By TIOL News Service

AMRITSAR, OCT 27, 2014: THE issue before the Bench is - Whether when assessee has option to claim exemption either u/s 10(23C) or Sec 11(1), AO cannot force the assessee to go for deduction u/s 11. YES is the answer of the Tribunal.

Facts of the case

The assessee is a Trust registered u/s 12AA of the Act. The AO observed that the application of Rs.53,84,680/- which was claimed to have been made through statement of affairs was made on the purchase/addition to the fixed assets. Further, in response of accumulation claimed to have been made as per Explanation to sec 11(1) of the Act, it was also noticed that no application for exercise of option in writing was found on record. Accordingly, he asked the assessee that as to why the expenditure made on addition/purchase of fixed assets may not be treated as application for charitable purpose in view of the ratio of decision in the case of Queens Educational Society v. CIT of the High Court of Uttarakhand and since no notice as per section 11(1) of the Act r.w. Exp.2 to this section, was given within the prescribed time limits, why exemption may not be withdrawn on such accumulation. The AO did not consider the purchase of fixed assets as application towards charitable purpose and accordingly withdrawn the exemption of Rs.53,84,680/- and added the same to the income of the assessee.

The assessee also submitted his explanation with regard to the notice in view of Explanation to section 11(1) of the Act. The AO not being satisfied with the explanation of the assessee observed that since no option was exercised by the assessee in writing in terms of the Explanation to sec. 11(1) of the Act within the time allowed u/s 139(1) of the Act, the exemption claimed by the assessee on an amount of Rs.1,41,08,968/- cannot be allowed and the amount was brought to tax.

As regards the claim of exemption u/s 10(23C)(vi) of the Act, which exemption was available to the assessee vide order dated 12.07.2010 was not accepted by the AO for the reasons that the request in change in claim of exemption can only be made through a validly filed revised returned as per the provisions of section 139(5) of the Act. Return of income cannot be revised by merely filing an application on plain paper. This is settled law as has been held by the Supreme Court in the case of Goetze (India) Ltd; vs. CIT (2006) 284 ITR 323 = 2006-TIOL-198-SC-IT. In this case, the Supreme Court has concluded that claim for deduction not made in the return cannot be entertained by the A.O otherwise than by filing a revised return. In this case also, the assessee had sought to claim a deduction by way of a letter before the A.O. & thus the facts of the case are totally identical to the case of the assessee. Therefore, the request of the assessee is not acceptable as the assessee has not filed any valid revised return. Further, the AO also held without prejudice to the above that, even if it is allowed to revise the return on the basis of a mere application on plain paper, even then the benefit of revising the return u/s 139(5) of the Act, cannot be given to it as it, as the time limits for revising the return has already expired on 31.3.2011. Thus, again the request of the assessee to grant exemption u/s 10(23C)(vi) of the I.T.Act, 1961 cannot be accepted.

It was also held that the request of the assessee for grant of exemption u/s 10(23C)(vi) of the Act cannot be accepted even u/s 154 of the Act, as this is not a mistake apparent from record. It is not case in which benefit as per Circular No.725 dated 16.10.1995 of the CBDT can be allowed to the assessee in view of the fact that original exemption was not claimed u/s 10(23C)(vi) of the Act. Accordingly, the AO added Rs.1,41,08,968/- being the amount of accumulation claimed as per explanation to section 11(1) but not allowed as application. On appeal, the CIT(A) deleted the addition so made by the AO.

On appeal by the Revenue, the Tribunal held that,

++ deduction was claimed u/s 11 of the Act in the return of income and the assessee was not having exemption u/s 10(23C)(vi) of the Act at the time of filing of the return of income. The assessee had made an application for the said approval which was received by the assessee vide order dated 13.08.2007 for the assessment year 2005-06 wrongly which was rectified by the CCIT vide her order dated 12.07.2010 for the assessment year 2005-06 and onwards for all the times to come. From the said chronology, it is evident that the assessee was having approval u/s 10(23C)(vi) from the CCIT vide order dated 13.08.2007, though the same was rectified u/s 154 of the Act on 12.07.2010. Thus, the argument of the DR that the CIT(A) has not dealt with the non-filing of notice under explanation to section 11(1) of the Act, is wrong since the same has been dealt with by the CIT(A) vide para 4.4 of his order. In fact, the assessee had option to make claim u/s 10(23C)(vi) or Section 11(1) of the Act, in view of the decision of the ITAT, Pune Bench in the case of Bharati Vidyapeeth Medical Foundation vs. ACIT and the assessee cannot be forced to go for deduction u/s 11 of the Act. Though the claim was made before the AO during assessment proceedings, as and when the assessee got the rectified order from CCIT, it was only under the exceptional circumstances that the assessee could not claim exemption u/s 10(23C(vi) of the Act, as mentioned hereinabove. Such rectification is bound to be there in view of Circular No.725 dated 16.10.1995 issued by the CBDT;

++ in view of Circular No.725 dated 16.10.1995 of CBDT, the AO was under obligation to allow exemption u/s 10(23C)(vi) of the Act and there is nothing on record that the assessee has contravened any of the conditions as required u/s 10(23C)(vi) of the Act. Therefore, the AO during assessment proceedings, in view of the said circular, should have allowed exemption u/s 10(23C)(vi) inspite of the fact that the claim originally made for deduction u/s 11 of the Act. As regards the decision in the case of Goetze (India) Ltd; vs CIT 2006-TIOL-198-SC-IT by the Supreme Court, the decision in such cases is restricted to the power of the AO but it does not impinge powers of the ITAT u/s 254 of the Act. Since the assessee in view of the CBDT Circular No.725 dated 16.10.1995, as mentioned hereinabove and order of CCIT dated 13.08.2007 though rectified vide order dated 12.07.2010 w.e.f. assessment year 2005-06 and onwards for all the times to come, assessee's income is exempt u/s 10(23C)(vi) of the Act and there is no infirmity in the order of the CIT(A) in this regard.

(See 2014-TIOL-770-ITAT-AMRITSAR)