2025 (8) TMI 957 - AT - Income Tax

Intimation under s.143(1) quashed for denying 30-day response period; gross receipts treated as income without fair opportunity under s.10(23C)(iiiac)

The Rotary Charitable Trust Versus ITO Exemption Ward, Bengaluru

The Rotary Charitable Trust Versus ITO Exemption Ward, Bengaluru - TMI 1. ISSUES PRESENTED and CONSIDERED Whether the intimation issued under section 143(1) of the Income Tax Act, 1961, without providing the mandatory 30-day period for response, is valid or violates principles of natural justice. Whether exemption claimed under section 10(23C)(iiiad) of the Act was correctly denied due to non-filing of valid audit report in Form 10B within the prescribed time as required under section 12A(1)(b). Whether the assessing authority or the Centralized Processing Centre (CPC) erred in treating the entire gross receipts as taxable income due to rejection of exemption claim. Whether the appellant was required to file audit report for claiming exemption under section 10(23C)(iiiad) or 10(23C)(iiiac), and the applicability of sections 11 and 12 to the appellant's case. Whether the assessing officer should have assisted the appellant in making the correct exemption claim instead of taking advantage of the appellant's ignorance. Whether tax liability and interest under sections 234A, 234B, and 234C are justified given the appellant's contentions on exemption and assessment. Whether consent can confer jurisdiction in the context of the appellant's liability and assessment. Whether the appellant's additional grounds regarding the procedural compliance by CPC in making adjustments under section 143(1) are admissible and relevant. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Intimation under Section 143(1) without Providing Mandatory 30-Day Period Relevant legal framework and precedents: Section 143(1)(a) of the Income Tax Act mandates that no adjustments shall be made unless an intimation is given to the assessee, allowing a minimum of 30 days to respond before making any adjustment. The 1st proviso requires issuance of intimation, and the 2nd proviso mandates consideration of the assessee's response within 30 days before making adjustments. Principles of natural justice require adequate opportunity to be heard. Court's interpretation and reasoning: The CPC issued a notice dated 26/12/2023 seeking information/clarification and clearly stated that the assessee had 30 days to respond. However, the intimation under section 143(1) was passed on 29/12/2023, only two days later, without awaiting the expiry of the 30-day period or considering any response. Key evidence and findings: Notice dated 26/12/2023 specifying 30 days for response; intimation dated 29/12/2023 treating gross receipts as income; absence of any response from the assessee within the 30-day window; no consideration of the response by CPC. Application of law to facts: The premature issuance of intimation violated the mandatory procedural requirement under section 143(1)(a) and the principles of natural justice by denying the assessee adequate opportunity to respond. Treatment of competing arguments: The Revenue did not dispute the timeline but relied on the intimation's correctness. The Court emphasized the mandatory nature of the 30-day period and its essential role in due process. Conclusions: The intimation under section 143(1) issued on 29/12/2023 is invalid and vitiated due to non-compliance with the mandatory 30-day response period. This procedural lapse alone suffices to quash the intimation without adjudicating other grounds. Issue 2: Denial of Exemption under Section 10(23C)(iiiad) due to Non-Filing of Valid Audit Report in Form 10B Relevant legal framework and precedents: Section 12A(1)(b) requires a charitable trust to furnish a valid audit report in Form 10B within the prescribed time to claim exemption under section 10(23C)(iiiad). The twin conditions for exemption are timely filing of return and audit report. Section 11 and 12 provisions govern income from property held for charitable purposes. Court's interpretation and reasoning: The CIT(A) and assessing officer held that the appellant failed to file the audit report within the prescribed time, and the return of income was belatedly filed for AY 2020-21. Consequently, exemption claim was disallowed. The appellant's claim of inadvertent misclassification of exemption under 10(23C)(iiiac) instead of 10(23C)(iiiad) was noted but not accepted as a ground to allow exemption without compliance. Key evidence and findings: Absence of valid e-filed Form 10B within due date; belated filing of return; claim of exemption under incorrect section; no waiver or extension of time for audit report filing. Application of law to facts: The appellant did not meet the mandatory conditions for exemption under section 10(23C)(iiiad) and hence was not entitled to exemption. The misclassification of exemption section did not absolve the appellant from compliance requirements. Treatment of competing arguments: The appellant argued that sections 11 and 12 did not apply and that audit report filing was not required for exemption under 10(23C)(iiiad). The Court rejected this, affirming the statutory requirement of audit report filing. Conclusions: The denial of exemption under section 10(23C)(iiiad) on account of non-filing of audit report and belated return is upheld on merits. Issue 3: Treatment of Entire Gross Receipts as Taxable Income Relevant legal framework and precedents: Income tax is levied on total income computed after allowable deductions and exemptions. Section 143(1) permits adjustments if exemption claims are invalid or unsupported. Court's interpretation and reasoning: The CPC treated the entire gross receipts as income due to disallowance of exemption claim. However, this treatment was challenged as unjustified since the net income after expenses was low and exemption claim was pending adjudication. Key evidence and findings: Gross receipts Rs. 1,61,14,686/-; expenses claimed Rs. 1,58,85,006/-; net income Rs. 2,29,680/-; exemption claim rejected due to procedural non-compliance. Application of law to facts: Given the invalid exemption claim, the CPC added gross receipts as income. However, since the intimation itself was quashed for procedural non-compliance, this addition cannot stand. Treatment of competing arguments: The appellant contended tax should be on net income, not gross receipts. The Court did not decide on merits due to quashing of intimation on procedural grounds. Conclusions: The addition of gross receipts as income is set aside due to invalid intimation; merits of income computation remain open. Issue 4: Requirement of Audit Report for Claiming Exemption under Section 10(23C)(iiiad) and Applicability of Sections 11 and 12 Relevant legal framework and precedents: Section 10(23C)(iiiad) grants exemption to educational institutions subject to audit report filing under section 12A(1)(b). Sections 11 and 12 apply to income from property held for charitable purposes. Court's interpretation and reasoning: The appellant argued no audit report was required and sections 11 and 12 did not apply. The Court held that the statutory provisions mandate filing of audit report for exemption and sections 11 and 12 are relevant to charitable trusts. Key evidence and findings: Absence of audit report; statutory provisions; appellant's submissions. Application of law to facts: The appellant failed to comply with statutory audit report filing requirement; hence exemption claim is not maintainable. Treatment of competing arguments: The appellant's contention rejected as contrary to statutory mandate. Conclusions: Audit report filing is mandatory for exemption under section 10(23C)(iiiad); sections 11 and 12 provisions apply. Issue 5: Obligation of Assessing Officer to Assist Assessee in Correct Claim Relevant legal framework and precedents: Assessing officers have a duty to assist taxpayers in making correct claims but cannot waive statutory requirements or allow claims without compliance. Court's interpretation and reasoning: The appellant contended that the assessing officer should have assisted in correcting the exemption claim. The Court noted that while assistance is desirable, statutory compliance cannot be dispensed with on grounds of ignorance. Key evidence and findings: No evidence of assistance provided; statutory provisions require strict compliance. Application of law to facts: The assessing officer's role is limited to ensuring compliance, not to waive or overlook mandatory conditions. Treatment of competing arguments: The appellant's plea of ignorance was not accepted as a ground for relief. Conclusions: No error in assessing officer's refusal to assist in incorrect exemption claim. Issue 6: Liability to Pay Interest under Sections 234A, 234B, and 234C Relevant legal framework and precedents: Interest under these sections arises on default in furnishing return, payment of advance tax, or delay in payment of tax. Court's interpretation and reasoning: The appellant denied liability for interest on the basis that no additional tax was payable as per correct assessment. The Court did not adjudicate this issue due to quashing of the intimation on procedural grounds. Key evidence and findings: Interest levied in impugned order; appellant's denial; absence of final adjudication. Application of law to facts: Interest liability depends on final assessment; pending valid assessment, interest determination is premature. Treatment of competing arguments: Not decided on merits. Conclusions: Interest issues remain open for adjudication after valid assessment. Issue 7: Whether Consent Can Confer Jurisdiction Relevant legal framework and precedents: Jurisdiction to assess or levy tax cannot be conferred by consent; it must arise from statutory provisions. Court's interpretation and reasoning: The appellant raised the settled proposition that consent cannot confer jurisdiction. The Court acknowledged this principle but did not find it decisive in the present facts. Key evidence and findings: No jurisdictional defect found; issue noted but not determinative. Application of law to facts: Jurisdiction was statutory; no consent-based jurisdiction invoked. Treatment of competing arguments: Not central to decision. Conclusions: Jurisdiction issue not material to the outcome. Issue 8: Admission and Adjudication of Additional Grounds Regarding CPC's Procedural Compliance Relevant legal framework and precedents: Additional grounds involving pure questions of law and bonafide action by assessee can be admitted for adjudication. Court's interpretation and reasoning: The Court admitted additional grounds challenging CPC's failure to follow mandatory conditions under section 143(1), relying on Supreme Court precedent allowing admission of such grounds. Key evidence and findings: Additional grounds raised; no new facts required; pure legal questions. Application of law to facts: Admission justified; grounds adjudicated accordingly. Treatment of competing arguments: None opposed admission. Conclusions: Additional grounds admitted and formed basis for quashing intimation.