limited to correcting error of fact or error of law on the basis of material available on records. In the appeal under consideration the appellant has sought rectification on issues which will require fresh investigation of facts. The appellant has tried to use appeal against rejection of rectification application as a method to challenge the order under Section 143(1) of the Act itself, as it has not filed any appeal against the same. The provisions of Rule 17 as applicable to the year under consideration required the assessee to file Form no. 10 before the AO or the prescribed authority before the expiry of period allowed u/s. 139(1) of the Act for furnishing return of income. Although electronic filing of Form 10 was not required, but manual filing of Form no. 10 was still required. The appellant has failed to bring anything on record to show that it had complied with such provision. According to assessee, such form was filed on 17.02.2018 after a search was conducted in its case. The reliance by the assessee on various case laws would not help as the same are found to be rendered on different facts.

We have heard the rival submissions. In this case, exemption u/s. 11(2) was rejected by the CPC while processing return u/s. 143(1) of the Act on the reason that assessee has not electronically filed Form 10 along with return of income. As per provisions of Rule 17 r.w. Rule 12(2) of the Income- tax Rules, 1962, Form 10 was required to be furnished electronically. Since the assessee has not filed Form 10 electronically, the claim of assessee for exemption u/s. 11(2) was denied. The assessee has even failed to file Form 10 manually within the stipulated time. It has been filed with the jurisdictional AO along with copy of Board Resolution while submitting the request for rectification u/s. 154 on 11.1.2018, though it was dated 25.8.2015. The assessee trust has not filed Form 10 with the jurisdictional AO at the time of filing return of income. According to the assessee, it has not filed Form 10 with the jurisdictional AO as the ACIT, Raichur has informed the assessee that the same is not required to be filed before his office, but has to be filed online in the Income Tax portal. Whereas, in the Income Tax portal the facility to file Form 10 online was not available. Thus it was not filed along with return of income and filed for the first time while submitting the rectification letter u/s. 154 on 11.1.2018. For the purpose, the assessee relied on the order of Tribunal in the case of Shree Dadar Jain Paushadhshala Trust in dated 19.8.2018 and Parle Hindu Devalaya Mandal in ITA No.766/Mum2019 dated 4.3.2020.

We have carefully gone through the above judgments. In these two cases, it is an admitted fact that the assessee has filed Form 10 manually before the AO within the due date of filing of return of income for the AY 2015- 16. However, these two assesses failed to file Form 10 electronically, then the AO denied exemption u/s. 11 on the reason that Form 10 was not electronically filed. In such circumstances, the Tribunal held that since the assessee has filed Form 10 manually before the due date of filing of return of income u/s. 139(1) and the filing of Form 10 electronically was on account of amendment of Rule 17 w.e.f. 1.4.2016.

However, in the present case, the assessee has not filed Form 10 manually before the due date of filing return of income u/s. 139(1) of the Act. Being so, the decisions relied on by the ld. AR supra are of no assistance to the assessee. On this count, in our opinion, it is mandatory on the part of assessee to file Form 10 manually though not electronically before the due date of filing of return of income with the jurisdictional AO. Since the assessee has even failed to file Form 10 manually, the assessee cannot seek to rectify the order of intimation passed u/s. 143(1) in the petition filed u/s. 154 on 11.1.2018. Accordingly, the first ground of assessee is dismissed.

The second ground of appeal is that the CIT (Appeals) has ignored the directions contained in CBDT Circular No 7 of 2018 issued on 20th December 2018, combined with CBDT Circular No 10 of 2019 issued on 22nd May 2019.

The ld. DR submitted that the issue under consideration is applicability of provision under Section 154 and not a challenge to an order under Section 143(1) of the Act. The circular of CBDT referred to by the is relevant for the special circumstances relevant to AY 2016-17 and as such does not relate. to AY 2015-16 i.e., the year under consideration. The assessee has not shown that it had ever filed any such request for condonation of delay before any authority and that the same was condoned. However, these aspects could have been looked into if the appeal was against order under Section 143(1) of the Act but for rectification purposes the AO could not have taken into account these aspects being brought to his knowledge. Since the relief sought would not fall within the scope of section 154, the action of the AO in rejecting the rectification application was to be upheld.

We have heard both the parties and perused the material on record. As per CBDT Circular No.7/2018, the Commissioner could condone the delay in filing Form 10 electronically with the department. While entertaining such application, the Commissioner is required to satisfy that the assessee was prevented by reasonable cause in filing Form 9A and Form 10 within the stipulated time. But this Circular does not preclude the assessee in filing Form 10 manually before the jurisdictional AO. The assessee is not exempted in filing Form 10 manually by this Circular. It only gives power to the Commissioner to permit the assessee to file Form 10 electronically belatedly. However, in the present case, the assessee has not filed Form 10 manually within the stipulated time i.e., before the due date for filing return of income and therefore the assessee cannot avail the benefit of CBDT Circular to cover its own mistake. The appeal of the assessee is not against the order of AO passed u/s. 143(1), on the other hand it is against the proceedings u/s. 154 of the Act. Being so, these two orders stand on a different footing. In other words, what could not be done by the assessee directly, cannot be achieved indirectly. The assessee in this case has filed appeal against the order u/s. 154 to challenge the intimation order u/s. 143(1), though there was no appeal against the order u/s. 143(1) passed by the CPC. Being so, we are not in agreement with the ld. AR for the assessee so as to exempt the assessee in filing Form 10 manually before the jurisdictional AO. Accordingly, this ground of the assessee is rejected.

The ld. AR submitted that it is settled law that a trust is entitled to set off the amount of excess application of the preceding years against the deficiency of the present assessment year. In this connection he relied on the following decisions.

Further, it was submitted that section 143(1) states that an adjustment can be made if an incorrect claim is apparent from information contained in the return of income. The CPC Bengaluru, could have allowed the appellant trust to set off this accumulated loss / application even if the claim u/s 11(2) was considered unacceptable due to non-filing of Form 10 electronically.

It is submitted that by ignoring the information contained in letter submitted before CIT(Appeals), Panaji Goa, the CPC Bengaluru committed an error, which is rectifiable by recourse to section 154. Admittedly, this was not raised in the rectification application before the AO. However, this was raised by means of additional ground before the Cl'(Appeals).

The ld. AR submitted that the CIT(Appeals) has not given any finding whether the action of CPC Bengaluru in ignoring information is rectifiable u/s. 154 or not. He has dismissed the additional ground merely on the ground that no such claim was made in the rectification application. The CIT (Appeals) has thus, not admitted the additional ground of appeal on record. In this connection, it is submitted that any appellate authority should admit such grounds and evidence, which shall assist it to discharge its functions in the interest of justice and equity, provided there is no deliberate and mala fide omission by the appellant. In this regard reliance is placed on the following decisions:-

The ld. DR submitted that this ground does not arise out of the rectification application filed by the appellant before AO. No such claim was made in the said rectification application. The appellant is apparently mixing the order appealed against with the uncontested order under Section 143(1). Hence the CIT(Appeals) rejected admitting the additional ground.

We have heard both the parties and perused the material on record. As rightly held by the CIT(Appeals), this issue is not emanating from the order passed u/s. 154 of the Act. The assessee cannot use proceedings u/s. 154 to file appeal against the order passed u/s. 143(1) of the Act. Accordingly, we have no hesitation in rejecting this ground of assessee.

In the result, the appeal of the assessee is dismissed.