2018 (10) TMI 671 - AT - Income Tax

Exemption u/s 10(23C)(vi) / u/s 11 - Reopening of assessment u/s 147/148 - charitable activity - for the impugned Assessment Year, no return of income had been filed by the assessee and the assessees application for approval u/s 10(23C)(vi) of the Act had been rejected. - assessee contended that having been granted registration u/s 12AA effective from Assessment Year 2013-14, the benefit of the same was available to it in the impugned year also by the virtue of the first proviso to Section 12A(2) of the Act. Held that - Undoubtedly the requirement of filing of return of income and the report of audit have been specified for being eligible for claiming exemption u/s 11 & 12 of the Act, alongwith the grant of registration u/s 12AA of the Act. In the case of the assessee, we find, that the return of income has been filed in response to notice u/s 148 of the Act. Therefore the condition of filing of return of income stands fulfilled. The section, we find, nowhere prescribes the filing of return by any due date, therefore the findings of the CIT(A) that the assessee having not filed its return within the prescribed time it had failed to comply with the requirement prescribed, is not tenable. As for the requirement of filing report of audit in the prescribed form, the said condition has been held by courts to be merely procedural and therefore directory in nature and not mandatory for the purpose of claiming exemption u/s 11 & 12 of the Act. The reassessment framed is therefore set aside. As a consequence the addition made is deleted. - Decided in favor of assessee.

Issues Involved:
1. Legality of reopening/reassessment under sections 147-148.
2. Applicability of the first proviso to Section 12A(2) of the Income Tax Act, 1961.
3. Applicability of the second proviso to Section 12A(2) of the Income Tax Act, 1961.
4. Justification of the addition of ?54,02,845/- to the taxable income.
5. Compliance with conditions under Section 12A(1)(b) of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of Reopening/Reassessment under Sections 147-148:
The assessee contended that the reopening of the assessment under sections 147-148 was illegal and barred by the provisos to Section 12A of the Income Tax Act, 1961. The Assessing Officer initiated reopening proceedings by issuing a notice under section 148 on 27/28.05.2014, after the assessee's application for approval under section 10(23C)(vi) was rejected. The reopening was challenged on the grounds that it was not justified since the assessee had been granted registration under section 12AA effective from Assessment Year 2013-14. The Tribunal held that the reopening was invalid under the second proviso to section 12A(2), which prevents reopening merely for non-registration for the preceding assessment year.

2. Applicability of the First Proviso to Section 12A(2):
The assessee argued that the benefit of registration under section 12AA should be available retrospectively for the impugned year (Assessment Year 2012-13) by virtue of the first proviso to Section 12A(2). However, the Assessing Officer and CIT(A) held that this benefit was only applicable if the assessment proceedings were pending on the date of grant of registration. Since the registration was granted on 07-11-2012 and the proceedings for the impugned year were initiated only on 27/28-05-2014, the benefit was not available. The Tribunal upheld this view, confirming that no assessment was pending on the date of registration.

3. Applicability of the Second Proviso to Section 12A(2):
The assessee also contended that the second proviso to Section 12A(2) barred the Assessing Officer from initiating action under section 147 for the preceding year solely due to non-registration. The CIT(A) rejected this contention, stating that the assessee was ineligible for exemption due to failure to file the return of income and audit report as required under Section 12A(b). The Tribunal, however, found that the reopening was indeed barred by the second proviso to Section 12A(2) since the reopening was based on the absence of registration under section 10(23C)(vi) and not on any other grounds.

4. Justification of the Addition of ?54,02,845/-:
The CIT(A) upheld the addition of ?54,02,845/- made by the Assessing Officer, which was reduced from the initially assessed income of ?1,42,21,000/- by a rectification order. The Tribunal found that the reassessment proceedings were invalid and consequently set aside the addition made, deleting the taxable income assessed for the impugned year.

5. Compliance with Conditions under Section 12A(1)(b):
The Revenue argued that the assessee was not eligible for exemption under sections 11 and 12 due to non-compliance with Section 12A(1)(b), which requires filing the return of income along with the audit report. The Tribunal noted that the return of income was filed in response to the notice under section 148, fulfilling the requirement. Furthermore, the Tribunal cited the Hon’ble Jurisdictional High Court's decision, which held that the requirement of filing the audit report is procedural and directory, not mandatory. Therefore, the assessee was eligible for exemption despite the delayed filing of the audit report.

Conclusion:
The Tribunal concluded that the reassessment proceedings were invalid under the second proviso to Section 12A(2) and set aside the reassessment framed by the Assessing Officer. Consequently, the addition of ?54,02,845/- was deleted, and the appeal of the assessee was allowed.

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