2024 (5) TMI 1125 - AT - Income Tax

Merger of intimation/proceedings u/s 143(1) with regular assessment u/s 143(3) - Exemption u/s 11 - Claim denied by the AO in sec. 143(1) proceedings on non-filing of Form 10B along with the return of income - HELD THAT - Assessee has not filed the form 10B along with the return of income due to the fact that it did not had the registration u/s 12A, and the assessee was claiming the benefits under the concept of mutuality. We observe that the assessee has applied for registration before filing the return of income for the current assessment year on 27.03.2019 and subsequently filed the ROI on 30.03.2019. The ROI was processed u/s 143(1) of the Act on 10.11.2019 and denied the benefit u/s 11 on the basis of not filing the Form 10B on time. Statutory notice u/s 143(2) was issued on 22.09.2019. Further notices u/s 142(1) were issued in order to proceed with the regular assessment. Accordingly the assessment u/s 143(3) was completed. When regular assessment was completed and the relevant intimation issued u/s 143(1) will automatically merges with the assessment passed u/s 143(3). Therefore, it loses its relevance once the regular assessment is processed and it is only an intimation towards the accuracy of the information submitted by the assessee. Assessee has claimed deduction u/s 11 and failed to file the form 10B along with the ROI. Based on the above observation, the claim of the assessee was denied by the AO in sec. 143(1) proceedings. Therefore, there is no denial of fact that AO can make the above disallowance, however, the validity of the intimation issued u/s 143(1) is limited to mere intimation of correctness and accuracy of the income declared in ROI and its accuracy based on the information submitted along with the ROI. It does not carry the legitimacy of an assessment. When the assessment was processed under regular assessment then it loses its individuality and merges with the regular assessment. We are in agreement with the findings of Ld CIT(A) that the intimation u/s 143(1) merges with the order passed u/s 143(3) of the Act and the appeal against the above intimation becomes infructuous. In our view, he should have stopped with the above findings and should not have proceeded to decide the issue on merits, because it is brought to his knowledge that the assessee has filed appeal against the regular assessment order. Therefore, he has travelled beyond the mandate. The issue of allowability of section 11 is already considered in the regular assessment and that issue is already in appeal before FAA. Therefore, reviewing the same is uncalled for. Intimation merges with the regular assessment when the proceedings are initiated u/s 143(3) of the Act. Therefore, the admitted fact that the appeal against the intimation is infructuous. The grievance of the assessee is that Ld CIT(A) has not stopped with the findings but gave findings on the merits. After considering the submissions, we are also of the view that the findings on allowability u/s 11 is uncalled. Particularly when the issue under consideration is under challenge before another Appellate Authority. Eligibility for exemption u/s 11 after grant of registration u/s 12A - This is accepted fact on record that the assessee is eligible to claim exemption after the introduction of first proviso to sec. 12A(2) of the Act with the applicable conditions in Finance Act 2018. Since there is no change in the objects and activities in the case of the assessee, there is no doubt that the assessee is eligible to claim the benefit. However, in our view, this issue has to be raised before the FAA in the appeal against regular assessment passed u/s 143(3) of the Act. Since the issue is still under appeal before FAA, this issue can be decided by the FAA without taking any clue from the appeal decided u/s 143(1) of the Act by the present CIT(A). Therefore, the issue raised against the intimation order is decided in favour of the assessee and hold that the order passed u/s 143(1) is merged with the regular assessment passed u/s 143(3) and it does not have legs to stand on its own once the regular assessment proceedings are initiated. At the same time, we are also hold that the findings of the Ld CIT(A) on the maintenance of the appeal as infructuous, hence, the demand raised in the 143(1) intimation does not survive. Appeal filed by the Assessee is partly allowed.

Summary

Issues Involved:
1. Denial of exemption u/s 11 due to non-filing of Form 10B.
2. Merger of intimation u/s 143(1) with assessment order u/s 143(3).
3. Applicability of second proviso to Sec. 12A(2) for claiming exemption u/s 11.

Summary:

Issue 1: Denial of exemption u/s 11 due to non-filing of Form 10B
The assessee, a registered society, filed for registration u/s 12A on 27/03/2019 and subsequently filed its ROI for AY 2018-19 on 30/03/2019, claiming exemption u/s 11. The CPC denied the exemption in the intimation u/s 143(1) dated 10/11/2019 due to non-filing of Form 10B. The Ld. CIT(A) upheld this denial, stating that Form 10B must be filed before or along with the ROI for exemption u/s 11 to be granted.

Issue 2: Merger of intimation u/s 143(1) with assessment order u/s 143(3)
The assessee argued that the intimation u/s 143(1) merges with the assessment order u/s 143(3) once regular assessment proceedings are initiated. The Ld. CIT(A) agreed, stating that the appeal against the intimation becomes infructuous. However, the Ld. CIT(A) proceeded to make findings on the merits of the exemption claim, which was not required since the issue was already under appeal in the regular assessment.

Issue 3: Applicability of second proviso to Sec. 12A(2) for claiming exemption u/s 11
The assessee contended that the second proviso to Sec. 12A(2) applies as the registration was granted on 05/01/2021, and the assessment for AY 2018-19 was pending. The Tribunal observed that the assessee is eligible for exemption u/s 11 due to the pending assessment at the time of registration, provided there is no change in objects and activities. However, this issue should be addressed in the appeal against the regular assessment order u/s 143(3).

Conclusion:
The Tribunal held that the intimation u/s 143(1) merges with the regular assessment order u/s 143(3) and becomes infructuous. The demand raised in the intimation does not survive. The findings on the merits by the Ld. CIT(A) were deemed unnecessary, and the issue of exemption u/s 11 should be decided by the FAA in the appeal against the regular assessment order. The appeal was partly allowed.