2022 (6) TMI 444 - AT - Income Tax

Exemption claimed u/s.10(23B) - Mandatory approval from Khadi and Village Industries Commission - AO was of the opinion that in the present case approval was granted for more than three assessment years and the condition for claiming exemption u/s. 10(23B) was not fulfilled - As per CIT certificate issued by the Khadi and Village Industries Commission was valid from 01.04.2016 to 31.03.2021 beginning from the FY 2016-17 relevant to AY 2017-18 onwards and, therefore, he held that assessee is not entitled to claim exemption for AY 2016-17 - HELD THAT - Certificate issued by Khadi Village Industries Commission clearly show that it relates to the period from 11.06.2012 to 31.03.2016 and followed by the letter issued by the Commission to the ITO, Bijnore, Uttar Pradesh clearly shows that the assessee is entitled to claim exemption u/s. 10(23B) - The reason for denying the exemption by the AO is that the Commission has given certificate to the assessee for more than three years. It is pertinent to note that the time period for which the certificate has to be granted is not within the control of the assessee. In any case it is only a technical violation for which the assessee could not be penalized by denying the exemption otherwise allowable to the assessee. Thus, we hold that the assessee is entitled for exemption u/s. 10(23B) of the Act. Accordingly, the Assessing Officer is directed to allow the claim for exemption u/s. 10(23B) as claimed by the assessee. Appeal of assessee allowed.

Summary

Issues:
1. Interpretation of exemption certificate u/s. 10(23B) of the Income Tax Act.
2. Validity of exemption certificate granted by Khadi and Village Industries Commission.
3. Denial of exemption claimed by the assessee.
4. Consideration of written submissions in absence of the assessee.
5. Right of the assessee to modify grounds of appeal during proceedings.

Analysis:

Interpretation of Exemption Certificate (Issue 1): The Assessee contended that the Assessing Officer (AO) misinterpreted the certificate of registration of society and ignored the exemption certificate u/s. 10(23B) which was only valid for the assessment year 2016-17. The AO denied the exemption based on the view that the approval granted by Khadi and Village Industries Commission exceeded three assessment years. The Ld. CIT(A) upheld this decision, leading to the Assessee's appeal.

Validity of Exemption Certificate (Issue 2): The Assessee argued that the certificate issued by Khadi and Village Industries Commission clearly indicated entitlement to exemption u/s. 10(23B) for the assessment year 2016-17. The Assessee presented a certificate from 11.06.2012 to 31.03.2016, which was overlooked by the Ld. CIT(A). Additionally, a letter from the Divisional Officer supported the Assessee's claim for exemption.

Denial of Exemption (Issue 3): The AO and Ld. CIT(A) denied the exemption claimed by the Assessee under section 10(23B) based on the duration of the approval granted by Khadi and Village Industries Commission. However, the Assessee argued that the time period for which the certificate was granted was beyond their control and should not result in denial of the exemption.

Consideration of Written Submissions (Issue 4): The Assessee's appeal was decided based on written submissions as the Counsel was unavailable due to hospitalization. The Tribunal disposed of the appeal considering the written contentions furnished by the Assessee, highlighting the importance of written submissions in absence of the Assessee during the hearing.

Right to Modify Grounds of Appeal (Issue 5): The Assessee asserted the right to add, delete, or modify any grounds of appeal during the proceedings. This right was emphasized as a procedural aspect to ensure fairness and flexibility in presenting the case.

In conclusion, the Tribunal allowed the Assessee's appeal, directing the AO to grant the exemption u/s. 10(23B) for the assessment year 2016-17. The judgment highlighted the significance of proper interpretation of exemption certificates and the need to consider all relevant documents and submissions to ensure fair assessment proceedings.