THE AUTOMOTIVE RESEARCH ASSOCIATION OF INDIA,KOTHRUD V. DCIT(EXEMPTION), CIRCLE-PUNE, PUNE

ITA 1434/PUN/2025

AI Insights

The case involves the Automotive Research Association of India (ARAI), a registered society, appealing against the order of the Commissioner of Income Tax (Appeals) which confirmed the denial of exemption under section 10(21) of the Income Tax Act, 1961. The exemption was initially denied by the Assessing Officer (AO) due to the assessee's failure to provide an explanation for the unutilized amount over and above the form 10 during the assessment proceedings. The CIT(A) upheld the AO's decision, leading to the appeal. The Tribunal found that the lower authorities had not adequately considered the assessee's submissions, leading to a decision to remand the case back to the JAO for a fresh assessment.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 837338 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Appeal Filed On: 30-05-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT BOBDE
• Assessee Lawyers: KISHOR B. PHADKE
• Keywords: Opportunity of being heard; Reasonable cause; Corroborative evidences; Depreciation; Capital expenditure; Principle of natural justice
• Section: 143(3); 142(1); 12A; 10B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL PUNE “B” BENCH : PUNE BEFORE DR. MANISH BORAD, ACCOUNTANT MEMBER & Ms. ASTHA CHANDRA, JUDICIAL MEMBER I.T.A.No.1434/PUN/2025 (Assessment Year 2018-2019) The Automotive Research Association of India, S.No. 102, Vetal Hill, Off Paud Road, P.O. Box No. 832, Kothrud, Pune PAN : AAATT 1989 P vs. Income Tax Department, National Faceless Appeal Centre (NFAC)/CIT(A), Delhi. (Appellant) (Respondent) For Assessee : Shri Kishor B. Phadke, CA For Revenue : Shri Amit Bobde, CIT Date of Hearing : 12.01.2026 Date of Pronouncement : 19.02.2026 ORDER PER : MANISH BORAD, AM This appeal at the instance of the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] dated 07/05/2025 passed under section 250 of the Income Tax Act, 1961 (“Act”) which is arising out of assessment order dated 02.03.2021 passed u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the Act for the Assessment Year (AY) 2018-19. Printed from counselvise.com 2 ITA.No.1434/PUN./2025 (The Automotive Research Association of India) 2. The assessee has raised the following grunds of appeal:- “1. The learned CIT(A), NFAC (hereinafter called as learned CIT(A)) erred in law and on facts in confirming the denial of exemption u/s 10(21) of the Income Tax Act, 1961 made by the learned Assessing officer and thereby determining the taxable income at Rs. 46,75,17,834/- as against returned income of Rs. NIL. 2. The learned CIT(A) erred in law and on facts in confirming order passed by learned AO and denying appellant's eligible exemption u/s 10(21) only for the reason that, during course of assessment proceedings, appellant failed to offer an explanation to show cause notice asking to justify \"why unutilized amount over and above the form 10 ought not to be taxed\", without considering appellant's detailed ground wise submission dated 29/01/2024 filed before learned CIT(A). 3. The Learned CIT(A) erred in law and on facts in passing a non-speaking and cryptic order without considering the appellant's detailed ground-wise written submission dated 29/01/2024 along with supporting documents and without giving any reasoned finding for rejecting the specific grounds raised in the appeal, thereby violating the mandatory requirements of Section 250(6) of the Income-tax Act, 1961. Appellant contends that, non- adherence of provisions of section 250(6) constitutes a breach of the principles of natural justice and renders the order passed u/s 250 arbitrary and legally unsustainable. 4. The Learned CIT(A) erred in law and on facts in passing a non-speaking order confirming order passed by learned AO without considering a specific request to grant hearing through video conferencing and thereby, violating principle of natural justice rendering order passed u/s 250 bad in law. 5. Learned IT authorities erred in law and on facts in denying appellant's eligible exemption u/s 10(21) without appreciating fact that, an assessment order under section 143(3) r.w.s 143(3A) & (3B) of ITA, 1961 is bad in law as the same was passed without adhering to the mandatory procedures laid down such as \"issuance of Show-Cause- Notice\" or \"issuance of draft order before passing of final order\", etc. Learned CIT(A) ought to have appreciated that, non-observance of due procedures, specified as such in E-Assessment Scheme 2019 leads to a formation of fatal error in assessment proceedings, leading the same as bad in law. 6. The Learned CIT(A) erred in law and on facts in passing a non-speaking order without appreciating fact that, appellant was not given adequate opportunity of being heard before the learned AO, despite there being ample available time to frame assessment order and thereby, violating the principles of natural justice. Printed from counselvise.com 3 ITA.No.1434/PUN./2025 (The Automotive Research Association of India) 7. The Learned CIT(A) erred in law and on facts in denying exemption to tune of Rs. 46,75,17,834 u/s 10(21) without appreciating fact that, entire income of appellant is exempt from tax if 85% of total income is applied or accumulated for the objects. Learned IT authorities ought to have appreciated that, as per the provisions of section 10(21) r.w.s 11(2), appellant is not mandated to file form 10 for unspent amount over and above 85% of total revenue. 8. The learned IT authorities erred in law and on facts in not granting opportunity to submit the revised Form 10 to the tune of alleged shortfall in accordance with alleged computation of learned AO. 9. Appellant craves leave to add/alter/modify/amend/ delete all or any of the grounds of appeal.” 3. From perusal of the above grounds, we note that in ground No.3, assessee is pleading that impugned order is non-speaking and cryptic, as the same has been passed without considering the detailed ground-wise submissions filed by the assessee along supporting evidence. Though, learned counsel for the assessee contended that the appeal may be decided on merits, he however, raised no objection if the issues are restored to the file of Ld. Jurisdictional Assessing Officer (JAO) for necessary adjudication because the Ld.AO has not dealt with all the submissions filed by the assessee. 4. On the other hand, Ld. Departmental Representative (DR) supported the order of Ld. CIT(A). 5. We have heard rival contentions and perused the records placed before us. We observe that assessee is a trust and original return of income for A.Y. 2018-19 furnished on 08.10.2018 declaring NIL income. Return processed u/s. Printed from counselvise.com 4 ITA.No.1434/PUN./2025 (The Automotive Research Association of India) 143(3) of the Act on 19.03.2020. Thereafter, return of income selected for complete scrutiny followed by validly serving notices u/s. 143(2) and 142(1) of the Act. The assessee is a registered society registered under the Societies Registration Act and also an approved association u/s. 35(1)(ii) of the Act vide Notification No. 90 of 2007 dated 28.03.2007. The assessee is claiming exemption u/s. 10(21) of the Act. During the course of assessment proceedings, Ld.AO asked the assessee to explain how the amount of ₹ 46,75,17,834/- being unutilized amount over and above the amount of ₹ 55 crores accumulated as per Form 10 in support of creating of research and development facilities should not be brought to tax in view of the proviso to section 10(21) r.w.s. 11(2) of the Act. However, as per the Ld.AO the assessee failed to offer any explanation, as a result of which, income assessed at ₹101,75,17,834/-. Subsequently, assessee preferred appeal before the Ld.CIT(A), who dismissed the appeal observing that the assessee failed to offer any explanation in regard to the grounds of appeal raised in Form No.35 and accordingly confirmed the finding of Assessing Officer. 6. Before us, the assessee made reference to the statement of facts and provided chronology of events and filed various submissions before the Assessing Officer. For the sake of convenience, statement of facts are extracted below:- Printed from counselvise.com 5 ITA.No.1434/PUN./2025 (The Automotive Research Association of India) “1. The Automotive Research Association of India (i.e., hereinafter referred Appellant / ARAI) is a registered society under the Societies Registration Act, 1860. Assessee is a recognized association under the scheme of recognition of Scientific and Industrial Research Organizations by the Department of Scientific & Industrial Research (DSIR), Ministry of Science and Technology, Government of India. 2. Appellant is an association, recognized & approved by the Central Government vide Notification No. 90/2007, dated 28- 03-2007 for the purpose of section 35(1)(ii) of ITA, 1961. Accordingly, appellant is eligible for exemption 10(21) of ITA, 1961. 3. Appellant has been claiming exemption us/ 10(21) of ITA, 1961 for past many years. The appellant has been assessed to tax from time to time and for many years, and exemption has been granted to appellant from time to time. 4. The appellant had filed it's return of income for A.Y. 2018-19 on 08-10- 2018 declaring it's income at Rs. 'NIL' considering exemption of Rs. 1,01,75,18,000 u/s 10(21) of ITA, 1961. While filling return of income, appellant (on conservative basis despite there is no such requirement in ITA, 1961) has also submitted Form no 10 for accumulation of Rs. 55,00,00,000 as per section 11(2) of ITA, 1961. 5. Steps involved in computation of exemption u/s 10(21) and computation of taxable income, followed by appellant, are as follows – Steps Particulars Step-1 Consider entire receipts as appearing in I&E A/c as Revenue Step-2 Consider entire receipts received for specific purpose from government authorities appearing Balance-sheet as Revenue. Step-3 Compute 85% of total Revenue required for the purpose of application Step-4 Consider entire expenditure (except for depreciation) as appearing in I&E a/c as Application Step-5 Consider entire expenditure incurred out of specific expenditure as Application Step-6 Consider Capital Expenditure incurred as Application (after reducing the capital expenditure which is incurred out of past accumulation.) Step-7 Reduce such application from 85% of total revenue and the balance if any, to be Accumulated for future application for the purposes of appellant's objects as per provisions of section 10(21) of ITA, 1961 6. Appellant's total revenue in AY 2019-19 was Rs. 339.82 CR and Appellant's total application was Rs. 238.06 CR. Now, 15% Printed from counselvise.com 6 ITA.No.1434/PUN./2025 (The Automotive Research Association of India) of total revenue works out to Rs. 50.97 CR, which leads to a net taxable surplus of Rs. 50.78 CR (before accumulation). As against this required mandatory accumulation, ARAI has filed Form-10 for accumulating Rs. 55 CR on an ad-hoc basis. 7. Form No. 10 was duly filed for accumulation of Rs. 55 Cr. Further, the said accumulation of Rs. 55 CR was invested & kept in deposits with nationalized banks as per the provisions of section 11(2) of ITA, 1961. 8. In short, ARAI was carrying a belief that, all compliances requisite in section 11(2) and 11(3) are properly complied with. 9. Return of Income of appellant was selected for Complete Scrutiny assessment under E-assessment Scheme and accordingly, notice u/s 143(2) for the following issues were to be looked into; i. Accumulation of Income by Trust. ii. Exemption u/s 10. ii. Refund Claim. iv. Approval u/s 35. v. Form 10B Filing Compliance. 10. The appellant had received notice 142(1) dated 13/11/2020 for A.Υ. 2018-19 wherein, the appellant had been requested to submit the information & documents as mentioned in the said notice. 11. The appellant, vide letter dated 16/12/2020, had complied with, in detail, about the requirements specified in notice u/s 142(1). It is submitted, in the 142(1) Notice, about 30 questions were raised. In the reply dated 16/12/2020, all 30 questions were complied with and answers given. 12. In the said submission, appellant submitted, apart from other details, working of it's claim of exemption u/s 10(21) amounting to Rs. 101.75 Cr (i.e. Rs. 50.97 CR + Rs. 50.78 CR). 13. Appellant has also submitted the detailed computation of income for claiming exemption u/s 10(21) along with submitted Form 10 & resolution passed during governing council meeting. 14. Vide notice dated 11/02/2021 issued u/s 142(1), AO has stated that, ARAI is not registered u/s 12A and hence, provisions of section 11(2) are applicable subject to the extent and modification stipulated under section 10(21) of the ACT. As per further contention of learned AO, as per the provisions of section 10(21); the relevant provisions of section 11(1)(a) & (b) are not applicable. Accordingly, AO had asked to explain as to why, \"addition\" ought not to be made for unutilized amount of Rs. 46,75,17,834/- [and for which, Form 10 is not available]. Printed from counselvise.com 7 ITA.No.1434/PUN./2025 (The Automotive Research Association of India) As per the said notice, learned AO has asked to submit reply by 15/02/2021. 15. Unfortunately, the said notice dated 11/2/2021 remained overlooked by the concerned officials of Appellant. The said official carry a belief that, the learned AO's communique was delivered in SPAM box, and as such, remained to be noticed and replied. 16. Appellant's other officials, while checking e-filling portal for other purposes, on 01/03/2021, realized that, the notice dated 11/2/2021 remains present therein. As such, Appellant submitted adjournment application to make detailed submission immediately i.e. on the same dated i.e. 1/3/2021. 17. However, learned AO without considering the adjournment application and without granting any further opportunity of being heard, passed order u/s 143(3) of ITA, 1961 18. The learned AO while farming the assessment order made an addition to the tune of 46,75,17,834/- stating that, appellant failed to submit any reply to notice u/s 142(1) and accordingly raising demand amounting to Rs. 20,61,63,310/- 19. It is this order u/s 143(3) r.w.s 143(3A) & 143(3B) of ITA, 1961 which is subject matter of appeal.” Further, learned counsel for the assessee has submitted that a detailed ground-wise submissions dated 29.01.2024 has also been filed before the Ld.CIT(A) and copy of which is placed in paper book at page No. 66-74. 7. We have gone through the submissions and statement of facts filed by the assessee and observ that in spite of assessee having filed various details and submissions before both the lower authorities, the same have not been considered either by the Ld.AO as well as by Ld. CIT(A). This is a clear case of passing of non-speaking and cryptic order and not adhering to the principles of natural justice which the assessee deserves to have been granted. We, therefore, without dwelling upon the Printed from counselvise.com 8 ITA.No.1434/PUN./2025 (The Automotive Research Association of India) merits of the case, deem it appropriate to restore all the issues raised on merits in the instant appeal to the file of Ld. Jurisdictional Assessing Officer (JAO) for denovo adjudication after duly considering the contentions of the assessee and also being eligible for exemption u/s. 10(21) of the Act. Needless to mention that Ld. JAO shall afford a reasonable opportunity of being heard to the assessee and then decide the issues in accordance with law. The assessee is also directed to remain vigilant and not to take unnecessary adjournments unless otherwise required for reasonable cause. Effective grounds of appeal raised by the assessee are allowed for statistical purposes. 8. In the result, appeal of the Assessee is allowed for statistical purposes. Order pronounced in the open Court on 19.02.2026 Sd/- Sd/- [ASTHA CHANDRA] [MANISH BORAD] JUDICIAL MEMBER ACCOUNTANT MEMBER Pune, Dated 19th February, 2026 vr/- Copy to 1. The appellant 2. The respondent 3. The Ld. PCIT concerned. 4. D.R. ITAT, “B” Bench, Pune. 5. Guard File. By Order //True Copy // Assistant Registrar, ITAT, Pune. Printed from counselvise.com "