Chhattisgarh Rajya Open School Madhyamik Sikshamandal, Pension Bada, Raipur, Chhattisgarh 492-001 v. The Deputy Commissioner Of Income Tax, Exemptioncircle, Raipur, Chhattisgarh

(Tax Case No.54/2024) Digitallysigned bySISTASISTASOMAYAJULUSOMAYAJULUDate:2025.06.1617:34:49+0530HIGH COURT OF CHHATTISGARH AT BILASPUR 2025:CGHC:23005-DB AFR TAXC No. 54 of 2024 {Arising out of order dated 7-9-2023 passed by theIncome Tax Appellate Tribunal, Raipur Bench, Raipurin ITA No.02/RPR/2020} Chhattisgarh Rajya Open School Madhyamik SikshaMandal, Pension Bada, Raipur, Chhattisgarh 492-001.Pan : ... Appellant versus The Deputy Commissioner of Income Tax, ExemptionCircle, Raipur, Chhattisgarh. ... Respondent For Appellant : Mr. S. Rajeswara Rao, Advocate. For Respondent : Mr. Ajay Kumrani, Advocate on behalfof Mr. Amit Chaudhari, Advocate. Division Bench: - Hon'ble Shri Sanjay K. Agrawal and Hon'ble Shri Deepak Kumar Tiwari, JJ. Order On Board (10/06/2025) Sanjay K. Agrawal, J. 1.Invoking the appellate jurisdiction of this Court under Section 260A of the Income Tax Act, 1961, the assessee/appellant has preferred this appeal (Tax Case No.54/2024) questioning the judgment and order dated 7-9-2023passed by the Income Tax Appellate Tribunal,Raipur Bench, Raipur in ITA No.02/RPR/ 2020,which was admitted for hearing on 16-4-2025 byformulating the following substantial question oflaw: - “Whether the Income Tax Appellate Tribunal isjustified in dismissing the appeal byignoring the order granting approval underSection 12 AA of the IT Act which was passedon 14.07.2023 during the pendency of appealby holding that first proviso to sub-section(2) of Section 12 A is not attracted andfurther ignoring the fact that appeal wasalready pending before it (ITAT), byrecording a finding which is perverse to therecord?” 2.The aforesaid question of law arises forconsideration on the following factual backdrop:-consideration on the following factual backdrop:- 3.The appellant/assessee Society was establishedwith the direction of the Education Department,State of Chhattisgarh on 10-1-2008. The assesseefiled its return for the assessment year 2016-17on 31-3-2018 declaring the income as ₹ NIL. On30-9-2018, the case of the assessee Society wasselected for scrutiny assessment under Section143(2) of the Income Tax Act, 1961 (for short,‘the IT Act’). In the meanwhile, the appellant (Tax Case No.54/2024) herein filed an application for registrationunder Section 12AA of the IT Act in prescribedform claiming exemption on the ground that it isan education institution and involved incharitable purposes which was eventually rejectedon 29-4-2019 against which it has preferred anappeal and ultimately, on second round, on 14-7-2023, the Commissioner of Income Tax (Exemption)granted approval under Section 12AA of the IT Actto the appellant with effect from 1-4-2019.However, the scrutiny assessment was completedand the Assessing Officer declined the assessee’sclaim for exemption of the excess of income overexpenditure of ₹ 5.24 crores (approx.) underSection 10(23C)(iiiab) of the IT Act and passedassessment order on 12-12-2018 against which theassessee preferred appeal before the Commissionerof Income Tax (Appeals) which was ultimatelyrejected on 17-10-2019. The assessee preferredappeal before the Income Tax Appellate Tribunal(ITAT) questioning the order of the AssessingOfficer as affirmed by the Commissioner of IncomeTax (Appeals) and an additional ground was taken (Tax Case No.54/2024) that approval under Section 12AA of the IT Acthas been granted by the Commissioner of IncomeTax (Exemption) on 14-7-2023 and therefore byvirtue of first proviso to Section 12A(2) of theIT Act, exemption would apply retrospectively. (Tax Case No.54/2024) that approval under Section 12AA of the IT Acthas been granted by the Commissioner of IncomeTax (Exemption) on 14-7-2023 and therefore byvirtue of first proviso to Section 12A(2) of theIT Act, exemption would apply retrospectively. 4.The learned ITAT by the impugned order rejectedthe appeal holding that first proviso to Section12A(2) of the IT Act has wrongly been construed,as the assessment proceeding was not pendingbefore the Assessing Officer on the date ofregistration i.e. 14-7-2023 and accordinglyproceeded to dismiss the appeal which is soughtto be challenged by filing this appeal under 260Aof the IT Act.the appeal holding that first proviso to Section12A(2) of the IT Act has wrongly been construed,as the assessment proceeding was not pendingbefore the Assessing Officer on the date ofregistration i.e. 14-7-2023 and accordinglyproceeded to dismiss the appeal which is soughtto be challenged by filing this appeal under 260Aof the IT Act. 5.Mr. S. Rajeswara Rao, learned counsel appearingfor the appellant/assessee, would submit thatfirst proviso to Section 12A(2) of the IT Actwould also apply once appeal against theassessment proceeding is completed and order iseven affirmed and appeal is pending before theITAT, as the said amendment to first proviso toSection 12A(2) also applies to the appealproceeding and therefore the learned ITAT has (Tax Case No.54/2024) committed grave legal error in holding that itwould not apply to the appeal proceeding andfirst proviso to Section 12A(2) would confine tothe appeal proceeding before the Commissioner ofIncome Tax (Appeals) from the Assessing Officer,therefore, the impugned order is liable to be setaside. He would rely upon the decision of theRajasthan High Court in the matter ofCommissioner of Income-tax (Exemptions) v. ShreeShyam Mandir Committee1 and the decision of theKarnataka High Court in the matter ofCommissioner of Income-tax (Exemptions) andanother v. Karnataka State Students Welfare Fund2to buttress his submission. As such, the appealdeserves to be allowed. 6.Mr. Ajay Kumrani, learned counsel appearing forthe respondent/Revenue, would support theimpugned order and submit that the learned ITAThas taken the correct view of the matter, as theLegislature has clearly confined the benefit tothe assessee as the assessment proceedings arepending before the Assessing Officer on the date 12017 SCC OnLine Raj 4367 22021 SCC OnLine Kar 15982 (Tax Case No.54/2024) of registration and in the instant case, theassessment proceeding had already completed on12-12-2018 and appeal has also been dismissed bythe CIT (Appeals) on 17-10-2019, and only appealwas pending before the ITAT when the registrationwas granted under Section 12AA of the IT Act on14-7-2023. As such, the learned ITAT has rightlyheld that the benefit of first proviso would notflow to the appellant/assessee and as such, theappeal deserves to be dismissed. 7.We have heard learned counsel for the parties andconsidered their rival submissions made herein-above and also went through the record withutmost circumspection.considered their rival submissions made herein-above and also went through the record withutmost circumspection. 8.It is not in dispute that assessment proceedingunder Section 143(2) of the IT Act wasadjudicated by the Assessing Officer on 12-12-2018 and on that day, though the appellant/assessee made application under Section 12AA ofthe IT Act, it was rejected on 29-7-2019 andafter assessment by the Assessing Officer, onsecond round, ultimately, exemption was grantedon 14-7-2023 with effect from 1-4-2019 and (Tax Case No.54/2024) 7.We have heard learned counsel for the parties andconsidered their rival submissions made herein-above and also went through the record withutmost circumspection.considered their rival submissions made herein-above and also went through the record withutmost circumspection. 8.It is not in dispute that assessment proceedingunder Section 143(2) of the IT Act wasadjudicated by the Assessing Officer on 12-12-2018 and on that day, though the appellant/assessee made application under Section 12AA ofthe IT Act, it was rejected on 29-7-2019 andafter assessment by the Assessing Officer, onsecond round, ultimately, exemption was grantedon 14-7-2023 with effect from 1-4-2019 and (Tax Case No.54/2024) thereafter, assessment proceeding was subjectedto appeal by the CIT (Appeals) and the CIT(Appeals) also dismissed the appeal on 17-10-2019, as such, on the date of registration i.e.on 14-7-2023, appeal under Section 253 of the ITAct was pending before the ITAT, but the ITATrejected the contention of the appellant hereinholding that first proviso to Section 12A(2) ofthe IT Act would not be applicable as theassessment proceedings were not pending as on thedate of registration and therefore first provisoto Section 12A(2) would not be applicable to theappellant herein. 9.In order to decide the substantial question oflaw, it would be appropriate to notice firstproviso to Section 12A(2) of the IT Act, whichstates as under: - “Providedfurtherthatwhereregistration has been granted to the trust orinstitution under section 12AA or section12AB, then the provisions of sections 11 & 12shall apply in respect of any income derivedfrom property held under trust of anyassessment year preceding the aforesaidassessment year, for which assessmentproceedings are pending before the AssessingOfficer as on the date of such registrationand the objects and activities of such trust (Tax Case No.54/2024) or institution remain the same for suchpreceding assessment year.” First proviso to Section 12A(2) of the IT Act hasbeen inserted with effect from 1-10-2014.Section 12A(2) of the IT Act was brought into thestatute book by the Legislature to preventgenuine hardship that could be caused on theassessee due to non-registration under Section12AA of the IT Act and accordingly, the provisosto Section 12A(2) is to be construed asretrospective in nature. 10.At this stage, it would also be appropriate tonotice the CBDT Circular No.01/2015 dated 21-5-2015 which has been made applicable with effectfrom 1-10-2014 in order to remove hardships tocharitable organisations due to non-applicationfor registration for the period prior to the yearof registration, relevant portion of which statesas under: - “8.2 Non-application of registration for theperiod prior to the year of registrationcaused genuine hardship to charitableorganisations. Due to absence ofregistration, tax liability is fastened eventhough they may otherwise be eligible forexemption and fulfill other substantiveconditions. However, the power of (Tax Case No.54/2024) condonation of delay in seeking registrationwas not available.” 10.At this stage, it would also be appropriate tonotice the CBDT Circular No.01/2015 dated 21-5-2015 which has been made applicable with effectfrom 1-10-2014 in order to remove hardships tocharitable organisations due to non-applicationfor registration for the period prior to the yearof registration, relevant portion of which statesas under: - “8.2 Non-application of registration for theperiod prior to the year of registrationcaused genuine hardship to charitableorganisations. Due to absence ofregistration, tax liability is fastened eventhough they may otherwise be eligible forexemption and fulfill other substantiveconditions. However, the power of (Tax Case No.54/2024) condonation of delay in seeking registrationwas not available.” 11. A careful perusal of the aforesaid circular wouldshow that it mandates that registration will havethe effect for the period prior to the year ofregistration or in respect of which theassessment proceedings are pending and theprovisions of Section 12A of the IT Act entailedunintended consequences of non-application ofregistration for the period prior to the year ofregistration and, thereby, non-grant of exemptionunder Sections 11 and 12 up to grant ofregistration. This position was also recognisedby the Central Board of Direct Taxes whileissuing the Explanatory Notes to the provisionsof the Finance (No.2) Act, 2014, vide CentralBoard of Direct Taxes Circular No.1 of 2015,dated January 21, 2015. It is, thus, a curativeproviso, which is but merely declaratory of theprevious law. It has, by removal of thehardship, rendered the procedure more relief-oriented. It adequately complies with thenatural justice principle of fairness to all.Hence, it has to be presumed and construed as (Tax Case No.54/2024) retrospective in nature, in order to give thesection a purposive interpretation. {See ShreeShyam Mandir Committee’scase (supra), paragraph26.} 12. In the instant case, admittedly, on the date ofregistration i.e. 14-7-2023, the assessmentproceeding which has been affirmed by theCommissioner of Income Tax (Appeals), was pendingbefore the ITAT, which came to be dismissed on 7-9-2023. The question for consideration would be,whether the assessment proceeding as stated infirst proviso to Section 12A(2) of the IT Act canbe taken as pending appeal, in other words,whether the assessment proceeding pending inappeal can be taken to be the proceeding pendingbefore the Assessing Officer? Since appeal waspending before the ITAT under Section 253 of theIT Act, though it was second appeal, but in thatappeal, substantial question of law was notrequired to be formulated which was required tobe formulated in appeal under Section 260A of theIT Act, as such, that appeal pending before theITAT against the assessment order affirmed by the (Tax Case No.54/2024) CIT (Appeals) is the continuation of originalassessment proceedings by the Assessing Officer.13.It is a settled position of law that an appeal isa continuation of the proceedings of the originalcourt. Ordinarily, the appellate jurisdictioninvolves a rehearing on law as well as on factand is invoked by an aggrieved person. The firstappeal is a valuable right of the appellant andtherein all questions of fact and law decided bythe trial court are open for reconsideration.Therefore, the first appellate court is requiredto address itself to all the issues and decidethe case by giving reasons. The court of firstappeal must record its findings only afterdealing with all issues of law as well as factand with the evidence, oral as well asdocumentary, led by the parties. The judgment ofthe first appellate court must display consciousapplication of mind and record findings supportedby reasons on all issues and contentions [see:Santosh Hazari v. Purushottam Tiwari3 followed in4Madhukar v. Sangram, B.M. Narayana Gowda v. 3(2001) 3 SCC 179 4(2001) 4 SCC 756 3(2001) 3 SCC 179 4(2001) 4 SCC 756 (Tax Case No.54/2024) Shanthamma5, H.K.N. Swami v. Irshad Basith6 andSri Raja Lakshmi Dyeing Works v. RangaswamyChettiar7]. 14.It is held that appeal pending before the ITATagainst the order of the CIT (Appeals) affirmingthe order of the Assessing Officer is thecontinuation of the original proceedings of theAssessing Officer and thus, the assessmentproceeding in appeal pending before the appellateCourt i.e. ITAT is deemed to be the assessmentproceeding before the Assessing Officer withinthe meaning of first proviso to Section 12A(2) ofthe IT Act and we accordingly hold that appealproceedings pending before the ITAT are deemed tobe the assessment proceeding before the AssessingOfficer within the meaning of Section 12A of theIT Act. The impugned order so passed after theeffective date of grant of registration andsubsequent grant of registration on 14-7-2023operates retrospectively for all relevant yearsin the present case, assessment year 2016-17,though registration was granted with effect from 5(2011) 15 SCC 476 6(2005) 10 SCC 243 7(1980) 4 SCC 259 (Tax Case No.54/2024) 1-4-2019, as we find that the object of the appellant Society is charitable in nature withinthe meaning of Section 12A(2) of the IT Act andon which there is absolutely no dispute.Accordingly, we are unable to sustain theimpugned order and set aside the same. Theappellant Society is entitled for exemption underSections 11 & 12 of the IT Act. The AssessingOfficer is directed to pas consequential order asstated above for the assessment year 2016-17,expeditiously. 15.The substantial question of law is answered infavour of the assessee and against the Revenue.favour of the assessee and against the Revenue. 16.The tax appeal stands allowed. No order as to cost(s). Sd/- Sd/- (Sanjay K. Agrawal) (Deepak Kumar Tiwari)JUDGEJUDGE Soma