Khandra Primary Institution Vs ITO (ITAT Kolkata)
Kolkata ITAT: Section 12A Registration Not Required for Section 10(23C)(iiiad) Exemption; ITR Mandatory Only When Pre-Exemption Income Exceeds Basic Limit
Summary: The Kolkata Bench of the Income Tax Appellate Tribunal partly allowed the appeal of Khandra Primary Institution for Assessment Year 2017-18. The Assessing Officer had assessed income of ₹9,81,050 under section 144 of the Income-tax Act, 1961 after the assessee did not file its return, treating gross receipts as ₹53,31,981 and expenditure as ₹43,50,927 and denying exemption under section 10(23C)(iiiad), inter alia, on the basis that the assessee was not registered under section 12A and had not furnished the return under section 139(4C). The Tribunal held that registration under section 12A was not required for claiming exemption under section 10(23C)(iiiad). It further observed that section 139(4C)(e) required filing of return where the total income, without giving effect to section 10, exceeded the maximum amount not chargeable to income tax; according to the assessee’s shown negative income, that threshold was not exceeded even without claiming the exemption. However, the Tribunal found that the treatment of ₹20,74,500 shown under the head “development fund” and narrated as “development fees” required verification, as the relevant details had not been furnished. It therefore set aside the order of the Addl./JCIT(A) and remanded the matter to the Assessing Officer to consider the profit and loss account and provisions of section 10(23C), with the assessee directed to furnish evidence supporting its claim that the development fee was not includible in gross receipts and that section 10(23C)(iiiad) applied. The Assessing Officer was thereafter directed to grant the exemption if, on the facts and evidence furnished, the claim was allowable. The appeal was accordingly partly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Addl/JCIT(A)-4, Hyderabad [hereinafter referred to as Ld. ‘Addl/JCIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2017-18 dated 31.03.2026.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. That the Ld. CIT(A) NFAC erred in law as well as on facts to affirm the order of the Assessing Officer for addition of Rs. 9,81,054, ignoring the submissions, documentary evidences and explanations furnished, which ought to be deleted in full.
2. That the Ld. CIT(A) NFAC erred in law as well as on facts to confirm the order of the AO about the requirement of registration us 12A for an educational institute availing the exemption us 10(23C) (iiiad) of the Act, thereby denying the exemption claimed.
3. That the Ld. CIT(A) NFAC erred in law as well as on facts to confirm the order of the AO about the requirement of filing of return us 139(4C) clause (e) of the act for availing exemption us 10(23C) (iiiad), even when the assessee the returned income does not exceeds the maximum amount which is not chargeable to tax.
4. That the Ld. CIT(A) NFAC erred in law as well as facts to affirm the order of the AO to take the total annual receipts of the assessee at Rs.53,31,981 against the amount reported in annual accounts at Rs.32,57,481 and also expenditure at Rs.43,50,927 instead of Rs.32,49,628, thus affirming the income at Rs. 9,81,054, against the actual loss of Rs.7,852.92. The Ld. CIT(A) NFAC erred in law as well as facts to affirm the order of the AO by substituting the phrase from annual receipt to gross receipt and vice versa for expenditure.
5. That the Appellant craves leave to add or amend or omit any grounds of appeal and crave leave to produce additional evidences by complying the rule 46A of Income tax rule.”
3. Brief facts of the case are that the assessee had not filed the return of income for AY 2017-18. The case was taken up for scrutiny for the reason being substantial cash deposits of ₹12,66,052/- during the demonetization period. The Assessing Officer (hereinafter referred to as Ld. ‘AO’) observed that the gross receipts were ₹53,31,981/- and expenditure was ₹43,50,927/-, resulting in a surplus of ₹9,81,054/-. Since the assessee was not registered u/s 12A of the Act and did not file the return of income as required u/s 139(4C) of the Act, the Ld. AO denied the exemption u/s 10(23C)(iiiad) of the Act and assessed the total income at ₹9,81,050/- u/s 144 of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. Addl/JCIT(A), who observed that the assessee had failed to file its return for the relevant assessment year to comply with the eligibility requirement u/s 139(4C) of the Act and also lacked registration u/s 12A of the Act. Accordingly, the Ld. Addl/JCIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee.
4. Aggrieved with the order of the Ld. Addl/JCIT(A), the assessee has filed the appeal before the Tribunal.
5. Rival contentions were heard and the submissions made have been examined. The assessee is a primary educational institution registered with the West Bengal Government. It was submitted by the Ld. AR that during the year under consideration, the gross receipts were less than ₹1 Crore and the assessee was not required to file any return of income and, therefore, the same was not filed. No approval u/s 12A was also claimed as the assessee was eligible for exemption u/s 1023C(iiiad) of the Act being an educational institution existing solely for charitable purposes and not for the purpose of profit. The Ld. AO worked out the gross receipts of ₹53,31,980/- and reduced the expenses of ₹43,50,927/- and assessed the surplus of ₹9,81,054/-. It was submitted that the Ld. Addl/JCIT(A) in para 8.0 has mentioned that the assessee has approval u/s 12AA which is not correct as the assessee does not have the required approval.
6. The Ld. DR submitted that the assessee was required to file the ITR, as the ITR was not filed, the exemption claimed was not allowed. The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the same may be upheld.
7. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. Addl/JCIT(A). The assessee did not file the required return before the Ld. AO; therefore, the assessment was made on the basis of the reply filed by the assessee. Before the Ld. Addl/JCIT(A) also, the assessee could not succeed, who has held after considering the detailed assessment order, the remand report, and submission of the assessee that as the assessee failed to file the ITR for the relevant assessment year, it did not comply with the eligibility condition under sub-section (4C) of section 139 of the Act. He has incorrectly noted that the assessee does have registration u/s 12A / 10(23C) of the Act and the exemption claimed was rightly denied as the assessee did not file the ITR. However, we note that while the assessee had claimed excess of expenditure over income, that is net loss of ₹78,502.92, the Ld. AO added a sum of ₹20,74,500/- included under the head ‘development fund’ to the income of the assessee. The assessee had shown this on the liability side as a liability, but the narration mentioned is “development fees” this year. The details of such fees are not filed before us, nor the Ld. AR has given any justification as to why the same should not have been included in the gross receipts. As this requires verification, therefore, the order of the Ld. Addl/JCIT(A) is hereby set aside as the facts have not been appreciated correctly, and the issue is remanded before the Ld. AO to consider the profit and loss account of the assessee and the provisions of section 10(23C) of the Act and thereafter assess the income de novo. The assessee shall furnish the required evidence in support of the claim that the development fee is not to be included in the gross receipts and the provision of section 10(23C)(iiiad) of the Act are applicable. Thus, Ground No.3 of the appeal is partly allowed for statistical purposes.
8. Ground No. 2 is allowed as for claim of exemption u/s 10(23C)(iiiad) of the Act, there is no requirement for registration u/s 12A of the Act. However, as per clause (e) of sub-section (4C) of section 139 of the Act, the assessee was required to furnish the return of income if the total income in respect of which the educational institution or university, hospital or other medical institution is assessable without giving effect to the provisions of section 10 of the Act, exceeds the maximum amount which is not chargeable to income tax. The assessee had shown negative income which was not exceeding the maximum amount not chargeable to tax even without claiming the exemption u/s 10(23C) of the Act, therefore, the assessee was not required to file the return of income. Thus, the Ground No. 4 is partly allowed and the assessee is directed to furnish the required evidence relating to the receipt and the income computed before the Ld. AO and the Ld. AO is thereafter directed to grant exemption as per section 10(23C)(iiiad) if on facts and evidence filed, the exemption claimed is allowable.
9. Ground Nos. 1 and 5 are general in nature and do not require any separate adjudication.
10. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 25th August, 2026.
