Commissioner of Income Tax-II vs Lucknow Public Educational Society

Satish Chandra, J.—This is an appeal filed by the Department u/s 260A of the Income Tax Act, 1961 against the judgment and order dated 29-6-2007 passed by the Income Tax Appellate Tribunal, Lucknow in Income Tax Appeal No. 106/Luck./2006 for the assessment year 2001-02.

Heard Sri D.D. Chopra, learned Counsel for the appellant and Sri Amit Singh Bhadauria holding brief of Sri J.N. Mathur, learned Counsel for the respondent.

The above-mentioned appeal was admitted on 11-4-2008 with the following substantial questions of law:

Whether on the fact and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in allowing exemption u/s 11 of the Income Tax Act to the appellant without appreciating the fact that the original return was filed on 27-3-2002 though the due date was 31-10-2001 and was not even accompanied by Audit Report in Form No. 10B.

The Income Tax Appellate Tribunal failed to appreciate the fact that the assessee could claim the benefit of revised return filed on 30-10-2002 only when the original return was filed within the due date and therefore, the Assessing Officer rightly treated the belated return filed on 30-10-2002 as non est.

The Income Tax Appellate Tribunal erred in law and on facts in confirming the order of the Commissioner of Income Tax (Appeals) in allowing exemption u/s 11 of the Income Tax Act without appreciating the fact that in the instant case the original return filed by the assessee was neither u/s 139(1) nor in compliance to notice u/s 142 of the Income Tax Act and, therefore, the revised Return filed on 30-10-2002 along with the Audit Report in Form No. 10-B was non est. The Hon''ble Tribunal erred in granting exemption u/s 11 of the Act to the assessee even though assessee failed to comply with the provisions of the Act in letter and spirit.

Whether on the fact and in the circumstances of the case the Income Tax Appellate Tribunal erred in deleting the addition of Rs. 67,28,272 shows as surplus as per Income & Expenditure Accounts relating to the two branches of the assessee society.

The brief facts of the case are that the assessee is a registered Society registered under the Societies Registration Act, 1860 since 12-11-1991. It is running two branches of ''Lucknow Public School'', one at A-Block; and another at B-Block, Rajajipuram, Lucknow. The assessee had applied long back for exemption u/s 10(23C)(vi) but no decision on it was taken till the date of the assessment order or the order passed by the First Appellate Authority. However, the Society was also registered u/s 12A of the Income Tax Act, 1961 and was claiming exemption u/s 11 of the Act. For the assessment year under consideration, the respondent (hereinafter referred to as ''assessee'') has filed its return for the assessment year under consideration on 27-3-2002, showing the "nilincome" after claiming the exemption u/s 10(23C) of the Income Tax Act. This original return was filed in Form 2D ''Saral''. Later on, when the assessee came to know that no exemption is available u/s 10(23C)(vi), he filed a revised Return in Form 3-A along with Form 10B enclosing also the Audit Report. In this Return, the assessee has claimed exemption u/s 11 of Income Tax Act. The Assessing Officer observed in his order that the original Return was not filed as the same was belated, so he treated the said Return filed u/s 139(4) where in the exemption u/s 11 was not claimed but the claim was made u/s 10(23C) which was not available to the assessee. Regarding the revised Return, which was filed on 30-10-2002, he treated the same as" non est'' and took no cognizance of Form 10-B or Audit Report etc. Finally, without giving any exemption, he made the addition of Rs. 67,28,272 shown as surplus income. In appeal, First Appellate Authority has deleted the said addition which was confirmed by the 1TAT by the impugned order. Not being satisfied, the department is in present appeal.

With this background, learned Counsel for the appellant has submitted that as per Section 12A and 12B, the exemption under Sections 11 and 12 are not available unless the assessee furnishes the Audit Report in Form 10B along with Return where its income exceeds to Rs. 50,000 as per the then law. In the Original Return filed on 27-3-2002, the assessee has not filed the Audit Report in Form 10-B nor any exemption was claimed u/s 11 of the Income Tax Act, so the same cannot be given. He further submitted that the assessee in his Original Return has claimed the exemption u/s 10(23C)(vi) for which no exemption was granted ever.

Regarding second Return, he submitted that so-called revised Return is non est in the eye of law as the Original Return was not submitted u/s 139(1) or (2). No advantage can be given to the assessee for the information submitted in the second Return. For this purpose, he relied on the ratio laid down by the Apex Court in Kumar Jagdish Chandra Sinha (dead) Through LRs. etc. Vs. Commissioner of Income Tax, West Bengal, where it was observed that the Return voluntarily filed u/s 139(4), the assessee is not entitled to file the revised Return. He read out Sections 139(4) and (5) which runs as under:

(4) Any person who has not furnished a return within the time allowed to him under Sub-section (1), or within the time allowed under a notice issued under Sub-section (1) of Section 142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier:

Provided that where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment years.

(5) If any person, having furnished a return under Sub-section (1), or in pursuance of a notice issued under Sub-section (1) of Section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier:

Provided that where the return relates to the previous years relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year.

Lastly he justified the order passed by the Assessing Officer.

On the other hand, learned Counsel for the respondent-assessee has supported the order of the First and Second Appellate Authorities. He submitted that long back, the assessee has applied for exemption u/s 10(23C) but there was no communication from the department regarding it, so under bona fide belief after 3-4 years, the assessee has claimed the exemption u/s 10(23C). When the assessee came to know that exemption was wrongly claimed, then the assessee filed the revised return along with Form 10-B, as the exemption u/s 11 was already with the assessee since long. The exemption which was claimed in revised Return was duly supported by the necessary documents for claiming the exemption. The similar exemption was given to the assessee in the previous assessment. On specific query, he admitted that the original Return was filed belated. He relied on the ratio laid down in the following cases-

Commissioner of Income Tax Vs. Hardeodas Agarwalla Trust,

Commissioner of Income Tax Vs. Mayur Foundation,

Both the case-laws have already been discussed in the impugned order. Lastly, he made a request to uphold the impugned order.

We heard both the parties at length and gone through the material on record.

It appears that the assessee is a registered Society, registered under the Societies Registration Act, 1860 since 12-11-1991. It was also registered u/s 12A vide letter dated 12-11-2002. The assessee has applied for the exemption u/s 10(23C)(vi) since long but no decision was taken on this application by the competent authority in spite of the fact that 3-4 years have passed, so the assessee was under bona fide belief that the exemption might have been given u/s 10(23C), so the assessee has filed Original Return where the claim for exemption u/s 10(23C) was made. The Original Return was filed in Form 2-D ''Saral'' where the limited information can be given without enclosures. For claiming the exemption, the necessary documents were required. So the assessee filed the Second Return in Form 3A after knowing that the exemption is not available u/s 10(23C). In the Second Return, the assessee has claimed the exemption u/s 11 by supporting the necessary documents like Audit Report etc.

In the facts and circumstances of the case, we are of the view that the Assessing Officer has treated the Revised Return as "non est" wrongly for the reason that the Assessing Officer himself has passed the order u/s 143(3) on the basis of the Original Return where the assessee was legally entitled for the exemption u/s 11, if not u/s 10(23C). The department should not take advantage of the ignorance of the assessee as per the CBDT Circular No. 14 (XL-35)/1955, dated 11-4- 1955, quoted in Parekh Brothers Vs. Commissioner of Income Tax and Others, Hence, it was the duty of the Assessing Officer to ask information from the assessee at the time of scrutiny but he has not asked any information before completing the assessment u/s 143(3) of the Act. It may also be mentioned that the Tax Audit Report along with return is not a mandatory condition as per the ratio laid down in the case of Commissioner of Income Tax Vs. Rai Bahadur Bissesswarlal Motilal Malwasie Trust, as well as in the case of Commissioner of Income Tax Vs. Sankalp Welfare Society, The Audit Report can be furnished before completing the assessment as per the ratio laid down in the case of 965407-->

It may not be out of place to mention that furnishing the audit report and the certificate for claiming the exemption u/s 80HHC in Form 10CC AC was treated as procedural in nature. The mistake was treated as a technical breach and the Assessing Officer was duty bound to ask it before denying claim as observed in the following cases-

Commissioner of Income Tax Vs. Gujarat Oil and Allied Industries, Commissioner of Income Tax Vs. Berger Paints (India) Ltd. (No. 2),

In the instant case, the Assessing Officer has not asked any information before denying the exemption for which the assessee was legally entitled. On the other hand, he has rejected the Second Return which was enclosed with the necessary documents for claiming the exemption.

The ratio laid down in Kumar Jagdish Chandra Sinha''s case (supra), is not applicable in the instant case as the facts were quite different. In the said case, the penalty was imposed u/s 170(1C). It was observed that before assessment, it was the duty of the Assessing Officer and if it discovers any omission or any wrong statement in the original Return, then opportunity might have been given to the assessee. In the instant case, no opportunity was given to the assessee for any discrepancy. The assessee was entitled for exemption u/s 11 of the Income Tax Act and that exemption was the statutory exemption available to the assessee.

In the light of above discussions and by considering the totality of the facts and circumstances of the case, we are not inclined to interfere with the order of the Tribunal dated 29-6-2007 as no substantial question of law is emerging from the impugned order. The appeal is devoid of merits and is liable to be dismissed.

The appeal is dismissed.