2023 (5) TMI 1367 - AT - Income Tax

Revision u/s 263 - claiming the benefit of exemption u/s 11(1) of the Act by virtue of proviso to section 12A - scope of new proviso to section 12A(2) effective from October 1, 2014 - HELD THAT - As the first proviso to section 12A(2) of the Act was brought in the statute only as a retrospective effect with a view not to affect genuine charitable trusts and societies carrying out genuine charitable objects in the earlier years and substantive conditions stipulated in section 11 to 13 have been duly fulfilled by the said trust. The benefit of retrospective application alone could be the intention of the legislature and this point is further strengthened by the Explanatory Notes to Finance (No. 2) Act, 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01/2015 dated 21.1.2015. Apparently, the statute provides that registration once granted in subsequent year, the benefit of the same has to be applied in the earlier assessment years for which assessment proceedings are pending before the AO, unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to provide that no action u/s 147 could be taken by the AO merely for non-registration of trust for earlier years. In view of the above, we hold that the proviso to section 12A of the Act is applicable for the year under consideration. There remains no ambiguity that once the benefit of exemption under section 11(1)(a) of the Act is available to the assessee in pursuance to the proviso to section 12A(2) of the Act, the income of the assessee has to be computed after considering the benefit of exemption 11(1)(a) of the Act. In this case, the registration application under section 12AA of the Act was made dated 25-06-2010 which was accorded vide order dated 30-12-2010 effective from the AY 2011-12. However, the notice for the assessment under section 143(3) for the year under consideration was issued dated 29-11-2011 after the date of registration under section 12A of the Act. Thus, it transpired that the assessment under section 143(3) was not pending at the time of registration application under section 12A of the Act. Thus, there is no possibility of claiming the benefit of exemption under section 11(1) of the Act by virtue of proviso to section 12A of the Act. As such, the ld. also accepted this proposition of law. Assessment for the year under consideration was re-opened on certain issues under the provisions of section 263 of the Act as elaborated above. Thus, in such a situation, the proviso to section 12A of the Act comes into picture, which was inserted to cover the genuine hardship to the trusts for preceding years assessment after receiving the registration. The Proviso says when the registration is granted and any proceeding is pending before the AO relating to the previous/preceding year of the date of registration, the benefit of exemption will be applicable to the preceding year also. Thus, we hold that the proceedings pertaining to the A.Y. 2009-10 were pending at the time of registration under section 12A of the Act to the extent of the direction provided by the ld. CIT in his order passed under section 263 of the Act. Therefore, the benefit of exemption u/s 11 of the Act will be extended to the assessee. However, such benefits provided under section 11 of the Act shall be subject to the provisions contained therein. In other words, the AO while granting the benefit of exemption provided under section 11 of the Act shall adhere the relevant provisions of the Act. Hence, the ground of appeal of the assessee is partly allowed for the statistical purposes.

Issues Involved:
1. Validity of reopening the assessment under section 263.
2. Disallowance of expenses under the proviso to section 12A(2).
3. Condonation of delay in filing the appeal.
4. Application of the proviso to section 12A(2) for the assessment year under consideration.
5. Applicability of exemption under section 11(1)(a) in light of the proviso to section 12A(2).

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 263:
The assessee challenged the reopening of the assessment under section 263, arguing that it was already assessed under section 143(3). The Tribunal noted that the Commissioner has the authority to set aside the order passed by the Assessing Officer if it is erroneous and prejudicial to the interest of the Revenue. The Commissioner did not remit the issue to the AO but enhanced the income himself. The Tribunal dismissed the initial appeals as not maintainable, emphasizing that the challenge should be directed at the 263-order itself.

2. Disallowance of Expenses under the Proviso to Section 12A(2):
The Commissioner disallowed expenses of Rs. 155,800, which the assessee contended should be allowed under the new proviso to section 12A(2) effective from October 1, 2014. The Tribunal observed that the assessee's income was enhanced by the Commissioner under section 263 due to claimed deductions for TDS amounts, which were not eligible under the Act. The AO followed this direction and enhanced the income accordingly.

3. Condonation of Delay in Filing the Appeal:
The appeal was delayed by 1640 days. The Tribunal considered whether there was sufficient cause for the delay. The delay was attributed to the assessee's bona fide belief, based on advice from a chartered accountant, that the case should be represented before the AO. The Tribunal referred to a similar case where the delay was condoned due to a mistaken impression about the appeal process. Following this precedent, the Tribunal condoned the delay, finding it reasonable.

4. Application of the Proviso to Section 12A(2) for the Assessment Year Under Consideration:
The Tribunal examined whether the proviso to section 12A(2), effective from October 1, 2014, could be applied retrospectively. The proviso allows the benefits of sections 11 and 12 for any income derived from property held under trust for assessment years preceding the year of registration if the assessment proceedings are pending. The Tribunal concluded that the proviso should be applied retrospectively to avoid genuine hardship to charitable organizations, as supported by explanatory notes and CBDT circulars.

5. Applicability of Exemption under Section 11(1)(a) in Light of the Proviso to Section 12A(2):
The Tribunal determined that once the benefit of exemption under section 11(1)(a) is available due to the proviso to section 12A(2), the income must be computed considering this exemption. Although the original assessment for AY 2009-10 was not pending at the time of registration, the assessment was reopened under section 263, making the exemption applicable. The Tribunal directed the AO to grant the exemption under section 11, subject to the relevant provisions of the Act.

Conclusion:
The appeals were partly allowed for statistical purposes. The Tribunal directed the AO to reconsider the assessment in light of the proviso to section 12A(2) and the exemption under section 11, ensuring adherence to the relevant provisions of the Act. The identical issue for AY 2010-11 was also partly allowed, applying the same reasoning and directions as for AY 2009-10.

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