2025 (5) TMI 513 - AT - Income Tax

D enial of exemption u/s. 10 - Assessee have not filed the return of income within the due date as stipulated u/s. 139(1) - AO noted that since the assessee is registered u/s. 12AA of the Act w.e.f. 19.02.2019 the benefit of 10(23C(iiiad) cannot be given and thereby the he disallowed the claim of income not chargeable to tax u/s. 10 was denied - HELD THAT - As decided by AM and JM order law as applicable to the assessee says that if the receipt exceeds Rupee one crore and income after giving effect to the provision of section 10(23C(iiiad) the income exceeds the maximum amount which is not chargeable to tax then the present assessee has to file the ITR for the year under consideration. We are of the considered opinion that the ld.CIT(A) has erred in confirming the denial of exemption u/s. 10(23C)(iiiad) of the Act to the assessee for the impugned assessment year and hence we are setting aside the order of the ld. CIT(A) by allowing the ground no 2 raised by the assessee. Further order of JUDICIAL MEMBER - Eligibility for exemption sub- clause (iiiad) of clause (23C) of section 10 - Assessee-appellant has contended that the assessee was not required to file any income tax return relating to the any of the two assessment years as the assessee had entered into agreement with the Government for upgradation of Government Industrial Trading Institute Jhalawar under Public Private Partnership Scheme; that certain funds were assigned by the Central Government to the assessee by way of interest free loan to achieve the targets of the abovesaid scheme. The assessee got the free loan amount deposited by way of fixed deposit receipt and utilized the amount of interest that accrued on the said amount to achieve its objects - HELD THAT - Sub-clause (iiiad) of clause (23C) of section 10 of the Act as in force during relevant period provided that in computing the total income of previous year of any person any income falling in the said clause shall not be included where the aggregate annual receipt of any university or other educational institution existing solely for educational purpose and not for purpose of profit did not exceed the limit of Rs. 1 Cr. Was the assessee required to file Return of Income under any provision other than under section 148? - Sub-section (4C) further provides that all the provisions of this Act shall so far as may be apply as if such return were a return required to be furnished under sub-section (1). Significantly sub-section (1) of Section 139 provides that a return of income during previous year is to be furnished on or before the due date. Herein nothing has been brought to our notice from the side of the department that the total income of the assessee-appellant (without giving effect to the provisions of section 10) exceeded the maximum amount not chargeable to income tax.In this situation there is merit in the contention raised on behalf of the assessee-appellant that the assessee was not required to furnish a return of income either u/s 139(1) or section 139(4C) of the Act. Was there any Time limit prescribed under the Act for filing of Return of Income under section 148 during the relevant Assessment Years? - Notices u/s 148 of the Act were issued on 24.03.2021. As per contents of these notices Returns of Income were required to be filed within 30 days from the date of service thereof. These were filed on 23.04.2021. This shows that the assessee complied with the directions issued by the AO. 3rd proviso came to be inserted in section 148 of the Act to the effect that any returns of income required to be furnished by the assessee under this section if furnished beyond the period allowed shall not be deemed to be a return u/s 139 of the Act. It was only w.e.f. 01.04.2023 that said proviso came to be inserted. Hence said proviso was not there at the relevant time. As per amended provisions of Section 148 of the Act provisions of this Act shall apply to the return so furnished as if the same were a return required to be furnished u/s 139 of the Act. The time period of 3 months for furnishing of a return u/s 148 of the Act came to be prescribed only vide amendment by Finance Act 2023 w.e.f 01.04.2023. Prior to this amendment the return when presented was to be treated as a return as required to be furnished u/s 139 of the Act. In the given situation as per the law in force at the relevant time the Assessing Officer should have treated said 2 returns of income to have been furnished under section 139 of the Act. In other words the 2 returns of income were valid and could not be termed to be invalid in the eyes of law. Conclusion - Authorities below were not justified in treating the returns as invalid returns on the ground that the same were not filed within time prescribed u/s 139(1) of the Act. Consequently the authorities below also fell in error in disallowing the claims of the assessee seeking exemptions u/s 10 of the Act. Assessee appeal allowed.

Summary

The core legal questions considered by the Tribunal in these appeals pertain to the validity and legality of reopening assessments under sections 147/148 read with section 144B of the Income Tax Act, 1961 ("the Act"), the entitlement of the assessee to exemption under section 10(23C)(iiiad) of the Act despite delayed filing of returns, and the consequent levy of interest under sections 234A, 234B, and 234C. The issues are framed primarily around:

1. Whether the notices issued under sections 147/148 and the consequent assessment orders are valid, legal, and within jurisdiction, considering the requirements of prior approval under section 151 and limitation periods.

2. Whether the assessee is entitled to claim exemption under section 10(23C)(iiiad) for the income earned, despite not filing the return of income within the due date prescribed under section 139(1) of the Act.

3. Whether the interest charged under sections 234A, 234B, and 234C is justified.

4. Ancillary issues relating to the applicability of procedural provisions such as section 292B and the treatment of returns filed under section 148 as valid returns under section 139(1).

Issue-wise Detailed Analysis

1. Validity and Jurisdiction of Reopening under Sections 147/148

Legal Framework and Precedents: Section 147 empowers the Assessing Officer (AO) to reassess income if there is "reason to believe" that income chargeable to tax has escaped assessment. Section 148 mandates issuance of notice prior to reassessment. Section 151 requires prior approval of competent authority before issuing such notice. The "reason to believe" must be based on concrete material and not mere suspicion or change of opinion. Judicial precedents such as Gangasharan & Sons Pvt. Ltd., ITO v. Lakhmani Mewal Das, Mukesh Modi & Ors. v. DCIT, and CIT vs. Shri Ram Singh emphasize that reopening must be based on valid, plausible reasons and that AO cannot make additions unrelated to the reasons recorded for reopening.

Court's Interpretation and Reasoning: The AO issued notices under section 148 on the basis that the assessee had received interest income but had not filed returns for the relevant years, leading to a "reason to believe" that income had escaped assessment. However, the AO did not make any addition on the ground of escapement of the interest income for which the notice was issued, but rather disallowed exemption under section 10(23C)(iiiad) due to delayed filing of returns. The Tribunal, relying on precedents such as CIT vs. Jet Airways, Ranbaxy Laboratories Ltd. vs. CIT, and others, held that if the AO does not make any addition on the income for which the reasons were recorded, he cannot make additions on unrelated grounds without issuing a fresh notice. The reopening was thus held to be invalid on this ground.

Key Evidence and Findings: The reasons recorded for reopening related to non-filing of return despite receipt of interest income. The AO did not add the interest income itself but denied exemption due to procedural non-compliance. The Tribunal found this approach impermissible.

Application of Law to Facts: The reopening was based on a reason that income escaped assessment, but no addition was made on that basis. Instead, exemption denial was made on procedural grounds unrelated to the reason recorded. This was held to be contrary to settled law.

Treatment of Competing Arguments: The Revenue argued that the reopening was justified due to non-filing of returns and that exemption was rightly denied. The Tribunal rejected this, emphasizing that reopening must be confined to the income and reasons recorded.

Conclusion: The reopening of assessment was held to be without jurisdiction and invalid, rendering the assessment orders void-ab-initio on this ground.

2. Entitlement to Exemption under Section 10(23C)(iiiad) despite Delayed Filing of Return

Legal Framework and Precedents: Section 10(23C)(iiiad) exempts income of any university or educational institution existing solely for educational purposes and not for profit, subject to aggregate annual receipts not exceeding prescribed limits. Section 139(4C) requires such institutions to file returns if total income (without giving effect to section 10) exceeds the maximum non-taxable amount, applying provisions of section 139(1) "so far as may be." Amendments effective from AY 2018-19 clarify that returns must be filed within due dates under section 139(1) for exemption under section 12A. However, for the assessment years under consideration (2013-14 and 2014-15), such amendments were not applicable. Judicial precedents including CIT v. Children's Education Society, Jat Education Society v. Dy. CIT, CIT (Exemptions) v. Smt. Shanti Devi Educational Trust, and Pawan Hans Swami Uma Bharti Mission v. ACIT establish that exemption under section 10(23C)(iiiad) is not contingent on filing return within due date, especially prior to the amendment.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee is a registered educational institution under section 12AA and falls within the ambit of section 10(23C)(iiiad). The AO denied exemption solely on the ground of delayed filing of returns under section 139(1). The Tribunal held that for the relevant years, there was no statutory bar on claiming exemption for delayed filing. The returns filed under section 148 in response to notices were valid returns and should be treated as returns under section 139(1) as per law then in force. The Tribunal relied on decisions such as United Educational Society v. JCIT (ITAT Delhi) and others, which held that procedural defaults in filing returns should not lead to denial of substantive exemption if otherwise entitled.

Key Evidence and Findings: The assessee filed returns in response to notices under section 148, claiming exemption under section 10(23C)(iiiad). The AO and CIT(A) denied exemption due to delay. The Tribunal found that the exemption was rightly claimed and that the procedural delay did not disentitle the assessee.

Application of Law to Facts: The Tribunal applied the law as it stood for the assessment years in question, holding that the exemption under section 10(23C)(iiiad) does not mandate filing of return within due date as a condition precedent. The returns filed under section 148 were valid and the denial of exemption was erroneous.

Treatment of Competing Arguments: The Revenue contended that exemption is conditional on timely filing of returns. The Tribunal rejected this, noting the legislative intent and judicial precedents that the condition was introduced only prospectively from AY 2018-19.

Conclusion: The Tribunal allowed the exemption claimed under section 10(23C)(iiiad) and set aside the disallowance.

3. Levy of Interest under Sections 234A, 234B, and 234C

The issue of interest charged by the AO was raised but was consequential to the denial of exemption and validity of assessment. Since the Tribunal allowed the exemption and quashed the assessment orders on substantive grounds, the levy of interest became consequential and was accordingly set aside.

4. Applicability of Section 292B and Treatment of Procedural Defaults

The Tribunal noted that section 292B, which allows rectification of certain errors, cannot be invoked to cure foundational or jurisdictional defects such as invalid reopening. The procedural default of delayed filing of return under section 139(1) was not a ground to deny exemption for the years under consideration. The Tribunal relied on precedents including CIT v. Hardeodas Agarwalla Trust and CIT v. Lucknow Public Educational Society, which held that procedural requirements should not defeat substantive rights if rectification is possible within the assessment proceedings.

Significant Holdings

"No such deduction shall be allowed to him unless he furnishes a return of its income for such assessment year on or before the due date specified under section (1) of Section 139" - held not applicable retrospectively for the assessment years under consideration.

"If the Assessing Officer does not make any addition on the primary ground on the basis of which proceedings under Section 147 were initiated, he cannot make other additions."

"Returns filed under section 148 in response to notice are to be treated as returns under section 139(1) as per law in force at the relevant time."

"The reopening of assessment must be based on concrete reasons to believe and not mere suspicion or change of opinion."

"Procedural defaults such as delayed filing of return should not lead to denial of exemption if otherwise entitled and if rectification is possible within assessment proceedings."

"The provisions of section 292B do not cure jurisdictional defects such as invalid reopening."

Final Determinations

The Tribunal allowed the appeals for both assessment years 2013-14 and 2014-15. It quashed the reopening of assessment on the ground that the AO did not make any addition on the income for which reasons were recorded and improperly denied exemption under section 10(23C)(iiiad) on the ground of delayed filing of return. The returns filed under section 148 were held to be valid returns under section 139(1) for the relevant years. Consequently, the exemption was restored, and the levy of interest was set aside as consequential. Grounds relating to jurisdictional validity of notices and procedural defaults were also decided in favour of the assessee, rendering the assessment orders void-ab-initio and unsustainable. The Tribunal's decision aligns with the principle that substantive rights of educational institutions to exemption cannot be defeated by procedural lapses, especially when legislative amendments imposing such conditions were not applicable to the years in question.