Society gets tax exemption after correcting income classification error under section 11 and 139(5)

The ITAT Chandigarh allowed the assessee society's appeal regarding denial of exemption under section 11. The society had incorrectly shown income under business income instead of income from other sources, leading CPC to deny the exemption. The tribunal held that the rectification application was actually a revised return under section 139(5) filed within the stipulated timeframe. Since no intimation under section 143(1) was issued within one year, the return was deemed accepted. The tribunal directed that the exemption under section 11 be granted as claimed in the revised return.

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Issues:
Appeal against rejection of rectification application u/s 154 for denial of exemption u/s 11 and time limit for filing rectification application.

Analysis:
1. The assessee filed a rectification request after CPC denied exemption u/s 11 in the intimation under section 143(1). The AO rejected the rectification application stating that CPC processed the return correctly. The AO found that the income was wrongly shown under "business income" instead of "income from other sources," leading to the denial of the exemption. The AO held that the rectification application lacked merit.

2. The Ld. CIT(A) upheld the AO's decision, stating that the appellant society could have filed a revised return instead of a rectification application. The Ld. CIT(A) dismissed the grounds taken by the appellant, emphasizing that the rectification application was filed beyond the statutory time limit of four years from the end of the financial year. The Ld. CIT(A) found the rectification application untimely and dismissed the appeal.

3. The assessee contended that the rectification application was filed within 15 days of receiving the intimation from CPC. The assessee filed a revised return under section 139(5) rectifying the income disclosure error. The tribunal noted that the rectification application was, in essence, a revised return under section 139(5) and was timely filed. The tribunal held that the lower authorities failed to consider the revised return filed by the assessee and wrongly treated it as a rectification application u/s 154.

4. The tribunal determined that the revised return disclosed all necessary particulars regarding receipts and utilization, justifying the exemption u/s 11. The tribunal directed the exemption to be granted as claimed in the return of income. The tribunal allowed the appeal, emphasizing that the rectification application was, in substance, a revised return filed within the prescribed time frame.

In conclusion, the tribunal allowed the appeal, overturning the decisions of the lower authorities and directing the grant of exemption u/s 11 as claimed in the revised return of income.

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