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Facts
The assessee, a college/trust, filed its return declaring NIL income. The Assessing Officer (AO) made additions for excess receipts over expenditure and unexplained cash credit. The assessee's application for exemption u/s 10(23C) was rejected by the CIT, and registration u/s 12AA was granted retrospectively from 01/04/2016, which was after the assessment period. The CIT(A) granted benefit of this registration for the assessment year 2014-15.
Held
The Tribunal held that the CIT(A) erred in granting the benefit of registration u/s 12A/12AA to the assessee for AY 2014-15. The registration was effective from 01/04/2016 and the assessee's claim in the return was for exemption u/s 10(23C). The Tribunal found merit in the Revenue's grounds of appeal regarding the additions made by the AO.
Key Issues
Whether the benefit of registration u/s 12A/12AA granted retrospectively from 01/04/2016 can be applied for assessment year 2014-15, when the original claim was under section 10(23C)? Whether the additions made by the AO towards excess receipts and unexplained cash credit are justified?
Sections Cited
143(3), 69, 144, 12A, 12AA, 10(23C), 147, 11, 12, 12A(2), 12A(3)
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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘A’, LUCKNOW
Before: SHRI KUL BHARAT & SHRI ANADEE NATH MISSHRA
Revenue pertaining to assessment year 2014-15 against impugned appellate order dated 09/06/2020 passed by learned Commissioner of Income Tax (Appeals) [“CIT(A)” for short]. The grounds of appeal are as under:
“1. Ld. Commissioner of Income Tax (A) has erred in law and facts by deleting the addition made by AO without appreciating the facts that Ld. CIT(Exemption) has granted registration u/s 12A w.e.f. 15/02/2017 which is not applicable in the proceedings of the said Assessment Year (2014-15).
Ld. Commissioner of Income Tax (A) has erred in law and facts by deleting the addition in view of provisions of section 12A(2) without considering the fact that the proviso inserted w.e.f. 1/10/2014 is applicable only for proceedings u/s 147 of the Income Tax Act 1961.”
(A.1) In this case assessment order dated 29/12/2016 was passed u/s 143(3) of the Income Tax, 1961 (“the Act” for short) whereby the assessee’s total income was determined at Rs.2,47,69,591/- (rounded off to Rs.2,47,69,590/-). In the aforesaid assessment order, an addition of Rs.36,15,491/- was made in excess of receipts over expenditure. A further addition of Rs.2,11,54,100/- was made u/s 69 of the Act. The relevant portion of the Assessing Officer is reproduced below:
(A.2) In the aforesaid assessment order, it has been noted by the Assessing Officer in paragraph No. 2 that the assessee was not registered u/s 12AA of the Act. It is further noted by the Assessing Officer that the assessee’s application for exemption u/s 10(23C) had been rejected by the learned CIT (Exemptions), Lucknow vide his order dated 14/10/2016. In the initial paragraph of the assessment order, it has been noted by the Assessing Officer that the assessee’s return of income was filed on 22/11/2014, declaring nil income. In the same paragraph the Assessing Officer has given details of repeated non compliance from the assessee’s side during assessment proceedings. Eventually a notice dated 05/12/2016 was issued by the Assessing Officer u/s 144 of the Act. On 06/12/2016, the assessee’s representative was also intimated by the Assessing Officer that failure to make compliance will lead to ex-parte order u/s 144 of the Act to the best of his judgment on the basis of materials available on record. Yet again, on 19/12/2016, the date fixed for hearing, compliances were not made from the assessee’s side. Eventually the assessment order was going to be barred by limitation and after 31/12/2016. A representative from the assessee’s side eventually attended hearing on 20/12/2016; almost towards the end of the limitation period for passing assessment order. Thus, it can be readily seen that due to persistent and repeated non compliance from the assessee’s side, the Assessing Officer was left squeezed for time. The assessee filed appeal in the office of the learned CIT(A) on 03/02/2017, against the assessment order. During the pendency of appellate proceedings in the office of the learned CIT(A), learned CIT (Exemptions) granted registration to the assessee u/s 12AA of the Act with effect from 01/04/2016, vide order dated 15/02/2017. The learned CIT(A) took cognizance of the aforesaid order dated 15/02/2017 and held that the assessee was eligible for registration u/s 12AA of the Act for assessment year 2014-15 also (the assessment year to which this appeal before us pertains), on the strength of the registration granted to the assessee by the learned CIT (Exemptions) with effect from 01/04/2016 vide aforesaid order dated 15/02/2017 of the learned CIT (Exemptions).
(B) The present appeal before us has been filed by Revenue against the aforesaid impugned appellate order dated 09/06/2020 of the learned CIT(A). In the course of appellate proceedings in Income Tax Appellate Tribunal, paper book containing the following particulars was filed from the assessee’s side:
(C) At the time of hearing, the learned D.R. submitted that the assessee’s application u/s 10(23C) of the Act had already been rejected by the CIT vide order dated 14/10/2016 which leads to logical inference that the assessee was not engaged in charitable activities, which is an essential requirement for exemption u/s 10(23C) of the Act. He further submitted that the assessee was not in appeal against the aforesaid order dated 14/10/2016, which implied that the assessee had accepted that the assessee was not engaged in charitable activity. He further submitted that during the pendency of the assessment proceedings, the assessee was not even registered u/s 12A/12AA of the Act. He further submitted that the registration granted to the assessee by learned CIT (Exemptions) u/s 12A/12AA of the Act was after the conclusion of the assessment proceedings, and therefore, the assessment order passed by the Assessing Officer without giving any benefit to the assessee u/s 12A/12AA of the Act was in accordance with law. He also contended that the registration granted to the assessee under section 12A/12AA of I.T. Act was with effect from 01/04/2016, which had no application for assessment year 2014-15 to which this appeals pertains. He further submitted that the assessee had failed to explain the addition of Rs.2,11,54,100/- in the building fund, when the assessee was required to do so by the Assessing Officer during assessment proceedings. Therefore, he submitted that the addition of Rs.2,11,54,100/- also deserved to be upheld. He strongly supported the order of the Assessing Officer, reading out the relevant portions of the assessment order to draw our attention.
(D) The learned Counsel for the assessee drew our attention to provisions of section 12A(2) of the Act, at it then was, where under, with effect from 01/10/2014, proviso was inserted by Finance (No.2) Act, 2014, to the effect that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year. For the ease of reference, relevant provisions of section 12A(2) of the Act, as it then was, are reproduced below:
(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of section 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made:
[Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year:
Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year:
Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under section 12AA.] (D.1) The learned Counsel for the assessee also drew our attention to CBDT Circular No. 1/2015, dated 21/05/2015, highlighting the following relevant provisions of the Circular: “8.1 The provisions of section 12A of the Income-tax Act, before amendment by the Act, provided that a trust or an institution can claim exemption under sections 11 and 12 only after registration under section 12AA of the said Act has been granted. In case of trusts or institutions which apply for registration after 1st June, 2007, the registration shall be effective only prospectively.
8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organisations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available. 8.3 In order to provide relief to such trusts and remove hardship in genuine cases, section 12A of the Income-tax Act has been amended to provide that in a case where a trust or institution has been granted registration under section 12AA of the Income-tax Act, the benefit of sections 11 and 12 of the said Act shall be available in respect of any income derived from property held under trust in any assessment proceeding for an earlier assessment year which is pending before the Assessing Officer as on the date of such registration, if the objects and activities of such trust or institution in the relevant earlier assessment year are the same as those on the basis of which such registration has been granted.” (D.2) He also placed reliance on the decision of Rajkot/ Chennai/ Pune/ Amritsar/ Indore/Bangalore/Raipur/Ahmedabad/Jaipur and Chandigarh Benches of Income Tax Appellate Tribunal, as per the following details:
(D.3) He contended, relying on the aforesaid orders of different Benches of the Tribunal, and the aforesaid circular, that the proviso to section 12A(2) of the Act, though inserted with effect from 01/10/2014, was retrospective in nature and would also apply to assessment year 2014-15 (to which the present appeal pertains). He further contended, relying on the aforesaid orders of various Bench of the Income Tax Appellate Tribunal, that the aforesaid proviso to section 12A(2) of the Act would apply even in a case in which appellate proceedings were pending in the office of the CIT(A), pertaining to any preceding assessment year, as on the date of registration granted u/s 12A/12AA of the Act for a later year.
(D.4) In response to specific query from the Bench, the learned Counsel for the assessee admitted that there was no material on record to show that the assessee was engaged in the charitable activity during the previous year relevant to assessment year 2014-15 to which the present appeal pertains. The learned Counsel for the assessee was also requested by the Bench to advise whether the learned CIT(A) was in error in giving the benefit of registration to the assessee u/s 12A/12AA of the Act to the assessee with retrospective effect (i.e. for assessment year 2014-15) when the learned CIT (Exemptions) had specifically granted the registration u/s 12A/12AA of the Act to the assessee with effect from 01/04/2016. The learned Counsel for the assessee submitted that he supported the impugned order of the learned CIT(A).
(E) We have heard both sides. We have perused materials on record. It is not in dispute that the registration granted vide order dated 15/02/2017 by the learned CIT (Exemptions) was with effect from 01/04/2016. It is also not in dispute that the assessee did not file any appeal against the aforesaid order dated 15/02/2017 of the learned CIT (Exemptions). Therefore, it logically follows that the assessee accepted that the registration u/s 12A/12AA of the Act was with effect from 01/04/2016 and this attained finality. It is also not in dispute that the assessee’s application u/s 10(23C) of the Act was rejected by learned CIT (Exemptions), vide order dated 14/10/2016. It is also not in dispute that the assessee did not file any appeal against the aforesaid order dated 14/10/2016 either. It is also not in dispute that the assessee’s claim in the return of income was u/s 10(23C) of the Act and not u/s 12A/12AA of the Act. We are of the view that by not filing any appeal against aforesaid orders dated 15/02/2017 and 14/10/2016, the assessee accepted the finality of the order of the learned CIT (Exemptions) whereby the registration was granted to the assessee u/s 12A/12AA of the Act with effect from 01/04/2016. Thus, the claim of the assessee for benefit of registration u/s 12A/12AA of the Act deserves to be rejected forthwith. Further, there is nothing on record to show that the objects and activities of the assessee, during the previous year relevant to assessment year 2014-15 remained the same as were during the year for which registration was granted to the assessee vide aforesaid order dated 15/02/2017. Therefore, there is no material to show that the assessee fulfilled the requirement either of proviso to section 12A(3) of the I.T. Act; or of paragraph 8.3 of the aforesaid CBDT circular dated 21/01/2015 on the basis of which the assessee has sought relief.
(E.1) In the absence of any material to show that the assessee’s objects and activities, during the previous year, relevant to assessment year 2014- 15, were the same, as were during the year for which registration was granted to the assessee vide aforesaid order dated 15/02/2017, the assessee cannot claim benefit of registration u/s 12A/12AA of the Act with retrospective effect. Moreover, the learned CIT(A) being of the same rank as the learned CIT (Exemptions), it was erroneous on the part of the learned CIT(A) to take a view (granting benefit of registration u/s 12A/12AA of the Act) different from the view taken by the learned CIT (Exemptions) who, by aforesaid order granted registration with effect from 01/04/2016 only and not for earlier years. Clearly the learned CIT(A) has exceeded his jurisdiction in overturning the decision of an officer of equivalent rank. In any case, the claim made by the assessee in the return of income was for benefit u/s 10(23C) of the Act, and not for benefit arising from registration u/s 12A/12AA of the Act. Moreover, while the learned Departmental Representative relied on the assessment order; no material was brought for our consideration by the assessee’s side to assail the aforesaid addition of Rs.2,11,54,100/-. The addition has been made on the basis of relevant materials contained in paragraph 5 of the assessment order. We have no materials on record to persuade us to interfere with the aforesaid addition of Rs.2,11,54,100/-. The assessee has neither filed appeal, nor cross-objection with reference to impugned order dated 09/06/2020 of learned CIT(A) in the present appeal before us. In view of the foregoing, there is merit in grounds of appeal. Therefore, both grounds of appeal are allowed.
(F) In the result, the appeal is allowed.
(Order pronounced in the open court on 31/07/2025)