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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri Waseem Ahmed & Shri K.Narsimha Chary
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
The assessee has filed this appeal disputing the order of Ld. Commissioner of Income Tax (Exemptions) Kolkata Vide No. CIT(E)/Kol/263/2015-16 dated 15.02.2016 passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by which the Ld. CIT set aside the assessment order 10.03.2014 u/s 143(3) of the Act with a direction to redo the assessment in respect of the issue mentioned therein. Shri S.Jhajharia, Ld. advocate appeared on behalf of assessee and Shri Niraj Kumar Ld. Departmental Representative appeared on behalf of Revenue.
ITA No.763/Kol/2016 A.Y.2011-12 M/s The Philanthropic Society of the Orthodox Church vs. DDIT(Ex)-I, Kol. Page 2 2. Solitary issue raised by assessee in its appeal is that Ld. CIT erred by holding the order passed by Assessing Officer u/s 143(3) as erroneous in so far prejudicial to the interest of revenue.
The facts in brief are that assessee, in the present case is a society registered u/s 12A of the Act. The assessee-society filed its return of income by claiming exemption u/s. 11(1) of the Act. The assessee exercised option under clause (2) of Explanation to Sec. 11(1) of the Act for treating sum of ₹51,83,397.41 as amount falling short of requisite 85% as income deemed to have been applied. The assessee submitted that amount fall short of requisite 85% will be applied immediately in the following financial year 2011-12 as per clause (2) of Explanation to Sec. 11(1) of the Act. The assessee can exercise the option in writing on or before the due date for submission of return of income as specified u/s 139(1) of the Act which in the instant case is 30.09.2011. However, Ld. CIT in his impugned order u/s 263 observed the return has been field on 20.10.2011 which is after the due date of filing of return of income as specified u/s. 139() of the Act. In view of the above, Ld. CIT observed that order passed by AO is erroneous and prejudicial to the interest of revenue and therefore notice was issued upon assessee. In response thereto, assessee submitted that the condition mentioned in clause-(2) of Explanation to Sec. 11(1) of the Act for exercising the option is directory in nature and not mandatory in nature. The AO is empowered to condone the delay if he satisfies that assessee was prevented from the sufficient cause for filing its return income. Accordingly, AO after considering the sufficient cause for such delay granted option to the assessee Therefore the view of AO cannot be held as erroneous and prejudicial to the interest of revenue. However, Ld. CIT in his impugned order u/s. 263 of the Act disregarded the claim of assessee by observing as under:- “Hence, from the above, it is clear that for qualifying the fifteen per cent of income to be set apart, the primary and basic condition is declaration of option by the assessee before the due date of filing return of income us/s 139(1), which in the instant case has not been fulfilled. The contention of the assessee during the proceedings us/s 263 that the AO after due consideration has allowed such income to be set apart, cannot be accepted since such option for consideration is not available to the AO regarding acceptance of the option exercised by the
ITA No.763/Kol/2016 A.Y.2011-12 M/s The Philanthropic Society of the Orthodox Church vs. DDIT(Ex)-I, Kol. Page 3 assessee during the assessment proceedings u/s. 143(3) as per provisions of Income Tax Act, 1961. The statute expressly did not provide any scope for consideration and condonation of delay by the AO, where there was admittedly delay in exercise of option as per explanation 2 of section 11(1)of the Act. Hence, the assessment order passed by the AO is considered erroneous to that extent beyond the ambit of the provision of law and consequently prejudicial to the interest of revenue as well. Accordingly, the order u/s 143(3) dated 10.03.2014 is erroneous and prejudicial to the interest of revenue.
The Assessing Officer is directed to modify the earlier order and do fresh assessment after consideration of all the issues and giving due opportunity to the assessee.”
Being aggrieved by this order of Ld. CIT assessee came in appeal before us on following ground:- “1. For that in view of the facts and circumstances of the case the Hon'ble CIT was wholly wrong and unjustified in passing a revisionary order u/s 263 of the Act and setting aside the assessment order u/s 143(3) of the assessee, a charitable society I trust, for the A.Y 2011-12 and directing the A.O to make a fresh assessment after giving the due opportunity of hearing to the assessee and after considering the issues raised in the order u/s 263 regarding the admissibility of the belated exercise of the option by the assessee under clause (2) of the Explanation to section 11 (( 1) of the Act in respect of the accumulation I set apart of a part of the income ( not exceeding 15% of the income derived from the trust property during the year) and claiming it as deemed application of income u/s 11 (1) for the A. Y 2011-12.
The order passed u/s 263 without properly considering the facts and without application of mind is liable to be quashed I cancelled as none of the conditions precedent for assuming the jurisdiction u/s 263 were fulfilled in this case.
For that in view of the facts and circumstances of the case the Hon'ble CIT was wholly wrong and unjustified in setting aside the assessment vide his aforesaid order u/s 263 on the alleged ground that (i) owing to the failure of the assessee to exercise the option under clause (2) of the Explanation to section 11 (1) of the Act within the due date of filing the Return u/s 139(1) for the A.Y 2011-12 (i.e within 30.09.2011 ) it is not eligible to get the benefit of accumulation / set apart of the part of the income (being the amount falling short of the required 85% of the income derived from the trust property during the year but not exceeding 15% of the income so derived) and claim the income so accumulated / set apart as deemed application of income u/s 11 (1) for the A.Y 2011-12 itself and (ii) the A.O has no discretion to condone the assessee's delay in exercising the option.
ITA No.763/Kol/2016 A.Y.2011-12 M/s The Philanthropic Society of the Orthodox Church vs. DDIT(Ex)-I, Kol. Page 4 3. For that in view of the facts and circumstances of the case the Hon'ble CIT was wholly wrong and unjustified in passing the order u/s 263 without considering and appreciating the facts that the option exercised by the assessee on 20.10.2011 under clause (2) of the Explanation to section 11(1) in the Return ( ITR - 7 ) filed on 20.10.2011 claiming accumulation I set apart of the income as deemed application of income u/s 11(1) for the A.Y 2011-12 should be accepted in assessment, even if it was delayed by only 20 days beyond the due date 30.09.2011, in view of various judicial decisions where it was held that such an exercise of option, which is directory in nature, made before the A.O at any time before the completion of assessment is a valid option for the purpose of granting the benefit of exemption u/s 11 (1 )(a) of the Act as in this case.
For that in view of the facts and circumstances of the case the Hon'ble CIT was wholly wrong and unjustified in passing the order u/s 263 without considering the facts that a conjoint reading of section 11 read with sections 139(4) and 139(4A) of the Act makes it clear that the return filed by the assessee for the A.Y 2011-12 on 20.10.2011 u/s 139(4A) of the Act in the prescribed Form No. ITR - 7 has to be considered as a return having been made within the time prescribed in section 139(1) of the Act and the option exercised by the assessee in such return have satisfied the requirements as contemplated under clause (2) of the Explanation to section 11(1) of the Act and the assessee's claim of exemption u/s 11(1)(a) stands justified in view of the decision held in the case of Trustees of Tulsidas Gopalji Trust vs. CIT (1994) 73 Taxman 612 Born).
For that in view of the facts and circumstances of the case the Hon'ble CIT was wholly wrong and unjustified in passing the order u/s 263 raising a mere procedural and / or technical issue without considering the facts that the original assessment u/s 143(3) dt. 10.03.2014 was made by the A.O with full application of mind and after taking into consideration all the material facts of the case including the time and merit of the option exercised by the assessee under clause (2) of the Explanation to section 11 (1) of the Act in the Return filed on 20.10.2011 for its due consideration before the completion of the scrutiny assessment on 10.03.2014. There was no error or mistake in the assessment both in terms of the facts .and the law which can invite invocation of the revisionary proceeding u/s 263 of the Act.
For that in view of the facts and circumstances of the case the Hon'ble CIT was wholly wrong and unjustified in setting aside the assessment vide his aforesaid order u/s 263 merely on a change of opinion without application of mind and also on mere assumption and presumption, when the concerned issues reflected in the Audited a/cs and the Audit Report and the option exercised in the Return filed on 20.10.2011 were duly examined by the A.O during the course of assessment and before the completion of the assessment
ITA No.763/Kol/2016 A.Y.2011-12 M/s The Philanthropic Society of the Orthodox Church vs. DDIT(Ex)-I, Kol. Page 5 u/s 143(3) of the Act on 10. 03.2014. The order passed u/s 263 being not valid in the eye of law is liable to be quashed / cancelled.”
Before us Ld. AR for the assessee filed paper book which is running pages 1 to 60 and submitted that the condition for fling the option under Clause 2 of the Explanation to Sec. 11(1) of the Act is directory in nature. The assessee in the instant case, cannot be deprived from the exemption as provided u/s. 1 of the Act on account of technical reason i.e., the return was not filed on time.
On the other hand, Ld. DR fairly relied upon the impugned order passed by Ld. CIT u/s. 263 of the Act.
We have gone through the submission made by both the sides and order of lower authorities as well as judgment relied before us. From the foregoing discussion we understand that admittedly, the assessee is a charitable trust and is registered with the CIT under section 12A of the Act. It was not disputed that the assessee, for the past several years, was treated as a charitable institution and granted exemption under section 11 of the Act. The assessee has been given the benefit of exemption under section 11 of the Act at the time of assessment although it failed to exercise the option in writing for accumulating or set apart the voluntary contributions in excess of more than 15% of total contribution as mandated under explanation 2 of section 11(1) of the Act. Therefore the ld. CIT under section 263 of the Act has held that the order of the AO is erroneous and prejudicial to the interest of Revenue. However we find that provisions of sections 11 are not mandatory in nature but directory in nature. There is no doubt that section 11 of the Act specifically requires the assessee to exercise the option in writing for accumulating or set apart the voluntary contributions before the expiry of the time allowed for filing the return under section 139(1) of the Act. If the provisions of section 11 of the Act is read in isolation and the rule of strict and literal construction is applied, the approach of the Revenue in this case has to be held as correct. But there is no justification for applying the rule of strict construction or for considering
ITA No.763/Kol/2016 A.Y.2011-12 M/s The Philanthropic Society of the Orthodox Church vs. DDIT(Ex)-I, Kol. Page 6 the provisions of section 11 of the Act in isolation. Having regard to the other provisions of the Act regarding filing of the return or revised return or rectifying the defects in the return, the provisions of section 11 of the Act are directory in the sense that the Assessing Officer is not powerless to allow an assessee to file the option in writing under explanation 2 of the section 11(1) of the Act after the due date of filing return of income but before the completion of the assessment. One has to look at the purpose of the provisions. One has to construe the provision to ensure coherence and consistency to avoid undesirable consequences. Where the return was filed along with the option in writing, there was no reason why such option for accumulating or set apart of the contributions should not be allowed for exemption before the completion of the assessment. No case has been made out that the delay in furnishing the return and accordingly denying the benefit under section 11(1) of the Act in any object of the Act or the assessee's action was in substance not in conformity with the intent and purpose of the Act. The ld. CIT fell into error in denying the claim of exemption under section 11 of the Act. It was not disputed that the assessee, for the past several years, was treated as a charitable institution and granted exemption under section 11 of the Act. In this connection we rely in the case of COMMISSIONER OF INCOME TAX vs. ZIARAT MIR SYED ALI HAMDANI where the Hon’ble HIGH COURT OF JAMMU & KASHMIR (2001) 248 ITR 0769 has held as under :
“It is clear from a plain reading of clause (2) of the Explanation to s. 11(1) that the legislature was conscious of the fact that the requirement that at least 75 per cent of the income of the trust should be applied for the specified purposes during the previous year was likely to cause hardship in practice and with a view to mitigating the same, provided, inter alia, that it would be sufficient compliance of the requirement of s. 11(1) if the assessee applied the income for the specified purposes in the previous year following the year of accrual. This relaxation is, however, subject to the assessee exercising in writing the option before the expiry of the time for furnishing the return of income under sub-s. (1) or sub-s. (2) of s. 139. On a conjoint reading of the various sub-sections of s. 139, sub-s. (1) and sub-s. (4) of s. 139 have to be read together and, on such a reading, the inevitable conclusion is that a return made within the time specified in sub-s. (4) has to be considered having been made within the time prescribed in sub-s. (1) or sub-s. (2) of s. 139. In view of
ITA No.763/Kol/2016 A.Y.2011-12 M/s The Philanthropic Society of the Orthodox Church vs. DDIT(Ex)-I, Kol. Page 7 the above position in the instant case, the option exercised by the assessee under cl. (2) of the Explanation to s. 11(1) along with the return submitted under sub-s. (4) has to be regarded as a valid exercise of option within the time fixed for furnishing return under sub-s. (1) of s. 139.—Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust vs. CIT (1994) 118 CTR (Bom) 305 : (1994) 207 ITR 368 (Bom) : TC 23R.1592 relied on.” In our view, therefore, the action of ld. CIT(A) holding the order of the AO as erroneous and prejudicial to the interest of Revenue is not sustainable in law.
In the result, appeal of the assessee stands allowed.
Order pronounced in open court on 26/10/2016 Sd/- Sd/- (K.Narsimha Chary) (Waseem Ahmed) Judicial Member Accountant Member *Dkp, Sr.P.S �दनांकः- 26/10/2016 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-M/s The Philanthropic Society of the Orthodox Church, 2A, Library Road, Kalighat, Kolkata-26 2. ��यथ�/Respondent-DDIT (Exemptions)-I, Kolkata, Middleton Row, Kolkata-71 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file.
By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता