Kourava Education Society, Haveri, Hirekerur V. Income Tax Officer, Exemption Ward 1, Navanagar, Hubbali

ITA 631/BANG/2023

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0350 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 29-10-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 25-08-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANKETH S. NAYAK
• Section: 12; 11; 142(1); 12A; 250; 143(2); 10(23C)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC - C” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT ITA No.631/Bang/2023 Assessment Year : 2016-17 M/s. Kourava Education Society, Prop : M/s. Kaligal Poultry ServHirekerur, Tq Hirekerur, Dt. Haveri, Kirekerur, Karnataka – 581 111. PAN : AACAK 6907 B Vs.ITO, Exemption Ward 1, Navanagar, Hubbali. APPELLANTRESPONDENT Assessee by:Shri. Sanketh S. Nayak, CA Revenue by :Shri.Ganesh R Ghale, Advocate, Standing Counsel for Revenue. Date of hearing:30.10.2023 Date of Pronouncement:31.10.2023 O R D E R This appeal at the instance of the assessee is directed against CIT(A)’s order dated 30.06.2023, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17. 2. Brief facts of the case are as follows: Assessee is a society registered under the Karnataka Societies Registration Act, 1960. Assessee is running educational institutions. For the Assessment Year 2016-17, the return of income was filed declaring loss of Rs.1,04,601/-. The return of income was selected for scrutiny and notice under section 143(2) of the Act was issued on 04.09.2018. During the course of assessment proceedings, assessee was asked to explain the various credits in its bank account and also vouchers / bills for the expenses claimed. In response to the notice issued under section 142(1) of ITA No.631/Bang/2023 Page 2 of 7 the Act, assessee filed a letter dated 19.12.2018 wherein the details of the receipts were given. The assessee also in the said letter contended that it was running educational institution solely existing for educational purpose and the aggregate annual receipt of such institution do not exceed Rs.1 Crore. Therefore, it was contended that it was entitled to the benefit of section 10(23C)(iiiad) of the Act. The assessee also contended before the AO that it is registered under section 12A of the Act on 31.03.2018 and since the assessment was pending, assessee is entitled to registration for Assessment Year preceding to the aforesaid Assessment Year in which the registration has been granted under section 12A of the Act. The AO, however, rejected the contention of the assessee by observing as under: “5. The assessee's reply is not acceptable for the following reasons: 1)The assessee has not filed the return of income for the A.Y.2016-17 in time, the assessee has filed the return after expiry due date. 2)The assessee has filed application in Form No. 10A seeking registration u/s.12A on 18.3.2018. 3)The society as non-profit company was constituted on 16.10.2017 by the trust deed/memorandum of association, 4)The 12A is granted registration with salient activities as Education, Medical Relief, Advancement of any other object of general public utility and the provision of sections 11 and 12 shall apply in the case from the Assessment Year 2018-19.” 3. Thereafter, the AO made an overall addition of Rs.13,53,258/- to the return of income. The addition / disallowance made are detailed below: i. Unsecured loans by the committee members - Rs.11,51,399/- ii.The difference of amount paid to M/s. Jipsey - Rs.21,000/- iii.Difference in payment to M/s. Shivaraj Offset Printers – Rs.94,200/- iv.Disallowance of expenditure (50% of the amount claimed) under the head ‘building repairs and maintenance’ - Rs.77,500/- ITA No.631/Bang/2023 Page 3 of 7 v.Difference in interest expenditure on vehicle loans – Rs.9,159/- 4. Aggrieved, assessee filed the appeal before the First Appellate Authority. Before the First Appellate Authority, it was contended that the AO has erred in making addition of Rs.11,51,399/- of unsecured loan from the committee members, since committee members had given confirmation letters. Further, it was contended that AO has erred in making addition beyond the scope of limited scrutiny. It was also contended that the AO has erred in the ignoring the contention of the assessee that it is entitled to exemption under section 10(23C)(iiiad) of the Act. It was submitted that the AO has not considered the applicability of proviso to section 12A of the Act. The CIT(A), however, rejected the contentions raised by the assessee and dismissed the appeal. 5. Aggrieved, the assessee has filed the present appeal before the Tribunal. Assessee had initially e-filed the appeal. However, later, assessee submitted the physical copies of the Appeal set. The assessee has also filed a Paper Book enclosing therein acknowledgement for having filed the return of income for Assessment Year 2016-17, financial statement for the year ending 31.03.2016, certification of registration of the society, certificate of registration under section 12AA of the Act, confirmation of unsecured loans from the committee members, etc. The learned Counsel for the assessee reiterated the submissions that assessee is running educational institution which is existing not for the purpose of profit and the aggregate annual receipt of such educational institution being lesser than the amount prescribed as per Rule 2(b)(c) of the Income Tax Rules, 1962, the assessee is entitled to the benefit of section 10(23C)(iiiad) of the Act. Assessee took us through the financial statements and submitted that the annual receipts for the year ending 31.03.2016 is only Rs.40,86,461/-. It was therefore contended that considering the provisions of the Act and the Rules, the assessee ought to be allowed exemption under section 10(23)(iiiad) of the Act. It was submitted that ITA No.631/Bang/2023 Page 4 of 7 the request for allowing exemption under section 10(23)(iiiad) of the Act was made by the AO in its letter 18.12.2018 and the same request was made to the CIT(A). However, neither the AO nor the CIT(A) has considered the exemption under section 10(23)(iiiad) of the Act. 6. The learned Standing Counsel submitted that the reason for the AO to not to consider the benefit of exemption under section 10(23)(iiiad) of the Act was that assessee did not file the return of income within the time prescribed under section 139(4C)(e) of the Act. Therefore, the AO and the CIT(A) was justified in not entertaining the claim of exemption under section 10(23)(iiiad) of the Act. 7. In reply to the above contention raised by the Standing Counsel for the Department, the learned Counsel for the assessee submitted that section 10(23C) of the Act was amended by Finance Act, 2022, w.e.f. 01.04.2023 wherein there was specific reference to disallowance to claim made under section 10(23C) of the Act, if the return of income was not filed within the time allowed under section 139(4C) of the Act. It was submitted that prior to such amendment, the mere reason for belated filing cannot be a ground for denying the exemption under section 10(23C) of the Act. The learned AR, in support of his contention, relied on the order of the Bangalore Bench of the Tribunal in the case Kenchappa Samajika Shikshana Foundation Vs. ACIT in ITA No.1974/Bang/2018 (order dated 10.08.2018). 8. I have heard the rival submissions and perused the material on record. Section 10(23C(iiiad) of the Act states as follows: "any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or other educational institution do not exceed the amount of annual receipts as may be prescribed" ITA No.631/Bang/2023 Page 5 of 7 9. For the relevant Assessment Year, as per Rule 2(b)(c) of the Rules, for claiming benefit of section 10(23C)(iiiad) of the Act, the annual receipt of assessee ought to be less than Rs.1 Crore. Assessee is a society registered under the Karnataka Societies Act, 1960, w.e.f. 16.10.2007. It is claimed that assessee is existing solely for educational purposes and not for the purpose of profit. On perusal of the financial statements placed on record, it is clear that the annual receipt for the Financial Year relevant to the Assessment Year 2016-17 is only Rs.40,86,461/-. There is no separate application that is required for getting the benefit of exemption under section 10(23C(iiiad) of the Act. Considering the provisions of the Act, the assessee, prima facie, ought to be allowed the benefit of section 10(23C)(iiiad) of the Act. The request for exemption under section 10(23C)(iiiad) of the Act was made before the AO as well as the CIT(A). The AO had stated that the assessee had not filed the return of income within the due date prescribed. The CIT(A) has not adjudicated the issue in correct perspective. As rightly pointed out by the learned AR, section 10(23C) of the Act has been amended by Finance Act, 2022, w.e.f. 01.04.2023, wherein there is a specific reference to disallowance to the claim made under section 10(23C) of the Act if the return was not filed within the time allowed under section 139(4C) of the Act. We are concerned with the Assessment Year 2016-17 and therefore the amendment will not have an application. Even otherwise, the amended section w.e.f. 01.04.2023 does not refer to section 10(23C)(iiiad) of the Act. The Bangalore Bench of the Tribunal in the case of Kenchappa Samajika Shikshana Foundation Vs. ACIT (supra) had held as follows: “8. In the present case, the assessee filed return of income for the AY 2012- 13 validly on 04.12.2013 though it was a belated return in terms of Sec.139(1) of the Act. By reason of late filing of the return, the assessee does not loose exemption u/s. 10(23C)(iiiad) of the Act r.w.s. 139(4C) of the Act. I therefore hold that this reason assigned by the revenue authorities for denying the claim of exemption as made by the assessee is without any basis. (emphasis supplied) ITA No.631/Bang/2023 Page 6 of 7 9. As far as the other ground on which the revenue authorities rejected the claim of assessee is that the assessee’s objects are not solely for the purpose of education and it also contains other objects such as improving economic standard of the poor, promote good health for the people, etc. It is undisputed that the assessee was formed as a society. As far as the income in question is concerned, it is undisputed that the income arose solely from the activity of assessee running the educational institution. The exemption u/s. 10(23C)(iiiad) is qua the institution and not qua the assessee. Therefore, the fact that there are other objects other than education, cannot be the basis to deny the claim of assessee for exemption. As already stated, it is undisputed that the income claimed as exempt arose from institution providing education. That institution existed solely for the purpose of education and not for the purpose of profit during the relevant previous year. Therefore, the basis for rejecting the claim of assessee for exemption that its purpose was not solely for education cannot be sustained. For the reasons given above, I direct the AO to allow the exemption u/s. 10(23C)(iiiad) of the Act. 10. In the result, the appeal by the assessee is allowed.” 10. In view of the aforesaid reasoning, we direct the AO to consider the claim of exemption under section 10(23C)(iiiad) of the Act. Assessee shall produce the necessary proof to show that it is an educational institution existing solely for charitable purpose and not for profit. The assessee shall also furnish the necessary financials to prove that its annual receipts is far below the amount prescribed under Rule 2(b)(c) of the Rules. It is ordered accordingly. 11. In the result, appeal filed by the assessee is allowed for statistical purposes. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (LAXMI PRASAD SAHU) (GEORGE GEORGE K) Accountant Member Vice President Bangalore. Dated: 31.10.2023. /NS/* ITA No.631/Bang/2023 Page 7 of 7 Copy to: 1.Appellants2.Respondent 3.DRP4.CIT 5.CIT(A)6.DR, ITAT, Bangalore. 7. Guard file By order Assistant Registrar, ITAT, Bangalore.