THE SOUTH INDIA CLUB,NEW DELHI vs. ITO WARD EXEMPTION 2(3), NEW DELHI

purposes or for the stated objects of the trust or institution to the

extent, which does not exceed 15 percent of income derived from

property held in trust or institution u/s 11(a) or 11(b) are eligible

for deduction. The return was processed u/s 143(1)(a) of the Act

and in the above proceedings, it was observed that the total

income of the trust without giving effect to the provisions of

3 ITA No.354/Del/2024 The South India Club vs. ITO

section 11 and 12 exceeds the maximum amount which is not

chargeable to tax, the audit report in Form 10B has to be E-filed

along with the return of income. Since, the assessee has not E-

filed the audit report in Form 10B along with or before filing the

return of income, exemption u/s 11 is not allowed. As per the

return of income declared and observed that the assessee has not

filed the Form 10B along with the return of income, an amount of

Rs.6,01,35,500/- added as income of the assessee and denied the

exemption claimed u/s 11 of the Act.

appeal before the Ld. CIT-1, Coimbatore.

submissions before the Ld. First Appellate Authority along with

relevant documents in support of its claim. The same is

reproduced by Ld. CIT(A) at pages 3 to 6 of the order.

“1. The appellant, the South Club (formerly known as The South India Association) was formerly registered on 14.02.1941 as a society under the societies Registration Act, 1860. The South India Club is a non-profit society and its primary objectives are:- I) to pioneer, cultivate and encourage activities in educational, social, cultural and recreational fields, to cultivate literary and artistic talents, to

4 ITA No.354/Del/2024 The South India Club vs. ITO

provide a common meeting place with a reading room and library and to promote fine arts.

The appellant filed application for Registration under 12A with Commissioner of Income Tax (Exemptions), Delhi on 27.03.2019. When this application was pending. the appellant filed Return of Income for the Assessment Year 2018-19 on 30.03.2019. In this Return, the appellant had claimed application of income for charitable purposes of Rs.6,01,35,500/- which comprised of amount applied during the previous year Revenue Account Rs. 72,224/-, amount applied during the Previous Year Capital Account (Repayment of Loan) Rs.6,00,00,000/-.

II. During the financial year 2017-18, we have received an amount of Rs. 6,00,00,000 as voluntary donation from Shriram Transport Finance Company Ltd. This amount was utilised for repayment of loan taken earlier from Shriram Investments of Rs.6,60,97,435/-. This loan amount taken from Shriram Investment has been utilised for construction of new building as we have been advised that the old building is unsafe for operation.

III. The DOT, CPC, Bengaluru issued a proposal u/s on 16.08.2019.(Copy of the same is enclosed).

IV. The DCIT, CPC issued intimation u/s.143(1) dated 10.11.2019, wherein he denied the exemption claimed u/s.11 and disallowed Rs.6,00,35,500/- as Form No. 10B has not been e-filed in time. The appeal is filed against the denial of exemption claimed u/s 11 and addition of Rs.6,00,35,500/-

V. When the evidence of prior filing of intimation or registration, as the case may be, could not be traced in the appellant's case namely South India Club, we were advised to apply for registration u/s 12A of the Income Tax Act afresh. Thus, the registration application was made on 27.03.2019. While the application is pending the appellant filed ROI for AY 2018-19 on 30.3.2019. Our application was rejected by CIT(E) vide his order dated 30.9.2019. The order of the CIT(E) was appealed and we received favourable decision of Hon'ble ITAT in I.T.A. No: 8338 / Del / 2019 dated 13.08.2020 allowing our appeal and directing the CIT (Exemption) to grant registration u/s 12AA. (Copy of ITAT's order is enclosed).

VI. Consequent to the ITAT's order, the CIT (Exemptions) granted registration by order dated 05.01.2021. (Copy of the order enclosed).

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VII. When the CIT (Exemptions) granted registration on 05.01.2021 the income tax scrutiny assessment for the assessment year 2018-19 was pending which, was completed on 08.02.2021.

Second Proviso to Sec. 12A(2) of Income Tax Act, which reads as under, is squarely applicable to our case.

"Provided further that where registration has been granted to the trust or institution under section 12AA or section 12AB, 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".

VIII. When the CIT (Exemptions) granted registration to us, w.e.f. Assessment year 2019-20 in accordance with sub section 2 of section 12A on the basis of the application filed in March 2019 automatically the second proviso to that sub section guarantees the benefit of application of section 11 and 12 for pending assessments of earlier assessment years subject only to the condition that there has been no change in objects and activities in the intervening period.

There was no change in the objects and activities of the appellant's society during the financial year. Therefore the benefit of registration granted to us is available for the assessment year 2018-19 also. This is a statutory benefit given to us to which the assessee society is entitled and which cannot be denied.

IX. Without prejudice the above submissions, we submit that the Assessing Officer erred in overlooking the fact that the donation received of Rs.6,00,00,000/- from STFC, a patron member of the society cannot be brought to tax on the principle of mutuality which governs the society. In this connection, we rely on the Supreme Court decision in the case of State of West Bengal Vs Kolkata Club Limited (110 Taxmann.com.47).

X. With regard to your query regarding filing of Form 10B later, we submit as under:

The appellant club has been registered as early as on 14.02.1941 as a society under the Societies Registration Act 1860. The amount received by the Club is exempt from income tax on the principle of mutuality. At the

6 ITA No.354/Del/2024 The South India Club vs. ITO

time of filing the return of income for the assessment year 2018-19 the club has not been granted registration/s. 12A.

Therefore, at time of filing the return of income report in Form 10B was not filed.

Subsequently, the CIT(E) granted registration under section 12AA r.w.s 12A on 05.01.2021. As at the time of grant of registration the Assessment proceedings of the preceding assessment year 2018-19 was pending, we became eligible for the benefit of section 11 and 12 as per second proviso to section 12A(2) which is extracted in para VII above. The only condition prescribed by the second proviso for becoming eligible for the benefit of section 11 and 12 to the pending preceding assessment year was the object and activities of such trust or institution remains the same for such preceding assessment year". We have satisfied this condition. The second proviso did not prescribe any other pre-condition to become eligible for benefit of section 11 and 12.As the statute itself (second proviso) has prescribed the precondition, which we have satisfied, we were under the impression that Form 10B need not be filed. Therefore, we have not filed Form 10B.

XI. We are submitting herewith copy of the following documents:

a. Return of income. b. Show cause notice issued by CPC u/s. 143(1)(a). c. Copy of ITAT Order directing to grant registration. d. copy of order of CIT(E) u/s.12AA r.w.s. 12A/254 dated 05.01.2021 granting registration. e Supreme Court decision in the case of Kolkata Club Limited. (110) Taxmann.com 47). XII. This is to inform you that for the assessment year 2018-19, the assessment was completed u/s.143(3) r.w.s.143(3A) and 143(3B) on 08.02.2021, wherein the Assessing Officer has denied the exemption claimed u/s.11 and we have filed appeal before CIT(A), NFAC and the same is pending. XIII. For the reasons stated above, the CIT(A) may be pleased to hold that the appellant is entitled to the exemption claimed and delete the addition of Rs 6,00,35,500/-.”

7 ITA No.354/Del/2024 The South India Club vs. ITO

the claim made by the assessee and dismissed the grounds raised

by the assessee on the basis of non-filing of Form 10B before the

CPC to process the return u/s 143(1)(a) of the Act.

before the Ld. CIT(A) for the sake of clarity, the same is reproduced

below:

“1. Registration application was made on 27.03.2019 2. Application was rejected by CIT(E) vide his order dated 30.9.2019 3. The order of the CIT(E) was appealed and we received favourable decision of Hon'ble ITAT in I.T.A. No: 8338/Del/2019 dated 13.08.2020 4. CIT (Exemptions) granted registration by order dated 05.01.2021. (Copy of the order enclosed). 5. Second Proviso to Sec. 12A(2) of Income Tax Act, which reads as under, is squarely applicable to our case 6. When the CIT (Exemptions) granted registration on 05.01.2021 the income tax scrutiny assessment for the assessment year 2018-19 was pending which, was completed on 08.02.2021.” 7. After considering the above submissions, the Ld. CIT(A)

dismissed the above claim by observing as under:

“5.13 The appellant is admitting that order u/s 143(3) was passed on 08.02.2021 and the order u/s 143(1) gets merged with the 143(3) order and the order under section 143(1) and the appeal on this has become infructuous. But still the issue of filing the return within time u/s 139(4) and filing of form 10B before the filing of return is compulsory to grant exemption u/s 11 in a 143(3) order also. Hence the appellant has to get the delay condoned first and can raise the ground Sec. 12A(2) of Income Tax Act is squarely applicable before the appellate authority in the appeal

8 ITA No.354/Del/2024 The South India Club vs. ITO

against the 143(3) order. The order u/s 143(1) is correct and the appeal is dismissed as infructuous.”

before us raising the following grounds of appeal:

“1. The order of the Additional / JCIT(A)-1, Coimbatore, for the Assessment year 2018-19 u/s 250 dated 07.12.2023 is against law and facts of the case. 2. The Additional / JCIT(A)-1 erred in dismissing the appeal as infructuous after giving adverse findings on merits of the issues agitated in the appeal against the section 143(1) proceeding and the demand. 3. The Additional /JCIT(A)-1 erred in holding that the section 143(1) proceeding is subsumed in section 143(3) order without giving a specific opportunity of being heard to the appellant on that point of view. 4. After holding that the section 143(1) proceeding is subsumed in section 143(3) order, the Additional / JCIT(A)-1 erred in giving adverse findings on merits of the appellant's claim for exemption u/s 11 and thus prejudging the issues in the appeal against section 143(3) order which was not before him.

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iii) Sri Sri Ramakrishna Samity (156 ITD 646) Kolkotta ITAT. iv) CBDT Circular No. 1/2015 dated 21.01.2015.

10 ITA No.354/Del/2024 The South India Club vs. ITO

a) We submit that once an assessment was selected for scrutiny; notice u/s 143(2) has been issued and an order has been passed u/s 143(3), the intimation u/s 143(1) merges into the assessment order and looses its standalone existence.

The chronological of events in our case is as under: i) Intimation u/s 143(1): 10.11.2019

11 ITA No.354/Del/2024 The South India Club vs. ITO

ii) Notice u/s 143(2) issued on 22.09.2019 iii) Assessment order u/s 143(3): 08.02.2021 iv) CIT(A) Order against 143(1) intimation: 07.12.2023 v) CIT(A) Order against 143(3) Order: Pending.

From the above it could be seen that 143(1) dated 10.11.2019 got subsumed in the Section 143(3) Order dated 08.02.2021

b) In this regard, we rely on the following ITAT Decisions which is squarely applicable to our case: 1) Income Tax Appellate Tribunal, Gauhati Bench, Order in I.T.A No. 13/Gty/ 2022 dated 09.06.2023 for the Assessment Year 2018-19. (Page No. 16 to 18 of Paper Book)

"Considering these facts, we find that the present appeal being against intimation u/s. 143(1) challenging the adjustment made which has already been taken into consideration for the purpose of addition in the assessment completed u/s. 143(3) of the Act, is rendered as infructuous. Accordingly, we dismiss the present appeal as infructuous.

2) Income Tax Appellate Tribunal, Gauhati Bench, Order in I.T.A No. 49/Gty/ 2022 dated 14.06.2023 for the Assessment Year 2018-19 (Page No. 19 to 22 of Paper Book)

3) Income Tax Appellate Tribunal, Indore Bench, Order in I.T.A No. 424 & 426/ Ind/2022 dated 30.08.2023 for the Assessment Year 2016-17 & 2017-18. (Page No. 23 to 29 of Paper Book)

"The Hon'ble High Court has held that once the assessment u/s 143(3) has been completed then the order passed u/s 143(1)(a) merges with the order passed u/s 143(3) of the Act. Therefore, the order passed u/s 143(1) of the Act ceased to be operative. Accordingly in the facts and circumstances of the case as well as various binding precedents on the point we hold that the order passed u/s 143(1) by CPC after the scrutiny assessment proceedings were initiated by the AO for A.Ys 2016-17 & 2016-18 are not valid and liable to be set aside. We order accordingly."

c) Relying on the above judicial precedents, we kindly request that Hon'ble ITAT may be pleased to set aside the Order of CIT(A) and quash the intimation u/s 143(1) and its demand.

12 ITA No.354/Del/2024 The South India Club vs. ITO

d) Further, though the JCIT(A) Coimbatore held that 143(1) is subsumed in Section 143(3) order, he did not give a specific opportunity of being heard; he erred in giving adverse findings on merits of the appellant's claim for exemption u/s 11 and thus prejudging the issues in the appeal against 143(3) order which was not before him and he erred in not directing the AO to cancel the demand as per section 143(1) proceeding after holding that the said proceeding demand got subsumed in section 143(3) order.

a) The chronological of events in our case is as under:

i) Return of Income filed for the Assessment Year 2018-19: 30.03.2019 ii) Notice u/s 143(2) issued by AO: 22.09.2019 iii) Intimation u/s 143(1) issued by CPC: 10.11.2019 iv) Notice u/s 142(1) issued by AO: 09.12.2020 v) Notice u/s 142(1) issued by AO 04.01.2021 vi) Registration granted by CIT(E) 05.01.2021 vii) Assessment Order passed by AO: 08.02.2021 From the above, it could be seen that when the CIT (Exemptions) granted registration to the appellant vide his Order dated 05.01.2021 w.e.f. Assessment year 2019-20, the Scrutiny Assessment was pending before the AO for the Assessment Year 2018-19.

b) First Proviso to Sec. 12A(2) of Income Tax Act (FA 2018), which reads as under, is squarely applicable to our case.

"Provided further 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"

[Page No. 30 to 32 of the Paper Book]

c) There was no change in the objects and activities of the appellant's society during the financial year. Therefore, the benefit of registration granted to appellant is available for the assessment year 2018-19 also.

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This is a statutory benefit given to appellant to which the appellant society is entitled and which cannot be denied. d) We rely on the following's decisions/CBDT Circular which stated that the exemption is available for the earlier pending assessment years. i) ITAT Raipur Bench's decision in the case of Shivom Vidyapeeth Shikshan Samithi 201 ITD 144 Raipur Tribunal which stated that the exemption is available for earlier pending assessment years. (Page No. 33 to 40 of Paper Book) ii) ITAT Amritsar Sai Wiran Wali Educational Trust I.T.A. No. 104 (ASR) / 2015 dated 11.09.2018. (Page No. 41 to 46 of Paper Book) iii) Sri Sri Ramakrishna Samity (156 ITD 646) Kolkotta ITAT. (Page No. 47 to 58 of Paper Book) iv) Extract of CBDT Circular No. 1/2015 dated 21.01.2015. (Page 59 to 61 of Paper Book) e) Further, the First proviso to section 12A(2) has not prescribed any other precondition to get the benefits of section 11 and 12. This proposition gets strengthened from the fact that the second proviso guarantees that no proceedings u/s 147 shall be initiated for any assessment year preceding the year from which registration is granted on the footing that Section 11 is not applicable in the absence of registration.

decision of jurisdictional High Court available on the issue of

initiation of regular assessment by issue of notice u/s 143(2) of

the Act, also does not preclude from passing of the order u/s

143(1) of the Act, therefore, he heavily relied on the findings of the

Ld. CIT(A). Further, with regard to pending assessment at the time

of granting of registration issue is concern, he agreed that the

14 ITA No.354/Del/2024 The South India Club vs. ITO

assessment was pending at the time of grant of registration,

however, he submitted that whether other conditions for claiming

deductions u/s 11 are fulfilled or not has to be verified, therefore,

he supported the findings of Ld. CIT(A) in this regard.

record. We observe that the issue raised by the assessee that the

order passed u/s 143(1) of the Act, otherwise called as

intimations, in which the CPC has denied the benefit claimed u/s

11 of the Act with the observation that the audit report in form

10B was not filed on time. This is fact on record that the assessee

has not filed the form 10B along with the return of income due to

the fact that it did not had the registration u/s 12A, and the

assessee was claiming the benefits under the concept of mutuality.

We observe that the assessee has applied for registration before

filing the return of income for the current assessment year on

27.03.2019 and subsequently filed the ROI on 30.03.2019. The

ROI was processed u/s 143(1) of the Act on 10.11.2019 and

denied the benefit u/s 11 on the basis of not filing the Form 10B

on time.

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issued on 22.09.2019. Further notices u/s 142(1) were issued in

order to proceed with the regular assessment. Accordingly the

assessment u/s 143(3) was completed. When regular assessment

was completed and the relevant intimation issued u/s 143(1) will

automatically merges with the assessment passed u/s 143(3).

Therefore, it loses its relevance once the regular assessment is

processed and it is only an intimation towards the accuracy of the

information submitted by the assessee. In the given case, the

assessee has claimed deduction u/s 11 and failed to file the form

10B along with the ROI. Based on the above observation, the claim

of the assessee was denied by the AO in sec.143(1) proceedings.

Therefore, there is no denial of fact that AO can make the above

disallowance, however, the validity of the intimation issued u/s

143(1) is limited to mere intimation of correctness and accuracy of

the income declared in ROI and its accuracy based on the

information submitted along with the ROI. It does not carry the

legitimacy of an assessment. When the assessment was processed

under regular assessment then it loses its individuality and

16 ITA No.354/Del/2024 The South India Club vs. ITO

merges with the regular assessment. We are in agreement with the

findings of Ld CIT(A) that the intimation u/s 143(1) merges with

the order passed u/s 143(3) of the Act and the appeal against the

above intimation becomes infructuous. In our view, he should

have stopped with the above findings and should not have

proceeded to decide the issue on merits, because it is brought to

his knowledge that the assessee has filed appeal against the

regular assessment order. Therefore, he has travelled beyond the

mandate. The issue of allowability of section 11 is already

considered in the regular assessment and that issue is already in

appeal before FAA. Therefore, reviewing the same is uncalled for.

disputing the fact that the intimation merges with the regular

assessment when the proceedings are initiated u/s 143(3) of the

Act. Therefore, the admitted fact that the appeal against the

intimation is infructuous. The grievance of the assessee is that Ld

CIT(A) has not stopped with the findings but gave findings on the

merits. After considering the submissions, we are also of the view

that the findings on allowability u/s 11 is uncalled. Particularly

17 ITA No.354/Del/2024 The South India Club vs. ITO

when the issue under consideration is under challenge before

another Appellate Authority.

granted the 12A registration on 5.1.2021 and the notice u/s

143(2) was issued on 22.09.2019. At the time of grant of

registration, the assessment was pending and the same was

passed only on 8.2.2021. That is subsequent to grant of

registration i.e., on 5.1.2021. He submitted that the assessee is

eligible to claim exemption u/s 11 for the impugned assessment

year also. This is accepted fact on record that the assessee is

eligible to claim exemption after the introduction of first proviso to

sec.12A(2) of the Act with the applicable conditions in Finance Act

2018. Since there is no change in the objects and activities in the

case of the assessee, there is no doubt that the assessee is eligible

to claim the benefit. However, in our view, this issue has to be

raised before the FAA in the appeal against regular assessment

passed u/s 143(3) of the Act. Since the issue is still under appeal

before FAA, this issue can be decided by the FAA without taking

any clue from the appeal decided u/s 143(1) of the Act by the

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present CIT(A). Therefore, the issue raised against the intimation

order is decided in favour of the assessee and hold that the order

passed u/s 143(1) is merged with the regular assessment passed

u/s 143(3) and it does not have legs to stand on its own once the

regular assessment proceedings are initiated. At the same time, we

are also hold that the findings of the Ld CIT(A) on the maintenance

of the appeal as infructuous, hence, the demand raised in the

143(1) intimation does not survive.

allowed.

Order pronounced in open Court on 22nd May, 2024.

Sd/- Sd/- (YOGESH KUMAR U.S.) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 22/05/2024 Pk/sps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT, NEW DELHI