2023 (8) TMI 76 - AT - Income Tax

Exemption u/s. 11 denied - Validity of intimation issued u/s. 143(1)(a) - delay in completing the books of account - assessee has filed its return of income and Form 10B without compliance of Section 139(4A) i.e. after the due date of filing the return - HELD THAT - Assessee in the present case has filed a belated return u/s. 139(4) of the Act which the department has not held it to be a defective return u/s. 139(9) and has processed it by accepting the revenue and capital expenditure though denying the exemption claimed u/s. 11 and computed the total income equal to the total receipts of the assessee for the year. Once a return has been processed as a valid return, there are restrictions within section 143(1)(a) which lists down six specific adjustments which can be made in the processing of return. In respect of any adjustment which is proposed to be made, a prior intimation is required to be served on the assessee, either in writing or electronically, as contained in 1st proviso to section 143(1)(a) of the Act. Ld. Counsel has evidently demonstrated before us, the failure on the part of CPC to issue such prior intimation to the assessee before making an adjustment by way of disallowing the claim of exemption u/s. 11 of the Act. Thus, there are two aspects which emerges on this issue as to whether the disallowance made is a permissible adjustment contained in sec. 143(1)(a) and whether this adjustment, if permissible, has been made in compliance to 1st proviso to sec. 143(1)(a) of the Act. As perusal of the provisions contained in sec. 143(1)(a) of the Act, we find that on both the aspects, the revenue fails. This position has not been controverted by Ld. Sr. DR also In case, where there is no response received from the assessee then, within thirty days of the issue of such intimation, department is free to make such adjustment or disallowance. The documentary evidence placed on record and the e-proceedings downloaded from the Income Tax portal, no where suggests that such a process has been followed. Thus, we find that the impugned intimation issued u/s. 143(1)(a) of the Act, dated 30.11.2021 is not in compliance with the 1st proviso to section 143(1)(a) of the Act and thus, the impugned intimation is invalid under the Act. Decided against revenue.

Summary

Issues Involved:
1. Exemption under Section 11 of the Income-tax Act, 1961.
2. Compliance with Section 139(4A) for filing returns.
3. Adjustment under Section 143(1) without prior intimation.

Summary:

Exemption under Section 11 of the Income-tax Act, 1961:
The Revenue contested the allowance of exemption claimed by the assessee under Section 11 of the Act, arguing that the assessee filed its return of income and Form 10B after the due date specified under Section 139(4A). The assessee, a Trust registered under Section 12AA, claimed exemption for capital and revenue expenditures and 15% of gross receipts under Section 11(1)(a). The Centralised Processing Centre (CPC) disallowed this claim, computing the total income based on total receipts.

Compliance with Section 139(4A) for Filing Returns:
The assessee argued that the delay in filing was due to the Covid-19 pandemic and a fire incident, which destroyed original records. The CIT(A) accepted this explanation, noting the Supreme Court's exclusion of the period from 15.03.2020 to 28.02.2022 for limitation purposes. The Revenue argued that this exclusion did not apply to filing returns or Form 10B, as these are not judicial or quasi-judicial proceedings.

Adjustment under Section 143(1) without Prior Intimation:
The assessee claimed that CPC did not follow the mandate of the first proviso to Section 143(1), which requires prior intimation before making any adjustments. The Tribunal found that CPC failed to issue such intimation, rendering the adjustment invalid. The Tribunal also noted that the return was processed as a valid return, and the claimed expenditures were accepted, contradicting the denial of exemption under Section 11.

Conclusion:
The Tribunal concluded that the Revenue's disallowance of the exemption was incorrect. The Tribunal allowed the assessee's cross-objection and dismissed the Revenue's appeal, emphasizing that the return was filed within the time allowed under Section 139(4) and the CPC's failure to issue prior intimation invalidated the adjustment. The Tribunal also highlighted that income should be understood in its commercial sense, supporting the assessee's claim for exemption.