2022 (4) TMI 162 - AT - Income Tax

Tribunal Grants Section 11 & 12 Benefits, Annulls Reassessment & Penal Proceedings

Jaibharat Mandal Ramlila and Dharmshala Society, Haryana Versus Income-tax Officer, (Exemptions), Rohtak.

The Tribunal allowed all appeals, directing the AO to grant Sections 11 and 12 benefits to the assessee as a deemed registered entity under Section 12A. ... Exemption u/s 11 & 12 - as per AO assessee society was not registered u/s 12AA of the Act and, therefore, he was of the view that the assessee was not entitled for exemption u/s 11 & 12 - HELD THAT:- Application for registration was made way back in the year 1989 and after ten years the Competent Authority sought explanation regarding the application. Thereafter, claim of exemption was allowed for many years. All of sudden, the Officer wakes up out of slumber, issues notices for reopening of assessment purely on the ground that the assessee could not furnish the requisite certificate of registration u/s 12AA of the Act and proceeded to make assessment. There are divergent views on the issue of deemed registration amongst the Hon’ble High Courts of Allahabad, Madras, Karnataka, Rajasthan and Kerala. The Hon’ble High Court of Karnataka, Rajasthan and Kerala have ruled in favour of the assessee on the other hand Hon’ble High Courts of Gujrat, Madras and Full Bench of Hon’ble Allahabad High Court have ruled against the assessee. Hence, the issue in hand is debatable and two views are possible. The Hon’ble Apex court [2016 (2) TMI 672 - SC ORDER] however affirmed the decision of the Hon’ble Division Bench of Allahabad High Court in the case of Society for Promotion of Education Adventure Sports and Conservation of Environment [2008 (4) TMI 700 - ALLAHABAD HIGH COURT]by declaring that the registration of the application under section 12AA of the Act shall be with effect from 24.08.2003. Case of the assessee stands at better footing as in the present case the Revenue itself has been treating the income of the assessee as exempt treating the assessee as a charitable society. Under these peculiarity of facts and circumstances hereby hold that action of the Assessing Officer for not treating the assessee society eligible for exemption is not justified under the facts and circumstances of the present case. Therefore, direct the Assessing Officer to give benefit available u/s 11 and 12 - Decided in favour of assessee. Issues Involved:1. Validity of reassessment proceedings under Section 147 and issuance of notice under Section 148.2. Eligibility for exemption under Sections 11 and 12 of the Income Tax Act.3. Deemed registration under Section 12A.4. Nature of activities of the society - whether charitable or commercial.5. Jurisdiction of the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)].6. Consistency in assessment over the years.7. Initiation of penal proceedings under Section 271(1)(c).Detailed Analysis:1. Validity of Reassessment Proceedings under Section 147 and Issuance of Notice under Section 148:The assessee contended that the reassessment proceedings initiated under Section 147 and the issuance of notice under Section 148 were arbitrary and without jurisdiction. The reasons to believe that income had escaped assessment were based on the absence of a physical registration certificate under Section 12A, which was deemed a mere change of opinion. The Tribunal found that the reasons were not recorded before issuing the notice, rendering the reassessment proceedings void and bad in law. The Tribunal relied on the Supreme Court's decision in CIT v. Kelvinator of India Ltd, which held that a mere change of opinion cannot justify reopening an assessment.2. Eligibility for Exemption under Sections 11 and 12:The primary issue was the wrongful denial of exemption under Sections 11 and 12 by deeming the assessee as non-registered under Section 12A. The Tribunal noted that the assessee had applied for registration under Section 12A in 1989 and had complied with all requirements. The application was never formally rejected, and the assessee had been treated as a charitable entity in previous assessments. The Tribunal directed the AO to grant the benefit of Sections 11 and 12, considering the assessee as a deemed registered entity under Section 12A.3. Deemed Registration under Section 12A:The Tribunal held that the assessee should be considered as deemed registered under Section 12A, as the application was pending, and no formal rejection was issued. The Tribunal relied on the Supreme Court's decision in CIT v. Society for Promotion of Education Adventure Sports and Conservation of Environment, which held that if an application under Section 12AA is not responded to within six months, it is deemed granted. The Tribunal emphasized that the Revenue's failure to act on the application should not penalize the assessee.4. Nature of Activities - Charitable or Commercial:The AO and CIT(A) had held that the society's activities were commercial, based on voluntary donations received for using the Dharamshala hall. The Tribunal found that the donations were nominal and voluntary, covering only part of the expenses. The Tribunal noted that the activities aligned with the definition of 'charitable purpose' under Section 2(15) and were not carried out with a profit motive. The Tribunal relied on various judicial precedents, including the Supreme Court's decision in Sole Trustee, Loka Shikshana Trust v. CIT, which emphasized that charitable activities might yield profit but must be directed towards benefiting others rather than oneself.5. Jurisdiction of AO and CIT(A):The assessee argued that only the CIT(Exemption) had the authority to decide on the exemption status under Section 12A. The Tribunal found that the AO and CIT(A) had overstepped their jurisdiction by denying the exemption and holding the society as non-registered. The Tribunal annulled the orders, emphasizing that the decision on exemption status should be made by the CIT(Exemption).6. Consistency in Assessment:The Tribunal noted that the assessee had been consistently treated as a charitable entity in previous assessments. The principle of consistency required that the same treatment be continued unless there was a significant change in facts or circumstances. The Tribunal relied on the Supreme Court's decision in Radhasoami Satsang v. CIT, which upheld the principle of consistency in tax assessments.7. Initiation of Penal Proceedings under Section 271(1)(c):The Tribunal found that the initiation of penal proceedings under Section 271(1)(c) was unjustified, as the denial of exemption was based on incorrect grounds. The Tribunal set aside the direction for initiating penal proceedings, emphasizing that the assessee had complied with all statutory requirements and acted in good faith.Conclusion:The Tribunal allowed all the appeals, directing the AO to grant the benefit of Sections 11 and 12 to the assessee, considering it as a deemed registered entity under Section 12A. The reassessment proceedings were declared void, and the orders of the AO and CIT(A) were annulled. The Tribunal emphasized the principles of consistency and jurisdiction and set aside the initiation of penal proceedings under Section 271(1)(c).