M/S. SHIV KUMAR SINGH SUMITRA DEVI,GHAZIABAD vs. ITO (EXEMPTIONS), GHAZIABAD

PER SUDHANSHU SRIVASTAVA, J.M.: This appeal is preferred by the assessee against the order dated 29.01.2016 passed by the Ld. Commissioner of Income Tax(A), Ghaziabad for assessment year 2011-12 2.0 Brief facts of the case are that the assessee is a Trust formed with the object of providing education in the status of Association of Persons (AOP). The return of income was filed declaring income at Nil. The case was selected for scrutiny.

During the relevant assessment year, the assessee did not have 1 registration u/s 12AA of the Income Tax Act, 1961 (hereinafter called 'the Act') and the registration u/s 12AA was applied only on 15.12.2014. The Assessing Officer denied exemption to the assessee on the ground that the assessee did not have the required registration u/s 12AA of the Act. Addition was made by the Assessing Officer on account of corpus fund/donations amounting to Rs.52,50,9501/-, addition on account of creditors amounting to Rs. 29,63,131/- and addition on account of disallowance of depreciation. The assessment was completed at an income of Rs. 83,47,800/-. The Assessing Officer also noted that the assessee had not claimed exemption u/s 10(23C) in its return of income and that for claiming exemption u/s 11 of the Act, registration u/s 12AA of the Act was required. Aggrieved, the assessee approached the Ld. Commissioner of Income Tax (A) challenging the denial of exemption. However, the appeal of the assessee was only partly allowed by deleting the addition on account of depreciation. The Ld. Commissioner of Income Tax (A) upheld the action of the Assessing Officer in denying exemption u/s 10(23C)(iiiad) of the Act as well as holding that the assessee was not entitled to benefit u/s 11 of the Act. Now, the assessee is before the ITAT and has challenged the order of the Ld. Commissioner of Income Tax (A).

3.0 The Ld. AR submitted that it was an admitted fact that the assessee was running an educational institution with the main purpose of providing education to all sections of the society. It was also submitted that admittedly, the assessee had made the claim of exemption u/s 10(23C)(iiiad) of the Act only during the course of assessment proceedings but had not claimed the same in its return of income and the Assessing Officer had rejected the assessee’s claim on this ground without going into the merits of the claim made by the assessee. It was further submitted that the Ld. Commissioner of Income Tax (A), in his order, had observed that the trust had not carried out any educational activity and had failed to prove that it existed solely for the purpose of education. It was also submitted that the assessee has since been granted registration u/s 12AA and this grant of registration essentially required the income tax authorities to check and assess the genuineness of the activities of the trust and, therefore, the grant of registration u/s 12AA was proof enough that the assessee’s activities were genuine in nature. It was also submitted that the registration u/s 12AA was granted vide order dated 8.6.2015 and registration was to be effective from 1.4.2014. It was also submitted that it was during the course of appellate proceedings before the Ld. Commissioner of Income Tax (A) that the registration u/s 12AA was granted. He drew our attention to proviso to section 12A(2) of the Act which provides that where registration has been granted to the Trust or institution u/s 12AA, then the proviso to section 11 and 12 would apply in respect of any income from property held under the Trust and in assessment year preceding the aforesaid assessment year in which assessment proceedings were pending before the Assessing Officer as on the date of such registration.

It was submitted that the Ld. Commissioner of Income Tax (A) took a very narrow view of the proviso against the intention of the legislature which was to provide relief to genuine cases who would be facing hardship for want of registration. He also drew our attention to Para 8 of the Explanatory Notes to the Finance Act, 2014 wherein it has been stated that non-application of registration for a period prior to the year of registration causes genuine hardship to charitable organisations and due to absence of such registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfil other substantive conditions. It was submitted that as per the Explanatory Notes, this proviso was introduced in order to provide relief to such trusts and remove hardship in genuine cases. It was submitted that the only fault on the part of the assessee was that it had claimed exemption u/s 11 although registration u/s 12AA was not granted to the assessee. It was prayed that the benefit of the proviso be directed to be applied in the case of the assessee.

4.0 In response, the Ld Sr. DR placed reliance on the orders of the authorities below and vehemently argued that the assessee had failed to follow the due procedure as laid down by the Act and, therefore, the benefit of exemption had been rightly denied.

5.0 We have heard the rival submissions and perused the material available on record. Admittedly, the assessee did not hold registration u/s 12AA at the time when the return of income was filed although it claimed the benefit of exemption u/s 11 of the Act. However, we note that with the insertion of proviso to section 12A(2), the assessee is eligible for benefit of exemption u/s 11 of the Act. The said proviso reads as under:-

“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 .”

5.1 It is an admitted fact that the registration was granted vide order dated 8.6.2015 which was to have effect from 1st April, 2014. Although the assessment order was passed on 27.2.2014, the assessee was already registered u/s 12AA on 29.01.2016 when the assessee’s appeal was decided by the Ld. Commissioner of Income Tax (A). As the powers of the Ld. Commissioner of Income Tax (A) are coterminous with that of the Assessing Officer and further as the appellate proceedings are an extension of the assessment proceedings itself, we are of the considered opinion that the benefit of this proviso is to be extended to pending first appellate proceedings also. Accordingly, we hold that the assessee should be allowed the benefit of exemption u/s 11 of the Act and since the Assessing Officer has not examined and verified the eligibility of assessee’s claim of exemption u/s 11 but has denied exemption at the threshold itself, it would be in the fitness 6 of things that the issue is restored to the file of the Assessing Officer to examine the assessee’s claim u/s 11 of the Act after affording proper opportunity to the assessee. It is ordered accordingly.

6.0 In the result, the appeal of the assessee stands allowed for statistical purposes.

Order pronounced in the open court on 26th November, 2018.