2024 (7) TMI 955 - AT - Income Tax

Exemption u/s 11 - assessee has filed the return of income in ITR 7 instead of ITR 5 - whether the assessment proceedings are pending in this case when the 12A registration was granted on 22/02/2016? - HELD THAT - It is fact on record that assessee did not have a proper registration u/s 12AA at the time of filing the return of income and the mistake was apparent that assessee should have filed the return of income only under ITR Form 5. It is brought to our notice that the assessee was granted registration subsequently on 22/02/2016. As per the first proviso to section 12A(2) of the Act when assessment proceedings pending before the Assessing Officer as on the date of such grant of registration and the objects and activities of such trust remain the same for such preceding assessment year, the provision of section 11 12 are applicable in such cases. It is fact on record that the issue pending at the time of grant of registration was only relating to rectification of mistake and for not filing the return of income in proper Form i.e., assessee has filed in Form ITR 7 instead of Form 5. Technically, there is no assessment proceeding pending before the any authority at the time of grant of registration as per the fact available on record. We are inclined to remit this issue back to the file of the Jurisdictional Assessing Officer for wrongly rejecting the rectification application filed by the assessee and in our considered view as per the facts available on record, at that point of time, assessee has wrongly filed ITR 7 instead of ITR 5, therefore,direct the Assessing Officer to consider the case of the assessee and reassess the income of the assessee as per ITR 5. Further, direct the assessee to file the financial statements and submit the data as per ITR-5 before the Jurisdictional Assessing Officer. We direct the Assessing Officer to re-do the assessment after giving proper opportunities of being heard to the assessee - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Deduction under Section 57(ii) of the Income Tax Act.
3. Application of maximum marginal rate under Section 164(2) of the Income Tax Act.
4. Incorrect filing of return in ITR Form 7 instead of ITR Form 5.

Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:
The appellant challenged the Ld. CIT(A)'s decision to deny the benefit of registration under Section 12AA, which was granted subsequently, arguing that the exemption under Section 11 should be allowed as per the third proviso to Section 12A(2) of the Act. The appellant contended that since the trust was granted registration on 22.02.2016 and the assessment proceedings were still pending, the benefit of Section 11 should be applicable. The Ld. DR argued that there were no proceedings pending at the time of granting registration. The Tribunal observed that the issue was whether the assessment proceedings were pending when the registration was granted. It was noted that the return was filed on 31.03.2015, and the period to issue notice under Section 143(2) ended on 30.09.2015. Thus, no assessment proceedings were pending at the time of granting registration. The Tribunal remitted the issue back to the Jurisdictional Assessing Officer to reassess the income as per ITR Form 5.

2. Deduction under Section 57(ii) of the Income Tax Act:
The appellant argued that the expenses incurred for charitable purposes should be allowed as deductions under Section 57(ii). The Tribunal noted that the collections were for social/charitable purposes, and the Form 108 report of the auditors supported this. The Tribunal referred to the Delhi Bench of ITAT's decision in Sanatam Dharam Sabha vs ITO, which allowed similar deductions. The Tribunal directed the Assessing Officer to reassess the income considering these expenses.

3. Application of Maximum Marginal Rate under Section 164(2) of the Income Tax Act:
The appellant contested the application of the maximum marginal rate, arguing that the trust should be assessed as an Association of Persons (AOP) and not subject to Section 167B. The Tribunal noted that the appellant was a registered trust and should be taxed at rates applicable to individuals unless specific conditions under Section 13(1) or Section 115 were met. The Tribunal found no evidence of such conditions being violated and directed the Assessing Officer to reassess the income accordingly.

4. Incorrect Filing of Return in ITR Form 7 instead of ITR Form 5:
The appellant acknowledged the mistake of filing the return in ITR Form 7 instead of ITR Form 5. The Tribunal noted that this mistake led to the creation of demand and that the CPC should not capitalize on such errors. The Tribunal directed the Assessing Officer to consider the correct form and reassess the income, allowing the appellant to submit financial statements as per ITR Form 5.

Conclusion:
The appeal was allowed for statistical purposes, with directions to the Assessing Officer to reassess the income de novo after giving proper opportunities of being heard to the appellant. The Tribunal emphasized the need for fair and judicious tax collection, aligning with legal provisions and departmental circulars.