2019 (10) TMI 741 - HC - Income Tax

Court rules assessment order legally unsustainable due to improper consideration of exemption claims under Income Tax Act.

INDIAN INSTITUTE OF MANAGEMENT Versus THE DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTIONS), KOCHI AND COMMISSIONER OF INCOME TAX (EXEMPTIONS), KOCHI

The Court found in favor of the petitioner, ruling that the assessment order was legally unsustainable due to improper consideration of exemption claims ... Exemption claimed u/s 10(23C) - HELD THAT:- Ext.P2 assessment order does not reflect an application of mind while dealing with the claim for exemption both u/s 12A as also under Section 10(23) C of the Act. A perusal of the reasoning of the Assessing Officer would clearly indicate that he has completely overlooked the impact of the first proviso to Section 12A as also the fact that the proviso to Section 10(23)C had no application to a case that was covered by Section 10(23)C (iiiab) under which category, the petitioner had claimed exemption. Ext.P2 assessment order cannot be legally sustained, and the same is accordingly quashed. The 1st respondent is directed to complete the assessment pertaining to the petitioner for the said assessment year afresh, after hearing the petitioner. To enable the 1st respondent to do so, I direct the petitioner to appear before the 1st respondent at his office at 11 am on 04.11.2019. The 1st respondent shall pass fresh orders of assessment as directed within a month thereafter. Issues:Challenge against Ext.P2 order of assessment under Income Tax Act for the assessment year 2016-2017; Consideration of exemption claimed under Section 10(23)C and impact of first proviso to Section 12A.Analysis:The Writ Petition challenges the Ext.P2 assessment order for the assessment year 2016-2017 under the Income Tax Act, specifically focusing on the exemption claimed by the petitioner. The main argument presented is that the assessing authority did not consider the exemption issue correctly. The petitioner contended that the rejection of exemption under Section 10(23)C was based on the absence of approval, which the petitioner argued was not required as per the provisions of Section 10(23)C (iiiab). This section excludes the income of educational institutions financed by the government from the total income of the assessee. The petitioner also highlighted the Assessing Officer's failure to consider the impact of the first proviso to Section 12A, which extends the benefits of registration under Section 12AA to pending assessment years. The registration obtained in 2017-2018 should have applied to the assessment year 2016-2017 as well.Upon hearing both parties, the Court found merit in the petitioner's contentions. The judgment states that the Ext.P2 assessment order lacked proper application of mind regarding the exemption claims under Section 12A and Section 10(23)C of the Income Tax Act. The Assessing Officer failed to consider the implications of the first proviso to Section 12A and misapplied the proviso to Section 10(23)C, which was not applicable to the petitioner's case falling under Section 10(23)C (iiiab). Consequently, the Court ruled that the Ext.P2 assessment order was legally unsustainable and quashed it. The 1st respondent was directed to conduct a fresh assessment for the petitioner for the said assessment year after providing an opportunity for the petitioner to be heard. The petitioner was instructed to appear before the 1st respondent for this purpose, and the 1st respondent was mandated to issue fresh assessment orders within a month following the hearing.