AO directed to accept rectification petition for section 10(23C)(iiiad) exemption based on Karnataka HC precedent

The ITAT Bengalore directed the AO to accept the assessee's rectification petition u/s 154 regarding exemption u/s 10(23C)(iiiad). The assessee operated 12 units with gross receipts of Rs. 2,50,44,219. The CPC initially denied the exemption claiming Form 10BB was not filed and processed the return without exemption benefits. However, relying on the Karnataka HC judgment in Children's Education Society, the Tribunal held that exemption was available as annual receipts of each institution were below the prescribed limit. The rectification was allowed as the issue was covered by jurisdictional HC precedent.

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Issues:
1. Denial of exemption claimed under Section 10(23C)(iiiad) of the Income Tax Act, 1961.
2. Requirement of filing Form 10BB for claiming exemption.
3. Validity of rectification order passed by the Assessing Officer.

Analysis:

Issue 1: Denial of exemption claimed under Section 10(23C)(iiiad)
The assessee, a charitable trust running 12 educational institutions, filed for exemption under Section 10(23C)(iiiad) for the assessment year 2016-17. The Central Processing Centre (CPC) did not allow the exemption claimed, stating that the audit report in Form 10BB was mandatory for gross receipts exceeding Rs.1 crore. The Assessing Officer (AO) passed a rectification order denying the claim based on non-filing of Form 10BB. The National Faceless Assessment Centre (NFAC) upheld the AO's decision. The Tribunal found that the denial of exemption was unjustified as the assessee had filed all necessary documents and clearly indicated the exemption claimed. Citing a jurisdictional High Court judgment, the Tribunal directed the AO to grant the exemption as per the petition filed by the assessee under Section 154 of the Act.

Issue 2: Requirement of filing Form 10BB for claiming exemption
The Assessing Officer denied the exemption claim on the grounds of non-filing of Form 10BB, stating it was mandatory for certain types of exemptions under Section 10(23C). The assessee argued that Form 10BB was not required for the exemption claimed under Section 10(23C)(iiiad). The Tribunal agreed with the assessee's contention, emphasizing that the denial of exemption based on non-filing of Form 10BB was incorrect and contrary to the facts of the case. The Tribunal directed the AO to grant the exemption as per the petition filed by the assessee under Section 154 of the Act.

Issue 3: Validity of rectification order passed by the Assessing Officer
The Assessing Officer passed a rectification order denying the exemption claim due to non-filing of Form 10BB and consolidated gross receipts exceeding the prescribed limit. The Tribunal found the AO's decision to be erroneous and not in line with the jurisdictional High Court judgment, which held that the exemption was available as the annual receipts of each institution were below the limit. The Tribunal directed the AO to give effect to the petition filed by the assessee under Section 154 of the Act, thereby allowing the appeal and granting the exemption.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to grant the exemption claimed under Section 10(23C)(iiiad) based on the documents filed and the jurisdictional High Court judgment.

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