2022 (2) TMI 227 - AT - Income Tax

Denial of exemption u/s 11 - Claim denied by the authorities below on the ground that the registration granted subsequently by the ld. CIT(E) was not operative to the year under consideration - HELD THAT - The connotation of commencement, continuation and termination of assessment proceedings‟ is fairly settled by authoritative pronouncement from the highest Court of the land in Auto Metal Engineers And Ors. Vs. Union of India Ors. 1997 (4) TMI 11 - SUPREME COURT in which it has been held by the Hon‟ble Summit Court that the process of assessment commences with the filing of return or by issuance by the AO of notice to file a return and it culminates with the issuance of notice of demand u/s 156 - manifest that the assessment proceedings commence with the filing of return and not when notice is issued for the first time u/s 143(2). Issuance of such a notice and passing of assessment order are parts of entire assessment proceedings which commences with the filing of return. Assessee filed its return for the year under consideration on 17.01.2017. The approval was granted by the ld. CIT(E) u/s 12AA on 16.05.2017. It is, ergo, glaringly patent that the assessment proceedings for the year under consideration, which commenced with the filing of return on 17.01.2017, were pending on the date of grant of registration by the ld. CIT(E) on 16.05.2017. Therefore, hold, in principle, that the assessee is eligible for exemption u/s 11 of the Act. AO denied the benefit of exemption u/s 11 on the threshold by holding that the registration granted to the assessee was not applicable for the year under consideration. He, therefore, did not examine the amount of income actually entitled to exemption in terms of section 11 on merits. Since have set aside the view of authorities below on the question of availability of exemption, we set aside the impugned order and restore the matter to the file of the AO for examining the amount of claim of exemption u/s 11 on merits. - Appeal is allowed for statistical purposes

Summary

Issues: Denial of exemption u/s 11 of the Income-tax Act, 1961 due to registration timing.

Analysis:
1. The appeal pertains to the denial of exemption u/s 11 of the Income-tax Act, 1961 for the assessment year 2016-17 based on the timing of registration granted to the assessee by the ld. CIT(E). The authorities below held that the registration was not operative for the year under consideration.

2. The AO and CIT(A) denied the exemption, stating that for the benefit of exemption to be availed, the assessment proceedings must be pending when the registration is granted. As the notice u/s 143(2) was issued after the registration was granted, they concluded that the exemption could not be allowed for the year in question.

3. The ITAT Pune analyzed the relevant provisions of sub-section (2) of section 12A, emphasizing the requirement that the assessment proceedings must be pending before the Assessing Officer at the time of registration for the exemption to apply to earlier years. The interpretation of "assessment proceedings" was crucial, and the ITAT referred to a Supreme Court judgment to clarify that the assessment proceedings commence with the filing of the return, not when the notice u/s 143(2) is issued.

4. The ITAT found that in the present case, the assessee filed the return on 17.01.2017, and the registration was granted on 16.05.2017. Since the assessment proceedings were pending from the filing of the return, the registration was effective for the year under consideration. Consequently, the ITAT held that the assessee was eligible for exemption u/s 11 of the Act.

5. The ITAT disagreed with the AO's approach of denying the exemption solely based on the registration timing without examining the merits of the income entitled to exemption under section 11. Therefore, the ITAT set aside the previous orders and remanded the matter to the AO for a detailed examination of the exemption claim on its merits, ensuring the assessee receives a fair opportunity to present their case.

6. As a result, the ITAT allowed the appeal for statistical purposes, emphasizing the importance of correctly interpreting the timing of registration in relation to pending assessment proceedings for granting exemptions under the Income-tax Act, 1961.