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Facts
The assessee, Uttaranchal Rural Development Agency, a society, was denied exemption under Section 11 for AY 2018-19 by NFAC and AO. The denial was based on the income tax return and Form 10 not being filed by the due date under Section 139(1) of the Act. The assessee contended that the return and Form 10B were filed within the time allowed under Section 139(4), and that specific grants received for project execution did not constitute its income.
Held
The Tribunal held that as per Section 12A(1)(b) (as it stood for AY 2018-19) and relevant CBDT circulars, filing the return and audit report under Section 139(4) within the allowed time makes the assessee eligible for Section 11 exemption. It further affirmed that specific grants received for disbursement, which cannot be utilized for any other purpose, do not partake the character of income for the assessee.
Key Issues
Whether the assessee is entitled to exemption under Section 11 of the Income Tax Act when the return of income and audit report are filed under Section 139(4) but after the due date prescribed under Section 139(1). Whether specific grants received for project execution constitute income of the assessee.
Sections Cited
Section 11, Section 11(1), Section 11(1)(a), Section 11(2), Section 12, Section 12A, Section 12A(1)(b), Section 12A(1)(ba), Section 12AA, Section 139, Section 139(1), Section 139(2), Section 139(3), Section 139(4), Section 139(4A), Section 139(5), Section 143(1)(a), Section 143(3)
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Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2018-19, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. NFAC‟, in short] in Appeal No. ITBA/NFAC/S/250/2022- 23/1051201911(1) dated 23.03.2023 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 21.04.2021 by the Assessing Officer, ITO, Exemption, Ghaziabad (hereinafter referred to as „ld. AO‟).
The first issue to be decided in this appeal is as to whether the learned NFAC was justified in confirming the denial of exemption under section 11 of the Act in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available on record. The Assessee is a society registered under Societies Page | 1 Uttaranchal Rural Development Agency Registration Act, 1860. The Assessee is registered pursuant to the statutory requirement of Pradhan Mantri Gram Sadak Yojana (PMGSY) of Government of India and has only executed Government Rural Road Project under the Ministry of Rural Development. The Memorandum and Articles of Association of the Assessee society are enclosed in pages 25 to 35 of the paper book. The Assessee during the year under consideration received gross receipts of grants of Rs. 891,27,72,793/-. The Assessee incurred expenses of Rs. 673,46,06,573/-. The return of income for the assessment year 2018-19 was filed belatedly under section 139(4) of the Act on 25-01-2019 declaring nil income after claiming exemption under section 11(1)(a) of Rs 133,69,15,919/- and under section 11(2) of the Act of Rs 83,73,77,381/-. These facts are evident from the ITR acknowledgement in ITR 7 read with copy of Form No. 9A, Form 10 , Form 10B and computation of income filed by the assessee along with the return of income. Admittedly, the return of income together with all the aforesaid documents which were filed by the assessee on 25.1.2019 falls within the time limit prescribed u/s 139(4) of the Act.
During the course of assessment proceedings, the Learned AO asked the Assessee to justify the deduction claimed under section 11(2) of the Act in view of the fact that Assessee had not filed Form No. 10 and had not filed the income tax return within the due date prescribed under section 139(1) of the Act. The Assessee replied to the query of the Learned AO vide letter dated 25-03-2021. The Assessee submitted that as per the accounting manual of PMGSY scheme, funds received by agency under PMGSY scheme along with interest is liability of SRRDA and it is not an income belonging to SRRDA. Accordingly, the Assessee submitted that the receipts are not income of the agency. Hence, these receipts should not be considered as income under the provisions of section 11 and 12 of the Act and it should not be required to furnish return in accordance with section Uttaranchal Rural Development Agency 139(4A) read with section 139(1) of the Act. Hence, it was submitted that the grant does not fall within the definition of income and therefore, no liability fastens on the Assessee to file income tax return. The Assessee placed reliance on the provisions of section 12A(1)(ba) of the Act as it stood then and applicable for assessment year 2018-19 by stating that the Form No. 10 had been electronically filed by the Assessee on 31-10-2018 seeking accumulation of unspent funds in terms of section 11(2) of the Act. The unutilized funds of Rs 83,73,77,381/- was deposited in savings bank accounts of various scheduled banks and as such were utilized for objects of the institution as per guidance for which grant in aid was received. It was also submitted that the agency had electronically filed Form No. 9A on 31-10-2018 under clause 2 of the Explanation to section 11(1) of the Act. The unutilized funds of Rs 83,73,77,381/- was utilized in next year for the purpose for which it was received. The agency had submitted periodic statement of utilization of funds, physical progress report and annual audited financial statements to the Ministry of Rural Development along with copy to NRRDA and other government authorities grant approval to utilize the remaining unspent amount during the next financial year as per PMGSY scheme.
The Learned AO, however, did not heed to the aforesaid explanation of the Assessee and proceeded to determine the total income of the Assessee at Rs. 217,81,66,220/- vide his assessment order dated 21-04- 2021 on the ground that the income tax return was not filed before the due date prescribed under Section 139(1) of the Act. Therefore, he held that deduction under Section 11(2) read with Section 12A of the Act is not allowable to the Assessee. The Assessee filed an appeal before the Learned Commissioner Appeals who upheld the order of the Learned AO.
Uttaranchal Rural Development Agency 6. We find that both the authorities had observed that since the income tax return was not filed before the due date prescribed under section 139(1) of the Act by the Assessee, the deduction under section 11 of the Act would not be available to the Assessee. But on perusal of the provisions of section 12A(1)(b) of the Act as it stood for Assessment Year 2018-19 wherein the only condition is that audit report is to be filed along with the Return of Income. In the instant case, both the return of income as well as Form 10B audit report were filed together on 25-1-2019 which is well within the due date prescribed under section 139(4) of the Act. This is evident from Page 120 of the Paper Book. Hence Assessee would be entitled for deduction under section 11 of the Act. This view of ours is further fortified by the co-ordinate bench decision of Delhi Tribunal in the case of Conference of Religious India vs ITO in for Assessment Year 2020-21 dated 13-10-2022 wherein the operative portion is reproduced hereunder:-
“3. Briefly stated the facts of the case are that the assessee is a charitable institution registered u/s. 12A of the Act and is claiming exemption u/s. 11 of the Act. The assessee filed its return of income for the year under consideration on 23.02.2021 claiming the benefits u/s 11 of the Act. The return was accompanied with the audit report in form No.10B. Form No.10 was also filed before the due date of filing of return of income showing accumulation of income of Rs.34 lacs.
The return was processed u/s. 143 (1) of the Act but the benefit of section 11 was not allowed and gross receipts of Rs.8559512/- has been taxed.
I have given a thoughtful consideration to the orders of the authorities below. The undisputed facts are that the assessee filed its return of income on 23.02.2021. It is also not in dispute that the due date for this assessment year has been extended till 15.02.021. This means that there was a delay of 7 days but considering the pandemic period and the decision of the Hon'ble Supreme Court by which the Hon'ble Supreme Court has extended the period of limitation across board, I am of the opinion that the delay of 7 days deserves to be condoned. In any case the return was filed before 31.03.2021 which is the last date for filing a belated return of income. It would be pertinent to refer to the above CBDT Circular which is as under :-
Uttaranchal Rural Development Agency "F. No. 173/193/2019-ITA-1 Government of India- Ministry of Finance Department of Revenue Central Board of Direct METAX DEPAR Taxo New Delhi Dated 23 April, 2019 To The Pr. DGIT (Systems), New Delhi Subject: Clarification with regard to the time allowed for filing of return of income subsequent to the insertion of Clause (ba) in sub- Section 1 of section 12A of the income-tax Act, 1961. Sir, Undersigned is directed to refer to the representation (s) received on above mentioned subject stating that while processing of ITR-7 for the A.Y. 2018-19, in respect of the belated returns filed u/s 139(4) of the Income Tax Act, 1961 (Act), the following is being communicated u/s 143(1)(a) of the Act:- "As per section 12A(1)(ba) of the Income-tax Act, 1961 the person in Receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section. Otherwise, the exemption u/s 11 i.e. sr. no. 4(i) and 4 viii in schedule Part BTI is not allowed". Based on this, exemption uls 11 of the Act has been denied to otherwise eligible trust, thereby creating huge demand.
In the matter, the memorandum explaining the relevant provisions of the Finance Bill, 2017 reads as under: "as per the existing provisions of said section, the entities registered Under section 12 AA are required to file return of income under sub- Section (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income-Tax shall furnish the retum of income within the time allowed under section 139 of the Act. These amendments are clarificatory in nature.
Uttaranchal Rural Development Agency These amendments will take effect from 1st April, 2018 and will, Accordingly, apply in relation to assessment year 2018- 19 and Subsequent years."
Additionally, an excerpt of circular 02/2018 dated 15.02.2018 "Explanatory Notes to the Provisions of the Finance Act, 2017" on insertion of clause (ba) in Sub section (1) of section 12A is quoted as the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139 of the Income-tax Act, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to Income-tax. Amendment to section 12A of the Income-tax has been made so as to provide for additional condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income Within the time allowed under section 139 of the Income-tax Act."
In my considered opinion the language of the aforementioned Circular is very clear and unambiguous in so far as the return of income filed u/s. 139 of the Act is concerned. Section 139 has several sub sections (1), (2), (3), (4), (4a), (5). I am of the considered view that if the return is filed within the specified time limit of sub section of 139 would be eligible for the benefit given by the above mentioned CBDT circular and should avail the benefit of exemption u/s. 11 of the Act. In my considered opinion the CIT(A) erred in misinterpreting the aforementioned circular and, therefore, to that extent the order of the CIT(A) is erroneous and deserves to be set aside the grievance of the assessee is allowed.”
Similar view was also taken by the Co-ordinate Bench of Kolkata Tribunal in the case of Bangarh Educational Welfare Trust vs ITO in for Assessment Year 2018-19 dated 2-1-2022 wherein it was held as under:-
“11. From perusal of the above referred circular, we find that in Para 3 of the said circular specifically states that a trust registered u/s 12AA of the Act, benefit of section 11 shall be available if the return of income is filed within the time allowed u/s 139 of the Act. It further states that orders u/s 143(1)(a) of the Act in those cases in which demand has been raised on this issue may please be rectified. From the circular, we note that an amendment was brought in by insertion of clause (ba) of section 12A(1) of the Act from 2018-19 onwards through which one of the requirements for claiming the benefit u/s 11 and 12 of the Act was to file the return of income within time allowed u/s 139(4A) of the Act. It seems that specially for A.Y 2018-19, when the Form ITR-7 was being processed and for such belated return, demand was raised, representations were received from Uttaranchal Rural Development Agency various assessees on this issue. Taking note of this issue, the said CBDT Circular has issued and while dealing with this issue, the returns filed within the time allowed u/s 139 of the Act have been directed to be accepted for the purpose of considering benefit of deduction u/s 11 of the Act. Now, since only section 139 of the Act has been mentioned and does not specify whether it is about u/s 139(1) of the Act or section 139(5) of the Act, the view beneficial to the assessee needs to be accepted and, since section 139(1) and section 139(5) are part of section 139 only and in this section 139 and sub-section (5) provides the mechanism to file a belated return, therefore, for A.Y 2018-19, even if the assessee files the return before the last date of filing of belated return the same should be treated as due compliance to section 12A(1)(ba) of the Act. For the year under appeal, the belated return could have been filed before 31.03.2019, and since the assessee has filed the return on 15.11.2018, therefore, considering the directions of CBDT Circular dated 23.04.2019, which are binding on the Revenue authorities, we are of the view that the assessee has fulfilled the conditions provided under sub-clause (ba) of section 12A(1) of the Act and has filed the return of income within the time allowed.”
With regard to the grants received by the assessee, it is pertinent to note that those are specific grants received by the Assessee and cannot be used for any other purpose other than the purpose for which grant was given. The disbursement letters issued by the competent authorities in this regard are enclosed in Pages 124 to 133 of the Paper Book proving the fact that the monies were paid only for specific purposes. In our considered opinion, they do not partake the character of income of the Assessee. Reliance in this regard has been rightly placed by the learned AR on the decision of Hon‟ble Punjab and Haryana High Court in the case of CIT vs State Urban Development Society in of 2011 dated 19-10-2011 wherein it was held as under:-
“Learned counsel for the appellant vehemently argued that the Society itself has reflected the grants received from Central and State Governments as income. Therefore, it is not open to the assessee to take a stand that such grants are not the income. The said aspect has been considered by the Tribunal, wherein, it has been held that reflection in the profit and loss account towards the income is not determinative. The entries in the books of account do not decide the nature of receipts. Since, the grants have been received by the assessee for disbursement and keeping in view the fact that the same cannot be utilized for any other Uttaranchal Rural Development Agency purpose such as distribution for the poverty in furtherance to the object of the Schemes, it cannot be treated as income of the assessee. As per the finding of fact recorded by the Tribunal, no substantial question of law arises in the present petition. Dismissed.”
In view of the aforesaid observations and respectfully following the judicial precedents relied uponhereinabove, we hold that the Assessee would be entitled for deduction under section 11 of the Act in the facts and circumstances of the instant case. Accordingly, the grounds raised by the Assessee are allowed.
In the result, the appeal of the Assessee is allowed.