Trust wins appeal as section 12A exemption allowed despite late filing for pre-2018 assessment year

ITAT SURAT-AT allowed the assessee's appeal against CIT(E)'s revision order u/s 263. The assessee, a trust, had not filed original return u/s 139 within due date but filed after receiving notice u/s 148. CIT(E) held AO's order erroneous for allowing exemption u/s 11 without timely filing. ITAT ruled that clause (ba) of section 12A(1) requiring timely filing was inserted by Finance Act 2017 effective from AY 2018-19 onwards, not applicable to AY 2017-18 in question. Since the mandatory filing provision didn't exist for the relevant assessment year, AO's order was neither erroneous nor prejudicial to revenue interests, making revision u/s 263 unjustified.

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Issues:
Appeal against order passed under section 263 of the Income-tax Act, 1961 for AY 2017-18.

Analysis:
The appeal arose from an order passed under section 263 of the Income-tax Act, 1961, concerning the assessment year 2017-18. The Commissioner of Income Tax (Exemption) observed that the assessee trust had not filed its return of income as required under section 139(4A) of the Act. The Assessing Officer (AO) had accepted the returned income after reopening the case and issuing a notice under section 148. The Commissioner found the AO's order erroneous and prejudicial to revenue as the trust had not filed the original return within the due date and the audit report on time, making it ineligible for exemption under sections 11 and 12 of the Act. The Commissioner issued a show cause notice, and the assessee cited a decision by the ITAT, Delhi, but the Commissioner held that the amendment was clarificatory and not binding in this case, leading to the order under section 263.

The assessee challenged the Commissioner's order before the Tribunal. The Authorized Representative argued that since no return was originally filed, and the AO did not make any additions to the income declared in the return filed under section 148, the order was not erroneous. The insertion of clause (ba) in section 12A by the Finance Act, 2017, applicable from AY 2018-19, made filing under section 139(4A) not mandatory for AY 2017-18. The Senior Departmental Representative supported the Commissioner's order.

After considering the arguments, the Tribunal found that the trust had not filed its return under section 139 but only after receiving a notice under section 148. The Commissioner's reliance on sections 139(4A) and 12A(1)(b) was noted, but the Tribunal held that the AO's acceptance of the returned income was not erroneous. The Tribunal emphasized that the amendment introducing clause (ba) in section 12A was effective from AY 2018-19 and not applicable to AY 2017-18. Referring to the ITAT, Delhi's decision in a similar case, the Tribunal concluded that the AO was correct in accepting the return filed under section 148 and directed the AO to compute income in line with section 11 of the Act.

In line with the above analysis, the Tribunal set aside the Commissioner's order under section 263, stating that the AO's order was not erroneous or prejudicial to revenue. The Tribunal held that clause (ba) of section 12A was not applicable for AY 2017-18, and therefore, the order was not subject to revision under section 263. Consequently, the Tribunal allowed the appeal of the assessee.

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