2025 (6) TMI 632 - AT - Income Tax

Denial of exemption claimed u/s 10(23C)(iiiab) - AO on perusal of the ITR of the assessee noted that it had declared income from other sources and had claimed exemption u/s 10(23C)(iiiab) which was not allowed by the AO on the ground that the assessee had not filed its return of income in compliance to provision u/s 139(1)/139(4C)(e) of the Act which according to the AO was a mandatory condition for claiming the said exemption HELD THAT - There is no such mandate in the provisions of section 10(23C)(iiiab) and section 139(4C)(e) of the Act that filing of return u/s 139(4C)(e) of the Act by the assessee was a mandatory condition for claiming exemption u/s 10(23C)(iiiab) of the Act. We hold that the assessee is eligible for exemption u/s 10(23C)(iiiab) of the Act and the AO and the Ld. CIT(A) were not correct in not allowing the claim of exemption as claimed by the assessee. Therefore we delete this addition -Accordingly ground of assessee appeal are allowed.

Summary

The core legal questions considered by the Tribunal in this appeal primarily relate to the validity and legality of the reassessment proceedings under sections 147, 148, 144, and 144B of the Income Tax Act, 1961, and the entitlement of the appellant university to exemption under section 10(23C)(iiiab) of the Act for the Assessment Year (AY) 2018-19. Specifically, the issues include:

1. Whether the reopening of assessment under section 147 was valid, given the statutory conditions and the requirement of "information" suggesting escapement of income.

2. Whether the Assessing Officer (AO) had sufficient material or information to form a belief that income chargeable to tax had escaped assessment.

3. Whether the AO complied with the procedural requirements, including issuance of notice under section 148 and prior approval under section 151.

4. Whether the reassessment proceedings were vitiated by vague or insufficient information and lack of nexus between the information and the belief formed by the AO.

5. Whether the exemption claimed by the appellant university under section 10(23C)(iiiab) of the Act was rightly denied by the AO and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)) on the ground that the appellant had not filed its return of income under section 139(1) of the Act.

6. Whether filing of return of income under section 139(1) is a mandatory condition for claiming exemption under section 10(23C)(iiiab) and the correct interpretation of section 139(4C)(e) in this context.

7. Whether the principle of consistency applies, given that exemption was allowed for the subsequent AY 2019-20 under similar facts.

Issue-wise Detailed Analysis:

Validity of Reassessment Proceedings under Section 147 and Related Provisions

The appellant challenged the reopening of the assessment for AY 2018-19 under section 147, contending that the AO did not have any "information" as required by the first proviso to section 148 to justify issuance of notice for reopening. The appellant argued that the reassessment was initiated without compliance with statutory conditions and without any material supplied to it to form a belief that income had escaped assessment.

The AO relied on specific information flagged under the CBDT's Risk Management Strategy, indicating that the appellant university had not filed its return of income and had made substantial transactions aggregating over Rs. 82 crore during the relevant period. The AO issued a show cause notice under section 148A(b), to which the appellant did not respond, leading the AO to conclude that income had escaped assessment.

The Tribunal noted that grounds 1 to 6 challenging the reassessment proceedings became academic in view of the decision on exemption under section 10(23C)(iiiab). Thus, the Tribunal did not adjudicate these grounds in detail but implicitly accepted the procedural compliance by the AO, including issuance of notice under section 148 with prior approval under section 151.

Entitlement to Exemption under Section 10(23C)(iiiab) of the Income Tax Act

This was the pivotal issue in the appeal. The appellant claimed exemption of Rs. 25,47,64,090/- under section 10(23C)(iiiab), which exempts income received by a university or other educational institution existing solely for educational purposes and not for profit, and which is wholly or substantially financed by the Government.

The AO disallowed the exemption on the ground that the appellant had not filed its return of income under section 139(1), which, according to the AO, was a mandatory condition for claiming exemption under section 10(23C)(iiiab), relying on section 139(4C)(e). The CIT(A) confirmed this disallowance, relying on the decision of the ITAT Bangalore and the Orissa High Court in Stewart Science College vs ITO, as well as the Supreme Court decision in Commissioner of Customs (Import), Mumbai vs M/s Dilip Kumar and Company.

The appellant contested this interpretation, submitting that:

• There is no condition under section 10(23C)(iiiab) requiring filing of return of income under section 139(1) for claiming exemption.
• The 20th proviso to section 10(23C), which requires filing of return for claiming exemption, was inserted by the Finance Act, 2022, effective from AY 2023-24, and does not apply retrospectively to AY 2018-19.
• Section 139(4C)(e) does not mandate filing of return under section 139(1) as a condition for claiming exemption, but only requires filing of return if income without exemption exceeds the basic exemption limit.
• The appellant university fulfills the twin conditions of existing solely for educational purposes and being substantially financed by the Government, as evidenced by the Haryana and Punjab Agricultural University Act, 1970, and subsequent amendments.
• The exemption was allowed in the subsequent AY 2019-20 on similar facts, invoking the principle of consistency.

The Tribunal carefully examined the relevant statutory provisions and judicial precedents. It noted that:

• Section 10(23C)(iiiab) stipulates only two conditions for exemption: (i) the institution must exist solely for educational purposes and not for profit, and (ii) it must be wholly or substantially financed by the Government.
• The 20th proviso to section 10(23C) requiring filing of return was inserted w.e.f. 01.04.2023 and explicitly excludes sub-clause (iiiab), thus not applicable to the appellant for AY 2018-19.
• Section 139(4C)(e) requires filing of return only if total income without giving effect to exemption exceeds the basic exemption limit; it does not make filing of return under section 139(1) a precondition for claiming exemption.
• The appellant university was established by a State Act notified in the Gazette of India, with objects exclusively educational and not for profit, and is substantially financed by the Government, as certified by the Comptroller of the university.
• The AO did not bring any evidence to disprove the appellant's eligibility under the twin conditions.
• The principle of strict interpretation of exemption provisions was acknowledged, but the burden lies on the revenue to disprove the eligibility once the appellant meets the conditions.
• The decision of the Orissa High Court in Stewart Science College was considered in full context; it did not hold that filing of return under section 139(1) is mandatory for claiming exemption under section 10(23C)(iiiab).
• The Supreme Court decision in Dilip Kumar and Company emphasizes strict interpretation of exemption clauses but does not override the statutory scheme and facts establishing eligibility.
• There exists a specific provision under section 234F for penal consequences of late or non-filing of return, which is separate from entitlement to exemption.
• On similar facts, the AO had allowed the exemption for AY 2019-20, reinforcing the appellant's claim under the principle of consistency.

Applying the law to the facts, the Tribunal concluded that the appellant university was eligible for exemption under section 10(23C)(iiiab) for AY 2018-19, and the denial of exemption by the AO and CIT(A) was incorrect.

Significant Holdings

The Tribunal held:

"We have carefully considered the above provisions and are of considered view that filing of return of income by the assessee for claiming exemption u/s 10(23C)(iiiab) is not mandatory. We agree with the submissions of the assessee that for claiming exemption u/s 10(23C)(iiiab) of the Act only two conditions are required i.e. the university or the other educational institution should exist solely for education purposes and not for purposes of profit, and the second, the university or other educational institution is wholly or substantially financed by the Government and in the case of the assessee both the above conditions are satisfied..."

"The 20th proviso to section 10(23C) clears the aspect that prior to its insertion, there is no condition/requirement under section 10(23C) which mandates filing of return of income. Moreover, the said proviso is not applicable to the facts of the present case."

"Section 139(4C)(e) simply says about filing of return in prescribed form. It nowhere mentioned filing return of income u/s 139(1) as a condition for claiming exemption u/s 10(23C)(iiiab) of the Act."

"The AO and the Ld. CIT(A) were not correct in not allowing the claim of exemption of Rs. 25,47,64,090/- as claimed by the assessee. Therefore, we delete this addition of Rs. 25,47,64,090/-."

"There is a specific provision u/s 234F of the Act for the consequences for not filing of return in the case of an assessee, which is required to file its return of income as per the provision of section 139 of the Act."

"On similar facts, in the case of the assessee, the assessment for 2019-20 was reopened and the exemption was allowed, and no adverse inference was drawn."

"Therefore, the decision of the Dilip Kumar and Company & Ors. as relied by the ld. CIT(A) will not be applicable to the facts of this case."

"In view of the above facts and discussion, we hold that the assessee is eligible for exemption u/s 10(23C)(iiiab) of the Act."

Accordingly, the Tribunal allowed the appeal on grounds relating to exemption (grounds 7 to 12) and held the other grounds (1 to 6) relating to reassessment proceedings as academic.