Exemption under Section 10(23C)(iiiae) upheld where audited accounts and bank records substantiate charitable medical expenditure.

Validity of assessment notices and faceless assessment procedure was examined and the Tribunal found no demonstrable prejudice from any procedural defect, so the assessment proceedings were not vitiated. On entitlement to exemption, the Tribunal applied the principle that an institution providing palliative medical care with receipts below the prescribed threshold and maintaining audited books and bank evidence qualifies for exemption under section 10(23C)(iiiae); consequential addition was deleted and the assessee's claim allowed.

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Issues: (i) Whether the assessment proceedings are invalid for issuance of defective/incorrect notices and non-compliance with faceless assessment procedure; (ii) Whether the assessee is entitled to exemption under section 10(23C)(iiiae) of the Income-tax Act, 1961 on the facts and evidence produced.

Issue (i): Validity of assessment proceedings challenged on grounds of issuance of invalid notices and breach of faceless assessment procedure.

Analysis: The issue concerns whether notices issued during assessment vitiate the proceedings. The record shows selection for scrutiny on account of claimed exemption and the procedural history does not demonstrate that the defect in notice issuance affected the substantive determination. The faceless assessment framework and the sequence of notices were examined in light of the objections raised, including the alleged issuance of notice under section 143(2) by an incorrect authority. The material placed before the Tribunal does not establish that the procedural irregularity, if any, resulted in prejudice to the assessee or nullified the assessment process.

Conclusion: The assessment proceedings are not vitiated on the grounds raised and the challenge to notices/faceless procedure is rejected.

Issue (ii): Entitlement to exemption under section 10(23C)(iiiae) of the Income-tax Act, 1961 based on books, audit and bank records and the applicability of the first proviso to section 10(23C).

Analysis: The facts show that the institution carries out palliative medical care and qualifies as an institution for reception and treatment of persons requiring medical attention. The assessee's receipts fall below the prescribed threshold and the first proviso to section 10(23C) does not mandate registration in such circumstances. The assessee maintained regular books of account, furnished audited financial statements and tax audit report, and produced bank statements supporting salary and other charitable expenditures. The asserted disallowance for lack of cogent and reliable evidence was examined against the documentary record; the audited accounts and bank records provide verifiable proof of expenditure and charitable application of funds.

Conclusion: The assessee is entitled to exemption under section 10(23C)(iiiae) of the Income-tax Act, 1961; the addition of Rs. 13,92,820 is deleted and the grounds for disallowance are allowed in favour of the assessee.

Final Conclusion: The appeal is allowed insofar as the legal objections concerning notice validity and entitlement to exemption are upheld in favour of the assessee, rendering the remaining grounds academic and infructuous.

Ratio Decidendi: Where an institution carrying out medical charitable activities has annual receipts below the prescribed threshold, and maintains audited books along with bank evidence substantiating charitable expenditure, exemption under section 10(23C)(iiiae) of the Income-tax Act, 1961 applies and any addition made for want of cogent evidence is liable to be deleted.

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