2016 (5) TMI 1102 - AT - Income Tax

Exemption u/s 11 - whether CIT(A) was right in allowing the claim of deduction raised by the assessee by way of an additional ground u/s 11 & 12 - Held that - Hon ble Supreme Court in the case of Goetze India Ltd. (2006 (3) TMI 75 - SUPREME Court ) holds that if the Assessing Officer looks into a particular claim once the assessee has filed original return of income it is possible only by way of filing a revised return. There was no claim under law from the assessee to file the revised return to raise the claim of deduction u/s 11 & 12 before the first appellate authority who has coterminous powers with the Assessing Officer. Hon ble Bombay High Court in the case of CIT Vs Pruthvi Brokers and Share holders (P) Ltd., (2012 (7) TMI 158 - BOMBAY HIGH COURT ) has held that the assessee is entitled to raise additional ground not merely in terms of legal submissions but also an additional claim not made in the return of income inadvertently, cannot be faulted for more than one reason. In view of above discussion, the ratio laid down by Hon ble Supreme Court in various judgements and Hon ble High Courts, we are inclined to dismiss the grounds raised by the Revenue. - Decided in favour of assessee

Issues Involved:
1. Whether the CIT(A) erred in canceling the order of the Assessing Officer (AO).
2. Whether the CIT(A) failed to appreciate the AO's bona fide legal powers.
3. Whether the assessee's failure to claim exemption under section 11 in the original or revised return was overlooked.
4. Whether the assessee's failure to claim exemption during assessment proceedings was overlooked.
5. Whether CIT(A) assumed powers of the AO contrary to the Supreme Court's decision in Goetze (India) Ltd. vs. CIT.
6. Whether the fresh claim of exemption under section 11 can be entertained at the appeal stage.
7. Whether the claim under section 11 can be adjudicated at the appeal stage based on facts not on record.
8. Whether the AO was denied the opportunity of being heard.

Detailed Analysis:

1. Canceling the Order of the AO:
The CIT(A) canceled the AO's order, which had added revenue receipts and disallowed depreciation and vouchers. The AO had treated certain funds as revenue receipts and disallowed depreciation on unused assets and vouchers related to another school.

2. AO's Bona Fide Legal Powers:
The CIT(A) did not appreciate the AO's exercise of bona fide legal powers. The AO had issued a notice under section 143(2) and made additions to the assessee's income based on the assessment.

3. Exemption Claim under Section 11:
The CIT(A) did not consider that the assessee did not claim exemption under section 11 in the original or revised return, despite having ample time. The assessee argued that the exemption could not be claimed initially due to pending registration under section 12A, which was later granted.

4. Exemption Claim During Assessment Proceedings:
The CIT(A) failed to appreciate that the assessee did not claim exemption under section 11 during assessment proceedings, despite having ample opportunity. The assessee contended that the exemption under section 11 & 12 was applicable as the registration under section 12A was granted effective from the relevant assessment year.

5. Assumption of AO's Powers:
The CIT(A) assumed the powers of the AO, contrary to the Supreme Court's decision in Goetze (India) Ltd. vs. CIT, which stated that the AO cannot entertain a claim made otherwise than by a revised return. However, the CIT(A) allowed the claim based on the registration under section 12A received after filing the return.

6. Fresh Claim of Exemption at Appeal Stage:
The CIT(A) entertained the fresh claim of exemption under section 11 at the appeal stage, which the AO did not have the opportunity to examine. The CIT(A) justified this by citing various court decisions allowing new claims at the appellate stage if justified by the facts.

7. Adjudication of Claim at Appeal Stage:
The CIT(A) adjudicated the claim under section 11 based on new facts presented during the appeal. The CIT(A) relied on judicial precedents to allow the new claim, considering the registration under section 12A was granted after the return was filed.

8. Opportunity for AO to be Heard:
The CIT(A) did not provide the AO an opportunity to be heard regarding the new claim under section 11. The CIT(A) exercised discretion to allow the claim based on new evidence and judicial precedents.

Conclusion:
The tribunal upheld the CIT(A)'s decision, allowing the claim under section 11 & 12 based on the registration under section 12A, effective from the relevant assessment year. The tribunal dismissed the revenue's appeal, emphasizing the appellate authority's powers to consider new claims and the judicial precedents supporting such discretion. The appeal filed by the revenue was dismissed.

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