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Income Tax Appellate Tribunal, Conducted through E-Court, Rajkot
Before: SHRI WASEEM AHMED
O R D E R आदेश आदेश आदेश PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeals have been filed at the instance of the assessee against the common orders passed under section 263 of the Act by the Learned Commissioner of Income Tax Rajkot dated 24/03/2014 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in- after referred to as "the Act") relevant to the Assessment Years 2009-10 & 2010- 11. First, we take up ITA 424/RJT/2018, an appeal by the assessee for the AY 2009-10 2. The assessee has raised the following grounds of appeal: “Ground No
1. Order of the learned CIT
1. Rajkot reopening the assessment u/s 263 is totally bad on facts as well on law. Learned CIT ought to have considered the fact that the assessee is already assessed u/s 143(3) by ITO 1(2) Rajkot. &425/Rjt/2018 A.Ys. 2009-10 &2010-11
2. Ground No 2. The learned CIT
1. Rajkot has grievously erred in disallowing the expenses of Rs 155800/- without considering the proviso to section 12A(2)-(INSERTED BY THE FINANCE NO.2, 2014 W.e.f. 01/10/2014). Learned CIT(A) ought to have considered the fact that the at time of passing the order u/s 263 by learned CIT I, proviso to section 12A was not existed so he gave the direction to disallow the Expenses of Rs 155800/. So even if Rs 155800/ is added to the total income of the assessee, the same is allowable under section 12AA as per the new inserted provision.
So addition made is totally in disregard with the proviso to section 12A(2) (INSERTED BY THE FINANCE NO.2, 2014 W.e.f. 01/10/2014) and requires to be quashed. So addition made on this ground may kindly be deleted.
Your Honor’s appellant craves leave to add, amend, alter or withdraw any or more grounds of appeal before hearing of appeal.”
3. At the outset, it was noticed that there is a delay in filing the appeal by the assessee for 1640 days which was explained like this. Upon receiving the order on 25th March 2014 passed under section 263 of the Act by the ld. CIT dated 24th of March 2014, it was advised by chartered accountant to represent the case before the AO in consequence of the direction issued under section 263 of the Act. Therefore, no appeal was preferred by the assessee against the order passed under section 263 of the Act.
4. Subsequently, the order under section 143(3) read with section 263 of the Act was passed dated 11-03-2015 which was challenged before the learned CIT(A) but the same was dismissed vide order dated 3-07-2017. Consequently, the assessee preferred appeals before the ITAT in which were also dismissed as not maintainable vide order dated 5-10-2018 with the following observation:
7. Though, we are not basically concerned with construction and interpretation of this section, a bare perusal of this section, as observed earlier, would show that it empower the Commissioner to set aside order passed by the Assessing Officer. Thus, Commissioner on his satisfaction that order is erroneous and prejudicial to the interest of the Revenue, then he can remit the issue to the file of the AO for fresh adjudication. He can himself enhance the income by modifying the assessment order. If he remits the issue to the file of the AO for readjudication after cancelling the earlier order, then the issue will be redetermined at the level of the AO. Against that re-determination, appeal would lie to the ld.CIT(A), and the ld.CIT(A) could entertain all possible arguments raised from the side of the assessee. But in the present case, the ld.Commissioner while exercising power under section 263 did not set aside the issue for adjudication to the AO, rather he himself A.Ys. 2009-10 &2010-11 3 enhanced the income and gave a direction to the AO for inclusion of these amounts. Unless his order is being challenged in both the years before the Tribunal, and directions are being modified and given effect by the AO in pursuance of the directions, cannot be agitated before the ld.CIT(A). The ld.CIT(A) has rightly drawn the above conclusion. In the present proceedings, we also cannot entertain the arguments raised by the ld.counsel from the assessee. Remedy of the assessee lies to challenge 263-order passed by the ld.Commissioner. Assessee will be at liberty to challenge the order of the Commissioner before the appropriate forum, if so advised. In the present appeals no relief can be granted to the assessee. Hence, both the appeals are dismissed.
5. At this juncture, it was realized by the assessee that the order passed under section 263 of the Act was to be challenged before the ITAT which has not been done under the bona-fide believe of being availed alternate remedy i.e. presenting the case before the AO in consequence to the direction of the learned CIT under section 263 of the Act. As such, upon realization of the mistake as pointed out by the ITAT in its order, the appeal was immediately preferred against the order passed under section 263 of the Act within the period of 60 days of the order of the ITAT arising in the matter of assessment under section 143(3) r.w.s. 263 of the Act. However, in this process the delay has occurred for 1640 days since the date of the order was passed by the ld. CIT under section 263 of the Act under the bona fides belief. To this effect, the affidavit was furnished by the assessee which is available on record. Thus, it was prayed by the learned AR to condone the delay in filing the appeal by the assessee.
On the other hand, the learned DR submitted that the delay is inordinate and therefore the same should not be condoned. Likewise, the assessee adopted a negligent approach and therefore, it did not prefer the appeal before the ITAT.
We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, there is an inordinate delay of 1640 days in filing the appeal by the assessee, but the length of delay does not matter if it has occurred due to sufficient cause. Thus, we must see whether there was sufficient cause for the delay in filing the appeal before the ITAT by the assessee. The reason for the delay was explained that the assessee under the bona fides believe was pursuing the alternative remedy by presenting the case before the AO A.Ys. 2009-10 &2010-11 4 against the direction of the learned CIT under section 263 of the Act. It was also submitted by the assessee that the alternate remedy was availed on the advice of the chartered accountant. As such, the assessee realized the mistake once the ITAT dismissed the appeals filed by the assessee against the order passed under section 143(3) read with section 263 of the Act.
It is significant to note that the Hon’ble High Court of Telegana in the case of Shri Thunuguntla Jagan Mohan Rao v. Deputy Commissioner of Income Tax reported in 427 ITR 204 in the identical facts and circumstances has condoned the delay by observing as under:
21. The reasoning assigned by the assessee for not preferring the appeal within the period of limitation to the Tribunal was that he was under the mistaken impression that only the consequential order passed by the Assessing Officer on 31-12-2015 was required to be challenged and not the order dt.10-03-2015 of the Revisional Authority, and that only after he consulted the Advocate, he realized the mistake and then challenged the order of the Revisional Authority.
From the above judgement, it is transpired that the higher forum in its wisdom has found the delay in filing the appeal as reasonable in view of the fact of availing alternate remedy by the assessee. The facts of the case at hand are identical to the facts of the case discussed above. Accordingly, respectfully following the ratio of the judgement discussed above, we are inclined to condone the delay in filing the appeal by the assessee and accordingly proceed to adjudicate the issue on merit.
The issue raised by the assessee is that the benefit of the proviso to section 12A of the Act should be provided to it while making the assessment of its income.
10.1 The history of the case on hand is like this that the assessee in the present case is a trust and registered with the Charity Commissioner. It is engaged in organizing the cultural fair during the festive season of JANMASHAMI and Lokmela activity. It applied for registration under section 12AA of the Act dated 25 June 2010 which was granted by the ld. CIT (Exemption) vide order dated 30-12-2010 A.Ys. 2009-10 &2010-11 5 effective from 25th of June 2010. Thus, the assessee was eligible for exemption under section 11(1) of the Act effective from the previous year 2010-11 corresponding to the assessment year 2011-12. However, the assessee for the year under consideration i.e. financial year 2008-09 corresponding to assessment year 2009-10 claimed exemption under section 11(1)(a) of the Act for an amount of ₹ 14,67,850 which was disallowed by the AO in the assessment framed under section 143(3) of the Act by stating that the registration under section 12AA of the Act was not available with the assessee in the year under consideration. Even at the time of assessment stage, the assessee also accepted the legal position that it is not eligible for exemption under section 11(1) of the Act for the year under consideration. Thus, the AO disallowed the exemption claimed by the assessee and added to the total income of the assessee vide assessment order passed under section 143(3) of the Act vide order dated 28-11-2011.
The assessment order dated 28-11-2011 under section 143(3) of the Act was challenged before the higher forum i.e. learned CIT(A) who confirmed the order of the AO vide order dated 19 September 2013. The order of the learned CIT(A) was accepted by the assessee and against that order no appeal was preferred before the ITAT.
Subsequently, the learned CIT on perusal of the assessment records found that the assessment order dated 28-11-2011 passed under section 143(3) of the Act suffers from the infirmities that the assessee in its profit and loss account has claimed the deduction for the amount of Rs. 1,33,983.00 as TDS on stall rent and 21,817.00 TDS which is not eligible for deduction under the provisions of the Act. But the AO has allowed the same in the assessment framed under section 143(3) of the Act. Thus, the learned CIT under section 263 of the Act vide order dated 24th of March 2014 directed the AO to enhance the income by the amount of ₹ 1,55,800.00 on account of deduction claimed for the TDS amount. Initially, the order passed under section 263 of the Act was not challenged by the assessee before the higher forum i.e. ITAT. &425/Rjt/2018 A.Ys. 2009-10 &2010-11 6
The AO in pursuance to the direction of the learned CIT under section 263 of the Act enhanced the income of the assessee by the amount of ₹ 1,55,800 by passing the order under section 143(3) read with section 263 of the Act dated 11 March 2015. Such order of the AO was challenged before the learned CIT(A) which was upheld vide order dated 3 July 2017. Such order of the ld. CIT(A) was challenged before the ITAT but the same was dismissed vide order dated 5 October 2018 with the observations elaborated in the preceding paragraph.
The assessee upon realizing the observations made by the ITAT in its order dated 5th October 2018 preferred appeals against the direction of the learned CIT under section 263 of the Act vide order dated 24th of March 2014 before the ITAT in 425/RJT/2018.
At the time of hearing, the learned AR before us filed paper book running from pages 1 to 116 and did not challenge the finding of the learned CIT given in his order dated 24th of March 2014 wherein income of the assessee was enhanced by the sum of ₹ 1,55,800.00 only. However, it was pleaded by the learned AR that there was the proviso to section 12A(2) of the Act effective from 1st October 2014 brought by the Finance (No.) Act 2014 which is retroactive in nature. As such, when the assessment order was passed under section 143(3) of the Act, the application for the registration under section 12A of the Act was pending and therefore the benefit of exemption under section 11 of the Act should be applied to the assessee. Thus, it was prayed that the matter can be set aside to the file of the AO for fresh adjudication to decide the issue fresh after granting the benefit of the exemption under section 11 of the Act to the assessee as per the provision of law.
Per contra, the learned DR was contended that the disallowance made by the AO in the original assessment order under section 143(3) of the Act vide order dated 2011 was accepted by the assessee wherein the disallowance of the exemption claimed by the assessee for ₹ 14,67,850 was denied upon the A.Ys. 2009-10 &2010-11 7 acceptance of the assessee which was also upheld by the ld. CIT(A). The finding of the ld. CIT(A) was also not challenged which transpires that such order has reached finality.
As regards the amount of disallowance enhanced by the learned CIT under section 263 of the Act, it was contended by the learned DR that the assessee cannot be given the benefit of the proviso to section 12A of the Act as the year in dispute relates to the assessment year 2009-10 which is much before the amendment brought under section 12A of the Act. Likewise, at the relevant point in time, the assessment was not pending and therefore the benefit of the proviso to section 12A of the Act cannot be extended to the assessee in the given facts and circumstances. The learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case are not in dispute which have been elaborated in the preceding paragraph, therefore for the sake of brevity and convenience, we are not inclined to repeat the same. From the foregoing discussion, the following issues arise for our consideration and adjudication: i. Whether the proviso to section 12A(2) of the Act brought in the statute effective from 1 October 2014 by the Finance ( Act No. 2) 2014 can be applied for the assessment year under consideration? ii. If yes, then applicability for allowing the exemption under section 11(1)(a) of the Act is limited to the issue of income enhanced by ₹1,55,800 in pursuance to the direction of the learned CIT exemption vide order dated 24 March 2014 or can the benefit also be applied of the exemption under section 11(1)(a) of the Act with respect to the disallowance made by the AO in the assessment framed under section 143(3) of the Act for Rs. 14,67,850 vide order dated 28-11-2011. A.Ys. 2009-10 &2010-11 8
As regards the question No. 1, it is relevant at this juncture to get into the amendment brought in section12A of the Act by Finance Act 2014 with effect from 1.10.2014 by way of insertion of first proviso to section12A(2) of the Act which is reproduced below for the sake of convenience :— "Section 12 A (2) Where an application has been made on or after the 1st day of June 2007, the provisions of section 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made: 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 date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year:
It will be relevant to get into the Explanatory Notes to the Provisions of the Finance (No. 2), 2014 as given in CBDT Circular No. 01/2015 dated 21.1.2015 in reference to F.No. 142/13/2014-TPL which is reproduced hereinbelow for the sake of convenience:— Para 8 - Applicability of the registration granted to a trust or institution to earlier years Para 8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available.
This above clearly goes to prove that the first proviso to section 12A(2) of the Act was brought in the statute only as a retrospective effect with a view not to affect genuine charitable trusts and societies carrying out genuine charitable objects in the earlier years and substantive conditions stipulated in section 11 to 13 have been duly fulfilled by the said trust. The benefit of retrospective application alone could be the intention of the legislature and this point is further strengthened by the Explanatory Notes to Finance (No. 2) Act, A.Ys. 2009-10 &2010-11 9 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01/2015 dated 21.1.2015.
Apparently, the statute provides that registration once granted in subsequent year, the benefit of the same has to be applied in the earlier assessment years for which assessment proceedings are pending before the AO, unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to provide that no action u/s 147 could be taken by the AO merely for non-registration of trust for earlier years. In view of the above, we hold that the proviso to section 12A of the Act is applicable for the year under consideration.
Now coming to the question number 2, there remains no ambiguity that once the benefit of exemption under section 11(1)(a) of the Act is available to the assessee in pursuance to the proviso to section 12A(2) of the Act, the income of the assessee has to be computed after considering the benefit of exemption 11(1)(a) of the Act.
In this case, the registration application under section 12AA of the Act was made dated 25-06-2010 which was accorded vide order dated 30-12-2010 effective from the AY 2011-12. However, the notice for the assessment under section 143(3) for the year under consideration was issued dated 29-11-2011 after the date of registration under section 12A of the Act. Thus, it transpired that the assessment under section 143(3) was not pending at the time of registration application under section 12A of the Act. Thus, there is no possibility of claiming the benefit of exemption under section 11(1) of the Act by virtue of proviso to section 12A of the Act. As such, the ld. also accepted this proposition of law. However, the assessment for the year under consideration was re-opened on certain issues under the provisions of section 263 of the Act as elaborated above. Thus, in such a situation, the proviso to section 12A of the Act comes into picture, which was inserted to cover the genuine hardship to the trusts for preceding years A.Ys. 2009-10 &2010-11 10 assessment after receiving the registration. The Proviso says when the registration is granted and any proceeding is pending before the AO relating to the previous/preceding year of the date of registration, the benefit of exemption will be applicable to the preceding year also. Thus, we hold that the proceedings pertaining to the A.Y. 2009-10 were pending at the time of registration under section 12A of the Act to the extent of the direction provided by the ld. CIT in his order passed under section 263 of the Act. Therefore, the benefit of exemption u/s 11 of the Act will be extended to the assessee. However, such benefits provided under section 11 of the Act shall be subject to the provisions contained therein. In other words, the AO while granting the benefit of exemption provided under section 11 of the Act shall adhere the relevant provisions of the Act. Hence, the ground of appeal of the assessee is partly allowed for the statistical purposes.
Coming to (A.Y. 2010-11)
The identical issue involved in the case has already been dealt with by us in A.Y. 2009-10 and in the absence of any changed circumstances, the same shall apply mutatis mutandis. Hence, the appeal preferred by the assessee is partly allowed for statistical purposes.
In the combined result, both the appeals filed by the assessee are partly allowed for statistical purposes.