Trust can claim section 11(1) exemption retrospectively through section 12A(2) proviso despite late registration

ITAT Rajkot held that a trust could claim exemption under section 11(1) through the proviso to section 12A(2) for assessment year 2009-10. The trust obtained registration under section 12AA in 2010 effective from AY 2011-12. Although the original assessment under section 143(3) was completed before registration, proceedings were reopened under section 263. The tribunal ruled that since revision proceedings were pending when registration was granted, the retrospective benefit of exemption applied. The proviso to section 12A(2) was designed to protect genuine charitable trusts from hardship in preceding years after receiving registration. Appeal was partly allowed.

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Issues Involved:
1. Validity of reopening the assessment under section 263.
2. Disallowance of expenses under the proviso to section 12A(2).
3. Condonation of delay in filing the appeal.
4. Application of the proviso to section 12A(2) for the assessment year under consideration.
5. Applicability of exemption under section 11(1)(a) in light of the proviso to section 12A(2).

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 263:
The assessee challenged the reopening of the assessment under section 263, arguing that it was already assessed under section 143(3). The Tribunal noted that the Commissioner has the authority to set aside the order passed by the Assessing Officer if it is erroneous and prejudicial to the interest of the Revenue. The Commissioner did not remit the issue to the AO but enhanced the income himself. The Tribunal dismissed the initial appeals as not maintainable, emphasizing that the challenge should be directed at the 263-order itself.

2. Disallowance of Expenses under the Proviso to Section 12A(2):
The Commissioner disallowed expenses of Rs. 155,800, which the assessee contended should be allowed under the new proviso to section 12A(2) effective from October 1, 2014. The Tribunal observed that the assessee's income was enhanced by the Commissioner under section 263 due to claimed deductions for TDS amounts, which were not eligible under the Act. The AO followed this direction and enhanced the income accordingly.

3. Condonation of Delay in Filing the Appeal:
The appeal was delayed by 1640 days. The Tribunal considered whether there was sufficient cause for the delay. The delay was attributed to the assessee's bona fide belief, based on advice from a chartered accountant, that the case should be represented before the AO. The Tribunal referred to a similar case where the delay was condoned due to a mistaken impression about the appeal process. Following this precedent, the Tribunal condoned the delay, finding it reasonable.

4. Application of the Proviso to Section 12A(2) for the Assessment Year Under Consideration:
The Tribunal examined whether the proviso to section 12A(2), effective from October 1, 2014, could be applied retrospectively. The proviso allows the benefits of sections 11 and 12 for any income derived from property held under trust for assessment years preceding the year of registration if the assessment proceedings are pending. The Tribunal concluded that the proviso should be applied retrospectively to avoid genuine hardship to charitable organizations, as supported by explanatory notes and CBDT circulars.

5. Applicability of Exemption under Section 11(1)(a) in Light of the Proviso to Section 12A(2):
The Tribunal determined that once the benefit of exemption under section 11(1)(a) is available due to the proviso to section 12A(2), the income must be computed considering this exemption. Although the original assessment for AY 2009-10 was not pending at the time of registration, the assessment was reopened under section 263, making the exemption applicable. The Tribunal directed the AO to grant the exemption under section 11, subject to the relevant provisions of the Act.

Conclusion:
The appeals were partly allowed for statistical purposes. The Tribunal directed the AO to reconsider the assessment in light of the proviso to section 12A(2) and the exemption under section 11, ensuring adherence to the relevant provisions of the Act. The identical issue for AY 2010-11 was also partly allowed, applying the same reasoning and directions as for AY 2009-10.

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