Exemption under Section 11 cannot be claimed for the first time in Section 148 returns.

ORDER

Laliet Kumar, Judicial Member.- These three appeals have been preferred by the Revenue against separate orders passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi for assessment years 2011-12 to 2013-14, whereby the Ld. CIT(A) allowed the claim of exemption of the assessee under sections 11 and 12 of the Income Tax Act, 1961 and deleted the additions made by the Assessing Officer.

2. Since common issues are involved in all the appeals, the same were heard together and are being disposed of by this consolidated order for the sake of convenience.

3. We shall take up the appeal of Revenue in ITA No.619/Chd/2022 for Assessment Year 2011-12 as a lead case for discussion wherein the Revenue has raised the following grounds:

“1. Whether the Ld. CIT(A) was right in ignoring the fact that the assessee was not entitled to exemption under section 10(23C)(iiiab) of the Act.

2. Whether the Ld. CIT(A) was right in holding that the assessee was not required to file its return of income under section 139.

3. Whether the CIT(A) was right in holding that a return of income filed u/s 147 in response to a notice u/s 148 was adequate and proper substitute for filing a return of income u/s 139 of the Act.

4. Whether the Ld. CIT(A) was right in ignoring the applicability of section 119(2)(b) of the Act in the matter of non-filing of return of income.”

4. Brief facts of the case are that the assessee, namely Punjab State Board of Technical Education & Industrial Training, Chandigarh, is a statutory educational body established and controlled by the Government of Punjab for the development and regulation of technical education in the State of Punjab. Information was received by the department through AIR/CIB that during the relevant previous years the assessee had made substantial cash deposits and time deposits in bank accounts, whereas no return of income had been filed for the relevant assessment years. Accordingly, after recording reasons to believe that income chargeable to tax had escaped assessment, proceedings under section 147 of the Act were initiated and notices under section 148 were issued.

4.1 In response to notices under section 148 of the Act, the assessee filed returns of income. Initially, the assessee claimed exemption under section 10(23C)(iiiab) of the Act. Subsequently, during reassessment proceedings, the assessee altered its stand and claimed exemption under sections 11 and 12 of the Act on the basis of a registration granted under section 12AA vide order dated 23.09.2015, with effect from the assessment year 2015-16.

4.2 During reassessment proceedings, the Assessing Officer observed that admittedly the assessee had not filed its return of income under section 139(1) read with section 139(4A) of the Act within the prescribed due date for the relevant assessment years. The Assessing Officer further observed that audit report in Form No.10B and Form No.10 had also not been furnished within the prescribed statutory time. The Assessing Officer was therefore of the view that the mandatory conditions prescribed for claiming exemption under sections 11 and 12 of the Act had not been fulfilled by the assessee. Accordingly, exemption under sections 11 and 12 was denied and reassessment orders were passed under section 147 read with section 143(3) of the Act.

5. Against the order of the AO the assessee went in appeal before the Ld. CIT(A). The assessee contended before the Ld. CIT(A) that once return of income had been filed in response to notice under section 148, the same was to be treated as a return filed under section 139 of the Act and therefore the exemption claim under sections 11 and 12 was required to be examined on merits. It was further submitted that the audit report and Form No. 10 had been furnished before the completion of the reassessment proceedings, and therefore, substantial compliance had been made. Reliance was placed upon various judicial precedents including decisions in the cases of CIT v. South Eastern Railway Employees Co-op Credit Society Ltd [2017] 390 ITR 524 (Calcutta),Karnataka State Co-operative Apex Bank v. Dy. CIT (Karnataka)/325 CTR 212(Karnataka High Court),Raj Kumar Chawla v. ITO [2005] 1 SOT 934 (Delhi),CIT v. Sakal Relief Fund  (Bombay)/152 DTR 89 (Bombay High Court), Prem Chand Markanda SD College for Women v. ACIT (E) [2024] 460 ITR 495 (SC) and various other decisions.

5.1 The assessee further contended that section 12A(1)(ba), mandating filing of return within the due date prescribed under section 139(1), was inserted only by the Finance Act, 2017, with effect from 01.04.2018 and therefore, the same was prospective in nature and could not be applied to deny exemption for the years under consideration. It was also argued that the second proviso to section 12A(2) being retrospective in operation extended the benefit of registration under section 12AA to earlier assessment years where proceedings were pending.

5.2 The Ld. CIT(A), after considering the submissions of the assessee, accepted the claim of the assessee and held that the return filed in response to notice under section 148 was to be treated as a return filed under section 139 of the Act and therefore exemption under sections 11 and 12 could not be denied merely on account of non-filing of original return under section 139. The additions made by the Assessing Officer were accordingly deleted.

6. Aggrieved against the aforesaid findings of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.

7. The Ld. AR appearing on behalf of the assessee strongly supported the orders passed by the Ld. CIT(A). The Ld. AR submitted that the assessee being a statutory educational body established by the Government of Punjab was otherwise eligible for exemption under sections 11 and 12 of the Act and the denial of exemption merely on technical grounds was unjustified. It was submitted that once the statute itself provides that a return filed pursuant to notice under section 148 assumes the character of a return filed under section 139, the claim of exemption made therein could not be rejected merely because original return under section 139 had not been filed.

7.1 The Ld. AR further submitted that there was no statutory embargo during the relevant assessment years akin to section 12A(1)(ba) or section 80AC disentitling the assessee from claiming exemption merely because a return under section 139 had not been filed within the prescribed due date. It was argued that reassessment proceedings initiated under section 147/148 are proceedings for the determination of the correct taxable income and therefore once reassessment is validly initiated, all claims directly connected with the computation of income, including exemption and deduction claims, are required to be examined by the Assessing Officer.

7.2 In support of the aforesaid contentions, the Ld. AR relied upon a compilation of judgments including South Eastern Railway Employees Co-operative Credit Society Ltd. (supra), Chirakkal Service Co-Operative Bank Ltd. Kannur v. CIT [2016]  384 ITR 490 (Kerala),Karnataka State Co-operative Apex Bank (supra), United Educational Society v. Jt. CIT  (Delhi – Trib.), Raj Kumar Chawla(supra), Sakal Relief Fund (supra), CIT v. Shahzadanand Charity Trust [1997] 228 ITR 292 (Punjab & Haryana), CIT v. Punjab Financial Corporation 254 ITR 6 (Punjab & Haryana),Prem Chand Markanda SD College for Women v. ACIT (E)  [2024] 460 ITR 495 (SC),Genius Education Society v. Asstt. CIT 172 ITD 640 (Chandigarh – Trib.) and various other decisions in support of the proposition that return filed under section 148 assumes the character of return under section 139 and that exemption claims are required to be examined on merits.

8. Per contra, the Ld. DR vehemently supported the assessment orders and submitted that the assessee admittedly did not file any return of income under section 139(1)/139(4A) within the prescribed time, and that the assessee sought to raise the claim of exemption only after issuance of notices under section 148 of the Act. According to the Ld. DR, the exemption claim was clearly an afterthought intended to avoid tax liability arising in reassessment proceedings.

8.1 The Ld. DR submitted that reassessment proceedings under section 147/148 are proceedings initiated for the benefit of the Revenue for bringing escaped income to tax and cannot be converted into proceedings enabling the assessee to seek fresh reliefs or claims not made in the original proceedings. Reliance in this regard was placed upon the judgment of the Hon’ble Supreme Court in the case of CIT v. Sun Engineering Works (P.) Ltd. 198 ITR 297 (SC), wherein it was categorically held that reassessment proceedings are not intended to benefit the assessee and the assessee cannot convert reassessment proceedings into review or revision proceedings for claiming fresh reliefs.

8.2 The Ld. DR further submitted that the aforesaid principle has now been elaborately considered and reaffirmed by the Special Bench of the Hyderabad Tribunal in the case of Dy. CIT v. SEW Infrastructure Ltd. 209 ITD 1, wherein after considering the entire statutory scheme of reassessment/search proceedings and the judgment of the Hon’ble Supreme Court in Sun Engineering Works (P.) Ltd. (supra), it was specifically held that proceedings initiated consequent to reopening/search are for the benefit of the Revenue and therefore fresh claims not made in the original return cannot be entertained in such proceedings.

8.3 The Ld. DR further distinguished the various decisions relied upon by the assessee by submitting that none of those judgments dealt with a situation where the assessee had completely failed to file return under section 139 and sought to raise a fresh exemption claim for the first time only after reassessment proceedings had been initiated. It was submitted that the ratio laid down by the Hon’ble Supreme Court in Sun Engineering Works (P.) Ltd. (supra), being binding law declared under Article 141 of the Constitution, would prevail.

8.4 The Ld. DR further submitted that the deeming fiction contained in section 148, treating return filed in response thereto as a return under section 139 is a limited deeming fiction intended only for procedural purposes and cannot be enlarged so as to create substantive rights in favour of the assessee contrary to the scheme of the Act. It was submitted that accepting the argument of the assessee would virtually render otiose the entire statutory framework relating to filing of return within prescribed time.

9. We have heard the rival submissions and carefully perused the material available on record. The core controversy arising for consideration is whether the assessee, having admittedly failed to file returns of income under section 139(1)/139(4A) within the prescribed time, could validly claim exemption under sections 11 and 12 of the Act for the first time in returns filed pursuant to notices issued under section 148 of the Act.

9.1 There is no dispute on the facts that the assessee had not filed any return of income under section 139 of the Act for the years under consideration. It is only after initiation of reassessment proceedings under section 147 and issuance of notices under section 148 that the assessee filed returns and sought to claim exemption under sections 11 and 12 of the Act. Initially, exemption under section 10(23C)(iiiab) was claimed and subsequently the assessee altered its stand and sought exemption under sections 11 and 12 on the strength of registration granted under section 12AA with effect from assessment year 2015-16.

9.2 The principal argument advanced on behalf of the assessee is that once a return is filed in response to notice under section 148, the same assumes the character of a return filed under section 139 and therefore exemption claims are required to be considered on merits. Though the submission appears attractive at first blush, on deeper examination, we are unable to persuade ourselves to accept the same in the peculiar facts of the present case.

9.3 The deeming fiction treating a return filed under section 148 as a return under section 139 cannot be read divorced from the object and scheme of reassessment proceedings. The reassessment jurisdiction under section 147 is a special jurisdiction intended to bring escaped income to tax. The Hon’ble Supreme Court in the case of CIT v. Sun Engineering Works (P.) Ltd. (supra) has authoritatively held that reassessment proceedings are for the benefit of the Revenue and cannot be converted into review proceedings enabling the assessee to raise fresh claims not made in the original proceedings.

9.4 We further find that the Special Bench of the Hyderabad Tribunal in the case of SEW Infrastructure Ltd. (supra), after exhaustive analysis of the statutory scheme and various judicial precedents, including Sun Engineering Works (P.) Ltd. (supra), has categorically held that proceedings initiated consequent to reopening/search are intended for the benefit of the Revenue and therefore fresh claims not made in the original return cannot be entertained in such proceedings. The Special Bench further observed that permitting such claims would defeat the very object of reopening proceedings and render the statutory framework nugatory/otiose.

9.5 The various judicial precedents relied upon by the assessee no doubt support the proposition that reassessment proceedings are intended to determine correct taxable income and that procedural defects relating to filing of Form No.10 or audit reports may not defeat a substantive claim. However, in our considered opinion, those decisions are distinguishable and do not dilute the binding ratio laid down by the Hon’ble Supreme Court in Sun Engineering Works (P.) Ltd. (supra). None of the decisions relied upon by the assessee directly deal with a situation where no return under section 139 had at all been filed, and the assessee sought to originate an entirely fresh exemption claim for the first time only after reassessment proceedings were initiated.

9.6 We also find considerable force in the contention of the Revenue that acceptance of the assessee’s argument would effectively permit an assessee to completely bypass the statutory framework requiring filing of return within the prescribed period and thereafter await reopening proceedings to raise exemption claims at its convenience. Such an interpretation would defeat the discipline contemplated under the Act and render the statutory provisions relating to the filing of returns substantially redundant. In view of the above the Ground No. 1 to 4 of the Revenue appeal are allowed.

9.7 We may point out that the assessee had not filed any cross-appeal seeking any relief.

10. In the result, the present appeal of the Revenue is allowed.

11. Both parties fairly submitted that the facts and circumstances of the other appeal, i.e., ITA Nos. 620 & 621/Chd/2022, are exactly identical to those in ITA No. 619/Chd/2022, and that similar contentions raised therein may be considered. Therefore, our findings and directions given in ITA No. 619/Chd/2022 shall apply mutatis mutandis to the other appeal as well. Accordingly, the same are allowed.

12. In the result, all the above appeals are allowed.