2024 (11) TMI 1320 - AT - Income Tax

Revision u/s 263 - eligibility of exemption u/s 11 - assessee had not filed the original return of income u/s 139 within the due date and also the audit report (Form 10B) within the due date specified for filing the audit report. Hence, assessee was not eligible for any claim of exemption u/s 11 and 12 - HELD THAT - There is no dispute regarding the fact that assessee had not filed its return of income u/s 139 of the Act. It filed the return of income, declaring total income only after receiving notice u/s 148 of the Act. The AO has passed the order accepting the returned income after considering explanation and details filed by assessee. As decided in case of United Educational Society 2019 (7) TMI 738 - ITAT DELHI filing of income u/s 139(4A) of the Act was not statutorily compulsory in AY.2017-18. Hence, the AO has rightly accepted the return of the assessee field u/s 148 of the Act. We find that clause (ba) to sub-section (1) of section 12A was inserted by Finance Act, 2017 w.e.f. 01.04.2018. The said clause provides w.e.f. 01.04.2018, and applicable for AY.2018-19 and subsequent years, that the person in receipt of income shall furnish the return of income referred to in sub-section (4A) of section 139 within the time allowed under that section. The assessment year involved in this appeal is AY.2017-18 which is prior to insertion of clause (ba) of section 12A(1) by Finance Act, 2017. When the provisions were not in the statute, the AO could not have invoked the provision and asked the assessee to fulfil the conditions included therein. AO has taken the correct view while passing the order and he has adopted one of the courses permissible in law. The CIT(E) has stated that the amendment is only clarificatory and the decision of ITAT is not mandatory. In the memorandum explaining the above provisions of the Finance Bill, it was explained that the amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to AY.2018-19 and subsequent years. The clause will not be applicable to the subject AY.2017-18. As clause (ba) of sub-section (1) of section 12A is applicable for AY.2018-19 onwards and not for AY.2017-18 with which we are concerned. Hence, we hold that the order of AO was not erroneous and prejudicial to the interests of revenue and therefore, it was not amenable to revision u/s 263. Appeal of the assessee is allowed.

Summary

Issues:
Appeal against order passed under section 263 of the Income-tax Act, 1961 for AY 2017-18.

Analysis:
The appeal arose from an order passed under section 263 of the Income-tax Act, 1961, concerning the assessment year 2017-18. The Commissioner of Income Tax (Exemption) observed that the assessee trust had not filed its return of income as required under section 139(4A) of the Act. The Assessing Officer (AO) had accepted the returned income after reopening the case and issuing a notice under section 148. The Commissioner found the AO's order erroneous and prejudicial to revenue as the trust had not filed the original return within the due date and the audit report on time, making it ineligible for exemption under sections 11 and 12 of the Act. The Commissioner issued a show cause notice, and the assessee cited a decision by the ITAT, Delhi, but the Commissioner held that the amendment was clarificatory and not binding in this case, leading to the order under section 263.

The assessee challenged the Commissioner's order before the Tribunal. The Authorized Representative argued that since no return was originally filed, and the AO did not make any additions to the income declared in the return filed under section 148, the order was not erroneous. The insertion of clause (ba) in section 12A by the Finance Act, 2017, applicable from AY 2018-19, made filing under section 139(4A) not mandatory for AY 2017-18. The Senior Departmental Representative supported the Commissioner's order.

After considering the arguments, the Tribunal found that the trust had not filed its return under section 139 but only after receiving a notice under section 148. The Commissioner's reliance on sections 139(4A) and 12A(1)(b) was noted, but the Tribunal held that the AO's acceptance of the returned income was not erroneous. The Tribunal emphasized that the amendment introducing clause (ba) in section 12A was effective from AY 2018-19 and not applicable to AY 2017-18. Referring to the ITAT, Delhi's decision in a similar case, the Tribunal concluded that the AO was correct in accepting the return filed under section 148 and directed the AO to compute income in line with section 11 of the Act.

In line with the above analysis, the Tribunal set aside the Commissioner's order under section 263, stating that the AO's order was not erroneous or prejudicial to revenue. The Tribunal held that clause (ba) of section 12A was not applicable for AY 2017-18, and therefore, the order was not subject to revision under section 263. Consequently, the Tribunal allowed the appeal of the assessee.