Approved charitable exemption claim wrongly filed u/s10(46) during s.143(1) processing; exemption u/s10(23C)(iv) upheld

Whether an assessee, already approved for exemption under s.10(23C)(iv) for the relevant block of years, could be denied exemption at processing under s.143(1) merely because it mistakenly claimed exemption under s.10(46). The Tribunal held that an inadvertent, bona fide error in selecting the exemption provision cannot defeat a legitimate statutory claim, relying on the principle that omission or wrong claim in the return can be corrected where entitlement exists in law, and noting that approval under s.10(23C)(iv) was in force. Accordingly, the denial of exemption was unsustainable and the appellate order granting exemption under s.10(23C)(iv) was upheld; the Revenue's appeal was dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether the appellate authority and the Tribunal could allow exemption under section 10(23C)(iv) for the relevant year when the return had claimed exemption under section 10(46) and the processing under section 143(1) had denied the claim as filed.

2. Whether an inadvertent claim under a wrong exemption provision in the return, despite the assessee holding a valid approval applicable to the relevant year under section 10(23C)(iv), could justify denial of the legitimate exemption and sustain the adjustment/addition made at processing stage.

3. Whether, after dismissal of the Revenue's appeal on merits, the assessee's cross objection required adjudication or became infructuous.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Allowability of section 10(23C)(iv) exemption at appellate stage though not claimed in the return

Legal framework (as discussed in the judgment): The Court considered the claim of exemption under section 10(23C)(iv) in the context of the return having claimed section 10(46), the denial at processing stage under section 143(1), and the existence of an approval order in Form 10AC granting approval under section 10(23C)(iv) covering the relevant assessment year.

Interpretation and reasoning: The Court noted that the assessee had claimed exemption under section 10(46) in the return, which was denied at processing. In appeal, the appellate authority allowed exemption under section 10(23C)(iv) after finding that the assessee had obtained approval dated 07.10.2023 valid for assessment years 2022-23 to 2026-27 and that the wrong section had been selected in the return. The Court agreed with this approach and applied the principle that a legitimate exemption should not be denied merely due to a mistake in the return, particularly when the approval covering the relevant year existed on record. The Court treated the wrong-section claim as an inadvertent error not warranting denial of the lawful exemption.

Conclusion: The Court upheld the appellate authority's allowance of exemption under section 10(23C)(iv) for the relevant year, notwithstanding that the return had claimed exemption under section 10(46).

Issue 2: Whether the processing-stage adjustment could stand despite applicable section 10(23C)(iv) approval; effect of "inadvertent error"

Legal framework (as discussed in the judgment): The Court relied on its consideration of the approval under section 10(23C)(iv) applicable to the year and the approach that tax administration should not deny lawful relief due to taxpayer mistake, as reflected in the reasoning adopted from judicial precedent referred to and applied by the Court. The Court also took note that the approval order itself stated that approval was granted for the specified assessment years, subject to conditions.

Interpretation and reasoning: The Court found it undisputed that the assessee had been granted approval under section 10(23C)(iv) effective for the relevant assessment year. Against that factual foundation, the Court held that denial of exemption merely because the return mentioned section 10(46) instead of section 10(23C)(iv) would unjustly deprive the assessee of a legitimate claim. The Court accepted the appellate authority's finding that the claim under the wrong section was inadvertent and emphasized that such error should not override substantive eligibility supported by the approval covering the year. Consequently, the Court found no infirmity in deleting the processing-stage addition/adjustment.

Conclusion: The Court dismissed the Revenue's challenge and sustained deletion of the adjustment/addition, holding that the assessee could not be denied section 10(23C)(iv) exemption solely due to an inadvertent wrong-section claim in the return when valid approval covered the year.

Issue 3: Disposition of the cross objection after dismissal of the Revenue's appeal

Legal framework (as discussed in the judgment): The Court addressed the cross objection only to the extent necessary in light of the outcome of the Revenue's appeal.

Interpretation and reasoning: Since the Court upheld the appellate order granting exemption and dismissed the Revenue's appeal, it held that the assessee's cross objection did not survive for adjudication on merits and had become infructuous.

Conclusion: The cross objection was dismissed as infructuous.

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