2018 (4) TMI 249 - AT - Income Tax

Denied exemption u/s. 11 - initiating reassessment proceedings on the basis of non grant of registration (u/s. 12AA) - Held that - Assessee registered u/s. 12AA of the Act is to be, in view of s. 12A(2), deemed to be so registered for any other year for which the proceedings are pending at any (appellate) stage, provided of course that there is no change in the objects and activities of the entity during the intervening period. AR the assessee s counsel, has shown us that there has been no change in the objects of the assessee s society, qua which we are prima facie satisfied, as section 12A(2) cannot be invoked otherwise. No doubt the assessee stands refused approval u/s. 10(23C) and, in fact, twice. However, it is only the refusal (or subsequent cancellation) of registration u/s. 12A, that would attract the rigor of the third proviso to section 12A(2). We, accordingly, setting aside the impugned order/s, restore the assessments back to the file of the AO for consideration of the assessee s claim for exemption u/s. 11 without being influenced by the grant of registration subsequently, and complete the assessment in accordance with the law. This aspect; the provisions of section 11 & 12 being not applicable in the absence of registration, remain to be examined.

Summary

Issues Involved:
1. Denial of exemption under Section 11 due to lack of registration under Section 12AA.
2. Interpretation of appellate proceedings as continuation of assessment proceedings.
3. Penalty under Section 271(1)(c) for claiming exemption under Section 10(23C)(vi) without approval.

Detailed Analysis:

1. Denial of Exemption under Section 11 Due to Lack of Registration under Section 12AA:
The assessee, a public trust running educational institutions, was denied exemption under Section 11 for the relevant assessment years due to the absence of registration under Section 12AA. According to Section 12A(1), registration under Section 12AA is a prerequisite for the application of Sections 11 and 12 of the Income Tax Act, 1961. The assessee argued that since it was granted registration on 20.01.2014, the assessment should be revisited to apply Sections 11 and 12 in light of Section 12A(2). This provision allows for retrospective application of Sections 11 and 12 from the assessment year immediately following the financial year in which the application for registration was made, provided the objects and activities of the trust remain unchanged.

2. Interpretation of Appellate Proceedings as Continuation of Assessment Proceedings:
The Revenue contended that the retrospective application of registration should only apply to years where assessment proceedings were pending before the Assessing Officer (AO) at the time of registration. They argued that appellate proceedings, although a continuation of assessment proceedings, are distinct and separate from assessments pending before the AO. The Tribunal, however, noted that appellate proceedings should be considered as a continuation of assessment proceedings, thus allowing the benefit of registration to apply to years under appeal as well. This interpretation was supported by previous Tribunal decisions, which held that the benefit of registration should extend to any year for which proceedings are pending at any appellate stage, provided there is no change in the trust's objects and activities.

3. Penalty under Section 271(1)(c) for Claiming Exemption under Section 10(23C)(vi) Without Approval:
The penalty under Section 271(1)(c) was levied because the assessee claimed exemption under Section 10(23C)(vi) without having the necessary approval at the relevant time. The assessee had applied for approval on 29.09.2009, which was refused on 15.09.2010. A fresh application was made on 24.09.2010, and the return for AY 2010-11 was filed on 30.09.2010, under the belief that approval would be granted. The Tribunal found that the assessee had a reasonable basis to believe that the approval would be granted and noted that the assessment for the relevant year was set aside for fresh determination. Consequently, no case for penalty under Section 271(1)(c) was made out, and the Revenue's appeal was dismissed.

Conclusion:
The Tribunal allowed the assessee's appeals for statistical purposes, setting aside the assessments to the AO for fresh consideration of the exemption claims under Sections 11 and 12, without being influenced by the subsequent grant of registration. The AO was directed to examine the assessee's objects and activities for the relevant years. The Tribunal dismissed the Revenue's appeal regarding the penalty, concluding that the assessee had a reasonable belief in the approval of its application under Section 10(23C)(vi).