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Facts
The assessee, Krishi Upaj Mandi Samiti Narsingpur, filed two appeals against the CIT(A)'s orders for AY 2014-15. The first appeal challenged the rejection of a rectification application under Section 154, claiming full income exemption under Section 10(26AAB). The second appeal contested disallowances made under Section 40(a)(iib) for Board Fee and under Section 43B for gratuity and pension expenses.
Held
The ITAT set aside the CIT(A)'s orders and remanded all disputed issues back to the Assessing Officer for a de novo assessment. This decision was based on the need for further factual verification, especially regarding the assessee's claim of income exemption and the applicability of disallowance sections.
Key Issues
The key legal issues were the applicability of income exemption under Section 10(26AAB), the correctness of disallowances under Section 40(a)(iib) for Board Fee, and the disallowance of gratuity and pension expenses under Section 43B.
Sections Cited
Section 10(26AAB), Section 40(a)(iib), Section 43B, Section 154, Section 143(3), Section 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JABALPUR BENCH “SMC”, JABALPUR
Before: SHRI ANADEE NATH MISSHRA
O R D E R (A) Appeal vide has been filed by the assessee for assessment year 2014-15 against impugned appellate order dated 14.05.2024 (DIN & Order No.ITBA/NFAC/S/250/2024-25/1064842603(1) of learned CIT(A). The grounds of appeal are as under:
1. 1. 1. 1. 1. 1. Considering the fact that the income of assessee is fully exempt u/s 10(26AAB) of IT Act, learned CIT(A) grossly erred in confirming income assessed at Rs.26,95,550/- by AO by rejecting application of assessee u/s 154 for rectification of apparent mistake. Assessing and confirming income in the hands of assessee is a mistake apparent on record because income is fully exempt u/s 10(26AAB).
2. Order passed by Learned CIT(A) rejecting application u/s 154 is bad in law and on facts.
Assessee craves leave to add to or modify grounds of appeal.” (A.1) Appeal vide 2014-15 against impugned appellate order dated 15.05.2024 (DIN & Order No.ITBA/NFAC/S/250/2024-25/1064842603(1) of learned CIT(A). The grounds of appeal are as under:
& 149/JAB/2024 Assessment Year:2014-15 2 “1. Considering the fact that Section 40(a)(iib) is not applicable in the case of assessee, learned CIT(A) erred in confirming the addition of Rs.6,12,215/- made by ld. AO towards payment of Board Fee.
Considering the fact that Section 40(a)(iib) is not applicable in the case of assessee, learned CIT(A) erred in confirming the addition of Rs.2030003/- made by ld AO towards payment of Board Fee.
3. Considering the fact that the gratuity and pension Rs.53328/- is not covered in section 43B, learned CIT(A) erred in confirming disallowance of this amounts u/s 43B.
Considering the fact that the income of assessee is fully exempt u/s 10(26AAB) of IT Act, learned CIT(A) grossly erred in confirming income assessed at Rs.2695550/-.
Assessment order passed by the ld AO and confirming by Ld. CIT(A) is bad in law and on facts.” (B) For the sake of convenience, these two appeals are disposed of through this consolidated order. First, is taken up. In this case, assessment order dated 10.11.2016 was passed u/s 143(3) of Income Tax Act, 1961 (“Act”, for short) whereby the following additions were made: disallowance of Rs.26,42,218/- u/s 40(a)(iib) of I.T. Act and disallowance of Rs.53,328/- u/s 43B of I.T. Act. The assessee’s appeal against the assessment order was dismissed by the Ld. CIT(A) vide impugned appellate order dated 14.05.2024. The relevant portion of the impugned order of the Ld. CIT(A) is reproduced below: - “5.2. During the appellate proceedings, the appellant claimed that the Board Sulk & Kisan Sadak Nidhi paid were not royalty, license fee, privilege fee or service fee as envisaged in the provisions of section 40(a) (iib) of the Act and hence disallowance in its case was not applicable. State Government Undertaking are separate legal entities distinct from the State Government and are liable to Income Tax. State Governments levy different kind of fees or service charges on State Government Undertakings. These fees or charges are claimed by the State Government Undertakings as expenses thereby reducing their taxable profits. In order to protect the tax base of the State Government Undertakings vis-à-vis exclusive levy of fee, charges etc. ог appropriation of amount by the State Government from its source undertakings, the Finance Act, 2013 had amended Section 40 by inserting new sub-section (iib) in section 40(a) with effect from 01/04/2014. The new sub-section (iib) provides that deduction shall not be allowed as deduction for the purposes of computation of income of such undertakings under the head 'Profits & Gains of Business or Profession' in respect of:
& 149/JAB/2024 Assessment Year:2014-15 3
Royalty, license fee, service fee, privilege fee, service charge or any other name whatever called if such royalty etc. is exclusively levied on a State Government Undertaking by the State Government or 2. Any amount which is appropriated directly or indirectly from a State Government Undertaking by the State Government. Although, nomenclature of the Board Sulk and Kisan Sadak Nidhi did not resemble with royalty, license fee, service fee, privilege fee etc, the same was levied by the State Government and was appropriated directly from a State Government Undertaking thereby attracting the provisions of section 40(a)(iib) of the Act. In view of the facts discussed above, there is no need to take a divergent view from the findings of the AO. The contention of the appellant is rejected and the action of the AO making addition of Rs.26,42,218/- on account of disallowance of fees u/s 40(a)(iib) of the Act is confirmed. Accordingly, Ground No. 1 & 2 are dismissed. 5.3. Ground No.3 pertains to the single issue of addition of Rs.53,328/- on account of disallowance u/s 43B of the Act and the same is adjudicated as under:- During the assessment proceedings, on perusal of the Profit & Loss Account, the AO noted that the appellant claimed the expenses of Gratuity & Pension payable of Rs.53,328/-. The expenses were not incurred on or before the date of furnishing the return of income u/s 139(1) of the Act thereby violating the provisions of section 43B of the Act. Accordingly, the AO made addition of Rs.53,328/- on account of disallowance u/s 43B of the Act. During the appellate proceedings, the appellant claimed that it had paid the Gratuity & Pension of Rs.53,328/- before the date of furnishing the return of income u/s 139(1) of the Act and hence addition on account of disallowance u/s 43B of the Act was not warranted in its case. However the appellant did not furnish the proof of payment of gratuity & pension. Mere claim of making payment does not establish the fact. Section 43B of the Act clearly provides that any expense which is claimed and not paid before the date of furnishing the return of income u/s 139(1) of the Act is not to be allowed as expense. Therefore it is held that the AO correctly made addition of Rs.53,328/- on account of disallowance u/s 43B of the Act on account of failure of the appellant to make payment before the date of furnishing the return of income u/s 139(1) of the Act. In view of the facts discussed above, there is no need to take a divergent view from the findings of the AO. The contention of the appellant is rejected and the action of the AO making addition of Rs.53,328/- on account of disallowance u/s 43B of the Act is confirmed. Accordingly, Ground No. 3 is dismissed. 5.4. Ground No. 4, 5 & 6 are general in nature and do not require separate adjudication as the same were already dealt in detail in above paragraphs. Accordingly, Ground No. 4, 5 & 6 are dismissed.” (B.1) In the course of appellate proceedings in ITAT, the assessee filed a paper book containing the following particulars:
& 149/JAB/2024 Assessment Year:2014-15 4 SI. PARTICULARS NO. 1 Brief on the case 2 Copy of order of CIT(Appeal) dated 11.7.2024 rejecting application u/s 154 3 Written submission filed before CIT (Appeal) for rectification u/s 154 4 Copy of order of CIT(Appeal) u/s 250 dated 14.5.2024 against assessment order against which rectification application was filed. 5 Form 35 filed before CIT(Appeals) against assessment order. 6 Judgement in the case of Trustees of Indore Cancer Foundation Charitable Trust (2001) 248 ITR 730 (Madhya Pradesh). (C) At the time of hearing, there was no representation from the assessee’s side. In the absence of any representation from the assessee’s side, the learned Departmental Representative (“DR”, for short) for Revenue was heard. The aforesaid paper book, referred to in paragraph (B.1) of this order, contains a brief note from the assesse’s side which is reproduced below, for the ease of reference: - (D) As regards ground no. 1 of appeal in in which dispute relates to assessee’s claim of exemption u/s 10(26AAB) of I.T. Act; the learned DR for Revenue submitted that the facts as stated in the written & 149/JAB/2024 Assessment Year:2014-15 5 submissions, referred to in the foregoing paragraph (C) of this order, require proper factual verification at the end of the Assessing Officer. He further submitted that all the issues in dispute in the present appeal may be remanded back to the file of the Assessing Officer with a direction to pass de novo order in accordance with law after due verification. The submissions made by the learned DR for Revenue are found to be acceptable, in the facts and circumstances of the case. In view of the foregoing, the impugned order of Ld. CIT(A) is set aside and the issues in dispute are restored back to the file of the AO, with the direction to pass de novo order in accordance with law, after providing reasonable opportunity to the assessee. (E) As regards appeal in also; the ld. DR for Revenue submitted that issues in dispute require further factual verification at the end of the AO. After hearing the learned Departmental Representative for Revenue, and after perusal of materials on record, the submission made by Ld. DR for Revenue is found to be acceptable. Accordingly, the impugned appellate order of Ld. CIT(A) is set aside and all issues in dispute are restored back to the file of the AO, with the direction to pass de novo order in accordance with law after providing reasonable opportunity to the assessee. (F) In the result, both the appeals are partly allowed for statistical purposes. (Order pronounced on 06/03/2026)