Society denied section 11 exemption as registration granted after assessment proceedings concluded, penalty deleted for reasonable cause

ITAT Pune denied exemption u/s 11 to an assessee society as registration u/s 12AA was granted on 18-05-2023, after assessment proceedings concluded on 17-12-2019 for AY 2012-13. The proviso benefit requires pending assessment proceedings when registration is granted. Regarding penalty u/s 271(1)(c) for non-filing returns, ITAT accepted reasonable cause due to operational shifts between cities causing confusion about filing responsibility. The society's operations moved from Pune to Mangalore, then Thrissur, Faridabad, and back to Pune, creating coordination issues. Since no additions were made to declared income and reasonable cause existed, penalty was deleted.

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Issues:
The judgment involves the confirmation of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2012-13. The key issues revolve around the registration status of the assessee under section 12A, the applicability of Explanation 3 to section 271(1)(c) regarding concealment of income, and the presence of reasonable cause for not filing the return within the prescribed time.

Registration under Section 12A:
The assessee, an association for Oral Maxillofacial surgeons of India, was not granted registration under section 12A at the time of assessment for the year 2012-13. Although registration was subsequently granted for a later assessment year, the second proviso to section 12A(2) extends the benefit of registration automatically to pending assessment years. However, in this case, as the assessment proceedings were concluded before the registration was granted, the benefit of exemption under section 11 cannot be claimed for the year under consideration.

Penalty under Section 271(1)(c) - Applicability of Explanation 3:
The imposition of penalty under section 271(1)(c) was challenged by the assessee. Explanation 3 to the section deems an assessee to have concealed income if the return is not filed within the specified time and taxable income is determined. In this case, as the assessee filed the return only after receiving a notice under section 148, the ld. CIT(A) invoked Explanation 3 to uphold the penalty. The Explanation mandates that even if the income declared in the return is assessed without any variation, it can lead to the imposition of penalty.

Reasonable Cause for Delay in Filing Return:
The assessee argued that there was a reasonable cause for not filing the return within the prescribed time. Due to the shifting of operations and records between different cities, confusion arose regarding the responsibility for filing returns. The trustees realized the oversight when operations returned to Pune and promptly applied for registration under section 12AA. The Tribunal found this to be a reasonable cause, exempting the assessee from the penalty under Explanation 3 and concluding that no penalty could be imposed in the absence of any addition or disallowance in the total income determination.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of considering the registration status, the application of Explanation 3 for penalty imposition, and the presence of reasonable cause for delay in filing the return. The judgment highlights the complexities surrounding registration benefits, concealment of income provisions, and the significance of demonstrating reasonable cause in tax matters.

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