Case Law Details
Onkar Society for Engineering & Technological Research Vs ITO (ITAT Kolkata)
The assessee appealed against the order of the Commissioner of Income-tax (Appeals) for Assessment Year 2020-21, challenging the denial of exemption under Section 11 of the Income-tax Act. The assessee contended that the capital expenditure of ₹1,85,37,546, revenue expenditure of ₹4,68,18,969, and the statutory exemption of ₹91,79,434 under Section 11(1)(a) were wrongly disallowed on the ground that the return of income and Form 10B were allegedly not filed within time. The assessee also argued that its income should be computed on commercial principles and that the delay, if any, resulted from a fire in its office and disruptions caused by the COVID-19 pandemic.
Additional Ground on Section 143(1) Adjustment
The assessee raised an additional legal ground before the Tribunal, contending that the Centralised Processing Centre (CPC) made adjustments under Section 143(1) without issuing the mandatory prior intimation required under the first proviso to Section 143(1)(a). The assessee submitted that this was a pure question of law requiring no further investigation of facts and relied upon judicial precedents permitting such legal grounds to be raised before the Tribunal.
Background Facts
The assessee, a society registered under Section 12AA and engaged in running educational institutions, filed its return in Form ITR-7 on 31.03.2021 declaring nil income and filed Form 10B on 31.03.2021. The extended due date for filing the return was 15.02.2021. The CPC processed the return under Section 143(1), computed the total income at ₹6,11,96,227 by denying exemption under Section 11 amounting to ₹7,45,35,949, and also recorded that Form 10B had not been filed, although the assessee asserted that it had been filed on 30.03.2021. The assessee explained that a fire in its office destroyed records and that the COVID-19 pandemic delayed finalisation of accounts and filing compliance.
Tribunal Admits the Additional Ground
The Tribunal observed that all material facts relating to the additional ground were already available on record and no further factual verification was necessary. Relying on Supreme Court decisions, it admitted the additional ground for adjudication.
Failure to Issue Mandatory Intimation Invalidated Section 143(1) Proceedings
The Tribunal held that before making any adjustment or disallowance under Section 143(1)(a), the CPC was required to issue an intimation to the assessee either in writing or electronically. After examining the assessment records available on the e-portal, it found that no such intimation had been issued before making the disallowance. Referring to an earlier Tribunal decision, it held that the mandatory procedure prescribed under the first proviso to Section 143(1)(a) had not been followed. Consequently, the order passed under Section 143(1) was held to be invalid and was quashed. The additional ground was accordingly allowed.
Exemption under Section 11
The Tribunal also examined the assessee’s challenge to the denial of exemption under Section 11. The assessee argued that both the return of income and Form 10B had been filed within the period available after excluding the limitation period extended due to the COVID-19 pandemic, relying upon the Supreme Court’s order dated 10.01.2022.
The Tribunal noted that the return was filed on 31.03.2021 and Form 10B on 30.03.2021. It observed that the COVID-19 pandemic had caused widespread disruption and that the Supreme Court had directed exclusion of the period from 15.03.2020 to 28.02.2022 for computing limitation in judicial and quasi-judicial proceedings. Applying the Supreme Court’s directions, the Tribunal held that there was no delay in filing either the return of income or Form 10B.
Accordingly, the Tribunal held that the Commissioner (Appeals) had incorrectly upheld the Assessing Officer’s rejection of the exemption claimed under Section 11, resulting in disallowance of the capital expenditure of ₹1,85,37,546, revenue expenditure of ₹4,68,18,969, and the statutory exemption of ₹91,79,434 under Section 11(1)(a). The Tribunal set aside the appellate order on this issue and directed the Assessing Officer to allow the exemption claimed under Section 11. Grounds 1 to 5 were allowed.
Final Decision
The Tribunal allowed the additional ground, quashed the order passed under Section 143(1) for failure to comply with the mandatory requirement of prior intimation, set aside the order of the Commissioner (Appeals) on the denial of exemption under Section 11, directed the Assessing Officer to allow the exemption claimed by the assessee, and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal of the assessee for the assessment year 2020-21 is directed against the order dated 01.11.2023 passed by the ld. Commissioner of Income-tax, Appeals, ADDL/JCIT(A)-12, Mumbai [hereinafter referred to as ‘the ‘ld. CIT(A)’]. The assessee has raised the following grounds of appeal:
“1. That on the facts of the case and in law the ld. CPC erred in not allowing the capital expense of Rs. 1,85,37,546/- and revenue expense of Rs. 4,68,18,969/- incurred during the year on the ground that the return of income and Form 10B was not filed by the assessee on time and the ld. CIT(A) erred in upholding the same although the said expense were exclusively incurred for the purposes of generating revenue from running of educational institutions.
2. That on the facts of the case and in law, the ld. CPC erred in not allowing the statutory exemption of Rs. 91,79,434/- being 15% of the gross receipts u/s 11(1)(a) of the Act on the ground that the return of income and Form 10B was not filed by the assessee on time and the ld. CIT(A) erred in upholding the same.
3. That on facts and in circumstances of the case, the ld. CPC and CIT(A) failed to appreciate the law that income derived from the trust property Onkar has to be computed on commercial principles by virtue of Circular No. 5-P(LXX-6) of 1968 dated 19.06.1968.
4. That on the facts and circumstances of the case, the delay in filing the return of income and Form 10B was due to fire breakout in the office of the society where records were kept and outbreak of the pandemic covid-19 virus which caused severe disruption in the normal working conditions.
5. That further ground or grounds of appeal may be submitted on or before the date of hearing.”
2. The assessee has also taken following additional ground of appeal:
“That on the facts and in law, the learned CPC in the intimation issued u/s 143(1) of the Act erred in not following the mandate as required by first proviso to section 143(1) of the Act which says that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode.”
The aforesaid ground arise out of the order of the learned CPC passed u/s 143(1) of the Act dated 24-12-2021 wherein the learned AO has erred in denying the exemption claimed u/s 11 of the Act and the same was upheld by the learned CIT(A) in his order dated 01-11-2023 passed u/s 250 of the Act.
It is submitted that this is a question of law and requires no further investigation of fresh facts by the lower authorities. It is well settled in law that a question of law can be raised at any stage of proceedings as held by the Hon’ble Supreme Court in the landmark judgment in the case of National Thermal Power Co. Ltd vs CIT (1998) 229 ITR 0383 wherein it was held that.
“The view that the Tribunal is confined only to issues arising out of appeal before the CIT(A) takes too narrow a view of the powers of the Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings such a question should be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.
3. Brief facts of the case are that the assessee filed its return of income in Form ITR-7 u/s 139(4) of I.T. Act on 31.03.2021 declaring total income of Rs. Nil. The assessee also filed Form No. 10B on 31.03.2021 for the assessment year in question. The extended due date of filing of return of income was 15.02.2021. The ld. assessing officer, CPC vide his order dated 24.12.2021 passed u/s 143(1) of the assessed and computed the total income of the assessee at Rs. 6,11,96,227/- by rejecting the claim u/s 11 of the Act amounting to Rs. 7,45,35,949/-. Besides that the order passed u/s 143(1) and states that the assessee has not filed any form u/s 10B of the Act whereas as a matter of fact is that the assessee has filed form on 30.03.2021. It is pertinent to state that the assessee is a society registered u/s 12AA of the Income Tax Act, 1961 and engaged in running of the educational institutions namely: Camellia Institute of Technology and Management situated at Halderdighi, G.T. Road, Hooghly-712134. At the time of hearing, ld. AR submitted before the bench that a fire broke out in the office premises of the assessee and most of the original office records, files, documents etc. burnt in the fire. Besides due to outbreak of pandemic Covid-19 virus and due to disruption in the working conditions, it became difficult on the part of assessee to consolidate the receipts and payments accounts of the assessee which in turn delay in finalizing the books of accounts of the assessee and also occurred delay in filing the return of income as well as Form 10B beyond the due date as prescribed under the Act.
4. The ld. AR further submitted before the bench that the issue raised by the assessee in the instant appeal regarding addition ground is qua the jurisdiction of the ld. assessing officer, CPC to make any addition/adjustment to the returned income unless intimation is given to the assessee for such adjustment either in writing or through electronic mode pursuant to the 1st proviso to section 143(1) of the Act the ld. A.R. submitted that since the facts are available on record and no further verification of fact is required, the same may kindly be admitted for adjudication. To defense his argument, ld. A.R. relied heavily on the decision of the Hon’ble Apex Court in the case of Jute Corporation of India Limited –vs.- CIT reported in (1991) 187 ITR 668 (SC) and National Thermal Power Company Limited –vs.- CIT reported in (1998) 229 ITR 383 (SC) and prayed that the additional ground may kindly be admitted following the above decisions of the Hon’ble Apex Court.
5. On the other hand, ld. Departmental Representative submitted that the additional ground raised by the assessee may kindly be dismissed. He further contended that the issue was never raised before the ld. CIT(Appeals) and is being raised for the first time before the Tribunal.
6. We have heard the rival contentions and perused the relevant material available on record. We observe that all the facts qua the additional ground raised are available on record and no further verification of facts is required at the level of ld. Assessing Officer or ld. CIT(Appeals). Besides the case of the assessee is squarely covered by the decision of Hon’ble Apex Court in the case of Jute Corporation of India Limited (supra) and National Thermal Power Company Limited (supra), wherein it has been held that even otherwise an appellate authority while hearing appeal against the order of subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provisions to the contrary, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. Accordingly, we are inclined to admit the additional ground for adjudication.
7. After hearing the rival contentions, perusing the material on record and also the proviso to section 143(1)(a) of the Act, we find that the ld. Assessing Officer CPC, before making any adjustment/disallowance to the returned income as per the return of income filed by the assessee is duty bound to intimate the same to the assessee either in writing or in the electronic mode. However, we find that no such intimation has been given to the assessee before making the said adjustment or disallowance either in writing or in electronic mode. We have also examined the records of assessment proceedings on e-portal relating to the assessee as placed before us and observe that the ld. Assessing Officer, CPC has not followed the mandate of first proviso of section 143(1)(a) of the Act and consequently , the order passed under section 143(1) of the Act is not as per the mandate of provisions of the Act and has to be quashed. The case of the assessee finds force from the decision dated 27th April, 2022 of the Tribunal, Ahmedabad Bench in the case of Arham Pumps in ITA No. 206/AHD/1989. The operative part of the order is extracted below:-
7. On going through the above section and proviso attached therein, the total income or loss shall be computed after making following adjustment mainly of any arithmetical error in the return. Incorrect claim, if such incorrect claim is apparent from any information in the return, etc. Thus, it is clear that a return can be processed u/s.143(1) by making adjustments on six types of adjustments only. The first proviso to section I43(l)(a) make it very clear that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Apparently in the case of the assessee, no intimation had been given to the assessee for making any adjustment or disallowance either in writing or in electronic mode. Thus, the CPC center has not followed the first proviso to section 143(l)(a) of the Act. This position was not controverted by the Id. DR also. Assuming a moment, if such an intimation is given to the assessee as per first proviso, then the second proviso stipulates that if any response is received from the assessee, the same should be considered before making any adjustment or disallowance, and also in a case where NO response is received, then within thirty days of the issue of such intimation, department is free to make such adjustment.
8. On going through the above intimation made under section 143(1), CPC has not followed the above provisos by giving proper opportunity to the assessee to defend its case as per the first proviso to section 143(1)(a) . Further, the NFAC order is also silent about the intimation to the assessee. Therefore, we find that intimation issued under section 143(1) dated 19-10-2019 is against first proviso to section 143(l)(a), and therefore, the entire 143(1) proceedings is invalid in law.
9. We also observe that the Id. NAFC has not looked into this fundamental principle of “audi alterm partem “, which has not been provided to the assessee as per the 1st proviso of section 143(1) of the Act, but proceeded with the case on merits and also confirmed the addition made by the CPC. The ld. NFAC is thus erred in conducting the faceless appeal proceedings in a more mechanical manner without application of mind. We, therefore, hereby quash the intimation issued by the CPC and allow the appeal filed by the assessee”.
8. In the instant case also, the adjustment has been made by the ld. Assessing Officer, CPC to the income of the assessee without even giving any intimation in terms of proviso to section 143(1)(a) of the Act and, therefore, the said order is quashed as invalid and nullity in the eyes of law. In the result, the additional ground is allowed.
9. In ground no. 1 to 5 as per memorandum of appeal filed by the assessee has challenged the impugned order passed by the ld. CIT(A) on the ground that the ld. CIT(A) wrongly upheld the order of ld. AO wherein he has disallowed the exemption claimed u/s 11of the Act amounting to Rs. 7,45,35,949/- comprising capital expenditure of Rs. 1,85,37,546/- and revenue expenditure of Rs. 4,68,18,969/-incurred during the year for charitable purposes of the trust and also raised 91,79,434/-being exemption u/s 11(1)(a) of the Act by ignoring the fact that the assessee has filed the return of income and Form 10B on time whereas the ld. assessing officer has held that the income tax return and form 10B were filed late.
10. On this context, the ld. AR vehemently argued that return of income as well as Form 10B was filed in time. As due to COVID pandemic outbreak in the country, the Hon’ble Apex Court vide its order dated 10.01.2022 extended the period of limitation for filing the return of income from 15.03.2020 to 28.02.2022 and the said period is to be excluded for computing the period of limitation. The ld. A.R. stated that the return of income filed on 30.03.2021, which was within the limitation period and so that the Form 10B was filed on 30.03.2021.The ld. A.R. also referred to the Board Circular F. No. 173/193/2019-ITA-I dated 23rd April, 2019 and submitted that the said Circular was issued by the Department before setting off COVID 19 pandemic, which states that how the delay in filing Form 10B for A.Ys. 2016-17, 2017-18 and 2018-19 has to be dealt with. The ld. A.R. submitted that on the basis of such Circular issued by the Department, the Hon’ble Apex Court has passed its judgment dated 10.01.2022, wherein it has been held that the order dated 23.03.2020 is restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings.The ld. A.R. submitted that since the assessee has filed the return of income on 31.03.2021 and Form 10B on 30.03.2021, the delay is covered by the said order of the Hon’ble Supreme Court and, therefore, this return of income as well as Form 10B are to be treated as filed well within time.
11. The ld. departmental representative on the other hand relied on the order of authorities below.
12. After hearing the rival contentions and perusing the material available on record, we find that admittedly the return of income was filed in Form 7 and Form 10B on 31.03.2021 and 30.03.2021 while the extended due date for filing the return of income in relevant assessment year was 15.02.2021.We note that the COVID 19 pandemic was spread all over the country and the entire country rather the entire globe were completely brought to standstill. And so was the condition so far as the assessee trust is concerned. So considering all these practical difficulties for making compliances, Hon’ble Apex Court has extended the period of limitation with respect to judicial or quasi-judicial proceedings. The Hon’ble Apex Court vide its order dated 10.01.2022 held as under:-
“The order dated 23.03.2020 is restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi judicial proceedings.
Consequently, the balance period of limitation remaining as on 03.10.2021, if any, shall become available with effect from 01.03.2022”.
In our opinion, considering the said decision of the Hon’ble Supreme Court, there is no delay in filing the return of income as well as Form 10B and, therefore, the order of the ld. CIT(Appeals) upholding the order of ld. Assessing Officer, wherein the exemption claimed under section 11 of the Act by the assessee-Trust has been rejected resulting into disallowance of capital expenditure of Rs.1,85,37,546/-, revenue expenditure of Rs.4,68,18,969/- and also statutory exemption of Rs. 91,79,434/- exemption of 15% of total receipts u/s 11(1)(a) which is incorrect and against the ratio laid down by the Hon’ble Supreme Court. Accordingly we set aside the order of ld. CIT(Appeals) on this issue and direct the AO allow the exemption claimed u/s 11 of the Act. Ground No. 1 to 5 are allowed.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 02.02.2024.
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