2023 (11) TMI 844 - AT - Income Tax

Exemption u/s 11 denied - assessee was not granted registration u/s. 12A - Assessee urging that the matter be restored to the lower authorities for the reason that the assessee was granted registration by means of an order passed u/s. 12AA, which would apply to the year under consideration as well - HELD THAT - Assessee had not furnished any return prior to notice u/s. 148. The solitary return was filed after the notice on 24-04-2019. The consequential assessment was completed u/s 147 of the Act on 17-12-2019 determining total income equal to the amount of income returned, which attained finality without any challenge thereto. The benefit of proviso can be granted only when the assessment proceedings are pending on the date of grant of registration by the ld. CIT(E). We are confronted with a situation in which the registration was granted by the ld. CIT(E) on 18-05-2023 and the assessment proceedings got concluded, much before that, on 17-12-2019.As such, the assessment year under consideration, namely, 2012-13, is not covered by the express mandate of the registration. Notwithstanding that, no benefit of exemption u/s. 11 was ever claimed in the return and, as such, there was no question of granting or denying such benefit also. In this view of the matter, the assessee cannot claim the benefit of exemption u/s. 11 for the year under consideration in any manner. Penalty u/s. 271(1)(c) - non filing the return of income within the stipulated time - shift of operations of the society from one city/station to another - Assessee furnished the return pursuant to notice u/s. 148 and the income declared was assessed as the total income - HELD THAT - The main object of the assessee, consisting of surgeons across the country, is to attain higher Oral Maxillofacial surgical standards and to promote research in Oral and Maxillofacial surgery. The assessee was set up several years ago having and continuing to have its registered office in Pune. It, being an all India body of surgeons, keeps moving its area of operations and the relevant records on a certain frequency from one city to another. For the A.Y. 2012-13 to 2013-14, the operations of the society were in Mangalore and the audit was conducted by Mr. K. Santha Kumar, Chartered Accountant, Thrissur. Thus, for the year under consideration and the next year, the operations and the records were kept in Mangalore. From the A.Y. 2014-15, there was a shift of operations and the records from Thrissur to Faridabad, which continued up to the A.Y. 2018-19. Again, its operations came back to Pune with effect from the A.Y. 2019-20. It was during such earlier years, when the operations and records were outside Pune, that the concerned persons at the relevant stations got the accounts audited, but could not co-ordinate qua the filing the returns either because of misunderstanding or ignorance When the operations came back to Pune in the year 2018, the trustees realised that though the accounts were got audited for the earlier years, but neither the registration was sought nor the returns were filed for such earlier assessment years. Immediately, they swung into action and applied for registration u/s. 12AA on 07-10-2018 and also furnished the income-tax return for the A.Y. 2019-20. This shows that because of the regular shifting of the operations of the assessee-trust from one station to another and the resultant confusion about the correct person responsible for filing return, i.e. whether from the station where the operations were going on and records were kept or the registered office in Pune, the returns could not be filed for any of the assessment years prior to the A.Y. 2019-20. This constitutes a reasonable cause for which the return for the year under consideration could not be filed within the time prescribed u/s. 153 of the Act. We are satisfied that this being a reasonable cause, brings the case out of the purview of Explanation 3. If this Explanation fails to apply and we come back to examine the case within the terms of Explanation 1, the sequitur is that no penalty can be imposed in the absence of any addition or disallowance in the determination of total income by the AO. We, therefore, order to delete the penalty.

Summary

Issues:
The judgment involves the confirmation of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2012-13. The key issues revolve around the registration status of the assessee under section 12A, the applicability of Explanation 3 to section 271(1)(c) regarding concealment of income, and the presence of reasonable cause for not filing the return within the prescribed time.

Registration under Section 12A:
The assessee, an association for Oral Maxillofacial surgeons of India, was not granted registration under section 12A at the time of assessment for the year 2012-13. Although registration was subsequently granted for a later assessment year, the second proviso to section 12A(2) extends the benefit of registration automatically to pending assessment years. However, in this case, as the assessment proceedings were concluded before the registration was granted, the benefit of exemption under section 11 cannot be claimed for the year under consideration.

Penalty under Section 271(1)(c) - Applicability of Explanation 3:
The imposition of penalty under section 271(1)(c) was challenged by the assessee. Explanation 3 to the section deems an assessee to have concealed income if the return is not filed within the specified time and taxable income is determined. In this case, as the assessee filed the return only after receiving a notice under section 148, the ld. CIT(A) invoked Explanation 3 to uphold the penalty. The Explanation mandates that even if the income declared in the return is assessed without any variation, it can lead to the imposition of penalty.

Reasonable Cause for Delay in Filing Return:
The assessee argued that there was a reasonable cause for not filing the return within the prescribed time. Due to the shifting of operations and records between different cities, confusion arose regarding the responsibility for filing returns. The trustees realized the oversight when operations returned to Pune and promptly applied for registration under section 12AA. The Tribunal found this to be a reasonable cause, exempting the assessee from the penalty under Explanation 3 and concluding that no penalty could be imposed in the absence of any addition or disallowance in the total income determination.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of considering the registration status, the application of Explanation 3 for penalty imposition, and the presence of reasonable cause for delay in filing the return. The judgment highlights the complexities surrounding registration benefits, concealment of income provisions, and the significance of demonstrating reasonable cause in tax matters.