2025 (6) TMI 1638 - AT - Income Tax

Disallowance of exemption u/s 10(25)(ii) - as per AO assessee was not eligible for said exemption under specified sub-sections of section 10 of the Act duly mentioned in ITRs - assessee filed applications u/s 154 which was rejected on the reasoning that there was neither a prima facie mistake apparent from the record as there was no claim of exemption u/s 10(25)(ii) of the Act in ITRs nor the assessee was a registered Trust or Institution u/s 12A of the Act. HELD THAT - We are of the considered view that the assessee s claim which is undisputedly admissible cannot be denied only on the reasoning that one of the columns of the ITR was wrongly filled up. This case is squarely covered by the decision of Delhi Policy Group 2023 (10) TMI 1238 - ITAT DELHI wherein the fact is that the said assessee a charitable trust registered under section 12A since 30-12-1993 failed to claim exemption under section 11 of the Act by mentioning its registration under section 12A/12AA of the Act in its ITR. Tribunal allowed the appeal holding that since the assessee did not seek registration or any fresh claim of benefit of exemption under section 12A/12AA of the Act in its rectification application u/s 154 of the Act instead it made a mere request to rectify inadvertent mistake which had crept in ITR filed by it online AO was not right in denying benefit of registration under section 12A of the Act. Appeals of the assessee are allowed.

Summary

The core legal questions considered in these appeals pertain to the eligibility and entitlement of the appellant assessee to claim exemption under section 10(25)(ii) of the Income Tax Act, 1961, despite procedural irregularities in the Income Tax Returns (ITRs) filed. Specifically, the issues include:

1. Whether the assessee was entitled to claim exemption under section 10(25)(ii) of the Act despite not explicitly claiming it in the correct column of the ITRs.

2. Whether the disallowance of exemption on the ground of non-registration under section 12A of the Act was justified.

3. Whether delay in filing appeals should be condoned in light of the circumstances.

4. The scope of appellate authority and the power of the Tribunal and Commissioner of Income Tax (Appeals) to entertain fresh claims or rectify omissions not made at the assessment stage.

5. The application of principles laid down by higher courts regarding the interpretation of tax appeals as administrative adjustments rather than adversarial litigation.

Issue-wise Detailed Analysis

1. Entitlement to exemption under section 10(25)(ii) despite procedural irregularities in ITR filing

The relevant legal framework includes section 10(25)(ii) of the Income Tax Act, which exempts income of a provident fund trust recognized under Rule 3(1) of Part A of the Fourth Schedule. The assessee claimed exemption under section 10 generally in the ITRs but erroneously filled the breakup of exemption in Column 14 instead of Column 16 of Part B - TI Statement of Income. The Assessing Officer (AO) disallowed exemption on the ground that the claim was not properly made in the ITRs.

The Tribunal noted that the assessee had been recognized as a provident fund trust since 1984 and had consistently been allowed exemption under section 10(25)(ii) in preceding and subsequent years. The Tribunal emphasized that a mere clerical or prima facie mistake in filling out the ITR should not defeat the substantive right of the assessee to claim exemption. The Tribunal relied on the principle that the intent of the Act and the substantive rights of the assessee must prevail over procedural technicalities.

Relevant precedents cited include decisions where the Tribunal and High Courts have held that the power of the appellate authorities is to arrive at the correct taxable income and not to be confined by strict procedural formalities. The case of Delhi Policy Group (reg.) was particularly relied upon, where a similar omission in the ITR did not disentitle the assessee from claiming exemption once registration was established.

The Tribunal also referred to CBDT Circular No. 14 - XZ (35) dated 11/04/1955, which directs officers not to take advantage of the ignorance of the assessee and to assist taxpayers, reinforcing the principle that procedural mistakes should not override substantive rights.

Thus, the Tribunal applied the law to the facts, concluding that the assessee's entitlement to exemption under section 10(25)(ii) could not be denied solely because of an incorrect column entry in the ITR.

2. Non-registration under section 12A and its impact on exemption claim

The AO and CIT(A) rejected the exemption claim partly on the ground that the assessee was not a registered trust or institution under section 12A of the Act. However, the Tribunal observed that section 10(25)(ii) exemption for provident fund trusts is distinct and does not mandatorily require registration under section 12A. The assessee was recognized as a provident fund trust under Rule 3(1) of Part A of the Fourth Schedule since 1984, which sufficed for claiming exemption under section 10(25)(ii).

The Tribunal noted that the CIT(A) failed to consider relevant case laws and the directions of the Tribunal in its earlier remand order, which had emphasized examining the claim afresh in accordance with law and judicial precedents. The Tribunal reiterated that the exemption under section 10(25)(ii) is independent of section 12A registration and the rejection on this ground was not sustainable.

3. Condonation of delay in filing appeals

The appeals were filed with a delay of 68 days. The assessee explained that the delay was due to initial advice to file rectification applications before the CIT(A) rather than appeals, and the appeals were filed only after that advice changed. The Revenue opposed condonation citing lack of sufficient cause.

The Tribunal applied the principles laid down by the Supreme Court in Collector, Land Acquisition, Anantnag vs. Mst. Katiji and N. Balakrishnan vs. M. Krishnamurthy, emphasizing the elastic and liberal approach to condoning delay to promote substantial justice. It was held that there was no mala fide or deliberate delay and no prejudice to the Revenue. The Tribunal accordingly condoned the delay under section 253(5) of the Act, admitting the appeals for adjudication on merits.

4. Scope of appellate authority to entertain fresh claims and rectify omissions

The Tribunal relied heavily on the Supreme Court decision in Goetze (India) Ltd., which held that the appellate authority under section 254 of the Act has plenary jurisdiction to entertain points of law for the first time, provided the facts supporting the issue are on record. The appellate process in tax matters is not adversarial litigation but an administrative adjustment of tax liability.

The Tribunal also cited the Madras High Court decision in Indian Express (Madurai) (P.) Ltd., which explained that the appellate authorities' function is to arrive at the correct taxable income and not to be confined by procedural omissions or the absence of claims in the original return. The appellate authority can entertain fresh claims or allow deductions to which the assessee is entitled, even if not claimed earlier.

The Tribunal noted that the CIT(A) had failed to consider these precedents and the directions of the Tribunal's earlier order, which had remanded the matter for fresh consideration in light of these principles.

5. Application of judicial principles and precedents to the factsThe Tribunal applied the above legal principles and precedents to the facts, concluding that the assessee's claim for exemption under section 10(25)(ii) was valid and should be allowed despite the procedural error in the ITRs. The Tribunal emphasized that the exemption had been allowed in earlier and later years and that the assessee was duly recognized as a provident fund trust under the relevant rules.

The Tribunal also rejected the Revenue's reliance on the non-registration under section 12A as a ground for denial, holding that such registration was not a prerequisite for exemption under section 10(25)(ii).

Furthermore, the Tribunal held that the delay in filing appeals was adequately explained and justified, and condoned the delay to enable adjudication on merits.

Finally, the Tribunal noted the duty of the Revenue to assist taxpayers and not to take advantage of technical mistakes, reinforcing the principle of substantial justice over procedural technicalities.

Significant Holdings

"The Tribunal has limited jurisdiction while processing the return under section 143(1) and can rectify only obvious and patent mistakes under section 154. However, the Commissioner of Income Tax (Appeals) has co-terminus powers with the Assessing Officer and is fully empowered to permit the assessee to entertain a fresh claim of deduction and to examine the validity of assessment and modify the assessment order for ends of substantial justice."

"A simple prima-facie mistake in filing a particular column of ITR should not go against the intent of the Act."

"The power of the Tribunal under section 254 is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The appellate authorities are not deciding a lis between two parties but are engaged in an administrative act of adjusting the taxpayer's liability."

"When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred."

"The Tribunal was justified in entertaining the additional ground raised by the assessee relating to a claim which was not raised either before the ITO or before the AAC."

"The Revenue must not take advantage of ignorance of an assessee as to his rights and it is one of their duties to assist a taxpayer which in the long run benefits the Department."

"The assessee's claim, which is undisputedly admissible, cannot be denied only on the reasoning that one of the columns of the ITR was wrongly filled up."

In conclusion, the Tribunal allowed the appeals, directing that exemption under section 10(25)(ii) of the Income Tax Act be granted for the assessment years in question, and granted consequential relief to the assessee.