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Income Tax Appellate Tribunal, CIRCUIT ‘SMC’ BENCH, VARANASI
Before: SHRI.VIJAY PAL RAO
IN THE INCOME TAX APPELLATE TRIBUNAL CIRCUIT ‘SMC’ BENCH, VARANASI BEFORE SHRI.VIJAY PAL RAO, JUDICIAL MEMBER Assessment Year: 2018-19 Blossam House Educational v. Income Tax Officer, Society, 579, Teliabagh, Church Ward-3(1), Varanasi Compound, Maldahiya, Varanasi PAN-AAATB7686D (Appellant) (Respondent) Appellant by: Sh. Atul Choudhary, C.A. Respondent by: Sh. A.K. Singh, Sr. D.R. Date of hearing: 07.07.2022 Date of pronouncement: 07.07.2022 O R D E R SHRI VIJAY PAL RAO, JUDICIAL MEMBER: This appeal by the assessee is directed against the order dated 28.12.2021 of CIT(A) (National Faceless Appeal Centre, Delhi) for the assessment year 2018-19. The assessee has raised the following grounds:- “
1. Learned CIT(Appeals) has erred in confirming the disallowance u/s 10 (23C)(iiiad) without considering the fact of the case and without giving benefit of exemption u/s 11(1).
2. The Learned CIT(Appeals) has erred in confirmation disallowance u/s. 40(a)(ia).
2. Ground No. 1 is regarding disallowance of Rs. 19,90,762/- being the exemption claimed under section 10(23C)(iiiad) of the Income Tax Act. The learned AR of the assessee has submitted that the assessee is a society registered under section 12A of the Income Tax Act. The assessee filed a return of income claiming deduction under section 11 and also shown a sum of Rs. 19,90,762/- as income accumulated or set apart for application to charitable or religious purpose to the extent that it does not exceed 15% of income derived from the property held under trust, as per section 11(1)(a) of the Income Tax Act. The learned AR has further submitted that in the tax audit in Form No. 10B, there is a bonafide mistake as an identical amount of Rs. 19,90,762/- was also shown in the claim against the exemption under section 10(23C)(iiiad). The learned AR has submitted that since the assessee is not eligible for the exemption under section 10(23C)(iiiad) for the year under consideration due to the fact that the gross income of the educational institution is more than 1 Crore therefore, the said mistake in Form No. 10B is inconsequential. The Assessing Officer instead of allowing the claim under section 11 of the Income Tax Act has made the addition on the ground that the assessee is not eligible for the exemption under section 10 (23C)(iiiad) of the Income Tax Act. Thus, the learned AR has submitted that when the assessee is eligible and entitled for the deduction under section 11 of the Income Tax Act, which is also claimed by the assessee in the return of income, then a wrong claim due to bonafide mistake regarding the exemption under section 10(23C)(iiiad) would not disentitle the assessee from exemption under section 11(1)(a) of the Income Tax Act. Thus, the learned AR has submitted that the AO as well as ld. CIT(A) are not justified in disallowing this amount of Rs. 19,90,762/- when the claim of the assessee was allowable under section 11 of the Income Tax Act.
3. On the other hand, the learned Sr. DR has submitted that the assessee has not explained as how this amount of Rs. 19,90,762/- is equivalent to 15% or less than 15% of the income of the assessee to be claimed as accumulated or set apart under section 11(1)(a) of the Income Tax Act. He has further submitted that the Assessing Officer as well as ld. CIT(A) has recorded the fact that in the preceding year, the assessee has claimed the exemption under section 10(23C)(iiiad) and, therefore, this is not mere mistake for claiming the said exemption under section 10(23C)(iiiad), but the assessee has been claiming the said exemption from the earlier years. He has further contended that undisputedly assessee is not eligible for exemption under section 10(23C)(iiiad) due to the reason that the gross receipt of the educational institution is more than 1 Crore as a limit provided for availing the exemption under section 10(23C)(iiiad). He has relied upon the orders of the authorities below.
4. I have considered the rival submissions as well as relevant material on record. The assessee society was granted registration under section 12A vide order dated 23.3.2005 and, therefore, the activity of imparting education by the assessee was accepted as charitable in nature. For the year under consideration, the assessee in its return of income declared nil income after claiming the exemption under section 11(1) of the Income Tax Act and alongwith amount of Rs. 19,90,762/- as income accumulated or set apart for application to the charitable purpose and claimed that the said set apart does not exceed 15% of the income derived from the property held under trust. In the Form 10B, an identical amount of Rs. 19,90,762/- is also shown as claim of exemption under section 10(23C)(iiiad). The Assessing Officer while passing the assessment order has not commented on the entitlement of the assessee under section 11(1)(a) of the Income Tax Act, but made an addition of Rs. 19,90,762/- on the ground that the assessee is not eligible under section 10(23C)(iiiad) of the Income Tax Act. Thus, it is clear that the assessee is having registration under section 12A and was eligible to claim the exemption under section 11 and 12 but an amount of Rs. 19,90,762/- was shown as exemption under section 10(23C)(iiiad) which appears to be due to a bonafide mistake of copying this figure from the column of income accumulated or set apart as per section 11(1)(a) of the Income Tax Act to be applied for charitable purposes in future. In Form No. 10B under the annexure giving the details of application of income for charitable or religious purpose, the amounts shown in column 1 to 4 are as under:-
Amount of income of the previous 14067312 year applied to charitable or religious purposes in India during that year 2. Whether the institution has exercised Yes the option under clause (2) of the Explanation to section 11(1)? If so, 14067312 the details of the amount of income deemed to have been applied to charitable or religious purposes in India during the previous year 3. Amount of income accumulated or set Yes apart for application to charitable or religious purposes, to the extent it 14067312 does not exceed 15 per cent of the income derived from property held under trust wholly for such purposes. 4. Amount of income eligible for Yes exemption under section 11(1)(c) Details Amount (Give details) U/s 10(23C)(iiiAD) 1990762
Thus, it is manifest that the assessee has claimed to have applied the income for charitable purpose to the extent of Rs. 1,40,67,312/- during the year under consideration and a sum of Rs. 19,90,762/- was claimed as income accumulated or set apart being not exceeding 15% of the income derived from the property held under the trust. An identical amount of Rs. 19,90,762/- is also shown in the column giving details of exemption under section 10(23C)(iiiad). From these facts, it is clear that the amount showed as exemption under section 10(23C)(iiiad) is nothing but the amount of accumulated income to be applied for charitable purpose in future is repeated mistakenly. Even otherwise, once the assessee is eligible for exemption under section 11, then instead of making the addition on the ground of disallowing the claim of exemption under section 10(23C)(iiiad), the AO ought to have examined the claim of the assessee under section 11 and 12 of the Income Tax Act. At this stage, it is relevant to refer the CBDT Circular No. 14 (XL-35) dated 11th April, 1955which reads as under:- “Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should (a) Draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) Freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.” Therefore, the Assessing Officer must not take advantage of the ignorance or bonafide mistake of the assessee to its rights but he is duty bound to assist the taxpayers in every reasonable way and particularly in the matter of claim and securing the relief.
Instead of examining the claim of assessee under section 11 and 12, the AO has made this addition. Thus, even if the assessee has mistakenly made a claim under wrong provision of the income tax but otherwise eligible and entitled for the exemption under section 11 and 12, then the Assessing Officer instead of passing an adverse order due to the mistake of the assessee ought to have considered the claim of exemption under section 11 and 12 of the Act. The ld. CIT(A) has confirmed the order of the Assessing Officer without considering the claim under section 11 of the Income Tax Act. Accordingly, in the facts and circumstances of the case and in the interest of justice, the impugned order of the CIT(A) is set aside and the matter is remanded to the record of the Assessing Officer for verification and deciding the claim of exemption under section 11 and 12 of the Income Tax Act. Needless to say, the assessee be given an appropriate opportunity of hearing before passing the fresh order.
Ground No. 2 is regarding disallowance made under section 40(a)(ia) of the Income Tax Act. The learned AR of the assessee has submitted that the provisions of section 40(a)(ia) are not applicable to the assessee for the year under consideration as the amendment to section 11 by way of inserting Explanation 3 by Finance Act, 2018 is w.e.f. 1.4.2019. Thus, the learned AR has submitted that once the said amendment is not applicable for the year under consideration then the disallowance made under section 40(a)(ia), is not justified.
On the other hand, the learned DR has relied upon the orders of the authorities below.
Having considered the rival submissions as well as relevant material on record at the outset, it is noted that the Explanation 3 to section 11(1) was inserted by Finance Act, 2018 w.e.f. 1.4.2019 which reads as under:- “Explanation 3.- For the purposes of determining the amount of application under clause (a) or clause (b), the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.
There is no dispute that this Explanation was inserted by Finance Act, 2018 w.e.f. 1.4.2019, therefore, the same is not applicable for the year under consideration and consequently the disallowance made by the AO is not justified and the same is deleted.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court after conclusion of hearing on 07.07.2022, in the presence of both the parties.