2025 (4) TMI 473 - AT - Income Tax

Reopening of assessment u/s 147 - denial of exemption u/s 11(1) - HELD THAT - In this case as no return of income was filed the notice u/s 148 of the Act was issued. Cash deposit in the bank account was out of the fees received which fact has not been disputed before us. In the case of Genius Education Society 2018 (10) TMI 671 - ITAT CHANDIGARH the provisional approval granted was good enough for claiming the exemption u/s 11 of the Act. Hence the ground are allowed and the AO is directed to consider the income applied for charitable purposes and recompute the income as per law as the provisional approval was good enough for availing exemption for the impugned assessment year and the provision of section u/s 12A(ba) of the Act was inserted with effect from AY 2018-19 and were not applicable for the impugned assessment year. Hence the appeal of the assessee is allowed with the direction to recompute the income as per law after considering the provisional approval for the purpose of granting exemption u/s 11 of the Act. Appeal filed by the assessee is allowed

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the denial of exemption under Section 11(1) of the Income Tax Act, 1961, was justified given the provisional registration under Section 12A/12AA.

2. Whether the provisions of Section 12A(ba), which were applicable from Assessment Year (AY) 2018-19, were incorrectly applied to the assessee for AY 2016-17.

3. Whether the total receipts of the appellant should be considered as total income or only the surplus after deducting expenses should be taxable.

4. The validity of the assessment order under Sections 143(3)/147 of the Act, given the procedural and documentary compliance by the assessee.

ISSUE-WISE DETAILED ANALYSIS

1. Denial of Exemption under Section 11(1)

- Relevant Legal Framework and Precedents: Section 11(1) provides exemption for income derived from property held under trust for charitable or religious purposes. The exemption is contingent upon registration under Section 12A/12AA. The second proviso to Section 12A(2) states that if registration is granted for a subsequent year, the income of earlier years cannot be taxed merely because of non-registration.

- Court's Interpretation and Reasoning: The Tribunal noted that the provisional registration under Section 12A was granted for AY 2022-23 to AY 2024-25. The Tribunal emphasized that the provisional registration was sufficient for claiming exemption for the impugned year based on the precedent set in Genius Education Society vs. Assistant Commissioner of Income-tax. The Tribunal concluded that the denial of exemption was unjustified as the provisional registration was adequate for the purpose of exemption under Section 11.

- Key Evidence and Findings: The assessee provided a copy of the provisional registration order dated 30.08.2021. The Tribunal found that the denial of exemption was based on the absence of documentary evidence for pending application for exemption for the relevant year.

- Application of Law to Facts: The Tribunal applied the second proviso to Section 12A(2) and determined that the provisional registration should suffice for claiming exemption under Section 11, even for the year under consideration.

- Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the exemption was denied due to non-compliance with procedural requirements but found it unconvincing in light of the provisional registration.

- Conclusions: The Tribunal allowed the exemption under Section 11, directing the Assessing Officer (AO) to recompute the income considering the provisional registration.

2. Applicability of Section 12A(ba)

- Relevant Legal Framework: Section 12A(ba) mandates the filing of a return of income within the due date prescribed under Section 139(1) for claiming exemption under Section 11, effective from AY 2018-19.

- Court's Interpretation and Reasoning: The Tribunal noted that the provision was not applicable for AY 2016-17, the year under consideration.

- Conclusions: The Tribunal concluded that the application of Section 12A(ba) was incorrect for AY 2016-17.

3. Assessment of Total Receipts as Income

- Relevant Legal Framework: Section 11 allows for exemption of income applied for charitable purposes, not the gross receipts.

- Court's Interpretation and Reasoning: The Tribunal found that the AO's assessment of the entire receipts as income was incorrect. The Tribunal directed the AO to consider only the net surplus after deducting expenses.

- Conclusions: The Tribunal directed the AO to recompute the income, considering only the surplus as taxable.

SIGNIFICANT HOLDINGS

- The Tribunal held that provisional registration under Section 12A was sufficient for claiming exemption under Section 11 for the assessment year in question, despite the absence of a final registration for that year.

- It was determined that Section 12A(ba), effective from AY 2018-19, was not applicable for AY 2016-17, thus the procedural requirements under this section could not be enforced for the year under consideration.

- The Tribunal directed that only the net surplus after deducting expenses should be considered as income, not the total receipts.

- The Tribunal emphasized the importance of procedural compliance and the adequacy of provisional registration for claiming exemptions.

- The appeal was allowed, and the AO was directed to recompute the income in accordance with the Tribunal's findings and directions.