Assessment proceedings commence with filing of Income Tax return

Leh Nutrition Project Vs DCIT (ITAT Amritsar)

Admittedly, the appellant Trust is continuing the charitable work in Leh region in India and duly granted registration u/s 12AA(1) of the Act, 18-03-11 (APB, Pg.-498). The Ld. AR argued that that the appellant trust having been granted registration u/s 12A vide order dated 21/07/11, therefore, the benefit of such exemption should be granted for the year under consideration also, in view of the amendment in section 12A(2) vide finance Act, 2014.

The ITAT, Pune Bench, in the case of Sansthan Shree Eknath Maharaj Vishwastha Mandal vs. ITO, ITA No. 288/Pun/2020, vide order pronouncement on 03-02-22, vide para 4 and 5, on similar facts observed as under:

4. “I have heard both the sides in Virtual Court and gone through the relevant material on record. There is no dispute on the fact that the assessee filed its return of income on 17.01.2017 for the year under consideration. The approval was granted by the ld. CIT(E) u/s 12AA on 16.05.2017. At this stage, it is relevant to take note of the mandate of sub-section (2) of section 12A granting benefit of exemption to the years prior to the grant of registration, which provides through the second proviso that : `where registration has been granted to the trust or institution under section 12AA or section 12AB, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year.~ A bare perusal of the proviso amply transpires that where the subsequent registration has been granted u/s 12AA, then the benefit of such registration will also be conferred to earlier years for which assessment proceedings are pending before the AO as on the date of such registration. The crucial words used in the second proviso are the pendency of assessment proceedings. To put it simply, if the assessment proceedings are pending before the AO when the registration is granted by CIT(E), the registration so granted will also have effect and the AO will be obliged to grant exemption u/s 11 in respect of such assessment year. The authorities below have taken note of the mandate of the second proviso but interpreted the term „assessment proceedings LI as commencing with the issuance of notice u/s 143(2) of the Act. That is the raison dieter for denying the benefit of exemption in the extant case on the premise that notice u/s 143(2) was issued on 20.09.2017 and by that time the registration had already been granted by the ld. CIT(E) on 16.5.201 7. In my opinion, the connotation of commencement, continuation and termination of `assessment proceedings is fairly settled by authoritative pronouncement from the highest Court of the land in Auto & Metal Engineers And Ors. Vs. Union of India & Ors. (1998) 229 ITR 399 (SC) in which it has been held by the Hon LI ble Summit Court that the process of assessment commences with the filing of return or by issuance by the AO of notice to file a return and it culminates with the issuance of notice of demand u/s 156 of the Act. It is thus, manifest that the assessment proceedings commence with the filing of return and not when notice is issued for the first time u/s 143(2). Issuance of such a notice and passing of assessment order are parts of entire assessment proceedings which commences with the filing of return.

5. Adverting to the facts of extant case, I find that the assessee filed its return for the year under consideration on 17.01.2017. The approval was granted by the ld. CIT(E) u/s 12AA on 16.05.2017. It is, ergo, glaringly patent that the assessment proceedings for the year under consideration, which commenced with the filing of return on 17.01.2017, were pending on the date of grant of registration by the ld. CIT(E) on 16.05.201 7. I, therefore, hold, in principle, that the assessee is eligible for exemption u/s 11 of the Act.”

On similar facts, the coordinate Bench in the case of ‘Dera Bhai Gurdas Ji Udasin Trust (Regd.) Mansa vs. ITO’, (Supra) directed the Assessing Officer to grant the benefit of Section 11 & 12 to the appellant.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR

This appeal has been filed by the assessee against the impugned order dated 26.03.2014 passed by the Ld. Commissioner of Income Tax (Appeals), Jammu in respect of the Assessment Year 201 0-11.

2. The assessee has raised the following amended grounds of appeal:

“1. That the Id AO wrongly made the assessment u/s 143(3), as well as, addition of Rs. 1,13,26,754 under the head income from other sources, without rejecting the books of accounts of the assessee and also treated the appellant as Public Limited Company.

2. That the Id AO wrongly made the addition of Rs. 1,13,26,754 on the basis of Audited Receipts & Payments Account by ignoring that Receipts & Payments A/c does not show any profits & is a summarized Cash and Bank book for a given period.

3. That both the Id A.O & CIT(A) has to make correct assessment and wrongly ignored that appellant is a NGO, maintaining “Receipts & Payment A/c” and working as “Postman” for different projects with specific grants having execution work for many years, to come, hence there is no surplus of Rs.26, 75,553 available for taxation and also not creating any assets on its own name or doing any revenue expenditure, hence there is no surplus of Rs.26, 75,553 available for Taxation.

4. That the Id. CIT(A) has blown Hot & Cold, as in one hand, he is passing benefit by taxing Receipts, after allowing all Expenditure, On other hand, he is not allowing benefit of specific grants / donations received for work to be executed in many years, to come ahead, as such grants can neither form part of Corpus nor Income of appellant.

5. That the Id CIT(A) has wrongly ignored the following certificates indicating the amount remained unspent in the Receipts & Payments A/c, which will be adjusted towards the grants-in-aid payable in the next A. Y. 2011-12 and shown as Closing Balance of cash-in-hand & Bank and cannot be part of Income of the appellant and is more than the surplus calculated by A. O = Rs.26, 75,553 :-

6. That Id CIT(A) has wrongly ignored that no addition was ever made in the case of appellant since inception as ‘NGO’ on this issue, by Income Tax

7. That order of Ld AO & Ld CIT (A) is bad in law, as well as, on facts.

8. That appellant craves to add or amend any ground of appeal before the appeal is finally heard or disposed-off.

9. That the order may kindly be modified or another consequential relief be

3. Legal grounds for A.Y. 2010-11

“That on the facts and circumstances of the case, the ld. A.O., as well as, CIT(A) has erred in law while passing the order dated 31.-1- 13 & 26-3-14 respectively, ignoring that the appellant having been granted registration u/s 12A dated 21-7-11, therefore, the benefit of such exemption should be granted for the year under consideration also, in view of the amendment in section 12A(2) vide Finance Act, 2014.”

4. The appellant trust has raised legal ground which goes to the root of the matter that the appellant having been granted registration u/s 12A dated 21-7-11, therefore, the benefit of such exemption should be granted for the year under consideration and it is therefore legal issued admitted to be heard.

5. The Ld. CIT(A) has although admitted the facts that there was no denying of the fact that the appellant was engaged in charitable activities. However, the surplus from such activities is taxable in the hands of the appellant as the appellant has not been registered u/s 12A of the Act as required by the provisions of the Income Tax Act and as such the income of the appellant is taxable.

6. The Ld. AR has filed a written synopsis which reads as under:

“Legal Ground as additional ground filed on 18/5/19:-

That on the facts and circumstances of the case, the ld. A. O, as well as, CIT(A) has erred in law while passing the order dated 31-1-13 & 26-3-14 respectively, ignoring that the appellant having been granted registration u/s 12A dated 21- 7-11, therefore the benefit of such exemption should be granted for the year under consideration also, in view of the amendmentinsection12A(2)vide financeAct,2014.

Argument:-

Please refer sec. 12A Proviso1, which is explained as under, which came into effect from01-10-14:-

“Where registration is provided u/s 12AA, then the provision of sec. 11&12 shall apply in respect of any income held under the trust of any assessment year preceding the aforesaid assessment year, for which assessment proceeding are pending before assessment officer and on the date of such registration.”

In this case the registration was received on 20-07-11 and date of the order of A. O is 31.01.13. Hence when the A.O issued notice dtd. 22-09-11, the assessee was already having registration. Once the registration is there, then no action can be taken for such trust for any assessment year preceding the aforesaid assessment year, only for non-registration of the trust, even no action can be taken under section 147 or otherwise and the matter was clarified in proviso 2 of the section. Assessment proceedings are pending when the return is filed.

The copy of memorandum explaining the provision of finance no. 2 (Bill), 2014 is enclosed at page 506 to 507 and main provision is enclosed at page 507 and refers Para-3 of the same.

Case Law 1:-

The issue has also been explained in the following case law: – Sansthan Shree Eknath Maharaj Vishwastha Mandal vs. ITO (Exemption)

ITA No. 288/Pun/2020 (A Y-2016-17) Refer Para 3,4 & 5 at page 509 to 512 Copy enclosed at page 508 to 512.

Facts of this case

i) Return filed dtd. = 17-01-17. (our case is = 24-3-11)

ii) Registration u/s 12AA granted = 16-05-17 (our case = 20-7-11)

iii) Notice u/s 143(2) issued = 20-09-17 (our case = 22-9-11)

iv) At Para-5, the author says since the return was filed on 17-01-17,
the assessment proceeding for year under consideration commenced with the filing of return dtd. 17-1-17 and the author also quoted the Supreme Court case law of M/s Auto And Metal Engineers & Ors. Vs. Union of India & Ors (SC) (1998) 229 ITR 399 indicating the process of assessment commences with the filing of return or by issuance by AO of notice to file a return.

Case Law 2

If there is a change in law during the pendency of the appeal, the change in law should be applied to pending appeals also:- Sh. Vishwa Mitter Sekhri vs. ITO (Jurisdictional Bench)

ITA No. 75/asr/2016 (2021)

Copy enclosed at page 514 to 525.

[Refer Para-4 PB 524]

In this case, the jurisdictional bench referred the case law of Supreme Court, i.e; Howrah Municipal Corporation & Ors. Vs Gangis Rope Co. Ltd. & Ors (in this case the Honorable SC said, if there is a change in law during the pendency of the appeal, the change in law should be applied to pending appeals also.

Case Law 3

That the Ld. CIT(A) ignored the section 12A(2) before passing the order, hence the order passed by CIT(A) is bad-in-law and the benefit of section 12A(2) should be passed to the appellant, as per the following case laws of Amritsar Bench :-

Saint Jute’s Convent School vs. ACIT (ITAT, Asr) ITA NO- 749/Asr/13, A. Y 2010- 11 dated 26-9-16 Copy enclosed at PB- 461 to 486.

[Para 18 to 21, PB- 476 onwards, Para- 39, PB-485J

Baba amaranth educational society vs. ITO (ITAT Asr) ITA NO-1318/12, A. Y 2009- 10 dated 31-3-19 Copy enclosed at PB- 487 to 495.

[Para 4.4= PB=492 Para 4.6, 4.7J

Case Law 4

Amendment when curative in nature is required to be given retrospectively :- CIT vs. Calcutta Exports Company (2018)

404 ITR 654 (SC)

Enclosed at page 526 to 532.

[Refer Para 28 & 29 at PB 532J

Case Law 5

Even the Honorable Supreme Court has said the circular beneficial to the assessee shall be applicable retrospectively :

Director of Income Tax vs. SRMB Dairy Farming (P)(Ltd.) (2018)

65 IT Reps 1 (SC) (refer Para _23 at page 544 )

Enclosed at page 533 to 544.

Distinguishing of the case laws referred by DR during the last hearing dtd. 18-04-22

Case Laws

CIT Exemptions vs. Shiv Kumar Sumitra Devi Smarak Shikshan Sansthan

ITA No. 11 of 2019 (Allahabad HC) Copy enclosed at page 545 to 551

[Refer Para 18 at PB 550]

i) This case law of Lucknow bench has mainly on the issue of when the registration was given on 08-06-15 then benefit of section 11 & 12 would be available for following year, in which application was made. If the assessment proceedings for the relevant Assessment year was pending till the date of registration then it cannot be for assessment year 2011-12 due to the pendency of the appeal before the tribunal.

Refer Para-18,19, 20 at PB 550 onwards.

ii) The proviso not only required for registration of the trust but it refers to assessment proceeding before assessment authority not elsewhere.

iii) The assessment proceedings for year 2011-12 was not pending before the A. O but for the tribunal.

iv) As per Para-20 at PB 550 . in this case, tribunal will not be covered.

v) This case law first of all, is on the sec 12A(2) and not the proviso 1 or proviso 2 of sec. 12A(2) . section 12A(2) is relevant where the application is made for registration and Proviso 1 is relevant where registration has already been done.

vi) The above said case law has not discussed :

(i) CIT vs. Calcutta Exports Company (2018) 404 ITR 654 (SC) dtd. 24-04-18 In the above referred Allahabad HC order is dtd. 06-08-19

(ii) Howrah Municipal Corporation & Ors. Vs Gangis Rope Co. Ltd. & Ors. (2004) 1 SCC 663

(iii) In the above case of Allahabad HC order, the case of Supreme Court, as mentioned above was not discussed, indicating beneficial change in law during the pendency of the appeal, the change in law should be applied to pending appeals also. This case of Supreme Court was discussed by jurisdictional bench in the following case law.

Sh. Vishwa Mitter Sekhri vs. ITO ITA No. 75/asr/2016 (2021) (Refer Para 4 at Page 524 Copy enclosed at Pb 514 to 525.

2) Written arguments of Amended Legal Ground No. 1 dtd. 04-07-16 is at PB­452 onwards.

3) written arguments of Amended Legal Ground No. 2 to 5 dtd. 04-07-16 is at PB-453 onwards.

4) Case Law of

Queen’s Educational Society vs. CIT (2015) 372 ITR 699 (sc) (Refer Para 25 at page 569 ) Copy enclosed at page 552 to 570 .”

Synopsis dated 13.10.2022

Synopsis on legal ground taken as additional ground filed on 18-05-19

“1. In this case registration was granted for A. Y 2011-12 but the case pending before A.O was AY 2010-11. But the registration was there at the time of reopening of the case by A. O, secondly the assessment proceedings were pending before AO because the return was filed on 24-03-11, order passed on 31-01-13 and registration granted on 20-07-11. In this case, section 12A-Proviso­l, comes into picture, which was inserted to cover the genuine hardship to the trusts for preceding years assessment after receiving the registration. The Proviso said, when the registration is granted and any proceedings pending before A.O relating to the previous/preceding year of the date of registration, the registration will applicable to the preceding year also and this issue was discussed by the Pune Bench under this case law

Sansthan Shree Eknath Maharaj Vishwastha Mandal vs. ITO (Exemption) ITA No. 288/Pun/2020 (A Y- 2016-17) Copy enclosed at page 508 to 512 (Refer Para 3, 4 and 5) and the Pune Bench quoted the case law Auto and Metal Engineers and Others vs. Union of India and Others 229 ITR 399 (SC). Copy on record

The case of CIT (Exemptions) vs. Shiv Kumar Sumitra Devi Smarak Shikshan Sansthan (Allahabad High Court) is distinguished at PB- 545 to PB-551 as filed by DR in the last hearing. Refer Para 18, 19 and 20 at PB-550. In this case, it was held that proceedings before tribunal are not covered u/s 12A-Proviso-l but proceedings before AO are only covered under Proviso- 1. When the matter went to Supreme Court against the decision of Allahabad High Court, the SLP was dismissed on the same issue. Hence this case law helps the appellant as far as the issue of assessment proceedings before AO is concerned. On the other issue, the case law is not applicable to the appellant

2. However, 15% should be allowed to the trust out of the total receipts and this figure will come at a lesser amount, as compared to the addition confirmed by CIT(A).

3. Ground No. 2, 3, 4 and 5 are on merits and merits are narrated at PB-454 to PB-457 and all the required page numbers are also mentioned therein by saying that trust was just a postman and receiving specific donations and was utilizing the same. If any amount remained unspent was either given back to the donor or were carry forwarded to the next year. All the donors were having agreement with the appellant to refund the balance unspent amount and the members of the society were also filing bond on this ground. Even the interest earned on the balance unspent amount was returned, if unspent. All the documents relating to this argument are mentioned in the above pages.”

I further relied on the order of ITAT, Amritsar Bench ,on same issue , in the case of Dera Bhai Gurdas Ji Udasin Trust (Regd.) Mansa vs. ITO, Ward- 1(4), ITA No. 228 & 229/Asr/2019, date of pronouncement 22-06-22.

The relevant Para (Para-21) is extracted as below :

‘‘In view of the finding given by us herein above with regard to the status of the assessee society and its eligibility to claim exemption u/s 11 of the Act. The assessee is eligible of benefit of Section 12A(2) of the Act for the AY 2014-15 & 2015-16. The copy of order U/s 12AA(1)(b) of the Act is annexed in page no-37 to 38 of Paper Book. Therefore, we direct the Assessing Officer to grant the benefit of Section 11 & 12 for AY 2014-15 & 2015-16. The valuation report of assessee should be accepted for value of cost of acquisition of aforesaid land on dated 01/04/1981.’’

7. The Ld. DR stands by the impugned order.

8. Heard both the sides on the issue, and perused material documents on record. Admittedly, the appellant Trust is continuing the charitable work in Leh region in India and duly granted registration u/s 12AA(1) of the Act, 18-03-11 (APB, Pg.-498). The Ld. AR argued that that the appellant trust having been granted registration u/s 12A vide order dated 21/07/11, therefore, the benefit of such exemption should be granted for the year under consideration also, in view of the amendment in section 12A(2) vide finance Act, 2014.

9. The ITAT, Pune Bench, in the case of Sansthan Shree Eknath Maharaj Vishwastha Mandal vs. ITO, ITA No. 288/Pun/2020, vide order pronouncement on 03-02-22, vide para 4 and 5, on similar facts observed as under:

4. “I have heard both the sides in Virtual Court and gone through the relevant material on record. There is no dispute on the fact that the assessee filed its return of income on 17.01.2017 for the year under consideration. The approval was granted by the ld. CIT(E) u/s 12AA on 16.05.2017. At this stage, it is relevant to take note of the mandate of sub-section (2) of section 12A granting benefit of exemption to the years prior to the grant of registration, which provides through the second proviso that : `where registration has been granted to the trust or institution under section 12AA or section 12AB, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year.~ A bare perusal of the proviso amply transpires that where the subsequent registration has been granted u/s 12AA, then the benefit of such registration will also be conferred to earlier years for which assessment proceedings are pending before the AO as on the date of such registration. The crucial words used in the second proviso are the pendency of assessment proceedings. To put it simply, if the assessment proceedings are pending before the AO when the registration is granted by CIT(E), the registration so granted will also have effect and the AO will be obliged to grant exemption u/s 11 in respect of such assessment year. The authorities below have taken note of the mandate of the second proviso but interpreted the term „assessment proceedings LI as commencing with the issuance of notice u/s 143(2) of the Act. That is the raison dieter for denying the benefit of exemption in the extant case on the premise that notice u/s 143(2) was issued on 20.09.2017 and by that time the registration had already been granted by the ld. CIT(E) on 16.5.201 7. In my opinion, the connotation of commencement, continuation and termination of `assessment proceedings is fairly settled by authoritative pronouncement from the highest Court of the land in Auto & Metal Engineers And Ors. Vs. Union of India & Ors. (1998) 229 ITR 399 (SC) in which it has been held by the Hon LI ble Summit Court that the process of assessment commences with the filing of return or by issuance by the AO of notice to file a return and it culminates with the issuance of notice of demand u/s 156 of the Act. It is thus, manifest that the assessment proceedings commence with the filing of return and not when notice is issued for the first time u/s 143(2). Issuance of such a notice and passing of assessment order are parts of entire assessment proceedings which commences with the filing of return.

5. Adverting to the facts of extant case, I find that the assessee filed its return for the year under consideration on 17.01.2017. The approval was granted by the ld. CIT(E) u/s 12AA on 16.05.2017. It is, ergo, glaringly patent that the assessment proceedings for the year under consideration, which commenced with the filing of return on 17.01.2017, were pending on the date of grant of registration by the ld. CIT(E) on 16.05.201 7. I, therefore, hold, in principle, that the assessee is eligible for exemption u/s 11 of the Act.”

10. On similar facts, the coordinate Bench in the case of ‘Dera Bhai Gurdas Ji Udasin Trust (Regd.) Mansa vs. ITO’, (Supra) directed the Assessing Officer to grant the benefit of Section 11 & 12 to the appellant

11. The Judgement of the Honorable Allahabad High Court, in the case of CIT vs. Shiv Kumar Sumitra Shikshan Sansthan, ITA No. 11 of 2019, dated 06/08/201 9, relied by the Ld. DR is distinguishable on facts as in that case the proceeding were pending before the Tribunal and not before the AO, whereas in the present case the proceedings were pending before the AO. Further, the Pune Tribunal followed the judgement of the Honorable Supreme Court in the case of ‘Auto and Metal Engineers & Others vs. Union of India and Others’, (1998) 229 ITR 399 (SC) while granting relief to the assesse under the first proviso of section 12A of the Act.

12. Considering the peculiar facts and the judicial precedents, we hold that the assessee is eligible for deduction u/s 11 and 12 for A.Y. 2010-11 under the first Proviso to section 12A. Accordingly, we delete the disputed addition by granting the benefit of Section 11 & 12 to the appellant trust.

13. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 16.11.2022.