2018 (6) TMI 90 - AT - Income Tax

Exemption u/s 10 - rejecting the claim of exemption and making the adjustment u/s 143(1) - whether declining the claim of exemption made in the return of income, while processing such return of income u/s 143(1) would ipso facto authorized and entitled the Revenue to treat the disallowance so made as a recoverable demand without making any further inquiry as provided under the Act, for the purpose of scrutiny assessment? - Held that - Issue of claim of exemption by the assessee whether it falls under the category u/s 10(23C)(iiiab) or under section 10(23C)(iiiad) is debatable. As per Section 10(23C)(iiiab), exemption is available if any university or other educational institution existing solely for educational purposes and not for the purpose of profit and which is wholly or substantially financed by the Government. It is not in dispute that the assessee University is established by the Government of Madhya Pradesh. Nothing is on record suggesting that the assessee is not existing for educational purposes. The issue whether contention of the assessee that it is solely existing for educational purpose and the Government has financed it requires verification by conducting detailed enquiry and this can not be done by mere stating adjustments u/s 143(1) of the Act, which, thus, can be done only by way of scrutiny assessment. We, therefore, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of M/s. Bharat Oman Refineries Limited, Mumbai vs. ITO, Bhopal 2015 (1) TMI 100 - MADHYA PRADESH HIGH COURT hold that the issue being debatable, authorities below ought to have made the detailed scrutiny as provided u/s 143(3) of the Act - decided in favour of assessee.

Issues Involved:
1. Legality and jurisdiction of the intimation under Section 143(1) disallowing the exemption claim under Section 10 of the Income Tax Act, 1961.
2. Eligibility of the appellant university for exemption under Section 10(23C)(iiiab) as an educational institution substantially financed by the government.
3. Justification of the CIT(A)'s decision to uphold the disallowance and whether the issue is debatable, requiring detailed assessment under Section 143(3).
4. Correctness of the CIT(A)'s treatment of the appellant's exemption claim under Section 10(23C)(iiiad) instead of Section 10(23C)(iiiab).
5. Permissibility of prima facie adjustments under Section 143(1) in cases involving debatable issues.
6. Quantum of income determined and taxed without deduction of expenditure incurred by the appellant.

Detailed Analysis:

1. Legality and Jurisdiction of Intimation under Section 143(1):
The Tribunal examined whether the intimation under Section 143(1) dated 09.01.2017, which disallowed the exemption claim under Section 10, was legal and within jurisdiction. The appellant argued that the action was contrary to settled principles of law and cited various judicial pronouncements. The Tribunal noted that the issue of exemption was debatable and could only be decided through detailed scrutiny under Section 143(3), not by mere processing under Section 143(1).

2. Eligibility for Exemption under Section 10(23C)(iiiab):
The appellant contended that it was eligible for exemption under Section 10(23C)(iiiab) as it was an educational institution wholly or substantially financed by the government. The Tribunal considered the appellant's incorporation under the Rajiv Gandhi Proudyougiki Vishwavidyalya Adhiniyam, 1998, and the financial provisions under the Adhiniyam. The appellant's income went into the Vishwavidyalaya fund, and the Tribunal found that the issue required detailed inquiry to determine eligibility.

3. Justification of CIT(A)'s Decision:
The CIT(A) upheld the disallowance of the exemption claim, treating it as under Section 10(23C)(iiiad). The Tribunal found that the CIT(A) failed to appreciate that the exemption issue was debatable and required detailed scrutiny. The Tribunal emphasized that such issues could not be resolved through prima facie adjustments under Section 143(1).

4. Correctness of Treatment under Section 10(23C)(iiiad):
The Tribunal noted that the appellant had claimed exemption under Section 10 in the return, and there was no separate column for claiming exemption under Section 10(23C)(iiiab). The authorities should have considered the overall claim under Section 10 and conducted a detailed inquiry to determine the correct exemption category.

5. Permissibility of Prima Facie Adjustments:
The Tribunal referred to judicial precedents, including the Hon'ble Madhya Pradesh High Court's judgment in M/s. Bharat Oman Refineries Limited vs. ITO, Bhopal, and the Hon'ble Bombay High Court's judgment in Bajaj Auto Finance Limited vs. CIT, Pune. Both judgments emphasized that debatable issues could not be resolved through prima facie adjustments under Section 143(1). The Tribunal concluded that the exemption issue was debatable and required scrutiny under Section 143(3).

6. Quantum of Income Determined:
The appellant argued that the quantum of income determined was excessively high as it did not account for the expenditure incurred. The Tribunal, having allowed the main grounds of appeal, found this issue to be academic and did not require separate adjudication.

Conclusion:
The Tribunal allowed the appeals for both assessment years 2014-15 and 2015-16, directing that the issue of exemption should be scrutinized under Section 143(3) through detailed inquiry. The Tribunal emphasized that debatable issues could not be resolved through prima facie adjustments under Section 143(1). The Revenue was given the liberty to conduct a scrutiny assessment as per law.

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