2024 (4) TMI 1022 - AT - Income Tax

ITAT quashes assessment order under section 143(1) for lack of mandatory prior intimation to assessee

Onkar Society for Engineering & Technological Research Versus ITO, Ward-1 (2), Exempt. Kolkata

The ITAT Kolkata quashed an assessment order u/s 143(1) as the CPC AO made adjustments without providing mandatory prior intimation to the assessee as ... Validity of assessment / adjustment u/s 143(1) without prior intimation u/s 143(1) - Denial of exemption u/s 11 and Claim of Expenses by the CPC - HELD THAT:- Assessing Officer CPC, before making any adjustment/disallowance to the returned income as per the return of income filed by the assessee is duty bound to intimate the same to the assessee either in writing or in the electronic mode. However, we find that no such intimation has been given to the assessee before making the said adjustment or disallowance either in writing or in electronic mode. We have also examined the records of assessment proceedings on e-portal relating to the assessee as placed before us and observe that the ld. AO, CPC has not followed the mandate of first proviso of section 143(1)(a) of the Act and consequently , the order passed under section 143(1) of the Act is not as per the mandate of provisions of the Act and has to be quashed. In the instant case as the adjustment has been made by the ld. Assessing Officer, CPC to the income of the assessee without even giving any intimation in terms of proviso to section 143(1)(a) of the Act and, therefore, the said order is quashed as invalid and nullity in the eyes of law. In the result, the additional ground is allowed. Denial of exemption u/s 11 - Disallowing the capital expense and revenue expense - return of income and Form 10B was not filed by the assessee on time - HELD THAT:- We find that admittedly the return of income was filed in Form 7 and Form 10B on 31.03.2021 and 30.03.2021 while the extended due date for filing the return of income in relevant assessment year was 15.02.2021. We note that the COVID 19 pandemic was spread all over the country and the entire country rather the entire globe were completely brought to standstill. And so was the condition so far as the assessee trust is concerned. So considering all these practical difficulties for making compliances, Hon’ble Apex Court has extended the period of limitation with respect to judicial or quasi-judicial proceedings. So as per Hon’ble Apex Court [2022 (1) TMI 385 - SC ORDER] vide its order dated 10.01.2022 there is no delay in filing the return of income as well as Form 10B and, therefore, the order of the ld. CIT(Appeals) upholding the order of ld. Assessing Officer, wherein the exemption claimed under section 11 of the Act by the assessee-Trust has been rejected resulting into disallowance of capital expenditure, revenue expenditure and also statutory exemption exemption of 15% of total receipts u/s 11(1)(a) which is incorrect and against the ratio laid down by the Hon’ble Supreme Court. Accordingly we set aside the order of ld. CIT(Appeals) on this issue and direct the AO allow the exemption claimed u/s 11. Appeal of the assessee is allowed. Issues Involved:1. Disallowance of capital and revenue expenses due to delayed filing of return and Form 10B.2. Denial of statutory exemption under Section 11(1)(a) of the Income Tax Act.3. Computation of income derived from trust property on commercial principles.4. Justification for delay in filing returns due to exceptional circumstances.5. Additional ground regarding non-compliance with the first proviso to Section 143(1) of the Act.Summary:1. Disallowance of Capital and Revenue Expenses:The assessee contested the disallowance of capital expenses amounting to Rs. 1,85,37,546/- and revenue expenses of Rs. 4,68,18,969/- by the CPC and upheld by the CIT(A), arguing that these expenses were exclusively incurred for generating revenue from running educational institutions. The Tribunal noted that the return of income and Form 10B were indeed filed, albeit late due to exceptional circumstances such as a fire and the COVID-19 pandemic.2. Denial of Statutory Exemption under Section 11(1)(a):The assessee argued that the CPC erred in not allowing the statutory exemption of Rs. 91,79,434/- (15% of gross receipts) under Section 11(1)(a) due to the delayed filing. The Tribunal agreed with the assessee, noting that the Supreme Court had extended the limitation period for filing due to COVID-19, making the filing within the permissible period.3. Computation of Income on Commercial Principles:The assessee contended that the income derived from the trust property should be computed on commercial principles as per Circular No. 5-P(LXX-6) of 1968. The Tribunal did not specifically address this issue separately but implied that proper computation principles should be applied.4. Justification for Delay in Filing Returns:The assessee justified the delay in filing returns due to a fire in the office and the COVID-19 pandemic. The Tribunal accepted these reasons, citing the Supreme Court's extension of the limitation period, thus treating the returns as filed on time.5. Additional Ground Regarding Section 143(1) Proviso:The assessee raised an additional ground that the CPC did not follow the mandate of the first proviso to Section 143(1), which requires intimation to the assessee before making any adjustments. The Tribunal admitted this additional ground, noting that the CPC failed to provide the required intimation, rendering the adjustment invalid. Consequently, the Tribunal quashed the CPC's order under Section 143(1).Conclusion:The Tribunal allowed the appeal, quashing the CPC's order and directing the AO to allow the exemption claimed under Section 11 of the Act, considering the return and Form 10B as filed within the extended permissible period due to the exceptional circumstances. The appeal was pronounced in favor of the assessee.