2014 (11) TMI 274 - AT - Income Tax

Denial of exemption u/s 10(23B) - Non-production of certificate for exemption from Khadi and Village Industries Commission under the KVIC Act Held that - Separate clause for assessment of the Institutions falling under section 10(23B) of the Act has been provided in sections 139 and 143 of the Act - Institution can claim exemption of income attributable to the business or production sale or marketing of Khadi or products of Village Industries if it obtains approval from the Khadi and Village Industries Commission - the assessee could not place exemption certificate for the AY even before the Tribunal the assessee could not furnish exemption certificate for the AY duly granted by the prescribed authority - He has simply placed reliance upon the earlier certificate granted for AY 2007-08 - He has also placed reliance upon the recommendation of the U.P. Khadi and Village Industries Board Planning Division Lucknow vide letter dated 16.6.2009 to the State Director Khadi and Village Industries Commission - This recommendation was made in June 2009 and till date exemption certificate has not been granted to the assessee - it cannot be presumed or assumed that once recommendations are made exemption certificate will certainly be granted to the assessee - the contention of the assessee that the assessee has made best efforts for obtaining the exemption certificate and in the light of its efforts exemption may be granted cannot be accepted as before allowing exemption assessee must have exemption certificate as per provisions of section 143(3) of the Act - the exemption certificate is to be granted for a particular AY therefore it cannot be used for other AY for which it was not granted thus CIT(A) has rightly denied the benefit of exemption u/s 10(23B) of the Act Decided against assessee.

Issues Involved:
1. Interpretation of Section 10(23B) of the Income Tax Act, 1961.
2. Denial of exemption under Section 10(23B) due to non-production of exemption certificate.
3. Compliance with conditions for exemption under Section 10(23B).
4. Confirmation of total income and tax liabilities by CIT(A).
5. Historical exemption status and renewal application of the assessee society.

Detailed Analysis:

1. Interpretation of Section 10(23B) of the Income Tax Act, 1961:
The primary issue revolves around the interpretation of Section 10(23B) of the Income Tax Act, 1961. The assessee claimed exemption under this section, asserting that their unit was registered with the Khadi and Village Industries Commission (KVIC). The Tribunal emphasized that to avail exemption under this section, the institution must be approved by the KVIC, and such approval cannot be granted for more than three assessment years at a time. The approval is also subject to withdrawal if the institution does not comply with the conditions set forth.

2. Denial of Exemption under Section 10(23B) due to Non-Production of Exemption Certificate:
The assessee failed to furnish the exemption certificate during the assessment proceedings, which led to the denial of exemption by the Assessing Officer (AO). The Tribunal noted that despite being asked to produce the certificate, the assessee did not comply. The AO's decision was based on the absence of the certificate, which is a mandatory requirement under the second proviso to Section 10(23B).

3. Compliance with Conditions for Exemption under Section 10(23B):
The Tribunal examined whether the assessee fulfilled the conditions necessary for claiming the exemption. It was noted that the institution must apply its income solely for the development of khadi or village industries and must be approved by the KVIC. The Tribunal found that the assessee did not have the required exemption certificate for the relevant assessment year, and thus, the conditions for exemption were not met.

4. Confirmation of Total Income and Tax Liabilities by CIT(A):
The CIT(A) confirmed the AO's determination of total income and tax liabilities, which amounted to Rs. 47,91,745/- and Rs. 21,66,185/- respectively. The Tribunal upheld this confirmation, stating that without the exemption certificate, the income could not be exempted under Section 10(23B).

5. Historical Exemption Status and Renewal Application of the Assessee Society:
The assessee argued that they had previously enjoyed exemption up to the assessment year 2007-08 and had applied for renewal in 2009. The Tribunal noted that the mere application for renewal does not guarantee the issuance of the exemption certificate. The recommendation by the U.P. Khadi and Village Industries Board in June 2009 did not result in the issuance of the certificate by the relevant authority. Therefore, the historical exemption status did not influence the decision for the assessment year in question.

Conclusion:
The Tribunal concluded that the assessee failed to furnish the necessary exemption certificate for the relevant assessment year, which is a prerequisite for claiming exemption under Section 10(23B) of the Income Tax Act, 1961. Consequently, the denial of exemption by the AO and the confirmation by the CIT(A) were upheld. The appeal by the assessee was dismissed, and the order was pronounced in the open court on 7.8.2014.

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