NARSAPUR CHRISTIAN HOSPITAL ASSOCIATION,WEST GODAVARI vs. INCOME TAX OFFICER, EXEMPTION WARD, RAJAHMUNDRY

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ITA 231/VIZ/2024Status: DisposedITAT Visakhapatnam29 January 2025AY 2016-177 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while the assessee did not file its return of income within the time limit prescribed under Section 139(1), the subsequent filing of Forms 9A and 10 during the assessment proceedings satisfies the requirement of law. The Tribunal relied on the judicial precedents of the Hon'ble Delhi High Court in The Associated Chambers of Commerce and Industry of India v. DCIT and the Hon'ble Gujarat High Court in Association of Indian Panel board Manufacturer v. DCIT. Therefore, the assessee is entitled to the accumulation and setting apart of funds. The addition of Rs. 25,39,000/- made by the AO was directed to be deleted. The Tribunal dismissed the assessee's contention regarding the exclusion of interest as accrued and reinvested, finding it untenable as reinvestment amounted to receipt. However, the procedural aspect of filing the forms during assessment was allowed.

What were the facts?

The assessee, Narsapur Christian Hospital Association, filed its return of income for Assessment Year 2016-17 belatedly, claiming exemption under Section 11 of the Income Tax Act, 1961. The Assessing Officer (AO) observed gross receipts of Rs. 3,88,91,293/- and an accumulated amount of Rs. 25,39,000/-. The AO disallowed this amount, citing the assessee's failure to file Forms 9A and 10 within the time prescribed under Section 139(1). The assessee contended that accrued interest on term deposits, reinvested, was not a receipt and that filing of Forms 9A and 10 was not required. The Commissioner of Income Tax (Appeals) upheld the AO's order. The assessee appealed to the Income Tax Appellate Tribunal (ITAT).

What were the issues?

1. Whether the addition of Rs. 25,39,000/- made by the AO, representing unspent accumulated income, is justified, considering the alleged failure to file statutory Forms 9A and 10 within the prescribed timelines under Section 139(1) of the Income Tax Act, 1961. Assessee's Contentions: - The interest on fixed deposits, initially included, was later excluded as it was accrued and reinvested, not actually received. Therefore, filing of Forms 9A and 10 was immaterial. - Alternatively, even if interest receipts were included, filing of Forms 9A and 10 during assessment proceedings, before completion of assessment, satisfies the legal requirement. Relied on the decision in The Associated Chambers of Commerce and Industry of India v. DCIT. Revenue's Contentions: - The assessee failed to file the return of income and Forms 9A and 10 within the time limit prescribed under Section 139(1). - The revised audit report, considering reinvested interest as not accounted for as receipts, is not acceptable. - The AO rightly disallowed the amount due to the absence of timely filing of Forms 9A and 10.

Which sections of the Income-tax Act were involved?

Section 11,Section 139(1),Section 143(3),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, VISAKHAPATNAM “SMC” BENCH, VISAKHAPATNAM

Before: SHRI K. NARASIMHA CHARY, HON’BLE

For Appellant: Shri C. Subrahmanyam, AR
For Respondent: Dr. Aparna Villuri, Sr.AR
Pronounced: 28.01.2025

सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 08.01.2025 घोर्णध की तधरीख/Date of Pronouncement : 28.01.2025 आदेश /O R D E R

PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER:

1.

This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal centre, Delhi [hereinafter in short “Ld.CIT(A)”] vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1063941657(1) dated 05.04.2024 for the A.Y.2016-17 arising out of order passed under section 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 23.12.2018.

I.T.A.No.231/VIZ/2024 Narsapur Christian Hospital Association 2. Brief facts of the case are that, assessee being a society filed its return of income for the A.Y. 2016-17 on 29.03.2018 belatedly, admitting a total income of Rs.NIL after claiming exemption under section 11 of the Act. The return was summarily processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS and notices under section 143(2) and 142(1) of the Act were issued and served on the assessee. In response to the notice, assessee submitted information electronically through e-proceedings. The assessee-society carrying on education, charitable and religious activities and also Registered under FCRA. The Ld. Assessing Officer [hereinafter in short “Ld.AO"] observed from the return and audited financial statements that the assessee-society has admitted gross receipts of Rs.3,88,91,293/- and also accumulated / set apart for specified purposes an amount of Rs. 25,39,000/-. The Ld. AO found that the assessee has not filed Form No. 9A & Form No. 10 within the time allowed under section 139(1) of the Act and therefore issued show-cause notice calling for objections from the assessee for disallowance of the same. In response, assessee filed a reply stating that accrued interest on term deposits should be accumulated by reinvestment and hence is not a receipt and therefore filed a revised audit report in Form No.10B on 10.12.2018. The Assessee also stated that as per the corrected computation statements, the filing of Form No. 9A & Form No. 10 is not required. However, Ld. AO did not accept the submissions and framed the assessment order by disallowing the accumulated and deemed application of income of Rs.25,39,000/-.

Page No. 2

I.T.A.No.231/VIZ/2024 Narsapur Christian Hospital Association 3. Aggrieved by the order of the Ld. AO, assessee filed an appeal before Ld.CIT(A). Assessee has made similar submissions before Ld. CIT(A). Ld.CIT(A) did not accept the contention of the assessee and thereby dismissed the appeal of the assessee.

4. Aggrieved by the order of the Ld. CIT(A), assessee is in appeal before us by raising following grounds of appeal: -

1. The order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre ("CIT(A)"), under section 250 of the Income Tax Act dated 05.04.2024 is contrary to the provisions of law and the factual context of the case.

2.

The Ld. CIT(A) overlooked the submission regarding interest of Rs.34,51,186/-, derived from accumulated interest on fixed deposits, initially included in the income computation, towards which an amount of Rs. 11,00,000/- and Rs.14,39,000/- was sought as accumulations and to be spent, by filing Form No. 9A and 10, however, since, the accumulated interest was later excluded through a revised computation, the addition is unjustified.

3.

The Ld.CIT(A) erred in ratifying the action of the Assessing Officer (AO) for the addition of Rs.11,00,000/- and Rs.14,39,000/-, being the unspent amount that were accumulated, on the ground of alleged failure to file statutory Forms 9A and 10 within prescribed timelines.

4.

Without prejudice to the preceding grounds, even if it is assumed that the accumulated bank interest is to be included in the computation statement, the rejection of filing of Forms 10 and 9A by the AO, alleging the same was not filed within the due date, is not acceptable.

5. For these and other reasons that are to be urged at the time of hearing of the appeal the appellant prays that the order passed by the learned CIT(A) NFAC is erroneous both on fact and as well as in law, therefore, the same needs to be set aside in the interest of justice.”

5.

Ground No. 1& 5 are general in nature and needs no adjudication.

6.

With respect to Ground No. 2, Ld. Authorised Representative [hereinafter “Ld.AR”] submitted that assessee derived an amount of Page No. 3

I.T.A.No.231/VIZ/2024 Narsapur Christian Hospital Association Rs.34,51,186/- as interest on Fixed Deposits and initially included in the income computation. Ld.AR further submitted that subsequently the assessee revised the computation excluding the interest stating that interest was not actually received by the assessee but was accrued and reinvested along with principal amounts. Ld.AR also stated that if the interest is excluded the assessee has complied with the provision of section 11(1) and 11(2) of the Act and hence filing of Form No. 9A & Form No. 10 is immaterial.

7.

Alternatively, Ld.AR on Ground 3 & 4, also argued that even if the interest receipts are included filing of Form No. 9A & Form No. 10 are procedural in nature and hence shall be considered even though if it is filed during the assessment proceedings before the completion of the assessment. He relied on the decision of the Hon’ble Delhi High Court in the case of The Associated Chambers of Commerce and Industry of India v. DCIT in W.P.(C) 10520/2023 dated 05.08.2024. He therefore pleaded that the disallowances be deleted.

8.

Per contra, Ld. Departmental Representative [hereinafter in short “Ld.DR”] submitted that the assessee has not filed the return of income within the prescribed time allowed under section 139(1) of the Act and accordingly Form No. 9A & Form No. 10 are also filed belatedly, after the expiry of time limit allowed under section 139(1) of the Act. Ld. DR further submitted that assessee as an afterthought revised the audit report in Form No. 10B by Page No. 4

I.T.A.No.231/VIZ/2024 Narsapur Christian Hospital Association considering the interest which is reinvested will not be accounted as receipts in the books of accounts, which is not acceptable. Ld. DR therefore pleaded that the Ld. AO has rightly disallowed a sum of Rs. 25,39,000/- in the absence of filing of Form No. 9A & Form No. 10 within the prescribed time limit under section 139(1) of the Act. She therefore pleaded that the order of the Revenue Authorities be upheld.

9.

We have heard both the sides and perused the material available on record. It is an undisputed fact that assessee has not filed the return of income within the time limit prescribed under section 139(1) of the Act. However, consequent to disallowances made by the Assessing Officer, assessee revised the computation by stating that the interest on term deposits is “accrued” and not “actually received” and hence cannot be considered as the receipt thereby filed revised audit report in Form No. 10B on 10.12.2018. The prayer of the Ld.AR is that, if the amount of interest aggregating to Rs. 37,10,483/- is excluded from the gross receipts, Gross receipts will be Rs. 3,51,80,809/- whereas the amount utilised on both capital and revenue account is Rs.3,06,23,043/- resulting in a surplus of Rs. 45,58,766/- and hence will be less than the permissible accumulation of limit of 15% of the gross receipts. The submission of the Ld.AR in our considered view could not be accepted as the receipt of interest and subsequent reinvestment of such interest in the Fixed Deposits tantamount to receipt as originally envisaged by the assessee

Page No. 5

I.T.A.No.231/VIZ/2024 Narsapur Christian Hospital Association itself and hence the contention of the assessee is not tenable, and thus ground No 2 is dismissed.

10.

However, the Hon’ble Delhi High Court in the case of The Associated Chambers of Commerce and Industry of India v. DCIT (supra) has held that filing of Form No. 10 and Form No. 9A before the Assessing Officer during the assessment proceedings amounts to satisfying the requirement of law. Hon’ble Delhi High Court relied on the decision of Hon’ble Gujarat High court in the case of Association of Indian Panel board Manufacturer v. DCIT (2023: GUJHC:27028-DB) while laying down the ratio in the case of The Associated Chambers of Commerce and Industry of India v. DCIT (supra). We therefore of the considered view by following the judicial precedents as stated aforesaid that the assessee is entitled for accumulation and setting apart of funds even though Form No. 9A & Form No. 10 are filed during the assessment proceedings, thereby ground 3&4 raised by the assessee is allowed. We direct the Ld. AO to delete the addition of Rs.25,39,000/-.

11.

In the result, appeal of the assessee is partly allowed.

Order pronounced in the open court on 28th January, 2025.

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