2023 (10) TMI 1413 - AT - Income Tax

Tribunal Grants Exemption: Overturned Deduction Denial Due to Technical Violation Beyond Assessee's Control.

The Tribunal ruled in favor of the assessee, allowing the appeal against the denial of deduction under section 10(23B) of the Income Tax Act. The Tribunal ... Denial of deduction u/s 10(23B) - approval was granted for more than three assessment years, i.e. 5 years - assessee admittedly, is a society registered under the societies, registration act and is also registered with the Khadi and Village Industries Commission and is engaged in the promotion and development of khadi - HELD THAT:- We find that the issue is squarely covered by the decision of the Tribunal in the case of “Barapur Gram Udyog Samiti” [2022 (6) TMI 444 - ITAT DELHI] wherein, under similar facts and circumstances has observed that the time period for which the certificate has to be granted is not within the control of the assessee. That, in any case, it was only a technical violation for which the assessee could not be penalized by denying the exemption, which otherwise is allowable to the assessee as held reason for denying the exemption by the AQ is that the Commission has given certificate to the assessee for more than three years. It is pertinent to note that the time period for which the certificate has to be granted is not within the control of the assessee. In any case it is only a technical violation for which the assessee could not be penalized by denying the exemption otherwise allowable to the assessee. Thus, hold that the assessee is entitled for exemption u/s 10(23B) - Decided in favour of assessee. Issues:Denial of deduction under section 10(23B) of the Income Tax Act.Analysis:The appeal was filed against the order of the National Faceless Appeal Centre denying the deduction under section 10(23B) of the Income Tax Act. The sole issue raised was related to the denial of deduction under this section. The assessee, a society registered under the societies registration act and approved by the Khadi and Village Industries Commission, was engaged in the promotion and development of khadi. The denial of exemption by the CIT (A) was based on the second proviso to section 10(23B) which restricts the approval by the Khadi Commission to three consecutive assessment years, whereas the approval for the assessee was granted for 5 consecutive years. The CIT (A) held that this violated the second proviso to section 10(23B) of the Act.The counsel for the assessee argued that the approval duration was not within the control of the assessee and that the renewal was granted for five years at a time. The counsel contended that the assessee had been granted deduction previously and that the denial was unjustified. The counsel cited a decision of the Delhi Bench of the Tribunal in support of the argument.The Tribunal found that the issue was similar to a previous case where it was held that the time period for which the certificate had to be granted was not within the control of the assessee. The Tribunal considered it a technical violation for which the assessee could not be penalized by denying the exemption. Therefore, the Tribunal held that the assessee was entitled to the exemption under section 10(23B) of the Act, following the decision of the coordinate Bench.Based on the above decision and reasoning, the Tribunal held that the assessee was entitled to the exemption under section 10(23B) of the Act, and accordingly, the appeal of the assessee was allowed.In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal against the denial of deduction under section 10(23B) of the Income Tax Act.